PPI in the News Compliance Corner - June 27, 2019 Archive
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On June 13, 2019, the Treasury Department, DOL, and HHS finalized rules to allow employees to use their employers’ HRA to pay for individual health coverage. The rules also create a new excepted benefit HRA. The rules, which are effective for plan years starting on or after January 1, 2020, follow through on Pres. Trump’s 2017 executive order directing the DOL and HHS to implement rules that would allow for the expanded use of HRAs. The final rules largely follow the October 2018 proposed rules with some clarifying changes (see our previous Compliance Corner article ).

As background, the ACA previously required that HRAs be integrated with group health coverage; this is the only way the HRA could be deemed to meet many of the ACA’s market reforms, such as the prohibition on annual and lifetime limits. As such, employers could not reimburse employees for individual coverage.

These new HRA rules significantly change that requirement by allowing employees to be reimbursed for the cost of individual coverage through what is known as an individual coverage HRA (ICHRA). The employee and any dependent for which the HRA would reimburse must actually be enrolled in individual coverage. That individual coverage can be offered on or off the exchange and includes fully insured student health coverage, catastrophic policies, grandmothered plans, and plans offered in states with a Section 1332 waiver. It does not include self-insured student health coverage, short-term limited duration insurance, a spouse’s group health coverage, health care sharing ministries, multiple employer welfare arrangements, or TRICARE.

An ICHRA may also be integrated with Medicare. The participant must be enrolled in Parts A and B or C. The arrangement may reimburse premiums for Parts A, B, C, or D as well as for Medigap policies. Reimbursement cannot be limited only to out-of-pocket expenses not covered by Medicare. The employer must substantiate the participant’s enrollment in individual coverage or Medicare annually prior to the coverage effective date and before each reimbursement. Sample attestation language is provided in the Fact Sheet (link provided below).

Generally, an employer cannot offer a traditional health plan and ICHRA to the same class of employees. However, an employer may choose to offer the traditional plan to current employees and offer an ICHRA to new employees hired on or after a certain date (which must be on or after January 1, 2020). Additionally, the HRA must be offered on the same terms to each participant in the class (with limited exceptions). Additional reimbursement may be provided to older participants, but no more than three times the funds available to younger participants.

The rules allow the following classes of employees:

• Full-time
• Part-time
• Seasonal
• Hourly (was not previously included in proposed rules)
• Salaried (was not previously included in proposed rules)
• Employees whose primary site of employment is in the same rating area
• Employees covered under a collective bargaining agreement
• Employees who have not yet satisfied an ACA-compliant waiting period
• Non-resident aliens with no US-based income

(The proposed rules included an additional classification of employees under age 25, which was eliminated from the final rules.)

There are minimum class size rules based on the employer’s size that apply to the first five classifications listed above. The applicable class size minimum is: 1) ten, for an employer with fewer than 100 employees; 2) 10% of the total number of employees, for an employer with 100 to 200 employees; and 3) 20, for an employer that has more than 200 employees.

Employers sponsoring an ICHRA must distribute a notice to eligible employees 90 days before the start of the HRA plan year (or by the date of eligibility if someone becomes eligible for the HRA after the start of the plan year). The notice must describe the terms of the HRA, discuss the HRA’s interaction with premium tax credits, describe the substantiation requirements, and notify the person that the individual health coverage integrated with the HRA isn’t subject to ERISA. There is model language included in the Fact Sheet.

Further, the final rules also allow employers to offer an excepted benefit HRA that isn’t integrated with any health coverage, as long as certain conditions are met. Specifically, the employer must ensure that they offer other traditional coverage, limit the benefit to $1,800 per plan year (indexed for inflation), only reimburse for premiums of excepted benefit plans, and make the HRA uniformly available. These rules are largely the same as the proposed rules.

As it pertains to ERISA, the rule clarifies that individual coverage paid for through the HRA would not be subject to ERISA as long as the employer doesn’t take an active role in endorsing or choosing the individual coverage. In this way, the rules for having individual coverage avoid being subject to ERISA are similar to the safe harbor for voluntary plans. However, the HRA itself is generally considered a health plan and must comply with the Summary of Benefits and Coverage notice requirement and ERISA requirements.

As it pertains to the ACA, individuals who are covered by an HRA that’s integrated with affordable, minimum value individual health insurance coverage are ineligible for a premium tax credit. However, employees can waive the ICHRA so that they can retain their premium tax credit eligibility.

Employers that are subject to the employer mandate (or applicable large employers) may use an ICHRA to satisfy their obligation to offer coverage under the mandate. However, the HRA amount offered must be an amount that would be considered affordable. Notably, though, these final regulations don’t describe how employers will go about determining if their individual coverage HRA is affordable. The Treasury has been tasked with identifying this guidance in a later proposed rule.

Final Rules »
Fact Sheet (including ICHRA Model Attestation and Notice) »

On June 17, 2019, the IRS released its third quarter priority guidance plan. As background, the IRS uses the Priority Guidance Plan each year to identify and prioritize the tax issues that will be addressed through regulations, revenue rulings, revenue procedures, notices, and other published administrative guidance.

Some notable employee-benefits related issues that the IRS is working on include:

• Proposed rules on employee stock ownership plans
• Updated final vesting regulations
• Updated definition of church plan
• Rule that provides limited relief to multiple employer plans where one employer violates qualification requirements
• Updated life expectancy for required minimum distribution purposes
• Guidance on individual coverage HRAs
• Possibly modified regulations on Voluntary Employees’ Beneficiary Association Regulations

While this guidance doesn’t necessitate any action on the part of employers, it does give good insight into the rules the IRS may publish in the next several months.

IRS Third Quarter Priority Guidance Plan

On May 2, 2019, Commissioner Afable released Bulletin 20190502, which acknowledges the federal court decision to invalidate the DOL’s new association health plan (AHP) rule. As background, the rule broadened the eligibility standards for a group of employers to be considered a “bona fide association” by allowing groups of unrelated employers to join associations and offer health coverage together.

This bulletin merely confirms that associations in Wisconsin can’t sponsor plans under the AHP’s new rules, and can only rely on the rules that were in place before. Additionally, as supported by Wisconsin statutes, insurers who have issued AHPs in accordance with the rules that have now been vacated must continue to pay claims for the full term of those plans.

This guidance does not present any new information. However, employers in Wisconsin that were looking to join an AHP should be aware that the eligibility for that AHP will have to be what it was under the DOL’s previous rules.

Bulletin 20190502 »