On October 23, 2018 the Department of Labor (DOL) and Department of Health and Human Services, in collaboration with the Internal Revenue Service (IRS) released proposed regulations expanding the use of health reimbursement arrangements (HRAs) by employers.
This lends itself to be a potential dramatic reshape of the small group insurance market in the years to come with the stated goal “to increase the usability of HRAs to more Americans, especially employees who work at small businesses”. While the proposed regulations are intended to primarily benefit small employers, they are available to employers of all sizes who would like to offer additional limited benefits to certain categories of employees.
When are the proposed rules suggested to go into effect?
January 1, 2020 with an important comment period requested by December 28, 2018 and additional guidance from the IRS during 2019. Small employers have a little time and no immediate reaction is needed to comply, JUST YET!. AJM Associates will be monitoring the status of this proposed regulation and advising accordingly.
What are the proposed rules?
The proposed would also allow employers offering traditional group health insurance to offer an HRA with an annual limit of up to $1,800 to reimburse employees for certain qualified medical expenses like standalone dental benefits and premiums for a short-term health insurance plan. The proposed regulations also include certain safeguards to reduce the risk of health-based discrimination that could increase adverse selection in the individual market. The proposed rules create two new types of HRAs:
Individual Integrated HRAs
Excepted Benefit HRAs
Individual Integrated HRAs
This type of HRA is linked with the Affordable Care Act (ACA)-compliant employer sponsored group health insurance plan. The Integrated HRA is offered only to company employees who elect group health insurance as a supplement to help with their out of pocket healthcare costs. To qualify for the Individual Integrated HRA, the following conditions would need to be met:
Individual employees (and their dependents) must be covered by a health insurance plan or elect to "opt out" of the HRA, meaning they have to provide an attestation or other verification of enrollment in an individual plan and can elect to waive enrollment annually in the HRA.
The design of the HRA does not intentionally or unintentionally discriminated against to safeguard again shifting risk of an employer’s unhealthy employees.
Employees in the same "employee class" are offered an HRA on the "same terms", meaning that the employer couldn’t provide a “traditional” group health plan to some, but not all the same class of employees. Allowable employee classifications include:
Full-Time Employees
Part-Time Employees
Seasonal Employees
Employees covered by a collective bargaining agreement
Employees who have not attained age 25 prior to the beginning of the plan year;
Foreign employees who work abroad; and
Employees whose primary site of employment is in the same rating area.
Excepted Benefit HRA
"Excepted Benefits" is insurance slang referring to plans that are not primary health plans, such as:
vision insurance
dental insurance
long-term care insurance
nursing home care
short-term health insurance
COBRA premiums
To qualify as an Excepted Benefit HRA the proposed regulations suggest four rules:
The HRA must not be an integral part of the plan
The HRA must provide benefits that are limited in amount and not exceed $1,800 per year, then indexed for inflation after 2020.
The HRA cannot provide reimbursement for premiums for certain health insurance coverage such as individual health insurance coverage, coverage under a group health plan, or Medicare Parts B or D. Reimbursements are to be used solely for the “Excepted Benefits”.
The HRA must be made available under the same terms to all similarly situated individuals, regardless of any health factor.
Next Steps
Employers of all sizes will benefit from careful review and analysis of the proposed rules. The stated goal of the new proposed rules is to increase the penetration of HRAs in the market; however, to what extent will depend on how the finalized rules shape up after the 60-day comment period, IRS guidelines and small group insurer/broker response.
Small employers who may not have previously offered health insurance to their employees may welcome the opportunity to offer a new flexible and affordable option with HRAs integrated for individual insurance coverage. Large employers may wish to adopt integrated HRAs to certain employee classes not previously offered covered under the “traditional” health plan or set up Excepted Benefit HRAs to assist employees currently covered with out-of-pocket expenses. Caution is on the horizon to not trigger penalties under such arrangements.
The proposed regulations are slated to begin on and after January 1, 2020, and the special enrollment period provisions are set to take effect January 1, 2020. Until the final rules are issued, employers should not rely on the proposed rules.
AJM Associates will be watching eagerly to see how the rules and regulations pan out.