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June 18, 2019

HRB 144 - 1) Health Reimbursement Arrangements - Summary of Final Rules; 2) PCORI Annual Fee Reminder; and 3) Nationwide Permanent Injunction Ordered for Certain Women's Preventive Services (article)

HRB 144 - 1) Health Reimbursement Arrangements - Summary of Final Rules; 2) PCORI Annual Fee Reminder; and 3) Nationwide Permanent Injunction Ordered for Certain Women's Preventive Services (article)
Issued June 18, 2019 I Download as a PDF

Health Reimbursement Arrangements - Summary of Final Rules

Two new types of health reimbursement arrangements (HRA) are sanctioned by final regulations, scheduled to be published on June 20, 2019. 

As a result of an Executive Order issued on October 12, 2017, the Affordable Care Act’s tri-governing agencies (Departments of Health and Human Services, Labor and Treasury) were charged with developing regulations to expand existing rules to allow individual premium to be reimbursed through health reimbursement arrangements (HRAs).  The tri-governing agencies released a set of non-reliance proposed regulations on October 29, 2018 (summarized in CBIZ HRB 142), setting forth the framework for two additional types of HRAs:

  • Individual-Coverage HRA (“IC-HRA”):  An individually integrated HRA used with individual health coverage obtained via public marketplace or private market
  • Excepted Benefit HRA (“EB-HRA”):  A new type of stand-alone HRA that can be used to pay out-of-pocket medical expenses

As background, an HRA is a self-funded health plan funded strictly with employer dollars.  These monies can be used to pay qualified medical expenses.  Because an HRA is a health plan, it is generally subject to all of the market provisions of the Affordable Care Act.  By design, an HRA is not compliant with certain aspects of these market provisions.

Existing Integrated HRAs
Previously issued guidance affirms that as long as an HRA is integrated with a comprehensive group health plan, then it would be deemed to satisfy the market provisions of the ACA.  The two types of integration are known as minimum value integration and no minimum value integration.  In both methodologies, the HRA can only be available to individuals actually covered by an ACA-compliant plan. For both methodologies, an ACA-compliant plan can be that of the employer sponsoring the HRA (the individual’s employer), or it can be a plan offered by another employer, such as a spouse’s employer. Also for both methodologies, the individual must be given the opportunity, at least annually, to permanently waive participation in the HRA. 

  • In the no minimum value integration, the HRA is limited to reimbursing co-pays, co-insurance, deductibles, and premiums of the ACA compliant plan with which the HRA is integrated. In addition, the HRA may reimburse medical expenses that do not qualify as essential health benefits.
  • In the minimum value integration, the ACA compliant plan with which the HRA is integrated must meet minimum value (MV) standard. Minimum value means that the plan covers at least 60% of the cost of medical services. Unlike the no minimum value HRA, it can reimburse any medical expense permitted by IRC §213(d).

In addition, a retiree-only HRA, one that only covers fewer than two participants who are active employees, is generally exempt from the market provisions of the ACA’ and therefore, need not be integrated with a comprehensive health plan.

The existing integration rules created an issue with regard to individual health insurance policies.  The 21st Century Cures Act provided for the establishment of qualified small employer HRAs (QSEHRA) to allow certain small employers (one who employs fewer than 50 employees and does not offer group health insurance) to establish a stand-alone HRA, beginning January 1, 2017.  Such QSEHRA can be used for paying or reimbursing medical expenses, including premium for health coverage through the individual market, incurred by their eligible employees and their family members.  For a summary of QSEHRAs, see our prior CBIZ HRB 134 and HRB 124.

Two New Types of HRAs

Beginning in January 2020, employers can choose to offer an HRA integrated with individual coverage (IC-HRA), or an excepted benefit HRA (EB-HRA).  Following is a brief look at these new HRAs.


Individual Coverage HRA (IC-HRA)
An HRA integrated with individual coverage, whether obtained through or outside marketplace, is known as an IC-HRA.  Individual health coverage also includes Medicare Parts A, B, C and D policies (only permissible if the Medicare secondary payor rules do not apply).  Coverage that does not qualify as individual coverage for purposes of an IC-HRA are short-term, limited duration insurance, or coverage consisting solely of dental, vision, or similar “excepted benefits.”

Enrollment in individual coverage.  To participate in the HRA, the individual must actually enroll in individual coverage for each month covered by the HRA. Individual coverage providing only excepted-benefits would not qualify for this purpose.  The employer offering an IC-HRA must obtain an attestation from HRA participants and their dependents that the individual is, in fact, covered by acceptable individual coverage for the plan year.  Such attestation must be accomplished on an annual basis.  Further, IC-HRA participants are required to substantiate individual coverage each time reimbursement is sought.  See Procedures for proof of coverage and substantiation of medical expenses, below.

New special enrollment period.  A new 60-day special enrollment period will be made available in the individual market for those who become newly eligible for participating in an IC-HRA.  This is intended to facilitate enrollment in individual coverage since that is a requirement for participating in an IC-HRA.

No traditional group coverage allowed.  A plan sponsor who offers the IC-HRA to a particular class of employees cannot also offer traditional group health plan coverage to the same class of employees. Thus, there can be no choice between participating in an IC-HRA and a traditional group plan.

Same terms and conditions.  An IC-HRA must be offered on the same terms with regard to the amount and conditions to all participants within a class (see Permitted Classes of Employees, below).  The employer funding must be uniform, but there can be differences based on family size and age, as long as the oldest age classification is no more than three times the youngest age classification.

Opt-out.  The HRA must allow individuals to opt-out and waive future reimbursements from the HRA at least annually.  Upon termination of employment, the remaining amounts in the HRA are forfeited, or the participant is permitted to permanently opt-out of and waive future reimbursements from the HRA.

Affordability.  The regulations include a complex formula for determining whether an IC-HRA is affordable for purposes of eligibility for marketplace premium assistance. According to these regulations, for purposes of determining affordability, the employer’s annual contribution to the IC-HRA for monthly single coverage amount, minus the monthly premium for the lowest-cost silver plan for self-only coverage cannot exceed 9.86% (indexed for 2020) of an individual’s household earnings.  Presumably, the current three safe harbors available for employer shared responsibility purposes (federal poverty level, rate of pay, or W-2) could be used for the IC-HRA affordability standard.  It is expected that future guidance will clarify this, as well as provide a methodology that could be used by employers subject to the employer’s shared responsibility provisions.

Procedures for proof of coverage and substantiation of medical expenses. The HRA must establish procedures for individuals to verify their enrollment in individual health coverage for the plan year. Proof of coverage can be obtained by third party, or written attestation by the individual indicating the insurer and dates of coverage. The HRA must also establish a procedure for participants to substantiate medical expenses when seeking reimbursement.  The DOL provides a model attestation (available in both word and pdf format) for both the annual and on-going substantiation of coverage that can be used for this purpose.

Notice requirement. Written notice about the availability of the HRA must be provided to eligible individuals at least 90 days prior to the beginning of each plan year, as well as when an individual becomes eligible mid-year. The regulations set forth the contents that must be included in the notice such as the maximum dollar amount available, conditions for reimbursement, the required proof of individual coverage, a statement that the individual coverage is not subject to ERISA, the right to opt-out, information relating to the premium tax credit, among other content requirements.  The DOL provides a model notice that can be used for this purpose (available in both word and pdf format).  The information contained in the model notice must be customized to the particular HRA.

Use of salary reduction via cafeteria plan. In the event that individual policy premium cannot be paid in full with IC-HRA dollars, the balance could be paid by salary reduction dollars through a Section 125 (cafeteria) plan, but only for individual policies purchased outside the marketplace.

However, there are reasons why allowing individual premium paid through a Section 125 cafeteria plan is not prudent, one of which is employer sponsorship.  The regulations provide that individual policies integrated with IC-HRA will not be deemed employer-sponsored as long as the employer is not, in any way, involved with endorsing, paying for, mandating or encouraging use of the policy.

Loss of individual coverage.  The HRA must provide that, subject to applicable COBRA or other continuation of coverage requirements, if the individual health coverage terminates, the individual cannot then seek reimbursement under the HRA for claims incurred once that coverage terminates.   Further, if the HRA-participant or his/her dependent loses individual coverage, then the individual would forfeit the HRA. Individuals participating in this type of HRA would be ineligible for premium assistance that might otherwise be available.

Excepted Benefit HRA (EB-HRA)
An excepted benefit HRA (EB-HRA), unlike an IC-HRA, can be made available to individuals who are eligible for comprehensive group health coverage.  As such, the HRA would not be subject to the ACA market reform rules.

In this type of arrangement, the HRA must provide up to $1,800 in benefits per year (subject to inflationary indexing) to reimburse expenses for excepted benefits.  As is true for all HRAs, only qualifying medical expenses can be reimbursed.  While generally premium cannot be reimbursed from an EB-HRA other than COBRA premium, excepted benefit premium, such as vision and dental premium, and in limited circumstances, premium for short term limited duration insurance policies, is permissible.

The EB-HRA cannot be an integral part of the group plan and must be made available to all employees of a class (see Permitted Classes of Employees, below).

Permitted Classes of Employees
For purposes of both types of HRAs, permissible classes of employees include:

  • Full-time, part-time and seasonal employees;
  • Employees working in the same geographic location (generally, the same insurance rating area, state, or multi-state region);
  • Employees in a unit of employees covered by a particular collective bargaining agreement;
  • Employees who have not satisfied a waiting period;
  • Non-resident aliens with no U.S.-based income;
  • Salaried workers and non-salaried workers (such as hourly workers);
  • Temporary employees of staffing firms; or
  • Any group of employees formed by combining two or more of these classes.

The HRA could also be offered to former employees, however, if it is offered to one or more former employees within a class of employees, then the HRA must be offered to the former employees on the same terms as to all other employees within the class.

Generally, class determination is based on the common law status of an employer.  This is true even if the employer is part of a control group.  For determining certain classes of employees, for example, full-time vs part-time employees, employees located within certain geographic areas, or salary vs hourly employees, a minimum class size equally the lesser of 20 employees, or 10% of the workforce, must be satisfied.  This is to ensure that employers do not establish small classes targeted at certain populations.

No dual HRA coverage
An employee cannot participate in both an IC-HRA and an EB-HRA.

These regulations are complex and demand significant analysis, not only by employers considering offering these new types of HRAs, but also much must be discerned by the ACA marketplaces, as well as the individual insurance industry.  Certainly additional guidance will be issued, and time will tell how much traction these types of HRAs achieve.

PCORI Annual Fee Reminder

The July 31st deadline for reporting and payment of the ACA’s Patient-Centered Outcomes Research Institute (PCORI) fee is fast approaching. 

Virtually, all health plans, whether insured or self-funded, are subject to these fees. The PCORI fee is assessed on the average number of lives covered under the policy or plan.  For policy and plan years ending between October 1, 2018 and September 30, 2019, the fee is $2.45 per covered life.

The fee is to be paid in connection with filing the IRS Form 720, Quarterly Federal Excise Tax Return. For insured plans, the insurer is obligated to file the Form 720 by July 31st following the close of the policy year. For self-funded plans, the plan sponsor is obligated to file the Form 720 by July 31st of the calendar year following the plan year end.

For calendar year plans, the 2018 filing due by July 31, 2019 will be the last filing, absent any change in the law, and assuming no short plan year in 2019.  For plan or policy years ending on or before September 30, 2019, the last filing will be due by July 31, 2020.

As a reminder, the PCOR fee is an employer responsibility and cannot be paid from plan assets, including participant contributions.

For additional information about the PCOR fee, see the IRS’ webpageQuestions and Answers and Chart of Plans Subject to the Fees.

Nationwide Permanent Injunction Ordered for Certain Women’s Health Preventive Services 

The ACA’s contraceptive services mandate has been fraught with legal challenges and litigation since the enactment of the law.  The law itself exempts church plans sponsored by a qualified religious employer.   Further litigation and regulatory action over the years provided exemptions for non-government plans.

Final regulations issued by the ACA’s tri-governing agencies (Departments of Labor, Health and Human Services and Treasury) that provide for an exemption and accommodation process took effect on January 14, 2019.  These rules provide that virtually any non-government plan, including one sponsored by closely-held and publicly traded entities, private entities, as well as institutions of higher education and private universities offering student health coverage, to opt out of some or all of the contraceptive mandates, either through seeking an accommodation process, or by exempting itself through a self-certification process.

An accommodation or exemption option is also available for a slightly narrower group of entities, specifically, all non-government, non-publicly traded entities based on a moral opposition to providing contraceptive services.

The same day the final rules took effect, a nationwide preliminary injunction to block enforcement of the final regulations was ordered by courts in California and Pennsylvania.  The California injunction applies to the 13 states involved in the lawsuit, while the Pennsylvania injunction applies nationwide.  These injunctions are now on appeal in the Ninth and Third Circuits.

Then, on June 5, 2019, Judge Reed O’Connor of U.S. District Court for the Northern District of Texas issued a nationwide permanent injunction against the contraceptive services mandate. The injunction is based on the premise that the imposition of requiring individual and group health plans sponsored by religious entities to comply with the contraceptive services mandate or to seek the accommodation process violates the Religious Freedom Restoration Act.  This injunction means that the contraceptive services mandate will not be enforced against any individual or group coverage objecting to mandate based on religious grounds.

The information contained herein is not intended to be legal, accounting, or other professional advice, nor are these comments directed to specific situations. The information contained herein is provided as general guidance and may be affected by changes in law or regulation. The information contained herein is not intended to replace or substitute for accounting or other professional advice. Attorneys or tax advisors must be consulted for assistance in specific situations. This information is provided as-is, with no warranties of any kind. CBIZ shall not be liable for any damages whatsoever in connection with its use and assumes no obligation to inform the reader of any changes in laws or other factors that could affect the information contained herein.affect the information contained herein.

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