New final regulations expand use of HRAs

On June 13, the U.S. Departments of Labor, Treasury, and Health and Human Services issued final regulations regarding the permitted use of an HRA to reimburse premiums for individual medical insurance purchased by employees (provided certain conditions are met). The regulations also defined an employer’s ability to offer “excepted benefit” HRAs. Model attestations, notices and Frequently Asked Questions were included with the guidance.

Overview:  Federal Government has issued final regulations on Health Reimbursement Arrangements (HRA) that:

1)        Expand the use of HRAs to permit reimbursement of premiums for individual medical insurance purchased by employees, provided certain conditions are met.

2)        Outline new standards for when an HRA will be considered an “excepted benefit” (benefits that are not subject to many of the ACA’s requirements).

Effective Date: January 1, 2020

Health Reimbursement Arrangements

·      An HRA is an account-based employer funded group health plan that provides reimbursement of medical expenses to employees. 

·      An “Integrated HRA” is an HRA that is excluded from employees’ income and payroll taxes and must be integrated with an employer’s group health plan.

New Final Regulation

On June 13, 2018, the U.S. Departments of Labor, Treasury, and Health and Human Services issued final regulations regarding the permitted use of an HRA to reimburse premiums for individual medical insurance purchased by employees (provided certain conditions are met), and an employer’s ability to offer “excepted benefit” HRAs.  Model attestations, notices and frequently asked questions were included with the guidance.

The final regulations were issued in response to President Trump’s Executive Order No. 13813 (“Promoting Healthcare Choice and Competition Across the United States”).  One of the Executive Order’s initiatives was expanding the use and availability of HRAs.  Guidance previously issued by the Departments in 2013 provided that an HRA had to be “integrated” with another group health plan to satisfy the ACA’s market reform requirements.  These final regulations create two new types of HRAs that may be utilized with health insurance purchased on the individual market.

HRA Reimbursement of Individual Medical Insurance

Under the new regulation, employers can offer an Integrated HRA that can reimburse employees for purchase of individual medical insurance, provided that HRA participants are required to be enrolled in individual health insurance coverage and they substantiate compliance with this requirement. This substantiation must occur: 1) upon enrollment in the HRA; and 2) prior to the participant receiving reimbursements from the HRA. If in any month an individual is no longer covered by an individual policy, the Integrated HRA coverage must cease.

Note:

1)        Employers cannot offer the same class of employees both traditional group health plan coverage and an Integrated HRA.

2)        All individuals in a “class” of employees must be offered the HRA on the same terms. Examples of “classes” of employees include full-time employees, part-time employees, and collectively bargained employees.

For any month that an individual is covered by an Integrated HRA, they are

not eligible for a premium tax credit (“PTC”) for that same month.

The final regulations require that employers that offer an Integrated HRA must

allow participants to opt-out of and waive future reimbursements from the

HRA at least annually and on termination of employment.  Additionally, a written notice must be provided to eligible employees at least 90 days before the beginning of a plan year and prior to first becoming eligible for participation in the Integrated HRA that participation in the Integrated HRA will make them ineligible for a PTC.  A Model Notice was included as part of the guidance issued.

It is unclear at this point how an employer that is an “applicable large employer” (“ALE”) can satisfy the employer shared responsibility mandate requirements by providing an Integrated HRA.  Language included in the preamble to the final regulations indicate that Treasury and IRS intend to propose rules under Code section 4980H, including safe harbors for determining Integrated HRA affordability for employer mandate purposes. 

Excepted Benefits HRAs

Under the new regulation, employers can provide an alternative to Integrated HRAs by providing an “excepted benefit” HRA (“EBHRA”) provided the following requirements are met:

1)        Participants are offered other traditional group health plan coverage;

2)        Benefits are limited to $1,800 per year, adjusted for inflation;

3)        The HRA cannot provide reimbursement for premiums for individual or group health coverage, or for Medicare Parts B or D; and

4)        The HRA must be made available under the same terms to all similarly situated individuals.