Under a proposed rule that the Department of Labor (DOL), Department of the Treasury, and the Department of Health and Human Services (HHS) jointly issued on October 29, 2018, employers may soon have more flexibility to fund health insurance coverage for employees through health reimbursement arrangements (HRAs), other account-based group health plans, and individual health insurance policies. The proposed rule uses the term “HRA” to encompass all types of account-based group health plans.
The Departments’ proposed rule fulfills another directive of Executive Order 13813, issued in October 2017, which directed the Departments to consider rulemaking “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.”
What Is an HRA?
The proposed rule applies to HRAs and other types of account-based group health plans. HRAs are employer-funded, account-based group health plans that employees can use to pay for their own medical expenses or the medical expenses of spouses and dependents. Other types of account-based health plans include the qualified small employer health reimbursement arrangement (QSEHRA), which is available to employers with fewer than 50 full-time and full-time-equivalent employees; employer payment plans, under which an employer reimburses an employee for premiums for individual health insurance coverage; and health flexible spending arrangements.
5 Key Changes of the Proposed Rule
The proposed rule would make the following five key changes to current law, each of which is discussed in more detail below:
Remove the current prohibition on integrating an HRA with individual health insurance coverage.
Expand the definition of “limited excepted benefits” to include HRAs that meet certain requirements.
Clarify the federal premium tax credit (PTC) eligibility of individuals who are offered an HRA integrated with individual health insurance coverage.
Clarify that integration of an HRA or a QSEHRA with individual health insurance coverage does not cause the individual health insurance coverage to become subject to the Employee Retirement Income Security Act of 1974 (ERISA), as amended, if certain requirements are met.
Create a special enrollment period in the individual health insurance market that enables individuals to enroll when they become eligible for HRA or QSEHRA coverage that can be integrated with individual health insurance coverage.
1. Permitted Integration of HRAs With Individual Health Insurance Coverage
HRAs are subject to the Patient Protection and Affordable Care Act (ACA) requirement to cover certain preventive care services without any cost sharing and the ACA’s prohibition on annual dollar limits on essential health benefits. By their very design, HRAs, on their own, cannot comply with those ACA mandates. As a result, under current law, HRAs are permitted only if they are “integrated with other group health plan coverage” that separately complies with the ACA mandates (retiree-only HRAs and certain limited-purpose HRAs are exceptions to this rule). Internal Revenue Service (IRS) guidance currently does not permit HRAs to be integrated with individual health insurance coverage. The proposed rule would permit HRAs to be integrated with individual health insurance coverage, and therefore satisfy the ACA mandates, if certain conditions, including the following, are met:
Requiring and Verifying Individual Health Insurance Coverage: The HRA would need to require and verify that employees and any dependents are covered by individual health insurance coverage that does not consist solely of excepted benefits (e.g., dental-only or vision-only coverage).
Limiting Other Coverage: The employer sponsoring the HRA would not be allowed to offer both the HRA integrated with individual health insurance coverage and a traditional group health plan to the same class of employees.
Having the Same Terms and Allowing Opt-Out: The employer would be required to offer the HRA with the same terms and conditions to all employees in the same employee class. In addition, all eligible employees must be permitted at least annually to opt out HRA coverage.
Providing Notice: HRAs would be required to provide a written notice describing the HRA to eligible participants at least 90 days before the beginning of each plan year. HRAs would be required to provide the notice to participants who are not yet eligible at the beginning of the plan year or, when the notice was provided prior to the beginning of the plan year, no later than the date on which the participant is first eligible.
The proposed rule also permits supplemental salary reduction arrangements. Under a supplemental salary reduction arrangement, employees can pay the balance of non-exchange individual health insurance premiums that are not covered by an HRA by pretax salary reduction through the employer’s cafeteria plan.
2. HRAs as Limited Excepted Benefits
The proposed rule would also expand the accessibility of HRAs by permitting employers to offer HRAs that qualify as limited excepted benefits, which are not required to be integrated with other health insurance coverage. An HRA qualifies as a limited excepted benefit if it is uniformly available to all similarly situated individuals and is not an integral part of other group health plan coverage. In addition, the amount made available under the HRA may not exceed $1,800 (as indexed for inflation) and cannot be used to reimburse premiums for individual health insurance coverage, coverage under another group health plan (other than the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) or other group continuation coverage), or for Medicare Part B or Part D.
The proposed rule prohibits employers from offering both an HRA integrated with individual health insurance coverage and a limited excepted benefit HRA to any employee.
3. Premium Tax Credit Eligibility Rules
The proposed rule establishes that any employee who is covered by (or is offered but opts out of) an HRA that is integrated with individual health insurance coverage would not eligible to receive a federal PTC for health insurance coverage purchased on an exchange if the HRA is “affordable” and provides “minimum value.”
The proposed rule provides that an HRA integrated with individual health insurance coverage is affordable if the employee’s required contribution is no more than 1/12 of the product of the employee’s household income and the required contribution percentage. The required contribution percentage is the excess of:
the monthly premium for the lowest-cost silver plan for self-only coverage available to the employee through the exchange for the rating area in which the employee resides; over
the monthly self-only HRA amount provided by the employee’s employer (the amount available for the plan year, divided by the number of months in the plan year the HRA is available to the employee), or, if the employer offers an HRA that provides for the same dollar amount regardless of whether the employee elects self-only or other-than-self-only coverage, the monthly maximum amount available to the employee.
An HRA integrated with individual health insurance coverage that is determined to be affordable will also be deemed to provide minimum value as defined by the ACA.
4. Exclusion From ERISA Coverage
Under the proposed rule, an employee’s individual health insurance plan would not be subject to ERISA in most cases. Among other considerations, employers may want to be careful not to endorse certain coverage or carriers in order to avoid creating an ERISA plan.
5. New Special Enrollment Period
Finally, to allow individuals to take advantage of these new options, HHS proposes to add a new special enrollment period to the individual health insurance market that permits employees who gain access to an HRA integrated with individual health insurance coverage to enroll in an individual health insurance plan. The special enrollment period would also apply to employees who gain access to a QSEHRA.
The changes outlined by the proposed rule would apply to group health plans and health insurance issuers for plan years beginning on or after January 1, 2020, and the PTC provisions would apply to taxable years beginning on or after January 1, 2020.
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