Submitted by Annette Bechtold, Senior Vice President of Regulatory Affairs and Reform Initiatives for OneDigital
In response to President Trump’s October 12, 2017 Executive Order, the Departments of Health and Human Services, Treasury and Labor issue the proposed rule expanding Health Reimbursement Arrangements. This third and final rule aims to provide employers with additional options when offering health benefits to their employees while providing employees with greater opportunity to purchase coverage of their choosing.
As we know, the ACA’s market rules put some restrictions on how, and when, employers may use HRAs in their benefits program. The 2013 IRS notice clarifies that an HRA is a health plan. As such, it must contain all the ACA group health plan mandates unless integrated with a group’s ACA-compliant health insurance plan. The Departments clarify that “an employer-sponsored HRA cannot be integrated with individual market coverage.” This type of employer payment plan would need to satisfy market reforms, including the prohibition on annual limits integration with an ACA-compliant plan. In its design, it would fail to comply with ACA health plan mandates and prohibition on integration of an HRA with individual health coverage. This practice does not meet the market reform or integration rule. Therefore, the Departments prohibit this practice.
The October 29, 2018, proposed rule allows employers to integrate their HRA with individual health insurance coverage as long as it is nondiscriminatory in its implementation. The subsequent release of IRS Notice 2018-88 addresses the interaction of this HRA expansion and the ACA’s employer shared responsibility provisions, e.g., offering a health plan that meets affordability and minimum value requirements, and self-funded nondiscrimination rules. The rule and notice address the following areas:
HRA Integration Requirements
For an HRA be considered an ACA-compliant health plan, it must be integrated. This new proposed rule provides new integration rules applicable to individual health coverage integrated with an HRA. To meet integration requirements, employers and plan sponsors must:
- Require participants and dependents to be enrolled in individual health insurance coverage for each month they are enrolled in an HRA
- Prohibit offering an HRA and traditional insurance to the same class of employees
- Offer HRA integrated with individual coverage on the same terms to each participant within the class
- At least annually, allow participants to opt-out of, and waive , future reimbursements from HRA
- Regularly substantiate and verify enrollment in individual coverage
- Provide notice to eligible participants regarding offer and enrollment of HRA.
It is important to note that when considering the eligibility of these premiums for pretax treatment under an employer’s cafeteria plan, employers may not allow salary reductions to purchase a qualified health plan through the exchange. However, they may allow salary reductions for premiums to purchase individual coverage outside the exchange, subject to all other cafeteria plan rules.
The proposed rule sets additional criteria for limited excepted benefits with regard to these arrangements. Excepted benefits include certain types of coverage — e.g., accident, disability, dental, vision, short-term health policies, workers’ compensation, some FSAs, etc. and are not subject to ACA health plan rules.
Employers that wish to provide an HRA without regard to whether employees have coverage or have coverage that meets market requirements may do so if the HRA meets the following requirements:
- The HRA must not be an integral part of the plan.
- The HRA must provide limited benefits (no more than $1,800, indexed for inflation).
- The HRA may only provide reimbursement of individual premiums if they consist solely of excepted benefits or group health plan coverage that solely consists of excepted benefits – this includes short-term limited duration insurance policy premiums and COBRA premiums.
- The HRA must be made available to all similarly situated individuals.
Effect on Premium Tax Credits
Under the ACA, premium tax credits are available only to those who buy individual insurance coverage through the exchange, have no offer of minimum essential coverage or whose offer is not affordable, and meet the income requirements for subsidization of premiums. Therefore, an individual covered by an HRA integrated with individual health coverage would be ineligible for a premium tax credit unless it is an excepted benefit.
If the HRA with individual coverage were unaffordable, the employee would be eligible for a PTC provided they meet all other criteria. The Departments lay out a new calculation to determine affordability.
Step 1: Identify employee’s required contribution. This is the amount the employee would need pay for coverage. The required contribution is the difference between:
- premium for self-only coverage of lowest cost silver plan in employee’s rating area
- new HRA dollars the employer provides (for self-only coverage type)
Step 2: Determine employee’s maximum allow affordable premium contribution – this is the employee’s maximum payment responsibility.
- employee’s household income x required percentage (i.e.. 9.86% for 2019)
Step 3: Compare contributions
- The required premium contribution is greater than the allowable contribution = UNAFFORDABLE
- The allowable contribution is higher than the employee contribution = AFFORDABLE
Interaction with ERISA
ERISA obligations and responsibilities for employers in the design, delivery and operation of the benefit plan apply to group health plans. Individual health plans do not fall under ERISA and are not considered part of an employer-sponsored plan and, as such, are not eligible for COBRA as long as:
- Coverage purchased is voluntary for employees
- Employer/plan sponsor does not select or endorse an issuer/carrier
- Reimbursement for non-group health insurance premiums is limited only to individual coverage
- Employer/plan sponsor receives no consideration
- And each participant is notified annually that individual coverage is not subject to ERISA
Special Enrollment Periods
The Departments recognize that employers offering a new HRA integrated with individual health coverage may do so outside the individual market annual open enrollment. This would result in individuals being unable to participate in the program. Therefore, the proposed rule adds some additional circumstances by which an individual could enroll outside of the annual open enrollment.
Specifically, the rule would:
- Allow employees and their dependents to enroll or change individual health insurance coverage outside of the individual market annual open enrollment period if they gain access to an HRA integrated with individual health insurance coverage
- Apply the new special enrollment period to individuals who are provided QSEHRAs
- Establish the coverage effective date as the first day of the first month following the individual’s plan selection
- If plan selection is made prior to the HRA effective date, then coverage begins on the first day of the month following the qualifying event or first of the month if triggering date is on the first of the month
- Individuals may elect to report the qualifying event up to 60 days after the date of the qualifying event and qualify for the special enrollment period during the regular special enrollment period window.
- Include this special enrollment period in the limited open enrollment periods available off Exchange
Integration with ACA employer shared responsibility requirements
- 4980H(a) – Failure to offer – Penalty does not apply If employer offers HRA to 95% of full-time employees and their dependents
- 4980(b) – Penalty does not apply if employer’s HRA offer is affordable
- Neither penalty is contingent on whether any full-time employee receives a premium tax credit (PTC)
Minimum Value; if HRA is affordable, it automatically meets minimum value
Affordability; if the allowable contribution is higher than the employee’s required contribution, it is affordable
The IRS and Treasury address the finer points of the affordability calculation in their notice and, to make it more workable for employers, anticipate releasing guidance finalizing the following safe harbors:
- Calendar year safe harbor: affordability for CY plan based on cost in prior calendar year
- Non-calendar year safe harbor: affordability of first month of plan year applies to full plan year
- Location safe harbor: may use lowest cost silver plan in rating area of employer site rather than EE residence
- Affordability safe harbor: use of 4980H safe harbors, e.g. W-2, rate of pay, and FPL, to determine affordability and minimum value for individual HRAs
Integration with §105(h) Nondiscrimination Rules
Section 105(h) prohibits self-funded plans from discriminating in favor of highly compensated individuals (HCIs). Specifically, to avoid violating the nondiscrimination rules, all benefits available to HCIs, and their dependents, must be available to all other participants and their dependents. The maximum dollars available must be uniform for all. Employers may not vary these dollars due to age or years of service. If a plan is found to be discriminatory, the excess benefits the HCIs receive become taxable (i.e., included in gross income).
Without any new guidance or modification, employers that offer different HRA maximums to different classes or raise their HRA contribution due to change in age, under the age-banded premium categories in the individual market, would violate the 105(h) rules. Treasury and IRS anticipate releasing future guidance to address these situations.
For these two circumstances, new guidance will indicate that the HRA will not fail if it meets all of these conditions:
- The HRA provides the maximum dollar amount, made available to all members of a particular class, be uniform.
- Any increases in the price of coverage due to age are uniform for all participants in that class who are of the same age.
- And the HRA reimburses premium only with no claims reimbursement.
The rule contains a significant amount of questions for which the Departments seek feedback. These comments are due back by December 28, 2018. NAHU is preparing comments to all request made in the original proposed rule and the IRS/Treasury Notice. Due to the volume of questions and request, NAHU anticipates a response no earlier than spring of 2019.
The proposed rule, if adopted, would apply to groups and insurance issuers for plan years beginning on or after January 1, 2020. However, the Departments have asked commenters to address whether this date is appropriate.
This new rule provides an interesting alternative to traditional health benefits. Its feasibility and attractiveness to employers is contingent on any modification in the final rules and the particular circumstance of the individual employer and the individual state marketplace coverage cost and availability. Until the Departments receive all the comments, review them and address them in the next version of this regulation, this option remains unavailable.