The new rules for HRAs are not finalized yet, but the proposed rules can be found here: https://www.federalregister.gov/documents/2018/10/29/2018-23183/health-reimbursement-arrangements-and-other-account-based-group-health-plans
When finalized, the new rule will go into effect January 1, 2020. uIt’s important to understand that this is not an Act of Congress but rather revised guidance from the DOL. Therefore, QSEHRAs are not being eliminated or replaced, the new rule expands existing HRAs and allows them to be used to pay for individual health insurance premiums.
Here the high points of the proposed rule:
Reimbursement for Individual Plans
The proposed rule will allow employers to reimburse employees for the cost of individual health insurance coverage by setting up a stand-alone Health Reimbursement Arrangement.
HRAs are group health plans subject to all of the rules applicable to group health plans, including the preventive services requirement and the prohibition on annual or lifetime limits on essential benefits.
In the past, HRAs could be integrated with group health plans but not individual plans to meet these requirements. Under the proposed rules, HRAs can be integrated with individual coverage.
Under the new rule, “the HRA must require the participant and any dependents covered by the HRA to be enrolled individual health insurance coverage.”
Employees that choose not to purchase individual coverage for themselves and their dependents automatically opt out of the HRA and forfeit the benefits.
Group or Individual Coverage
An important goal of the proposed rule change is “increasing consumer choice for employees and promoting competition in healthcare markets by adding additional options for employers.”
In doing so, though, the Departments were concerned about possible adverse selection in the individual market.
To reduce this possibility, employers cannot offer group health coverage and an HRA that can be used to reimburse individual premiums to the same class of employees.
In other words, employees within a class cannot be given a choice between traditional group coverage and an HRA.
Classes of Employees
The proposed classes of employees does not include salaried vs. hourly employees or management vs. non-management.
Instead, here are the classes included in the proposed rule: 1) full-time, 2) part-time, 3) seasonal, 4) union, 5) new-hires who have not satisfied the waiting period, 6) employees under age 25, 7) non-resident aliens, 8) employees in the same geographic location.
There is no minimum group size for these class requirements.
Pre-Tax Employee Contributions
Employees who purchase individual coverage through a federal or state marketplace cannot enter into a salary reduction agreement to pay their share of the premium with tax-free dollars.
Those who purchase coverage outside of the marketplace can participate in a 125 plan, though, and pay their portion of the premium on a pre-tax basis.
Employer Contributions
As with QSEHRAs, employers can vary their contribution based on age or family size.
Rollovers of Unused Funds
Rollovers of unused HRA funds to the next plan year are permitted.
Premium Tax Credit Eligibility
Because an HRA is a group health plan, individuals covered by an HRA integrated with individual health insurance are not eligible for a premium tax credit.
However, employees and their dependents who would otherwise qualify for a premium tax credit can opt out, waive future reimbursements of the HRA, and still receive the premium tax credit.
Verification of Coverage
The HRA must have reasonable procedures to verify that participants have or will enroll in individual health insurance during the plan year.
No Reimbursement for Short-Term Plans
The proposed rule will only allow HRA reimbursement for individual health insurance plans compliant with the Affordable Care Act (including grandfathered plans).
Therefore, HRA money cannot be used for short-term health plan premiums. This will be disappointment to brokers who are recommending expanded short-term plans to their healthy clients who do not qualify for a premium tax credit, but it is possible that this rule will change.
The Departments requested input on this proposal and will consider the comments when issuing the final rule.
Notice Requirement
As with QSEHRAs, there is a 90-day notice requirement. Plan sponsors must issue this notice to eligible participants each year.
Excepted Benefit HRAs
Because some employers may want to offer HRAs to employees, regardless of whether they have group or individual coverage, that can be used for eligible out-of-pocket medical expenses, the proposed rule expands the definition of excepted benefit HRAs, allowing these stand-alone reimbursement plans if certain conditions are met.
One of those conditions is that the excepted benefit HRA can only be offered to those who eligible for traditional group coverage, not to those eligible for reimbursement of individual plan premiums.
ALEs and the Employer Mandate
One of the big changes made by this proposed rule is that, unlike with QSEHRAs, applicable large employers (ALEs) subject to the employer mandate will be able to reimburse employees for individual premiums and comply with the employer shared responsibility requirement.
The Departments have not yet ironed out the details about how this would work if an employee opts out of the HRA and instead receives a premium tax credit.
Not Subject to ERISA
As long as the employer is not involved in the selection of the individual health plan coverage, the individual plans purchased with HRA funds will not be considered part of an ERISA plan.
This is good news for employers concerned about compliance requirements.
Special Enrollment Period
One of the problems with the QSEHRA law is that employers might begin offering a QSEHRA to employees, but employees who don’t already have an individual health plan must wait until the next individual market open enrollment period to sign up for coverage. The new rule would correct that.
When an employer begins offering an HRA or QSEHRA that can reimburse individual health plan premiums, that will create a special enrollment period for employees to purchase individual coverage.