By Pension and Benefits Editorial Staff
The Departments of Treasury, Health and Human Services, and Labor have released final rules that allow employers to integrate health reimbursement arrangements (HRA) and other account-based group health plans with individual health insurance coverage or Medicare (individual coverage HRA), if certain conditions are satisfied. The final rules also set forth conditions under which certain HRAs and other account-based group health plans will be recognized as limited excepted benefits. The rules generally apply for plan years starting on or after January 1, 2020.
Expansion of HRAs. HRAs are a type of account-based health plan that employers can use to reimburse employees for their medical care expenses. The final rules allow employers to expand the use of HRAs by:
- allowing integration of an HRA with individual health insurance coverage and thereby satisfying the ACA’s annual dollar limit and preventive care cost sharing requirements;
- creating excepted benefit HRAs limited in amount and to the types of coverage for which premiums may be reimbursed;
- providing new premium tax credit eligibility rules for individuals who are offered an HRA integrated with individual health insurance coverage;
- clarifying that individual health insurance coverage, the premiums of which are reimbursed by an HRA or qualified small employer health reimbursement arrangement (QSEHRA), does not become part of an ERISA plan when certain conditions are met, and
- adding new special enrollment for the individual market for individuals who gain access to HRAs integrated with individual health insurance coverage or who are provided a QSEHRA.
The final regulations add conditions on individual coverage HRAs intended to prevent a negative impact on the individual market.
Individual coverage integration. Almost any employer can satisfy the ACA’s reimbursement requirements by having employees buy their own individual coverage. Employers may integrate an HRA with individual health coverage only if:
- participants and dependents are actually enrolled in individual health insurance coverage (though not coverage that consists solely of excepted benefits) for each month they are covered by the HRA;
- coverage is offered to a class of employees to whom a traditional group health plan is not offered;
- coverage is offered on the same terms in amount and conditions to all employees within each class (though certain variations based on age are allowed);
- an opt out option is provided for individuals who prefer ACA exchange coverage, but would not be eligible for the premium tax credit if enrolled in an employer health plan such as an HRA, and
- substantiation and notice requirements are met.
Also, through a new hire rule, employers can offer new employees an individual coverage HRA, while grandfathering existing employees in a traditional group health plan.
Classes of employees. In the proposed regulations, there was no minimum employee class size. To guard against adverse selection, the final rules add a minimum class size requirement that will apply to certain classes of employees in certain instances. Classes of employees may include:
- full-time employees;
- part-time employees;
- seasonal employees;
- employees who are included in a unit of employees covered by a collective bargaining agreement in which the plan sponsor participates;
- employees who have not satisfied a waiting period for coverage;
- employees who have not attained age 25 prior to the beginning of the plan year;
- nonresident aliens with no U.S.-based income;
- employees whose primary site of employment is in the same rating area; and
- groups combining any of these classes of employee.
Employer contributions. Employers can contribute as little or as much as they want to an individual coverage HRA. However, an employer must offer the HRA on the same terms to all employees in a class of employees, except that employers can increase the amount available under an individual coverage HRA based on the employee’s age or number of dependents.
Excepted benefit HRAs. If an employer wants to offer an HRA that is not integrated with non-HRA group coverage, Medicare, TRICARE, or individual health insurance coverage, they may do so as an excepted benefit. As excepted benefits, these HRAs would not be subject to the employer group plan rules, including the ACA market reforms. To meet the requirements for an excepted benefit HRA, the HRA:
- must not be an integral part of the plan;
- must provide benefits that are limited in amount ($1,800 per year, adjusted for inflation after 2020);
- cannot provide reimbursement for premiums for individual, group (other than COBRA), or Medicare coverage; and
- must be made available under the same terms to all similarly situated individuals.
Employer mandate. In FAQs issued in conjunction with the final rules, the DOL explains that an offer of an individual coverage HRA counts as an offer of coverage under the employer mandate. In general, whether an applicable large employer that offers an individual coverage HRA to its full-time employees (and their dependents) owes a payment under the employer mandate will depend on whether the HRA is affordable. This is determined under the premium tax credit rule being issued as part of the HRA rule and is based, in part, on the amount the employer makes available under the HRA. The IRS will provide more information on how the employer mandate applies to individual coverage HRAs soon.
Notice to employees. The FAQs also provide that individual coverage HRAs must provide a notice to eligible participants regarding the individual coverage HRA and its interaction with the premium tax credit. The HRA must also have reasonable procedures to substantiate that participating employees and their families are enrolled in individual health insurance or Medicare, while covered by the HRA. The DOL has provided a model notice and a model substantiation form that employers can use.
Also, employees must be permitted to opt out of an individual coverage HRA at least annually so they may claim the premium tax credit if they are otherwise eligible and if the HRA is considered unaffordable.
ERISA safe harbor. The final rules provide that individual health insurance coverage selected by the employee in the individual market and reimbursed by such a plan is not part of a group health plan, is not health insurance coverage offered in connection with a group health plan, and is not a part of any employee welfare benefit plan for purposes of ERISA, provided all the following conditions are satisfied:
- The purchase of any individual health insurance coverage is completely voluntary for employees,
- The employer, employee organization, or other plan sponsor does not select or endorse any particular issuer or insurance coverage,
- Reimbursement for non-group health insurance premiums is limited solely to individual health insurance coverage
- The employer, employee organization, or other plan sponsor receives no consideration in the form of cash or otherwise in connection with the employee’s selection or renewal of any individual health insurance coverage, and
- Each plan participant is notified annually that the individual health insurance coverage is not subject to ERISA.
Estimated use. The departments estimate that once employers fully adjust to the new rules, roughly 800,000 employers will offer individual coverage HRAs to pay for insurance for more than 11 million employees and family members, providing these Americans with more options for selecting health insurance coverage that better meets their needs. The departments estimate that, once fully phased in, about 800,000 people who were uninsured will gain coverage.
SOURCE: 84 FR 28888, June 20, 2019, and FAQs on New Health Coverage Options for Employers and Employees, June 13, 2019.
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