6/25/19

Labor and Employment Alert: Two New Options for Health Reimbursement Arrangements

Related Practices

Attorneys & Professionals

A health reimbursement arrangement (HRA) is an arrangement whereby an employer reimburses eligible employees for their medical expenses up to a specified dollar limit.  Because an HRA reimburses medical expenses, it is regulated as a group health plan.  That is significant because the Affordable Care Act (ACA) prohibits dollar limits on essential health benefits under a group health plan.  An HRA by definition has a dollar limit on the reimbursement of medical expenses so the IRS, DOL and HHS (the Departments) view HRAs as violating the ACA prohibition on annual dollar limits in the absence of a specific exception.  Up to now, there have been exceptions for four types of HRAs:

HRA paired with a traditional medical plan.  In order to use this exception, an employee who is offered an HRA must be: (a) also offered a traditional medical plan by his or her employer and (b) actually enrolled in his or her employer’s traditional medical plan or the traditional medical plan sponsored by an employer of a family member. 

Retiree-only HRA.  Retiree-only HRAs (and other types of retiree-only group health plans) are exempt from the prohibition on dollar limits and most other ACA mandates.

HRA that only covers dental and vision expenses.  Dental and vision benefits plans are classified as excepted benefits and, as such, are not subject to the ACA prohibition on annual dollar limits.  If an HRA is limited to the reimbursement of dental and/or vision expenses, the HRA would be an excepted benefit, not subject to the ACA prohibition on annual dollar limits. 

Qualified Small Employer Health Reimbursement Arrangements (QSEHRA).  Only a small employer (generally, an employer with fewer than 50 full-time employees) is permitted to sponsor a QSEHRA.  Importantly, and unlike other types of HRAs, a QSEHRA is not classified as a group health plan and so is not subject to the ACA prohibition on annual dollar limits or other mandates.  A QSEHRA may reimburse an employee’s premiums for individual health insurance.  Annual credits to a QSEHRA cannot exceed $5,150 for an employee enrolled in single coverage and $10,450 for an employee enrolled in family coverage. 

The new regulations (published June 13, 2019) preserve these preceding exceptions from the ACA prohibition on annual dollar limits and create two more: (1) an excepted benefit HRA and (2) an individual coverage HRA.  The two new exceptions will be available for plan years starting on and after January 1, 2020.

Excepted benefit HRA

In order to be exempt from the ACA prohibition on dollar limits, an excepted benefit HRA must meet the following criteria:

Individual coverage HRA

In order to be exempt from the ACA prohibition on annual dollar limits, an individual coverage HRA must meet the following criteria:

Note that the reimbursement of individual health insurance premiums by an individual coverage HRA does not cause the individual health insurance to become subject to ERISA as long as the employer does not select or endorse the individual health insurance.  

Conclusion

These regulations provide employers with more design options when crafting a benefit plan structure that will meet employee needs and yet protect the employer from penalties.  If you would like to discuss your design options, contact a member of the Vorys benefits team