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Proposed rule would establish new types of health reimbursement arrangements

Health and Benefits
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By Anu Gogna and Ben Lupin | November 13, 2018

Under the proposal, HRAs would be easier to offer and to use, and they could be used in conjunction with individual health coverage.

The Departments of Labor (DOL), Treasury, and Health and Human Services (HHS) have released a proposed rule that would expand the available types of health reimbursement arrangements (HRAs) and promote their use. The proposed rule responds to President Trump’s Executive Order 13813,1 which directed the federal government to expand access to more affordable health coverage by, among other things, making HRAs easier to offer and to use, and allowing them to be used in conjunction with individual health coverage.

The two new types of HRAs introduced in the proposed rule are:

  • Integrated Individual Coverage HRAs (ICHRAs). Under the proposed regulations, an employer can offer HRAs that can be integrated with individual health insurance coverage (including coverage purchased in the public marketplace) as long as the following integration rules are met:
    1. Proof of coverage. An ICHRA must require participants and covered dependents to be enrolled in individual health coverage (other than excepted-benefits-only coverage) and to show proof of coverage. The departments also clarify that an HRA may be integrated with student health insurance coverage that satisfies the applicable requirements.
    2. Same offer to same class of employees. A plan sponsor may not offer the same “class of employees” both a traditional group health plan and an ICHRA.2 The proposed rule also notes that, under the cafeteria plan rules, plan participants may not pay for public marketplace coverage on a pretax basis (but can pay for individual health coverage purchased elsewhere, including a private marketplace, on a pretax basis).
    3. Same terms. ICHRAs must be offered on the same terms (including reimbursement amounts) to all employees within a class, subject to certain exceptions such as participant age and family size. The departments clearly state that offering a more generous HRA amount based on an adverse health factor would not be permitted.
    4. Opt-out. Employers must allow participants to opt out of the ICHRA at least annually. In some circumstances, a participant might be better off claiming a premium tax credit (PTC) in the public marketplace than receiving ICHRA reimbursements. In addition, upon termination of employment, either the remaining amounts in the ICHRA must be forfeited or the participant must be allowed to permanently opt out of the ICHRA.
    5. Notice requirements. The ICHRA would have to give all participants written notice of the plan’s terms and other information at least 90 days before the start of the plan year (or for newly eligible participants, by their eligibility date). In addition to describing plan terms, the notice would have to state the following:
      • Participants have the right to opt out and waive future reimbursements, and PTCs may be available to participants who opt out.
      • Participants who apply to a public exchange for advance payment of a PTC must inform the exchange of the availability of the ICHRA.
      • Participants should retain the written notice.
      • The ICHRA may not reimburse any unsubstantiated medical care expense.
      • Participants are responsible for informing the ICHRA if they (or their covered dependents) are no longer enrolled in individual health coverage.

Note: Under the proposed rule, an employer could offer an ICHRA to a class of employees so long as it does not also offer a traditional group health plan to the same class of employees.

  • Limited excepted benefit HRAs. To be recognized as limited excepted benefits, HRAs must meet four requirements:
    1. The HRA must not be an integral part of the group health plan. Similar to the requirement under the limited excepted benefit regulations for health flexible spending accounts (FSAs), an HRA may be considered an excepted benefit only if the employer also offers other group health plan coverage (other than an account-based plan or excepted-benefits-only coverage).
    2. The HRA must provide limited benefits. The amounts available in an excepted benefit HRA may not exceed $1,800 a year, indexed for inflation for plan years beginning in 2021. Carryover from prior years will not count toward the annual limit.
    3. The HRA may not reimburse premiums for individual health insurance coverage, coverage under a group health plan (other than COBRA or other group continuation coverage), or Medicare parts B or D. However, an excepted benefit HRA could reimburse premiums for individual coverage that consisted solely of excepted benefits or a group health plan that consisted solely of excepted benefits, as well as short-term limited duration insurance premiums and COBRA premiums.
    4. Uniform availability requirement. The HRA must be available under the same terms to all similarly situated individuals (as defined in the HIPAA nondiscrimination regulations), regardless of any health factor.

Note: Under the proposed rule, employers could offer an excepted benefit HRA only if traditional group health plan coverage is also made available to employees who are eligible for the excepted benefit HRA. As a result, an employer could not offer both an ICHRA and an excepted benefit HRA to any employee.

Some additional highlights in the proposed regulations include:

  • PTC eligibility and affordability. The proposed rule would amend the PTC eligibility regulations to provide that employees (or eligible dependents) who opt out of an ICHRA are thus declining an offer of minimum essential coverage under an employer plan (assuming the ICHRA is affordable and provides minimum value), which makes them ineligible for the PTC.3
  • ACA employer mandate. The IRS intends to issue guidance on a safe harbor for determining whether an employer that offers an ICHRA will satisfy the affordability and minimum value requirements under the employer mandate.
  • ERISA status. A clarification from the DOL provides that individual health coverage that is paid for by an ICHRA does not become part of an ERISA plan as long as the following conditions are satisfied:
    1. The purchase of individual health insurance coverage is completely voluntary for employees.
    2. The employer, employee organization or other plan sponsor does not select or endorse any particular issuer or insurance coverage. Providing contact information about the availability of health insurance or general health insurance educational information would be permitted.
    3. Reimbursement for non-group health insurance premiums is limited solely to individual health insurance coverage.
    4. The employer, employee organization or other plan sponsor receives no consideration in the form of cash or otherwise in connection with the employee’s selection or renewal of any individual health insurance coverage.
    5. All plan participants are notified annually that the individual health insurance coverage is not subject to ERISA.
  • Special enrollment rights. An HHS provision would permit employees (and dependents) who gain access to an ICHRA to enroll in individual health coverage or change from one individual health plan to another outside the individual market annual open enrollment period.
  • Effective date and comment deadline. The proposed ICHRA and excepted benefit HRA provisions, as well as the DOL clarification about ERISA status, are proposed to apply to group health plans and health insurance issuers for plan years beginning on or after January 1, 2020. The tax credit provisions and HHS special enrollment period provisions are proposed to take effect in taxable years beginning on or after January 1, 2020.

According to the proposed rule, taxpayers and others may not rely on the guidance in the proposed rule, so employers will likely want to wait for final regulations to be issued before taking any action. The departments have requested comments on the proposed rule by December 28, 2018.


Endnotes

1. See “President Trump signs ACA executive order, ends cost-sharing reduction payments,” Willis Towers Watson Insider, November 2017.

2. The eight classes of employees identified in the proposed regulations include: full-time employees, part-time employees, seasonal employees, employees covered under a collective bargaining agreement, employees who have not satisfied a waiting period, employees who did not turn age 25 before the beginning of the plan year, non-resident aliens with no U.S.-based income, and employees whose primary site of employment is in the same rating area.

3. The ICHRA will be considered affordable if the employee’s required HRA contribution does not exceed 1/12 of the product of the employee’s household income and the required contribution percentage.

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