Yesterday, the Departments of Health and Human Services, Labor, and Treasury released a final rule and frequently asked questions document regarding the expansion of Health Reimbursement Arrangements that will take effect on January 1, 2020. The final rule establishes 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. The rule was promulgated in response to an executive order issued by President Trump in October 2017 directing federal agencies to expand the availability of Association Health Plans, short-term plans and HRAs. The proposed rule was released last October and NAHU submitted comments on the proposal in December.
The first major provision of the proposal would establish new parameters to allow employers to offer an HRA for tax-preferred funds to be used for the purpose of paying all or a portion of individual health coverage in lieu of a traditional group health plan. This would effectively provide the same tax benefits of the employer exclusion for individuals who obtain coverage on the individual market. The individual coverage HRA will be available on a class-by-class basis, with employers permitted to create classes of employees around certain employment distinctions, such as salaried workers versus hourly workers, full-time workers versus part-time workers, and workers in certain geographic areas. Employers will be able to maintain their existing group health plan for current enrollees, with new hires offered an individual coverage HRA.
The rule includes several provisions designed to prevent potential adverse selection. Employers may offer either an individual coverage HRA or a traditional group health plan within an employee class, but may not offer employees a choice between the two. Further, these plans must be offered on the same terms for all employees in a class of employees, although employers may increase the HRA amount for older workers and for workers with more dependents. The rule also established minimum class size requirements of roughly 10% of employees for employers with up to 200 employees, with a minimum group size of 10 for employers with fewer than 100 employees. IRS Code section 4980H establishes the following classes of employees:
- full-time employees
- part-time employees
- seasonal employees
- collective bargaining agreement unit
- employees currently in a waiting period
- 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
HRA sponsors would need to provide a disclosure to employees on the type of HRA being offered and to notify eligible participants that they would not be eligible for the ACA’s advanced premium tax credits if receiving an HRA and enrolling in individual health coverage. The administration estimates that as many as 11 million employees and their family members will enroll in coverage through the expansion of HRAs, eventually growing the number of individual market participants by 50%. These plans are expected to be offered largely from small businesses, with 800,000 employers overall expected to offer the option, and among them 90% are projected to have fewer than 20 workers.
The second provision of the proposal would permit an employer to offer employees an HRA for excepted benefits, although the rule firmly states that excepted benefits are not individual coverage. Further, employers are not permitted to offer employees both an HRA for purchase of individual health coverage and an HRA for excepted benefits. This provision permits employers that offer traditional group health plans to provide an HRA of up to $1,800 per year, indexed to inflation, to reimburse an employee for certain qualified medical expenses, including premiums for short-term plans. 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. This HRA could be available even if the employee doesn’t enroll in the traditional group health plan.
As with the final rules on AHPs and STPs, this rule is expected to face legal challenges that could hamper its full implementation. The Trump Administration is currently working on an appeal to the ruling that overturned the AHP final rule, and other challenges remain pending the STP rule. NAHU will review these legal challenges as part of our LIVE from NAHU webinar next Thursday at Noon Eastern, in addition to reviewing the Texas v. U.S. legal challenge relating to the zeroing of the ACA’s individual mandate penalty, among other compliance concerns. NAHU will also review key compliance considerations of the HRA final rule in the July Compliance Corner webinar session.