Departments Allow Broader Use of Health Reimbursement Arrangements to Pay Individual Health Insurance Premiums
Recently the Department of the Treasury, the Department of Labor (DOL), and the Department of Health and Human Services (HHS) (collectively, the "Departments") issued new final regulations on health reimbursement arrangements (HRAs) and other account-based group health plans.1 The new regulations allow an employer to put a limited amount of money into an HRA (or other account-based plan) to reimburse employees or former employees for health insurance premiums paid by employees for individual health insurance by allowing two new types of HRAs, the individual coverage HRA (ICHRA) and the excepted benefit2 HRA (EBHRA). The final regulations can be found at this link.
Applicability Date: The final rules generally apply for plan years beginning on or after January 1, 2020.
Traditional stand-alone HRAs and other account-based plans do not comply with the ACA restrictions against applying annual or lifetime limits and the requirement to cover preventive care services at 100%.3 Not complying would generally subject the plan sponsor to a penalty of $100 per day per individual. Regulations, however, have permitted the following HRA arrangements:
- Integration with another group health plan which satisfies the ACA requirements or with Medicare Parts B and D.
- A special integration method for certain arrangements offered by some employers (generally, employers with less than 20 employees who are not part of a multi-employer or multiple employer group that do not offer group coverage to employees who are eligible for Medicare coverage but do offer group coverage to employees who are not eligible for Medicare). For these employers, an HRA may be used to reimburse premiums under Medicare Part B or D and may be integrated with Medicare.
- A small employer (less than 50 full-time employees) may offer a "qualified small employer health reimbursement arrangement" ("QSEHRA") to pay and reimburse premiums for individual health insurance coverage. See Cheiron's Health Regulatory Alert dated April 4, 2017, found at this link, for more about QSEHRAs.
New Individual Coverage HRAs
The latest regulations allow a new stand-alone HRA, called an individual coverage HRA ("ICHRA"), to meet the ACA requirements where the following conditions are met:
- Enrollment by the employee (and any covered dependents) in individual health insurance coverage4 (that complies with the ACA requirements) using the HRA to pay premium costs. The employer must substantiate their enrollment in one of three ways:
- Require with each request for reimbursement proof of enrollment in individual health insurance coverage for that month.
- Annual documentation from an insurer or the Exchange.
- Annual attestation by the participant with the requirement to notify if there is a change.
- Reimbursement of medical care expenses may only be made for expenses incurred while individual health insurance is effective.
- A traditional Group Health Plan may not be offered to the same class5 of employees.
- The same terms to all participants within the class with the following exceptions:
- Dollar amounts may increase with the number of dependents.
- Dollar amounts may increase as the age of the participant increases provided the maximum amount available to the oldest participants is not more than three times the maximum amount for the youngest participants.
- Dollar amounts may be pro-rated for new employees whose coverage become effective after the first day of the plan year or existing employees who have a qualifying event that allows them to change the number of dependents during the plan year.
- Employers may offer participants in a class the choice between an HSA-compatible HRA or an HRA that is not HSA compatible.
- Employees and/or their dependents must be allowed to opt out annually.
- Written notice is provided to the participants that:
CHEIRON OBSERVATION: The employer may limit the employee to select from a private exchange or particular public exchange options designated by the employer. The employer could even choose to pay the premiums directly on behalf of the participant to ensure continued enrollment.
Note: Carryover balances are not included when determining whether the same terms apply to all participants.
- Describes the terms of the ICHRA,
- States the right to opt out and waive future reimbursement,
- Describes the potential availability of a premium tax credit if the participant opts out of coverage,
- Explains the participant may not claim a premium tax credit if he or she accepts the ICHRA,
- Notifies the participant that they must inform the Exchange to which the participant applies for advance premium tax credits of the availability of the ICHRA and other information relating to the ICHRA,
- States the participant should retain the written notice,
- Explains the ICHRA may not reimburse medical care expenses unless the substantiation requirements are satisfied,
- Explains if the individual health insurance coverage ceases, the ICHRA will not reimburse medical care expenses incurred after coverage ceases,
- Notifies the participant to inform the ICHRA if the individual health insurance is cancelled or terminated retroactively,
- Provides contact information for participants to get additional information, and
- States the availability of a special enrollment period to enroll in or change individual health insurance coverage for participants and any dependents who newly gain access to the ICHRA during the plan year.
CHEIRON OBSERVATION: The ability to integrate an HRA with individual health insurance may be viewed some employers as a way to stabilize and manage the cost of providing health care for their employees. Care will be needed so that the ICHRA covers a sufficient part of the premiums for individual health insurance so that the employer does not receive a penalty for failing to provide affordable coverage.
New Excepted Benefit2 HRAs
Previous regulations defined four categories of excepted benefits:
- Benefits that are not generally health insurance (such as automobile insurance, workers compensation, accidental death & dismemberment)
- Limited excepted benefits (such as dental, vision, or long-term care benefits)
- Specified disease or illness (such as cancer-only or hospital indemnity policies)
- Supplemental benefits (such as Medicare or Tricare supplements)
The new regulations create an additional limited excepted benefit, the excepted benefit HRA ("EBHRA"), that can be used to pay for short-term, limited duration (health) insurance ("STLDI"). STLDI, which must be offered for a term of less than one year (renewable up to a maximum duration of 36 months), and does not have the same protections as ACA-compliant policies. For example, STLDI can exclude pre-existing conditions, can have higher cost sharing, does not have to cover essential benefits, and can impose annual and lifetime limits. The new regulation, allows a plan sponsor to offer a STLDI without paying a penalty of $100 per day per individual for a plan that is not ACA compliant. The $3,000 per year penalty for not meeting minimum value and/or affordability requirements would still apply.
In addition, the EBHRA must satisfy the following requirements:
- Required Choices: The plan sponsor must also offer the choice between the EBHRA and an ACA-compliant group health plan coverage (i.e., that is not STLDHI).
- Maximum Benefits: Benefits are limited to no more than $1,800 (indexed by chained CPI-U for plan years beginning after 2020) plan sponsor contributions per year. Amounts carried over from prior years do not count toward the $1,800.
- Cannot pay for ACA-compliant health insurance: The EBHRA may not reimburse premiums for individual ACA-compliant health insurance coverage, ACA-compliant group health plan coverage (other than COBRA or other continuation coverage), or Medicare Part A, B, C, or D.
- Uniform availability: The EBHRA is made available on the same terms to all similarly situated individuals, regardless of any health factor.
- Notice requirement: The summary plan description rules of the DOL regulations apply.
If the Secretary of HHS determines that STLDHI is harming the small group market in a given state, the regulation contains a process for prohibiting EBHRAs from reimbursing for STLDHI.
CHEIRON OBSERVATION: The regulations clearly contemplate that an EBHRA could be used to purchase short-term limited duration insurance. Such insurance will generally not satisfy ACA requirements and likely will be cheaper to provide than individual health insurance that does satisfy ACA requirements. Large employers (50 or more employees) should be aware that an EBHRA does not qualify as health insurance for avoiding penalties for not meeting minimum value and affordability.
If you have any questions about the new HRAs, contact your Cheiron consultant.
Cheiron is an actuarial consulting firm that provides actuarial and consulting advice. However, we are neither attorneys nor accountants. Accordingly, we do not provide legal services or tax advice.
1 An account-based group health plan is an employer-provided group health plan that provides for reimbursement of expenses for medical care (as defined under Code section 213(d)) (medical care expenses), subject to a maximum fixed-dollar amount of reimbursements for a period (for example, a calendar year). While we generally refer only to HRAs, the final rule applies to any account-based plan.
2 An excepted benefit is not subject to ACA requirements. For example, they can have annual dollar limits and pre-existing condition clauses.
3 See IRS Notice 2013-54; IRS Notice 2015-17.
4 For purposes of the final rules, "individual health insurance coverage" means health insurance coverage offered to individuals in the individual market but does not include short-term, limited duration health insurance (STLDHI). See PHS Act section 2791(b)(5). See also 26 CFR 54.9801-2, 29 CFR 2590.701-2, and 45 CFR 144.103. Individual health insurance coverage can include coverage for dependents.
5 Permissible employee classifications are: full-time employees; part-time employees; salaried employees; non-salaried employees; employees whose primary site of employment is in the same rating area; seasonal employees; employees covered by a particular collective bargaining agreement; employees who have not satisfied a waiting period; non-resident aliens with no U.S.-based income; employees who are employees of an entity that hired the employees for temporary placement at an entity that is not the common law employer of the employees; and a group of participants described as a combination of two or more of the foregoing classes. The regulations require a minimum class size for an ICHRA (from 10-20 employees depending on the employer's total number of employees).