HIPAA requirements and Flex Plans

Issuing a HIPAA certificate upon termination is a requirement of a health plan. Since health spending accounts under a Section 125 Plan are considered a health plan, the question arises as to whether a HIPAA certificate must be issued by the plan when a qualifying event occurs. The IRS, DOL, and DHHS recently issued guidance explaining that certain health spending accounts are not subject to HIPAA.

If a health spending account is strictly funded by employee reduction (contributions), the employer would not have to issue a certificate.

If the maximum benefit payable for the employee under the health spending account exceeds two times the employee salary reduction amount (or, if greater, the amount of the employee's salary reduction under the health spending account for the year, plus $500.00), the employer must comply with HIPAA.

If the employer contributes more than $500.00 to a health spending account either as "seed" money or as a match, the employer must comply with HIPAA.

For Credit Based Section 125 Plans, if the employee can receive the unused portions as taxable income, then the employer need not comply with HIPAA. If the employee does not have the option to receive the unused portions as taxable income, the plan will have to comply with HIPAA only if the plan design prohibits employees from directing more than $500.00 of the employer credits to the health spending account. A HIPAA notice would be sent for those employees who actually used the excess credits for the health spending account.