Preamble to Prop Reg REG-136724-17, Prop Reg § 1.36B-2, Prop Reg § 54.9801-2, Prop Reg § 54.9802-4, Prop Reg § 54.9815-2711, Prop Reg § 54.9831-1
IRS, the Department of Labor Department (DOL), and the Department of Health and Human Services (HHS) (the Departments) have issued proposed regs that would allow integrating health reimbursement arrangements (HRAs) and other account-based group health plans with individual health insurance coverage, if certain conditions are met. The proposed regs also set out conditions under which certain HRAs and other account-based group health plans would be recognized as limited excepted benefits.
An account-based group health plan is an employer-provided group health plan that provides for reimbursement of expenses for medical care (as defined under Code Sec. 213(d)) (i.e., medical care expenses), subject to a maximum fixed-dollar amount of reimbursements for a period (for example, a calendar year). An HRA is a type of account-based group health plan funded solely by employer contributions (with no salary reduction contributions or other contributions by employees) that reimburses an employee solely for medical care expenses incurred by the employee, or the employee’s spouse, dependents, and children who, as of the end of the tax year, have not attained age 27, up to a maximum dollar amount for a coverage period. The reimbursements under these types of arrangements are excludable from the employee’s income and wages for Federal income tax and employment tax purposes. Amounts that remain in the HRA at the end of the year often may be used to reimburse medical care expenses incurred in later years, depending on the terms of the HRA. Account-based group health plans also include other arrangements, for example, health flexible spending arrangements (health FSAs).
Background. The Affordable Care Act (ACA or Obamacare, P.L. 111-148, P.L. 111-152), added § 715(a)(1) of the Employee Retirement Income Security Act (ERISA) and Code Sec. 9815(a)(1) to incorporate the provisions of part A of title XXVII of the Public Health Service Act (PHSA) into ERISA and the Code, and make them applicable to group health plans and to health insurance issuers providing health insurance coverage in connection with group health plans. The PHSA sections incorporated by this reference are §§ 2701 through 2728 (i.e., the market reform provisions). An excise tax is imposed on failures to meet these requirements. (Code Sec. 4980D)
This included PHSA § 2711’s “annual dollar limit prohibition” (annual limit), which provides that a group health plan (or a health insurance issuer offering group health insurance coverage) may not establish any annual limit on the dollar amount of benefits for any individual. It also included PHSA §2713’s “preventive services requirements,” which require non-grandfathered group health plans (or health insurance issuers offering group health insurance plans) to provide certain preventive services without imposing any cost-sharing requirements for these services.
Under the ACA, the Health Insurance Portability and Accountability Act (HIPAA, P.L. 104-191) and other statutes, both the Code and ERISA subject group health plans to a variety of requirements. However, these requirements generally do not apply to “excepted benefits,” including limited excepted benefits that (a) are provided under a separate policy, certificate, or contract of insurance, or (b) are otherwise not an integral part of the plan. (Code Sec. 9831(c)(1))
Specifically, the benefits offered separately from a group health plan that may be excepted are:
- limited scope vision or dental benefits; (Code Sec. 9832(c)(2)(A))
- benefits for long-term care, nursing home care, home health care, or community-based care, or any combination of those benefits; (Code Sec. 9832(c)(2)(B)) and
- other similar, limited benefits as specified in regs. (Code Sec. 9832(c)(2)(C))
On Nov. 18, 2015, the Departments finalized the proposed and interim final rules under PHSA § 2711, incorporating certain subregulatory guidance regarding HRA integration, and making various additional clarifications (the 2015 regs). Consistent with initial subregulatory guidance, the 2015 regs provide two methods for integration of HRAs with other group health plan coverage. The 2015 regs also include a special integration method for certain arrangements offered by employers that are not required to offer, and do not offer, non-HRA group coverage to employees who are eligible for Medicare coverage (generally, employers with fewer than 20 employees), but that offer non-HRA group coverage that does not consist solely of excepted benefits to employees who are not eligible for Medicare.
On Oct. 12, 2017, President Trump signed an executive order that, among other things, encourages federal agencies to expand the permitted duration of short-term, limited-duration insurance (STLDI) and increase the usability of health reimbursement arrangements (HRAs). The executive order directs the Secretaries of the Treasury, Labor, and HHS to consider proposing regs or revising guidance to “increase the usability of HRAs,” expand the ability of employers to offer HRAs to their employees, and “allow HRAs to be used in conjunction with nongroup coverage.” See “2017 Health Care Reform: Executive Order seeks to expand ACA alternatives.”
Proposed regs. The Departments have issued proposed regs that would remove the current prohibition against integrating an HRA with individual health insurance coverage under the 2015 regs. The proposed rules would instead permit an HRA to be integrated with individual health insurance coverage and, so, to satisfy PHSA § 2711 and § 2713, if the provisions of the proposed rules are met (“the proposed integration rules”). The proposed rules would expand the definition of limited excepted benefits, under Code Sec. 9832(c)(2), § 733(c)(2) of ERISA, and PHSA § 2791(c)(2)(C), to recognize certain HRAs limited in amount and that are limited with regard to the types of coverage for which premiums may be reimbursed, as limited excepted benefits if certain other conditions are met (an “excepted benefit HRA”).
The proposed regs include rules on premium tax credit (PTC) eligibility for individuals offered coverage under an HRA integrated with individual health insurance coverage. An individual is eligible for the PTC for a month if the individual meets various requirements for the month (a coverage month). Among other things, under Code Sec. 36B(c)(2), a month is not a coverage month for an individual if either: (1) the individual is eligible for coverage under an eligible employer-sponsored plan and the coverage is affordable and provides minimum value (MV); or (2) the individual is enrolled in an eligible employer-sponsored plan, even if the coverage is not affordable or does not provide MV. An eligible employer-sponsored plan includes coverage under a self-insured (as well as an insured) group health plan and is minimum essential coverage (MEC) unless it consists solely of excepted benefits.
An HRA is a self-insured group health plan and therefore is an eligible employer sponsored plan. Accordingly, an individual currently is ineligible for the PTC for the individual’s Exchange coverage for a month if the individual is covered by an HRA or is eligible for an HRA that is affordable and provides MV for the month. Although IRS guidance provides that an HRA is an eligible employer-sponsored plan and therefore individuals covered by an HRA are ineligible for the PTC, to date, IRS has not provided guidance as to the circumstances in which an HRA is considered to be affordable or to provide MV.
The proposed regs would provide that an employee who is offered, but opts out of, an HRA integrated with individual health insurance coverage, and an individual who is offered such an HRA because of a relationship to the employee (a related HRA individual), are eligible for MEC under an eligible employer-sponsored plan for any month the HRA is affordable and provides MV. Thus, these individuals would be ineligible for the PTC for their Exchange coverage for months the HRA is affordable and provides MV.
The proposed rules would also address the circumstances in which an HRA is considered to provide MV, and would clarify the ways in which the generally applicable employer-sponsored coverage PTC eligibility rules apply to HRAs integrated with individual health insurance coverage.
In addition, DOL has proposed a clarification to provide plan sponsors with assurance that the individual health insurance coverage the premiums of which are reimbursed by an HRA and other account-based group health plans or a qualified small employer health reimbursement arrangement (QSEHRA) does not become part of an ERISA plan, provided certain conditions are met.
HHS has proposed regs that would provide a special enrollment period in the individual market for individuals who gain access to an HRA and other account-based group health plans integrated with individual health insurance coverage or who are provided a QSEHRA.