In response to the White House’s October 2017 Executive Order, the Departments of Treasury, Labor, and Health and Human Services recently issued a proposal to revise guidance on the use of health reimbursement arrangements (HRAs). While the expanded regulation does not reshape health coverage for most employers, it may affect how some employers provide health coverage to certain employees.
Prior to the guidance issued by the DOL and IRS in 2013, with an FAQ issued in 2014, employers were permitted to reimburse employees for the cost of purchasing their own individual medical policies. For example, employers might have provided local HMO coverage for the main office and then reimbursed the cost of individual policies for remote employees. In light of the employer mandate and tax subsidies for individual policies under the ACA, this practice was no longer permitted as of January 1, 2014.
HRA Integrated with Individual Coverage
Under the newly proposed regulation, employers would again be able to reimburse a set of employees for the cost of their individual policies, but with certain limitations. Here are the general rules for an HRA that may provide reimbursement for individual medical policies:
- An employer may still sponsor a group health plan for other employees. However, no employees may be eligible for both the employer’s group health plan and the HRA for individual policies.
- An employer must classify HRA eligibility based on permissible classes: part-time vs full-time, seasonal, under age 25, within the first 90 days of employment, collective bargaining units, foreign citizens, or based on working within the same rating area.
- The HRA must be integrated with individual coverage (otherwise it will be subject to ACA market reforms, such as having no annual limits). This means the employer must require proof that each person covered by the HRA is enrolled in individual medical coverage.
- The employer must allow employees to opt out of and waive future reimbursement from the HRA
- Employees (and family members) who are eligible for the employer’s HRA are not eligible for the ACA premium tax credit unless the HRA is not “affordable” and the employee opts out and waives future reimbursements.
From an employer standpoint, the HRA is considered an affordable offer of coverage if it satisfies one of the employer affordability safe harbors. Employers should use the amount the employee must pay for the lowest cost silver plan self-only coverage after receiving the HRA reimbursement to test for affordability. For example, if the employee-only cost for the lowest cost silver plan is $350/month and the employer HRA reimbursement is $200, the coverage is affordable if $150 is no more than 9.56% (indexed) of the employee’s W-2 wages or rate of pay (this example would not meet the federal poverty level safe harbor).
This HRA will qualify as minimum value employer-sponsored coverage to satisfy the ACA employer mandate for large employers (i.e., offer coverage to at least 95 percent of full-time employees).
Excepted Benefit HRA
The proposed regulations also introduced a new excepted benefit HRA. As an excepted benefit, this HRA would be exempt from ACA market reforms and would therefore not require integration with any medical coverage. Excepted benefits are generally not subject to HIPAA portability requirements and may qualify for limited COBRA obligations (more guidance is necessary on this subject). Here are the general rules for an HRA that would qualify as an excepted benefit:
- Employees must be eligible for the employer’s group health plan, but do not need to enroll.
- The HRA must be available to all similarly-situated employees.
- The proposed maximum annual HRA benefit will be $1,800, indexed for inflation starting in 2021.
- Reimbursements are allowed for the same expenses as other HRAs, including premium for COBRA, excepted benefit coverages (like dental and vision insurance), and special short term limited duration policies, but not including individual medical plans.
Proposed, Not Final
There may be many changes before the final regulation goes into effect, and the proposed regulation states that it cannot be relied on at this time. The effective date is proposed for plan years starting on or after January 1, 2020.
We will provide an update when additional information becomes available.