Contacts
The President signed an Executive Order on October 12, 2017, directing the U.S. Departments of Labor, Treasury, and Health and Human Services (collectively, the “Agencies”) to consider rules expanding the availability and permitted uses for Health Reimbursement Arrangements (HRAs). The clear intent was to ultimately enable employers to offer HRAs to employees that can be used to purchase individual insurance policies. The Agencies issued a set of proposed regulations addressing this and related issues on October 23, 2018.
The Bottom Line
We’ll address the proposed rules in more depth under Some Details About Individual Insurance HRAs (chart) below, but the main takeaways are:
- Premiums – Employers will be able to offer HRAs to employees that can be used to pay for individual health insurance coverage premiums. These will be referred to as “Individual Insurance HRAs” in this article.
- Employer mandate – Individual Insurance HRAs can be used to avoid employer mandate penalties under the Affordable Care Act (ACA).
However: - It’s one or the other – An employer can offer traditional group health coverage to a class of employees or an Individual Insurance HRA, but not both.
So, When Exactly?
The proposed effective date is for plan years beginning on or after January 1, 2020. The comment period for the proposed regulations will last through the remainder of 2018. The proposed regulations cannot be relied upon as a safe harbor. The final regulations will probably not appear before mid-2019 and may not differ much from the details described below.
Some Details About
Individual Insurance HRAs
Item |
Guidance |
Eligibility
|
Employees (including former employees) and dependents who are enrolled in major medical coverage purchased in the individual insurance market[1] Coverage for any part of a month for which a premium is due qualifies |
Classes of Employees
|
Employers may divide their workforces into the following classes of employees:
If an Individual Insurance HRA is offered to a class, it must be offered on the same terms to all employees within the class[2] (benefit levels may only vary based on age and family size within a class) If an employer offers an Individual Insurance HRA to a class of employees, it may not offer its traditional group health coverage to that class[3] Note: There are no other permitted classes such as hourly versus salaried employees. |
ACA and the Employer Mandate
|
An Individual Insurance HRA automatically qualifies as minimum essential coverage and is an “offer of coverage” for the purposes of satisfying the ACA’s employer mandate An Individual Insurance HRA (with its individual major medical insurance policy) is automatically deemed to satisfy the ACA’s minimum value requirement An Individual Insurance HRA is deemed “affordable coverage” if the difference between the monthly premium for the lowest cost available silver plan and 1/12th of the annual Individual Insurance HRA contribution is equal to or less than the applicable affordability safe harbor percentage. Affordable Coverage Example: In 2020, an employer makes an annual contribution of $3,600 to an employee’s Individual Insurance HRA. The monthly premium for the lowest cost available silver plan is $400. $400 – ($3,600/12) = $100/month The Individual Insurance HRA is an affordable offer of coverage for the employee if $100/month is within an affordability safe harbor for that employee in 2020 |
Substantiation
|
Employees are required to substantiate enrollment in individual coverage (including for any dependents) each time a request for reimbursement is submitted An employer may rely on the employee’s attestation of coverage or require reasonable proof of enrollment (such as an ID card) |
Waiver
|
Employees must be permitted to waive participation annually, although the Individual Insurance HRA may still be considered an offer of affordable, minimum value coverage by the employer |
ERISA Status, etc.
|
The Individual Insurance HRA itself is an employer-sponsored group health plan The individual insurance coverage reimbursed by the HRA will not be considered an ERISA plan offered by the employer so long as the employer does not sponsor it or play a role in its selection |
Cafeteria Plan Option
|
An employer may allow employees to pay for any remaining premium for the individual insurance policy through the employer’s cafeteria plan, but this is not available for coverage purchased through the public insurance exchange |
Notice Requirements
|
Employers must provide eligible employees with a notice describing the terms of the Individual Insurance HRA and the affect it may have on the employee’s eligibility for a subsidy in the public insurance marketplace |
[1] This does not currently include short-term, limited duration insurance.
[2] An employer can offer an Individual Insurance HRA to some former employees within a class and not others so long as the terms are uniform.
[3] Employees are not treated as having been offered group health coverage while in a waiting period.
And for Good Measure…
The Agencies also created another category of HRA known as an “Excepted Benefit HRA” that may be offered on a standalone basis exempt from the ACA’s mandates if all of the following is true:
- The employer offers traditional group health coverage to the employee (this means the employee cannot also be offered an Individual Coverage HRA);
- The maximum annual reimbursement is $1,800 (indexed);
- Reimbursements are limited to general medical expenses and premiums for COBRA, short-term limited duration insurance, and other excepted benefits coverage (this can include many types of non-major medical health coverage); and
- The Excepted Benefit HRA is available on a uniform basis to all similarly situated employees.
1 This does not currently include short-term, limited duration insurance.
2 An employer can offer an Individual Insurance HRA to some former employees within a class and not others so long as the terms are uniform.
3 Employees are not treated as having been offered group health coverage while in a waiting period.
4 This is based on HIPAA’s “similarly situated groups” rule and is not tied to the permitted classes of employees under the Individual Insurance HRA.
The information contained herein is for general informational purposes only and does not constitute legal or tax advice regarding any specific situation. Any statements made are based solely on our experience as consultants. Marsh & McLennan Agency LLC shall have no obligation to update this publication and shall have no liability to you or any other party arising out of this publication or any matter contained herein. The information provided in this alert is not intended to be, and shall not be construed to be, either the provision of legal advice or an offer to provide legal services, nor does it necessarily reflect the opinions of the agency, our lawyers or our clients. This is not legal advice. No client-lawyer relationship between you and our lawyers is or may be created by your use of this information. Rather, the content is intended as a general overview of the subject matter covered. This agency is not obligated to provide updates on the information presented herein. Those reading this alert are encouraged to seek direct counsel on legal questions. © 2018 Marsh & McLennan Agency LLC. All Rights Reserved.
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