Create New Excepted Benefit Category For HRAs, Group Suggests

A new excepted benefit category for stand-alone health reimbursement arrangements (HRA) should be created, according to a letter from the Employers Council on Flexible Compensation (ECFC) to the Departments of the Health and Human Services, Treasury, and Labor (Departments). The new category is needed because of the Patient Protection and Affordable Care Act’s (ACA) effect on these arrangements.

“ECFC believes that HRAs can and should play an ongoing role in the post-ACA health insurance marketplace. In fact, HRAs are viewed by many as an essential tool when combined with certain ACA provisions to improve health care efficiency,” the letter stated.

“Unfortunately, the ACA prohibitions on annual and lifetime limits may hinder the establishment of stand-alone HRAs for many employers, an outcome which, in our view, runs counter to the central health reform goal of ensuring the availability of affordable choices for employers and employees. Additionally, the required contributions toward reinsurance payments (rumored to be as much as $60 per covered life beginning in 2014) under the ACA would apparently apply to third party administrators on behalf of HRAs if an exemption is not available. Since HRAs are entirely funded with employer contributions, this additional fee would weigh heavily upon the employers who offer HRAs—perhaps causing employers to drop this valuable tool for consumer driven health care,” the letter continued.

The ECFC sets forth the following specific recommendations for the Departments to consider when crafting and issuing guidance on this issue:

1. Use pre-established standards for flexible spending arrangements (FSAs) under Code Sec. 106(c)(2) to establish a new excepted benefit category for stand-alone HRAs as a limited excepted benefit with safe harbors under Treasury Reg. Sec. 54.9831-1(c)(3).

2. Specify that an HRA that has sufficient value and that is used to pay for either individual or group minimum essential coverage also fulfills the employer’s pay or play mandate and would not be an excepted benefit under the above proposed definition. Employers would specify when the HRA should be considered for this purpose through an easy to administer “check the box” type approach, as part of the new reporting requirements for employers under the ACA related to the pay-or-play mandate. Such an approach would have the following important and practical outcomes:

a. An HRA that is minimum essential coverage (when integrated with a policy or plan that meets affordability and minimum value rules) would satisfy the employer pay-or-play mandate, but an HRA that is not minimum essential coverage (i.e., because it fails to meet affordability and minimum value rules) would not fulfill the employer’s obligation.

b. An HRA that is minimum essential coverage would satisfy the individual mandate, but those not meeting the minimum essential coverage rules would not.

c. An HRA that is minimum essential coverage when integrated with a policy or plan that meets affordability and minimum value rules would prevent individuals from obtaining subsidies through the exchanges, but an HRA that is not minimum essential coverage (i.e., that does not satisfy the affordability and minimum value rules) would not prohibit individuals from obtaining subsidized coverage through the exchanges.

3. Broaden the current special rule regarding annual and lifetime limits for HRAs offered in conjunction with a group health plan (“integrated” HRAs) to provide that an HRA that is either (a) offered in addition to coverage that meets ACA annual and lifetime cap requirements, or (b) has sufficient value to purchase and is used to purchase an individual or group policy that meets minimum essential coverage requirements satisfies the annual and lifetime cap requirements.

For more information, visit http://www.ecfc.org.

Visit our News Library to read more news stories.