On June
13, 2019, the Departments of Health and Human Services, Labor, and Treasury
issued a new final rule to expand the use of health
reimbursement arrangements (HRAs) by employers to fund premiums for their
employees in the individual health insurance market. The final rule reverses
prior federal guidance by allowing HRAs to be used to fund both premiums and
out-of-pocket costs associated with individual health insurance coverage. The
Departments also released new frequently asked questions, model attestations, and model notices.
The
final rule is largely similar to the proposed rule, which received more than 500
comments from a stakeholders that include state regulators, insurers, and employers, brokers, and benefit advisors. The
final rule’s major significant changes focus primarily
on new “integration requirements” for HRAs. The rule also allows a new
“excepted benefit HRA” option that employees can use to pay premiums for
excepted benefits and short-term coverage. Individuals who gain access to an
HRA or qualified small employer health reimbursement arrangement are eligible
for a special enrollment period in the individual market.
The HRA
rule completes the regulatory trifecta from President Trump’s executive order in October 2017. Rules
on short-term coverage and association health plans have already
been finalized; the final rule on HRAs fulfills the executive order’s directive
to the Departments 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 coverage.”
The
impact of the HRA rule—both on employees and individual market consumers—will
depend significantly on what employers do next. The Trump administration is
trying to make this an attractive option to employers, especially small
businesses. They expect employers to take them up on this offer, resulting in a
significant increase in the size of the individual market. The administration
is also moving quickly: despite requests for a delay, the rule will go into
effect beginning on January 1, 2020.
On the
one hand, the rule could be a welcome step in de-coupling health insurance from
the workplace, an idea that has had bipartisan support in the past. On the
other, it will be interesting to see how the rule plays out since disruption to
employer-sponsored coverage has long been a third rail of health policy.
With nearly 7 million people expected to lose their job-based coverage by
2029, it's worth watching to see whether critics of other proposals that would
disrupt job-based coverage (such as, say, Medicare for All) will level the same
criticisms at the administration's rule.
This
post offers background information on HRAs; summarizes the final rule; and
briefly discusses the rule’s potential implications for employers, employees,
and the individual insurance market.
Background On Health
Reimbursement Arrangements
An HRA
is a type of account-based group health plan that allows employers to fund
medical care expenses for their employees on a pre-tax basis. An HRA must be
funded solely by employer contributions and can only be used to reimburse an
employee for the medical care expenses (as defined by the IRS) of the employee,
dependents, or children up to age 27 up to a maximum dollar amount. Any unused
portion of the HRA in one year may be carried forward to subsequent years. If
certain rules are followed, neither employer contributions nor employee
reimbursements from an HRA are subject to income or employment taxes under
federal law.
HRAs
are not explicitly mentioned in the ACA and were not formally recognized in the
tax code prior to 2016. Rather, these arrangements were created
by IRS guidance. HRAs qualify for pre-tax treatment because they are
considered group health plans. As group health plans, HRAs have
historically not been able to be used to pay premiums for coverage in the individual market.
In
addition, HRAs must comply with certain group health plan requirements—namely,
Sections 2711 and 2713 of the Public Health Service Act, which ban the use of
annual dollar limits on essential health benefits (EHBs) and require the
coverage of preventive services without cost-sharing, respectively. However,
HRAs on their own do not comply with Sections 2711 or 2713. Historically, to
satisfy these requirements, an HRA had to be integrated with other group health
plan coverage that meets these requirements.
Put
another way, HRA contributions could only be sheltered from taxation if they
are coupled with an ACA-compliant group health plan (not an individual policy).
This was the position that the Departments took as early as regulations in 2010 followed by Labor guidance, CMS guidance and regulations in
2013, plus additional guidance in 2014 and 2015.
In a 2015 rule, the Departments incorporated this
prior subregulatory guidance and again confirmed the interpretation that HRAs
cannot be integrated with individual coverage for the purposes of complying
with Sections 2711 and 2713. The IRS and CMS issued additional guidance throughout 2015, 2016, and 2017.
Under
this prior interpretation, HRAs were treated as integrated with group health
plan coverage under certain circumstances. First, the employer had to offer a
group health plan other than the HRA. Second, an employee receiving the HRA had
to be enrolled in a non-HRA group health plan. Third, access to the HRA had to
be limited to employees enrolled in a non-HRA group health plan. This “non-HRA
group health plan” could not consist only of excepted benefits.
QSEHRAs
The
21st Century Cures Act (Cures Act), adopted in 2016, included a limited exception to this rule that only
applies for small employers. In 2016, Congress authorized a new arrangement
known as the qualified small employer HRA (QSEHRA). QSEHRAs
are an option for employers with fewer than 50 full-time equivalent employees
that are not subject to the employer mandate and that do not offer a group
health plan to any employees. Qualifying small employers can opt to fund a QSEHRA
to pay or reimburse employees for premiums for minimum essential coverage. This
can include minimum essential coverage in the individual market. Similar to the
treatment of other group-based coverage, if an employee is provided with a
QSEHRA that is considered “affordable,” neither the employee nor their
dependents are eligible for premium tax credits through the marketplace.
Concerns About
Discrimination And Employee Dumping
One
potential concern about the expanded use of HRAs is that employers could try to
incentivize employees with health conditions to accept the HRA and move away
from a group health plan and into the individual market. Without restrictions,
there is concern that employers could, say, offer an HRA only to employees with
health issues or offer a group health plan that does not adequately cover
high-cost conditions, thus driving an employee with that condition into the HRA
and individual market.
In guidance from 2014, the tri-agencies
interpreted nondiscrimination protections under the Health Insurance
Portability and Accountability Act (HIPAA) to limit this type of activity.
Under this guidance, employers cannot offer only employees with health
conditions a choice between a 1) group health plan or 2) cash. Offering cash as
an alternative to traditional coverage for those with high-risk health care
needs was deemed as an eligibility rule that violates HIPAA nondiscrimination
requirements by discouraging enrollment in an employer’s group health plan.
If
employers were able to “dump” their high-risk employees into the individual
market through an HRA (with the goal of reducing their own group health plan
costs), it could have significant consequences for the individual market risk
pool. This could result in worse overall risk profiles and lead to higher
premiums, higher federal outlays for premium tax credits, and a higher
uninsured rate.
The Final Rule
The final rule makes two major changes to the
regulation of HRAs and other account-based group health plans, such as health
flexible spending arrangements and employer payment plans. (Although the rule
focuses on HRAs, it applies equally to most other account-based group health
plans and is thus not limited solely to HRAs. The reference to HRAs does not include
QSEHRAs, medical savings accounts, health savings accounts, or cafeteria plan
premium arrangements.)
First,
the final rule will allow employers to provide an HRA that is integrated with
individual health insurance coverage (HRA-IIHIC). (The final rule refers to this
as an “individual coverage HRA.”) An HRA-IIHIC could be offered to current and
former employees and their dependents. For purposes of this rule, “individual
health insurance coverage” refers to coverage offered in the
individual market as well as fully insured student health insurance. It does
not include short-term, limited-duration insurance, coverage that consists
solely of excepted benefits, health care sharing ministries, or TRICARE (with
some special rules for TRICARE enrollees that are not discussed in this post).
Employers
can offer an HRA-IIHIC so long as they follow the new integration rules. The
HRA-IIHIC can, but is not required to, pay premiums for individual coverage.
Employers can specify which medical care expenses are eligible for HRA-IIHIC
reimbursement; reimbursement may be allowed only for premiums, non-premiums
(such as cost-sharing), or particular medical expenses. The rule prohibits an
employee who is offered or receives an “affordable” HRA-IIHIC from being
eligible for premium tax credits and authorizes a special enrollment period in
the individual market for those who gain access to an HRA-IIHIC or a
QSEHRA.
Second,
the rule allows employers to offer new “excepted benefits HRAs.” These could be
funded up to $1,800 and used to pay premiums for excepted benefits, short-term
plans, and COBRA premiums.
In
response to comments, the Departments discuss, at length, their legal authority
to adopt the rule. Some commenters asked whether the Departments have the
authority to allow HRA-IIHICs; others noted that the creation of QSEHRAs is
evidence that Congress wanted only this limited exception for HRA-IIHICs. Still
others asserted that the HRA rule is contrary to the ACA’s intent to create a
stable individual market. Similar comments were raised with respect to the new
excepted benefits HRA. The Departments generally responded to these points,
asserting that it is on solid legal ground. Unlike in other recent rules, the
Departments did not add a severability provision to the regulations.
Integration Rules For
An HRA With Individual Health Insurance Coverage
As
discussed above, an HRA must work in conjunction with a plan that complies with
Sections 2711 and 2713 of the Public Health Service Act (on annual dollar
limits and preventive services without cost-sharing, respectively). Individual
health insurance coverage is generally assumed to satisfy these provisions. To
qualify as an HRA-IIHIC that does not discriminate based on health status, the
HRA or plan sponsor has to satisfy three general rules and six integration
requirements.
General Rules
First,
a participant must actually enroll in individual health insurance coverage that
complies with Sections 2711 and 2713. Thus, an HRA for individuals who are
eligible for, but do not enroll in, individual coverage would be noncompliant.
HRA sponsors must design their terms to account for the effective dates of
individual coverage, which can vary based on enrollment.
Second,
if an enrollee stops being covered under the individual policy, they forfeit
the HRA, and the HRA would stop reimbursing their medical expenses. This
forfeiture applies prospectively, not retroactively, meaning expenses would be
reimbursed until the individual lost their coverage. Individuals that lose
coverage under the HRA for reasons other than failing to maintain individual
coverage may qualify for continuation rights under the Consolidated Omnibus
Budget Reconciliation Act (COBRA).
Finally,
individuals who are within the “grace period” to pay their premiums are still
considered enrolled in individual coverage. If the grace period passes (or a
policy is cancelled or terminated retroactively for a different reason), the
individual should notify the HRA that their coverage has been cancelled or
terminated. The HRA cannot reimburse for expenses on or after the cancellation
or termination date.
Coverage Satisfies
Sections 2711 and 2713
Any
type of coverage that complies with Sections 2711 and 2713 qualifies for HRA
integration. This includes fully insured student health insurance coverage,
catastrophic coverage, “grandmothered” individual health insurance, and
individual coverage sold through a private exchange.
Citing
the burden on employers, the Departments will not require HRAs to confirm that
their participants are enrolled in individual coverage that truly complies with
Sections 2711 and 2713. Instead, the rule finalizes a “proxy” approach where
all individual health insurance coverage is deemed subject to and compliant
with Sections 2711 and 2713 and thus available for integration with an HRA. (As
noted above, “individual health insurance coverage” does not include
short-term, limited-duration insurance, coverage that consists solely of
excepted benefits, or health care sharing ministries.)
The
agencies acknowledge that the proxy approach could allow HRA integration with a
grandfathered policy in the individual market (even though grandfathered
policies do not have to comply with Sections 2711 and 2713). The Departments do
not seem concerned about this issue. Noting that few people have maintained
their individual grandfathered coverage since 2010, they expect “extremely
limited instances” when one of these individuals would be offered and accept an
HRA-IIHIC.
An
HRA-IIHIC could be sold in a state with a Section 1332 waiver. The Departments
reason that Sections 2711 and 2713 are not waivable under Section 1332 and thus
would continue to apply to individual coverage even in states with a state
innovation waiver.
Only One Option Per
Class Of Employees
Employers
cannot offer both an HRA-IIHIC and a traditional group health
plan to the same class of employees. Preventing employees from choosing between
the two options helps dampen concerns about market segmentation. Employers can,
however, offer a traditional group health plan to a specific class of employees
(i.e., full-time employees) while offering an HRA-IIHIC to a separate class of
employees (i.e., part-time employees) so long as no employee is offered both
options.
The
final rule makes some of its most significant changes to the classes of
employees. In the proposed rule, the agencies had enumerated eight employee
classes and proposed to allow HRAs to identify additional classes based on a
combination of the enumerated classes. The final rule includes 10 enumerated
classes and allows HRAs to identify additional classes based on a combination
of two or more of the enumerated classes. Many of the classes remain the same
(or similar) from the proposed rule. However, the agencies did not finalize the
under-age-25 class of employees, citing concerns about risk segmentation and
administrative complexity. They also added new employee classes (salaried
employees, non-salaried employees, and employees of a temporary hiring agency),
a minimum class size requirement, and examples to illustrate these changes.
The
Departments acknowledge that the risk of adverse selection and discrimination
increases as the number of classes increases. In light of this, they declined
to adopt additional separate classes, despite comments urging them to do so.
The Departments rejected separate classes for former employees; employees who
are eligible for Medicare and those who are enrolled in Medicare; and classes
based on roles or job title, employee tenure, religion, and a host of other
factors. They also did not include independent contractors or self-employed
individuals as a class because, as non-employees, these individuals cannot be
provided a tax-favored HRA.
Consistent
with the proposed rule, HRAs must define “full-time employee,” “part-time
employee,” and “seasonal employee” consistent with existing federal law. Because
plan sponsors could choose among multiple sets of definitions, they are
required to adopt and maintain the same set of definitions throughout a given
plan year. Classes of employees are determined based on the employees of a
common law employer, rather than a controlled group of employers.
In a
new addition from the proposed rule, the Departments adopt a minimum size
requirement for certain classes and circumstances where there is the greatest
potential for employer manipulation and adverse selection. This minimum size
requirement varies based on employer size and applies only if an employer
offers a traditional group health plan to one employee class and an HRA-IIHIC
to another. Further, this restriction only applies when certain classes are
offered an HRA-IIHIC. These classes are salaried employees, non-salaried
employees, full-time employees, part-time employees, employees whose worksite
is in the same rating area (with some exceptions), and the combination class
(with some exceptions). For full- and part-time employees, the minimum class
size requirement only applies to the class that is offered the HRA-IIHIC.
If the
minimum class size requirement applies, the class must include a minimum number
of employees for the HRA-IIHIC to be offered to that class. The minimum class
size is 10 employees for an employer with 100 or fewer employees and 20
employees for an employer with more than 200 employees. For a mid-sized
employer—with 100 to 200 employees—the minimum class size is at least 10
percent of the total number of employees. The number of employees is determined
before the HRA plan year begins and is based on the number of employees
expected to be employed on the first day of the plan year. Whether a class
satisfies the minimum size requirement is determined on the first day of the
plan year; it will not vary based on changes in the number of employees in the
class during the plan year.
The
final rule includes clarifications regarding what happens when an employee
moves from one class to another. And, although an employer cannot generally
allow employees to make salary reduction contributions to a cafeteria plan to
purchase a qualified health plan through the exchange, they can do so for
individual coverage offered outside the exchange. Thus, an employee covered by
an HRA-IIHIC who purchases individual coverage outside of the exchange could,
if the employer allows it, pay their premiums through a cafeteria plan. The
Departments are otherwise largely silent on issues related to the intersection
of HRAs and cafeteria plans but may issue future guidance as needed.
The
Departments declined to adopt a “facts and circumstances” test which would have
provided them with discretion to determine whether an HRA-IIHIC is being
offered in a discriminatory manner, even if complies with the rule. However,
other federal nondiscrimination rules continue to apply, including HIPAA
nondiscrimination protections (as noted above) and rules under ERISA, the
Americans with Disabilities Act, and the Social Security Act.
Same Terms
To the
extent that an employer offers an HRA-IIHIC to a class of employees, it must do
so on the same terms for all participants within the class. This means that an
employer cannot make employee-specific offers regarding an HRA—such as offering
a more generous HRA to an employee based on his or her health status. There are
two exceptions to this general rule. A plan sponsor could offer higher HRA
contributions based on an employee’s 1) age (capped at up to three times as
much as the contribution to the HRA’s youngest participant) or 2) family size.
In both cases, all participants in the same class must receive the same
increase based on age or family size.
The
proposed rule had not capped contributions for older employees using a 3:1
ratio. The Departments adopted this restriction in response to concerns that
unlimited HRA-IIHIC contributions based on age could be used to incentivize
older, less healthy workers to the individual market. The agencies agreed that
an outer limit on age-based contributions would help limit adverse selection
and adopted the 3:1 limit to mimic the ACA’s age rating rules (although, as
discussed here, they’re not perfectly analogous). The
agencies considered, but did not adopt, limits on HRA-IIHIC contributions based
on family size.
In
another change from the proposed rule, the final rule includes a variation of
the “same terms” rule when it comes to new hires. An employer that offers a
traditional group health plan to a class of employees may prospectively offer
an HRA-IIHIC only to new employees in the same class. The Departments refer to
this as the “new hire subclass.” Employers would need to select a prospective
“new hire date” on or after January 1, 2020 and could set different dates for
different classes of employees. Employers could discontinue the new hire
subclass rule at any time, and the preamble lays out a number of restrictions
on employers’ ability to reinstate this rule. Finally, the minimum class size
requirement described above does not apply to a new hire subclass (unless the
employer subdivides the new hire subclass into other classes where the minimum
class size requirement applies).
For new
hires or dependents covered by an HRA-IIHIC after the first day of the plan
year, the HRA-IIHIC can make a full annual contribution or adopt a “reasonable”
methodology to prorate the amount. The final rule also addresses cases when an
employer varies contributions based on family size and an employee’s family
size increases or decreases during the plan year. In that case, the HRA-IIHIC
can make a contribution in the same amount as other participants in the class
with the same family size—or adopt an appropriate proration methodology.
Employers must determine the method they will use before the beginning of the
plan year and use the same method for all participants within the class.
The
final rule also includes an exception for former employees. An employer is not
required to offer an HRA-IIHIC to all former employees (or to all former
employees in the same class). Thus, an employer can offer an HRA to some, but
not all, former employees within a class. If the employer does offer
an HRA-IIHIC to former employees, it must be on the same terms as for the
other employees in that class. Former employees are considered to be in the
class they were in immediately prior to separation from service. An employer
could not provide some employees in a class with larger or smaller HRA amounts
based on how many years they have been employed or their status as former
employees.
Opt Out
All
participants, including former employees, must be able to opt out of an HRA-IIHIC
and waive future HRA reimbursements on at least an annual basis and in advance
of the start of the plan year. This would allow some eligible individuals to
potentially claim a premium tax credit for coverage through the marketplace.
If an
individual is covered by an HRA-IIHIC, the individual is not eligible for
premium tax credits regardless of the amount of reimbursement available under
the HRA. But, recognizing that some individuals may be better off claiming a
premium tax credit than receiving reimbursement under an HRA, the final rule
allows would-be HRA participants to opt out of and waive future reimbursements
from the HRA. Thus, employees could claim a premium tax credit if they opt out
of the HRA and the HRA is unaffordable or does not provide
minimum value. If an employee is terminated, remaining funds in the HRA are
forfeited or the participant can permanently opt out of and waive future HRA
reimbursements.
Verification
Procedures
HRAs
are required to adopt reasonable procedures to confirm that HRA participants
are, or will be, enrolled in qualifying individual health insurance coverage
for the portion of the plan year when they will be covered. The final rule does
not dictate what these verification procedures must be. However, the rule
suggests that employers could require participants to 1) submit a document from
a third-party, such as an insurance card or explanation of benefits, to show
the participant has enrolled or will enroll in coverage; or 2) submit an
attestation that the participant has enrolled or will enroll in coverage, the
date of coverage, and the insurer’s name.
The
annual coverage substantiation requirement is intended to serve as verification
for the entire HRA plan year. Although HRAs can establish their own deadline
for annual verification, it should be no later than the first day of the HRA
plan year (or no later than the date that HRA coverage begins for those who
become eligible during the plan year). A document from an exchange showing that
an individual has completed the plan selection process would satisfy the annual
substantiation requirement.
The
final rule also requires ongoing enrollment verification with each new request
for reimbursement under the HRA. An HRA cannot reimburse a medical expense
until the participant substantiates (again) that they are enrolled in
individual coverage. This requirement could be satisfied with a written
attestation from the participant or a third-party document (from, say, an
insurer) and could be included as part of the form used to request
reimbursement. The Departments also released optional model attestation language for HRAs. HRAs
can use electronic means to satisfy these requirements so long as those methods
reasonably verify enrollment.
One
commenter suggested that this requirement could be satisfied if the employer
advised employees to contact their employer if they were no longer enrolled in
individual health insurance coverage. The Departments rejected this proposed
safe harbor, noting that it would be insufficient to ensure that a participant
was continuously enrolled in coverage.
An HRA
can rely on a participant’s documentation or attestation unless it has actual
knowledge that the employee or dependents is not enrolled, or will not enroll,
in individual coverage. An inaccurate attestation or document will not cause
the HRA-IIHIC to lose its integrated status unless the HRA has actual knowledge
of the inaccuracy. If the HRA knows of an inaccuracy, it cannot reimburse for
expenses. While the Departments will require ongoing verification, this
requirement could be satisfied through attestations. But, beyond the
attestation, the HRA would not have to confirm that an individual is enrolled
in qualifying coverage in the individual market. This raises the concern that
individuals could unknowingly attest that they are enrolled in qualifying
coverage (such as an ACA plan) even if they are enrolled in, say, a short-term
plan (which does not qualify as individual health insurance coverage for
purposes of an HRA-IIHIC). Relying on a consumer attestation alone in this case
could be especially concerning given misleading advertisement practices for
non-ACA products.
Written Notices
HRAs
must provide detailed written notices to each participant at least 90 days
before the beginning of each plan year. For those who enroll after the
beginning of the plan year or who miss the initial notice, the HRA must provide
the notice no later than the individual’s effective date. Brand new HRAs may have
additional flexibility on the timeliness of the notices. Although commenters
asked for clarity on the delivery methods for notices, the Departments provided
little guidance beyond citing current rules under ERISA and confirming that the
notice may be delivered with other plan materials and notices under the Fair
Labor Standards Act.
The
notice can include additional information but, at a minimum, must include ten
specific pieces of information. Notices must, for instance, state the maximum
dollar amount for each participant, note that participants must enroll in
individual coverage (and that this coverage cannot be short-term,
limited-duration insurance or excepted benefits), and explain the implications
of the HRA on eligibility (or not) for premium tax credits through the
marketplace. Because the HRA-IIHIC is a group health plan, the HRA must
also provide enrollees with a summary of benefits and coverage. The Departments
released optional model notices alongside the rule.
Relative
to the proposed rule, the final rule additionally requires the notice to
include 1) specific contact information for someone who can answer HRA-related
questions, 2) a statement on the availability of a special enrollment period
(SEP) for those who newly gain access to an HRA, 3) coverage effective dates to
help with timely enrollment in coverage, 4) a statement that Medicare
beneficiaries are ineligible for premium tax credits; and 5) a statement about
finding assistance for determining HRA-IIHIC affordability. It also amends some
of the notice language on QSEHRAs. The Departments expect these notices to be
six pages long.
The
written notice does not need to include information specific to a given
employee or participant, such as whether the HRA is considered “affordable” for
the participant or not. Participants will need to determine that information on
their own or through the exchange based on their household income and the
premium for the lowest-cost silver plan in their area. The Departments do not
newly require these notices to be translated into other languages but note that
other existing language access protections may apply.
Acknowledging
that the HRA-IIHIC option will be confusing to consumers, the federal
government is volunteering to do some of the explaining itself. Before the 2020
open enrollment period, HHS will “provide resources to assist individuals
offered an individual coverage HRA” who are using HealthCare.gov. HHS will help
these individuals determine whether their HRA-IIHIC is deemed “affordable” and
whether they qualify for a SEP. The agency will also work with state exchanges
to develop resources for their platforms. Additional guidance will be released
on a safe harbor or other method to give employers more predictability about
application of the employer mandate.
Other Issues: Medical
Expenses, HSAs, and Medicare
The
HRA-IIHIC can only be used to reimburse medical expenses consistent with
existing HRA rules. Under these rules, medical expenses include amounts paid
for diagnosis, treatment, or prevention, for medical-related transportation,
for certain long-term care services, and for medical insurance. Commenters
asked the Departments to confirm that various types of excepted benefits (such
as hospital indemnity or other fixed indemnity coverage) and expenses related
to health care sharing ministries and direct primary care arrangements qualify
as medical expenses under the rule (and are thus reimbursable by an HRA-IIHIC).
The Departments referred to existing rules defining medical expenses and may
address some of these issues in the future.
Commenters
also asked the Departments to clarify whether an individual covered by an HRA-IIHIC
can contribute to a health savings account (HSA). The answer: it depends on the
HRA-IIHIC. An HRA-IIHIC that reimburses solely for individual coverage premiums
would not disqualify contributions to an HSA if the individual otherwise meets
the requirements (of being enrolled in a high-deductible health plan with no
other disqualifying coverage). But if the HRA-IIHIC reimbursed for first-dollar
cost-sharing, it would not be compatible with an HSA. Under the final rule, an
employer can still satisfy the “same terms” requirement if it offers employees
within the same class a choice between an HSA-compatible HRA-IIHIC and a
non-compatible HRA-IIHIC so long as both types of HRA-IIHIC are offered to all
employees in the class on the same terms.
Under
some circumstances, HRA-IIHICs can be integrated with Medicare Parts A and B or
C and used to reimburse premiums for Medicare and Medicare supplemental health
insurance (known as Medigap) as well as other medical expenses. The preamble
includes an extended discussion of these special integration rules for an
HRA-IIHIC with Medicare. The rule also includes a new provision on student
premium reduction arrangements.
Premium Tax Credits
As
noted above, an individual covered by an HRA-IIHIC would be ineligible for premium
tax credits through the marketplace. This is because an HRA-IIHIC qualifies as
minimum essential coverage under an employer plan during any month when the HRA
is considered “affordable.” Similar to other types of employer coverage, an
employee could be eligible for premium tax credits if they declined the offer
of an HRA-IIHIC and that HRA was considered unaffordable or
not providing minimum value.
Under
the final rule, an HRA or other account-based group health plan is “affordable”
if the employee’s monthly required HRA contribution does not exceed
one-twelveth of the product of the employee’s household income and the required
contribution percentage. The employee’s required HRA contribution is calculated
by subtracting 1) the monthly self-only HRA plan amount from 2) the monthly
premium for the lowest-cost silver plan for self-only coverage offered through
the marketplace. This required HRA contribution can be no greater than 9.86
percent of the employee’s household income. If it is, it will be considered
unaffordable and the employee will be eligible for premium tax credits through
the marketplace. The employee’s monthly self-only HRA plan amount is based
solely on the amount that is made newly available in a given year—it would not
include carryover funds from a prior year or different HRA.
If the
“affordability” test is met, then the HRA also meets the minimum value
standard. Affordability is based on the lowest-cost silver marketplace plan:
the rule uses this plan because it is certain to cover at least 66 percent of
costs and thus meet the minimum value requirement of 60 percent. The final rule
otherwise generally aligns with current eligibility rules for premium tax
credits for non-HRA employer-sponsored coverage. For example, individuals who
use tobacco (and would face higher premiums in most states due to the tobacco
surcharge) will have the affordability of their HRA-IIHIC determined based on
lower premiums that do not reflect the tobacco surcharge.
Commenters
had raised concerns about consumer confusion with respect to premium tax credit
eligibility. Some urged the Departments to allow employees to be eligible for
both the HRA-IIHIC and premium tax credits or to be able to choose between the
two options. Others urged the Departments to determine the HRA’s affordability
based on family, rather than self-only, coverage. The Departments rejected
these proposals.
These
changes will require additional resources for the federal and state exchanges
to verify premium tax credit eligibility for those offered an HRA-IIHIC. The
Departments estimate total one-time costs of about $3.9 million for the federal
exchange and $46.8 million for the 12 state exchanges. Commenters requested
additional funding for state exchanges to develop a way to electronically verify
information about HRA-IIHIC. The Departments note only that Congress
appropriates funding and they do not have the authority to provide that
additional funding to state exchanges. (Additional ongoing costs for the
federal marketplace as a result of the rule range from $56 million in 2020 to
$243 million by 2022. In the 12 state exchanges, ongoing costs range from about
$20 million in 2020 to $85 million by 2022.)
The
rule also incorporates an employee safe harbor such that an employee could rely
on a marketplace’s determination of unaffordability even if their HRA offer
ultimately proved to be affordable based on actual household income. This means
an employee who received premium tax credits after the marketplace deemed them
eligible would not be required to repay those premium tax credits later.
Employees could rely on this safe harbor so long as they do not intentionally
or recklessly provide incorrect information and affirmatively provide
information to the marketplace as needed during an eligibility redetermination
process.
Employer Mandate
The
Departments believe that the employers most likely to offer an HRA-IIHIC will
be small employers—i.e., those with 50 or fewer full-time equivalent employees
who are not subject to the ACA’s employer mandate. However, employers subject
to the employer mandate could meet this standard by offering an HRA-IIHIC. An
HRA is an eligible employer-sponsored plan, meaning a large employer could
satisfy the employer mandate by offering an HRA-IIHIC that is affordable and
meets minimum value requirements to at least 95 percent of its full-time
employees and dependents.
The
Departments issued separate guidance on this issue in
November 2018, laying out how the employer mandate would apply to those that
offer an HRA-IIHIC and potential safe harbors and examples. They also solicited
comment on the proposed approach. The Departments will propose additional rules
on the issues addressed and comments received on the November guidance.
Special Enrollment
Periods
As
noted above, employees and dependents must enroll in individual health
insurance coverage to take advantage of the new HRA-IIHIC option. To
accommodate employees who might need access to individual market coverage or
want to change to a different plan to take advantage of the HRA-IIHIC, the rule
creates an SEP for employees who newly gain access to or are newly provided an
HRA-IIHIC or QSEHRA. The SEP is available for coverage offered both on and off
the marketplace.
When a
qualified individual, enrollee, or dependent gains access to an HRA-IIHIC or
QSEHRA, they can enroll in coverage or change their plan for up to 60 days. The
rule includes clarifications regarding coverage effective dates to better
ensure that individuals are enrolled in individual coverage before their
HRA-IIHIC effective date. The rule also includes an option for advance
availability (meaning qualifying employees have 60 days before or after the
triggering event to select a qualified health plan). Individuals will be
subject to the existing SEP verification process in states that use
HealthCare.gov, and additional guidance from HHS is expected. To the extent
that a current marketplace enrollee qualifies for this new SEP, HHS eliminated
its current plan category limitations.
HHS
declined to extend this SEP on an annual basis but notes that individuals still
have access to other SEPs and can change their individual coverage during the
annual open enrollment period.
New Excepted Benefit
HRA
The
rule recognizes an additional limited excepted benefit HRA for purposes of
federal law. This new HRA can be used to reimburse for excepted benefits (such
as limited-scope vision or dental benefits) as well as other types of medical
expenses that do not qualify as excepted benefits. The new HRA seems primarily
designed to reimburse premiums for, and thus incentivize enrollment in,
short-term plans (although the final rule includes a new limitation). The
Departments were not swayed by commenters who argued that the new HRA will
incentivize short-term coverage, cause adverse selection, and increase consumer
confusion.
To
qualify as an excepted benefit HRA, an HRA must 1) not be an integral part of a
group health plan; 2) provide benefits that are limited in amount; 3) not
reimburse for premiums for certain health insurance coverage; and 4) be made
available under the same terms to all similarly situated individuals. An
employer cannot offer both an HRA-IIHIC and an excepted
benefit HRA to any employee.
First,
to ensure that the HRA is not an integral part of a plan, the employer must
provide some other group health plan (that satisfies the requirements under
Sections 2711 and 2713) in addition to an excepted benefit HRA to the same HRA
participants for the same plan year. Despite comments urging them to do so, the
Departments did not limit excepted benefit HRAs to only those who actually
enroll in their employer’s traditional group health plan. The agencies do not
believe that employees will rely on the excepted benefit HRA as their primary
form of coverage, so they are not requiring dual enrollment.
Second,
the excepted benefit HRA must be sufficiently limited to qualify as a limited
excepted benefit. Here, the Departments cap the newly available amount for an
excepted benefit HRA at $1,800 per plan year, indexed for inflation. The
Departments will publish the adjusted inflation amount no later than June 1.
Carryover amounts from one plan year to the next will be disregarded for
purposes of the $1,800 limit. If an employer provides more than one HRA over the
same time period, the amounts across all the HRAs (with the exception of an HRA
that reimburses for only excepted benefits) will be aggregated to determine
whether the benefits are limited to $1,800.
Third,
excepted benefit HRAs cannot be used to reimburse premiums for individual
health insurance coverage, group health plan coverage (other than continuation
coverage), or Medicare Parts A, B, C, or D. (This new HRA may be used to
reimburse for qualified cost-sharing associated with these
types of coverage, but not premiums.) The HRA may, however, be used to
reimburse premiums for short-term plans and COBRA coverage, or for cost-sharing
under an excepted benefit HRA.
The
final rule includes a new way to restrict some excepted benefit HRAs from
reimbursing short-term plan premiums. The Departments adopted this exception to
help address concerns about the potential for adverse selection in the small
group market. An HRA cannot reimburse for short-term plan premiums if 1) the
HRA is offered by a fully insured or partially insured small employer, and 2)
the Departments find that reimbursement for short-term plan premiums has
significantly harmed the small group market in the employer’s state. This
finding from the Secretary of HHS, in conjunction with the Secretaries of Labor
and Treasury, would be made in response to a written recommendation from state
officials. The Secretary must formally publish this finding in the Federal
Register and give entities enough time to adjust their plan offerings.
The
rule does not preempt state regulation of short-term plans, and states can
fully prohibit the sale of short-term plans if they want to. Individuals who
lose their short-term plan coverage because of a rescission would qualify for a
SEP to enroll in a group health plan (but not for a SEP in the individual
market).
Finally,
the excepted benefit HRA must be made available under the same terms to all
similarly situated individuals in an employee class regardless of any health
factor. The Departments define “similarly situated individuals” based on the
definition under HIPAA nondiscrimination rules. Thus, the excepted benefits HRA
cannot be offered only to employees who have cancer or only those who pass a
physical examination. Employers also cannot offer a higher amount in the HRA
based on health status or limit enrollment in the HRA to those who declined
traditional group health plan coverage.
Despite
the urging of commenters, the Departments did not adopt new notice requirements
for excepted benefit HRAs. They believe that existing notice requirements under
ERISA are sufficient and cross-reference these existing provisions. HHS will
propose additional notice requirements for non-federal governmental plan
excepted benefit HRAs in the future.
Individual Health
Insurance Coverage And ERISA Plan Status
The
rule includes a Department of Labor-only clarification to confirm that the
definition of “group health plan” will not include premiums for individual
health insurance coverage that are reimbursed by an HRA or other arrangement—so
long as the employer complies with a variety of requirements.
Among
these requirements, individual coverage must be completely voluntary for
employees and the employer cannot select or endorse the individual coverage. To
avoid running afoul of the “endorsement” prohibition, employers should provide
unbiased, neutral, uniformly available assistance to employees shopping for
individual coverage. Use of a private exchange could satisfy the “endorsement”
prohibition, but it will depend on how the exchange is designed. The
Departments suggest that such a tool or web-based platform should display
information about all coverage options in a state and present these options in
a neutral way (without, for instance, recommended or starred listings). The
Department opted not to finalize an annual notice requirement that the
HRA-IIHIC coverage is not subject to ERISA. Each of the criteria is discussed
in more detail in the preamble.
The
clarification assures stakeholders that individual market policies are not part
of an HRA for purposes of ERISA. The same change applies to other arrangements,
such as QSEHRAs and salary reduction arrangements under a cafeteria plan, where
employees are reimbursed for the purchase of individual market coverage or
allowed to pay a portion of their premiums not covered by the HRA or QSEHRA.
Clarification
is needed because the involvement of an employer in the HRA-IIHIC could result
in a situation where individual health insurance coverage is treated as an
employee welfare benefit plan or group health plan under ERISA. If individual
market coverage became subject to both individual and group market
requirements, it could result in conflicting requirements, uncertainty, and
violation of some of the market rules (such as the single risk pool requirement).
In light of those concerns, the Department further confirmed that this change
is a safe harbor. The Department confirmed that its criteria account for some,
but not all, circumstances where a workplace arrangement falls outside the
scope of an ERISA plan.
Despite
concerns that individual coverage could be treated as an ERISA plan, the
Department then adopts a more expansive definition of “reimbursement” that
seems to blur the lines of the employer’s role in paying for the HRA-IIHIC.
Under this definition, “reimbursement” includes direct payments made to the
employee’s insurer by the employer, employee organization, or plan sponsor.
Employers could thus directly pay premiums to an insurer for individual
coverage for its employees (rather than having the employee use the funds in
the HRA to pay the insurer on their own behalf). The Department includes a few
cautionary notes about ensuring that employers do not violate the “endorsement”
criteria (by, say, excluding certain insurers or placing additional burdens on
employees if they choose a different insurer). Employers must also
affirmatively request that the employer make the payment.
All
three Departments propose to amend their definition of “group health insurance
coverage.” The rule amends this definition to state that HRA reimbursement for
individual health insurance coverage premiums or a salary reduction arrangement
are not offered in connection with a group health plan and are not insurance
coverage.
EHBs For Large
Employers
The
rule amends existing regulations on the ban on annual dollar limits under
Section 2711 of the Public Health Service Act. Section 2711 only prohibits
annual dollar limits on EHB; non-EHB can continue to have annual dollar limits.
Under prior regulations and guidance, group health plans and other
insurers not required to cover EHB can choose to define EHB based on an
EHB-benchmark plan from any state or one of the three Federal Employee Health
Benefits Program options.
The
rule change allows for even more flexibility for group health plans in defining
their EHB requirements. Beginning in 2020, group health plans can adopt an
EHB-benchmark plan selected by a state based on the new process adopted in
the 2019 payment rule. This new process
dramatically increased the number of EHB-benchmark plan options. This amendment
to the regulation is not specific to HRAs and could have broader impacts for
access to covered benefits in the group market.
Brief Implications
The
impact of the new HRA-IIHIC option will depend significantly on what employers
do next. The Trump administration is trying to make this an attractive option
to employers, especially small businesses, and they expect employers to take
them up on their offer. An estimated 11.4 million people will be in an
HRA-IIHIC in 2029 while the number of people with traditional group health plan
coverage will drop by up to 6.9 million.
But the
rule itself is quite complex, and employers of all sizes will have to meet a
number of requirements before offering an HRA-IIHIC. New substantiation and
notice requirements, for instance, will result in administrative and compliance
burdens. Employees are likely to be confused, particularly if employers
transition from a group health plan to an HRA-IIHIC. The rule could lead to
coverage losses if employers stop offering group health plans in favor of an
HRA and their employees do not accept the HRA or obtain other coverage. The
rule could also cut off access to marketplace subsidies, potentially resulting
in higher premiums through an HRA, and consumers may face higher cost-sharing
and narrower networks in the individual market relative to a traditional group
health plan.
At the
same time, the HRA-IIHIC might prove attractive to employers who do not
currently offer coverage to their employees but now have a way to provide funds
to support coverage. If the employers that opt to offer the HRA-IIHIC have
generally healthy workforces, this influx into the individual market could be good
for the individual market risk pool. The broader the market, the better the
average risk profile and the lower the premiums. However, the Departments own
estimates suggest that premiums in the individual market will rise by about 1
percent throughout the 2020 to 2029 period. This is because employers that will
be attracted to the HRA option are expected to have slightly higher health care
expenses than other employers and current individual market enrollees.
The
final rule does include some additional safeguards to protect the individual
market from the risk of employers using the HRA-IIHIC option to “dump” their
higher-risk employees, such as minimum class size requirements. And the
Departments reiterate their belief that employers will act in the best interest
of their employees to recruit and retain talent. But the impact of these
changes is not yet known.
In the
meantime, the Trump administration has adopted an aggressive timeline. Despite
requests for a delay in the effective date, the Departments finalized the rule
for 2020, which is likely to be challenging for employers, employees, the
federal exchange, and state exchanges. Insurers that have already filed their
rates for 2020 may need to make adjustments, potentially to account for premium
increases as a result of the rule. In addition, the exchanges may not be able
to fully implement the changes needed for the 2020 open enrollment period,
potentially leading to more confusion for consumers, insurers, and employers
alike.
https://www.healthaffairs.org/do/10.1377/hblog20190614.388950/full/
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