Proposed regulations issued on HRAs

The U.S. Treasury (IRS), together with the Department of Labor (EBSA) and the Department of Health and Human Services (CMS) have proposed rules to expand opportunities to access affordable, quality healthcare through changes to regulations under various provisions of the Public Health Service Act (PHS Act), the Employee Retirement Income Security Act (ERISA), and the Internal Revenue Code (Code) regarding health reimbursement arrangements (HRAs) and other account-based group health plans. The preamble generally refers only to HRAs, but references to HRAs should also be considered to include other account-based group health plans, unless indicated otherwise. The proposed rules would generally be effective on or after January 1, 2020, or for plan years starting on or after January 1, 2020.

HRA expansion

The proposed rules would expand the use of health reimbursement arrangements (HRAs) by—

  • allowing integration of an HRA with individual health insurance coverage and thereby satisfy the Affordable Care Act’s annual dollar limit and preventive care cost sharing requirements;
  • creating “excepted benefit HRAs” limited in amount and to the types of coverage for which premiums may be reimbursed;
  • providing new premium tax credit eligibility rules for individuals who are offered an HRA integrated with individual health insurance coverage;
  • clarifying that individual health insurance coverage the premiums of which are reimbursed by an HRA or Qualified Small Employer HRA does not become part of an ERISA plan when certain conditions are met, and
  • adding new special enrollment for the individual market for individuals who gain access to HRAs integrated with individual health insurance coverage or who are provided.

HRA and individual coverage integration

The biggest piece of news here is allowing almost any employer to satisfy Affordable Care Act reimbursement requirements by having employees buy their own individual coverage. An employer may integrate an HRA with individual health coverage only if—

  • participants and dependents are actually enrolled in individual health insurance coverage (though not coverage that consists solely of excepted benefits) for each month they are covered by the HRA;
  • coverage is offered to a class of employees to whom a traditional group health plan is not offered;
  • coverage is offered on the same terms in amount and conditions to all employees within each class (though certain variations based on age are allowed);
  • an opt out option is provided for individuals who prefer Affordable Care Act Exchange coverage, but would not be eligible for the premium tax credit if enrolled in an employer health plan such as an HRA; and
  • substantiation and notice requirements are met.

There is no minimum or maximum employer size or employee class size for purposes of applying the proposed integration rules. Classes of employees may include—

  • full-time employees;
  • part-time employees;
  • seasonal employees;
  • employees who are included in a unit of employees covered by a collective bargaining agreement in which the plan sponsor participates;
  • employees who have not satisfied a waiting period for coverage;
  • employees who have not attained age 25 prior to the beginning of the plan year;
  • nonresident aliens with no U.S.-based income;
  • employees whose primary site of employment is in the same rating area; and
  • groups combining any of these classes of employee.

Cafeteria plans

Under the Affordable Care Act, an employer may not permit employees to make salary reduction contributions to a cafeteria plan to purchase a qualified health plan (including individual health insurance coverage) offered through an Exchange. However, this rule does not apply to individual health insurance coverage that is not purchased on an Exchange. Therefore, for an employee who purchases individual health insurance coverage outside the Exchange, the employer could permit the employee to pay the balance of the premium for the coverage through its cafeteria plan.

QSEHRAs

The proposed rules would plough a lot of the same ground as Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs), but also be available to large employers. Reimbursement plans are typically more popular with medium and small employers, so it remains to be seen how much difference the proposed regulations would make.

Safe harbor

If a full-time employee of an applicable large employers is allowed the premium tax credit for a month, the employer may be liable for an employer shared responsibility payment if it does not offer an eligible employer-sponsored plan to at least 95 percent of its full-time employees and their dependents, or because the plan it offers does not meet minimum value or affordability requirements.

The proposed premium tax credit regulations set out the extent to which a full-time employee who was offered an HRA will be eligible for the credit. In the near term, the Treasury Department and the IRS intend to issue guidance that describes an anticipated safe harbor for purposes of determining whether an employer that has offered an HRA integrated with individual health insurance coverage would be treated as having made an offer of affordable coverage that provides MV for purposes of employer shared responsibility payments.

Excepted Benefit HRAs

If an employer wants to offer an HRA that is not integrated with non-HRA group coverage, Medicare, TRICARE, or individual health insurance coverage, they may do so under the proposed rules as an excepted benefit. As excepted benefits, these HRAs would not be subject to the employer group plan rules, including the market reforms under the Affordable Care Act. The proposed rules impose following requirements for excepted benefit HRA—

  • the HRA must not be an integral part of the plan;
  • the HRA must provide benefits that are limited in amount ($1,800 per year, adjusted for inflation after 2020);
  • the HRA cannot provide reimbursement for premiums for certain health insurance coverage; and
  • the HRA must be made available under the same terms to all similarly situated individuals.

Comments invited

Comments are due on or before 60 days after October 29, 2018. Comments, identified by REG-136724-17, may be submitted by one of the following methods: Federal eRulemaking Portal: www.regulations.gov. Follow the instructions for submitting comments. Mail: CC:PA:LPD:PR (REG-136724-17), Room 5205, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044. Hand or courier delivery: Monday through Friday between the hours of 8:00 a.m. and 4:00 p.m. to CC:PA:LPD:PR (REG-136724-17), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue NW., Washington, DC 20224. Comments received will be posted without change to www.regulations.gov and available for public inspection.

Further information

For further information, contact: Christopher Dellana, Department of the Treasury, IRS, at (202) 317-5500; Elizabeth Schumacher or Matthew Litton, Department of Labor, EBSA, at (202) 693-8335; David Mlawsky or Cam Clemmons, Department of Health and Human Services, CMS, at (410) 786-1565. (U.S. Department of Treasury, IRS Reg-136724-17, RIN 1545-BO46; Department of Labor Employee Benefits Security Administration RIN 1210-AB87; Department of Health and Human Services, CMS-9918-P, RIN 0938-AT90, October 23, 2018.)

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