HRAs Satisfy Market Reforms Under Certain Circumstances

A health reimbursement arrangement (HRA) is a popular benefit that employers offer to reimburse employees for certain medical expenses. As part of the implementation of the Affordable Care Act (ACA), new rules apply to HRAs. The summary below is intended to help employers understand these new rules and remain compliant with the ACA.

HRAs Explained
An HRA is an arrangement that is funded solely by an employer and that reimburses an employee for qualified medical care expenses incurred by the employee, or his spouse, dependents, and any children who, as of the end of the taxable year, have not attained age 27, up to a maximum dollar amount for a coverage period. This reimbursement is excludable from the employee’s income, and amounts that remain at the end of the year generally can be used to reimburse expenses incurred in later years. In general, HRAs are considered to be group health plans under the ACA.

ACA Market Reforms
The ACA contains certain “market reforms” that apply to group health plans, including the:

• Annual Dollar Limit Prohibition: A prohibition on any annual limit on the dollar amount of benefits for any individual; and
• Preventive Services Requirement: A requirement that non-grandfathered plans provide certain preventive services without imposing any cost-sharing requirements for these services.

Application of the Market Reforms to HRAs
In order to comply with the ACA market reforms, an HRA must be “integrated” with other coverage as part of a group health plan that alone complies with the market reforms. An HRA is integrated with a group health plan for purposes of the market reforms if it meets the requirements under one of two integration methods. Under the first method, the market reforms are satisfied if:

• The employer offers a group health plan (other than the HRA) to the employee that does not consist solely of excepted benefits (such as limited-scope dental and vision benefits);
• The employee receiving the HRA is 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;
• The HRA is limited to reimbursement of one or more of the following—co-payments, co-insurance, deductibles, and premiums under the non-HRA group coverage, as well as medical care that does not constitute essential health benefits; 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.

Alternatively, the market reforms are also satisfied if:

• The employer offers a group health plan to the employee that provides minimum value (MV);
• The employee receiving the HRA is actually enrolled in a group health plan that provides minimum value, regardless of whether the employer sponsors the plan (non-HRA MV group coverage);
• The HRA is available only to employees who are actually enrolled in non-HRA MV group coverage, regardless of whether the employer sponsors the non-HRA MV group coverage; 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.

Note: A group health plan, including an HRA, used to purchase coverage on the individual market is not integrated with that individual market coverage for purposes of the market reforms.

For more information on the ACA rules that apply to HRAs, please read IRS Notices 2013-54 and 2015-87.