Flexible Spending Account (FSA) Options for Small Employers
Q. As a small employer, can we offer employees a flexible spending account (FSA) if we don’t offer a medical plan?
A. Unfortunately, you cannot. In fact, no employer can offer an FSA without offering a medical plan. The Affordable Care Act (ACA) sets forth various market reforms that impact group health plans. Because FSAs are considered group health plans, they are subject to such market reforms—unless they qualify as “excepted benefits.” Excepted benefit plans are exempt from market reforms and provide limited health coverage. Plans of this type include dental insurance, vision insurance and certain FSAs.
To qualify as an excepted benefit, an FSA must satisfy certain requirements, one of which being that other medical plan coverage, not limited in scope to excepted benefits, is offered to all FSA participants. Whether your employees actually enroll in the group health plan does not matter; it is enough if the employees are simply eligible for enrollment. If this availability requirement is not met, then an FSA is not an excepted benefit and is subject to the ACA market reforms. One such reform mandates that group health plans cover preventive services (e.g., blood pressure tests, cancer screenings, routine vaccinations) without any cost-sharing. Because FSAs, by nature, do not cover preventive services without cost-sharing, they do not satisfy this reform on their own. Thus, to offer an FSA, you must offer it in conjunction with another group health plan so that it complies with the ACA. Otherwise, you would be subject to daily penalties for violation of the market reforms under the ACA.
Jason R. Mau is an attorney in the Boise office of Parsons Behle & Latimer. He can be reached at 208-562-4898 or firstname.lastname@example.org. Emily Hill, a J.D. Candidate 2023, University of Oregon School of Law, is a summer associate with Parsons Behle & Latimer.