On October 29, 2018, the Departments of the Treasury, Health and Human Services, and Labor jointly issued proposed regulations providing employer plan sponsors greater flexibility in integrating health reimbursement accounts (HRAs) with other health insurance coverage. The proposed regulations would take effect for plan years beginning on or after January 1, 2020, and would make the changes described below. The deadline for submitting comments on the proposed regulations is December 28, 2018.
Allowing Integration of HRAs with Individual Health Insurance Coverage
Currently, HRAs that are not integrated with group health coverage will violate the Affordable Care Act’s (ACA) prohibition against annual limits on benefits and will fail to meet the ACA’s requirement to provide preventive services without cost sharing. The proposed regulation provides an exception to these rules for HRAs that are integrated with individual health coverage, including coverage offered on a state Exchange established under the ACA, if the HRA meets certain requirements.
- The HRA must require participants to enroll in individual health insurance, such as major medical coverage, that does not consist solely of excepted benefits. Plans that cover only dental or vision benefits are typical examples of plans that cover only excepted benefits.
- The employer sponsoring the HRA must implement reasonable procedures for substantiating enrollment in qualifying individual health insurance coverage.
- The employer sponsoring the HRA may not offer a traditional group health plan to the class of employees to whom the HRA is offered. Therefore, the employer may not allow employees to choose between enrolling in an HRA or in traditional group health insurance.
- The employer must offer the HRA on the same terms to all employees in the same employee class. Permitted classes of employees include, for example, full-time employees, part-time employees, seasonal employees, employees in a particular collective bargaining unit, employees who have not met a waiting period, and employees who have not attained age 25. To classify employees, employers may choose to use the definitions from the nondiscrimination regulations that apply to self-insured plans under Internal Revenue Code (“Code”) section 105(h) or the definitions in the employer shared responsibility regulations under Code section 4980H. Although employers must generally offer the same HRA benefits to all members in an employee class, employers may offer higher reimbursement amounts to older employees or based on the number of covered dependents. The Departments also intend to issue guidance in the near term addressing the interaction of the nondiscrimination requirements under Code section 105(h) with HRAs that are integrated with individual health insurance coverage.
- The employer must also provide employees a notice concerning the HRA. The notice must be provided at least 90 days before the start of each plan year and must describe, among other things, (1) the terms of the HRA, (2) the participant’s right to opt out of the HRA and waive future reimbursements from it, (3) the potential availability of the premium tax credit for Exchange coverage if the participant opts out of the HRA and if the HRA is not affordable, (4) that the participant’s dependents lose eligibility for premium tax credits for Exchange coverage for any month the participant is covered by the HRA, (5) the participant’s obligation to inform the Exchange of the availability of the HRA when applying for a tax credit, and (6) the participant’s obligation to substantiate to the HRA that the participant has enrolled in individual health insurance coverage.
Expanding the Definition of Limited Excepted Benefits to Allow Excepted Benefit HRAs
The proposed regulations designate HRAs as limited excepted benefits if they satisfy certain requirements. Excepted benefits are exempt from certain ERISA and ACA requirements, meaning that such benefits can be offered on a stand-alone basis without being integrated with compliant group or individual medical coverage. To qualify as a limited excepted benefit, the HRA must limit the maximum reimbursement available to $1,800, as adjusted for inflation. In addition, HRA funds may be used to pay premiums only for plans that exclusively offer excepted benefits, for example certain dental or vision plans. An employer offering an excepted benefit HRA must offer group health plan coverage other than a separate HRA that is integrated with individual health insurance coverage. An employer who wants to offer an HRA and does not want to require employees to substantiate their enrollment in individual health insurance coverage may find this type of HRA to be an attractive option.
Determination of Whether an HRA Is Affordable and Offers Minimum Value
An employee who is eligible to participate in an HRA that is integrated with individual health insurance coverage may lose eligibility for premium tax credits to purchase individual health insurance coverage through an Exchange. An employee and such employee’s dependents who are offered and opt out of an HRA that is integrated with individual health insurance coverage would not be eligible for a premium tax credit in any month (1) in which the HRA is affordable and provides minimum value or (2) in which they are enrolled in the HRA. The regulation provides a formula for determining whether the HRA is affordable based on the amount of contributions an employer makes newly available each year under the HRA, an employee’s household income, and the price of the lowest cost silver plan available on the Exchange in the employee’s area. If an HRA is affordable, it would be deemed to also provide minimum value.
The Treasury Department and IRS intend to issue guidance providing a safe harbor for determining whether an employer that offers an HRA that is integrated with individual health insurance coverage will be treated as offering affordable coverage that provides minimum value for purposes of the employer shared responsibility requirements of the ACA.
Special Enrollment Period for Individual Health Insurance Coverage
The Department of Health and Human Services has proposed that gaining access to an HRA that is integrated with individual health insurance would be considered a special enrollment event for purposes of enrolling in plans offered on an Exchange. Therefore, an employee who is offered HRA coverage mid-year that is integrated with individual health insurance coverage would generally be permitted to enroll mid-year in individual health insurance coverage on an Exchange.
Salary Reduction for Individual Health Insurance Coverage Under a Cafeteria Plan
ACA amended the Code to prohibit most employers from allowing employees to pay for a health plan offered through an Exchange on a pre-tax basis through salary deferrals under a cafeteria plan. However, the Preamble to the proposed regulations clarifies that employers who offer an HRA that is integrated with individual health insurance coverage could permit employees who enroll in individual insurance coverage that is not purchased through an Exchange to, for example, defer salary under the cafeteria plan to pay any premiums that are not covered by the HRA.
Individual Health Insurance Coverage May Not Form Part of the ERISA Group Health Plan
The regulation clarifies that the individual health insurance coverage that is integrated with an HRA is not part of the employer’s group health plan for purposes of ERISA as long as the employee’s purchase of the individual health insurance coverage is voluntary, the employer does not endorse any particular insurance coverage, the employer notifies the participant annually that the individual health insurance coverage is not subject to ERISA, and certain other requirements are met.