Network Insurance Services, Inc.

Article date: 01/11/2012

New 2013 FSA Limit Requires Plan Amendments in 2012

Health care reform legislation imposed a new, $2,500 limit on annual contributions to health care flexible spending accounts (FSAs). This limit applies to all FSA plans in taxable years beginning after Dec. 31, 2012 -- even plans grandfathered under other provisions of health care reform.

The “taxable year” refers to the employee's taxable year --and in most cases this stipulation means a calendar year. Thus, a calendar year limitation of $2,500 in salary reductions for the health care FSA will become effective Jan. 1, 2013.
 
Changes to Plan Documents

Plans that currently allow a health care FSA election of more than $2,500, must amend plan documents before Jan. 1, 2013, and change employee communications. Non-calendar plans that amend their plans as of Jan. 1, 2013, mid-plan year, may face some unique challenges or situations due to the changes required.

Eliminating Lifetime and Annual Limits on Your Benefits

Under the Affordable Care Act prohibits health plans from putting a lifetime dollar limit on most benefits you receive. The Act also restricts and phases out the annual dollar limits a health plan can place on most of your benefits—and does away with these limits entirely in 2014.

What This Means for You

Before the Affordable Care Act, many health plans set an annual limit—a dollar limit on their yearly spending for your covered benefits. Many plans also set a lifetime limit—a dollar limit on what they would spend for your covered benefits during the entire time you were enrolled in that plan. You were required to pay the cost of all care exceeding those limits.

·            Under the new law, lifetime limits on most benefits are prohibited in any health plan or insurance policy issued or renewed on or after September 23, 2010.

·            The new law restricts and phases out the annual dollar limits that all job-related plans, and those individual health insurance plans issued after March 23, 2010, can put on most covered health benefits. Specifically, the law says that none of these plans can set an annual dollar limit lower than:

o               $750,000—for a plan year or policy year starting on or after September 23, 2010 but before September 23, 2011.

o               $1.25 million—for a plan year or policy year starting on or after September 23, 2011 but before September 23, 2012.

o               $2 million—for a plan year or policy year starting on or after September 23, 2012 but before January 1, 2014.

·            No annual dollar limits are allowed on most covered benefits beginning on January 1, 2014.

Some Important Details

·            Be aware that plans can put an annual dollar limit and a lifetime dollar limit on spending for health care services that are not “essential.”

·            If the new rules apply to your plan, they will affect you as soon as you begin a new plan year or policy year on or after September 23, 2010. (For example, if your policy has a calendar plan year, the new rules would apply to your coverage beginning January 1, 2011).

·            If you have a “grandfathered” individual health insurance policy, your health plan is not required to follow the new rules on annual limits. (A grandfathered individual health insurance policy is a plan that you bought for yourself or your family; that you did not receive through your employer; and that was issued on or before March 23, 2010). If you’re not sure whether your plan is grandfathered, ask your insurance company.

·            The ban on lifetime dollar limits for most covered benefits applies to every health plan—whether you buy coverage for yourself or your family, or you receive coverage through your employer.

·            Some plans may be eligible for a waiver from the rules concerning annual dollar limits, if complying with the limit would mean a significant decrease in your benefits coverage or a significant increase in your premiums.

For More Information

The landmark Patient Protection and Affordable Care Act - Grandfathered Coverage Amendment

Learn more background about this provision.

Read the regulation (detailed legislative information).