On March 23, 2010, President Obama signed the Patient Protection and Affordable Care Act (the "PPACA") into law. On March 30, 2010, he signed the Health Care and Education Reconciliation Act of 2010, which made several changes to the PPACA. The PPACA contains numerous effective dates for its key provisions. This article highlights two important changes affecting employee benefits plans in the immediate future and identifies action steps employers and plan sponsors should take to comply with the PPACA.

Over-the-Counter Drugs. The PPACA amends the Internal Revenue Code of 1986 (the "Code") to provide a uniform definition of "qualified medical expenses" for certain types of benefits. Specifically, the PPACA establishes a new definition of "qualified medical expenses" for the following types of plans:

• Health Savings Accounts (HSAs);
• Archer Medical Savings Accounts (Archer MSAs);
• Health Flexible Spending Arrangements (Health FSAs); and
• Health Reimbursement Arrangements (HRAs).

The new definition provides that "qualified medical expenses" include amounts paid for a medicine or drug only if such medicine or drug is a prescription drug or insulin. The new definition of "qualified medical expenses" becomes effective for tax years beginning after December 31, 2010. Thus, beginning on January 1, 2011, individuals will no longer be able pay for over-the-counter drugs on a pre-tax basis through HSAs, Archer MSAs, Health FSAs, and HRAs.

Action Steps:

• Employers and plan sponsors of HSAs, Archer MSAs, Health FSAs, and/or HRAs must amend the plan document to incorporate the new definition of "qualified medical expenses." Cafeteria plan documents may also need to be amended to incorporate the new definition.
• Employers and plan sponsors of HSAs, Archer MSAs, Health FSAs, and/or HRAs must amend the summary plan description (SPD) to incorporate the new definition of "qualified medical expenses." Cafeteria plan SPDs may also need to be amended to incorporate the new definition.
• Failure to amend the plan document and SPD could result in adverse tax consequences.
• New SPDs and/or notices of material modifications must be provided to plan participants.
• Examine and modify reimbursement procedures to ensure over-the-counter drugs will not be reimbursed from HSAs, Archer MSAs, Health FSAs, and/or HRAs beginning January 1, 2011.

Dependent Coverage. One of the most significant changes in the PPACA is the requirement that group health plans and health insurance coverage be made available to adult children up to age 26. This change is effective the first plan year beginning after September 23, 2010. Thus, if a group health plan's "plan year" is January 1-December 31, the plan must provide coverage for adult children beginning on January 1. The Internal Revenue Service, Employee Benefits Security Administration, and Department of Health and Human Services issued regulations on May 13, 2010, establishing new notice and enrollment rights for adult children.

Actions Steps:

• Amend group health plan and/or insurance policies/documents to incorporate new "adult children" coverage requirements.
• Amend summary plan description to incorporate "adult children" requirements.
• Provide revised summary plan description and/or notice of material modifications to plan participants.
• Draft mandated notices for "adult child" coverage to inform employees/plan participants and "adult children" of the availability of coverage and enrollment period.
• Provide mandated notices of dependent coverage to "adult children" and/or affected employees/participants within the time period required by law.

Fraser Stryker is a leader in Health Care and Employee Benefits law. For additional information regarding the new health care reform legislation, please contact one of the Health Care Reform Response Team attorneys:

This article is provided by Fraser Stryker for general informational purposes and is not intended to be and should not be construed as legal advice on any specific facts or circumstances.

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