Where do Health Reimbursement Arrangements (HRAs) Stand After PPACA?

Under PPACA, group health plans are prohibited from imposing annual dollar limits on “essential health benefits” starting in 2014 (and can only impose limits exceeding certain specified amounts for plan years beginning before then).

By their very nature, HRAs limit the amount of benefits that may be provided to a participant’s current account balance.  This raised the question of how HRAs subject to the annual limits as group health plans could comply with the annual limit restrictions.  Fortunately, the interim final regulations on annual limits explicitly exempted HRAs that are “integrated” with other coverage as part of a group health plan as long as the other coverage would comply on its own.  It also explicitly exempted stand-alone HRAs that are limited to retirees, but requested comments on the application of such restrictions to stand-alone HRAs that are not retiree-only plans.

These regulations also provided that HHS could waive the restricted annual limits if compliance would result in a significant decrease in access to benefits or a significant increase in premiums.  HHS initially granted a number of individual waivers, and ultimately granted a class exemption for all HRAs subject to annual limit restrictions that were in effect prior to September 23, 2010.  The exemption applies to plan years beginning before January 1, 2014.  [CCIIO Supplemental Guidance: Exemption for Health Reimbursement Arrangements that are subject to PHS Act Section 2711].  However, such HRAs must still comply with the record retention and Annual Notice requirements set forth in the June 2011 guidance issued on the waiver process.

Further, effective September 22, 2011, HHS is no longer granting individual waivers for stand-alone HRAs.  This seems to mean that any stand-alone HRAs (those not integrated with a group health plan) created on or after September 23, 2010 are no longer permissible.  Such HRAs will likely need to be restructured or discontinued, and new stand-alone HRAs should not be created.

The table below summarizes where the various types of HRAs stand after PPACA:

Integrated HRAs (integrated with group health plan) permissible indefinitely
Stand-alone Retiree HRAs permissible indefinitely
Stand-alone “excepted benefit” HRAs (limited scope dental or vision, etc.) permissible indefinitely
Stand-alone HRAs in effect prior to 9/23/10 permissible through January 1, 2014
Stand-alone HRAs effective after 9/23/10 with waiver granted by HHS permissible through January 1, 2014 (assuming compliance with conditions of waiver)
Stand-alone HRAs effective anytime after 9/23/10 without an HHS waiver impermissible

Today’s post was contributed by Maureen Maly and Cynthia Lee.

Comments

  1. Mac P. Paca says:

    Regarding the last item in your table above, what about a stand alone HRA effective after 9/23/10 that does not have an HHS waiver, but which qualifies as a flexible spending arrangement under Code Section 106(c)(2) (which generally includes all HRAs without significant roll over provisions)? Isn’t that permissible indefinitely?

    See Treas. Reg. 54.9815-2711T(a)(2)(ii).

  2. Mac P. Paca says:

    Regarding the last item in your table above, what about a stand alone HRA effective after 9/23/10 that does not have an HHS waiver, but which qualifies as a flexible spending arrangement under Code Section 106(c)(2) (which generally includes all HRAs without significant roll over provisions)? Isn’t that permissible indefinitely?

    See Treas. Reg. 54.9815-2711T(a)(2)(ii).

  3. Based on existing regulations, several stand-alone HRA designs avoid the issue under 2711. See http://www.law.cornell.edu/cfr/text/29/2590.715-2711 for existing regulations.

    5 Types of HRAs That Avoid The Annual Limits Requirements

    1.”Integrated” HRAs
    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.

  4. Mac,
    Yes, if the stand-alone HRA falls under Code Section 106(c)(2) then it is permissible as a FSA HRA. We suspect that most stand-alone HRAs will fall under this exemption post-2014 (it only requires a few plan design tweeks to be compliant as an FSA HRA). See: http://www.zanebenefits.com/blog/bid/262620/

  5. Christina Merhar says:

    Hi Maureen,
    I’m curious — Now that the regulations are finalized, what do you think about the 5 exceptions to for HRAs under PHS 2711, where standalone HRAs will be allowed under a Section 106(c)(2) “FSA-HRA”?

    Thanks!

    Source: http://www.zanebenefits.com/blog/bid/262620/

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