Agencies Propose Regulations That Would Expand the Use of HRAs

The IRS, DOL, and HHS have jointly proposed regulations in response to President Trump’s executive order directing the agencies to consider regulations or guidance that would expand the availability and permitted use of health reimbursement arrangements (HRAs) and allow HRAs to be used in conjunction with nongroup coverage (see our Checkpoint article). Here are highlights:

• HRAs Funding Individual Health Insurance. The proposed regulations would allow HRAs to be integrated with, and to reimburse premiums for, individual health insurance coverage if certain conditions are met. Employees and dependents covered by the HRA would have to be enrolled in individual coverage (other than coverage that consists solely of excepted benefits), and an attestation or other verification of enrollment would be required when participation commences and when expenses are reimbursed. Also, the HRA sponsor could not offer a “traditional” group health plan (one that is neither account-based nor limited to excepted benefits) to the same class of employees. (The regulations offer several permitted classifications, including full-time, part-time, seasonal, and collectively bargained employees.) The HRA would have to be offered on the same terms and conditions to all employees within a class, except that the HRA benefit amount could increase by age or family size. Employees would have to be able to opt out and waive future HRA reimbursements at least annually, and would have to receive timely written notices with specified HRA information.
• Excepted Benefit HRAs. The proposal would allow employers to offer non-integrated HRAs that qualify as excepted benefits (and thus are not subject to the PHSA mandates) if they meet the following requirements: (1) The employer makes other nonexcepted, non-account-based group health plan coverage available to the HRA participants (enrollment is not required); (2) no more than $1,800 (indexed after 2020) is newly available to each participant for each plan year (carryovers permitted under the arrangement would be disregarded); (3) the HRA does not reimburse premiums for individual health coverage, non-COBRA group coverage, or Medicare Parts B or D (premiums for coverage consisting solely of excepted benefits could be reimbursed); and (4) the HRA is made available under the same terms and conditions to all similarly situated individuals. An excepted benefit HRA could not be offered to employees who are also offered an HRA that is integrated with individual health insurance.
• Cafeteria Plan Salary Reductions. The preamble clarifies that employers with HRAs that are integrated with individual health insurance could allow employees to use pre-tax cafeteria plan salary reductions to pay any portion of their individual insurance premiums not covered by the HRA. (Presumably, salary reductions would not be available for individual policies offered through an Exchange, due to restrictions under the cafeteria plan rules.) If offered, salary reductions would have to be made available on the same terms and conditions to all employees within a class.
• Premium Tax Credit Guidance. A proposed IRS regulation would provide guidance regarding the premium tax credit consequences for individuals who are offered or covered by an HRA that is integrated with individual health insurance.
• ERISA Plan Status of Individual Health Coverage. Under a proposed DOL regulation, the terms “employee welfare benefit plan” and “welfare plan” as used in ERISA would not include individual health insurance funded by an HRA if certain requirements are met. Among other things, the purchase of the insurance must be completely voluntary for participants and beneficiaries; the employer or other plan sponsor must not select or endorse any particular insurer or coverage; and participants must be notified annually that the individual coverage is not subject to ERISA.
• Exchange Special Enrollments. A proposed HHS regulation would establish an Exchange special enrollment period for employees and their dependents who gain access to an HRA that is integrated with individual health insurance coverage or are provided with a QSEHRA, allowing them to enroll in individual insurance coverage or change from one individual coverage plan to another.
• Applicability Date; No Reliance. The changes are proposed to apply for plan and taxable years beginning on or after January 1, 2020, and may not be relied on before they are final.

EBIA Comment: If finalized as proposed, the regulations will bring significant changes to the HRA landscape by establishing two new types of HRAs that—unlike QSEHRAs—would be available to employers of any size. (We note that portions of the regulations would also apply to other account-based plans; employers and advisors interested in other designs should pay close attention to the applicable definitions.) The proposal also indicates that the agencies are open to allowing cafeteria plan reimbursement of individual major medical policies. Indeed, the preamble specifically requests comments on cafeteria plan premium arrangements, including whether they should be permitted to integrate with individual insurance coverage. Comments have also been requested on a variety of other issues identified in the preamble, and are due by December 28, 2018. For more information, see EBIA’s Consumer-Driven Health Care manual at Section XXI.B (“HRA Legal Requirements”). See also EBIA’s Cafeteria Plans manual at Section X.F (“Should Participants Be Permitted to Pay for Individual Insurance Policies Under a Cafeteria Plan?”), EBIA’s ERISA Compliance manual at Section VI (“What Workplace Fringe Benefits Are Subject to ERISA?”), and EBIA’s Health Care Reform manual at Sections V.K (“Which Plans and Insurers Must Comply With the PHSA Mandates? Health Reimbursement Arrangements (HRAs)”), XXI.A.3 (“Annual and Special Enrollment Periods Required for Exchanges”), and XXIX.F (“Premium Tax Credits for Lower-Income Individuals”).

Contributing Editors: Thanks to attorney John R. Hickman for his contributions to this article, with final editing by EBIA staff. Mr. Hickman is a partner in the Employee Benefits Practice Group with Alston & Bird in Atlanta, www.alston.com, and is a contributing author of EBIA’s Consumer-Driven Health Care, Cafeteria Plans, and Health Care Reform manuals and a contributor to EBIA’s HIPAA manual.