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:
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