IA number of key provisions of the Patient Protection and Affordable Care Act of 2010 ("PPACA") that affect employer-sponsored flexible spending accounts and group health plans will take effect in January 2011. Employers should be mindful of how these upcoming changes will affect their plans, and expect changes in the administration of such plans by insurers and third-party providers.

Because PPACA is a complex statute and regulatory guidance is still emerging, look for additional FEB updates in the future as additional provisions of PPACA take effect and are clarified.

Unless otherwise noted, group health plan changes are effective for the first plan year beginning after September 23, 2010 (i.e., January 1, 2011, for most group health plans).

Flexible Spending Accounts

Effective January 1, 2011, flexible spending account ("FSA") participants may no longer be reimbursed for the cost of over-the-counter medicines. However, prescription copayments may still be reimbursed through the FSA plan.

There is no change in 2011 to the pretax amount participants may contribute to a FSA. However, beginning in 2013, such amounts will be capped at $2,500 per year; in subsequent years, the cap will be adjusted for inflation.

Group Health Plans

(1) Coverage of adult children. Employer group health plans must offer coverage to the adult children of employees until age 26. Coverage must be offered even if such children are married or do not qualify as the employee's tax dependents. From 2011 through 2013, a "grandfathered" group health plan (generally, a group health plan in existence on March 23, 2010) may exclude nondependent adult children who are eligible for coverage under another employer's group health plan. However, starting with the 2014 plan year, such exclusion would no longer apply.

(2) Limits on coverage under the group health plan. A group health plan (whether grandfathered or not) may no longer impose lifetime limits on "essential health benefits" payable under the plan. Furthermore, while plans may still impose certain "restricted annual limits" on benefits, such limits will disappear completely starting in 2014.

(3) Nondiscrimination. Currently, Internal Revenue Code Section 105(h) applies certain nondiscrimination rules to employer group health plans that are self-insured or self-funded. Starting in 2011, insured group health plans (except for grandfathered plans) must also satisfy these rules.

(4) Preexisting conditions. Group health plans (whether grandfathered or not) may not impose preexisting condition exclusions on children under age 19. Starting in 2014, this provision is extended to preclude the imposition of preexisting condition exclusions on any plan participant.

(5) Development of uniform summary of plan benefits. By March 2011, the federal government must develop a model or template summary of benefits for use by group health plans. Group health plans must become familiar with this model and use it to develop their own summary of benefits and explanation of benefits provided under the plan by March, 2012. This summary must be distributed to participants prior to plan enrollment (or re-enrollment). In the event plan benefits are modified, revised summaries must be prepared and distributed.

Form W-2 Reporting

Beginning with the Form W-2 covering employees' 2011 compensation, employers must disclose the value of employees' group health plan coverage.