In REG-136724-17, the Departments of the Treasury, Labor, and Health and Human Services issued proposed regulations on health reimbursement arrangements (HRAs), which were originally penalized under the Patient Protection and Affordable Care Act (PPACA), P.L. 111-148, but were later restored by the 21st Century Cures Act, P.L. 114-255. HRAs are generally account-based group health plans funded solely by employer contributions that reimburse employees for health care costs.
The departments noted that the regulations were being issued to increase the usability of HRAs, to expand employers’ ability to offer HRAs to their employees, and to allow HRAs to be used in conjunction with nongroup health insurance coverage (generally coverage on the individual market).
Accordingly, the proposed regulations would relax the rules that allow HRAs to be integrated with group health plans but not with individual health insurance coverage. The propose regulations would also allow the Sec. 36B premium tax credit rules to be disregarded to permit employees whose employers maintain HRAs to be eligible for the credit.
Integration with individual health coverage
The proposed rules would remove the prohibition on integrating an HRA with individual health insurance coverage, if certain conditions are met, and propose requirements that an HRA must meet to be integrated with individual health insurance coverage. The departments are concerned that allowing HRAs to be used may result in employers encouraging higher-risk employees who have higher expected medical claims to obtain insurance on the health insurance exchange for individual health coverage, which could destabilize the individual health insurance marketplace by steering more high-risk people to it.
Therefore, the proposed rules prevent a plan sponsor from steering any participants or dependents with adverse health factors away from the plan sponsor’s traditional group health plan and into the individual market intentionally or unintentionally, directly or indirectly. That is, the proposed rules for integrating HRAs prohibit a plan sponsor from offering the same class of employees both a traditional group health plan and an HRA integrated with individual health insurance coverage. In addition, to the extent a plan sponsor offers an HRA that is integrated with individual health insurance coverage to a class of employees, the proposed integration rules require that the HRA be offered on the same terms to all employees within the class, subject to certain exceptions.
The proposed rules also permit employers to establish “excepted benefit HRAs” if certain requirements are met. These HRAs generally cover benefits such as dental care or long-term care that are defined as “excepted benefits” under the PPACA.
Premium tax credit
As for the Sec. 36B premium tax credit, under the law, HRA participants are ineligible for the credit. The proposed rules provide how employees whose employers have HRAs that may or may not be integrated with individual health insurance coverage may qualify for the credit. In both cases, the employee may be allowed the premium tax credit if he or she declines the offer and the employer’s coverage is either unaffordable or does not provide minimum value
In either case, the employee’s required contribution is based on the amount the employee must pay for self-only coverage that provides minimum value because, under the rules, affordability would be determined based on the lowest-cost silver plan offered in the health care exchange for the rating area in which the employee resides (which is the definition of minimum value). If the amount the employee must pay is more than the product of the required contribution percentage and the employee’s household income, the employee may be allowed the premium tax credit.
A final provision of the proposed regulations would permit applicable large employers subject to the employer shared-responsibility payment under Sec. 4980H to use HRAs integrated with individual health insurance coverage to satisfy the requirement that they offer an eligible employer-sponsored plan and thus avoid the penalty.
The departments are asking for comments on all aspects of the proposed rules by Dec. 28.
— Sally P. Schreiber, J.D., (Sally.Schreiber@aicpa-cima.com) is a Tax Adviser senior editor.