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New Rule Expands the use of HRAs Effective January 1, 2020

June 26, 2019

On June 13, 2019, the U.S. Departments of Treasury, Labor, and Health and Human Services together released a final rule expanding the use of Health Reimbursement Arrangements (HRAs). These rules were promulgated in fulfillment of President Trump’s October 2017 Executive Order which, among other directives, ordered federal agencies to consider rulemaking that would increase access to HRAs. This new rule will become effective on January 1, 2020.

Provisions of the New Rule

The new rule will make the following changes:

  • Allow integration of HRAs with individual health insurance coverage. Under previous guidance, HRAs could not be integrated with individual health coverage to satisfy the Affordable Care Act’s (ACA) annual and lifetime limit requirements and preventive services prohibitions. The new rule also allows HRA integration with individual catastrophic coverage, individual health insurance purchased on or off the Exchange, and fully insured student health insurance, as well as Medicare Parts A, B, and C. An HRA may not be integrated with coverage consisting solely of excepted benefits, short-term limited duration insurance (which is illegal in California), other non-HRA group coverage (like spousal coverage), TRICARE, or health care sharing ministries.

    To be considered integrated with individual coverage, an HRA must satisfy a number of requirements. It must require that all participants and dependents covered by the HRA are enrolled in qualifying individual health coverage. HRAs must implement reasonable procedures to substantiate compliance. Employers may not offer a traditional group health plan and an individual coverage HRA to the same class of employees. And the HRA must be offered on the same terms to every employee within a class.

  • Require opt out rights for participants offered individual coverage HRAs. Such opt-out rights will ensure those that opt out of unaffordable individual coverage HRAs can remain eligible for premium tax credits on the Exchanges. (Those who opt out of affordable coverage, or are covered by the HRA cannot claim a premium tax credit.) Opt-out rights must be available once before the beginning of each plan year.

    Employers that choose to offer HRAs that integrate with individual health coverage must notify employees in writing about the impact of the HRA on an employee’s ability to claim a premium tax credit and the opt-out option. The notice must be delivered to eligible participants at least 90 days before the start of the plan year. For newly eligible participants, the notice must be delivered no later than the date on which the participant becomes eligible. The regulations include model notice language, which can be found here.

  • Recognize limited excepted benefit HRAs. The new rule recognizes excepted benefit HRAs, provided that they meet several requirements. An excepted benefit HRA must not be an integral part of a health plan. Eligibility must be limited to individuals eligible to participate in the sponsor’s other group coverage. The benefit is limited to $1,800/per plan year, indexed to inflation. It cannot be used to reimburse premiums for individual or group health plans or Medicare (but it may be used to reimburse premiums for short-term limited duration coverage and COBRA). Because of these requirements, an employer cannot offer both an individual coverage HRA and an excepted benefits HRA to the same employee.

  • Clarifies that individual health insurance does not become an ERISA plan because the premiums for such coverage are reimbursed by an HRA. This clarification also applies to QSEHRAs and supplemental salary reduction arrangements. In order to ensure that the individual coverage does not become an ERISA plan, the purchase of the individual coverage must be voluntary for all employees. The plan sponsor cannot select or endorse any particular issuer or coverage and it cannot receive any consideration in connection with the employee’s plan selection. Reimbursement for non-group insurance premiums must be limited to individual health insurance coverage. Additionally, an annual notification must be provided to plan participants that individual coverage is not subject to ERISA.

  • Establishes a special enrollment period in the individual market. The new rule establishes a special enrollment period to enroll in or change individual coverage for two categories of individuals: (1) those who newly gain access to or enroll in an individual coverage HRA or are provided a QSEHRA; and (2) those who had access to the HRA/QSEHRA previously but did not elect coverage.

There are remaining questions for plan sponsors. The new rule does not provide guidance on whether individual HRAs would satisfy the employer mandate under the ACA. The new rule also does not address how an employer-offered individual HRA would be treated under the I.R.C. section 105(h) nondiscrimination rules. These topics have been reserved for later rulemaking.

For more information, employers can consult the regulations, Fact Sheet and Frequently Asked Questions (FAQ) all found at the United States Department of Labor website.

Please contact your Keenan Account Manager for questions regarding this Briefing.

Keenan & Associates is not a law firm and no opinion, suggestion, or recommendation of the firm or its employees shall constitute legal advice. Clients are advised to consult with their own attorney for a determination of their legal rights, responsibilities and liabilities, including the interpretation of any statute or regulation, or its application to the clients’ business activities.