ERISA-EBSA Discusses Application of Affordable Care Act to HRAs

January 29, 2013

In FAQs About Affordable Care Act Implementation Part XI, the Employee Benefits Security Administration (the "EBSA") discusses the application of the Affordable Care Act to Health Reimbursement Arrangements ("HRAs").

Section 2711 of the Public Health Service ("PHS") Act, as added by the Affordable Care Act, generally prohibits plans and issuers from imposing lifetime or annual limits on the dollar value of essential health benefits. HRAs are group health plans that typically consist of a promise by an employer to reimburse medical expenses (as defined in Internal Revenue Code section 213(d)) for a year up to a certain amount, with unused amounts available to reimburse medical expenses in future years. Thus, HRAs inherently have limits that may be proscribed by section 2711 of the PHS Act.

The FAQs say that HRAs that are "integrated" with other coverage as part of a group health plan are distinguished from HRAs that are not so integrated ("stand-alone" HRAs). According to the FAQs, when an HRA is integrated with other coverage as part of a group health plan, and the other coverage alone would comply with the lifetime/annual limit requirement of PHS Act section 2711, the fact that benefits under the HRA by itself are limited does not violate that requirement, since the combined benefit satisfies the requirement. An HRA would be considered integrated with coverage if, under the terms of the HRA, the HRA is available only to employees who are covered by a primary group health plan which is provided by the employer, and which meets the lifetime/annual limit requirement of PHS Act section 2711.

The FAQs further say that, for purposes of PHS Act section 2711, an employer-sponsored HRA cannot be integrated with individual market coverage, or with an employer plan that provides coverage through individual policies, and satisfy PHS Act section 2711 in that manner. Also, an employer-sponsored HRA may be treated as integrated with other coverage only if the employee participating in the HRA is actually enrolled in primary health coverage which is provided by the employer and which meets the requirements of PHS Act section 2711.

It appears, from the FAQs, that a stand- alone HRA will not meet the lifetime/annual limit requirement of PHS Act section 2711. Therefore, an employer can no longer offer a stand-alone HRA. The exceptions should be HRAs that offer only HIPAA excepted benefits, such as stand-alone dental or vision benefits, or offer only retirement benefits. In addition, the FAQs say that the EBSA will be issuing future guidance on HRAs, presumably including guidance on stand- alone HRAs and whether they can nevertheless meet the lifetime/ annual limit requirement. The FAQs also provide a grandfather rule, under which- whether or not an HRA is integrated with other group health plan coverage- unused amounts credited before January 1, 2014, consisting of amounts credited before January 1, 2013 and amounts that are credited in 2013 under the terms of an HRA as in effect on January 1, 2013, may be used after December 31, 2013 to reimburse medical expenses in accordance with those terms without causing the HRA to fail to comply with PHS Act section 2711. If the HRA terms in effect on January 1, 2013, did not prescribe a set amount or amounts to be credited during 2013 or the timing for crediting such amounts, then the amounts credited during 2013 may not exceed those credited for 2012 and may not be credited at a faster rate than the rate that applied during 2012.