Proposed Rule May Create Two New Types of HRAs for 2020
Administration Proposes Two New Types of HRAs
Just over a year ago on October 12, 2017, President Trump issued an executive order directing the Departments of Labor, Health and Human Services, and Treasury (the Departments) to work within existing law to provide more coverage options in the following 3 areas:
- Extend the duration and renewability of short-term individual health plans
- Offer greater flexibility for small groups to join together to form association health plans (AHPs)
- Offer greater flexibility for employers to provide tax-free income to employees via health reimbursement arrangements (HRAs), which currently cannot reimburse premiums for individual coverage and can only reimburse medical expenses for those family members enrolled in the employer’s (or spouse’s employer’s) group medical plan
Earlier this year, the agencies published final rules on short-term individual health plans and AHPs. As of October 23, we now have a proposed rule on the third and final directive: HRA flexibility. A press release and fact sheet provide highlights, and public comments will be accepted through December 28, 2018. The fact sheet mentions the following statistics to support why this additional flexibility is needed:
- For firms that employ 3-24 workers, the percentage of workers covered by employer health benefits has fallen from 44% in 2010 to 30% in
- For firms that employ 25-49 workers, the percentage of workers covered by employer health benefits has fallen from 59% in 2010 to 44% in
Employers cannot rely on the proposed rule to make any changes yet. Should a final rule be published, the new HRA flexibility will become available in 2020.
The Departments are proposing two new types of HRAs as discussed below. There are no changes to the two existing types of HRAs employers might have in place today: HRAs compliant with the Affordable Care Act (ACA), or qualified small employer HRAs (QSEHRAs).
Proposed New HRA Type 1: Individual Coverage HRA
The first new type of HRA would allow employers of any size to help pay for individual medical coverage, subject to certain conditions. Here are some highlights:
- It could only be offered to classes of employees not eligible for the employer’s medical plan. Only certain class definitions are allowed (such as part-time employees) in order to align with Internal Revenue Code section 105(h) and ACA section 4980H. Everyone in an HRA- eligible class would have to be offered the same HRA terms and conditions (e.g., the amount can increase with age and/or number of dependents, but that offer must be uniform for all similarly situated individuals in that class).
- The individual’s medical coverage would have to be substantiated every month.
- Employees would have a right to waive the HRA (e.g., the employee might discover they can only qualify for the public Marketplace tax credit if they waive the HRA).
- The individual coverage purchased would not create a group health plan, subject to certain requirements (e.g., employer cannot force employees to buy individual coverage, cannot endorse a particular plan or insurer nor be compensated by one, and should notify employees annually that any individual coverage purchased will not be subject to ERISA).
- Employees could pay their remaining individual premiums pre-tax through the cafeteria plan if the employer decided to amend the cafeteria plan to allow
- Someone with new access to this type of HRA (or to a QSEHRA) would have a special enrollment right on the public
Proposed New HRA Type 2: Excepted Benefits HRA
The second new type of HRA would allow an employer to offer a non-integrated HRA which qualifies as an excepted benefit if it meets the following requirements:
- The employer offers the HRA participants access to medical coverage that is not an excepted benefit, not an account-based plan, and not an individual coverage HRA discussed above;
- The HRA provides no more than $1,800 each year (indexed after 2020, and carryovers would be disregarded for this);
- The HRA does not reimburse health plan premiums other than COBRA (it’s primarily aimed to help pay for short-term medical plans in states still allowing them); and
- The same eligibility and HRA details are offered to all similarly situated
More to Come
Regulators have requested comments on whether these new types of HRAs should be subject to ERISA, including the requirement to have a plan document/SPD, complete 5500 reporting, and offer COBRA. Nothing in the proposed rule is actionable yet. Employers may submit public comments and then wait to see what the final rule includes.
Please let your IMA Benefits team know if you have any questions; we will continue to monitor regulator guidance and offer meaningful, practical, timely information.