Final Rule Expands Options for HRAs

Stethoscope on table

The U.S. departments of Labor, Health and Human Services and the Treasury issued a final rule on June 13 that expands the usability of health reimbursement arrangements (HRAs). The rule is effective for plan years beginning on and after Jan. 1, 2020.

This final rule was issued in response to a 2017 executive order directing federal agencies to expand access to HRAs.  Under the current regulations, HRAs cannot reimburse employees for the cost of individual health coverage.

The final rule establishes two new types of HRAs:

Individual Coverage HRA

This allows employers to offer an HRA to be used to reimburse the cost of individual market premiums on a tax-preferred basis, subject to certain conditions, as an alternative to traditional group health plan coverage.  The following conditions must be met:

• The HRA must require that the participant and any dependents are enrolled in individual health insurance coverage for each month that the individual(s) are covered by the HRA.

• A plan sponsor that offers an individual coverage HRA to any class of employees may not also offer a traditional group health plan to the same class of employees.

• If a plan sponsor offers an individual coverage HRA to any class of employees, the HRA must generally be offered on the same terms to all participants within the class.

• Participants must be allowed to opt out of and waive future reimbursements from the HRA once per plan year (and, upon termination of employment, either the amounts remaining in the HRA are forfeited or the participant is allowed to permanently opt out of and waive future reimbursements).

• The HRA must implement and comply with reasonable procedures to substantiate that participants and dependents are (or will be) enrolled in individual health insurance coverage for the plan year.

Written Notice Requirement

The final rule includes a disclosure provision to ensure that employees understand the benefit. Under this disclosure requirement, an HRA must provide written notice to eligible participants including, among other things, the following information:

• A description of the terms of the HRA, including the amounts newly made available as used in the affordability determination under the Code Section 36B proposed regulations.

• A statement of the participant’s right to opt out of and waive future reimbursement under the HRA.

• A description of the potential availability of the premium tax credit for a participant who opts out of and waives an HRA if the HRA is not affordable under the proposed premium tax credit regulations.

• A description of the premium tax credit eligibility consequences for a participant who accepts the HRA.

Written notification must be provided to each participant at least 90 days before the beginning of each plan year (or no later than the date the participant is first eligible to participate in the HRA, for participants who are not eligible to participate at the beginning of the plan year).  The departments have provided a model notice with instructions that individual coverage HRAs may use to satisfy this notice requirement.

Substantiation Requirements

Individual coverage HRAs must implement and comply with reasonable procedures to satisfy two substantiation requirements:

• The annual coverage substantiation requirement: The HRA must substantiate that participants and each dependent covered by the HRA are, or will be, enrolled in individual health insurance coverage or Medicare Part A and B or Medicare Part C for the plan year (or for the portion of the plan year the individual is covered by the HRA, if applicable).

• The ongoing substantiation requirement: The HRA may not reimburse a medical care expense unless, prior to the reimbursement, the participant substantiates that the individual on whose behalf the reimbursement is requested is (or was) enrolled in individual health insurance coverage or Medicare Part A and B or Medicare Part C for the month during which the medical care expense was incurred.

Again, the departments have developed model attestations for HRAs that choose to use attestation to satisfy either the annual coverage substantiation requirement or the ongoing substantiation requirement.

Excepted Benefits HRA

This allows employers that offer traditional group coverage to provide an HRA of up to $1,800 per year (as adjusted) to reimburse certain qualified medical expenses.  The final rule expands the definition of limited excepted benefits by establishing a certain type of HRA that would qualify as excepted benefits that are not subject to some ACA requirements:

• Individual health coverage that consists solely of excepted benefits (such as stand-alone vision and dental plans, accident-only coverage, workers’ compensation coverage or disability coverage).

• Coverage under a group health plan that consists solely of excepted benefits.

• Short-term, limited-duration insurance plans.

• COBRA coverage.

However, an excepted benefit HRA cannot reimburse premiums for individual health coverage, coverage under a group health plan (other than COBRA or other group continuation coverage), or Medicare Parts B or D.

There are a number of additional provisions included in the final rule relating to the expansion of HRAs which include the following:

• The IRS finalized rules regarding premium tax credit eligibility for individuals offered coverage under an HRA integrated with individual health insurance coverage. Generally, an individual who is covered by an HRA integrated with individual health coverage is ineligible for the premium tax credit.

• The DOL finalized a clarification to provide plan sponsors with assurance that the individual health coverage, the premiums of which are reimbursed by an HRA, does not become part of an ERISA plan, provided certain conditions are met.

• HHS finalized rules providing a special enrollment period in the individual market for individuals who gain access to an HRA integrated with individual health coverage.

By Sam Melamed, CEO of ABC Insurance Trust

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