New Proposed Rules Create Options for HRAs

On October 23, 2018 the Departments of Treasury, Labor, and Health and Human Services issued proposed rules that would add flexibility to the way a Health Reimbursement Arrangement (HRA) may be used. If enacted, these rules would be effective for plans beginning on or after January 1, 2020.

An HRA is an employer-sponsored plan that allows employees to receive tax-free reimbursement for qualified medical expenses that aren’t otherwise paid by the medical plan. However, to comply with current guidance under the Affordable Care Act (“ACA”), an HRA must be integrated with other group health coverage that meets the ACA’s benefits and coverage mandates, including the prohibition on annual and lifetime limits and inclusion of first-dollar preventive care coverage. HRAs cannot be used to reimburse individual Marketplace premiums or any other individual health insurance premiums.

The proposed rule expands how HRAs may be used, offering two new ways an employer could use an HRA to offset employee health costs:

Premium Reimbursement HRA

An HRA can set be set up to allow employees who purchase individual coverage both on and off the Marketplace (healthcare.gov) to receive reimbursement of individual premiums and qualified medical expenses incurred under an individual health insurance policy. Employees must provide proof of coverage and substantiate any claims prior to reimbursement. Employers interested in offering this type of HRA would need to choose to either offer an HRA like this or to offer traditional group health coverage – they cannot offer both to the same group of employees. The HRA must be the only offer of coverage to the entire class of employees to which it is offered. An employee could choose to opt out of the HRA if (s)he is eligible for subsidized coverage under the Marketplace.

Importantly, the Premium Reimbursement HRA qualifies as minimum essential coverage that would allow employers subject to the employer mandate to avoid penalties so long as the coverage is affordable. Coverage is deemed affordable if the difference between the individual premium for the lowest cost Marketplace silver plan and 1/12 of the annual HRA contribution is less than 9.86% of the employee’s household income (indexed annually).

Excepted Benefit HRA

An employer may also offer a non-integrated HRA that reimburses dental and vision expenses, as well as premiums for COBRA and short-term limited duration individual policies. Under the proposed rules, these HRAs will be treated as excepted benefits, meaning that they would be exempt from various provisions of the Affordable Care Act (ACA). Employers offering this type of HRA must also offer a traditional group health plan to the same group of employees eligible for the HRA.

Federal regulators have requested comments on the proposed rules which are due in December, and final guidance is anticipated in early to mid-2019. FirstPerson will continue to monitor these developments and let clients know what options may be available in the future. Please reach out to your Advisor or our Compliance Team with any questions.