For years, politicians, policy wonks, and various health insurance
stakeholders have debated the merits of how the tax code encourages employer
provided coverage, yet seemingly discourages the individual purchase of
coverage outside of the workplace.
The
primary example of this confounding situation is the fact that health insurance
is tax deductible to an employer, yet not so to an individual who purchases coverage
on their own, outside of the workplace.
There are numerous tax incentives and benefits available to individuals
who purchase health insurance, but virtually all of these incentives are
attached to the purchase of employer based, group coverage. With the relatively recent introduction of so
called “defined contribution” health plan offerings to the benefits world (see
Walgreens, Sears, Darden Restaurants, etc.), you can expect more pressure on
the federal government to expand and change the current tax code.
Interestingly, the IRS recently issued
guidance (Notice 2013-54) affecting two (2) tax advantaged spending accounts –
Flexible Spending Accounts (FSAs) and Health Reimbursement Arrangements (HRAs).
(See http://www.irs.gov/pub/irs-drop/n-13-54.pdf)
The guidance places strict requirements
on the use of these tax advantaged savings arrangements in conjunction with
health insurance plans. In short, the
guidance ties these arrangements to GROUP HEALTH INSURANCE PLANS, and indirectly discourages the establishment of INDIVIDUAL HEALTH INSURANCE
PLANS.
Key provisions of this
guidance affecting HRAs and FSAs follow:
