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October 31, 2018
The Department of the Treasury; Department of Labor, and The Department of Health and Human Services (the Departments) have jointly issued proposed regulations designed to expand the use of health reimbursement arrangements (HRAs). The new rules would allow HRAs to be used to pay for individual health insurance policies, create a new type of limited excepted benefit HRA, and allow employees to have premiums for some types of individual policies reimbursed on a pre-tax basis through a Section 125 cafeteria plan.
The proposed rules are in response to President Trump’s executive order in October 2017 that directed regulatory agencies to revise existing guidance to “…expand employers’ ability to offer HRAs to their employees, and to allow HRAs to be used in conjunction with non-group coverage.”
Current regulatory and sub-regulatory guidance issued since 2013 prohibits employers from paying for an employee’s individual health insurance policy and requires that HRAs offered to employees must be integrated with group health insurance policies. The proposed rules would add two new HRA options:
This option would allow an employer to provide tax-free funding to an employee’s HRA account that could be used to purchase individual health insurance policies. The rules include provisions designed to limit an employer’s ability to steer higher-risk employees to the individual market:
The HRA would be considered an offer of minimum essential coverage (MEC) for purposes of satisfying §4980H(a) employer shared responsibility requirements. If the HRA also provides minimum value and is affordable, the offer would also satisfy Section 4980H(b) requirements. All individual policies sold through a public exchange provide minimum value, so an HRA integrated with one of these policies would automatically meet the minimum value requirement. The rules also contain a proposed methodology for determining if the offer will be considered affordable.
Enrollment in the HRA would cause an employee to lose eligibility for a PTC when purchasing individual health insurance through a public Exchange. In addition, if the HRA provides minimum value and is affordable, an employee would lose eligibility for a PTC even if the individual opts-out of coverage. This is similar to the rules applicable to employer sponsored group health plans. Under current rules, employees are not eligible for the PTC if they are also eligible for affordable, minimum value employer group health coverage, even if they choose not to enroll.
Currently, employers are prohibited from offering a stand-alone HRA to active employees unless it only reimburses claims for limited expenses such as dental and vision. The new rules would allow a stand-alone HRA to reimburse all Section 213(d) expenses and still qualify as an excepted benefit. To maintain excepted benefit status, the HRA must meet certain requirements:
In addition to an integrated HRA, employers may also allow employees to pay individual health coverage premiums on a pre-tax basis through a Section 125 cafeteria plan. As proposed, these individual policies must be sold outside the public Exchange and be partially funded by an HRA integrated with individual insurance coverage. However, the Departments have asked for comments on permitting it as a stand-alone arrangement.
The proposed rules make no changes to the employer’s ability to integrate an HRA with group health plan coverage. Employers are also still allowed to offer a stand-alone HRA for the reimbursement of excepted benefits, and to offer a full stand-alone HRA to retirees. The Departments are taking comments on the rules through December 28, 2018. Final rules are expected to be issued early in 2019 with an effective date of plan years beginning January 1, 2020.
As always, should you have any questions, please contact your Parker, Smith & Feek Benefits Team. For additional employee benefit compliance news and information visit our Healthcare Reform Explained website.
The views and opinions expressed within are those of the author(s) and do not necessarily reflect the official policy or position of Parker, Smith & Feek. While every effort has been taken in compiling this information to ensure that its contents are totally accurate, neither the publisher nor the author can accept liability for any inaccuracies or changed circumstances of any information herein or for the consequences of any reliance placed upon it.