DOL Publishes Final Regulations Expanding the Availability of HRAs
June 25, 2019
The Department of Labor, together with the Department of Health and Human Services and the Department of the Treasury (collectively, the “Departments”), published final regulations designed to expand the use of health reimbursement arrangements (“HRAs”). The final regulations provide, in general, that HRAs may be used to (1) reimburse premiums for individual insurance market coverage, and (2) reimburse non-premium (other than COBRA premium) medical expenses even if the participant is not enrolled in health coverage. The rules generally apply for plan years starting on or after January 1, 2020.
Before the passage of the Patient Protection and Affordable Care Act (“PPACA”), many employers offered HRAs that paid or reimbursed employees for the cost of individual insurance premiums and other eligible health expenses. However, guidance released under PPACA made clear that HRAs were considered “group health plans” and subject to PPACA’s market reforms, including first dollar coverage of preventive services and the prohibition of annual and lifetime dollar limits. The nature of HRAs (e.g., that they have an annual dollar limit) meant they could not comply with PPACA, except where the HRA was provided in conjunction with (or was “integrated”) with a group health plan that satisfied PPACA requirements. Subsequent guidance further clarified that HRAs could not integrate with individual market insurance, and therefore could not be used to reimburse employees for the cost of individual insurance coverage (whether on a pre-tax or post-tax basis).
On October 12, 2017, the President signed The Executive Order Promoting Healthcare Choice and Competition, which directed federal agencies to create or modify the treatment of certain alternatives to traditional group medical insurance under PPACA, including HRAs. Proposed regulations regarding the expansion of HRAs were released in October 2018. The final regulations issued create two types of HRAs—Individual Coverage HRAs and Excepted Benefit HRAs.
Individual Coverage HRAs. The most significant aspect of the final regulations is the creation of the “Individual Coverage HRA,” which allows employers to create HRAs through which employee can purchase health coverage on the individual market. These HRAs are subject to numerous requirements, including uniform access among employment classifications (subject to minimum class sizes), employee notification requirements, and employee attestations.
Excepted Benefit HRAs. The final regulations also create “Excepted Benefit HRAs,” which permit employers to credit up to $1,800 per year (indexed for inflation after 2020) to HRAs from which employees can get reimbursed for certain medical expenses. Unlike Individual Coverage HRAs, Excepted Benefit HRAs must be offered in connection with a traditional group health plan, though employees need not participate in the group health plan to take advantage of the Excepted Benefit HRA.