For many small and medium size businesses (SMBs), it can be tempting to take on administering your employees’ health benefits all on your own. While this may seem like the more affordable option, any mistakes you make that put your plan out of compliance can cost you and your organization thousands of dollars.
That’s why we recommend investing in a compliant healthcare reimbursement software like PeopleKeep. We take care of the details to make sure your health reimbursement arrangement (HRA) follows all of the guidelines set forth by the IRS and other regulations so you can focus on running your business.
To give you a better idea of how SMBs can benefit from an HRA software solution, we’ll go over six easy-to-miss areas of compliance that PeopleKeep helps to keep a close eye on to ensure your HRA is compliant.
1. Affordable Care Act requirements
First, let’s go over what the Affordable Care Act (ACA) requires of HRAs. In order for an HRA to be administered compliantly under the ACA, it must satisfy the health insurance market reforms.
Here are just a few of the ACA regulations that apply to HRAs in certain cases:
- The employer mandate
- Applicable large employers (ALEs) must provide a certain level of affordable health coverage to their employees
- Minimum essential coverage
- Employees covered under HRAs must have a certain level of health coverage that includes the essential benefits in order to participate or get tax-free reimbursements
- Annual and lifetime limit rules
- Plans can’t have annual dollar limits on coverage of essential benefits
- Summary of Benefits and Coverage (SBC)
- A company providing an HRA must include a summary of benefits coverage document to eligible employees
- 60-day notice of material modifications
- Any changes made to the plan must be explained in a notice to employees within 60 days of the changes going into effect
- Dependent coverage for adult children up to the age of 26
- Coverage of preventive care without cost-sharing
- Form 720: fees to fund research on patient-centered outcomes
- Internal and external claims and appeals process for health claims
2. HIPAA Privacy Rule
HRAs are also governed by the HIPAA Privacy Rule. In order to administer a reimbursement plan, the entity processing the claims receives protected health information (PHI) which is protected by HIPAA.
Employers that don’t comply or that allow employees' PHI to be released through their own negligence can be subject to fines ranging from $100 to $50,000 per individual violation, depending on how serious the perceived level of negligence is.
Next, because HRAs are considered group health plans, they’re also subject to regulations outlined by the Consolidated Omnibus Budget Reconciliation Act (COBRA). Under COBRA, employees that experience a qualifying event are entitled to continuation coverage under the employer’s plan.
Circumstances that allow employees to get continued coverage under COBRA include:
- Voluntary or involuntary job loss
- Reduction in hours
- Transition between jobs
- Death of a loved one
An employer that fails to extend COBRA coverage to participants can be subject to substantial fines—up to $110 per day for failure to provide an initial notice or election notice.
4. Medicare reporting
Another area of compliance HRA administrators need to keep in mind is Medicare Secondary Payer (MSP) provisions. If an employer has any employees who are enrolled in Medicare and also participate in the organization’s HRA, then the employer is required to provide coverage information to the Centers for Medicare and Medicaid Services (CMS).
The information reported to CMS will allow better coordination of payer responsibilities between the employees’ HRA and Medicare plan. Failure to comply could result in fines of up to $1,000 per day.
5. Plan documents
Next, the Employee Retirement Income Security Act of 1974 (ERISA) requires that HRAs be established and maintained pursuant to a written instrument. For an HRA, this is usually referred to as a plan document.
The plan document serves to define what expenses are eligible for reimbursement, the amount of employer contribution, whether the funds may be rolled over from year to year, and other details of the plan.
Not only could an enforcement action be brought against an employer for failure to have a plan document, but it’s also difficult for the employer to prove plan terms and enforce its provisions.
6. ERISA-compliant reimbursement of individual health plans
Finally, the U.S. federal government has specific regulations that employers must comply with in order to reimburse employees for individual health insurance premiums without triggering ERISA plan status for the individual health insurance policies.
For example, employers paying for employees’ health insurance premiums directly to the insurance company isn’t considered a compliant reimbursement model, and forces that money to be counted as taxable income for the employee.
From following the Affordable Care Act’s regulations to drafting ERISA-compliant plan documents, administering an HRA can be a daunting endeavor—but it doesn’t have to be! With an HRA administration software like PeopleKeep on your side, in addition to our award-winning customer support team to help answer you and your employees’ questions, you’ll only need to dedicate a few minutes every month to managing your employees health benefits and do so compliantly.
This article was originally published on June 5, 2016. It was last updated August 6, 2021.