ACA’s Impact on HRA’s & FSA’s

In September the U.S. Department of Labor published technical release 2013-03 with the intent of providing guidance on the application of the ACA on three types of arrangements. Specifically the DOL focused on:

  1. Health reimbursement arrangements (HRAs), including HRAs integrated with a group health plan;
  2. group health plans under which an employer reimburses an employee for some or all of the premium expenses incurred for an individual health insurance policy; and
  3. certain health flexible spending arrangements (health FSAs).

Health Reimbursement Arrangements (HRAs)

An HRA is an arrangement which is funded solely by an employer and reimburses an employee for medical expenses incurred, up to a maximum, by the employee or his spouse, dependents and children under the age of 27. This type of reimbursement is excludable from the employee’s income and any remaining amounts at the end of the year can be used for future expenses. Nearly all HRAs are considered group health plans and therefore are subject to those rules.

Market Reforms

The ACA contains certain market reforms that apply to group health plans. The focus of the DOL’s technical release was the annual dollar limit prohibition and the preventive service requirement. The annual dollar limit prohibition provides that a group health plan or health insurance issuer offering group health insurance coverage may not establish any annual limit on the dollar amount of benefits for essential health benefits for any individual. The preventive service requirement requires non-grandfathered group health plans or health insurance issuers offering group health insurance plans to provide certain preventive services without imposing any cost-sharing requirement for them. However, the market reforms do not apply to group health plans with fewer than two participants who are current employees on the first day of the plan year and group health plans in relation to its provision of excepted benefits such as: accident-only coverage, disability income, certain limited-scope dental and vision benefits, certain long-term care benefits, and certain health FSAs.

Prior DOL guidance on market reforms have stated that when an HRA is integrated with other coverage as part of a group health plan and the other coverage alone would comply with the annual dollar limit prohibition, the HRA does not have to, by itself, comply with the annual dollar limit prohibition. Basically it doesn’t matter where it come from but a group health plan must have unlimited coverage for essential health benefits. The guidance went on to clarify that an HRA is only be considered integrated with primary health coverage offered by an employer if under the terms of the HRA, the HRA is available only to employees who are covered by primary group health plan coverage that is provided by the employer and that meets the annual dollar limit prohibition. One consequence of this is that an employer-sponsored HRA cannot be integrated with individual market coverage or with individual policies under an employer payment plan and, thus, an HRA used to purchase coverage on the individual market will fail to comply with the annual dollar limit prohibition.

Circumstances when an HRA will be integrated with a group health plan for purposes of annual dollar limit prohibition and preventive services requirements:

Integrated Method: Minimum Value Not Required

An HRA is integrated with another group health plan for purposes of the annual dollar limit prohibition and the preventative services requirements if:

  1. The employer offers a group health plan that does not consist solely of non-essential benefits;
  2. the employee receiving the HRA is actually enrolled in a group health plan that does not consist solely of non-essential benefits;
  3. the HRA is only available to employees who are enrolled in non-HRA group coverage;
  4. the HRA is limited to reimbursement of one or more of the following – co-payments, co-insurance, deductibles, and premiums under the non-HRA group coverage, as well as medical care that does not constitute essential health benefits; and
  5. under the terms of the HRA, an employee is permitted to permanently opt out of and waive future reimbursements from the HRA.

Integrated Method: Minimum Value Required

An HRA that is not limited with respect to reimbursement as required under the integration method expressed above is integrated with a group health plan for purposes of the annual dollar limit prohibition and the preventive services requirements if:

  1. the employer offers a group health plan that provides minimum value pursuant to CODE 36B;
  2. the employee receiving the HRA is actually enrolled in a group health plan that provides minimum value pursuant to Code 36B;
  3. the HRA is available only to employees who are actually enrolled in non-HRA minimum value group coverage; and
  4. under the terms of the HRA, and employee is permitted to permanently opt out of and waive future reimbursement from the HRA at least annually, and upon termination of employment, either the remaining amounts in the HRA are forfeited or the employee is permitted to permanently opt out of and waive future reimbursements from the HRA.

What does it all mean?

For 2014 HRAs will be required to meet the annual dollar limit prohibition and preventive health services requirements, unless the HRA is integrated. If an HRA is considered integrated it may impose annual limits. Whether an HRA is considered integrated will depend on how it is structured. An HRA will be considered integrated if it meets the requirements of one of the two methods mentioned above. Both integration methods require that :

  1. The employer offer the employee a group health plan that is not the HRA;
  2. the employee receiving the HRA be enrolled in a non-HRA group health plan’ even one that is not sponsored by the employer (ex. through another family member);
  3. the HRA is only available to employees enrolled in non-HRA group coverage; and
  4. the HRA’s terms allow a current or past employee to permanently opt out of and waive future reimbursements annually.

Example 1 – Employer A offers a group health plan and HRA for its employees that begins January 1, 2014. Employer A’s HRA is only available to employees who are enrolled in its group health plan or in non-HRA group coverage through a family member. Employer A’s HRA is limited to reimbursement of copayments, co-insurance, deductibles, and premiums under Employer A’s group health plan or other non-HRA group coverage. Employer A’s HRA allows employees to permanently opt out of and waive future reimbursements from the HRA group both upon termination and at least annually. Employee Z works for Employer A but chooses to enroll in non-HRA group coverage offered by Employer M, the employer of Employee Z’s spouse. Employer A knows that Employee Z is covered by Employer M’s non-HRA group coverage and Employee Z seeks reimbursement for copayments, co-insurance, deductibles, or premiums. Employer A’s HRA is integrated with Employer M’s non-HRA coverage for purposes of the annual dollar limit prohibition and the preventive services requirements.

Example 2 – Employer A offers a group health plan that provides minimum value and an HRA for its employees. Employer A’s HRA is available only to employees who are enrolled in its group health plan or in non-HRA minimum value group coverage through a family member. Employer A’s HRA allows employees to permanently opt out and waive future reimbursements from the HRA both upon termination of employment and at least annually. Employee Z works for Employer A but chooses to enroll in a non-HRA minimum value group coverage offered by Employer M, the employer of Employee Z’s spouse. Employer A knows that Employee Z is covered by Employer M’s non-HRA MV group coverage and that it provides minimum value. Employer A’s HRA is integrated with Employer M’s non-HRA group coverage for purposes of the annual dollar limit prohibition and the preventive services requirements.

Note: In both examples Employer A’s HRA would still be integrated for purposes of the annual dollar limit and the preventive services requirements if Employee Z enrolled in Employer A’s group coverage instead of Employer M’s.

Information contributed by Paul Dominick. Paul is a 3L at SLU Law and a compliance intern at J.W. Terrill where he provided legal research on health care reform issues.

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