Trump Administration’s Proposed Rule Expands Usability of HRAs
November 27, 2018
On October 23, 2018, the Internal Revenue Service, the Department of Labor and the Department of Health and Human Services released a proposed rule broadening the availability and use of health reimbursement arrangements (HRAs). The proposed rule comes in response to President Trump’s executive order from October 2017, which called for the expansion of employers’ ability to offer HRAs to their employees and allow HRAs to be used in conjunction with non-group coverage. The newly proposed rule would seek to “expand opportunities for working men and women and their families to access affordable, quality healthcare” through changes to regulations under various provisions of the Public Health Service Act (PHSA), the Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code (IRC). The proposed effective date is for plans beginning on or after January 1, 2020.
An HRA is an employer-funded account-based plan that reimburses employees, tax-free, for the cost of certain medical care expenses not covered by company-sponsored insurance. The Affordable Care Act (ACA) had forbidden the use of them to pay for premiums on the individual market and mandated they could only be offered to employees enrolled in group health coverage. The proposed rule introduces two new types of HRAs described below:
- Integrated HRA - Integrated with individual health care coverage
- Excepted Benefit HRA - Reimburses employees for certain limited benefits
Integrated HRAs
The proposed regulations expand the use of HRAs for premiums to all employers, regardless of size. Current regulatory guidance prohibits employers from offering HRAs that reimburse employees for the cost of individual health insurance coverage. The proposed rule would remove that prohibition, allowing the HRA to be “integrated” with individual health insurance coverage as long as the following requirements are met:
Individual Health Care Coverage
The Integrated HRA must require participants and any dependents covered by the HRA to be enrolled in individual health insurance coverage and to substantiate compliance with this requirement. The coverage could be purchased through the Exchange or through the private individual insurance market and would include student health insurance. The proposed rule would create a special enrollment period for individuals who become eligible for an Integrated HRA.
ERISA Conditions
The proposed rule states that the individual health insurance coverage reimbursed by the HRA in compliance with these requirements would not be considered a group health plan for ERISA purposes if certain conditions are met. The purchase of coverage by the employee must be voluntary, the employer must not be involved in the selection of coverage and not receive consideration in connection with the employee’s selection of coverage, and the employee must be notified annually that the coverage is not subject to ERISA.
Eligibility for Integrated HRA or Group Health Plan
Employers would not be permitted to offer an Integrated HRA and a traditional group health plan to the same class of employees. By restricting employees from choosing between these two options, the proposed rule aims to prevent an employer from steering employees away from group health plan coverage in favor of individual coverage bolstered by the Integrated HRA. However, employers could offer a traditional group health plan to one group of employees and an Integrated HRA to a different group of employees, as long as the specified groups fall within permitted categories outlined above.
Same Terms
An Integrated HRA would have to be offered on the “same terms” to all employees within a category. This requirement prevents employers from offering a more generous HRA to certain individuals within a class on the basis of health status. The proposed rule clarifies that it would be permissible for employers to offer a higher dollar amount under an Integrated HRA to certain individuals within a class on the basis of age or family size to account for higher premium. Also, employers could decide to offer an Integrated HRA to some but not all former employees (e.g., only to former employees with a minimum number of years of service). If the premium is not fully covered by the HRA, employees would be permitted to pay for coverage on a pre-tax basis under a cafeteria plan as long as it is provided on the same basis to all employees within the class and only if the coverage is purchased off-Exchange.
Opt Out
Under current rules, HRA-eligible participants are not eligible for a premium tax credit (PTC) on the Exchange. The proposed rule recognizes that some individuals may benefit from claiming the PTC rather than receiving reimbursements under the HRA because the HRA either is unaffordable or does not provide minimum value. The proposed rule allows employees to take advantage of the PTC by opting out of and waiving future reimbursements from the Integrated HRA under these circumstances. The proposed rule contains metrics for determining whether the Integrated HRA would be considered “affordable” coverage and describes a safe harbor determination for affordability.
Notice
Plan sponsors would be required to provide written notice of the Integrated HRA to eligible participants at least 90 days before the beginning of each plan year. The notice must contain relevant information about the Integrated HRA including the terms of the HRA, the maximum available dollar amount, a statement of the participant’s right to opt out of the HRA, and an explanation of eligibility consequences regarding the PTC if the participant accepts the HRA.
Integrated HRAs may be attractive to small employers who are not required to offer coverage but who want to provide workers with health care coverage to attract talent and retain employees. Through an Integrated HRA, small employers can reimburse employees for the cost of obtaining their own individual health care coverage. An Integrated HRA may also appeal to larger employers who want to retain their current group health plan but wish to provide the Integrated HRA to certain classes of employees.
Excepted Benefit HRAs
The Excepted Benefit HRA represents a new product that provides employers with another way to offer benefits beyond traditional health insurance. An Excepted Benefit HRA would reimburse employees for certain limited benefits. An individual would be eligible to participate in an Excepted Benefits HRA regardless of whether he or she has any other health care coverage. The following requirements apply:
Not an Integral Part of the Group Health Plan
Plan sponsors must offer other group health plan coverage to the same classes of employees to whom the Excepted Benefit HRA is offered, so that the HRA is not an “integral part” of the group health plan offered by the plan sponsor. While plan sponsors would be required to offer both types of coverage, employees would not be required to enroll in the plan sponsor’s group health plan in order to participate in the HRA.
Limited in Amount
Employers can offer up to $1,800 per year through an Excepted Benefit HRA, adjusted annually for inflation.
Reimbursement for Certain Types of Coverage
Excepted Benefits HRAs would only be permitted to reimburse premiums for excepted benefits (such as dental or vision coverage), short-term limited-duration policy premiums, and COBRA premiums.
Uniform Availability
Plan sponsors would be required to make Excepted Benefit HRAs available on the same terms to all similarly situated individuals, regardless of any health factor.
Under the proposed rule, an employer could not offer both an Integrated HRA and an Excepted Benefit HRA to the same employee. An employer could offer one HRA arrangement to one class of employees and the other HRA arrangement to a different class of employees. Employers would want to consider the differing requirements of each, and the impact and overall benefit to each employee class.
The proposed rule would open up new product opportunities for administrators to provide to employers, and would benefit those employers by enabling them to offer a wider choice of benefit options to their employees. The proposed regulations are open for comment for 60 days from the date of publication. More information and guidance will be forthcoming in the new year.