The Departments of Labor and Treasury have released guidance (Technical Release 2013-03 and Notice 2013-54) clarifying the effect of the Affordable Care Act (“ACA”) on employee assistance plans (“EAPs”) and account-based arrangements, such as health reimbursement arrangements (“HRAs”) and health flexible spending arrangements (“health FSAs”). The guidance indicates that the Department of Health and Human Services intends to issue guidance in substantially identical form.
These are the main points addressed in the new guidance:
- EAPs that do not provide significant benefits in the nature of medical care or treatment are “excepted benefits”—they do not have to satisfy ACA’s group health plan requirements, and they do not make participants ineligible for premium tax credits;
- HRAs can be integrated with a group health plan maintained by a different employer (such as a spouse’s employer) for purposes of satisfying ACA’s prohibition on annual dollar limits and the requirement to cover certain preventive services without cost-sharing;
- Participants with access to reimbursement from HRAs—including retiree-only HRAs—are not eligible for premium tax credits;
- Health FSAs are exempt from ACA’s coverage reforms only if they are offered under a cafeteria plan and also qualify as “excepted benefits;” and
- Employers may not reimburse, on a pre-tax basis, premium payments by employees for health insurance policies purchased in the individual market.
The new guidance is generally applicable for plan years beginning on or after January 1, 2014, but employers may elect to rely on it for prior periods.
Employee Assistance Plans Are Excepted Benefits
Many employers offer EAPs that provide limited counseling and other assistance to employees and their dependents. In many cases, an employee must receive EAP counseling as part of the employer’s progressive disciplinary process for problems such as substance abuse; and some states require employers to offer EAP counseling if the employers conduct mandatory drug testing. Most employers pay the full cost of EAPs. For these reasons, employers often enroll employees automatically in their EAPs, including employees who do not have other group health coverage.
The Labor Department has issued several advisory opinions suggesting that EAPs provide medical benefits if they offer counseling for substance abuse, anxiety, stress, and similar health conditions. Unless an exception applies, EAPs that are considered group health plans are required to comply with ACA’s coverage reforms and are considered “minimum essential coverage”—which means that an individual enrolled in the EAP is not eligible for premium tax credits to purchase health coverage on a public exchange.
Group health plans that provide only “excepted benefits” are exempt from ACA’s coverage reforms and are not “minimum essential coverage”. Under existing regulations, excepted benefits include benefits such as limited-scope dental and vision benefits and certain health FSAs. The guidance states that EAPs will also be excepted benefits if the EAPs do not provide significant benefits in the nature of medical care or treatment.
Employers may make a reasonable, good faith determination whether an EAP provides significant benefits in the nature of medical care or treatment. Employers that calculated the Patient-Centered Outcomes Research Institute (“PCORI”) fee this past July probably have made this determination already: EAPs were subject to the PCORI fee only if they provided significant benefits in the nature of medical care or treatment.
Employers may rely on this guidance at least through 2014, by which time the Departments hope to finalize corresponding amendments to existing regulations.
Health Reimbursement Arrangements
HRAs will comply with ACA’s coverage reforms only if they (1) meet the retiree-only exemption, or (2) are integrated with another group health plan.
- Retiree-Only HRA: An HRA meets the retiree-only exception if it has fewer than two participants who are current employees on the first day of the plan year. The guidance clarifies that a retiree who has access to HRA reimbursements for any month will not be eligible for premium tax credits for that month, even if the amount credited to the HRA is only a carryover balance and the employer no longer contributes to the HRA.
- Integrated HRAs: The guidance repeats previous guidance stating that HRAs cannot comply with ACA’s coverage reforms if HRA amounts can be used to reimburse premiums for individual health coverage. However, the guidance clarifies that employers may continue to offer HRAs that reimburse group health plan premiums and other expenses if the HRA is integrated with another group health plan—including a group health plan maintained by a different employer—using either of two methods: “Minimum Value Not Required” (meaning the HRA is integrated with a group health plan that might or might not satisfy ACA’s minimum value rule) or “Minimum Value Required” (meaning that the HRA is integrated with another plan that satisfies ACA’s minimum value requirement). The conditions for each integration method are described below:
Minimum Value Not Required
Minimum Value Required
|Other Coverage Offered||The employer offers the employee a group health plan (other than the HRA) that does not consist solely of excepted benefits.||The employer offers the employee a group health plan that provides minimum value.|
|Employee Actually Has Other Coverage||The employee receiving the HRA is actually enrolled in a group health plan (other than the HRA) that does not consist solely of excepted benefits, regardless of whether the employer sponsors the plan (“non-HRA group coverage”).||The employee receiving the HRA is actually enrolled in a group health plan that provides minimum value, regardless of whether the employer sponsors the plan (“non-HRA MV group coverage”).|
|Limited Availability of HRAs||The HRA is available only to employees who are enrolled in non-HRA group coverage, regardless of whether the employer sponsors the non-HRA group coverage.||The HRA is available only to employees who are actually enrolled in non-HRA MV group coverage, regardless of whether the employer sponsors the non-HRA MV group coverage.|
|Limited Reimbursements||The HRA limits reimbursements to one or more of the following: co-payments, co-insurance, deductibles, and premiums under the non-HRA group coverage, as well as medical care that does not constitute essential health benefits.||No limits: The HRA may reimburse any medical expenses.|
|Opt-Out Feature||An employee (or former employee) is permitted to permanently opt out of future reimbursements from the HRA at least annually. Upon termination of employment, either the remaining amounts in the HRA are forfeited automatically or the employee is permitted to permanently opt out of future reimbursements from the HRA.||Same opt-out requirements as for Minimum Value Not Required|
The guidance also clarifies that an employer that integrates its HRA with its own non-HRA group health plan (i.e., offers the HRA to employees enrolled in its own group health plan) may take into account amounts newly made available under the HRA in determining whether the non-HRA coverage is affordable or meets minimum value, but not both, for purposes of the employer mandate. An HRA integrated with another employer’s non-HRA group health plan cannot count towards affordability or minimum value for the other employer’s non-HRA group health plan.
Interim final regulations issued in 2010 provided that ACA’s prohibition on annual dollar limits does not apply to health FSAs. The new guidance clarifies, effective as of September 13, 2013, that health FSAs are exempt from the prohibition on annual dollar limits only if they are offered under a cafeteria plan, so that they are subject to the rule limiting salary reduction contributions to $2,500 (indexed for inflation).
Although a health FSA offered under a cafeteria plan is exempt from the prohibition on annual limits, the health FSA will violate other ACA requirements (such as the preventive services requirement) unless the health FSA also qualifies as an “excepted benefit.” A health FSA is an excepted benefit only if employer contributions are limited to the lesser of two times the employee’s salary reduction election (or, if greater, $500 plus the amount of the employee’s salary reduction), and the employer offers the employee other group health coverage that is not limited to excepted benefits.
Employer Premium Reimbursements
Under long-standing Revenue Rulings, arrangements under which employers reimburse employees for some or all of the premium expenses incurred for an individual health insurance policy are group health plans if the employer directly pays the premium or indirectly reimburses the employee for the premium after receiving proof of payment (collectively referred to as “employer payment plans”). Employer reimbursements under employer payment plans are deductible by the employer and are excluded from the employee’s gross income. Employers sometimes enter into these arrangements to provide supplemental health coverage to their executives.
The guidance clarifies that starting in 2014, employer payment plans that reimburse an employee’s substantiated individual insurance policy premiums will not comply with ACA’s prohibition on annual dollar limits because (1) the plan is considered to impose an annual limit up to the premium amount, and (2) the employer payment plan cannot be integrated with any individual health insurance policy purchased under the plan.
Employers that have entered into arrangements with employees to reimburse (or directly pay) premiums on the employee’s individual health insurance policy might want to consider whether these arrangements need to be restructured to comply with ACA. The guidance does not affect employer payment plans with former employees or retirees.