Last fall the IRS and DOL issued nearly identical guidance, IRS Notice 2013-54 and DOL Technical Release 2013-03, explaining how certain Health Care Reform Act rules apply to health reimbursement arrangements (“HRAs”).  Notice 2013-54 is not good news for most HRAs, also called medical expense reimbursement plans (“MERPs”).  Executive physical plans are often structured as HRAs, so they too may be in trouble.  Notice 2013-54 is generally effective for plan years beginning on or after January 1, 2014.

Under Notice 2013-54, most HRAs must be integrated with other group health coverage in order to avoid a $100 per-participant per-day penalty.  This equates to a $36,500 per-participant per-year penalty.

Employers may still offer retiree-only HRAs and “excepted benefit” HRAs without integrating such HRAs with other coverage because those two types of HRAs are exempt from the Health Care Reform Act. IRS Notice 2013-54 indicates that all other HRAs must use one of two methods to integrate with other group health plan coverage in order to satisfy the annual dollar-limit prohibition and requirement to provide first dollar preventive care.  Both of these methods require that the HRA be limited only to employees who are enrolled in the integrated non-HRA group health coverage.

  • The first method, called the “minimum value not required method,” requires that the HRA reimburse only co-payments, co-insurance, deductibles and premiums under the non-HRA group coverage, or reimburse medical care other than essential health benefits.
  • The second method, called the “minimum value required method,” does not have any use restrictions, as does the first method, but requires that the non-HRA coverage be “minimum value.”

The surprising news is that neither method requires that the HRA and non-HRA coverage have the same sponsor. This means an employer may “integrate” its HRA with another employer’s non-HRA coverage. Both methods also require that employees be allowed to permanently opt-out of HRA coverage and, upon termination of employment either forfeit their HRA balance or permanently opt-out of coverage.

Ideally, HRAs should have been amended before the 2014 plan year to comply with one of these integration methods, both of which have very detailed requirements.  The $100 per-participant per-day penalty started accruing on January 1, 2014 for non-integrated HRAs.  Employers who have not yet integrated their HRAs may wish to amend their plans as soon as possible to integrate and may wish to consider self-reporting any applicable penalties.