In October of 2017, President Trump issued Executive Order 13813, which made the expansion and increased flexibility of Health Reimbursement Accounts or HRAs a priority for his administration with the objective of allowing Americans more options for financing their healthcare. In response, the Department of Labor, the Treasury Department and the Department of Health and Human Services (the “Tri-Agencies”) have issued proposed rules that are designed to implement the President’s order with respect to HRAs.
Background
In 2002 the Internal Revenue Service issued a series of rulings that permitted employers to establish a new type of arrangement –an HRA --under which eligible employees are reimbursed for medical expenses incurred by the employees and their spouses, dependents and children. An HRA, which funded entirely by employer contributions, is generally entitled to tax-favored treatment so long as the requirements for such treatment are satisfied.As part of health reform legislation that was enacted in March of 2010, new requirements for group health plans including HRAs became effective over a period of time. These new requirements (sometimes referred to as “market reforms”) are not applicable to HRAs that are retiree-only plans or “excepted benefits”. Compliance with some of market reforms that became applicable to HRAs was especially troublesome –in particular –the prohibition on lifetime and annual limits. By its nature, an HRA is an account-based plan with maximum dollar benefit. To assist with compliance, the Tri-Agencies issued guidance allowing an HRA to be “integrated” with other coverage in order to comply with the prohibition on lifetime and annual limits. In other words, an HRA that is integrated with other coverage does not fail to comply with the prohibition “because the combined benefit satisfies the requirements.” However, in guidance issued over a period of years (2013 through 2015) the Tri-Agencies made it clear that integration of an HRA with individual coverage is not be permitted.
Proposed Rules
The new rules proposed by the Tri-Agencies would do the following:
Allow HRAs to be integrated with individual coverage, but only if certain requirements are met. The integration would be allowed for purposes of satisfying the prohibition on lifetime and annual limits and also the requirement to provide preventive services without cost sharing.
Establish a new type of HRA–an excepted benefit HRA that will not be subject to the market reforms. These new rules would allow employers to offer such an HRA without satisfying the market reforms or the requirements for integration with other coverage.
Provide new rules for determining when an HRA integrated with individual coverage is affordable and provides minimum value so as to make an employee ineligible for a premium tax credit.
Establish requirements permitting individual coverage the premiums of which are reimbursed through an HRA to be excluded from the definition of an ERISA plan.
Establish a special enrollment period for when an individual gains access to and enrolls in an HRA that is integrated with individual coverage.
The proposed effective date for the new rules is 2020. Future articles in our newsletter will delve into the requirements for an excepted benefits HRA and for an HRA to be integrated with individual coverage along with the implications for employers under the employer mandate and other aspects of the proposed rules.
© Boutwell Fay LLP 2018, All Rights Reserved.This handout is for information purposes only, and may constitute attorney advertising. It should not be construed as legal advice and does not create an attorney-client relationship. If you have questions or would like our advice with respect to any of this information, please contact us.The information contained in this article is effective as of October 31, 2018.