HRA's and Indemnity Plans Guidance

[Yagents]

Below is from NAHU. My question is, can an employer under 50 ee's still offer an HRA with no group plan? I'm assuming this won't affect the under 50 ee's market who don't offer a group, and really targeting to those larger employers over 50 ee's trying to avoid PPACA and still be subject to the penalty.
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NAHU Washington Update - 01/29/2013

The frequently asked questions document addresses “stand-alone” health reimbursement arrangements offered by employers, meaning those HRA plans that are not integrated with a group major-medical policy offering. To date, when implementing PPACA, the Administration has always differentiated between integrated HRAs and those that are freestanding and serve as the employer’s primary means of providing benefits to employees. Integrated HRAs have always been considered exempt from the PPACA provisions directed at qualified health plans like rating requirements, benefit mandates and annual or lifetime limits, but it was left unclear as to how stand-alone HRAs would ultimately be treated. Stand-alone HRAs were given a blanket waiver by HHS from the law’s annual and lifetime limit provisions from 2011 until 2014, but now it has been made clear that the annual limit provisions will apply to HRAs moving forward. So in practical terms, that means employers will no longer be able to offer stand-alone HRA plans. Additionally, the FAQ clarifies that an employer-sponsored HRA may not be integrated with individual market coverage or with an employer plan that provides coverage through individual policies. Also, an employer-sponsored HRA may be treated as integrated with other coverage only if the employee receiving the HRA is actually enrolled in that coverage. So if you had an employer client asking if they could drop group coverage and use an HRA to help individuals purchase coverage through an exchange instead, this guidance clearly establishes the answer to that question is NO.

 

[Ann H]

Huh? I aint too dumb, but I didn't follow that. Were they saying that these most recent guidelines (the ones issued Jan 24, 2013) from HHS said that? Can they please share the documentation for that conclusion? Also, it would be nice to see how Zane Benefits or others who are heavily in the HRA market interprets it.

I have not done an HRA to pay for individual plans because I was warned by my favorite TPA's that they won't do it. Their reasons are completely separate from these issues in PPACA. In fact, they said that PPACA was most likely going to change everything so that the HRA + IFP would be a more open field. Now it seems to be the other way around...???

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When I posted on this thread earlier, Zane Benefits hadn't done a post about the new HHS guidelines. But I just checked again, and there's a blog post dated last evening (1/28/2013 6 pm). Reading the article, it seems that there is some confusion, even at Zane Benefits. Following is the link. The article itself doesn't directly address an HRA used to purchase individual plans, but the comments do. Still, there's no clarity.

New Guidance on Integrated Health Reimbursement Arrangements

 

[taterpeeler]

I have never, in my 20 years ever had someone tell me they have this hra.... I have followed this thread and you all talking about it and I aint following crap about it... let me be dumb, I don't even know what an hra is, could we be calling it something different here? or is it legal in texas?

 

[Ann H]

HRA is an employer product, so if you are mainly in IFP and Med Supp, you probably don't run into it much.

Health Reimbursement Arrangements are a way for an employer to give the employee cash (tax-free) to pay for specific things like unreimbursed medical expenses (to pay for deductibles, copays, co-insurance, uncovered expenses like dental, etc.)

There has been some talk that an employer can use the HRA to fund premiums for employees to buy an Individual plan. My TPA's said no, so I haven't done it. Zane Benefits and Golden Rule are a couple of companies that have promoted it.

If group plans implode, a real possibility was using employer money through an HRA (tax-free) to send people out shopping for their own insurance inside or outside the exchange. Some call it the defined contribution method. Before, the employer had defined benefit (meaning the employer selected the health benefit plan and you either took it or declined it). With an HRA + IFP it's defined contribution, like, "Hey here's $500 a month, go get your own plan, whatever plan you want, and if you get a subsidy then great and if you don't buy one outside the exchange."

It appears that door is closed... Not sure... Want clarification...

Of course, this doesn't stop an employer from dropping the group plan anyway and just giving the employees cash (taxable) to go get their own insurance. It just increases the employee's taxable income, so you have to consider that about 25% of that goes to Uncle Sam. And you have to consider that an increased income means a higher % of the Federal Poverty Level, so the guy's subsidy will be less.

 

[leevena]

HRA is an employer product, so if you are mainly in IFP and Med Supp, you probably don't run into it much.

Health Reimbursement Arrangements are a way for an employer to give the employee cash (tax-free) to pay for specific things like unreimbursed medical expenses (to pay for deductibles, copays, co-insurance, uncovered expenses like dental, etc.)

There has been some talk that an employer can use the HRA to fund premiums for employees to buy an Individual plan. My TPA's said no, so I haven't done it. Zane Benefits and Golden Rule are a couple of companies that have promoted it.

If group plans implode, a real possibility was using employer money through an HRA (tax-free) to send people out shopping for their own insurance inside or outside the exchange. Some call it the defined contribution method. Before, the employer had defined benefit (meaning the employer selected the health benefit plan and you either took it or declined it). With an HRA + IFP it's defined contribution, like, "Hey here's $500 a month, go get your own plan, whatever plan you want, and if you get a subsidy then great and if you don't buy one outside the exchange."

It appears that door is closed... Not sure... Want clarification...

Of course, this doesn't stop an employer from dropping the group plan anyway and just giving the employees cash (taxable) to go get their own insurance. It just increases the employee's taxable income, so you have to consider that about 25% of that goes to Uncle Sam. And you have to consider that an increased income means a higher % of the Federal Poverty Level, so the guy's subsidy will be less.

HRA's actually go back 40 plus years. Section 105 has allowed for a self-employed employer to have a deduction on their health plan.

An employer who wants to pay/reimburse employees for their individual medical plan premiums have two choices; reimburse directly or reimburse through some type of ERISA approved funding vehicle such as an HRA. If the employer does not utilize an ERISA funding vehicle the payments become taxable to the employee and the employer has now created an "employer sponsored" plan, now subject to ERISA. I would be a large pepperoni pizza that 98% of employers who do this are/will be in violation of ERISA.

As for some of the comments/confusion now arising, it appears to me that HHS is not allowing groups over 50 to drop health plans, use a HRA to fund individual plans and satisfy the rules.

 

[taterpeeler]

im so glad I didn't deal in group plans... what a confusing mess.... me: plan cost 600 bucks a month, best you gonna find cause I sell em all... client: ok, lets sign up.... my model is easy, its all about leads... I don't have the brain cells needed to do all this hra crap

 

[Ann H]

Lee, can an employer use a Section 125 POP + List Bill to pay for IFP premiums for employees? I know that there is some disagreement about this, and I tend to side with the conservative set who have said it shouldn't be done because it turns the IFP plans into an employer-sponsored plan and therefore subject to ERISA and other ER rules. However, this might be a way for the ER to pay for IFP plans without making the premium taxable to the employee. Can you shed some light on this?

 

[ABC]

There is a way to do this under an HRA but I would not use the list bill. Under this arrangement the employer would not contribute to the health insurance premium, rather the individual premium would be tax deductible to the employee and the employer.

Lee, can an employer use a Section 125 POP + List Bill to pay for IFP premiums for employees? I know that there is some disagreement about this, and I tend to side with the conservative set who have said it shouldn't be done because it turns the IFP plans into an employer-sponsored plan and therefore subject to ERISA and other ER rules. However, this might be a way for the ER to pay for IFP plans without making the premium taxable to the employee. Can you shed some light on this?

 

[leevena]

Lee, can an employer use a Section 125 POP + List Bill to pay for IFP premiums for employees? I know that there is some disagreement about this, and I tend to side with the conservative set who have said it shouldn't be done because it turns the IFP plans into an employer-sponsored plan and therefore subject to ERISA and other ER rules. However, this might be a way for the ER to pay for IFP plans without making the premium taxable to the employee. Can you shed some light on this?

A Section 125 could be used, as of a few years ago, 2009 I think. Still need to follow ERISA and HIPAA though.

 

[Zane Benefits]

Huh? I aint too dumb, but I didn't follow that. Were they saying that these most recent guidelines (the ones issued Jan 24, 2013) from HHS said that? Can they please share the documentation for that conclusion? Also, it would be nice to see how Zane Benefits or others who are heavily in the HRA market interprets it.

I have not done an HRA to pay for individual plans because I was warned by my favorite TPA's that they won't do it. Their reasons are completely separate from these issues in PPACA. In fact, they said that PPACA was most likely going to change everything so that the HRA + IFP would be a more open field. Now it seems to be the other way around...???

- - - - - - - - - - - - - - - - - -

When I posted on this thread earlier, Zane Benefits hadn't done a post about the new HHS guidelines. But I just checked again, and there's a blog post dated last evening (1/28/2013 6 pm). Reading the article, it seems that there is some confusion, even at Zane Benefits. Following is the link. The article itself doesn't directly address an HRA used to purchase individual plans, but the comments do. Still, there's no clarity.

The FAQs don't say HRAs cannot reimburse premiums (that's a entirely separate issue under the IRC). The FAQs simply say say they intend to issue guidance making stand-alone HRAs generally subject to PHS Section 2711. What does this mean?

It means, based on the existing regulations (see law.cornell.edu/cfr/text/29/2590.715-2711"]29 CFR 2590.715-2711 - No lifetime or annual limits. | Title 29 - Labor | Code of Federal Regulations | LII / Legal Information Institute), HRAs that don't fall into one of the following categories may need to be redesigned to avoid falling out of compliance with 2711 (assuming the expected new guidance comes out making HRAs subject to 2711).

As HRAs are technically self-insured group health plans, they are not required to cover essential health benefits. Remember, 2711 annual limits rules only applies to essential health benefits.

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.