Employee Benefits-IRS Provides Guidance On The Application Of The ACA To HRAs, Health FSAs, And Certain other Employer Healthcare Arrangements

In Notice 2013-54, the Internal Revenue Service (the “IRS”) provides guidance, in the form of Q and As, on the application of the Affordable Care Act (the “ACA”) to: (1) health reimbursement arrangements (“HRAs”), including HRAs integrated with a group health plan, (2) group health plans under which an employer reimburses an employee for some or all of the premium expenses incurred for an individual health insurance policy and (3) certain health flexible spending arrangements (“Health FSAs”).

Some of the more important matters covered in the Notice are the application of the ACA to group health plans and HRAs. Here are some highlights:

–A group health plan, including an HRA, used to purchase health coverage on
the individual market is not integrated with that individual market coverage for purposes of the ACA’s annual dollar limit prohibition (and will thus be deemed to fail to meet that prohibition if it has any such limitation).

–An HRA that is integrated with a group health plan will comply with the ACA’s preventive services requirements if that group health plan complies with those requirements.

–In contrast, a group health plan, including an HRA, used to purchase coverage on
the individual market cannot be integrated with that individual market coverage for purposes of meeting the ACA’s preventive services requirements.

–An HRA will be treated as being integrated with a group health plan for purposes of the ACA’s annual dollar limit prohibition and preventive services requirements if it meets the requirements under either of the following methods:

The Minimum Value Not Required Method-This method requires that (1) the employer offers a group health plan (other than the HRA) to the employee that does not consist solely of excepted benefits, (2) the employee receiving the HRA is actually enrolled in a group health plan (other than the HRA) that does not consist solely of excepted benefits, regardless of whether the employer sponsors the plan (non-HRA group coverage), (3) the HRA is available only to employees who are enrolled in non-HRA group coverage, regardless of whether the employer sponsors the non-HRA group coverage , (4) the HRA is limited to reimbursement of one or more of the following–co-payments, co-insurance, deductibles, and premiums under the non-HRA group coverage, as well as medical care that does not constitute essential health benefits and (5) under the terms of the HRA, an employee (or former employee) is permitted to permanently opt out of and waive future reimbursements from the HRA at least annually and, upon termination of employment, either the remaining amounts in the HRA are forfeited or the employee is permitted to permanently opt out of and waive future reimbursements from the HRA.

The Minimum Value Required Method-This method requires that (1) the employer offers a group health plan to the employee that provides minimum value (pursuant to Code § 36B(c)(2)(C)(ii)), (2) the employee receiving the HRA is actually enrolled in a group health plan that provides minimum value (pursuant to said Code §), regardless of whether the employer sponsors the plan (non-HRA MV group coverage), (3) the HRA is available only to employees who are actually enrolled in non-HRA MV group coverage, regardless of whether the employer sponsors the non-HRA MV group coverage and (4) same as condition (5) above.

— Unused amounts that were credited to an HRA while the HRA was integrated with other group health plan coverage may be used to reimburse medical expenses in accordance with the terms of the HRA after an employee ceases to be covered by such other integrated group health plan coverage, without causing the HRA to fail to comply with the ACA rules.

–In general, when the minimum value required method is not used, an HRA integrated with a group health plan imposes an annual limit in violation of the ACA annual dollar limit prohibition if that group health plan does not cover a category of essential health benefits and the HRA is available to cover that category of essential health benefits and limits the coverage to the HRA’s maximum benefit.

The rules in the Notice generally apply for plan years beginning on and after January 1, 2014, but taxpayers may apply the guidance provided in the Notice for all prior periods.