In light of the Affordable Care Act prohibition against health plans with an annual dollar limit on essential benefits, which takes effect in the plan year beginning on or after January 1, 2014, there have been concerns about whether Health Reimbursement Arrangements (HRAs) will be permissible in 2014 and after.
The three federal agencies implementing the Affordable Care Act (HHS, DOL, and the Treasury) recently released a set of answers to frequently asked questions (FAQs) addressing the future of HRAs. The answers discuss guidance on how an employer can provide HRA coverage and stay in compliance with the new regulations. In general, the guidance confirms that in order for an HRA to be permissible, an employee must be enrolled in other primary group medical coverage that complies with the annual dollar-limit.
Whether an HRA will be considered permissible under the Affordable Care Act’s annual dollar limit rules will depend on whether the HRA is an “integrated” HRA or a “stand-alone” HRA. While the DOL has never specifically defined those terms, “integrated” was commonly understood to mean that an employee who elected major medical plan coverage would also have an HRA; and, the only way to have an HRA was to also have major medical plan coverage. In contrast, a “stand alone” HRA would allow an employee to participate even if the employee did not participate in the major medical plan.
Why does this matter? The DOL has said that it is relatively easy for an “integrated” HRA to satisfy the ACA rule that a plan not have any lifetime dollar limits on essential health benefits. An integrated HRA satisfies this rule by relying on the coverage provided by the major medical plan. What about a stand‐ alone HRA? The DOL has provided only limited relief for such an HRA and has implied that stand‐alone HRAs may be eliminated entirely in 2014.
The FAQs provide that:
- Individual Policies Not Sufficient. Stand‐alone HRAs used to purchase individual coverage ARE NOT considered integrated with the individual coverage and therefore such HRAs violate the annual limit and lifetime limit requirements.
- Must Participate in Both HRA and Major Medical Plan. HRAs offered to employees who do not enroll in the underlying group health plan violate the ACA. In other words, to be “integrated” the coverage needs to be identical: the employee must be “in or out” for both the major medical plan and the HRA.
- Grandfathered HRAs for Pre‐2014 Contribution. Generally, amounts credited before 2014 under an existing HRA will be “grandfathered” in 2014 and beyond. So, even if future DOL guidance effectively eliminates HRAs ‐‐ a real possibility, especially for stand‐alone HRAs ‐‐ current amounts in the HRA could continue to be used until they were exhausted.
Key takeaways: The rules regarding HRAs are being tightened. It is suggested in this guidance that HRAs would need to be integrated with an underlying group health plan or they will be considered in violation of the law. Employers that offer HRAs must carefully examine each HRA option to assure that it is permissible in 2014. Also note that the ACA lifetime and annual limits are not applicable to retiree‐only HRAs.