Employers Take Note, Part Four: Employers Must Report Costs, FSA Distributions Are Limited To Prescribed Drugs In Health Reform

As the House and Senate leadership begin to discuss their differing health care reform proposals, Health Reform Talk continues a series examining health reform provisions that will affect employer-sponsored health plans and would take effect soon after enactment of any legislation. This series will look at features of the legislation already passed in the House (H.R. 3962) and in the Senate (H.R. 3590). These are features likely to survive in final health reform legislation and which will directly affect employers. Today, an employer requirement to report health care costs and a distribution limitation on flexible spending arrangements (FSAs) are discussed.

Health Care Cost Determinations

H.R. 3590: Sec. 9002 requires employers to identify and report the annual cost of employer-sponsored health care coverage. This cost, which excludes salary reduction amounts in an FSA, will be included on an annual W-2 and is to be determined using the cost calculation methods for COBRA continuation of coverage under IRC Sec. 4980B(f)(4).

This provision is effective for taxable years beginning after Dec. 31, 2010.

H.R. 3962: There is no similar provision in the House bill.

Distributions Restricted To Prescribed Drugs, Insulin

H.R. 3590: Sec. 9003 would limit distributions from health savings accounts under IRC Sec. 223, medical savings accounts under IRC Sec. 220, and FSAs and health reimbursement arrangements (HRAs) under IRC Sec. 106 would be limited to prescribed dugs and insulin. Existing law also allows reimbursements for over-the-counter medications.

This provision is effective for taxable years beginning after Dec. 31, 2010.

H.R. 3962: Sec. 531 contains the same limits and the same effective date as the Senate provision.

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