The Departments (IRS, DOL, and HHS) have jointly proposed regulations in response to President Trump’s executive order directing the agencies to consider regulations or guidance that would expand the availability and permitted use of HRAs (Health Reimbursement Arrangements), allowing HRAs to be used in conjunction with non-group coverage. Most experts see this as a non-starter, since post-ACA all non-retiree HRAs have to be bundled with a major medical plan to pass the stringent ACA-requirements.
Let’s review the highlights associated with these new regulations:
HRAs Funding Individual Health Insurance – The proposed regulations would allow HRAs to be integrated with, and to reimburse premiums for, individual health insurance coverage if certain conditions are met. For this regulation, individual health insurance coverage is defined as coverage offered in the individual market as well as fully-insured student health insurance. Employees and dependents covered by the HRA would have to be enrolled in individual coverage (other than coverage that consists solely of excepted benefits), and an attestation or other verification of enrollment would be required when participation commences and when expenses are reimbursed. Also, the HRA sponsor could not offer a “traditional” group health plan (one that is neither account-based nor limited to excepted benefits) to the same class of employees. The HRA would have to be offered on the same terms and conditions to all employees within a class, except that the HRA benefit amount could increase by age or family size. The regulations offer several permitted classifications, including full-time, part-time, seasonal, and collectively bargained employees. Employees would have to be able to opt-out and waive future HRA reimbursements at least annually and would have to receive timely written notices with specified HRA information.
Excepted Benefit HRAs – The proposal would allow employers to offer qualified non-integrated HRAs that may be used to pay premiums for excepted benefits, short-term plans, and COBRA premiums (and thus are not subject to the PHSA mandates, and, by extension, ACA mandates) if they meet the following requirements:
- The employer makes other non-excepted, non-account-based group health plan coverage available to the HRA participants (enrollment is not required);
- no more than $1,800 (indexed after 2020) is newly available to each participant for each plan year (carryovers permitted under the arrangement would be disregarded);
- the HRA does not reimburse premiums for individual health coverage, non-COBRA group coverage, or Medicare Parts B or D (premiums for coverage consisting solely of excepted benefits could be reimbursed); and,
- the HRA is made available under the same terms and conditions to all similarly situated individuals. An excepted benefit HRA could not be offered to employees who are also offered an HRA that is integrated with individual health insurance.
- Cafeteria Plan Salary Reductions – The preamble clarifies that employers with HRAs that are integrated with individual health insurance could allow employees to use pre-tax cafeteria plan salary reductions to pay any portion of their individual insurance premiums not covered by the HRA. (Presumably, salary reductions would not be available for individual policies offered through an Exchange, due to restrictions under the cafeteria plan rules.) If offered, salary reductions would have to be made available on the same terms and conditions to all employees within a class.
- Premium Tax Credit Guidance – A proposed IRS regulation would provide guidance regarding the premium tax credit consequences for individuals who are offered or covered by an HRA that is integrated with individual health insurance.
- ERISA Plan Status of Individual Health Coverage – Under a proposed DOL regulation, the terms “employee welfare benefit plan” and “welfare plan,” as used in ERISA, would not include individual health insurance funded by an HRA if certain requirements are met. Among other things, the purchase of the insurance must be completely voluntary for participants and beneficiaries; the employer or other plan sponsor must not select or endorse any particular insurer or coverage; and participants must be notified annually that the individual coverage is not subject to ERISA.
- Exchange Special Enrollment Periods – Proposed HHS regulation would establish an Exchange special enrollment period for employees and their dependents who gain access to an HRA that is integrated with individual health insurance coverage or are provided with a QSEHRA, allowing them to enroll in individual insurance coverage or change from one individual coverage plan to another.
- Applicability Date; No Reliance – The changes are proposed to apply for plan and taxable years beginning on or after January 1, 2020, and may not be relied on before they are final.
If these regulations are finalized, as they have been proposed, there will be significant changes brought to that nature and scope of HRAs. Unlike QSEHRAs (Qualified Small Employer HRAs – for sub-50 life groups that aren’t subject to ACA and don’t offer medical/Rx coverage), these changes would apply to groups of all sizes. However, the likelihood of adoption remains small given that many employers already offer cafeteria plans and would not be able to circumvent the non-discrimination rules under IRC Sections 105 and 125.
However, the agencies are accepting comments and are open to suggestions – those comments must be received by December 28, 2018.
In conclusion, if this guidance is finalized, we will have five different types of HRAs:
- HRAs that are integrated with other group health plan coverage (that complies with the ACA/PHSA/etc.)
- Premium reimbursement HRAs
- Excepted benefit (vision or dental) HRAs
- QSEHRAs (although it remains to be seen what value QSEHRAs would offer in light of the flexibility provided by the proposed regulations)
- In addition, retiree-only HRAs will continue to be allowed as well
Source: AP Benefit Advisors