Proposed Rule Will Expand HRA Options In 2020

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On Tuesday October 23, 2018, the Departments of Treasury, Labor (DOL), and Health and Human Services (HHS) released proposed regulations regarding Health Reimbursement Arrangements (HRA). The proposed rules are in response to the Executive Order issued by the Trump Administration last October, whereby the agencies were directed to: broaden the use of Associated Health Plans (AHP); lengthen the duration of short term, limited duration insurance; and consider ways to expand the use and availability of HRAs.  Taxpayers cannot rely on the proposed regulations. The final guidance is expected to be released in 2019, with a proposed effective date for plan years beginning on or after January 1, 2020.

The proposed rules released last week, would generally retain the current types of permitted HRAs (integrated HRAs, HRAs restricted to excepted benefits like dental and vision expenses, and retiree-only HRAs); Qualified Small Employer Health Reimbursement Arrangements (QSEHRA) and also will eventually allow two new types of HRAs:

  • Premium Reimbursement HRA (provided that certain requirements are satisfied)
    • Employer does not offer traditional major medical coverage to the employee or others in the same class of employees.
    • Employee is only eligible for reimbursement of individual health insurance premiums under this arrangement if employee and all HRA covered dependents are actually enrolled in a major medical plan purchased in the individual market or on the Exchange.
    • Substantiation is required for reimbursement.
    • HRA must be offered to all employees within a designated class (Full-time; Part-time; Seasonal; Employees subject to a collective bargaining agreement; Employees subject to a waiting period; Non-resident aliens with no US source income; Employees under the age of 25, Employees whose principal place of employment is in the same rating area). For purposes of Full-time, Part-time and Seasonal classes, the employer will use Code Section 105 or 4980H)
    • A notice must be provided to employees 90 days prior to the start of the plan year or prior to the effective date of coverage if the employee becomes eligible after the start of the plan year.
    • Employees must be allowed to opt out and waive benefits at least annually, as this HRA will constitute minimum essential coverage and may prevent the individual from being eligible for the premium tax credit for Exchange coverage.
  • Excepted benefit HRA
    • Employees are eligible only if they are also offered coverage under another group health plan sponsored by the same employer. Employees are not required to also participate in the employer sponsored coverage.
    • Employees cannot also be offered Premium Reimbursement HRA.
    • The terms and conditions must be the same for all similarly situated classes of employees.
    • Allows up to $1,800 per year (adjusted for inflation) plus any carryover amounts in tax free reimbursements.
    • Reimbursements may include:
      • General medical expenses (OTHER than group health insurance or any individual market health premiums)
      • COBRA Premiums
      • Short Term Limited Duration Insurance Premiums
      • Excepted Benefit Premiums


Prior to the release of the proposed guidance, IRS Notice 2013-54 identified that HRAs could not be integrated with individual policies, prohibiting employer reimbursement of individual plans from employer payment plans.  That same notice indicated that employees must be enrolled in (integrated with) an employer sponsored group medical plan in order to participate in the HRA.

The recent proposed HRA rules would expand ways in which employers can provide pre-tax dollars to employees when they either don’t offer a group medical plan or for employees who are eligible for, but who are not enrolled in the group medical plan they offer. Employers who had previously been considering implementing a QSEHRA may need to weigh those design features against the new options that will become available to employers of all sizes if they meet the criteria in 2020.

There may still be questions as result of the more than 200 pages released last week. The agencies will take comments on the proposed rule until December 28, 2018 and will release final guidance in 2019.

For more information and to review the DOL’s release visit:

https://www.dol.gov/newsroom/releases/ebsa/ebsa20181023

 
Employee Benefits Corporation has been a longstanding member of the advocacy group The Employer Council on Flexible Compensation (ECFC). ECFC intends to submit comments and we will continue to provide you with updates as they become available.

Categories: Benefits in General, Health Care Reform, Compliance | Tags: HRA , QSEHRA , Premium Reimbursement Account , PRHRA , Excepted Benefit HRA , IRS , DOL , ECFC | Return