Final HRA rules permit integration with individual health insurance

By Sally P. Schreiber, J.D.

The Departments of the Treasury, Labor, and Health and Human Services (the Departments) jointly issued final regulations governing health reimbursement arrangements (HRAs) (T.D. 9867). The final regulations allow integration of HRAs with individual health insurance coverage (or Medicare), if certain conditions are satisfied. The rules also allow certain HRAs to be recognized as excepted benefits.

HRAs are generally account-based group health plans funded solely by employer contributions that reimburse employees for health care costs.

The Departments noted that the regulations were being issued to increase the usability of HRAs, to expand employers’ ability to offer HRAs to their employees, and to allow HRAs to be used in conjunction with nongroup health insurance coverage (generally coverage on the individual market).

Integration with individual health coverage

The rules remove the prohibition on integrating an HRA with individual health insurance coverage, if certain conditions are met, and contain requirements that an HRA must meet to be integrated with individual health insurance coverage. The final rules denote these plans as “individual coverage HRAs.”

The Departments are concerned that allowing HRAs to be used may result in employers’ encouraging higher-risk employees who have higher expected medical claims to obtain insurance on the health insurance exchange for individual health coverage, which could destabilize the individual health insurance marketplace by steering more high-risk people to it.

Therefore, the final rules prevent a plan sponsor from steering any participants or dependents with adverse health factors away from the plan sponsor’s traditional group health plan and into the individual market, either intentionally or unintentionally, and directly or indirectly. That is, the rules for integrating HRAs prohibit a plan sponsor from offering the same class of employees both a traditional group health plan and an HRA integrated with individual health insurance coverage. In addition, to the extent a plan sponsor offers an HRA that is integrated with individual health insurance coverage to a class of employees, the integration rules require that the HRA be offered on the same terms to all employees within the class, subject to certain exceptions.

Noting that they received over 500 comments on the regulations, the Departments rejected a number of suggestions that they delay the rules until the individual health insurance exchanges are more stable or adopt a requirement that an individual coverage HRA should only be available when there are three or more choices for individual coverage on an exchange.

The Departments agreed, however, that the requirement to have individual health insurance coverage in order to be covered by an individual coverage HRA is essential, and the final rules adopt this requirement.

Excepted-benefit HRAs

Coverage that consists of excepted benefits (as defined in Sec. 9832) does not qualify as minimum essential coverage for Sec. 5000A purposes. Therefore, an individual offered or covered by an excepted benefit is not thereby ineligible for the premium tax credit (PTC). And an offer of an excepted benefit by an employer is not considered to be an offer of minimum essential coverage for purposes of Sec. 4980H (requiring applicable large employers (ALEs) to offer minimum essential coverage to full-time employees and their dependents).

The regulations expand the definition of limited excepted benefits under Sec. 9832(c) to include certain HRAs that are limited in amount and regarding the type of coverage for which premiums may be reimbursed. This will allow employers to offer certain HRAs without regard for whether their employees have other health insurance coverage or whether their health insurance coverage satisfies the Public Health Service (PHS) Act’s market requirements.

To be recognized as an excepted-benefit HRA, the HRA must not be an integral part of a health insurance plan; must provide benefits that are limited in amount; cannot provide reimbursement for certain health insurance premiums; and must be made available under the same terms to all similarly situated individuals.

Qualified small employer health reimbursement arrangement

The 21st Century Cures Act, P.L. 114-255, amended the Code, ERISA, and the PHS Act to permit an eligible employer to provide a qualified small employer health reimbursement arrangement (QSEHRA) to its eligible employees. The Cures Act provides that a QSEHRA is not a group health plan for purposes of the PHS Act’s market requirements and is not subject to PHS Act Sections 2711, which prohibits lifetime or annual limits on health care benefits, and 2713, which requires coverage of preventive health services.

Under Sec. 9831(d), a QSEHRA is an arrangement that generally must be provided on the same terms, subject to certain exceptions, and cannot exceed a prescribed maximum amount. An eligible employer is an employer that is not an ALE, as defined in Sec. 4980H(c)(2), and that does not offer a group health plan to any of its employees.

The regulations provide guidance on how to qualify as a QSEHRA.

Special enrollment periods

The Department of Health and Human Services is providing a special enrollment period in the individual market for individuals who newly gain access to an individual coverage HRA or who are newly provided a QSEHRA. The final rules describe these special enrollment periods.

Premium tax credits

To coordinate the PTC with a QSEHRA, under Sec. 36B(c)(4)(A), if an employee is provided a QSEHRA that constitutes affordable coverage for a month, the month is not a coverage month for the employee or the employee’s spouse or dependents, meaning that the PTC is not allowed for that month.

Effective dates

The rules generally apply for plan years beginning on or after Jan. 1, 2020. The Sec. 36B rules apply to tax years beginning on or after that date.

Sally P. Schreiber, J.D., ( is a JofA senior editor.

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