SECOND OPINIONS: ACA Application to HRAs and Other Arrangements

The Notice addresses a number of open questions that employers, plan administrators and others have been asking regarding the use of HRAs and other types of employer-sponsored plans.  In particular, it confirms that employers generally may not offer active employees HRAs or similar arrangements that the employees can then use to purchase coverage in the individual insurance market.  Below we address some of the key issues addressed the Notice.

Do HRAs or other types of employer-sponsored, pre-tax arrangements used to purchase individual health coverage violate the ACA prohibition on annual limits on essential health benefits?

Yes. 

Before the issuance of the Notice, the agencies had issued only limited guidance on the application of the ACA annual dollar limit prohibition to HRAs.  For example, the preamble to the interim final regulations on the annual and lifetime limit prohibitions stated that an “integrated” HRA does not violate the annual limits prohibition, as long as the other coverage offered with the integrated HRA complies with the prohibition.  In a recent set of frequently asked questions (“FAQs”), the agencies indicated that in no circumstances will an HRA be considered to be integrated with an individual policy, and that a participant must be enrolled in coverage under another group health plan that satisfies the limit prohibitions in order for that other coverage to be considered “integrated” with the HRA. 

The Notice provides generally that an HRA or other group health plan (e.g., an “employer payment plan”) used to purchase coverage on the individual market is not integrated with that individual market coverage for purposes of the ACA annual dollar limit prohibition or preventive services requirements.  As a result, the HRA or other group health plan would violate those ACA requirements.  It provides an example in which a group health plan that reimburses employees for an employee’s substantiated individual insurance policy premiums would not comply with the annual dollar prohibition because it imposes an annual limit up to the cost of the individual market policy. 

The Notice indicates that it still may be permissible for an employer to establish a payroll arrangement (that meets the terms of a DOL safe harbor) under which an employee could choose between cash or an after-tax payment toward health coverage.

May an HRA be integrated with another group health plan in order to satisfy the annual limit prohibition and preventive services requirements?

Yes.  An HRA will be “integrated” with another group health plan if it meets the requirements of either of the integration methods described in the Notice (“Integration Method:  Minimum Value Not Required” or “Integration Method:  Minimum Value Required”).  In general, separate rules apply under the two integration methods depending on the scope of coverage provided under the HRA. The Notice clarifies that neither of these two integration methods requires that the HRA and the other group health plan with which the HRA is integrated have the same plan sponsor or the same plan document, or that the two arrangements file a single Form 5500.  For example, the Notice provides that an employee’s HRA could be integrated with a group health plan sponsored by the employer of the employee’s spouse.

Does the Notice provide guidance with respect to the use of retiree-only HRAs?

Yes. 

The interim final rules on the annual and lifetime limit prohibitions had confirmed that “retiree-only” HRAs are exempt from the annual and lifetime limits prohibitions and other ACA insurance market reforms.  The Notice notes that some employers plan to make amounts available under standalone retiree-only HRAs under which the employer would reimburse the medical expenses (including premiums for individual health insurance policies) of retired employees.  The Notice clarifies that although this approach is permissible, such a standalone retiree-only HRA will constitute minimum essential coverage under an eligible employer sponsored plan for any month that funds are retained in the HRA (even after the employer has stopped making contributions).  This means that a retired employee covered by a standalone HRA for a month will not be eligible for a premium tax credit for coverage on a public exchange for that month.

Got a health-care reform question?  You can ask YOUR health-care reform legislation question online at http://www.surveymonkey.com/s/second_opinions  

You can find a handy list of Key Provisions of the Patient Protection and Affordable Care Act and their effective dates at http://www.groom.com/HCR-Chart.html   

Contributors:

Christy Tinnes is a Principal in the Health & Welfare Group of Groom Law Group in Washington, D.C.  She is involved in all aspects of health and welfare plans, including ERISA, HIPAA portability, HIPAA privacy, COBRA, and Medicare.  She represents employers designing health plans as well as insurers designing new products.  Most recently, she has been extensively involved in the insurance market reform and employer mandate provisions of the health-care reform legislation.

Brigen Winters is a Principal at Groom Law Group, Chartered, where he co-chairs the firm's Policy and Legislation group. He counsels plan sponsors, insurers, and other financial institutions regarding health and welfare, executive compensation, and tax-qualified arrangements, and advises clients on legislative and regulatory matters, with a particular focus on the recently enacted health-reform legislation.

PLEASE NOTE:  This feature is intended to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.