Proposed Rules to Expand HRAs Issued Part 2: Excepted Benefit HRAs and HRAs Integrated with Individual Market Coverage
This article is Part 2 in our series of articles on the recent proposed rules issued by the Department of Labor, the Treasury Department and the Department of Health and Human Services (the “Tri-Agencies”) expanding and increasing the flexibility of Health Reimbursement Arrangements, or HRAs starting in 2020 (see:Proposed Rules to Expand HRAs Issued). This article will focus on the proposed rules’ requirements for excepted benefit HRAs and HRAs integrated with individual market coverage, which was previously not permitted. Future articles will discuss how the proposed rules affect premium tax credits and interact with the employer shared responsibility mandate.
Excepted Benefit HRAs
The proposed rules create a new type of HRA to increase flexibility for employers in their health benefit offerings. Currently, certain excepted benefits, such as stand-alone limited-scope dental and vision insurance and long-term care benefits, are not treated as group health plans and are thus not subject to the market reforms of the Affordable Care Act. An HRA that meets the following requirements (an “excepted benefit HRA”) will also be considered an excepted benefit:
1. The employer must make other group health plan coverage that is not limited to excepted benefits and is not an HRA or other account-based group health plan available to participants.
2. The annual amount made available each year to each participant in the excepted benefit HRA must not exceed $1,800 (to be adjusted for inflation in future years), not including any unused amounts carried over from prior years. If multiple excepted benefits HRAs are offered by the employer, they are all aggregated for purposes of this limit.
3. The excepted benefit HRA may not reimburse premiums for individual health insurance coverage, group health plan coverage (other than COBRA or other continuation coverage), or Medicare parts B or D. However, premiums for excepted benefits, such as dental and vision insurance or short-term limited duration insurance (“STLDI”), may be reimbursed.
Note: The preamble to the proposed rules explicitly states that excepted benefit HRAs may be used to pay for any medical expense other than premiums for individual health insurance coverage, group health plan coverage (other than COBRA or other continuation coverage), or Medicare Parts B or D. Participants in excepted benefits HRAs thus can use the HRA to reimburse co pays, deductibles, and other out-of-pocket medical expenses in addition to premiums for excepted benefit coverage.
4. The excepted benefit HRA must be made available on the same terms to all similarly situated individuals, regardless of any health factor (as defined in the HIPAA nondiscrimination regulations).
Note: An employer may not offer both an excepted benefits HRA and an HRA integrated with individual market coverage to the same class of employees, since and excepted benefits HRA must be offered along with a group health plan, and a group health plan may not be offered to employees offered an HRA integrated with individual market coverage. However, the proposed rules give employers the flexibility to offer an excepted benefits HRA in conjunction with a group health plan to one class of employees, and an HRA integrated with individual market coverage to a different class of employees to whom the group health plan is not available.
Integrating HRAs with Individual Market Coverage
The proposed rules permit HRAs to be integrated with individual market coverage if the requirements below are met. These rules are intended to offer employers greater flexibility and potential cost savings, since they will be able to offer health benefits without having to purchase group health plan insurance. This may be particularly attractive to smaller employers. The proposed rules also create a special enrollment period for employees who become eligible for an HRA integrated with individual market coverage.
1. The HRA must require that each participant and dependent for which reimbursements may be paid under the HRA must be enrolled in individual health insurance coverage, whether through the Exchange, the private insurance market, or a student health plan. Claims incurred after individual health insurance coverage ceases may not be reimbursed. If a participant and all of his or her dependents cease to have individual health insurance coverage, the HRA must be forfeited.
2. The employer may not offer a traditional group health plan (i.e., any group health plan other than an account-based plan or one that consists solely of excepted benefits) to the same class of employees to whom the HRA integrated with individual market insurance is offered.
Note: The Tri-Agencies crafted the proposed rules with the aim of preventing employers from encouraging higher-risk employees to forgo group health plan coverage in favor of individual market coverage.
3. The HRA must be offered on the same terms to all participants within the class of employees to whom the HRA is offered. However, the dollar amount available under the HRA for reimbursement of medical expenses may increase as the age of the participant increases or as the number of covered dependents of the participant increases, as long as the increase is made available to all participants in that class who are the same age or who have the same number of covered dependents, respectively.
Note: The permitted classes of employees under the proposed rules are: full-time employees, part-time employees, seasonal employees, collectively bargained employees, employees who have not satisfied a waiting period for coverage, employees who have not attained age 25 before the beginning of the plan year, non-resident aliens with no U.S. source income, and employees whose primary site of employment is in the same rating area. Classes may also be made up of a combination of any of these, such as full-time employees who are collective bargained. The employer may choose to define full-time, part-time, and seasonal either under the Code Section 105(h) rules for self-insured medical reimbursement plans or the Code Section 4980H employer mandate rules, but must apply the chosen definition method consistently across all three classes (i.e., the employer cannot use Code Section 105(h) for full-time and Code Section 4980H for part-time). The HRA document must set forth the chosen definitions before the beginning of the plan year to which the definitions apply.
4. The HRA must allow participants to opt out of and waive future reimbursements from the HRA at least annually. When a participant terminates employment, the HRA must either be forfeited or the participant must be permitted to permanently opt out of and waive future reimbursements from the HRA.
Note:Employees may be eligible for a premium tax credit if not enrolled in the HRA and the HRA is not affordable (which we will discuss in greater detail in a future article). The opt out requirement is intended to allow employees to obtain a premium tax credit if doing so would be more beneficial than the HRA coverage.
5. The employer and HRA must verify that participants and dependents are, or will be, enrolled in individual health insurance coverage for the plan year, and must implement reasonable procedures for such verification. A participant may either provide a document from a third party (such as the insurer) or a written attestation verifying coverage. Verification of coverage during the month an expense was incurred must also be provided with each new request for reimbursement from the HRA; an attestation on the form used to request reimbursement is sufficient.
Note: If an employer has actual knowledge that the participant or dependent is not enrolled in individual health insurance coverage for a plan year or month, it may not rely on a participant’s attestation.
6. The HRA must provide a notice to participants at least 90 days before the beginning of each plan year (or if not yet eligible, the date the participant is first eligible to participate in the HRA). The notice must include a description of the terms of the HRA, a statement describing the participant’s opt out rights, a description of the potential availability of a premium tax credit(including a statement that accepting HRA coverage prevents claiming a premium tax credit), a statement that the participant must inform any Exchange of the availability of the HRA when applying for advance payment of the premium tax credit, a statement that the notice should be retained for the participant’s records, a statement that the HRA may not reimburse medical expenses unless verification of coverage is provided, and a statement that the participant is required to inform the HRA if the participant or any dependent is no longer enrolled in individual health insurance coverage.
The proposed rules also clarify that the individual health insurance coverage reimbursed by an HRA is not an ERISA welfare benefit plan(and thus will not be required to comply with reporting, disclosure, and fiduciary requirements of ERISA)if certain conditions are satisfied: the purchase of individual health insurance coverage must be completely voluntary (requiring such coverage as a condition of participation in an HRA does not make it involuntary), the employer may not select or endorse particular individual coverage or carriers,the reimbursement for premiums under the HRA must be limited to individual health insurance coverage, the employer cannot receive consideration in connection with an employee’s selection or renewal of any individual coverage, and each participant must be notified annually that the individual coverage is not subject to ERISA Title I (this must be included in the notice described in (6) above).
If you have any questions about these new rules, please contact one of our attorneys.
© Boutwell Fay LLP 2018, All Rights Reserved.This handout is for information purposes only, and may constitute attorney advertising. It should not be construed as legal advice and does not create an attorney-client relationship. If you have questions or would like our advice with respect to any of this information, please contact us.The information contained in this article is effective as of November 30, 2018.