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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.
Instead of copying legal text, could you tell us what it means in laymen's terms, and answer this question:
1. Can a small employer under 50 FTE's offer a premium tax free reimbursement HRA to employees who will then buy subsidized/non subsidized coverage on or off the exchange?
2. Same question for OVER 50 FTE's, can they do it? If they can and do, will they still have to pay the employer penalty for not offering affordable group coverage?
