The U.S. Department of Treasury, Department of Labor, and Department of Health and Human Services recently issued final regulations related to health reimbursement arrangements (HRAs) and other account-based group health plans. These final regulations, which generally apply for plan years beginning on or after January 1, 2020, were issued in response to President Trump’s 2017 Executive Order which, among other things, sought to “expand the availability of and access to” HRAs.

Brief Background

An HRA is a type of account-based group health plan that is funded solely by employer contributions. An HRA can be used only to reimburse an employee for medical care expenses incurred by the employee, the employee’s spouse, the employee’s dependents, or the employee’s children (up to age 27), up to a maximum dollar amount. As group health plans, HRAs are generally required to comply with certain requirements of the Patient Protection and Affordable Care Act (ACA). For example, HRAs are generally subject to the rule prohibiting the use of annual dollar limits on essential health benefits (set forth in Section 2711 of the Public Health Service Act (PHSA)) and to the rule requiring coverage of preventive services without cost-sharing (set forth in PHSA Section 2713). Because HRAs do not, on their own, comply with PHSA Sections 2711 and 2713, HRAs generally needed to be “integrated” with other group health plan coverage that met the requirements. The final regulations, however, allow HRAs to integrate with individual health insurance coverage or Medicare, if certain conditions are satisfied. In addition, the final regulations set forth conditions under which certain HRAs and other account-based group health plans will be recognized as limited excepted benefits, meaning that they will be exempt from certain requirements in the PHSA.

Individual Coverage HRAs

For an HRA to integrate with individual health insurance coverage or Medicare, the HRA must satisfy certain requirements. Most importantly, the HRA must require that the participant and any dependent(s) are enrolled in (i) individual health insurance coverage that is subject to and complies with the requirements in PHSA Sections 2711 and 2713 or (ii) Medicare (Parts A and B or Part C) for each month that the individual(s) are covered by the HRA. The HRA must further implement reasonable procedures to substantiate such coverage upon initial eligibility, before the beginning of each plan year, and prior to reimbursement. The regulations also provide certain notice requirements, impose certain restrictions on plan sponsors that offer group health plans in addition to individual coverage HRAs, and generally require individual coverage HRAs to be offered on the same terms to all participants within a class.

Excepted Benefits HRAs

The new regulations also establish a new “excepted benefit” HRA that is exempt from many federal health care requirements (including the requirements in PHSA Sections 2711 and 2713). To qualify as an excepted benefit HRA, the HRA must satisfy requirements such as the following:

  • The HRA must limit the annual HRA contribution to $1,800 per year (indexed for inflation beginning in 2021).
  • The HRA must be offered in conjunction with a traditional group health plan (although the employee is not required to enroll in this traditional plan).
  • The HRA must not permit reimbursement of insurance premiums, except for COBRA premiums; premiums for short-term, limited-duration insurance; and premiums for plans providing only HIPAA (Health Insurance Portability and Accountability Act) portability-excepted coverage (e.g., dental or vision coverage).
  • The HRA must be uniformly available to all similarly situated individuals (as defined under HIPAA, which generally permits bona fide employment-based distinctions unrelated to health status).