Editor's Note: This article was written prior to Technical Release 2013-03 and parts of the article may no longer be accurate. For an updated article, see: 4 Things to Know about HRAs and Health Reform in 2014.
In the sea of new health reform regulations, employers, brokers, and employees alike are wading through the regulations to understand how health reform impacts their health plans, including Health Reimbursement Arrangements (HRAs). Like most health plans, HRAs may require minor plan changes by 2014 to be compliant with new health reform regulations.
Simply stated, HRAs will continue to be a popular small business health insurance solution in 2014, so long as the HRA plan falls into one of the five types of HRAs that are in compliance with health reform's prohibition on annual and lifetime limits. In this article, we'll describe those five types of HRAs that will be allowed in 2014 and beyond, and what you need to know if you currently offer an HRA.
Background on Section 2711 of PHS Act & HRAs
Section 2711 of the Public Health Service Act, as added by the Patient Protection and Affordable Care Act (PPACA), generally prohibits group health insurance plans from placing lifetime and annual limits on the dollar value of "essential health benefits".
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.
However, current regulations have outlined five types of HRAs that are exempt from the annual limit prohibitions. These are outlined below.
The 5 HRAs of 2014 & Beyond
To be compliant with health reform's prohibition on annual and lifetime limits, outlined in PHS Section 2711, HRAs need be one of the five types of HRAs that are excluded from the annual limits provision. Based on the existing regulations, the following HRA plans will avoid the annual limit requirements of Section 2711 and are health reform compliant.
An integrated HRA is an HRA that is paired with group health insurance coverage. An integrated HRA is often called a deductible-only HRA, a linked HRA, or a GroupHRA.
According to the 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."
Is your HRA integrated with group health insurance coverage? And does the group health insurance coverage comply with the lifetime and annual limit prohibitions? If so, the HRA is generally exempt as an integrated HRA.
For more details, see this article on integrated HRAs and health reform.
2. "Flexible Spending Arrangement" HRAs
A Flexible Spending Arrangement (FSA) HRA is an HRA that is offered without group health insurance coverage. Many stand-alone HRAs will fall under this definition, where the HRA is designed to reimburse individual health insurance premiums and other eligible medical expenses such as doctor visits, prescriptions, etc.
According to the current 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)."
Does your HRA qualify as a flexible spending arrangement as defined in Section 106(c)(2)? If so, the HRA is generally exempt.
Here is the definition of an FSA-HRA.
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.
For more details, see this article on stand-alone HRAs and health reform.
3. "Excluded" HRAs
According to the current 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 Premiums) are exempt.
Does your HRA only reimburse non-essential health benefits? If so, the HRA is generally exempt.
4. "Excepted" HRAs
The PPACA and the current 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).
Does the HRA qualify as excepted benefits? If so, the HRA is generally exempt.
5. "Retiree" HRAs
According to the current regulations, a "retiree-only HRA is generally not subject to the rules in PHS Act section 2711 relating to annual limits."
Does your HRA only cover retirees? If so, the HRA is generally exempt.
What About Existing HRAs?
What does this mean for existing HRAs? If the HRA does not fall into one of the above categories, the business will need to modify their HRA plan design to avoid falling out of compliance with PHS Section 2711. This can be done by contacting your HRA administrator.
Additional articles on HRAs and health reform:
- 4 Myths About Health Reform & Health Reimbursement Arrangements
- Stand-alone HRAs Can Still Reimburse Health Insurance Premiums
- HRA, HSA and FSA - Changes Under Health Reform
What questions do you have about HRAs in 2014? Let us know in the comments below and we'll help answer them.