Seemingly unfazed by the recent setbacks with the Association Health Plan regulations, the Departments of Treasury, Labor and Health and Human Services have released new health reimbursement (HRA) regulations that could reshape the group health plan landscape by providing employers with potentially cheaper options than traditional group health plan coverage for satisfying Affordable Care Act (ACA) requirements.
While we are still digesting the regulations (they come in at a whopping 497 pages), the guidance provides for two new types of health reimbursement accounts (HRAs); Individual Coverage HRAs and Excepted Benefit HRAs.
Individual Coverage HRAs
From our perspective, this is the bigger development. Currently large employers (those with 50 or more employees) must offer full-time employees ACA-compliant group health plan coverage or face potential penalties. Merely offering an HRA without an accompanying offer of traditional group health plan coverage would not satisfy this employer coverage mandate.
That would change under these regulations. Starting in 2020, these Individual Coverage HRAs could be offered as an alternative to traditional group health coverage. An employer could offer the Individual Coverage HRA to all of its employees, particular groups of employees, or new employees only. If the HRA/offer is structured appropriately—is offered on the same terms/conditions to all within a defined class, is offered only to those who are not also eligible for traditional group health plan coverage, is affordable, and meets other requirements—that offer would be treated as an offer of coverage for ACA employer coverage mandate purposes.
Functionally, the Individual Coverage HRA would be similar to any other HRA—it would be used to reimburse medical expenses up to a maximum amount per year (as determined by the employer). The primary difference between current HRAs and Individual Coverage HRAs is that the latter could be used to reimburse premiums for individual health insurance coverage, on or off an exchange.
Because this provides a potentially much cheaper option for satisfying the ACA employer coverage mandate, this may be a very attractive option for employers in 2020 and beyond (when this is available). This may also provide a nice option for small or mid-size employers who, while not subject to the ACA employer coverage mandate, want to provide some medical plan assistance to their employees, short of offering a traditional group health plan.
Excepted Benefit HRAs
While the Individual Coverage HRA has the most potential to shake up the group health plan landscape, the second new HRA—the Excepted Benefit HRA—is also an interesting new option.
Currently, HRAs are considered group health plans, which means they are subject to the full scope of the ACA rules. This effectively means that employers cannot offer standalone HRAs—an employer can only offer an HRA if it is integrated with a group health plan that meets the various ACA rules.
This new Excepted Benefit HRA would change those rules. An employer could offer this new arrangement alongside a traditional group health plan, and would be available even to those that opt out of the traditional plan. In other words, it allows for limited standalone HRAs that are exempt from the ACA requirements, provided the employee was actually offered the traditional group coverage.
Critics of the Association Health Plan rules—including the U.S. District Court for the District of Columbia, which ultimately struck those rules down—argued that those rules were a not-so-veiled attempt at an end-around on the ACA. We expect that these new HRA rules will be challenged on the same grounds. But, if these new HRA rules survive those challenges, they have a very real chance of changing the group health plan landscape going forward by providing a potentially simpler, more cost-effective option for employers to meet their ACA obligations.
Please check back with us, as we intend to issue future updates that provide you with a closer look that at these new rules. In the meantime, the Departments have issued additional guidance that elaborates on these options, including a News Release, FAQs, and model notices to be used in connection with these new arrangements (here and here).