On January 24th, 2013, the Department of Labor posted a new set of FAQs to clarify what criteria Health Reimbursement Arrangements (HRAs) must meet in order to be considered "Integrated" under Section 2711 of the PHS Act. As expected, the FAQs clarify that an HRA is not considered "integrated" unless:
The employer offers primary group health insurance coverage that alone satisfies Section 2711, and
The HRA is only made available to those employees who are enrolled in the primary group health plan coverage outlined in #1.
The FAQ also notes that the federal government plans to issue additional guidance on HRAs and Section 2711. Read on for more information on how future guidance could affect your HRA plan design.
Background on Health Reimbursement Arrangements (HRAs)
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. That is, reimbursements an HRA participant may receive during a year are limited to the balance of his or her notional HRA account.
Background on Section 2711 of PHS Act and HRAs
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 requesting comments regarding the application of the annual limit provisions to certain stand-alone HRAs. To date, a "Final Rule" has not been issued on whether HRAs violate the Statute. However, the new FAQs hint that the departments plan to make certain HRA plans subject to the annual limit requirements.
What Does This Mean for HRAs?
Based on the existing regulations, the following HRA plans will avoid the annual limit requirements of Section 2711:
"Flexible Spending Arrangement" HRAs
What does this mean for existing HRAs? If your HRA does not currently fall into one of the above categories, you may need to modify your HRA plan to avoid falling out of compliance with Section 2711.
5 Types of HRAs That Avoid The Annual Limits Requirements
According to the existing 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."
As expected, the new FAQs clarify that an HRA is not considered "integrated" unless:
- the employer offers primary group health insurance coverage that alone satisfies Section 2711, and
- the HRA is only made available to employees who are also enrolled in the primary group health plan coverage in #1.
Test: Is the HRA integrated with group health insurance coverage that complies with the lifetime and annual limit restrictions? If so, the HRA generally avoids the annual limit requirements.
2. "Flexible Spending Arrangement" HRAs
According to the existing 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 generally avoids the annual limit requirements.
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 existing regulations, the section 2711 rules "do not prevent a group health plan, or a health insurance issuer offering group health insurance coverage, from placing annual or lifetime dollar limits with respect to any individual on specific covered benefits that are not essential health benefits to the extent that such limits are otherwise permitted under applicable Federal or State law."
Therefore, HRAs that exclude all essential health benefits and only reimburse non-essential health benefits (e.g. premium expenses) avoid the annual limit requirements.
Test: Does the HRA only reimburse non-essential health benefits? If so, the HRA generally avoids the annual limit requirements.
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 generally avoids the annual limit requirements.
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 generally avoids the annual limit requirements.