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Administration moves to let HRAs be used for individual coverage
Policy change for employer benefits
On October 23, 2018, the Departments of Labor (DOL), Health and Human Services (HHS), and the Treasury released a notice of proposed rule making (NPRM) aimed at expanding the availability of health reimbursement arrangements (HRAs) principally by permitting HRAs to be used to purchase health insurance on the individual market.
October 29, 2018 | Health care
The agencies explain that the proposed regulatory changes aim to promote “individually-selected and portable health insurance coverage” while effectively extending the “tax advantage for traditional employer group insurance (exclusion of premiums and benefits received, from federal income and payroll taxes) to HRA reimbursements of individual market insurance market premiums.”
To achieve this goal, the agencies propose modifications to regulations and other guidance related to the Affordable Care Act (ACA) and amendments to the Employee Retirement and Income Security Act (ERISA), Public Health Services Act (PHSA), and Internal Revenue Code (IRC) made by the ACA. DOL, HHS, and Treasury, respectively, have jurisdiction over each of these laws, hence the tri-agency NPRM.
The NPRM also outline conditions for employers to offer HRAs as excepted benefits alongside traditional employer-sponsored group coverage.
The NPRM is the third and final in a series of regulatory actions taken in response to an executive order signed by President Trump on October 12, 2017. The executive order directed federal agencies to revisit regulations on Association Health Plans (AHPs), short-term limited duration insurance (STLDI), and HRAs. These rules are part of a larger effort to increase competition and expand the availability of lower-premium coverage options.
The NPRM is scheduled to be published in the Federal Register on October 29, 2018. Comments are due by December 28, 2018.
If finalized, the proposed changes would take effect for plan years beginning on or after January 1, 2020. The Departments estimate that about one million individuals would receive an HRA integrated with individual coverage in 2020 and that roughly 800,000 employers would provide HRAs covering 10.7 million individuals by 2028.
Enrollment in group health coverage is projected to fall by about 0.4 percent in 2020 and by 4.5 percent by 2028.
Context for the proposed changes
An HRA is an account-based group health plan funded entirely by employer contributions that reimburse an employee for medical care expenses incurred by the employee, their spouse, or dependents up to a maximum dollar amount for a coverage period.
Via regulations and other guidance issued during the implementation of the ACA, the Obama Administration adopted policies that generally required HRAs to be integrated with group health coverage in order to comply with the ACA’s health insurance market reforms, including the prohibition of annual and lifetime limits for essential health benefits (EHBs) and coverage of preventive health services without cost-sharing.
The NPRM would revise a number of these regulations reflecting a different interpretation of the applicability of the ACA’s insurance market reforms. The NPRM also sets forth additional policies aimed at preventing potentially discriminatory offers of HRAs to employees.
Select key provisions of the NPRM are highlighted below.
Integration of HRAs with individual coverage
The NPRM would remove the current prohibitions against integrating an HRA with individual health insurance coverage and would set forth the conditions under which employers could offer HRAs that could be integrated with individual health insurance either via an ACA Exchange or off the Exchange in the individual market of a state. An employer, or other plan sponsors, could not select or endorse any particular individual coverage issuer. Similarly, the employer would be prohibited from receiving cash compensation tied to an employee’s coverage choice.
Under the NPRM, employers would be permitted to offer HRAs that could be integrated with individual health coverage to employees so long as the HRA was offered to all employees in the same employee class. Permissible employee classes are:
- Full-time employees
- Part-time employees
- Seasonal employees
- Employees who are included in a unity of employees covered by a collective bargaining agreement (CBA)
- Employees who have not satisfied a permissible waiting period for coverage
- Employees who are under age 25 at the beginning of the plan year
- Non-resident aliens with no US-based income (generally, foreign employees who work abroad)
- Employees whose primary site of employment is in the same rating area
The proposed integration rules also allow as additional classes, groups of employees described as a combination of two or more of the classes listed above. The NPRM provides an example in which part-time employees covered by a CBA would be considered a separate class from full-time employees covered by the same CBA.
Importantly, the NPRM would prohibit an employer from offering a class of employees both a traditional group health plan and an HRA integrated with individual health insurance coverage in order to reduce adverse selection.
Employees would be required to demonstrate that they have purchased ACA-compliant individual coverage as a condition of participation in an HRA integrated with individual coverage.
Although the NPRM would prohibit the purchase of STLDI using HRAs integrated with individual health insurance coverage, the agencies request comment on the proposed prohibition.
Contributions to HRAs integrated with individual coverage
The NPRM would permit the maximum contribution amount to HRAs to vary based on an employee’s age and/or family size, so long as the same maximum contribution amount attributable to the increase in age and/or family size is made available to all participants in the same employee class of the same age and/or family size.
Similar to the tax treatment of traditional employer-sponsored coverage, there generally is no upward bound for employer contributions to HRAs integrated with individual coverage.
Interaction with ACA—Employer mandate and premium tax credits (PTCs)
Under the ACA’s so-called employer mandate, employers with at least 50 full-time equivalent employees generally are required to offer coverage to full-time employees that meet the ACA’s standards of affordability and minimum value.
A plan is considered to provide at least minimum value if it covers at least 60 percent of the cost of benefits covered by the plan. Coverage is considered affordable under the ACA if the employee’s premium contribution for self-only coverage that meets the minimum value standard does not exceed 9.5 percent of household income.
Employers who do not offer coverage to at least 95 percent of full-time employees face an excise tax of $2,000 per full-time employee. According to the NPRM, Treasury, and the IRS plan to issue guidance on a safe harbor that would treat an employer that offered an HRA integrated with individual health coverage as having made an offer of coverage that provides at least minimum value even if the employee who receives the offer declines the coverage and receives a premium assistance tax credit to purchase exchange coverage.
Employers who offer coverage to full-time employees face a penalty of $3,000 for each employee who is found to be eligible for a premium assistance tax credit and purchases insurance in an ACA Exchange because employer coverage was not affordable or did not provide at least minimum value.
In the context of an HRA integrated with individual insurance coverage, the HRA would be considered unaffordable for the employee if the premium for the lowest-cost silver plan available on an ACA Exchange for the rating area where the employee lives less the HRA amount exceeds 9.5 percent of the employee’s household income. The NPRM would consider such coverage to satisfy the minimum value standard because the lowest-cost silver plan on the ACA Exchange in an area would be the lowest cost plan “is certain” to cover at least 60 percent of the cost of benefits covered by the plan.
Importantly, the NPRM would retain a provision for employees offered an HRA integrated with an individual health plan that would allow an eligible employee to draw down a PTC if the employee opts out and waives future reimbursements from the HRA. Thus, employees could not draw down PTCs and access HRA funds simultaneously.
In effect, employees offered an HRA integrated with an individual health plan would be deemed eligible for a PTC only if the premium for the lowest-cost silver plan available on an ACA Exchange for the rating area where the employee lives less the HRA amount exceeds 9.5 percent of the employee’s household income.
Individuals found to be eligible for PTCs in the individual insurance market may remain eligible for the remainder of the plan year, regardless of whether they are offered an HRA integrated with individual coverage. In general, however, if an individual is covered by an HRA integrated with individual health insurance coverage for a given month, they are not eligible for PTCs.
The NPRM would create a new special enrollment period to allow employees and their dependents to enroll in individual health insurance coverage or to change from one individual health insurance coverage plan to another outside of the individual market annual open enrollment period if they gain access to an HRA integrated with individual health insurance coverage.
Excepted benefit HRAs
The NPRM would allow an employer offering traditional employer-sponsored group coverage to offer an HRA of up to $1,800 per year (indexed for inflation for plan years beginning after December 31, 2020) to reimburse an employee for certain qualified medical expenses, include premiums for STLDI and other excepted benefits. Examples of other excepted benefits include limited scope vision or dental benefits, benefits for long-term care, nursing home care, home health care, or community-based care.
Excepted benefit HRAs could not be used for premiums for individual coverage, coverage under a group health plan other than COBRA or other continuation coverage, or premiums for Medicare parts B and D.
The $1,800 limit is the approximate midpoint amount that the agencies found among various methodologies used to evaluate possible excepted benefit HRA limits.
Notably, the NPRM would require an employer to offer group health plan coverage to an employee in order to also offer the employee an excepted benefits HRA. However, the employee would not be required to enroll in the group health plan to be eligible for the excepted benefits HRA. The NPRM goes on to explain that because an HRA integrated with individual coverage would be considered group health coverage under the proposed regulatory changes, it would be possible for an employer to offer an excepted benefits HRA alongside an HRA integrated with individual coverage. In such a case, an employee could decline to enroll in the HRA integrated with individual health coverage and apply the excepted benefits HRA toward the cost of STLDI.
The NPRM would require employers offering excepted benefit HRAs to make them available under the same terms to all similarly situated individuals regardless of any health factor.
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