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Final Rule Expanding Use of HRAs

 June 17 2019     Diane Cross
Last week, a final rule expanding the use of Health Reimbursement Arrangements (HRAs) was released by the Departments of Health and Human Services (HHS), Labor (DOL), and Treasury (IRS). The rule, effective for plan years beginning on or after January 1, 2020, allows HRAs to be used for individual health coverage premiums and allows employers to offer an "excepted benefit HRA", as discussed below.

Background
In October 2017, President Trump issued an executive order that directed the Departments to consider expanding the availability of HRAs and allowing HRAs to be used in conjunction with individual health insurance coverage. As a reminder, an HRA is a type of account-based group health plan entirely employer-funded that reimburses employees for certain health care expenses on a pre-tax basis. Under current regulations, HRAs cannot reimburse the cost of individual health coverage (unless through a Qualified Small Employer HRA).

Individual Coverage HRA
Starting January 1, 2020, HRAs may be used to reimburse employees for the cost of individual health coverage. The rule allows these HRAs to be integrated with individual insurance coverage for purposes of compliance with the Affordable Care Act (ACA), eliminating the existing prohibition on this type of arrangement. Following are highlights of the new “individual coverage HRA” under the final rule:
  • 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;
  • Classes of employees can be created based on certain employment distinctions (e.g. salaried vs. hourly, full-time vs. part-time, geographic regions), and individual coverage HRAs can be offered on a class by class basis;
  • Individual coverage HRA generally must be offered on the same terms to all participants within the class, but increased amounts for older workers and workers with more dependents is permissible;
  • Either an individual coverage HRA or traditional group health plan can be offered, but an employer cannot offer employees a choice between the two. To that end, employers can maintain their traditional group health plan for existing enrollees, with new hires only offered an individual coverage HRA;
  • Participants must be allowed to opt out of and waive future reimbursements from the HRA once per plan year;
  • 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 (model attestation provided).

The final rule also requires that written notice must be provided to eligible participants to help them understand the type of HRA being offered and how an individual coverage HRA may make them ineligible for a premium tax credit. The Departments have provided a model notice with instructions to satisfy this notice requirement.

Contributions to an individual coverage HRA are not capped under the new rule. The final rule also provides, among other provisions:

  • Clarification that reimbursing premiums via an individual coverage HRA does not become part of an ERISA plan if certain conditions are met; and
  • There will be a special enrollment period in the individual market for individuals who gain access to an individual coverage HRA.
Excepted Benefit HRAs
The final rule also establishes an “excepted benefit HRA” (a certain type of HRA that would qualify as excepted benefits that are not subject to some ACA requirements). This change allows employers offering traditional employer-sponsored coverage to offer an HRA of up to $1,800 per year (indexed annually for inflation) to reimburse an employee for certain qualified medical expenses, including premiums for:
  • 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; and
  • 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. This excepted benefit HRA can be used by employees regardless if they enroll in group health plan coverage. 

The final rule is anticipated to provide additional options for employers, especially small employers.  The impact of this final rule, on both employees and the individual market, will largely depend on how employers respond. Employers can consider whether they can make use of these HRA options beginning in 2020. For reference, the Departments have provided Frequently Asked Questions to help employers navigate the final rule. Contact your HORAN representative with any questions.