Responding to President Trump’s October 12, 2017, Executive Order, the Departments of Health and Human Services (HHS), Treasury (IRS), and Labor (DOL) are issuing this proposed rule on health reimbursement arrangements (HRAs).
This third and final rule aims to provide employers with additional options when offering health benefits to their employees while providing employees with greater opportunity to purchase coverage of their choosing.
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Health Reimbursement Arrangements (HRAs) provide employers with alternatives to insurance, a self-funding of sorts that allow greater flexibility in designing and offering a cost-effective benefits program to their employees. These arrangements are not new and have long been used by employers in a variety of ways. Many employers use HRAs to provide funds to reimburse qualified medical expenses, including dental and vision-related expenses. HRAs are funded solely with employer dollars for use in reimbursing qualified medical expense.
A common employer practice uses HRAs to offset high deductibles. Employers replace their health insurance plan, let’s say one with a $1,000 deductible, purchase a lower cost plan with a higher deductible, say $3,000, and use the HRA to reimburse any employees who incur expenses that exceed the original $1,000 deductible. Prior to the passage of the Affordable Care Act (ACA), some employers set up stand-alone HRAs to reimburse certain expenses. In this arrangement, the employer does not purchase insurance but sets aside a flat dollar amount for employees to use for the designated expenses. We often saw these with dental or vision expenses. Some employers would use the HRA to provide premium reimbursements for other health plans.
The ACA’s market rules, i.e. health plan rules, put some restrictions in place for these arrangements. Namely, it sees HRAs as health plans and, as such, requires these plans to contain all the ACA group health plan mandates unless it is integrated with a group’s ACA-compliant health insurance plan. These mandates include preventative care with no cost sharing and no annual limits. By their very nature, HRAs contain annual limits so will fail group health plan compliance under the ACA. To qualify as an integrated plan, the HRA may only be offered to those who are eligible for, and enroll in, the group health plan. Further, the employer must offer the employee an annual opportunity to opt out of the HRA. If integration rules are not met, the HRA is prohibited.
In a series of FAQs, the Departments clarify that employers may not reimburse their employee’s individual health premiums. This practice does not meet the integration rules nor does this arrangement satisfy the rules for an ACA-compliant health plan. Therefore, they prohibit this practice.
In the 2015 rules, the Departments made an allowance for small employers to reimburse employee’s individual premiums. These new Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs) lay out the rules by which small employers may put this type of program in place. Later clarification brought further guidance on allowable HRA integration with group health plans and non-group health plans, i.e. excepted benefits.
The October 29, 2018, proposed rule allows employers to integrate their HRA with individual health insurance coverage so long as it is nondiscriminatory in its implementation. The rule addresses:
- Integration requirements;
- Conditions when HRAs are excepted benefits and not subject to ACA plan requirements;
- Effect on premium tax credits (PTCs);
- Interaction with ERISA (Employee Retirement Income Security Act of 1974 governing most employer-sponsored health plans);
- Ability to qualify for a special enrollment period when becoming eligible for an HRA; and
- Applicability dates
HRA Integration Requirements
For an HRA to be considered an ACA-compliant health plan, it must be integrated. The ACA lays out integration rules for group health plans coupled with an HRA. This proposed rule provides new integration rules applicable to individual health coverage with an HRA. To meet integration requirements, employers and plan sponsors must:
- Require participants and dependents to be enrolled in individual health insurance coverage for each month they are enrolled in an HRA;
- Prohibit offering an HRA and traditional insurance to the same class of employees;1
- Offer a HRA integrated with individual coverage on the same terms to each participant within the class;
- At least annually, allow participants to opt-out of, and waive,2 future reimbursements from HRA;
- Regularly substantiate and verify enrollment3 in individual coverage; and
- Provide notice4 to eligible participants regarding offer and enrollment of HRA.
The proposed rule sets additional criteria for limited excepted benefits with regard to these arrangements. Excepted benefits are types of coverage that are not subject to health plan rules under the Affordable Care Act (ACA). Excepted benefits include certain types of coverage, e.g. accident, disability, dental, vision, short-term health policies, workers’ compensation, some FSAs, etc.
Employers who wish to provide an HRA without regard to whether employees have coverage or have coverage that meets market requirements may do so if the HRA meets the following requirements:
- The HRA must not be an integral part of the plan;
- The HRA must provide limited benefits (no more than $1,800, indexed for inflation);
- The HRA cannot provide reimbursement of premiums except for individual coverage premium, and
- The HRA must be made available to all similarly situated individuals.
Effect on Premium Tax Credits
Since an HRA is considered group coverage. Anyone offered coverage through an integrated HRA is ineligible for a premium tax credit. Under the ACA, premium tax credits are available only to those who buy individual insurance coverage through the Exchange, have no offer of minimum essential coverage or whose offer is not affordable, and meet the income requirements for subsidization of premiums. Therefore, an individual covered by an HRA integrated with individual health coverage would be ineligible for a premium tax credit, unless it is an excepted benefit.
If the HRA with individual coverage were unaffordable, the employee would be eligible for a PTC provided they meet all other criteria. The Departments lay out a new calculation to determine affordability.
Employee contribution is affordable if it does not exceed:
Required contribution percentage is:
Monthly premium for self-only coverage of lowest cost silver plan
Interaction with ERISA
ERISA applies to employer-sponsored group health plans. This law creates obligations and responsibilities for employers in the design, delivery, and operation of the benefit plan. Individual health plans, will not fall under ERISA and not be considered part of an employer-sponsored plan if:
- Coverage purchased is voluntary for employees;
- Employer/plan sponsor does not select or endorse an issuer/carrier;
- Reimbursement for non-group health insurance premiums is limited only to individual coverage;
- Employer/plan sponsor receives no consideration; and
- Each participant is notified annually that individual coverage is not subject to ERISA
Special Enrollment Periods
The Departments recognize that employers who wish to offer this new HRA integrated with individual health coverage may do so in a timeframe that does not coincide with the annual open enrollment in the individual market. This would result in individuals being unable to participate in the program.
Special enrollment periods in the individual market currently address the specific instances when an individual may enroll outside the annual open enrollment. The proposed rule adds some additional circumstances by which an individual could enroll outside of the annual open enrollment. Specifically, the rule would:
- Allow employees and their dependents to enroll or change individual health insurance coverage outside of the individual market annual open enrollment period if they gain access to an HRA integrated with individual health insurance coverage;
- Apply the new special enrollment period to individuals who are provided QSEHRAs;
- Establish the coverage effective date as the first day of the first month following the individual's plan selection;
- If plan selection is made prior to the HRA effective date, then coverage begins on the first day of the month following the qualifying event or first of the month if triggering date is on the first of the month
- Individuals may elect to report the qualifying event up to 60 days after the date of the qualifying event and qualify for the special enrollment period during the regular special enrollment period window
The rule contains a significant amount of questions for which the Departments seek feedback. These comments are due back by December 28, 2018. Customarily, the Departments will then methodically consider and address all comments and put all those into the next iteration of the rule and publish sometime in 2019.
The proposed rule, if adopted, would apply to groups and insurance issuers for plan years beginning on or after January 1, 2020. However, the Departments have asked commenters to address whether this date is appropriate.
This new rule provides an interesting alternative to traditional health benefits. This option may be attractive to certain types of employers or employers who have a workforce, or segment of their workforce, who could benefit from such an arrangement. Until the Departments receive all the comments, review them, and address them in the next version of this regulation, this option remains unavailable. Employers may want to put this on their 2019 list as they begin planning for the years ahead.
1. [Allowable classes of employee are:
- Full-time employees;
- Part-time employees
- Seasonal employees;
- Employees who are included in a unit of employees covered by a collective bargaining agreement (CBA) in which the plan sponsor participates;
- Employees who have not satisfied a waiting period;
- Employees who have not attained age 25 prior to the beginning of the plan year;
- Non-resident aliens with no U.S.-based income (generally, foreign employees who work abroad); and
- Employees whose primary site of employment is in the same rating area.]↩
2. [To help individuals elect a PTC, if the coverage is unaffordable or does not meet MV, and remain eligible for an entire plan year:
- Individuals must be given an opportunity to decline the HRA and
- Waive all future reimbursements from the HRA for that year]↩
3. [Must implement and comply with reasonable procedures:
- Document from third party showing coverage
- Attestation by participant stating individual(s) will be enrolled, effective date of coverage, and name of provider
- May not reimburse any expense in the current plan year without substantiation]↩
4. [Description of the terms of the HRA, including the maximum dollar amount made available:
- Statement of the right of the participant to opt-out of and waive future reimbursement under the HRA;
- Description of the potential availability of the PTC if the participant opts out of and waives the HRA and the HRA is not affordable under the proposed PTC regulations;
- Description of the PTC eligibility consequences for a participant who accepts the HRA;
- Statement that participant must inform any Exchange of the availability of the HRA, its amount, the number of months available, whether the HRA is available to their dependents and whether they are a current or former employee;
- Statement that the participant should retain the written notice for future justification of eligibility for PTC;
- Statement that the HRA may not reimburse any medical care expense unless the substantiation requirements are met;
- Statement that it is the responsibility of the participant to inform the HRA if the participant or any dependent is no longer enrolled in individual health insurance coverage.
- Must include the HRA amount that is relevant for determining affordability under the proposed rules]↩