A continuing area of uncertainty under health care reform has been the treatment of health reimbursement arrangements (HRAs) and other arrangements that might be used to allow employees to purchase health insurance through individual policies with the employer subsidizing some or all of the cost. A new notice from the IRS, HHS, and DOL (here) provides some clarity on these - and some related - issues.
Employer Payment Plans. As a preliminary matter, this guidance gives us a new term: "employer payment plan." This refers to an arrangement by which an employer provides payment or reimbursement of individual market insurance premiums in the manner described in an old Revenue Ruling (Rev. Rul. 61-146). Historically, these employer payment plans have been permissible and have allowed employers to provide pre-tax subsidies of individual market coverage.
Integration of Plans with Individual Market Coverage. A concern with HRAs and employer payment plans is that they may be treated as violating two key health care reform mandates: the prohibition on annual limits and the requirement to provide no-cost preventive care services. Previous FAQ guidance (see coverage here) said that HRAs would be treated as satisfying the annual limit rule if they were "integrated" with other coverage that satisfies the annual limit rule.
This guidance effectively confirms that treatment and provides a similar rule for preventive care. But the guidance goes on to say that HRAs and employer payment plans may not be treated as integrated with individual market coverage. Thus, an HRA or employer payment plan designed to allow employees to purchase individual market coverage generally will violate both the annual limit rule and the preventive care rule. This would be a serious problem, because plans that violate either of these requirements expose the employer to a penalty of $100 per day, per person.
Integration of HRAs with Group Coverage. There hasn't been guidance on when an HRA will be considered integrated with other non-HRA group coverage. Now we know a little more.
(1) Doesn't have to be sponsored by the same employer. An HRA may be integrated with other non-HRA group coverage that does not use the same plan document as the HRA or even have the same plan sponsor as the HRA. For example, an HRA may be treated as integrated with another employer's non-HRA group coverage (e.g., coverage available through a spouse's employer). This may also mean that an HRA can be integrated with coverage provided through a MEWA or multiemployer plan.
(2) Some HRAs must be limited to reimbursing premiums, cost-sharing amounts, and non-EHBs. For an HRA to be integrated with non-HRA group coverage that does not provide minimum value (MV), several conditions must be satisfied: (a) the employer must offer a non-HRA group heath plan the does not consist solely of excepted benefits; (b) the employee covered under the HRA must also be covered under other non-HRA group coverage (including a plan of another employer); (c) the HRA must be available only to employees who are enrolled in non-HRA group coverage; (d) the HRA must limit reimbursements to copayments, coinsurance, deductibles, or premiums under the non-HRA group coverage, plus amounts that constitute medical care under Code Section 213 but are not "essential health benefits"; and (e) employees must have at least an annual right to opt out of HRA coverage and have the right to opt out of HRA reimbursements after employment ends.
(3) HRAs integrated with MV plans can reimburse more things. An HRA will be treated as integrated with non-HRA group coverage that provides MV if the following conditions are satisfied: (a) the employer offers a group health plan that provides MV; (b) the employee covered under the HRA is actually enrolled in a group health plan that provides MV, regardless of whether the employer sponsors the plan; (c) the HRA is only available to employees who are actually enrolled in non-HRA group coverage that provides MV; and (d) employees have at least an annual right to opt out of HRA coverage and have the right to opt out of HRA reimbursement after employment ends.
Yes, that's a lot of detail, but I think it comes down to this: The requirements are designed to prevent employers from offering HRAs as a substitute for broad-based coverage. So they either have to make sure they're otherwise offering coverage that provides MV or they have to limit their HRAs in a way that effectively has them functioning as a part of the coverage with which they're integrated (i.e., by only reimbursing premiums, cost sharing, or non-essential health benefits).
HRAs and Affordability and Minimum Value. We know from prior guidance that amounts newly made available under an HRA are counted toward a plan's MV percentage if the amounts may only be used to reduce cost sharing for covered expenses. Similarly, we know that amounts newly made available under an HRA are counted for purposes of determining affordability if the amounts may be used to pay premiums. This recent guidance clarifies two points:
(1) Amounts made available under an HRA will not be taken into account in determining MV and affordability under another employer's plan, even if the HRA is "integrated" with that plan under the rules outlined above.
(2) Amounts made available under an HRA are not counted for affordability or MV purposes if the availability of the HRA is conditioned on the employee not enrolling in non-HRA coverage offered by the employer and instead enrolling in non-HRA coverage from a different source (e.g., a plan sponsored by the employer of the employee's spouse). In other words, an employer can't claim credit for its HRA amounts for purposes of affordability an MV analysis if it's using those amounts to induce an employee to obtain coverage elsewhere.
Health FSAs. This guidance wasn't limited solely to HRAs. It also clarifies that a health FSA must qualify as an "excepted benefit" or else it will be treated as violating the preventive care rule. In addition, a health FSA must be offered through a Section 125 plan or else it will be treated as violating the annual limit rule.
Recall that to be an "excepted benefit," a health FSA must limit employer contributions to no more than two times the amount of employee contributions (or, if greater, $500), and the employer must otherwise offer a group health plan that does not consist solely of excepted benefits.
Employee Assistance Plans (EAPs). Historically, EAPs have been something of a regulatory afterthought, but now they're getting some love too. EAPs typically provide a type of health benefit, such as the right to an initial screening with a nurse or mental health professional. This technically makes them group health plans, and without relief, they might be treated as violating the annual limit and preventive care requirements too.
This guidance indicates that relief will be provided by adding EAPs as a new category of "excepted benefit," so long as they do not provide "significant benefits" in the nature of medical care or treatment. Until final guidance is issued, employers may rely on a "reasonable, good faith interpretation of whether an employee assistance plan or EAP provides significant benefits in the nature of medical care or treatment."