On June 13, 2019, the Departments of Treasury, Labor and Health and Human Services (the “Departments”) issued the final rule on the expansion of Health Reimbursement Arrangements (HRAs). The final rule was in response to President Trump’s Executive Order 13813 issued in October 2017 directing federal agencies to expand access to healthcare options by relaxing prohibitive Affordable Care Act (ACA) rules regarding HRAs. The final rule changes provisions of the Public Health Service Act (PHSA), the Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code (IRC) to:
- Allow integration of HRAs with individual health insurance or Medicare (ICHRA);
- Set conditions regarding HRAs as limited excepted benefits (Excepted Benefit HRA);
- Address premium tax credit (PTC) eligibility when individuals are offered individual HRA coverage;
- Provide safe harbors for individual HRAs and qualified small employer health reimbursement arrangements (QSEHRAs) to avoid ERISA requirements; and
- Provide a special enrollment period in the individual market for individuals who newly gain access to individual HRA coverage or are newly provided a QSEHRA.
An overview of these provisions are discussed below. The rule is effective August 19, 2019 and apply to plan years beginning on or after January 1, 2020. The two new HRA options are discussed below.
Individual Coverage HRAs (ICHRA)
Health Reimbursement Arrangements (HRAs) are considered account-based group health plans funded solely by an employer to provide reimbursements to an employee for medical care expenses for the employee up to a maximum dollar amount for the coverage period. Reimbursements are excludable from the employee’s income and wages for federal and employment tax purposes.
Following the enactment of ACA, HRAs had to be integrated with an employer’s group health insurance in order to satisfy the ACA requirements of no annual or lifetime limits and the provision of preventive services at no cost under group health plans. Guidance issued in 2013 and 2015 by the Departments indicated that HRAs could not be integrated with individual health insurance, TRICARE or Medicare to satisfy ACA’s requirements.
The final rule allows employers to offer an Individual Coverage HRA (ICHRA) to employees for the purposes of purchasing individual coverage. The HRA would be considered “integrated” with the individual coverage if the participant and any dependents are enrolled in individual coverage that complies with the ACA requirements and does not consist solely of “excepted benefits” (separate dental or vision policies, FSAs, long-term care). Employers can offer ICHRAs to different classes of employees if the class meets minimum size requirements AND the employer does not also offer a traditional group health plan to the class.
It is important to note that the final rule does NOT address:
- Employer Shared Responsibility requirements and how they would apply to the ICHRA integrated with individual coverage; and
- Non-discrimination requirements.
The agencies state that these issues will be addressed in later issued guidance. ICHRAs will not be considered subject to ERISA if certain conditions are met.
Excepted Benefit HRAs
The new rule also allows employers to offer “excepted benefit” HRAs, which are similar to Flexible Spending Arrangements (FSAs) but are completely employer funded.
HRAs are considered “excepted” benefits if:
- The HRA is not an integral part of the group plan. Other group health coverage must be available from the same plan sponsor for the plan year to participants.
- The HRA is limited in funding to $1,800 annually. This limit will increase annually by the applicable cost of living adjustment starting January 1, 2021. Carryover amounts will not be considered in determining the limit each year.
- The HRA does not reimburse premiums for individual health insurance coverage, group health plan coverage (other than COBRA), Short Term Limited Duration insurance (STLDI) or Medicare part A, B, C or D, but may reimburse for coverage that consists solely of excepted benefits.
- The HRA is available under the same terms to all similarly situated individuals regardless of health factor.
This type of HRA is not integrated with other health insurance coverage and because it does not provide Minimum Essential Coverage (MEC) it does not prohibit an individual from receiving a Premium Tax Credit (PTC) in the Exchange.
The new rule from the Departments offer employers with a number of new potential opportunities when it comes to offerings and funding their employer-sponsored health insurance. However until the rules for Employer Shared Responsibility and non-discrimination requirements are released, any changes that an employer may enact could have compliance implications. To learn more about the new HRA rule, discuss them with your M3 Account Team or visit the M3 Compliance Library.