On October 23, 2018, the Departments of Treasury, Labor, and Health and Human Services released proposed regulations that would authorize employer-sponsored Health Reimbursement Accounts (“HRAs”) to reimburse employee premiums for individual health insurance. This is a 180-degree change from the current rule prohibiting reimbursement for individual health insurance premiums, and the proposed regulations, when and if they take effect, could provide additional options to employers who must comply with the Patient Protection and Affordable Care Act (“ACA”)’s employer mandate and market reform rules.
What would this change mean to employers?
Currently, an employer may not offer a stand-alone HRA and comply with the ACA; instead, the HRA must be integrated with an employer-offered group health plan. The proposed regulations would allow employers to comply with the ACA by offering an HRA that integrates with an individual health plan (“individual coverage HRA” or “ICHRA”) provided that certain terms and conditions are satisfied:
- The employer offering the individual coverage HRA to a class of employees must offer the ICHRA on the same terms to all employees in the class;
- The participating employee and any of his or her dependents whose medical expenses are reimbursable under the ICHRA must be enrolled in individual health insurance coverage for each month that they are covered by the ICHRA;
- An employer offering any class of employees an individual coverage HRA may not also offer a traditional group health plan to the same class of employees;
- Employees must be permitted to opt out of and waive future reimbursements from the ICHRA at least annually;
- The ICHRA must implement reasonable procedures to ensure that individuals who receive reimbursements are, in fact, enrolled or will be enrolled in individual health insurance coverage for the plan year; and
- The ICHRA provides written notice to each participant explaining the consequence of accepting the individual coverage HRA for ACA premium tax credit (“PTC”) eligibility.
What would this change mean to employees?
Employees who are covered by an individual coverage HRA, or who are eligible for an ICHRA that is affordable and provides minimum value, are ineligible for the PTC. The IRS issued proposed regulations detailing when an ICHRA would be considered affordable and provide minimum value. The proposed regulations present a challenge to employers in that HRA plan affordability is determined on an employee-by-employee basis dependent on each employee’s age and location (these factors affect the cost the employee would pay for coverage on the individual market). In light of this, the proposed regulations also provide several safe harbors for determining whether coverage offered through an HRA is affordable.
Individual coverage HRAs may offer employers and employees additional flexibility and potential cost savings. These proposed regulations are not slated to take effect until January 1, 2020, and they may not be relied upon by employers prior to this date. However, it will be worth monitoring these proposed regulations over the next year to consider how individual coverage HRAs may be implemented for employers seeking an alternative to traditional group health coverage.