The Departments of Labor, Treasury and HHS issued a proposed rule on Tuesday on the expansion of Health Reimbursement Arrangements (HRAs). The rule was in response to an executive order issued by President Trump last October directing federal agencies to expand the availability of association health plans (AHPs), short-term limited duration insurance (STLDI or STP) policies and HRAs. The rules on AHPs and STPs were finalized earlier this year. The HRA proposal would establish new parameters to allow employers to offer an HRA to be used for the purpose of purchasing individual health coverage in lieu of a traditional group health plan, and separately for an HRA to be used for excepted benefits coverage. NAHU plans to submit detailed comments on the proposal, which are due on December 28.
The first major provision of the proposal would establish new parameters to allow employers to offer an HRA to be used for the purpose of purchasing individual health coverage in lieu of a traditional group health plan. The rule stipulates that an employer would not be permitted to offer both the option of a traditional group health plan and an HRA for the purchase of individual health coverage to the same class of employees. An employee who is eligible for an ACA advanced premium tax credit (APTC) would be permitted to opt-out of an HRA, while the HRA sponsor would need to notify eligible participants that they would not be eligible for an APTC if receiving an HRA and enrolling in individual health coverage.
The HRA amounts may be greater based on age for the entire employee class and number of dependents, and employers can allow employees to make a salary reduction for coverage purchased outside of the marketplace. However, employers would be unable to allow employees to make a salary reduction for premiums in the individual market, and employers cannot increase HRA funds for sicker employees. Any funds remaining at the end of the year can be carried over, but the method for determining carryover must be the same for all employees in the same class. There are eight classes of employees as established by IRS Code section 4980H:
- Full-time employees
- Part-time employees
- Seasonal employees
- Collective bargaining agreement unit
- Employees currently in a waiting period
- Employees under age 25
- Non-resident aliens with no U.S.-based income (foreign employees who work abroad)
- Employees whose primary site of employment is in the same rating area
The second provision of the proposal would permit an employer to offer employees an HRA for excepted benefits, although employers are not permitted to offer employees both an HRA for purchase of individual health coverage and an HRA for excepted benefits. The proposal stipulates that: excepted benefits must not be an integral part of the health plan; the HRA must be made available under the same terms to similarly situated individuals; and the HRA cannot provide reimbursement for premiums for traditional health insurance coverage, but can be used for solely excepted benefits coverage premiums such as STPs and COBRA.
NAHU will be working with our members of the Legislative Council and Employer Working Group to provide comments to the Trump Administration as well as examples of best practices that will assist the administration in compiling a final rule.