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Health saving account contribution guidance raises concerns

Health saving account contribution guidance raises concerns

WASHINGTON—Employers who contribute to employees' health savings accounts or health reimbursement arrangements may not get full credit for that amount when running a key “actuarial value” test that is part of the health care reform law, federal regulators said in a bulletin.

While the guidance issued last month by the Department of Health and Human Services initially would apply only to employers with 50 or fewer workers as well as to health plans offered to individuals, experts say it could well be extended to all employers.

Under that test that begins in 2014, plans must have an actuarial value of at least 60%. While regulators have yet to entirely define a formula to determine that actuarial value, in general, the value would be the percentage of expected costs for benefits covered by the plan.

For example, if the expected annual cost of individual health coverage offered under an employer's plan were $10,000, and the employer covered $7,000 and employees paid $3,000 in deductibles, copayments and other cost-sharing requirements, the plan would have an actuarial value of 70% and would pass the 60% minimum actuarial value test.

If a plan were to fail the actuarial value test, employees with incomes less than 400% of the federal poverty level would be eligible for premium subsidies to buy coverage in state insurance exchanges. If an eligible employee used the subsidy to buy coverage in an exchange, the employer would be liable for a $3,000 penalty.

While benefit experts say most employer plans would easily pass the 60% actuarial test, certain very high-deductible plans—including plans where employers offset some of the costs employees are exposed to by making contributions to employees' HSAs—might fail the test. Under federal law, the maximum out-of-pocket employee expense, including deductibles, for CDHPs linked to HSAs this year is $6,050 for single coverage and $12,100 for family coverage.

To partially offset those hefty cost-sharing requirements, 75% of employers offering CDHPs linked to HSAs make contributions to employees' CDHPs. The median contribution for employee-only coverage is $500, according to a Mercer L.L.C. survey.

In its recent bulletin, HHS said it is considering excluding a “portion” of an employer's contribution to an HSA or HRA in calculating a plan's actuarial value. That is because, HHS said, only a “portion of these accounts are used towards health in a given year.”

However, experts disagree.

“All employer contributions to an HRA or HSA should count in the year of the contribution because they can all be spent that year,” said Andy Anderson, a partner with Morgan, Lewis & Bockius L.L.P. in Chicago. “To do otherwise will put high-deductible plans at a competitive disadvantage in the marketplace.”

And while the bulletin would apply only to employers with less than 50 employees and plans offered through state insurance exchanges to individuals, benefit experts say regulators may extend it to larger employers. They “are not saying this would only make sense for small employers,” said Rich Stover, principal with Buck Consultants L.L.C. in Secaucus, N.J.