Section 2711 of the Public Health Service Act, as added by the Patient Protection and Affordable Care Act, generally prohibits group health plans from placing lifetime and annual limits on the dollar value of "essential health benefits". On June 28th, 2010, the federal government issued interim final regulations related to the lifetime and annual limit rules application to Health Reimbursement Arrangements (HRAs). While most HRAs have been exempted, the federal government requested comments regarding application of these rules to non-exempted HRAs.
Special Exemptions for Certain Account-Based Medical Expense Reimbursement Plans
According to the interim regulations, the restriction on annual limits applies differently to certain account-based plans, especially where other rules apply to limit the benefits available.
HRAs are a type of account-based group health plan and typically consist of a promise by an employer to reimburse medical expenses for the year up to a certain amount, with unused amounts available to reimburse medical expenses in future years (see Notice 2002-45). By its definition, an HRA imposes annual limits on essential health benefits. That is, reimbursements an HRA participant may receive during a year are limited to the balance of his or her notional HRA account.
As a result, the following HRA plans have been exempted from the annual limit requirements:
- "Integrated" HRAs
- "Flexible Spending Arrangement" HRAs
- "Excluded" HRAs
- "Excepted" HRAs
- "Retiree" HRAs
Determining if an HRA is Exempted
According to the interim regulations, "when HRAs are integrated with other coverage as part of a group health plan and the other coverage alone would comply with the requirements of PHS Act section 2711, the fact that benefits under the HRA by itself are limited does not violate PHS Act section 2711 because the combined benefit satisfies the requirements."
Test: Is the HRA integrated with group health insurance coverage that complies with the lifetime and annual limit restrictions? If so, the HRA is generally exempt.
2. "Flexible Spending Arrangement" HRAs
According to the interim regulations, "a health flexible spending arrangement (as defined in section 106(c)(2)) is not subject to the [annual limit requirements]"
According to IRS Notice 2002-45, "assuming that the maximum amount of reimbursement which is reasonably available to a participant under an HRA is not substantially in excess of the value of coverage under the HRA, an HRA is a flexible spending arrangement (FSA) as defined in § 106(c)(2)."
Test: Does the HRA qualify as a flexible spending arrangement as defined in Section 106(c)(2)? If so, the HRA is generally exempt.
Section 106(c)(2) Flexible spending arrangement - For purposes of this subsection, a flexible spending arrangement is a benefit program which provides employees with coverage under which—
(A) specified incurred expenses may be reimbursed (subject to reimbursement maximums and other reasonable conditions), and
(B) the maximum amount of reimbursement which is reasonably available to a participant for such coverage is less than 500 percent of the value of such coverage.
3. "Excluded" HRAs
According to the interim regulations, PHS section 2711 "does not prevent a plan or issuer from excluding all benefits for a condition." Therefore, HRAs that exclude all essential health benefits and only reimburse non-essential health benefits (e.g. Insurance Premium) are exempt.
Test: Does the HRA only reimburse non-essential health benefits? If so, the HRA is generally exempt.
4. "Excepted" HRAs
The Affordable Care Act and the interim regulations make it clear that PHS section 2711 does not apply to HRAs that qualify as “excepted benefits” under ERISA (see the federal definition of “group health plan”, 42 USCS § 300gg-91).
Test: Does the HRA qualify as excepted benefits? If so, the HRA is generally exempt.
5. "Retiree" HRAs
According to the interim regulations, a "retiree-only HRA is generally not subject to the rules in PHS Act section 2711 relating to annual limits."
Test: Does the HRA only cover retirees? If so, the HRA is generally exempt.
Awaiting Guidance on Non-Exempted HRAs
The federal government has requested comments regarding the application of the annual limit provisions to stand-alone HRAs that do not fall into one of the exempted categories.
The comment period was issued on June 28, 2010 ended on August 27, 2010, and the comments (see http://www.dol.gov/ebsa/regs/cmt-1210-AB43.html) overwhelmingly support an exemption for all stand-alone HRAs. However, to date, a "Final Rule" has not been issued on whether Non-Exempted stand-alone HRAs violate the Statute. While the federal government has not directly finalized which stand-alone HRAs (if any) are subject to the annual limit requirements, the vast majority of HRA plans are already exempted as described above.
Special Waiver Program for Non-Exempted HRAs
Because of the lack of clarity on this issue, CCIIO published supplemental guidance on August 19, 2011 that exempts HRA plan administrators from applying individually for an annual limit waiver. Specifically, a non-exempted HRA can avoid applying for an annual limit waiver if it: 1) was in effect prior to September 23, 2010, and 2) complies with the record retention and Annual Notice requirements to participants and subscribers set forth in the supplemental guidance.