Health Reimbursement Arrangements: HHS Creates New Waiver Exemption
An earlier version of this Client Advisory incorrectly identified December 31, 2011 as the deadline for providing the required notice to employees for HRAs that are not automatically exempt from the PPACA waiver requirements in 2011. The correct deadline for this notice, if necessary, is October 18, 2011. We have reprinted the entire Client Advisory below with the correct date included.
In general, HRAs are employer-funded group health plans where employees can be reimbursed tax-free for qualified medical expenses up to a fixed dollar amount per year, and unused amounts are often carried over to be used in subsequent years. HRAs are not the same as medical Flexible Spending Arrangements (FSAs) which generally include voluntary salary reduction contributions by employees. HRAs must be funded solely by the employer. All FSAs are exempt from the prohibition on annual limits under PPACA. In addition, Medical Savings Accounts (MSAs) and Health Savings Accounts (HSAs) are not subject to the rules prohibiting annual limits because MSAs and HSAs are not treated as group health plans under PPACA.
Prior to PPACA, group health plans could impose annual limits on benefits to be provided. Under PPACA, a group health plan is restricted from imposing any annual limit higher than $1,250,000 on essential health benefits for plan years beginning on or after September 23, 2011. For plan years beginning on or after January 1, 2014, annual limits on essential benefits are prohibited completely.
Until recently, it was unclear whether HRAs would continue to be a viable option for employers since, by definition, HRAs always include an annual limit on benefits. It was also unclear whether employers would need to file for a waiver of the annual limit requirement. Guidance issued by the Department of Health and Human Services (HHS) on August 19, 2011, provides some relief for employers who want to continue to offer these benefits to employees (at least until January 1, 2014).
Under the guidance, two types of HRAs are exempt from the waiver process altogether and are not required to comply with the requirements below. The first type includes HRAs that qualify as grandfathered health plans under the PPACA (click here to read our Client Advisory regarding plans that meet the requirement of grandfathered health plans). The second type includes HRAs that are "integrated" with other health coverage as part of a group health plan, if the other coverage alone complies with PPACA's lifetime and annual limit requirements. Unfortunately, there is no clear guidance as to when and how an HRA is "integrated" with a major medical plan. To date, no guidance or regulations define what it means for an HRA to be "integrated" with other health coverage.
Even if an HRA does not meet the requirements above, it can still qualify for an exemption from filing a waiver if the HRA was in effect prior to September 23, 2010, provided it complies with the following requirements:
Employers with HRAs should evaluate whether or not they qualify for the waiver exemption. If they do not, waiver applications must be received by HHS by September 22, 2011.
This guidance gives employers some comfort that most HRAs in existence before September 23, 2010, will continue to be viable options until at least 2014. We will continue to review new guidance and let you know if any additional guidance is issued on this point.
If you have any questions about this Client Advisory, please contact any member of our Employee Benefits Team.
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©2011 Sherman & Howard September 26, 2011