HRA's and Indemnity Plans Guidance

[Yagents]

The FAQs don't say HRAs cannot reimburse premiums (that's a entirely separate issue under the IRC). The FAQs simply say say they intend to issue guidance making stand-alone HRAs generally subject to PHS Section 2711. What does this mean?

It means, based on the existing regulations (see law.cornell.edu/cfr/text/29/2590.715-2711"]29 CFR 2590.715-2711 - No lifetime or annual limits. | Title 29 - Labor | Code of Federal Regulations | LII / Legal Information Institute), HRAs that don't fall into one of the following categories may need to be redesigned to avoid falling out of compliance with 2711 (assuming the expected new guidance comes out making HRAs subject to 2711).

As HRAs are technically self-insured group health plans, they are not required to cover essential health benefits. Remember, 2711 annual limits rules only applies to essential health benefits.

1."Integrated" HRAs
According to the existing regulations, "when HRAs are integrated with other coverage as part of a group health plan and the other coverage alone would comply with the requirements of PHS Act section 2711, 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."

As expected, the new FAQs clarify that an HRA is not considered "integrated" unless:

the employer offers primary group health insurance coverage that alone satisfies Section 2711, and
the HRA is only made available to employees who are also enrolled in the primary group health plan coverage in #1.
Test: Is the HRA integrated with group health insurance coverage that complies with the lifetime and annual limit restrictions? If so, the HRA generally avoids the annual limit requirements.

2. "Flexible Spending Arrangement" HRAs
According to the existing regulations, "a health flexible spending arrangement (as defined in section 106(c)(2)) is not subject to the [annual limit requirements]"

According to IRS Notice 2002-45, "assuming that the maximum amount of reimbursement which is reasonably available to a participant under an HRA is not substantially in excess of the value of coverage under the HRA, an HRA is a flexible spending arrangement (FSA) as defined in § 106(c)(2)."

Test: Does the HRA qualify as a flexible spending arrangement as defined in Section 106(c)(2)? If so, the HRA generally avoids the annual limit requirements.

Section 106(c)(2) Flexible spending arrangement - For purposes of this subsection, a flexible spending arrangement is a benefit program which provides employees with coverage under which—

(A) specified incurred expenses may be reimbursed (subject to reimbursement maximums and other reasonable conditions), and

(B) the maximum amount of reimbursement which is reasonably available to a participant for such coverage is less than 500 percent of the value of such coverage.

3. "Excluded" HRAs
According to the existing regulations, the section 2711 rules "do not prevent a group health plan, or a health insurance issuer offering group health insurance coverage, from placing annual or lifetime dollar limits with respect to any individual on specific covered benefits that are not essential health benefits to the extent that such limits are otherwise permitted under applicable Federal or State law."

Therefore, HRAs that exclude all essential health benefits and only reimburse non-essential health benefits (e.g. premium expenses) avoid the annual limit requirements.

Test: Does the HRA only reimburse non-essential health benefits? If so, the HRA generally avoids the annual limit requirements.

4. "Excepted" HRAs
The Affordable Care Act and the interim regulations make it clear that PHS section 2711 does not apply to HRAs that qualify as "excepted benefits" under ERISA (see the federal definition of "group health plan", 42 USCS § 300gg-91).

Test: Does the HRA qualify as excepted benefits? If so, the HRA generally avoids the annual limit requirements.

5. "Retiree" HRAs
According to the interim regulations, a "retiree-only HRA is generally not subject to the rules in PHS Act section 2711 relating to annual limits."

Test: Does the HRA only cover retirees? If so, the HRA generally avoids the annual limit requirements.

Instead of copying legal text, could you tell us what it means in laymen's terms, and answer this question:

1. Can a small employer under 50 FTE's offer a premium tax free reimbursement HRA to employees who will then buy subsidized/non subsidized coverage on or off the exchange?

2. Same question for OVER 50 FTE's, can they do it? If they can and do, will they still have to pay the employer penalty for not offering affordable group coverage?

 

[Ann H]

Instead of copying legal text, could you tell us what it means in laymen's terms, and answer this question:

1. Can a small employer under 50 FTE's offer a premium tax free reimbursement HRA to employees who will then buy subsidized/non subsidized coverage on or off the exchange?

2. Same question for OVER 50 FTE's, can they do it? If they can and do, will they still have to pay the employer penalty for not offering affordable group coverage?

Also, can you tell us if there is any other legal way for the employer to provide funding (tax-free) to the employee to purchase their own Individual/Family plans inside or outside the exchange? Does a Section 125 allow for that? This question applies to under 50 and over 50 FTE's, and those employers who have a primary group plan and who do not.

 

[Zane Benefits]

Here's an attempt at a layman's explanation.

The guidance everyone is referring to are answers to FAQs regarding "Integrated" HRAs and PHS Act Section 2711.

The Department of Labor FAQs don't say HRAs cannot reimburse premiums (that's an entirely separate issue under the Internal Revenue Code). Premiums for individual policies can still be reimbursed tax-free through an HRA.

As most expected, the FAQs simply say they intend to issue guidance making stand-alone HRAs generally subject to PHS Section 2711 (i.e. Subject to No Annual Limits Requirements on Essential Health Benefits).

What does this mean? It means, based on the existing regulations, HRAs that don't fall into one of the 5 categories (mentioned previously) may need to be redesigned to avoid falling out of compliance with Section 2711 (assuming the "intended" new guidance comes out making HRAs subject to 2711).

As HRAs are technically self-insured group health plans, they are not required to cover essential health benefits. Remember, 2711 annual limits rules only applies to essential health benefits.

Section 106(c)2 "Flexible Spending Arrangement" HRAs and "Excluded" HRAs will likely be the most popular Stand-alone HRA plan designs come 2014.

To answer the original questions:

<<1. Can a small employer under 50 FTE's offer a premium tax free reimbursement HRA to employees who will then buy subsidized/non subsidized coverage on or off the exchange?>> Yes, but the HRA can only reimburse the non-subsidized portion.

<<2. Same question for OVER 50 FTE's, can they do it? If they can and do, will they still have to pay the employer penalty for not offering affordable group coverage?>> Same answers to number 1, but they will pay a penalty.

Does this help?

 

[Yagents]

Here's an attempt at a layman's explanation.

The guidance everyone is referring to are answers to FAQs regarding "Integrated" HRAs and PHS Act Section 2711.

The Department of Labor FAQs don't say HRAs cannot reimburse premiums (that's an entirely separate issue under the Internal Revenue Code). Premiums for individual policies can still be reimbursed tax-free through an HRA.

As most expected, the FAQs simply say they intend to issue guidance making stand-alone HRAs generally subject to PHS Section 2711 (i.e. Subject to No Annual Limits Requirements on Essential Health Benefits).

What does this mean? It means, based on the existing regulations, HRAs that don't fall into one of the 5 categories (mentioned previously) may need to be redesigned to avoid falling out of compliance with Section 2711 (assuming the "intended" new guidance comes out making HRAs subject to 2711).

As HRAs are technically self-insured group health plans, they are not required to cover essential health benefits. Remember, 2711 annual limits rules only applies to essential health benefits.

Section 106(c)2 "Flexible Spending Arrangement" HRAs and "Excluded" HRAs will likely be the most popular Stand-alone HRA plan designs come 2014.

To answer the original questions:

<<1. Can a small employer under 50 FTE's offer a premium tax free reimbursement HRA to employees who will then buy subsidized/non subsidized coverage on or off the exchange?>> Yes, but the HRA can only reimburse the non-subsidized portion.

<<2. Same question for OVER 50 FTE's, can they do it? If they can and do, will they still have to pay the employer penalty for not offering affordable group coverage?>> Same answers to number 1, but they will pay a penalty.

Does this help?

That does help. But it brings up additional questions:

How does an under 50 FTE employer determine how much to offer each individual employee at the beginning of the year, not knowing what kind of subsidies the employee is eligible for, the plan they will be buying, and not be out of compliance with discrimination testing?

What if 1 employee is on Medicaid for free, and 10 others are not?
What if 1 employee pays a total of $50/mo, but others pay $1000/mo?

I guess this also presents an opportunity for an silver plan subsidized exchange buyer to upgrade to a gold/platinum

 

[Zane Benefits]

That does help. But it brings up additional questions:

How does an under 50 FTE employer determine how much to offer each individual employee at the beginning of the year, not knowing what kind of subsidies the employee is eligible for, the plan they will be buying, and not be out of compliance with discrimination testing?

What if 1 employee is on Medicaid for free, and 10 others are not?
What if 1 employee pays a total of $50/mo, but others pay $1000/mo?

I guess this also presents an opportunity for an silver plan subsidized exchange buyer to upgrade to a gold/platinum

This is a common question when it comes to HRA design. To avoid discrimination, the employer must give employees (within the same "Class") the same monthly (or annual) allowance. Ultimately, the employer can not vary the amount based on personal characteristics or even insurance premiums. The key thing to remember with HRA is that the HRA is the plan (not the insurance policies). And, the employer must take extra steps to avoid endorsing the individual insurance plans as "employer-sponsored" under ERISA.

Also, employers will be able to estimate the employees max "out-of-pocket" cost using wages and household size to help set monthly HRA contributions for each Class of Employee.

Finally, HRA plan design can be modified mid-year (to take effect immediately) if an increase is necessary.

 

[Yagents]

A couple answers to our questions. HRA's changes won't affect under 50 FTE's. But, the news to me is that over 50 FTE's, not only do they have to pay a penalty, but they ALSO don't get the tax advantages of the HRA..............ZING !!

The new guidance by HHS, DOL, and DOT effectively prohibits employers with at least 50 full-time employees from taking that approach. They could still do it, but the funds would have no tax advantages. Not only that, the employer would not be deemed as offering a qualified plan under the Affordable Care Act (ACA) and therefore would be assessed an annual $2,000 or $3,000 per-employee penalty.
"The big implication of the guidance is that it kills the idea of having private exchanges populated with individual insurance products," says Michael Thompson, health-care practice leader for the Northeast region at PricewaterhouseCoopers (PwC). The combined penalties and loss of tax benefits "would blow the whole thing out of the water."
private health insurance exchanges aca ktp whitacher pwc liazon bloom mercer aon hewitt towers watson sears darden



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[Ann H]

Zane Benefits updated its blog Friday to answer the HRA question. The link is: Can Health Reimbursement Accounts Still Reimburse Premiums?

As for me, personally, I would like to see this confirmed by other reputable TPA's who have been doing HRAs for years, before going forward.