448 / What rules apply in determining whether a health reimbursement arrangement (HRA) can reimburse individual health insurance premiums without violating the prohibition on plans that place annual dollar limits on available benefits beginning in 2020?

The DOL, Department of Health and Human Services (HHS) and Treasury released regulations, finalized in 2019, that expand the potential value of HRAs. Under the rules, individual coverage HRAs (ICHRAs) can be used to reimburse employees for the cost of individually purchased health insurance plans. The expanded HRA rules were effective January 1, 2020.

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Planning Point: While QSEHRAs expanded the availability of HRAs that can be used to reimburse employees for the cost of individual health insurance premiums, QSEHRAs can only be used by employers that are not subject to the employer mandate, limiting their usefulness to owners of fairly small businesses.

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The new rules would allow all sizes of employers to reimburse premiums for individual health insurance coverage through HRAs if the following conditions are satisfied:

(1)     All individuals enrolled in the HRA are also enrolled in individual coverage or Medicare. If an individual ceases to be enrolled in individual coverage, the HRA must stop reimbursing their medical expenses (applied prospectively only). Individuals who are still within the grace period with respect to paying their premiums for individual coverage are considered enrolled in individual coverage.

(2)     The employer does not offer integrated HRA-individual coverage to one class of employees if it offers group health coverage to others in the same class of employees, and

(3)     The HRA must be offered on the same terms to members of employees within a given class of employees. Consistent definitions must be used to determine employee classifications. Exceptions to this rule include classes based on age and for family size.¹

As was the case under earlier guidance, the HRA program must include an opt-out provision that will allow the employee to claim the premium tax credit. The employee must be able to opt out at least annually and, for most employees, at the start of the plan year. If the employee becomes eligible to participate at a date other than the first day of the plan year, or a dependent becomes newly eligible to participate during the plan year, the opt-out opportunity must be provided during the enrollment period established by the HRA for those individuals. Upon termination, the amounts must be forfeited or the participant must be able to permanently opt out and waive any future reimbursements.² If the employee opts out, and the HRA is unaffordable or the HRA does not provide minimum value, the employee would be eligible for the premium tax credit.

While the HRA must be offered on the same terms to members within a given class, variations in dollar amounts are permitted when based on the number of dependents covered under the plan (so long as the same maximum dollar amount attributable to increases in family size is available to all participants in the same class of employees with the same number of dependents) or due to age under certain circumstances (see Q for more information on the class limitations).³

Reasonable substantiation procedures must be established to ensure that employees actually are enrolled in individual health insurance plans. Generally, substantiation must be provided no later than the start of the plan year, unless the employee is not eligible to participate on that date, in which case substantiation should be required no later than the date when HRA coverage begins.⁴

Employers are permitted to ensure that employees actually use the HRA funds to purchase individual health insurance satisfying ACA minimum coverage requirements—rather than limited or short duration plans—by relying upon employee attestations. The rules are clear that employers are not required to look beyond employee attestations to confirm that the employee used the funds permissibly (unless the employer has actual knowledge that the attestation may be false).⁵ However, the employer must obtain an attestation for each reimbursement from the HRA.⁶ The rules provide model attestation language, and also suggest verification by requiring the employee to provide an insurance card or similar document.⁷

The HRA is also required to provide detailed written notice to participants at least 90 days prior to each plan year (the rules provide model notices, see Q ).

See Q for a discussion of the new excepted benefit HRAs that are also available beginning in 2020.