Source: hr3590.com
Health reimbursement arrangements that are not integrated with group health coverage will violate health reform’s prohibition on annual benefit limits, the federal government recently clarified. HRAs that are integrated with individual policies will be seen as “nonintegrated,” thereby violating the ban on annual limits, the agencies implementing health reform stated. And if employees don’t sign up for primary coverage, even integrated HRAs will be treated as nonintegrated and violate reform’s bar on limits.
HRAs can escape the prohibition if they are available only to employees who are covered by employer-provided group health coverage that has no annual limits on dollars spent on health services.
The Jan. 24 guidance issued by the U.S. departments of Health and Human Services, Treasury and Labor resolves key questions on how HRAs interact with health reform’s prohibition on annual and lifetime limits, which takes full effect in January 2014.
No Individual Coverage
The government intends to make it clear that HRAs cannot be integrated with individual market coverage whether or not the employer plan arranges employee enrollment. Such HRAs will not be considered integrated.
Must Be Enrolled in the Group
Likewise, if an employer offers compliant primary coverage and an HRA, but the enrollee skips the primary coverage and gets just the HRA, the HRA will be considered standalone, and in violation of the bar on limits, the guidance stated.
Background
In June 26, 2002, the IRS authorized HRAs. They are most often used with high-deductible plans, primarily to cover expenses incurred before the deductible is satisfied and coverage starts. See ¶291 of Thompson Information Services’ Guide on Flex Plans and ¶381 of its Guide to Complying with IRS Employee Benefits Rules, for more information on HRAs.
Reform’s Ban of Limits
Under Section 1001 of the reform law, all individual and group health plans must eliminate maximum annual limits on the dollar value of “essential health benefits” for any participant or beneficiary. Go to Sections 310 and 320 of The New Health Reform Law, What Employers Need to Know, for more information on the prohibition on annual and lifetime limits.
Questions arose because at first it appeared that the rules mandating elimination of annual dollar limits would apply to HRAs, which are dollar-limited. But in June 2010 rules implementing the ban of limits (75 Fed. Reg. 37188), the agencies implementing health reform created a broad exception, recognizing that most HRAs are a supplemental vehicle to pay cost sharing amounts not covered by an actual health plan. It explained that:
[w]hen HRAs are integrated with other coverage as part of a group health plan and the other coverage alone would comply with [ban on annual limits] the fact that benefits under the HRA by itself are limited does not violate PHS Act Section 2711 because the combined benefit satisfies the requirements.