Proposed Rules Expanding Health Reimbursement Arrangements

 October 29 2018     Diane Cross

Last week, proposed regulations expanding the use of Health Reimbursement Arrangements (HRAs) were released by the Department of Labor (DOL), Department of the Treasury, and Department of Health and Human Services (HHS). For reference, these proposed regulations are a result of President Trump’s executive order last October directing agencies to draft regulations that would allow for more HRA flexibility (see our blog post on the topic).

Currently, HRAs are only permissible if they are integrated with a group medical plan, restricted to excepted benefits, or retiree-only. Since the enactment of the Affordable Care Act (ACA), HRAs generally must be integrated with another employer-sponsored group health plan that provides first-dollar benefits for preventative care and does not have any dollar limits on benefits provided.  Otherwise, HRAs fail the ACA’s prohibition on annual and lifetime benefit maximums and the requirement to cover preventive services without cost sharing. Failure to meet ACA benefit mandates subjects an employer to self-reported excise tax penalties.  Standalone HRAs are prohibited (except for retiree-only HRAs) and employers generally cannot reimburse employees for individual insurance premiums through an HRA. 

Proposed Regulations
The proposed rules allow for two new types of HRAs: 

  • A premium reimbursement HRA (for individual insurance); and 
  • A standalone HRA allowing up to $1800 per year (plus carryover amounts) in reimbursement for medical expenses not including health insurance premiums. 

The proposed rules elaborate on each new type of HRA, including benefit design and compliance issues. For example, with regard to the premium reimbursement HRA, proposed guidance requires that employers must provide a notice advising employees that such HRA may prevent them from receiving a premium tax credit on the exchange and reiterates that the employer mandate still applies (and that the premium reimbursement HRA is considered a valid offer of coverage). Additionally, with regard to a standalone HRA, an employee must also be offered employer-sponsored group health coverage and the HRA must be offered on the same terms for similarly situated employees.

Impact to Employers
Importantly, any final regulations will not be effective until plan years beginning on or after January 1, 2020. For now, there is no immediate impact – at this point these rules are only proposed – and employers should continue to follow current guidance regarding HRAs.  The Departments reiterate that the proposed regulations cannot be relied upon until they are made final.  As for what to expect, the proposed regulations were released on October 23, 2018 and the 60-day public comment period ends December 28, 2018. Thereafter, the Departments traditionally will take time to review the public comments and then issue final rules. HORAN will continue to monitor this proposed legislation and communicate updates accordingly. Please contact your HORAN representative with questions.