Health Reimbursement Arrangements Poised for a Facelift

November 2, 2018

Compliance

The President signed an Executive Order on October 12, 2017, directing the U.S. Departments of Labor, Treasury, and Health and Human Services (collectively, the “Agencies”) to consider rules expanding the availability and permitted uses for Health Reimbursement Arrangements (HRAs). The clear intent was to ultimately enable employers to offer HRAs to employees that can be used to purchase individual insurance policies. The Agencies issued a set of proposed regulations addressing this and related issues on October 23, 2018.

The Bottom Line
We’ll address the proposed rules in more depth under Some Details About Individual Insurance HRAs below, but the main takeaways are:

  1. Premiums – Employers will be able to offer HRAs to employees that can be used to pay for individual health insurance coverage premiums. These will be referred to as “Individual Insurance HRAs” in this article.
  2. Employer mandate – Individual Insurance HRAs can be used to avoid employer mandate penalties under the Affordable Care Act (ACA).
    However
  3. It’s one or the other – An employer can offer traditional group health coverage to a class of employees or an Individual Insurance HRA, but not both.

So, When Exactly?
The proposed effective date is for plan years beginning on or after January 1, 2020. The comment period for the proposed regulations will last through the remainder of 2018. The proposed regulations cannot be relied upon as a safe harbor. The final regulations will probably not appear before mid-2019 and may not differ much from the details described below.

Some Details About Individual Insurance HRAs

Item Guidance
Eligibility

 

Employees (including former employees) and dependents who are enrolled in major medical coverage purchased in the individual insurance market[1]

Coverage for any part of a month for which a premium is due qualifies

Classes of Employees

 

Employers may divide their workforces into the following classes of employees:

  1. Full-time employees
  2. Part-time employees
  3. Seasonal employees
  4. Employees covered by a collective bargaining agreement
  5. Employees eligible for the employer’s traditional group health coverage, but who are in a waiting period
  6. Employees who are under age 25 at the beginning of the Individual Insurance HRA plan year
  7. Foreign employees working abroad with no U.S.-sourced income
  8. Employees primarily employed in the same insurance community rating area

If an Individual Insurance HRA is offered to a class, it must be offered on the same terms to all employees within the class[2] (benefit levels may only vary based on age and family size within a class)

If an employer offers an Individual Insurance HRA to a class of employees, it may not offer its traditional group health coverage to that class[3]

Note: There are no other permitted classes such as hourly versus salaried employees.

ACA and the Employer Mandate

 

An Individual Insurance HRA automatically qualifies as minimum essential coverage and is an “offer of coverage” for the purposes of satisfying the ACA’s employer mandate

An Individual Insurance HRA (with its individual major medical insurance policy) is automatically deemed to satisfy the ACA’s minimum value requirement

An Individual Insurance HRA is deemed “affordable coverage” if the difference between the monthly premium for the lowest cost available silver plan and 1/12th of the annual Individual Insurance HRA contribution is equal to or less than the applicable affordability safe harbor percentage.

Affordable Coverage Example

In 2020, an employer makes an annual contribution of $3,600 to an employee’s Individual Insurance HRA. The monthly premium for the lowest cost available silver plan is $400.

$400 – ($3,600/12) = $100/month

The Individual Insurance HRA is an affordable offer of coverage for the employee if $100/month is within an affordability safe harbor for that employee in 2020

Substantiation

 

Employees are required to substantiate enrollment in individual coverage (including for any dependents) each time a request for reimbursement is submitted

An employer may rely on the employee’s attestation of coverage or require reasonable proof of enrollment (such as an ID card)

Waiver

 

Employees must be permitted to waive participation annually, although the Individual Insurance HRA may still be considered an offer of affordable, minimum value coverage by the employer
ERISA Status, etc.

 

The Individual Insurance HRA itself is an employer-sponsored group health plan

The individual insurance coverage reimbursed by the HRA will not be considered an ERISA plan offered by the employer so long as the employer does not sponsor it or play a role in its selection

Cafeteria Plan Option

 

An employer may allow employees to pay for any remaining premium for the individual insurance policy through the employer’s cafeteria plan, but this is not available for coverage purchased through the public insurance exchange
Notice Requirements

 

Employers must provide eligible employees with a notice describing the terms of the Individual Insurance HRA and the affect it may have on the employee’s eligibility for a subsidy in the public insurance marketplace

[1] This does not currently include short-term, limited duration insurance.

[2] An employer can offer an Individual Insurance HRA to some former employees within a class and not others so long as the terms are uniform.

[3] Employees are not treated as having been offered group health coverage while in a waiting period.

And for Good Measure…
The Agencies also created another category of HRA known as an “Excepted Benefit HRA” that may be offered on a standalone basis exempt from the ACA’s mandates if all of the following is true:

  • The employer offers traditional group health coverage to the employee (this means the employee cannot also be offered an Individual Coverage HRA);
  • The maximum annual reimbursement is $1,800 (indexed);
  • Reimbursements are limited to general medical expenses and premiums for COBRA, short-term limited duration insurance, and other excepted benefits coverage (this can include many types of non-major medical health coverage); and
  • The Excepted Benefit HRA is available on a uniform basis to all similarly situated employees.[4]

[4] This is based on HIPAA’s “similarly situated groups” rule and is not tied to the permitted classes of employees under the Individual Insurance HRA.

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About Chris Beinecke

Christopher Beinecke, J.D., LL.M. has joined MMA in the newly created position of EH&B National Compliance Leader to oversee this effort. Chris is a highly skilled legal practitioner with deep knowledge and years of experience in the areas of compliance and administrative best practices for health and welfare benefit programs. Chris’s legal experience is vast and diverse. Most recently, with the employee benefits practice at international corporate law firm Haynes and Boone, LLP. Prior to that, Chris was a senior compliance consultant for 10 years at Towers Watson and played a major role in the development of the firm’s U.S. health and welfare compliance practice. Chris also worked as an employee benefits lawyer in private practice before entering consulting. Chris received his J.D. from Ohio State University Moritz College of Law, and an LL.M. in taxation from Washington University in St. Louis School of Law. He also holds a B.S. in finance from Miami University Ohio. Chris is licensed to practice in both Texas and Missouri, and is admitted to the U.S. Tax Court.

View all posts by Chris Beinecke

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