Federal regulators have proposed allowing employers to sponsor health reimbursement arrangements (HRAs) for their employees to go purchase health coverage on the individual market—a practice that is currently prohibited under the Affordable Care Act (ACA).
The three-agency proposal, to be published October 29, would allow HRAs to be considered “integrated” with individual health coverage for ACA compliance purposes if certain conditions are met. Stand-alone HRAs not integrated with other coverage generally cannot comply with the ACA’s prohibition on annual dollar limits and required first-dollar coverage of preventive services.
“Of those smaller employers that provide health benefits, 81 percent offer only a single option. This proposal is about empowering American workers to have more consumer-driven healthcare choices,” U.S. Secretary of Labor Alexander Acosta said in an October 23 statement. HRAs “can provide another way for employers to help their employees access quality, affordable health coverage.”
The proposal from the U.S. Departments of Labor (DOL), Health and Human Services (HHS), and the Treasury also would classify certain other HRAs as “excepted benefits” exempt from many health plan requirements. The DOL proposed clarifying that individual health coverage would not be considered part of an Employee Retirement Income Security Act (ERISA) plan simply because the premiums are being reimbursed through an HRA or qualified small employer HRA (QSEHRA).
The proposed rule comes in response to Executive Order 13813, issued by President Trump in October 2017. Among other things, the order called on the DOL, HHS, and Treasury to look for ways to increase the usability of HRAs, expand employers’ ability to offer HRAs to their employees, and allow HRAs to be used in conjunction with nongroup coverage.
An HRA is a type of tax-favored account for reimbursing healthcare expenses, including premiums. Unlike a health flexible spending account, an HRA must be funded entirely by the employer and balances may be carried over from year to year. Unlike a health savings account, an HRA need not be tied to a high-deductible health plan but also is not “portable” when an individual leaves employment.
The relief proposed by the agencies is separate from the QSEHRA program created in 2016 by the 21st Century Cures Act and fleshed out in 2017 guidance from the Internal Revenue Service (IRS). QSEHRAs, limited to certain small employers, were simply excluded from the definition of a group health plan for most purposes. The proposed rule, on the other hand, applies to employers of all sizes and does not affect the status of HRAs as group health plans.
Public comments on the proposed rule must be submitted to the IRS by December 28.
Requirements for Integration
To be considered “integrated” with individual health coverage under the proposed rule, an HRA must require participants and any dependents to substantiate that they are in fact enrolled in individual coverage. If any of these individuals loses coverage, the participant must forfeit the HRA. Also, because HRA participation could jeopardize employees’ eligibility for an ACA premium tax credit, employees must be allowed to opt out of the HRA and waive future reimbursements.
The proposal includes restrictions designed to keep employers from using HRAs for individual coverage to discriminate based on health status. To prevent employers from potentially steering sick employees off their group health plan onto the individual market, the rule would prohibit offering the same class of employees both a traditional group plan and an HRA that funds individual coverage.
The HRA generally must be offered on the same terms to all employees within a class. Unlike HIPAA’s nondiscrimination rules, which defer to employers’ bona fide employment-based classifications, the proposed HRA rule sets out an exclusive list of permissible “classes” by which an employer may categorize employees for these purposes:
- Full-time employees;
- Part-time employees;
- Seasonal employees;
- Employees in a unit covered by a collective bargaining agreement;
- Employees in a waiting period for coverage;
- Employees younger than age 25;
- Nonresident aliens with no U.S.-based income; and
- Employees whose primary worksite is in the same rating area.