An excepted benefit is not required to meet certain Affordable Care Act requirements, including:
- Coverage of dependents to age 26
- Coverage of dependent students
- Mental Health Parity and Addiction Equity Act
- Women’s Health and Cancer Rights Act
- Newborns and Mothers Health Protection Act
- Patient Protections, Preventive Health Services, and Clinical Trials
So when does a Health Flexible Spending Account (FSA) qualify as an excepted benefit?
A Health FSA is an excepted benefit when it satisfies 1) the maximum benefit and 2) availability conditions. The maximum benefit condition provides that the maximum benefit under a Health FSA to any participant cannot exceed two times the employee’s salary reduction election or if it exceeds the employee’s salary election plus $500. Under the availability condition, other non-excepted coverage must be made available (e.g. major medical) to the participants. Most Health FSAs will qualify as excepted benefits.
The maximum benefit condition is met if the contributions are only employee contributions or if the employer contributions do not exceed the employee contributions. For example, if the employer contributes $700 and the employee contributes $600, the maximum benefit condition would not be met.
The availability condition is met when a major medical plan is made available to employees whether or not they enroll in coverage. As such, simply offering the benefit meets the requirement. Employers should review Health FSA plan documents to ensure employer contributions are properly defined. For additional information, contact your USI consultant.