On June 13, 2019, the Departments of Labor, Health and Human Services, and Treasury (the “Departments”) issued final regulations (“Regulations”) expanding access to Health Reimbursement Arrangements (“HRAs”). The Regulations respond to a 2017 Executive Order from the President to “increase the usability of HRAs, to expand employers’ ability to offer HRAs to their employees, and to allow HRAs to be used in conjunction with nongroup coverage.”
HRAs are employer-funded, account-based group health plans that are used to reimburse employees and their eligible dependents for certain permitted health care expenses. Group health plans, including HRAs, are generally subject to mandates under the Affordable Care Act (“ACA”), such as the prohibition on annual and lifetime dollar limits for essential health benefits and the requirement to cover certain preventative services without cost-sharing. However, because HRAs are subject to an annual benefit dollar limit based on the amount of employer contributions, non-integrated HRAs generally fail to meet ACA requirements. As a result, after the ACA, plan sponsors could only offer active employees an HRA integrated with other group health coverage that complied with the ACA; HRA integration with individual health coverage (such as coverage available through an ACA exchange) for purposes of satisfying the ACA mandates was specifically prohibited.
In addition to expanding HRA integration options by creating what the Regulations refer to as an Individual Coverage HRA, the Regulations also create another limited type of HRA—the Excepted Benefit HRA. Both HRAs are subject to specific regulatory requirements, as briefly summarized below.
Individual Coverage HRA
In a significant departure from previous guidance, the Regulations allow plan sponsors to now integrate HRAs with individual health insurance coverage for the purpose of satisfying ACA requirements, provided certain conditions are met, including:
Enrollment in Individual Health Insurance Coverage. Each person covered by an Individual Coverage HRA must be enrolled in an individual health insurance plan (or Medicare). If the individual health insurance plan coverage ceases, that participant will not be reimbursed for any medical expenses incurred after losing individual coverage. Further, if the HRA participant and all of his or her dependents lose their individual coverage, the participant must forfeit the HRA.
Employers Cannot Offer an Individual Coverage HRA and a Traditional Group Health Plan to the Same Class of Employees. Employers can divide employees into certain permitted classifications for purposes of offering an Individual Coverage HRA or a traditional group health plan to that class. However, an employer may not allow employees of the same class to choose between an Individual Coverage HRA and a traditional group health plan. Permitted classifications include full-time or part-time employees, salaried or non-salaried employees, seasonal employees, employees who are covered by a collective bargaining agreement, employees who have not satisfied a waiting period for coverage, non-resident employees with no U.S.-based income, and temporary placement employees who are hired by an outside entity.
Same Terms Requirement. When the Departments published the proposed rule in October 2018, many commenters expressed concern that plan sponsors may use Individual Coverage HRAs to incentivize less healthy employees to obtain coverage through the individual market, which in turn would adversely affect the individual market’s risk pool. In response to those comments, the Regulations require that employers who offer Individual Coverage HRAs to a class of employees must offer the HRA on the same terms to all employees within that class. However, employers can increase the maximum amount that they contribute to an HRA as the participant’s age increases, so long as the amount contributed to the oldest participant’s account is not more than three times the amount made available to the youngest participant.
Opt-Out Provision. To avoid impacting qualification for the premium tax credit, which is available to employees who satisfy certain requirements under the ACA, plans must allow employees to opt out of and waive future reimbursements from the Individual Coverage HRA once (and only once) per plan year.
Substantiation and Verification Requirements. Plans must implement reasonable procedures to annually substantiate that participants and their dependents actually are enrolled in individual health coverage. While plans may establish the date by which this substantiation is required, it generally must happen no later than the first day of the plan year. Additionally, employees must provide verification of continued coverage with each new request for reimbursement of an incurred medical expense.
Notice Requirement. Plans must provide written notices about the terms of the HRA to participants at least 90 days before the beginning of each plan year. The notices must include, among other things, a statement describing the Participant’s opt-out rights and statements addressing how coverage under the HRA may affect eligibility for the premium tax credit. The Departments provided a model notice to help plans comply with this requirement.
Excepted Benefit HRA
The ACA “excepts” certain benefits, such as vision and dental coverage and long-term care insurance, from the ACA group health plan requirements if they are insured under a separate policy or otherwise not an integral part of the plan. The Regulations recognize certain limited HRAs as additional excepted benefits (“Excepted Benefit HRAs”) if certain requirements are satisfied.
Excepted Benefit HRAs must:
- Be offered in conjunction with a group health plan, although the employee does not have to enroll in the plan to participate in the HRA
- Limit contributions to $1,800 per year (indexed for inflation beginning in 2021)
- Prohibit reimbursement of premium payments for individual coverage, group coverage (other than COBRA continuation coverage), or Medicare Parts A, B, C, or D. The HRA can reimburse premiums for coverage that consists solely of excepted benefits
- Offer the HRA under the same terms to all similarly situated individuals.
The Departments note that Excepted Benefit HRAs, which can reimburse expenses for both excepted benefits and other expenses that do not qualify as excepted benefits, differ from HRAs that reimburse only excepted benefits. Therefore, employers can continue to offer HRAs that reimburse only excepted benefits without regard to these requirements.
The Regulations apply for plan years beginning on or after January 1, 2020. Plan sponsors may choose if and when to offer an Individual Coverage HRA and may do so any time on or after the applicability date. Please contact Slevin & Hart for more information on how the Regulations may affect your plan.
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