Application of Annual Limit Restrictions to HRAs

The Affordable Care Act (ACA) generally prohibits health plans and health coverage issuers from imposing lifetime or annual limits on the dollar value of essential health benefits, effective for plan years beginning on or after Sept. 23, 2010. Although annual limits are generally prohibited, “restricted annual limits” are permitted for essential health benefits for plan years beginning before Jan. 1, 2014.

Health reimbursement arrangements (HRAs) are group health plans that reimburse employees for medical care expenses, up to a maximum dollar amount for a period of coverage. Because they are group health plans, HRAs are generally subject to the ACA’s annual limit requirements. Federal agencies have concluded that, on their own, HRAs cannot satisfy the ACA’s requirements for annual limits. To address this issue, special rules were created that:  

Special Rules for HRAs

• Allow HRAs that are integrated with other group health coverage to satisfy the ACA’s annual limit requirements; and
• Provide stand-alone HRAs that were in existence prior to Sept. 23, 2010, with an automatic waiver of the ACA’s restricted annual limits, provided they comply with the annual notice and record retention requirements. The waivers are applicable for plan years beginning before Jan. 1, 2014.

Effective for 2014, whether an HRA will be permitted under the ACA’s annual limit rules mainly depends on whether the HRA is an integrated HRA or a stand-alone HRA. Stand-alone HRAs that do not qualify for an exception (such as retiree-only HRAs) will no longer be permitted due to the ACA’s annual limit prohibition, effective for plan years beginning on or after Jan. 1, 2014.

INTEGRATED HRAs

On June 28, 2010, the Departments of Health and Human Services (HHS) Labor (DOL) and the Treasury (Departments) issued interim final regulations on the ACA’s annual limit requirements. The regulations distinguish between stand-alone HRAs and HRAs integrated with other group health coverage and provide that an HRA integrated with other group health coverage is not required to satisfy the annual limit restrictions if the other coverage alone satisfies ACA’s annual limit restrictions.

Also, if an annual limit waiver was obtained for the other coverage that is integrated with an HRA, the waiver applies to the combined coverage and no separate waiver is needed for the HRA. Annual limit waivers apply for plan years beginning before Jan. 1, 2014.

Integration Methods The interim final regulations provide that an HRA is considered integrated with an employer’s group health coverage if, under the terms of the HRA, the HRA is available only to employees who are covered by employer-sponsored coverage that meets the ACA’s annual limit requirements.

On Sept. 13, 2013, the DOL issued Technical Release 2013-03, which provides detailed guidance on when an HRA will be considered integrated with other group health coverage. This guidance is generally effective for plan years beginning on or after Jan. 1, 2014, although it may be applied for all prior periods. Under this guidance, an HRA will

be integrated with a group health plan for purposes of the annual dollar limit prohibition if it meets the requirements under one of the integration methods described below.
Under both methods, integration does not require that the HRA and the coverage with which it is integrated share the same plan sponsor, the same plan document or governing instruments or file a single Form 5500, if applicable.

Method One—Limiting HRA Reimbursements, Minimum Value Not Required

An HRA is integrated with group health coverage if the following conditions are satisfied:

• The employer offers a group health plan (other than the HRA) to employees that does not consist solely of excepted benefits;
• Employees with the HRA are 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);
• 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 (for example, the HRA may be offered only to employees who do not enroll in the employer’s group health plan but are enrolled in other non-HRA group coverage, such as a plan maintained by the employer of the employee’s spouse);
• 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; and
• The HRA is limited to reimbursement of one or more of the following—copayments, coinsurance, deductibles, and premiums under non-HRA group coverage, as well as medical care that does not constitute essential health benefits.

Method Two—Minimum Value Required, No Limit on Reimbursements

Alternatively, an HRA that is not limited with respect to reimbursements as described above is integrated with group health coverage if the following conditions are satisfied:

• The employer offers a group health plan to employees that provides minimum value under the ACA; 
• Employees with the HRA are actually enrolled in a group health plan that provides minimum value,  regardless of whether the employer sponsors the plan (non-HRA group coverage);
• The HRA is available only to employees who are enrolled in non-HRA minimum value group coverage, regardless of whether the employer sponsors the non-HRA minimum value group coverage (for example, the HRA may be offered only to employees who do not enroll in the employer’s group health plan but are enrolled in other non-HRA minimum value group coverage, such as a plan maintained by the employer of the employee’s spouse); and
• 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.

Other Issues

DOL Technical Release 2013-03 provides that 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 HRA’s terms after an employee ceases to be covered by other integrated group health plan coverage. This will not cause the HRA to violate the ACA’s annual limit prohibition.

The opt-out feature described above under the integration methods is required because the benefits provided by the HRA will generally constitute minimum essential coverage under the ACA and will consequently preclude an individual from claiming a premium tax subsidy for coverage purchased through an Exchange.

Individual Market Coverage

DOL Technical Release 2013-03 confirms that a group health plan, such as an HRA, that is used to purchase coverage on the individual market is not integrated with that individual market coverage for purposes of the ACA’s annual dollar limit prohibition.

STAND-ALONE HRAS

Some stand-alone HRAs are not subject to the ACA’s annual limit restrictions because they fall under an exception, such as retiree-only HRAs. For other stand-alone HRAs, it was initially somewhat unclear how the ACA’s annual limit restrictions would apply, and whether these HRAs would be required to receive waivers of the annual limit restrictions for plan years beginning before Jan. 1, 2014.

As background, the ACA allowed HHS to grant waivers from the restricted annual limit requirements to health plans and issuers if compliance would result in a significant decrease in access to benefits or a significant increase in premiums. These waivers are temporary; they are not effective for plan years beginning on or after Jan. 1, 2014, when all annual limits are prohibited.

HHS’ supplemental guidance from August 2011 provided that HRAs that were in effect prior to Sept. 23, 2010, and are subject to the ACA’s annual limit requirements do not need to file a waiver extension or application. Rather, all of these HRAs will be deemed to satisfy the waiver requirements for plan years beginning prior to Jan. 1, 2014, subject to the annual notice and record retention requirements discussed below. Thus, these HRAs are exempt from the annual limit waiver process and may continue to impose annual limits for plan years beginning prior to Jan. 1, 2014.

However, effective for plan years beginning on or after Jan. 1, 2014, unless a stand-alone HRA qualifies for an exception (for example, a retiree-only HRA), it will be subject to the ACA’s prohibition on annual limits.

HRA Amounts Credited Before Jan. 1, 2014
Department FAQs from January 2013 addressed how amounts that are credited or made available under HRAs under terms in effect prior to Jan. 1, 2014 will be treated. The FAQs anticipated that future ACA guidance would provide that, whether or not an HRA is integrated with other group health plan coverage, unused amounts credited before Jan. 1, 2014 (consisting of amounts credited before Jan. 1, 2013 and amounts that are credited in 2013 under the terms of an HRA as in effect on Jan. 1, 2013) may be used after Dec. 31, 2013 to reimburse medical expenses without violating the ACA’s annual limit requirements. However, if the HRA terms in effect on Jan. 1, 2013, did not prescribe a set amount to be credited during 2013 or the timing for crediting these amounts, then the amounts credited may not exceed those credited for 2012 and may not be credited at a faster rate than the rate that applied during 2012.

The DOL’s guidance from Sept. 13, 2013 does not address this transition relief, making it unclear whether employers can rely on it for 2014. Additional guidance on this issue would be helpful.

Annual Notice and Record Retention Requirements

In order for the annual limit waiver exemption to apply, HRAs must comply with the waiver program’s record retention and annual notice requirements. According to HHS, the annual notice requirement is necessary for consumers to understand the value and quality of their health coverage. The record retention provision requires HRA sponsors to retain information regarding plan benefits and coverage.

HHS drafted alternate annual notice language for HRAs. The notice applies to HRAs that applied for a waiver as well as to HRAs that automatically received a waiver. The following criteria apply to the notice:

• It must be printed in 14-point, bold font on the front of plan materials; and
• It must be provided to new eligible participants and at the beginning of the plan year.

Model Annual Notice

The following language must be used to satisfy the annual notice requirement:

The Affordable Care Act prohibits health plans from applying dollar limits below a specific amount on coverage for certain benefits. This year, if a plan applies a dollar limit on the coverage it provides for certain benefits in a year, that limit must be at least [$750,000/$1.25 million/$2 million as applicable].

Your health coverage offered by [name of group health plan/applicant], does not meet the minimum standards required by the Affordable Care Act described above. Your employer makes an annual contribution of:

[Dollar amount] to your Health Reimbursement Arrangement (HRA). This means your health coverage may not pay for all the health care expenses you may incur.

The U.S. Department of Health and Human Services has granted your HRA a waiver from the requirement that it provide [$750,000/$1.25 million/$2 million] in benefits until [the end date of the last plan or policy year beginning before Jan. 1, 2014] because it would cause a significant decrease in your access to this benefit.

If you are concerned about your plan’s lower dollar limits on key benefits, you and your family may have other options for health care coverage. For more information, go to: www.HealthCare.gov.If you have any questions or concerns about this notice, contact [provide contact information for plan administrator]. [For plans offered in States with a Consumer Assistance Program] Additionally, you can contact [contact information for Consumer Assistance Program].

 Revised: 1.9.14