February 2013 HRA FAQ Presentation


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Frequently asked questions about health reimbursement arrangements: http://www.zanebenefits.com/

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February 2013 HRA FAQ Presentation

  1. 1. Impact of Recent Agency Guidance on HRAs and Private Exchange Arrangements Agenda • Background: So Many HRAs, so little time • HRAs and the Affordable Care Act prohibition on Annual Limits • Agency FAQs XI • Defined Contribution Arrangements in a Post-FAQ World2 1
  2. 2. What is an HRA? • IRS guidance in 2002 paved the way for offering medical reimbursement plans with a carry over -- aka the health Reimbursement Arrangement or HRA – Rev. Rul. 2002-41 and IRS Notice 2002-453 Varying HRA Structures • Stand-Alone Health Reimbursement Account • Combination HRA/Indemnity Health Plan – HRA benefits tied to deductible/co-payments – HRA benefits available for any 213 expense • Premium Reimbursement Plan – Historically often limited to retirees and former employees due to HRA and HIPAA compliance concerns4 2
  3. 3. Stand-Alone HRA A stand-alone Code §105 plan providing medical benefits – Sometimes called a direct reimbursement plan – An HRA is set up for each employee – Example: Employer promises to pay each employee’s medical expenses up to $1,000 per year • Some plans limit reimbursements to specified expenses – 100% employer-funded (no employee contribution) – Self-funded (no insurance) – ERISA, COBRA, HIPAA, PPACA and other laws apply • Some exceptions and special rules may apply – Tax rules must be satisfied for favorable tax treatment • Reimbursements limited to eligible 213 expenses • Substantiation required for reimbursed expenses – May permit carryover of unused HRA amounts5 Stand-Alone HRA Reimbursement of 213 expenses (other than Employer funds HRA coverage that may be pre-tax funded) Employer funds Optional Reimbursement of Indemnity covered expenses Employee pre-tax under plan funds Health Plan6 3
  4. 4. Combination HRA/Indemnity Health Plan HRA with high deductible health coverage – Unlike HSAs, this HRA + high deductible coverage package is designed by the employer, not by Code § 223 – Example (three components): • #1 - Employees get high deductible health insurance coverage – (e.g., $2,500 deductible) • #2 - Employees get a 100% employer-paid $1,500 HRA. – The HRA can be used to satisfy the deductible, co-pays and other out-of- pocket medical expenses (OOP expenses) • #3 - Carryovers - unused HRA carries over – Compliance issues if HRA considered part of cafeteria plan – ERISA, COBRA, HIPAA, PPACA and other laws apply7 Combination HRA/Indemnity Health Plan HRA ReimbursementEmployer funds of 213 expenses ---------------------------- Reimbursement ofEmployee pre-tax covered expensesfunds Traditional Health Plan under plan8 4
  5. 5. Premium Reimbursement Account Plan (PRA) Tax free employer contribution for health coverage – Employees shop for other health coverage • e.g., coverage on a private exchange, individual policy, COBRA, other employer coverage • HRA restrictions on coverage employer currently offers on a pre- tax salary reduction basis – Employer reimburses employee for premium employee pays, or employer pays the other plan/insurer directly – Employees pay with after-tax dollars for the portion not paid by the employer – Potential compliance issues if offered to employees • HIPAA non-discrimination issues arise if health underwriting occurs (pre-2014) • COBRA issues if qualifying event occurs 9 • Status under PPACA unclear HRAs and ACA/HIPAA • HIPAA regulatory guidance allows exception for – Retiree only HRA • Issues with rehires • Accrual during employment should not affect retiree only status – Vision/dental only HRA – HIPAA FSA Exception • HRA with annual benefit of $500 or less and no carryover (where other coverage available) • All other HRAs are subject to ACA/HIPAA Provisions – As discussed below, additional regulatory exceptions to annual cap prohibition may apply10 5
  6. 6. HRAs and ACA Annual Cap Limitation • Lifetime and annual dollar limits on essential benefits – – Lifetime limits are prohibited – Annual limits are restricted, then prohibited in 2014 • Possible Exceptions for HRAs : – HRA integrated with a larger group health plan may not need to eliminate cap if plan complies as a whole • Can HRAs be integrated with individual policies? – FAQs XI says no. – Retiree only HRA11 HRAs and PPACA Annual Cap Limitation • Possible Exceptions for HRAs (con’t) – – Limited purpose HRA (dental, vision) – IRC 106 health FSA exception? – HRAs that reimburse benefits other than essential benefits may not be subject to limits • Applicability to premium only HRA?12 6
  7. 7. Can an HRA Really be an FSA? • IRC 106(c)(2) definition – For purposes of this subsection, a flexible spending arrangement is a benefit program which provides employees with coverage under which— • (A) specified incurred expenses may be reimbursed (subject to reimbursement maximums and other reasonable conditions), and • (B) the maximum amount of reimbursement which is reasonably available to a participant for such coverage is less than 500 percent of the value of such coverage.13 Can an HRA Really be an FSA? • Was 106(c)(2) definition meant strictly for LTC benefit prohibition (“for purposes of this subsection”)? • Will issue be addressed in final ACA regulations?14 7
  8. 8. FAQs Part XI • Recent Agency FAQ guidance (Part XI) Threatens Stand-alone HRAs • The Agencies concluded that a stand-alone HRA open for any 213 expense (an “open” HRA) is impermissible due to annual/lifetime cap prohibition. – Only integrated open HRAs will be allowed • Agencies clarified that an open HRA used to purchase individual policy benefits does not satisfy the no annual cap prohibition because not integrated. • The Agencies have further clarified what it takes for an HRA to be integrated15 FAQs Part XI Initial thoughts . . . – Demise of “open 213” stand-alone HRAs for ACTIVE employees • vision, and dental HRAs allowed • RETIREE only HRAs are not impacted. – This will be a setback to private exchange concepts that use an “open” HRA and individual policy benefits. • A premium only HRA arrangement may be allowable. • There is still a technical argument that an HRA that qualifies as an FSA under IRC 106 (i.e., limited under 5x rule) may still be allowed under current interim regulations.16 8
  9. 9. FAQs Part XI • What does this mean to the following types of arrangements? – "Private Exchange" where HRA reimburses premiums for insurance purchased by employee – Employer offering variety of different health insurance options (each considered employer-sponsored insurance) with the employer limiting its payment of the premium to a certain amount) – FSA that reimburses premiums for insurance purchased by employee – Employer reimburses premiums for insurance purchased by employee without having a limit on the amount of premium reimbursed • What about limitation on just insurance offered on state exchange? – Small benefit HRAs/HRAs to comply with state/local mandates/Wellness HRAs17 Additional Individual Policy Compliance Issues • Pay or Play Requirement – Will individual coverage count as MEC? – Will HRA accrual count toward affordability? • State Small Group requirements • HIPAA nondiscrimination – Smoker rate differential concerns • ERISA Compliance • COBRA Compliance • Employment Nondiscrimination – Maternity exclusion and rider issues18 9