The federal agencies (Department of Treasury, Labor and Health and Human Services) responsible for implementing the Patient Protection and Affordable Care Act (PPACA) issued further guidance regarding health reimbursement arrangements (HRAs). These are some of the most impactful changes in health care reform given the popularity of HRAs. And they are highly technical.
The short takeaway – your HRA will need to be brought into compliance before January 1st. This may include revisions to policies and procedures, the Summary Plan Description, and claims forms to reflect the new rules.
What is an HRA?
An HRA is a health expense reimbursement plan funded solely by an employer. Employees may submit certain qualified medical expenses (as defined in Code Section 213(d)) incurred by the employee, his or her spouse, and children for reimbursement. Annual reimbursements are capped at a maximum dollar amount per coverage period. Notice 2002-45, 2002-02.
Health care reforms applicable to HRAs
Public Health Service (PHS) Act § 2711 provides that a group health plan may not place an annual limit on essential health benefits. Additionally, PHS Act § 2713 requires non-grandfathered group health plans to provide certain preventive care treatment without cost sharing. Both of these requirements are effective January 1, 2014.
Together, these reforms are incompatible with HRAs, because by their nature they provide benefits limited to a specific dollar amount. Where an HRA has an annual cap on reimbursements, PPACA requires that there be no annual limit on essential health benefits, and no cost-sharing for preventive care services.
The guidance
In prior guidance released in January, 2013, the agencies indicated that in order for HRAs to operate within the law, they must be “integrated” with group-medical coverage.
In guidance issued on September 13, 2013, the agencies gave clarification as to the meaning of “integrated.”
An HRA is considered “integrated” with other medical coverage if:
- the employer offers group health coverage to an employee (other than an HRA, or a vision or dental plan, referred to as excepted benefits) that provides minimum value pursuant to Code Section 36B(c)(2)(c)(ii), or if it does not provide minimum value only reimburses limited expenses; and
- the employee is actually enrolled in group coverage (again, other than an HRA or excepted benefits); and
- the HRA is available only to employees who are enrolled in non-HRA group coverage, regardless of whether the coverage is provided by the same employer providing the HRA; and
- under the terms of the HRA, an employee is permitted to permanently opt out and waive future reimbursements from the HRA at least annually, and, upon termination of employment, either the remaining amounts in the HRA are forfeited or the employee is permitted to permanently opt out and waive future reimbursements from the HRA.
If the group health coverage fails to satisfy the 1st prong because it does not provide minimum value, the HRA can still be considered integrated, but reimbursements are limited to the following: copayments, coinsurance, deductibles and premiums under the other group coverage, as well as medical care that does not constitute an “essential health benefit” under PPACA.
What does this all mean?
First, the agencies made perfectly clear what many had speculated: an HRA can never be considered “integrated” with individual market coverage. This means that an HRA used to reimburse employees for premiums purchasing individual market coverage, including coverage from the Marketplace or Exchange, will not comply with the law.
Second, current HRAs may need to be redesigned with new participation rules and claim forms. Reimbursement from the HRA must be restricted to individuals who are enrolled in the employer’s group coverage, or another employer’s coverage, such as a spouse’s. The guidance makes clear that an employer can rely on an attestation from an employee that they are enrolled in other group coverage. HRAs will need to implement different pipelines for claims processing depending on whether the group coverage the employee is enrolled in provides minimum value or not. An individual who was covered by a group health plan that was integrated with the plan and then ceases to be covered by the plan may still continue to submit claims for unused amounts credited while the HRA was integrated with other coverage.
If an HRA’s current structure makes integration unworkable, the guidance does provide for an “excepted benefits” HRAs. This may be a good solution for a stand-alone HRA.
Finally, a retiree-only HRA is not subject to the integration requirements.
This guidance was helpful, but it leaves questions unanswered. What happens to unused amounts if an individual opts out of the HRA? Is the account balance forfeited, or can the individual continue to submit claims incurred prior to opting out? After opting out, when can an individual reenroll? What does it mean to be a retiree-only HRA? Does it need to be an entirely separate plan filing its own Form 5500, or can retirees be in the same plan and just have different claims adjudication rules? Some of these may be left up to plans to design themselves.
As always, should you have any questions, please contact our Benefits team.