October 31, 2018
The Departments of Labor (DOL), Health and Human Services (HHS) and the Treasury (Departments) recently issued a proposed rule that would expand the usability of health reimbursement arrangements (HRAs). HRAs are tax-favored, employer-funded accounts that reimburse employees for health care expenses.
This proposed rule was issued in response to a 2017 executive order directing federal agencies to expand access to HRAs. Under current regulations, HRAs cannot reimburse employees for the cost of individual health coverage. This proposed rule is part of the Departments' efforts to implement the executive order's directives. Key features of the proposal include:
Comments on the proposed rule will be accepted until December 28, 2018. The rule, if finalized, is proposed to be effective for plan years beginning on and after January 1, 2020.
The proposed rule would allow HRAs to be integrated with individual insurance coverage for purposes of complying with the Affordable Care Act (ACA), eliminating the existing prohibition on this type of arrangement. This means that HRAs could be used to reimburse employees for the cost of individual health coverage on a tax-preferred basis as long as the following conditions are met:
The proposed rule also contains a disclosure provision to ensure that employees understand the benefit. Under this disclosure requirement, an HRA must provide written notice to eligible participants including, among other things, the following information:
The HRA must provide the written notice to each participant at least 90 days before the beginning of each plan year (or no later than the date the participant is first eligible to participate in the HRA, for participants who are not eligible to participate at the beginning of the plan year).
The proposed rule would expand the definition of limited excepted benefits by establishing certain types of HRAs that would qualify as excepted benefits that are not subject to some ACA requirements (called an "excepted benefit HRA"). This change would allow employers offering traditional employer-sponsored coverage to offer an HRA of up to $1,800 per year (indexed annually for inflation) to reimburse an employee for certain qualified medical expenses, including premiums for:
However, an excepted benefit HRA cannot reimburse premiums for individual health coverage, coverage under a group health plan (other than COBRA or other group continuation coverage), or Medicare parts B or D.
Employees participating in HRAs that are integrated with individual health insurance may also be able to pay any portion of their individual insurance premiums not covered by the HRA, on a pre-tax basis through the cafeteria plan. If offered, salary reductions would have to be made available on the same terms and conditions to all employees within a class.
A number of additional provisions were also included in the proposed rule relating to the proposed expansion of HRAs, including the following:
For More Information
For more information about this ACA Pathways or about any other health care reform-related provisions, please contact your Burnham Benefits consultant or Burnham Benefits at:
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