Agencies Propose Regulations to Expand Use of HRAs
Three federal agencies have proposed changes that could bring significant changes to Health Reimbursement Arrangements (HRAs). The IRS, Department of Labor (DOL) and Department of Health and Human Services (HHS) jointly proposed the regulations in response to President Trump’s executive order directing the agencies to consider regulations or guidance that would expand the availability and permitted use of HRAs. Let’s look at some highlights.
HRAs funding individual insurance
The proposed regulations would allow HRAs to be integrated with, and to reimburse premiums for, individual health insurance coverage if certain conditions are met. Employees and dependents covered by an HRA would have to be enrolled in individual coverage (other than coverage that consists solely of excepted benefits), and an attestation or other verification of enrollment would be required when participation commences and when expenses are reimbursed.
Also, the HRA sponsor couldn’t offer a “traditional” group health plan (one that’s neither account-based nor limited to excepted benefits) to the same class of employees. (The proposed regs offer several permitted classifications, including full-time, part-time, seasonal and collectively bargained employees.)
In addition, the HRA would have to be offered on the same terms and conditions to all employees within a class, except that the HRA benefit amount could increase by age or family size. Employees would have to be able to opt out and waive future HRA reimbursements at least annually, and they would have to receive timely written notices with specified HRA information.
Excepted benefit HRAs
The proposed regs would allow employers to offer nonintegrated HRAs that qualify as excepted benefits — and thus aren’t subject to the mandates of the Public Health Services Act — if they meet four requirements:
- The employer makes other nonexcepted, non–account-based group health plan coverage available to the HRA participants. (Enrollment isn’t required.)
- No more than $1,800 (indexed after 2020) is newly available to each participant for each plan year. (Carryovers permitted under the arrangement would be disregarded.)
- The HRA doesn’t reimburse premiums for individual health coverage, non-COBRA group coverage, or Medicare Parts B or D. (Premiums for coverage consisting solely of excepted benefits could be reimbursed.)
- The HRA is made available under the same terms and conditions to all similarly situated individuals. An excepted benefit HRA couldn’t be offered to employees who are also offered an HRA that’s integrated with individual health insurance.
Cafeteria plan salary reductions
The preamble clarifies that employers with HRAs that are integrated with individual health insurance could allow employees to use pretax cafeteria plan salary reductions to pay any portion of their individual insurance premiums not covered by the HRA. (Presumably, salary reductions would be unavailable for individual policies offered through a Health Insurance Marketplace, also known as an Exchange, because of restrictions under the cafeteria plan rules.)
If offered, salary reductions would have to be made available on the same terms and conditions to all employees within a class.
Under a proposed DOL regulation, the terms “employee welfare benefit plan” and “welfare plan” as used in the Employee Retirement Income Security Act (ERISA) wouldn’t include individual health insurance funded by an HRA if certain requirements are met.
Among other requirements, the purchase of the insurance must be completely voluntary for participants and beneficiaries. Also, the employer or other plan sponsor must not select or endorse any particular insurer or coverage, and participants must be notified annually that the individual coverage isn’t subject to ERISA.
Here are a few other important details of the proposed regs:
Special enrollment period. A proposed HHS regulation would establish an “Exchange special enrollment period” for employees and their dependents who gain access to an HRA that’s integrated with individual health insurance coverage or are provided with a qualified small employer health reimbursement arrangement (QSEHRA). The period would allow them time to enroll in individual insurance coverage or change from one individual coverage plan to another.
Premium tax credit guidance. A proposed IRS regulation would provide guidance regarding the premium tax credit consequences for individuals who are offered or covered by an HRA that’s integrated with individual health insurance.
Applicability date; no reliance. The changes are proposed to apply for plan and taxable years beginning on or after January 1, 2020; they may not be relied on before they’re finalized.
If finalized as proposed, the regulations will bring significant changes to the HRA landscape by establishing two new types of HRAs that — unlike QSEHRAs — would be available to employers of any size. (Please note: Portions of the regulations would also apply to other account-based plans; employers and advisors interested in other designs should pay close attention to the applicable definitions.)
The proposal also indicates that the agencies are open to allowing cafeteria plan reimbursement of individual major medical policies. Indeed, the preamble specifically requests comments on cafeteria plan premium arrangements, including whether they should be permitted to integrate with individual insurance coverage. Comments have also been requested on a variety of other issues identified in the preamble and are due by December 28, 2018.