This week, our In Focus section comes to us from HMA Senior Consultant Ryan Mooney (Austin), who reviewed the proposed rule on Health Reimbursement Arrangements (HRAs). On October 29, 2018, the U.S. Department of the Treasury, the Department of Labor, and the Department of Health and Human Services published a proposed rule (83 FR 54420), the purpose of which is to expand the use of HRAs. An HRA is an employer-supported account that helps employees pay for qualified medical expenses not covered by their health plans. The proposed rule is the latest component of the President’s Executive Order 13813, which directed the federal government to expand and facilitate access to association health plans, short-term and limited-duration insurance products, and HRAs.
The proposed rule fundamentally would change how employees can use tax-deductible contributions towards employee health insurance, allowing employer contributions to fund individually-purchased insurance on a broad basis. The major aspects of the proposed rule are:
- HRAs can be leveraged to support the purchase of individual market coverage
- Reimbursement of premiums from employer sponsored HRAs is allowed
- Employees that have access to an HRA to purchase individual market coverage would not be eligible for premium tax credit (PTC) subsidies on an Exchange but may opt out of the employer-sponsored HRA in some circumstances.
- Employers can contribute to the purchase of their employees’ individual market coverage via an HRA without such coverage being treated as a benefit plan under the Employee Retirement Income Security Act (ERISA)
- Special enrollment periods (SEPs) will be available, both on and off-Exchange, for individuals with newly-acquired access to these HRAs
- HRAs can be leveraged to support the purchase of Individual Health Plans
An HRA is a tax-advantaged (for both employers and employees) group health plan through which employers can fund expenses for the healthcare of their employees (or their employees’ dependents). The proposed rules would allow employers to fund an HRA for individual health insurance premiums if certain conditions are met. The HRA must require participants and any dependents covered by the HRA to be enrolled in individual health insurance coverage and to provide evidence or an attestation the participant and any covered dependent(s) are, or will be, enrolled in individual health insurance coverage during the plan year. The proposed rule caps employer contributions to such an HRA to $1800 annually, but requests comment on whether such a cap should be higher to account for costs to cover dependents.
To prevent a group plan sponsor from directing any enrollees toward one option or another, the proposed regulations prohibit a group plan sponsor from offering the same class of employees both a group health plan and an HRA integrated with individual health insurance coverage. The HRA used to purchase individual health insurance coverage must be offered on the same terms to all employees within the class, subject to certain limited exceptions. Employees eligible for an HRA integrated with individual health insurance coverage must have the option to opt out of such coverage and the employer must provide a detailed written notice to all eligible participants at least 90 days before the beginning of each benefit year.
Assuming certain conditions are met, employers who are subject to the Employer Shared Responsibility provisions under Section 4980H of the Code and offer an HRA to at least 95 percent of its full-time employees and their dependents would not be liable for a payment under the Employer Shared Responsibility provisions.
- Creates Excepted Benefit HRAs
The proposed rule creates a new type of HRA, the excepted benefit HRA, which cannot be integrated with non-HRA group coverage, Medicare, TRICARE, or individual health insurance coverage. Such an HRA could be used to pay for short-term, limited duration coverage (or other types of non-minimum essential coverage (MEC)).
- Employees that receive an HRA to purchase individual market coverage may still be eligible for premium tax credit subsidies on the Marketplace
The proposed rules indicate that an employee (or eligible family member) offered an HRA is considered eligible for MEC under an employer-sponsored plan, even if they opt out of coverage. For any month the HRA is affordable and provides minimum value, the employee would be ineligible for PTC or other Exchange-based subsidies. The Treasury Department and the IRS, however, have not yet provided guidance regarding when an HRA is considered to be affordable or to provide minimum value.
- Individual coverage funded by HRAs are not subject to ERISA
The proposed rules clarify that the ERISA terms “employee welfare benefit plan,” “welfare plan,” and “group health plan” would not include individual health insurance coverage where the premiums are reimbursed by an HRA, provided that the HRA sponsor is not involved in the selection of the individual health insurance coverage (among other criteria). This clarification also would apply to arrangements that reimburse participants for the purchase of individual health insurance coverage not subject to the market requirements (including qualified small employer health reimbursement arrangements (QSEHRA) and HRAs that have fewer than two participants who are current employees on the first day of the plan year). This would apply to an arrangement under which an employer allows employees to pay the portion of the premium for individual health insurance coverage that is not covered by the HRA with which the coverage is integrated or that is not covered by a QSEHRA by using a salary reduction arrangement under a cafeteria plan (supplemental salary reduction arrangement).
- Employees gaining HRAs can access individual market special enrollment periods
The proposed rules establish a special enrollment period for situations when a qualified individual (QI), a Qualified Health Plan (QHP) enrollee, or a QHP enrollee’s dependent, gains access to and enrolls in an HRA integrated with individual health insurance coverage or is provided access to a QSEHRA. This new SEP would not apply to an individual who newly gains access to an excepted benefit HRA. This SEP applies both on and off-Exchange.
Possible Impacts of the Proposed Rule
The effects of this proposed rule, should it be finalized in its current form, may include the following:
- Employers would gain more flexibility to offer tax-advantaged individual market health insurance options to their employees, so long as certain conditions are met.
- Consumers would have a new tax-advantaged method to pay for individual health insurance coverage of their choosing (rather than be constrained by their employers’ choice of insurance options) and could retain their insurance should they choose to change jobs without resorting to more expensive COBRA payments.
- This may cause an overall shift from self-insured or fully-insured employer coverage to the individual market. The impacts on risk pools in these markets will depend on employer take-up of the HRA option and how they offer it to the employer pool.
- The impact on individual marketplaces could be positive. The proposed rules for HRAs integrated with individual health insurance would allow consumers to pay premiums for Exchange QHPs, which would benefit those with incomes above 400% of the Federal Poverty Limit (FPL) and could strengthen the Exchange risk pools by luring healthier consumers into QHPs.
For more information, please contact Ryan Mooney.