The Proposed Expansion of Health Reimbursement Arrangements: Is This a Game Changer for Employers?

Bloomberg Tax Management Compensation Planning Journal

Tzvia Feiertag, Member of the Firm in the Employee Benefits & Executive Compensation practice, in the firm’s Newark office, authored an article in the Bloomberg Tax Management Compensation Planning Journal, titled “The Proposed Expansion of Health Reimbursement Arrangements: Is This a Game Changer for Employers?”

Following is an excerpt (see below to download the article in PDF format):

In perhaps the most significant guidance resulting from President Trump’s 2017 Executive Order Promoting Healthcare Choice and Competition Across the United States, on October 22, 2018, the Departments of Treasury, Labor, and Health and Human Services (the Departments) jointly released proposed regulations on health reimbursement arrangements (HRAs) and other account-based plans that would allow two new types of HRAs. If finalized, the proposed regulations will impact employers of all sizes. The proposed regulations may especially be useful for small and medium-sized companies that want to be able to define the costs that they are willing to pay towards employee health insurance coverage by using HRAs with a fixed annual employer contribution and that have a small enough workforce to satisfy some of the consistency requirements of the proposed regulations.

The proposed regulations provide for two new types of HRAs:

  • HRAs Integrated with Individual Health Insurance Coverage (Individual Coverage HRAs)

    Employers of any size could offer HRAs to reimburse employees for the cost of their premiums for individual health insurance coverage (whether purchased on or off the Exchanges) so long as several conditions are met.
  • Standalone Excepted-Benefit HRAs Up to $1,800 (as indexed for inflation)

    Employers offering traditional group health plan coverage could also offer an excepted-benefit HRA that would allow for reimbursement of up to $1,800 per year (indexed for inflation) plus any carryover amounts for medical expenses and premiums/contributions for COBRA, excepted benefit coverage (e.g., limited dental or vision coverage), or short-term limited duration insurance (STLDI), but not expenses for other group or individual medical coverage.

The proposed regulations expand the use of HRAs (or other account-based plans) by removing the current prohibition against integrating an HRA with individual health insurance coverage. Under current guidance, HRAs must be integrated with other qualifying group health plan coverage that satisfies the Affordable Care Act’s (ACA’s) market reform mandates. Currently, HRAs are not allowed to be integrated with individual health insurance coverages and offering a non-integrated HRA would violate the ACA (triggering a $100/day per employee excise tax).