Late last year, the IRS provided guidance on compliance under the Affordable Care Act (ACA) for group health plans, particularly Health Reimbursement Arrangements (HRAs).
In preparing for 2017, employers that offer HRAs should review plan documents and plan operation to ensure compliance with some of the new requirements.
Smart Business spoke with Frances Horn, employee benefits compliance officer at JRG Advisors, about what employers need to know about HRAs for the coming year.
How do HRAs generally work?
In 2013, the IRS advised that in order for an HRA to meet the ACA market reforms, it must be integrated with group health plan coverage. Generally, market reform requires that a health plan provide preventive services at no cost and no lifetime/ annual limits on essential health benefits. An HRA is integrated with group health plan coverage, if it meets the following requirements:
- The employer offers group health plan coverage, other than the HRA, that is ACA compliant.
- Employees receiving HRA benefits are enrolled in group health plan coverage.
- HRA eligibility is limited to employees enrolled in group health plan coverage.
- Employees have the opportunity to opt out of the HRA annually and upon termination of employment, or upon termination unused balances are forfeited.
- Reimbursements are limited to copayments, coinsurance, deductibles and medical care expenses that aren’t essential health benefits, or the other non-HRA coverage provides minimum value.
Due to these integration requirements, an HRA that covers more than one current employee is unable to reimburse the cost of premiums for individual health coverage.
What’s critical to know about reimbursement of spouse or dependent expenses?
The usual practice of employers offering an HRA as a benefit to employees was to permit the qualified medical expenses of spouses and dependents to be reimbursed, regardless if they were covered under the employer’s plan or not.
With the integration requirement, this capability no longer exists. The integration rule states that an HRA may not be used to reimburse expenses for a covered employee’s spouse or dependent, unless that spouse or dependent is also covered under the employer’s integrated group health plan.
The 2015 IRS notice clarified this, and this rule is applicable to those plan years beginning on or after Jan. 1, 2017.
What about retiree HRAs and individual health expenses?
Information provided in the 2013 IRS notice for a HRA plan that has less than two current employees was confirmed in the 2015 notice. An HRA covering only retirees or an HRA covering only one employee isn’t subject to the ACA market reforms.
Therefore, it is permissible for a retiree HRA to reimburse the expense of individual market coverage. This type of HRA is deemed an eligible employer-sponsored plan and would cause individuals to be ineligible for a premium tax credit on the exchange.
To apply this provision, the HRA must only cover retirees. Thus, an HRA plan covering both retirees and current active employees cannot reimburse individual health care covered purchased by retirees.
This rule was applicable for any plan years beginning on or after Dec. 15, 2015.
In summary, providing employee benefits through a HRA has been popular for many years. The ACA market reforms, however, changed the practice such that HRAs for current active employees cannot reimburse the expense of individual coverage. Improper payment of individual coverage can result in a penalty of $100 per day per affected individual.
As 2016 winds down, employers should review their HRA practices to ensure compliance in 2017.
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