The Departments of Labor, Health and Human Services and Treasury recently issued joint final regulations expanding the availability of health reimbursement arrangements (“HRAs”) by introducing two new types of HRAs – Individual Coverage HRAs and Excepted Benefit HRAs. The following is a brief overview of the requirements employers must satisfy in order to offer HRA coverage to their employees, and employees’ dependents, under one of these new arrangements.
HRAs constitute group health plans that are subject to various Affordable Care Act (“ACA”) rules. The ACA rules include prohibitions on capping or requiring cost-sharing for certain benefits (the “Market Reforms”).
Under prior guidance, in order to comply with or avoid the Market Reforms, HRAs generally had to be integrated with other qualifying group health plan coverage or limit the scope of reimbursable expenses to benefits excepted from compliance (e.g., limited scope dental or vision coverage). The new regulations make it easier for employers to offer HRA coverage by providing two new options that do not require integration with a group health plan or limiting the scope of reimbursable expenses.
Individual Coverage HRAs
Under the new regulations, in order to comply with the Market Reforms, an employer may integrate an HRA with qualifying individual health plan coverage or Medicare (an “Individual Coverage HRA”), if certain conditions are satisfied. This is a departure from prior guidance, which prohibited the integration of HRAs with non-group health plans.
In addition, an offer of an Individual Coverage HRA will count as an offer of qualifying coverage for purposes of the employer mandate under ACA. An employer may still be liable, however, for penalties under ACA if employer contributions to the Individual Coverage HRA are insufficient to satisfy affordability requirements.
In order to establish an Individual Coverage HRA, the following conditions must be satisfied:
- The HRA must require that all HRA participants, and their dependents, be enrolled in qualifying individual health plan coverage or Medicare coverage for each month the individuals are covered by the HRA.
- The employer must verify that all HRA participants, and their dependents, are enrolled in qualifying individual health plan coverage or Medicare coverage during the plan year.
- The employer cannot offer the HRA coverage to a class of employees (e.g., full-time employees, part-time employees, seasonal employees, etc.) who are also eligible for coverage under the employer’s traditional group health plan (i.e., a non-account based group health plan that is not limited to providing excepted benefits).
- The employer must offer the HRA coverage on the same terms to all employees within a class, subject to certain exceptions.
- The employer must provide employees with an opportunity to opt-out of the HRA coverage and waive future reimbursement from the HRA at least annually.
- The employer must provide eligible participants with a notice regarding how the offer of HRA coverage, or enrollment in HRA coverage, affects their ability to claim a premium tax credit on the health insurance marketplace (the “Notice”).
If an employer wants to offer an Individual Coverage HRA, they will need to provide the Notice to each eligible participant at least 90 days before the beginning of each plan year, or for individuals not eligible to participate at the beginning of the plan year, no later than the date the participant is first eligible to participate in the HRA.
To read the full advisory on the Kelley Drye website, click here.