[Federal Register Volume 84, Number 119 (Thursday, June 20, 2019)]
[Rules and Regulations]
[Pages 28888-29027]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-12571]
[[Page 28887]]
Vol. 84
Thursday,
No. 119
June 20, 2019
Part II
Department of the Treasury
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Internal Revenue Service
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26 CFR Parts 1 and 54
Department of Labor
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Employee Benefits Security Administration
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29 CFR Parts 2510 and 2590
Department of Health and Human Services
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45 CFR Parts 144, 146, 147, and 155
Health Reimbursement Arrangements and Other Account-Based Group Health
Plans; Final Rule
Federal Register / Vol. 84 , No. 119 / Thursday, June 20, 2019 /
Rules and Regulations
[[Page 28888]]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1 and 54
[TD 9867]
RIN 1545-BO46
DEPARTMENT OF LABOR
Employee Benefits Security Administration
29 CFR Parts 2510 and 2590
RIN 1210-AB87
DEPARTMENT OF HEALTH AND HUMAN SERVICES
45 CFR Parts 144, 146, 147, and 155
[CMS-9918-F]
RIN 0938-AT90
Health Reimbursement Arrangements and Other Account-Based Group
Health Plans
AGENCY: Internal Revenue Service, Department of the Treasury; Employee
Benefits Security Administration, Department of Labor; Centers for
Medicare & Medicaid Services, Department of Health and Human Services.
ACTION: Final rule.
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SUMMARY: This document sets forth final rules to expand opportunities
for working men and women and their families to access affordable,
quality healthcare through changes to rules under various provisions of
the Public Health Service Act (PHS Act), the Employee Retirement Income
Security Act (ERISA), and the Internal Revenue Code (Code) regarding
health reimbursement arrangements (HRAs) and other account-based group
health plans. Specifically, the final rules allow integrating HRAs and
other account-based group health plans with individual health insurance
coverage or Medicare, if certain conditions are satisfied (an
individual coverage HRA). The final rules also set forth conditions
under which certain HRAs and other account-based group health plans
will be recognized as limited excepted benefits. Also, the Department
of the Treasury (Treasury Department) and the Internal Revenue Service
(IRS) are finalizing rules regarding premium tax credit (PTC)
eligibility for individuals offered an individual coverage HRA. In
addition, the Department of Labor (DOL) is finalizing a clarification
to provide assurance that the individual health insurance coverage for
which premiums are reimbursed by an individual coverage HRA or a
qualified small employer health reimbursement arrangement (QSEHRA) does
not become part of an ERISA plan, provided certain safe harbor
conditions are satisfied. Finally, the Department of Health and Human
Services (HHS) is finalizing provisions to provide a special enrollment
period (SEP) in the individual market for individuals who newly gain
access to an individual coverage HRA or who are newly provided a
QSEHRA. The goal of the final rules is to expand the flexibility and
use of HRAs and other account-based group health plans to provide more
Americans with additional options to obtain quality, affordable
healthcare. The final rules affect employees and their family members;
employers, employee organizations, and other plan sponsors; group
health plans; health insurance issuers; and purchasers of individual
health insurance coverage.
DATES:
Effective date: These final rules are effective on August 19, 2019.
Applicability dates: The final rules generally apply for plan years
beginning on or after January 1, 2020. However, the final rules under
Code section 36B apply for taxable years beginning on or after January
1, 2020, and the final rules providing a new special enrollment period
in the individual market apply January 1, 2020. See Section VI of the
SUPPLEMENTARY INFORMATION section for more information on the
applicability dates.
FOR FURTHER INFORMATION CONTACT: Christopher Dellana, Internal Revenue
Service, Department of the Treasury, at (202) 317-5500; Matthew Litton
or David Sydlik, Employee Benefits Security Administration, Department
of Labor, at (202) 693-8335; David Mlawsky, Centers for Medicare &
Medicaid Services, Department of Health and Human Services, at (410)
786-1565.
Customer Service Information: Individuals interested in obtaining
information from the DOL concerning employment-based health coverage
laws may call the EBSA Toll-Free Hotline at 1-866-444-EBSA (3272) or
visit the DOL's website (www.dol.gov/ebsa). In addition, information
from HHS on private health insurance coverage and coverage provided by
non-federal governmental group health plans can be found on the Centers
for Medicare & Medicaid Services (CMS) website (www.cms.gov/cciio), and
information on healthcare reform can be found at www.HealthCare.gov.
SUPPLEMENTARY INFORMATION:
I. Background
A. Executive Order
On October 12, 2017, President Trump issued Executive Order
13813,\1\ ``Promoting Healthcare Choice and Competition Across the
United States,'' stating, in part, that the ``Administration will
prioritize three areas for improvement in the near term: association
health plans (AHPs), short-term, limited-duration insurance (STLDI),
and health reimbursement arrangements (HRAs).'' With regard to HRAs,
the Executive Order directs the Secretaries of the Treasury, Labor, and
HHS to ``consider proposing regulations or revising guidance, to the
extent permitted by law and supported by sound policy, 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
coverage.'' The Executive Order further provides that expanding ``the
flexibility and use of HRAs would provide many Americans, including
employees who work at small businesses, with more options for financing
their healthcare.''
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\1\ 82 FR 48385 (Oct. 17, 2017). The executive order was issued
on October 12, 2017 and was published in the Federal Register on
October 17, 2017.
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B. HRAs and Other Account-Based Group Health Plans
1. In General
An account-based group health plan is an employer-provided group
health plan that provides for reimbursement of expenses for medical
care (as defined under Code section 213(d)) (medical care expenses),
subject to a maximum fixed-dollar amount of reimbursements for a period
(for example, a calendar year). An HRA is a type of account-based group
health plan funded solely by employer contributions (with no salary
reduction contributions or other contributions by employees) that
reimburses an employee solely for medical care expenses incurred by the
employee, or the employee's spouse, dependents, and 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.\2\ The reimbursements under these
types of arrangements are excludable from the employee's income and
wages for federal income tax and employment tax purposes. Amounts that
remain in the HRA at the end of the year often may
[[Page 28889]]
be used to reimburse medical care expenses incurred in later years,
depending on the terms of the HRA.
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\2\ See IRS Notice 2002-45, 2002-2 CB 93; Revenue Ruling 2002-
41, 2002-2 CB 75; and IRS Notice 2013-54, 2013-40 IRB 287.
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HRAs are not the only type of account-based group health plan. For
example, an employer payment plan is also an account-based group health
plan. An employer payment plan is an arrangement under which an
employer reimburses an employee for some or all of the premium expenses
incurred for individual health insurance coverage, or other non-
employer sponsored hospital or medical insurance. This includes a
reimbursement arrangement described in Revenue Ruling 61-146, 1961-2 CB
25, or an arrangement under which the employer uses its funds directly
to pay the premium for individual health insurance coverage or other
non-employer sponsored hospital or medical insurance covering the
employee.\3\ Other examples of account-based group health plans include
health flexible spending arrangements (health FSAs) and certain other
employer-provided medical reimbursement plans that are not HRAs.\4\
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\3\ For more information about employer payment plans, see IRS
Notice 2013-54, Q&A-1 and Q&A-3, and IRS Notice 2015-17, Q&A-4 and
Q&A-5, 2015-14 IRB 845.
\4\ For simplicity, the preamble generally refers only to HRAs,
but references to HRAs should also be considered to include other
account-based group health plans as defined in the final rules,
unless otherwise specified. This term does not include QSEHRAs,
under Code section 9831(d); medical savings accounts (MSAs), under
Code section 220; or health savings accounts (HSAs), under Code
section 223. In addition, for purposes of the final rules, the term
``HRA or other account-based group health plan'' does not include an
employer arrangement that reimburses the cost of individual health
insurance coverage through a cafeteria plan under Code section 125
(cafeteria plan premium arrangements); however see later in this
preamble for a clarification that plan sponsors may offer such an
arrangement in addition to an individual coverage HRA. A QSEHRA is
not a group health plan for purposes of the market requirements of
the Code (except as provided in Code section 4980I(f)(4)), parts 6
and 7 of ERISA, and titles XXII and XXVII of the PHS Act, and is not
included in the definition of HRAs and other account-based group
health plans for purposes of the final rules or this preamble. A
QSEHRA is, however, considered a group health plan under the PHS Act
for purposes of part C of title XI of the Social Security Act (42
U.S.C. 1320d et seq.). See PHS Act section 2791(a)(1), as amended by
the 21st Century Cures Act (Cures Act), Public Law 114-255, section
18001(c).
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2. Application of the Patient Protection and Affordable Care Act to
HRAs and Other Account-Based Group Health Plans
The Patient Protection and Affordable Care Act, Public Law 111-148,
was enacted on March 23, 2010 and the Health Care and Education
Reconciliation Act of 2010, Public Law 111-152, was enacted on March
30, 2010 (collectively, PPACA). PPACA reorganized, amended, and added
to the provisions of part A of title XXVII of the PHS Act relating to
health coverage requirements for group health plans and health
insurance issuers in the group and individual markets. The term ``group
health plan'' includes both insured and self-insured group health
plans.
PPACA also added section 715 to ERISA and section 9815 to the Code
to incorporate the provisions of part A of title XXVII of the PHS Act,
PHS Act sections 2701 through 2728 (the market requirements), into
ERISA and the Code, making them applicable to group health plans and
health insurance issuers providing health insurance coverage in
connection with group health plans. In accordance with Code section
9831(b) and (c), ERISA section 732(b) and (c), and PHS Act sections
2722(b) and (c) and 2763, the market requirements do not apply to a
group health plan or a health insurance issuer in the group or
individual market in relation to the provision of excepted benefits
described in Code section 9832(c), ERISA section 733(c), and PHS Act
section 2791(c).\5\ See the discussion later in this preamble for
additional background on excepted benefits. In addition, in accordance
with Code section 9831(a)(2) and ERISA section 732(a), the market
requirements do not apply to a group health plan that has fewer than
two participants who are current employees on the first day of the plan
year.\6\
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\5\ While the PPACA amendments to PHS Act section 2722(b) and
(c) (formerly PHS Act section 2721(c) and (d)) could be read as
restricting the exemption for excepted benefits so it applies only
with respect to subpart 2 of part A of title XXVII of the PHS Act,
HHS does not intend to use its resources to enforce the market
requirements with respect to excepted benefits offered by non-
federal governmental plan sponsors and encourages states to adopt a
similar approach with respect to issuers of excepted benefits. See
75 FR 34537, 34539-34540 (June 17, 2010).
\6\ While the PPACA amendments to title XXVII of the PHS Act
removed the parallel provision at section 2722(a) (formerly PHS Act
section 2721(a)), HHS follows a similar approach for retiree-only
non-federal governmental plans and encourages states to adopt a
similar approach with respect to health insurance issuers of
retiree-only plans. See 75 FR 34537, 34539-34540 (June 17, 2010).
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PHS Act section 2711, as added by PPACA, generally prohibits group
health plans and health insurance issuers offering group or individual
health insurance coverage \7\ from establishing for any individual any
lifetime or annual limits on the dollar value of essential health
benefits (EHBs), as defined in PPACA section 1302(b). PHS Act section
2711, however, does not prevent a group health plan, or a health
insurance issuer offering group or individual health insurance
coverage, from placing an annual or lifetime dollar limit for any
individual on specific covered benefits that are not EHBs, to the
extent these limits are otherwise permitted under applicable law.\8\
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\7\ PHS Act section 2711 applies to grandfathered health plans,
except that the annual dollar limit prohibition does not apply to
grandfathered individual health insurance coverage. Grandfathered
health plans are health plans that were in existence as of March 23,
2010, and that are only subject to certain provisions of PPACA, as
long as they maintain status as grandfathered health plans under the
applicable rules. See 26 CFR 54.9815-1251, 29 CFR 2590.715-1251, and
45 CFR 147.140.
\8\ For information regarding EHBs, see HHS's February 25, 2013
final rules addressing EHBs under PPACA section 1302 (78 FR 12834
(Feb. 25, 2013)); see also HHS Notice of Benefit and Payment
Parameters for 2016 (80 FR 10871 (Feb. 27, 2015)). In addition, HHS
issued final rules providing states with additional flexibility to
define EHBs, starting with plan years beginning on or after January
1, 2020. See 45 CFR 156.111 (83 FR 16930 (April 17, 2018)). The
current rules under PHS Act section 2711 include a definition of
EHBs that applies for plans that are not required to cover EHBs. See
26 CFR 54.9815-2711(c), 29 CFR 2590.715-2711(c), and 45 CFR
147.126(c). As explained later in this preamble, the rules set forth
in this document include amendments to the definition of EHBs under
the PHS Act section 2711 rules to reflect the updated final EHB
rules.
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HRAs are subject to PHS Act section 2711. An HRA generally will
fail to comply with PHS Act section 2711 because the arrangement is a
group health plan that imposes an annual dollar limit on EHBs that the
HRA will reimburse for an individual.\9\
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\9\ As explained in prior guidance, the Departments of Labor,
the Treasury and HHS (the Departments) have determined that the
annual dollar limit prohibition is not applicable to certain
account-based group health plans that are subject to other statutory
provisions limiting the benefits available under those plans. See 80
FR 72192, 72201 (Nov. 18, 2015). Specifically, the Departments have
explained that the annual dollar limit prohibition does not apply to
health FSAs that are offered through a cafeteria plan under Code
section 125 (cafeteria plan) because PPACA section 9005 specifically
limits salary reduction contributions to health FSAs to $2,500
(indexed for inflation) per year. Notwithstanding this exclusion for
certain health FSAs from the application of the annual dollar limit
prohibition, rules under Code section 125 provide that health FSAs
are not permitted to reimburse employees for premiums for health
insurance coverage. See Code section 125(d)(2)(A) and proposed 26
CFR 1.125-5(k)(4) (72 FR 43938, 43959 (Aug. 6, 2007)). Similarly,
although MSAs and HSAs generally are not treated as group health
plans subject to the market requirements, the Departments have
concluded that the annual dollar limit prohibition would not apply
to an MSA or HSA even if a particular arrangement did satisfy the
criteria to be a group health plan because both types of
arrangements are subject to specific statutory provisions that limit
the contributions. See 75 FR 37188, 37190 (June 28, 2010); see also
IRS Notice 2004-2, Q&A-1 and Q&A-3, 2004-2 IRB 269, which defines an
HSA as a tax-exempt trust or custodial account and a high-deductible
health plan as a health plan; see also DOL Field Assistance Bulletin
No. 2004-01, available at https://www.dol.gov/agencies/ebsa/employers-and-advisers/guidance/field-assistance-bulletins/2004-01
and DOL Field Assistance Bulletin No. 2006-02, available at https://www.dol.gov/agencies/ebsa/employers-and-advisers/guidance/field-assistance-bulletins/2006-02, which provide guidance regarding HSAs
not constituting ``employee welfare benefit plans'' covered by ERISA
Title I where employer involvement with the HSA is limited.
Therefore, the final rules do not apply to MSAs, HSAs, or, in
certain circumstances, health FSAs.
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[[Page 28890]]
PHS Act section 2713, as added by PPACA, generally requires non-
grandfathered group health plans, and health insurance issuers offering
non-grandfathered group or individual health insurance coverage, to
provide coverage for certain preventive services without imposing any
cost-sharing requirements for these services.\10\ Non-grandfathered
HRAs are subject to and fail to comply with PHS Act section 2713
because, while HRAs may be used to reimburse the costs of preventive
services, HRAs do not reimburse such costs after the HRAs have
reimbursed the maximum dollar amount for a coverage period, and
therefore HRAs fail to provide the required coverage, and violate the
prohibition on imposing cost sharing for preventive services.\11\
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\10\ See also 26 CFR 54.9815-2713, 29 CFR 2590.715-2713, and 45
CFR 147.130.
\11\ Because MSAs and HSAs generally are not treated as group
health plans, these arrangements are not subject to PHS Act section
2713. Health FSAs are group health plans and, unless they are
excepted benefits, will fail to satisfy the requirements of PHS Act
section 2713 unless they are integrated with other coverage that
satisfies these requirements. For more information about the
application of PHS Act section 2713 to health FSAs, see IRS Notice
2013-54, Q&A-7; DOL Technical Release No. 2013-03, Q&A-7, issued on
September 13, 2013, available at https://www.dol.gov/agencies/ebsa/employers-and-advisers/guidance/technical-releases/13-03; and CMS
Insurance Standards Bulletin, Application of Affordable Care Act
Provisions to Certain Healthcare Arrangements, September 16, 2013,
available at https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/cms-hra-notice-9-16-2013.pdf.
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3. Prior Rules and Guidance on Integration of HRAs and Other Account-
Based Group Health Plans
The Departments previously issued rules and subregulatory guidance
regarding the application of PHS Act sections 2711 and 2713 to
HRAs.\12\ The rules and guidance generally provide that, if an HRA is
``integrated'' with other group health plan coverage that complies with
PHS Act sections 2711 and 2713, the HRA is considered to be in
compliance with those sections because the combined arrangement
complies with them. The rules and guidance also provide that HRAs may
be integrated with Medicare and TRICARE coverage if certain conditions
are satisfied, but may not be integrated with individual health
insurance coverage for purposes of complying with PHS Act sections 2711
and 2713.\13\
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\12\ Rules and subregulatory guidance issued on this topic
include: (1) 75 FR 37188 (June 28, 2010); (2) FAQs about Affordable
Care Act Implementation (Part XI), available at https://www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-xi.pdf or http://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/aca_implementation_faqs11.html; (3) IRS Notice 2013-
54 and DOL Technical Release No. 2013-03 and CMS Insurance Standards
Bulletin, Application of Affordable Care Act Provisions to Certain
Healthcare Arrangements; (4) IRS FAQ on Employer Healthcare
Arrangements, available at https://www.irs.gov/affordable-care-act/employer-health-care-arrangements; (5) FAQs about Affordable Care
Act Implementation (Part XXII), available at https://www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-xxii.pdf or https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/Downloads/FAQs-Part-XXII-FINAL.pdf; (6) IRS Notice
2015-17, issued on February 18, 2015; (7) 80 FR 72192 (Nov. 18,
2015); (8) IRS Notice 2015-87, 2015-52 IRB 889, issued on December
16, 2015; (9) IRS Notice 2016-17, 2016-9 IRB 358, issued on February
5, 2015; DOL Technical Release No. 2016-01, issued on February 5,
2016, available at https://www.dol.gov/agencies/ebsa/employers-and-advisers/guidance/technical-releases/16-01; and CMS Insurance
Standards Bulletin, Application of the Market Reforms and Other
Provisions of the Affordable Care Act to Student Health Coverage,
issued on February 5, 2016, available at https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/student-health-bulletin.pdf; (10) FAQs about Affordable Care Act Implementation
Part 33, available at https://www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-33.pdf or
https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/Downloads/ACA-FAQ-Set-33-Final.pdf; (11) FAQs about Affordable Care Act
Implementation Part 37, available at https://www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-37.pdf or https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/Downloads/FAQs-Part-37.pdf; (12) 83 FR 54420 (Oct. 29,
2018); and (13) IRS Notice 2018-88, 2018-49 IRB 817, issued on
November 19, 2018.
\13\ 26 CFR 54.9815-2711(d)(4), 29 CFR 2590.715-2711(d)(4), and
45 CFR 147.126(d)(4).
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More specifically, in the preamble to the 2010 interim final rules
under PHS Act section 2711, the Departments provided that HRAs may be
integrated with ``other coverage as part of a group health plan'' that
complies with PHS Act section 2711 in order for the HRAs to be
considered to satisfy PHS Act section 2711.\14\ The interim final rules
did not, however, set forth rules for implementing integration; the
integration methods were set forth in later subregulatory guidance and
subsequently included in the final rules under PHS Act section 2711
issued in 2015.
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\14\ See 75 FR 37187, 37190-37191 (June 28, 2010).
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On September 13, 2013, the Treasury Department and the IRS issued
Notice 2013-54, the DOL issued Technical Release 2013-03, and HHS
issued contemporaneous guidance explaining that HHS concurred with the
DOL and Treasury Department guidance.\15\ This guidance stated that an
HRA may not be integrated with individual health insurance coverage for
purposes of PHS Act sections 2711 and 2713, but described methods for
integrating an HRA with another group health plan.\16\ The Departments
later incorporated the provisions of this guidance into the final rules
issued in 2015 under PHS Act section 2711 \17\, which are summarized
later in this section of the preamble.
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\15\ See CMS Insurance Standards Bulletin, Application of
Affordable Care Act Provisions to Certain Healthcare Arrangements.
\16\ In addition to describing the integration methods, IRS
Notice 2013-54 and DOL Technical Release No. 2013-03, in Q&A-5,
provided that, whether or not an HRA is integrated with other group
health plan coverage, unused amounts that are credited to the HRA
while the HRA is integrated with other group health plan coverage
may be used to reimburse medical care expenses in accordance with
the terms of the HRA after an employee ceases to be covered by the
integrated group health plan coverage without causing the HRA to
fail to comply with PHS Act sections 2711 and 2713. In IRS Notice
2015-87, Q&A-2, however, the Departments clarified that an HRA that
includes terms permitting the purchase of individual health
insurance coverage, even if reimbursement is only allowed after the
employee ceases to be covered by other integrated group health plan
coverage, fails to be integrated with other group health plan
coverage and therefore fails to comply with PHS Act sections 2711
and 2713.
\17\ See 80 FR 72192 (Nov. 18, 2015).
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On November 6, 2014, the Departments issued FAQs about Affordable
Care Act Implementation (Part XXII).\18\ Q&A-1 reiterated and clarified
prior subregulatory guidance by explaining that if an employer offers
its employees cash to reimburse the purchase of individual health
insurance coverage, the payment arrangement is a group health plan,
without regard to whether the employer treats the money as a pre-tax or
post-tax benefit to the employee, and it may not be integrated with
individual health insurance coverage, and, therefore, will fail to
comply with PHS Act sections 2711 and 2713.\19\
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\18\ See FAQs about Affordable Care Act Implementation (Part
XXII), available at https://www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-xxii.pdf or
https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/Downloads/FAQs-Part-XXII-FINAL.pdf.
\19\ The Treasury Department and the IRS note that the
information included in this preamble is not intended to be guidance
regarding the proper federal tax treatment or consequences of any
particular arrangement, except to the extent the preamble addresses
the application of Code sections 36B, 9801, 9802, 9815, 9831, and
9832 and PHS Act sections 2711 and 2713.
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On February 18, 2015, the Treasury Department and the IRS issued
Notice 2015-17. Q&A-3 provided that an arrangement under which an
employer reimburses (or pays directly) some or all of the medical care
expenses for employees covered by TRICARE constitutes an HRA and may
not be integrated with TRICARE to comply with PHS Act sections 2711 and
2713 because TRICARE is not a group health
[[Page 28891]]
plan for integration purposes. However, Q&A-3 stated that an HRA that
pays for or reimburses medical care expenses for employees covered by
TRICARE may be integrated with another group health plan offered by the
employer for purposes of PHS Act sections 2711 and 2713 if: (1) The
employer offers a group health plan (other than the HRA) to the
employee that does not consist solely of excepted benefits and that
provides minimum value (MV); (2) the employee participating in the HRA
is enrolled in TRICARE; (3) the HRA is available only to employees who
are enrolled in TRICARE; and (4) the HRA is limited to reimbursement of
cost sharing and excepted benefits, including TRICARE supplemental
premiums.
Q&A-3 of Notice 2015-17 also provided that an employer payment plan
through which an employer reimburses (or pays directly) all or a
portion of Medicare Part B or D premiums for employees may not be
integrated with Medicare coverage to comply with PHS Act sections 2711
and 2713 because Medicare coverage is not a group health plan. However,
under the notice, this type of employer payment plan may be integrated
with another group health plan offered by the employer for purposes of
PHS Act sections 2711 and 2713 if: (1) The employer offers a group
health plan (other than the employer payment plan) to the employee that
does not consist solely of excepted benefits and that provides MV; (2)
the employee participating in the employer payment plan is actually
enrolled in Medicare Part A and B; (3) the employer payment plan is
available only to employees who are enrolled in Medicare Part A and
Part B or D; and (4) the employer payment plan is limited to
reimbursement of Medicare Part B or D premiums and excepted benefits,
including Medigap premiums. Notice 2015-17 also includes a general
reminder that, to the extent such an arrangement is available to active
employees, it may be subject to restrictions under other laws, such as
the Medicare secondary payer (MSP) provisions.\20\ See later in this
preamble for a discussion of the rules provided in the 2015 rules under
PHS Act section 2711 allowing Medicare Part B and D reimbursement
arrangements to be integrated with Medicare in certain limited
circumstances (that is, generally, for HRAs sponsored by employers with
fewer than 20 employees).
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\20\ See later in this preamble for a clarification of the
meaning of this statement included in IRS Notice 2015-17, regarding
the MSP provisions.
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On November 18, 2015, the Departments finalized the proposed and
interim final rules under PHS Act section 2711, incorporating certain
subregulatory guidance regarding HRA integration, and making various
additional clarifications (the 2015 rules).\21\ The 2015 rules
incorporate prior subregulatory guidance that HRAs may not be
integrated with individual health insurance coverage for purposes of
complying with PHS Act sections 2711 and 2713. Consistent with the
initial subregulatory guidance, the 2015 rules provide two methods for
integration of HRAs with other group health plan coverage.\22\ The
first method applies to HRAs integrated with other group health plan
coverage that provides MV (the MV Integration Method).\23\ The second
method applies to HRAs integrated with other group health plan coverage
that does not provide MV (the Non-MV Integration Method).\24\
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\21\ See 80 FR 72192 (Nov. 18, 2015). To the extent the 2015
rules did not incorporate or modify the prior subregulatory
guidance, that guidance remains in effect.
\22\ These two methods of integration were originally discussed
in IRS Notice 2013-54, Q&A-4, and DOL Technical Release No. 2013-03.
\23\ See 26 CFR 54.9815-2711(d)(2)(ii), 29 CFR 2590.715-
2711(d)(2)(ii), and 45 CFR 147.126(d)(2)(ii).
\24\ See 26 CFR 54.9815-2711(d)(2)(i), 29 CFR 2590.715-
2711(d)(2)(i), and 45 CFR 147.126(d)(2)(i).
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Both the MV Integration Method and the Non-MV Integration Method
require that: (1) The HRA plan sponsor offer the employee a group
health plan other than the HRA (non-HRA group coverage); (2) the
employee receiving the HRA be enrolled in non-HRA group coverage, even
if the non-HRA group coverage is not offered by the HRA plan sponsor,
such as a group health plan maintained by an employer of the employee's
spouse; \25\ and (3) the HRA be made available only to employees who
are enrolled in non-HRA group coverage, regardless of whether such
coverage is provided by the HRA plan sponsor. For both integration
methods, the non-HRA group coverage may not consist solely of excepted
benefits and, for the MV Integration Method, the non-HRA group coverage
offered by the employer and in which the employee enrolls must provide
MV.
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\25\ In IRS Notice 2015-87, Q&A-4, the Departments clarified
that an HRA that may be used to reimburse the medical care expenses
of an employee's spouse or dependents (a family HRA) may not be
integrated with self-only coverage of the employee under the
employer's non-HRA group health plan. On January 12, 2017, the
Departments issued guidance to clarify that a family HRA is
permitted to be integrated with a combination of coverage under
qualifying non-HRA group health plan coverage for purposes of
complying with PHS Act sections 2711 and 2713, provided that all of
the individuals who are covered under the family HRA are also
covered under qualifying non-HRA group coverage. See FAQs about
Affordable Care Act Implementation Part 37, available at https://www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-37.pdf or https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/Downloads/FAQs-Part-37.pdf.
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In addition, both the MV Integration Method and the Non-MV
Integration Method require that, under the terms of the HRA, an
employee (or former employee) be permitted to permanently opt out of
and waive future reimbursements at least annually from the HRA. Both
integration methods also require that, upon termination of employment,
either the funds remaining in the HRA are forfeited or the employee is
permitted to permanently opt out of and waive future reimbursements
under the HRA. For this purpose, forfeiture of the funds remaining in
the HRA, or waiver of future reimbursements under the HRA, occurs even
if the forfeited or waived amounts may be reinstated upon a fixed date,
the participant's death, or the earlier of the two events.
The two methods differ with respect to the expenses that the HRA
may reimburse. Under the MV Integration Method, the HRA may reimburse
any medical care expenses, but under the Non-MV Integration Method, the
HRA may reimburse only co-payments, co-insurance, deductibles, and
premiums under the non-HRA group coverage, as well as medical care that
does not constitute EHBs.\26\
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\26\ Although, in general, an HRA integrated with non-HRA group
coverage fails to comply with PHS Act section 2711 if the non-HRA
group coverage with which the HRA is integrated does not cover a
category of EHB and the HRA is available to cover that category of
EHB and limits the coverage to the HRA's maximum benefit, the
Departments have provided that if the non-HRA group coverage
satisfies the MV Integration Method, an HRA will not be treated as
failing to comply with PHS Act section 2711, even if the non-HRA
group coverage with which the HRA is integrated does not cover a
category of EHB and the HRA is available to cover that category of
EHB and limits the coverage to the HRA's maximum benefit. See IRS
Notice 2013-54, Q&A-6.
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The 2015 rules also include a special integration method for
certain arrangements offered by employers that are not required to
offer, and do not offer, non-HRA group coverage to employees who are
eligible for Medicare coverage (generally, employers with fewer than 20
employees), but that offer non-HRA group coverage that does not consist
solely of excepted benefits to employees who are not eligible for
Medicare.\27\ For these employers, an
[[Page 28892]]
HRA that may be used to reimburse premiums under Medicare Part B or D
may be integrated with Medicare (and deemed to comply with PHS Act
sections 2711 and 2713) if the employees who are offered the HRA are
enrolled in Medicare Part B or D, the HRA is available only to
employees who are enrolled in Medicare Part B or D, and the HRA
complies with the opt-out and forfeiture rules under the MV Integration
Method and Non-MV Integration Method. These employers may use either of
the non-Medicare-specific integration methods, as applicable, for HRAs
offered to employees who are ineligible for Medicare.
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\27\ See 26 CFR 54.9815-2711(d)(5), 29 CFR 2590.715-2711(d)(5),
and 45 CFR 147.126(d)(5). The 2015 rules did not address the
Medicare integration rules that apply to employers who are required
to offer non-HRA group coverage to employees who are eligible for
Medicare (generally, employers with 20 or more employees). For a
discussion of those rules, see IRS Notice 2015-17 and the discussion
in this preamble.
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C. HIPAA Nondiscrimination Provisions
Prior to the enactment of PPACA, titles I and IV of the Health
Insurance Portability and Accountability Act of 1996 (HIPAA), Public
Law 104-191, added Code section 9802, ERISA section 702, and PHS Act
section 2702 (HIPAA nondiscrimination provisions). The Departments
published final rules implementing the HIPAA nondiscrimination
provisions on December 13, 2006 (the 2006 rules).\28\ PPACA section
1201 reorganized and amended the HIPAA nondiscrimination provisions of
the PHS Act. Although Code section 9802 and ERISA section 702 were not
amended, the requirements of PHS Act section 2705 were incorporated by
reference into Code section 9815 and ERISA section 715.\29\ As amended
by PPACA, the nondiscrimination provisions of PHS Act section 2705
largely reflect the 2006 rules and extend the HIPAA nondiscrimination
protections (but not the wellness program exception) to the individual
market. These provisions generally prohibit group health plans and
health insurance issuers in the group and individual markets from
discriminating against individual participants and beneficiaries in
eligibility, benefits, or premiums based on a health factor.\30\
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\28\ 71 FR 75013 (Feb. 12, 2007).
\29\ PPACA section 1201 moved the HIPAA nondiscrimination
provisions from PHS Act section 2702 to PHS Act section 2705, with
some modifications.
\30\ The HIPAA nondiscrimination provisions set forth eight
health status related factors. The eight health factors are health
status, medical condition (including both physical and mental
illnesses), claims experience, receipt of healthcare, medical
history, genetic information, evidence of insurability, and
disability. These terms are largely overlapping and, in combination,
include any factor related to an individual's health. 66 FR 1377,
1379 (Jan. 8, 2001).
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Q&A-2 of FAQs about Affordable Care Act Implementation (Part XXII)
\31\ provided that, if an employer offers only employees with high
claims risk a choice between enrollment in a traditional group health
plan or cash, the arrangement would not comply with the market
requirements, citing PHS Act section 2705 (which is incorporated by
reference into Code section 9815 and ERISA section 715), as well as the
HIPAA nondiscrimination provisions of Code section 9802 and ERISA
section 702. The Q&A explained that these arrangements violate the
nondiscrimination provisions regardless of whether: (1) The cash
payment is treated by the employer as pre-tax or post-tax to the
employee, (2) the employer is involved in the selection or purchase of
any individual market product, or (3) the employee obtains any
individual health insurance coverage. The Departments explained that
offering cash as an alternative to health coverage for individuals with
adverse health factors is an eligibility rule that discourages
participation in the traditional group health plan, in contravention of
the HIPAA nondiscrimination provisions.
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\31\ See FAQs about Affordable Care Act Implementation (Part
XXII), available at https://www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-xxii.pdf or
https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/Downloads/FAQs-Part-XXII-FINAL.pdf.
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D. Excepted Benefits
Code section 9831, ERISA section 732, and PHS Act sections 2722 and
2763 provide that the requirements of chapter 100 of the Code, part 7
of ERISA, and title XXVII of the PHS Act do not apply to excepted
benefits. Excepted benefits are described in Code section 9832, ERISA
section 733, and PHS Act section 2791.
There are four statutory categories of excepted benefits, including
limited excepted benefits. Under the statutory provisions, limited
excepted benefits may include limited scope vision or dental benefits,
benefits for long-term care, nursing home care, home healthcare, or
community-based care, or any combination thereof, and ``such other
similar, limited benefits as are specified in regulations'' by the
Departments.\32\ To be excepted benefits under this category, the
benefits must either: (1) Be insured and provided under a separate
policy, certificate, or contract of insurance; or (2) otherwise not be
an integral part of the plan.\33\ The Departments previously exercised
the authority to specify additional types of limited excepted benefits
with respect to certain health FSAs, certain employee assistance
programs, and certain limited wraparound coverage.\34\
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\32\ See Code section 9832(c)(2), ERISA section 733(c)(2), and
PHS Act section 2791(c)(2).
\33\ See Code section 9831(c)(1), ERISA section 732(c)(1), and
PHS Act section 2722(c)(1) and 2763(b). See also 79 FR 59130, 59131-
59134 (Oct. 1, 2014) discussing the application of these
requirements to benefits such as limited-scope dental and vision
benefits and employee assistance programs.
\34\ See 26 CFR 54.9831-1(c)(3)(v), (vi), and (vii); 29 CFR
2590.732(c)(3)(v), (vi), and (vii); and 45 CFR 146.145(b)(3)(v),
(vi), and (vii).
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Coverage that consists of excepted benefits is not minimum
essential coverage (MEC).\35\ Therefore, an individual offered or
covered by an excepted benefit is not deemed ineligible for the PTC by
virtue of the excepted benefit offer or coverage.\36\ Further, the
offer of an excepted benefit by an employer is not considered to be an
offer of MEC under an eligible employer-sponsored plan for purposes of
Code section 4980H, the employer shared responsibility provisions.
Thus, an employer does not avoid a payment under Code section 4980H by
virtue of an offer of an excepted benefit.\37\
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\35\ See Code section 5000A(f)(3).
\36\ See Code section 36B(c)(2)(B).
\37\ See Code section 4980H(a)(1) and (b)(1). See also 26 CFR
54.4980H-1(a)(14).
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E. Premium Tax Credit
1. In General
Code section 36B allows for the PTC to be available to applicable
taxpayers to help with the cost of individual health insurance coverage
obtained through an Exchange.\38\ Under Code section 36B(a) and (b)(1)
and 26 CFR 1.36B-3(d), a taxpayer's PTC is the sum of the premium
assistance amounts for all coverage months during the taxable year for
individuals in the taxpayer's family.
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\38\ Exchanges are entities established under PPACA section 1311
through which qualified individuals and qualified employers can
purchase health insurance coverage.
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Under Code section 36B(c)(2), a month is not a coverage month for
an individual if either: (1) The individual is eligible for coverage
under an eligible employer-sponsored plan and the coverage is
affordable and provides MV; or (2) the individual is enrolled in an
eligible employer-sponsored plan, even if the coverage is not
affordable or does not provide MV.\39\ An eligible employer-sponsored
plan includes coverage under a self-insured (as well as an insured)
group health plan \40\ and is MEC unless it consists solely of excepted
benefits.\41\
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\39\ See Code section 36B(c)(2)(C)(iii) and 26 CFR 1.36B-
2(c)(3)(vii)(A) and 1.36B-3(c).
\40\ See 26 CFR 1.5000A-2(c).
\41\ See Code section 5000A(f)(3) and 26 CFR 1.5000A-2(g).
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[[Page 28893]]
An HRA is a self-insured group health plan and, therefore, is an
eligible employer-sponsored plan. Accordingly, under existing rules, an
individual is ineligible for the PTC for the individual's Exchange
coverage for a month if the individual is covered by an HRA or is
eligible for an HRA that is affordable and provides MV for the month.
2. Affordability and Minimum Value
Under Code section 36B(c)(2)(C) and 26 CFR 1.36B-2(c)(3)(v)(A)(1)
and (2), an eligible employer-sponsored plan is affordable for an
employee, or for an individual who may enroll in the coverage because
of a relationship to the employee, if the amount the employee must pay
for self-only coverage whether by salary reduction or otherwise (the
employee's required contribution) does not exceed a specified
percentage of the employee's household income. The percentage is
adjusted annually. However, 26 CFR 1.36B-2(c)(3)(v)(A)(3) provides an
employee safe harbor under which an eligible employer-sponsored plan is
not considered affordable for the entire plan year of the eligible
employer-sponsored plan if, at the time an individual enrolls in a
qualified health plan (QHP) offered through an Exchange, the Exchange
determines that the eligible employer-sponsored plan is not
affordable.\42\ Thus, the employee safe harbor locks in the Exchange's
determination of unaffordability, which is based on estimated household
income, even if the eligible employer-sponsored plan ultimately proves
to be affordable based on actual household income for the tax year.
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\42\ This employee safe harbor does not apply if the individual
does not respond to a redetermination notice or, with reckless
disregard for the facts, provides incorrect information to the
Exchange. See 26 CFR 1.36B-2(c)(3)(v)(A)(3).
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Under Code section 36B(c)(2)(C)(ii), an eligible employer-sponsored
plan provides MV if the plan's share of the total allowed costs of
benefits provided under the plan is at least 60 percent of the costs.
PPACA section 1302(d)(2)(C) provides that, in determining the
percentage of the total allowed costs of benefits provided under a
group health plan, the rules promulgated by HHS under that paragraph of
PPACA apply. In general, HHS rules provide that an eligible employer-
sponsored plan provides MV only if the percentage of the total allowed
costs of benefits provided under the plan is greater than or equal to
60 percent, and the benefits under the plan include substantial
coverage of inpatient hospital services and physician services.\43\
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\43\ See 45 CFR 156.145. See also 80 FR 52678 (Sept. 1, 2015).
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F. QSEHRAs
1. In General
The 21st Century Cures Act (Cures Act) Public Law 114-255 was
enacted on December 13, 2016. Cures Act section 18001 amended the Code,
ERISA, and the PHS Act to permit an eligible employer to provide a
QSEHRA to its eligible employees. The Cures Act provides that a QSEHRA
is not a group health plan for purposes of the market requirements,
and, as a result, QSEHRAs are not subject to PHS Act sections 2711 and
2713.\44\ For purposes of these rules, the term ``HRA or other account-
based group health plans'' does not include QSEHRAs, unless otherwise
specified.
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\44\ See Code section 9831(d)(1), ERISA section 733(a)(1), and
PHS Act section 2791(a)(1). However, QSEHRAs are group health plans
under the PHS Act definition for purposes of part C of title XI of
the Social Security Act (42 U.S.C. 1320d et seq.). See PHS Act
section 2791(a)(1), as amended by Cures Act section 18001(c). In
addition, QSEHRAs were not excluded from ERISA's definition of
employee welfare benefit plan under ERISA section 3(1) and,
therefore, remain subject to the requirements for employee welfare
benefit plans under ERISA. See H. Rept. 114-634--Small Business
Health Care Relief Act of 2016 (the relevant provisions of this bill
were passed into law by the Cures Act). Moreover, because QSEHRAs
are employee welfare benefit plans, individual health insurance
coverage that is reimbursed by a QSEHRA would not become part of an
ERISA plan if the conditions of the DOL safe harbor described later
in this preamble are satisfied.
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Pursuant to Code section 9831(d), a QSEHRA is an arrangement that
generally must be provided on the same terms, subject to certain
exceptions, and cannot exceed a prescribed maximum amount.\45\ For the
purpose of identifying who can provide a QSEHRA, the statute provides
that an eligible employer is an employer that is not an applicable
large employer (ALE), as defined in Code section 4980H(c)(2), and that
does not offer a group health plan to any of its employees. The statute
also requires that an employer providing a QSEHRA satisfies certain
notice requirements including a statement that the employee should
provide the information about the permitted benefit to the applicable
Exchange if the employee applies for advance payments of the premium
tax credit (APTC).
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\45\ See Code section 9831(d) and IRS Notice 2017-67, 2017-47
IRB 517, for additional detail.
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On October 31, 2017, the Treasury Department and the IRS issued
Notice 2017-67 \46\ to provide guidance on the requirements for
providing a QSEHRA. If an eligible employer complies with the guidance
provided in Code section 9831(d) and Notice 2017-67, it may provide a
QSEHRA to its eligible employees and the QSEHRA is not required to
comply with PHS Act sections 2711 and 2713 because it is not subject to
those requirements.
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\46\ See IRS Notice 2017-20, 2017-11 IRB 1010, which extended
the period for an employer to furnish an initial written notice to
its eligible employees regarding a QSEHRA, and see FAQs About
Affordable Care Act Implementation Part 35, Q&A-3, available at
https://www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-35.pdf and https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/Downloads/FAQ-Part-35_12-20-16.pdf.
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2. QSEHRAs and the PTC
The Cures Act also added provisions to Code section 36B relating to
how participation in a QSEHRA affects a taxpayer's eligibility for the
PTC and how participation in a QSEHRA affects a taxpayer's computation
of the PTC. Under Code section 36B(c)(4)(A), if an employee is provided
a QSEHRA that constitutes affordable coverage for a month, the month is
not a coverage month for the employee or the employee's spouse or
dependents, meaning that the PTC is not allowed for that month. Code
section 36B(c)(4)(C) provides that a QSEHRA constitutes affordable
coverage for a month if the excess of the monthly premium for the self-
only second lowest cost silver plan in the employee's individual market
over \1/12\ of the employee's permitted benefit, as defined in Code
section 9831(d)(3)(C), does not exceed \1/12\ of a specified percentage
of the employee's household income.
Code section 36B(c)(4)(B) provides that if an employee is provided
a QSEHRA that does not constitute affordable coverage for a coverage
month, the PTC otherwise allowable for the month is reduced by \1/12\
of the employee's annual permitted benefit under the QSEHRA.
G. Individual Market Special Enrollment Periods
Generally, individuals may enroll in or change to different
individual health insurance coverage only during the annual open
enrollment period described in 45 CFR 155.410. An individual may
qualify for an SEP to enroll in or change to a different Exchange plan
outside of the annual open enrollment period under a variety of
circumstances prescribed by PPACA section 1311(c)(6)(C) and (D) and as
described in 45 CFR 155.420. These SEPs are under the jurisdiction of
HHS, and apply to persons seeking individual health insurance coverage
through a State Exchange or Federally-facilitated
[[Page 28894]]
Exchange (FFE) and, in most cases, to individuals seeking individual
health insurance coverage outside an Exchange.\47\
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\47\ Group health plans and group health insurance issuers must
provide SEPs under certain circumstances and the Departments have
jurisdiction over those provisions. See Code section 9801(f), ERISA
section 701(f), and PHS Act section 2704(f); see also 26 CFR
54.9801-6, 29 CFR 2590.701-6, and 45 CFR 146.117. The final rules do
not affect the group health plan and group health insurance issuer
SEPs, which continue to apply to group health plans, including HRAs,
and group health insurance issuers.
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Paragraph (d) of 45 CFR 155.420 describes the triggering events
that qualify individuals, enrollees, and in some cases, their
dependents for SEPs on the Exchanges through which they can enroll in a
QHP or change from one QHP to another. Paragraph (b) of 45 CFR 155.420
describes the coverage effective dates available in connection with
each SEP. Paragraph (c) describes the availability of each SEP relative
to its triggering event--that is, whether applicants may select a plan
after the event or also before the event. That paragraph also describes
the length of time applicants have to select a plan based on their SEP.
Paragraph (a)(4) of 45 CFR 155.420 describes the plan changes that
current Exchange enrollees and their dependents may make upon
qualifying for an SEP. Generally, current Exchange enrollees who
qualify for most SEPs may change to another QHP within the same metal
level, or ``plan category,'' as their current QHP. Current enrollees
whose dependent(s) qualify for most SEPs may add their dependent(s) to
their current QHP, or enroll them in a separate QHP.\48\ In
combination, the rules at 45 CFR 155.420(a)(4) are generally referred
to as ``plan category limitations.''
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\48\ If an enrollee wants to add their dependent(s) to their
current QHP, but the plan's business rules do not allow the
dependent(s) to enroll, then the Exchange must allow the enrollee
and his or her dependent(s) to change to another QHP within the same
level of coverage, or one metal level higher or lower, if no such
QHP is available.
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With regard to individual health insurance coverage sold outside of
an Exchange, 45 CFR 147.104(b)(2) provides that health insurance
issuers must provide SEPs (referred to in the regulation as limited
open enrollment periods) for the triggering events described in 45 CFR
155.420(d), except for certain triggering events listed under 45 CFR
147.104(b)(2). Additionally, 45 CFR 147.104(b)(4)(ii) and (b)(5) apply
the SEP availability and coverage effective dates at 45 CFR 155.420 to
SEPs available off-Exchange. However, the plan category limitations do
not apply outside the Exchanges.
H. Proposed Rules
In response to Executive Order 13813, the Departments published a
notice of proposed rulemaking entitled ``Health Reimbursement
Arrangements and Other Account-Based Group Health Plans'' on October
29, 2018 (83 FR 54420) (the proposed rules), which would expand the
flexibility and use of HRAs.
The proposed rules would expand the use of HRAs in several ways.
First, the proposed rules included a proposal to remove the current
prohibition against integrating an HRA with individual health insurance
coverage \49\ under the PHS Act section 2711 rules (the proposed
integration rules). The proposed integration rules included a proposal
to permit an HRA to be integrated with individual health insurance
coverage and, therefore, to satisfy PHS Act sections 2711 and 2713, if
the provisions of the proposed rules under 26 CFR 54.9802-4, 29 CFR
2590.702-2, and 45 CFR 146.123 were satisfied. These final rules refer
to this type of HRA as an individual coverage HRA.
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\49\ For purposes of this preamble and the final rules,
``individual health insurance coverage'' means health insurance
coverage offered to individuals in the individual market, but does
not include STLDI. See PHS Act section 2791(b)(5). See also 26 CFR
54.9801-2, 29 CFR 2590.701-2, and 45 CFR 144.103. Individual health
insurance coverage can include dependent coverage and therefore can
be self-only coverage or other-than-self-only coverage. ``Individual
market'' means the market for health insurance coverage offered to
individuals other than in connection with a group health plan. See
PHS Act section 2791(e)(1). See also 26 CFR 54.9801-2, 29 CFR
2590.701-2, and 45 CFR 144.103. As discussed later in this preamble,
``group health insurance coverage'' means health insurance coverage
offered in connection with a group health plan. Individual health
insurance coverage reimbursed by the arrangements described in 29
CFR 2510.3-1(l) (which is finalized in this rule) is not offered in
connection with a group health plan, and is not group health
insurance coverage, provided all the conditions in 29 CFR 2510.3-
1(l) are satisfied. See ERISA section 733(b)(4) and PHS Act section
2791(b)(4). See also 26 CFR 54.9801-2, 29 CFR 2590.701-2, and 45 CFR
144.103.
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Second, the proposed rules provided an expanded definition of
limited excepted benefits, under Code section 9832(c)(2), ERISA section
733(c)(2), and PHS Act section 2791(c)(2)(C), to include certain HRAs
that are limited in amount and with regard to the types of coverage for
which premiums may be reimbursed, if certain other conditions are
satisfied (an excepted benefit HRA) (the proposed excepted benefit HRA
rules).
The Treasury Department and the IRS also proposed rules under Code
section 36B for PTC eligibility for individuals who are offered an
individual coverage HRA \50\ (the proposed PTC rules). DOL proposed a
clarification to provide HRA and QSEHRA plan sponsors with assurance
that the individual health insurance coverage the premiums of which are
reimbursed by the HRA or QSEHRA does not become part of an ERISA plan
when certain conditions are satisfied. Finally, HHS proposed changes to
rules regarding SEPs in the individual market that would provide an SEP
for individuals who gain access to individual coverage HRAs or who are
provided QSEHRAs (the proposed SEP rules).\51\
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\50\ References in the preamble to ``an offer of an individual
coverage HRA'' or to similar phrases mean an offer of an HRA
designed to be integrated with individual health insurance coverage
under the final rules that will be considered integrated with that
individual health insurance coverage for an individual who enrolls
in that coverage.
\51\ On November 19, 2018, the Treasury Department and the IRS
issued Notice 2018-88. IRS Notice 2018-88 described a number of
proposals related to the application of Code sections 4980H and
105(h) to individual coverage HRAs. For additional discussion of IRS
Notice 2018-88, see elsewhere in this preamble.
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The Departments requested comments on all aspects of the proposed
rules, as well as requesting comments on a number of specific issues.
The Departments received over 500 comments in response to the proposed
rules from a range of stakeholders, including employers, health
insurance issuers, State Exchanges, state regulators, unions, and
individuals. No requests for a public hearing were received. After
careful consideration of all of the comments, the Departments are
finalizing the proposed rules with certain modifications made in
response to comments. These modifications are discussed later in this
preamble.
II. Overview of the Final Rules on Individual Coverage HRAs and
Excepted Benefit HRAs--the Departments of the Treasury, Labor, and
Health and Human Services
A. Integration Rules
1. Integration--In General
Consistent with the objectives in Executive Order 13813 to consider
proposing rules to expand and facilitate access to HRAs, the proposed
rules included a proposal to remove the prohibition on integration of
an HRA with individual health insurance coverage, if certain conditions
were satisfied. More specifically, in order to ensure compliance with
PHS Act sections 2711 and 2713, the proposed rules provided that to be
integrated with individual health insurance coverage, the HRA must
require participants \52\
[[Page 28895]]
and any dependents \53\ covered by the HRA \54\ to be enrolled in
individual health insurance coverage and to substantiate compliance
with this requirement.
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\52\ For this purpose, the definition of participant under 26
CFR 54.9801-2, 29 CFR 2590.701-2, and 45 CFR 144.103 applies, which
is defined as a participant within the meaning of ERISA section
3(7). Under ERISA section 3(7), ``the term `participant' means any
employee or former employee of an employer, or any member or former
member of an employee organization, who is or may become eligible to
receive a benefit of any type from an employee benefit plan which
covers employees of such employer or members of such organization,
or whose beneficiaries may be eligible to receive any such
benefit.''
\53\ For this purpose, the definition of dependent under 26 CFR
54.9801-2, 29 CFR 2590.701-2, and 45 CFR 144.103 applies, which is
defined as ``any individual who is or may become eligible for
coverage under the terms of a group health plan because of a
relationship to a participant.''
\54\ The final rules use several terms interchangeably regarding
an individual's individual coverage HRA status. These terms
generally parallel those used when referring to group or individual
health insurance coverage. Specifically, ``enrolled in'' and
``covered by,'' both refer to the status of an individual who is
participating in an individual coverage HRA and can request
reimbursements for medical care expenses reimbursable under the HRA.
The date on which an individual coverage HRA ``takes effect'' or
``begins'' refers to the first date on which reimbursable medical
care expenses may be incurred. For example, an employee whose
individual coverage HRA takes effect on June 1 may request
reimbursements for medical care expenses incurred on or after that
date, if the individual is enrolled in individual health insurance
coverage or Medicare on or before June 1.
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Further, in order to prevent a plan sponsor from intentionally or
unintentionally, directly or indirectly, steering any participants or
dependents with adverse health factors away from the plan sponsor's
traditional group health plan and into the individual market, the
proposed rules prohibited a plan sponsor from offering employees within
a class of employees a choice between a traditional group health plan
and an individual coverage HRA. The proposed rules also required that
an individual coverage HRA be offered on the same terms to all
employees within a class of employees, subject to certain exceptions,
and the proposed rules included proposed classes of employees that
employers could use for this purpose.
The proposed rules also required individual coverage HRAs to allow
employees to opt out of and waive future reimbursements under the HRA
at certain times, and to provide a notice to eligible participants
regarding how the offer of the HRA, or enrollment in the HRA, affects
the ability to claim the PTC. This was proposed because an offer of an
HRA may affect an individual's eligibility for the PTC, and enrollment
in an HRA does affect an individual's eligibility for the PTC.
Each of these conditions, and the related comments received, are
discussed in the following sections of this preamble. This section of
the preamble addresses the more general comments on allowing HRAs to be
integrated with individual health insurance coverage.
Many commenters supported the proposed rules. Some of these
commenters expressed general support for the Departments' efforts to
expand the availability and use of HRAs and the priority the
Departments have placed on HRAs. Some commenters stated that the
proposed rules would enable employers to offer more affordable health
coverage alternatives to employees and could expand health insurance
coverage, including for lower-wage and part-time and other particular
groups of employees. Some commenters focused on the potential benefits
for small employers, commenting that the proposed HRA expansion would
create new options for small employers that have otherwise been unable
to offer health insurance coverage due to PPACA-related requirements.
These commenters asserted that the proposed HRA expansion would help
small employers provide meaningful benefits, attract talent, and keep
their workforce healthy. Some commenters expressed general support for
allowing employers to move to a defined contribution approach for
health insurance coverage, including because this likely permits
greater employee choice.
Some commenters noted that allowing individual coverage HRAs could
expand and stabilize the individual health insurance market while
providing greater administrative simplicity and reducing administrative
costs for employers. In particular, some commenters expressed the view
that the proposed rules would strengthen the individual market due to
an increased number of individuals in the individual market and because
working individuals who would be added to the individual market tend to
be of lower health risk than those currently comprising the individual
market risk pool. Some commenters also stated that employers may not
necessarily be incentivized to segment their risk and, therefore,
concerns about adverse selection may be overstated.
Some commenters who generally supported the proposed rules
emphasized that their support was contingent on any final rules
retaining the conditions intended to prevent adverse selection. And
some commenters opposed allowing individual coverage HRAs. These
commenters stated that the safeguards in the proposed rules were
insufficient to prevent market segmentation and destabilization of the
individual market. Several of these commenters argued that market
segmentation could occur if employers that choose to offer an
individual coverage HRA have higher-risk employees than those employers
that choose not to offer an individual coverage HRA and that employers
may still be able to segment risk based on the proposed classes of
employees. Some of these commenters asked that the rules be withdrawn,
or at least delayed, until the potential effects on the individual and
group markets could be better understood.
More generally, commenters expressed a number of concerns regarding
adverse selection and risk-pool effects of the proposed rules,
including that the proposed rules would change the composition of the
risk pools for the individual and small group markets, making coverage
more expensive and less accessible overall. Some commenters were
concerned that the proposed rules would be particularly harmful to
self-employed individuals and small business employees because those
individuals generally rely on coverage in the individual market and,
according to the commenters, the proposed rules would increase premiums
in the individual market. Some commenters were also concerned that
employers may substantially alter traditional group health plans to the
detriment of all employees who rely on that coverage and that there
could be negative implications in the small group market for states
that have merged their individual and small group market risk pools.
One commenter stated that the negative effects of the proposed rules,
particularly the increase in individual market premiums and the
attendant fiscal cost that the commenter expects to occur, are likely
to outweigh the benefits to employers and their employees. Another
commenter asserted that the proposed rules would increase premiums due
to both adverse selection and issuers' increased uncertainty regarding
the effect of individual coverage HRAs on the individual market.
The Departments agree with the commenters who asserted that
allowing individual coverage HRAs will expand flexibility and use of
HRAs to provide additional options for employers and employees to offer
and obtain quality, affordable healthcare. The Departments also agree
that individual coverage HRAs would expand coverage and may provide
greater administrative
[[Page 28896]]
simplicity and reduce administrative costs for employers.
The Departments acknowledge the concerns expressed by commenters
that allowing individual coverage HRAs could cause adverse selection in
the individual market. As explained in the preamble to the proposed
rules, allowing individual coverage HRAs could theoretically result in
opportunities for employers to encourage higher-risk employees (that
is, employees with high expected medical claims or employees with
family members with high expected medical claims) to obtain coverage in
the individual market, external to the traditional group health plan
sponsored by the employer, in order to reduce the cost of traditional
group health plan coverage provided by the employer to lower-risk
employees. This could happen in a number of ways. For example, if
employees were permitted to choose between participating in an
employer's traditional group health plan or an individual coverage HRA,
some higher-risk employees might have an incentive to select the HRA
and enroll in individual health insurance coverage, depending on the
relative generosity of the individual coverage HRA and the individual
health insurance coverage as compared to the traditional group health
plan. There could be significant differences between these coverage
options because individual health insurance coverage generally is
required to cover all categories of EHBs, and large group market and
self-insured group health plans are not required to do so. An employer
could also deliberately attempt to steer employees with certain medical
conditions away from the employer's traditional group health plan. In
either case, if disproportionately higher-risk employees enrolled in
individual coverage HRAs, this adverse selection could raise premiums
in the individual market.
Both in promulgating the proposed rules and again in response to
comments provided on the proposed rules, the Departments considered the
possibility that the individual market could instead be positively
impacted. Lower-risk employees might choose individual coverage HRAs,
while higher-risk employees might elect to remain in their employer's
traditional group health plan. Such an outcome could result for a host
of reasons, including because higher-risk employees may be more risk
averse to changing health benefits. Additionally, individual health
insurance coverage might have more restrictive provider networks than
traditional group health plans and higher-risk employees are generally
more sensitive to the make-up of the provider network than lower-risk
employees. In addition, lower-risk employees might prefer an individual
coverage HRA because it could allow them to spend less on premiums--
reducing or potentially eliminating out-of-pocket premiums and
potentially leaving more funds to cover cost sharing. Further,
employers might be discouraged by the legal risk involved with
attempting to steer higher-risk employees away from the traditional
group health plan.
However, employers also would face strong countervailing incentives
to maintain (or improve) the average health risk of participants in
their traditional group health plans. Therefore, the Departments have
determined that there is a risk of some market segmentation and health
factor discrimination that could result from allowing individual
coverage HRAs, but the Departments also have determined that the risk
can be sufficiently mitigated with conditions of the type provided in
the proposed rules (and in the final rules) designed to limit adverse
selection. Moreover, as discussed in more detail later in this
preamble, the Departments considered the comments requesting that the
Departments strengthen the conditions intended to limit adverse
selection, and the Departments are finalizing those proposed conditions
with some changes in response to comments, including adding a minimum
class size requirement that will apply to certain classes of employees
in certain instances. Regarding the concern raised by commenters that
the proposed conditions would not prevent adverse selection if
employers with higher-risk employees chose to offer individual coverage
HRAs, the Departments took that possibility into account in the
regulatory impact analysis.
Therefore, taking all of these considerations into account, the
Departments have determined that allowing individual coverage HRAs will
produce significant benefits, including increased options and coverage,
and is not likely to create a material risk of adverse selection in the
individual market due to the sufficiency of, and changes to strengthen,
the integration conditions intended to mitigate that risk that are
finalized in this rulemaking. Accordingly, the Departments are
finalizing the proposed rules, including each of the conditions
included in the proposed rules, but with various changes and
clarifications, as explained later in this preamble.
A number of commenters expressed concern about the impact on
employees shifting from traditional group health plans to the
individual market. Some commenters emphasized that in order to achieve
the goals of expanding coverage and increasing choice and flexibility
for employers, it is vital that the individual market be stable and
well-functioning; otherwise, employers will be unwilling to utilize the
expanded flexibility. Some commenters recommended that the Departments
delay issuing the final integration rules until insurance in the
individual market is more affordable or until clearer information is
available regarding the long-term stability of the individual market,
including the impacts of other recent changes such as the expansion of
STLDI and changes to the PPACA section 1332 waiver program. Some
commenters asked the Departments to withdraw the proposed integration
rules and, instead, take other actions to stabilize the individual
market. One commenter requested that HRA integration with individual
health insurance coverage be allowed only if each employee is provided
at least three choices for coverage in the individual market.
The Departments acknowledge that the extent to which the goals of
expanding coverage and options through individual coverage HRAs will be
achieved depends on the existence of a stable individual market.
Accordingly, the Departments are finalizing the proposed rules with
conditions on individual coverage HRAs intended to prevent a negative
impact on the individual market. The Departments expect individual
coverage HRAs, with the safeguards in the final rules, will
substantially increase the size of the individual market and will not
result in significant changes in the average health risk of the
individual market risk pool. The Departments also understand that
currently the stability of the individual market varies a great deal
across the country, and that in some places improvement will likely be
needed before employers elect to offer individual coverage HRAs. The
Departments considered these issues in developing the proposed and
final rules and incorporated significant flexibility, including
geographic flexibility, to address these issues so that each employer
may choose what is best for its workforce. However, the final rules do
not require that a minimum number of individual health insurance plans
be available to employees in order for the employer to offer an
individual coverage HRA. There is no compelling justification for such
a requirement, and
[[Page 28897]]
it is not necessary to ensure compliance with PHS Act sections 2711 and
2713. Employees often have limited choices with respect to the
traditional group health plans they are offered, if any, and adopting
this type of requirement would unnecessarily prevent certain employers
from offering an individual coverage HRA. Further, suggestions
regarding changes to the other rules that affect the individual market,
in order to improve the individual market, are outside the scope of
this rulemaking.
Some commenters stated that the proposed rules failed to adequately
take into account the differences between traditional group health
plans and individual health insurance coverage, the increased burden on
employees in choosing and enrolling in a plan in the individual market
relative to the burden on employees under a traditional group health
plan, and the significance of the change, from the employee's
perspective. Other commenters stated that individuals in the individual
market could face more expensive plans, lower employer contributions,
narrower networks, and higher cost sharing. Some commenters stated that
these individuals could also face more confusion and be provided less
assistance, in part due to decreased federal funding for outreach and
assistance in the individual market. Some of these commenters asserted
what they believed to be the comparative advantages of traditional
group health plans, including that those plans are more robust, cost-
effective, and consumer-friendly. One commenter expressed general
concern about the shifting of employees from a defined benefit health
plan system to a defined contribution health plan system, because,
according to the commenter, it may result in less comprehensive
coverage.
The Departments considered, and are aware, that an employee's
experience enrolling in and having coverage under an individual
coverage HRA may be different than the experience of enrolling in and
having coverage under a traditional group health plan. The Departments
took this into account in developing the proposed and final rules,
including by requiring the individual coverage HRA to provide a notice
to eligible participants explaining the individual coverage HRA and the
possible consequences of the HRA being offered and accepted. The
Departments understand that employers tend to act in the best interest
of their workers in order to recruit and retain talent. Therefore, an
employer offering an individual coverage HRA generally will do so
because it is a better alternative for a substantial share of their
employees than a traditional group health plan or no offer of employer-
sponsored coverage. Further, as described later in this preamble, DOL
is also clarifying the extent to which employers may assist employees
with regard to enrollment in individual health insurance coverage
without resulting in the individual health insurance coverage becoming
part of an ERISA plan. In addition, the Departments are continuing to
consider ways to assist employees offered an individual coverage HRA,
including through clear instructions in the Exchange application
process and other possible methods of outreach and assistance. As to
the more general comments asserting that traditional group health plans
have advantages as compared to individual health insurance coverage,
the Departments acknowledge that there are differences. The Departments
intend with the final rules to expand the choices available to
employers and employees and to make an additional option available for
employers, including those that have not previously offered traditional
group health plan coverage.
Some commenters questioned the Departments' legal authority with
regard to certain aspects of the proposed rules. A few commenters
questioned whether the Departments have the authority to allow HRAs to
satisfy PHS Act sections 2711 and 2713 by virtue of integration with
other coverage, and a few stated that the Departments failed to justify
the removal of the regulatory prohibition on integration of an HRA with
individual health insurance coverage. Further, a few commenters
asserted that the Departments do not have the authority to allow
individual coverage HRAs because Congress enacted the Cures Act, which
provided a limited exception to the prohibition on HRAs provided in
conjunction with individual health insurance coverage in the form of
QSEHRAs, and the commenters believe this indicates that Congress did
not intend to allow the Departments to otherwise remove the regulatory
prohibition on integration of an HRA with individual health insurance
coverage.
The Departments disagree with these commenters and, instead, have
determined that the final rules are justified and within the
Departments' authority. While HRAs are group health plans subject to
PHS Act sections 2711 and 2713 and would fail to comply with those
provisions if they were offered on their own, PHS Act sections 2711 and
2713 do not speak directly to situations in which an HRA is integrated
with other coverage that satisfies those statutory requirements. The
Departments have determined that it is reasonable, and consistent with
the statutory scheme, to apply PHS Act sections 2711 and 2713 to the
integrated arrangement rather than to each of its component parts.
As explained earlier in this preamble, the Departments previously
determined that it was reasonable to consider an HRA to be compliant
with PHS Act sections 2711 and 2713 as long as individuals covered by
the HRA had other employer-provided group health plan coverage
(including coverage offered by a different employer, such as a spouse's
employer) that satisfied the conditions in PHS Act sections 2711 and
2713, subject to certain other conditions.\55\ In that case, under the
combined arrangement, individuals have the protections intended by
PPACA, in addition to the HRA that they generally may use to pay for
premiums or other medical care expenses not covered by the group health
plan. The Departments now extend this same approach to integration with
individual health insurance coverage, which the Departments have
determined is similarly justified and appropriate, as individual health
insurance coverage is generally subject to and compliant with PHS Act
sections 2711 and 2713.\56\
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\55\ The Departments note that under IRS Notice 2015-17, HRAs
that reimburse certain Medicare premiums and TRICARE expenses may be
considered integrated with the group health plan coverage offered to
the employee by the employer although the employee is not enrolled
in that group coverage and is instead enrolled in Medicare or
TRICARE, subject to certain conditions. Further, under 26 CFR
54.9815-2711(d)(5), 29 CFR 2590.715-2711(d)(5), and 45 CFR
147.126(d)(5), an employer payment plan for Medicare premiums
offered by certain employers may be considered integrated with
Medicare (and considered to be compliant with PHS Act sections 2711
and 2713), subject to certain conditions.
\56\ Further, for the reasons discussed later in this preamble,
the Departments have determined that permitting integration of
individual coverage HRAs with Medicare is also justified and
appropriate, subject to certain conditions. References in this
preamble to an individual coverage HRA integrated with Medicare
refer to an individual coverage HRA integrated with Medicare Part A
and B or Medicare Part C.
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In developing the proposed and final rules, the Departments
considered that the Cures Act provided for QSEHRAs. However, in
creating QSEHRAs, Congress did not enact a general prohibition on
integrating an HRA with individual health insurance coverage. Instead,
Congress allowed a limited HRA that certain small employers may provide
that is not a group health plan subject to the market requirements and,
thus, need not be integrated with any
[[Page 28898]]
other health coverage to satisfy PHS Act sections 2711 and 2713. The
fact that Congress provided some flexibility for certain employers by
creating QSEHRAs does not preclude the Departments from providing
additional flexibility through rulemaking to allow individual coverage
HRAs.\57\ The final rules do not change the ability of eligible
employers to provide QSEHRAs. Rather, the final rules provide an
opportunity for all employers, including those who may or may not
qualify to sponsor a QSEHRA, to sponsor an individual coverage HRA.\58\
Moreover, by virtue of providing for QSEHRAs, Congress acknowledged and
left intact the Departments' regulations allowing for integration of
HRAs with other group health plan coverage. In so doing, Congress
recognized the Departments' authority to allow HRAs to be integrated
with other group health plan coverage, which is the same authority the
Departments now extend to allow integration of HRAs with individual
health insurance coverage.
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\57\ Congress has granted the Departments the authority to
promulgate regulations as may be necessary or appropriate to carry
out the provisions of the Code, ERISA, and the PHS Act that were
added as a result of HIPAA and PPACA. See Code section 9833, ERISA
section 734, and PHS Act section 2792.
\58\ The Departments note that an employer may not both offer an
individual coverage HRA and provide a QSEHRA, as a result of the
QSEHRA rules under Code section 9831(d) and as a result of the
conditions that apply to individual coverage HRAs.
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The Departments acknowledge that the final rules, in allowing
individual coverage HRAs, remove the prohibition on an HRA being
integrated with individual health insurance coverage that the
Departments had previously imposed. As noted earlier in this section of
the preamble, in the 2015 rules and the guidance that preceded those
rules, the Departments determined that HRAs should not be allowed to be
integrated with individual health insurance coverage, even though that
insurance coverage is generally subject to and compliant with PHS Act
sections 2711 and 2713. The Departments at that time declined to allow
integration with individual health insurance coverage because of
concerns about adverse selection in the individual market. Since that
time, the Departments have observed that many employers, especially
small employers, continue to struggle to offer health insurance
coverage to their employees.\59\ Further, the Departments have had
additional time to consider whether, and what type of, conditions would
be sufficient to mitigate the risk of adverse selection and health
factor discrimination that might otherwise result from allowing HRAs to
be integrated with individual health insurance coverage.
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\59\ In 2018, 57 percent of firms offered health benefits to at
least some of their workers; 47 percent of employers with three to
nine workers offered coverage, while virtually all firms with 1,000
or more workers offered coverage. See Kaiser Family Foundation,
``Employer Health Benefits 2018 Annual Survey'', Figure 2.2 at
http://files.kff.org/attachment/Report-Employer-Health-Benefits-Annual-Survey-2018.
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The Departments have determined that the advantages to employers
and employees of individual coverage HRAs warrant allowing them to be
offered,\60\ notwithstanding the concerns regarding potential adverse
selection risk to the individual market. This is because the
Departments expect that the conditions adopted in the final rules will
significantly mitigate the risk of adverse selection. As to the
benefits, the final rules will increase flexibility and choices of
health coverage options for employers and employees. The increased use
of individual coverage HRAs could potentially reduce healthcare
spending, particularly less efficient spending, and ultimately result
in increased taxable wages for workers in firms that currently offer
traditional group health plans. The final rules are also expected to
increase the number of low- and moderate-wage workers (and their family
members) with health insurance coverage.
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\60\ HRA expansion is an Administration priority. In October
2017, the President issued Executive Order 13813, directing the
Departments ``to consider proposing regulations or revising
guidance, to the extent permitted by law and supported by sound
policy, 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 coverage.'' The Executive Order
further provides that expanding ``the flexibility and use of HRAs
would provide many Americans, including employees who work at small
businesses, with more options for financing their healthcare.''
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Accordingly, the Departments disagree with commenters who asserted
that the Departments are precluded from allowing individual coverage
HRAs because those arrangements were not previously allowed and that
such a change is not sufficiently justified. The Departments have
considered whether to allow HRAs to be integrated with individual
health insurance coverage, and have determined that a change allowing
that integration is warranted, subject to a number of significant
conditions intended to protect against the risk of adverse selection
and health factor discrimination. This change comes after the
Departments' consideration of various factors, including the need to
provide employers and employees additional choices with respect to
healthcare coverage, the ability of the conditions in the final rules
to mitigate against adverse selection and health factor discrimination,
and the anticipated effect of the final rules to increase choice and
competition and decrease the number of uninsured individuals.
One commenter stated that allowing individual coverage HRAs is
contrary to PPACA's intent to create a stable individual market. The
Departments acknowledge that allowing individual coverage HRAs in a way
that could lead to large-scale destabilization of the individual market
could undermine one purpose of PPACA. However, the Departments have
carefully designed the final rules to be consistent with Congress's
intent in enacting both PPACA and HIPAA.\61\ In developing the proposed
and final rules, the Departments considered how to avoid permitting
discrimination based on health status or similar practices with respect
to offering individual coverage HRAs to employees that might have
destabilizing effects on the individual market or lead to higher
premiums in that market. The Departments have determined that the risk
of market segmentation and health factor discrimination is sufficiently
significant to justify including conditions in the final rules intended
to mitigate those risks, including strengthening certain conditions
provided for in the proposed rules. Additionally, the Departments have
determined that the strengthened conditions in the final rules, which
are described at length later in this preamble, are both sufficient to
mitigate those risks and consistent with HIPAA and PPACA.
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\61\ In 1996, Congress enacted the HIPAA nondiscrimination
provisions, which now generally prohibit group health plans and
health insurance issuers in the group and individual markets from
discriminating against individual participants and beneficiaries in
eligibility, benefits, or premiums based on a health factor. In
2010, Congress enacted PPACA, in part, because individual health
insurance coverage was not a viable option for many individuals who
lacked access to group health plan coverage, given that individual
market issuers in many states could deny coverage, charge higher
premiums based on an individual's health risk, or impose preexisting
condition exclusions based on an individual's health risk. To
address these issues, PPACA included numerous provisions that were
intended to create a competitive individual market that would make
affordable coverage available to individuals who do not have access
to other health coverage, as set forth in detail in the preamble to
the proposed rules. See 83 FR 54420, 54428-54429 (Oct. 29, 2018).
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One commenter stated that it would make little sense to expect
individual coverage HRAs to comply with PHS Act sections 2711 and 2713
because HRAs function more like bank accounts than health insurance
policies. The Departments recognize that HRAs and health insurance
policies can function
[[Page 28899]]
differently. However, HRAs are group health plans and, therefore,
generally are subject to the market requirements under the PHS Act,
except to the extent that they are excepted benefits or are retiree-
only HRAs. The Departments lack the statutory authority to exempt HRAs
that are otherwise subject to the market requirements from the category
of group health plans subject to the market requirements. The final
rules allow individual coverage HRAs to comply with the requirements of
PHS Act sections 2711 and 2713 in a manner that preserves the
protections of those sections.
2. Requirement That All Individuals Covered by an Individual Coverage
HRA Be Enrolled in Individual Health Insurance Coverage
a. In General
The proposed rules provided that an HRA may be integrated with
individual health insurance coverage, and would be considered compliant
with PHS Act sections 2711 and 2713, if the HRA requires the
participant and any dependent(s) to be enrolled in individual health
insurance coverage (other than coverage that consists solely of
excepted benefits) \62\ for each month each individual is covered by
the HRA. Under the proposed rules, if the participants and dependents
merely have the ability to obtain individual health insurance coverage,
but do not actually have that coverage, the HRA would fail to comply
with PHS Act sections 2711 and 2713.
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\62\ Throughout this preamble, references to individual health
insurance coverage in the context of the integration rules do not
include coverage that consists solely of excepted benefits unless
otherwise specified. Also, see later in this preamble for a
discussion of the conditions that apply if an individual coverage
HRA is integrated with Medicare, in which case references to
individual health insurance coverage generally are considered to
also refer to Medicare.
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Many commenters supported this condition and strongly recommended
it be included in the final rules. Commenters that supported the
condition stated that it would reduce or prevent the risk of adverse
selection and would ensure that employees directed out of the group
market have access to a stable individual market. The Departments agree
that the requirement to have individual health insurance coverage in
order to be covered by an individual coverage HRA is essential and, in
order to ensure compliance with PHS Act sections 2711 and 2713, the
final rules adopt this requirement, generally as set forth in the
proposed integration rules, but with some clarifications as explained
later in this section of the preamble.\63\
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\63\ The Departments note that when an individual enrolls in
individual health insurance coverage, the coverage generally will
have an effective date that is the first day of a calendar month.
Other than for mid-month enrollment of a new child, individual
health insurance plans generally are not made available for coverage
to start mid-month. Therefore, individual coverage HRA plan sponsors
will need to take this into account in designing plan terms for
eligibility for individual coverage HRAs, both with respect to
employees offered the HRA for the full plan year and for those who
become covered by the HRA subsequent to the first day of the plan
year, to ensure compliance with the enrollment requirement under the
final rules.
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One commenter suggested that the final rules should allow an
individual coverage HRA to provide benefits to dependents who are not
enrolled in individual health insurance coverage so long as the
employee-participant is enrolled in individual health insurance
coverage. The Departments decline to adopt this suggestion because the
requirements of PHS Act sections 2711 and 2713 apply to group health
plans with respect to both participants and dependents.\64\
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\64\ In addition, the commenter expressed confusion as to how
this integration requirement applies to a dependent who is not
covered by the individual coverage HRA, including a dependent
covered by another type of coverage or a dependent the employee does
not want to identify to the employer. While under the final rules an
individual coverage HRA must require that each individual covered by
the HRA be enrolled in individual health insurance coverage, the
final rules do not include a requirement that the HRA cover any
particular dependent(s), provided the HRA complies with PHS Act
section 2714 and 26 CFR 54.9815-2714, 29 CFR 2590.715-2714, and 45
CFR 147.120 (relating to dependent coverage of children to age 26),
nor is there a prohibition on allowing the participant to exclude
certain dependents from coverage under the HRA.
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b. Individual Health Insurance Coverage With Which an Individual
Coverage HRA May Be Integrated
Commenters generally supported the rule that individual coverage
HRAs must be integrated with individual health insurance coverage as
defined in the PHS Act. As discussed in this section of the preamble,
several commenters requested clarification regarding whether
integration with various types of individual health insurance coverage
would be allowed under the proposed rules.
Some commenters requested that the final rules only permit
integration with individual health insurance coverage that covers all
EHBs or that provides comprehensive mental health and substance use
disorder benefits. The Departments decline to make revisions in
response to these comments because under PPACA, individual health
insurance coverage generally is required to cover all EHBs, including
mental health and substance use disorder services.\65\
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\65\ See PPACA section 1302 and PHS Act section 2707(a).
However, the Departments note that grandfathered individual health
insurance coverage and ``grandmothered'' individual health insurance
coverage subject to the HHS non-enforcement policy might not cover
all EHBs. See later in this preamble for a discussion of
``grandmothered'' individual health insurance coverage.
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Commenters also requested that the final rules clarify whether an
individual coverage HRA may be integrated with individual health
insurance coverage sold in a state that has a waiver under PPACA
section 1332.\66\ Some commenters stated that integration with that
coverage should be permitted so long as the waiver does not allow
coverage to impose annual or lifetime dollar limits or exclude benefits
for preventive services. Other commenters argued that integration with
that coverage should not be permitted because it might not satisfy all
of the PPACA requirements.
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\66\ Under PPACA section 1332, a state can apply for a state
innovation waiver from HHS and the Treasury Department, which allows
the state, if approved, to implement innovative programs to provide
access to quality healthcare. States seeking approval for a state
innovation waiver must demonstrate that the waiver will provide
access to health insurance coverage that is at least as
comprehensive and affordable as would be provided under PPACA
without the waiver, will provide coverage to at least a comparable
number of residents of the state as would be provided without a
waiver, and will not increase the federal deficit.
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The Departments note that although PPACA section 1332 allows states
to waive certain provisions of PPACA, it does not allow states to waive
PHS Act sections 2711 and 2713. Therefore, the final rules do not
prohibit integration of an HRA with individual health insurance
coverage obtained in a state with a PPACA section 1332 waiver because
individual health insurance coverage obtained in that state will be
subject to PHS Act sections 2711 and 2713.\67\ Other issues with regard
to PPACA section 1332 are beyond the scope of this rulemaking.
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\67\ HHS and the Treasury Department evaluate state PPACA
section 1332 waiver applications on a case-by-case basis and will
include a determination of the interaction with the final rules (if
any).
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One commenter requested confirmation that HRAs may be integrated
with catastrophic plans in the individual market. Another commenter
requested that the final rules not allow integration of HRAs with
catastrophic plans because of the limited nature of those plans. The
Departments note that catastrophic plans, as set forth in PPACA section
1302(e), are a type of individual health insurance coverage available
to only certain individuals and that provide only limited benefits
until the individual has incurred expenses
[[Page 28900]]
sufficient to reach the maximum out-of-pocket limit under PPACA.\68\
However, catastrophic plans are subject to the market requirements,
including PHS Act sections 2711 and 2713. Therefore, the final rules do
not prohibit integration of an individual coverage HRA with
catastrophic plans.
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\68\ To be eligible for a catastrophic plan, an individual must
either be under the age of 30 or qualify for a hardship or
affordability exemption under Code section 5000A. See PPACA section
1302(e) and 45 CFR 156.155. One commenter suggested that the
Departments change the definition of catastrophic plan so that it is
available to individuals other than those who are eligible under
PPACA section 1302(e). That change is outside the scope of this
rulemaking.
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One commenter asked that the Departments prohibit integration with
``grandmothered'' individual health insurance coverage, as it is not
compliant with PPACA. Grandmothered individual health insurance
coverage refers to certain non-grandfathered health insurance coverage
with respect to which CMS has announced it will not take enforcement
action even though the coverage is out of compliance with certain
specified market requirements. To date, the CMS non-enforcement policy
has been extended to apply to renewals of such coverage through policy
years beginning on or before October 1, 2020, provided that all such
coverage comes into compliance with the specified requirements by
January 1, 2021.\69\ The Departments note that although grandmothered
individual health insurance coverage is subject to a non-enforcement
policy for some market requirements, the non-enforcement policy does
not extend to compliance with PHS Act sections 2711 and 2713.
Accordingly, grandmothered plans are subject to PHS Act sections 2711
and 2713, and under the final rules, an individual coverage HRA may be
integrated with grandmothered individual health insurance coverage.
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\69\ See CMS Insurance Standards Bulletin Series--INFORMATION--
Extension of Limited Non-Enforcement Policy through 2020 (March 25,
2019), available at https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/Limited-Non-Enforcement-Policy-Extension-Through-CY2020.pdf.
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One commenter requested clarification as to whether individual
health insurance coverage sold through a private exchange model
qualifies as coverage that may be integrated with an HRA. To the extent
coverage sold through a private exchange model is individual health
insurance coverage, within the meaning of the PHS Act,\70\ an HRA may
be integrated with that coverage. However, the Departments note that as
part of the final rules DOL is issuing a safe harbor to clarify to
stakeholders when individual health insurance coverage obtained by a
participant in an individual coverage HRA would not be part of an
employee welfare benefit plan under ERISA, which would avoid the
individual health insurance coverage effectively becoming group
coverage. See later in this preamble for discussion of how this safe
harbor would apply with respect to individual health insurance coverage
offered through web-based platforms, such as private exchanges.
---------------------------------------------------------------------------
\70\ See PHS Act section 2791(b)(5).
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One commenter supported the proposal to prohibit integration with
individual health insurance coverage that consists solely of excepted
benefits, noting that this aspect of the rule is consistent with the
limited nature of excepted benefits. The Departments agree. Because
coverage consisting solely of excepted benefits is not subject to or
generally compliant with PHS Act sections 2711 and 2713, the final
rules provide that individual coverage HRAs may not be integrated with
individual health insurance coverage that consists solely of excepted
benefits. However, as discussed later in this preamble, an HRA that
reimburses only excepted benefits is not subject to the market
requirements or the final rules.
See later in this preamble for a discussion of comments received
regarding integration of HRAs with student health insurance coverage,
as well as types of coverage other than individual health insurance
coverage. Also, see later in this preamble for a discussion of the
conditions under which an individual coverage HRA may be integrated
with Medicare.
c. Proxy Approach To Verify Compliance
Under the proposed rules, all individual health insurance coverage
(except for coverage that consists solely of excepted benefits) would
be treated as being subject to and compliant with PHS Act sections 2711
and 2713. The Departments explained that requiring a participant or an
individual coverage HRA to substantiate compliance with PHS Act
sections 2711 and 2713 separately for each individual health insurance
policy in which a participant or dependent is enrolled would be an
unwieldy and overly burdensome task.
The Departments acknowledged that this approach would allow
integration with grandfathered individual health insurance coverage,
which is not subject to, and might not be compliant with, PHS Act
sections 2711 and 2713. However, the Departments reasoned that
requiring participants or HRAs to substantiate compliance with PHS Act
sections 2711 and 2713 separately for each individual health insurance
policy in which a participant or dependent is enrolled would be
impracticable. An independent assessment of compliance could require
the participant or the HRA to identify for each individual health
insurance policy in which a participant or dependent is enrolled: (1)
Which benefits are considered EHBs for purposes of PHS Act section
2711, and (2) whether all recommended preventive services are covered
without cost sharing as required under PHS Act section 2713.
The Departments also noted that only a small number of individuals
currently are enrolled in grandfathered individual health insurance
coverage, and that grandfathered individual health insurance coverage
may not be sold to new enrollees and may be renewed by current
enrollees only so long as the coverage satisfies strict conditions.
Additionally, the Departments noted that the number of individuals with
grandfathered individual health insurance coverage has declined each
year since PPACA was enacted, and the already small number of
individuals who have retained grandfathered coverage is expected to
continue to decline each year. Further, the Departments stated that
because there are few individuals covered by grandfathered individual
health insurance coverage, the Departments anticipate that there will
only be extremely limited instances in which these individuals will be
offered and accept an individual coverage HRA. Moreover, because new
enrollees cannot enroll in grandfathered individual health insurance
coverage, employers offering traditional group health plans would not
be able to shift workers into this coverage. The Departments also
explained that although plans are required to disclose grandfathered
status in any summary of benefits provided under the plan, the
Departments were concerned that the frequency of this disclosure to
participants may be insufficient to substantiate compliance if
integration with these policies were prohibited.
For these reasons, the Departments preliminarily determined that
deeming a policy to be compliant with PHS Act sections 2711 and 2713
for purposes of the proposed rules if it is sold in the individual
market, referred to as the proxy approach, strikes an appropriate
balance. The Departments also solicited comments on methods by which an
HRA could substantiate whether individual health insurance coverage is
subject to and complies with PHS Act sections 2711 and 2713, including
how an HRA might identify which benefits
[[Page 28901]]
under the individual health insurance coverage are considered EHBs for
purposes of PHS Act section 2711 and whether all recommended preventive
services are covered without cost sharing. The Departments solicited
comments on whether an alternative approach, such as a requirement that
an issuer make a representation about compliance and/or grandfathered
status upon request, would be practical, or whether any other methods
might be appropriate as an alternative to the proposed proxy approach.
Some commenters expressed support for the proxy approach, stating
that it would be unreasonable to require employers or participants to
substantiate that individual health insurance coverage is compliant
with PHS Act sections 2711 and 2713. They stated that the proxy
approach is reasonable with respect to grandfathered individual health
insurance coverage because the number of individuals with that coverage
is declining and consumers may not newly purchase grandfathered
individual health insurance coverage.\71\
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\71\ A few commenters expressed concern with what they
understood to be a proposed requirement that the employer verify
that each individual health insurance policy in which an employee
enrolls complies with PHS Act sections 2711 and 2713. Due to this
concern, they suggested safe harbors to avoid imposing this burden
on employers, such as only allowing integration with QHPs or plans
of a certain metal level, and one commenter suggested implementing a
plan compliance certification system. However, the proposed rules
did not impose a requirement on the employer to verify the
compliance of each individual health insurance policy in which an
employee enrolls with PHS Act sections 2711 and 2713. Furthermore,
the Departments are not imposing such a requirement in the final
rules, and are finalizing the proxy approach.
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However, some commenters encouraged the Departments to prohibit
integration with grandfathered coverage because it is not required to
comply with the annual dollar limit prohibition or the preventive
services requirement.\72\ Some of these commenters questioned whether
the Departments had the legal authority to deem such coverage to be in
compliance with PHS Act sections 2711 and 2713. One commenter disagreed
with the Departments' assumption that employers and employees would be
unable to determine if the individual health insurance coverage was
compliant with PHS Act sections 2711 and 2713. Another commenter noted
that if only a small number of individuals currently are enrolled in
grandfathered individual health insurance coverage, prohibiting
integration with that coverage should impact very few individuals. One
commenter suggested, as an alternative to the proxy approach, that
issuers could be required to provide a list of enrolled individuals to
the individual coverage HRA.
---------------------------------------------------------------------------
\72\ One commenter objected to the Departments' assertion in the
preamble to the proposed rules that only a small number of
individuals are currently enrolled in grandfathered individual
health insurance coverage. However, the study the commenter cited to
support the assertion that there is a substantial amount of
grandfathered individual health insurance coverage remaining relates
to grandfathered group coverage (not grandfathered individual health
insurance coverage). See Kaiser Family Foundation, ``Employer Health
Benefits 2018 Annual Survey'', http://files.kff.org/attachment/Report-Employer-Health-Benefits-Annual-Survey-2018.
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The Departments considered these comments and have determined that
requiring a participant or an HRA to substantiate each individual
health insurance policy's compliance with PHS Act sections 2711 and
2713 would be an unwieldy and burdensome task. Further, state and
federal regulators review policy forms of issuers in the individual
market for compliance with the federal requirements before the products
can be offered for sale in the states and undertake market conduct
examinations to ensure compliance with federal requirements. Thus, it
is reasonable to assume, as a general matter, that a policy sold in the
individual market complies with PHS Act sections 2711 and 2713 for
purposes of the final rules.\73\
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\73\ With respect to the suggested alternative approach to the
proxy approach that the Departments could require issuers to provide
employers who sponsor individual coverage HRAs with a list of
individuals covered by individual health insurance coverage, that
alternative approach appears to also include an assumption that the
policies sold are in compliance with PHS Act sections 2711 and 2713
(to avoid requiring confirmation of the compliance of each policy
enrolled in), while adding burdens on the issuers to track and
communicate with employers with whom they would not otherwise
interact. For these reasons, the final rules do not adopt this
alternative approach.
---------------------------------------------------------------------------
With respect to grandfathered individual health insurance coverage,
the Departments have concluded that it is appropriate to adopt the
proxy approach as proposed because the number of individuals with
grandfathered individual health insurance coverage is low and expected
to decrease; individual coverage HRAs and participants may have
difficulty confirming which benefits under the grandfathered plan are
considered EHBs for purposes of PHS Act section 2711, whether all
recommended preventive services are covered without cost sharing, and
whether a particular policy is grandfathered; and grandfathered
coverage may not be sold to new enrollees.\74\
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\74\ See later in this preamble for a discussion of the
conditions that apply to an individual coverage HRA integrated with
Medicare, including that the combined arrangement is considered to
comply with PHS Act sections 2711 and 2713.
---------------------------------------------------------------------------
d. Forfeiture
The proposed rules provided that the requirement that each
individual covered by an individual coverage HRA must be enrolled in
individual health insurance coverage would apply for each month that
the individual is covered by the HRA. The proposed rules further
provided that if an individual covered by the HRA fails to have
individual health insurance coverage for any month, the HRA would fail
to comply with PHS Act sections 2711 and 2713 for that month.
Accordingly, the proposed rules required that an individual coverage
HRA provide that if any individual covered by the HRA ceases to be
covered by individual health insurance coverage, the individual may not
seek reimbursement under the HRA for claims that are incurred after the
individual health insurance coverage ceases, subject to any applicable
continuation-of-coverage requirements. Further, under the proposed
rules, if all individuals in a given family who are covered by the
individual coverage HRA cease to be covered by individual health
insurance coverage, the participant must forfeit the HRA, in accordance
with applicable laws (including COBRA and other continuation-of-
coverage requirements).
One commenter requested that the Departments clarify how the COBRA
rules apply when an individual loses access to an individual coverage
HRA due to failing to maintain individual health insurance coverage.
Other commenters generally requested guidance on the interaction
between COBRA and individual coverage HRAs.
Generally, HRAs are group health plans subject to COBRA
continuation coverage requirements under Code section 4980B and ERISA
sections 601 through 608 (COBRA continuation coverage), unless an
exception applies.\75\ Under the COBRA continuation coverage rules,
certain individuals who lose employer-sponsored coverage may elect to
continue the coverage by paying a premium.\76\ In order to qualify for
[[Page 28902]]
COBRA continuation coverage, the loss of coverage must be the result of
a ``qualifying event.'' The Departments clarify that failure by an
individual to satisfy the integration requirement of maintaining
individual health insurance coverage is not a qualifying event for
purposes of COBRA or other continuation of coverage rules. Thus, the
loss of eligibility to participate in an individual coverage HRA due to
the failure of the individual to maintain individual health insurance
coverage does not create a right to COBRA or other group continuation
coverage in the individual coverage HRA.
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\75\ Plans sponsored by certain small employers, churches, or
governments are not subject to Code section 4980B. See Code section
4980B(d).
\76\ See Code section 4980B and ERISA sections 601-608. See also
26 CFR 54.4980B-1 et seq. and 29 CFR 2590.606-1, 2590.606-2,
2590.606-3, and 2590.606-4. Non-federal governmental group health
plans offered by state or local governments to their respective
employees are subject to parallel continuation of coverage
requirements under the PHS Act. See 42 U.S.C. 300bb-1 et seq.
---------------------------------------------------------------------------
However, a loss of coverage due to a termination of employment or a
reduction in the number of hours of employment generally is a loss of
coverage due to a qualifying event. Thus, for example, an employee
covered by an individual coverage HRA who, due to a reduction in hours,
is moved to a class of employees who are not offered any group health
coverage would have a right to COBRA or other group continuation
coverage in the HRA, as would an individual who loses coverage under
the HRA due to termination of employment. That HRA COBRA or other group
continuation coverage would be conditioned on a timely election of
COBRA or other group continuation coverage and payment of COBRA or
other group continuation coverage premiums, as well as maintaining (or
enrolling in) individual health insurance coverage.\77\ Alternatively,
an employee who loses coverage under an individual coverage HRA for
these reasons may qualify for an SEP to change his or her individual
coverage either on- or off-Exchange.\78\
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\77\ See IRS Notice 2002-45 for more information on providing
COBRA continuation coverage under an HRA.
\78\ See 45 CFR 147.104(b)(2) and 155.420(d)(1)(i).
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One commenter requested clarification regarding whether a failure
to maintain individual health insurance coverage causes retroactive
forfeiture of the individual coverage HRA. Under the final rules, the
required forfeiture applies prospectively. The individual coverage HRA
must allow an employee who loses coverage under the HRA due to failure
to maintain individual health insurance coverage to seek reimbursement
for substantiated medical care expenses that were incurred during the
coverage period prior to the failure to maintain individual health
insurance coverage. However, the individual coverage HRA may limit the
time to submit expenses to a reasonable specified period. The final
rules include some modifications to clarify these rules. The final
rules also clarify that the prohibition on reimbursing amounts for
expenses incurred after an individual's individual health insurance
coverage ceases applies to the individual coverage HRA, rather than to
the individual seeking reimbursement.
One commenter requested clarification regarding whether an
individual with individual health insurance coverage who is in an
Exchange grace period \79\ is considered to be enrolled in individual
health insurance coverage for purposes of this integration requirement.
Under the final rules, in the event an individual initially enrolled in
individual health insurance coverage fails to pay premiums for the
individual health insurance coverage timely and is, therefore, in a
grace period, the individual is considered to be enrolled in individual
health insurance coverage for purposes of the enrollment requirement,
and the HRA must reimburse the individual for expenses incurred during
that time period according to the terms of the HRA. If the individual
fails to pay the applicable premium(s) by the end of the grace period
and individual health insurance coverage is cancelled or terminated,
including retroactively, the HRA must require the individual to notify
the HRA that the individual health insurance coverage has been
cancelled or terminated and the date on which the cancellation or
termination is effective. After the individual coverage HRA has
received the notice of cancellation or termination, the HRA may not
reimburse expenses incurred on and after the date of cancellation or
termination of the individual health insurance coverage, which is
considered to be the date of termination of coverage under the HRA.
Although the commenter specifically asked about grace periods, the
final rules have also been revised to address other situations in which
coverage is cancelled or terminated retroactively, including
rescissions,\80\ and in those cases, the same rules regarding
notification, reimbursement, and date of termination of coverage would
apply.\81\
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\79\ The Departments note that while 45 CFR 156.270 provides a
specific grace period for individuals enrolled in the Exchange who
are receiving APTC, this grace period would not be applicable for an
individual covered by an individual coverage HRA because the
individual will be ineligible for the PTC and APTC. Outside of the
context of Exchange coverage for which APTC is being provided, grace
periods are determined by state law.
\80\ See 45 CFR 147.128 for rules regarding rescissions of
individual health insurance coverage.
\81\ The Departments note that in considering whether to attempt
to recoup reimbursements paid for medical care expenses under an
individual coverage HRA, including expenses incurred during a period
in which an individual did not have individual health insurance
coverage due to a retroactive cancellation or termination of
coverage, the individual coverage HRA must consider PHS Act section
2712, which limits a plan's ability to rescind coverage to instances
in which an individual has committed fraud or intentionally
misrepresented a material fact. See 26 CFR 54.9815-2712, 29 CFR
2590.715-2712, and 45 CFR 147.128. See also DOL Advisory Opinion 77-
08A (advising a health plan that depending on the facts and
circumstances, the hardship to the participant or beneficiary
resulting from such recovery or the cost to the fund of collection
efforts may be such that it would be prudent, within the meaning of
ERISA section 404(a)(1)(B), for the fund not to seek recovery from
the participant or beneficiary).
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One commenter requested that, following separation from service,
amounts should remain in a former employee's individual coverage HRA
for out-of-pocket costs and should remain available after the
individual has access to other coverage. Under the final rules, a plan
sponsor may permit a former employee to have continued access to an
individual coverage HRA, and in some circumstances a former employee
may be able to elect to continue the HRA under the applicable
continuation of coverage requirements. However, the final rules do not
include an exception for former employees to the requirement that
individuals covered by an individual coverage HRA must be enrolled in
individual health insurance coverage. This is because PHS Act sections
2711 and 2713 apply with respect to each individual covered by a group
health plan, including any former employee. Therefore, a former
employee with an individual coverage HRA is required to be enrolled in
individual health insurance coverage to ensure that the former employee
has a combined arrangement that is in compliance with PHS Act sections
2711 and 2713.\82\
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\82\ However, as explained earlier in this preamble, a retiree-
only HRA is not subject to the market requirements. Therefore, a
retiree-only HRA need not comply with the final integration rules,
including the requirement that individuals receiving the HRA enroll
in individual health insurance coverage.
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3. Prohibition Against Offering a Choice Between an Individual Coverage
HRA and a Traditional Group Health Plan to the Same Class of Employees
a. In General
To address the previously described concerns about potential
adverse selection and health factor discrimination, the proposed rules
provided that a plan sponsor may offer an individual coverage HRA to a
class of employees only if the plan sponsor
[[Page 28903]]
does not also offer a traditional group health plan to the same class
of employees. Therefore, a plan sponsor would not be permitted to offer
any employee a choice between a traditional group health plan and an
individual coverage HRA.
Many commenters expressed support for the prohibition against
allowing a plan sponsor to offer a class of employees a choice between
an individual coverage HRA and a traditional group health plan. These
commenters generally stated that this prohibition is essential to
prevent market segmentation and health status discrimination. They
noted that, while on its face allowing a choice between the two types
of coverage may seem appealing, in practice it would lead employers to
encourage higher-risk employees to go into the individual market, by
making plan design changes to traditional group health plans to make
them less attractive to higher-risk employees. This, in turn, could
have significant detrimental effects on the individual market due to
the small size of the individual market compared to the size of the
group market. One commenter noted that the prohibition against offering
employees a choice between a traditional group health plan and an
individual coverage HRA would protect employers from baseless claims of
discrimination. Another commenter stated that permitting employers to
offer a choice between an individual coverage HRA and a traditional
group health plan could raise practical and administrative issues for
employers and issuers, including in estimating participation in the
traditional group health plan.
A few commenters opposed the prohibition on offering employees a
choice between a traditional group health plan and an individual
coverage HRA, asserting that such a rule would restrict choice for
employees and flexibility for employers. Some of these commenters
asserted that the other conditions in the proposed rules, such as the
same terms requirement and the prohibition on integration with STLDI,
each described later in this preamble, were sufficient to prevent
adverse selection.
A few commenters acknowledged the risk of market segmentation by
employers in the large group market or that offer self-insured plans,
but requested that small employers generally, or small employers
offering plans in the fully insured small group market, be allowed to
offer their employees a choice between an individual coverage HRA and a
traditional group health plan. They noted that small employers would
not have an incentive to send their higher-risk employees to the
individual market because insured traditional group health plans in the
small group market are part of a community rated single risk pool. A
few commenters also noted that allowing small employers to offer
employees a choice would be consistent with Executive Order 13813,
which one commenter noted specifically referred to small employers. One
commenter indicated that the prohibition on choice might dissuade
employers from offering individual coverage HRAs to their employees.
The commenter also noted that if given the choice, lower-risk
employees, rather than higher-risk employees, may leave the employer's
traditional group health plan and purchase individual health insurance
coverage.\83\
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\83\ One commenter requested that the prohibition against choice
not apply to spouses and dependents, noting that many employers do
not contribute to family premiums under group health plans. Although
the Departments anticipate that employers will generally not offer
dependents an independent benefit package, for the sake of clarity,
and in response to this comment, the Departments note that the
prohibition is intended to apply to both participants and
dependents, and the final rules are revised to clarify this intent.
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The Departments generally agree with commenters that stated that
permitting employers to offer an employee a choice between an
individual coverage HRA and a traditional group health plan could lead
to market segmentation.\84\ Although some lower-risk employees may
choose to enroll in individual health insurance coverage if offered a
choice, many employers would have strong economic incentives to
encourage lower-risk employees to retain traditional group health plan
coverage and higher-risk employees to enroll in individual health
insurance coverage.
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\84\ Although this condition generally is finalized as proposed,
the text of the final rules is updated to include a reference to the
special rule for new hires, explained later in this preamble. In
general, under the special rule for new hires, a plan sponsor may
continue to offer some employees in a class of employees a
traditional group health plan (that is, current employees), while
offering new employees in that class an individual coverage HRA,
and, therefore, in that limited case, a plan sponsor may offer a
traditional group health plan to some employees in a class of
employees and an individual coverage HRA to other employees in the
same class of employees. However, the special rule for new hires
does not provide an exception to the rule that no participant may be
given a choice between a traditional group health plan and an
individual coverage HRA.
---------------------------------------------------------------------------
With respect to the suggestion that the Departments allow employers
in the small group market to offer a choice to employees, the
Departments acknowledge that the incentives for these employers to
segment risk are substantially lower than for other employers offering
experience-rated coverage or self-insured plans. However, the
Departments would not expect many small employers to offer this choice
because the coverage in the small group market and individual market is
quite similar and because, as the commenters note, small employers that
purchase health insurance would not have an incentive to segment their
risk pool. Although allowing small employers to offer a choice would
not provide small employers much benefit, it would increase the
complexity of the final rules for entities involved in implementation,
such as the Exchanges. Additionally, it could cause some uncertainty
for issuers, and, therefore, increased premiums, in both the individual
and small group markets. Accordingly, in the final rules, the
Departments decline to provide an exception for small employers to the
condition that a plan sponsor may not offer an employee a choice
between a traditional group health plan and an individual coverage HRA.
While the Departments are finalizing the proposal to prohibit choice
between an individual coverage HRA and a traditional group health plan,
the Departments are generally supportive of maximizing employee choice
and employer flexibility and so may revisit this issue in future
rulemaking once the Departments have had the opportunity to gauge the
results of the initial implementation of individual coverage HRAs.
b. Definition of Traditional Group Health Plan
For purposes of the condition that a plan sponsor may not offer any
employee a choice between an individual coverage HRA and a traditional
group health plan, under the proposed rules, the term ``traditional
group health plan'' was defined as any group health plan other than:
(1) An account-based group health plan, or (2) a group health plan that
consists solely of excepted benefits.
Several commenters supported the proposed definition, which
provided that a ``traditional group health plan'' excludes a group
health plan that consists solely of excepted benefits, so that a plan
sponsor may offer an employee both an individual coverage HRA and a
group health plan that consists solely of excepted benefits.\85\
[[Page 28904]]
After considering these comments, the Departments finalize the
definition of ``traditional group health plan'' in the proposed rules
without change. Notwithstanding different QSEHRA rules,\86\ under the
final rules, a traditional group health plan does not include a group
health plan that consists solely of excepted benefits and, therefore, a
plan sponsor generally may offer an employee both an individual
coverage HRA and a group health plan that consists solely of excepted
benefits.\87\
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\85\ One commenter asked that the Departments confirm that a
traditional group health plan means a major medical plan and not a
group health plan that consists solely of excepted benefits. The
Departments confirm the definition of traditional group health plan
does not include a group health plan that consists solely of
excepted benefits. The commenter also noted that an employer may not
provide both a QSEHRA and a group health plan that consists solely
of excepted benefits.
\86\ See Code section 9831(d)(3)(B)(ii) and IRS Notice 2017-67.
\87\ But see later in this preamble for a discussion of the
interaction between excepted benefit HRAs and individual coverage
HRAs.
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One commenter requested that the Departments clarify that the final
rules would not preclude an employer that offers an individual coverage
HRA from offering a separate HRA under which only premiums for excepted
benefits may be reimbursed. The Departments agree that such an
arrangement is not precluded by these final rules. An HRA under which
only excepted benefit premiums may be reimbursed is an account-based
group health plan (and, therefore, not considered a traditional group
health plan). Further, the HRA under which only excepted benefit
premiums may be reimbursed is a group health plan that provides only
excepted benefits (and, therefore, not considered a traditional group
health plan). See later in this preamble for a discussion of the
interaction of an excepted benefit HRA and an individual coverage HRA,
and the difference between an excepted benefit HRA and an HRA that only
provides excepted benefits.
c. Salary Reduction Arrangements
The preamble to the proposed rules noted that the Departments were
aware that some employers may want to allow employees to pay the
portion of the premium for individual health insurance coverage that is
not covered by an individual coverage HRA, if any, through a salary
reduction arrangement under a cafeteria plan. Pursuant to Code section
125(f)(3), an employer generally may not provide a QHP offered through
an Exchange as a benefit under its cafeteria plan.\88\ Therefore, an
employer generally may not permit employees to make salary reduction
contributions to a cafeteria plan to purchase a QHP offered through an
Exchange.
---------------------------------------------------------------------------
\88\ But see Code section 125(f)(3)(B).
---------------------------------------------------------------------------
However, Code section 125(f)(3) does not apply to individual health
insurance coverage that is not purchased on an Exchange. Therefore, for
an employee covered by an individual coverage HRA who purchases
individual health insurance coverage outside of an Exchange, the
employer may permit the employee to pay the balance of the premium for
the coverage through its cafeteria plan, subject to all applicable
cafeteria plan guidance. Such an arrangement would not be considered to
be a traditional group health plan for purposes of the final rules.
Some commenters supported allowing a salary reduction arrangement
under a cafeteria plan alongside an individual coverage HRA, with one
commenter noting that this flexibility is essential to ensuring
successful take-up of individual coverage HRAs. One commenter
recommended against allowing a salary reduction arrangement alongside
an individual coverage HRA unless further guidance is issued on
cafeteria plans addressing nondiscrimination rules and penalties. One
commenter requested that the Departments work with Congress to
eliminate the prohibition, under Code section 125(f)(3), against
purchasing Exchange coverage under a cafeteria plan.
Under the final rules, as under the proposed rules, an employer may
permit an employee covered by an individual coverage HRA who purchases
individual health insurance coverage outside of an Exchange to pay the
balance of the premium for the coverage through its cafeteria plan,
subject to all applicable cafeteria plan guidance. This arrangement
would not be considered to be a traditional group health plan for
purposes of the final rules. Changes to the statutory prohibition
regarding the use of cafeteria plans to purchase Exchange coverage are
outside of the scope of this rulemaking.
Commenters also raised various other issues related to the
interaction between individual coverage HRAs and cafeteria plans under
Code section 125. A few commenters expressed support for the ability to
integrate a stand-alone cafeteria plan with individual health insurance
coverage.\89\ And some commenters requested that the Departments
provide answers to hypothetical scenarios involving the intersection of
cafeteria plans, HSAs, and HRAs. Neither the proposed rules nor the
final rules make any changes to the rules under Code section 125. Thus,
any issues arising under Code section 125, and any guidance requested
by commenters to address those issues, are beyond the scope of this
rulemaking. The Treasury Department and the IRS, however, appreciate
the comments and will consider whether to address some of these issues
in future guidance.
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\89\ As noted earlier in this preamble, for purposes of the
final rules, the term ``HRA or other account-based group health
plan'' does not include an employer arrangement that reimburses the
cost of individual health insurance coverage through a cafeteria
plan under Code section 125.
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4. Same Terms Requirement
a. In General
To address concerns about health status discrimination leading to
adverse selection in the individual market, the proposed rules
generally required that a plan sponsor that offers an individual
coverage HRA to a class of employees must offer the HRA on the same
terms (that is, both in the same amount and otherwise on the same terms
and conditions) to all employees within the class of employees.\90\ As
part of this proposed condition, the Departments made clear that
offering a more generous HRA to individuals based on an adverse health
factor would violate the integration rules.
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\90\ The Departments note that if an employer chooses not to
distinguish its employees based on the classes of employees
permitted under the final rules and offers an individual coverage
HRA to all of its employees, the same terms requirement would apply
to all of the employer's employees.
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Commenters generally supported the same terms requirement as a
condition essential to protecting against market segmentation and
recommended that it be retained in the final rules. Some commenters
specifically supported the ability under the proposed rules to vary the
HRA terms and amounts between different classes of employees. Because
the Departments have concluded that the same terms requirement is
critical to protecting against adverse selection in the individual
market, the final rules retain this requirement, but with some
revisions and clarifications in response to comments as explained later
in this section of the preamble.
One commenter stated that the same terms requirement prohibits
discrimination that could occur either by offering less generous
benefits to only certain employees in a class of employees or by
offering more generous benefits to only certain employees in a class of
employees. The commenter stated that it is critical that this
prohibition against ``benign'' discrimination be retained in the final
rules. The Departments agree, and this aspect of the rule is being
adopted as proposed.
b. Exceptions to the Same Terms Requirement
The Departments recognize that premiums for individual health
[[Page 28905]]
insurance coverage obtained by individual coverage HRA participants and
their dependents may vary and, thus, some variation in amounts made
available under an individual coverage HRA, even within a class of
employees, may be appropriate. Therefore, the proposed rules provided
that it would be permissible to increase the maximum dollar amount made
available under an individual coverage HRA for participants within a
class of employees as the age of the participant increases, so long as
the same maximum dollar amount attributable to that increase in age was
made available to all participants of the same age within the same
class of employees.
Commenters generally supported the provision allowing increases in
individual coverage HRA amounts based on the participant's age, as
premiums in the individual market generally increase based on age.
However, some commenters expressed concern that an unlimited ability to
increase amounts made available under an individual coverage HRA based
on age could be used to shift older, higher cost workers to the
individual market. Therefore, these commenters recommended that, to
avoid adverse selection, the ability to increase amounts by age be tied
to actual variance in premiums for individual health insurance
coverage, such as the 3:1 age rating rule in PPACA \91\ or through some
other reasonable relationship to the cost of individual coverage.
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\91\ See PHS Act section 2701(a)(1)(A)(iii).
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The Departments agree that imposing an outer bound on the ability
of a plan sponsor to vary the maximum amounts made available under an
individual coverage HRA based on a participant's age could further
protect against adverse selection in the individual market, while not
hampering the ability of a plan sponsor to provide benefits that
account for increased costs for older workers in the individual market.
Therefore, in response to these comments, the same terms requirement is
revised under the final rules to provide that an individual coverage
HRA does not fail to be provided on the same terms to a class of
employees solely because the maximum dollar amount made available under
the terms of the HRA increases as the age of the participant increases,
so long as the maximum dollar amount made available under the terms of
the HRA to the oldest participant(s) is not more than three times the
maximum dollar amount made available under the terms of the HRA to the
youngest participant(s). The final rules retain the rule that the same
maximum dollar amount attributable to the increase in age must be made
available to all participants in a class of employees who are the same
age.
The Departments considered a number of different ways to design the
limitation on age variation, including by incorporating the federal and
state age curves, tying the variation to a specific premium for a
specific policy that a participant in the class of employees could
purchase, and basing the maximum dollar amount made available by the
individual coverage HRA on the degree of age variation in individual
market premiums in the rating area where each employee resides.
However, the Departments determined that these options would be unduly
complex and that imposing the 3:1 limit, which is generally based on
the degree of age variation allowed in individual market premiums under
PHS Act section 2701, sufficiently limits the potential for abuse.\92\
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\92\ Relatedly, on November 19, 2018, the Treasury Department
and the IRS issued Notice 2018-88, which addressed the application
of the rules under Code section 105(h) to individual coverage HRAs.
HRAs generally are subject to the rules under Code section 105(h)
and its related rules because they are self-insured medical
reimbursement plans. However, HRAs that reimburse employees only for
premiums paid to purchase health insurance policies, including
individual health insurance policies, are not subject to the rules
under Code section 105(h) and its related rules. See 26 CFR 1.105-
11(b)(2). Notice 2018-88 described an anticipated safe harbor that
would apply to individual coverage HRAs that are subject to Code
section 105(h) to address the fact that under the Code section
105(h) rules, variation in employer contributions based on age is
not allowed. The Treasury Department and the IRS intend to propose
rules under Code section 105(h) in the near term that set forth an
age variation standard that is consistent with the rule included in
these final integration rules, and the proposed rules under Code
section 105(h) will be subject to notice and comment.
---------------------------------------------------------------------------
One commenter expressed concern that permitting, rather than
requiring, increases in the maximum amount available under an
individual coverage HRA based on age could invite age discrimination.
Thus, the commenter argued that the final rules should require
employers to vary individual coverage HRA amounts based on age to
account for increases in costs for older workers. The Departments note
that other federal laws and rules address age discrimination and are
the more appropriate area of regulation in which to address these
concerns. Accordingly, the Departments decline to require, but will
permit, employers to increase individual coverage HRA amounts based on
participants' ages under the final rules. However, individual coverage
HRAs may be subject to restrictions imposed under other laws, such as
those that protect against age discrimination.
One commenter requested that the Departments clarify the date as of
which the age of the participant may be determined for this purpose and
suggested the first day of the HRA plan year. The final rules clarify
that a participant's age, for purposes of the same terms requirement,
may be determined by the plan sponsor using any reasonable method for a
plan year, so long as the plan sponsor determines each participant's
age for this purpose using the same method for all participants in the
class of employees for the plan year and the method is determined prior
to the plan year. For example, as the commenter suggests, the plan
sponsor may determine each participant's age based on their age on the
first day of the individual coverage HRA plan year.
Additionally, the proposed rules included a proposal to permit the
maximum dollar amount made available under an individual coverage HRA
within a class of employees to increase as the number of the
participant's dependents covered under the HRA increased, so long as
the same maximum dollar amount attributable to that increase in the
number of dependents is made available to all participants in that
class of employees with the same number of dependents covered by the
HRA. Commenters generally supported this provision, as the cost of
individual health insurance coverage generally increases with an
increase in the number of dependents covered. Some commenters asked for
clarification on the extent to which employers may increase amounts
made available under an individual coverage HRA based on an increase in
the number of the participant's dependents. One commenter recommended
that any permitted increase be tied to individual market premium
variance in order to prevent employers from varying HRA amounts to
encourage higher-risk employees to shift to the individual market.
Another commenter recommended that employers be required to vary
individual coverage HRA amounts based on the number of dependents
covered by the HRA in order to put employees on equal footing with
other individuals and allow them to purchase insurance based on their
relevant circumstances.
The Departments considered these comments, but have determined that
providing employers flexibility as to if and how they vary HRA amounts
based on family size does not raise a significant risk of adverse
selection or health factor discrimination and,
[[Page 28906]]
instead, avoids unnecessary complexity. Therefore, under the final
rules, it remains permissible to vary HRA amounts based on the number
of a participant's dependents covered by the individual coverage HRA as
proposed. Moreover, there is no specific limit on an employer's ability
to increase HRA amounts based on the number of a participant's
dependents covered by the HRA, so long as the same maximum dollar
amount attributable to that increase in the number of dependents is
made available to all participants in that class of employees with the
same number of dependents covered by the HRA.
Commenters also suggested additional factors for which employers
should be allowed to vary amounts provided under an individual coverage
HRA within a class of employees, including earnings or salary, role/
title, and geographic region. The Departments note that the suggestions
that individual coverage HRA amounts be allowed to vary within a class
of employees based on earnings, salary, or role/title raise adverse
selection and health factor discrimination concerns, as these classes
are more susceptible to manipulation by an employer. Accordingly, the
Departments decline to adopt any of these suggestions. Regarding
geographic region, the Departments acknowledge that individual health
insurance costs vary based on geography, but the Departments decline to
adopt this suggestion because the issue is already addressed under the
final rules through the ability to classify employees based on the
rating area of their primary site of employment.
A few commenters recommended that the Departments consider an
employer that contributes the same percentage of an employee's
individual health insurance premium (for example, 80 percent) to an
individual coverage HRA to be considered to be providing the individual
coverage HRA on the same terms to the employees in the class. The
Departments decline to adopt this suggestion because this type of rule
would add significant complexity to the same terms requirement,
particularly with respect to determining how to coordinate the ability
to vary based on age and family size, and would also raise adverse
selection concerns, as well as more general concerns about the inherent
incentives of a percentage-based standard and its effect on healthcare
spending.
See later in this preamble for a discussion of the same terms
requirement as applied to an employer that offers both an HSA-
compatible individual coverage HRA and an individual coverage HRA that
is not HSA compatible to the same class of employees and for a
discussion of how the same terms requirement applies if an individual
coverage HRA makes amounts available based on amounts remaining in
another HRA by which the participant was previously covered.
c. Former Employees
The proposed rules generally would apply to an individual coverage
HRA that includes participants who are former employees in the same way
that they would apply if the HRA only provided benefits to current
employees. However, the Departments recognized that eligibility for
post-employment group health plan coverage, if any, varies widely and
may be subject to age, service, or other conditions. To avoid undue
disruption of employers' practices relating to the provision of post-
employment health coverage, the proposed rules provided that an
individual coverage HRA may be treated as provided on the same terms
even if the plan sponsor offers the individual coverage HRA to some,
but not all, former employees within a class of employees (for example,
to all former employees with a minimum tenure of employment). But,
under the proposed rules, if a plan sponsor offers the individual
coverage HRA to one or more former employee(s) within a class of
employees, the HRA must be offered to those former employee(s) on the
same terms as all other employees within the class.
One commenter expressed concern that allowing employers to offer
some retirees an individual coverage HRA, but not all retirees, creates
the potential for health status discrimination. The Departments note,
however, that many nondiscriminatory reasons may influence an
employer's decisions whether to offer retiree health coverage. For
example, it is not uncommon for employers to offer retiree health
coverage only to workers that have been with the company at least 5
years prior to retirement.\93\ Moreover, the HIPAA nondiscrimination
rules (as well as other applicable federal and state laws) address
discrimination based on a health factor.
---------------------------------------------------------------------------
\93\ See e.g., 5 U.S.C. 8905(b).
---------------------------------------------------------------------------
One commenter supported treating former employees under the same
terms as all members of the class of employees. Another commenter
requested confirmation that employers providing retirees and current
employees with different amounts in individual coverage HRAs would
satisfy the same terms requirement and requested confirmation that
contributing different amounts to former employees based on years of
service would satisfy the same terms requirement. The final rules
provide that former employees within a class of employees offered an
individual coverage HRA need not be offered an individual coverage HRA,
but if they are, the HRA must be provided to them on the same terms as
other employees in that class of employees (based on the class in which
the former employee was included immediately prior to separation from
service). Therefore, a plan sponsor would not comply with the same
terms requirement if it provided some employees in a class of employees
larger or smaller HRA amounts based on years of service or status as a
former employee.\94\
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\94\ Also, eligibility conditions that are based solely on the
lapse of a time period are permissible for no more than 90 days
under PHS Act section 2708. See 26 CFR 54.9815-2708, 29 CFR
2590.715-2708, and 45 CFR 147.116.
---------------------------------------------------------------------------
The Departments received a number of comments on retiree-only HRAs
in response to the proposed rules. Although the final rules do not
modify the rules for retiree-only HRAs, the Departments note that the
market requirements do not apply to a group health plan that has fewer
than two participants who are current employees on the first day of the
plan year.\95\ Therefore, a retiree-only HRA need not satisfy the
requirements of any integration test, including the same terms
requirement.
---------------------------------------------------------------------------
\95\ See Code section 9831(a)(2) and ERISA section 732(a). HHS
follows a similar approach for non-federal governmental retiree-only
plans and encourages states to adopt a similar approach with respect
to issuers of retiree-only plans. See 75 FR 34537, 34539 (June 17,
2010).
---------------------------------------------------------------------------
d. New Employees or New Dependents
One commenter asked for clarification regarding the application of
the same terms requirement in the case of coverage changes during the
plan year, including in cases in which an employee gains a dependent.
In response to this comment, in the final rules, the Departments
clarify the application of the same terms requirement both for new
employees and new dependents. Therefore, in the final rules, the
Departments clarify that, under the same terms requirement, in the case
of a participant who becomes covered by an individual coverage HRA
after the first day of the plan year, the individual coverage HRA may
make the full annual amount available or adopt a reasonable proration
methodology. The Departments also clarify in the final rules how the
same terms requirement
[[Page 28907]]
applies if the individual coverage HRA varies the maximum amount
available based on the number of a participant's dependents covered by
the HRA and the number of the participant's dependents covered by the
HRA either increases or decreases during the plan year. In that case,
the individual coverage HRA may make available the same amount made
available to participants in the class who had the same number of
dependents covered by the HRA on the first day of the plan year or may
adopt a reasonable proration methodology of that amount for the
remainder of the plan year. The method the individual coverage HRA uses
to determine amounts made available for participants who enroll during
the plan year or who have changes in the number of dependents covered
by the HRA during a plan year must be the same for all participants in
the class of employees, and the method must be determined prior to the
beginning of the plan year.
5. Classes of Employees
a. In General
The proposed and final rules require a plan sponsor that offers an
individual coverage HRA to a class of employees to offer the individual
coverage HRA on the same terms to each participant within the class of
employees, subject to certain exceptions. Also, the proposed and final
rules provide that a plan sponsor may offer individual coverage HRAs on
different terms to different classes of employees, and may offer either
an individual coverage HRA or a traditional group health plan to
different classes of employees. However, within a class of employees, a
plan sponsor generally may not offer some employees a traditional group
health plan and others an individual coverage HRA \96\ (or offer any
employee a choice between a traditional group health plan or an
individual coverage HRA). The proposed rules enumerated the classes of
employees that would apply for these purposes. As discussed in more
detail in this section of the preamble, the final rules make a number
of changes to the list of permissible classes of employees in response
to comments.
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\96\ The one exception to this general rule, described later in
this preamble, is the special rule for new hires. However, even
under the special rule for new hires, no employee may be offered a
choice between an individual coverage HRA and a traditional group
health plan.
---------------------------------------------------------------------------
Many commenters supported the general ability of a plan sponsor to
offer individual coverage HRAs on different terms to different classes
of employees and to offer either a traditional group health plan or an
individual coverage HRA to different classes of employees. These
commenters applauded the flexibility provided by this aspect of the
proposed rules, emphasizing that such flexibility is critical for plan
sponsors that want to offer individual coverage HRAs.
However, some commenters objected to this aspect of the proposed
rules, expressing concerns about the ability of plan sponsors to use
the classes of employees to segment risk. These commenters suggested
that a plan sponsor that wants to offer an individual coverage HRA
should not be allowed to offer a traditional group health plan to any
of its employees and, instead, should be required to offer the HRA, on
the same terms, to all of its employees and, therefore, fully replace
the traditional group health plan(s) it may have offered. One commenter
requested that the Departments disallow the use of different classes of
employees in applying the final rules as a transitional measure, so
that plan sponsors would not be allowed to offer some classes of
employees a traditional group health plan and other classes of
employees an individual coverage HRA for some transitional period of
time. A number of commenters, including some of those who generally
supported the ability to vary benefits on a class-by-class basis,
expressed concerns about the possibility of adverse selection and,
therefore, recommended that additional safeguards be provided, or, at a
minimum, no further flexibility be provided.
The Departments considered these comments and have determined that
permitting plan sponsors to offer different benefits to certain classes
of employees is essential to providing the flexibility needed to
achieve increased HRA usability and to maximize employee welfare. The
Departments understand that employers commonly use certain job-based
classifications for employee benefits and other purposes and that
failing to provide flexibility to offer different benefits to different
classes of employees, even for a transitional period of time, could
reduce the use and availability of individual coverage HRAs. However,
the Departments acknowledge the concerns regarding the potential for
adverse selection and health factor discrimination and, therefore, have
concluded that additional parameters in certain circumstances are
needed for employers to offer different benefits to different classes
of employees in order to address the potential for adverse selection
and health factor discrimination. Accordingly, the final rules permit
employers to apply the integration rules on a class-by-class basis, as
was allowed under the proposed rules. However, as explained later in
this section of the preamble, the final rules make a number of changes,
including revisions to the list of permissible classes of employees,
the addition of a minimum class size requirement that applies in
certain instances, and clarifications of a number of other related
issues in response to comments.
b. Proposed and Final Classes
The proposed rules included the following proposed classes of
employees: (1) Full-time employees (using either the definition that
applies for purposes of Code section 105(h) or 4980H, as determined by
the plan sponsor); (2) part-time employees (using either the definition
that applies for purposes of Code section 105(h) or 4980H, as
determined by the plan sponsor); (3) seasonal employees (using either
the definition that applies for purposes of Code section 105(h) or
4980H, as determined by the plan sponsor); (4) employees who are
included in a unit of employees covered by a collective bargaining
agreement (CBA) in which the plan sponsor participates (as described in
26 CFR 1.105-11(c)(2)(iii)(D)) (the CBA class of employees); (5)
employees who have not satisfied a waiting period for coverage (if the
waiting period complies with the waiting period rules in PHS Act
section 2708 and its implementing rules) (the waiting period class);
(6) employees who have not attained age 25 prior to the beginning of
the plan year (as described in 26 CFR 1.105-11(c)(2)(iii)(B)) (the
under-age-25 class); (7) employees who are non-resident aliens with no
U.S.-based income (as described in 26 CFR 1.105-11(c)(2)(iii)(E))
(generally, foreign employees who work abroad) (the non-resident alien
class); and (8) employees whose primary site of employment is in the
same rating area, as defined in 45 CFR 147.102(b) (the rating area
class). In addition, the proposed rules permitted, as additional
classes of employees, groups of employees described as a combination of
two or more of the enumerated classes.
As explained in the preamble to the proposed rules, the Departments
took a number of considerations into account in determining the
proposed classes of employees. First, the proposed classes were ones
that, based on the Departments' experience, employers historically have
used for employee benefit purposes other than inducing higher-risk
employees to leave the plan sponsor's traditional group health plan.
[[Page 28908]]
Second, the proposed classes of employees were not ones that could be
easily manipulated in order to transfer higher-risk individuals (and
perceived higher costs) from the employer's traditional group health
plan to the individual market, as it would be burdensome for employers
to shift employees from one of these classes of employees to another
merely for the purpose of offering different types of health benefits
to employees based on a health factor. Therefore, the Departments
determined that these proposed classes of employees would balance
employers' reasonable need to make distinctions among employees with
respect to offering health benefits with the need to protect against
adverse selection and health factor discrimination. The Departments
requested comments on the proposed classes of employees, including
whether additional classes of employees should be provided and whether
the proposed classes of employees and any potential additional classes
are sufficient to mitigate adverse selection concerns.
Several commenters supported the proposed classes of employees,
with some insisting that no additional classes be added because of the
increased likelihood of risk pool manipulation. Several commenters
expressed support for the proposed list of specific enumerated classes,
as opposed to an open-ended standard, as a way to mitigate adverse
selection.
Some commenters objected to the proposed classes, expressing
general concern that the rules would provide employers too much
flexibility, which would lead to manipulation of classes and risk
segmentation. Some commenters requested that specific classes be
eliminated or modified. In particular, several commenters expressed
concern that the under-age-25 class of employees would lead to adverse
selection. These commenters stated that this class is not justified
based on a bona fide relationship to employment or the need to provide
employers flexibility because employers do not typically structure
benefits based on whether an employee has attained age 25. Some
commenters raised administrative complexity concerns in their
objections to this proposed class because employees under age 25 may be
eligible for coverage under their parents' group health plans. One
commenter, however, supported this class, stating that it may lead to
healthier risk entering the individual market. The Departments agree
with the commenters who raised concerns about the under-age-25 class of
employees, both as to the potential for adverse selection and the fact
that employers do not typically structure benefits based on this
classification and, therefore, do not need the flexibility the proposed
rules provided.\97\ Therefore, the final rules do not include the
under-age-25 class of employees as a permitted class of employees.
---------------------------------------------------------------------------
\97\ The Departments note that the under-age-25 class of
employees was included in the proposed rules because it is a class
of employees that may be excluded for certain purposes under Code
section 105(h) and under the QSEHRA rules. See earlier in this
preamble for a discussion of the application of Code section 105(h)
to individual coverage HRAs.
---------------------------------------------------------------------------
With regard to the proposed part-time employee class, several
commenters supported including the class because of the additional
flexibility it would provide to employers when determining whether to
offer any benefits to part-time employees. One commenter highlighted
that some large employers (who would not be able to provide a QSEHRA)
may want to offer their part-time employees some level of tax-preferred
health benefits but have no options today other than offering a
traditional group health plan. Some commenters also argued that
providing additional flexibility for employers to offer individual
coverage HRAs to part-time employees who might otherwise not have been
offered any benefits could lead to increased enrollment in individual
health insurance coverage, thereby stabilizing the individual market
risk pool and reducing premiums. One commenter suggested that the
Departments should allow multiple gradations of part-time employees
(for example, employees who work 10 to 20 hours per week, employees who
work 20 to 30 hours per week, etc.). However, one commenter expressed
concern that a part-time employee class could be a proxy for higher-
risk employees, and could, therefore, lead to adverse selection, as the
commenter asserted that many employees who work part-time do so due to
health issues.
The Departments agree with those commenters who asserted that a
part-time employee class should be included in the final rules, as it
could provide necessary flexibility to allow some employers to offer an
individual coverage HRA to part-time employees who might otherwise not
be offered any group health plan benefits. While the Departments do not
dispute that some employees may change from full-time employee status
to part-time employee status due to health issues, the Departments have
determined that allowing full-time employees and part-time employees as
separate classes of employees is essential for employer flexibility,
increasing HRA usability, and maximizing employee welfare. Further, the
Departments have concluded that the requirements of the final rules,
including these employee classifications, are sufficiently robust to
mitigate market segmentation. Therefore, the final rules include full-
time employees and part-time employees as separate permitted classes
for individual coverage HRAs. However, see the discussion later in this
preamble regarding the definitions of these terms and the application
of a minimum class size requirement to these classes in certain
circumstances.
With regard to a class of employees based on a geographic area,
some commenters expressed concern that basing the class on the rating
area of the work site could be too granular risking increased adverse
selection. Thus, the commenters asserted that a class based on
geography should instead be determined at the state level. While the
Departments understand and considered the concern raised by commenters,
the Departments have determined, based on information regarding the
significant differences in individual market premiums between rating
areas within some states and significant differences in the number of
individual health insurance plans available between rating areas within
some states, that it would be an unreasonable limitation on employer
flexibility to prohibit employers from offering different benefits
based on different work-site rating areas. The Departments concluded
that a rule that would prohibit employers from differentiating between
these particular classes of employees for purposes of offering
individual coverage HRAs would pose significant costs that might
undermine the willingness of employers to offer an individual coverage
HRA. Therefore, the final rules allow a class of employees to be based
on the rating area of the employees' primary work site. However, in
response to concerns raised by commenters regarding the potential for
adverse selection and health factor discrimination with this class of
employees in particular, see the discussion later in this preamble
regarding the application of a minimum class size requirement to this
class in certain circumstances.
With regard to the waiting period class of employees, one commenter
recommended that this class of employees be limited to a 30-day waiting
period maximum to provide an additional market segmentation safeguard.
Another commenter specifically supported this class. The final rules
include the waiting period
[[Page 28909]]
class of employees, which aligns with the waiting periods allowed under
PHS Act section 2708 and its implementing rules, because this avoids
unneeded complexity and burden and the Departments do not consider this
class of employees to raise significant adverse selection concerns.
Several commenters requested clarification regarding the CBA class
of employees, which under the proposed rules was defined as ``employees
included in a unit of employees covered by a collective bargaining
agreement in which the plan sponsor participates (as described in 26
CFR 1.105-11(c)(2)(iii)(D)).'' Commenters sought clarification as to
whether employers may establish separate classes for employees subject
to different CBAs or whether all employees subject to various CBAs
entered into by the employer would be aggregated and considered one
class of employees for purposes of offering individual coverage HRAs.
One commenter requested that the Departments clarify whether a class of
employees based on a CBA would include all the employees subject to
that CBA or could be based on distinctions within the CBA. Under the
final rules, employers may establish separate classes of employees for
employees covered by separate CBAs. However, under the final rules, an
employer is not specifically permitted to create its own classes of
employees based on any distinctions relating to employees within one
CBA. However, an employer is permitted to combine a CBA classification
with other permitted classes of employees (for example, combining the
CBA class with the full-time employee and part-time employee classes to
create full-time and part-time CBA subclasses), thereby allowing the
employer to make certain further distinctions within the group of
employees subject to the CBA. The Departments have revised the
definition of this class of employees in the text of the rules and
added an example to the text to clarify its meaning in response to
comments. Further, to account for, and to avoid disruption of, the way
in which multiemployer plan coverage is sometimes offered, the final
rules also clarify that the CBA class may include employees covered by
a CBA and employees covered by an appropriate related participation
agreement.\98\
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\98\ A participation agreement allows non-collectively bargained
employees to participate in a multiemployer plan. Non-collectively
bargained employees can only participate in a multiemployer plan if
the plan specifically allows it, and a participation agreement will
set forth who is eligible and the benefits for which they are
eligible.
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With regard to the proposed ability to combine classes of employees
more generally to create subclasses, some commenters supported the
flexibility, but others expressed concern with the potential for risk
segmentation. Some commenters recommended that the final rules not
permit combinations of classes of employees or that, if permitted, the
final rules apply certain additional safeguards, including a minimum
class size requirement. Several commenters recommended not allowing
combinations of classes of employees for small employers but permitting
combinations of classes of employees for large employers, as long as
the number of employees in a combined class satisfies a minimum. The
Departments determined that it is important to provide employers with
the flexibility to combine classes of employees but, as discussed later
in this preamble, it is also appropriate to apply a minimum class size
requirement in certain circumstances to mitigate adverse selection and
health factor discrimination concerns. Therefore, the final rules
continue to allow for the combination of classes of employees as
proposed but, in certain circumstances, apply a minimum class size
requirement. The final rules also include additional examples to
illustrate the ability of plan sponsors to combine classes of
employees.
c. Additional Classes
Some commenters recommended against adding any classes to the list
of proposed permitted classes of employees, stating that the proposed
classes of employees were sufficient and that additional classes of
employees could lead to an increased risk of adverse selection.
However, as discussed in this section of the preamble, several other
commenters requested that certain additional classes of employees be
added to the final rules.
In the proposed rules, the Departments acknowledged that permitting
plan sponsors to treat salaried and hourly employees as different
classes of employees was considered, but not proposed. The Departments
noted that employers might easily be able to change an employee's
status from salaried to hourly (and in certain circumstances, from
hourly to salaried) with seemingly minimal economic or other
consequences for either the employer or the employees. Some commenters
agreed and strongly opposed adding hourly and salaried employees as
classes of employees, expressing concern that classes of employees
based on pay status could facilitate health status discrimination and
be easily manipulated.
However, several commenters requested that salaried and hourly
employees be added as separate classes of employees. These commenters
disagreed with the Departments' assertion that employers might be able
to easily change employee status from salaried to hourly and vice
versa. The commenters noted that changing status from salaried to
hourly in particular has substantial economic and other consequences
for both employers and employees and that doing so on the basis of the
health of an employee could violate ERISA section 510. One commenter
noted that employers historically have provided different benefits to
hourly and salaried workers and that adding these as permitted classes
of employees could facilitate increased use of individual coverage HRAs
for employers that might otherwise decline to offer an individual
coverage HRA. The Departments considered the issues raised in these
comments. The Departments have concluded that the benefits of employer
flexibility, increased utilization of individual coverage HRAs, and
maximizing employee welfare outweigh the potential risk of adverse
selection and health factor discrimination, due to a reconsideration of
the extent to which these categories could be manipulated and because
of the application of a minimum class size requirement, as described
later in this preamble. Therefore, the final rules include salaried and
non-salaried employees as permitted classes of employees.
One commenter requested that employees employed by a staffing firm
for temporary placement at entities unrelated to the staffing firm
(temporary workers) be treated as a separate class. The commenter
stated that this rule would facilitate offering of individual coverage
HRAs by staffing firms to full-time temporary workers (while it is
likely that regular full-time employees of the staffing firm would
continue to receive an offer of a traditional group health plan). The
commenter further stated that staffing firms historically have offered
temporary workers different benefits than regular full-time employees
for reasons other than to segment risk. The commenter further stated
that it would be burdensome for staffing firms to shift workers between
the temporary worker and regular employee classes merely to shift risk.
The Departments agree that adding this class could increase the
usability of HRAs for staffing firms and benefit their employees, that
this class would be difficult to manipulate, and, that,
[[Page 28910]]
therefore, this class does not raise a substantial risk of adverse
selection or health factor discrimination. Therefore, the final rules
include as a permitted class of employees individuals who, under all
the facts and circumstances, are the employees of an entity that hired
the employees for temporary placement at an unrelated entity (that is,
another entity that is not the common law employer of the employees and
that is not treated as a single employer under Code section 414(b),
(c), (m), or (o) with the entity that hired the employees for temporary
placement).
One commenter requested that independent contractors be permitted
as a separate class of employees, and one commenter requested that the
Departments allow self-employed business owners to participate in an
individual coverage HRA. HRAs were established \99\ as a means for
employers to provide tax-favored benefits to employees, but the
exclusion from federal income tax for reimbursements of medical
expenses by HRAs is set forth in Code sections 105 and 106, both of
which generally are restricted to employer-provided coverage to
employees. Moreover, Code section 105(g) specifically provides that the
exclusion under Code section 105(b) is not available to an individual
who is an employee within the meaning of Code section 401(c)(1)
(relating to self-employed individuals). For these reasons, businesses
that utilize the services of independent contractors cannot provide
those self-employed individuals with a tax-favored individual coverage
HRA nor may a self-employed business owner be provided a tax-favored
individual coverage HRA. Therefore, the final rules do not adopt the
suggestion to add independent contractors, or self-employed individuals
more generally, as a permitted class of employees because these
individuals cannot be provided tax-favored HRAs.
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\99\ See IRS Notice 2002-45.
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One commenter requested that employees eligible for Medicare and
employees enrolled in Medicare be treated as two separate classes. The
Departments decline to adopt this suggestion. Sections 1862(b)(1)(A),
(B), and (C) of the Social Security Act (SSA) generally provide that an
employer that is subject to its provisions may not take into account an
employee's (or employee spouse's) eligibility for Medicare in the
design or offering of its group health plan.\100\ Section
1862(b)(1)(A)(i)(II) provides that a group health plan must provide to
any employee or spouse age 65 or older the same benefits, under the
same conditions, that it provides to employees and spouses under age
65, regardless of whether the individual or spouse age 65 or older is
entitled to Medicare. Because Medicare is also generally available to
people with end-stage renal disease (ESRD) regardless of their age, SSA
section 1862(b)(1)(C) further provides that a group health plan may not
differentiate in the benefits it provides between individuals having
ESRD and other individuals on the basis of the existence of ESRD, the
need for dialysis, or in any other manner (except during a 30-month
coordination period). Because these SSA provisions generally prohibit
an employer that is subject to them from discriminating on the basis of
an employee's (or the employee's spouse's) Medicare eligibility and
treating Medicare employees (other than retirees) differently for
benefits under the plan, the Departments decline to establish separate
classes of employees for employees who are eligible for or enrolled in
Medicare. However, see later in this preamble for a discussion of the
conditions under which an individual coverage HRA may be integrated
with Medicare.
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\100\ The applicability of the Medicare nondiscrimination rules
depends on the size of the employer and the type of Medicare
beneficiary. For working aged beneficiaries, the rules apply to
employers with 20 or more employees. For disabled beneficiaries, the
rules apply to employers with at least 100 employees. For ESRD
beneficiaries, they rules apply to employers of any size. See 42 CFR
411.100 et seq.
---------------------------------------------------------------------------
Commenters also requested a number of other classes of employees,
with different commenters suggesting different classes of employees,
such as classes based on status as a field worker (such as craft
workers and laborers), role or job title, employee tenure, being
subject to the Davis Bacon Act and Related Acts or the Service Contract
Act, exempt or non-exempt status under the Fair Labor Standards Act,
and religion or status as a minister. The Departments considered each
of these suggestions and have determined that these suggested classes
of employees raise various issues including ease of manipulation and
potential for adverse selection and health factor discrimination,
industry-specificity, and administrability and definitional challenges.
The Departments also took into account that, in general, the more
classes that are permitted, the greater the risk of adverse selection
and health factor discrimination. With respect to the requested class
based on employee tenure, the Departments determined that such a class
could be inconsistent with the prohibition on waiting periods that
exceed 90 days under PHS Act section 2708, in addition to raising
concerns regarding ease of manipulation and potential for adverse
selection and health factor discrimination. Therefore, the Departments
have determined that, on balance, for these suggested additional
classes, the potential risks posed outweigh the potential benefits, and
the Departments decline to add these suggested classes of employees to
the final rules. However, see the discussion later in this preamble
regarding the special rule for new hires, which is related in part to
the comments suggesting a new class based on employee tenure.
d. Additional Safeguards
In the preamble to the proposed rules, the Departments stated that
to minimize burden and complexity, the Departments had not proposed a
minimum employer size or employee class size. The Departments
identified a concern that very small employers could manipulate the
classes of employees, but noted that other economic incentives related
to attracting and retaining talented workers would discourage employers
from doing so. Accordingly, the Departments invited comments on whether
employer size or employee class size should be considered in
determining permissible classes of employees.
With regard to employer size, some commenters stated that the risk
of health factor discrimination is higher with small employers and that
the final rules should prohibit small employers from using, or
combining, classes of employees to make health coverage distinctions.
However, other commenters asserted that the concern that small
employers may discriminate based on health status is invalid, arguing
that small employers are less likely to discriminate because of both
the complexity required to design discriminatory programs and the
minimal incentives that small employers have to remove risk from their
small group market traditional group health plans that are part of a
community rated single risk pool. For these reasons, one commenter
requested that the final rules include less restrictive guardrails for
small employers. The commenter also requested that large employers
offering only an individual coverage HRA be permitted additional
flexibility to structure their classes of employees because the risk of
discrimination would be mitigated as the employer is not offering a
traditional group health
[[Page 28911]]
plan and, therefore, would not have incentives to remove risk from its
plan.
With regard to minimum class size, a number of commenters requested
that individual coverage HRAs only be available to classes of employees
that include a minimum number of employees or are a minimum percentage
of an employer's workforce. A few commenters noted that although a
minimum class size requirement would be restrictive, and perhaps
inhibit the use of individual coverage HRAs, it would be necessary to
prevent risk segmentation. Some commenters supported applying a minimum
class size requirement in all cases and some supported applying such a
requirement only when separate classes of employees are combined to
make smaller subclasses of employees. Some commenters made general
requests for a minimum class size requirement (for example, requests
for a meaningful threshold) and others included specific suggestions,
such as requiring a minimum class size of 10 percent of employees, at
least 10 percent of the employer's workforce or 100 workers, at least
20 employees, or prohibiting employers with fewer than 10 employees
from being able to create classes. One commenter requested that there
be no minimum class size requirement, in particular to provide
flexibility to small employers.
In response to these comments, the Departments have concluded that
it is appropriate to apply a minimum class size requirement under the
final rules in certain circumstances. The Departments sought to develop
a rule that is narrowly tailored both to mitigate the risk of adverse
selection and health factor discrimination while also avoiding overly
burdening employers or unnecessarily hampering the use and flexibility
of HRAs to maximize employee welfare.
In order to balance these various considerations, the final rules
include a minimum class size requirement that varies based on employer
size and that applies only to certain classes of employees in certain
circumstances in which the potential for adverse selection is greatest.
If a class of employees is subject to the minimum class size
requirement, the class must include a minimum number of employees for
the individual coverage HRA to be offered to that class. The final
rules explain the circumstances in which the minimum class size
requirement applies, how to determine the applicable class size
minimum, and how an individual coverage HRA determines if a particular
class of employees satisfies the applicable class size minimum. The
final rules also provide a number of examples to illustrate each aspect
of the minimum class size requirement.
As to the circumstances in which the minimum class size requirement
applies, it applies only if the plan sponsor offers a traditional group
health plan to at least one other class of employees and offers an
individual coverage HRA to at least one class of employees. To the
extent the minimum class size requirement applies, it applies only to
certain classes that are offered an individual coverage HRA. The
minimum class size requirement does not apply to a class of employees
offered a traditional group health plan or to a class of employees that
is not offered any group health plan.
Under the final rules, the minimum class size requirement generally
applies to the following classes of employees offered an individual
coverage HRA: (1) Salaried employees, (2) non-salaried employees, (3)
full-time employees, (4) part-time employees, and (5) employees whose
primary site of employment is in the same rating area (although the
minimum class size requirement does not apply if the geographic area
defining the class is a state or a combination of two or more entire
states) (these classes are referred to collectively as the applicable
classes). However, in the case of full-time employees and part-time
employees, the minimum class size requirement applies only to those
classes if the employees in either the part-time or full-time class are
offered a traditional group health plan while the employees in the
other class are offered an individual coverage HRA. The Departments
considered each of the classes of employees permitted under the final
rules to determine which classes, if any, present a risk of adverse
selection sufficiently significant to justify the imposition of the
minimum class size requirement. The Departments determined that classes
composed of salaried employees, non-salaried employees, full-time
employees, part-time employees, and employees whose primary site of
employment is in the same rating area (except if the geographic area
defining the class is a state or a combination of two or more entire
states) present a substantial risk that employers could apply each of
these classes in a way that targets certain higher-risk employees and,
therefore, could lead to health factor discrimination and adverse
selection. However, the Departments determined that the other permitted
classes of employees (that is, the seasonal employee class, the CBA
class, the waiting period class, the class based on non-resident aliens
with no U.S.-based income, and the class of employees for temporary
workers employed by a staffing firm) are unlikely to be manipulated by
employers in a way that would lead to health factor discrimination or
adverse selection.
Under the final rules, the minimum class size requirement applies
to a class of employees created by combining any of the applicable
classes with any other class of employees, except that the minimum
class size requirement does not apply to a class that is the result of
any combination of an applicable class and the waiting period class.
Waiting periods are most typically applied to new hires, and it is not
uncommon for employers to hire new employees in small numbers, to
respond to attrition and as workflow increases. Further, the
Departments are of the view that combinations of classes that include
the waiting period class do not raise a significant risk of
manipulation that could lead to adverse selection or health factor
discrimination. Therefore, taking these factors into account, the
Departments have determined that applying the minimum class size
requirement to a class comprised of an applicable class and a waiting
period class is not warranted.
Consistent with the comments received on this topic, the minimum
number of employees that must be included in a class of employees
subject to the minimum class size requirement (the applicable class
size minimum) depends on the number of employees employed by the
employer. The plan sponsor must determine the applicable class size
minimum for each plan year of the individual coverage HRA. The
applicable class size minimum is: (a) 10, for an employer with fewer
than 100 employees; (b) a number, rounded down to a whole number, equal
to 10 percent of the total number of employees, for an employer with
100 to 200 employees; and (c) 20, for an employer that has more than
200 employees. In selecting these thresholds, the Departments
considered the suggestions made by commenters and sought to strike a
balance between providing employers with flexibility to offer different
healthcare packages as part of their compensation framework and design,
and limiting employers' ability to use the classes in ways that would
create adverse selection in the individual market. The Departments
agree with commenters that small employers may not have significant
incentives to establish classes in a way that would result in adverse
selection or health discrimination, but also are of the view that it
could be easier for smaller
[[Page 28912]]
employers to manipulate the classes of employees. Further, the
Departments selected thresholds for larger employers taking into
account that, despite their total size, the classes of employees could
also be manipulated by larger employers in ways that could lead to
adverse selection and health factor discrimination. Therefore, the
minimum class size requirement applies to small employers and large
employers, but at lower thresholds for smaller employers than for large
employers. For the purpose of applying the minimum class size
requirement, an employer must determine the number of its employees
based on its reasonable expectation of the number of employees it
expects to employ on the first day of the plan year of the individual
coverage HRA.
The annual determination of whether a class of employees satisfies
the applicable class size minimum is based on the number of employees
in the class who are offered the individual coverage HRA as of the
first day of the plan year.\101\ Therefore, the determination of
whether a class of employees satisfies the minimum class size
requirement is not based on the number of employees who enroll in the
individual coverage HRA and is not affected by changes that occur
during the plan year.
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\101\ The Departments reiterate that under the same terms
requirement, an employer offering an individual coverage HRA to any
employee in a class of employees must offer the HRA, generally on
the same terms and conditions, to all employees in the class.
---------------------------------------------------------------------------
Some commenters requested that, in addition to, or instead of, a
minimum class size requirement, the Departments should add an anti-
abuse rule that would give the Departments the discretion to determine
whether an individual coverage HRA is offered in a manner that is
intended to segment sicker workers based on all the facts and
circumstances. Therefore, even if an employer followed the other rules
set forth in the final rules, this additional rule would nevertheless
permit the Departments to address instances of discrimination based on
a health factor. The Departments decline to add a facts and
circumstances test to the final rules because the Departments have
concluded that the minimum class size requirement, as set forth in the
final rules, adequately balances the need to prevent health factor
discrimination with the need to provide employers with certainty in
order to encourage expansion and use of individual coverage HRAs.
Moreover, other applicable nondiscrimination laws continue to apply.
Under the HIPAA nondiscrimination provisions, for example, a group
health plan (including an individual coverage HRA) may not discriminate
in eligibility for benefits, or in premiums or contributions, based on
one or more health factors.\102\ In addition, for ERISA-covered plans,
it is unlawful for any person to discriminate against a participant or
beneficiary for the purpose of interfering with the attainment of any
right to which the participant may become entitled under a health plan
or ERISA.\103\ Further, under the SSA, an employer generally may not
take into account that an individual is entitled to Medicare on the
basis of age or disability, or eligible for, or entitled to Medicare on
the basis of ESRD, and may not differentiate in the benefits it
provides between individuals who have ESRD and other individuals
covered under the plan.\104\ In addition, other nondiscrimination laws
(such as the Americans with Disabilities Act) may also apply, and the
Departments note that compliance with the final rules is not
determinative of compliance with any other applicable law. A new facts
and circumstances test would add significant uncertainty for employers
while adding little additional protection mitigating adverse selection
and health factor discrimination.
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\102\ Code section 9802, ERISA section 702, and PHS Act section
2705. See also 26 CFR 54.9802-1, 29 CFR 2590.702, and 45 CFR
146.121.
\103\ ERISA section 510.
\104\ SSA section 1862(b)(1)(A), (B), and (C) and 42 CFR
411.102, 411.161, and 411.170.
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e. Former Employees
Under the proposed rules, if an individual coverage HRA were
offered to former employees, former employees would be considered to be
in the same class of employees in which they were included immediately
before separation from service. While the plan sponsor would not be
required to offer the individual coverage HRA to all former employees
(or to all former employees in the applicable class of employees), if
it did offer the HRA to a former employee, it would have to do so on
the same terms as for the other employees in that class.
A few commenters requested that employers be permitted to treat
former employees as a separate class of employees, stating that the
rule under the proposed rules treating former employees as part of the
class of employees in which they would have been included immediately
prior to separation from service will impose a barrier to offering
individual coverage HRAs. These commenters stated that such a new class
of employees would not raise manipulation concerns because whether to
terminate employment generally is an independent decision made by the
employee. Commenters further suggested that if a class of employees
were created for former employees, the final rules should also permit
subclasses within the class of former employees based on years of
service.
Some commenters supported the proposed treatment of former
employees and commented that former employees should not be permitted
as a separate class of employees under the final rules because the
general age and health status of former employees would present adverse
selection concerns. One commenter included a number of requests
regarding retiree-only HRAs in the context of rehired employees.
Notwithstanding that employers may continue to offer retiree-only
HRAs that are not subject to the market requirements (and, therefore,
are not subject to any integration requirements), the Departments
understand the commenters' concern regarding adverse selection and are
not aware of a compelling need to treat former employees as a separate
class of employees under the final rules in light of the continued
allowance of retiree-only HRAs that are not subject to any integration
requirements. All of the rules and eligibility criteria related to
retiree-only HRAs continue to apply without change.\105\ Therefore, the
final rules provide that a former employee is considered to be a member
of the same class of employees the former employee was in immediately
before separation from service, as proposed.
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\105\ See Code section 9831(a)(2) and ERISA section 732(a).
While title XXVII of the PHS Act, as amended by PPACA, no longer
contains a parallel provision at PHS Act section 2721(a), HHS has
explained that it will not enforce the requirements of title XXVII
of the PHS Act with respect to non-federal governmental retiree-only
plans and encourages states to adopt a similar approach with respect
to retiree-only plans offered by health insurance issuers. See 75 FR
34537, 34540 (June 17, 2010).
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Several commenters raised other classification and administration
issues related to retirees. One commenter requested clarification that
the final rules would not affect the status of former employees who
participate in their employer's traditional group health plan through
COBRA. The Departments note that the impact of the final rules on any
former employee participating in an employer's traditional group health
plan through COBRA continuation coverage depends on the facts and
circumstances. For example, COBRA continuation coverage ends on the
date the employer ceases to provide any group health plan (including
successor plans). If a former employee is participating in a
[[Page 28913]]
traditional group health plan that is replaced by an individual
coverage HRA, the former employee would have a right to elect to
participate in the successor plan, the individual coverage HRA
(conditioned on the payment of premiums and enrollment in individual
health insurance coverage), but would generally not have a right to
continue coverage in the traditional group health plan. One commenter
requested that the final rules define ``former employee.'' The final
rules provide that for purposes of this rule a former employee is an
employee who is no longer performing services for the employer.
f. Controlled Group
Commenters requested clarification as to whether the classes of
employees are identified based on the employees of the common law
employer or, rather, whether the determination is made at the
controlled group level (generally referring to a group of employers
treated as a single employer with the common law employer under Code
section 414(b), (c), (m), or (o)), such that all employees of a
controlled group of employers would be combined to create the classes
of employees. Some commenters recommended that the Departments confirm
that the controlled group rules do not apply for this purpose, and some
recommended that the controlled group rules be used to determine the
classes of employees as a way to reduce the number of small classes and
prevent adverse selection.
After consideration of these comments, the Departments have
concluded that determining the classes of employees at the common law
employer level will avoid complexity for employers and that applying
the minimum class size requirement (to the extent applicable), as
described earlier in this preamble, at the common law employer level,
is a more straightforward way of addressing the adverse selection
concerns raised by some commenters. Accordingly, the final rules
clarify that the classes of employees are determined based on the
employees of a common law employer, rather than the employees of a
controlled group of employers.
g. Movement Among Classes
A few commenters requested clarification regarding the application
of the final rules in the situation in which an employee moves out of a
class of employees that is offered an individual coverage HRA and into
a different class of employees that is offered either a traditional
group health plan, a different individual coverage HRA, or no coverage.
As discussed earlier in this preamble, the Departments note that as
group health plans, HRAs generally are subject to the COBRA or other
group continuation of coverage rules. However, if the change in the
employee's classification is not the result of termination of
employment or reduction in hours, there generally is not a qualifying
event resulting in a COBRA or other group continuation of coverage
right.
Even if an employee who ceases enrollment in an individual coverage
HRA does not have a right to continuation of coverage, the HRA must
allow the individual to submit for reimbursement substantiated medical
care expenses that were incurred during the coverage period prior to
the termination date of the individual coverage HRA. In this case, the
individual coverage HRA may limit the period of time to submit expenses
to a reasonable specified time period after termination of coverage
under the individual coverage HRA during which the participant may
submit those claims. Additionally, an employee who loses coverage under
an individual coverage HRA may qualify for an SEP for loss of MEC to
change his or her individual health insurance coverage either on or off
an Exchange.
One commenter asked whether an employee who changes classes of
employees and loses coverage under an individual coverage HRA may
convert unused amounts to another type of HRA. The Departments note
that under existing rules, employers generally may provide employees
enrolled in a traditional group health plan an HRA that is integrated
with that traditional group health plan and in some circumstances may
provide an HRA that can be integrated with TRICARE or Medicare. Nothing
in the final rules or current guidance would prevent employers from
basing the amount in these types of HRAs on unused amounts in an
individual coverage HRA in which the individual was previously
enrolled, nor are employers precluded from basing the amount of an
individual coverage HRA on unused amounts in these types of HRAs in
which the individual was previously enrolled. Also, if an employee
moves from a class of employees offered an individual coverage HRA to a
class of employees offered a different individual coverage HRA, nothing
in the final rules would prevent the employer from permitting the
unused amounts in the first individual coverage HRA to be considered
transferred to the second. Therefore, the final rules are revised to
clarify that amounts made available in an individual coverage HRA based
on amounts remaining in another HRA under which the participant was
previously covered are disregarded for purposes of determining whether
the individual coverage HRA is offered on the same terms, provided that
if the HRA takes these amounts into account, it does so on the same
terms for all participants in the class of employees.\106\
---------------------------------------------------------------------------
\106\ However, employers may not permit unused amounts in an
individual coverage HRA, or any other type of HRA, to be considered
transferred to an excepted benefit HRA because amounts made
available under an excepted benefit HRA are necessarily limited in
order for the HRA to constitute an excepted benefit. Allowing
amounts remaining in other types of HRAs to be transferred to an
excepted benefit HRA could lead to significant circumvention of that
limit. Also, note that under the final excepted benefit HRA rules,
if the plan sponsor offers more than one HRA to the participant for
the same time period, the amounts made available under all such
plans are aggregated to determine whether the benefits are limited
in amount, except that HRAs that reimburse only excepted benefits
are not included in determining whether the benefits are limited in
amount.
---------------------------------------------------------------------------
Further, with regard to amounts remaining in an individual coverage
HRA after the individual is no longer covered by the HRA, the HRA must
allow a participant (and the participant on behalf of dependents) to
submit claims to the HRA for reimbursement of substantiated expenses
that were incurred during the coverage period prior to the termination
of the individual's coverage under the individual coverage HRA, even if
the claim is submitted after the individual is no longer covered by the
individual coverage HRA. However, the HRA may limit the period to
submit expenses to a reasonable specified time period.
One commenter requested guidance on situations in which employees
are currently receiving treatment for health conditions when an
employer switches from a traditional group health plan to an individual
coverage HRA. The Departments note that a similar issue arises under
existing rules when an employer switches from one group health plan to
another group health plan with a different network of providers, so
that providers participating under the first plan are no longer in
network. The final rules do not address this issue because it is not
specific to this rulemaking. To the extent an employee or dependent is
switching from an insured traditional group health plan to individual
health insurance coverage purchased with an individual coverage HRA,
state ``succeeding carrier'' or ``extension of benefit'' laws may
regulate the obligations of the prior or succeeding issuer to cover an
individual's ongoing health conditions at the time of the coverage
switch.
[[Page 28914]]
h. Definition of Full-Time Employee, Part-Time Employee, and Seasonal
Employee
For purposes of identifying classes of employees, the proposed
rules provided that a plan sponsor may define full-time employees,
part-time employees, and seasonal employees in accordance with either
the applicable definitions under Code section 105(h) or those under
Code section 4980H to avoid overlapping classes of employees. The
proposed rules included a proposal that a plan sponsor's choice of
which statutory definitions to apply must be consistent across these
three classes of employees, to the extent the plan sponsor
differentiates based on these classes.
A few commenters requested that only one definition for each term
be permitted and requested that the final rules adopt the definitions
in Code section 4980H. One commenter recommended that only the
definition of full-time employee under Code section 4980H (which is
based on 30 hours per week) should be permitted. This commenter
asserted that use of the definition under Code section 105(h) (which is
based on 35 hours per week) could lead to adverse selection, because
many plans currently offer traditional group health plan coverage to
employees based on the Code section 4980H definition, and use of
another definition could lead to subdivision of full-time employees. A
few commenters supported the proposed ability to choose either set of
definitions, including the requirement to use either the definitions
under Code section 4980H or those under Code section 105(h)
consistently across these classes of employees.
The Departments considered these comments and have determined that
the final rules should adopt the definitions provided in the proposed
rules. This approach provides employers with flexibility, while
limiting opportunities for risk segmentation. The Departments
understand that, to avoid the inclusion of amounts in income, plan
sponsors of self-insured plans subject to Code section 105(h) (in
particular small employers not subject to Code section 4980H) may want
to design their health plans to offer a traditional group health plan
and individual coverage HRAs (or individual coverage HRAs in different
amounts or under different terms and conditions) to different classes
of employees that are identified in a manner that complies with the
requirements of Code section 105(h). The Departments also acknowledge
that certain larger employers have already determined how to apply the
definitions under Code section 4980H to their workforces and using
those same definitions for purposes of applying the integration rules
may reduce burden for those employers. Therefore, the final rules
include flexibility for each employer to determine which set of
definitions is appropriate for its workforce, provided the employer
uses the same set of definitions for classifying its full-time, part-
time, and seasonal employees to the extent it uses one or more of these
classes of employees.
The proposed rules further provided that the HRA plan document must
set forth the applicable definitions of full-time employee, part-time
employee, and seasonal employee prior to the beginning of the plan year
in which the definitions will apply and that nothing would prevent an
employer from changing the definitions for a subsequent plan year. Some
commenters supported that provision, asserting that it minimizes the
potential for adverse selection, with one requesting clarification
whether it is permissible to change the definitions of the classes of
employees during the plan year. One commenter stated that plan sponsors
should not be allowed to change the definitions each plan year,
asserting that this flexibility could allow small employers in
particular to segment risk.
The Departments have determined that in order to mitigate the risk
of market segmentation and minimize disruption to employees with
respect to a coverage period, it is important for plan sponsors to
determine prior to the plan year which definitions will apply and to
apply them consistently throughout the plan year. The Departments also
have concluded that limiting an employer's ability to revise the
definitions it applies from one plan year to the next would be
unnecessarily restrictive. Accordingly, the final rules generally
retain the rules in the proposed rules. However, the final rules
clarify that adjustments during the plan year to the definitions used
to identify the classes of employees are not permitted.
6. Special Rule for New Hires
As explained earlier in this preamble, some commenters expressed
concerns about the challenges employees may experience in transitioning
from a traditional group health plan to individual health insurance
coverage, with some stating that the proposed rules failed to
adequately take into account the differences between the coverage types
and the significance of the change from the employee's perspective. The
Departments are aware that the transition from coverage under a
traditional group health plan to coverage under an individual coverage
HRA could represent a substantial change from an employee perspective,
and, as a result, employers may want to phase in individual coverage
HRAs. By allowing plan sponsors to offer traditional group health plans
to some classes of employees while offering other classes of employees
an individual coverage HRA, the final rules provide plan sponsors with
some flexibility to manage the transition to individual coverage HRAs.
However, in response to comments, including those expressing concern
about the transition from traditional group health plans to individual
coverage HRAs and those expressing interest in being able to provide
different benefits based on employee tenure, the Departments have
determined that it is appropriate to provide additional flexibility to
plan sponsors, in particular for employers that offer traditional group
health plans that would like to continue to offer that type of coverage
to current employees who are accustomed to that coverage, but offer
individual coverage HRAs to newly hired employees.
Therefore, notwithstanding the general rule that a plan sponsor may
only offer either a traditional group health plan or an individual
coverage HRA to a class of employees, the final rules provide that a
plan sponsor that offers a traditional group health plan to a class of
employees may prospectively offer employees in that class hired on or
after a certain date in the future (the new hire date) an individual
coverage HRA (the new hire subclass), while continuing to offer
employees in the class hired before the new hire date a traditional
group health plan (the special rule for new hires). A plan sponsor may
set the new hire date prospectively for a class of employees as any
date on or after January 1, 2020. A plan sponsor may set different new
hire dates prospectively for separate classes of employees.
Although this special rule provides additional flexibility, it is
still the case that for the new hire subclass, the individual coverage
HRA must be offered on the same terms to all participants within the
new hire subclass, in accordance with the generally applicable rules
under the same terms requirement. Further, a plan sponsor may not offer
a choice between an individual coverage HRA or a traditional group
health plan to any participant, whether a current employee or a newly
hired employee in the new hire subclass.
[[Page 28915]]
A plan sponsor may discontinue the special rule for new hires at
any time for a class of employees. In that case, the new hire subclass
would no longer be treated as a separate subclass of employees, and
each employee that was previously treated as part of the new hire
subclass would then be treated as an employee in the class of which he
or she would have otherwise belonged for purposes of the final rules.
In that case, if the plan sponsor wanted to offer an individual
coverage HRA, it would need to do so for all the employees in the class
and generally on the same terms, as explained earlier in this preamble.
It could also choose instead to offer a traditional group health plan
to some or all of the employees \107\ in the class or to offer no
coverage.
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\107\ To the extent such an arrangement is available to active
employees it may be subject to restrictions under other laws, such
as the MSP provisions.
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In the event a plan sponsor applies the special rule for new hires
to a class of employees and later discontinues using the rule for the
class of employees, the plan sponsor may apply the special rule for new
hires to the class of employees again, at a later time, under the same
rules as the initial application of the rule. For example, as under the
basic requirements for the application of the special rule for new
hires, the plan sponsor would only be allowed to apply the rule to a
class to which it is offering a traditional group health plan. If a
plan sponsor applies the special rule for new hires again, in
accordance with the general rules under the special rule for new hires,
the plan sponsor would choose a prospective new hire date. In no
circumstances may the special rule for new hires be applied to a class
of employees (including a new hire subclass) already being offered an
individual coverage HRA, in an attempt to offer different HRA amounts
or other different terms within a class of employees based on different
hire dates.
The minimum class size requirement described earlier in this
preamble does not apply to a new hire subclass. This is because the
Departments recognize that many employers hire only a few employees, or
even only one employee, at a time and a subclass based on a new hire
date does not present a high risk of manipulation that could lead to
adverse selection. However, if a plan sponsor subdivides the new hire
subclass based on a permissible class of employees subsequent to
creating the new hire subclass, the minimum class size requirement
applies to any class of employees created by subdividing the new hire
subclass, if the minimum class size requirement otherwise applies. The
text of the final rules includes examples to illustrate these rules.
7. Opt-Out Provision
If an individual is covered by an HRA, including an individual
coverage HRA, for a month, regardless of the amount of reimbursement
available under the HRA, the individual is not eligible for the PTC for
that month. Because in some circumstances an individual may benefit
more from claiming the PTC than from having funds in an HRA available
for reimbursement, the Departments' existing rules regarding
integration with non-HRA group coverage and with Medicare require a
plan sponsor that offers an HRA to allow participants to opt out of and
waive future reimbursements from the HRA at least annually.\108\ The
proposed rules also included this requirement with respect to the
individual coverage HRA, so that employees would be allowed the PTC, if
they are otherwise eligible, if they opt out of and waive future
reimbursements from the HRA and the HRA is either unaffordable or does
not provide MV.\109\ The Departments have concluded that this condition
is important as a result of the PTC consequences of HRA coverage, and,
therefore, the final rules retain this condition, with some
clarifications.
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\108\ See 26 CFR 54.9815-2711(d)(2)(i)(E), (d)(2)(ii)(D), and
(d)(5)(iv); 29 CFR 2590.715-2711(d)(2)(i)(E), (d)(2)(ii)(D), and
(d)(5)(iv); and 45 CFR 147.126(d)(2)(i)(E), (d)(2)(ii)(D), and
(d)(5)(iv).
\109\ See later in this preamble for a discussion of the final
rules regarding the circumstances in which an offer of an individual
coverage HRA is affordable and provides MV for purposes of Code
section 36B.
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Furthermore, consistent with the current rules for integration with
a group health plan and with Medicare, the proposed rules required that
upon termination of employment, either the remaining amounts in the HRA
must be forfeited or the participant must be allowed to permanently opt
out of and waive future reimbursements from the HRA. This requirement
ensures that the HRA participant may choose whether to claim the PTC,
if otherwise eligible, or to continue to participate in the HRA after
the participant's separation from service.\110\
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\110\ Note that a former employee is only rendered ineligible
for the PTC if the former employee enrolls in employer-sponsored
coverage; an offer of coverage (even if it is affordable and
provides MV) does not preclude a former employee from claiming the
PTC. See 26 CFR 1.36B-2(c)(3)(iv).
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Commenters generally supported these opt-out requirements as
necessary to protect PTC eligibility for employees. Some commenters
expressed concern that due to the complexity of the PTC affordability
rules, employees are likely to have difficulty understanding whether or
not they should opt out of an individual coverage HRA. Similarly, some
commenters expressed concern that some low- and moderate-income
employees may opt into the individual coverage HRA although they may
have been better off opting out of the HRA and receiving the PTC, while
others expressed concern that some employees may opt out of the HRA
based on the misimpression that they will receive the PTC, when
actually they are ineligible for the PTC.
The Departments appreciate the concerns expressed regarding the
burden on employees to properly determine whether the individual
coverage HRA they have been offered is affordable and provides MV and
to determine whether they will be better off with the HRA or, if
otherwise eligible, the PTC. These concerns are the primary reason that
the Departments proposed and are finalizing the requirement for
individual coverage HRAs to provide a written notice to each
participant. Further, the Departments will work with the FFEs and State
Exchanges to ensure that their applications and other relevant
materials are updated to accommodate individuals who are offered an
individual coverage HRA and are applying for individual health
insurance coverage with APTC.
Some commenters requested clarification regarding the timing of the
annual opt-out condition. One commenter asked the Departments to
clarify how the annual opt-out condition applies in the case of an HRA
with a non-calendar year plan year. In response, the final rules
clarify that an HRA may establish timeframes for enrollment in (and
opting out of) the HRA, but participants generally \111\ must be
provided an opportunity to opt out of the individual coverage HRA once
for each plan year, which must occur in advance of, and with respect
to, the plan year. That is, individual coverage HRAs must provide
participants with one advance opportunity to accept, or opt out of, the
individual coverage HRA for each plan year, but the individual coverage
HRA may not provide participants with multiple opportunities
[[Page 28916]]
to opt into, or out of, the individual coverage HRA over the course of
the plan year, except that the final rules require HRAs to provide an
opt out opportunity upon termination of employment. This is generally
consistent with employees' ability to decline traditional group health
plan coverage that is not affordable or does not provide MV in order to
claim the PTC, if otherwise eligible. See later in this preamble for a
discussion of comments received on the proposed PTC rules and an
explanation of the final PTC rules, including for additional discussion
of the application of the PTC rules to an employee opting out of, or
accepting, an individual coverage HRA with a non-calendar year plan
year.
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\111\ The final rules also clarify that for participants or
dependents who become eligible for the individual coverage HRA on a
date other than the first day of the plan year (or participants who
are not required to be provided the HRA notice at least 90 days in
advance of the plan year (that is, employees who become eligible
less than 90 days prior to the plan year and employees of newly
established employers)), the option to opt out must be provided
during the HRA enrollment period established by the HRA for these
individuals and then subsequently on an annual basis in advance of
the plan year.
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One commenter requested clarification as to whether a former
employee offered an individual coverage HRA must be provided the annual
opportunity to opt out of the individual coverage HRA. The Departments
clarify that the annual opt-out condition applies for all participants
eligible to enroll in an individual coverage HRA, including former
employees. Another commenter requested clarification whether an
employee's choice to opt out of an individual coverage HRA also applies
to the employee's dependents who are otherwise eligible for the
individual coverage HRA. The Departments intend for the opt-out
opportunity to extend to dependents, but expect that an employer would
provide an individual coverage HRA to an employee's dependent only if
the employee participates in the individual coverage HRA. Therefore,
the final rules clarify that if an employee opts out of an individual
coverage HRA, the individual coverage HRA is considered waived for the
employee's eligible dependents as well.\112\ See later in this preamble
for a discussion of the circumstance in which the offer of an
individual coverage HRA to an employee's dependents will render the
dependents ineligible for the PTC.
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\112\ The Departments note that this provision addresses the
right of participants to opt out of the HRA generally, including for
their dependents, and is not intended to preclude an HRA from
allowing a participant who enrolls in the HRA from enrolling some,
but not all, dependents (including new dependents added during the
year). The Departments also clarify that in the event a participant
gains a dependent during the year, the HRA must provide the
participant the right to decline to enroll that dependent, if the
participant had enrolled for the plan year.
---------------------------------------------------------------------------
One commenter requested clarification as to whether, instead of
permanently forfeiting an individual coverage HRA upon termination of
employment, an individual coverage HRA may be suspended for a period of
time, allowing the individual to receive the PTC during that period of
time if otherwise eligible, and then have the HRA amounts reinstated in
the individual coverage HRA years in the future. Although the current
rules for integration of an HRA with other group coverage allow certain
HRA amounts that would otherwise be permanently forfeited to be
reinstated in the future upon a fixed date, a participant's death, or
the earlier of the two events, the final rules do not include a similar
provision for individual coverage HRAs. The final rules do not include
such a provision due to the Departments' concerns about complexity and
burden on employers in needing to establish procedures for
substantiation of enrollment in individual health insurance coverage
upon reinstatement, and on an ongoing basis, possibly many years in the
future; the lack of demand for such a rule from employers; and
potential complexities related to the interaction with the PTC.\113\
However, as explained earlier in this section of the preamble, the
final rules require an individual coverage HRA to provide an annual
opportunity for participants to opt out of the HRA, which may,
depending on the individual coverage HRA offered, allow the
participant, if otherwise eligible, to claim the PTC.
---------------------------------------------------------------------------
\113\ See 26 CFR 54.9815-2711(d)(3), 29 CFR 2590.715-2711(d)(3),
and 45 CFR 147.126(d)(3).
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8. Substantiation of Coverage Under Individual Health Insurance
Coverage
a. In General
The proposed rules required that individuals whose medical care
expenses may be reimbursed under an individual coverage HRA must be
enrolled in individual health insurance coverage. To facilitate the
administration of this requirement, under the proposed rules, an
individual coverage HRA would be required to implement, and comply
with, reasonable procedures to verify that individuals whose medical
care expenses are reimbursable by the individual coverage HRA are, or
will be,\114\ enrolled in individual health insurance coverage during
the plan year (annual coverage substantiation requirement).
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\114\ The Departments clarify that the reference to ``will be''
applies for participants who provide the substantiation in advance
of when their individual coverage HRA coverage begins.
---------------------------------------------------------------------------
Commenters generally supported the annual coverage substantiation
requirement, asserting that it is necessary to ensure the effectiveness
of the requirement that individuals covered by an individual coverage
HRA must be enrolled in individual health insurance coverage. The
Departments agree; therefore, the final rules adopt the annual coverage
substantiation requirement, with minor clarifications described in this
section of the preamble.\115\
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\115\ One commenter asserted that the substantiation
requirements in the proposed rules are not sufficient but the
commenter appears to have understood that the annual coverage
substantiation requirement is the sole substantiation requirement.
The Departments note that the final rules, like the proposed rules,
also require that the HRA satisfy the ongoing substantiation
requirement. The Departments determined that both the annual
coverage substantiation requirement and the ongoing substantiation
requirement are necessary to ensure that individuals covered by an
individual coverage HRA have individual health insurance coverage.
Also, this commenter asserted that in the proposed rules the
Departments acknowledged that employees may fail to obtain coverage,
and cited to 83 FR 54445 (Oct. 29, 2018), where, in the regulatory
impact analysis the Departments stated that loss of coverage could
occur as a result of the integration rules ``if some previously
covered employees do not accept the HRA and fail to obtain their own
coverage.'' The Departments clarify that this statement related to
individuals who opt out of the HRA and did not address the
circumstance in which an individual with an individual coverage HRA
does not have individual health insurance coverage.
---------------------------------------------------------------------------
Some commenters asked the Departments to clarify the timeframe
within which the substantiation must be provided, including requests
for clarification as to whether it would be acceptable for the
substantiation to occur during the individual coverage HRA enrollment
period or prior to the first request for reimbursement under the
individual coverage HRA, which commenters stated would be consistent
with typical administrative procedures for HRAs. For individuals who
seek enrollment in an individual coverage HRA for the entire HRA plan
year, the Departments intend for the annual coverage substantiation
requirement to provide verification of an individual's enrollment in
individual health insurance coverage for the entire HRA plan year (and,
therefore, that coverage is in effect as of the first day of the HRA
plan year). Accordingly, the final rules clarify that the HRA may
establish the date by which the annual coverage substantiation
requirement must be satisfied, but, in general, the date may be no
later than the first day of the HRA plan year. Nothing in the final
rules prevents an HRA from setting reasonable parameters for when the
substantiation must be provided to the HRA (for example, by the end of
the individual coverage HRA open enrollment period).\116\
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\116\ The Departments note that in establishing the enrollment
period for an individual coverage HRA, plan sponsors should consider
the timeframes for the relevant individual market enrollment
periods.
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[[Page 28917]]
However, for individuals who become eligible for the HRA during the
HRA plan year, including dependents, or who otherwise are not required
to be provided the HRA notice described later in this preamble 90 days
prior to the plan year (that is, employees who become eligible fewer
than 90 days prior to the plan year or employees of newly established
employers), the HRA may establish the date by which the substantiation
must be provided, but the date may be no later than the date the HRA
coverage begins. These individuals may not have sufficient time to
enroll in individual health insurance coverage that is effective on or
before the first day of the HRA plan year. Thus, the final rules
provide a timing requirement that is consistent with the annual
coverage substantiation requirement to provide verification of an
individual's enrollment in individual health insurance coverage for the
portion of the HRA plan year during which the individual is covered by
the HRA. The final rules also clarify that, for these individuals,
whether the individual is a participant or a dependent, the annual
coverage substantiation requirement requires substantiation that the
individual will have individual health insurance coverage for the
portion of the HRA plan year during which the individual is covered by
the HRA (rather than requiring substantiation of coverage for the
entire plan year). The final rules also clarify that to the extent a
new dependent's coverage is effective retroactively, the HRA may
establish any reasonable timeframe for the annual coverage
substantiation but must require it be provided before the HRA will
reimburse medical care expenses for the newly added dependent.
In addition to the annual coverage substantiation requirement, the
proposed rules provided that an individual coverage HRA may not
reimburse a participant for any medical care expenses unless, prior to
each reimbursement, the participant provides substantiation that the
participant and, if applicable, any dependent(s) whose medical care
expenses are requested to be reimbursed, continues to be enrolled in
individual health insurance coverage for the month during which the
medical care expenses were incurred (ongoing substantiation
requirement).
Several commenters expressed support for the ongoing substantiation
requirement, as necessary to ensure the effectiveness of the
requirement that individuals covered by an individual coverage HRA must
be enrolled in individual health insurance coverage. Several
commenters, however, were concerned about what they characterized as
the complexity, burdens, and liabilities associated with the ongoing
substantiation requirement, in particular for smaller employers, and
noted that those burdens could deter employers from adopting individual
coverage HRAs. Some commenters asserted that the annual coverage
substantiation requirement would be sufficient to verify enrollment in
individual health insurance coverage and, therefore, ongoing
substantiation would be unnecessary.
The Departments note that currently, separate from the market
requirements or integration rules, HRAs are subject to substantiation
requirements with respect to each request for reimbursement. This is
because in order to provide a benefit excludable from income for
federal tax purposes, employer-provided accident or health plans,
including HRAs, may only reimburse medical care expenses that have been
substantiated as an expense for medical care.\117\ Consequently, each
reimbursement for medical care expenses by an HRA may only be paid
after the expense has been substantiated as being for medical
care.\118\ Each claim for reimbursement also generally must include the
employee's certification that the expense has not otherwise been
reimbursed and that the employee will not seek reimbursement for the
expense from any other plan.\119\
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\117\ See Code section 105(b), 26 CFR 1.105-2, and IRS Notice
2002-45.
\118\ See Prop. Treas. Reg. 1.125-6(d) for rules regarding
reimbursement of medical care expenses through electronic methods,
including some debit cards that satisfy certain requirements.
\119\ See IRS Notice 2006-69, 2006-31 IRB 107; Revenue Ruling
2003-43, 2003-1 CB 935; and Prop. Treas. Reg. 1.125-6(b)(3)(ii),
(d)(i).
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The Departments have determined that requiring ongoing
substantiation of an individual's continued enrollment in individual
health insurance coverage for the month in which the expense was
incurred is not unduly burdensome because of these existing
substantiation requirements. Further, the Departments have determined
that the ongoing substantiation requirement is essential to ensure
compliance with the requirement that an individual covered by an
individual coverage HRA be enrolled in individual health insurance
coverage and, as explained later in this section of the preamble, will
impose minimal burden because it can be satisfied by collecting a
written attestation from the participant on the same form used for
requesting reimbursement. Thus, the final rules retain the ongoing
substantiation requirement.\120\
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\120\ The Departments note that the final rules clarify that the
ongoing substantiation requirement applies with respect to the
individual on whose behalf reimbursement is being sought.
---------------------------------------------------------------------------
Commenters requested that the Departments confirm the entity to
which the substantiation requirements apply. Under the final rules, the
substantiation requirements (both the annual coverage substantiation
requirement and the ongoing substantiation requirement) apply to the
individual coverage HRA, rather than to any other entity or individual,
such as an issuer or employee, because the requirements relate to
compliance of the individual coverage HRA with PHS Act sections 2711
and 2713. The substantiation requirements do not impose any new
requirements on issuers, although individual coverage HRAs may accept
certain documentation provided by issuers in the normal course of
business to verify individual health insurance coverage enrollment.
b. Methods of Substantiation
The proposed rules included a proposal that the reasonable
procedures an individual coverage HRA may use to verify enrollment in
individual health insurance coverage for purposes of the annual
coverage substantiation requirement include the individual coverage HRA
requiring the participant to provide either: (1) A document from a
third party (for example, the issuer or Exchange) showing that the
participant and any dependent(s) covered by the individual coverage HRA
are, or will be, enrolled in individual health insurance coverage
during the plan year (for example, an insurance card or an explanation
of benefits pertaining to the plan year or relevant month, as
applicable); \121\ or (2) an attestation by the participant stating
that the participant and any dependent(s) are, or will be, enrolled in
individual health insurance coverage, the date coverage began or will
begin, and the name of the provider of the coverage. For the ongoing
substantiation requirement, the
[[Page 28918]]
proposed rules permitted that substantiation could be in the form of a
written attestation by the participant, which could be part of the form
used for requesting reimbursement.
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\121\ The Departments are aware that in the case of an
individual coverage HRA with a non-calendar year plan year, the
individual may not have documentation showing an individual health
insurance policy that spans the entire plan year as individual
health insurance policy years are based on the calendar year.
However, such an HRA may establish reasonable procedures to
implement the annual coverage substantiation requirement, including
documentation showing coverage for the first part of the plan year
combined with an attestation that the participant intends to obtain
individual health insurance coverage for the second part of the plan
year or an attestation with respect to the full plan year.
---------------------------------------------------------------------------
Commenters generally supported that the proposed rules provided
that attestation by a participant would be sufficient to satisfy both
the annual coverage substantiation requirement and the ongoing
substantiation requirement. However, one commenter stated that allowing
attestation to be used to satisfy the annual coverage substantiation
requirement is not sufficient to ensure that individuals covered by an
individual coverage HRA have individual health insurance coverage. The
Departments acknowledge the importance of the requirement under the
final rules that individuals with an individual coverage HRA be
enrolled in individual health insurance coverage and, therefore, the
need for related substantiation requirements that ensure that
requirement is satisfied. The Departments note that attestation is
permitted to be used to satisfy similar requirements in related
contexts and that the Departments generally are not aware of issues
with regard to the accuracy of attestations used to satisfy those
rules.\122\ Further, in setting out one type of attestation that is
sufficient to satisfy the annual coverage substantiation requirement,
the final rules state that, in addition to providing that the
individual is (or will be) enrolled in individual health insurance
coverage, the attestation would also provide the date coverage began or
will begin and the name of the provider of the coverage. Moreover, HRAs
can use other reasonable methods to satisfy the substantiation
requirements and, in fact, the Departments generally expect that
employees will use individual coverage HRAs to reimburse premiums for
the individual health insurance coverage in which they are enrolled
and, therefore, employers will be able to confirm enrollment in
individual health insurance coverage by virtue of reimbursing the
premiums for such coverage (or paying the premiums for such coverage
directly). Taking these factors into consideration, the Departments
have determined that allowing participant attestation, among other
options, to satisfy the substantiation requirements strikes the
appropriate balance between ensuring individuals with individual
coverage HRAs are enrolled in individual health insurance coverage and
minimizing burdens on employers and employees. Accordingly, the final
rules retain this provision and permit substantiation by participant
attestation.
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\122\ See IRS Notice 2013-54, Q&A-4 (providing that attestation
is sufficient to show that an individual is enrolled in group
coverage, as required by the rules allowing HRA integration with a
traditional group health plan) and IRS Notice 2017-67, Q&A-41
(providing that attestation is sufficient to satisfy the QSEHRA
requirement that individuals provide proof that they are covered by
MEC).
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Some commenters requested that the final rules provide a model
attestation. In response, to reduce burden on individual coverage HRAs
and their participants, the Departments are providing model attestation
language contemporaneously with, but separate from, the final rules.
However, the Departments note that individual coverage HRAs will not be
required to use the model attestation.
Some commenters requested clarification as to whether other
substantiation methods, in addition to collection of an attestation,
would satisfy the substantiation requirements. One commenter suggested
that a list of covered individuals provided by the insurance carrier
should be sufficient. The Departments agree that this would generally
be a type of third-party document that could be used to verify
enrollment, assuming the individual coverage HRA timely receives the
substantiation. However, the Departments note that the final rules do
not require issuers to provide individual coverage HRAs with lists of
covered individuals nor are individual coverage HRAs required to
contact issuers to substantiate an individual's enrollment in
individual health insurance coverage. In addition, the final rules
clarify that a document from an Exchange showing that the individual
has completed the application and plan selection would be sufficient to
satisfy the annual coverage substantiation requirement. This
clarification is intended to address the situation in which, due to the
SEP verification process, an individual is not yet enrolled in
individual health insurance coverage but will be enrolled with a
retroactive start date upon successful completion of the SEP
verification.\123\ See later in this preamble for a discussion of SEPs,
including a new SEP for individuals who newly gain access to an
individual coverage HRA.
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\123\ The Departments note that a document from an Exchange
showing that the individual has completed the application and plan
selection would not be sufficient to satisfy the ongoing
substantiation requirement; to satisfy that requirement the
individual on whose behalf reimbursement is sought must be enrolled
in individual health insurance coverage. Therefore, individual
health insurance coverage must become effective, including
retroactively in the case of delayed SEP verification, in which case
reimbursement can then be sought for expenses incurred during the
coverage period (including during the period to which the individual
health insurance coverage applies retroactively, assuming the
individual was covered by the HRA during that time).
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One commenter requested that the final rules adopt a requirement
for issuers similar to the creditable coverage certification
requirement created by HIPAA, under which, as suggested by the
commenter, issuers would be required to generate a letter for all
individuals covered by individual health insurance coverage for each
month showing payment was made and that the individual had the coverage
for the month.\124\ The Departments decline to impose such a
requirement because it would increase burden and other reasonable
substantiation methods are available. One commenter suggested that the
ongoing substantiation requirement should be considered satisfied so
long as the employer sends a notice to employees advising them to
contact the employer if they no longer are enrolled in individual
health insurance coverage. The Departments decline to adopt this
suggestion because this method of substantiation would be insufficient
to ensure with reasonable accuracy that a participant had continued
enrollment in individual health insurance coverage.
---------------------------------------------------------------------------
\124\ Code section 9801(e), ERISA section 701(e), and PHS Act
section 2704(e).
---------------------------------------------------------------------------
Several commenters requested that individual coverage HRAs be
permitted to comply with the substantiation requirements
electronically, such as through debit card technology.\125\ Some
commenters noted this would provide consistency with current rules that
allow HRAs to satisfy the current requirement to substantiate that an
expense is for medical care using debit cards and other electronic
means.\126\ Nothing in the final rules would prohibit an individual
coverage HRA from establishing procedures to comply with the
substantiation requirements through electronic means, so long as the
procedures are reasonable to verify enrollment.\127\ See also the
discussion
[[Page 28919]]
later in this preamble regarding the interaction of these rules with
the safe harbor that DOL is finalizing, to clarify that individual
health insurance coverage will not be treated as part of an ERISA-
covered group health plan so long as certain conditions (including the
prohibition on endorsement) are satisfied.
---------------------------------------------------------------------------
\125\ A couple of commenters requested clarification that funds
in an individual coverage HRA could be accessed via debit cards. The
final rules do not change the methods currently allowed for
facilitating reimbursements of HRA amounts, electronic or otherwise.
\126\ See IRS Notice 2006-69 and Revenue Ruling 2003-43, 2003-1
CB 935.
\127\ For purposes of the Code provisions affected by the final
rules, the otherwise generally applicable substantiation and
recordkeeping requirements under Code section 6001 apply, including
the requirements specified in Revenue Procedure 98-25, 1998-1 CB
689, for records maintained within an Automated Data Processing
system.
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c. Reliance on Documentation or Attestation
The proposed rules provided that, for both the annual coverage
substantiation requirement and the ongoing substantiation requirement,
an individual coverage HRA may rely on the documentation or attestation
provided by the participant unless the individual coverage HRA has
actual knowledge that any participant or dependent covered by the
individual coverage HRA is not, or will not be, enrolled in individual
health insurance coverage for the plan year or the month, as
applicable.
Despite this provision in the proposed rules, some commenters
expressed concern, and requested clarification, regarding liability of
an individual coverage HRA if it relies on a participant's
misrepresentation regarding enrollment in individual health insurance
coverage. In response to these comments, the final rules provide that
an individual coverage HRA may rely on the documentation or attestation
provided by the participant unless the HRA has actual knowledge that
any participant or dependent covered by the individual coverage HRA is
not, or will not be, enrolled in individual health insurance coverage
for the plan year (or the applicable portion of the plan year) or the
month, as applicable. Therefore, the final rules provide that an
inaccurate attestation or document will not cause an individual
coverage HRA to fail to be considered integrated with individual health
insurance coverage unless the HRA has actual knowledge that the
attestation or document is inaccurate. The Departments clarify that in
the event an individual coverage HRA subsequently gains actual
knowledge that the attestation or document was inaccurate, the HRA may
not provide further reimbursement on behalf of the individual for
expenses incurred during the period to which the inaccurate attestation
relates.
One commenter requested that the final rules clarify whose
knowledge can be imputed to the individual coverage HRA for purposes of
liability and one commenter requested clarification that vendors
contracted by the HRA could rely on coverage information provided by
the HRA. The individual coverage HRA will be considered to have actual
knowledge that a participant or dependent is not, or will not be,
enrolled in individual health insurance coverage for the plan year or
the month, as applicable, if the HRA, its plan sponsor, or any other
entity acting in an official capacity on behalf of the HRA has such
actual knowledge.
One commenter suggested that the final rules apply penalties to
individual participants for an inaccurate attestation. The final rules
do not impose penalties on participants. Instead, the final rules, like
the proposed rules, provide conditions under which an HRA will be
considered integrated with individual health insurance coverage and,
therefore, in compliance with PHS Act sections 2711 and 2713. Failing
to properly integrate will cause an HRA to run afoul of PHS Act
sections 2711 and 2713. Therefore, the responsibility to have
reasonable procedures in place to ensure coverage is integrated falls
on the HRA, not the participants.
One commenter asked that individual coverage HRA amounts made
available for a month be treated as taxable income for individuals who
do not have individual health insurance coverage for the month and that
the attestation requirement and required notice include a related
warning. The Departments decline to adopt this suggestion. Whether an
individual is enrolled in individual health insurance coverage for a
month relates to whether the individual coverage HRA satisfies the
conditions for integration for the month and does not affect the tax
treatment of reimbursements provided to a participant under the
individual coverage HRA.\128\
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\128\ However, see Code section 106(g) regarding the taxation of
QSEHRA reimbursements if an individual fails to have MEC.
---------------------------------------------------------------------------
One commenter suggested that the final rules address substantiation
requirements relative to a private exchange. The Departments note that
the substantiation requirements set forth in the final rules apply to
all individual coverage HRAs, regardless of the manner in which the
individual health insurance coverage is purchased. See later in this
preamble for a discussion of private exchanges and the DOL
clarification regarding the application of ERISA to individual health
insurance coverage purchased through an individual coverage HRA.
To mitigate discrimination concerns, one commenter requested that
the substantiation requirements be consistent across all classes of
employees. The Departments note that the substantiation requirements
set forth in the final rules apply to all individual coverage HRAs,
including different individual coverage HRAs offered to different
classes of employees. The Departments generally expect plan sponsors to
establish similar procedures to satisfy the substantiation requirements
for different individual coverage HRAs they may offer. However, the
Departments decline to adopt the commenter's specific recommendation in
order to allow plan sponsors the flexibility to establish reasonable
procedures to satisfy the substantiation requirements, which presumably
could differ across the employer's workforce, depending on the
characteristics of the workforce or for other legitimate business
reasons.
One commenter requested that employers offering an individual
coverage HRA to employees or former employees who are either eligible
for or enrolled in Medicare should be exempt from the substantiation
requirement. However, as discussed in more detail later in this
preamble, the final rules permit integration of an individual coverage
HRA with Medicare, and the substantiation requirements apply to
enrollment in Medicare in the same manner as they apply to enrollment
in individual health insurance coverage. Therefore, the final rules do
not adopt this suggestion.
9. Notice Requirement
Because HRAs are different from traditional group health plans in
many respects, in the preamble to the proposed rules, the Departments
expressed a concern that individuals eligible for individual coverage
HRAs might not recognize that the offer or acceptance of the individual
coverage HRA may have consequences for APTC and PTC eligibility, as
described elsewhere in this preamble. In order to ensure that employees
who are eligible to participate in an individual coverage HRA
understand the potential effect that the offer of and enrollment in the
HRA might have on their ability to receive the benefit of APTC and
claim the PTC, the proposed rules included a requirement that an
individual coverage HRA provide written notice to eligible
participants.
Commenters generally supported the notice requirement, sharing the
Departments' determination that many individuals will need the
information to understand the PTC consequences of the individual
coverage HRA. However, a number of commenters expressed concerns about
the potential for consumer confusion, notwithstanding
[[Page 28920]]
the notice requirement, and some suggested ways to strengthen the
notice. Other commenters expressed concern that the notice requirement
could burden employers, with one noting in particular the burden of
providing notices to former employees.
The Departments have considered these comments and agree with the
commenters that assert that the notice is necessary and appropriate for
individuals offered an individual coverage HRA to understand the
consequences of the offer. Although the Departments also considered the
burden on employers identified by commenters, the Departments have
determined that the notice requirement is essential to implementation
of the final rules. Along with updates to Exchanges' application
processes, the notice, which will include information that individuals
will be instructed to provide to Exchanges during the application
process, is key to ensuring that APTC and PTC are properly allowed and
that improper APTC payments are prevented. The notice will also aid
implementation of the new individual market SEP, as explained later in
this preamble. Therefore, the final rules retain this requirement, with
a number of revisions made in response to comments, including that the
Departments are providing model notice language, separate from, but
contemporaneously with the final rules, in order to address commenters'
concerns about burden on employers. The comments received and changes
made in the final rules are described in the remainder of this section
of the preamble.
a. Notice Content
As proposed, the notice was required to include certain relevant
information, including a description of the terms of the individual
coverage HRA (including the self-only maximum dollar amount made
available, which is used in the affordability determination under the
proposed PTC rules); a statement of the right of the participant to opt
out of and waive future reimbursement under the HRA; a description of
the potential availability of the PTC if the participant opts out of
and waives the HRA and the HRA is not affordable under the proposed PTC
rules; a description of the PTC eligibility consequences for a
participant who accepts the HRA; a statement that the participant must
inform any Exchange to which they apply for APTC of certain relevant
information; and a statement that the individual coverage HRA is not a
QSEHRA.
Commenters generally supported the notice content elements, and the
final rules include each of the proposed notice content elements, some
with clarifications. Some commenters requested that the notice be
required to include additional content, as explained in this section of
the preamble, and some commenters requested that the notice be as
simple as possible. Some commenters requested that the notice explain
the differences between an employer's traditional group health plan and
alternative health insurance products. And one commenter requested that
the specific dollar amount made available be included in the notice.
The Departments note that under the final rules, the notice is required
to provide the amount(s) made available under the individual coverage
HRA. As to the suggestion that the notice explain common differences
between traditional group health plans and individual coverage HRAs and
other insurance products, the Departments decline to adopt the
suggestion due to concerns that it would cause confusion for
participants, as participants are prohibited from being offered both a
traditional group health plan and an individual coverage HRA under the
final rules. The intent of the notice is to explain the individual
coverage HRA that the employee is being offered to avoid consumer
confusion. Adding information about other types of coverage would
undermine that goal. Further, traditional group health plans differ in
cost-sharing structures, network rules, and benefits covered, and any
standardized language in the notice would have to be general and would
not capture these elements, as standardized language about traditional
group health plans would not be describing any particular plan.
Moreover, the individual coverage HRA must provide a summary of
benefits and coverage (SBC), which will include a description of the
coverage, including cost sharing; the exceptions, reductions and
limitations on coverage; and other information.\129\
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\129\ See PHS Act section 2715(b)(3) (incorporated in Code
section 9815 and ERISA section 715). See also 26 CFR 54.9815-2715,
29 CFR 2590.715-2715, and 45 CFR 147.200.
---------------------------------------------------------------------------
One commenter requested that the notice be required to contain
contact information for a specific person that participants can contact
with questions. The Departments agree that this could be useful
information for participants, without imposing significant additional
burden on employers, and therefore the final rules add a requirement
that the notice include contact information of an individual or a group
of individuals who participants may contact with questions regarding
their individual coverage HRA. For purposes of this new requirement,
the plan sponsor may determine which individual or group of individuals
is in the best position to answer these questions. The final rules
provide that the contact information provided in the notice must, at
least, include a telephone number.
The final rules also newly require that the notice include a
statement of availability of an SEP for employees and dependents who
newly gain access to the HRA. This is in part in response to a
commenter who suggested that the notice could be used to improve
Exchange program integrity by making it easier for Exchanges that
require pre-enrollment verification to use the notice to confirm
enrollees' SEP eligibility. Separate from, but contemporaneously with
the final rules, HHS is providing model language that will be relevant
to employees purchasing coverage through or outside an Exchange,
including a State Exchange, which HRAs may use to satisfy this
requirement. The final rules also clarify that, to facilitate
participants' timely enrollment in individual health insurance coverage
using the new SEP described later in this preamble, the notice must
also indicate the date as of which coverage under the HRA may first
become effective and the date on which the HRA plan year begins and
ends. The notice must also include information on when amounts will be
made available (for example, monthly or annually).
Commenters also requested that the notice explain the extent to
which individuals enrolled in Medicare may use an individual coverage
HRA. In response to these comments, and to reflect the content of the
final rules, the notice content requirements have been updated to
reflect that individual coverage HRAs may be integrated with Medicare
and to require inclusion of a statement in that notice that Medicare
beneficiaries are ineligible for the PTC, without regard to whether the
individual coverage HRA the individual is offered is affordable or
provides MV or whether the individual accepts the HRA.
Further, the Departments note that, as under the proposed rules,
while the written notice must include the information required by the
final rules, it may include other information, as long as the
additional content does not conflict with the required information.
b. Notice Individualization
The proposed rules did not include a requirement that the notice be
[[Page 28921]]
individualized for each participant. Although the notice would have
been required to include a description of the potential availability of
the PTC for a participant who opts out of and waives an unaffordable
individual coverage HRA, and the individual coverage HRA amount that is
relevant for determining affordability, the proposed rules did not
require that the HRA include in the notice a determination of whether
the HRA is considered affordable for the specific participant.
Some commenters agreed that the notice should not be required to be
tailored to each participant. However, others stated that the notice
would be insufficient if not individualized and requested that the
final rules require that the notice provide information specific to
each participant, including the premium for the relevant lowest cost
silver plan, or, at a minimum, detailed instructions for where to find
information on the lowest cost silver plan, while others requested that
the notice include a completed affordability and MV calculation
specific to each participant.
While the Departments understand the concerns about consumer
confusion, under the final rules, the notice is not required to include
a determination of whether the offer of an individual coverage HRA is
affordable for a particular participant. Plan sponsors are not in a
position to make this determination for, or provide it to, each
participant because it would require information that plan sponsors do
not possess (for example, the participant's household income). In
addition, requiring a plan sponsor to determine the cost of the lowest
cost silver plan that will apply for a specific participant to
determine affordability under the PTC rules would be burdensome, and
the information is available to the participant through other means.
Specifically, by November 1, 2019, HHS will provide resources to assist
individuals offered an individual coverage HRA and using the Federal
HealthCare.gov platform with determining their PTC eligibility based on
whether the individual coverage HRA is considered affordable, and with
understanding when they must enroll in individual health insurance
coverage based on their individual coverage HRA effective date,
including whether they may qualify for an SEP. HHS will also begin
working with State Exchanges immediately to assist with the development
of resources for individuals using State Exchanges' applications for
coverage. Further, although some plan sponsors will need to determine
whether the offer of the individual coverage HRA is affordable for
purposes of the employer shared responsibility provisions under Code
section 4980H, smaller employers are not subject to Code section 4980H.
Moreover, the Treasury Department and the IRS intend to issue guidance
in the near term providing safe harbors or other methods intended to
reduce burdens and provide more predictability regarding the
application of Code section 4980H to these arrangements.\130\
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\130\ See IRS Notice 2018-88. Further, lowest cost silver plan
data will be made available by HHS for employers in all states that
use the Federal HealthCare.gov platform to determine whether the
individual coverage HRA offer is affordable for purposes of the
employer shared responsibility provisions under Code section 4980H.
---------------------------------------------------------------------------
The Departments acknowledge that it is critical that participants
have the information that they need to determine the affordability of
their individual coverage HRA under the PTC rules, and, accordingly,
the final rules add a requirement that the notice include a statement
about how the participant may find assistance for determining their
individual coverage HRA affordability. The model language that the
Departments are providing contemporaneously with the final rules
includes language that can be used to satisfy this requirement.
One commenter requested that the notice be required to be tailored
for each class of employees offered the individual coverage HRA, in
cases in which different classes are provided different HRA amounts,
rather than allowing an employer to provide one notice for several or
all classes. The final rules do not adopt this suggestion because the
Departments have concluded any marginal advantages would be outweighed
by the additional employer burdens of creating and distributing
multiple versions of the notice. However, the Departments note that the
final rules do not prohibit an employer from providing more
individualized notices, such as different notices for different classes
of employees, if the employer so chooses.
c. Model Notice
Many commenters requested that the Departments provide a model
notice or model language for certain parts of the notice, such as model
language to describe the consequences of opting into or out of the
individual coverage HRA and language describing the related PTC
consequences. One commenter suggested that the Departments provide
translations of the model notice into languages other than English.
In response to these requests, and published separately from the
final rules, the Departments are providing model language
contemporaneously on certain aspects of the notice that are not
employer-specific, including model language describing the PTC
consequences of being offered and accepting an individual coverage HRA.
In addition, HHS is providing, contemporaneously, model language that
relates to all Exchanges that can be used to satisfy the SEP-related
notice content requirement and model language that can be used to
satisfy the requirement that the notice include a statement describing
how the participant may find assistance with determining affordability.
While the Departments hope it will be useful, plan sponsors are not
required to use the model language.
For individual coverage HRAs, including ERISA-covered plans, other
disclosure requirements may require participants to be provided with a
reasonable opportunity to become informed as to their rights and
obligations under the individual coverage HRA.\131\ Those requirements
are of general applicability, and the Departments decline to adopt a
special requirement, or model non-English translation, here.\132\
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\131\ See, e.g., ERISA sections 102, 104(b), and 503 and PHS Act
sections 2715 and 2719 (incorporated in Code section 9815 and ERISA
section 715). See also 26 CFR 54.9815-2715 and 54.9815-2719; 29 CFR
2520.102-3, 2520.104b-1, 2560.503-1, 2590.715-2715, and 2590.715-
2719; and 45 CFR 147.136 and 147.200.
\132\ But see 29 CFR 2520.102-2(c) (requiring that plans where
either 500 participants or at least 10 percent of all participants
(or for plans with fewer than 100 participants, 25 percent of
participants) are literate in the same non-English language provide
those literate only in a non-English language a reasonable
opportunity to become informed as to their rights and obligations
under the plan).
---------------------------------------------------------------------------
d. Notice Timing and Delivery
Under the proposed rules, the individual coverage HRA generally
would be required to provide a written notice to each participant at
least 90 days before the beginning of each plan year. The proposed
rules also provided that for participants not eligible to participate
at the beginning of the plan year (or not eligible when the notice is
otherwise provided to plan participants), the individual coverage HRA
would be required to provide the notice no later than the date on which
the participant is first eligible to participate in the HRA.
Some commenters supported the notice timing as proposed and others
indicated that small employers will not be able to provide notices 90
days prior to the plan year because they do not make benefit decisions
that far in
[[Page 28922]]
advance. Several commenters requested that the notice delivery coincide
with the annual Exchange open enrollment period, others requested it
coincide with each employer's annual open enrollment period, and others
requested that plan sponsors have the flexibility to provide the
required notice at any time prior to the plan year, including upon
initial enrollment in an individual coverage HRA. One commenter
requested the notice be required to be provided within 60 days, instead
of 90 days, prior to the start of the plan year. One commenter
requested that the Departments apply the distribution requirements that
apply for purposes of SBCs and the uniform glossary. One commenter also
asked the Departments to clarify the notice timing requirement as
applied to individual coverage HRAs that do not have a calendar year
plan year.
The Departments considered these comments, but have determined
that, with the addition of a rule for newly established employers and
certain other clarifications, the final rules should adopt the notice
timing requirement as proposed, because, for a calendar year plan year,
it ensures that participants who are current employees will receive the
notice prior to the individual market annual open enrollment period,
and for employers offering an individual coverage HRA on a non-calendar
year plan year, it ensures participants who are current employees will
receive the notice prior to the applicable individual market SEP. The
Departments also clarify that the notice timing requirement applies in
the same way to an individual coverage HRA with a calendar year plan
year or with a non-calendar year plan year. The notice's primary
purpose is to provide necessary information to participants that
Exchanges will need in order to accurately determine eligibility for
APTC. With that purpose in mind, the Departments have determined that a
shorter timing requirement, including one mirroring the requirement for
the SBC, or a timing requirement tied to the employer's open enrollment
period, would not be sufficient.
As previously noted, the proposed rules provided an exception to
the 90 day notice requirement for participants who are not eligible to
participate either at the beginning of the plan year or at the time the
notice is provided at least 90 days prior to the plan year. For those
participants, the proposed rules would allow the individual coverage
HRA to provide the notice no later than the date on which the
participants are first eligible to participate in the HRA. The final
rules adopt this rule generally as proposed, but clarify the language
to provide that the date by which the notice must be provided is the
date on which the HRA may first take effect for the participant.
Further, the Departments have determined that individual coverage HRAs
sponsored by employers that are first established within a short period
of time prior to the first plan year of the HRA may not have an
adequate amount of time to provide a notice to participants at least 90
days prior to beginning of the first plan year. Therefore, the final
rules provide that in the case of an individual coverage HRA sponsored
by an employer that is established less than 120 days prior to the
beginning of the first plan year of the HRA, the notice may be provided
no later than the date on which the HRA may first take effect for the
participant, for that first plan year of the HRA.
Moreover, although the final rules provide that for participants
not eligible to participate in the individual coverage HRA at the
beginning of the plan year (or not eligible when the notice is
otherwise provided) and for participants of newly established
employers, the HRA is not required to provide the notice until the date
on which the HRA may first take effect for the participant, the
Departments encourage HRAs to provide the notice as soon as
practicable. As explained later in this preamble, individuals who newly
gain access to an individual coverage HRA will have an individual
market SEP that provides the chance to select an individual health
insurance plan in advance of the date when the HRA may first take
effect, so that individual health insurance coverage can be effective
on the first date the individual is eligible to be covered by the HRA.
If the notice is not provided until the day the HRA may first take
effect for the participant, individuals may not be aware of the HRA
offer and will not be able to enroll in individual health insurance
coverage that has an effective date on the earliest effective date of
their HRA coverage. However, the Departments are aware that in some
circumstances it would not be reasonable to require HRAs to provide the
notice well in advance of the date the HRA may first take effect for
new employees. Therefore, the final rules continue to require that the
notice be provided in these circumstances no later than the date on
which the HRA may first take effect, but if possible, HRAs should
provide the notice sooner. This will allow new employees to begin
coverage in the HRA as soon as possible.
With regard to delivery methods, the proposed rules provided that
the notice must be a written notice but did not further address
delivery or format. Several commenters requested that the final rules
clarify the notice delivery procedures and requirements, including
allowing for electronic delivery (through email delivery, internet/
intranet posting, or any other electronic means) if participants are
provided the appropriate opportunity to opt out of electronic delivery.
One commenter asked specifically if the notice delivery would be
subject to ERISA's delivery rules.
Under the final rules, individual coverage HRAs that are subject to
ERISA, and individual coverage HRAs sponsored by nonfederal
governmental plan sponsors, must provide the notice in a manner
reasonably calculated to ensure actual receipt of the material by plan
participants covered by the HRA. Additionally, individual coverage HRAs
that are subject to ERISA must provide the notice in a manner that
complies with the DOL's rules.\133\ For ERISA plans using electronic
disclosure, the DOL has provided a safe harbor at 29 CFR 2520.104b-
1(c). This safe harbor is not intended to represent the exclusive means
by which the requirements of 29 CFR 2520.104b-1 may be satisfied using
electronic media.\134\ As to individual coverage HRAs sponsored by
nonfederal governmental plan sponsors, HHS is revising the final rule
to provide that the notice must be provided in a manner reasonably
calculated to ensure actual receipt of the material by plan
participants covered by the HRA, which HHS has determined is sufficient
to ensure that participants receive the required notice.
---------------------------------------------------------------------------
\133\ 29 CFR 2520.104b-1.
\134\ 67 FR 17263, 17264 (April 9, 2002).
---------------------------------------------------------------------------
Commenters also requested that the Departments confirm that the
notice may be delivered along with other plan materials, including, but
not limited to, annual enrollment materials or new hire benefit
packages. The Departments confirm that the individual coverage HRA
notice may be delivered with other plan materials, so long as it
satisfies the content and timing requirements specific to the
individual coverage HRA notice.
e. Other Notice Requirements and Consumer Assistance
Some commenters suggested that all types of HRAs (including
excepted benefit HRAs and HRAs integrated with traditional group health
plans) should include notice requirements so that individuals
understand which type of arrangement they have and the consequences of
the arrangement. The Departments acknowledge the potential for consumer
confusion as a result of the
[[Page 28923]]
existence of various types of health coverage, including various types
of HRAs. However, the Departments generally decline the suggestion to
impose new notice requirements under the final rules across all types
of HRAs. The Departments note that this type of consumer information
notice requirement is typically only imposed in situations in which
there is a specific justification for it. For example, individual
coverage HRAs are unique in that specific PTC rules apply, and for
QSEHRAs, which also have specific PTC rules, notices are already
required under the law.\135\
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\135\ Code section 9831(d)(4) and IRS Notice 2017-67.
---------------------------------------------------------------------------
Further, the Departments note that the proposed rules would have
required the notice to include a statement that the individual coverage
HRA is not a QSEHRA, and the final rules revise the statement in
response to comments to clarify further that there are multiple types
of HRAs and the type the participant is being offered is an individual
coverage HRA (rather than a QSEHRA or any other type).
Moreover, HRAs that are ERISA-covered plans must provide a summary
plan description (SPD), summaries of material modifications, and
summaries of material reductions in covered services or benefits.\136\
The SPD must be sufficiently comprehensive to apprise the plan's
participants and beneficiaries of their rights and obligations under
the plan. It must also include, for example, the conditions pertaining
to eligibility to receive benefits, and a description or summary of the
benefits, the circumstances that may result in disqualification,
ineligibility, or denial, loss, forfeiture, suspension, offset,
reduction, or recovery (for example, by exercise of subrogation or
reimbursement rights) of any benefits and the procedures governing
claims for benefits under the plan. HRAs that are ERISA-covered plans
are also required to provide the instruments under which the plan is
established or operated and information relevant to a participant's
adverse benefit determination upon request.\137\ This information
should be adequate to enable individuals to understand which type of
arrangement they have and the consequences of the arrangement.\138\
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\136\ See 29 CFR 2520.104b-2 and 29 CFR 2520.104b-3(a), (d)(3).
\137\ See, e.g., ERISA sections 104(b), 502(c), and 503. See
also 29 CFR 2520.104b-1 and 29 CFR 2560.503-1.
\138\ The final excepted benefit HRA rules specifically note the
ERISA disclosure obligations, and HHS intends to propose similar
disclosure requirements for non-federal governmental plan excepted
benefit HRAs.
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One commenter requested that the Departments clarify the
interaction between the notice requirements associated with the Fair
Labor Standards Act (FLSA) and the notice requirement for individual
coverage HRAs. The Departments note that under FLSA section 18B, an
applicable employer is required to provide notice to inform employees
of coverage options, including the existence of an Exchange, and the
availability of the PTC if the employer's plan does not provide MV.
This notice is provided at the time of hiring. The FLSA section 18B
requirement to provide a notice to employees of coverage options
applies to employers to which the FLSA applies. An employer sponsoring
an individual coverage HRA that provides the required notice under the
final rules must also provide a notice that satisfies the FLSA notice
requirement if the FLSA applies to the employer. However, nothing in
the final rules prohibits an employer from combining the notices for
employees eligible for the individual coverage HRA, provided that both
notice requirements are satisfied.
Commenters also urged the Departments more generally to create
tools and resources for employees and employers that are easily
accessible to help determine PTC eligibility and to dedicate additional
funding to the State Exchanges for increased administration and
assistance to individuals trying to determine APTC eligibility. A few
commenters suggested that more education for consumers, enrollment
assisters, and agents and brokers would be necessary. The Departments
acknowledge the crucial role that the Exchanges have in implementation
and operationalization of individual coverage HRAs, and the Departments
will work closely with the Exchanges on the implementation of the final
rules. The Departments note that language will be added to the
HealthCare.gov application to help consumers understand that if they
are eligible for an individual coverage HRA, this offer may affect
their APTC eligibility. As discussed elsewhere in this preamble, HHS
also intends to provide technical assistance materials for consumers in
HealthCare.gov states, as well as for enrollment assisters and agents
and brokers participating in Exchanges that use HealthCare.gov, so they
may help consumers understand the implications of their individual
coverage HRA offer. The Departments are also continuing to consider
other ways to provide outreach and assistance to stakeholders regarding
individual coverage HRAs.
10. Student Health Insurance Coverage
Federal rules under PPACA define student health insurance coverage
as a type of individual health insurance coverage.\139\ Although those
rules exempt student health insurance coverage from certain provisions
of PPACA and HIPAA,\140\ they do not exempt this coverage from PHS Act
sections 2711 and 2713. Therefore, given that student health insurance
coverage is a type of individual health insurance coverage, and is
subject to PHS Act sections 2711 and 2713, in the preamble to the
proposed rules, the Departments clarified that an HRA may be integrated
with student health insurance coverage that satisfies the requirements
in 45 CFR 147.145.
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\139\ Under this definition, student health insurance coverage
must be provided pursuant to a written agreement between an
institution of higher education (as defined in the Higher Education
Act of 1965) and a health insurance issuer, and provided to students
enrolled in that institution and their dependents, and does not make
health insurance coverage available other than in connection with
enrollment as a student (or as a dependent of a student) in the
institution, does not condition eligibility for the health insurance
coverage on any health status-related factor (as defined in 45 CFR
146.121(a)) relating to a student (or a dependent of a student), and
satisfies any additional requirements that may be imposed under
state law. See 45 CFR 147.145(a).
\140\ See 45 CFR 147.145(b).
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One commenter expressed support for allowing integration of HRAs
with student health insurance coverage. Another commenter requested
that integration with student health insurance coverage not be
permitted due to concerns that HRA plan sponsors would be required to
confirm that the student health insurance coverage complies with the
market requirements. The final rules permit HRA integration with
student health insurance coverage because student health insurance
coverage is individual health insurance coverage that is subject to PHS
Act sections 2711 and 2713. In response to concerns about the
difficulty of determining the compliance of individual health insurance
coverage policies with the market requirements generally for all
individual health insurance coverage, under the final rules, all
individual health insurance coverage is treated as compliant with PHS
Act sections 2711 and 2713. Therefore, plan sponsors are not required
to confirm that any particular student health insurance policy (or any
other individual health insurance policy) complies with PHS Act
sections 2711 and 2713.
Further, in the preamble to the proposed rules, the Departments
noted that self-insured student health plans
[[Page 28924]]
are not a form of individual health insurance coverage.\141\ Therefore,
the proposed rules did not provide for HRA integration with self-
insured student health plans. One commenter expressed concern that it
may be difficult for employers to verify whether an individual with
student health plan coverage has insured or self-insured coverage. The
Departments appreciate the comment and recognize that employers and
employees may not know whether a student health plan is insured or
self-insured, but expect that employers will take reasonable steps to
ensure compliance with the final rules. This includes making reasonable
efforts to ensure that, when employees substantiate enrollment in
student health coverage, they are correctly substantiating enrollment
in a student health plan provided through insurance by a licensed
issuer. If a student enrolled in an institution of higher education has
questions about the type of student health coverage that is offered by
the institution, this information should be available in the governing
plan document or by contacting the plan administrator for the student
health plan.
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\141\ See 77 FR 16453, 16455 (March 21, 2012).
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The Departments also confirmed in the preamble to the proposed
rules that prior guidance,\142\ which provided enforcement relief to
institutions of higher education for certain healthcare premium
reduction arrangements offered to student employees in connection with
insured or self-insured student health coverage (student premium
reduction arrangements) remains in effect, pending any further
guidance. One commenter expressed support for keeping the current
enforcement relief in effect.
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\142\ See FAQs About Affordable Care Act Implementation Part 33,
available at https://www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-33.pdf or https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/Downloads/ACA-FAQ-Set-33-Final.pdf. See also IRS Notice 2016-17; DOL Technical Release
2016-1; and CMS Insurance Standards Bulletin, Application of the
Market Reforms and Other Provisions of the Affordable Care Act to
Student Health Coverage, February 5, 2016.
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The Departments reiterate that the previously provided enforcement
relief remains in effect for institutions of higher education, pending
any future guidance, and the final rules clarify that a student
employee who is offered a student premium reduction arrangement is not
considered part of the class of employees of which the employee would
otherwise be a part for purposes of the final integration rules. This
provision applies only for plan sponsors that are institutions of
higher education. For this purpose, a student premium reduction
arrangement is defined as any program offered by an institution of
higher education where the cost of insured or self-insured student
health coverage is reduced for certain students through a credit,
offset, reimbursement, stipend or similar arrangement.\143\ Therefore,
the offer of that type of arrangement to student employees will not
affect the compliance of an individual coverage HRA that the
institution of higher education may offer to other employees. The final
rules also clarify that a student employee offered a student premium
reduction arrangement is not counted for purposes of determining
whether the minimum class size requirement is satisfied. The text of
the final rules includes examples.
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\143\ Id.
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However, if a student employee is not offered a student premium
reduction arrangement (including if, instead, the student employee is
offered an individual coverage HRA), the student employee is considered
to be part of the class of employees to which he or she otherwise
belongs, and the student employee is counted in determining whether the
minimum class size requirement is satisfied. Further, if an individual
coverage HRA is offered to student employees, the final integration
rules apply to such an arrangement as they would any other individual
coverage HRA.
11. Integration With Certain Other Types of Coverage
a. Short-Term, Limited-Duration Insurance
The Departments considered whether to propose a rule to permit
individual coverage HRAs to be integrated with types of non-group
coverage other than individual health insurance coverage, such as
STLDI.\144\ The Departments declined to do so in the proposed rules
because STLDI is not subject to PHS Act sections 2711 and 2713 and,
therefore, might not be compliant with these market requirements.
However, the Departments requested comments on whether integration with
STLDI should be permitted and, if so, what potential advantages and
problems might arise.
---------------------------------------------------------------------------
\144\ See 26 CFR 54.9801-2, 29 CFR 2590.701-2, and 45 CFR
144.103 for the definition of STLDI.
---------------------------------------------------------------------------
Most commenters strongly opposed allowing integration with STLDI,
expressing concerns that it would cause significant adverse selection
in the individual market, which would lead to increased premiums and
increased federal spending (through increased PTCs). Some of these
commenters asserted that prohibiting integration with STLDI is
necessary to ensure the integrity and sustainability of the individual
market and that to allow integration with STLDI would run counter to,
and negate, the various other provisions in the proposed rules intended
to prevent adverse selection. Some commenters expressed concern that
STLDI provides insufficient coverage and consumer protections, that
individuals would unknowingly enroll, and that brokers would have
incentives to encourage STLDI enrollment. Some commenters raised legal
concerns with allowing integration of HRAs with STLDI, noting that
STLDI is not subject to, or generally compliant with, PHS Act sections
2711 and 2713 and, therefore, would not be sufficient to ensure that an
individual with an HRA integrated with STLDI had coverage that was
compliant with these market requirements. One commenter asserted that
an HRA integrated with STLDI would fail to comply with the health
nondiscrimination rules under HIPAA because STLDI is allowed to
discriminate based on health status.
A few commenters supported allowing integration of an individual
coverage HRA with STLDI, noting that STLDI is an option that could
provide relief to individuals unable to afford individual health
insurance coverage and, for some lower-income individuals, such as
those in states that did not expand Medicaid under PPACA, may be the
only affordable alternative. One commenter supported integration with
STLDI as long as additional guardrails were established and another
requested additional notice requirements if integration of individual
coverage HRAs were to be permitted with STLDI.
The Departments note that STLDI can be a useful option for certain
individuals otherwise unable to afford or obtain PPACA-compliant health
insurance. The final rules, however, do not allow integration with
STLDI because of the concerns raised by commenters, including that the
combined arrangement would not necessarily satisfy PHS Act sections
2711 and 2713 and that adverse selection could result. The Departments
note that the new excepted benefit HRA finalized elsewhere in the final
rules, which is not subject to PHS Act sections 2711 and 2713,
generally may be used to reimburse premiums for STLDI. See later in
this preamble for a discussion of the excepted benefit HRA, including a
discussion of the limited circumstance in which an excepted benefit HRA
may not be used to reimburse STLDI premiums.
[[Page 28925]]
b. Spousal Coverage
In developing the proposed rules, the Departments considered
whether to allow individual coverage HRAs to be integrated with group
health plan coverage, such as a group health plan maintained by the
employer of the participant's spouse, in addition to individual health
insurance coverage. Like individual health insurance coverage, group
health plan coverage generally is subject to and compliant with PHS Act
sections 2711 and 2713. The Departments indicated they did not propose
such a rule because to do so would add significant complexity to the
individual health insurance coverage integration test.\145\ However,
the Departments requested comments, including on the demand for such a
rule, and any problems such a rule may raise.
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\145\ PHS Act section 2711 applies with respect to the coverage
of EHBs. Because large group market and self-insured group health
plans are not required to cover EHBs, unlike individual health
insurance coverage which generally is required to cover all EHBs, in
the group health plan integration context, situations may arise
where non-HRA group coverage with which the HRA is integrated does
not cover every category of EHBs that the HRA covers. In that case,
the HRA applies an annual dollar limit to a category of EHBs and the
non-HRA group coverage with which it is integrated does not cure
that limit by providing unlimited coverage of that category of EHBs.
In the 2015 rules under PHS Act section 2711, and in subregulatory
guidance that preceded the 2015 rules, the Departments addressed
this issue by providing two tests. Specifically, if the non-HRA
group coverage with which an HRA is integrated provides MV, the HRA
will not be considered to fail to comply with PHS Act section 2711,
even though the HRA might provide reimbursement of an EHB that the
plan with which the HRA is integrated does not. If an HRA is
integrated with non-HRA group coverage that does not provide MV, the
2015 rules limit the types of expenses that an HRA may reimburse to
reimbursement of co-payments, co-insurance, deductibles, and
premiums under the non-HRA group coverage, as well as medical care
that does not constitute an EHB. For additional discussion of the
current rules under PHS Act section 2711, see the discussion earlier
in this preamble.
---------------------------------------------------------------------------
Several commenters requested that integration with spousal coverage
be permitted under the individual health insurance coverage integration
test, with one stating that most group coverage is likely to cover all
EHBs and therefore the issue of an HRA that covers all EHBs being
integrated with coverage that does not cover all EHBs is unlikely to
arise. One commenter suggested that the Departments allow an employee
to be covered by a group health plan and also have access to an HRA
that can be used to purchase individual health insurance coverage for a
spouse. Other commenters requested that integration of an individual
coverage HRA with spousal coverage be prohibited, expressing skepticism
that employers would take advantage of this option and noting that the
arrangement would add little value. In light of the Departments'
continued concern with the added complexity that would be required and
the response from commenters, the final rules do not allow an
individual coverage HRA to also be integrated with other group health
plan coverage, such as spousal coverage. This is an area that the
Departments may explore in future rulemaking. The Departments reiterate
that the current rules under PHS Act section 2711 allow HRAs to be
integrated with other non-HRA group health plan coverage, including
spousal coverage, subject to certain conditions.\146\ However, amounts
made available under such an HRA may not be used to purchase individual
health insurance coverage.\147\
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\146\ 26 CFR 54.9815-2711(d)(2), 29 CFR 2590.715-2711(d)(2), and
45 CFR 147.126(d)(2).
\147\ IRS Notice 2015-87, Q&A-2.
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Commenters also requested clarification as to whether two spouses,
each offered an individual coverage HRA from their respective
employers, may use the separate individual coverage HRAs to buy a
single individual health insurance policy that covers both spouses (and
any dependents). Nothing in the final rules would prohibit this, if the
separate individual coverage HRAs are each in compliance with the final
rules. However, under the generally applicable rules for HRAs under the
Code, each individual may only seek reimbursement for the portion of a
medical care expense that has not already been reimbursed by some other
means, including from one of the individual coverage HRAs.
c. Health Care Sharing Ministries
Several commenters requested that integration of HRAs with health
care sharing ministries be permitted, in part to provide an alternative
option that alleviates conscience issues faced by employers and
employees with respect to individual health insurance coverage, and in
part due to the success of health care sharing ministries in providing
affordable, flexible choices.
The Departments are of the view that HRAs cannot be integrated with
health care sharing ministries, consistent with PHS Act sections 2711
and 2713. Under current law, health care sharing ministries are not
subject to those provisions, nor are they required to comply with other
market requirements that apply to individual health insurance coverage.
Health care sharing ministry arrangements are also not MEC.\148\
Therefore, the integration of an individual coverage HRA with these
arrangements would not result in a combined arrangement sufficient to
satisfy PHS Act sections 2711 and 2713, which means that such a
combined arrangement would not provide the protections afforded by
those provisions.
---------------------------------------------------------------------------
\148\ See Code section 5000A(d)(2)(B) and 5000A(f).
---------------------------------------------------------------------------
One commenter asserted that the proposed rules would impermissibly
burden the exercise of religion for purposes of the Religious Freedom
Restoration Act of 1993 (RFRA) \149\ because they would not allow
individual coverage HRAs to be integrated with health care sharing
ministries and thus would make participation in health care sharing
ministries more expensive relative to individual coverage HRAs.
Specifically, the commenter asserted that the proposed rules would
impermissibly burden the free exercise of religion because, by not
allowing HRAs to be integrated with health care sharing ministries, the
rules would extend certain tax advantages to individual coverage HRAs
that are not extended to participants in health care sharing
ministries. However, although the RFRA provides a claim to persons
whose religious exercise is substantially burdened by government, the
Supreme Court has held that ``a generally applicable tax [that] merely
decreases the amount of money [an individual or entity] has to spend on
its religious activities'' does not impose a substantial burden on the
exercise of religion.\150\ Consequently, the final rules do not allow
individual coverage HRAs to be integrated with health care sharing
ministries.
---------------------------------------------------------------------------
\149\ 42 U.S.C. 2000bb(b).
\150\ Jimmy Swaggart Ministries v. Bd. of Equalization of
California, 493 U.S. 378, 391 (1990).
---------------------------------------------------------------------------
d. Multiple Employer Welfare Arrangements (Including Association Health
Plans)
One commenter requested that integration of HRAs be permitted with
association health plans (AHPs) \151\ and another commenter opposed
allowing integration with AHPs, because coverage offered by an AHP is
not required to cover all EHBs, to the extent
[[Page 28926]]
the coverage is offered through a large group market or self-insured
group health plan. AHPs are a type of Multiple Employer Welfare
Arrangement (MEWA) that are group health plans. The Departments
current, final regulations at 26 CFR 54.9815-2711(d)(2), 29 CFR
2590.715-2711(d)(2), and 45 CFR 147.126(d)(2) set forth criteria for
HRAs to be integrated with other group health plan coverage (including
MEWAs).
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\151\ On June 21, 2018, DOL published a final rule establishing
a new test as an alternative to that described in prior DOL sub-
regulatory guidance for determining who can sponsor an ERISA-covered
AHP as an ``employer.'' See 83 FR 28912 (June 21, 2018). The AHP
rule was intended to expand access to affordable, high-quality
healthcare options, particularly for employees of small employers
and some self-employed individuals. On March 28, 2019, in State of
New York v. United States Department of Labor, the United States
District Court for the District of Columbia vacated most of the DOL
rule. On April 26, 2019, the Department of Justice filed a notice of
appeal.
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e. TRICARE
The Departments note that, under the final rules, individual
coverage HRAs may not be integrated with TRICARE.\152\ However, for the
sake of clarity, the Departments note that nothing in the final rules
prevents an employer from offering an individual coverage HRA to an
individual covered by TRICARE, subject to the provisions of the final
rules, including that if an individual coverage HRA is offered to an
employee in a class of employees, the HRA must generally be offered on
the same terms to all the employees in the class. Further, nothing in
the final rules prevents an individual covered by TRICARE from
enrolling in an individual coverage HRA, if offered, subject to the
conditions in the final rules, including that all individuals covered
by an individual coverage HRA must be enrolled in either individual
health insurance coverage or Medicare.\153\ Consequently, an individual
covered by TRICARE who is offered an individual coverage HRA will be
enrolled in TRICARE and must also be enrolled in an individual health
insurance policy (or Medicare, if applicable) in order to be enrolled
in the individual coverage HRA. The individual may not enroll in the
individual coverage HRA and only TRICARE without enrolling in an
individual health insurance policy (or Medicare). Further, as explained
later in this preamble, HRAs may reimburse medical care expenses and
the HRA plan sponsor determines which medical care expenses a
particular HRA may reimburse, consistent with the discussion later in
this preamble. It may be the case that an HRA will be available to pay
both the premiums and cost-sharing for individual health insurance
coverage as well as any medical care expenses related to TRICARE,
subject to the terms of the HRA.
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\152\ See chapter 55 of title 10, United States Code.
\153\ IRS Notice 2015-17, Q&A-3, provides that an arrangement
under which an employer reimburses certain medical care expenses for
employees covered by TRICARE may be considered integrated with a
traditional group health plan offered by the employer (even though
the employee is not enrolled in the traditional group health plan),
subject to certain conditions. The final rules do not affect this
guidance provided under Notice 2015-17.
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12. Expenses Eligible for Reimbursement by an Individual Coverage HRA
A number of commenters requested clarification of the expenses that
may be reimbursed under an individual coverage HRA, such as whether
expenses for premiums for excepted benefit coverage, cost sharing under
excepted benefit coverage, and cost sharing under individual health
insurance coverage may be reimbursed. One commenter recommended that
the final rules require individual coverage HRAs to provide
reimbursement for cost sharing in addition to premiums, and another
asked for clarification that an individual coverage HRA is not required
to be used to reimburse premiums for individual health insurance
coverage, so long as the individual coverage HRA otherwise satisfies
the requirements under the final rules.
An HRA may provide for reimbursement of expenses for medical care,
as defined under Code section 213(d). Consistent with the current rules
that apply to HRAs generally, under the final rules, a plan sponsor has
discretion to specify which medical care expenses are eligible for
reimbursement from an individual coverage HRA it establishes. A plan
sponsor may allow an HRA to reimburse all medical care expenses, may
limit an HRA to allow reimbursements only for premiums, may limit an
HRA to allow reimbursements only for non-premium medical care expenses
(such as cost sharing), or may decide which particular medical care
expenses will be reimbursable and which will not be reimbursable.
However, in the latter case, the designation of the reimbursable
expenses must not violate other rules applicable to group health plans,
such as the HIPAA nondiscrimination rules or the MSP provisions. The
final rules do not require that an individual coverage HRA be used (or
be allowed to be used) for reimbursement of premiums for individual
health insurance coverage (or Medicare). However, as detailed earlier
in this preamble, the final rules require that individuals covered by
an individual coverage HRA be enrolled in individual health insurance
coverage (or Medicare). Thus, the Departments generally anticipate that
employers will allow individual coverage HRAs to reimburse premiums for
such coverage.
Some commenters requested that the Departments confirm that certain
excepted benefits, including standalone dental coverage, hospital
indemnity or other fixed indemnity coverage, and coverage for a
specific disease or illness, provide medical care within the meaning of
Code section 213(d) and, therefore, that expenses for these types of
coverage are reimbursable by an individual coverage HRA. Some
commenters requested that expenses paid with regard to direct primary
care arrangements be recognized as expenses for medical care under Code
section 213(d). In addition, one commenter requested clarification of
whether payments for participation in health care sharing ministries
qualify as medical care expenses under Code section 213(d).
An HRA, including an individual coverage HRA, generally may
reimburse expenses for medical care, as defined under Code section
213(d), of an employee and certain members of the employee's family.
Under Code section 213(d), medical care expenses generally include
amounts paid (1) for the diagnosis, cure, mitigation, treatment, or
prevention of disease, or for the purpose of affecting any structure of
function of the body; (2) for transportation primarily for and
essential to medical care; (3) for certain qualified long-term care
services; and (4) for insurance covering medical care. Neither the
proposed rules nor the final rules make any changes to the rules under
Code section 213. Thus, any issues arising under Code section 213, and
any guidance requested by commenters to address those issues, are
beyond the scope of this rulemaking. The Treasury Department and the
IRS, however, appreciate the comments and plan to address some of these
issues in future rulemaking or guidance.
13. Interaction of Individual Coverage HRAs and HSAs
Commenters raised various issues related to the interaction between
individual coverage HRAs and HSAs. Section 1201 of the Medicare
Prescription Drug, Improvement, and Modernization Act of 2003, Public
Law 108-173, added section 223 to the Code to allow eligible
individuals to establish HSAs. Among the requirements for an individual
to qualify as an eligible individual under Code section 223(c)(1) is
that the individual must be covered under a high deductible health plan
(HDHP) and have no disqualifying health coverage. If an individual
fails to satisfy the requirements to be an eligible individual,
contributions to an HSA are disallowed.
Several commenters asked that the Treasury Department and the IRS
clarify
[[Page 28927]]
whether an individual covered by an individual coverage HRA may
contribute to an HSA. Some commenters specifically asked the Treasury
Department and the IRS to address the application of prior guidance
under the Code, which provides that certain types of HRAs do not render
an individual ineligible to contribute to an HSA. Several commenters
expressed support for HSAs and emphasized the importance of allowing
individuals who have individual coverage HRAs to contribute to HSAs.
In Revenue Ruling 2004-45,\154\ the Treasury Department and the IRS
clarified that an otherwise eligible individual (that is, an individual
with coverage under an HDHP and no other disqualifying coverage)
remains an eligible individual for purposes of making contributions to
an HSA for periods during which the individual is covered by, among
other things, a limited-purpose HRA, a post-deductible HRA, or
combinations of these arrangements.\155\ Subsequently, Q&A-1 of IRS
Notice 2008-59 \156\ stated that a limited-purpose HRA that is also
available to pay premiums for health coverage does not disqualify an
otherwise eligible individual from contributing to an HSA, provided the
individual does not use the HRA to, or otherwise, obtain coverage that
is not HSA-compatible. This prior guidance applies to all HRAs,
including individual coverage HRAs. Therefore, for example, an
individual coverage HRA that solely makes available reimbursements of
individual health insurance coverage premiums does not disqualify an
otherwise eligible individual covered under an HDHP and no other
disqualifying coverage from making contributions to an HSA. However, an
individual coverage HRA that is not limited in accordance with the
relevant guidance under the Code would not be HSA-compatible (for
example, an HRA that can reimburse first dollar cost sharing).
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\154\ Revenue Ruling 2004-45, 2004-1 IRB 971.
\155\ See Revenue Ruling 2004-45, which defines a limited-
purpose HRA as an HRA that pays or reimburses benefits for
``permitted insurance'' (for a specific disease or illness or that
provides a fixed amount per day (or other period) of
hospitalization) or ``permitted coverage'' (for example, vision or
dental coverage), but not for long-term care services. In addition,
the limited-purpose HRA may pay or reimburse preventive care
benefits. The ruling also defines a post-deductible HRA as an HRA
that does not pay or reimburse any medical expense incurred before
the minimum annual deductible under Code section 223(c)(2)(A)(i) is
satisfied.
\156\ IRS Notice 2008-59, 2008-29 IRB 123.
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One commenter asked whether employers are allowed, or required, to
offer both an HSA-compatible individual coverage HRA and an individual
coverage HRA that is not HSA compatible to a class of employees. The
Departments recognize that some employees offered an individual
coverage HRA may choose individual health insurance coverage that is an
HDHP and other employees may choose non-HDHP individual health
insurance coverage that is not HSA compatible. While some employers may
offer all employees in a class of employees an HSA-compatible
individual coverage HRA, some employers may want to offer employees in
a class of employees a choice between an HSA-compatible individual
coverage HRA and an individual coverage HRA that is not HSA compatible.
In response to this comment, the final rules clarify that an employer
that offers employees in a class of employees a choice between an HSA-
compatible individual coverage HRA and an individual coverage HRA that
is not HSA compatible does not fail to satisfy the same terms
requirement provided both types of individual coverage HRAs are offered
to all employees in the class on the same terms.\157\ The final rules
have been revised to reflect this rule.
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\157\ The Departments note that under the opt out requirement,
described later in this preamble, each participant must be given the
chance to opt out of (or into) an individual coverage HRA once, and
only once, with respect to a plan year and to the extent a
participant is offered a choice between an HSA-compatible HRA and a
non-HSA-compatible HRA, the participant will opt into either one or
the other, for the plan year (or for the portion of the plan year
during which the participant is covered by the HRA). (Note that
participants are also generally given the chance to waive the HRA
upon termination of employment).
---------------------------------------------------------------------------
With respect to the post-deductible feature of certain HSA-
compatible HRAs, one commenter suggested that the final rules provide
that employees may self-administer the post-deductible restriction by
tracking medical expenses incurred during the year and refraining from
submitting medical expenses to the post-deductible HRA until the
minimum deductible is satisfied. The Treasury Department and the IRS
decline to adopt this approach because it would be inconsistent with
the rules for the administration of HDHPs.\158\ If a plan sponsor
chooses to offer an HSA-compatible individual coverage HRA that
reimburses medical care expenses after the minimum deductible under
Code section 223(c)(2)(A)(i) is satisfied, it is the employer's
responsibility to track medical care expenses incurred during the year
and ensure that the individual coverage HRA does not reimburse medical
care expenses (other than premiums or expenses allowed as limited
purpose) incurred prior to the satisfaction of the minimum
deductible.\159\
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\158\ See Revenue Ruling 2004-45.
\159\ Another commenter inquired about the interaction of
individual coverage HRAs and HSAs and the rules for cafeteria plans
under Code section 125. These issues are outside the scope of this
rulemaking, and the Treasury Department and the IRS are continuing
to consider whether future guidance is needed.
---------------------------------------------------------------------------
The commenter further requested clarification as to whether unused
amounts in an individual coverage HRA at the end of the plan year may
be transferred to the employee's HSA. The Treasury Department and the
IRS note that amounts available under an HRA, whether an individual
coverage HRA or another type of HRA, may not be funded by salary
reduction amounts. Moreover, the amounts are available only to
reimburse Code section 213(d) medical care expenses and may not be
cashed out.\160\ However, amounts in an HSA may be withdrawn for non-
medical purposes, subject to inclusion in income and an additional
tax.\161\ In addition, Congress previously provided for one-time
distributions from HRAs to HSAs, in certain circumstances, subject to
the annual HSA contribution limits, but this special rule was only made
available on a temporary basis, and the rule sunset at the end of
2011.\162\ Therefore, allowing unused amounts in an individual coverage
HRA to be transferred to an HSA would be inconsistent with the relevant
provisions of the Code and is not permitted.
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\160\ See IRS Notice 2002-45.
\161\ See Code section 223(f). Notwithstanding that HSA amounts
may be withdrawn for non-medical purposes, subject to inclusion in
income and additional tax, Code section 106(d) provides that in the
case of amounts contributed by an employer to the HSA of an eligible
individual, those amounts are treated as employer-provided coverage
for medical care expenses under an accident or health plan to the
extent the amounts do not exceed the annual limits on contributions
to an HSA.
\162\ See Code section 106(e).
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Finally, some commenters requested that direct primary care
arrangements not be treated as a health plan or coverage under Code
section 223, so that an individual may have a direct primary care
arrangement without becoming ineligible for HSA contributions. Similar
to the discussion of Code section 213 in the preceding section of this
preamble, neither the proposed rules nor the final rules make any
changes to the rules under Code section 223. Thus, any issues arising
under Code section 223, and any guidance requested by commenters to
address those issues, are beyond the scope of this rulemaking.
[[Page 28928]]
14. Interaction of Individual Coverage HRAs and Medicare
Commenters raised various issues related to the interaction between
individual coverage HRAs and Medicare. The comments focused on the
interaction with the Medicare anti-duplication provision under SSA
section 1882(d)(3)(A)(i)(I) and the MSP provisions under SSA section
1862(b). In response to these comments, the final rules have been
revised to provide that an individual coverage HRA may be integrated
with either individual health insurance coverage or Medicare Part A and
B or Part C. Also, the Departments clarify that an individual coverage
HRA may be used to reimburse premiums for Medicare and Medicare
supplemental health insurance (Medigap), as well as other medical care
expenses, as discussed in more detail in this section of the preamble.
a. Background
Comments regarding the interaction between individual coverage HRAs
and Medicare addressed a number of federal laws and rules governing the
relationship between group health plans and the Medicare program. This
section of the preamble briefly summarizes these laws to provide
context for comments received on the proposed rules and the provisions
of the final rules related to integration of an individual coverage HRA
with Medicare.
Under SSA section 1882(d)(3)(A)(i)(I), it is unlawful for any
person to issue or sell to an individual entitled to benefits under
Medicare Part A or enrolled in Medicare Part B (including an individual
electing a Medicare Part C plan) an individual health insurance policy
with the knowledge that the policy duplicates \163\ health benefits to
which the individual is otherwise entitled under Medicare or
Medicaid.\164\ Persons who violate SSA section 1882(d)(3)(A)(i)(I) are
subject to criminal fines and imprisonment, as well as civil monetary
penalties.\165\
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\163\ If benefits under an individual health insurance policy
are payable without regard to other health benefit coverage of such
individual, the policy is not considered to ``duplicate'' any health
benefits to which the individual is otherwise entitled under
Medicare or Medicaid, and therefore, the statutory prohibition on
the sale of such coverage does not apply. See SSA section
1882(d)(3)(A)(iv).
\164\ Group health plans, including HRAs, are generally exempt
from this Medicare anti-duplication provision. See SSA section
1882(d)(3)(C).
\165\ SSA section 1882(d)(3)(A)(ii).
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The MSP provisions in SSA section 1862(b) make Medicare the
secondary payer to certain other health plans and coverage, including
group health plans. These provisions protect the Medicare trust funds
by ensuring that Medicare does not pay for items and services that
certain health insurance or coverage is primarily responsible for
paying. In general, the MSP provisions describe when Medicare is
secondary in relation to other health plans or coverage and prohibit
Medicare from making payment for an item or service if payment has been
made, or can reasonably be expected to be made, by a primary plan when
certain conditions are satisfied.\166\
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\166\ See CMS Publication #100-05, Medicare Secondary Payer
Manual, available at https://www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/internet-Only-Manuals-IOMs-Items/CMS019017.html?DLPage=1&DLEntries=10&DLSort=0&DLSortDir=ascending.
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SSA section 1862(b) and 42 CFR 411.20 et seq. provide, in part,
that Medicare is the secondary payer, under specified conditions, for
services covered under any of the following:
Group health plans of employers that employ at least 20
employees and that cover Medicare beneficiaries age 65 or older who are
covered under the plan by virtue of the individual's current employment
status \167\ with an employer or the current employment status of a
spouse of any age.\168\
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\167\ An individual has current employment status if the
individual is actively working as an employee or is otherwise
described in 42 CFR 411.104.
\168\ SSA section 1862(b)(1)(A), 42 CFR 411.20(a)(1)(ii), and 42
CFR 411.100(a)(1)(i).
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Group health plans (without regard to the number of
individuals employed and irrespective of current employment status)
that cover individuals who have ESRD. Except as provided in 42 CFR
411.163, group health plans are always primary payers throughout the
first 30 months of ESRD-based Medicare eligibility or entitlement.\169\
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\169\ SSA section 1862(b)(1)(C).
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Large group health plans, as defined by Code section
5000(b)(2) without regard to Code section 5000(d) (that is, plans of
employers that employ at least 100 employees), that cover Medicare
beneficiaries who are under age 65, entitled to Medicare on the basis
of disability, and covered under the plan by virtue of the individual's
or a family member's current employment status with an employer.\170\
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\170\ SSA section 1862(b)(1)(B).
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Generally, under SSA section 1862(b)(1)(A), (B), and (C), a group
health plan may not take into account that individuals are entitled to
Medicare on the basis of age or disability, or that individuals are
eligible for or entitled to Medicare on the basis of ESRD, in the
design or offering of the plan. The provisions at SSA section
1862(b)(1)(A), (B), and (C) (including subsections (b)(1)(A)(i)(II) and
(b)(1)(C)(ii)) are collectively referred to as the Medicare
nondiscrimination provisions. Examples of actions that constitute
taking into account Medicare entitlement are listed in 42 CFR 411.108.
SSA section 1862(b)(1)(A)(i)(II) and (ii) provides that group
health plans of employers of 20 or more employees must provide to any
employee or spouse age 65 or older the same benefits, under the same
conditions, that the plan provides to those individuals under age 65
(equal benefit rule). For example, a group health plan of an employer
with 20 or more employees may not provide lesser benefits to
individuals age 65 or over, or charge higher premiums for individuals
age 65 or over, because these actions would take into account
employees' entitlement to Medicare on the basis of age and would
provide different benefits based on whether an employee is under or
over age 65. This requirement applies regardless of whether the
individual or spouse age 65 or older is entitled to Medicare.
SSA section 1862(b)(1)(C)(ii) provides that group health plans may
not differentiate in the benefits they provide between individuals who
have ESRD and other individuals covered under the plan on the basis of
the existence of ESRD, the need for renal dialysis, or in any other
manner. Actions that constitute ``differentiating'' are listed in 42
CFR 411.161(b).
SSA section 1862(b)(3)(C) and 42 CFR 411.103 provide that it is
unlawful for an employer or other entity (for example, an issuer) to
offer any financial or other benefits as incentives for an individual
entitled to Medicare not to enroll in, or to terminate enrollment in, a
group health plan that is, or would be, primary to Medicare. For
example, employers may not offer benefits to Medicare beneficiaries
that are available only as alternatives to the employer's primary group
health plan (for example, prescription drug benefits) unless the
beneficiary has primary coverage other than Medicare (for example,
primary plan coverage through his or her spouse's employer).
b. Integration of Individual Coverage HRAs With Medicare
Several commenters requested clarification generally about how
employees who are enrolled in Medicare may use amounts in an individual
coverage HRA. Some commenters explained that because of the Medicare
anti-duplication provision applicable to individual health insurance
coverage, employees who are Medicare beneficiaries may not be able to
purchase individual health insurance
[[Page 28929]]
coverage and, therefore, would be unable to enroll in an individual
coverage HRA. One commenter suggested that issuers should have to make
their individual health insurance policies available to employees
eligible for or enrolled in Medicare, if they are offered an individual
coverage HRA.
Some commenters sought clarification about the relationship between
the Medicare anti-duplication provision and the Medicare
nondiscrimination provisions as they relate to individual coverage
HRAs. Specifically, some commenters asked HHS to clarify that the
inability of employees who are Medicare beneficiaries to obtain
individual health insurance coverage due to the Medicare anti-
duplication provision will not cause the individual coverage HRA or its
plan sponsor to violate rules prohibiting discrimination based on
Medicare status, age, disability, or other factors. One commenter
suggested that employers that otherwise comply with the proposed rules
should not be precluded from offering an individual coverage HRA
because a class of employees includes a Medicare beneficiary who cannot
obtain individual health insurance coverage. Another commenter asked
whether employers would be required to offer Medicare-eligible
employees the same HRA contribution as non-Medicare-eligible employees
in the same class even though Medicare beneficiaries may not be able to
purchase individual health insurance coverage.
In response to these comments, HHS notes that there is no exception
to the Medicare anti-duplication provision under SSA section
1882(d)(3)(A)(i)(I) for individual health insurance coverage purchased
with an HRA. Therefore, neither the proposed rules nor the final rules
make any changes related to the application of the Medicare anti-
duplication provision. Thus, the statutory prohibition against selling
an individual health insurance policy to a Medicare beneficiary with
knowledge that the policy duplicates benefits under Medicare continues
to apply, regardless of whether the individual is offered an individual
coverage HRA. However, the Departments have considered commenters'
concerns about individual coverage HRAs and the potential effects of
the Medicare anti-duplication provision, as well as those related to
the interaction of the MSP provisions, and have determined that
revisions to the final rules are warranted.
HHS recognizes that, for an individual coverage HRA, it is
necessary to address how the Medicare anti-duplication provision
interacts with the rules under SSA section 1862(b)(1) that generally
provide that group health plans may not take into account entitlement
to Medicare and must provide to any employee or spouse age 65 or older
the same benefits, under the same conditions, that the group health
plan provides to individuals under age 65. If an employer offers an
individual coverage HRA, some employees who are Medicare beneficiaries
may not be able to obtain individual health insurance coverage due to
the anti-duplication provision at SSA section 1882(d)(3)(A)(i)(I). This
might cause such employees to be unable to enroll in the individual
coverage HRA, effectively treating them differently in violation of the
SSA's equal benefit rule.
To address these comments, the final rules permit an individual
coverage HRA to be integrated with either individual health insurance
coverage or Medicare for a participant or dependent who is enrolled in
Medicare Part A and B or Part C (and the HRA will be deemed to comply
with PHS Act sections 2711 and 2713), if certain conditions are
satisfied. Under the final rules, an individual coverage HRA may be
integrated with Medicare regardless of whether the HRA is subject to
the MSP provisions, because the Medicare anti-duplication provision
applies without regard to whether the HRA plan sponsor is subject to
the MSP provisions.\171\
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\171\ For group health plans not subject to the MSP provisions,
the existing integration rules permit integration with Medicare Part
B and D if certain conditions are satisfied, including that the
employer offer traditional group health plan coverage to its non-
Medicare employees. See 26 CFR 54.9815-2711(d)(5), 29 CFR 2590.715-
2711(d)(5), and 45 CFR 147.126(d)(5).
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The Departments are adopting this approach due to the challenges
presented by the intersection of the requirements that apply to
individual coverage HRAs, the MSP requirements applicable to group
health plans, and the Medicare anti-duplication provision applicable to
individual health insurance coverage. The Departments have determined
that it is appropriate to permit an individual coverage HRA to
integrate with Medicare coverage, and therefore, be considered
compliant with PHS Act sections 2711 and 2713, because individuals
enrolled in Medicare Part A and B or Part C have the comprehensive
benefit packages established by Congress, generally with no annual
dollar limits and with coverage of preventive services without cost
sharing.\172\ An individual coverage HRA that helps pay premiums for,
or supplements, the Medicare benefit package established by Congress
will not be considered by the Departments to fail to satisfy PHS Act
sections 2711 and 2713. Further, the Departments determined in the 2015
rules under PHS Act 2711 that allowing Medicare Part B and D
reimbursement arrangements to be integrated with Medicare was
sufficient to constitute compliance with PHS Act sections 2711 and 2713
in the circumstances described in that guidance, as discussed earlier
in this preamble.
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\172\ See, e.g., SSA sections 1861 and 1833, as added by PPACA
sections 4103 and 4104.
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The final integration rules generally apply in the same manner to
Medicare coverage as they apply to individual health insurance
coverage. Thus, under the final rules, an individual coverage HRA must
require individuals whose medical care expenses may be reimbursed under
the HRA to be enrolled in either individual health insurance coverage
or Medicare Part A and B or Part C for each month such individuals are
covered by the HRA. The individual coverage HRA also must implement,
and comply with, reasonable procedures to substantiate enrollment in
either individual health insurance coverage or Medicare Part A and B or
Part C for the HRA plan year (or for the portion of the plan year the
individual is covered by the individual coverage HRA) and with each new
request for reimbursement of an incurred medical care expense. The
Departments clarify that the final rules do not require that a
participant and his or her dependents all have the same type of
coverage (that is, either individual health insurance coverage or
Medicare). Therefore, an individual coverage HRA may be integrated with
Medicare for some individuals in a family or household and with
individual health insurance coverage for others in the same family or
household.
In addition, under the final rules, an individual coverage HRA must
be offered on the same terms to all employees within a class of
employees, regardless of Medicare eligibility or entitlement, including
that the individual coverage HRA must make the same amount available to
all employees in the class, subject to the exceptions provided in the
final rules under the same terms requirement.\173\ Moreover,
[[Page 28930]]
no employee may be offered a choice between an individual coverage HRA
and a traditional group health plan, including an employee enrolled in
or eligible for Medicare. The individual coverage HRA must also allow
participants, whether or not covered by Medicare, to opt-out of and
waive future reimbursements from the individual coverage HRA annually
and upon termination of employment. Finally, the individual coverage
HRA must provide the notice required by the final rules to all
individuals eligible for the HRA, including those for whom the HRA
would be integrated with Medicare. Relatedly, in the final rules, the
Departments clarify the notice content requirements to reflect that an
individual coverage HRA may be integrated with Medicare and to include
a statement regarding PTC eligibility for Medicare beneficiaries.\174\
The final rules also clarify that some of the notice content elements
relate only to individual health insurance coverage and not to
Medicare.
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\173\ The Departments note that although there is an exception
to the same terms requirement that allows a plan sponsor to offer
both an HSA-compatible individual coverage HRA and an individual
coverage HRA that is not HSA compatible, Code section 223(b)(7)
provides that an individual ceases to be an eligible individual for
HSA purposes starting with the month he or she is entitled to
benefits under Medicare. IRS Notice 2004-50, 2004-33 IRB 196, Q&A-2,
clarifies that mere eligibility for Medicare does not make an
individual ineligible to contribute to an HSA. Rather, the term
``entitled to benefits under Medicare,'' for purposes of an HSA,
means both eligibility for, and enrollment in, Medicare.
\174\ Although individuals enrolled in Medicare may not be able
to purchase individual health insurance coverage for themselves
through the Exchange, individuals who do so are not eligible for the
PTC for their Exchange coverage in any event. See Code section
36B(c)(2)(B) and 26 CFR 1.36B-2(a)(2).
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c. Reimbursement of Expenses Under Individual Coverage HRAs for
Medicare Beneficiaries
One commenter requested clarification that offering an individual
coverage HRA to Medicare-eligible employees will not be considered an
improper financial incentive for those individuals to select Medicare
as their primary payer. The commenter also suggested that employees be
able to use amounts in an individual coverage HRA to pay for medical
care expenses not covered by Medicare, such as dental, vision, and
other out-of-pocket expenses, including Medicare Part D premiums, as
well as premiums for Medigap, without it being viewed as offering an
improper incentive.
For group health plans subject to the MSP provisions, offering an
HRA to reimburse Medicare premiums is impermissible if it provides a
financial incentive for Medicare beneficiaries to decline enrollment in
the employer's group health plan and make Medicare the primary payer.
Under the final rules, the employer would not be offering Medicare
beneficiaries a financial incentive as an inducement to decline group
health plan coverage. Rather, the individual coverage HRA would be the
group health plan coverage offered to a class of employees that
includes Medicare beneficiaries. Under these circumstances, unless the
employer could offer an individual coverage HRA that may be integrated
with Medicare, the employer would risk running afoul of the equal
benefit rule under SSA section 1862(b)(1)(A)(i). This is because
employees who are Medicare beneficiaries who are unable to purchase
individual health insurance coverage would be ineligible for the
employer's group health plan (that is, the individual coverage HRA) as
a result of the Medicare anti-duplication provision.
HHS recognizes that in other circumstances, offering an HRA to
reimburse Medicare premiums might be viewed as impermissible because it
would have the effect of making Medicare the primary payer in relation
to a group health plan.\175\ Nevertheless, for purposes of the final
rules, HHS has concluded that employers need the flexibility to offer
individual coverage HRAs that may be integrated with Medicare, and that
may provide for reimbursement of Medicare premiums. This flexibility
does not violate the prohibition against financial incentives under SSA
section 1862(b)(3)(C). Where a group health plan is an individual
coverage HRA that can be used to pay Medicare premiums or other medical
care expenses,\176\ there is no incentive for a Medicare beneficiary to
decline or terminate enrollment under the group health plan (that is,
the individual coverage HRA). Thus, there is no violation of the SSA's
financial incentive prohibition.
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\175\ Under IRS Notice 2015-17, an arrangement under which an
employer reimburses (or pays directly) Medicare Part B or D premiums
may be considered integrated with the group health plan coverage
offered to the employee by the employer although the employee is not
enrolled in that group coverage and is instead enrolled in Medicare,
subject to certain conditions. IRS Notice 2015-17 also states that
to the extent such an arrangement is available to active employees,
it may be subject to restrictions under other laws, such as the
Medicare secondary payer provisions. For clarity, the Departments
confirm that reimbursement of Medicare Part B and D premiums under
IRS Notice 2015-17 is permitted only for such arrangements not
subject to the MSP provisions.
\176\ However, as discussed later in this section of the
preamble, an individual coverage HRA may not, under its terms, limit
reimbursement only to expenses not covered by Medicare.
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Therefore, under the final rules, an individual coverage HRA that
is integrated with Medicare may reimburse premiums for Medicare Part A,
B, C, or D, as well as premiums for Medigap policies. The individual
coverage HRA may also reimburse other medical care expenses as defined
under Code section 213(d) (subject to the exception discussed later in
this section of the preamble regarding taking Medicare entitlement into
account). Thus, an individual coverage HRA will not be considered to
provide unequal benefits to participants who are eligible for Medicare
because those participants will be able to receive the same benefits
under the HRA regardless of whether they are able to purchase
individual health insurance coverage.\177\ However, as explained
earlier in this preamble, the plan sponsor generally has discretion to
specify which medical care expenses (premiums, cost sharing, or
otherwise) are eligible for reimbursement under the terms of an
individual coverage HRA, as long as the HRA offers the same benefits,
on the same terms and conditions, to a class of employees, subject to
the exceptions under the same terms requirement in the final rules. In
addition, as discussed earlier in this preamble, the designation of the
reimbursable expenses must not violate other rules applicable to group
health plans, such as the HIPAA nondiscrimination rules or the MSP
provisions.
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\177\ The fact that a participant or dependent in a class of
employees may not be able to enroll in individual health insurance
coverage or Medicare due to the operation of federal law does not
mean the individual coverage HRA that is offered to that class of
employees violates the same terms requirement under the final rules
or the equal benefit rule under the SSA.
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To ensure that an individual coverage HRA that is subject to the
MSP provisions does not violate those rules, an individual coverage HRA
may not, under its terms, limit reimbursement only to expenses not
covered by Medicare, as HHS has determined this could amount to a group
health plan taking into account entitlement to Medicare in violation of
the MSP provisions. However, an individual coverage HRA may limit
reimbursement to only premiums or non-premium medical care expenses
(such as cost sharing), or may decide which particular medical care
expenses will be reimbursable and which will not be reimbursable under
the terms of the HRA.
d. Other Medicare Issues
Some commenters sought assurance that a health insurance issuer
providing individual health insurance coverage purchased with an
individual coverage HRA would not be required to comply with MSP
reporting requirements or pay for benefits primary to Medicare where
MSP provisions might apply to the
[[Page 28931]]
individual's HRA. These commenters recommended clarifying that an HRA
plan sponsor's failure to satisfy the conditions of the ERISA safe
harbor described later in this preamble will have no effect on the MSP
status of the individual health insurance coverage.
HHS notes that individual health insurance coverage is not subject
to the MSP provisions, including the reporting, nondiscrimination, and
``primary plan'' requirements described earlier in this section of the
preamble.\178\ Nothing in the final rules changes the application of
the MSP provisions. This is true even where individual health insurance
coverage is integrated with an HRA as allowed under the final
rules.\179\ However, an individual coverage HRA will generally pay
primary to Medicare, consistent with the MSP provisions applicable to
group health plans. HHS intends to issue further guidance clarifying
the primary versus secondary payer responsibility of individual
coverage HRAs for plan sponsors subject to the MSP provisions.
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\178\ See SSA section 1862(b)(1) and (2) (MSP rules apply only
to certain group health plans).
\179\ The term ``group health plan'' for purposes of the MSP
provisions is not defined by reference to ERISA; therefore, this
section of the preamble does not address the application of the
ERISA safe harbor described later in this preamble.
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One commenter requested guidance about the MSP reporting
requirements that apply to individual coverage HRAs. Section 111 of the
Medicare, Medicaid, and SCHIP Extension Act of 2007 (MMSEA), Public Law
110-173, established mandatory reporting requirements with respect to
Medicare beneficiaries who have coverage under group health plan
arrangements, as well as for Medicare beneficiaries who receive
settlements, judgments, awards, or other payment from liability
insurance (including self-insurance), no-fault insurance, or workers'
compensation.\180\ The purpose of this reporting is to ensure that
Medicare correctly pays for covered services provided to Medicare
beneficiaries consistent with Medicare payment rules. HRAs (including
individual coverage HRAs) are group health plans and, therefore,
generally trigger the MMSEA section 111 reporting requirements.\181\
HHS will provide future guidance regarding MMSEA section 111 reporting
requirements and individual coverage HRAs. HHS notes that entities that
currently do not offer a group health plan and therefore do not have
reporting obligations may be required to report if they elect to offer
individual coverage HRAs, similar to if they elected to offer other
group health plan coverage.
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\180\ See also SSA section 1862(b)(7) and (8).
\181\ For information about mandatory MMSEA section 111
reporting for group health plans, see https://www.cms.gov/Medicare/Coordination-of-Benefits-and-Recovery/Mandatory-Insurer-Reporting-For-Group-Health-Plans/Overview.html and https://www.cms.gov/Medicare/Coordination-of-Benefits-and-Recovery/Mandatory-Insurer-Reporting-For-Group-Health-Plans/GHP-Training-Material/Downloads/Health-Reimbursement-Arrangement-HRA.pdf.
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15. Other Integration Issues
Some comments were received regarding dollar limits on individual
coverage HRAs. One commenter supported that the proposed rules did not
impose any specific dollar limit on the amount that an employer may
contribute to an individual coverage HRA. The commenter noted that this
is a welcome difference from QSEHRAs, to which a statutory dollar limit
applies, and stated that this flexibility will help encourage employers
to offer individual coverage HRAs. One commenter requested that the
Departments place a limit on contributions to an individual coverage
HRA to prevent adverse selection. A few commenters asked that the
Departments require employers to make certain minimum amounts available
under an individual coverage HRA to approximate the amount the employer
generally would contribute to a traditional group health plan as a way
to maintain availability and generosity of coverage.
In previous guidance on HRAs, including on integration of HRAs with
other coverage, the Departments provided no minimum or maximum
contribution amount. Similarly, the Departments decline to impose a
minimum or maximum contribution amount on individual coverage HRAs
under the final rules, in order to provide employers with flexibility
and because the Departments have imposed other conditions to address
the potential for adverse selection. However, the Treasury Department
and the IRS note that employers subject to the employer shared
responsibility provisions under Code section 4980H may want to make
sufficient amounts available to employees in order to avoid a potential
employer shared responsibility payment. The Treasury Department and the
IRS intend to propose separate rules regarding the interaction of
individual coverage HRAs and Code section 4980H that will be available
for public comment.
Some commenters addressed which employers should be permitted to
offer an individual coverage HRA. One commenter applauded the proposed
rules for allowing employers of all sizes to offer an individual
coverage HRA. One commenter requested that the Departments only permit
individual coverage HRAs to be offered by small employers, because, the
commenter asserted, small employers have less incentive to segment risk
and are less likely to create classes of employees leading to adverse
selection. One commenter asked that the Departments only permit large
employers to offer an individual coverage HRA, asserting that small
employers would be able to manipulate the rules to create small classes
and segment risk. Another commenter requested that only employers that
do not currently offer coverage be allowed to offer an individual
coverage HRA.
The Departments considered these suggestions and determined that
limiting the ability of one or more categories of employers to offer an
individual coverage HRA in these ways would unnecessarily restrict the
rules and could decrease the usability of individual coverage HRAs and
harm employee welfare without a compelling reason for these
limitations. Therefore, under the final rules, any employer may offer
an individual coverage HRA, subject to compliance with the conditions
in the final rules. However, the Departments note that the final rules
include a minimum class size requirement which applies in certain
instances, to address the issue identified regarding the ability to
create small classes and segment risk.
One commenter urged HHS to allow for wellness program demonstration
projects in the individual market under PHS Act section 2705(l) because
the commenter asserted wellness programs are a popular aspect of
traditional employer coverage. Because this comment is outside the
scope of this rulemaking, it is not addressed in the final rules.
However, HHS appreciates the comment and may consider addressing this
issue in future guidance.
Several commenters emphasized the importance of strong enforcement
of the conditions in the final rules and requested that the Departments
issue guidance detailing how the Departments would enforce the final
rules. DOL has enforcement jurisdiction over private sector employer-
sponsored group health plans, and HHS has enforcement jurisdiction over
public sector group health plans, such as those sponsored by state and
local governments. Individual coverage HRAs are group health plans, and
DOL and HHS will monitor individual coverage HRAs' compliance with
applicable requirements, consistent with the general approach to
enforcement with respect to other group health plans. The
[[Page 28932]]
Departments believe that it is unnecessary to include specific
enforcement guidance for individual coverage HRAs in the final rules.
The Departments may provide additional guidance if the Departments
become aware of arrangements that are inconsistent with the final
rules.
One commenter requested that employers be permitted to pay issuers
directly for individual health insurance coverage in which individual
coverage HRA participants are enrolled. The Departments note that
existing guidance for health plans generally allows employers to pay
health insurance premiums to issuers directly,\182\ so this is already
permitted. Also, see the discussion later in this preamble regarding a
safe harbor for determining whether an individual health insurance
policy purchased with funds from an individual coverage HRA will be
treated as part of an ERISA-covered employee welfare benefit plan.
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\182\ See Revenue Ruling 61-146, 1961-2 CB 25.
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One commenter requested that the Departments clarify that a plan
sponsor may make amounts in an individual coverage HRA available either
monthly or annually at the beginning of the plan year. The Departments
clarify that the final rules do not change existing rules for HRAs,
which do not require the entire annual amount to be available at the
beginning of the year and would allow the HRA to only make amounts
available pro rata over the 12 months of the year.\183\ However, the
Departments note that the amounts made available under an individual
coverage HRA, including when they will be made available, must be
described in the notice that is required under the final rules.\184\
The Departments also note that within a class of employees, the terms
and conditions of an individual coverage HRA generally must be the
same, including the timing of how amounts are made available.
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\183\ See IRS Notice 2002-45.
\184\ Also see the discussion later in the preamble regarding
the final PTC rules, under which amounts newly made available for an
HRA plan year must be determinable within a reasonable time before
the beginning of the plan year in order to be considered in
determining affordability of the offer of the individual coverage
HRA.
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One commenter requested that the Departments interpret ``employer''
to include non-employer plan sponsors such as boards of trustees for
multiemployer plans. The final rules allow plan sponsors to offer an
individual coverage HRA, and plan sponsors include, but are not limited
to, employers and could include a board of trustees for a multiemployer
plan.
Various commenters requested additional reporting requirements or
other types of mandatory data collection regarding individual coverage
HRAs. The Departments have not identified a compelling need for this
information that would justify the significant additional burden this
would place on each employer offering this type of coverage.
Accordingly, the final rules do not adopt these suggestions. However,
to the extent an individual coverage HRA is otherwise subject to
reporting requirements under other rules, including PPACA, the Code,
the SSA, or ERISA, the final rules do not affect the application of
those reporting requirements.\185\
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\185\ See e.g., ERISA sections 101, 103, and 104 and PHS Act
section 2715 (incorporated in Code section 9815 and ERISA section
715).
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One commenter requested additional time to comment on the proposal.
The Administrative Procedure Act grants Executive Agencies discretion
to set the timeframe during which public comments will be received and
considered. Interested stakeholders were given 60 days from the
publication of the proposed rules to submit comments for consideration.
Many comments were received and considered by the Departments. This
solicitation for public comments allowed the Departments to gather
sufficient information from interested stakeholders. The Departments,
therefore, declined to extend the timeframe to comment on the proposed
rules.
One commenter requested that the final rules consider enrollment in
an individual coverage HRA as other group coverage for purposes of
determining whether employers satisfy minimum participation thresholds
for guaranteed availability. In the large group market, issuers may not
apply minimum participation rules to deny guaranteed availability of
coverage. In the small group market, issuers may apply minimum
participation rules, as allowed under applicable state law. However,
failure to satisfy an issuer's minimum participation rules may not be
used to deny guaranteed availability of coverage between November 15
and December 15 of each year. The Departments clarify that in both the
large and small group markets, issuers may apply minimum participation
rules, pursuant to applicable state law, as an exception to guaranteed
renewability of coverage requirements.\186\ State law may determine
which individuals to include in the minimum participation calculation,
including whether issuers are allowed to include individuals who have
other coverage within the total number of eligible individuals and
which types of coverage may be counted as other coverage.\187\ Neither
the proposed rules nor the final rules make changes to these existing,
separate requirements.
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\186\ See 78 FR 13406, 13416 (Feb. 27, 2013).
\187\ See Health Care Financing Administration Insurance
Standards Bulletin 00-05, Guaranteed Availability Under Title XXVII
of the Public Health Service Act--Applicability of Group
Participation Rules (Nov. 2000), available at https://www.cms.gov/CCIIO/Resources/Files/Downloads/hipaa_00_05_508.pdf. However, for
purposes of participation in a Federally-facilitated Small Business
Health Options Program (FF-SHOP), see the methodology for
calculating a minimum participation rate specified in 45 CFR
155.706(b)(10)(i).
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One commenter requested that the Departments provide information
about how an employer would transition from offering a QSEHRA to
offering an individual coverage HRA. The Departments note that IRS
Notice 2017-67 provides guidance on the requirements for providing a
QSEHRA. The guidance in Notice 2017-67 remains unaffected by the final
rules. Additional QSEHRA guidance generally is outside of the scope of
these final rules, and to the extent an employer wants to transition
from offering a QSEHRA to offering an individual coverage HRA, the
individual coverage HRA must comply with the requirements set forth in
the final rules.
One commenter asked the Departments to clarify that individual
coverage HRA participants may contribute to a health FSA even if their
employer does not offer traditional group health plan coverage. The
Departments note that employers generally may provide excepted benefits
(other than an excepted benefit HRA \188\) to employees in a class
offered an individual coverage HRA. In addition, the Departments
clarify that the individual coverage HRA would qualify as ``other group
health plan coverage not limited to excepted benefits'' under the
requirements for the health FSA to qualify as an excepted benefit.\189\
Thus, nothing in the final rules prohibits employees in a class of
employees offered an individual coverage HRA from participating in a
health FSA through salary reduction in a cafeteria plan.
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\188\ See later in this preamble for a discussion of the
interaction of individual coverage HRAs and excepted benefit HRAs.
\189\ 26 CFR 54.9831-1(c)(3)(v)(A), 29 CFR 2590.732(c)(3)(v)(A),
and 45 CFR 146.145(b)(3)(v)(A).
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Other comments not responsive to the provisions and topics
addressed by the proposed rules, or otherwise beyond the
[[Page 28933]]
scope of the proposed and final rules, are not summarized or addressed.
16. Revisions to Current PHS Act Section 2711 Rules Regarding
Integration With Other Group Health Plan Coverage and Medicare
The 2015 rules under PHS Act section 2711 provide methods for
integrating HRAs with coverage under another group health plan, and, in
certain circumstances, with Medicare Part B and D. The proposed rules
did not include a proposal to substantively change the current group
health plan or Medicare integration tests under the existing PHS Act
section 2711 rules. However, the proposed rules included minor proposed
revisions to those rules, including changing the term ``account-based
plan'' to ``account-based group health plan'' and moving defined terms
to a definitions section. The proposed rules also proposed to amend the
rules under PHS Act section 2711 to reflect that HRAs may be integrated
with individual health insurance coverage subject to the requirements
of 26 CFR 54.9802-4, 29 CFR 2590.702-2, and 45 CFR 146.123. The final
rules adopt these changes as proposed, except that the final rules have
been updated to reflect that individual coverage HRAs may be integrated
with Medicare, for purposes of compliance with PHS Act sections 2711
and 2713, if certain conditions are satisfied.\190\
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\190\ The Departments further note that, unless the final rules
conflict with the subregulatory guidance that has been issued under
PHS Act section 2711, that guidance remains in effect.
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In addition, the proposed rules included a proposal to update the
definition of EHBs set forth in paragraph (c) of the rules under PHS
Act section 2711, which applies for a group health plan or health
insurance issuer not required to cover EHBs. The update in the proposed
rules reflected the revision to the EHB-benchmark plan selection
process that was promulgated in the HHS Notice of Benefit and Payment
Parameters for 2019 Final Rule (2019 Payment Notice) and that applies
for plan years beginning on or after January 1, 2020.\191\ The 2019
Payment Notice revisions provide states with additional choices with
respect to the selection of benefits and promote affordable coverage
through offering states additional flexibility in their selection of an
EHB-benchmark plan for plan years beginning on or after January 1,
2020. The state's existing EHB-benchmark plan will continue to apply
for any year for which a state does not select a new EHB-benchmark plan
from the available EHB-benchmark plan selection options finalized in
the 2019 Payment Notice.\192\ The Departments are finalizing as
proposed the update to the definition of EHB under the PHS Act section
2711 rules.
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\191\ See 83 FR 16930 (April 17, 2018). The definition of EHB
that applies under the PHS Act section 2711 rules for plan years
beginning before January 1, 2020 is not substantively changed by the
final rules.
\192\ For more information on the revised EHB standard, refer to
the preamble to the 2019 Payment Notice (83 FR 16930, 17007 (April
17, 2018)).
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One commenter expressed concern with the change made by HHS to the
definition of EHB in the 2019 Payment Notice and requested that the
Departments decline to update the rules under PHS Act section 2711 to
reflect the revised EHB definition. The Departments clarify that PHS
Act section 2711 defines EHB by reference to PPACA section 1302(b),
under which HHS has the authority to define EHB. The update to the
definition of EHB in the PHS Act section 2711 rules is a technical
update made to avoid applying an out-of-date definition and is the
result of the change HHS finalized in the 2019 Payment Notice. Issues
regarding EHBs more generally, as well as the specific changes made in
the 2019 Payment Notice, are outside of the scope of this rulemaking.
B. Excepted Benefit HRAs
1. In General
As the Departments noted in the preamble to the proposed rules,
there may be scenarios in which an employer wants to offer an HRA that
might not be integrated with individual health insurance coverage, non-
HRA group coverage, Medicare, or TRICARE. For example, some employers
may want to offer an HRA without regard to whether their employees have
other coverage at all, or without regard to whether their employees
have coverage that is subject to and satisfies the market requirements.
Therefore, the proposed rules utilized the Departments' discretion
under Code section 9832(c)(2)(C), ERISA section 733(c)(2)(C), and PHS
Act section 2791(c)(2)(C), and included an amendment to the prior rules
that would recognize certain limited HRAs as excepted benefits
(excepted benefit HRAs), if specific conditions were satisfied.\193\
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\193\ The proposed rules, and the final rules, do not apply to
health FSAs. For a health FSA to qualify as an excepted benefit, the
rules at 26 CFR 54.9831-1(c)(3)(v), 29 CFR 2590.732(c)(3)(v), and 45
CFR 146.145(b)(3)(v) continue to apply.
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As explained earlier in this preamble, the Departments have the
authority and discretion to specify in rules additional limited
excepted benefits that are similar to the limited benefits specified in
the statutes and that either are insured under a separate policy,
certificate, or contract of insurance, or are otherwise not an integral
part of a plan. The proposed rules included a proposal for an excepted
benefit HRA that is consistent with both this statutory framework and
the Departments' objective of expanding the availability and usability
of HRAs to maximize employee welfare. Specifically, the proposed rules
provided that, to be recognized as an excepted benefit, the HRA: (1)
Must not be an integral part of the plan, (2) must provide benefits
that are limited in amount, (3) cannot provide reimbursement for
premiums for certain health insurance coverage, and (4) must be made
available under the same terms to all similarly situated individuals.
A number of commenters generally expressed support for the proposed
excepted benefit HRA rule as a way to expand the availability and use
of HRAs. Some of the commenters who supported the proposed excepted
benefit HRA rule opposed allowing the purchase of STLDI. Also, a number
of commenters opposed the proposed excepted benefit HRA rule,
expressing concerns that the excepted benefit HRA could incentivize
individuals to obtain STLDI, cause adverse selection in the small group
and individual market risk pools, and increase complexity and the
potential for confusion.
The Departments considered these comments and agree that the
excepted benefit HRA is a way to expand the availability and use of
HRAs, thereby providing increased options for healthcare coverage to
employers and employees. Therefore, the final rules recognize certain
HRAs as limited excepted benefits, with some changes from the proposed
rule, which are intended to address concerns raised by commenters
regarding the potential for adverse selection and confusion.
A few commenters questioned the Departments' legal authority for
establishing the excepted benefit HRA, with one requesting that the
proposed excepted benefit HRA rules be withdrawn. These commenters
stated that the excepted benefit HRA is not similar to the other
limited excepted benefits because it does not provide insurance that is
limited in scope for a particular medical condition. The Departments
disagree. As stated earlier in this section of the preamble, Code
section 9832(c)(2)(C), ERISA section 733(c)(2)(C), and PHS Act section
2791(c)(2)(C) authorize the Secretaries of the Treasury, Labor, and HHS
to issue rules establishing other, similar limited benefits as excepted
benefits. Similar to
[[Page 28934]]
the exercise of authority with respect to certain health FSAs, limited
wraparound coverage,\194\ and employee assistance programs, the
Departments utilized this authority to propose rules to permit HRAs as
limited excepted benefits, if certain conditions are satisfied. The
Departments have determined that the conditions that apply to excepted
benefit HRAs under the final rules result in such an arrangement being
sufficiently limited and sufficiently similar to other limited excepted
benefits. The Departments are now adopting these final rules on
excepted benefit HRAs, subject to clarifications, described later in
this section of the preamble.
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\194\ The Departments note that limited wraparound coverage was
permitted as an excepted benefit under a temporary pilot program.
Specifically, limited wraparound coverage could be offered as
excepted benefits if it was first offered no earlier than January 1,
2016, and no later than December 31, 2018, and would end no later
than on the later of: (1) The date that is 3 years after the date
limited wraparound coverage is first offered, or (2) the date on
which the last collective bargaining agreement relating to the plan
terminates after the date limited wraparound coverage is first
offered (determined without regard to any extension agreed to after
the date limited wraparound coverage is first offered). See 26 CFR
54.9831-1(c)(3)(vii)(F), 29 CFR 2590.732(c)(3)(vii)(F), and 45 CFR
146.145(b)(3)(vii)(F).
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As a general matter, some commenters expressed confusion and asked
for clarification regarding the difference, if any, between the
proposed excepted benefit HRA and an HRA that only reimburses expenses
for excepted benefits. In IRS Notice 2015-87, Q&A-5, the Treasury
Department and the IRS explained that an HRA or employer payment plan
that, by its terms, reimburses (including paying directly for) premiums
for individual health insurance coverage solely to the extent that the
individual health insurance coverage covers excepted benefits would not
fail to satisfy the market requirements because those requirements do
not apply to a group health plan that is designed to provide only
excepted benefits, either through reimbursement of premiums or cost
sharing (referred to in this preamble as an HRA that provides only
excepted benefits). Excepted benefit HRAs, on the other hand, can
provide reimbursement for costs incurred related to coverage that is
not limited to excepted benefits (for example, cost sharing for
individual health insurance coverage). Several commenters asked the
Departments to confirm that an HRA that provides only excepted benefits
is not subject to the conditions that apply to an excepted benefit HRA.
One commenter was concerned that if an HRA that provides only excepted
benefits must satisfy the conditions that apply to an excepted benefit
HRA, the proposed rules would inadvertently reduce employers' ability
to fund excepted benefits.
The final rules establish a new excepted benefit HRA under Code
section 9832(c)(2)(C), ERISA section 733(c)(2)(C), and PHS Act section
2791(c)(2)(C), which can be used to reimburse certain medical care
expenses incurred with respect to coverage that is not limited to other
types of excepted benefits. If a plan sponsor offers an HRA that only
provides reimbursement for other types of excepted benefits (for
example, limited-scope vision and limited-scope dental benefits), that
arrangement is, itself, already an excepted benefit and need not
satisfy the criteria of the final excepted benefit HRA rules. Instead,
the final rules provide that an additional type of HRA, specifically,
one that reimburses benefits not limited to other types of excepted
benefits, can also qualify as an excepted benefit.\195\ Excepted
benefit HRAs may reimburse medical care expenses, such as cost sharing
for individual health insurance coverage or group health plan coverage
that would not otherwise qualify as excepted benefits, if the
conditions of the final rules are satisfied.
---------------------------------------------------------------------------
\195\ That is, the excepted benefit HRA may reimburse expenses
for excepted benefits, as well as other types of medical expenses
that do not qualify as excepted benefits.
---------------------------------------------------------------------------
2. Otherwise Not an Integral Part of the Plan
Among other things, to be a limited excepted benefit under Code
section 9831(c)(1), ERISA section 732(c)(1), and PHS Act section
2722(c)(1), benefits must: (1) Be provided under a separate policy,
certificate, or contract of insurance; or (2) otherwise not be an
integral part of the plan.\196\ HRAs are self-insured group health
plans and, therefore, are not insurance coverage that can be provided
under a separate policy, certificate, or contract of insurance.
Accordingly, to satisfy the statutory requirement to be a limited
excepted benefit, among other things, an HRA must not be an integral
part of the plan.
---------------------------------------------------------------------------
\196\ Code section 9831(c)(1), ERISA section 732(c)(1), and PHS
Act section 2722(c)(1).
---------------------------------------------------------------------------
To satisfy this condition, the proposed rules specified that other
group health plan coverage (other than an account-based group health
plan or coverage consisting solely of excepted benefits) must be made
available by the same plan sponsor for the plan year to the
participants offered the excepted benefit HRA. Only individuals
eligible to participate in the traditional group health plan would be
eligible to participate in the excepted benefit HRA. However, while the
plan sponsor would be required to make an offer of a traditional group
health plan, HRA participants (and their dependents) would not be
required to enroll in the traditional group health plan for the HRA to
be an excepted benefit HRA. In the preamble to the proposed rules, the
Departments noted that this provision is similar to the requirement
that applies under the limited excepted benefits rules for health FSAs
at 26 CFR 54.9831-1(c)(3)(v), 29 CFR 2590.732(c)(3)(v), and 45 CFR
146.145(b)(3)(v).
Commenters generally supported this requirement and suggested that
it be retained in the final rules. Some commenters suggested that the
Departments should go further and permit employers to offer an excepted
benefit HRA only to individuals who are actually enrolled in a
traditional group health plan.\197\ These commenters argued that
without such a requirement, healthy employees would decline their
employer's traditional group health plan and only participate in the
excepted benefit HRA. These commenters speculated this might lead to a
less stable small group market risk pool and higher premiums for
employees who remain in the traditional group health plan. One
commenter was concerned that if some employers offer traditional group
health plans that are exorbitantly expensive, many employees would
decline to enroll and rely on their excepted benefit HRA as their only
source of coverage. One commenter disagreed with the Departments'
assertion that the requirement to offer a traditional group health plan
satisfies the requirement that limited excepted benefits not be an
integral part of the plan. Another commenter stated that individuals
could be without comprehensive coverage if they do not enroll in the
employer's traditional
[[Page 28935]]
group health plan and rely instead on an excepted benefit HRA, or a
combination of the excepted benefit HRA and other excepted benefits,
without understanding the limited nature of excepted benefits. The
commenter also represented that there is a long history of unscrupulous
promoters cobbling together different types of excepted benefits and
fraudulently marketing them as major medical insurance, leaving
thousands of participants and beneficiaries with unpaid claims. One
commenter urged the Departments to add a requirement that employers
offering an excepted benefit HRA must maintain their traditional group
health plan at an equivalent level of coverage, actuarial value, and
premium affordability relative to the coverage offered prior to
offering the excepted benefit HRA.
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\197\ One commenter opposed the requirement that traditional
group health plan coverage be made available to the participants
offered the excepted benefit HRA, but the comment was based on the
misunderstanding that the proposed conditions that apply to the
excepted benefit HRA apply to an HRA that provides only excepted
benefits. The commenter was concerned that an employer that did not
previously offer a traditional group health plan, but did previously
offer an HRA that provides only excepted benefits, might discontinue
offering that HRA if the final rules were to apply to the HRA that
provides only excepted benefits. As explained earlier in this
preamble, the final rules do not apply to HRAs that provide only
excepted benefits. Therefore, if an employer offers an HRA that
provides only excepted benefits, such an arrangement would not be
subject to the requirements of the final rules, including the
requirement that the plan sponsor must offer a traditional group
health plan.
---------------------------------------------------------------------------
The final rules do not adopt a requirement that excepted benefit
HRAs be limited to employees who are enrolled in the employer's
traditional group health plan or impose a maintenance of effort
requirement. First, the condition that employees must be offered (but
not necessarily enrolled) in the employer's traditional group health
plan is similar to that for excepted benefits health FSAs, pursuant to
the same statutory authority.\198\ Second, limiting eligibility to
employees enrolled in their employer's traditional group health plan
would make employees covered under other primary coverage, such as a
spouse's plan, ineligible for the excepted benefit HRA. Applying such a
restrictive requirement would unduly limit some employees' access to
excepted benefit HRAs and reduce their welfare if they choose a
different primary health coverage option to best meet their needs.\199\
Third, other factors will likely prevent most employees from relying on
an excepted benefit HRA as their primary form of coverage. For example,
the dollar limit imposed on excepted benefit HRAs (discussed later in
this preamble) will likely make it apparent that an excepted benefit
HRA does not provide adequate financial protection against unexpected
health costs, even for the healthiest individuals. Moreover, as
discussed later in this preamble, in general, excepted benefit HRAs
must provide notice of the dollar limits and other limitations on
coverage under the plan. Finally, as to the concern that employers will
offer traditional group health plans that are very expensive, thereby
encouraging employees to enroll only in the excepted benefit HRA, the
employer shared responsibility provisions of Code section 4980H (for
ALEs), and employers' desire to offer affordable health coverage as a
means to attract and retain talented workers, are strong incentives for
employers to offer affordable, quality health coverage.
---------------------------------------------------------------------------
\198\ See 26 CFR 54.9831-1(c)(3)(v), 29 CFR 2590.732(c)(3)(v),
and 45 CFR 146.145(b)(3)(v). See also 62 FR 67688 (Dec. 29, 1997).
\199\ In the context of other HRA integration rules, the
Departments have recognized and supported employee choice to enroll
in primary coverage other than the employer's group health plan
(such as a spouse's plan or Medicare), without these types of
limitations. See, e.g., 26 CFR 54.9815-2711(d)(2) and (d)(5), 29 CFR
2590.715-2711(d)(2) and (d)(5), and 45 CFR 147.126(d)(2) and (d)(5).
---------------------------------------------------------------------------
3. Limited in Amount
Under the Code, ERISA and the PHS Act, limited excepted benefits
may include limited scope vision or dental benefits, benefits for long-
term care, nursing home care, home healthcare, or community-based care,
or any combination thereof and may include ``such other similar,
limited benefits as are specified in regulations'' by the
Departments.\200\ Thus, in creating the excepted benefit HRA, the
Departments had to determine what type of HRA would be sufficiently
limited to qualify as a limited excepted benefit.
---------------------------------------------------------------------------
\200\ Code section 9832(c)(2)(C), ERISA section 733(c)(2)(C),
and PHS Act section 2791(c)(2)(C).
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The Departments have applied limiting principles consistently in
prior rulemakings under which discretion was exercised to establish
additional types of limited excepted benefits.\201\ For example, a
health FSA is an excepted benefit only if the arrangement is structured
so that the maximum benefit payable to any participant in the class for
a year does not exceed two times the participant's salary reduction
election under the arrangement for the year (or, if greater, $500 plus
the amount of the participant's salary reduction election).\202\
Additionally, limited wraparound coverage is a limited excepted benefit
only if it is limited in amount, such that the cost of coverage per
employee (and any covered dependents) under the limited wraparound
coverage does not exceed the greater of the maximum permitted annual
salary reduction contribution toward a health FSA or 15 percent of the
cost of coverage under the primary plan.
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\201\ See the discussion in the preamble to the proposed rules
at 83 FR 54420, 54437 (Oct. 29, 2018).
\202\ 26 CFR 54.9831-1(c)(3)(v), 29 CFR 2590.732(c)(3)(v), and
45 CFR 146.145(b)(3)(v).
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The Departments recognize that limited excepted benefits that are
not limited in scope by benefit type (such as limited-scope dental or
limited-scope vision benefits) must be limited in amount to constitute
the type of ancillary benefit contemplated by the statutes within the
meaning of a ``similar, limited benefit'' under Code section
9832(c)(2), ERISA section 733(c)(2), and PHS Act section
2791(c)(2).\203\
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\203\ See also 80 FR 13995, 13997 (March 18, 2015).
---------------------------------------------------------------------------
Accordingly, the Departments proposed that amounts newly made
available for a plan year in an excepted benefit HRA may not exceed
$1,800, indexed for inflation for plan years beginning after December
31, 2020. For this purpose, inflation was defined in the proposed rules
by reference to the Chained Consumer Price Index for All Urban
Consumers, unadjusted (C-CPI-U), published by DOL. Also, the
Departments stated that the adjusted limit for plan years beginning in
a particular calendar year would be published early in the fall of the
prior calendar year.
a. Dollar Limit on the Amount That May Be Made Newly Available During a
Plan Year
Many commenters supported the proposed dollar limit as a reasonable
mid-point of the different limits that would result in applying various
methodologies. Several noted it was sufficient because excepted
benefits are meant to provide ancillary coverage, and the proposed
amount is comparable to the cost of other excepted benefits, such as
stand-alone dental and vision plans. One commenter noted that $1,800
would be a generous level of reimbursement for excepted benefits, but
only a modest support to participants and beneficiaries seeking
reimbursement for COBRA premiums. Another commenter asserted that it
was a reasonable middle ground relative to the various alternatives
that the Departments considered and discussed in the preamble to the
proposed rules.\204\ A few commenters supported the proposed dollar
limit due to their opposition to allowing excepted benefit HRAs to
provide reimbursement for STLDI premiums, arguing that if the limit
were any higher some participants could be more likely to rely on STLDI
[[Page 28936]]
as their primary form of coverage. In expressing their support for the
proposed dollar limit, a number of commenters stated that the limit
should not be any higher, due to adverse selection concerns and
concerns about disincentivizing comprehensive coverage.
---------------------------------------------------------------------------
\204\ The Departments stated in the preamble to the proposed
rules that a range of options were considered, such as a limit that
would mirror the cap on employer contributions for excepted benefit
health FSAs, a fixed percentage of the cost of coverage under the
plan sponsor's primary group health plan, and the cost of coverage
under the second lowest cost silver plan in various markets.
However, consistent with the principle of promoting HRA usability
and availability, rather than proposing a complex test for the limit
on amounts newly made available in the excepted benefit HRA, the
Departments proposed a maximum of $1,800 because it approximated the
midpoint amount yielded by the various methodologies considered. 83
FR 54420, 54437 (Oct. 29, 2018).
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Other commenters requested that excepted benefit HRAs not be
subject to any dollar limit because a limit would restrict
participants' ability to choose the types of treatment or coverage that
is best suited to their needs. Some commenters argued that the proposed
dollar limit should be higher. Some of these commenters favored a
higher limit for excepted benefit HRAs based on age and number of
dependents to reflect that participants who are older or have
dependents are likely to have higher healthcare costs. Some commenters
suggested specific higher limits that, in their view, would be
appropriate, such as the maximum annual permitted benefit for QSEHRAs,
the maximum out-of-pocket limit for HDHPs, the annual salary reduction
contribution limit for health FSAs, the greater of 15 percent of the
cost of coverage under the employer's primary group health plan or the
health FSA salary reduction contribution limit (which is the threshold
for limited wraparound coverage), \205\ or 15 percent of the cost of
coverage under the employer's primary group health plan (which is the
threshold for certain supplemental excepted benefits). \206\ The
commenters asserted that the limit should be increased for various
reasons, including to enable employees to pay for premiums and cost
sharing for excepted benefit policies, to approximate the limits
allowed for limited wraparound coverage, to reduce administrative
complexity for plan sponsors by aligning the limit with a limit that
already exists, to help employees bypass insurance and pay directly for
medical care, and to enable employees to pay for more expensive STLDI
plans that may, in some cases, provide comprehensive, high-quality
coverage. Some commenters noted that setting the limit as a percentage
of the cost of the employer's primary group health plan could partially
account for regional differences for healthcare services.
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\205\ See 26 CFR 54.9831-1(c)(3)(vii)(B), 29 CFR
2590.732(c)(3)(vii)(B), and 45 CFR 146.145(b)(3)(vii)(B).
\206\ See EBSA Field Assistance Bulletin No. 2007- 04 (available
at https://www.dol.gov/agencies/ebsa/employers-and-advisers/guidance/field-assistance-bulletins/2007-04); CMS Insurance
Standards Bulletin 08-01 (available at http://www.cms.gov/CCIIO/Resources/Files/Downloads/hipaa_08_01_508.pdf); and IRS Notice 2008-
23.
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One commenter stated that a dollar limit is not sufficient to cause
the excepted benefit HRA to be a limited excepted benefit and also
stated that the proposed dollar limit was too high, with the result
that the excepted benefit HRA is not a limited excepted benefit because
the dollar limit is significantly more than the premium value of the
other limited excepted benefits; therefore, according to the commenter,
the excepted benefit HRA is not similar to other limited excepted
benefits.
The final rules do not remove or change the dollar limit for the
excepted benefit HRA. The Departments agree that significantly
increasing the dollar limit could encourage certain participants to
rely solely on benefits reimbursed through the excepted benefit HRA and
could lead to adverse selection. Also, as stated earlier in this
preamble, if a benefit that is generally not otherwise limited in scope
is too large, it would not constitute a ``similar, limited benefit''
under Code section 9832(c)(2), ERISA section 733(c)(2), and PHS Act
section 2791(c)(2). These governing statutes require that these
benefits be limited, which the Departments interpret to require a
strict dollar limit because the excepted benefit HRA is not restricted
to reimbursing specific, limited types of medical expenses.\207\
Further, the Departments are cognizant that an excepted benefit HRA,
like all excepted benefits, does not render an individual ineligible
for the PTC and, therefore, a higher dollar limit on the excepted
benefit HRA could result in individuals being eligible for both
subsidized coverage through the Exchanges and a higher employer
provided HRA benefit, which would increase the cost to the federal
government. To the extent commenters advocated for a higher dollar
limit in order to allow HRAs to be used to purchase excepted benefits,
HRAs that provide only excepted benefits may be an alternative option
because those HRAs are not subject to the excepted benefit HRA rules,
including the dollar limit.
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\207\ The Departments note, however, that an excepted benefit
HRA is also limited, to some extent, in scope of reimbursable
expenses in that it may not reimburse premiums for individual health
insurance coverage (other than excepted benefits); group health
coverage (other than COBRA or other continuation coverage or
excepted benefits); Medicare Part A, B, C, or D; and under certain
circumstances, it cannot reimburse STLDI premiums.
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In determining the appropriate dollar limit for excepted benefit
HRAs, the Departments considered other, similar limited excepted
benefits. The Departments agree with commenters' assertions that the
proposed limit was reasonable and rational, especially considering the
relatively low cost of excepted benefits coverage, such as dental or
vision coverage. While limited wraparound coverage and similar
supplemental coverage may have higher overall dollar limits, they are
also limited in additional ways. Limited wraparound coverage must
provide meaningful benefits beyond coverage of cost sharing (such as
coverage for expanded in-network medical clinics or providers, or
provide benefits that are not EHBs and that are not covered by the
eligible health insurance) and, in general, may only be offered to
part-time employees and retirees (and their dependents), and only if
the employer makes certain offers of coverage to full-time
employees.\208\ Further, similar supplemental coverage is restricted to
coverage ``specifically designed to fill gaps in the primary
coverage.'' \209\ On the other hand, employee salary reduction
contributions to health FSAs, which will vary by employee and cannot
exceed $2,700 (adjusted for inflation), cannot be used to pay premiums,
and generally may not be rolled over from year to year, except for a
limited runout period or limited amount.\210\ Excepted benefit HRAs are
not subject to all the limitations that apply to these other limited
excepted benefits; thus, a lower dollar amount is appropriate for
excepted benefit HRAs.
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\208\ See 26 CFR 54.9831-1(c)(3)(vii)(A) and (D), 29 CFR
2590.732(c)(3)(vii)(A) and (D), and 45 CFR 146.145(b)(3)(vii)(A) and
(D). See also 80 FR 13995, 13997 (March 18, 2015).
\209\ See 26 CFR 54.9831-1(c)(5)(i)(C), 29 CFR
2590.732(c)(5)(i)(C), and 45 CFR 146.145(b)(5)(i)(C).
\210\ IRS Notice 2005-42, 2005-1 CB 1204 and IRS Notice 2013-71,
2013-47 IRB 532.
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Additionally, although the Departments recognize that healthcare
expenses may be higher for participants who are older or have
dependents, adopting a higher limit to account for a combination of
factors like age and family size could allow an excepted benefit HRA to
be too large and to resemble major medical coverage. Moreover, these
factors were already considered and accounted for in developing the
$1,800 limit. Accordingly, the final rules adopt, without change, the
proposed maximum that can be newly made available for a plan year of
$1,800.
b. Indexing for Inflation
Many commenters supported the proposed rule's approach to indexing
for inflation the amount that may be made newly available to
participants during a plan year, though some suggested alternative
methods of indexing may be more appropriate.
[[Page 28937]]
Several commenters suggested that the chained CPI-U does not accurately
reflect the increases in the cost of medical care over time because
healthcare prices consistently increase at a greater rate than prices
in the economy as a whole. Several commenters suggested that the
appropriate measure of inflation would be the Consumer Price Index
overall medical care component because it focuses on consumers' out-of-
pocket medical expenses, while another suggested unchained CPI-U.
Another commenter, however, suggested that the measure selected in the
proposed rules would be the most appropriate measure, as other types of
excepted benefits, such as limited-scope dental, limited-scope vision,
and fixed indemnity plans, do not typically have cost trends (that is,
inflation) similar to products that provide comprehensive medical care.
One commenter expressed support for the proposed adjustment because it
is consistent with the adjustment of various other amounts under the
Code.
The final excepted benefit HRA rules index the annual dollar limit
of $1,800 to inflation for plan years beginning after December 31,
2020, and define inflation by reference to the C-CPI-U, as was
proposed. This index strikes a reasonable balance among a number of
factors, including balancing the decreasing real value of a static
excepted benefit HRA annual maximum contribution amount and the ability
of an employer to maintain a meaningful, yet limited, excepted benefit
HRA that can carry over unused amounts and accumulate to higher account
balances over time. Also, C-CPI-U is used to index most other amounts
under the Code with which employers are familiar, such as the annual
limit on employee salary reduction contributions to health FSAs, annual
HSA contributions amounts, and annual HDHP minimum deductible amounts
and maximum HDHP out-of-pocket amounts.\211\ Therefore, this inflation
adjustment should be familiar to plan sponsors. Using the same indexing
method is less likely to result in confusion and will make
implementation and compliance easier.
---------------------------------------------------------------------------
\211\ See Code sections 125(i) and 223(g).
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One commenter urged that the annual amount should be announced at
the same time that other account-based plan limits, such as the limits
for HSAs and HSA-eligible HDHPs, are announced, as employers and plan
administrators need to know these amounts in advance to set their
benefit levels and communicate them to employees. The Departments agree
that it is essential that the annual adjustment be made available
sufficiently in advance of the upcoming plan year to allow plan
sponsors to make benefit determinations. Therefore, the Departments are
revising the final rules to provide that the C-CPI-U for any calendar
year is the average of the C-CPI-U as of the close of the 12 month
period ending on March 31 of that calendar year and that the Treasury
Department and the IRS will publish the adjusted amount for plan years
beginning in any calendar year no later than June 1 of the preceding
calendar year, which is the same timing rule that applies for HSAs and
HSA-eligible HDHPs.
c. Roll-Overs and Aggregation Rules
The proposed rules provided that if a participant or beneficiary in
an excepted benefit HRA does not use all of the amounts made available
for a plan year, and the excepted benefit HRA allows for these amounts
to be carried over to later plan years, then these carryover amounts
would be disregarded for purposes of determining whether the $1,800
limit is exceeded.\212\ One commenter specifically expressed support
for this aspect of the proposed rules, and this feature is retained in
the final rules.
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\212\ Transfers, however, from other HRAs are not permitted. See
the discussion earlier in this preamble.
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In addition, the proposed rules provided that if the plan sponsor
provides more than one HRA to a participant for the same time period,
the amounts made available under all such plans would be aggregated to
determine whether the $1,800 limit has been exceeded. One commenter
opposed this aspect of the rule. However, the Departments retain this
provision in the final rules in order to avoid circumvention of the
$1,800 limit, which provides the statutory basis for recognizing this
type of HRA as a limited excepted benefit. However, the final rules
clarify that the aggregation rules do not take into account amounts
made available under HRAs that reimburse only excepted benefits
(including premiums for individual health insurance coverage that
consists solely of excepted benefits). An HRA that reimburses only
excepted benefits is exempt from the provisions of the final rules,
including those provisions that apply to individual coverage HRAs and
excepted benefit HRAs.
4. Prohibition on Reimbursement of Premiums for Certain Types of
Coverage
a. In General
To be an excepted benefit HRA, the proposed rules provided that the
HRA could not reimburse premiums for Medicare Part B or D, individual
health insurance coverage, or coverage under a group health plan (other
than COBRA or other group continuation coverage), except that the HRA
could reimburse premiums for individual health insurance coverage or
group health plan coverage that consists solely of excepted benefits.
An excepted benefit HRA would be permitted to reimburse any other
medical care expenses, including STLDI premiums.
Commenters generally supported the proposed requirement that an
excepted benefit HRA would not be permitted to reimburse premiums for
individual health insurance coverage (other than for such coverage
consisting solely of excepted benefits). These commenters contended
that to allow reimbursement of individual health insurance coverage
premiums would undermine the basis for recognizing the HRAs as limited
excepted benefits, and would enhance employers' ability to move their
higher-risk employees into the individual market. The Departments agree
that maintaining the prohibition on the use of the excepted benefit HRA
for individual health insurance coverage premiums is one way in which
the HRA is limited, in order to qualify as a limited excepted benefit,
and that the prohibition mitigates the risk that excepted benefit HRAs
could cause adverse selection in the individual market.
In addition, the Departments have concluded that the prohibition on
the reimbursement of premiums for group health plan coverage (other
than COBRA or other continuation coverage and excepted benefits) and
individual health insurance coverage (other than excepted benefits), is
appropriate because other final rules that are part of this rulemaking
permit individual coverage HRAs and other rules allow HRAs to be
integrated with non-HRA group health plan. Further, current guidance
allows HRAs to reimburse premiums for Medicare Part B and D in certain
circumstances and under the final rules, individual coverage HRAs that
are integrated with Medicare may be allowed to reimburse premiums for
Medicare Part A, B, C, or D. Therefore, an employer that wants to
provide an HRA that reimburses premiums for individual health insurance
coverage, Medicare Part A, B, C or D, or group health plan coverage,
may do so under
[[Page 28938]]
the applicable integration rules. Accordingly, the final rules retain
the proposed prohibition on reimbursing premiums for individual health
insurance coverage (other than for such coverage consisting solely of
excepted benefits) and group health insurance coverage (other than for
such coverage consisting solely of excepted benefits and COBRA or other
continuation coverage). Moreover, because the excepted benefit HRA
generally is not intended to reimburse premiums that may be reimbursed
under the individual coverage HRA, the final rules also provide that
the excepted benefit HRA may not reimburse premiums for Medicare Part A
or C, in addition to Medicare Part B and D, as provided for in the
proposed rules. This approach ensures that, similar to other limited
excepted benefits, excepted benefit HRAs provide limited benefits
different from those typically provided by a traditional group health
plan.
Some commenters requested clarification regarding the medical care
expenses an excepted benefit HRA may reimburse. In particular, a few
commenters requested that the Departments clarify that an excepted
benefit HRA can reimburse individuals for cost sharing under individual
health insurance coverage or group health plans, although excepted
benefit HRAs may not be used to reimburse premiums for that coverage.
Some commenters inquired whether an employer could place limits on the
medical care expenses it allows to be reimbursed by the excepted
benefit HRA, in addition to those limits imposed by the excepted
benefit HRA rules. In particular, a few commenters asked whether an
employer could choose not to provide any reimbursement of certain
premiums or medical care expenses otherwise allowed under Code section
213(d).
In general, an HRA may provide for reimbursement for medical care
expenses. Consistent with the current rules that apply to HRAs
generally, a plan sponsor has discretion to specify which medical care
expenses are eligible for reimbursement from an excepted benefit HRA it
establishes, in addition to the limits under the excepted benefit HRA
rules. For example, a plan sponsor may permit an excepted benefit HRA
to reimburse all medical care expenses not otherwise disallowed by the
excepted benefit HRA rules, it may permit reimbursements for non-
premium medical care expenses only (such as cost sharing), or it may
otherwise decide which particular medical care expenses will be
reimbursable and which will not be reimbursable. An excepted benefit
HRA may allow for reimbursement of cost sharing under individual health
insurance coverage or group health insurance coverage, although the
excepted benefit HRA may not reimburse the premiums for that coverage.
Further, a plan sponsor generally may, but need not, allow
reimbursement of STLDI premiums or cost sharing under the excepted
benefit HRA. Also, see later in this section of the preamble for a
discussion of the special circumstance in which excepted benefit HRAs
may not be used to reimburse STLDI premiums.
Several commenters inquired whether an excepted benefit HRA could
reimburse expenses related to participation in a health care sharing
ministry or a direct primary care arrangement. One commenter asked
whether reimbursement could be provided for categories of excepted
benefits other than ``limited excepted benefits,'' such as those in
which benefits for medical care are secondary or incidental (for
example, travel insurance). This commenter expressed concern that there
could be potential conflicts under rules regarding taxable fringe
benefits under the Code. Some commenters requested clarification more
generally regarding whether an excepted benefit HRA may only reimburse
excepted benefits that pay health benefits or all excepted benefits,
with some advocating that excepted benefit HRAs be allowed to reimburse
all expenses for all excepted benefits and some advocating that the
excepted benefit HRA only be allowed to reimburse expenses for excepted
benefits that are medical care. The Departments clarify that an HRA,
including an excepted benefit HRA, generally may reimburse medical care
expenses of an employee and certain of the employee's family members
(subject to the prohibition on the reimbursement of certain premiums
that apply for excepted benefit HRAs).\213\ Neither the proposed nor
the final rules make any changes to the rules under Code section 213.
Thus, any issues arising under Code section 213, and any guidance
requested by commenters to address those issues, are beyond the scope
of this rulemaking. The Treasury Department and the IRS, however,
appreciate the comments and anticipate addressing some of these issues
in future rulemaking or guidance.
---------------------------------------------------------------------------
\213\ See Notice 2002-45 which states ``[a]n HRA does not
qualify for the exclusion under [Code section] 105(b) if any person
has the right to receive cash or any other taxable or non-taxable
benefit under the arrangement other than the reimbursement of
medical care expenses. If any person has such a right under an
arrangement currently or for any future year, all distributions to
all persons made from the arrangement in the current tax year are
included in gross income, even amounts paid to reimburse medical
care expenses.''
---------------------------------------------------------------------------
One commenter stated that excepted benefit HRAs should not be
permitted to reimburse COBRA premiums because COBRA generally is more
expensive than other coverage options and the Departments should not
incentivize individuals to elect COBRA when more affordable coverage
options may be available. Another commenter opposed allowing
reimbursement for COBRA premiums because COBRA generally provides
comprehensive coverage and, to the extent an HRA can be used to
reimburse such coverage, it should not be considered to be providing
limited benefits within the meaning of the statutes.
The Departments decline to prohibit reimbursement for COBRA
premiums under excepted benefit HRAs in the final rules. Excepted
benefit HRA participants or beneficiaries may choose to elect COBRA or
other group continuation coverage, even if other more affordable
coverage options are available. For example, they may want to ensure
they are still able to see their preferred doctors or maintain coverage
for certain prescription drugs. Furthermore, nothing in the final rules
requires an employer to make an excepted benefit HRA available for the
reimbursement of COBRA (or other group continuation coverage) premiums.
The Departments also do not agree that an HRA that provides
reimbursement for COBRA (or other group continuation coverage) premiums
would not be providing limited benefits, consistent with Code section
9832(c)(2)(C), ERISA section 733(c)(2)(C), and PHS Act section
2791(c)(2)(C). As explained earlier in this preamble, the restriction
on annual contributions to the excepted benefit HRA ensures this HRA is
limited.
b. Reimbursement of STLDI Premiums
Many commenters requested that excepted benefit HRAs not be
permitted to provide reimbursement of STLDI premiums. These commenters
expressed concern that some participants may use excepted benefit HRA
funds to purchase STLDI policies without understanding that STLDI might
not provide comprehensive coverage and is not subject to the same
federal consumer protections that apply to PPACA-compliant coverage.
Some commenters expressed concerns that individuals with STLDI could be
exposed to serious financial risk and others expressed concerns about
specific benefits or conditions not generally covered by STLDI. One
commenter represented that
[[Page 28939]]
in some states, individuals with an excepted benefit HRA and STLDI
coverage would not satisfy state law requirements to maintain
comprehensive coverage and would, therefore, incur state income tax
penalties. A few commenters stated that they believed that permitting
reimbursement for STLDI premiums would mean that the excepted benefit
HRA would not be providing a limited benefit because STLDI policies
typically cover at least some of the same benefits as individual health
insurance coverage and because Congress exempted STLDI from the market
requirements by distinguishing it from individual health insurance
coverage rather than making it an excepted benefit. Other commenters
were concerned that this rule would incentivize small employers to
offer an excepted benefit HRA to purchase STLDI, instead of a QSEHRA to
purchase individual health insurance coverage.
Several commenters also claimed that permitting excepted benefit
HRAs to reimburse STLDI premiums would lead to market segmentation,
potentially negatively affecting the small group market. These
commenters argued that healthier, lower-cost individuals who do not
have preexisting conditions and who believe they do not need
comprehensive benefits would enroll in STLDI, rather than in more
comprehensive group or individual coverage. In the opinion of these
commenters, this scenario is more likely to occur in the fully-insured
small group market, where premiums do not vary based on an individual
employer's claims experience.\214\ In contrast, large employers whose
plans are experience-rated, or employers that offer self-insured plans,
likely would not offer an excepted benefit HRA that could be used to
reimburse STLDI premiums because, according to these commenters,
healthy employees foregoing coverage under the employer's traditional
group health plan could result in direct negative financial
consequences on the cost of maintaining that plan; thus, the employer
would have strong incentives not to offer an excepted benefit HRA that
could be used to purchase STLDI. One commenter noted that the benefit
of allowing HRAs to be used for STLDI is outweighed by the risks to the
individual and small group markets. Other commenters supported making
STLDI more available generally to consumers, citing choice and
flexibility, as well as affordability.
---------------------------------------------------------------------------
\214\ See PHS Act section 2701 and PPACA section 1312(c). See
also 45 CFR 147.102 and 45 CFR 156.80.
---------------------------------------------------------------------------
The final rules generally do not prohibit reimbursement of STLDI
premiums by excepted benefit HRAs. Employees at small firms are
increasingly turning down an offer of health coverage.\215\ Low-wage
workers at small firms are especially likely to turn down such coverage
when offered, particularly as a given premium is a larger share of
income for a low-wage employee.\216\ Thus, low-wage workers at smaller
firms who are turning down the employer offer of coverage are
potentially likely to benefit from permitting the excepted benefit HRA
to reimburse STLDI premiums. To the extent that people who would use
the excepted benefit HRA to purchase STLDI would otherwise have been
uninsured and, therefore, would not have been part of the small group
single risk pool, the small group market is unaffected by the
introduction of an excepted benefit HRA that may be used to purchase
STLDI. Moreover, the impact of any adverse selection is likely to be
small because the small group market is much larger than the STLDI
market. Thus, any potential expansion of the number of healthier-than-
average STLDI enrollees will have a smaller proportional impact on
expected claims in the small group market.
---------------------------------------------------------------------------
\215\ In 1999, 17 percent of workers eligible for employer
coverage at small firms (those with 3 to 199 workers) turned down
the offer of employer coverage. By 2011, this share had climbed to
22 percent, and in 2018 it was 27 percent. See Kaiser Family
Foundation, ``Employer Health Benefits 2018 Annual Survey,'' Figure
3.1, available at http://files.kff.org/attachment/Report-Employer-Health-Benefits-Annual-Survey-2018.
\216\ Id.
---------------------------------------------------------------------------
While the final rules do not prohibit reimbursement of STLDI
premiums by excepted benefit HRAs, the final rules include a special
rule in response to commenters' concerns about the potential for
adverse selection in the small group markets, as discussed later in
this preamble.\217\ Further, because individuals offered an excepted
benefit HRA must be offered a traditional group health plan,
individuals with an excepted benefit HRA who are considering STLDI will
likely be deciding between STLDI and the traditional group health plan,
rather than individual health insurance coverage, premiums for which
may not be reimbursed by an excepted benefit HRA. Therefore, adverse
selection in the individual market is mitigated.
---------------------------------------------------------------------------
\217\ To the extent an excepted benefit HRA reimburses premiums
for STLDI, the insurance, which is not individual health insurance
coverage, will not be eligible for the safe harbor under 29 CFR
2510.3-1(l). Accordingly, to the extent offered in connection with a
group health plan, the benefits could be subject to those provisions
of ERISA that apply to excepted benefits (for example, ERISA parts
1, 4, and 5).
---------------------------------------------------------------------------
STLDI may not be suitable coverage for all individuals in all
circumstances and in many instances it might not provide coverage that
is as comprehensive as individual health insurance coverage. However,
STLDI can be a viable health insurance option for many people in many
circumstances. Also, no individual is required to enroll in STLDI;
rather, it is simply an additional (and in some circumstances, more
affordable), option that may be available to them. With respect to
concerns that some excepted benefit HRA participants may not understand
the limited nature of STLDI, a notice is required to be prominently
displayed in STLDI contracts and enrollment application materials
advising consumers of the differences between STLDI and other health
insurance coverage. Among other things, the notice must state that the
coverage: (1) Is not required to comply with certain federal market
requirements for health insurance; (2) may exclude or limit coverage
for preexisting conditions; (3) may not include coverage for
hospitalization, emergency services, maternity care, preventive care,
prescription drugs, and mental health and substance use disorder
services; and (4) may have lifetime or annual dollar limits on health
benefits.\218\
---------------------------------------------------------------------------
\218\ See 26 CFR 54.9801-2, 29 CFR 2590.701-2, and 45 CFR
144.103.
---------------------------------------------------------------------------
The Departments disagree with commenters' assertions that
permitting excepted benefit HRAs to reimburse STLDI would not be
providing limited excepted benefits because STLDI is not an excepted
benefit and often covers some of the same benefits as individual health
insurance coverage. Nothing in these final rules would designate STLDI
as a limited excepted benefit. Rather, it is the HRAs that must satisfy
certain conditions to be recognized as limited excepted benefits, and
the HRAs must be limited as to amount and are substantially limited as
to the types of premiums they may reimburse. Further, STLDI coverage
often provides much more limited benefits than coverage that is subject
to the market requirements. Taking all of this into account, the
Departments have determined that excepted benefit HRAs are sufficiently
limited to constitute a limited excepted benefit, notwithstanding that
employers may generally elect to permit HRA reimbursement of STLDI
premiums.
One commenter noted that the excepted benefit HRA rules do not
preempt state regulation of STLDI and
[[Page 28940]]
so do not inhibit a state from prohibiting the sale of STLDI. The
Departments agree with the commenter that nothing in the final rules
affects state regulation of STLDI.
5. Uniform Availability
To prevent an excepted benefit HRA from intentionally or
unintentionally, directly or indirectly, steering participants or
dependents with adverse health factors away from the sponsor's
traditional group health plan, the proposed rules provided that an
excepted benefit HRA must be made available under the same terms to all
similarly situated individuals, regardless of any health factor.\219\
The Departments proposed and are finalizing this condition to prevent
discrimination based on health status and to preclude opportunities for
an employer to offer a more generous excepted benefit HRA to
individuals with an adverse health factor, such as an illness or a
disability, as an incentive not to enroll in the plan sponsor's
traditional group health plan.\220\ Consistent with the approach
outlined in the proposed rules, under the final rules, an excepted
benefit HRA may not, for example, be offered only to employees who have
cancer or fail a physical examination, just as the excepted benefit HRA
may not be offered only to employees who are cancer-free or who pass a
physical examination. Similarly, an employer may not make greater
amounts available in an excepted benefit HRA for employees who have
cancer or who fail a physical examination, just as an employer may not
make greater amounts available in an excepted benefit HRA for employees
who are cancer-free or who pass a physical examination.
---------------------------------------------------------------------------
\219\ See Code section 9802(a)(1), ERISA section 702(a)(1) and
PHS Act 2705(a)(1). See also 26 CFR 54.9802-1(a)(1) and (d), 29 CFR
2590.702(a)(1) and (d), and 45 CFR 146.121(a)(1) and (d).
\220\ See 83 FR 54420, 54438 (Oct. 29, 2018).
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Commenters generally supported this requirement and asserted that
it is necessary to prevent discrimination based on health status. Two
commenters sought confirmation that an excepted benefit HRA would not
violate the uniform availability requirement if it were made available
to only certain individuals, such as pre-Medicare eligible retirees who
decline coverage under the former employer's traditional group health
plan and purchase coverage through the individual market, so long as
those eligibility conditions are not based on a health factor. In the
Departments' view, a plan design that permits enrollment in an excepted
benefit HRA only if coverage is declined under the traditional group
health plan is inconsistent with the uniform availability requirement
and with the basic premise that an excepted benefit HRA must be
ancillary to the employer's traditional group health plan. HHS further
notes that structuring the offering or design of a group health plan
based on pre-Medicare status would generally run afoul of the Medicare
nondiscrimination provisions described earlier in this preamble.\221\
Therefore, an employer may not condition enrollment in an excepted
benefit HRA on declining to enroll in the traditional group health
plan.
---------------------------------------------------------------------------
\221\ SSA sections 1862(b)(1)(A)(i)(I), (b)(1)(B)(i), and
(b)(1)(C)(i).
---------------------------------------------------------------------------
As noted earlier in this preamble, Code section 9831(a) and ERISA
section 732(a) generally provide that chapter 100 of the Code and part
7 of ERISA, respectively, do not apply to plans, including HRAs, with
fewer than two participants who are current employees on the first day
of the plan year (including retiree-only plans that cover fewer than
two participants who are current employees).\222\ Therefore, a retiree-
only HRA is not subject to the market requirements and would not need
to qualify as an excepted benefit in order to avoid the application of
PHS Act sections 2711 and 2713. However, a retiree-only HRA that does
not qualify as an excepted benefit would qualify as MEC,\223\ and,
therefore, a retiree who accepted such an HRA could not claim the
PTC.\224\
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\222\ While title XXVII of the PHS Act, as amended by PPACA, no
longer contains a parallel provision at PHS Act section 2721(a), HHS
has explained that it will not enforce the requirements of title
XXVII of the PHS Act with respect to nonfederal governmental
retiree-only plans and generally encourages states to adopt a
similar approach with respect to retiree-only plans offered by
issuers. See 75 FR 34538, 34540 (June 17, 2010).
\223\ 26 CFR 1.5000A-2(c).
\224\ 26 CFR 1.36B-2(c)(3). Note that a former employee is only
rendered ineligible for the PTC if the former employee enrolls in
employer-sponsored coverage; an offer of coverage (even if it is
affordable and provides MV) does not preclude a former employee from
claiming the PTC. See 26 CFR 1.36B-2(c)(3)(iv).
---------------------------------------------------------------------------
One commenter suggested that the Departments should issue
additional guidance and resources about the definition of similarly
situated individuals to ensure that this requirement is properly
implemented. In response to these comments, the final rules define
similarly situated individuals by reference to the definition found in
the HIPAA nondiscrimination rules, as was proposed.\225\ Those rules
generally provide that group health plans may, subject to an anti-abuse
provision for discrimination directed at individuals, treat groups of
participants as distinct groups if the distinction is based on a bona
fide employment-based classification consistent with the employer's
usual business practice. Whether an employment-based classification is
bona fide is determined based on all the relevant facts and
circumstances, including whether the employer uses the classification
for purposes independent of qualification for health coverage (such as,
determining eligibility for other employee benefits or determining
other terms of employment). Examples in the HIPAA nondiscrimination
rules of classifications that may be bona fide, based on all the
relevant facts and circumstances, include full-time versus part-time
status, different geographic location, membership in a collective
bargaining unit, date of hire, current employee versus former employee
status, and different occupations. Under the anti-abuse provision,
however, a distinction between groups of individuals is not permitted
if the creation or modification of an employment or coverage
classification is directed at individual participants or beneficiaries
based on any health factor of the participants or beneficiaries. In
addition, a plan may, subject to certain anti-abuse provisions for
discrimination directed at individuals, treat beneficiaries as distinct
groups based on the bona fide employment-based classification of the
participant through whom the beneficiary is receiving coverage; the
relationship to the participant; marital status; with respect to
children of a participant, age or student status; and other factors if
the factor is not a health factor. Finally, the HIPAA nondiscrimination
rules generally allow group health plans to treat participants and
beneficiaries as distinct groups. Additional guidance on similarly
situated individuals is available on DOL's website.\226\ The final
rules define similarly situated individuals by reference to the
definition in the HIPAA
[[Page 28941]]
nondiscrimination rules, which are also designed to prevent
discrimination in group health plans based on health status. These
standards are already familiar to stakeholders and therefore use of the
existing definition will reduce complexity and the potential burden of
having to use a different definition.
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\225\ See 26 CFR 54.9802-1(d), 29 CFR 2590.702(d), and 45 CFR
146.121(d).
\226\ See Compliance Assistance Guide--Health Benefits Coverage
Under Federal Law, available at https://www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/resource-center/publications/compliance-assistance-guide.pdf; Self-Compliance Tool for Part 7 of
ERISA: Health Care-Related Provisions, available at https://www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/resource-center/publications/compliance-assistance-guide-appendix-a.pdf; and FAQs on HIPAA Portability and Nondiscrimination
Requirements for Employers and Advisers, available at https://www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/resource-center/faqs/hipaa-compliance.pdf.
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6. Coordination With HSAs
Commenters asked for clarification regarding the circumstances in
which participation in an excepted benefit HRA might preclude an
individual from being eligible for an HSA. These commenters expressed
concern that, because HSA eligibility is restricted if an individual
has certain other types of health coverage, a loss of HSA eligibility
could occur for some individuals enrolled in excepted benefit HRAs.
As explained earlier in this preamble, among the requirements for
an individual to qualify as an eligible individual under Code section
223(c)(1) for purposes of HSA eligibility is that the individual must
be covered under an HDHP and have no disqualifying health coverage. If
an individual fails to satisfy the requirements to be an eligible
individual, then contributions to an HSA are disallowed. The Treasury
Department and the IRS have provided some guidance on the interaction
between HRAs and the requirements of Code section 223 in Revenue Ruling
2004-45 and IRS Notice 2008-59. More specifically, as explained earlier
in this preamble, in Revenue Ruling 2004-45, the Treasury Department
and the IRS clarified that an otherwise eligible individual (that is,
an individual with coverage under an HDHP and no disqualifying
coverage) remains an eligible individual for purposes of making
contributions to an HSA for periods during which the individual is
covered by a limited-purpose HRA, a post-deductible HRA, or
combinations of these arrangements. Subsequently, Q&A-1 of IRS Notice
2008-59 stated that a limited-purpose HRA that is also available to pay
premiums for health coverage does not disqualify an eligible individual
from contributing to an HSA, provided the individual does not use the
HRA to, or otherwise, obtain coverage that is not HSA-compatible.
This prior guidance applies to all HRAs, including excepted benefit
HRAs.\227\ Therefore, for example, an individual covered by an excepted
benefit HRA that is available to pay premiums for STLDI is an eligible
individual for purposes of making contributions to an HSA, assuming the
HRA is used to purchase STLDI that qualifies as an HDHP (and so, for
example, the STLDI does not pay benefits prior to satisfying the
minimum required deductible),\228\ and the individual has no
disqualifying coverage.
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\227\ To be an eligible individual under Code section 223(c)(1),
an individual may not be covered by a health plan that is not an
HDHP, except for certain coverage which is disregarded, as
enumerated in Code section 223(c)(1)(B). Code section 223(c)(1)(B)
does not disregard all excepted benefits, and an excepted benefit
HRA is not disregarded coverage. Therefore, an excepted benefit HRA
must be HSA-compatible under the relevant Code section 223 guidance
in order to allow an otherwise eligible individual to remain an
eligible individual under Code section 223.
\228\ See Code section 223(c)(2). See also Notice 2008-59, Q&A-
14, which provides that to be an HDHP a plan must provide
significant benefits, and if a plan only provides benefits for
hospitalization or in-patient care, the plan would not qualify as an
HDHP.
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7. Notice Requirements
Several commenters suggested that the Departments impose certain
notice requirements for excepted benefit HRAs in the final rules.
Commenters stated that the required notice should be similar to the
notice required for individual coverage HRAs, or should, at a minimum,
inform participants and beneficiaries of the annual dollar limit for
benefits under the excepted benefit HRA, other terms and conditions of
the excepted benefit HRA, and participants' and beneficiaries' rights
under the excepted benefit HRA.
However, the Departments note that for private-sector, employment-
based plans, other long-standing notice requirements under Part 1 of
ERISA already apply. ERISA-covered plans, including excepted benefit
HRAs, must provide an SPD, summaries of material modifications, and
summaries of material reductions in covered services or benefits.\229\
Under ERISA sections 102 and 104 and their implementing regulations, an
excepted benefit HRA's SPD must include, for example, the conditions
pertaining to eligibility to receive benefits; a description or summary
of the benefits; the circumstances that may result in disqualification,
ineligibility, or denial, loss, forfeiture, suspension, offset,
reduction, or recovery (for example, by exercise of subrogation or
reimbursement rights) of any benefits; and the procedures governing
claims for benefits under the excepted benefit HRA. Excepted benefit
HRAs that are ERISA-covered plans are subject to additional disclosure
requirements to provide instruments under which the excepted benefit
HRA is established or operated and information relevant to a
participant's adverse benefit determination upon request.\230\
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\229\ See ERISA sections 102 and 104. See also 29 CFR 2520.104b-
2 and 2520.104b-3(a) and (d)(3).
\230\ See, e.g., ERISA sections 104(b), 502(c), and 503. See
also 29 CFR 2520.104b-1 and 2560.503-1.
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Under these disclosure provisions, excepted benefit HRAs that are
ERISA-covered plans should generally provide information on eligibility
to receive benefits, annual or lifetime caps or other limits on
benefits under the plan, and a description or summary of the benefits.
Accordingly, for excepted benefit HRAs that are subject to ERISA, the
final rules include a cross reference to existing ERISA notice
provisions in order to ensure that excepted benefit HRA plan sponsors
are aware of their obligations under those provisions. However, the
final rules do not include any additional notice requirements for
ERISA-covered plans.
In response to commenters' concerns, HHS intends to propose in
future rulemaking a notice requirement with respect to non-federal
governmental plan excepted benefit HRAs. HHS anticipates proposing that
a non-federal governmental plan excepted benefit HRA would be required
to provide a notice that states conditions pertaining to eligibility to
receive benefits, annual or lifetime caps or other limits on benefits
under the excepted benefit HRA, and a description of, or summary of,
the benefits consistent with the requirements of 29 CFR 2520.102-
3(j)(2) and (3). HHS anticipates that, under the proposal, this notice
would be required to be provided in a time and manner consistent with
the requirements of 29 CFR 2520.104b-2(a).
8. Special Rule To Address the Potential Impact on the Small Group
Market of the Reimbursement of STLDI Premiums Through Excepted Benefit
HRAs
As discussed earlier in this preamble, the final rules include a
special rule in response to comments regarding the potential for
adverse selection in the small group market if small, insured employers
also sponsor excepted benefit HRAs that reimburse STLDI premiums.
Specifically, the final rules provide that the Departments may restrict
excepted benefit HRAs from reimbursing STLDI premiums, for certain
employers in a state, if five criteria are satisfied.
First, the restriction applies only to excepted benefit HRAs
offered by small employers, as defined in PHS Act section 2791(e)(4),
to respond to concerns by commenters about adverse selection in the
small group market. Second, the restriction applies only in situations
in which the other group health plan coverage offered by the
[[Page 28942]]
small employer is either fully-insured or partially-insured. This focus
on insured coverage again is designed to narrowly address the potential
for adverse selection by small, insured employers that was identified
by commenters. Third, the restriction applies only if the Secretary of
HHS makes a finding, in consultation with the Secretaries of Labor and
the Treasury, that the reimbursement of premiums for STLDI by excepted
benefit HRAs in a state has caused significant harm to the small group
market in the state that is the principal place of business of the
small employer.
Fourth, this finding may be made only after submission of a written
recommendation by the applicable state regulatory authority of such
state, in the form and manner specified by HHS. The written
recommendation must include evidence that the reimbursement of STLDI
premiums by excepted benefit HRAs established by insured or partially-
insured small employers in the state has caused significant harm to the
state's small group market, including on small group market premiums.
The evidence may include the State Insurance Commissioner's documented
overall assessment of the small group market in the state. It may also
include representations made by small group market issuers that an
increase in the purchase of STLDI coverage by employees of small
employers has caused issuers to increase premiums for small group
market insurance, due to the issuers' reasonable belief about adverse
selection. HHS will evaluate each recommendation on a case-by-case
basis. Factors that HHS may consider in determining whether significant
harm had occurred include, but are not limited to, the impact on
issuers' presence in the small group market, whether there has been
more than a de minimis increase in premiums in the small group market,
enrollment declines in the small group market related to individuals
purchasing STLDI, and changes to the health of the small group market
risk pool.
Finally, the restriction (or discontinuance of the restriction)
must be imposed by publication of a notice by the Secretary of HHS in
the Federal Register and will be effective prospectively only, and with
a reasonable time for plan sponsors to comply.
9. Other Comments on Excepted Benefit HRAs and Comments Outside the
Scope of This Rulemaking
Some commenters raised issues that relate to types of excepted
benefits other than excepted benefit HRAs. For example, several
commenters requested that the Departments extend the pilot program for
limited wraparound coverage.\231\ One commenter requested that the
Departments amend the criteria for health FSAs to incorporate the
excepted benefit HRA, instead of adding a new excepted benefit HRA, to
avoid the appearance of too many limited excepted benefits. Other
commenters requested that the Departments address questions regarding
fixed indemnity and hospital indemnity insurance. However, the proposed
excepted benefit rules were limited to establishing criteria for
certain HRAs to qualify as excepted benefits and, therefore, those
comments are outside the scope of this rulemaking.
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\231\ See 26 CFR 54.9831-1(c)(3)(vii), 29 CFR
2590.732(c)(3)(vii), and 45 CFR 146.145(b)(3)(vii).
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Notwithstanding that fact, the Departments do not intend to extend
the pilot program for limited wraparound coverage, due to minimal take
up and overlap with various other benefit options, including the new
excepted benefit HRA, which, like the limited wraparound coverage
excepted benefit, can be used for cost sharing under and expenses for
services not covered by individual health insurance coverage, while not
causing covered individuals to be ineligible for the PTC.
One commenter suggested that the excepted benefit HRA should only
be allowed to be offered by an employer that has not previously offered
health coverage, which the commenter appears to have suggested due to a
concern about employers offering an excepted benefit HRA instead of
comprehensive coverage. The Departments decline to limit excepted
benefit HRAs in this way as the excepted benefit HRA is intended to
provide flexibility and additional healthcare options to all employers
and their employees. However, to the extent the commenter is concerned
about plan sponsors no longer offering traditional group health plans,
the Departments reiterate that in order to offer the excepted benefit
HRA, a plan sponsor must also offer those eligible for the HRA a
traditional group health plan.
Some commenters expressed confusion regarding the interaction of
the excepted benefit HRA and the employer shared responsibility
provisions under Code section 4980H. The Departments note for the sake
of clarity, as explained earlier in this preamble, that coverage that
consists solely of excepted benefits is not MEC.\232\ Therefore, the
offer of an excepted benefit by an employer is not considered to be an
offer of MEC under an eligible employer-sponsored plan for purposes of
Code section 4980H. Although an employer will not avoid potential
liability for a payment under Code section 4980H by virtue of an offer
of an excepted benefit, including an excepted benefit HRA, the
traditional group health plan that is required to be offered in order
to offer the excepted benefit HRA would constitute an offer of MEC
under an eligible employer-sponsored plan.\233\
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\232\ See Code section 5000A(f)(3).
\233\ See Code section 4980H(a)(1) and (b)(1). See also 26 CFR
54.4980H-1(a)(14).
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One commenter inquired whether an individual enrolled in an
excepted benefit HRA would have a special enrollment right in the
employer's traditional group health plan if the individual had enrolled
in STLDI and then coverage under the STLDI was rescinded because the
individual became sick. The Departments clarify that under the special
enrollment rules for group health plans, in general, an employee or
dependent is eligible for special enrollment if they are otherwise
eligible for the benefit package; when coverage under the plan was
previously offered, the employee had group health plan or health
insurance coverage; and then the employee loses eligibility for other
coverage.\234\ STLDI is health insurance coverage and, therefore, loss
of eligibility for STLDI will create a special enrollment opportunity
to enroll in a group health plan, if the employee otherwise satisfies
the special enrollment opportunity requirements. However, under the
special enrollment rules for individual market coverage, loss of
eligibility for STLDI will not trigger an SEP in the individual
market.\235\
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\234\ See Code section 9801(f), ERISA section 701(f), and PHS
Act section 2704(f). See also 26 CFR 54.9801-6(a)(2)(i) and (3)(i),
29 CFR 2590.701-6(a)(2)(i) and (3)(i), and 45 CFR 146.117(a)(2)(i)
and (3)(i).
\235\ See 45 CFR 155.420(d)(1)(i), which provides an SEP in the
individual market only for loss of coverage that constitutes MEC.
See also 45 CFR 147.104(b)(2) and 83 FR 38212, 38225 (Aug. 3, 2018)
(stating that STLDI ``. . . is not individual health insurance
coverage, nor is it MEC.'').
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Other comments not responsive to the provisions and topics
addressed by the proposed rules, or otherwise beyond the scope of the
proposed and final rules, are not addressed.
C. Interaction Between Individual Coverage HRAs and Excepted Benefit
HRAs
Under the final rules, as under the proposed rules, a plan sponsor
is permitted to offer an individual coverage HRA to a class of
employees so long as it does not also offer a traditional group health
plan to the same class of employees, subject to
[[Page 28943]]
additional applicable conditions discussed elsewhere in this preamble.
However, a plan sponsor may only offer an excepted benefit HRA if
traditional group health plan coverage is also made available to the
employees who are eligible to participate in the excepted benefit HRA.
Thus, a plan sponsor cannot offer both an individual coverage HRA and
an excepted benefit HRA to any employee.\236\
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\236\ The Departments note that an employer may not provide a
QSEHRA to any employee if it offers any employee a group health
plan. Accordingly, an employer may not provide a QSEHRA to any
employee if it offers any employee an individual coverage HRA (which
is a group health plan) or an excepted benefit HRA (which is a group
health plan and which requires an offer of a traditional group
health plan). See Code section 9831(d)(3)(B)(ii).
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III. Overview of Final Rules Regarding the Premium Tax Credit--
Department of the Treasury and the IRS
A. In General
Consistent with the objectives in Executive Order 13813 to expand
the use of HRAs, the proposed rules included an amendment to the rules
under Code section 36B to provide guidance for individuals who are
offered or covered by an individual coverage HRA and who otherwise may
be eligible for the PTC. As explained earlier in this preamble, an
employee who is offered coverage under an eligible employer-sponsored
plan, and an individual who may enroll in the coverage because of a
relationship to the employee (a related individual), are not eligible
for a PTC for any month the eligible employer-sponsored plan is
affordable and provides MV.\237\ Further, an employee or related
individual who enrolls in an eligible employer-sponsored plan for a
month is ineligible for a PTC for that month regardless of whether the
coverage is affordable or provides MV.\238\
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\237\ Code section 36B and 26 CFR 1.36B-2(c)(3)(i).
\238\ 26 CFR 1.36B-2(c)(3)(vii)(A).
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Because an HRA is a self-insured group health plan, under existing
rules, an individual who is covered by an individual coverage HRA is
ineligible for the PTC.\239\ However, guidance was needed regarding the
PTC eligibility of an individual who is offered, but opts out of, an
individual coverage HRA, and, therefore, the Treasury Department and
the IRS issued the proposed PTC rules.
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\239\ See the discussion earlier in this preamble of the related
requirement under the final integration rules that plan sponsors
provide participants with an annual opportunity to opt-out of and
waive future reimbursements under an individual coverage HRA.
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Consistent with the rule for traditional group health plans under
Code section 36B and the existing rules thereunder, the proposed rules
provided that an employee and a related individual offered an
individual coverage HRA (a related HRA individual) would not be
eligible for a PTC for any month the individual coverage HRA is
affordable. Relatedly, the proposed rules provided that an affordable
individual coverage HRA would be deemed to provide MV. Therefore, under
the proposed rules, if an employee and a related HRA individual are
offered an individual coverage HRA that is affordable, the employee and
related HRA individual are ineligible for a PTC even if the employee
opts out of the individual coverage HRA. However, an employee and a
related HRA individual offered an individual coverage HRA that is not
affordable will be eligible for the PTC (assuming they are otherwise
eligible) if the employee opts out of the individual coverage HRA.
Commenters generally acknowledged that guidance was needed, and
some commenters agreed with the proposed rules relating to the effect
of an individual coverage HRA offer on an individual's PTC eligibility.
However, a number of commenters expressed concern that the proposed
rules would adversely affect lower-paid employees and their ability to
obtain adequate subsidies for their healthcare coverage. The commenters
pointed out that the PTC generally is more valuable than the individual
coverage HRA would be for lower-paid employees. These commenters
suggested that the individual coverage HRA would subsidize the cost of
coverage for higher paid employees while making coverage more
expensive, and likely out of reach, for the lower-paid employees who
would have been eligible for a PTC but for the offer of an individual
coverage HRA. Some commenters expressed a concern that the complexity
of the rules would make it difficult for employees to make optimal
decisions about their coverage and whether to opt out of the individual
coverage HRA, with some noting a concern that employees may mistakenly
opt out of an affordable individual coverage HRA because they believe
that the opt-out preserves their PTC eligibility, only to find out that
they have lost both PTC eligibility and the right to reimbursements
under the individual coverage HRA. Some commenters expressed concern
that employers might inadvertently offer an individual coverage HRA
that leaves employees worse off than they would have been had the
employer not offered the HRA, whether or not the employees opt out of
the arrangement. The Departments note that this concern, however, is
mitigated by the fact that employers seek to maximize overall employee
welfare in order to recruit and retain talented workers.
To address these concerns, some commenters suggested that employees
who are otherwise eligible for the PTC should be allowed both the PTC
and the individual coverage HRA offered to them by their employers.
Other commenters suggested a rule to allow employees to choose between
an individual coverage HRA and the PTC. Under this suggested rule, an
employee would be able to opt out of the individual coverage HRA and
receive the PTC in situations in which the PTC would provide a more
generous subsidy than the individual coverage HRA. Employees would have
this choice regardless of whether the individual coverage HRA was
affordable or provided MV.
The final rules retain the rule as proposed that an employee and a
related HRA individual are not eligible for a PTC for any month the
employee is offered an individual coverage HRA that is affordable, even
if the employee opts out of the arrangement. An individual coverage HRA
is an eligible employer-sponsored plan for purposes of Code section
36B. Code section 36B(c)(2)(B) and 26 CFR 1.36B-2(a)(2) provide that an
employee and a related individual who are offered coverage under an
eligible employer-sponsored plan are not eligible for a PTC for any
month that the eligible employer-sponsored coverage is affordable and
provides MV. Under these provisions, an individual generally is
ineligible for a PTC for a month in which the individual had an
opportunity to enroll in affordable, MV employer-sponsored coverage,
regardless of whether the individual actually chose to enroll.
Therefore, Code section 36B and the applicable rules do not allow
individuals to choose between an offer of employer-sponsored coverage
that is affordable and that provides MV or Exchange coverage with a
PTC. Furthermore, many of the concerns raised by commenters also apply
to traditional group health plans; for example, lower-income
individuals may be better off with the PTC than a traditional group
health plan. Thus, consistent with the rules for traditional group
health plans, the final rules retain the rule that a PTC is not allowed
for any month in which the individual coverage HRA is affordable.
As to the suggestion by commenters that individuals should be
allowed to both enroll in the individual coverage HRA and claim the PTC
if otherwise
[[Page 28944]]
eligible, this is precluded by Code section 36B(c)(2)(C)(iii). Under
that Code section, and as noted earlier in this preamble, an individual
who is covered for one or more months by a group health plan, including
an individual coverage HRA, is ineligible for the PTC for his or her
Exchange coverage for those months. Therefore, the final PTC rules do
not adopt this suggestion.
The Treasury Department and the IRS agree with commenters that some
lower-paid employees may be adversely affected by an employer's offer
of an individual coverage HRA because the PTC, if available, could
provide a larger subsidy for the employee's Exchange coverage as
compared to the individual coverage HRA. However, this dynamic already
exists under current rules, as an individual may be required to pay a
greater portion of his or her household income for a traditional group
health plan than the individual would, in the absence of an offer of
employer-sponsored coverage, have to pay for Exchange coverage with a
PTC. Under Code section 36B(b)(3)(A) and current PTC rules, an
individual's contribution amount for 2019 Exchange coverage may be as
little as 2.08 percent of household income for an individual who claims
the PTC whereas the same individual may have to pay up to 9.86 percent
of household income for coverage offered by the individual's employer
and still be considered to have an affordable offer and therefore
ineligible for the PTC. Nevertheless, an employee in this situation is
not permitted to forego the employer coverage and choose the Exchange
coverage with a PTC to take advantage of the smaller contribution
amount. Under the final rules, the same treatment applies to offers of
an individual coverage HRA: That is, individuals are not allowed to
forego an individual coverage HRA that is affordable (and thus deemed
to provide MV) and instead choose the Exchange coverage with a PTC.
The Departments also appreciate the concerns expressed by
commenters regarding the burden on employees to properly determine
whether the HRA they have been offered is affordable and provides MV
and whether they should opt out of the individual coverage HRA. These
concerns are the primary reason that the Departments proposed to
require employers that offer individual coverage HRAs to provide a
written notice to each participant. The final rules strengthen the
notice requirement and the Departments are providing model notice
language regarding the PTC, separate from, but contemporaneous with,
the final rules. Further, the Departments will work closely with the
State Exchanges to ensure that Exchanges' applications and other
relevant materials are updated to assist individuals with an individual
coverage HRA offer who are applying for, or considering applying for,
individual health insurance coverage, in determining whether they are
eligible for APTC.
Lastly, the Treasury Department and the IRS note that under the
final rules, an individual coverage HRA may be integrated with
Medicare, if certain conditions are satisfied. Individuals who are
enrolled in Medicare for one or more months during the calendar year
are not eligible for the PTC for their Exchange coverage for those
months.\240\ Therefore, the final PTC rules regarding when an offer of
an individual coverage HRA is considered affordable are not relevant
for individuals enrolled in Medicare. Those individuals are ineligible
for the PTC without regard to whether they are offered or covered by an
individual coverage HRA.\241\
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\240\ See Code section 36B(c)(2)(B) and 26 CFR 1.36B-2(a)(2). An
individual generally is eligible for Medicare if the individual
meets the criteria for coverage under the program as of the first
day of the first full month the individual may receive benefits
under the program. See 26 CFR 1.36B-2(c)(2)(i). However, an
individual who meets the criteria for eligibility for Medicare must
complete the requirements necessary to receive benefits. See 26 CFR
1.36B-2(c)(2)(ii). An individual who fails by the last day of the
third full calendar month following the event that establishes
eligibility for Medicare to complete the requirements to obtain that
coverage is treated as eligible for Medicare as of the first day of
the fourth calendar month following the event that establishes
eligibility. Id.
\241\ The Treasury Department and the IRS are considering
whether clarification is needed regarding how to determine whether
an offer of an individual coverage HRA to an employee enrolled in
Medicare is considered affordable and to provide MV for purposes of
Code section 4980H. The Treasury Department and the IRS anticipate
addressing that issue in guidance in the near term.
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B. Use of Lowest Cost Silver Plan To Determine Affordability of an
Individual Coverage HRA
The proposed rules provided that an individual coverage HRA is
affordable for an employee and a related HRA individual for a month if
the employee's required HRA contribution does not exceed \1/12\ of the
product of the employee's household income and the required
contribution percentage (defined in 26 CFR 1.36B-2(c)(3)(v)(C)). The
proposed rules defined an employee's required HRA contribution as the
excess of: (1) The monthly premium for the lowest cost silver plan for
self-only coverage available to the employee through the Exchange for
the rating area in which the employee resides; over (2) the monthly
self-only HRA amount provided by the employee's employer.\242\ The
monthly self-only HRA amount was proposed to be the self-only HRA
amount newly made available to the employee under the individual
coverage HRA for the plan year, divided by the number of months in the
plan year the individual coverage HRA is available to the employee.
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\242\ If the employer offers an HRA that provides for a single
dollar amount regardless of whether an employee has self-only or
other-than-self-only coverage, the monthly maximum amount available
to the employee is used to determine affordability. The monthly
maximum amount was proposed to be the maximum amount available to
the employee divided by the number of months in the plan year the
individual coverage HRA is available to the employee.
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In the preamble to the proposed rules, the Treasury Department and
the IRS explained that the lowest cost silver plan was chosen because,
in the individual market, the lowest cost silver plan is the lowest
cost Exchange plan for which the plan's share of the total allowed
costs of benefits provided under the plan is certain to be at least 60
percent of such costs, as required by Code section 36B(c)(2)(C)(ii) for
a plan to provide MV. In selecting the lowest cost plan for which it is
certain that the plan's share of the total allowed costs of benefits
provided under the plan will be at least 60 percent of such costs, the
proposed rules sought to most closely approximate the PTC eligibility
rules that apply to offers of eligible-employer sponsored coverage that
is not an HRA.\243\ The proposed rules also provided that an individual
coverage HRA that is affordable is treated as providing MV, because the
plan used to determine affordability will always provide MV and so an
employee who is offered an affordable individual coverage HRA has the
ability to purchase affordable coverage that provides MV. In the
preamble to the proposed rules, the Treasury Department and the IRS
requested comments on whether the lowest cost silver plan is the
appropriate metal-level plan to use to determine affordability of an
individual coverage HRA for PTC eligibility purposes.
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\243\ With regard to an offer of eligible employer-sponsored
coverage that is not an HRA, an individual is eligible for the PTC
for his or her Exchange coverage only if the employee's required
contribution, which is the portion of the annual premium that would
be paid for the lowest cost self-only MV coverage offered by the
employer to the employee, exceeds a certain percentage of the
employee's household income. See Code section 36B(c)(2)(C).
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A number of commenters advocated for retaining the proposed rule's
use of the lowest cost silver plan as the
[[Page 28945]]
appropriate plan to determine affordability and MV of an individual
coverage HRA for PTC eligibility. These commenters stated that although
the lowest cost silver plan generally would have an actuarial value
that is higher than is required to provide MV under a traditional group
health plan, a bronze-level plan would not always be sufficient to
provide MV.\244\ Therefore, the commenters found the use of the lowest
cost silver plan to be a reasonable approximation of the PTC
eligibility rules that apply to offers of traditional group health
plans.
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\244\ In the individual market, a bronze plan may have an
actuarial value of 56 percent, which would not ensure the plan's
share of the total allowed costs of benefits provided under the plan
is at least 60 percent of such costs, as required by Code section
36B(c)(2)(C)(ii) for a plan to provide MV. See 45 CFR 156.140.
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Some commenters suggested using a gold-level plan to determine
affordability, contending that the coverage benefits provided by a
gold-level plan more closely resemble the coverage benefits under a
traditional group health plan. According to these commenters, using a
gold-level plan for the affordability determination would ensure that
an employee who is offered an individual coverage HRA would not pay
more for health coverage that provides fewer benefits than the employee
would have paid for under either a traditional group health plan or
Exchange coverage with a PTC.
Other commenters suggested that a bronze-level plan should be used
for determining affordability of an individual coverage HRA, arguing
that a bronze-level plan is comparable to coverage under a traditional
group health plan which provides MV because a bronze-level plan
generally has an actuarial value of 60 percent. According to these
commenters, using a silver-level plan to determine affordability and MV
for PTC eligibility would provide employees (and related HRA
individuals) with greater coverage benefits than required under
traditional group health plans.
A plurality of the commenters on the issue of the appropriate
affordability plan suggested that the second lowest cost silver plan
(SLCSP) should be used to determine the affordability of an individual
coverage HRA. These commenters generally pointed to administrative ease
and the affordability rules for QSEHRAs as the reasons for modifying
the proposed rule. Under Code section 36B, a taxpayer who is eligible
for the PTC computes his or her PTC amount using the premiums for the
SLCSP available to the taxpayer. Therefore, the commenters asserted
that information concerning the premiums for a taxpayer's applicable
SLCSP is already readily available to taxpayers and providing this
information to taxpayers for their individual coverage HRA
affordability determinations would not require additional Exchange
resources. In addition, in light of the fact that the SLCSP is already
used for certain PTC purposes, the commenters expressed concern that
using premiums for the lowest cost silver plan instead of the SLCSP
could lead to confusion and miscalculations. Commenters also noted that
the premiums for the SLCSP are used to determine affordability for
QSEHRAs. Some commenters expressed concern that using the lowest cost
silver plan for affordability would result in three different
affordability calculations depending on whether an employee was offered
a traditional group health plan, a QSEHRA, or an individual coverage
HRA. However, some commenters opposed the use of the SLCSP, contending
that the higher premiums for a SLCSP, which may not always provide
greater benefits than the lowest cost silver plan, do not warrant
modifying the proposed rule's use of the lowest cost silver plan to
determine affordability of an individual coverage HRA.
After consideration of the comments, the final rules adopt as
proposed the use of the lowest cost silver plan for self-only coverage
available through the Exchange in the rating area in which the employee
resides to determine whether an individual coverage HRA is affordable.
As explained in the preamble to the proposed rules, using the lowest
cost silver plan to determine the affordability of an individual
coverage HRA is consistent with, and most closely approximates, the
rules that apply to an offer of a traditional group health plan, under
which an offer is affordable if the employee's required contribution
for the lowest cost, self-only MV coverage offered by the employer to
the employee does not exceed a specified percentage of the employee's
household income. Further, using the lowest cost silver plan, which
will not have an actuarial value lower than 66 percent, to determine
affordability of an individual coverage HRA ensures that the plan used
to determine affordability will always provide MV. As a result, a
determination that an individual coverage HRA is affordable, using this
standard, is sufficient to ensure that an employee who is offered an
affordable individual coverage HRA has the ability to purchase
affordable coverage that provides MV. Therefore, the Treasury
Department and the IRS are also adopting as proposed the rule that an
individual coverage HRA that is affordable is treated as providing MV.
The final rules result in consistent treatment for purposes of Code
section 36B for employees offered an individual coverage HRA and
employees offered a traditional group health plan. In both instances,
the employees may be allowed the PTC if they decline the offer and the
coverage is either unaffordable or does not provide MV. Further, in
both instances, the employee's required contribution is based on the
amount the employee must pay for self-only coverage that provides MV
because under the final rules affordability is determined based on the
lowest cost silver plan offered in the Exchange for the rating area in
which the employee resides (which, by definition, will always provide
MV). 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 PTC. As such, the final rules
are consistent with the affordability and MV rules that apply to offers
of traditional group health plans.
Although commenters suggested using a bronze-level or gold-level
plan for the affordability determination, the final rules do not adopt
either of those suggestions. Using a bronze-level plan could result in
individuals being determined ineligible for the PTC based on the cost
of a plan that does not provide MV under Code section 36B(c)(2)(C)(ii)
(because a bronze plan may have an actuarial value as low as 56
percent). While use of a gold-level plan (which generally has an
actuarial value no lower than 76 percent) would ensure that the plan
used to determine affordability provides MV, it would be inconsistent
with, and require the use of, a plan with a higher actuarial value than
in the rules that apply for a traditional group health plan.
The final rules do not adopt the suggestion that the SLCSP plan be
used for the affordability determination. The Treasury Department and
the IRS acknowledge that the SLCSP applies for other PTC purposes,
including calculation of the PTC amount and the determination of
affordability of a QSEHRA. However, affordability for a traditional
group health plan is based on the amount an employee would pay for a
plan for which the share of the total allowed costs of benefits
provided under the plan is at least 60 percent of such costs and the
lowest cost silver plan, not the SLCSP, is the plan that most closely
approximates that rule and provides consistency with these same
[[Page 28946]]
rules as applied to traditional group health plans under Code section
36B. Consequently, the final rules provide a rule that is comparable to
the affordability and MV rules that apply for traditional group health
plans.
As to the concerns expressed by commenters regarding the potential
for confusion for individuals due to the different health coverage
arrangements that exist and the different PTC eligibility rules that
apply, see earlier in this preamble for a discussion of the steps the
Departments are taking to address those concerns, including providing a
model notice that will explain the PTC consequences of an individual
coverage HRA.
C. Other Issues Under the PTC Rules
The proposed rules provided that the affordability of an individual
coverage HRA for a related HRA individual would be based on the cost of
self-only, not family, coverage available to the employee through the
Exchange for the rating area in which the employee resides. One
commenter stated that affordability of an individual coverage HRA
should be based on the cost of Exchange coverage for all members of the
employee's family offered the individual coverage HRA, not just the
self-only cost. The final rules do not adopt this suggestion. Under 26
CFR 1.36B-2(c)(3)(v)(A)(2), an eligible employer-sponsored plan is
affordable for a related individual if the portion of the annual
premium the employee must pay for self-only coverage does not exceed a
percentage of the employee's household income. Similarly, under Code
section 36B(c)(4), the affordability of a QSEHRA for a spouse or
dependent of an employee is based on the cost of self-only Exchange
coverage to the employee. Consequently, the final rules are consistent
with the existing rules for other types of employer coverage in
providing that affordability of an individual coverage HRA for
employees and related HRA individuals is based on the cost of self-only
coverage.
One commenter stated that because of the likelihood of confusion in
the early years on the part of taxpayers whose employers offer
individual coverage HRAs, the IRS should waive the requirement that
taxpayers increase their tax liability for excess APTC (the excess of a
taxpayer's APTC over his or her allowed PTC) resulting from an offer of
an affordable individual coverage HRA. Under Code section 36B(f)(2), a
taxpayer must increase his or her tax liability for a taxable year by
the excess of the APTC paid on the taxpayer's behalf over the PTC the
taxpayer is allowed for the year, subject to a limitation for taxpayers
with household income less than 400 percent of the applicable federal
poverty line for the taxpayer's family size. The Treasury Department
and the IRS do not have the authority to suspend this statutory rule.
Thus, the final rules do not adopt this suggestion. The Departments
understand, however, that there is potential for taxpayer confusion
about individual coverage HRAs and have taken measures to ensure that
taxpayers are aware of the PTC implications of accepting or opting out
of an individual coverage HRA. In particular, as described earlier in
this preamble, the final integration rules require that an individual
coverage HRA provide eligible participants with a written notice
setting forth certain information about the individual coverage HRA,
including the potential availability of PTC if they opt out of the HRA
and the PTC eligibility consequences if they accept the HRA.
Individuals applying for Exchange coverage will provide information
about the individual coverage HRA they have been offered to the
Exchange during the application process, which will help prevent the
improper payment of APTC.
A few commenters raised issues regarding the application of the PTC
rules to individual coverage HRAs that are negotiated pursuant to a
CBA, with the commenters asking for special rules to account for the
fact that CBAs are often negotiated over multiple years, including that
the affordability status that is determined as of the effective date of
a CBA should apply for all years covered by the CBA. The final rules do
not adopt the suggestion that special rules should apply to employees
covered by CBAs. The existing rules under Code section 36B do not
include special rules for determining the affordability of traditional
group health plans for employees covered by CBAs. In addition, such
special rules would likely result in undue complexities for Exchanges
and others. Thus, employees covered by CBAs must determine
affordability consistent with the rules that apply to individuals not
covered by such agreements.
A number of comments were received expressing concerns about the
effective date for the final rules generally, but many with a specific
focus on issues related to implementing the final PTC rules by 2020.
These comments are addressed later in this preamble.
Also, commenters expressed concern about the availability of
resources for verifying eligibility for APTC for individuals who are
offered an individual coverage HRA. While Exchanges are required to
verify certain eligibility requirements that affect Exchange enrollees'
APTC eligibility with electronic data sources, commenters stated that
electronic data sources are not available to allow State Exchanges to
verify APTC eligibility based on an offer of an individual coverage
HRA. Commenters urged the Departments to dedicate additional funding to
the State Exchanges for electronic verification of information about
individual coverage HRA offers that consumers will be required to
provide to Exchanges. In response to these comments, the Departments
note that Congress generally appropriates funding for the federal
government. The Departments do not generally have the authority to
determine additional uses of funds beyond those established by
Congress, including with respect to additional funding for State
Exchanges.
One commenter asked that the Treasury Department and the IRS
confirm which premium applies in determining the affordability of an
individual coverage HRA if more than one premium is available for the
lowest cost silver plan, for example, because there is one rate for
tobacco users and one rate for non-tobacco users. Existing rules at 26
CFR 1.36B-3(e) provide that, in determining a taxpayer's SLCSP premium,
a monthly premium may not include any adjustments for tobacco use.
Consequently, in response to the commenter, the final rules provide
that if there is a silver-level plan that has one rate for tobacco
users and one rate for non-tobacco users, the rate for non-tobacco
users will apply to determine affordability of the individual coverage
HRA.
In addition, in the context of a traditional group health plan,
existing rules at 26 CFR 1.36B-2(c)(3)(v)(A)(4) provide that
nondiscriminatory wellness program incentives \245\ that affect
premiums are treated as earned in determining an employee's required
contribution for purposes of affordability to the extent the incentives
relate exclusively to tobacco use. The rules further provide that
wellness program incentives that do not relate to tobacco use or that
include a component unrelated to tobacco use are treated as not earned
for this purpose. Consequently, the Treasury Department and the IRS are
clarifying in these final rules that similar rules apply for purposes
of determining the affordability of an individual coverage HRA. Thus,
if a wellness program incentive is allowed in the individual
[[Page 28947]]
market, the lowest cost silver plan premium will be determined without
regard to any premium discount or rebate under that program unless the
wellness program incentive relates exclusively to tobacco use.
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\245\ For this purpose, the term ``wellness program incentive''
has the same meaning as the term ``reward'' in 26 CFR 54.9802-
1(f)(1)(i).
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The final rules also address a situation in which the silver-level
QHP used to determine a taxpayer's lowest cost silver plan at
enrollment later terminates or closes to enrollment during the plan
year. Specifically, the final rules provide that, in such a case, the
silver-level QHP that is used to determine a taxpayer's lowest cost
silver plan will not cease to be the taxpayer's lowest cost silver plan
solely because the plan later terminates or closes to enrollment.
However, a taxpayer's lowest cost silver plan used to determine
affordability could change during the tax year under other
circumstances, such as if the taxpayer moves into a different rating
area.
With respect to which HRA amounts are taken into account in
determining affordability, the proposed rules provided that only
amounts that are newly made available and that are determinable within
a reasonable period of time before the beginning of the plan year of
the HRA are considered. The proposed rules further provided that
amounts made available from a prior plan year that carry over to the
current plan year are not taken into account. The final rules retain
these provisions and also provide that, similarly, amounts made
available under an HRA to account for amounts remaining in a different
HRA the employer previously provided to the employee and under which
the employee is no longer covered are not taken into account for
purposes of determining affordability. This clarification is generally
intended to address the situation in which an employee moves between
classes of employees and, as a result, moves between different HRAs, as
discussed earlier in this preamble.
One commenter asked the Treasury Department and the IRS to clarify
the application of the PTC rules to an employee opting out of, or
accepting, an individual coverage HRA with a non-calendar year plan
year.\246\ As noted earlier in this preamble, the final integration
rules clarify that individual coverage HRAs must provide participants
with one advance opportunity to opt into, or out of, the individual
coverage HRA for each plan year, but generally may not provide
participants multiple opportunities to opt into, or out of, the
individual coverage HRA over the course of the plan year. In addition,
the final PTC rules provide specific rules to determine affordability
of an individual coverage HRA for each employment period that is less
than a full calendar year or for the portions of the plan year of an
individual coverage HRA that fall in different taxable years of a
taxpayer. Although affordability of an individual coverage HRA and thus
eligibility for PTC generally are determined on a monthly basis, the
opt-out rules and the part-year affordability rules work in conjunction
with the employee safe harbor to provide a taxpayer with an
affordability determination that generally will apply for the entire
plan year of the individual coverage HRA, barring any change in
circumstance of the taxpayer. For example, if a taxpayer opts out of an
individual coverage HRA that begins on July 1, 2020, and an Exchange
determines that the HRA is unaffordable and the taxpayer is eligible
for APTC, the employee safe harbor in the final rules provides that the
HRA generally will be treated as unaffordable for the entire plan year
of the HRA (from July 1, 2020-June 30, 2021). If the taxpayer decides
to forego both APTC and the individual coverage HRA and pay the
enrollment premium out-of-pocket, the taxpayer still may claim PTC on a
tax return for the months the individual coverage HRA was unaffordable
if the taxpayer otherwise is eligible for PTC.\247\
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\246\ An employee who opts out of a non-calendar year individual
coverage HRA, like an employee who opts out of a non-calendar year
traditional group health plan, may qualify for an individual market
SEP based on the employee's enrollment in a non-calendar year plan
that is ending, regardless of whether he or she has the option to
renew, per 45 CFR 155.420(d)(1)(ii). The employee may, therefore,
choose to change his or her individual health insurance plan, though
his or her plan options may be restricted based on 45 CFR
155.420(a)(4)(iii). Regardless of whether an employee changes his or
her plan, an employee who is enrolled in Exchange coverage and opts
out of an HRA when permitted to do so may apply to the Exchange for
a redetermination of APTC eligibility.
\247\ The proposed rules also clarified how the generally
applicable employer-sponsored coverage PTC eligibility rules apply
to individual coverage HRAs. The Treasury Department and the IRS are
finalizing those rules as proposed. Further, existing guidance
addresses when amounts newly made available under an HRA count
toward the affordability or MV of another group health plan offered
by the same employer. See 26 CFR 1.36B-2(c)(3)(v)(A)(5) and 26 CFR
1.36B-6(c)(4). See also IRS Notice 2015-87, Q&A-7. As under the
proposed rules, the final rules do not make substantive revisions to
those rules but do make clarifying updates to 26 CFR 1.36B-
2(c)(3)(v)(A)(5), mainly to incorporate a reference to more recent
guidance.
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D. Employer Shared Responsibility Provisions Under Code Section 4980H
As part of implementing the objectives of Executive Order 13813,
the Treasury Department and the IRS are considering how Code section
4980H applies to an employer offering an individual coverage HRA.
Only ALEs are subject to Code section 4980H.\248\ For an employer
that is an ALE, the employer may owe a payment for a month under Code
section 4980H(a) or Code section 4980H(b) or neither. In general, an
ALE will owe a payment under Code section 4980H(a) if it fails to offer
an eligible employer-sponsored plan to at least 95 percent of its full-
time employees and their dependents and at least one full-time employee
is allowed the PTC for the month.\249\ An ALE that offers an eligible
employer-sponsored plan to at least 95 percent of its full-time
employees and their dependents (and therefore is not liable for a
payment under Code section 4980H(a)) may be liable for a payment under
Code section 4980H(b) if at least one full-time employee is allowed the
PTC, which may occur if the eligible employer-sponsored plan offered is
not affordable or does not provide MV, or if the employee was not
offered coverage.
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\248\ The explanation of Code section 4980H provided here is a
summary. For a complete explanation of the rules, including for
definitions of terms used in this summary, see 26 CFR 54.4980H-1, et
seq. (79 FR 8544 (Feb. 12, 2014)).
\249\ Note that if an ALE offered coverage to all but five of
its full-time employees (and their dependents), and five is greater
than 5 percent of the employer's full-time employees, the employer
will not owe an employer shared responsibility payment under Code
section 4980H(a). See 26 CFR 54.4980H-4(a).
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On November 19, 2018, the Treasury Department and the IRS released
Notice 2018-88 which addressed the application of Code section 4980H to
ALEs offering individual coverage HRAs. In order to provide clarity to
stakeholders, Notice 2018-88 explained how Code section 4980H would
apply to an ALE that offers an individual coverage HRA, described
potential additional affordability safe harbors, requested comments,
and provided examples.
The Treasury Department and the IRS intend to propose rules under
Code section 4980H on the issues addressed in Notice 2018-88, taking
into account the comments received. To the extent comments were
received on the proposed integration rules specific to the application
of Code section 4980H to employers offering individual coverage HRAs,
those comments will be addressed in the preamble to the proposed rules
under Code section 4980H.
[[Page 28948]]
IV. Overview of the Final Rules Regarding Individual Health Insurance
Coverage and ERISA Plan Status
A. In General
The proposed rules included an amendment to DOL rules defining the
ERISA terms ``employee welfare benefit plan,'' ``welfare plan,'' and,
derivatively ``group health plan,'' so that these terms would not
include individual health insurance coverage, the premiums of which are
reimbursed by an HRA and certain other arrangements, under certain
conditions. As explained in the preamble to the proposed rules, the
objective in proposing this clarification was to provide clarity and
assurance to employees; employers, employee organizations, and other
plan sponsors; health insurance issuers; state insurance regulators;
and other stakeholders. Specifically, the objective was to provide
assurance that the insurance policies sold as individual health
insurance coverage (that is, policies generally subject to
comprehensive federal and state individual market rules for minimum and
uniform coverage, standardized rating requirements, guaranteed
availability, and guaranteed renewability) would not be treated as part
of an HRA or certain other arrangements for purposes of ERISA if
certain conditions were satisfied.\250\ Specifically, DOL proposed an
amendment to 29 CFR 2510.3-1 on the definition of ``employee welfare
benefit plan'' in ERISA section 3(1).\251\ This proposed amendment
would apply to individual health insurance coverage purchased through
individual coverage HRAs. It would also apply to individual health
insurance coverage purchased through certain other arrangements that
reimburse participants for the purchase of individual health insurance
coverage that are not subject to the market requirements (including
QSEHRAs and HRAs that have fewer than two participants who are current
employees on the first day of the plan year). Further, this proposed
amendment would apply to an arrangement under which an employer allows
employees to pay the portion of the premium for off-Exchange individual
health insurance coverage that is not covered by the HRA with which the
coverage is integrated by using a salary reduction arrangement under a
cafeteria plan (supplemental salary reduction arrangement).\252\
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\250\ 83 FR 54420, 54440 (Oct. 29, 2018). For examples of other
circumstances under which DOL has determined an arrangement is not a
plan within the meaning of ERISA, see 29 CFR 2510.3-1(j), 29 CFR
2510.3-2(f), and 29 CFR 2509.99-1. See also DOL Field Assistance
Bulletins No. 2004-01 and No. 2006-02.
\251\ In light of the fact that ``group health plan'' is defined
derivatively in ERISA section 733(a)(1), in relevant part, as an
``employee welfare benefit plan to the extent that the plan provides
medical care . . . directly or through insurance, reimbursement, or
otherwise[,]'' DOL has concluded that a separate rule relating to
the definition of group health plan is not required.
\252\ While the proposed rule under 29 CFR 2510.3-1(l) included
in the term ``supplemental salary reduction arrangement'' cafeteria
plan salary reduction arrangements paying premium amounts not
covered by a QSEHRA, these final rules do not. See Code section
9831(d)(3)(B)(ii) and IRS Notice 2017-67, Q&A-55 (employer may allow
employee to pay the excess of a health insurance premium over the
amount paid by the QSEHRA with an after-tax payroll deduction (in
contrast to a pre-tax salary reduction)).
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ERISA section 3(1) broadly defines ERISA-covered welfare plans to
include ``any plan, fund, or program'' that is ``established or
maintained by an employer or employee organization'' for the provision
of health benefits ``through the purchase of insurance or otherwise.''
At the same time, however, provisions in the PHS Act generally treat
individual health insurance and group health insurance as mutually
exclusive categories.\253\ If individual health insurance coverage were
considered to be a group health plan or part of a group health plan,
the individual health insurance coverage typically would violate some
of the group market requirements (for example, the single risk pool
requirement for the small group market; the rating rules for the small
group market; or the separate medical loss ratio requirements for large
group insurance coverage, which is lower than that for individual or
small group insurance).\254\ As explained in the preamble to the
proposed rules, treatment of such individual health insurance coverage
as subject to both individual market and group market requirements thus
would likely result in conflicting requirements, uncertainty and
confusion which could inhibit or, in some instances, even preclude, the
ability to integrate HRAs with individual health insurance coverage as
contemplated by other provisions in the proposed rules.\255\
Accordingly, DOL concluded that the ERISA status of this type of
individual health insurance coverage should be clarified. Under the
proposed rules, the individual health insurance coverage that is paid
for by the HRA \256\ is not covered by ERISA Title I if all of the
conditions of the safe harbor are satisfied. The conditions in the safe
harbor incorporate criteria well-recognized under similar ERISA safe
harbor rules and under case law, where similar arrangements are
considered to be exempt from ERISA Title I.
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\253\ See ERISA section 733(b)(4) and PHS Act sections
2791(b)(4), (5), and (e)(1). See also 26 CFR 54.9801-2, 29 CFR
2590.701-2, and 45 CFR 144.103.
\254\ See PPACA section 1312 (which defines each issuer's
enrollees in the individual market to be members of a single risk
pool, and each issuer's enrollees in the small group market to be
members of a separate single risk pool, unless a state has opted to
merge the risk pools), PHS Act section 2701 (which sets forth
maximum age rating ratios in the individual and small group
markets), and PHS Act section 2718 (which sets forth medical loss
ratio requirements that differ based on market).
\255\ 83 FR 54420, 54441 (Oct. 29, 2018).
\256\ For simplicity and readability, the discussion in this
section IV of the preamble generally refers simply to HRAs, although
it is intended to also capture other account-based group health
plans, QSEHRAs and supplemental salary reduction arrangements. If
the term HRA is intended to refer only to HRAs in this section IV,
it will be clear from context. Moreover, the title of paragraph (l)
of the DOL final rule is amended to refer to a ``Safe harbor for
health reimbursement arrangements (HRAs) and certain other
arrangements that reimburse individual health insurance coverage,''
to better reflect the regulatory text that follows.
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Under the proposed rules, the status under ERISA of an HRA, QSEHRA,
or supplemental salary reduction arrangement would remain unaffected.
Rather, the proposed rules clarified that individual health insurance
coverage selected by the employee in the individual market and
reimbursed by such a plan is not part of a group health plan, is not
health insurance coverage offered in connection with a group health
plan, and is not a part of any employee welfare benefit plan for
purposes of ERISA Title I, provided all the following conditions are
satisfied:
1. The purchase of any individual health insurance coverage is
completely voluntary for employees.\257\
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\257\ The fact that a plan sponsor requires the coverage to be
purchased as a condition for participation in an HRA or supplemental
salary reduction arrangement does not make the purchase involuntary.
This issue should not arise in the context of a QSEHRA because in
that case, although individuals must be enrolled in MEC, employers
may not require employees to enroll in individual health insurance
coverage.
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2. The employer, employee organization, or other plan sponsor does
not select or endorse any particular issuer or insurance coverage.
3. Reimbursement for non-group health insurance premiums is limited
solely to individual health insurance coverage.
4. The employer, employee organization, or other plan sponsor
receives no consideration in the form of cash or otherwise in
connection with the employee's selection or renewal of any individual
health insurance coverage.\258\
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\258\ The limitation on employers, employee organizations, and
other plan sponsors receiving consideration from an issuer or person
affiliated with an issuer in connection with any participant's
purchase or renewal of individual health insurance coverage was not
intended to change any ERISA requirements governing the
circumstances under which plans, including HRAs, may reimburse
employers, employee organizations and other plan sponsors for
certain expenses associated with administration of the plan.
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[[Page 28949]]
5. Each plan participant is notified annually that the individual
health insurance coverage is not subject to ERISA.
Current rules issued by the Departments define ``group health
insurance coverage'' as health insurance coverage offered in connection
with a group health plan.\259\ The proposed rules included an amendment
to clarify that--subject to certain conditions--individual health
insurance coverage is not group health insurance coverage (or ``health
insurance offered in connection with a group health plan''). This
amendment was intended to ensure consistency and avoid any potential
conflicting interpretations regarding individual health insurance
coverage. Accordingly, if the conditions in 29 CFR 2510.3-1(1) were
satisfied, the individual health insurance coverage would not be
``health insurance coverage offered in connection with a group health
plan'' for purposes of ERISA, the PHS Act, the Code, and PPACA, even
though the premiums are reimbursed by an HRA.\260\
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\259\ 26 CFR 54.9801-2, 29 CFR 2590.701-2, and 45 CFR 144.103.
\260\ Note that the clarification with respect to the meaning of
group health insurance coverage is not relevant for QSEHRAs because
QSEHRAs generally are not group health plans. See Code section
9831(d)(1), ERISA section 733(a)(1), and PHS Act section 2791(a)(1).
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After consideration of the comments, the conditions set forth in
the proposed amendment to 29 CFR 2510.3-1, and the proposed amendment
to the Departments' rules defining ``group health insurance coverage,''
are being finalized without significant change, but with minor
clarifications in response to comments.
B. Safe Harbor
The preamble to the proposed rules referred to the proposed
amendment as a clarification. Some commenters asked DOL to clarify
whether the conditions established in the proposed amendment would be
considered a safe harbor, or absolute requirements for plan sponsors.
These commenters asserted that it was unclear and expressed concern
about the potential unintended consequences of non-compliance and
confusion if all individual health insurance coverage reimbursed under
an arrangement that did not satisfy the proposed criteria of the rule
was treated as being subject to ERISA. Examples highlighted by
commenters include how requirements under other federal laws such as
HIPAA, the Paul Wellstone and Pete Domenici Mental Health Parity and
Addiction Equity Act of 2008, and PPACA would apply to the coverage
(including the single risk pool requirement, the rating rules for the
small group market, or the medical loss ratio requirements, as well as
the PPACA section 9010 health insurance fee), whether health insurance
issuers could be considered plan fiduciaries, and whether participants
could bring legal actions against health insurance issuers under
ERISA's private right of action provisions. They also stated that
factors outside of a plan sponsor's control could result in the
employer not satisfying the conditions of the rules. As one example, a
commenter suggested that an insurance broker could endorse an insurance
product in the context of a private exchange without the employer's
knowledge, possibly resulting in a failure to satisfy the condition
that the plan sponsor not select or endorse any particular issuer or
insurance coverage.\261\ These commenters suggested that flexibility
would be appropriate to account for plan sponsors that make reasonable,
good faith efforts to comply with the conditions in the proposed
amendment but make de minimis errors.
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\261\ DOL notes that ``private exchange'' is a term that was not
specifically defined in any public comments and is similarly
undefined in this preamble. It is generally meant to refer to a tool
or web-based platform that facilitates individuals' enrollment in
the coverage of their choice. The term does not include any entity
that meets the definition of an ``Exchange'' in 45 CFR 155.20.
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As noted earlier in this section of the preamble, DOL has set forth
several safe harbors in other rules and guidance under which DOL has
determined an arrangement is not a plan within the meaning of
ERISA.\262\ These safe harbors are intended to clearly define
circumstances in which a workplace arrangement falls outside of the
scope of a plan under ERISA without necessarily specifying all the
circumstances under which a workplace arrangement could avoid ERISA
plan status. Here, too, DOL intended the proposed rules to constitute a
safe harbor, as reflected in language in the proposed amendment
providing that an ERISA plan ``shall not include'' individual health
insurance coverage. The final rules make clear that the rule is a safe
harbor.
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\262\ See 29 CFR 2510.3-1(j), 29 CFR 2510.3-2(f), and 29 CFR
2509.99-1. See also DOL Field Assistance Bulletins No. 2004-01 and
No. 2006-02.
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The conditions of the various regulatory safe harbors noted earlier
in this preamble are highly sensitive to the particular type of plan at
issue, and the particular legal and factual context associated with
that type of plan. Accordingly, DOL cautions that the particular
conditions of the safe harbor provided here are not directly relevant
to other types of plan arrangements, such as retirement plans, life
insurance plans, or disability plans. In particular, the employer's
funding of a benefit arrangement, in most circumstances, is sufficient
to preclude the grant of a safe harbor. In the particular context of
the individual health insurance policies at issue here, however, DOL
has concluded that employer funding is not disqualifying based on its
conclusion that Congress generally intended that individual and group
health insurance coverage be regulated as mutually exclusive
categories. In this unique context, DOL has concluded that employer
funding, by itself, is an insufficient basis for treating the
individual health insurance policy, as opposed to the HRA, as part of
an ERISA-covered plan.
C. An Employer, Employee Organization, or Other Plan Sponsor May Not
Select or Endorse Any Particular Issuer or Insurance Coverage
Paragraph (l)(2) of the proposed amendment required that the
employer, employee organization, or other plan sponsor may not select
or endorse any particular issuer or insurance coverage. The proposed
rules clarified that an HRA plan sponsor would not be considered to
have endorsed a particular issuer or insurance coverage if, for
example, the plan sponsor offered general contact information regarding
availability of health insurance in a state (such as providing
information regarding HealthCare.gov or contact information for a state
insurance commissioner's office) or providing general health insurance
educational information (such as the uniform glossary of health
coverage and medical terms available at: https://www.dol.gov/sites/default/files/ebsa/laws-and-regulations/laws/affordable-care-act/for-employers-and-advisers/sbc-uniform-glossary-of-coverage-and-medical-terms-final.pdf).
Some commenters asked DOL to provide additional guidance on what
types of activities would or would not constitute endorsement. These
commenters stated that it would be important to provide HRA plan
sponsors with flexibility to permit them to help employees shop for
coverage, especially because many might be unfamiliar with the
processes associated with obtaining health insurance in the individual
market. Several commenters asked whether there would be circumstances
in which a plan sponsor could connect participants or beneficiaries
with an insurance agent or
[[Page 28950]]
broker without running afoul of the prohibition on endorsement. A few
commenters asked whether, or under what circumstances, an HRA could be
offered in connection with a private exchange where participants could
make a selection from a set of coverage options. One commenter stated
that without an ability to use a private exchange model, most employers
will be reluctant to offer an individual coverage HRA over a
traditional group health plan, thereby undermining the purpose of the
proposed rules to expand use and availability of HRAs. One commenter
stated that DOL should incentivize the use of private exchanges that
would provide price and quality transparency as well as navigational
support for plan participants shopping for individual health insurance
coverage, and possibly even require that private exchanges offer QHPs.
Another commenter urged DOL to ensure that private exchanges could not
be used in a manner that harms the risk pools or that is anti-
competitive and promotes one issuer over another. This commenter
suggested that the final rules specify that an employer cannot use an
individual coverage HRA in conjunction with a plan purchased through a
private exchange unless the private exchange is designed in such a way
as not to constitute selection or endorsement by the employer.
A plan sponsor may provide assistance to participants and
beneficiaries in shopping for individual health insurance coverage
without being considered to endorse any particular coverage if that
assistance is unbiased, neutral, uniformly available, and does not
steer participants and beneficiaries towards a particular health
insurance issuer or coverage. For example, an HRA plan sponsor could
accommodate requests from insurance brokers to speak with employees or
distribute informational materials at their worksite, so long as such
accommodations are granted on an equal basis and also without any
preference for brokers that represent a particular firm or have a
relationship with a certain health insurance issuer.
DOL agrees with commenters that the use of private exchanges may be
a helpful tool in shopping for coverage. However, DOL declines to adopt
suggestions regarding adding incentives or requirements with respect to
transparency standards, navigational support, or offering QHPs because
any such rules are beyond the scope of this rulemaking.
Moreover, a private exchange may be designed in a way that
satisfies the conditions of 29 CFR 2510.3-1(l), in which case
individual health insurance coverage purchased through the private
exchange would not be considered group health plan coverage.
Alternatively, a private exchange could be designed in a way that
limits employees' choice of issuer, or promotes certain issuers or
coverage options over others. In that case, coverage offered through
the private exchange would not satisfy the prohibition on endorsement
in the safe harbor. The final rules provide a new option for employers
to offer individual coverage HRAs together with private exchanges that
work with all individual market insurance issuers in a neutral and
unbiased fashion, and maintain the individual insurance nature of the
individual health insurance coverage.
For example, under the final rules, an employer could maintain (or
contract with) a tool or web-based platform that displays information
about all coverage options in a state and facilitates enrollment.
However, to be eligible for the safe harbor, the platform would be
required to present all available coverage options in a way that is
entirely neutral. The platform could not be designed or operated in a
way that limits users' ability to select a coverage option that would
otherwise be available to them or that promotes one option over another
(for example, with ``recommended'' or ``starred'' listings), or the
prohibition on endorsement would not be satisfied. However, an
otherwise neutral platform that allows users to select certain criteria
(such as a platform that allows participants to search for an HDHP or
plans that contained specific providers in their network) and search
for coverage options that fulfilled these criteria would not be
considered to be an endorsement by the employer of any particular
coverage, and would not violate this requirement of the final rule.
D. Reimbursement for Non-Group Health Insurance Premiums Must Be
Limited Solely to Individual Health Insurance Coverage
Paragraph (l)(3) of the proposed amendment would require that
reimbursement for non-group health insurance premiums must be limited
solely to individual health insurance coverage, as defined in 29
CFR[thinsp]2590.701-2.\263\ DOL included this condition in order to
limit the application of the proposed safe harbor to determining
whether insurance policies sold as individual health insurance coverage
would be treated as part of an employee welfare benefit plan subject to
ERISA.
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\263\ While the HRA's reimbursement of non-group health
insurance premiums is limited solely to individual health insurance
coverage that does not consist solely of excepted benefits, the HRA
may reimburse Medicare premiums for Medicare beneficiaries as
permitted under 29 CFR 2590.702-2 without causing the reimbursement
of individual health insurance coverage premiums for other
individuals to fall outside the safe harbor.
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Several commenters asked DOL to clarify whether arrangements that
provide reimbursement for individual health insurance coverage that
consists solely of excepted benefits (for example, standalone limited-
scope dental benefits) could be considered to satisfy the proposed safe
harbor. For the reasons explained earlier in this section of the
preamble, in DOL's view, the proposed safe harbor was a necessary
clarification for the types of individual health insurance coverage
that might be reimbursed by an individual coverage HRA or QSEHRA.
However, coverage that is sold in the individual market that provides
only excepted benefits is not subject to the market requirements and
does not present the same concerns about incompatible individual and
group market regulatory regimes. Thus, the proposed safe harbor was not
intended to address excepted benefit policies sold in the individual
market. The final rules include additional language to make this
clearer.
In the preamble to the proposed rules, DOL also invited comments
regarding which forms of payment are appropriately treated as
``reimbursement'' to participants for this purpose. DOL asked whether,
for example, ``reimbursement'' should be interpreted to include direct
payments, individual or aggregate, by the employer, employee
organization, or other plan sponsor to the insurance company.
Commenters generally favored an expansive interpretation of the
types of payments that should be treated as reimbursements. These
commenters argued that permitting employers to pay health insurance
issuers directly would promote administrative simplicity, and would
enable plan sponsors to substantiate that participants and
beneficiaries are enrolled in individual health insurance coverage, as
the final integration rules require. Some commenters asserted that
``reimbursement'' should be interpreted in a manner consistent with
current industry practices for account-based plans, which permit the
transfer of employer funds to debit cards that can be used to pay for
certain qualified medical expenses. One commenter also stated that it
should not matter whether
[[Page 28951]]
employer funds paid from an HRA go directly to a participant or a
health insurance issuer because the economic substance of the
transaction is the same--that is, the funds are being used to discharge
an employee's premium payment obligations.
DOL agrees with these commenters and, under the final rules,
``reimbursement'' may include employee-initiated payments made through
use of financial instruments, such as pre-paid debit cards, as well as
direct payments, individual or aggregate, by the employer, employee
organization, or other plan sponsor to the health insurance
issuer.\264\ However, DOL cautions that plan sponsors should take care
to ensure that payment practices do not violate the prohibition on
endorsements by effectively limiting participants' and beneficiaries'
ability to select certain coverage options or favoring certain issuers
or coverage options. For example, if a plan sponsor were to establish
procedures for sending direct payments to health insurance issuers, but
those procedures excluded certain health insurance issuers, or placed
additional burdens on HRA participants if they chose health insurance
coverage offered by some health insurance issuers, rather than others,
the procedure would be considered an endorsement, and the criteria of
the safe harbor would not be satisfied.
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\264\ Any direct payment should include an affirmative act by
the employee requesting that the employer or plan administrator make
the payment, as part of the enrollment process or otherwise. For
example, as part of the insurance enrollment process, the employee
might direct the employer or plan administrator to begin making
monthly premium payments for so long as the employee remains
enrolled in the individual health insurance coverage and remains
eligible for HRA benefits.
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E. The Employer, Employee Organization, or Other Plan Sponsor Receives
No Consideration in Connection With the Employee's Selection or Renewal
of Any Individual Health Insurance Coverage
Paragraph (l)(4) of the proposed amendment would require that an
employer, employee organization, or other plan sponsor receive no
consideration in the form of cash or otherwise in connection with the
employee's selection or renewal of any individual health insurance
coverage. Commenters requested more specific guidance on how a plan may
comply with this condition.
As stated in the preamble to the proposed rules, this limitation in
the DOL safe harbor rule for HRAs was focused on employers, employee
organizations, and other plan sponsors receiving consideration,
including from an issuer or person affiliated with an issuer in
connection with any participant's purchase or renewal of individual
health insurance coverage. The preamble to the proposed rules also
explained that the provision was not intended to change any ERISA
requirements governing the circumstances under which ERISA plans,
including HRAs, may reimburse employers, employee organizations and
other plan sponsors for certain expenses associated with administration
of the plan.\265\
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\265\ 83 FR 54420, 54442 (Oct. 29, 2018).
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The requirement in the DOL final rule is different from the ``no
compensation'' criteria established in the safe harbor rules regarding
certain group or group-type insurance programs established at 29 CFR
2510.3-1(j)(4) and individual retirement accounts (IRAs) established at
29 CFR 2510.3-2(d)(iv). In the case of those rules, there is no ERISA
plan, and the rules limit permissible compensation that an employer can
receive, including from third parties, to reasonable compensation,
excluding any profit, for administrative services actually rendered in
connection with forwarding employee contributions to the insurer or IRA
provider through payroll deductions or dues checkoffs.
In the context of the DOL final rule, the HRA is generally an
ERISA-covered plan and the issue is the extent to which the plan
sponsor of the HRA could receive payments from the HRA or third
parties. As noted above, the preamble to the proposed rules explained
that the rule was not intended to change any ERISA requirements
governing the circumstances under which ERISA plans, including HRAs,
may reimburse employers, employee organizations and other plan sponsors
for expenses associated with administration of a plan. Thus, in the
case of plan assets being used for HRA related payments, reimbursement
could not be made for expenses associated with settlor functions and
activities.\266\ The fiduciary prohibitions in ERISA section 406(a) and
406(b) also would apply in such cases, so that any reimbursements would
need to be permissible under ERISA section 408(b)(2) and 29 CFR
2550.408b-2(e). Subparagraph (e)(3) of those rules states: ``If a
fiduciary provides services to a plan without the receipt of
compensation or other consideration (other than reimbursement of direct
expenses properly and actually incurred in the performance of such
services within the meaning of 2550.408c-2(b)(3)), the provision of
such services does not, in and of itself, constitute an act described
in section 406(b) of the Act.'' ERISA section 408(c) and 29 CFR
2550.408c-2 place additional restrictions on compensation for services
in the case of a fiduciary who is already receiving full-time pay from
an employer or employee organization sponsoring the plan. However, in
the case of an unfunded HRA, with payments from the HRA made solely out
of an employer's general assets, there would not be any plan assets;
thus, there could be no payments to the employer from plan assets.
Moreover, in the case of such an unfunded HRA, it seems extremely
unlikely that an employer would apply debits to the notional employee
accounts that are part of the HRA to ``reimburse'' itself from the HRA
for expenses associated with sponsoring the HRA. Finally, in DOL's
view, receipt of compensation from third parties to cover the cost of
operating the HRA would be prohibited payments in connection with the
employee's selection or renewal of any individual health insurance
coverage, and, therefore, not permissible under paragraph (l)(4) of the
final rules. Accordingly, such receipt of compensation would not be
permissible under paragraph (l)(4) of the final rules.
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\266\ See DOL Advisory Opinion 2001-01A.
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F. Each Plan Participant Must Be Notified Annually That the Individual
Health Insurance Coverage Is Not Subject to ERISA
Paragraph (l)(5) of the proposed amendment included a requirement
that plans provide an annual notice to participants stating that
individual health insurance coverage funded through an HRA is not
subject to the requirements of ERISA. For an individual coverage HRA,
the notice must satisfy the requirements set forth in the final
integration rules at 29 CFR 2590.702-2(c)(6), discussed earlier in this
preamble. For a QSEHRA or an HRA that is not subject to 29 CFR
2590.702-2(c)(6) (such as a retiree-only HRA), the proposal set forth
model language to satisfy the condition.\267\ The preamble to the
proposed rules also explained that a supplemental salary reduction
arrangement need not provide the required notice; instead, the notice
[[Page 28952]]
could be provided by the HRA that the salary reduction arrangement
supplements.\268\ DOL invited comment on whether it would be helpful to
issue additional rules or guidance addressing the application of ERISA
reporting and disclosure requirements to HRAs integrated with such non-
ERISA individual health insurance coverage (for example, SPD content
and Form 5500 annual reporting requirements).
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\267\ As stated in the preamble to the proposed rules, in DOL's
view, the SPD for the HRA, QSEHRA, or other ERISA plan would fail to
satisfy the style, format, and content requirements in 29 CFR
2520.102-3 unless it contained a discussion of the status of the HRA
or QSEHRA and the individual health insurance coverage under ERISA
sufficient to apprise the HRA or QSEHRA plan participants and
beneficiaries of their rights and obligations under the plan and
ERISA Title I. 83 FR 54420 at 54441 (Oct. 29, 2018).
\268\ 83 FR 54420, 54441 (Oct. 29, 2018).
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Commenters requested that DOL confirm that HRAs are subject to the
reporting and disclosure requirements of ERISA, such as the SBC or (for
plans of applicable size) the Form 5500 Annual Report. These commenters
said that reporting and disclosure should be revised to allow state
regulators and Exchanges to gather necessary information about the use
of HRAs. One commenter also urged DOL to ensure that these requirements
did not discourage employers from offering individual coverage HRAs to
their employees by preserving, for example, any exemptions from filing
reports for small businesses, or allowing the filing of simpler
reports, such as the Form 5500-SF. Another commenter urged DOL to
review the current required information, notices and disclosures that
plan sponsors must convey to plan participants and beneficiaries and to
simplify, combine or eliminate unnecessary or redundant material.
After considering the comments and feedback received from
stakeholders, DOL has determined that adding additional new,
potentially redundant \269\ disclosure requirements beyond the scope of
the proposed rules is not necessary. For example, individual coverage
HRAs are group health plans and must, therefore, provide participants
with an SBC.\270\ ERISA also contains comprehensive reporting
requirements that apply to group health plans, such as HRAs,\271\ and
DOL has determined that adding or changing those reporting requirements
with respect to HRAs is not necessary at this time. In certain
situations, DOL has provided for exemptions or reporting exemptions and
simplified disclosure requirements.\272\ Provided they satisfy the
requirements under applicable DOL rules, HRAs and their administrators
remain eligible for this relief.
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\269\ See e.g., 29 CFR 2520.104b-2 and 2520.104b-3(a) and
(d)(3).
\270\ See PHS Act section 2715. See also 26 CFR 54.9815-2715, 29
CFR 2590.715-2715, and 45 CFR 147.200.
\271\ See e.g., ERISA sections 101, 103, and 104; and PHS Act
section 2715A (incorporated in Code section 9815 and ERISA section
715).
\272\ See ERISA sections 104(a)(3) and PHS Act section 2715
(incorporated in Code section 9815 and ERISA section 715). See also
26 CFR 54.9815-2715(a)(1)(iii); 29 CFR 2520.104-20, 2520.104-44, and
2590.715-2715(a)(1)(iii); and 45 CFR 147.200(a)(1)(iii).
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G. Comments Outside the Scope
Some commenters raised issues relating to the separate safe harbor
for certain group or group-type insurance programs at 29 CFR 2510.3-
1(j).\273\ Several commenters asked DOL to clarify whether other types
of coverage, such as health care sharing ministries, might be
considered part of an employee welfare benefit plan subject to ERISA if
they were paid for through an HRA, QSEHRA, or supplemental salary
reduction arrangement. The safe harbor is intended to provide assurance
to stakeholders that insurance policies sold as individual health
insurance coverage, and that are generally subject to comprehensive
federal (and state) individual market rules, would not be treated as
part of an employee welfare benefit plan subject to ERISA so long as
the conditions of the safe harbor are satisfied. DOL has concluded that
the safe harbor is appropriate because of the significant differences
in legal requirements that would apply to health insurance coverage
based on whether it is considered individual health insurance or group
coverage. However, the safe harbor was not intended to address all
circumstances in which health insurance coverage may be treated as part
of an employee welfare benefit plan subject to ERISA. DOL may provide
additional clarification in the future regarding other types of
coverage.\274\
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\273\ This safe harbor does not relate to HRAs, QSEHRAs, or
other arrangements that constitute an employee welfare plan that
provides reimbursement for premiums for individual health insurance
coverage because it is limited to arrangements without employer
contributions.
\274\ As noted earlier in this preamble, an HRA generally may
reimburse expenses for medical care, as defined under Code section
213(d), of an employee and certain of the employee's family members.
Neither the proposed rules nor the final rules make any changes to
the rules under Code section 213. Thus, any issues arising under
Code section 213, and any guidance requested by commenters to
address those issues, are beyond the scope of this rulemaking.
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V. Overview of Final Rules Regarding Individual Market Special
Enrollment Periods--Department of Health and Human Services
A. In General
With the ability to integrate HRAs with individual health insurance
coverage, many employees may need access to individual health insurance
coverage, or may want to change to other individual health insurance
coverage in order to maximize the use of their individual coverage HRA.
Therefore, HHS proposed a new SEP to allow employees and their
dependents to enroll in individual health insurance coverage, or to
change from one individual health insurance plan to another, outside of
the individual market annual open enrollment period if they gain access
to an individual coverage HRA.
In addition, because employees and dependents with a QSEHRA
generally must be enrolled in MEC,\275\ and one category of MEC is
individual health insurance coverage, the proposed rules also applied
the new SEP to individuals who are provided QSEHRAs.\276\ Because the
proposed rules allowed for HRAs to be integrated with individual health
insurance coverage both on- and off-Exchange (and because individuals
with QSEHRAs may enroll in individual health insurance coverage on- or
off-Exchange), the proposed rules included this new SEP in the limited
open enrollment periods available off-Exchange, in accordance with
current rules at 45 CFR 147.104(b)(2).\277\
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\275\ Generally, payments from a QSEHRA to reimburse an eligible
employee's medical care expenses are not includible in the
employee's gross income if the employee has coverage that provides
MEC as defined in Code section 5000A(f), which includes individual
health insurance coverage.
\276\ This preamble refers to a QSEHRA being ``provided'' as
opposed to being ``offered'' because employees and dependents cannot
opt out of a QSEHRA.
\277\ The Departments note that the new SEP would not apply to
individuals who gain access to an excepted benefit HRA, as those
individuals are not required to be enrolled in individual health
insurance coverage, and those HRAs are generally prohibited from
reimbursing premiums for individual health insurance coverage.
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After considering the comments, HHS is adopting the proposed SEP
parameters in these final rules, with some changes and clarifications
in response to comments, as explained in more detail later in this
section of the preamble.
1. SEP Triggering Event and Availability
The proposed rules included a new paragraph 45 CFR 155.420(d)(14)
that would establish an SEP for when an employee or his or her
dependent(s) gains access to and enrolls in an individual coverage HRA
or is provided a QSEHRA, so that he or she may enroll in or change his
or her enrollment in individual health insurance coverage. The proposed
rules also offered the existing option for advanced availability to
those enrolling through the new SEP. That is, per 45 CFR 155.420(c)(2),
qualifying individuals would have the option to apply for coverage and
select
[[Page 28953]]
a plan within 60 days before or after their SEP triggering event.
Many commenters supported providing an SEP to allow individuals who
newly gain access to an individual coverage HRA or who are newly
provided a QSEHRA to enroll in or change their health insurance
coverage. One commenter asked for clarification that individuals who
are already enrolled in individual health insurance coverage would be
eligible for the SEP if they newly gain access to an individual
coverage HRA. The final rules clarify that employees and dependents may
qualify for the new SEP regardless of whether they are currently
enrolled in individual health insurance coverage, in order to allow all
individuals who newly gain access to an individual coverage HRA or who
are newly provided a QSEHRA the flexibility to take this into account
when choosing an individual health insurance plan for themselves, and,
if applicable, for their families.
Additionally, the final rules include changes to the SEP triggering
event at 45 CFR 155.420(d)(14) to reflect that employees and their
dependents who had access to, but who were not enrolled in, an
employer's individual coverage HRA during all or at the end of the
preceding plan year may use the new SEP if they may newly enroll in an
individual coverage HRA at the beginning of the subsequent HRA plan
year. Similarly, employees and their dependents who at one time had an
individual coverage HRA or a QSEHRA, but then had another type of
health coverage (including but not limited to a different individual
coverage HRA or a different QSEHRA), and are again newly offered an
individual coverage HRA or newly provided a QSEHRA from the same
employer (for example, because they moved from one class of employees
to another, or because they were re-hired by a former employer), may
qualify for this SEP, as they may need an opportunity to enroll in
individual health insurance coverage, regardless of whether they were
previously offered or enrolled in an individual coverage HRA or
previously provided a QSEHRA by the same employer.
In many cases like these, employees also will be eligible for an
SEP due to a loss of MEC in accordance with 45 CFR 155.420(d)(1)--for
example, due to a loss of coverage sponsored by a previous employer or
other coverage that they may have had during that time, such as
coverage from a spouse's employer. However, some employees and
dependents may not be eligible for another SEP, such as those who did
not previously have other coverage, or who previously chose to enroll
in coverage that was not MEC, such as STLDI. The final rules,
therefore, provide that the SEP at 45 CFR 155.420(d)(14) is available
when a qualified individual, enrollee, or dependent newly gains access
to an individual coverage HRA or is newly provided a QSEHRA, regardless
of whether they were previously offered or enrolled in an individual
coverage HRA or previously provided a QSEHRA, so long as the individual
is not covered by the HRA or QSEHRA on the day immediately prior to the
triggering event (that is, for an individual coverage HRA, the first
day on which coverage under the individual coverage HRA can become
effective or for a QSEHRA, the first day on which coverage under the
QSEHRA is effective). In other words, the new SEP will be available to
individuals who have not previously been offered an individual coverage
HRA or provided a QSEHRA, as well as those who had access to the
individual coverage HRA or were provided a QSEHRA during a prior plan
year(s) or earlier during the current plan year, but are not currently
covered by the individual coverage HRA or the QSEHRA.
In order to clarify the specific date on which the coverage
effective date and availability are based, as discussed later in this
preamble, the final rules specify that the SEP triggering event at 45
CFR 155.420(d)(14) is the first day on which coverage for the
individual under the individual coverage HRA can take effect or the
first day on which coverage for the individual under the QSEHRA takes
effect, as applicable. The Departments anticipate that the first day on
which an individual coverage HRA can become effective or the date on
which a QSEHRA is effective will generally be the first day of the plan
year. In either case, the triggering event is the first day of the plan
year. However, an individual coverage HRA may offer more than one
effective date option to accommodate an individual who, under the final
integration rules, is not required to be sent the notice setting forth
the terms of the HRA at least 90 days before the beginning of the
individual coverage HRA plan year, as required by 26 CFR 54.9802-
4(c)(6), 29 CFR 2590.702-2(c)(6), and 45 CFR 146.123(c)(6) (for
example, an individual who is newly hired and therefore newly offered
the individual coverage HRA in the middle of the plan year).\278\ For
individuals who are newly hired or who otherwise newly gain access to
an individual coverage HRA during the plan year, the triggering event
is the first day on which the individual coverage HRA can take effect
for those who enroll in individual health insurance coverage that
itself takes effect no later than that date.\279\ This is the case even
for the individuals or dependents who do not actually enroll in the
individual coverage HRA until a later date.
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\278\ Because employees may not enroll in an individual coverage
HRA if they are not enrolled in individual health insurance
coverage, the Departments anticipate that some employers may want to
provide employees who are not eligible to participate in the
individual coverage HRA at least 90 days prior to the start of the
HRA plan year with flexibility regarding the start date of their
individual coverage HRA, so that the employees have sufficient time
to enroll in individual health insurance coverage after receiving
the notice.
\279\ For individuals who are newly hired or who otherwise
become newly eligible for a QSEHRA, the triggering event is the
first day on which coverage under the QSEHRA is effective. However,
a QSEHRA may not reimburse any incurred medical care expense until
the participant substantiates that he or she (and the individuals
whose expenses are being reimbursed) has MEC for the month during
which the expense was incurred.
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For example, assume an employer hires a new employee on June 15 and
offers an individual coverage HRA to the employee that may take effect
on either (1) July 1, if the employee is enrolled in individual health
insurance coverage that takes effect no later than that date; or (2)
August 1, if the employee enrolls in individual health insurance
coverage that will take effect no later than that date. In this case,
the employee's triggering event is July 1 because that is the first day
on which coverage under the individual coverage HRA can take effect.
Several commenters supported applying the advanced availability
rules at 45 CFR 155.420(c)(2) to the proposed new SEP in order to allow
qualified individuals, enrollees, and dependents to enroll in or change
to a different individual health insurance plan in advance of when
their individual coverage HRA or QSEHRA would begin. As discussed
earlier in this preamble in response to comments on the final
integration rules, many commenters supported the requirement that
individuals covered by an individual coverage HRA must be enrolled in
individual health insurance coverage and that the HRA must implement
reasonable procedures to substantiate that participants and dependents
will be enrolled in individual health insurance coverage for the plan
year, or for the portion of the plan year during which the individual
is covered by the HRA, as applicable. Several commenters noted the
importance that individuals be enrolled in individual health insurance
coverage by the time that their individual coverage HRA takes effect to
ensure that they have health
[[Page 28954]]
insurance coverage that complies with PHS Act sections 2711 and 2713 at
all times during which they are covered by the individual coverage HRA.
In order to avoid effectively forfeiting their HRA because they are not
enrolled in individual health insurance coverage on the day that their
individual coverage HRA can take effect, employees and dependents
generally will need to make an individual health insurance plan
selection before that date.
The final SEP rules include several changes in response to these
comments. First, the proposed rules stated that the SEP applies to an
individual who ``gains access to and enrolls in'' an individual
coverage HRA or QSEHRA. The final SEP rules remove the phrase ``and
enrolls in'' to clarify that currently being covered by the individual
coverage HRA or QSEHRA is not necessary to trigger the SEP. This change
is intended to better align with the requirement that participants and
any dependents must be enrolled in individual health insurance coverage
that will take effect no later than the date their individual coverage
HRA takes effect, by ensuring that individuals will be able to enroll
in individual health insurance coverage using the new SEP prior to the
first day that their individual coverage HRA may take effect.
The final SEP rules also include changes to the advanced
availability rules to ensure that, whenever possible, employees and
their dependents are enrolled in individual health insurance coverage
(which is generally a requirement for those with an individual coverage
HRA and an option for satisfying the requirement to enroll in MEC for
those with a QSEHRA) by the time coverage under their individual
coverage HRA may take effect or that their QSEHRA takes effect.
Specifically, the final rules include a new paragraph at 45 CFR
155.420(c)(3) to provide that a qualified individual, enrollee, or his
or her dependent who is described in paragraph (d)(14) has 60 days
before the triggering event to select a QHP, unless the HRA or QSEHRA
was not required to provide the notice setting forth its terms to such
qualified individual or enrollee at least 90 days before the first day
of the plan year, as specified in 26 CFR 54.9802-4(c)(6), 29 CFR
2590.702-2(c)(6) and 45 CFR 146.123(c)(6) or Code section 9831(d)(4),
as applicable, and therefore the qualified individual, enrollee, or his
or her dependent(s) may not have received sufficient advance notice of
eligibility for the individual coverage HRA or QSEHRA to enroll in
individual health insurance coverage that takes effect by the time
their individual coverage HRA may take effect or their QSEHRA takes
effect, in which case the qualified individual, enrollee, or his or her
dependent(s) has 60 days before or after the triggering event to select
a QHP.
In other words, qualified individuals and enrollees to whom
employers must send a notice setting forth the terms of the individual
coverage HRA at least 90 days before the first day of the individual
coverage HRA plan year, and, if applicable, their dependents, must
enroll in individual health insurance coverage within 60 days before
the date the individual coverage HRA may take effect, which would be
the first day of the individual coverage plan year. Similarly,
employees, and, if applicable, their dependents, who will be provided a
QSEHRA, and whose employer is required to send them a written notice at
least 90 days before the beginning of the plan year, have 60 days prior
to the first day of the QSEHRA plan year to enroll in individual health
insurance coverage. This change will help ensure that the individual
coverage HRA can comply with the annual coverage substantiation
requirement by the time that an individual's or family member's
individual coverage HRA takes effect, or that the QSEHRA satisfies the
requirement that individuals who are provided the QSEHRA and who intend
to satisfy their requirement to have MEC by enrolling in individual
health insurance coverage have MEC. It will also reduce gaps in
coverage by helping ensure that individuals and dependents who will be
eligible for an individual coverage HRA and are notified at least 90
days before the beginning of the individual coverage HRA plan year are
covered by individual health insurance coverage for the full HRA plan
year and do not inadvertently forfeit their HRA.
In contrast, because individual coverage HRAs and QSEHRAs must only
provide notice by the day that an individual coverage HRA may take
effect or that a QSEHRA takes effect for employees who newly become
eligible for an individual coverage HRA or are newly provided a QSEHRA
less than 90 days prior to the beginning of the individual coverage HRA
or QSEHRA plan year (or during the plan year), these employees are
unlikely to receive this notice as far in advance of their SEP
triggering event. Therefore, these employees may need time after their
triggering event to select an individual health insurance plan for
themselves, and, if applicable, for their dependent(s). To accommodate
these employees and their dependents, the final SEP rules provide them
with up to 60 days before or after their triggering event to enroll in
individual health insurance coverage. Under this rule combined with the
coverage effective date rules discussed in the next section of this
preamble, newly hired employees and their dependents may enroll in
individual health insurance coverage that does not take effect until up
to 3 months after the earliest date that their individual coverage HRA
may take effect, or up to 3 months after the date coverage begins under
their QSEHRA.\280\ For example, an employee who starts work on July 25,
and whose individual coverage HRA may take effect on August 1 (or whose
QSEHRA does take effect on August 1), will have until September 30--60
days following the triggering event date--to enroll in an individual
health insurance plan. If the employee enrolls on September 30, then
his or her individual health insurance coverage will take effect on
October 1.\281\ The Departments encourage employers to work with
employees who do not receive substantial advance notice of their
individual coverage HRA to help them understand the latest date by
which they must enroll themselves, and, if applicable, their
dependents, in individual health insurance coverage to avoid
effectively forfeiting their individual coverage HRA.
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\280\ The Departments note that nothing in the final SEP rules
eliminates the requirement that individual coverage HRAs comply with
the final integration rules. Individual coverage HRAs must be
designed in accordance with all the applicable rules, including the
final integration rules and the final SEP rules.
\281\ Additionally, partial year individual coverage HRA or
QSEHRA coverage may occur due to employees gaining new dependents
during the plan year. 45 CFR 155.420(c)(1) provides qualified
individuals who gain a new dependent due to the birth or adoption of
a child, or due to a child support or other court order, and
therefore qualify for the SEP at 45 CFR 155.420(d)(2)(i), with 60
days to enroll their new dependent in individual health insurance
coverage. As provided at 45 CFR 155.420(b)(2)(i), this coverage
takes effect retroactively to the child's date of birth or adoption,
or the date of the child support or other court order, or, at the
option of the Exchange, the qualified individual may request that it
take effect prospectively. To the extent the HIPAA special
enrollment rules or other rules require group health plans to make
such coverage available under such circumstances, either
retroactively or prospectively, employers should ensure that
employees understand how much time they have to enroll their new
dependent in their individual coverage HRA, especially if they will
have less than the 60 days post-SEP triggering event that they have
to enroll their new dependent in individual health insurance
coverage. See Code section 9801(f) and 26 CFR 54.9801-6; ERISA
section 701(f) and 29 CFR 2590.701-6; and PHS Act section 2704(f)
and 45 CFR 146.117. The Departments note that QSEHRAs are not
subject to the HIPAA special enrollment rules. See Code section
9831(d)(1).
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2. Coverage Effective Dates
The proposed rules added a new paragraph at 45 CFR
155.420(b)(2)(vi) to
[[Page 28955]]
provide that if plan selection is made before the day of the triggering
event, then the coverage effective date is either the first day of the
first month following the SEP triggering event, or, if the triggering
event is on the first day of a month, the date of the triggering event.
Under the proposed rules, if plan selection is made on or after the day
of the triggering event, coverage would take effect the first day of
the month following the date of plan selection. For example, under the
proposed rules, if an individual newly gains access to an individual
coverage HRA or is provided a QSEHRA for a plan year starting April 1
and enters April 1 in their application for individual health insurance
coverage as their HRA or QSEHRA effective date, then so long as the
individual selects an individual health insurance plan before April 1,
the effective date of their new individual health insurance coverage
will be April 1.
Several commenters supported providing a coverage effective date of
the first day of the first month following the individual's plan
selection and SEP triggering event. One commenter agreed that a first-
of-the-month effective date was appropriate, but also stated that this
may require issuers to allow an additional premium payment during an
employee's first month of employment.\282\
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\282\ Under 45 CFR 155.400(e)(1)(ii), if an individual has a
coverage effective date of April 1, for example, then the issuer
could set a premium payment deadline as early as April 1, but may,
instead, adopt a policy setting a later due date (either 30 days
after the enrollment transaction was received, or 30 days after the
policy start date, whichever is later). Therefore, the new enrollee
might have a similar deadline for his or her initial payment that he
or she has for his or her subsequent payment.
---------------------------------------------------------------------------
The final rules include coverage effective dates for this SEP as
proposed, with some edits to incorporate the changes at 45 CFR
155.420(d)(14) and for clarity. Additionally, with regard to timing of
premium payments for individual health insurance coverage, HHS notes
that in other contexts individual market plans on- and off-Exchange
regularly receive enrollment information within the same timeframe that
will apply for the new SEP's coverage effective date rules. For
example, under current rules, if a qualified individual or dependent is
going to lose MEC on March 31 and enrolls in coverage during March, his
or her coverage effective date is April 1. Therefore, issuers that
already participate in the individual health insurance market will be
accustomed to setting premium payment deadlines for enrollees in this
situation.
3. Special Enrollment Period Verification
Several commenters expressed support for verifying SEP eligibility
for employees newly enrolling in individual health insurance coverage
based on the new SEP, and one commenter requested additional guidance
on how the verification would be administered. HHS confirms that
Exchanges that use the Federal HealthCare.gov platform will require
these individuals to submit documentation to confirm their SEP
eligibility prior to effectuating their enrollment in individual health
insurance coverage through the Exchange. More information on the
process for submitting documents to verify SEP eligibility is available
on HealthCare.gov, and HHS will provide additional guidance on how the
FFEs and State Exchanges on the Federal platform will confirm
eligibility for the new SEP.
B. Individuals Re-Enrolling in Individual Coverage HRA or Being
Provided a QSEHRA From the Prior Plan Year
The proposed rules requested comments on whether an employee who is
enrolled in an individual coverage HRA or provided a QSEHRA should be
eligible for the SEP at 45 CFR 155.420(d)(14) annually, at the
beginning of each new plan year of the individual coverage HRA or
QSEHRA, particularly if the new plan year is not aligned with the
calendar year. The proposed rules noted that such annual availability
would allow employees to change to new individual health insurance
coverage in response to updated information about their individual
coverage HRA or QSEHRA for each of their plan years, even if their
individual coverage HRA or QSEHRA plan year is not based on a calendar
year cycle. HHS notes that employees and dependents enrolled in an
individual coverage HRA or provided a QSEHRA that has a calendar year
plan year would have this option; that is, they would be able to change
their individual health insurance plan in response to updated
information about their individual coverage HRA or QSEHRA during the
individual market open enrollment period.
Some commenters supported providing the new SEP annually for
employees and dependents enrolled in an individual coverage HRA or
provided a QSEHRA and whose individual coverage HRA or QSEHRA has a
non-calendar year plan year, in order to allow employees to enroll in
or change to a new plan in response to updated information about their
individual coverage HRA or QSEHRA each plan year. Several commenters
emphasized the importance of providing employees and their dependents
with the opportunity to re-evaluate their individual health insurance
coverage options at the same time that their individual coverage HRA or
QSEHRA is likely to change, with one commenter suggesting that
employers should not be permitted to make changes to their individual
coverage HRA unless employees may also make changes to their individual
health insurance coverage during the calendar year. Another commenter
suggested that providing the new SEP annually would offer convenience
for employees and employers who choose to begin their individual
coverage HRA plan year on a date other than January 1.
However, some commenters opposed providing the new SEP on an annual
basis due to concerns that allowing consumers to regularly change plans
during the calendar year would harm the individual market risk pool.
One commenter generally opposed providing the new SEP annually, but
specified that if HHS chooses to do so, it should only be available to
employees and dependents whose employer changes their individual
coverage HRA contribution in excess of a certain amount, such as $100,
and that this change be verified to prevent employees who do not
qualify for the SEP from accessing it for reasons related to a health
condition. To ensure that the SEP would not be available on an annual
basis, one commenter suggested offering the SEP only after an employee
becomes eligible for an individual coverage HRA following a period of
at least 60 days during which they were not eligible for an HRA from
the same employer.
Other commenters opposed offering the new SEP annually based on
concerns that employees who changed individual health insurance
coverage during the calendar year would be harmed because their
deductibles and other accumulators would reset twice per year: Once
after the calendar year individual coverage open enrollment period, and
then again after their SEP. One commenter suggested that this could
negate the potential advantage to the employee of changing plans to
take advantage of an update to their individual coverage HRA or QSEHRA.
Several commenters suggested that to mitigate this challenge,
employers should provide individual coverage HRAs on a calendar-year
basis to align updates that they make to their individual coverage HRA
with the
[[Page 28956]]
individual market open enrollment period, with one commenter
recommending that the Departments require employers to do so. One
commenter suggested that the final rules should permit employers to
begin offering individual coverage HRAs at any time during the calendar
year, and the Departments could then require these employers to
transition to offering individual coverage HRAs based on a calendar
plan year within a reasonable period of time, such as 5 years.
HHS determined that employees who are enrolled in an individual
coverage HRA or who are provided a QSEHRA should have the option to re-
evaluate their individual health insurance coverage options for each
new individual coverage HRA or QSEHRA plan year, regardless of whether
the HRA or QSEHRA is offered or provided (as applicable) on a calendar
plan year basis. However, the final rules provide that the new SEP will
not be available on an annual basis at the beginning of a new
individual coverage HRA or QSEHRA plan year to individuals who are
already enrolled in an individual coverage HRA or who are already
provided a QSEHRA. This is because employees offered an individual
coverage HRA or provided a QSEHRA with a calendar year plan year may
re-evaluate their individual health insurance coverage options and
change their individual health insurance plan, if they wish to do so,
during the annual individual market open enrollment period. Further,
individuals with an individual coverage HRA or QSEHRA with a non-
calendar year plan year will have an opportunity through an existing
SEP to re-evaluate their coverage options.
More specifically, because HRAs are group health plans, employees
enrolled in an individual coverage HRA with a non-calendar year plan
year may qualify for an SEP on an annual basis pursuant to existing
rules at 45 CFR 155.420(d)(1)(ii) (the non-calendar year plan year
SEP). This SEP applies to qualified individuals and dependents enrolled
in a group health plan or an individual health insurance plan with a
non-calendar year plan year, even if the qualified individual or his or
her dependent has the option to renew the coverage. In addition, while
Cures Act section 18001(c) provides that the term ``group health plan''
generally does not include a QSEHRA,\283\ HHS will treat a QSEHRA with
a non-calendar year plan year as a group health plan for the limited
purpose of the non-calendar year plan year SEP, and intends to codify
this interpretation in future rulemaking. For the non-calendar year
plan year SEP, the triggering event is the last day of the plan year.
---------------------------------------------------------------------------
\283\ A QSEHRA continues to be treated as a group health plan
under the PHS Act for purpose of Part C Title XI of the Social
Security Act.
---------------------------------------------------------------------------
HHS has determined that the availability of the non-calendar year
plan year SEP achieves an appropriate balance between providing
employers with flexibility to offer an individual coverage HRA or
provide a QSEHRA on a 12-month cycle that meets their needs and
allowing employees and their dependents the flexibility to re-assess
their individual health insurance coverage options at the same time
that the terms of their individual coverage HRA or QSEHRA may change.
Additionally, per 45 CFR 155.420(a)(4), the non-calendar year plan year
SEP is subject to plan category limitations for Exchange enrollees,
which HHS has determined will mitigate commenters' concerns about the
potential risks to individual market stability that providing employees
with the flexibility to choose a different plan annually, outside of
the annual individual market open enrollment period, could pose.
Employers that want to ensure their employees have the ability to
change to a different individual health insurance policy each
individual coverage HRA or QSEHRA plan year without being subject to
plan category limitations, and consider potential changes to their
individual coverage HRA or to their QSEHRA at the same time that their
costs for individual health insurance coverage may also change, can
align their individual coverage HRA or QSEHRA plan year with the
calendar year. HHS will incorporate messaging into the HealthCare.gov
application for Exchange individual health insurance coverage and other
technical assistance materials to help employees understand that
changing individual health insurance coverage during the calendar year
will reset their deductibles and other accumulators. HHS encourages
State Exchanges to adopt similar messaging.
C. Plan Category Limitations
To allow employees and their dependents the flexibility to
adequately respond to newly gaining access to an individual coverage
HRA or newly being provided a QSEHRA, the proposed rules included an
amendment to 45 CFR 155.420(a)(4)(iii) to exclude Exchange enrollees
who would qualify for the new SEP from plan category limitations.\284\
Therefore, under the proposed rules, individuals eligible for the new
SEP who are currently enrolled in individual health insurance coverage
on an Exchange would be able to select any available Exchange plan
without regard to the metal level of their current coverage.
---------------------------------------------------------------------------
\284\ 45 CFR 155.420(a)(4) does not apply to SEPs in the
individual market off-Exchange.
---------------------------------------------------------------------------
Several commenters expressed support for the proposal to exempt the
new SEP from plan category limitations, noting the importance of
providing access to individual health insurance coverage or flexibility
to change their current individual health insurance plan to employees
and dependents who qualify for this new SEP.
HHS agrees with commenters about the importance of providing access
to individual health insurance coverage or flexibility to change their
current individual health insurance plan to employees and dependents
who qualify for the new SEP, and is, therefore, finalizing the
amendment to 45 CFR 155.420(a)(4)(iii) to exempt individuals eligible
for the new SEP from plan category limitations. However, see the
discussion earlier in this section of the preamble regarding the
application of plan category limitations to individuals to whom the
non-calendar year plan year SEP applies.
VI. Applicability Dates
The proposed integration rules and proposed excepted benefit HRA
rules, as well as the proposed DOL clarification and the proposed
clarification by the Departments regarding the meaning of ``group
health insurance coverage,'' were proposed to apply to group health
plans and health insurance issuers for plan years beginning on or after
January 1, 2020. The proposed PTC rules were proposed to apply for
taxable years beginning on or after January 1, 2020, and the proposed
SEP rules were proposed to apply January 1, 2020. The proposed rules
also provided that taxpayers and others could not rely on the proposed
rules. The Departments solicited comments on the proposed applicability
date.
Some commenters requested that the Departments either provide an
earlier applicability date or maintain the proposed general
applicability date of January 2020. Some urged finalization by the end
of the first quarter of 2019 to account for the 2020 rate setting
schedule and to allow for implementation by 2020.
Many commenters expressed concern that issuers, state insurance
regulators, the Exchanges, and employers would not be prepared for
implementation of the final rules by 2020 and requested various
applicability date delays, including a 2021 applicability date, an
[[Page 28957]]
applicability date of 12 or 18 months following finalization of the
rule, and an indefinite delay to allow further time to study the
market. These commenters focused on the significance of the changes
made by the proposed rules and the anticipated complexity of
implementation. Several State Exchanges submitted comments urging the
Departments to delay the applicability date for several plan years or
until further support for states is available. These commenters stated
that it would be very difficult, and in some instances impossible, to
implement the system changes required by the proposed integration, PTC,
and SEP rules for the 2020 plan year. One commenter suggested that
individual coverage HRAs be implemented on a small scale for only
certain employers and employees or only for a very limited time period,
such as 2 years. Another commenter requested that the Departments
postpone finalization of the integration rules until the Departments
develop a federally-hosted electronic data source to verify individual
coverage HRA offer information required to determine APTC eligibility.
The Departments considered the comments and the concerns raised by
various State Exchanges, issuers, employers and other stakeholders
related to the ability of the Exchanges to fully implement changes
related to the final rules in time for open enrollment for the 2020
plan year. In particular, the Departments acknowledge the crucial role
that the Exchanges have in implementation and operationalization of the
final rules, and the Departments will work closely with the Exchanges
on implementation. The Departments recognize that Exchanges may be
unable to fully implement changes related to the final rules in time
for open enrollment for the 2020 plan year. However, prior to full
implementation, the Departments will work with the Exchanges on their
strategies to provide information to consumers about affordability of
individual coverage HRAs and eligibility for APTC, including how
employees can access individual health insurance coverage through the
Exchanges and determine whether they should use APTC. Ongoing technical
assistance will be provided related to the development of Exchanges'
tools and functionality to support employers and employees with
understanding HRA affordability determinations and their impact on APTC
eligibility, as well as the SEP for those with an offer of an
individual coverage HRA. HHS has already discussed with State Exchanges
what changes would likely be necessary if the rule were finalized as
proposed to assist with planning, as well as what kind of assistance
would be most helpful during implementation. Specific assistance could
include sharing technical and educational documentation from FFE
implementation that can be leveraged to support State Exchange efforts.
In addition, the Departments will provide assistance to Exchanges in
developing information and tools that could be provided to employers
and employees to help ensure smooth implementation before the full
system changes are complete. This could include State Exchanges
providing employees with information on how they can calculate HRA
affordability and the impact on APTC in the absence of system changes
that can make those calculations for the employee.
The Departments have also considered that many individuals covered
by an individual coverage HRA will prefer to select off-Exchange
individual health insurance plans because salary reductions through a
cafeteria plan may be used to pay premiums for off-Exchange coverage,
if the employer so allows, and may not be used to pay premiums for
Exchange coverage. To the extent a significant proportion of employees
with individual coverage HRAs purchase individual health insurance
coverage off the Exchange, concerns about burden on the Exchanges, and
concerns regarding the effects of timely operationalization of the PTC
rules, are mitigated.
The Departments have also worked to release the final rules as
early in 2019 as possible, in recognition of the implementation timing
issues raised. With regard to the concerns expressed about the
interaction of the release of the final rules with rate filing for
2020, the Departments note that the proposed rules were published in
October 2018, to provide sufficient notice of the Departments'
proposals in advance of the 2020 plan year. While these final rules
adopt some changes in response to comments, they are substantially
similar to the proposed rules. Even though the proposed rules provided
that taxpayers and others may not rely on the proposed rules, the
Departments understand that issuers began considering the potential
impact of the rules on rates well in advance of the final rules.
Further, issuers generally will have an opportunity to make changes in
response to the final rules before the rate filing deadlines for the
2020 plan year.
The Departments also note, and considered, that plan sponsors may
choose if and when to offer an individual coverage HRA (or an excepted
benefit HRA) and may do so any time on or after the applicability date.
The Departments intend to provide the guidance necessary for plan
sponsors to offer individual coverage HRAs and excepted benefit HRAs
for the 2020 plan year, but the Departments also expect that plan
sponsors will take the time they need to evaluate the final rules and
to take advantage of these new coverage options if and when is best for
their workforce.
The Departments have also considered that Executive Order 13813,
issued in October 2017, set forth HRA expansion as an Administration
priority ``in the near term,'' in order to provide Americans with more
options for financing their healthcare. Taking all of these
considerations into account, the Departments have determined that it is
appropriate to finalize the applicability date, as proposed.
Relatedly, one commenter requested that a ``no inference'' standard
be the benchmark for reliance prior to 2020 with regard to individual
coverage HRAs, which the Departments understand to be a request that
the Departments not take enforcement against HRAs that failed to comply
with the market requirements prior to 2020, under the rules and
guidance in effect prior to 2020. The Departments see no basis to
provide such a rule and, therefore, the final rules do not include a
``no inference'' standard for reliance prior to the applicability date.
Finally, HHS clarifies that, while the new SEP generally provides
advanced availability to allow eligible individuals to enroll in
individual health insurance coverage up to 60 days prior to the first
day of coverage under their HRA, employees who are offered an
individual coverage HRA with a plan year that begins early in 2020 will
not have the full 60 day advanced availability period to select
individual health insurance coverage using an SEP because the new SEP
rules take effect on January 1, 2020. Therefore, plan sponsors offering
an individual coverage HRA with a plan year that begins on January 1,
2020 should help eligible employees understand that they must enroll in
individual health insurance coverage during the open enrollment period,
November 1, 2019 through December 15, 2019, for individual health
insurance coverage that takes effect on January 1, 2020.
[[Page 28958]]
VII. Economic Impact and Paperwork Burden
A. Summary
The final rules remove the current prohibition on integrating HRAs
with individual health insurance coverage, if certain conditions are
satisfied. The final rules also set forth conditions under which
certain HRAs will be recognized as limited excepted benefits. In
addition, the Treasury Department and the IRS are finalizing rules
regarding PTC eligibility for individuals offered an individual
coverage HRA. Further, DOL is finalizing a safe-harbor clarification to
provide assurance that the individual health insurance coverage the
premiums of which are reimbursed by an HRA, a QSEHRA or a supplemental
salary reduction arrangement does not become part of an ERISA plan, if
certain safe harbor conditions are satisfied, and the Departments are
finalizing a related clarification to the definition of group health
insurance coverage. Finally, HHS is finalizing rules to provide an SEP
in the individual market for individuals who newly gain access to an
individual coverage HRA or who are newly provided a QSEHRA.
The Departments have examined the effects of the final rules as
required by Executive Order 13563 (76 FR 3821, January 21, 2011,
Improving Regulation and Regulatory Review); Executive Order 12866 (58
FR 51735, October 4, 1993, Regulatory Planning and Review); the
Regulatory Flexibility Act (September 19, 1980, Pub. L. 96-354);
section 1102(b) of the Social Security Act (42 U.S.C. 1102(b)); section
202 of the Unfunded Mandates Reform Act of 1995 (March 22, 1995, Pub.
L. 104-4); Executive Order 13132 (64 FR 43255, August 10, 1999,
Federalism); the Congressional Review Act (5 U.S.C. 804(2)); and
Executive Order 13771 (82 FR 9339, February 3, 2017, Reducing
Regulation and Controlling Regulatory Costs).
B. Executive Orders 12866 and 13563
Executive Order 12866 directs agencies to assess all costs and
benefits of available regulatory alternatives and, if regulation is
necessary, to select regulatory approaches that maximize net benefits
(including potential economic, environmental, public health and safety
effects, distributive impacts, and equity). Executive Order 13563 is
supplemental to and reaffirms the principles, structures, and
definitions governing regulatory review as established in Executive
Order 12866.
Section 3(f) of Executive Order 12866 defines a ``significant
regulatory action'' as an action that is likely to result in a rule:
(1) Having an annual effect on the economy of $100 million or more in
any one year, or adversely and materially affecting a sector of the
economy, productivity, competition, jobs, the environment, public
health or safety, or state, local or tribal governments or communities
(also referred to as ``economically significant''); (2) creating a
serious inconsistency or otherwise interfering with an action taken or
planned by another agency; (3) materially altering the budgetary
impacts of entitlement grants, user fees, or loan programs or the
rights and obligations of recipients thereof; or (4) raising novel
legal or policy issues arising out of legal mandates, the President's
priorities, or the principles set forth in the Executive Order.
A regulatory impact analysis must be prepared for major rules with
economically significant effects (for example, $100 million or more in
any one year), and a ``significant'' regulatory action is subject to
review by the Office of Management and Budget (OMB). The Departments
anticipate that this regulatory action is likely to have economic
impacts of $100 million or more in at least one year, and thus meets
the definition of a ``significant rule'' under Executive Order 12866.
Therefore, the Departments have provided an assessment of the potential
costs, benefits, and transfers associated with the final rules. In
accordance with the provisions of Executive Order 12866, the final
rules were reviewed by OMB.
1. Need for Regulatory Action
This regulatory action is taken, in part, in light of Executive
Order 13813 directing the Departments to consider proposing regulations
or revising guidance to expand the flexibility and use of HRAs. In
addition, this regulatory action is taken because, since the time that
the Departments previously prohibited integration with individual
health insurance coverage by regulation, the Departments have observed
that many employers, especially small employers, continue to struggle
to offer health insurance coverage to their employees. There has been a
continued decline in the percentage of small firms offering health
coverage \285\ as well as a decline in the percentage of workers at
small firms receiving health insurance coverage from their
employer.\286\ Moreover, 80 percent of firms that offer coverage only
provide a single option,\287\ and economic research demonstrates that
there is a significant benefit of additional choice for employees.\288\
Further, this regulatory action is being taken at this time because the
Departments have had additional time to consider whether, and what type
of, conditions would be sufficient to mitigate the risk of adverse
selection and health factor discrimination that might otherwise result
from allowing HRAs to be integrated with individual health insurance
coverage, and the Departments expect that the conditions adopted in the
final rules will significantly mitigate the risk of adverse selection.
The final rules are intended to increase the usability of HRAs to
provide more Americans, including employees who work at small
businesses, with more healthcare options and to increase overall
coverage. These changes will facilitate the development and operation
of a healthcare system that provides high-quality care at affordable
prices for the American people by increasing consumer choice for
employees and promoting competition in healthcare markets by providing
additional options for employers and employees.
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\285\ Between 2010 and 2018, there has been a significant
decline in the number of small firms offering coverage. For firms
with 3 to 9 workers, the decline has been from 59 percent to 47
percent, for firms with 10 to 24 workers, the decline has been from
76 percent to 64 percent, and for firms with 25 to 49 workers, the
decline has been from 92 percent to 71 percent. See Kaiser Family
Foundation, ``Employer Health Benefits 2018 Annual Survey'', Figure
2.2, at http://files.kff.org/attachment/Report-Employer-Health-Benefits-Annual-Survey-2018.
\286\ Between 2010 and 2018, there has been a significant
decline in the number of workers covered by their firm's health
benefits. For firms with 3 to 24 workers, the decline has been from
44 percent to 30 percent and for firms with 25 to 49 workers, the
decline has been from 59 percent to 44 percent. Id., Figure 3.9.
\287\ Id., Figure 4.1
\288\ An analysis of choices made in the large group market
found that offering multiple plan choices (at large group prices)
was as valuable to the median consumer as a 13 percent premium
reduction. See Dafny, Leemore, Kate Ho and Mauricio Varela, ``Let
Them Have Choice: Gains from Shifting Away from Employer-Sponsored
Health Insurance and Toward an Individual Exchange,'' American
Economic Journal: Economic Policy, 2013, 5(1):32-58.
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The Departments are of the view that the benefits of the final
rules will substantially outweigh the costs of the rules. The final
rules will increase flexibility and choices of health coverage options
for employers and employees. The use of individual coverage HRAs could
potentially reduce healthcare spending, particularly less efficient
spending,\289\ and ultimately
[[Page 28959]]
result in increased taxable wages for workers currently in firms that
offer traditional group health plans. The final rules are also expected
to increase the number of low- and moderate-wage workers (and their
family members) with health insurance coverage.
---------------------------------------------------------------------------
\289\ By less efficient healthcare spending, the Departments
generally mean spending that is of low value from the consumer's
perspective, relative to the cost. The cost includes out-of-pocket
spending such as copayments and deductibles plus amounts paid by the
health plan.
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2. Summary of Impacts of Individual Coverage HRAs
The expected benefits, costs and transfers of the final rules are
summarized in Table 1 and discussed in detail later in this section of
the preamble.
Table 1--Accounting Table
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
Benefits:
----------------------------------------------------------------------------------------------------------------
Qualitative:
Gain of health insurance and potentially improved financial or health outcomes for some employees who
are newly offered or newly accept benefits.
Increased choice and flexibility for employees and employers around compensation arrangements,
potentially resulting in more efficient use of healthcare and more efficient labor markets (including higher
taxable wages).
Decreased administrative costs for some employers who no longer offer traditional group health plans
for some, or all, employees.
----------------------------------------------------------------------------------------------------------------
Costs:
----------------------------------------------------------------------------------------------------------------
Qualitative:
Loss of health insurance and potentially poorer financial or health outcomes for some individuals
who experience premium increases...........................................................................
Less comprehensive coverage and fewer health benefits for some individuals with individual health
insurance coverage as compared to traditional group health plan coverage...................................
Increased administrative costs for employers, employees, and government agencies to learn about and/
or use a new health benefits option........................................................................
----------------------------------------------------------------------------------------------------------------
Transfers Estimate Year Discount rate Period
(billion) dollar (percent) covered
----------------------------------------------------------------------------------------------------------------
Annualized Monetized ($/year)................... $4.5 2020 7 2020-2029
(Net tax revenue loss).......................... 4.9 2020 3 2020-2029
----------------------------------------------------------------------------------------------------------------
Quantitative: \290\
Reduced tax revenue as a result of
new individual coverage HRAs offered by
employers previously offering no health
benefits, less reduced PTC from employees
in such firms..............................
Increase in average individual
market premiums of about 1 percent and
resulting increase in PTC..................
Small decrease in per capita
Medicare premiums and increase in net
Medicare outlays...........................
----------------------------------------------------------------------------------------------------------------
Qualitative:
Increased out-of-pocket costs for
some employees who move from traditional
group health plans to individual health
insurance coverage and decreased costs for
other employees who move from traditional
group health plans to individual health
insurance coverage (i.e., transfers from
reduced within-firm cross-subsidization)...
Reduced tax revenue as a result of
new excepted benefit HRA...................
----------------------------------------------------------------------------------------------------------------
In all cases, the counterfactual baseline for analysis is current
law. That is, the analysis assumes as the baseline statutes enacted and
regulations that are final as of date of issuance of the final rules.
---------------------------------------------------------------------------
\290\ The monetized estimates are of the net tax revenue loss,
including reduced income and payroll tax revenue from employees who
would receive individual coverage HRAs and would not otherwise have
a tax exclusion for a traditional group health plan, reduced PTC
from individuals who would receive individual coverage HRAs and
would otherwise receive PTC, and increased PTC due to the increase
in Exchange premiums; plus the increased Medicare outlays net of
increased total premiums paid. As noted in the text later in this
section of the preamble, the quantitative estimates are subject to
considerable uncertainty. For example, the rule could cause tax
revenue to increase if the adoption of individual coverage HRAs
leads to reduced healthcare spending and higher taxable wages. Or
the rule could result in larger premium increases in the individual
market, or in premium decreases, if the rule results in more
substantial changes in the health of the individual market risk
pool.
---------------------------------------------------------------------------
Benefits
Gain of health insurance coverage. Some individuals could
experience a gain in health insurance coverage, greater financial
security and potentially improved health outcomes, if employees are
newly offered and accept individual coverage HRAs. As explained in
greater detail in the Transfers section later in this section of the
preamble, the Departments estimate that, on net, the number of insured
persons will increase by about 800,000 by 2029, due to the final rules.
Most of these newly insured individuals are expected to be low- and
moderate-income workers in firms that currently do not offer a
traditional group health plan.
Some commenters agreed that the allowance of individual coverage
HRAs creates new options for small employers who have otherwise been
unable to offer health insurance coverage. Some commenters mentioned
that some segments of their workforce might particularly benefit. One
commenter suggested that large employers might newly provide individual
coverage HRAs to part-time or seasonal/temporary workers while
maintaining
[[Page 28960]]
traditional benefits for their full-time employees.
Increased choice and flexibility for employees and employers. As a
result of the final rules, employees will be able to purchase insurance
with a tax subsidy by use of an individual coverage HRA, without being
locked into a specific plan or selection of plans chosen by their
employer. As explained later in this section of the preamble, a
relatively small number of employees could have fewer choices of plans
in the individual market than the number of group health plan choices
previously provided by their employer, and some might be unable to find
a new individual health insurance plan that covers their preferred
healthcare providers. However, small firms are more likely to offer
individual coverage HRAs than large firms and small firms that offer a
traditional group health plan typically offer a single option.
Therefore, employees at the vast majority of firms are likely to have
more options through an individual coverage HRA than through a
traditional group plan. The expansion of enrollment in the individual
market due to the final rules could also induce additional insurers to
provide individual market coverage. The Departments are of the view
that on net, the final rules will significantly increase choice and
flexibility for employees. Employers also will benefit from having
another choice of a tax-preferred health benefit to offer their
employees, giving them another tool to attract and retain workers.
Current compensation arrangements can result in less efficient
labor markets and inefficient healthcare spending. Employees within a
firm (or employees within certain classes of employees within a firm)
are generally offered the same set of health benefits. As a result,
some employees receive a greater share of compensation in the form of
benefits than they would prefer, while others receive less. An
individual coverage HRA will allow employees to choose coverage that
better suits their preferences, allowing those who want a less
comprehensive plan to select one and pay less, while allowing those who
want a more comprehensive plan to pay more. In addition, some employers
offer plans with a wide choice of providers, reflecting the diverse
preferences and healthcare needs of their employees. While a broader
network contains certain benefits, it also weakens the ability of
employers and issuers to negotiate lower provider prices or otherwise
manage employee care. In contrast, in the individual market insurers
have an incentive to keep premiums low relative to the SLCSP, which is
used to determine the PTC. Hence, insurers are more likely to have a
narrower choice of providers in order to negotiate lower prices.
By expanding the ability of consumers to choose coverage that fits
their preferences, the final rules will reduce these inefficiencies in
labor markets and healthcare spending. Some employees who will be
offered individual coverage HRAs under the final rules might choose
plans with lower premiums and higher deductibles and copayments (all of
which could potentially be paid out of the HRA) and narrower provider
networks than they would choose if offered a traditional group health
plan. Employees facing higher cost sharing could become more cost-
conscious consumers of healthcare. Narrower provider networks could
strengthen the ability of purchasers (through their insurers) to
negotiate lower provider prices. Both effects could lead to reduced
healthcare spending, which could in turn lead to reductions in amounts
made available under individual coverage HRAs and corresponding
increases in taxable wages. However, these benefits are uncertain and
would take some time to occur.\291\ Moreover, the provision of a new
health benefit that can be used to pay cost-sharing as well as premiums
and that is available to employees who were previously uninsured or
enrolled in unsubsidized coverage would be expected to increase, rather
than decrease, healthcare utilization by some consumers.
---------------------------------------------------------------------------
\291\ The individual coverage HRA provides an income and payroll
tax exclusion that is available only to workers and, unlike the PTC,
benefits workers at all income levels, including workers with
incomes in excess of 400 percent of the federal poverty level. Thus,
it is possible that the final rules could encourage individuals to
join the labor force or to work more hours or seek higher-paying
employment, generating further economic benefits. In addition, the
final rules could increase labor force mobility (i.e., encourage
workers to move more freely to employers where their productivity is
highest), because workers enrolled in individual health insurance
coverage could find it easier to retain their coverage when they
change jobs. However, these effects are highly uncertain, are likely
to be relatively small, and might take some time to occur. Labor
supply changes are not reflected in the revenue estimates provided
in the transfers section later in this section of the preamble.
---------------------------------------------------------------------------
Individual coverage HRAs provide flexibility for small employers in
particular that might have little expertise or skill in choosing
traditional group health plans or in administering coverage effectively
for employees. However, some small employers can already obtain lower-
cost coverage in the small group market or through AHPs than they could
otherwise provide on their own. Small employers that are not ALEs can
also forego offering health benefits and allow their employees to
obtain individual health insurance coverage, often with PTC
subsidization, without liability under Code section 4980H. Qualified
small employers can also pursue establishment of QSEHRAs. Thus, small
employers whose employees have particularly high healthcare costs or
small employers that have little skill or interest in administering
health benefits might use these other options to control costs even in
the absence of the final rules. If so, the increased efficiency gain
from providing an additional incentive for small employers to drop
traditional group health plans in favor of individual coverage HRAs
could be modest.
Some commenters agreed that the proposed rules would enable
employers to offer more affordable health coverage alternatives to
employees. Some commenters expressed general support for allowing
employers to move to a defined contribution approach for health
insurance coverage. The Departments agree that a defined contribution
approach is more flexible for employers because it is easier for
employers to plan for the future. Furthermore a defined contribution
approach reduces the risk that an employer's healthcare costs increase
due to factors outside an employer's control.
Reduced administrative costs for some employers. Employers that
offer an individual coverage HRA rather than a traditional group health
plan could experience reduced administrative costs. For example, such
employers will no longer need to choose health insurance plans or self-
insured health benefits for their employees and manage those plans.
Some of these costs will be borne by HRA recipients. However, overall
costs may be lower, particularly for small employers and their
employees, as loading fees (that is, premiums in excess of expected
insurance claims) appear to be quite high for small firms that provide
traditional group coverage.\292\
---------------------------------------------------------------------------
\292\ One study using data for 1997 through 2001 finds that
firms with 50 or fewer employees face loading fees of 42 percent of
premiums, whereas firms with more than 10,000 employees pay loading
fees of just 4 percent. The authors note that these estimates are
roughly consistent with the findings of earlier research. The
authors caution that the introduction of Exchanges and medical loss
ratio requirements provided for under PPACA should reduce loading
fees for small firms, but conclude that loading factors for small
firms might still be quite high. See Karaca-Mandic, Pinar, Jean M.
Abraham and Charles E. Phelps, ``How Do Health Insurance Fees Vary
by Group Size? Implications for Healthcare Reform,'' International
Journal of Health Care Finance and Economics (2011) 11: 181-207.
---------------------------------------------------------------------------
[[Page 28961]]
Some commenters stated that the proposed rules would be simpler to
administer than traditional group health plans, thereby reducing
administrative cost for employers. One commenter noted that while the
costs of administering an individual coverage HRA could be lower than
the cost of administering a traditional group health plan, the
difference is not likely to be large. The Departments are of the view
that it is possible that there will be modest reductions in
administrative costs for employers who offer an individual coverage HRA
rather than a traditional group health plan.
Costs
Loss of health insurance coverage. The Departments recognize that
some individuals could experience a loss in health insurance coverage
and that some of these people might experience worse financial or
health outcomes as a result of the final rules.\293\ Loss of coverage
could occur if employers drop traditional group health plans and if
some previously covered employees do not accept the individual coverage
HRA and fail to obtain their own coverage. Loss of coverage also could
occur if the addition of new enrollees to the individual market causes
premiums to rise, resulting in dropping of coverage by current
individual market enrollees. Finally, loss of coverage could occur if
employees who are currently purchasing coverage in the Exchange with
the PTC become ineligible for the PTC by an offer of (or coverage
under) an individual coverage HRA and experience increases in out-of-
pocket premiums.
---------------------------------------------------------------------------
\293\ The Departments note however that increased insurance
coverage does not necessarily result in better physical health. For
example, Baicker et al. found that increased Medicaid coverage in
Oregon ``generated no significant improvements in measured physical
health outcomes in the first two years, but it did increase use of
health care services, raise rates of diabetes detection and
management, lower rates of depression, and reduce financial
strain.'' See Baicker, K., S. Taubman, H. Allen, M. Bernstein, J.
Gruber, J. Newhouse, E. Schneider, B. Wright, A. Zaslavsky, and A.
Finkelstein. 2013. ``The Oregon Experiment: Effects of Medicaid on
Clinical Outcomes.'' New England Journal of Medicine 368: 1713-22.
http://www.nejm.org/doi/full/10.1056/NEJMsa1212321; and survey of
the literature in Chapter 6 of Economic Report of the President,
February 2018, https://www.whitehouse.gov/wp-content/uploads/2018/02/ERP_2018_Final-FINAL.pdf.
---------------------------------------------------------------------------
In addition, while most employers that currently offer traditional
group health plans offer only one type of plan, some employers offer
more choices.\294\ As a result, a relatively small number of employees
could have fewer choices of plans in the individual market than the
number of group health plan choices previously provided by their
employer, and some might be unable to find new individual health
insurance coverage that covers their preferred healthcare providers.
The Departments requested comments on this finding and the extent to
which the proposed rules could reduce employee choice or cause some
individuals to become uninsured.
---------------------------------------------------------------------------
\294\ Among firms that offer traditional group coverage, an
estimated 81 percent of firms with 3 to 199 employees offer only one
type of plan, whereas 42 percent larger firms offer one plan, 45
percent offer two and 13 percent offer three or more plans. See
Kaiser Family Foundation Employer Health Benefits 2018 Annual
Survey, Figure 4.1, at http://files.kff.org/attachment/Report-Employer-Health-Benefits-Annual-Survey-2018.
---------------------------------------------------------------------------
Some commenters stated that the proposed rules would lead to
adverse selection, increased premiums and overall destabilization of
the individual market, causing some to become uninsured. (Adverse
selection and resulting premium increases are discussed in greater
detail in the Transfers section of this preamble.) Several commenters
expressed concern that the offer of an individual coverage HRA could
eliminate consumers' eligibility for the PTC, increasing the cost of
coverage. Some commenters suggested that some of these consumers would
become uninsured. One commenter noted that this problem would be
magnified for families, since affordability is determined by comparing
the HRA employer contribution amount to the cost of a self-only plan,
rather than to a family plan. Several commenters suggested that
increased administrative costs and confusion would cause some employees
who are offered an individual coverage HRA to fail to enroll and become
uninsured.
The Departments acknowledge these concerns, but, as discussed later
in this section of the preamble, estimate that the number of
individuals with insurance coverage will be increased, rather than
decreased, by adoption of the final rules. One reason for this is that
the individual coverage HRA contribution that is offered will render an
individual ineligible for the PTC only if it is of a sufficient size to
make the offer affordable for the employee (and, in the case of ALEs,
employers must make amounts available under an individual coverage HRA
sufficient for the offer to be considered affordable in order to avoid
liability under Code section 4980H). Thus, even if employees do
transition from receiving PTC to receiving an offer of an individual
coverage HRA, they are not necessarily expected to become uninsured. In
addition, the final rules require employers to notify employees of the
effect of individual coverage HRA offers and enrollment on PTC
eligibility and require employees to substantiate enrollment in
individual health insurance coverage in order to receive reimbursement
from an individual coverage HRA, reducing the likelihood that confusion
will lead to loss of insurance coverage.
Less comprehensive coverage, fewer benefits. Some commenters
suggested that some individuals with individual coverage HRAs, and,
therefore, individual health insurance coverage, could experience a
reduction in the comprehensiveness or affordability of healthcare
benefits. For example, commenters noted that an employee might not be
able to afford a policy with as high an actuarial value as their
current traditional group health plan, or might be limited to narrower
networks of providers in the individual market. Another commenter noted
that patients may newly have limited choices, particularly among
physician specialty care providers. Another commenter said that some
employees could have fewer choices of plans in the individual market
than the number of group health plan choices previously provided by
their employer, or might be unable to find new individual health
insurance coverage that covers their preferred healthcare providers.
Another commenter stated that the proposed rules would result in poorer
financial and health outcomes.
The Departments recognize that some individuals who choose health
plans with less comprehensive benefits or higher out-of-pocket payments
could experience adverse health or financial outcomes. However, this is
unlikely because an individual coverage HRA must be integrated with
individual health insurance coverage, which generally is required to
provide coverage of all essential health benefits and at least 60
percent actuarial value (subject to a de minimis variation). Moreover,
to the extent that commenters' assertions about narrower networks and
higher cost sharing in the individual market are accurate, the
Departments note that higher cost sharing and narrower networks could
also be beneficial in that they encourage consumers to be more cost-
conscious, reducing unnecessary and potentially counterproductive
health care utilization, and thereby reducing premiums. Such premium
decreases could, in turn, lead to increased wages across employees in a
firm. For example, an employee might currently
[[Page 28962]]
have access to only one 80 percent actuarial value traditional group
health plan with a relatively broad network, but under an individual
coverage HRA will have access to a choice of plans, with actuarial
values generally ranging from 60 to 80 percent or higher. If he or she
chooses a 60 or 70 percent actuarial value plan, he or she will have a
greater incentive to be cost-conscious and will likely spend less on
healthcare, leaving more resources for other forms of consumption or
saving.
Increased administrative costs. In the impact analysis of the
proposed rules, the Departments noted that the proposed rules could
increase some administrative costs for employers, employees, and
government entities.
Under the final rules, all employers will have a new health
benefits option about which to learn. Employers who offer individual
coverage HRAs but did not offer employer-sponsored health benefits
before will face increased costs of administering a health benefit. In
addition, all employers that offer individual coverage HRAs will be
required to establish reasonable procedures to substantiate that
individuals covered by the HRA are enrolled in individual health
insurance coverage or Medicare; to provide a notice to all employees
who are eligible for the HRA explaining the PTC eligibility
consequences of the HRA offer and acceptance and other information; and
to comply with various other generally applicable group health plan
requirements, such as maintaining a plan document and complying with
various reporting requirements. Employers offering individual coverage
HRAs will need to establish systems to reimburse premiums and employee
out-of-pocket medical care expenses, or hire third-party administrators
to do so. In addition, to the extent an employer is subject to Code
section 4980H, the employer will need to learn about the final PTC
regulations and any other related guidance under Code section 4980H
that the Treasury Department and the IRS may issue. As noted earlier in
this preamble, administrative costs associated with individual coverage
HRAs could be lower than costs for traditional group health plans for
some employers. The Departments expect that third-party administrators
and other benefit experts will work to minimize these costs for
employers. Because offering an individual coverage HRA is voluntary,
ultimately, employers that offer this benefit will do so only because
they experience a net benefit from doing so.
As to increased administrative burden and costs for employees,
employees who previously enrolled in a traditional group health plan
and who now receive an individual coverage HRA will need to shop for
and choose their own insurance and learn new procedures for accessing
their HRA benefits. In addition, employees who receive an individual
coverage HRA will need to substantiate enrollment in individual health
insurance coverage once per plan year and in connection with each
request for reimbursement.
Further, Exchange enrollees might experience increased compliance
burdens, to the extent that they must become familiar with the
circumstances in which an offer of an individual coverage HRA precludes
them from claiming the PTC. For employees who previously did not
receive an offer of a traditional group health plan, this may require
learning some of the PTC eligibility rules, and for employees who
previously received an offer of a traditional group health plan, this
may require learning new or different rules for PTC eligibility.
Specifically, an employee who is offered a traditional group health
plan is not eligible to claim the PTC for his or her Exchange coverage
unless the premium of the lowest cost employer plan providing MV for
self-only coverage less the employer contribution for self-only
coverage exceeds 9.5 percent (indexed for inflation after 2014) of the
employee's household income (assuming the employee meets various other
PTC eligibility requirements). In contrast, under the final PTC rules,
an employee who is offered an individual coverage HRA will not be
eligible to claim the PTC for his or her Exchange coverage unless the
premium of the lowest cost silver plan for self-only coverage offered
by the Exchange for the rating area in which the employee resides less
the individual coverage HRA contribution amount exceeds 9.5 percent
(indexed for inflation after 2014) of the employee's household income
(assuming the employee meets various other PTC eligibility
requirements). However, the Departments note that the final rules will
require HRA plan sponsors to furnish a notice to participants providing
some of the information necessary for an individual to determine if the
offer of the HRA could render them ineligible for the PTC.
In addition, if an enrollee in Exchange coverage is eligible for
the PTC, the amount of the PTC is based, in part, on the premium for
the SLCSP for the coverage unit offered in the Exchange for the rating
area in which the employee resides. As noted earlier, the final PTC
rules use the premium for the self-only lowest cost silver plan
available to an employee in the Exchange for the rating area in which
they reside solely for purposes of determining their individual
coverage HRA affordability and the resulting impact on PTC eligibility.
Therefore, Exchange enrollees may need to understand which silver level
plan premium applies to them for APTC eligibility purposes and which
silver level plan premium applies to their PTC calculation.
Similarly, the FFEs and State Exchanges will incur one-time costs
to incorporate the SEP and the PTC eligibility rules for individuals
with an individual coverage HRA offer into their instructions for
enrollees and Exchange employees, as well as in application system
logic and automated calculations. HHS estimates that one-time costs to
account for individual coverage HRAs for the FFEs will be approximately
$3.9 million. HHS further estimates that the FFE call center,
eligibility support contractors verifying SEP and application data, and
other customer support functions will incur additional annual costs of
approximately $56 million in 2020 to $243 million by 2022 to serve the
expanded Exchange population. Assuming that State Exchanges will incur
costs similar to the FFEs, total one-time costs incurred by the 12
State Exchanges will be approximately $46.8 million. Total additional
ongoing costs incurred by the call centers, eligibility support
contractors verifying SEP and application data, and other customer
support functions for the 12 State Exchanges will be approximately $20
million in 2020 to $85 million by 2022.
Under the final rules, the IRS also will need to add information
regarding employees offered individual coverage HRAs to instructions
for IRS forms for taxpayers, employee training materials, and
calculation programs.
In response to the Departments' request for comments on the extent
to which employer administrative costs would be increased or decreased
by the rule, some commenters stated that complying with the individual
coverage HRA rules would be burdensome. Several commenters expressed
particular concern about the ongoing substantiation requirement.
Some commenters noted that the proposed rules would create consumer
confusion. Another commenter noted that recent cutbacks in funding for
outreach and assistance in the individual market could exacerbate the
confusion. One commenter stated that most Americans need a large amount
of professional support when making
[[Page 28963]]
sound health insurance purchasing decisions and they also need a degree
of help to manage their medical claims and coverage during the plan
year, particularly in the face of any complex medical issue.
The Departments requested comments on the implementation and
ongoing costs to State Exchanges of individual coverage HRAs, and
several stakeholders expressed concerns about these increased
administrative costs. Although commenters did not quantify the costs,
one State Exchange said it estimates a significant expense given the
scope and complexity of the proposal. Costs identified include
administering a new SEP; making IT changes involving new definitions
and explanation texts; user testing; adding a table for the lowest cost
silver plan; delaying implementation of other functions; administering
appeals; and adding additional staffing for administration, training
and oversight such as for increased call center activity and increased
complexity. Another Exchange noted the need to update Exchange
eligibility software to account for new forms for HRAs, new rules
affecting PTC eligibility and new SEPs. Several states requested that
the effective date of the final rules be delayed until State Exchanges
have had sufficient time to implement the new requirements.
As noted earlier in this preamble, the Departments have included in
the final rules some provisions to mitigate these concerns and
associated costs. For example, to ensure that employees who are
eligible to receive an individual coverage HRA understand the potential
effect on PTC eligibility, employers must provide a written notice to
eligible participants. To mitigate burden on employers, the Departments
are providing model language contemporaneously on certain aspects of
the notice, including model language describing the PTC consequences.
In addition, ongoing technical assistance will be provided to State
Exchanges related to system development activities that will support
employers and employees with HRA affordability determinations and the
impact on APTC eligibility, as well as the SEP for those with an offer
of an individual coverage HRA. HHS has already discussed with State
Exchanges what changes would likely be necessary if the rule were
finalized as proposed to assist with planning, as well as what kind of
assistance would be most helpful during implementation. Specific
assistance could include sharing technical and educational
documentation from FFE implementation that can be leveraged to support
State Exchange efforts. This assistance could help State Exchanges
implement changes related to the individual coverage HRA more quickly
and with less overall cost. The Departments will also provide
assistance to Exchanges in developing information and tools that could
be provided to employers and employees to help ensure smooth
implementation before the full system changes are complete. This could
include State Exchanges providing employees with information on how
they can calculate HRA affordability and the impact on APTC in the
absence of system changes that can make those calculations for the
employee.
Transfers
The Treasury Department performed microsimulation modeling to
evaluate the coverage changes and transfers that are likely to be
induced by the final rules. The Treasury Department's model of health
insurance coverage assumes that workers are paid the marginal product
of their labor. Employers are assumed to be indifferent between paying
wages and paying compensation in the form of benefits (as both expenses
are deductible in computing employers' taxable incomes). The model
therefore assumes that total compensation paid by a given firm is
fixed, and the employer allocates this compensation between wages and
benefits based on the aggregated preferences of their employees. As a
result, employees bear the full cost of employer-sponsored health
coverage (net of the value of any tax exclusion), in the form of
reduced wages and the employee share of premiums.\295\
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\295\ Note that the wage reduction for an employee who is
offered a health benefit may be greater or less than the expected
cost of coverage for that particular employee. Because employees are
generally paid the same regardless of age, health status, family
size or acceptance of benefits, the model assumes that each employee
bears the same share of the cost of the firm's coverage. The model
allows for some limited variation of the wage reduction by wage
class and educational status. All costs and benefits of coverage are
taken into account and assumed to accrue to employees, including all
income and employer and employee payroll tax exclusions and the
avoidance of the employer shared responsibility payment under Code
section 4980H by firms that offer coverage.
---------------------------------------------------------------------------
The Treasury Department's model assumes that employees' preferences
regarding the type of health coverage (or no coverage) are determined
by their expected healthcare expenses and the after-tax cost of
employer-sponsored insurance, Exchange coverage with the PTC, or
Exchange or other individual health insurance coverage integrated with
an individual coverage HRA, and the quality of different types of
coverage (including actuarial value).\296\ The tax preference for the
individual coverage HRA is the same as that for a traditional group
health plan, and this estimate assumes that employers will contribute
the same amount towards an individual coverage HRA as they would
contribute for a traditional group health plan.\297\ Therefore, an
employee will prefer an individual coverage HRA to a traditional group
health plan if the price of individual health insurance coverage is
lower than the price of traditional group health plan coverage, as long
as the value of the higher quality of the traditional group health plan
coverage (if any) does not outweigh the lower cost of individual health
insurance coverage. The cost of individual health insurance coverage
for an employee could be lower than the cost of the firm's traditional
group health plan if the individual health insurance coverage is less
generous, if the individual health insurance coverage risk pool is
healthier than the firm's risk pool, or if the cost of individual
health insurance coverage to a particular employee is lower than the
cost of the firm's coverage (because, for example, the employee is
younger than the average-age worker in the firm).\298\
---------------------------------------------------------------------------
\296\ Expected healthcare expenses by type of coverage, age,
family size and other characteristics are estimated using the
Medical Expenditure Panel Survey--Household Component (MEPS-HC).
These predictions are then statistically matched to the Treasury
Department tax data. The MEPS-HC is conducted by the United States
Census Bureau for the Agency for Healthcare Research and Quality
(AHRQ), Department of Health and Human Services.
\297\ It is possible that employers that switch from offering
traditional group health plans to offering individual coverage HRAs
will contribute less to individual coverage HRAs than they pay for
group coverage, and increase taxable wages by a corresponding
amount. This could happen because there is greater transparency
around health care costs with an individual coverage HRA than with a
traditional group health plan, and greater awareness of the cost
will likely lower worker demand for health insurance benefits
relative to wages. On the other hand, it is not clear why an
employer that (based on the incomes and preferences of its
workforce) wants to substitute contributions to health benefits for
wages would not do so today, in the absence of the availability of
individual coverage HRAs, particularly because the final rules
generally require that individual coverage HRAs be offered on the
same terms to all employees in a class of employees, as described
earlier in this preamble.
\298\ The Treasury Department model assumes that both the
employee and employer shares of premiums for traditional group
health plan coverage are fully tax exempt. In modeling the choice
between an individual coverage HRA and traditional group health plan
coverage, the Treasury Department assumes that the total amount
currently paid for traditional group health plan coverage will
continue to be tax preferred. If this amount exceeds the individual
health insurance coverage premium, the excess is assumed to be used
for copayments and deductibles. However, the Treasury Department
does not increase the amount that is tax preferred in the case where
the individual health insurance coverage premium exceeds the
traditional group health plan premium.
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[[Page 28964]]
When evaluating the choice between an individual coverage HRA and
the PTC for Exchange coverage, the available coverage is assumed to be
the same but the tax preferences are different. Hence, an employee will
prefer the individual coverage HRA if the value of the income and
payroll tax exclusion (including both the employee and employer portion
of payroll tax) is greater than the value of the PTC. In modeling this
decision, the Departments assume that premiums paid by the employee are
tax preferred through the reimbursement of premiums from the individual
coverage HRA, with any additional premiums (up to the amount that would
have been paid under a traditional group health plan) paid through a
salary reduction arrangement.\299\
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\299\ The assumption that coverage subsidized by the PTC is the
same as coverage subsidized by an individual coverage HRA may be
incorrect to the extent that coverage on an Exchange differs from
off-Exchange individual health insurance coverage. In addition, the
assumption that the full premium for an employee with or without an
individual coverage HRA is tax preferred may be incorrect if the
employer does not offer a salary reduction arrangement, if the
employee does not elect the salary reduction, or if the employee
chooses on-Exchange rather than off-Exchange coverage. Salary
reduction arrangements may not be used to pay premiums for Exchange
coverage.
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In the Treasury Department's model, employees are aggregated into
firms, based on tax data.\300\ The expected health expenses of
employees in the firm determine the cost of employer-sponsored
insurance for the firm.\301\ Employees effectively vote for their
preferred coverage, and each employer's offered benefit is determined
by the preferences of the majority of employees. Employees then decide
whether to accept any offered coverage, and the resulting enrollment in
traditional or individual health insurance coverage determines the risk
pools and therefore premiums for both employer coverage and individual
health insurance coverage. The Treasury Department's model, thus,
predicts enrollment and premiums in each type of coverage.
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\300\ A crucial component of the model is the use of Form W-2,
Wage and Tax Statement, filed by employers to report wages and other
benefits of employees. Forms W-2 with the same employer
identification number are grouped together to represent the
employees of the firm.
\301\ Some small firms--generally those with sicker than average
employees--are able to purchase community rated coverage in the
small group market at lower cost than they could obtain by self-
insuring or would pay if they had to purchase coverage in the
underwritten large-group market. Firm coverage costs are over-
estimated in the Treasury Department's model for these firms. As a
result, the Treasury Department model likely over-estimates the
extent to which small firms will adopt individual coverage HRAs
instead of traditional group health plan coverage and the premium
increase from this rule.
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Transitions from traditional group health plans to individual
coverage HRAs. Based on microsimulation modeling, the Departments
expect that the final rules will cause some participants (and their
dependents) to move from traditional group health plans to individual
coverage HRAs. As previously noted, the estimates assume that for this
group of firms and employees, employer contributions to individual
coverage HRAs are the same as contributions to traditional group health
plans would have been, and the estimates assume that tax-preferred
salary reductions for individual health insurance coverage are the same
as salary reductions for traditional group health plan coverage. Thus,
by modeling construction there is no change in income or payroll tax
revenues for this group of firms and employees (other than the changes
in the PTC discussed later in this preamble). The Departments solicited
comments on these assumptions, and comments received are summarized
further below.
While the tax preference is assumed to be unchanged for this group,
after-tax out-of-pocket costs could increase for some employees (whose
premiums or cost sharing are higher in the individual market than in a
traditional group health plan) and decrease for others.
A small number of employees who are currently offered a traditional
group health plan nonetheless obtain individual health insurance
coverage and the PTC, because the traditional group health plan is
unaffordable to them or does not provide MV. Some of these employees
would no longer be eligible for the PTC for their Exchange coverage
when the employer switches from a traditional group health plan to an
individual coverage HRA because the HRA is determined to be affordable
under the final PTC rules.\302\ In addition, some employees who are
offered individual coverage HRAs would not accept them, and would be
newly able to obtain the PTC because the offer of the HRA would be
considered to be unaffordable under the final PTC rules, even though
the traditional group health plan they were previously offered is
affordable under current rules.\303\
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\302\ As noted later in this section of the preamble, however,
the Departments' estimates assume that individuals with incomes
below 200 percent of the federal poverty level are not newly
ineligible for the PTC by individual coverage HRA offers.
\303\ The number of persons newly eligible for the PTC is
expected to be very small. Under the assumption that employers
contribute the same amount towards an individual coverage HRA as
they would for traditional group health plan coverage, employees
would become newly eligible for the PTC (if otherwise eligible) only
if the lowest cost silver plan premium for self-only individual
health insurance coverage is greater than the total cost of the
lowest cost MV plan offered by the employer (including the employee
and employer share of premiums).
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Transitions from no employer-sponsored health benefit to individual
coverage HRAs. The Departments expect some employees to be offered
individual coverage HRAs when they previously received no offer of an
employer-sponsored health plan. As a result, taxable wages will fall
and non-taxable wages will rise, reducing income tax and payroll tax
revenues. Under this circumstance, some Exchange enrollees who
previously claimed the PTC will be precluded from claiming the PTC as a
result of the offer or acceptance of the HRA, reducing PTC transfers.
As explained further below, the Departments assume that PTC spending is
reduced only among Exchange enrollees with incomes greater than 200
percent of the federal poverty level.
Transitions from traditional group health plans to individual
coverage HRAs integrated with Medicare. Currently, there are about 2.5
million people for whom employer coverage is the primary payer and
Medicare is secondary. Earlier in this preamble, the Departments
clarify that plan sponsors may allow amounts made available under an
individual coverage HRA to be used to pay for Medicare and Medigap
premiums, as well as other medical care expenses.\304\ Once premiums
(and deductibles for medical care expenses) are paid by the individual
coverage HRA, there would be few funds available to pay for medical
care expenses. Hence, Medicare would effectively become the primary
payer in the vast majority of cases.
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\304\ Note, however, that an individual coverage HRA may not,
under its terms, limit reimbursement only to expenses not covered by
Medicare.
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The total costs to the Medicare Part A program will increase
because Medicare Part A will effectively become the primary payer.
Because enrollment in Medicare Part A and B or Part C \305\ is a
requirement to be covered by an individual coverage HRA that is
integrated with Medicare and because employees offered an individual
coverage HRA will not have access to a traditional group health plan
through their employer, the vast majority of employees are expected to
enroll in Medicare Part B (and many in Part D).
[[Page 28965]]
Per enrollee premiums for Medicare Part B and D will be slightly lower
due to the improved health of the Medicare risk pool; however, net
costs to the Medicare program will increase due to increased enrollment
and because premiums for Medicare Part B will not fully offset the
costs of the program.\306\
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\305\ Currently, very few working aged Medicare enrollees have
enrolled in Medicare Part C and these estimates are based on the
assumption that this is not likely to change.
\306\ Employees who are entitled to Medicare on the basis of age
generally tend to have lower healthcare costs than the average
Medicare beneficiary, improving the overall health of the Medicare
risk pool.
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Summary of estimated transfers and coverage changes. The
Departments estimate that once employers fully adjust to the final
rules, roughly 800,000 firms will offer individual coverage HRAs. The
Departments further estimate that it will take employers and employees
about five years to fully adjust to the final rules, with about 10
percent of take-up occurring in 2020 and the full effect realized in
2024 and beyond.
This would result in an estimated 1.1 million individuals receiving
an individual coverage HRA in 2020, growing to 11.4 million in 2029.
Conversely, the number of individuals in traditional group health plan
coverage will fall by an estimated 0.6 million (0.4 percent) in 2020
and 6.9 million (4.5 percent) in 2029. Similarly, the number of
individuals in individual health insurance coverage without an
individual coverage HRA will fall by an estimated 0.4 million (2.4
percent) in 2020 and 3.8 million (24.8 percent) in 2029. The number of
uninsured persons will fall by an estimated 0.1 million (0.1 percent)
in 2020 and 0.8 million (1.4 percent) in 2029.\307\ See Table 2 for
details.
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\307\ These estimates are annualized counts (e.g., two persons
with six months of coverage each count as one covered person), and
reflect only coverage for persons under age 65. For more information
about the Treasury Department's baseline estimates, see ``Treasury's
Baseline Estimates of Health Coverage, Fiscal Year 2019 Budget
Exercise'' June 2018, available at https://www.treasury.gov/resource-center/tax-policy/tax-analysis/Documents/Treasury%27s-Baseline-Estimates-of-Health-Coverage-FY-2019.pdf.
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The modeling suggests that employees in firms that would switch
from offering traditional group health plan coverage to offering an
individual coverage HRA would have, on average, slightly higher
expected healthcare expenses than employees in other firms and current
individual market enrollees. As a result, premiums in the individual
market would be expected to increase by about 1 percent as a result of
the final rules, throughout the 2020-2029 period examined. The Treasury
Department model is nationally representative and does not necessarily
reflect the expected experience for every market. The premium increase
could be larger in some markets if some adverse selection results, and
premiums could fall in other markets. Furthermore, some employers might
take longer to adopt the individual coverage HRA, preferring to wait to
see how premiums change; and, this delay in adoption might be more
likely in markets that are currently in worse condition. Such differing
behavior adds uncertainty to the estimates.
Income and payroll tax revenue is expected to fall by about $500
million in fiscal year 2020 and $15.5 billion in 2029, as firms newly
offer tax-preferred health benefits in the form of individual coverage
HRAs. At the same time, total PTC (including the refundable and non-
refundable portion of the credit) is expected to fall by about $300
million in 2020 and by about $6.2 billion in 2029. In total, the final
rules are estimated to reduce tax revenue by about $200 million in
fiscal year 2020, $9.3 billion in fiscal year 2029, and $51.2 billion
over the 10-year period through fiscal year 2029.\308\
---------------------------------------------------------------------------
\308\ These revenue estimates do not account for the possibility
that the final rules could lead to increased taxable wages.
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The Departments assume that about 1 percent of the 2.5 million
individuals for whom employer coverage is the primary payer and
Medicare is the secondary payer will enroll in an individual coverage
HRA integrated with Medicare by the end of the projection period. As a
result, the final integration rules are estimated to increase costs to
the Medicare trust funds by less than $50 million in 2020, $0.3 billion
in 2029, and $1.9 billion over the ten-year period through fiscal year
2029. The impacts for Medicare Part B and D reflect the net impact to
the federal government after the payment of premiums.
Table 2--Estimated Effects of Individual Coverage HRAs on Insurance Coverage and Tax Revenues,
2020-2029
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Calendar year 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029
--------------------------------------------------------------------------------------------------------------------------------------------------------
Change in Coverage [Millions]: \a\
Individual health insurance coverage with HRA............. 1.1 2.7 5.3 8.1 10.9 11.0 11.2 11.4 11.4 11.4
Traditional group health plan............................. -0.6 -1.7 -3.3 -5.0 -6.7 -6.8 -6.8 -6.8 -6.9 -6.9
Individual health insurance coverage without HRA.......... -0.4 -0.9 -1.8 -2.7 -3.6 -3.6 -3.7 -3.8 -3.8 -3.8
Uninsured................................................. -0.1 -0.2 -0.3 -0.5 -0.6 -0.7 -0.7 -0.7 -0.7 -0.8
--------------------------------------------------------------------------------------------------------------------------------------------------------
Fiscal year 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029
--------------------------------------------------------------------------------------------------------------------------------------------------------
Change in Revenue [Billions]:
Premium Tax Credit Reduction.............................. 0.3 0.8 1.8 3.0 4.4 4.7 5.4 5.7 6.0 6.2
Other Income and Payroll Tax Reduction.................... 0.5 1.7 3.8 6.4 9.4 10.9 12.6 13.9 14.7 15.5
Net Revenue Reduction..................................... 0.2 1.0 1.9 3.4 5.0 6.2 7.2 8.3 8.8 9.3
Medicare Part A \b\....................................... 0.0 0.0 0.0 0.1 0.1 0.1 0.1 0.1 0.1 0.1
Medicare Part B........................................... 0.0 0.0 0.0 0.1 0.1 0.1 0.1 0.1 0.1 0.1
Medicare Part D........................................... 0.0 0.0 0.0 0.0 0.0 0.1 0.1 0.1 0.1 0.1
-----------------------------------------------------------------------------------------
Total Medicare Outlay Cost \c\........................ 0.0 0.0 0.1 0.2 0.2 0.2 0.3 0.3 0.3 0.3
Total Cost \d\........................................ 0.2 1.0 2.0 3.6 5.2 6.4 7.5 8.5 9.1 9.6
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Notes:
a. Millions of covered lives, annualized.
b. 0 = less than $50 million.
c. Note that the sum of estimated impacts for Medicare Part A, B and D may not equal net Medicare Outlay Cost due to rounding.
d. May not add to sum, due to rounding.
[[Page 28966]]
At least one commenter stated that the negative effects of the
proposed rules, particularly the increase in the individual market
premiums and the attendant fiscal costs, are likely to outweigh the
benefits to employers and their employees. As noted earlier in the
preamble, the increase in individual market premiums is a modest 1
percent. While the net fiscal cost in 2025 is $6.2 billion, this
includes the cost of new coverage for 0.7 million individuals. In
addition, as discussed earlier, the integrated coverage HRA provides
employers and employees with an additional option for providing health
benefits, a benefit that the Departments have not quantified.
Therefore, the Departments have concluded that the benefits of allowing
integration of individual coverage with HRAs substantially outweigh the
costs.
The Departments acknowledge that the extent to which firms will
offer individual coverage HRAs and the results on individual market
risk pools and premiums, federal tax revenues, and private costs and
benefits are highly uncertain. The Departments invited comments on the
modeling assumptions and proposed estimates of the proposed rules and
assumptions.
Several commenters stated that the Departments' analysis failed to
take account of variation in individual market risk across geographic
areas. The Departments' acknowledge that the quantitative estimates are
derived from a nationally representative model, largely because the
MEPS-HC is a nationally representative survey. The Departments do not
know of any readily available data on the distribution of health claims
at the firm level for specific rating areas or states. If the health
risk in the individual market relative to that of employer risk pools
varies across geographic areas, a nationally based model will
understate the extent to which employees might transition to individual
markets with healthier risk pools and overstate movement into less
healthy individual markets. This would understate potential premium
increases in some markets and overstate them or understate premium
decreases in others. To examine this possibility, the Departments
estimated the correlation between individual market premiums and
traditional group coverage premiums in all rating areas across the
country.\309\ The Departments found that premiums in the two markets
are positively correlated, and that the correlation is statistically
significant. In other words, where premiums for individual health
insurance coverage are higher, premiums in the traditional employer
market also tend to be higher. The Departments also do not find any
evidence that, to date, employers have substantially dropped coverage
or disproportionately dropped coverage and sent less healthy employees
to individual markets with healthier risk pools. Even if the difference
between individual market health risk and group market health risk
currently varies across location, there is no clear reason why that
variation would not persist when the individual coverage HRA is
available. As a result of these observations, the Departments conclude
that there is little indication that the individual coverage HRA will
be disproportionately used in areas with healthier individual market
risk pools. Moreover, it is not evident that adverse selection into the
individual market would be much more likely in these lower cost areas,
or that those risk pools would not be able to absorb additional
enrollees from the group market.
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\309\ Specifically, the Departments extracted premiums reported
on the population of Forms W-2, and estimated per person annual
premiums from this information using coverage data from Forms 1095-B
and C. See https://www.treasury.gov/resource-center/tax-policy/tax-analysis/Documents/Treasury%27s-Baseline-Estimates-of-Health-Coverage-FY-2019.pdf for a description of this estimation process.
The Departments then compared this to SLCSP premiums. The
Departments specifically compared single plan premiums for firms
including any 30-year old covered employee to SLCSP premiums for a
30 year old, and did the same for firms including any 50-year old
covered employee and SLCSP premiums for a 50 year old in the same
rating area. In both cases the Departments estimated that
traditional group coverage premiums increase by about 20 cents for
every dollar increase in individual market premiums (p<01). The
commenter provided some evidence of geographic variation in health
claims in the individual market relative to claims in the small
group insured market. This analysis is of limited use, because most
employees who are expected to be offered an individual coverage HRA
are in the large group market. The Treasury Department data for this
sensitivity analysis includes premiums in firms of all sizes, but is
heavily weighted to firms filing more than 250 Forms W-2, as these
employers are required to report premium information.
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One commenter suggested that the Treasury Department model does not
adequately account for variation in expected claims risk across
employers, because it does not explicitly account for the tendency of
sicker workers to work alongside otherwise sicker workers, and for
healthy workers to work alongside other healthy workers. The Treasury
Department model imputes the expected health care expenses of families
from MEPS-HC data, controlling for type of coverage, age, gender,
family size and type, employment status, education, race, health
status, geographic characteristics and other characteristics. The
Treasury Department constructed firms using Form W-2 and other tax
data. The Treasury Department then matched the MEPS-HC health expenses
of families to families in the tax data (and thereby to employees
within firms), by income, family size and type, age, gender and other
variables common to the MEPS-HC and tax data sets. The model should
reflect the clustering of sicker or healthier workers within firms if
such clustering is correlated with the characteristics used in the
health expense imputation and matching of MEPS-HC and tax data. In
addition to conducting a survey of households' health expenditures (the
MEPS-HC), the U.S. Census Bureau conducts a survey of employers
regarding their health insurance costs (the Medical Expenditure Panel
Survey--Insurance Component, or MEPS-IC.) To evaluate whether the
distribution of imputed healthcare costs within and across firms in the
Treasury Department model is in fact reasonable, the Departments
obtained MEPS-IC premiums for single and family plans at each
percentile of the premium distribution, and compared these to premiums
in the Treasury Department model. The Departments found that the
distributions looked very similar. That is, the imputed premiums appear
similar to those reported in the MEPS-IC, for both lower and higher
cost firms. Therefore, the Departments conclude that there is no
evidence to suggest that the Treasury Department model does not reflect
clustering by health status or any other important determinants of
health risk and premiums.
As explained earlier in this section of the preamble, the
Departments explicitly assume that persons with incomes below 200
percent of the federal poverty level who are enrolled in subsidized
individual health insurance coverage in the baseline do not move to an
individual coverage HRA or to uninsured status as a result of the final
rules. The Departments also assume that employees with incomes above
400 percent of the federal poverty level who are currently enrolled in
a traditional group health plan do not become uninsured as a result of
his or her employer switching to an individual coverage HRA, even if
individual health insurance coverage premiums are substantially higher
than the cost of their traditional group health plan coverage. These
assumptions are consistent with allowing the individual coverage HRA
offer to vary across employees in certain cases, and are intended to
provide estimates that reasonably reflect expected employer
[[Page 28967]]
and employee behavior. The Departments acknowledge that imposition of
these assumptions reduces both the amount of estimated PTC savings and
the amount of estimated individual coverage HRA revenue costs. In
addition, by imposing this restriction, the analysis does not reflect
the extent to which lower-income employees would face higher insurance
costs if an individual coverage HRA offer renders them ineligible for
the PTC.
One commenter suggested that the Departments explicitly model
coverage choices for individuals with incomes below 200 percent or
above 400 percent of the federal poverty level. Other commenters
expressed concern that low-income workers likely would face higher
coverage costs (and perhaps take-up less coverage and face worse
financial or health outcomes) because they will lose eligibility for
PTC. One commenter suggested that the individual coverage HRA rules
could only benefit families with incomes in excess of 400 percent of
the federal poverty level. However this commenter did not take into
account the decline in PTC as income rises as well as the tax benefit
of employer-provided individual coverage HRAs. In order to consider
these concerns more fully, the Departments performed additional
analysis to evaluate the potential effect of the individual coverage
HRA on receipt of PTC and changes in tax liability across income
classes, under the Departments' preferred assumption that persons with
low incomes do not lose PTC and an alternative scenario where the
Departments do not impose this assumption.
Under the Departments' preferred set of assumptions, the individual
coverage HRA reduces tax revenues by a total of $6.2 billion in
calendar year 2025, consisting of $10.9 billion in reduced income and
payroll taxes partly offset by $4.7 billion in reduced PTC (including
both the refundable and non-refundable portions of the credit). In
comparison, the individual coverage HRA increases tax revenues $1.1
billion among taxpayers who are enrolled in individual health insurance
coverage in the Exchange in the baseline. Over 0.9 million families
with incomes between 200 and 400 percent of the federal poverty level
pay $2.1 billion more in taxes (that is, on net the loss in PTC exceeds
the value of income and payroll tax exclusions received for the
individual coverage HRA), or an average of nearly $2,300. However, they
are not expected to become uninsured, because while the tax preference
for the HRA is less than the PTC, the after-tax cost of coverage is
less than the expected cost of healthcare. About 0.4 million families
with incomes over 400 percent of the poverty level pay nearly $1.1
billion less in taxes, with an average tax cut of nearly $2,900. Note
that these estimates include only the effects on families with
individuals currently enrolled in individual health insurance coverage
in the Exchange, and do not reflect the tax decreases experienced by
newly insured persons, or by persons currently enrolled in individual
health insurance coverage outside of the Exchange. In addition, the
estimates for families with incomes below 400 percent of the federal
poverty level are net changes, and include gains for families for whom
the tax exclusion value of the individual coverage HRA exceeds the PTC
offset by losses for families for whom the PTC exceeds the value of tax
exclusion gained.
Under an alternative assumption where persons with incomes below
200 percent of the federal poverty level also lose PTC if their
employer offers an affordable individual coverage HRA, about 0.9
million additional families would pay an additional $3.5 billion in
taxes (in the form of lost PTC that is not offset by the value of
income and payroll taxes received for individual coverage HRA), with an
average tax increase of nearly $4,000. These families are not projected
to become uninsured. The 10-year cost of the final rules would fall
from an estimated $51.2 billion to $23.7 billion. However, as noted
earlier, the Departments do not expect such large tax increases among
lower-income families to occur. Rather, the Departments expect
employees who currently receive substantial amounts of PTC but are in
firms where employees overall are better off with an individual
coverage HRA will seek out employers that do not offer an individual
coverage HRA or traditional group health plan, or that employers will
reduce individual coverage HRA offers or decide not to offer an
individual coverage HRA, so as not to render all or certain classes of
employees ineligible for the PTC. This may be particularly true for
firms that do not offer a traditional group health plan in the
baseline.
In addition, the Departments performed an alternative analysis of
the number of persons with incomes in excess of 400 percent of the
federal poverty level who are predicted to become uninsured if
employers do not vary contributions to individual coverage HRAs by age
and employees do not switch employers to avoid an increase in health
insurance costs. (In other words, in this scenario the Departments
relax their assumption that no higher income persons become uninsured
as a result of moving from traditional group health plan coverage to
being offered an individual coverage HRA.) In this alternative
simulation, about 1 percent of persons in families with incomes above
400 percent of the federal poverty level with traditional group health
plan coverage under the baseline become uninsured (or nearly 900,000
individuals). However, as noted earlier in this section of the
preamble, the Departments do not expect such transitions to occur.
Under this alternative simulation, older individuals are more likely to
become uninsured, in large part because the Treasury Department's model
fails to account for the variation in individual coverage HRA
contributions by age as permitted under the final rules. Under the
final rules, we expect that employers will vary individual coverage HRA
offers so as not to completely unwind the cross-subsidies of older
employees by younger employees and avoid markedly increasing older
employees' coverage costs. In the event that coverage costs for
particular employees substantially increase, those employees are
expected to seek employment at firms that continue to offer traditional
group health plan coverage.
Several commenters stated that employers would likely provide the
same amount of individual coverage HRA contributions to all employees
in a class of employees, without age variation. As a result, older
workers could face higher coverage costs and younger workers could face
lower costs when they move from traditional group health plan coverage
to an age-rated individual health insurance plan. However, varying HRA
amounts based on age is allowed under the final rules, subject to
certain limits, and other commenters suggested that employers would
utilize this option, thereby maintaining existing cross-subsidies of
older workers, which clearly has economic utility to firms, to some
extent.
Several commenters suggested that the Departments' estimates of
individual coverage HRA take-up are overstated, because the estimates
do not account for increased hassle costs of enrolling in individual
health insurance coverage, compared to the cost of enrolling in a
traditional group health plan. The Departments acknowledge earlier in
this section of the preamble that some individuals will face higher
administrative costs associated with choosing individual health
insurance plans and enrolling in coverage. This could result in fewer
employers offering individual coverage HRAs and fewer
[[Page 28968]]
employees enrolling in individual health insurance coverage integrated
with an HRA. However, commenters did not attempt to quantify such
costs. Because the magnitude of these costs (in total and relative to
the cost of enrolling in a traditional group health plan) is uncertain,
the Departments are unable to quantify the likely effect on individual
coverage HRA take-up.
The Departments particularly emphasize that these estimates assume
that every employee in a firm would be offered either an individual
coverage HRA or a traditional group health plan (but not both and not a
choice between the two), or no employer health benefit. The estimates
further assume that a firm offering an individual coverage HRA would
offer the same benefit to each employee in the firm, and would not vary
the contribution by location, age, or other permitted factors other
than self-only versus non-self-only benefits.\310\ In other words, the
estimates assume that the final rules will be effective in preventing
firms from dividing their employees by health status or other factors
in a way that would allow firms to capture greater tax subsidies or
increase individual market premiums or the PTC.
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\310\ The Departments imposed two constraints on the
microsimulation that could be consistent with allowing the
individual coverage HRA offer to vary across classes of employees
within a firm. First, the Departments assume that persons with
incomes below 200 percent of the federal poverty level who are
enrolled in subsidized individual health insurance coverage in the
baseline do not move to an individual coverage HRA or to uninsured
status as a result of the final rules. This is consistent with
assuming that employers with low-wage workers currently receiving
Medicaid or the PTC do not begin to offer individual coverage HRAs
large enough to render such employees ineligible for the PTC or from
receiving public coverage. This constraint is also consistent with
the assumption that employees who would experience a substantial
subsidy loss will move to other jobs that allow them to retain their
current coverage. This assumption reduces the amount of PTC savings
generated by the final rules, and also reduces the tax revenue cost
of providing individual coverage HRAs to such employees. Second, the
Departments assume that employees with incomes above 400 percent of
the federal poverty level who are enrolled in a traditional group
health plan do not become uninsured as a result of the final rules,
even if individual health insurance plan premiums are substantially
higher than the cost of their traditional group health plan
coverage. This is consistent with assuming that employers will
provide larger individual coverage HRAs to older employees or to
employees in higher-cost markets than they will provide to other
employees in their firms, in order to ensure affordable coverage. It
is also consistent with assuming that employees will move to other
firms, if they face large premium or cost-sharing increases when
their employers switch from traditional group health plan coverage
to individual coverage HRAs.
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In estimating the impact of the final rules on individual coverage
HRA participation and transfers, including individual market premium
increases, it is important to take into account the relative sizes of
the employer market and the individual health insurance market and the
relative health risk of individuals that are likely to transition from
group to individual market coverage. Because the number of individuals
in traditional group health plans is large relative to the number of
individuals in individual health insurance coverage, relatively small
changes in employer offers of coverage can result in large changes in
individual market premiums.\311\
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\311\ The Treasury Department projects that over 150 million
persons under age 65 will be enrolled in employer-sponsored group
health plans in 2020, compared to about 15 million in the individual
market.
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The Departments invited comments on the extent to which firms with
healthy or less healthy risk pools would utilize individual coverage
HRAs. The Departments specifically sought comments on the extent to
which employers would offer different benefits to different classes of
employees, including the rating area class and combinations of the
classes, and the resulting effect on individual market premiums. Many
commenters responded, generally emphasizing the importance of a stable
individual health insurance market and the need to maintain and, if
possible, strengthen conditions to prevent adverse selection as a
result of the individual coverage HRA.
Many commenters noted that, because the employer group market is
very large relative to the individual market, even a relatively minor
shift of higher-cost individuals from traditional group health plans to
the individual market would markedly increase individual market
premiums. In a similar vein, one commenter noted that the individual
market in their state is too small to absorb the high health costs from
the few employers who have high enough health costs to make the
individual coverage HRA strategy economically attractive. Commenters
also noted that healthcare costs are distributed very unevenly, and
that, as a result, moving a small number of the highest-cost employees
to the individual market can have a large impact on premiums. Several
commenters provided their own scenarios showing that if employers are
able to send a relatively small number of high-cost individuals to the
individual market it could result in a very large increase in premiums
in the individual market. Under one example, if 1 percent to 4 percent
of the employer market with various above-average-fractions of higher-
cost employees migrates to the individual market, premiums have the
potential to increase 3 percent to 83 percent. In an example presented
by another commenter, if as few as 5 percent of the persistent top
spenders in the large group market move to individual market coverage,
the average individual market claim would increase by 15 percent. Under
a third example discussed by a third commenter, if 10 percent of
employers designed individual coverage HRAs to shift the sickest
individuals into the individual market, premiums would increase by 17.3
percent. If however 100 percent of employers engage in shifting their
sickest employees, premiums would increase by 93.1 percent in the
individual market. The Departments note that these scenarios do not
take into account the conditions in the proposed or final rules
intended to prevent adverse selection. As such they help to illustrate
why the Departments proposed, and are finalizing, conditions designed
to prevent adverse selection. These examples are not inconsistent with
the illustrative scenario presented by the Departments in the preamble
to the proposed rules.
Many commenters said it was important that the final rules not give
employees a choice between a traditional group health plan and an
individual coverage HRA in order to prevent adverse selection in the
individual market, as was prohibited under the proposed rules. One
commenter gave specifics noting that it is the employer that is
empowered with deciding which health benefits to offer. Thus, according
to the commenter, it is not likely that employers would offer both an
individual coverage HRA and a traditional group health plan if the
employer anticipated that such a choice would increase claims cost in
its traditional group health plan. The commenter noted that without the
condition in the proposed and final rules prohibiting plan sponsors
from offering employees a choice between a traditional group health
plan and an individual coverage HRA, there would be market segmentation
caused by incenting high-cost individuals to enroll in individual
market coverage as well as potential adverse selection based on
difference in benefits, cost-sharing levels, and networks.
Many commenters said that it is important that the final rules
retain the condition that individuals be required to obtain individual
health insurance coverage in order to be covered by an individual
coverage HRA. One commenter suggested that, otherwise, healthy
individuals might opt out of the individual market (comprehensive
coverage) and use the individual
[[Page 28969]]
coverage HRA to cover out-of-pocket spending or for noncompliant
coverage, potentially increasing adverse selection in the individual
market. Relatedly, many commenters supported the prohibition on
integration of an HRA with STLDI. If enrollees were given a choice of
individual health insurance coverage or STLDI, in conjunction with an
individual coverage HRA, commenters explained that healthy employees
would be more likely to purchase the less expensive STLDI plans,
creating adverse selection for the individual market.
Commenters generally supported the condition that individual
coverage HRAs be offered on the same terms to an entire class of
employees and that the classes to which a plan sponsor may offer HRAs
on different terms be limited to the classes enumerated in the proposed
rules and any combinations of those classes. One commenter noted that
the same terms requirement and the enumerated classes reduce the
ability of employers to target high-cost workers by targeting
particular worker classes. The commenter explained that allowing
employers to define classes more narrowly would increase the
opportunity for employers to target high-cost workers, thereby
increasing the adverse selection risk in the individual market. Some
commenters recommended that the number of permitted classes not be
expanded in general to avoid increasing the risk of adverse selection
in the individual market.
One commenter noted that the proposed permitted classes of
employees could be combined to offer employers opportunities to segment
highly specific subsets of employees, including the more costly
populations, resulting in higher premiums in the individual market.
Several other commenters expressed concerns that the proposed
integration conditions would not be adequate to protect against
additional risk segmentation. Another commenter suggested that premiums
in the individual market could rise because the proposed rules create
uncertainty, causing insurers to include an additional risk factor when
setting premiums. Further, the commenter urged that the proposed rules
be withdrawn as they would be detrimental to consumers and health
insurance markets in that particular state. One state with an approved
PPACA section 1332 state innovation waiver authorizing a re-insurance
program asserted that the proposed rules could dismantle the market
stability that has been achieved through state based mechanisms and
that states with re-insurance programs will unintentionally subsidize
employer health plans due to the influx of people with high claims.
After consideration of these comments and related economic
literature,\312\ the Departments concluded that the conditions
contained in the proposed rules intended to mitigate the risk of
adverse selection (including the prohibition on offering an employee a
choice between an individual coverage HRA or a traditional plan, the
same terms requirement, the requirement that individuals with
individual coverage HRAs be enrolled in individual health insurance
coverage, and the prohibition on integration with STLDI) are necessary
and, as retained in the final rules, support the Departments' finding
that the effect of the rule on individual market premiums will be
modest.
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\312\ Although adverse selection has been observed in many
instances, relatively recent empirical research suggests that any
harm from adverse selection could, in some circumstances, be modest.
Most of the literature is related to choices between plans within a
firm or other contexts that are not directly analogous to an
employer's choice between offering a traditional group plan or an
individual coverage HRA, and as a result the applicability of the
research is somewhat unclear. Therefore the Departments are
including in the final rule provisions specifically intended to
mitigate against adverse selection while at the same time giving
employers an important new way to provide health benefits. See e.g.,
Einav, Liran, Amy Finkelstein, and Jonathan Levin, ``Beyond Testing:
Empirical Models of Insurance Markets,'' Annual Review of Economics,
2010, 2: 311-326; Einav, Liran, Amy Finkelstein, and Mark Cullen,
``Estimating Welfare in Insurance Markets Using Variation in
Prices,'' Quarterly Journal of Economics, 2010, 125 (3): 877-921;
Bundorf, M. Kate, Jonathan Levin, and Neale Mahoney, ``Pricing and
Welfare in Health Plan Choice,'' American Economic Review, 2012, 102
(7): 3214-3248; and Cardon, James H. and Igal Hendel, ``Asymmetric
Information in Health Insurance: Evidence from the National Medical
Expenditure Survey.'' RAND Journal of Economics, 2001, 32 (3): 408-
427.
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Several commenters suggested that additional rules should be
adopted to prevent adverse selection. For example, one commenter stated
that employers should be forbidden from using health status of any
individual or class of employees as a factor when differentiating
between classes of employees. Another encouraged strong federal
oversight to ensure employer compliance with the conditions. Yet
another commenter recommended the Departments use a facts and
circumstances test to determine whether individual coverage HRAs are
targeted to high cost employees, in addition to requiring compliance
with the conditions in the final rules.
The Departments decline to add a facts and circumstances test to
the final rules. DOL has enforcement jurisdiction over private sector
employer-sponsored group health plans, and HHS has enforcement
jurisdiction over public sector group health plans, such as those
sponsored by state and local governments. Individual coverage HRAs are
group health plans, and DOL and HHS will monitor individual coverage
HRAs' compliance with applicable requirements, consistent with the
general approach to enforcement with respect to other group health
plans. The Departments are of the view that it is unnecessary to
include specific enforcement guidance for individual coverage HRAs in
the final rules. However the Departments may provide additional
guidance if the Departments become aware of arrangements that are
inconsistent with the conditions of the final rules.
One commenter noted that the lack of a limit on the maximum
individual coverage HRA amount could result in more employers with
older or sicker employee populations providing very large individual
coverage HRAs and sending those high-cost individuals to the individual
market. This commenter suggested limiting individual coverage HRA
contributions to a maximum amount. Another commenter pointed out that
an employer could provide an individual coverage HRA that covered both
the premiums and cost-sharing expenses up to the maximum out-of-pocket
limit ($7,900 in 2019) for an expensive employee and still reduce
health costs. This commenter supported the same terms requirement and
other rules preventing benign discrimination to shield against market
segmentation. In previous guidance on HRAs, including on integration of
HRAs with other coverage, the Departments provided no minimum or
maximum contribution amount. Similarly, the Departments decline to
impose a minimum or maximum contribution amount on individual coverage
HRAs under the final rules, in order to provide employers with
flexibility and because the Departments have imposed other conditions
to address the potential for adverse selection.
Commenters also recommended that the conditions to prevent adverse
selection in the proposed rules be strengthened by applying the
integration conditions to the aggregated controlled group of employers
rather than to the common-law employer. The Departments have concluded
that applying the classes of employees at the common law employer level
will avoid complexity for employers and that applying a minimum class
size requirement in certain circumstances, at the common law employer
level, is a
[[Page 28970]]
more straightforward way of addressing the adverse selection concerns
raised by some commenters. Therefore, the Departments are not adopting
the suggestion.
One commenter suggested the final rules should not allow using
rating area as a separate class of employees because it presents risk
for health factor discrimination, allowing employers to isolate an
employee or a few employees with costly medical expenses who happen to
work at the same primary site. While the Departments appreciate and
considered the concern raised by commenters, the Departments have
determined, based on information regarding the significant differences
in individual market premiums between rating areas within some states
and significant differences in the number of individual health
insurance plans available between rating areas within some states, that
it would be an unreasonable limitation on employer flexibility, and,
thus, employee welfare, to prohibit employers from offering different
benefits based on different work site rating areas.
One commenter argued that the allowable variation in individual
coverage HRA contributions by employee age and number of dependents
would need to be parallel to the variation in premiums by age and
family size in the individual market to avoid the risk that employers
target large contributions to high-cost employees. Another commenter
pointed out that employers' ability to vary individual coverage HRA
amounts by age should not be limitless, but should be subject to sound
actuarial guardrails, such as the 3 to 1 PPACA age band between the
youngest and oldest employees. The Departments agree. In the final
rules, employers are permitted to vary contributions based on the age
of the participant as long as the contribution for the oldest
participant is within a 3 to 1 ratio of the contribution for the
youngest participant. Further, the same maximum dollar amount
attributable to the increase in age must be made available to all
participants of the same age in the same class of employees.
Some commenters recommended removing as a permitted class of
employees the class based on employees who have not yet attained 25
years of age because this would enable employers to offer individual
coverage HRAs to older employees while keeping young, generally
healthier employees in a traditional group health plan, increasing
adverse selection risk for the individual market. In addition,
commenters noted that there is no clear need for this class of
employees as employers do not typically vary current coverage offering
for employees over and under age 25. After consideration of these
comments, the Departments are omitting this class in the final rules.
Several commenters suggested a minimum class size requirement so
that employers cannot combine classes in a way that less healthy
employees can be isolated into separate classes from healthy employees.
According to these commenters, each classification should be required
to include a certain minimum number and/or percentage of employees. The
Departments agree and sought to develop a rule that is narrowly
tailored to mitigate the risk of adverse selection, especially when
combining classes, and to avoid overly burdening employers or
unnecessarily hampering the increased use and flexibility of individual
coverage HRAs. In order to balance these considerations, the final
rules include a minimum class size requirement that varies based on
employer size and that applies only to certain classes of employees in
certain circumstances in which the potential for health factor
discrimination is greatest. In general, the minimum is equal to 10
employees for an employer with fewer than 100 employees; equal to 10
percent of the total number of employees (rounded down to a whole
number), for an employer with 100 to 200 employees; and equal to 20
employees for an employer that has more than 200 employees. See earlier
in this preamble and the final rules for more detail.
Multiple commenters noted that large employers and self-insured
employers with a greater share of less-healthy employees could be more
likely to offer individual coverage HRAs than employers with healthier
employees. The resulting adverse selection could worsen the individual
market risk pool and increase premiums. The Departments acknowledge
that the integration conditions generally do not address this potential
problem. This effect has been included in the modeling and hence is
reflected in the overall results. As discussed earlier in this
preamble, this effect along with other effects of the final rules
result in a premium increase of only about 1 percent, indicating a very
small effect on the individual market risk pool.
Other commenters thought individual coverage HRAs could reduce
adverse selection in the individual market. Some commenters noted that
the proposed rules would result in many employees moving to the
individual market, thereby expanding the market and stabilizing
premiums. One commenter argued that although some employers may have a
higher-risk group of employees, in general, working employees are
lower-risk than individuals in the individual market. Other commenters
stated that employers may not necessarily be incentivized to segment
their risk, that is, they may be interested in offering individual
coverage HRAs for reasons unrelated to risk. Another commenter argued
that commonly purchased stop-loss coverage mitigates the incentive to
move individuals to the individual market; that HIPAA generally
prohibits group health plans and health insurance issuers in the group
market from discriminating against individuals based on health factors;
that the requirement that to provide MV employer plans provide
``substantial coverage'' of inpatient hospital services and physician
services makes it hard for employers to incentivize high cost
individuals to move to the individual market by providing limited
benefits; and that the proposed rules' same terms requirement and the
restriction on integration of individual coverage HRAs with STLDI all
work together to eliminate the opportunities for employers to encourage
higher-risk employees to obtain coverage in the individual market. One
commenter noted that the Departments struck an important balance
between providing additional alternatives for employers while
curtailing the opportunity for some employers to selectively segment
risk and shift their highest-cost employees to the already fragile
individual market. The Departments agree that the final rules, with the
integration conditions, strike the right balance and have the potential
to strengthen the individual market.
Several commenters further recommended that the Departments add as
a permitted class to the final rules, salaried and hourly employees, so
that employers may be permitted to make different offers of coverage,
to salaried and non-salaried workers. Commenters in support of allowing
salaried and hourly workers as permitted classes of employees explained
that this would provide additional flexibility for employers without
increasing the risk of adverse selection. Reasons for this conclusion
included: The classification is used for a variety of purposes and
reclassifying employees may violate the FLSA, ERISA and other laws that
prohibit employers from reclassifying workers solely for the purposes
of interfering with health benefits. One commenter stated that under
such a rule employers would have more potential for risk selection than
in the permitted
[[Page 28971]]
classes under the proposed rules. After consideration of these
comments, the Departments are allowing employees who are paid on a
salaried basis and non-salaried employees (such as hourly employees) as
permitted classes of employees in the final rule, subject to the
minimum class size requirement.
The Departments also recognized that transition from coverage under
a traditional group health plan to coverage under an individual
coverage HRA could represent a substantial change from an employee
perspective, and as a result employers may find it difficult to
transition to individual coverage HRAs. Because new hires are unlikely
to increase adverse selection in the individual market and, if added to
the individual market, would likely lower average risk, the Departments
have added flexibility for employers by allowing employers to continue
to offer traditional group health plans to current employees while
offering individual coverage HRAs to newly hired employees. Recognizing
that the new hire subclass will start small as employees are hired
after the employer-specified hiring date for a class of individuals,
the new hire subclass is not subject to the minimum class size
requirement. However, if an employer later chooses to further subdivide
a new hire subclass, each subdivision would be subject to any minimum
class size requirements that otherwise would apply.
Several commenters suggested that the Departments delay
implementation of the final rules until further analysis, particularly
regarding risk segmentation, could be conducted. However, commenters
offered few concrete suggestions to inform additional analysis. While
the Departments acknowledge that the exact effects of the final rules
are subject to uncertainty, the Departments conclude that the benefits
of the rules will outweigh any costs, and that the benefits of
promulgating the rules without further delay will outweigh the benefits
of additional analysis. As recommended by a number of comments, the
Departments will continue to closely monitor premiums and the stability
of the individual market.
The Departments also emphasize that these estimates assume that
employers would contribute the same amount to individual coverage HRAs
as they would to traditional group health plans and that employees
would elect the same amount of salary reduction to pay for individual
health plans and cost sharing as they would if they were enrolled in a
traditional group health plan. But, as noted above, some employees who
would be offered individual coverage HRAs under the proposed rules
would choose plans with lower premiums and higher deductibles and
copayments and narrower provider networks than they would choose if
offered a traditional group health plan. However, some workers would
probably choose more expansive coverage than what they were offered in
a traditional group health plan, and a key benefit of this rule is that
it expands workers' ability to choose coverage that best suits their
preferences. Those workers who choose plans with higher cost sharing
and narrower provider networks and become more cost-conscious consumers
of healthcare will likely reduce healthcare costs and insurance
premiums, eventually reducing average HRA amounts and salary
reductions. The Departments requested comments on the assumption that
employer and employee tax-preferred spending on healthcare would be the
same for individual coverage HRAs as for traditional group health
plans.
One commenter questioned the Departments' basis for this
assumption. Based on conversations with employers of all sizes and
industries, the commenter concluded that it appears likely that a good
portion of employers would contribute substantially less to individual
coverage HRAs than what they are currently contributing to traditional
group health plans. The commenter suggested that this would be
particularly true for certain classes of employees, and that this may
result in some employees and dependents becoming uninsured. Several
commenters expressed concern that employers would contribute less to
individual coverage HRAs than they currently contribute to their
traditional group health plans, with the result that coverage would be
less affordable for employees. One commenter suggested that employers
offering an individual coverage HRA be required to provide a minimum
amount to ensure that the HRAs are adequate for the purchase of
individual health insurance coverage. As discussed above, the
Departments decline to adopt this suggestion. In general, workers bear
the cost of employer contributions to health benefits in the form of
reductions in wages and non-health benefits. The current tax system
subsidizes health benefits, and it is not clear that minimum employer
contributions would improve employee welfare. Other commenters
suggested that employers should be required to vary the amount of the
individual coverage HRA by age, geographic region, and/or family size,
as these factors result in variations in premiums for individual health
insurance coverage. The Departments are not adopting this suggestion.
The Departments recognize that the cost of individual health insurance
coverage will vary across employees, and because the intent of the rule
is to expand rather than restrict employer choices regarding how to
provide coverage, the final rules allow (but do not require) employers
to take these factors into account in certain circumstances and subject
to certain conditions. After consideration of these comments, the
Departments acknowledge that introduction of the individual coverage
HRA could lead employers to provide lower health benefits and higher
taxable wages than they would if they provided a traditional group
plan. However, because the extent to which employers will do so is
uncertain, this effect is not accounted for in the Departments'
quantitative estimates of transfers (that is, the fiscal cost) arising
from the rules. Moreover, the Departments are of the view that
employers will design employee compensation packages to the benefit of
employees since employers aim to attract and maintain talent.
In addition, the estimates assume that the entire individual
coverage HRA balance is spent on healthcare premiums and cost sharing
each year. However, the Departments are of the view that many employers
would allow employees to carry unspent individual coverage HRA balances
over from year to year, and that some employers would allow employees
to continue to spend accumulated individual coverage HRA funds even
after separating from their employer. Moreover, individual coverage HRA
benefits are generally subject to COBRA protections, such that, for
example, some employees could elect to use accumulated funds for up to
18 months after separation from service. The ability to carry over
benefits from year to year could further encourage employees to curtail
healthcare spending, particularly less efficient spending. This effect
could be modest for several reasons. First, unlike HSA balances, which
can be withdrawn for non-health purposes subject to tax but without
penalty after age 65 and with a 20 percent penalty before age 65,
individual coverage HRAs may only be used to reimburse expenses for
medical care. In addition, unlike HSAs, individual coverage HRAs are
not the property of the employee and employers may limit the amount
that can be carried over from year-to-year or accessed by the employee
after separation, subject to applicable COBRA
[[Page 28972]]
or other continuation of coverage requirements.
These estimates further assume that all individual health insurance
coverage integrated with an HRA would be treated as subject to and
compliant with PHS Act sections 2711 and 2713. The proposed rules
prohibit an individual coverage HRA from being integrated with STLDI
and excepted benefits, which are not subject to or generally compliant
with PHS Act sections 2711 and 2713. Grandfathered coverage in the
individual market is not subject to the annual dollar prohibition in
PHS Act section 2711 or to the preventive services requirements in PHS
Act section 2713. However, the proposed rules provided that employees
nor employers were required to confirm that individual health insurance
coverage integrated with an HRA is not grandfathered coverage, as
requiring such confirmation would be administratively burdensome and
the Departments expected that the number of employees who might use an
individual coverage HRA to buy such coverage would be extremely small,
because individuals can only renew and cannot newly enroll in
grandfathered individual health insurance coverage.
Commenters generally agreed that the vast majority of individual
health insurance coverage is compliant with PHS Act sections 2711 and
2713. As noted earlier in the preamble, many commenters emphasized the
importance of requiring individual coverage HRAs to be integrated with
individual health insurance coverage, and not with STLDI, in order to
ensure the health and stability of the individual market risk pool. The
Departments considered these comments and are finalizing the
requirement that individuals covered by an individual coverage HRA must
be enrolled in individual health insurance coverage, as proposed.
Further, under the final rules, an individual coverage HRA may not be
integrated with STLDI.
In summary, the Departments recognize that allowing HRAs to be
integrated with individual health insurance coverage creates the
potential for some adverse selection and increased premiums in the
individual health insurance market. To prevent that occurrence, the
Departments are retaining in the final rules the key conditions
intended to prevent adverse selection and health factor discrimination.
In addition, the Departments are strengthening the conditions intended
to prevent of adverse selection, including by adding a minimum class
size requirement that applies to certain classes of employees in
certain circumstances and removing as a permitted class of employees
the class of employees under age 25, which had the potential to
increase adverse selection. The addition of the special rule for new
hires could also improve the health of the overall individual market
risk pool. While the Departments have also made changes in the final
rules in order to provide employers with additional flexibility, such
as adding as new permitted classes of employees non-salaried and
salaried employees as well as staffing firm temporary employees (as
well as adopting the special rule for new hires), the Departments have
done so in a way that is narrowly tailored to avoid creating the risk
of adverse selection. Therefore, after consideration of these changes
and public comments, the Departments are finalizing the economic
modeling of the individual coverage HRA without changing the key
assumptions.
In light of the Departments' quantitative estimates and qualitative
analysis, the Departments conclude that the benefits of the individual
coverage HRA outweigh the costs. In particular, the Departments
estimate that the final rules will increase the number of individuals
with health insurance and have only a small effect on individual market
premiums. The final rules will significantly increase flexibility and
choices of health coverage for employers and employees. As a result,
employers will benefit from having another choice of a tax-preferred
health benefit to offer their employees, potentially enabling them to
attract and retain workers. In addition, the increased use of HRAs
could potentially reduce healthcare spending and ultimately result in
increased taxable wages.
3. Impact of Excepted Benefit HRA
The final rules also provide for recognition of a new limited
excepted benefit HRA under which amounts newly made available for each
plan year are limited to $1,800 (indexed for inflation for plan years
beginning after December 31, 2020). Among other conditions, to offer
the excepted benefit HRA, the employer must offer the employee a group
health plan that is not limited to excepted benefits and that is not an
HRA or other account-based group health plan, but the employee would
not need to enroll in this group health plan. The benefit would be
funded by the employer, and in the Treasury Department's modeling, this
means that it would be paid for by all employees in the firm through an
overall reduction in wages. The benefit could be used to pay for any
medical expense, other than premiums for individual health insurance
coverage, group health plan coverage (other than COBRA or other
continuation coverage), or Medicare Part B or D. The excepted benefit
HRA could be used to pay premiums for coverage that consists solely of
excepted benefits and for other premiums, such as premiums for STLDI
(subject to the exception described later in this section of the
preamble).
Due to the availability of other tax preferences for health
benefits, including the tax exclusion for employer-sponsored benefits,
salary reductions for group and off-Exchange individual health
insurance coverage premiums when integrated with an individual coverage
HRA, health FSAs, and non-excepted benefit HRAs, the Departments are of
the view that this new excepted benefit would be adopted by a small
number of firms. However, it could provide flexibility for firms that
want to provide a tax preference to employees that choose STLDI instead
of the employer's traditional group health plan.
Several commenters noted that the excepted benefit HRA could
adversely impact the small employer group market as employers in the
small group market would be more likely to offer an excepted benefit
HRA that reimburses STLDI premiums (because these employers are less
likely to be directly affected by the risk shifting due to the fact
that the small group market is community rated) and healthier employees
would be more likely to opt out of the traditional small employer group
plan and use the excepted benefit to pay for health coverage out of
pocket or purchase STLDI. Several commenters also expressed concern
about the negative impact on the individual market, as the excepted
benefit HRA could draw some enrollees away to STLDI plans. One
commenter expressed concern that sicker employees within a firm, who
could not obtain STLDI, would bear greater costs. As explained earlier
in this preamble, the Departments do not believe that allowing the
excepted benefit HRA to be used to purchase STLDI creates a significant
risk pooling concern. However, to mitigate potential adverse selection
affecting the small group market, the final rules provide that the
Departments may restrict excepted benefit HRAs from being able to
reimburse STLDI premiums for certain employers in a state, if certain
criteria are satisfied.
Several commenters opposed the new excepted benefit HRA because it
would allow employers to provide a smaller health benefit. One
commenter expressed particular concern that low-wage employers would be
particularly
[[Page 28973]]
attracted to this option, to the detriment of employees. The
Departments conclude that this is not an important risk or concern.
First, employees must have the option to receive a traditional group
health plan instead of the excepted benefit HRA, and ERISA-covered
employers must provide a notice of the dollar limits and other
limitations of the excepted benefit HRA. In addition, the costs of
coverage are borne all or in part by employees, in the form of reduced
wages, and any reduction in costly health benefits is expected to be
offset by increased wages. Third, employees who decline an employer's
offer of a traditional group health plan may obtain coverage through a
spouse or the individual market, and this coverage may also be
subsidized through a tax exclusion or PTC. Therefore, the availability
of this new tax-preferred benefit is expected to benefit employees, not
harm them.
Several commenters expressed concern that adding another type of
excepted benefit and another type of HRA would create confusion among
employers and employees, potentially resulting in costly mistakes. Some
commenters expressed concern that the excepted benefit HRA would
increase uninsurance among employees who forego coverage or use the
benefit to purchase STLDI (which need not provide comprehensive
benefits), thus putting employees at risk or poor financial or health
outcomes.
Other commenters supported the provision of the excepted benefit
HRA as proposed, including one who expressed support for providing
employers with the greatest possible flexibility to provide health
benefits on a tax preferred basis. The Departments agree that the
excepted benefit HRA will provide additional flexibility for employers,
and for employees who want to pay for their health care costs in ways
other than enrolling in their employer-offered traditional group health
plan. The Departments continue to expect that due to the availability
of other tax preferences for health benefits, including larger tax
preferences for employer-provided benefits and the PTC for individual
health insurance coverage, that adoption of the excepted benefit HRA is
likely to be modest, such that the risk of introducing adverse
selection into other markets is low. The Departments conclude that the
benefits of this additional choice and flexibility provided by this new
tax preferred excepted benefit outweigh the likely costs.
C. Regulatory Alternatives
In developing the final rules, the Departments considered various
alternative approaches.
Retaining prohibition on integration of HRAs with individual health
insurance coverage. The Departments considered retaining the existing
prohibition on integration of HRAs with individual health insurance
coverage, in particular in light of commenters who raised concerns that
allowing HRAs to be integrated with individual health insurance
coverage could lead to adverse selection and health factor
discrimination in the individual market. However, the Departments
determined that the adverse selection concerns that gave rise to the
prohibition, and which some commenters raised, can be adequately
addressed by including appropriate mitigating conditions in the final
rules. Moreover, the alternative approach of continuing to prohibit the
integration of HRAs with individual health insurance coverage would
foreclose the benefits that the Departments expect to result from
allowing individual coverage HRAs, including increased flexibility and
choices of health coverage options for employers and employees;
possibly reduced healthcare spending and increased taxable wages for
workers currently in firms that offer traditional group health plans;
and increased numbers of low- and moderate-wage workers (and their
family members) with health insurance coverage.
Integration conditions to prevent against adverse selection. The
proposed rules contained a number of conditions intended to mitigate
the risk of adverse selection, including that an employer may not offer
any employee a choice between a traditional group health plan and an
individual coverage HRA and that, if an employer offers an individual
coverage HRA, it must do so on the same terms and conditions for all
the employees in the class of employees subject to certain exceptions.
The Departments considered a number of alternatives related to these
conditions in developing the final rules. As to the prohibition on
choice between an individual coverage HRA and a traditional group
health plan, the Departments considered the alternative of allowing all
employers, or, employers that would qualify to participate in the small
group market, to offer employees a choice between an individual
coverage HRA and a traditional group health plan. However, the
Departments determined that retaining this condition as proposed is
important to prevent against adverse selection and commenters generally
agreed. The Departments did consider that the incentives for employers
in the small group market to segment risk are lower than for other
employers offering experience-rated coverage or self-insured plans.
However, the Departments would not expect many small employers to offer
this choice because the coverage in the small group market and
individual market is quite similar and because small employers that
purchase health insurance would not have an incentive to segment their
risk pool. Although allowing small employers to offer a choice would
not provide small employers much benefit, it would increase the
complexity of the final rules for entities involved in implementation,
such as the Exchanges, and could cause uncertainty for issuers.
Accordingly, the Departments decline to provide an exception for small
employers to the condition that a plan sponsor may not offer an
employee a choice between a traditional group health plan and an
individual coverage HRA. However, the Departments are generally
supportive of maximizing employee choice and employer flexibility and
so may revisit this issue in future rulemaking once the Departments
have had the opportunity to gauge the results of the initial
implementation of individual coverage HRAs.
With respect to the proposed condition that an employer must offer
an individual coverage HRA on the same terms to all employees within a
class of employees, the Departments considered whether to allow
individual coverage HRAs to increase amounts based on age, without any
related parameters, as proposed, or, as an alternative, whether to
place an outer limit on the ability to age vary, as some commenters
suggested the Departments should do to protect against adverse
selection. Upon consideration of these comments, the Departments
determined that imposing a limit on the ability to increase HRA amounts
based on age is justified in order to protect against adverse
selection. In designing that limitation on age variation, the
Departments considered a number of alternatives, including
incorporating the federal and state age curves and tying the variation
to a specific premium for a specific policy that a participant in the
class of employees could purchase. However, the Departments determined
that these options would be unduly complex and that imposing the 3 to 1
limit on the variation of HRA amounts within a class based on age,
which is generally based on the degree of age
[[Page 28974]]
variation allowed in individual market premiums under PHS Act section
2701, sufficiently limits the potential for abuse.
The proposed rules provided that plan sponsors may apply the
integration conditions on a class-by-class basis such that an employer
may offer an individual coverage HRA to a class of employees while
offering a traditional group health plan to another class of employees
or may offer different individual coverage HRAs, with different terms,
to different classes of employees. The Departments considered whether
to retain the ability of employers to offer or vary individual coverage
HRAs for different classes of employees or whether employers should be
required to offer all employees an individual coverage HRA if any
employee is offered an individual coverage HRA. Although some
commenters raised concerns that the classes of employees could be
manipulated leading to health factor discrimination and adverse
selection, the Departments decided to finalize the ability to offer and
vary individual coverage HRAs on a class-by-class basis because this
aspect of the rule provides employers with the flexibility needed to
achieve increased HRA usability and to maximize employee welfare, which
is a sentiment expressed by a number of commenters. However, the
Departments acknowledge the concern regarding the potential for adverse
selection and health factor discrimination and, therefore, have
concluded that additional safeguards are needed in certain
circumstances, as described later in this section of the preamble.
Under the proposed rules, the Departments enumerated eight
permitted classes of employees and also allowed employers to combine
the classes of employees. In the process of finalizing the rules, the
Departments considered, as an alternative, whether to provide classes
of employees based on a more general standard (like the one that
applies under the HIPAA nondiscrimination rules, with a broader
employment-based classification standard) or whether to finalize
generally as proposed, such that the final rules would list the
specific permitted classes. The Departments determined that a broad and
open-ended standard would not be sufficient to mitigate the risk of
adverse selection and therefore under the final rules, the Departments
enumerate the permitted classes.
The Departments considered a number of alternatives with regard to
which classes of employees should be permitted under the final rules.
The proposed rules contained, as a permitted class of employees,
employees who had not attained age 25. The Departments considered
whether to retain this class in the final rules or whether to remove
this from the list of permitted classes, in response to commenters who
asserted that this class could lead to adverse selection and does not
reflect the categories employers typically use to offer benefits. In
response to these comments, the Departments determined that the final
rules should not include the under-age-25 class of employees in the
list of permitted classes.
Further, under the proposed rules, the Departments did not include
salaried employees and hourly employees as permitted classes of
employees. In finalizing the rules, the Departments considered whether
to add hourly and salaried employees as permitted classes or whether to
finalize the rule as proposed. In proposing the rules, the Departments
had noted that they did not include these classes in the list of
permitted classes due to a concern that employers might easily be able
to change an employee's status from salaried to hourly (and in certain
circumstances, from hourly to salaried), which could lead to adverse
selection. Commenters asserted that contrary to the Departments'
concerns these classes are not easy to manipulate and that hourly and
salaried employees should be added as permitted classes, in order to
increase the use of individual coverage HRAs. The Departments have
concluded that the benefits of employer flexibility, increased
utilization of individual coverage HRAs, and maximizing employee
welfare outweigh the potential risk of adverse selection and health
factor discrimination, due to a reconsideration of the extent to which
these categories could be manipulated and because of the application of
a minimum class size requirement, discussed later in this section of
the preamble. Therefore, the Departments add employees paid on a salary
basis and non-salaried employees (such as hourly employees) to the list
of permitted classes in the final rules.
The Departments also considered, in response to comments, whether
to add as a class of employees temporary workers employed by staffing
firms. The Departments determined that adding this class could increase
the usability of HRAs for staffing firms and benefit their employees.
The Departments also determined that this class would be difficult to
manipulate, and that, therefore, this class does not raise a
substantial risk of adverse selection or health factor discrimination.
Accordingly, the Departments add temporary workers employed by staffing
firms to the classes of employees permitted under the final rules.
The Departments also considered whether or not to add other classes
to the list of permitted classes, as suggested by commenters, including
classes based on status as a field worker (such as craft workers and
laborers), role or job title, employee tenure, being subject to the
Davis Bacon Act and Related Acts or the Service Contract Act, exempt or
non-exempt status under the Fair Labor Standards Act, and religion or
status as a minister. The Departments considered each of these
suggestions and determined that these suggested classes of employees
should not be permitted as they raise various issues, including ease of
manipulation and potential for adverse selection and health factor
discrimination, industry-specificity, and administrability and
definitional challenges.
Additional integration safeguards. The Departments considered a
number of alternative regulatory approaches to address the concern,
acknowledged by the Departments and expressed by a number of
commenters, that there is a potential for certain of the permitted
classes of employees to be manipulated in way that could lead to
adverse selection and health factor discrimination. The Departments
considered not adopting additional safeguards, in order to minimize
burden and complexity and based on the possibility that other economic
incentives related to attracting and retaining talented workers would
discourage employers from using the classes to segment risk. However,
the Departments have concluded that it is appropriate to apply a
minimum class size requirement under the final rules in certain
circumstances. The Departments sought to develop a rule that is
narrowly tailored both to mitigate the risk of adverse selection and
health factor discrimination while also avoiding overly burdening
employers or unnecessarily hampering the use and flexibility of HRAs to
maximize employee welfare.
The Departments considered a number of alternatives in designing
the minimum class size requirement. The Departments considered whether
to apply the minimum class size requirement to all permitted classes of
employees or only to the classes of employees that raise more
significant concerns about manipulation. The Departments determined
that the minimum class size requirement should apply to only certain of
the classes, referred to as the applicable classes (that
[[Page 28975]]
is, full-time employees, part-time employees, salaried employees, non-
salaried employees, and, in general, employees whose primary site of
employment is in a rating area). The Departments also determined that
the minimum class size requirement should apply if any of these
applicable classes are combined with any other class, except if the
combined class is the result of one of the applicable classes and the
class of employees in a waiting period, because the Departments
determined that that combined classis not easily manipulable.
Similarly, although a class of employees based on worksites in a rating
area is an applicable class for purposes of the minimum class size
requirement, a class of employees based on an entire state or a
combination of two or more entire states is not subject to the minimum
class size requirement, because in that case, weighing concerns about
manipulability against the intent to provide employers with flexibility
and choice, the Departments determined the application of the minimum
class size requirement was not warranted.
If a class of employees is subject to the minimum class size
requirement, the class must include a minimum number of employees for
the individual coverage HRA to be offered to that class. As to the
number of employees a class must contain to satisfy the minimum class
size requirement, the Departments considered a number of alternatives
including whether to provide one number for all employers or base the
threshold on employer size. The Departments also considered providing a
set number or a number calculated as a percentage of the employer's
employees. The Departments determined that this safeguard should be
narrowly tailored, so as to prevent against adverse selection without
unduly restricting employer flexibility. Therefore, under the final
rules, the applicable minimum class size varies based on the size of
the employer for smaller employers (that is, those with under 200
employees) and for employers with 200 or more employees, the applicable
class size minimum is set at 20.
In response to comments, the Departments also considered whether,
in addition to, or instead of, a minimum class size requirement, the
final rules should contain an anti-abuse rule that would give the
Departments the discretion to determine whether an individual coverage
HRA is offered in a manner that is intended to segment sicker workers
based on all the facts and circumstances. Therefore, even if an
employer followed the other rules set forth in the final rules, this
additional rule would nevertheless permit the Departments to address
instances of discrimination based on a health factor. The Departments
decline to add a facts and circumstances test to the final rules,
because the Departments have concluded that the minimum class size
requirement adequately balances the need to prevent health factor
discrimination with the need to provide employers with certainty in
order to encourage expansion and use of individual coverage HRAs.
Moreover, other applicable nondiscrimination laws continue to apply. A
new facts and circumstances test would add significant uncertainty for
employers while adding little additional protection mitigating adverse
selection and health factor discrimination.
Additional flexibility for the transition to individual coverage
HRAs from traditional group health plans. The Departments also
considered regulatory alternatives that would allow employers to phase
in offering individual coverage HRAs, in response to comments noting
that the transition from traditional group health plans to individual
coverage HRAs could be a substantial change from an employee
perspective. The Departments considered whether additional flexibility
was needed, in particular because the permitted classes of employees
that apply under the final rules provide employers some flexibility to
manage the transition to individual coverage HRAs. However, the
Departments also considered that certain additional flexibility could
benefit employers and employees, without adding significant complexity
or increasing the risk of adverse selection. Accordingly, the final
rules provide that, notwithstanding the general rule that a plan
sponsor may only offer either a traditional group health plan or an
individual coverage HRA to a class of employees, a plan sponsor that
offers a traditional group health plan to a class of employees may
prospectively offer employees in that class hired on or after a certain
date in the future an individual coverage HRA, while continuing to
offer employees in the class hired before the new hire date a
traditional group health plan.
Alternatives considered regarding excepted benefit HRAs. As
proposed, the excepted benefit HRA would allow for the reimbursement of
premiums for STLDI. In response to commenters requesting that the
excepted benefit HRA not be permitted to reimburse STLDI premiums due
to adverse selection concerns and concerns about the comprehensiveness
of STLDI, the Departments considered whether to finalize as proposed or
whether to prohibit the reimbursement of STLDI premiums under all
excepted benefit HRAs. The Departments also considered whether to
prohibit the reimbursement of STLDI premiums for only certain excepted
benefit HRAs, more specifically, those sponsored by employers that
offer traditional group health plans in the small group market, where
commenters asserted this aspect of the rule would have particularly
damaging effects because employers would not have a direct negative
financial consequence from offering the excepted benefit for STLDI in
addition to a traditional small group market plan in which case lower-
risk employees would likely choose the STLDI and higher-risk employees
would choose the traditional small group market health plan. The
Departments determined that excepted benefit HRAs generally should be
allowed to reimburse premiums for STLDI because it can be a viable
health insurance option for many people in many circumstances, no
individual is required to enroll in STLDI, and STLDI disclosure
requirements are sufficient to apprise consumers of its limits. As
explained earlier in this preamble, the Departments do not expect that
allowing the excepted benefit HRA to reimburse STLDI premiums will
produce adverse selection in the small group market. In particular, the
Departments note that individuals who choose to use the excepted
benefit HRA to purchase STLDI are likely to be uninsured otherwise,
including lower-wage workers who are increasingly declining employer
offers of traditional group coverage.\313\ The purchase of STLDI
coverage by these individuals will have no effect on the small group or
individual market.
---------------------------------------------------------------------------
\313\ In 1999, 17 percent of workers eligible for employer
coverage at small firms (those with 3 to 199 workers) turned down
the offer of employer coverage. By 2011, this share had climbed to
22 percent, and in 2018 it was 27 percent. See Kaiser Family
Foundation, ``Employer Health Benefits 2018 Survey,'' Figure 3.1,
available at http://files.kff.org/attachment/Report-Employer-Health-Benefits-Annual-Survey-2018.
---------------------------------------------------------------------------
However, in response to concerns raised by commenters, the final
rules also contain a special rule to address commenters' concerns about
the potential for adverse selection in the small group markets. Under
the special rule, the Departments may restrict excepted benefit HRAs
from being able to reimburse STLDI premiums, for employers offering
fully-insured or partially-insured traditional group health plans in
the small group market in a state, if certain criteria are satisfied,
including that HHS makes a finding, in consultation with DOL and the
Treasury
[[Page 28976]]
Department, that the reimbursement of premiums for STLDI by excepted
benefit HRAs has caused significant harm to the small group market in
the state that is the principal place of business of the small employer
and this finding must be made after submission of a written
recommendation by the applicable state regulatory authority of such
state.
The proposed excepted benefit HRA rules did not contain a specific
notice requirement. However, several commenters suggested that the
final rules impose certain notice requirements for excepted benefit
HRAs, including to inform participants and beneficiaries of the annual
dollar limit for benefits under the excepted benefit HRA, other terms
and conditions of the excepted benefit HRA, and participants' and
beneficiaries' rights under the excepted benefit HRA. In response, the
Departments considered whether to impose a notice requirement, whether
to finalize as proposed with no notice requirement, or whether to
explain the disclosure requirements otherwise applicable to excepted
benefit HRAs. In the final rules, the Departments do not impose a
notice requirement on private-sector, employment-based plans covered by
ERISA but, instead, explain that excepted benefit HRAs that are subject
to ERISA are already subject to a number of disclosure provisions,
under which excepted benefit HRAs should generally provide information
on eligibility to receive benefits, annual or lifetime caps or other
limits on benefits under the plan, and a description or summary of the
benefits. However, for non-federal governmental plans, which are not
subject to ERISA, the final rules announce HHS' intent to propose a
notice requirement, similar to the disclosures required under ERISA.
Under the proposed excepted benefit HRA rules, the Departments
proposed that annual amounts newly made available under the HRA would
be limited to $1,800, indexed for inflation. Many commenters supported
the proposed dollar limit as a reasonable mid-point of the different
limits that would result in applying various methodologies, however
some requested that the limit be increased, including to allow for the
additional purchase of excepted benefit policies or for more expensive
STLDI policies and others requested it not be subject to any dollar
limit. Some of these commenters favored a higher limit for excepted
benefit HRAs based on age and number of dependents to reflect that
participants who are older or have dependents are likely to have higher
healthcare costs. The Departments considered as regulatory alternatives
the various limits suggested by commenters, including the annual salary
reduction contribution limit for health FSAs or 15 percent of the cost
of coverage under the employer's primary plan. The final rules do not
remove or increase the dollar limit for the excepted benefit HRA. The
Departments agree that increasing the dollar limit would encourage
certain participants to rely solely on benefits reimbursed through the
excepted benefit HRA and could lead to adverse selection. Also, in
order to constitute a limited excepted benefit, as explained earlier in
this preamble, because the benefit is not otherwise limited in scope,
the HRA must have a strict dollar limit.
In determining the appropriate dollar limit for excepted benefit
HRAs, the Departments considered other, similar limited excepted
benefits. The Departments agree with commenters' assertions that the
proposed limit was reasonable and rational, especially considering the
relatively low cost of excepted benefits coverage, such as dental or
vision coverage. Additionally, although the Departments recognize that
healthcare expenses may be higher for participants who are older or
have dependents, adopting a higher limit to account for a combination
of factors like age and family size could allow an excepted benefit HRA
to be too large and to resemble major medical coverage and would add
significant complexity to the rule.
Applicability date. The proposed rules were generally proposed to
be applicable for plan years beginning on or after January 1, 2020. In
response to comments expressing concern that issuers, state insurance
regulators, the Exchanges, and employers would not be prepared for
implementation of the final rules by 2020, the Departments considered
whether to finalize the applicability date as proposed or whether to
delay the applicability date until 2021. The Departments have
determined that, in consideration that Executive Order 13813, issued in
October 2017, set forth HRA expansion as an Administration priority
``in the near term,'' and in order to provide Americans with more
options for financing their healthcare, the regulations should be
applicable, as proposed, for 2020. However, the Departments acknowledge
and also considered the crucial role that the Exchanges have in
implementation and operationalization of the final rules, and the
Departments will work closely with the Exchanges on implementation. The
Departments considered the comments and the concerns raised by various
State Exchanges, issuers, employers and other stakeholders related to
the ability of the Exchanges to fully implement changes related to the
final rules in time for open enrollment for the 2020 plan year. The
Departments recognize that Exchanges may be unable to fully implement
changes related to the final rules in time for open enrollment for the
2020 plan year. However, prior to full implementation, the Departments
will work with the Exchanges on their strategies to provide information
to consumers about affordability of individual coverage HRAs and
eligibility for APTC, including how employees can access individual
health insurance coverage through the Exchanges and determine whether
they should use APTC. In fact, multiple conversations have already
occurred between program and operational experts at HHS and officials
from State Exchanges regarding implementation in the event the rule was
finalized as proposed (including with an applicability date as
proposed). Ongoing technical assistance will be provided related to the
development of tools and functionality by Exchanges to support
employers and employees with understanding HRA affordability
determinations and their impact on APTC eligibility, as well as the SEP
for those with an offer of an individual coverage HRA. Specific
assistance could include sharing technical and educational
documentation from FFE implementation that can be leveraged to support
State Exchange efforts. In addition, the Departments will provide
assistance to Exchanges in developing information and tools that could
be provided to employers and employees to help ensure smooth
implementation before the full system changes are complete. This could
include State Exchanges providing employees with information on how
they can calculate HRA affordability and determine the impact on APTC
in the absence of system changes that can make those calculations for
the employee.
The Departments also considered that many individuals covered by an
individual coverage HRA will prefer to select off-Exchange individual
health insurance plans because salary reductions through a cafeteria
plan may be used to pay premiums for off-Exchange coverage, if the
employer so allows, and may not be used to pay premiums for Exchange
coverage. To the extent a significant proportion of employees with
individual coverage HRAs purchase individual health insurance coverage
off the Exchange, concerns about burden on the Exchanges, and concerns
regarding the
[[Page 28977]]
effects of timely operationalization of the PTC rules, are mitigated.
Further, the Departments have worked to release the final rules as
early in 2019 as possible, in recognition of the implementation timing
issues raised and the Departments note, and considered, that plan
sponsors may choose if and when to offer an individual coverage HRA (or
an excepted benefit HRA) and may do so any time on or after the
applicability date. The Departments intend to provide the guidance
necessary for plan sponsors to offer individual coverage HRAs and
excepted benefit HRAs for the 2020 plan year, but the Departments also
expect that plan sponsors will take the time they need to evaluate the
final rules and to take advantage of these new coverage options if and
when it is best for their workforce.
D. Paperwork Reduction Act--Department of Health and Human Services
Under the Paperwork Reduction Act of 1995 (PRA), HHS is required to
provide 30-day notice in the Federal Register and solicit public
comment before a collection of information requirement is submitted to
OMB for review and approval. To fairly evaluate whether an information
collection should be approved by OMB, section 3506(c)(2)(A) of the PRA
requires that HHS solicit comment on the following issues:
The need for the information collection and its usefulness
in carrying out the proper functions of our agency.
The accuracy of HHS' estimate of the information
collection burden.
The quality, utility, and clarity of the information to be
collected.
Recommendations to minimize the information collection
burden on the affected public, including automated collection
techniques.
1. Wage Estimates
To derive wage estimates, the Departments generally used data from
the Bureau of Labor Statistics to derive average labor costs (including
a 100 percent increase for fringe benefits and overhead) for estimating
the burden associated with the information collection requirements
(ICRs).\314\ Table 3 below presents the mean hourly wage, the cost of
fringe benefits and overhead, and the adjusted hourly wage.
---------------------------------------------------------------------------
\314\ See May 2017 Bureau of Labor Statistics, Occupational
Employment Statistics, National Occupational Employment and Wage
Estimates, available at https://www.bls.gov/oes/current/oes_nat.htm.
---------------------------------------------------------------------------
As indicated, employee hourly wage estimates have been adjusted by
a factor of 100 percent. This is necessarily a rough adjustment, both
because fringe benefits and overhead costs vary significantly across
employers, and because methods of estimating these costs vary widely
across studies. Nonetheless, there is no practical alternative, and the
Departments are of the view that doubling the hourly wage to estimate
total cost is a reasonably accurate estimation method.
Table 3--Adjusted Hourly Wages Used in Burden Estimates
----------------------------------------------------------------------------------------------------------------
Fringe
Occupational Mean hourly benefits and Adjusted
Occupation title code wage ($/hour) overhead ($/ hourly wage
hour) ($/hour)
----------------------------------------------------------------------------------------------------------------
Compensation and Benefits Manager............... 11-3111 $62.50 $62.50 $125.00
Lawyer.......................................... 23-1011 68.22 68.22 136.44
All Occupations................................. 00-0000 24.34 24.34 48.68
----------------------------------------------------------------------------------------------------------------
2. ICRs Regarding Substantiation of Individual Health Insurance
Coverage (45 CFR 146.123(c)(5))
Under the final rules, an HRA must implement reasonable procedures
to annually verify that participants or dependents, whose medical care
expenses are reimbursable by the HRA are, or will be, enrolled in
individual health insurance coverage or Medicare for the entire plan
year on or before the first day of the plan year, or, for an individual
who is not eligible to participate in the individual coverage HRA on
the first day of the plan year, by the date HRA coverage begins (annual
coverage substantiation requirement).
In addition to the annual substantiation of coverage, with each new
request for reimbursement of an incurred medical care expense for the
same plan year, the final rules provide that the HRA may not reimburse
a participant for any medical care expenses unless, prior to each
reimbursement, the participant provides substantiation that the
individual on whose behalf reimbursement of medical care expenses are
requested to be reimbursed were enrolled in individual health insurance
coverage or Medicare for the month during which the medical care
expenses were incurred. The attestation may be part of the form used
for requesting reimbursement.
To satisfy these substantiation requirements, the HRA may require
that the participant submit a document provided by a third party (for
example, an explanation of benefits or insurance card) showing that the
participant and any dependent(s) covered by the individual coverage HRA
are, or will be, enrolled in individual health insurance coverage or
Medicare during the plan year or an attestation by the participant
stating that the participant and any dependent(s) are, or will be,
enrolled in individual health insurance coverage or Medicare, the date
coverage began or will begin, and the name of the provider of the
coverage. Additionally, nothing in the final rules would prohibit an
individual coverage HRA from establishing procedures to comply with the
substantiation requirements through electronic means, so long as the
procedures are reasonable to verify enrollment. The ongoing
substantiation may be in the form of a written attestation by the
participant, which may be part of the form used for requesting
reimbursement and which will minimize the burden on plan sponsors and
participants. The ongoing substantiation requirement may also be
satisfied by a document from a third party. The associated cost of
substantiation will be minimal and is, therefore, not estimated.
The Departments are releasing guidance providing model attestation
language, separate from the final rules. However, the Departments note
that individual coverage HRAs will not be required to use the model
attestation. For those HRAs that elect to use the model attestation
language provided by the Departments, it will further reduce burden for
HRAs and participants.
The burden related to these ICRs will be reviewed under emergency
review
[[Page 28978]]
and approval. They have been submitted to OMB in conjunction with this
final rule and are pending approval.
3. ICRs Regarding Notice Requirement for Individual Coverage HRA (45
CFR 146.123(c)(6))
These final rules include a requirement that an HRA provide written
notice to eligible participants. In general, the HRA will be required
to provide a written notice to each participant at least 90 days before
the beginning of each plan year. For participants who are not yet
eligible to participate at the beginning of the plan year (or who are
not eligible when the notice is provided at least 90 days prior to the
beginning of the plan year), the HRA must provide the notice no later
than the date on which the HRA may first take effect for the
participant. However, the Departments encourage the HRA to provide the
notice as soon as practicable prior to the date the HRA may first take
effect. The final rules provide that if the HRA is sponsored by an
employer that is established less than 120 days prior to the beginning
of the first plan year of the HRA, the notice may be provided no later
than the date on which the HRA may first take effect for the
participant.
The written notice will be required to include certain relevant
information, including a description of the terms of the HRA, including
the maximum dollar amount made available that is used in the
affordability determination under the Code section 36B rules including
information on when the amounts will be made available (for example,
monthly or annually at the beginning of the plan year); a statement of
the right of the participant to opt-out of and waive future
reimbursement under the HRA; a description of the potential
availability of the PTC for a participant who opts out of and waives an
HRA if the HRA is not affordable under the PTC rules; a description of
the PTC eligibility consequences for a participant who accepts the HRA;
a statement on how the participant may find assistance for determining
their individual coverage HRA affordability; a statement that the
participant must inform any Exchange to which they apply for advance
payments of the PTC of certain relevant information; contact
information (including at least a phone number) of an individual or a
group of individuals who participants may contact with questions
regarding the individual coverage HRA; a statement that the participant
should retain the written notice because it may be needed to determine
whether the participant is allowed the PTC; a statement that the HRA
may not reimburse any medical care expense unless the substantiation
requirements are satisfied; a statement of availability of an SEP for
employees and dependents who newly gain access to the HRA; the date as
of which coverage under the HRA may first become effective and the date
on which the HRA plan year ends; and a statement to clarify further
that there are multiple types of HRAs and the type the participant is
being offered is an individual coverage HRA.
The written notice may include other information, as long as the
additional content does not conflict with the required information. The
written notice will not need to include information specific to a
participant.
The Departments are providing model language contemporaneously on
certain aspects of the notice that are not employer-specific, including
model language describing the PTC consequences of being offered and
accepting an individual coverage HRA, how the participant may find
information to determine whether the individual coverage HRA offered is
affordable, and language to meet the requirement to include a statement
regarding the availability of an SEP in the individual market for
individuals for whom an individual coverage HRA is newly made
available. While the Departments hope it will be useful to employers,
plan sponsors will not be required to use the model language and the
final rules do not prohibit an employer from providing more
individualized notices, such as different notices for different classes
of employees, if the employer so chooses.
The Departments estimate that for each HRA plan sponsor, a
compensation and benefits manager will need 2 hours (at $125 per hour)
and a lawyer will need 1 hour (at $136.44 per hour) to prepare the
notices. The total burden for an HRA plan sponsor will be 3 hours with
an equivalent cost of approximately $386. This burden will be incurred
the first time the plan sponsor provides an individual coverage HRA. In
subsequent years, the burden to update the notice is expected to be
minimal and therefore is not estimated. If the HRA plan sponsor elects
to use the model notice, the burden may be reduced.
HHS estimates that in 2020, an estimated 1,203 state and local
government entities will offer individual coverage HRAs.\315\ The total
burden to prepare notices will be approximately 3,610 hours with an
equivalent cost of approximately $464,984. In 2021 approximately 1,805
additional state and local government entities will offer individual
coverage HRAs for the first time and will incur a burden of
approximately 5,415 hours with an equivalent cost of approximately
$697,476. In 2022, approximately 3,008 additional state and local
government entities will offer individual coverage HRAs for the first
time and will incur a burden of approximately 9,024 hours with an
equivalent cost of approximately $1.16 million.
---------------------------------------------------------------------------
\315\ U.S. Department of the Treasury, Office of Tax Analysis
simulation model suggests that in 2020, approximately 80,000
employers will offer individual coverage HRAs, with 1.1 million
individuals receiving an offer of an individual coverage HRA. These
numbers will increase to 200,000 employers and 2.7 million
individuals in 2021 and to 400,000 employers and 5.3 million
individuals in 2022. The Departments estimate that there is, on
average, 1 dependent for every policyholder. The Departments also
estimate that approximately 2 percent of employers are state and
local government entities, accounting for approximately 14 percent
of participants.
---------------------------------------------------------------------------
HRA plan sponsors will provide the notice to eligible participants
every year. HHS estimates that HRA plan sponsors will provide printed
notices to approximately 99,178 eligible participants \316\ in 2020,
243,438 eligible participants in 2021 and 477,859 eligible participants
in 2022. The Departments anticipate that the notices will be
approximately 6 pages long and the cost of materials and printing will
be $0.05 per page, with a total cost of $0.30 per notice. It is assumed
that these notices will be provided along with other benefits
information with no additional mailing cost. The Departments assume
that approximately 54 percent of notices will be provided
electronically and approximately 46 percent will be provided in print
along with other benefits information. Therefore, in 2020, state and
local government entities providing individual coverage HRAs will print
approximately 45,622 notices at a cost of approximately $13,687. In
2021, approximately 111,981 notices will be printed at a cost of
approximately $33,594 and in 2022, approximately 219,815 notices will
be printed at a cost of approximately $65,945.
---------------------------------------------------------------------------
\316\ U.S. Department of the Treasury, Office of Tax Analysis
simulation model provides estimates of the number of participants
and dependents offered an individual coverage HRA. Number of
eligible participants is estimated based on the assumption that 75
percent of eligible participants will enroll in their employers'
plans. See Kaiser Family Foundation, ``2017 Employer Health Benefits
Survey'', Section 3, https://www.kff.org/health-costs/report/2017-employer-health-benefits-survey/.
[[Page 28979]]
Table 4--Annual Burden and Costs
--------------------------------------------------------------------------------------------------------------------------------------------------------
Estimated Estimated
number of number of Total Total
Year employers notices to all Total annual estimated estimated
newly offering eligible burden (hours) labor cost printing and
HRAs participants materials cost
--------------------------------------------------------------------------------------------------------------------------------------------------------
2020............................................................... 1,203 99,178 3,610 $464,984 $13,687
2021............................................................... 1,805 243,438 5,415 697,476 33,594
2022............................................................... 3,008 477,859 9,024 1,162,461 65,945
------------------------------------------------------------------------------------
3 year average................................................. 2,005 273,492 6,016 774,974 37,742
--------------------------------------------------------------------------------------------------------------------------------------------------------
The burden related to these ICRs will be reviewed under emergency
review and approval. They have been submitted to OMB in conjunction
with this final rule and are pending approval.
4. ICRs Regarding Notice Requirement for Excepted Benefit HRAs
In response to commenters' concerns, the final rules announce HHS'
intent to propose a notice requirement with respect to excepted benefit
HRAs sponsored by nonfederal governmental plan sponsors in future
notice and comment rulemaking. It is anticipated that the proposed
excepted benefit HRA notice would describe conditions pertaining to
eligibility to receive benefits, annual or lifetime caps or other
limits on benefits under the plan, and a description or summary of the
benefits consistent with the requirements of 29 CFR 2520.102-3(j)(2),
(3). At that time, HHS will estimate the burden associated with this
requirement, solicit public comment, and request OMB approval in
accordance with the PRA, as may be necessary.
5. ICRs Regarding Notification of Termination of Coverage (45 CFR
146.123(c)(1)(iii))
Under the final rules, if an individual's health insurance coverage
is cancelled or terminated, including retroactively, for failure to pay
premiums or any other reason (for example, a rescission), the
individual coverage HRA must require that the individual notify the HRA
that coverage has been cancelled or terminated and the date on which
the cancellation or termination is effective. The associated cost of
this notification will be minimal and is, therefore, not estimated.
The burden related to these ICRs will be reviewed under emergency
review and approval. They have been submitted to OMB in conjunction
with this final rule and are pending approval.
6. ICRs Regarding Special Rule for Excepted Benefit HRAs (45 CFR
146.145(b)(3)(viii)(F))
Under the final rules, an excepted benefit HRA offered by certain
small employers must not reimburse premiums for STLDI in a state, if
the Secretary of HHS makes a finding (in consultation with the
Secretaries of Labor and the Treasury) that the reimbursement of
premiums for STLDI by excepted benefit HRAs has caused significant harm
to the small group market in the state that is the principal place of
business of the small employer. The finding by the Secretary of HHS may
be made only after submission of a written recommendation by the
applicable state authority of such state, in a form and manner as
specified in guidance published by HHS. The written recommendation must
include evidence that the reimbursement of premiums for STLDI by
excepted benefit HRAs established by fully-insured or partially-insured
small employers in the state has caused significant harm to the state's
small group market, including with respect to premiums. HHS anticipates
fewer than 10 states will submit recommendations annually.
Under 5 CFR 1320.3(c)(4), this ICR will not be subject to the PRA
as we anticipate it will affect fewer than 10 entities in a 12-month
period.
7. ICRs Regarding SEPs (45 CFR 155.420(d)(14))
The final SEP rules include a new SEP at 45 CFR 155.420(d)(14), to
allow individuals who newly gain access to an individual coverage HRA
or are newly provided a QSEHRA to enroll in or change their individual
health insurance coverage. As stated earlier in the preamble, the FFEs
will require individuals to submit documentation to confirm their SEP
eligibility prior to effectuating their enrollment, and encourages
State Exchanges to do so, as well. Consistent with other SEPs subject
to pre-enrollment verification, individuals will be required to provide
supporting documentation, such as the HRA notice required under the
final rules, within 30 days of plan selection.
HHS estimates that an additional 330,000 consumers will submit
documents in 2020 to verify their eligibility to enroll through the SEP
in the Exchanges, and that a consumer will, on average, spend
approximately 1 hour gathering and submitting required documentation.
Using the average hourly wage for all occupations (at an hourly rate of
$48.68), the opportunity cost to a consumer completing this task is
estimated to be approximately $48.68. The total annual burden on those
consumers submitting documentation will be approximately 330,000 hours
with an equivalent cost of approximately $16,064,400. As new individual
coverage HRA enrollments increase, these costs also increase in
subsequent years. In 2021, an additional 480,000 consumers will submit
documents and incur burden of 480,000 hours with an equivalent cost of
approximately $23,366,400 and in 2022 an additional 780,000 consumers
will submit documents and incur burden of 780,000 hours with an
equivalent cost of approximately $37,970,400. The three-year average is
530,000 additional consumers submitting documents, with a total burden
of 530,000 hours and an equivalent cost of $25,800,400 per year.
HHS will amend the information collection currently approved under
OMB control number 0938-1207 (Medicaid and Children's Health Insurance
Programs: Essential Health Benefits in Alternative Benefit Plans,
Eligibility Notices, Fair Hearing and Appeal Processes, and Premiums
and Cost Sharing; Exchanges: Eligibility and Enrollment (CMS-10468)) to
account for this additional burden.
[[Page 28980]]
Table 5--Annual Recordkeeping and Reporting Requirements
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Burden per Total annual Hourly labor Total labor Printing and
Regulation section OMB control No. Respondents Responses response burden cost of cost of materials Total cost
(hours) (hours) reporting reporting cost
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Sec. 146.123(c)(6) (Notice for 0938-NEW................. 2,005 273,492 3 6,016 $128.81 $774,974 $37,742 $812,716
Individual Coverage HRAs).
45 CFR 155.420(d)(14) (SEP).......... 0938-1207................ 530,000 530,000 1 530,000 48.68 25,800,400 0 25,800,400
----------------------------------------------------------------------------------------------------------------------------------------------------------
Total............................ ......................... 532,005 803,492 .............. 536,016 .............. 26,575,374 37,742 26,613,116
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
8. Submission of PRA-Related Comments
HHS has submitted a copy of the final rules to OMB for its review
of the rule's information collection and recordkeeping requirements.
The requirements are not effective until they have been approved by
OMB.
To obtain copies of the supporting statement and any related forms
for the collections discussed in this rule, please visit CMS' website
at www.cms.hhs.gov/PaperworkReductionActof1995, or call the Reports
Clearance Office at 410-786-1326. HHS invites public comments on these
information collection requirements. If you wish to comment, please
identify the rule (CMS-9918-F), the ICR's CFR citation, CMS ID number,
and OMB control number. Comments and recommendations must be received
by the OMB desk officer via one of the following transmissions:
OMB, Office of Information and Regulatory Affairs, Attention: CMS
Desk Officer, Fax: (202) 395-5806 OR, Email:
[email protected].
To obtain copies of a supporting statement and any related forms
for the collection(s) summarized in this rule, you may make your
request using one of following:
1. Access CMS' website address at https://www.cms.gov/Regulations-and-Guidance/Legislation/PaperworkReductionActof1995/PRA-Listing.html.
2. Email your request, including your address, phone number, OMB
number, and CMS document identifier, to [email protected].
3. Call the Reports Clearance Office at (410) 786-1326.
ICR-related comments are due July 22, 2019.
E. Paperwork Reduction Act--Department of Labor and Department of the
Treasury
As part of the continuing effort to reduce paperwork and respondent
burden, the Departments conduct a preclearance consultation program to
provide the general public and federal agencies with an opportunity to
comment on proposed and continuing collections of information in
accordance with the PRA. This helps to ensure that the public
understands the Departments' collection instructions, respondents can
provide the requested data in the desired format, reporting burden
(time and financial resources) is minimized, collection instruments are
clearly understood, and the Departments can properly assess the impact
of collection requirements on respondents.
Under the PRA, an agency may not conduct or sponsor, and an
individual is not required to respond to, a collection of information
unless it displays a valid OMB control number. In accordance with the
requirements of the PRA, DOL published notice on October 29, 2018 (83
FR 54420, 54454) requesting an OMB control number for three new
information collections (ICs) contained in the proposed rules. Two ICs
are sponsored jointly by DOL and the Treasury Department: (1)
Verification of Enrollment in Individual Health Insurance Coverage (26
CFR 54.9802-4(c)(5), 29 CFR 2590.702-2(c)(5) and 45 CFR 146.123(c)(5));
and (2) HRA Notice to Participants (26 CFR 54.9802-4(c)(6), 29 CFR
2590.702-2(c)(6) and 45 CFR 146.123(c)(6)). A third IC is sponsored
solely by DOL (29 CFR 2510.3-1): (3) Notice to Participants that
Individual Health Insurance Coverage Policy is Not Subject to Title I
of ERISA. In response to comments received on the proposal, the
Departments have added two additional information collections entitled
Participant Notify Individual Coverage HRA of Cancelled or Terminated
Coverage (26 CFR 54.9802-4(c)(1)(iii), 29 CFR 2590.702-2(c)(1)(iii) and
45 CFR 146.123(c)(1)(iii)) and Notice for Excepted Benefit HRAs (26 CFR
54.9831-1(c)(3)(viii)(E), 29 CFR 2590.732(c)(3)(viii)(E) and 45 CFR
146.145(c)(3)(viii)(E)).
With regard to the Treasury Department, the collection of
information contained in these regulations is submitted to OMB for
review in accordance with the PRA as follows. The collection of
information in these regulations is in 26 CFR 54.9815-2711(d)(4) and 26
CFR 54.9802-4(c)(1)(iii), (c)(5) and (c)(6). The burden for the
collection of information contained in these regulations is reflected
in the burden for OMB Control Number 1545-0123 for the U. S. Business
Income Tax Return, 1545-0074 for U.S. Individual Income Tax Return, and
1545-0047 Return of Organizations Exempt From Income Tax. The estimated
annual burden per respondent, estimated annual burden per recordkeeper,
or estimated number of respondents is updated annually.
The Departments submitted an information collection request (ICR)
to OMB in accordance with 44 U.S.C. 3507(d) contemporaneously with the
publication of the proposed rules for OMB's review. A copy of the ICR
may be obtained by contacting the PRA addressee identified or at http://www.RegInfo.gov. PRA Addressee: G. Christopher Cosby, Office of Policy
and Research, U.S. Department of Labor, Employee Benefits Security
Administration, 200 Constitution Avenue NW, Room N- 5718, Washington,
DC 20210. Telephone (202) 693-8410; Fax: (202) 219-5333. These are not
toll-free numbers. ICRs submitted to OMB also are available at http://www.RegInfo.gov.
In connection with the final rules, the Departments are submitting
an ICR to OMB requesting approval of a new collection of information
under OMB Control Number 1210-0160. Below is a description of the
information collections contained in the final rules and their burden.
1. Verification of Enrollment in Individual Health Insurance Coverage
In order for an HRA to be integrated with individual health
insurance coverage (or Medicare, if applicable), among other
requirements, in general, the HRA must implement, and comply with,
reasonable procedures to substantiate that participants and dependents
covered by the HRA are, or will be, enrolled in individual health
insurance coverage (or Medicare, if applicable) for the plan year (or
for the portion of the plan year the individual is covered by the HRA,
if applicable). This requirement may be satisfied by providing a
document from a third party, like an issuer, verifying coverage. As an
alternative procedure, this requirement may also be satisfied if the
[[Page 28981]]
HRA requires participants to provide an attestation of coverage,
including the date coverage begins and the provider of the coverage.
In addition, following the initial substantiation of coverage, with
each new request for reimbursement of an incurred medical care expense
for the same plan year, the HRA may not reimburse participants for any
medical care expenses unless, prior to each reimbursement, the
participant provides substantiation that the individual whose medical
care expenses are requested to be reimbursed continues to be enrolled
in individual health insurance coverage (or Medicare, if applicable)
for the month during which the medical care expenses were incurred. The
HRA must implement, and comply with, reasonable procedures to satisfy
this requirement. This substantiation may be in the form of a written
attestation by the participant, which may be part of the form used for
requesting reimbursement, or a document from a third party (for
example, a health insurance issuer).
Documentation, including proof that expenditure of funds is for a
medical care expense, is currently universal when seeking reimbursement
from an HRA. For the new requirements contained in the final rules
regarding verification of enrollment in individual health insurance
coverage (or Medicare, if applicable), the HRA can require proof of
coverage or attestations of coverage as part of the processes that
already exist for when participants seek reimbursement from HRAs for
premiums or other medical care expenses. The additional burden is de
minimis, because the attestation can be a part of the information
already required when seeking reimbursement. To the extent an HRA
develops additional processes for the requirement that individuals
verify enrollment in individual health insurance coverage (or Medicare)
for the plan year, the additional burden is also expected to be de
minimis because it involves either attestation or providing documents
that already exist.
The Departments are providing model attestation language, separate
from the final rules. However, the Departments note that individual
coverage HRAs will not be required to use the model attestation. For
those HRAs that elect to use the model attestation language provided by
the Departments, it will further reduce burden for the HRAs and
participants.
Section II.A.8 of this preamble discusses comments received on the
requirement to verify enrollment including II.A.8.a In General,
II.A.8.b Methods of Substantiation, and II.A.8.c Reliance on
Documentation or Attestation.
2. HRA Notice to Participants
The final rules (29 CFR 2590.702-2(c)(6)(ii)) require an HRA to
provide written notice to eligible participants including, among other
things, the following information: (1) A description of the terms of
the HRA, including the amounts newly made available as used in the
affordability determination under the Code section 36B final rules; (2)
a statement of the right of the participant to opt-out of and waive
future reimbursement under the HRA; (3) a description of the potential
availability of the PTC for a participant who opts out of and waives an
HRA if the HRA is not affordable under the final PTC rules; and (4) a
description of the PTC eligibility consequences for a participant who
accepts the HRA. The written notice may include other information, as
long as the additional information does not conflict with the required
information. The written notice does not need to include information
specific to a participant. In response to public comments, the
Departments are separately publishing a model notice that can be used
to satisfy these requirements, although the HRA will be required to add
certain information specific to the particular HRA. The Departments
note that individual coverage HRAs will not be required to use the
model notice. For those HRAs that elect to use the model notice
language provided by the Departments, it will further reduce burden for
the HRAs.
In general, the HRA must provide the written notice to each
participant at least 90 days before the beginning of each plan year.
For participants who are not yet eligible to participate at the
beginning of the plan year (or who are not eligible when the notice is
provided at least 90 days prior to the beginning of the plan year), the
HRA must provide the notice no later than the date on which the HRA may
first take effect for the participant. Also, for any participant who is
employed by an employer that is first established less than 120 days
before the beginning of the first plan year of the HRA, the notice must
be provided no later than the date on which the HRA may first take
effect for the participant.
Section II.A.9 of the preamble discusses comments received on the
notice, the Departments' responses and changes made to the notice
requirement including II.A.9.a Notice Content, II.A.9.b Notice
Individualization, II.A.9.c Model Notice, II.A.9.d Notice Timing and
Delivery.
The Departments estimate that a compensation and benefits manager
would require two hours (at $125 per hour) and a lawyer would require
one hour (at $136.44 per hour) to prepare the notice for each HRA.
Thus, the total hour burden for each HRA would be 3 hours with an
equivalent cost of approximately $386. The Departments estimate that
each notice would be six pages, with total materials and printing cost
of $0.30 per notice ($0.05 per page). The Departments estimate that
78,797 private employers would \317\ newly offer individual coverage
HRAs in 2020 \318\ as a result of the final rules in the first year.
Therefore, the Departments estimate the total hour burden for these
HRAs to prepare the notices would be 236,390 hours with an equivalent
cost of $30,450,216.
---------------------------------------------------------------------------
\317\ U.S. Department of the Treasury, Office of Tax Analysis
used a simulation model to obtain these estimates. For 2020, the
model estimated that 80,000 employers will offer individual coverage
HRAs and 1.1 million individuals will be offered those HRAs. Based
on DOL estimates about 98 percent of these will be in the private
market, and the rest will be through public employers like state and
local governments. There are on average one dependent for every
policy holder. ``Health Insurance Coverage Bulletin'', Abstract of
the Auxiliary Data for the March 2016 Annual Social and Economic
Supplement of the Current Population Survey, July 25, 2017. https://www.dol.gov/sites/default/files/ebsa/researchers/data/health-and-welfare/health-insurance-coverage-bulletin-2016.pdf.
\318\ Comparable numbers for 2021 are 118,195 private employers
will newly offer individual coverage HRAs and 1,556,562 eligible
participants in all individual coverage HRAs will receive notices,
and for 2022 196,992 private employers will newly offer individual
coverage HRAs and 3,055,474 eligible participants in all individual
coverage HRAs will receive notices.
---------------------------------------------------------------------------
All individual coverage HRAs are required to annually send the
notice to all eligible participants (those eligible to enroll). The
Departments estimate that there would be 634,155 eligible participants
at private employers in 2020 that would need to receive the
notice.\319\ The Departments assume that approximately 54 percent of
notices would be provided electronically and approximately 46 percent
would be provided in print along with other benefits information.
Therefore, a total of 291,711 notices will be printed at a
[[Page 28982]]
cost of $87,513. Tables 6 and 7 provide estimates for years 2020, 2021
and 2022.
---------------------------------------------------------------------------
\319\ Number of eligible participants is estimated based on
Treasury estimates of the number of individuals enrolled in
individual coverage HRAs, the assumption that there are two
enrollees per employee participant, and the assumption that 75
percent of eligible participants would enroll in their employers'
plans. See Kaiser Family Foundation, ``2017 Employer Health Benefits
Survey'', Section 3, https://www.kff.org/health-costs/report/2017-employer-health-benefits-survey/.
Table 6--Burden To Prepare HRA Notice for the First Time-Private Sector Employers
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Number of
employers Legal cost per Number of hours Benefit Number of hours
Year newly offering hour for legal manager cost for benefit Total hour burden Total equivalent cost
HRAs per hour manager
(a) (b) (c) (d) = 1 * (b) (e) (f) = 2 * (b) (g) = (d) + (f) (c) * (d) + (e) * (f)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2020............................................................. 78,797 $136.44 78,797 $125.00 157,593 236,390 $30,450,216
2021............................................................. 118,195 136.44 118,195 125.00 236,390 354,585 45,675,324
2022............................................................. 196,992 136.44 196,992 125.00 393,984 590,976 76,125,539
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Table 7--Burden To Provide Notice to All Eligible Private Sector Participants
----------------------------------------------------------------------------------------------------------------
Number of
Year Total number notices sent Cost per Total cost burden
of notices by mail notice
(a) (b) (c) (d) (e) = (c) * (d)
----------------------------------------------------------------------------------------------------------------
2020......................................... 634,155 291,711 $0.30 $87,513
2021......................................... 1,556,562 716,019 0.30 214,806
2022......................................... 3,055,474 1,405,518 0.30 421,655
----------------------------------------------------------------------------------------------------------------
3. Notice to Participants That Individual Health Insurance Coverage
Policy Is Not Subject to Title I of ERISA
In the final rules, DOL clarifies that individual health insurance
coverage, the premiums of which are reimbursed by an HRA, QSEHRA, or
supplemental salary reduction arrangement is not considered an
``employee welfare benefit plan'' with the consumer protections
provided under ERISA, if certain safe harbor conditions are satisfied.
HRA plan sponsors are required to notify participants of this fact (29
CFR 2510.3-1(l)(5)). For an HRA, this notice requirement is satisfied
if annually the notice requirement in 26 CFR 54.9802-4(c)(6) and 29 CFR
2590.702-2(c)(6) is satisfied, which is part of the HRA Notice to
Participants discussed earlier in this preamble. Therefore, this notice
requirement imposes no additional burden. For QSEHRAs and for HRAs not
subject to 26 CFR 54.9802-4(c)(6) and 29 CFR 2590.702-2(c)(6), but that
reimburse premiums for individual health insurance coverage, the plan
sponsor may use the following language to satisfy this condition: ``The
individual health insurance coverage that is paid for by this plan, if
any, is not subject to the rules and consumer protections of the
Employee Retirement Income Security Act. You should contact your state
insurance department for more information regarding your rights and
responsibilities if you purchase individual health insurance
coverage.'' The Departments estimate that this burden will be de
minimis, because the required text is provided in the rule and can be
included with other notices.
Section II.A.9 of the preamble discusses comments received on the
notice required to be provided to participants eligible for an
individual coverage HRA.
4. Participant Notifies Individual Coverage HRA of Cancelled or
Terminated Coverage
The final rules require that if a covered individual fails to pay
the applicable premium(s) by the end of a grace period and the coverage
is cancelled or terminated, including retroactively, or if individual
health insurance coverage is cancelled or terminated retroactively for
some other reason (for example, a rescission), the individual coverage
HRA must require that the individual notify the HRA that coverage has
been cancelled or terminated and the date on which the coverage
cancellation or termination is effective (26 CFR 54.9802-4(c)(1)(iii),
29 CFR 2590.702-254.9801-4(c)(1)(iii) and 45 CFR 146.123(c)(1)(iii)).
The Departments have concluded that the burden associated with this
notification requirement is de minimis for participants that cancel
coverage, because they can satisfy the requirement by making a phone
call or sending an email.
Other related comments are discussed in section II.A.2.d of this
preamble.
5. Notice for Excepted Benefit HRAs
In response to commenters' concerns, the final rules announce HHS'
intent to propose a notice requirement with respect to excepted benefit
HRAs sponsored by non-federal governmental plan sponsors in future
notice and comment rulemaking. It is anticipated that the proposed
excepted benefit HRA notice would be required to state conditions
pertaining to eligibility to receive benefits, annual or lifetime caps
or other limits on benefits under the excepted benefit HRA, and a
description of or summary of the benefits consistent with the content
and timing of DOL's SPD requirements.
For private-sector, employment-based plans, other notice
requirements under Part 1 of ERISA already apply. For example, excepted
benefit HRAs that are ERISA-covered plans must provide a SPD, SMM, and
summaries of material reductions in covered services or benefits.\320\
The excepted benefit HRA's SPD must include, for example, the
conditions pertaining to eligibility to receive benefits; a description
or summary of the benefits; the circumstances that may result in
disqualification, ineligibility, or denial, loss, forfeiture,
suspension, offset, reduction, or recovery (for example, by exercise of
subrogation or reimbursement rights) of any benefits; and the
procedures governing claims for benefits under the excepted benefit
HRA. Accordingly, for excepted benefit HRAs that are subject to ERISA,
the burden for providing information regarding excepted benefit HRAs is
captured under DOL's SPD information collection (OMB Control Number
1210-
[[Page 28983]]
0039), which includes a growth factor for new SPDs and SMMs provided to
participants to notify them regarding coverage under new plans and plan
amendments.
---------------------------------------------------------------------------
\320\ See 29 CFR 2520.104b-2, 2520.104b-3(a), and (d)(3).
---------------------------------------------------------------------------
Additional comments are discussed in section II.B.7 of this
preamble.
The information collections are summarized as follows:
Type of Review: New Collection.
Agency: DOL-EBSA, Treasury--IRS.
Title: Notice for Health Reimbursement Arrangements integrated with
Individual Health Insurance Coverage.
OMB Numbers: 1210-0160 (DOL), 1545-0123, 1545-0074, and 1545-0047
(Treasury).
Affected Public: Private Sector.
Total Respondents: 1,442,876 three-year average.
Total Responses: 18,798,855 three-year average.
Frequency of Response: Annually.
Estimated Total Annual Burden Hours: 196,992 for each agency
(combined total is 393,984 hours). Three year average.
Estimated Total Annual Burden Cost: $120,662 for each agency
(combined total is $241,325). Three year average.
F. Regulatory Flexibility Act
The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) imposes
certain requirements with respect to federal rules that are subject to
the notice and comment requirements of section 553(b) of the
Administrative Procedure Act (5 U.S.C. 551 et seq.) and which are
likely to have a significant economic impact on a substantial number of
small entities. Unless an agency certifies that a final rule is not
likely to have a significant economic impact on a substantial number of
small entities, section 604 of the RFA requires that the agency prepare
a final regulatory flexibility analysis describing the impact of the
rule on small entities. Small entities include small businesses,
organizations, and governmental jurisdictions.
The RFA generally defines a ``small entity'' as (1) a proprietary
firm meeting the size standards of the Small Business Administration
(SBA) (13 CFR 121.201), (2) a nonprofit organization that is not
dominant in its field, or (3) a small government jurisdiction with a
population of less than 50,000. (States and individuals are not
included in the definition of ``small entity.'') The Departments use as
their measure of significant economic impact on a substantial number of
small entities a change in revenues of more than 3 to 5 percent.
The Departments do not expect the final rules to produce costs or
benefits in excess of 3 to 5 percent of revenues for small entities.
Entities that choose to offer an individual coverage HRA instead of a
traditional group health plan are likely to experience a modest
increase or decrease in administrative burden associated with health
benefits. Entities that newly offer health benefits in the form of an
individual coverage HRA would bear modest administrative costs.
However, offering an individual coverage HRA is entirely voluntary on
the part of employers, and no employer that would experience
substantial costs would be expected to offer an individual coverage
HRA. In addition, the final rules would provide large and small
employers with an additional choice of a tax-preferred health benefit
to offer their employees, potentially enabling them to attract and
retain workers and maintain a healthier workforce.
In addition, section 1102(b) of the Social Security Act requires
agencies to prepare a regulatory impact analysis if a rule may have a
significant economic impact on the operations of a substantial number
of small rural hospitals. This analysis must conform to the provisions
of section 604 of the RFA. The final rules will not have a direct
effect on small rural hospitals though there may be an indirect effect.
By reducing the number of uninsured persons, the final rules could
reduce administrative costs, such as billing costs and the costs of
helping patients obtain public health benefits. The final rules could
also reduce the cost of uncompensated care borne by small rural
hospitals and other healthcare providers (and shift such costs to
insured persons). However, the Departments have determined that the
final rules will not have a significant impact on the operations of a
substantial number of small rural hospitals.
G. Impact of Regulations on Small Business--Department of the Treasury
Pursuant to section 7805(f) of the Code, the proposed rule that
preceded this final rule was submitted to the Chief Counsel for
Advocacy of the Small Business Administration for comment on its impact
on small business, and no comments were received.
H. Unfunded Mandates Reform Act
Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA)
requires that agencies assess anticipated costs and benefits and take
certain other actions before issuing a final rule that includes any
Federal mandate that may result in expenditures in any 1 year by state,
local, or Tribal governments, in the aggregate, or by the private
sector, of $100 million in 1995 dollars, updated annually for
inflation. In 2019, that threshold is approximately $154 million. These
final rules do not include any Federal mandate that may result in
expenditures by state, local, or tribal governments, or by the private
sector in excess of that threshold.
I. Federalism
Executive Order 13132 outlines fundamental principles of
federalism. It requires adherence to specific criteria by Federal
agencies in formulating and implementing policies that have
``substantial direct effects'' on the states, the relationship between
the national government and states, or on the distribution of power and
responsibilities among the various levels of government. Federal
agencies promulgating regulations that have these federalism
implications must consult with state and local officials, and describe
the extent of their consultation and the nature of the concerns of
state and local officials in the preamble to the final rules. Federal
officials have discussed the issues related to implementation of the
policies in the proposed rules with state regulatory officials. Over
multiple individual and group conversations, federal and state
officials shared information about how and when Exchange systems and
processes could be updated to support implementation of individual
coverage HRAs while minimizing burden and confusion for both employers
and consumers. State Exchanges expressed interest in how the FFEs would
update information and systems to support employers and employees with
HRA affordability determinations and the impact on APTC eligibility.
The FFEs explained possible ways in which the federal platform would
approach these issues and operations if the rules were finalized as
proposed and agreed to share related documentation once implementation
begins, to support state efforts. Some State Exchanges expressed
concerns in these conversations that fully implementing these changes
would take several months and likely would not be finished before
individual coverage HRAs become available starting on January 1, 2020.
The FFEs offered suggestions for information that could be provided to
employers and consumers to address these concerns and ensure smooth
implementation before system changes are complete.
J. Congressional Review Act
This final rule is subject to the Congressional Review Act
provisions of the Small Business Regulatory Enforcement Fairness Act of
1996 (5
[[Page 28984]]
U.S.C. 801 et seq.) and will be transmitted to the Congress and to the
Comptroller General for review in accordance with such provisions.
K. Reducing Regulation and Controlling Regulatory Cost
Executive Order 13771, titled Reducing Regulation and Controlling
Regulatory Costs, was issued on January 30, 2017 and requires that the
costs associated with significant new regulations ``shall, to the
extent permitted by law, be offset by the elimination of existing costs
associated with at least two prior regulations.'' This final rule is an
Executive Order 13771 deregulatory action.
Statutory Authority
The Department of the Treasury regulations are adopted pursuant to
the authority contained in sections 7805 and 9833 of the Code.
The Department of Labor regulations are adopted pursuant to the
authority contained in 29 U.S.C. 1002, 1135, 1182, 1185d, 1191a, 1191b,
and 1191c; Secretary of Labor's Order 1-2011, 77 FR 1088 (Jan. 9,
2012).
The Department of Health and Human Services regulations are adopted
pursuant to the authority contained in sections 2701 through 2763,
2791, 2792, and 2794 of the PHS Act (42 U.S.C. 300gg-300gg-63, 300gg-
91, 300gg-92 and 300gg-94), as amended; sections 1311 and 1321 of PPACA
(42 U.S.C. 13031 and 18041).
List of Subjects
26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
26 CFR Part 54
Excise taxes, Health care, Health insurance, Pensions, Reporting
and recordkeeping requirements.
29 CFR Part 2510
Employee benefit plans, Pensions.
29 CFR Part 2590
Continuation coverage, Disclosure, Employee benefit plans, Group
health plans, Health care, Health insurance, Medical child support,
Reporting and recordkeeping requirements.
45 CFR Parts 144 and 146
Health care, Health insurance, Reporting and recordkeeping
requirements.
45 CFR Part 147
Health care, Health insurance, Reporting and recordkeeping
requirements, and State regulation of health insurance.
45 CFR Part 155
Exchange establishment standards and other related standards under
the Affordable Care Act.
Kirsten Wielobob,
Deputy Commissioner for Services and Enforcement, Internal Revenue
Service.
Approved: June 6, 2019.
David J. Kautter,
Assistant Secretary of the Treasury (Tax Policy).
Signed at Washington, DC, this 10th day of June, 2019.
Preston Rutledge,
Assistant Secretary, Employee Benefits Security Administration,
Department of Labor.
Dated: June 7, 2019.
Seema Verma,
Administrator, Centers for Medicare & Medicaid Services.
Dated: June 7, 2019.
Alex M. Azar II,
Secretary, Department of Health and Human Services.
DEPARTMENT OF THE TREASURY
Internal Revenue Service
Amendments to the Regulations
Accordingly, 26 CFR parts 1 and 54 are amended as follows:
PART 1--INCOME TAXES
0
Paragraph 1. The authority citation for part 1 continues to read in
part as follows:
Authority: 26 U.S.C. 7805.
* * * * *
0
Par 2. Section 1.36B-0 is amended by--
0
a. Adding entries for Sec. Sec. 1.36B-2(c)(3)(i)(A) and (B).
0
b. Revising the entry for Sec. 1.36B-2(c)(5).
0
c. Adding entries for Sec. Sec. 1.36B-2(c)(5)(i) and (ii), 1.36B-
2(c)(5)(iii), 1.36B-2(c)(5)(iii)(A) and (B), and 1.36B-2(c)(5)(iv)
through (ix).
The additions and revision read as follows:
Sec. 1.36B-0 Table of contents.
* * * * *
Sec. 1.36B-2 Eligibility for premium tax credit.
* * * * *
(c) * * *
(3) * * *
(i) In general.
(A) Plans other than health reimbursement arrangements (HRAs) or
other account-based group health plans described in paragraph
(c)(3)(i)(B) of this section.
(B) HRAs and other account-based group health plans integrated with
individual health insurance coverage.
* * * * *
(5) Affordable HRA or other account-based group health plan.
(i) In general.
(ii) Required HRA contribution.
(iii) Monthly amounts.
(A) Monthly lowest cost silver plan premium.
(B) Monthly HRA amount.
(iv) Employee safe harbor.
(v) Amounts used for affordability determination.
(vi) Affordability for part-year period.
(vii) Related individual not allowed as a personal exemption
deduction.
(viii) Post-employment coverage.
(ix) Examples.
* * * * *
0
Par. 3. Section 1.36B-2 is amended by:
0
a. Redesignating the text of paragraph (c)(3)(i) as paragraph
(c)(3)(i)(A).
0
b. Revising the subject heading to newly designated paragraph
(c)(3)(i)(A).
0
c. Adding paragraph (c)(3)(i)(B).
0
d. Adding a sentence at the end of paragraphs (c)(3)(ii) and
(c)(3)(v)(A)(1) and (2).
0
e. Revising paragraphs (c)(3)(v)(A)(3) and (5).
0
f. Adding a sentence at the end of paragraph (c)(3)(vi).
0
g. Adding paragraph (c)(5).
0
h. Revising paragraph (e)(1).
0
i. Adding paragraph (e)(3).
The revisions and additions read as follows:
Sec. 1.36B-2 Eligibility for premium tax credit.
* * * * *
(c) * * *
(3) * * *
(i) * * *
(A) Plans other than health reimbursement arrangements (HRAs) or
other account-based group health plans described in paragraph
(c)(3)(i)(B) of this section. * * *
(B) HRAs and other account-based group health plans integrated with
individual health insurance coverage. An employee who is offered an HRA
or other account-based group health plan that would be integrated with
individual health insurance coverage (or Medicare Part A and B or
Medicare Part C), within the meaning of Sec. Sec. 54.9802-4 and
54.9815-2711(d)(4) of this chapter, if the employee enrolls in
individual health insurance coverage (or Medicare Part A and B or
Medicare Part C), and an individual who is offered the HRA or
[[Page 28985]]
other account-based group health plan because of a relationship to the
employee (a related HRA individual), are eligible for minimum essential
coverage under an eligible employer-sponsored plan for any month for
which the HRA or other account-based group health plan is offered if
the HRA or other account-based group health plan is affordable for the
month under paragraph (c)(5) of this section or if the employee does
not opt out of and waive future reimbursements from the HRA or other
account-based group health plan. An HRA or other account-based group
health plan described in this paragraph (c)(3)(i)(B) that is affordable
for a month under paragraph (c)(5) of this section is treated as
providing minimum value for the month. For purposes of paragraphs
(c)(3) and (5) of this section, the definitions under Sec. 54.9815-
2711(d)(6) of this chapter apply.
(ii) * * * The plan year for an HRA or other account-based group
health plan described in paragraph (c)(3)(i)(B) of this section is the
plan's 12-month coverage period (or the remainder of the 12-month
coverage period for a newly eligible individual or an individual who
enrolls during a special enrollment period).
* * * * *
(v) * * *
(A) * * *
(1) * * * See paragraph (c)(5) of this section for rules for when
an HRA or other account-based group health plan described in paragraph
(c)(3)(i)(B) of this section is affordable for an employee for a month.
(2) * * * See paragraph (c)(5) of this section for rules for when
an HRA or other account-based group health plan described in paragraph
(c)(3)(i)(B) of this section is affordable for a related HRA individual
for a month.
(3) Employee safe harbor. An eligible employer-sponsored plan is
not affordable for an employee or a related individual for a plan year
if, when the employee or a related individual enrolls in a qualified
health plan for a period coinciding with the plan year (in whole or in
part), an Exchange determines that the eligible employer-sponsored plan
is not affordable for that plan year. This paragraph (c)(3)(v)(A)(3)
does not apply to a determination made as part of the redetermination
process described in 45 CFR 155.335 unless the individual receiving an
Exchange redetermination notification affirmatively responds and
provides current information about affordability. This paragraph
(c)(3)(v)(A)(3) does not apply for an individual who, with intentional
or reckless disregard for the facts, provides incorrect information to
an Exchange concerning the portion of the annual premium for coverage
for the employee or related individual under the plan. A reckless
disregard of the facts occurs if the taxpayer makes little or no effort
to determine whether the information provided to the Exchange is
accurate under circumstances that demonstrate a substantial deviation
from the standard of conduct a reasonable person would observe. A
disregard of the facts is intentional if the taxpayer knows that the
information provided to the Exchange is inaccurate. See paragraph
(c)(5) of this section for an employee safe harbor that applies when an
Exchange determines that an HRA or other account-based group health
plan described in paragraph (c)(3)(i)(B) of this section is not
affordable for an employee or a related HRA individual for the period
of enrollment in a qualified health plan.
* * * * *
(5) Employer contributions to HRAs integrated with eligible
employer-sponsored plans. Amounts newly made available for the current
plan year under an HRA that an employee may use to pay premiums, or may
use to pay cost-sharing or benefits not covered by the primary plan in
addition to premiums, reduce the employee's required contribution if
the HRA would be integrated, within the meaning of Sec. 54.9815-
2711(d)(2) of this chapter, with an eligible employer-sponsored plan
for an employee enrolled in the plan. The eligible employer-sponsored
plan and the HRA must be offered by the same employer. Employer
contributions to an HRA described in this paragraph (c)(3)(v)(A)(5)
reduce an employee's required contribution only to the extent the
amount of the annual contribution is required under the terms of the
plan or otherwise determinable within a reasonable time before the
employee must decide whether to enroll in the eligible employer-
sponsored plan.
* * * * *
(vi) * * * An HRA or other account-based group health plan
described in paragraph (c)(3)(i)(B) of this section that is affordable
for a month under paragraph (c)(5) of this section is treated as
providing minimum value for the month.
* * * * *
(5) Affordable HRA or other account-based group health plan--(i) In
general. Except as otherwise provided in this paragraph (c)(5), an HRA
or other account-based group health plan described in paragraph
(c)(3)(i)(B) of this section is affordable for a month if the
employee's required HRA contribution (as defined in paragraph
(c)(5)(ii) of this section) for the month does not exceed 1/12 of the
product of the employee's household income for the taxable year and the
required contribution percentage (as defined in paragraph (c)(3)(v)(C)
of this section).
(ii) Required HRA contribution. An employee's required HRA
contribution is the excess of--
(A) The monthly premium for the lowest cost silver plan for self-
only coverage of the employee offered in the Exchange for the rating
area in which the employee resides, over
(B) The monthly self-only HRA or other account-based group health
plan amount (or the monthly maximum amount available to the employee
under the HRA or other account-based group health plan if the HRA or
other account-based group health plan provides for reimbursements up to
a single dollar amount regardless of whether an employee has self-only
or other-than-self-only coverage).
(iii) Monthly amounts--(A) Monthly lowest cost silver plan premium.
For purposes of paragraph (c)(5)(ii)(A) of this section, the premium
for the lowest cost silver plan is determined without regard to any
wellness program incentive that affects premiums unless the wellness
program incentive relates exclusively to tobacco use, in which case the
incentive is treated as earned. If the premium differs for tobacco
users and non-tobacco users, the premium for the lowest cost silver
plan is the premium that applies to non-tobacco users. For the purpose
of this paragraph (c)(5)(iii)(A), the term wellness program incentive
has the same meaning as the term reward in 26 CFR 54.9802-1(f)(1)(i). A
silver-level qualified health plan that is used for purposes of
determining a taxpayer's lowest cost silver plan for self-only coverage
under paragraph (c)(5)(ii)(A) of this section does not cease to be the
taxpayer's lowest cost silver plan for self-only coverage solely
because the plan terminates or closes to enrollment during the taxable
year.
(B) Monthly HRA amount. For purposes of paragraph (c)(5)(ii)(B) of
this section, the monthly self-only HRA or other account-based group
health plan amount is the self-only HRA or other account-based group
health plan amount newly made available under the HRA for the plan
year, divided by the number of months in the plan year the HRA or other
account-based group health plan is available to the employee. The
monthly maximum amount available to the employee under the HRA or other
account-based group health plan is the maximum amount
[[Page 28986]]
newly made available for the plan year to the employee under the plan,
divided by the number of months in the plan year the HRA or other
account-based group health plan is available to the employee.
(iv) Employee safe harbor. An HRA or other account-based group
health plan described in paragraph (c)(3)(i)(B) of this section is not
affordable for a month for an employee or a related HRA individual if,
when the employee or related HRA individual enrolls in a qualified
health plan for a period coinciding with the period the HRA or other
account-based group health plan is available to the employee or related
HRA individual (in whole or in part), an Exchange determines that the
HRA or other account-based group health plan is not affordable for the
period of enrollment in the qualified health plan. This paragraph
(c)(5)(iv) does not apply to a determination made as part of the
redetermination process described in 45 CFR 155.335 unless the
individual receiving an Exchange redetermination notification
affirmatively responds and provides current information about
affordability. This paragraph (c)(5)(iv) does not apply for an
individual who, with intentional or reckless disregard for the facts,
provides incorrect information to an Exchange concerning the relevant
HRA or other account-based group health plan amount offered by the
employee's employer. A reckless disregard of the facts occurs if the
taxpayer makes little or no effort to determine whether the information
provided to the Exchange is accurate under circumstances that
demonstrate a substantial deviation from the standard of conduct a
reasonable person would observe. A disregard of the facts is
intentional if the taxpayer knows that the information provided to the
Exchange is inaccurate.
(v) Amounts used for affordability determination. Only amounts that
are newly made available for the plan year of the HRA or other account-
based group health plan described in paragraph (c)(3)(i)(B) of this
section and determinable within a reasonable time before the beginning
of the plan year of the HRA or other account-based health plan are
considered in determining whether an HRA or other account-based group
health plan described in paragraph (c)(3)(i)(B) of this section is
affordable. Amounts made available for a prior plan year that carry
over to the current plan year are not taken into account for purposes
of this paragraph (c)(5). Similarly, amounts made available to account
for amounts remaining in a different HRA or other account-based group
health plan the employer previously provided to the employee and under
which the employee is no longer covered are not taken into account for
purposes of this paragraph (c)(5).
(vi) Affordability for part-year period. Affordability under this
paragraph (c)(5) is determined separately for each employment period
that is less than a full calendar year or for the portions of the plan
year of an employer's HRA or other account-based group health plan that
fall in different taxable years of an applicable taxpayer. An HRA or
other account-based group health plan described in paragraph
(c)(3)(i)(B) of this section is affordable for a part-year period if
the employee's annualized required HRA contribution for the part-year
period does not exceed the required contribution percentage of the
applicable taxpayer's household income for the taxable year. The
employee's annualized required HRA contribution is the employee's
required HRA contribution for the part-year period times a fraction,
the numerator of which is 12 and the denominator of which is the number
of months in the part-year period during the applicable taxpayer's
taxable year. Only full calendar months are included in the computation
under this paragraph (c)(5)(vi).
(vii) Related individual not allowed as a personal exemption
deduction. A related HRA individual is treated as ineligible for
minimum essential coverage under an HRA or other account-based group
health plan described in paragraph (c)(3)(i)(B) of this section for
months that the employee opted out of and waived future reimbursements
from the HRA or other account-based group health plan and the employee
is not allowed a personal exemption deduction under section 151 for the
related HRA individual.
(viii) Post-employment coverage. An individual who is offered an
HRA or other account-based group health plan described in paragraph
(c)(3)(i)(B) of this section, for months after an employee terminates
employment with the employer offering the HRA or other account-based
group health plan, is eligible for minimum essential coverage under the
HRA or other account-based group health plan for months after
termination of employment only if the employee does not forfeit or opt
out of and waive future reimbursements from the HRA or other account-
based group health plan for months after termination of employment.
(ix) Examples. The following examples illustrate the provisions of
this paragraph (c)(5). The required contribution percentage is defined
in paragraph (c)(3)(v)(C) of this section and is updated annually.
Because the required contribution percentage for 2020 has not yet been
determined, the examples assume a required contribution percentage for
2020 of 9.78 percent.
(A) Example 1: Determination of affordability--(1) Facts. In
2020 Taxpayer A is single, has no dependents, and has household
income of $28,000. A is an employee of Employer X for all of 2020. X
offers its employees an HRA described in paragraph (c)(3)(i)(B) of
this section that reimburses $2,400 of medical care expenses for
single employees with no children (the self-only HRA amount) and
$4,000 for employees with a spouse or children for the medical
expenses of the employees and their family members. A enrolls in a
qualified health plan through the Exchange in the rating area in
which A resides and remains enrolled for all of 2020. The monthly
premium for the lowest cost silver plan for self-only coverage of A
that is offered in the Exchange for the rating area in which A
resides is $500.
(2) Conclusion. A's required HRA contribution, as defined in
paragraph (c)(5)(ii) of this section, is $300, the excess of $500
(the monthly premium for the lowest cost silver plan for self-only
coverage of A) over $200 (1/12 of the self-only HRA amount provided
by Employer X to its employees). In addition, 1/12 of the product of
9.78 percent and A's household income is $228 ($28,000 x .0978 =
$2,738; $2,738/12 = $228). Because A's required HRA contribution of
$300 exceeds $228 (1/12 of the product of 9.78 percent and A's
household income), the HRA is unaffordable for A for each month of
2020 under paragraph (c)(5) of this section. If A opts out of and
waives future reimbursements from the HRA, A is not eligible for
minimum essential coverage under the HRA for each month of 2020
under paragraph (c)(3)(i)(B) of this section.
(B) Example 2: Determination of affordability for a related HRA
individual--(1) Facts. In 2020 Taxpayer B is married and has one
child who is a dependent of B for 2020. B has household income of
$28,000. B is an employee of Employer X for all of 2020. X offers
its employees an HRA described in paragraph (c)(3)(i)(B) of this
section that reimburses $3,600 of medical care expenses for single
employees with no children (the self-only HRA amount) and $5,000 for
employees with a spouse or children for the medical expenses of the
employees and their family members. B, B's spouse, and B's child
enroll in a qualified health plan through the Exchange in the rating
area in which B resides and they remain enrolled for all of 2020. No
advance credit payments are made for their coverage. The monthly
premium for the lowest cost silver plan for self-only coverage of B
that is offered in the Exchange for the rating area in which B
resides is $500.
(2) Conclusion. B's required HRA contribution, as defined in
paragraph (c)(5)(ii) of this section, is $200, the excess of $500
(the monthly premium for the lowest cost silver plan for self-only
coverage for B) over $300 (1/12 of the self-only HRA amount
[[Page 28987]]
provided by Employer X to its employees). In addition, 1/12 of the
product of 9.78 percent and B's household income for 2020 is $228
($28,000 x .0978 = $2,738; $2,738/12 = $228). Because B's required
HRA contribution of $200 does not exceed $228 (1/12 of the product
of 9.78 percent and B's household income for 2020), the HRA is
affordable for B under paragraph (c)(5) of this section, and B is
eligible for minimum essential coverage under an eligible employer-
sponsored plan for each month of 2020 under paragraph (c)(3)(i)(B)
of this section. In addition, B's spouse and child are also eligible
for minimum essential coverage under an eligible employer-sponsored
plan for each month of 2020 under paragraph (c)(3)(i)(B) of this
section.
(C) Example 3: Exchange determines that HRA is unaffordable--(1)
Facts. The facts are the same as in paragraph (c)(5)(ix)(B) of this
section (Example 2), except that B, when enrolling in Exchange
coverage for B's family, received a determination by the Exchange
that the HRA was unaffordable, because B believed B's household
income would be lower than it turned out to be. Consequently,
advance credit payments were made for their 2020 coverage.
(2) Conclusion. Under paragraph (c)(5)(iv) of this section, the
HRA is considered unaffordable for B, B's spouse, and B's child for
each month of 2020 provided that B did not, with intentional or
reckless disregard for the facts, provide incorrect information to
the Exchange concerning the HRA.
(D) Example 4: Affordability determined for part of a taxable
year (part-year period)--(1) Facts. Taxpayer C is an employee of
Employer X. C's household income for 2020 is $28,000. X offers its
employees an HRA described in paragraph (c)(3)(i)(B) of this section
that reimburses medical care expenses of $3,600 for single employees
without children (the self-only HRA amount) and $5,000 to employees
with a spouse or children for the medical expenses of the employees
and their family members. X's HRA plan year is September 1 to August
31 and C is first eligible to participate in the HRA for the period
beginning September 1, 2020. C enrolls in a qualified health plan
through the Exchange in the rating area in which C resides for all
of 2020. The monthly premium for the lowest cost silver plan for
self-only coverage of C that is offered in the Exchange for the
rating area in which C resides for 2020 is $500.
(2) Conclusion. Under paragraph (c)(3)(vi) of this section, the
affordability of the HRA is determined separately for the period
September 1 through December 31, 2020, and for the period January 1
through August 31, 2021. C's required HRA contribution, as defined
in paragraph (c)(5)(ii) of this section, for the period September 1
through December 31, 2020, is $200, the excess of $500 (the monthly
premium for the lowest cost silver plan for self-only coverage for
C) over $300 (1/12 of the self-only HRA amount provided by X to its
employees). In addition, 1/12 of the product of 9.78 percent and C's
household income is $228 ($28,000 x .0978 = $2,738; $2,738/12 =
$228). Because C's required HRA contribution of $200 does not exceed
$228, the HRA is affordable for C for each month in the period
September 1 through December 31, 2020, under paragraph (c)(5) of
this section. Affordability for the period January 1 through August
31, 2021, is determined using C's 2021 household income and required
HRA contribution.
(E) Example 5: Carryover amounts ignored in determining
affordability--(1) Facts. Taxpayer D is an employee of Employer X
for all of 2020 and 2021. D is single. For each of 2020 and 2021, X
offers its employees an HRA described in paragraph (c)(3)(i)(B) of
this section that provides reimbursement for medical care expenses
of $2,400 to single employees with no children (the self-only HRA
amount) and $4,000 to employees with a spouse or children for the
medical expenses of the employees and their family members. Under
the terms of the HRA, amounts that an employee does not use in a
calendar year may be carried over and used in the next calendar
year. In 2020, D used only $1,500 of her $2,400 maximum
reimbursement and the unused $900 is carried over and may be used by
D in 2021.
(2) Conclusion. Under paragraph (c)(5)(v) of this section, only
the $2,400 self-only HRA amount offered to D for 2021 is considered
in determining whether D's HRA is affordable for D. The $900
carryover amount is not considered in determining the affordability
of the HRA.
* * * * *
(e) * * *
(1) Except as provided in paragraphs (e)(2) and (3) of this
section, this section applies to taxable years ending after December
31, 2013.
* * * * *
(3) Paragraphs (c)(3)(i)(B) and (c)(5) of this section, and the
last sentences of paragraphs (c)(3)(ii), (c)(3)(v)(A)(1) through (3),
and (c)(3)(vi) of this section apply to taxable years beginning on or
after January 1, 2020.
PART 54--PENSION EXCISE TAXES
Par. 4. The authority citation for part 54 is amended by adding an
entry for Sec. 54.9802-4 in numerical order to read in part as
follows:
Authority: 26 U.S.C. 7805.
* * * * *
Section 54.9802-4 is also issued under 26 U.S.C. 9833.
* * * * *
0
Par. 5. Section 54.9801-2 is amended by revising the definition of
``Group health insurance coverage'' to read as follows:
Sec. 54.9801-2 Definitions.
* * * * *
Group health insurance coverage means health insurance coverage
offered in connection with a group health plan. Individual health
insurance coverage reimbursed by the arrangements described in 29 CFR
2510.3-1(l) is not offered in connection with a group health plan, and
is not group health insurance coverage, provided all the conditions in
29 CFR 2510.3-1(l) are satisfied.
* * * * *
0
Par. 6. Section 54.9802-4 is added to read as follows:
Sec. 54.9802-4 Special Rule Allowing Integration of Health
Reimbursement Arrangements (HRAs) and Other Account-Based Group Health
Plans with Individual Health Insurance Coverage and Medicare and
Prohibiting Discrimination In HRAs and Other Account-Based Group Health
Plans.
(a) Scope. This section applies to health reimbursement
arrangements (HRAs) and other account-based group health plans, as
defined in Sec. 54.9815-2711(d)(6)(i) of this chapter. For ease of
reference, the term ``HRA'' is used in this section to include other
account-based group health plans. For related regulations, see 26 CFR
1.36B-2(c)(3)(i) and (c)(5), 29 CFR 2510.3-1(l), and 45 CFR 155.420.
(b) Purpose. This section provides the conditions that an HRA must
satisfy in order to be integrated with individual health insurance
coverage for purposes of Public Health Service Act (PHS Act) sections
2711 and 2713 and Sec. 54.9815-2711(d)(4) of this chapter (referred to
as an individual coverage HRA). This section also allows an individual
coverage HRA to be integrated with Medicare for purposes of PHS Act
sections 2711 and 2713 and Sec. 54.9815-2711(d)(4), subject to the
conditions provided in this section (see paragraph (e) of this
section). Some of the conditions set forth in this section specifically
relate to compliance with PHS Act sections 2711 and 2713 and some
relate to the effect of having or being offered an individual coverage
HRA on eligibility for the premium tax credit under section 36B. In
addition, this section provides conditions that an individual coverage
HRA must satisfy in order to comply with the nondiscrimination
provisions in section 9802 and PHS Act section 2705 (which is
incorporated in section 9815) and that are consistent with the
provisions of the Patient Protection and Affordable Care Act, Public
Law 111-148 (124 Stat. 119 (2010)), and the Health Care and Education
Reconciliation Act of 2010, Public Law 111-152 (124 Stat. 1029 (2010)),
each as amended, that are designed to create a competitive individual
market. These conditions are intended to prevent an HRA plan sponsor
from intentionally or unintentionally, directly or indirectly, steering
any participants or dependents with adverse health factors away from
its traditional group health plan, if any,
[[Page 28988]]
and toward individual health insurance coverage.
(c) General rule. An HRA will be considered to be integrated with
individual health insurance coverage for purposes of PHS Act sections
2711 and 2713 and Sec. 54.9815-2711(d)(4) of this chapter and will not
be considered to discriminate in violation of section 9802 and PHS Act
section 2705 solely because it is integrated with individual health
insurance coverage, provided that the conditions of this paragraph (c)
are satisfied. See paragraph (e) of this section for how these
conditions apply to an individual coverage HRA integrated with
Medicare. For purposes of this section, medical care expenses means
medical care expenses as defined in Sec. 54.9815-2711(d)(6)(ii) of
this chapter and Exchange means Exchange as defined in 45 CFR 155.20.
(1) Enrollment in individual health insurance coverage--(i) In
general. The HRA must require that the participant and any dependent(s)
are enrolled in individual health insurance coverage that is subject to
and complies with the requirements in PHS Act section 2711 (and Sec.
54.9815-2711(a)(2) of this chapter) and PHS Act section 2713 (and Sec.
54.9815-2713(a)(1) of this chapter), for each month that the
individual(s) are covered by the HRA. For purposes of this paragraph
(c), all individual health insurance coverage, except for individual
health insurance coverage that consists solely of excepted benefits, is
treated as being subject to and complying with PHS Act sections 2711
and 2713. References to individual health insurance coverage in this
paragraph (c) do not include individual health insurance coverage that
consists solely of excepted benefits.
(ii) Forfeiture. The HRA must provide that if any individual
covered by the HRA ceases to be covered by individual health insurance
coverage, the HRA will not reimburse medical care expenses that are
incurred by that individual after the individual health insurance
coverage ceases. In addition, if the participant and all dependents
covered by the participant's HRA cease to be covered by individual
health insurance coverage, the participant must forfeit the HRA. In
either case, the HRA must reimburse medical care expenses incurred by
the individual prior to the cessation of individual health insurance
coverage to the extent the medical care expenses are otherwise covered
by the HRA, but the HRA may limit the period to submit medical care
expenses for reimbursement to a reasonable specified time period. If a
participant or dependent loses coverage under the HRA for a reason
other than cessation of individual health insurance coverage, COBRA and
other continuation coverage requirements may apply.
(iii) Grace periods and retroactive termination of individual
health insurance coverage. In the event an individual is initially
enrolled in individual health insurance coverage and subsequently
timely fails to pay premiums for the coverage, with the result that the
individual is in a grace period, the individual is considered to be
enrolled in individual health insurance coverage for purposes of this
paragraph (c)(1) and the individual coverage HRA must reimburse medical
care expenses incurred by the individual during that time period to the
extent the medical care expenses are otherwise covered by the HRA. If
the individual fails to pay the applicable premium(s) by the end of the
grace period and the coverage is cancelled or terminated, including
retroactively, or if the individual health insurance coverage is
cancelled or terminated retroactively for some other reason (for
example, a rescission), an individual coverage HRA must require that a
participant notify the HRA that coverage has been cancelled or
terminated and the date on which the cancellation or termination is
effective. After the individual coverage HRA has received the notice of
cancellation or termination, the HRA may not reimburse medical care
expenses incurred on and after the date the individual health insurance
coverage was cancelled or terminated, which is considered to be the
date of termination of coverage under the HRA.
(2) No traditional group health plan may be offered to same
participants. To the extent a plan sponsor offers any class of
employees (as defined in paragraph (d) of this section) an individual
coverage HRA, the plan sponsor may not also offer a traditional group
health plan to the same class of employees, except as provided in
paragraph (d)(5) of this section. For purposes of this section, a
traditional group health plan is any group health plan other than
either an account-based group health plan or a group health plan that
consists solely of excepted benefits. Therefore, a plan sponsor may not
offer a choice between an individual coverage HRA or a traditional
group health plan to any participant or dependent.
(3) Same terms requirement--(i) In general. If a plan sponsor
offers an individual coverage HRA to a class of employees described in
paragraph (d) of this section, the HRA must be offered on the same
terms to all participants within the class, except as provided in
paragraphs (c)(3)(ii) through (vi) and (d)(5) of this section.
(ii) Carryover amounts, salary reduction arrangements, and transfer
amounts. Amounts that are not used to reimburse medical care expenses
for any plan year that are made available to participants in later plan
years are disregarded for purposes of determining whether an HRA is
offered on the same terms, provided that the method for determining
whether participants have access to unused amounts in future years, and
the methodology and formula for determining the amounts of unused funds
which they may access in future years, is the same for all participants
in a class of employees. In addition, the ability to pay the portion of
the premium for individual health insurance coverage that is not
covered by the HRA, if any, by using a salary reduction arrangement
under section 125 is considered to be a term of the HRA for purposes of
this paragraph (c)(3). Therefore, an HRA is not provided on the same
terms unless the salary reduction arrangement, if made available to any
participant in a class of employees, is made available on the same
terms to all participants (other than former employees, as defined in
paragraph (c)(3)(iv) of this section) in the class of employees.
Further, to the extent that a participant in an individual coverage HRA
was previously covered by another HRA and the current individual
coverage HRA makes available amounts that were not used to reimburse
medical care expenses under the prior HRA (transferred amounts), the
transferred amounts are disregarded for purposes of determining whether
the HRA is offered on the same terms, provided that if the HRA makes
available transferred amounts, it does so on the same terms for all
participants in the class of employees.
(iii) Permitted variation. An HRA does not fail to be provided on
the same terms solely because the maximum dollar amount made available
to participants in a class of employees to reimburse medical care
expenses for any plan year increases in accordance with paragraph
(c)(3)(iii)(A) or (B) of this section.
(A) Variation due to number of dependents. An HRA does not fail to
be provided on the same terms to participants in a class of employees
solely because the maximum dollar amount made available to those
participants to reimburse medical care expenses for any plan year
increases as the number of the participant's dependents who are covered
under the HRA increases, so long as the same
[[Page 28989]]
maximum dollar amount attributable to the increase in family size is
made available to all participants in that class of employees with the
same number of dependents covered by the HRA.
(B) Variation due to age. An HRA does not fail to be provided on
the same terms to participants in a class of employees solely because
the maximum dollar amount made available under the terms of the HRA to
those participants to reimburse medical care expenses for any plan year
increases as the age of the participant increases, so long as the
requirements in paragraphs (c)(3)(iii)(B)(1) and (2) of this section
are satisfied. For the purpose of this paragraph (c)(3)(iii)(B), the
plan sponsor may determine the age of the participant using any
reasonable method for a plan year, so long as the plan sponsor
determines each participant's age for the purpose of this paragraph
(c)(3)(iii)(B) using the same method for all participants in the class
of employees for the plan year and the method is determined prior to
the plan year.
(1) The same maximum dollar amount attributable to the increase in
age is made available to all participants who are the same age.
(2) The maximum dollar amount made available to the oldest
participant(s) is not more than three times the maximum dollar amount
made available to the youngest participant(s).
(iv) Former employees. An HRA does not fail to be treated as
provided on the same terms if the plan sponsor offers the HRA to some,
but not all, former employees within a class of employees. However, if
a plan sponsor offers the HRA to one or more former employees within a
class of employees, the HRA must be offered to the former employee(s)
on the same terms as to all other employees within the class, except as
provided in paragraph (c)(3)(ii) of this section. For purposes of this
section, a former employee is an employee who is no longer performing
services for the employer.
(v) New employees or new dependents. For a participant whose
coverage under the HRA becomes effective later than the first day of
the plan year, the HRA does not fail to be treated as being provided on
the same terms to the participant if the maximum dollar amount made
available to the participant either is the same as the maximum dollar
amount made available to participants in the participant's class of
employees whose coverage became effective as of the first day of the
plan year, or is pro-rated consistent with the portion of the plan year
in which the participant is covered by the HRA. Similarly, if the HRA
provides for variation in the maximum amount made available to
participants in a class of employees based on the number of a
participant's dependents covered by the HRA, and the number of a
participant's dependents covered by the HRA changes during a plan year
(either increasing or decreasing), the HRA does not fail to be treated
as being provided on the same terms to the participant if the maximum
dollar amount made available to the participant either is the same as
the maximum dollar amount made available to participants in the
participant's class of employees who had the same number of dependents
covered by the HRA on the first day of the plan year or is pro-rated
for the remainder of the plan year after the change in the number of
the participant's dependents covered by the HRA consistent with the
portion of the plan year in which that number of dependents are covered
by the HRA. The method the HRA uses to determine amounts made available
for participants whose coverage under the HRA is effective later than
the first day of the plan year or who have changes in the number of
dependents covered by the HRA during a plan year must be the same for
all participants in the class of employees and the method must be
determined prior to the beginning of the plan year.
(vi) HSA-compatible HRAs. An HRA does not fail to be treated as
provided on the same terms if the plan sponsor offers participants in a
class of employees a choice between an HSA-compatible individual
coverage HRA and an individual coverage HRA that is not HSA compatible,
provided both types of HRAs are offered to all participants in the
class of employees on the same terms. For the purpose of this paragraph
(c)(3)(vi), an HSA-compatible individual coverage HRA is an individual
coverage HRA that is limited in accordance with applicable guidance
under section 223 such that an individual covered by such an HRA is not
disqualified from being an eligible individual under section 223.
(vii) Examples. The following examples illustrate the provisions of
this paragraph (c)(3), without taking into account the provisions of
paragraph (d) of this section. In each example, the HRA is an
individual coverage HRA that has a calendar year plan year and may
reimburse any medical care expenses, including premiums for individual
health insurance coverage (except as provided in paragraph
(c)(3)(vii)(E) of this section (Example 5)). Further, in each example,
assume the HRA is offered on the same terms, except as otherwise
specified in the example and that no participants or dependents are
Medicare beneficiaries.
(A) Example 1: Carryover amounts permitted--(1) Facts. For 2020
and again for 2021, Plan Sponsor A offers all employees $7,000 each
in an HRA, and the HRA provides that amounts that are unused at the
end of a plan year may be carried over to the next plan year, with
no restrictions on the use of the carryover amounts compared to the
use of newly available amounts. At the end of 2020, some employees
have used all of the funds in their HRAs, while other employees have
balances remaining that range from $500 to $1,750 that are carried
over to 2021 for those employees.
(2) Conclusion. The same terms requirement of this paragraph
(c)(3) is satisfied in this paragraph (c)(3)(vii)(A) (Example 1) for
2020 because Plan Sponsor A offers all employees the same amount,
$7,000, in an HRA for that year. The same terms requirement is also
satisfied for 2021 because Plan Sponsor A again offers all employees
the same amount for that year, and the carryover amounts that some
employees have are disregarded in applying the same terms
requirement because the amount of the carryover for each employee
(that employee's balance) and each employee's access to the
carryover amounts is based on the same terms.
(B) Example 2: Employees hired after the first day of the plan
year--(1) Facts. For 2020, Plan Sponsor B offers all employees
employed on January 1, 2020, $7,000 each in an HRA for the plan
year. Employees hired after January 1, 2020, are eligible to enroll
in the HRA with an effective date of the first day of the month
following their date of hire, as long as they have enrolled in
individual health insurance coverage effective on or before that
date, and the amount offered to these employees is pro-rated based
on the number of months remaining in the plan year, including the
month which includes their coverage effective date.
(2) Conclusion. The same terms requirement of this paragraph
(c)(3) is satisfied in this paragraph (c)(3)(vii)(B) (Example 2) for
2020 because Plan Sponsor B offers all employees employed on the
first day of the plan year the same amount, $7,000, in an HRA for
that plan year and all employees hired after January 1, 2020, a pro-
rata amount based on the portion of the plan year during which they
are enrolled in the HRA.
(C) Example 3: HRA amounts offered vary based on number of
dependents--(1) Facts. For 2020, Plan Sponsor C offers its employees
the following amounts in an HRA: $1,500, if the employee is the only
individual covered by the HRA; $3,500, if the employee and one
dependent are covered by the HRA; and $5,000, if the employee and
more than one dependent are covered by the HRA.
(2) Conclusion. The same terms requirement of this paragraph
(c)(3) is satisfied in this paragraph (c)(3)(vii)(C) (Example 3)
because paragraph (c)(3)(iii)(A) of this section allows the maximum
dollar amount made available in an HRA to increase as the number of
the participant's
[[Page 28990]]
dependents covered by the HRA increases and Plan Sponsor C makes the
same amount available to each employee with the same number of
dependents covered by the HRA.
(D) Example 4: HRA amounts offered vary based on increases in
employees' ages--(1) Facts. For 2020, Plan Sponsor D offers its
employees the following amounts in an HRA: $1,000 each for employees
age 25 to 35; $2,000 each for employees age 36 to 45; $2,500 each
for employees age 46 to 55; and $4,000 each for employees over age
55.
(2) Conclusion. The same terms requirement of this paragraph
(c)(3) is not satisfied in this paragraph (c)(3)(vii)(D) (Example 4)
because the terms of the HRA provide the oldest participants (those
over age 55) with more than three times the amount made available to
the youngest participants (those ages 25 to 35), in violation of
paragraph (c)(3)(iii)(B)(2) of this section.
(E) Example 5: Application of same terms requirement to premium
only HRA--(1) Facts. For 2020, Plan Sponsor E offers its employees
an HRA that reimburses only premiums for individual health insurance
coverage, up to $10,000 for the year. Employee A enrolls in
individual health insurance coverage with a $5,000 premium for the
year and is reimbursed $5,000 from the HRA. Employee B enrolls in
individual health insurance coverage with an $8,000 premium for the
year and is reimbursed $8,000 from the HRA.
(2) Conclusion. The same terms requirement of this paragraph
(c)(3) is satisfied in this paragraph (c)(3)(vii)(E) (Example 5)
because Plan Sponsor E offers the HRA on the same terms to all
employees, notwithstanding that some employees receive a greater
amount of reimbursement than others based on the cost of the
individual health insurance coverage selected by the employee.
(4) Opt out. Under the terms of the HRA, a participant who is
otherwise eligible for coverage must be permitted to opt out of and
waive future reimbursements on behalf of the participant and all
dependents eligible for the HRA from the HRA once, and only once, with
respect to each plan year. The HRA may establish timeframes for
enrollment in (and opting out of) the HRA but, in general, the
opportunity to opt out must be provided in advance of the first day of
the plan year. For participants who become eligible to participate in
the HRA on a date other than the first day of the plan year (or who
become eligible fewer than 90 days prior to the plan year or for whom
the notice under paragraph (c)(6) of this section is required to be
provided as set forth in paragraph (c)(6)(i)(C) of this section), or
for a dependent who newly becomes eligible during the plan year, this
opportunity must be provided during the applicable HRA enrollment
period(s) established by the HRA for these individuals. Further, under
the terms of the HRA, upon termination of employment, for a participant
who is covered by the HRA, either the remaining amounts in the HRA must
be forfeited or the participant must be permitted to permanently opt
out of and waive future reimbursements from the HRA on behalf of the
participant and all dependents covered by the HRA.
(5) Reasonable procedures for coverage substantiation--(i)
Substantiation of individual health insurance coverage for the plan
year. The HRA must implement, and comply with, reasonable procedures to
substantiate that participants and each dependent covered by the HRA
are, or will be, enrolled in individual health insurance coverage for
the plan year (or for the portion of the plan year the individual is
covered by the HRA, if applicable). The HRA may establish the date by
which this substantiation must be provided, but, in general, the date
may be no later than the first day of the plan year. However, for a
participant who is not eligible to participate in the HRA on the first
day of the plan year (or who becomes eligible fewer than 90 days prior
to the plan year or for whom the notice under paragraph (c)(6) of this
section is required to be provided as set forth in paragraph
(c)(6)(i)(C) of this section), the HRA may establish the date by which
this substantiation must be provided, but that date may be no later
than the date the HRA coverage begins. Similarly, for a participant who
adds a new dependent during the plan year, the HRA may establish the
date by which this substantiation must be provided, but the date may be
no later than the date the HRA coverage for the new dependent begins;
however, to the extent the dependent's coverage under the HRA is
effective retroactively, the HRA may establish a reasonable time by
which this substantiation is required, but must require it be provided
before the HRA will reimburse any medical care expense for the newly
added dependent. The reasonable procedures an HRA may use to implement
the substantiation requirement set forth in this paragraph (c)(5)(i)
may include a requirement that a participant substantiate enrollment by
providing either:
(A) A document from a third party (for example, the issuer or an
Exchange) showing that the participant and any dependents covered by
the HRA are, or will be, enrolled in individual health insurance
coverage (for example, an insurance card or an explanation of benefits
document pertaining to the relevant time period or documentation from
the Exchange showing that the individual has completed the application
and plan selection); or
(B) An attestation by the participant stating that the participant
and dependent(s) covered by the HRA are, or will be, enrolled in
individual health insurance coverage, the date coverage began or will
begin, and the name of the provider of the coverage.
(ii) Coverage substantiation with each request for reimbursement of
medical care expenses. Following the initial substantiation of
coverage, with each new request for reimbursement of an incurred
medical care expense for the same plan year, the HRA may not reimburse
a participant for any medical care expenses unless, prior to each
reimbursement, the participant substantiates that the individual on
whose behalf medical care expenses are requested to be reimbursed
continues to be enrolled in individual health insurance coverage for
the month during which the medical care expenses were incurred. The HRA
must implement, and comply with, reasonable procedures to satisfy this
requirement. This substantiation may be in the form of a written
attestation by the participant, which may be part of the form used to
request reimbursement, or a document from a third party (for example, a
health insurance issuer) showing that the participant or the dependent,
if applicable, are or were enrolled in individual health insurance
coverage for the applicable month.
(iii) Reliance on substantiation. For purposes of this paragraph
(c)(5), an HRA may rely on the participant's documentation or
attestation unless the HRA, its plan sponsor, or any other entity
acting in an official capacity on behalf of the HRA has actual
knowledge that any individual covered by the HRA is not, or will not
be, enrolled in individual health insurance coverage for the plan year
(or applicable portion of the plan year) or the month, as applicable.
(6) Notice requirement--(i) Timing. The HRA must provide a written
notice to each participant:
(A) At least 90 calendar days before the beginning of each plan
year for any participant who is not described in either paragraph
(c)(6)(i)(B) or (C) of this section;
(B) No later than the date on which the HRA may first take effect
for the participant, for any participant who is not eligible to
participate at the beginning of the plan year (or is not eligible to
participate at the time the notice is provided at least 90 calendar
days before the beginning of the plan year pursuant to paragraph
(c)(6)(i)(A) of this section); or
(C) No later than the date on which the HRA may first take effect
for the
[[Page 28991]]
participant, for any participant who is employed by an employer that is
first established less than 120 days before the beginning of the first
plan year of the HRA; this paragraph (c)(6)(i)(C) applies only with
respect to the first plan year of the HRA.
(ii) Content. The notice must include all the information described
in this paragraph (c)(6)(ii) (and may include any additional
information that does not conflict with that information). To the
extent that the Departments of the Treasury, Labor and Health and Human
Services provide model notice language for certain elements of this
required notice, HRAs are permitted, but not required, to use the model
language.
(A) A description of the terms of the HRA, including the maximum
dollar amount available for each participant (including the self-only
HRA amount available for the plan year (or the maximum dollar amount
available for the plan year if the HRA provides for reimbursements up
to a single dollar amount regardless of whether a participant has self-
only or other than self-only coverage)), any rules regarding the
proration of the maximum dollar amount applicable to any participant
(or dependent, if applicable) who is not eligible to participate in the
HRA for the entire plan year, whether (and which of) the participant's
dependents are eligible for the HRA, a statement that there are
different kinds of HRAs (including a qualified small employer health
reimbursement arrangement) and the HRA being offered is an individual
coverage HRA, a statement that the HRA requires the participant and any
covered dependents to be enrolled in individual health insurance
coverage (or Medicare Part A and B or Medicare Part C, if applicable),
a statement that the coverage in which the participant and any covered
dependents must be enrolled cannot be short-term, limited-duration
insurance or consist solely of excepted benefits, if the HRA is subject
to the Employee Retirement Income Security Act (ERISA), a statement
that individual health insurance coverage in which the participant and
any covered dependents are enrolled is not subject to ERISA, if the
conditions under 29 CFR 2510.3-1(l) are satisfied, the date as of which
coverage under the HRA may first become effective (both for
participants whose coverage will become effective on the first day of
the plan year and for participants whose HRA coverage may become
effective at a later date), the dates on which the HRA plan year begins
and ends, and the dates on which the amounts newly made available under
the HRA will be made available.
(B) A statement of the right of the participant to opt out of and
waive future reimbursements from the HRA, as set forth under paragraph
(c)(4) of this section.
(C) A description of the potential availability of the premium tax
credit if the participant opts out of and waives future reimbursements
from the HRA and the HRA is not affordable for one or more months under
Sec. 1.36B-2(c)(5) of this chapter, a statement that even if the
participant opts out of and waives future reimbursements from an HRA,
the offer will prohibit the participant (and, potentially, the
participant's dependents) from receiving a premium tax credit for the
participant's coverage (or the dependent's coverage, if applicable) on
an Exchange for any month that the HRA is affordable under Sec. 1.36B-
2(c)(5) of this chapter, a statement describing how the participant may
find assistance with determining affordability, a statement that, if
the participant is a former employee, the offer of the HRA does not
render the participant (or the participant's dependents, if applicable)
ineligible for the premium tax credit regardless of whether it is
affordable under Sec. 1.36B-2(c)(5) of this chapter, and a statement
that if the participant or dependent is enrolled in Medicare, he or she
is ineligible for the premium tax credit without regard to the offer or
acceptance of the HRA;
(D) A statement that if the participant accepts the HRA, the
participant may not claim a premium tax credit for the participant's
Exchange coverage for any month the HRA may be used to reimburse
medical care expenses of the participant, and a premium tax credit may
not be claimed for the Exchange coverage of the participant's
dependents for any month the HRA may be used to reimburse medical care
expenses of the dependents.
(E) A statement that the participant must inform any Exchange to
which the participant applies for advance payments of the premium tax
credit of the availability of the HRA; the self-only HRA amount
available for the HRA plan year (or the maximum dollar amount available
for the plan year if the HRA provides for reimbursements up to a single
dollar amount regardless of whether a participant has self-only or
other than self-only coverage) as set forth in the written notice in
accordance with paragraph (c)(6)(ii)(A) of this section; whether the
HRA is also available to the participant's dependents and if so, which
ones; the date as of which coverage under the HRA may first become
effective; the date on which the plan year begins and the date on which
it ends; and whether the participant is a current employee or former
employee.
(F) A statement that the participant should retain the written
notice because it may be needed to determine whether the participant is
allowed a premium tax credit on the participant's individual income tax
return.
(G) A statement that the HRA may not reimburse any medical care
expense unless the substantiation requirement set forth in paragraph
(c)(5)(ii) of this section is satisfied and a statement that the
participant must also provide the substantiation required by paragraph
(c)(5)(i) of this section.
(H) A statement that if the individual health insurance coverage
(or coverage under Medicare Part A and B or Medicare Part C) of a
participant or dependent ceases, the HRA will not reimburse any medical
care expenses that are incurred by the participant or dependent, as
applicable, after the coverage ceases, and a statement that the
participant must inform the HRA if the participant's or dependent's
individual health insurance coverage (or coverage under Medicare Part A
and B or Medicare Part C) is cancelled or terminated retroactively and
the date on which the cancellation or termination is effective.
(I) The contact information (including a phone number) for an
individual or a group of individuals who participants may contact in
order to receive additional information regarding the HRA. The plan
sponsor may determine which individual or group of individuals is best
suited to be the specified contact.
(J) A statement of availability of a special enrollment period to
enroll in or change individual health insurance coverage, through or
outside of an Exchange, for the participant and any dependents who
newly gain access to the HRA and are not already covered by the HRA.
(d) Classes of employees--(1) In general. This paragraph (d) sets
forth the rules for determining classes of employees. Paragraph (d)(2)
of this section sets forth the specific classes of employees; paragraph
(d)(3) of this section sets forth a minimum class size requirement that
applies in certain circumstances; paragraph (d)(4) of this section sets
forth rules regarding the definition of ``full-time employees,''
``part-time employees,'' and ``seasonal employees''; paragraph (d)(5)
of this section sets forth a special rule for new hires; and paragraph
(d)(6) of this section addresses student premium reduction
arrangements. For purposes of this section, including determining
[[Page 28992]]
classes under this paragraph (d), the employer is the common law
employer and is determined without regard to the rules under sections
414(b), (c), (m), and (o) that would treat the common law employer as a
single employer with certain other entities.
(2) List of classes. Participants may be treated as belonging to a
class of employees based on whether they are, or are not, included in
the classes described in this paragraph (d)(2). If the individual
coverage HRA is offered to former employees, former employees are
considered to be in the same class in which they were included
immediately before separation from service. Before each plan year, a
plan sponsor must determine for the plan year which classes of
employees it intends to treat separately and the definition of the
relevant class(es) it will apply, to the extent these regulations
permit a choice. After the classes and the definitions of the classes
are established for a plan year, a plan sponsor may not make changes to
the classes of employees or the definitions of those relevant classes
with respect to that plan year.
(i) Full-time employees, defined at the election of the plan
sponsor to mean either full-time employees under section 4980H (and
Sec. 54.4980H-1(a)(21) of this chapter) or employees who are not part-
time employees (as described in Sec. 1.105-11(c)(2)(iii)(C) of this
chapter);
(ii) Part-time employees, defined at the election of the plan
sponsor to mean either employees who are not full-time employees under
section 4980H (and under Sec. 54.4980H-1(a)(21) of this chapter (which
defines full-time employee)) or employees who are part-time employees
as described in Sec. 1.105-11(c)(2)(iii)(C) of this chapter;
(iii) Employees who are paid on a salary basis;
(iv) Non-salaried employees (such as, for example, hourly
employees);
(v) Employees whose primary site of employment is in the same
rating area as defined in 45 CFR 147.102(b);
(vi) Seasonal employees, defined at the election of the plan
sponsor to mean seasonal employees as described in either Sec.
54.4980H-1(a)(38) or Sec. 1.105-11(c)(2)(iii)(C) of this chapter;
(vii) Employees included in a unit of employees covered by a
particular collective bargaining agreement (or an appropriate related
participation agreement) in which the plan sponsor participates (as
described in Sec. 1.105-11(c)(2)(iii)(D) of this chapter);
(viii) Employees who have not satisfied a waiting period for
coverage (if the waiting period complies with Sec. 54.9815-2708 of
this chapter);
(ix) Non-resident aliens with no U.S.-based income (as described in
Sec. 1.105-11(c)(2)(iii)(E) of this chapter);
(x) Employees who, under all the facts and circumstances, are
employees of an entity that hired the employees for temporary placement
at an entity that is not the common law employer of the employees and
that is not treated as a single employer with the entity that hired the
employees for temporary placement under section 414(b), (c), (m), or
(o); or
(xi) A group of participants described as a combination of two or
more of the classes of employees set forth in paragraphs (d)(2)(i)
through (x) of this section.
(3) Minimum class size requirement--(i) In general. If a class of
employees is subject to the minimum class size requirement as set forth
in this paragraph (d)(3), the class must consist of at least a minimum
number of employees (as described in paragraphs (d)(3)(iii) and (iv) of
this section), otherwise, the plan sponsor may not treat that class as
a separate class of employees. Paragraph (d)(3)(ii) of this section
sets forth the circumstances in which the minimum class size
requirement applies to a class of employees, paragraph (d)(3)(iii) of
this section sets forth the rules for determining the applicable class
size minimum, and paragraph (d)(3)(iv) of this section sets forth the
rules for a plan sponsor to determine if it satisfies the minimum class
size requirement with respect to a class of employees.
(ii) Circumstances in which minimum class size requirement
applies--(A) The minimum class size requirement applies only if a plan
sponsor offers a traditional group health plan to one or more classes
of employees and offers an individual coverage HRA to one or more other
classes of employees.
(B) The minimum class size requirement does not apply to a class of
employees offered a traditional group health plan or a class of
employees offered no coverage.
(C) The minimum class size requirement applies to a class of
employees offered an individual coverage HRA if the class is full-time
employees, part-time employees, salaried employees, non-salaried
employees, or employees whose primary site of employment is in the same
rating area (described in paragraph (d)(2)(i), (ii), (iii), (iv), or
(v) of this section, respectively, and referred to collectively as the
applicable classes or individually as an applicable class), except
that:
(1) In the case of the class of employees whose primary site of
employment is in the same rating area (as described in paragraph
(d)(2)(v) of this section), the minimum class size requirement does not
apply if the geographic area defining the class is a State or a
combination of two or more entire States; and
(2) In the case of the classes of employees that are full-time
employees and part-time employees (as described in paragraphs (d)(2)(i)
and (ii) of this section, respectively), the minimum class size
requirement applies only to those classes (and the classes are only
applicable classes) if the employees in one such class are offered a
traditional group health plan while the employees in the other such
class are offered an individual coverage HRA. In such a case, the
minimum class size requirement applies only to the class offered an
individual coverage HRA.
(D) A class of employees offered an individual coverage HRA is also
subject to the minimum class size requirement if the class is a class
of employees created by combining at least one of the applicable
classes (as defined in paragraph (d)(3)(ii)(C) of this section) with
any other class, except that the minimum class size requirement shall
not apply to a class that is the result of a combination of one of the
applicable classes and a class of employees who have not satisfied a
waiting period (as described in paragraph (d)(2)(viii) of this
section).
(iii) Determination of the applicable class size minimum--(A) In
general. The minimum number of employees that must be in a class of
employees that is subject to the minimum class size requirement (the
applicable class size minimum) is determined prior to the beginning of
the plan year for each plan year of the individual coverage HRA and is:
(1) 10, for an employer with fewer than 100 employees;
(2) A number, rounded down to a whole number, equal to 10 percent
of the total number of employees, for an employer with 100 to 200
employees; and
(3) 20, for an employer with more than 200 employees.
(B) Determining employer size. For purposes of this paragraph
(d)(3), the number of employees of an employer is determined in advance
of the plan year of the HRA based on the number of employees that the
employer reasonably expects to employ on the first day of the plan
year.
(iv) Determining if a class satisfies the applicable class size
minimum. For purposes of this paragraph (d)(3), whether a class of
employees satisfies the applicable class size minimum for a
[[Page 28993]]
plan year of the individual coverage HRA is based on the number of
employees in the class offered the individual coverage HRA as of the
first day of the plan year. Therefore, this determination is not based
on the number of employees that actually enroll in the individual
coverage HRA, and this determination is not affected by changes in the
number of employees in the class during the plan year.
(4) Consistency requirement. For any plan year, a plan sponsor may
define ``full-time employee,'' ``part-time employee,'' and ``seasonal
employee'' in accordance with the relevant provisions of sections
105(h) or 4980H, as set forth in paragraphs (d)(2)(i), (ii), and (vi)
of this section, if:
(i) To the extent applicable under the HRA for the plan year, each
of the three classes of employees are defined in accordance with
section 105(h) or each of the three classes of employees are defined in
accordance with section 4980H for the plan year; and
(ii) The HRA plan document sets forth the applicable definitions
prior to the beginning of the plan year to which the definitions will
apply.
(5) Special rule for new hires--(i) In general. Notwithstanding
paragraphs (c)(2) and (3) of this section, a plan sponsor that offers a
traditional group health plan to a class of employees may prospectively
offer the employees in that class of employees who are hired on or
after a certain future date (the new hire date) an individual coverage
HRA (with this group of employees referred to as the new hire
subclass), while continuing to offer employees in that class of
employees who are hired before the new hire date a traditional group
health plan (with the rule set forth in this sentence referred to as
the special rule for new hires). For the new hire subclass, the
individual coverage HRA must be offered on the same terms to all
participants within the subclass, in accordance with paragraph (c)(3)
of this section. In accordance with paragraph (c)(2) of this section, a
plan sponsor may not offer a choice between an individual coverage HRA
or a traditional group health plan to any employee in the new hire
subclass or to any employee in the class who is not a member of the new
hire subclass.
(ii) New hire date. A plan sponsor may set the new hire date for a
class of employees prospectively as any date on or after January 1,
2020. A plan sponsor may set different new hire dates prospectively for
separate classes of employees.
(iii) Discontinuation of use of special rule for new hires and
multiple applications of the special rule for new hires. A plan sponsor
may discontinue use of the special rule for new hires at any time for
any class of employees. In that case, the new hire subclass is no
longer treated as a separate subclass of employees. In the event a plan
sponsor applies the special rule for new hires to a class of employees
and later discontinues use of the rule to the class of employees, the
plan sponsor may later apply the rule if the application of the rule
would be permitted under the rules for initial application of the
special rule for new hires. If a plan sponsor, in accordance with the
requirements for the special rule for new hires, applies the rule to a
class of employees subsequent to any prior application and
discontinuance of the rule to that class, the new hire date must be
prospective.
(iv) Application of the minimum class size requirement under the
special rule for new hires. The minimum class size requirement set
forth in paragraph (d)(3) of this section does not apply to the new
hire subclass. However, if a plan sponsor subdivides the new hire
subclass subsequent to creating the new hire subclass, the minimum
class size requirement set forth in paragraph (d)(3) of this section
applies to any class of employees created by subdividing the new hire
subclass, if the minimum class size requirement otherwise applies.
(6) Student employees offered student premium reduction
arrangements. For purposes of this section, if an institution of higher
education (as defined in the Higher Education Act of 1965) offers a
student employee a student premium reduction arrangement, the employee
is not considered to be part of the class of employees to which the
employee would otherwise belong. For the purpose of this paragraph
(d)(6) and paragraph (f)(1) of this section, a student premium
reduction arrangement is defined as any program offered by an
institution of higher education under which the cost of insured or
self-insured student health coverage is reduced for certain students
through a credit, offset, reimbursement, stipend or similar
arrangement. A student employee offered a student premium reduction
arrangement is also not counted for purposes of determining the
applicable class size minimum under paragraph (d)(3)(iii) of this
section. If a student employee is not offered a student premium
reduction arrangement (including if the student employee is offered an
individual coverage HRA instead), the student employee is considered to
be part of the class of employees to which the employee otherwise
belongs and is counted for purposes of determining the applicable class
size minimum under paragraph (d)(3)(iii) of this section.
(e) Integration of Individual Coverage HRAs with Medicare--(1)
General rule. An individual coverage HRA will be considered to be
integrated with Medicare (and deemed to comply with PHS Act sections
2711 and 2713 and Sec. 54.9815-2711(d)(4) of this chapter), provided
that the conditions of paragraph (c) of this section are satisfied,
subject to paragraph (e)(2) of this section. Nothing in this section
requires that a participant and his or her dependents all have the same
type of coverage; therefore, an individual coverage HRA may be
integrated with Medicare for some individuals and with individual
health insurance coverage for others, including, for example, a
participant enrolled in Medicare Part A and B or Part C and his or her
dependents enrolled in individual health insurance coverage.
(2) Application of conditions in paragraph (c) of this section--(i)
In general. Except as provided in paragraph (e)(2)(ii) of this section,
in applying the conditions of paragraph (c) of this section with
respect to integration with Medicare, a reference to ``individual
health insurance coverage'' is deemed to refer to coverage under
Medicare Part A and B or Part C. References in this section to
integration of an HRA with Medicare refer to integration of an
individual coverage HRA with Medicare Part A and B or Part C.
(ii) Exceptions. For purposes of the statement regarding ERISA
under the notice content element under paragraph (c)(6)(ii)(A) of this
section and the statement regarding the availability of a special
enrollment period under the notice content element under paragraph
(c)(6)(ii)(J) of this section, the term individual health insurance
coverage means only individual health insurance coverage and does not
also mean coverage under Medicare Part A and B or Part C.
(f) Examples--(1) Examples regarding classes and the minimum class
size requirement. The following examples illustrate the provisions of
paragraph (c)(3) of this section, taking into account the provisions of
paragraphs (d)(1) through (4) and (d)(6) of this section. In each
example, the HRA is an individual coverage HRA that may reimburse any
medical care expenses, including premiums for individual health
insurance coverage and it is assumed that no participants or dependents
are Medicare beneficiaries.
(i) Example 1: Collectively bargained employees offered
traditional group health
[[Page 28994]]
plan; non-collectively bargained employees offered HRA--(A) Facts.
For 2020, Plan Sponsor A offers its employees covered by a
collective bargaining agreement a traditional group health plan (as
required by the collective bargaining agreement) and all other
employees (non-collectively bargained employees) each an HRA on the
same terms.
(B) Conclusion. The same terms requirement of paragraph (c)(3)
of this section is satisfied in this paragraph (f)(1)(i) (Example 1)
because collectively bargained and non-collectively bargained
employees may be treated as different classes of employees, one of
which may be offered a traditional group health plan and the other
of which may be offered an individual coverage HRA, and Plan Sponsor
A offers the HRA on the same terms to all participants who are non-
collectively bargained employees. The minimum class size requirement
does not apply to this paragraph (f)(1)(i) (Example 1) even though
Plan Sponsor A offers one class a traditional group health plan and
one class the HRA because collectively bargained and non-
collectively bargained employees are not applicable classes that are
subject to the minimum class size requirement.
(ii) Example 2: Collectively bargained employees in one unit
offered traditional group health plan and in another unit offered
HRA--(A) Facts. For 2020, Plan Sponsor B offers its employees
covered by a collective bargaining agreement with Local 100 a
traditional group health plan (as required by the collective
bargaining agreement), and its employees covered by a collective
bargaining agreement with Local 200 each an HRA on the same terms
(as required by the collective bargaining agreement).
(B) Conclusion. The same terms requirement of paragraph (c)(3)
of this section is satisfied in this paragraph (f)(1)(ii) (Example
2) because the employees covered by the collective bargaining
agreements with the two separate bargaining units (Local 100 and
Local 200) may be treated as two different classes of employees and
Plan Sponsor B offers an HRA on the same terms to the participants
covered by the agreement with Local 200. The minimum class size
requirement does not apply to this paragraph (f)(1)(ii) (Example 2)
even though Plan Sponsor B offers the Local 100 employees a
traditional group health plan and the Local 200 employees an HRA
because collectively bargained employees are not applicable classes
that are subject to the minimum class size requirement.
(iii) Example 3: Employees in a waiting period offered no
coverage; other employees offered an HRA--(A) Facts. For 2020, Plan
Sponsor C offers its employees who have completed a waiting period
that complies with the requirements for waiting periods in Sec.
54.9815-2708 of this chapter each an HRA on the same terms and does
not offer coverage to its employees who have not completed the
waiting period.
(B) Conclusion. The same terms requirement of paragraph (c)(3)
of this section is satisfied in this paragraph (f)(1)(iii) (Example
3) because employees who have completed a waiting period and
employees who have not completed a waiting period may be treated as
different classes and Plan Sponsor C offers the HRA on the same
terms to all participants who have completed the waiting period. The
minimum class size requirement does not apply to this paragraph
(f)(1)(iii) (Example 3) because Plan Sponsor C does not offer at
least one class of employees a traditional group health plan and
because the class of employees who have not completed a waiting
period and the class of employees who have completed a waiting
period are not applicable classes that are subject to the minimum
class size requirement.
(iv) Example 4: Employees in a waiting period offered an HRA;
other employees offered a traditional group health plan--(A) Facts.
For 2020, Plan Sponsor D offers its employees who have completed a
waiting period that complies with the requirements for waiting
periods in Sec. 54.9815-2708 of this chapter a traditional group
health plan and offers its employees who have not completed the
waiting period each an HRA on the same terms.
(B) Conclusion. The same terms requirement of paragraph (c)(3)
of this section is satisfied in this paragraph (f)(1)(iv) (Example
4) because employees who have completed a waiting period and
employees who have not completed a waiting period may be treated as
different classes and Plan Sponsor D offers an HRA on the same terms
to all participants who have not completed the waiting period. The
minimum class size requirement does not apply to this paragraph
(f)(1)(iv) (Example 4) even though Plan Sponsor D offers employees
who have completed a waiting period a traditional group health plan
and employees who have not completed a waiting period an HRA because
the class of employees who have not completed a waiting period is
not an applicable class that is subject to the minimum class size
requirement (nor is the class made up of employees who have
completed the waiting period).
(v) Example 5: Staffing firm employees temporarily placed with
customers offered an HRA; other employees offered a traditional
group health plan--(A) Facts. Plan Sponsor E is a staffing firm that
places certain of its employees on temporary assignments with
customers that are not the common law employers of Plan Sponsor E's
employees or treated as a single employer with Plan Sponsor E under
section 414(b), (c), (m), or (o) (unrelated entities); other
employees work in Plan Sponsor E's office managing the staffing
business (non-temporary employees). For 2020, Plan Sponsor E offers
its employees who are on temporary assignments with customers each
an HRA on the same terms. All other employees are offered a
traditional group health plan.
(B) Conclusion. The same terms requirement of paragraph (c)(3)
of this section is satisfied in this paragraph (f)(1)(v) (Example 5)
because the employees who are hired for temporary placement at an
unrelated entity and non-temporary employees of Plan Sponsor E may
be treated as different classes of employees and Plan Sponsor E
offers an HRA on the same terms to all participants temporarily
placed with customers. The minimum class size requirement does not
apply to this paragraph (f)(1)(v) (Example 5) even though Plan
Sponsor E offers one class a traditional group health plan and one
class the HRA because the class of employees hired for temporary
placement is not an applicable class that is subject to the minimum
class size requirement (nor is the class made up of non-temporary
employees).
(vi) Example 6: Staffing firm employees temporarily placed with
customers in rating area 1 offered an HRA; other employees offered a
traditional group health plan--(A) Facts. The facts are the same as
in paragraph (f)(1)(v) of this section (Example 5), except that Plan
Sponsor E has work sites in rating area 1 and rating area 2, and it
offers its 10 employees on temporary assignments with a work site in
rating area 1 an HRA on the same terms. Plan Sponsor E has 200 other
employees in rating areas 1 and 2, including its non-temporary
employees in rating areas 1 and 2 and its employees on temporary
assignments with a work site in rating area 2, all of whom are
offered a traditional group health plan.
(B) Conclusion. The same terms requirement of paragraph (c)(3)
of this section is not satisfied in this paragraph (f)(1)(vi)
(Example 6) because, even though the employees who are temporarily
placed with customers generally may be treated as employees of a
different class, because Plan Sponsor E is also using a rating area
to identify the class offered the HRA (which is an applicable class
for the minimum class size requirement) and is offering one class
the HRA and another class the traditional group health plan, the
minimum class size requirement applies to the class offered the HRA,
and the class offered the HRA fails to satisfy the minimum class
size requirement. Because Plan Sponsor E employs 210 employees, the
applicable class size minimum is 20, and the HRA is offered to only
10 employees.
(vii) Example 7: Employees in State 1 offered traditional group
health plan; employees in State 2 offered HRA--(A) Facts. Plan
Sponsor F employs 45 employees whose work site is in State 1 and 7
employees whose primary site of employment is in State 2. For 2020,
Plan Sponsor F offers its 45 employees in State 1 a traditional
group health plan, and each of its 7 employees in State 2 an HRA on
the same terms.
(B) Conclusion. The same terms requirement of paragraph (c)(3)
of this section is satisfied in this paragraph (f)(1)(vii) (Example
7) because Plan Sponsor F offers the HRA on the same terms to all
employees with a work site in State 2 and that class is a
permissible class under paragraph (d) of this section. This is
because employees whose work sites are in different rating areas may
be considered different classes and a plan sponsor may create a
class of employees by combining classes of employees, including by
combining employees whose work site is in one rating area with
employees whose work site is in a different rating area, or by
combining all employees whose work site is in a state. The minimum
class size requirement does not apply to this paragraph (f)(1)(vii)
(Example 7) because the minimum class size requirement does not
apply if the geographic area defining a class
[[Page 28995]]
of employees is a state or a combination of two or more entire
states.
(viii) Example 8: Full-time seasonal employees offered HRA; all
other full-time employees offered traditional group health plan;
part-time employees offered no coverage--(A) Facts. Plan Sponsor G
employs 6 full-time seasonal employees, 75 full-time employees who
are not seasonal employees, and 5 part-time employees. For 2020,
Plan Sponsor G offers each of its 6 full-time seasonal employees an
HRA on the same terms, its 75 full-time employees who are not
seasonal employees a traditional group health plan, and offers no
coverage to its 5 part-time employees.
(B) Conclusion. The same terms requirement of paragraph (c)(3)
of this section is satisfied in this paragraph (f)(1)(viii) (Example
8) because full-time seasonal employees and full-time employees who
are not seasonal employees may be considered different classes and
Plan Sponsor G offers the HRA on the same terms to all full-time
seasonal employees. The minimum class size requirement does not
apply to the class offered the HRA in this paragraph (f)(1)(viii)
(Example 8) because part-time employees are not offered coverage and
full-time employees are not an applicable class subject to the
minimum class size requirement if part-time employees are not
offered coverage.
(ix) Example 9: Full-time employees in rating area 1 offered
traditional group health plan; full-time employees in rating area 2
offered HRA; part-time employees offered no coverage--(A) Facts.
Plan Sponsor H employs 17 full-time employees and 10 part-time
employees whose work site is in rating area 1 and 552 full-time
employees whose work site is in rating area 2. For 2020, Plan
Sponsor H offers its 17 full-time employees in rating area 1 a
traditional group health plan and each of its 552 full-time
employees in rating area 2 an HRA on the same terms. Plan Sponsor H
offers no coverage to its 10 part-time employees in rating area 1.
Plan Sponsor H reasonably expects to employ 569 employees on the
first day of the HRA plan year.
(B) Conclusion. The same terms requirement of paragraph (c)(3)
of this section is satisfied in this paragraph (f)(1)(ix) (Example
9) because employees whose work sites are in different rating areas
may be considered different classes and Plan Sponsor H offers the
HRA on the same terms to all full-time employees in rating area 2.
The minimum class size requirement applies to the class offered the
HRA in this paragraph (f)(1)(ix) (Example 9) because the minimum
class size requirement applies to a class based on a geographic area
unless the geographic area is a state or a combination of two or
more entire states. However, the minimum class size requirement
applies only to the class offered the HRA, and Plan Sponsor H offers
the HRA to the 552 full-time employees in rating area 2 on the first
day of the plan year, satisfying the minimum class size requirement
(because the applicable class size minimum for Plan Sponsor H is
20).
(x) Example 10: Employees in rating area 1 offered HRA;
employees in rating area 2 offered traditional group health plan--
(A) Facts. The facts are the same as in paragraph (f)(1)(ix) of this
section (Example 9) except that Plan Sponsor H offers its 17 full-
time employees in rating area 1 the HRA and offers its 552 full-time
employees in rating area 2 the traditional group health plan.
(B) Conclusion. The same terms requirement of paragraph (c)(3)
of this section is not satisfied in this paragraph (f)(1)(x)
(Example 10) because, even though employees whose work sites are in
different rating areas generally may be considered different classes
and Plan Sponsor H offers the HRA on the same terms to all
participants in rating area 1, the HRA fails to satisfy the minimum
class size requirement. Specifically, the minimum class size
requirement applies to this paragraph (f)(1)(x) (Example 10) because
the minimum class size requirement applies to a class based on a
geographic area unless the geographic area is a state or a
combination of two or more entire states. Further, the applicable
class size minimum for Plan Sponsor H is 20 employees, and the HRA
is only offered to the 17 full-time employees in rating area 1 on
the first day of the HRA plan year.
(xi) Example 11: Employees in State 1 and rating area 1 of State
2 offered HRA; employees in all other rating areas of State 2
offered traditional group health plan--(A) Facts. For 2020, Plan
Sponsor I offers an HRA on the same terms to a total of 200
employees it employs with work sites in State 1 and in rating area 1
of State 2. Plan Sponsor I offers a traditional group health plan to
its 150 employees with work sites in other rating areas in State 2.
Plan Sponsor I reasonably expects to employ 350 employees on the
first day of the HRA plan year.
(B) Conclusion. The same terms requirement of paragraph (c)(3)
of this section is satisfied in this paragraph (f)(1)(xi) (Example
11). Plan Sponsor I may treat all of the employees with a work site
in State 1 and rating area 1 of State 2 as a class of employees
because employees whose work sites are in different rating areas may
be considered different classes and a plan sponsor may create a
class of employees by combining classes of employees, including by
combining employees whose work site is in one rating area with a
class of employees whose work site is in a different rating area.
The minimum class size requirement applies to the class of employees
offered the HRA (made up of employees in State 1 and in rating area
1 of State 2) because the minimum class size requirement applies to
a class based on a geographic area unless the geographic area is a
state or a combination of two or more entire states. In this case,
the class is made up of a state plus a rating area which is not the
entire state. However, this class satisfies the minimum class size
requirement because the applicable class size minimum for Plan
Sponsor I is 20, and Plan Sponsor I offered the HRA to 200 employees
on the first day of the plan year.
(xii) Example 12: Salaried employees offered a traditional group
health plan; hourly employees offered an HRA--(A) Facts. Plan
Sponsor J has 163 salaried employees and 14 hourly employees. For
2020, Plan Sponsor J offers its 163 salaried employees a traditional
group health plan and each of its 14 hourly employees an HRA on the
same terms. Plan Sponsor J reasonably expects to employ 177
employees on the first day of the HRA plan year.
(B) Conclusion. The same terms requirement of paragraph (c)(3)
of this section is not satisfied in this paragraph (f)(1)(xii)
(Example 12) because, even though salaried and hourly employees
generally may be considered different classes and Plan Sponsor J
offers the HRA on the same terms to all hourly employees, the HRA
fails to satisfy the minimum class size requirement. Specifically,
the minimum class size requirement applies in this paragraph
(f)(1)(xii) (Example 12) because employees who are paid on a
salaried basis and employees who are not paid on a salaried basis
are applicable classes subject to the minimum class size
requirement. Because Plan Sponsor J reasonably expects to employ
between 100 and 200 employees on the first day of the plan year, the
applicable class size minimum is 10 percent, rounded down to a whole
number. Ten percent of 177 total employees, rounded down to a whole
number is 17, and the HRA is offered to only 14 hourly employees.
(xiii) Example 13: Part-time employees and full-time employees
offered different HRAs; no traditional group health plan offered--
(A) Facts. Plan Sponsor K has 50 full-time employees and 7 part-time
employees. For 2020, Plan Sponsor K offers its 50 full-time
employees $2,000 each in an HRA otherwise provided on the same terms
and each of its 7 part-time employees $500 in an HRA otherwise
provided on the same terms. Plan Sponsor K reasonably expects to
employ 57 employees on the first day of the HRA plan year.
(B) Conclusion. The same terms requirement of paragraph (c)(3)
of this section is satisfied in this paragraph (f)(1)(xiii) (Example
13) because full-time employees and part-time employees may be
treated as different classes and Plan Sponsor K offers an HRA on the
same terms to all the participants in each class. The minimum class
size requirement does not apply to either the full-time class or the
part-time class because (although in certain circumstances the
minimum class size requirement applies to a class of full-time
employees and a class of part-time employees) Plan Sponsor K does
not offer any class of employees a traditional group health plan,
and the minimum class size requirement applies only when, among
other things, at least one class of employees is offered a
traditional group health plan while another class is offered an HRA.
(xiv) Example 14: No employees offered an HRA--(A) Facts. The
facts are the same facts as in paragraph (f)(1)(xiii) of this
section (Example 13), except that Plan Sponsor K offers its full-
time employees a traditional group health plan and does not offer
any group health plan (either a traditional group health plan or an
HRA) to its part-time employees.
(B) Conclusion. The regulations set forth under this section do
not apply to Plan Sponsor K because Plan Sponsor K does not offer an
individual coverage HRA to any employee.
[[Page 28996]]
(xv) Example 15: Full-time employees offered traditional group
health plan; part-time employees offered HRA--(A) Facts. The facts
are the same as in paragraph (f)(1)(xiii) of this section (Example
13), except that Plan Sponsor K offers its full-time employees a
traditional group health plan and offers each of its part-time
employees $500 in an HRA and otherwise on the same terms.
(B) Conclusion. The same terms requirement of paragraph (c)(3)
of this section is not satisfied in this paragraph (f)(1)(xv)
(Example 15) because, even though the full-time employees and the
part-time employees generally may be treated as different classes,
in this paragraph (f)(1)(xv) (Example 15), the minimum class size
requirement applies to the part-time employees, and it is not
satisfied. Specifically, the minimum class size requirement applies
to the part-time employees because that requirement applies to an
applicable class offered an HRA when one class is offered a
traditional group health plan while another class is offered an HRA,
and to the part-time and full-time employee classes when one of
those classes is offered a traditional group health plan while the
other is offered an HRA. Because Plan Sponsor K reasonably expects
to employ fewer than 100 employees on the first day of the HRA plan
year, the applicable class size minimum for Plan Sponsor K is 10
employees, but Plan Sponsor K offered the HRA only to its 7 part-
time employees.
(xvi) Example 16: Satisfying minimum class size requirement
based on employees offered HRA--(A) Facts. Plan Sponsor L employs 78
full-time employees and 12 part-time employees. For 2020, Plan
Sponsor L offers its 78 full-time employees a traditional group
health plan and each of its 12 part-times employees an HRA on the
same terms. Only 6 part-time employees enroll in the HRA. Plan
Sponsor L reasonably expects to employ fewer than 100 employees on
the first day of the HRA plan year.
(B) Conclusion. The same terms requirement of paragraph (c)(3)
of this section is satisfied in this paragraph (f)(1)(xvi) (Example
16) because full-time employees and part-time employees may be
treated as different classes, Plan Sponsor L offers an HRA on the
same terms to all the participants in the part-time class, and the
minimum class size requirement is satisfied. Specifically, whether a
class of employees satisfies the applicable class size minimum is
determined as of the first day of the plan year based on the number
of employees in a class that is offered an HRA, not on the number of
employees who enroll in the HRA. The applicable class size minimum
for Plan Sponsor L is 10 employees, and Plan Sponsor L offered the
HRA to its 12 part-time employees.
(xvii) Example 17: Student employees offered student premium
reduction arrangements and same terms requirement--(A) Facts. Plan
Sponsor M is an institution of higher education that offers each of
its part-time employees an HRA on the same terms, except that it
offers its part-time employees who are student employees a student
premium reduction arrangement, and the student premium reduction
arrangement provides different amounts to different part-time
student employees.
(B) Conclusion. The same terms requirement of paragraph (c)(3)
of this section is satisfied in this paragraph (f)(1)(xvii) (Example
17) because Plan Sponsor M offers the HRA on the same terms to its
part-time employees who are not students and because the part-time
student employees offered a student premium reduction arrangement
(and their varying HRAs) are not taken into account as part-time
employees for purposes of determining whether a class of employees
is offered an HRA on the same terms.
(xiii) Example 18: Student employees offered student premium
reduction arrangements and minimum class size requirement--(A)
Facts. Plan Sponsor N is an institution of higher education with 25
hourly employees. Plan Sponsor N offers 15 of its hourly employees,
who are student employees, a student premium reduction arrangement
and it wants to offer its other 10 hourly employees an HRA for 2022.
Plan Sponsor N offers its salaried employees a traditional group
health plan. Plan Sponsor N reasonably expects to have 250 employees
on the first day of the 2022 HRA plan year, 15 of which will have
offers of student premium reduction arrangements.
(B) Conclusion. The same terms requirement of paragraph (c)(3)
of this section is not satisfied in this paragraph (f)(1)(xviii)
(Example 18). The minimum class size requirement will apply to the
class of hourly employees to which Plan Sponsor N wants to offer the
HRA because Plan Sponsor N offers a class of employees a traditional
group health plan and another class the HRA, and the minimum class
size requirement generally applies to a class of hourly employees
offered an HRA. Plan Sponsor N's applicable class size minimum is 20
because Plan Sponsor N reasonably expects to employ 235 employees on
the first day of the plan year (250 employees minus 15 employees
receiving a student premium reduction arrangement). Plan Sponsor N
may not offer the HRA to its hourly employees because the 10
employees offered the HRA as of the first day of the plan year does
not satisfy the applicable class size minimum.
(2) Examples regarding special rule for new hires. The following
examples illustrate the provisions of paragraph (c)(3) of this section,
taking into account the provisions of paragraph (d) of this section, in
particular the special rule for new hires under paragraph (d)(5) of
this section. In each example, the HRA is an individual coverage HRA
that has a calendar year plan year and may reimburse any medical care
expenses, including premiums for individual health insurance coverage.
The examples also assume that no participants or dependents are
Medicare beneficiaries.
(i) Example 1: Application of special rule for new hires to all
employees--(A) Facts. For 2021, Plan Sponsor A offers all employees
a traditional group health plan. For 2022, Plan Sponsor A offers all
employees hired on or after January 1, 2022, an HRA on the same
terms and continues to offer the traditional group health plan to
employees hired before that date. On the first day of the 2022 plan
year, Plan Sponsor A has 2 new hires who are offered the HRA.
(B) Conclusion. The same terms requirement of paragraph (c)(3)
of this section is satisfied in this paragraph (f)(2)(i) (Example 1)
because, under the special rule for new hires in paragraph (d)(5) of
this section, the employees newly hired on and after January 1,
2022, may be treated as a new hire subclass, Plan Sponsor A offers
the HRA on the same terms to all participants in the new hire
subclass, and the minimum class size requirement does not apply to
the new hire subclass.
(ii) Example 2: Application of special rule for new hires to
full-time employees--(A) Facts. For 2021, Plan Sponsor B offers a
traditional group health plan to its full-time employees and does
not offer any coverage to its part-time employees. For 2022, Plan
Sponsor B offers full-time employees hired on or after January 1,
2022, an HRA on the same terms, continues to offer its full-time
employees hired before that date a traditional group health plan,
and continues to offer no coverage to its part-time employees. On
the first day of the 2022 plan year, Plan Sponsor B has 2 new hire,
full-time employees who are offered the HRA.
(B) Conclusion. The same terms requirement of paragraph (c)(3)
of this section is satisfied in this paragraph (f)(2)(ii) (Example
2) because, under the special rule for new hires in paragraph (d)(5)
of this section, the full-time employees newly hired on and after
January 1, 2022, may be treated as a new hire subclass and Plan
Sponsor B offers the HRA on the same terms to all participants in
the new hire subclass. The minimum class size requirement does not
apply to the new hire subclass.
(iii) Example 3: Special rule for new hires impermissibly
applied retroactively--(A) Facts. For 2025, Plan Sponsor C offers a
traditional group health plan to its full-time employees. For 2026,
Plan Sponsor C wants to offer an HRA to its full-time employees
hired on and after January 1, 2023, while continuing to offer a
traditional group health plan to its full-time employees hired
before January 1, 2023.
(B) Conclusion. The special rule for new hires under paragraph
(d)(5) of this section does not apply in this paragraph (f)(2)(iii)
(Example 3) because the rule must be applied prospectively. That is,
Plan Sponsor C may not, in 2026, choose to apply the special rule
for new hires retroactive to 2023. If Plan Sponsor C were to offer
an HRA in this way, it would fail to satisfy the conditions under
paragraphs (c)(2) and (3) of this section because the new hire
subclass would not be treated as a subclass for purposes of applying
those rules and, therefore, all full-time employees would be treated
as one class to which either a traditional group health plan or an
HRA could be offered, but not both.
(iv) Example 4: Permissible second application of the special
rule for new hires to the same class of employees--(A) Facts. For
2021, Plan Sponsor D offers all of its full-time employees a
traditional group health
[[Page 28997]]
plan. For 2022, Plan Sponsor D applies the special rule for new
hires and offers an HRA on the same terms to all employees hired on
and after January 1, 2022, and continues to offer a traditional
group health plan to full-time employees hired before that date. For
2025, Plan Sponsor D discontinues use of the special rule for new
hires, and again offers all full-time employees a traditional group
health plan. In 2030, Plan Sponsor D decides to apply the special
rule for new hires to the full-time employee class again, offering
an HRA to all full-time employees hired on and after January 1,
2030, on the same terms, while continuing to offer employees hired
before that date a traditional group health plan.
(B) Conclusion. Plan Sponsor D has permissibly applied the
special rule for new hires and is in compliance with the
requirements of paragraphs (c)(2) and (3) of this section.
(v) Example 5: Impermissible second application of the special
rule for new hires to the same class of employees--(A) Facts. The
facts are the same as in paragraph (f)(2)(iv) of this section
(Example 4), except that for 2025, Plan Sponsor D discontinues use
of the special rule for new hires by offering all full-time
employees an HRA on the same terms. Further, for 2030, Plan Sponsor
D wants to continue to offer an HRA on the same terms to all full-
time employees hired before January 1, 2030, and to offer all full-
time employees hired on or after January 1, 2030, an HRA in a
different amount.
(B) Conclusion. Plan Sponsor D may not apply the special rule
for new hires for 2030 to the class of full-time employees being
offered an HRA because the special rule for new hires may only be
applied to a class that is being offered a traditional group health
plan.
(vi) Example 6: New full-time employees offered different HRAs
in different rating areas--(A) Facts. Plan Sponsor E has work sites
in rating area 1, rating area 2, and rating area 3. For 2021, Plan
Sponsor E offers its full-time employees a traditional group health
plan. For 2022, Plan Sponsor E offers its full-time employees hired
on or after January 1, 2022, in rating area 1 an HRA of $3,000, its
full-time employees hired on or after January 1, 2022, in rating
area 2 an HRA of $5,000, and its full-time employees hired on or
after January 1, 2022, in rating area 3 an HRA of $7,000. Within
each class offered an HRA, Plan Sponsor E offers the HRA on the same
terms. Plan Sponsor E offers its full-time employees hired prior to
January 1, 2022, in each of those classes a traditional group health
plan. On the first day of the 2022 plan year, there is one new hire,
full-time employee in rating area 1, three new hire, full-time
employees in rating area 2, and 10 new hire-full-time employees in
rating area 3.
(B) Conclusion. The same terms requirement of paragraph (c)(3)
of this section is satisfied in this paragraph (f)(2)(vi) (Example
6) because, under the special rule for new hires in paragraph (d)(5)
of this section, the full-time employees in each of the three rating
areas newly hired on and after January 1, 2022, may be treated as
three new hire subclasses and Plan Sponsor E offers the HRA on the
same terms to all participants in the new hire subclasses. Further,
the minimum class size requirement does not apply to the new hire
subclasses.
(vii) Example 7: New full-time employee class subdivided based
on rating area--(A) Facts. Plan Sponsor F offers its full-time
employees hired on or after January 1, 2022, an HRA on the same
terms and it continues to offer its full-time employees hired before
that date a traditional group health plan. Plan Sponsor F offers no
coverage to its part-time employees. For the 2025 plan year, Plan
Sponsor F wants to subdivide the full-time new hire subclass so that
those whose work site is in rating area 1 will be offered the
traditional group health plan and those whose work site is in rating
area 2 will continue to receive the HRA. Plan Sponsor F reasonably
expects to employ 219 employees on January 1, 2025. As of January 1,
2025, Plan Sponsor F has 15 full-time employees whose work site in
in rating area 2 and who were hired between January 1, 2022, and
January 1, 2025.
(B) Conclusion. The same terms requirement of paragraph (c)(3)
of this section is not satisfied in this paragraph (f)(2)(vii)
(Example 7) because the new hire subclass has been subdivided in a
manner that is subject to the minimum class size requirement, and
the class offered the HRA fails to satisfy the minimum class size
requirement. Specifically, once the new hire subclass is subdivided
the general rules for applying the minimum class size requirement
apply to the employees offered the HRA in the new hire subclass. In
this case, because the subdivision of the new hire full-time
subclass is based on rating areas; a class based on rating areas is
an applicable class subject to the minimum class size requirement;
and the employees in one rating area are to be offered the HRA,
while the employees in the other rating area are offered the
traditional group health plan, the minimum class size requirement
would apply on and after the date of the subdivision. Further, the
minimum class size requirement would not be satisfied, because the
applicable class size minimum for Plan Sponsor F would be 20, and
only 15 employees in rating area 2 would be offered the HRA.
(viii) Example 8: New full-time employee class subdivided based
on state--(A) Facts. The facts are the same as in paragraph
(f)(2)(vii) of this section (Example 7), except that for the 2025
plan year, Plan Sponsor F intends to subdivide the new hire, full-
time class so that those in State 1 will be offered the traditional
group health plan and those in State 2 will each be offered an HRA
on the same terms.
(B) Conclusion. The same terms requirement of paragraph (c)(3)
of this section is satisfied in this paragraph (f)(2)(viii) (Example
8) because even though the new hire subclass has been subdivided, it
has been subdivided in a manner that is not subject to the minimum
class size requirement as the subdivision is based on the entire
state.
(ix) Example 9: New full-time employees and part-time employees
offered HRA--(A) Facts. In 2021, Plan Sponsor G offers its full-time
employees a traditional group health plan and does not offer
coverage to its part-time employees. For the 2022 plan year, Plan
Sponsor G offers its full-time employees hired on or after January
1, 2022, and all of its part-time employees, including those hired
before January 1, 2022, and those hired on and after January 1,
2022, an HRA on the same terms, and it continues to offer its full-
time employees hired before January 1, 2022, a traditional group
health plan.
(B) Conclusion. The minimum class size requirement applies to
the part-time employees offered the HRA in 2022 because the class is
being offered an HRA; the special rule for new hires does not apply
(because this class was not previously offered a traditional group
health plan) and so it is not a new hire subclass exempt from the
minimum class size requirement; another class of employees (that is,
full-time hired before January 1, 2022) are being offered a
traditional group health plan; and the part-time employee class is
generally an applicable classes that is subject to the minimum class
size requirement. However, because the full-time, new hire subclass
is based on the special rule for new hires, the minimum class size
requirement does not apply to full-time new hires offered an HRA in
2022.
(g) Applicability date. This section applies to plan years
beginning on or after January 1, 2020.
0
Par. 7. Section[thinsp]54.9815-2711 is amended by revising paragraphs
(c), (d), and (e) to read as follows:
Sec. 54.9815-2711 No lifetime or annual limits.
* * * * *
(c) Definition of essential health benefits. The term ``essential
health benefits'' means essential health benefits under section 1302(b)
of the Patient Protection and Affordable Care Act and applicable
regulations. For the purpose of this section, a group health plan or a
health insurance issuer that is not required to provide essential
health benefits under section 1302(b) must define ``essential health
benefits'' in a manner that is consistent with the following:
(1) For plan years beginning before January 1, 2020, one of the
EHB-benchmark plans applicable in a State under 45 CFR 156.110, and
including coverage of any additional required benefits that are
considered essential health benefits consistent with 45 CFR
155.170(a)(2), or one of the three Federal Employees Health Benefits
Program (FEHBP) plan options as defined by 45 CFR 156.100(a)(3),
supplemented as necessary, to satisfy the standards in 45 CFR 156.110;
or
(2) For plan years beginning on or after January 1, 2020, an EHB-
benchmark plan selected by a State in accordance with the available
options and requirements for EHB-benchmark
[[Page 28998]]
plan selection at 45 CFR 156.111, including an EHB-benchmark plan in a
State that takes no action to change its EHB-benchmark plan and thus
retains the EHB-benchmark plan applicable in that State for the prior
year in accordance with 45 CFR 156.111(d)(1), and including coverage of
any additional required benefits that are considered essential health
benefits consistent with 45 CFR 155.170(a)(2).
(d) Health reimbursement arrangements (HRAs) and other account-
based group health plans--(1) In general. If an HRA or other account-
based group health plan is integrated with another group health plan or
individual health insurance coverage and the other group health plan or
individual health insurance coverage, as applicable, separately is
subject to and satisfies the requirements in PHS Act section 2711 and
paragraph (a)(2) of this section, the fact that the benefits under the
HRA or other account-based group health plan are limited does not cause
the HRA or other account-based group health plan to fail to satisfy the
requirements of PHS Act section 2711 and paragraph (a)(2) of this
section. Similarly, if an HRA or other account-based group health plan
is integrated with another group health plan or individual health
insurance coverage and the other group health plan or individual health
insurance coverage, as applicable, separately is subject to and
satisfies the requirements in PHS Act section 2713 and Sec. 54.9815-
2713(a)(1) of this chapter, the fact that the benefits under the HRA or
other account-based group health plan are limited does not cause the
HRA or other account-based group health plan to fail to satisfy the
requirements of PHS Act section 2713 and Sec. 54.9815-2713(a)(1) of
this chapter. For the purpose of this paragraph (d), all individual
health insurance coverage, except for coverage that consists solely of
excepted benefits, is treated as being subject to and complying with
PHS Act sections 2711 and 2713.
(2) Requirements for an HRA or other account-based group health
plan to be integrated with another group health plan. An HRA or other
account-based group health plan is integrated with another group health
plan for purposes of PHS Act section 2711 and paragraph (a)(2) of this
section if it satisfies the requirements under one of the integration
methods set forth in paragraph (d)(2)(i) or (ii) of this section. For
purposes of the integration methods under which an HRA or other
account-based group health plan is integrated with another group health
plan, integration does not require that the HRA or other account-based
group health plan and the other group health plan 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. An
HRA or other account-based group health plan integrated with another
group health plan for purposes of PHS Act section 2711 and paragraph
(a)(2) of this section may not be used to purchase individual health
insurance coverage unless that coverage consists solely of excepted
benefits, as defined in 45 CFR 148.220.
(i) Method for integration with a group health plan: Minimum value
not required. An HRA or other account-based group health plan is
integrated with another group health plan for purposes of this
paragraph (d) if:
(A) The plan sponsor offers a group health plan (other than the HRA
or other account-based group health plan) to the employee that does not
consist solely of excepted benefits;
(B) The employee receiving the HRA or other account-based group
health plan is actually enrolled in a group health plan (other than the
HRA or other account-based group health plan) that does not consist
solely of excepted benefits, regardless of whether the plan is offered
by the same plan sponsor (referred to as non-HRA group coverage);
(C) The HRA or other account-based group health plan is available
only to employees who are enrolled in non-HRA group coverage,
regardless of whether the non-HRA group coverage is offered by the plan
sponsor of the HRA or other account-based group health plan (for
example, the HRA may be offered only to employees who do not enroll in
an employer's group health plan but are enrolled in other non-HRA group
coverage, such as a group health plan maintained by the employer of the
employee's spouse);
(D) The benefits under the HRA or other account-based group health
plan are 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 expenses that do not constitute
essential health benefits as defined in paragraph (c) of this section;
and
(E) Under the terms of the HRA or other account-based group health
plan, an employee (or former employee) is permitted to permanently opt
out of and waive future reimbursements from the HRA or other account-
based group health plan at least annually and, upon termination of
employment, either the remaining amounts in the HRA or other account-
based group health plan are forfeited or the employee is permitted to
permanently opt out of and waive future reimbursements from the HRA or
other account-based group health plan (see paragraph (d)(3) of this
section for additional rules regarding forfeiture and waiver).
(ii) Method for integration with another group health plan: Minimum
value required. An HRA or other account-based group health plan is
integrated with another group health plan for purposes of this
paragraph (d) if:
(A) The plan sponsor offers a group health plan (other than the HRA
or other account-based group health plan) to the employee that provides
minimum value pursuant to section 36B(c)(2)(C)(ii) (and its
implementing regulations and applicable guidance);
(B) The employee receiving the HRA or other account-based group
health plan is actually enrolled in a group health plan (other than the
HRA or other account-based group health plan) that provides minimum
value pursuant to section 36B(c)(2)(C)(ii) (and applicable guidance),
regardless of whether the plan is offered by the plan sponsor of the
HRA or other account-based group health plan (referred to as non-HRA MV
group coverage);
(C) The HRA or other account-based group health plan is available
only to employees who are actually enrolled in non-HRA MV group
coverage, regardless of whether the non-HRA MV group coverage is
offered by the plan sponsor of the HRA or other account-based group
health plan (for example, the HRA may be offered only to employees who
do not enroll in an employer's group health plan but are enrolled in
other non-HRA MV group coverage, such as a group health plan maintained
by an employer of the employee's spouse); and
(D) Under the terms of the HRA or other account-based group health
plan, an employee (or former employee) is permitted to permanently opt
out of and waive future reimbursements from the HRA or other account-
based group health plan at least annually, and, upon termination of
employment, either the remaining amounts in the HRA or other account-
based group health plan are forfeited or the employee is permitted to
permanently opt out of and waive future reimbursements from the HRA or
other account-based group health plan (see paragraph (d)(3) of this
section for additional rules regarding forfeiture and waiver).
(3) Forfeiture. For purposes of integration under paragraphs
(d)(2)(i)(E) and (d)(2)(ii)(D) of this section, forfeiture or waiver
occurs even if the
[[Page 28999]]
forfeited or waived amounts may be reinstated upon a fixed date, a
participant's death, or the earlier of the two events (the
reinstatement event). For the purpose of this paragraph (d)(3),
coverage under an HRA or other account-based group health plan is
considered forfeited or waived prior to a reinstatement event only if
the participant's election to forfeit or waive is irrevocable, meaning
that, beginning on the effective date of the election and through the
date of the reinstatement event, the participant and the participant's
beneficiaries have no access to amounts credited to the HRA or other
account-based group health plan. This means that upon and after
reinstatement, the reinstated amounts under the HRA or other account-
based group health plan may not be used to reimburse or pay medical
care expenses incurred during the period after forfeiture and prior to
reinstatement.
(4) Requirements for an HRA or other account-based group health
plan to be integrated with individual health insurance coverage or
Medicare Part A and B or Medicare Part C. An HRA or other account-based
group health plan is integrated with individual health insurance
coverage or Medicare Part A and B or Medicare Part C (and treated as
complying with PHS Act sections 2711 and 2713) if the HRA or other
account-based group health plan satisfies the requirements of Sec.
54.9802-4(c) of this chapter (as modified by Sec. 54.9802-4(e), for
HRAs or other account-based group health plans integrated with Medicare
Part A and B or Medicare Part C).
(5) Integration with Medicare Part B and D. For employers that are
not required to offer their non-HRA group health plan coverage to
employees who are Medicare beneficiaries, an HRA or other account-based
group health plan that may be used to reimburse premiums under Medicare
Part B or D may be integrated with Medicare (and deemed to comply with
PHS Act sections 2711 and 2713) if the following requirements are
satisfied with respect to employees who would be eligible for the
employer's non-HRA group health plan but for their eligibility for
Medicare (and the integration rules under paragraphs (d)(2)(i) and (ii)
of this section continue to apply to employees who are not eligible for
Medicare):
(i) The plan sponsor offers a group health plan (other than the HRA
or other account-based group health plan and that does not consist
solely of excepted benefits) to employees who are not eligible for
Medicare;
(ii) The employee receiving the HRA or other account-based group
health plan is actually enrolled in Medicare Part B or D;
(iii) The HRA or other account-based group health plan is available
only to employees who are enrolled in Medicare Part B or D; and
(iv) The HRA or other account-based group health plan complies with
paragraphs (d)(2)(i)(E) and (d)(2)(ii)(D) of this section.
(6) Definitions. The following definitions apply for purposes of
this section.
(i) Account-based group health plan. An account-based group health
plan is an employer-provided group health plan that provides
reimbursements of medical care expenses with the reimbursement subject
to a maximum fixed dollar amount for a period. An HRA is a type of
account-based group health plan. An account-based group health plan
does not include a qualified small employer health reimbursement
arrangement, as defined in section 9831(d)(2).
(ii) Medical care expenses. Medical care expenses means expenses
for medical care as defined under section 213(d).
(e) Applicability date. The provisions of this section are
applicable to group health plans and health insurance issuers for plan
years beginning on or after January 1, 2020. Until the applicability
date for this section, plans and issuers are required to continue to
comply with the corresponding sections of 26 CFR part 54, contained in
the 26 CFR, subchapter D, revised as of April 1, 2018.
0
Par. 8. Section 54.9831-1 is amended by revising paragraph (c)(3)(i)
and adding paragraph (c)(3)(viii) to read as follows:
Sec. 54.9831-1 Special rules relating to group health plans.
* * * * *
(c) * * *
(3) * * *
(i) In general. Limited-scope dental benefits, limited-scope vision
benefits, or long-term care benefits are excepted if they are provided
under a separate policy, certificate, or contract of insurance, or are
otherwise not an integral part of a group health plan as described in
paragraph (c)(3)(ii) of this section. In addition, benefits provided
under a health flexible spending arrangement (health FSA) are excepted
benefits if they satisfy the requirements of paragraph (c)(3)(v) of
this section; benefits provided under an employee assistance program
are excepted benefits if they satisfy the requirements of paragraph
(c)(3)(vi) of this section; benefits provided under limited wraparound
coverage are excepted benefits if they satisfy the requirements of
paragraph (c)(3)(vii) of this section; and benefits provided under a
health reimbursement arrangement or other account-based group health
plan, other than a health FSA, are excepted benefits if they satisfy
the requirements of paragraph (c)(3)(viii) of this section.
* * * * *
(viii) Health reimbursement arrangements (HRAs) and other account-
based group health plans. Benefits provided under an HRA or other
account-based group health plan, other than a health FSA, are excepted
if they satisfy all of the requirements of this paragraph (c)(3)(viii).
See paragraph (c)(3)(v) of this section for the circumstances in which
benefits provided under a health FSA are excepted benefits. For
purposes of this paragraph (c)(3)(viii), the term ``HRA or other
account-based group health plan'' has the same meaning as ``account-
based group health plan'' set forth in Sec. 54.9815-2711(d)(6)(i) of
this part, except that the term does not include health FSAs. For ease
of reference, an HRA or other account-based group health plan that
satisfies the requirements of this paragraph (c)(3)(viii) is referred
to as an excepted benefit HRA.
(A) Otherwise not an integral part of the plan. Other group health
plan coverage that is not limited to excepted benefits and that is not
an HRA or other account-based group health plan must be made available
by the same plan sponsor for the plan year to the participant.
(B) Benefits are limited in amount--(1) Limit on annual amounts
made available. The amounts newly made available for each plan year
under the HRA or other account-based group health plan do not exceed
$1,800. In the case of any plan year beginning after December 31, 2020,
the dollar amount in the preceding sentence shall be increased by an
amount equal to such dollar amount multiplied by the cost-of-living
adjustment. The cost of living adjustment is the percentage (if any) by
which the C-CPI-U for the preceding calendar year exceeds the C-CPI-U
for calendar year 2019. The term ``C-CPI-U'' means the Chained Consumer
Price Index for All Urban Consumers as published by the Bureau of Labor
Statistics of the Department of Labor. The C-CPI-U for any calendar
year is the average of the C-CPI-U as of the close of the 12-month
period ending on March 31 of such calendar year. The values of the C-
CPI-U used for any calendar year shall be the latest values
[[Page 29000]]
so published as of the date on which the Bureau publishes the initial
value of the C-CPI-U for the month of March for the preceding calendar
year. Any such increase that is not a multiple of $50 shall be rounded
down to the next lowest multiple of $50. The Department of the Treasury
and the Internal Revenue Service will publish the adjusted amount for
plan years beginning in any calendar year no later than June 1 of the
preceding calendar year.
(2) Carryover amounts. If the terms of the HRA or other account-
based group health plan allow unused amounts to be made available to
participants and dependents in later plan years, such carryover amounts
are disregarded for purposes of determining whether benefits are
limited in amount.
(3) Multiple HRAs or other account-based group health plans. If the
plan sponsor provides more than one HRA or other account-based group
health plan to the participant for the same time period, the amounts
made available under all such plans are aggregated to determine whether
the benefits are limited in amount, except that HRAs or other account-
based group health plans that reimburse only excepted benefits are not
included in determining whether the benefits are limited in amount.
(C) Prohibition on reimbursement of certain health insurance
premiums. The HRA or other account-based group health plan must not
reimburse premiums for individual health insurance coverage, group
health plan coverage (other than COBRA continuation coverage or other
continuation coverage), or Medicare Part A, B, C, or D, except that the
HRA or other account-based group health plan may reimburse premiums for
such coverage that consists solely of excepted benefits. See also,
paragraph (c)(3)(viii)(F) of this section.
(D) Uniform availability. The HRA or other account-based group
health plan is made available under the same terms to all similarly
situated individuals, as defined in Sec. 54.9802-1(d) of this part,
regardless of any health factor (as described in Sec. 54.9802-1(a)).
(E) Notice requirement. See 29 CFR 2520.102-3(j)(2) and (3) and 29
CFR 2520.104b-2(a) for rules regarding the time, manner, and content
for summary plan descriptions (including a description of conditions
pertaining to eligibility to receive benefits; annual or lifetime caps
or other limits on benefits under the plan; and a description or
summary of the benefits) applicable to plans subject to Tile I of the
Employee Retirement Income Security Act of 1974, as amended.
(F) Special rule. The HRA or other account-based group health plan
must not reimburse premiums for short-term, limited-duration insurance
(as defined in Sec. 54.9801-2 of this part) if the conditions of this
paragraph (c)(3)(viii)(F) are satisfied.
(1) The HRA or other account-based group health plan is offered by
a small employer (as defined in PHS Act section 2791(e)(4)).
(2) The other group health plan coverage offered by the employer
pursuant to paragraph (c)(3)(viii)(A) of this section is either fully-
insured or partially-insured.
(3) The Secretary of Health and Human Services (HHS) makes a
finding, in consultation with the Secretaries of Labor and the
Treasury, that the reimbursement of premiums for short-term, limited-
duration insurance by excepted benefit HRAs has caused significant harm
to the small group market in the state that is the principal place of
business of the small employer.
(4) The finding by the Secretary of HHS is made after submission of
a written recommendation by the applicable state authority of such
state, in a form and manner specified by HHS. The written
recommendation must include evidence that the reimbursement of premiums
for short-term, limited-duration insurance by excepted benefit HRAs
established by insured or partially-insured small employers in the
state has caused significant harm to the state's small group market,
including with respect to premiums.
(5) The restriction shall be imposed or discontinued by publication
by the Secretary of HHS of a notice in the Federal Register and shall
apply only prospectively and with a reasonable time for plan sponsors
to comply.
* * * * *
DEPARTMENT OF LABOR
Employee Benefits Security Administration
29 CFR Chapter XXV
For the reasons stated in the preamble, the Department of Labor
amends 29 CFR parts 2510 and 2590 as set forth below:
PART 2510--DEFINITION OF TERMS USED IN SUBCHAPTERS C, D, E, F, G,
AND L OF THIS CHAPTER
0
9. The authority citation for part 2510 is revised to read as follows:
Authority: 29 U.S.C. 1002(1), 1002(3), 1002(2), 1002(5),
1002(16), 1002(21), 1002(37), 1002(38), 1002(40), 1002(42), 1031,
and 1135; Secretary of Labor's Order No. 1-2011, 77 FR 1088 (Jan. 9,
2012); Secs. 2510.3-21, 2510.3-101 and 2510.3-102 also issued under
sec. 102 of Reorganization Plan No. 4 of 1978, 5 U.S.C. App. at 237
(2012), E.O. 12108, 44 FR 1065 (Jan. 3, 1979) and 29 U.S.C. 1135
note. Sec. 2510.3-38 is also issued under sec. 1, Pub. L. 105-72,
111 Stat. 1457 (1997).
0
10. Section 2510.3-1 is amended by adding paragraph (l) to read as
follows:
Sec. 2510.3-1 Employee welfare benefit plan.
* * * * *
(l) Safe harbor for health reimbursement arrangements (HRAs) and
certain other arrangements that reimburse individual health insurance
coverage. For purposes of title I of the Act and this chapter, the
terms ``employee welfare benefit plan'' and ``welfare plan'' shall not
include individual health insurance coverage the premiums of which are
reimbursed by a health reimbursement arrangement (HRA) (or other
account-based group health plan), including an HRA or other account-
based group health plan integrated with individual health insurance
coverage (as described in Sec. 2590.702-2 of this chapter), an HRA
that covers fewer than two current employees (as described in Sec.
2590.732(b) of this chapter) and that reimburses premiums for
individual health insurance coverage, a qualified small employer health
reimbursement arrangement (QSEHRA), as defined in section 9831(d)(2) of
the Code, or an arrangement under which an employer allows employees to
pay the portion of the premium for individual health insurance coverage
that is not covered by an HRA or other account-based group health plan
with which the coverage is integrated by using a salary reduction
arrangement in a cafeteria plan under section 125 of the Code
(supplemental salary reduction arrangement), if all the conditions of
this paragraph (l) are satisfied.
(1) The purchase of any individual health insurance coverage is
completely voluntary for participants and beneficiaries. The fact that
a plan sponsor requires such coverage to be purchased as a condition
for participation in an HRA or supplemental salary reduction
arrangement does not make the purchase involuntary.
(2) The employer, employee organization, or other plan sponsor does
not select or endorse any particular issuer or insurance coverage. In
contrast, providing general contact information regarding availability
of health insurance in a state (such as
[[Page 29001]]
providing information regarding www.HealthCare.gov or contact
information for a state insurance commissioner's office) or providing
general health insurance educational information (such as the uniform
glossary of health coverage and medical terms available at: https://www.dol.gov/sites/default/files/ebsa/laws-and-regulations/laws/affordable-care-act/for-employers-and-advisers/sbc-uniform-glossary-of-coverage-and-medical-terms-final.pdf) is permitted.
(3) Reimbursement for non-group health insurance premiums is
limited solely to individual health insurance coverage (as defined in
Sec. 2590.701-2 of this chapter) that does not consist solely of
excepted benefits (as defined in Sec. 2590.732(c) of this chapter).
(4) The employer, employee organization, or other plan sponsor
receives no consideration in the form of cash or otherwise in
connection with the employee's selection or renewal of any individual
health insurance coverage.
(5) Each plan participant is notified annually that the individual
health insurance coverage is not subject to title I of ERISA. For an
HRA that is integrated with individual health insurance coverage, the
notice must satisfy the notice requirement set forth in Sec. 2590.702-
2(c)(6) of this chapter. A QSEHRA or an HRA not subject to the notice
requirement set forth in Sec. 2590.702-2(c)(6) of this chapter may use
the following language to satisfy this condition: ``The individual
health insurance coverage that is paid for by this plan, if any, is not
subject to the rules and consumer protections of the Employee
Retirement Income Security Act. You should contact your state insurance
department for more information regarding your rights and
responsibilities if you purchase individual health insurance
coverage.'' A supplemental salary reduction arrangement is not required
to provide this notice as the notice will be provided by the HRA that
such an arrangement supplements.
PART 2590--RULES AND REGULATIONS FOR GROUP HEALTH PLANS.
0
11. The authority citation for part 2590 continues to read as follows:
Authority: 29 U.S.C. 1027, 1059, 1135, 1161-1168, 1169, 1181-
1183, 1181 note, 1185, 1185a, 1185b, 1191, 1191a, 1191b, and 1191c;
sec. 101(g), Pub. L. 104-191, 110 Stat. 1936; sec. 401(b), Pub. L.
105-200, 112 Stat. 645 (42 U.S.C. 651 note); sec. 512(d), Pub. L.
110-343, 122 Stat. 3881; sec. 1001, 1201, and 1562(e), Pub. L. 111-
148, 124 Stat. 119, as amended by Pub. L. 111-152, 124 Stat. 1029;
Division M, Pub. L. 113-235, 128 Stat. 2130; Secretary of Labor's
Order 1-2011, 77 FR 1088 (Jan. 9, 2012).
0
12. Section 2590.701-2 is amended by revising the definition of ``group
health insurance coverage'' to read as follows:
Sec. 2590.701-2 Definitions.
* * * * *
Group health insurance coverage means health insurance coverage
offered in connection with a group health plan. Individual health
insurance coverage reimbursed by the arrangements described in 29 CFR
2510.3-1(l) is not offered in connection with a group health plan, and
is not group health insurance coverage, provided all the conditions in
29 CFR 2510.3-1(l) are satisfied.
* * * * *
0
13. Section 2590.702-2 is added to read as follows:
Sec. 2590.702-2 Special Rule Allowing Integration of Health
Reimbursement Arrangements (HRAs) and Other Account-Based Group Health
Plans with Individual Health Insurance Coverage and Medicare and
Prohibiting Discrimination In HRAs and Other Account-Based Group Health
Plans.
(a) Scope. This section applies to health reimbursement
arrangements (HRAs) and other account-based group health plans, as
defined in Sec. 2590.715-2711(d)(6)(i) of this part. For ease of
reference, the term ``HRA'' is used in this section to include other
account-based group health plans. For related regulations, see 26 CFR
1.36B-2(c)(3)(i) and (c)(5), 29 CFR 2510.3-1(l), and 45 CFR 155.420.
(b) Purpose. This section provides the conditions that an HRA must
satisfy in order to be integrated with individual health insurance
coverage for purposes of Public Health Service Act (PHS Act) sections
2711 and 2713 and Sec. 2590.715-2711(d)(4) of this part (referred to
as an individual coverage HRA). This section also allows an individual
coverage HRA to be integrated with Medicare for purposes of PHS Act
sections 2711 and 2713 and Sec. 2590.715-2711(d)(4), subject to the
conditions provided in this section (see paragraph (e) of this
section). Some of the conditions set forth in this section specifically
relate to compliance with PHS Act sections 2711 and 2713 and some
relate to the effect of having or being offered an individual coverage
HRA on eligibility for the premium tax credit under section 36B of the
Code. In addition, this section provides conditions that an individual
coverage HRA must satisfy in order to comply with the nondiscrimination
provisions in ERISA section 702 and PHS Act section 2705 (which is
incorporated in ERISA section 715) and that are consistent with the
provisions of the Patient Protection and Affordable Care Act, Public
Law 111-148 (124 Stat. 119 (2010)), and the Health Care and Education
Reconciliation Act of 2010, Public Law 111-152 (124 Stat. 1029 (2010)),
each as amended, that are designed to create a competitive individual
market. These conditions are intended to prevent an HRA plan sponsor
from intentionally or unintentionally, directly or indirectly, steering
any participants or dependents with adverse health factors away from
its traditional group health plan, if any, and toward individual health
insurance coverage.
(c) General rule. An HRA will be considered to be integrated with
individual health insurance coverage for purposes of PHS Act sections
2711 and 2713 and Sec. 2590.715-2711(d)(4) of this part and will not
be considered to discriminate in violation of ERISA section 702 and PHS
Act section 2705 solely because it is integrated with individual health
insurance coverage, provided that the conditions of this paragraph (c)
are satisfied. See paragraph (e) of this section for how these
conditions apply to an individual coverage HRA integrated with
Medicare. For purposes of this section, medical care expenses means
medical care expenses as defined in Sec. 2590.715-2711(d)(6)(ii) of
this part and Exchange means Exchange as defined in 45 CFR 155.20.
(1) Enrollment in individual health insurance coverage--(i) In
general. The HRA must require that the participant and any dependent(s)
are enrolled in individual health insurance coverage that is subject to
and complies with the requirements in PHS Act sections 2711 (and Sec.
2590.715-2711(a)(2) of this part) and PHS Act section 2713 (and Sec.
2590.715-2713(a)(1) of this part), for each month that the
individual(s) are covered by the HRA. For purposes of this paragraph
(c), all individual health insurance coverage, except for individual
health insurance coverage that consists solely of excepted benefits, is
treated as being subject to and complying with PHS Act sections 2711
and 2713. References to individual health insurance coverage in this
paragraph (c) do not include individual health insurance coverage that
consists solely of excepted benefits.
(ii) Forfeiture. The HRA must provide that if any individual
covered by the HRA ceases to be covered by individual health insurance
coverage, the HRA will not reimburse medical care expenses that are
incurred by that individual after
[[Page 29002]]
the individual health insurance coverage ceases. In addition, if the
participant and all dependents covered by the participant's HRA cease
to be covered by individual health insurance coverage, the participant
must forfeit the HRA. In either case, the HRA must reimburse medical
care expenses incurred by the individual prior to the cessation of
individual health insurance coverage to the extent the medical care
expenses are otherwise covered by the HRA, but the HRA may limit the
period to submit medical care expenses for reimbursement to a
reasonable specified time period. If a participant or dependent loses
coverage under the HRA for a reason other than cessation of individual
health insurance coverage, COBRA and other continuation coverage
requirements may apply.
(iii) Grace periods and retroactive termination of individual
health insurance coverage. In the event an individual is initially
enrolled in individual health insurance coverage and subsequently
timely fails to pay premiums for the coverage, with the result that the
individual is in a grace period, the individual is considered to be
enrolled in individual health insurance coverage for purposes of this
paragraph (c)(1) and the individual coverage HRA must reimburse medical
care expenses incurred by the individual during that time period to the
extent the medical care expenses are otherwise covered by the HRA. If
the individual fails to pay the applicable premium(s) by the end of the
grace period and the coverage is cancelled or terminated, including
retroactively, or if the individual health insurance coverage is
cancelled or terminated retroactively for some other reason (for
example, a rescission), an individual coverage HRA must require that a
participant notify the HRA that coverage has been cancelled or
terminated and the date on which the cancellation or termination is
effective. After the individual coverage HRA has received the notice of
cancellation or termination, the HRA may not reimburse medical care
expenses incurred on and after the date the individual health insurance
coverage was cancelled or terminated, which is considered to be the
date of termination of coverage under the HRA.
(2) No traditional group health plan may be offered to same
participants. To the extent a plan sponsor offers any class of
employees (as defined in paragraph (d) of this section) an individual
coverage HRA, the plan sponsor may not also offer a traditional group
health plan to the same class of employees, except as provided in
paragraph (d)(5) of this section. For purposes of this section, a
traditional group health plan is any group health plan other than
either an account-based group health plan or a group health plan that
consists solely of excepted benefits. Therefore, a plan sponsor may not
offer a choice between an individual coverage HRA or a traditional
group health plan to any participant or dependent.
(3) Same terms requirement--(i) In general. If a plan sponsor
offers an individual coverage HRA to a class of employees described in
paragraph (d) of this section, the HRA must be offered on the same
terms to all participants within the class, except as provided in
paragraphs (c)(3)(ii) through (vi) and (d)(5) of this section.
(ii) Carryover amounts, salary reduction arrangements, and transfer
amounts. Amounts that are not used to reimburse medical care expenses
for any plan year that are made available to participants in later plan
years are disregarded for purposes of determining whether an HRA is
offered on the same terms, provided that the method for determining
whether participants have access to unused amounts in future years, and
the methodology and formula for determining the amounts of unused funds
which they may access in future years, is the same for all participants
in a class of employees. In addition, the ability to pay the portion of
the premium for individual health insurance coverage that is not
covered by the HRA, if any, by using a salary reduction arrangement
under section 125 of the Code is considered to be a term of the HRA for
purposes of this paragraph (c)(3). Therefore, an HRA is not provided on
the same terms unless the salary reduction arrangement, if made
available to any participant in a class of employees, is made available
on the same terms to all participants (other than former employees, as
defined in paragraph (c)(3)(iv) of this section) in the class of
employees. Further, to the extent that a participant in an individual
coverage HRA was previously covered by another HRA and the current
individual coverage HRA makes available amounts that were not used to
reimburse medical care expenses under the prior HRA (transferred
amounts), the transferred amounts are disregarded for purposes of
determining whether the HRA is offered on the same terms, provided that
if the HRA makes available transferred amounts, it does so on the same
terms for all participants in the class of employees.
(iii) Permitted variation. An HRA does not fail to be provided on
the same terms solely because the maximum dollar amount made available
to participants in a class of employees to reimburse medical care
expenses for any plan year increases in accordance with paragraph
(c)(3)(iii)(A) or (B) of this section.
(A) Variation due to number of dependents. An HRA does not fail to
be provided on the same terms to participants in a class of employees
solely because the maximum dollar amount made available to those
participants to reimburse medical care expenses for any plan year
increases as the number of the participant's dependents who are covered
under the HRA increases, so long as the same maximum dollar amount
attributable to the increase in family size is made available to all
participants in that class of employees with the same number of
dependents covered by the HRA.
(B) Variation due to age. An HRA does not fail to be provided on
the same terms to participants in a class of employees solely because
the maximum dollar amount made available under the terms of the HRA to
those participants to reimburse medical care expenses for any plan year
increases as the age of the participant increases, so long as the
requirements in paragraphs (c)(3)(iii)(B)(1) and (2) of this section
are satisfied. For the purpose of this paragraph (c)(3)(iii)(B), the
plan sponsor may determine the age of the participant using any
reasonable method for a plan year, so long as the plan sponsor
determines each participant's age for the purpose of this paragraph
(c)(3)(iii)(B) using the same method for all participants in the class
of employees for the plan year and the method is determined prior to
the plan year.
(1) The same maximum dollar amount attributable to the increase in
age is made available to all participants who are the same age.
(2) The maximum dollar amount made available to the oldest
participant(s) is not more than three times the maximum dollar amount
made available to the youngest participant(s).
(iv) Former employees. An HRA does not fail to be treated as
provided on the same terms if the plan sponsor offers the HRA to some,
but not all, former employees within a class of employees. However, if
a plan sponsor offers the HRA to one or more former employees within a
class of employees, the HRA must be offered to the former employee(s)
on the same terms as to all other employees within the class, except as
provided in paragraph (c)(3)(ii) of this section. For purposes of this
section, a former employee is an employee who is
[[Page 29003]]
no longer performing services for the employer.
(v) New employees or new dependents. For a participant whose
coverage under the HRA becomes effective later than the first day of
the plan year, the HRA does not fail to be treated as being provided on
the same terms to the participant if the maximum dollar amount made
available to the participant either is the same as the maximum dollar
amount made available to participants in the participant's class of
employees whose coverage became effective as of the first day of the
plan year, or is pro-rated consistent with the portion of the plan year
in which the participant is covered by the HRA. Similarly, if the HRA
provides for variation in the maximum amount made available to
participants in a class of employees based on the number of a
participant's dependents covered by the HRA, and the number of a
participant's dependents covered by the HRA changes during a plan year
(either increasing or decreasing), the HRA does not fail to be treated
as being provided on the same terms to the participant if the maximum
dollar amount made available to the participant either is the same as
the maximum dollar amount made available to participants in the
participant's class of employees who had the same number of dependents
covered by the HRA on the first day of the plan year or is pro-rated
for the remainder of the plan year after the change in the number of
the participant's dependents covered by the HRA consistent with the
portion of the plan year in which that number of dependents are covered
by the HRA. The method the HRA uses to determine amounts made available
for participants whose coverage under the HRA is effective later than
the first day of the plan year or who have changes in the number of
dependents covered by the HRA during a plan year must be the same for
all participants in the class of employees and the method must be
determined prior to the beginning of the plan year.
(vi) HSA-compatible HRAs. An HRA does not fail to be treated as
provided on the same terms if the plan sponsor offers participants in a
class of employees a choice between an HSA-compatible individual
coverage HRA and an individual coverage HRA that is not HSA compatible,
provided both types of HRAs are offered to all participants in the
class of employees on the same terms. For the purpose of this paragraph
(c)(3)(vi), an HSA-compatible individual coverage HRA is an individual
coverage HRA that is limited in accordance with applicable guidance
under section 223 of the Code such that an individual covered by such
an HRA is not disqualified from being an eligible individual under
section 223 of the Code.
(vii) Examples. The following examples illustrate the provisions of
this paragraph (c)(3), without taking into account the provisions of
paragraph (d) of this section. In each example, the HRA is an
individual coverage HRA that has a calendar year plan year and may
reimburse any medical care expenses, including premiums for individual
health insurance coverage (except as provided in paragraph
(c)(3)(vii)(E) of this section (Example 5)). Further, in each example,
assume the HRA is offered on the same terms, except as otherwise
specified in the example and that no participants or dependents are
Medicare beneficiaries.
(A) Example 1: Carryover amounts permitted--(1) Facts. For 2020
and again for 2021, Plan Sponsor A offers all employees $7,000 each
in an HRA, and the HRA provides that amounts that are unused at the
end of a plan year may be carried over to the next plan year, with
no restrictions on the use of the carryover amounts compared to the
use of newly available amounts. At the end of 2020, some employees
have used all of the funds in their HRAs, while other employees have
balances remaining that range from $500 to $1,750 that are carried
over to 2021 for those employees.
(2) Conclusion. The same terms requirement of this paragraph
(c)(3) is satisfied in this paragraph (c)(3)(vii)(A) (Example 1) for
2020 because Plan Sponsor A offers all employees the same amount,
$7,000, in an HRA for that year. The same terms requirement is also
satisfied for 2021 because Plan Sponsor A again offers all employees
the same amount for that year, and the carryover amounts that some
employees have are disregarded in applying the same terms
requirement because the amount of the carryover for each employee
(that employee's balance) and each employee's access to the
carryover amounts is based on the same terms.
(B) Example 2: Employees hired after the first day of the plan
year--(1)
Facts. For 2020, Plan Sponsor B offers all employees employed
on January 1, 2020, $7,000 each in an HRA for the plan year.
Employees hired after January 1, 2020, are eligible to enroll in the
HRA with an effective date of the first day of the month following
their date of hire, as long as they have enrolled in individual
health insurance coverage effective on or before that date, and the
amount offered to these employees is pro-rated based on the number
of months remaining in the plan year, including the month which
includes their coverage effective date.
(2) Conclusion. The same terms requirement of this paragraph
(c)(3) is satisfied in this paragraph (c)(3)(vii)(B) (Example 2) for
2020 because Plan Sponsor B offers all employees employed on the
first day of the plan year the same amount, $7,000, in an HRA for
that plan year and all employees hired after January 1, 2020, a pro-
rata amount based on the portion of the plan year during which they
are enrolled in the HRA.
(C) Example 3: HRA amounts offered vary based on number of
dependents--(1) Facts. For 2020, Plan Sponsor C offers its employees
the following amounts in an HRA: $1,500, if the employee is the only
individual covered by the HRA; $3,500, if the employee and one
dependent are covered by the HRA; and $5,000, if the employee and
more than one dependent are covered by the HRA.
(2) Conclusion. The same terms requirement of this paragraph
(c)(3) is satisfied in this paragraph (c)(3)(vii)(C) (Example 3)
because paragraph (c)(3)(iii)(A) of this section allows the maximum
dollar amount made available in an HRA to increase as the number of
the participant's dependents covered by the HRA increases and Plan
Sponsor C makes the same amount available to each employee with the
same number of dependents covered by the HRA.
(D) Example 4: HRA amounts offered vary based on increases in
employees' ages--(1) Facts. For 2020, Plan Sponsor D offers its
employees the following amounts in an HRA: $1,000 each for employees
age 25 to 35; $2,000 each for employees age 36 to 45; $2,500 each
for employees age 46 to 55; and $4,000 each for employees over age
55.
(2) Conclusion. The same terms requirement of this paragraph
(c)(3) is not satisfied in this paragraph (c)(3)(vii)(D) (Example 4)
because the terms of the HRA provide the oldest participants (those
over age 55) with more than three times the amount made available to
the youngest participants (those ages 25 to 35), in violation of
paragraph (c)(3)(iii)(B)(2) of this section.
(E) Example 5: Application of same terms requirement to premium
only HRA--(1) Facts. For 2020, Plan Sponsor E offers its employees
an HRA that reimburses only premiums for individual health insurance
coverage, up to $10,000 for the year. Employee A enrolls in
individual health insurance coverage with a $5,000 premium for the
year and is reimbursed $5,000 from the HRA. Employee B enrolls in
individual health insurance coverage with an $8,000 premium for the
year and is reimbursed $8,000 from the HRA.
(2) Conclusion. The same terms requirement of this paragraph
(c)(3) is satisfied in this paragraph (c)(3)(vii)(E) (Example 5)
because Plan Sponsor E offers the HRA on the same terms to all
employees, notwithstanding that some employees receive a greater
amount of reimbursement than others based on the cost of the
individual health insurance coverage selected by the employee.
(4) Opt out. Under the terms of the HRA, a participant who is
otherwise eligible for coverage must be permitted to opt out of and
waive future reimbursements on behalf of the participant and all
dependents eligible for the HRA from the HRA once, and only once, with
respect to each plan year. The HRA may establish
[[Page 29004]]
timeframes for enrollment in (and opting out of) the HRA but, in
general, the opportunity to opt out must be provided in advance of the
first day of the plan year. For participants who become eligible to
participate in the HRA on a date other than the first day of the plan
year (or who become eligible fewer than 90 days prior to the plan year
or for whom the notice under paragraph (c)(6) of this section is
required to be provided as set forth in paragraph (c)(6)(i)(C) of this
section), or for a dependent who newly becomes eligible during the plan
year, this opportunity must be provided during the applicable HRA
enrollment period(s) established by the HRA for these individuals.
Further, under the terms of the HRA, upon termination of employment,
for a participant who is covered by the HRA, either the remaining
amounts in the HRA must be forfeited or the participant must be
permitted to permanently opt out of and waive future reimbursements
from the HRA on behalf of the participant and all dependents covered by
the HRA.
(5) Reasonable procedures for coverage substantiation--(i)
Substantiation of individual health insurance coverage for the plan
year. The HRA must implement, and comply with, reasonable procedures to
substantiate that participants and each dependent covered by the HRA
are, or will be, enrolled in individual health insurance coverage for
the plan year (or for the portion of the plan year the individual is
covered by the HRA, if applicable). The HRA may establish the date by
which this substantiation must be provided, but, in general, the date
may be no later than the first day of the plan year. However, for a
participant who is not eligible to participate in the HRA on the first
day of the plan year (or who becomes eligible fewer than 90 days prior
to the plan year or for whom the notice under paragraph (c)(6) of this
section is required to be provided as set forth in paragraph
(c)(6)(i)(C) of this section), the HRA may establish the date by which
this substantiation must be provided, but that date may be no later
than the date the HRA coverage begins. Similarly, for a participant who
adds a new dependent during the plan year, the HRA may establish the
date by which this substantiation must be provided, but the date may be
no later than the date the HRA coverage for the new dependent begins;
however, to the extent the dependent's coverage under the HRA is
effective retroactively, the HRA may establish a reasonable time by
which this substantiation is required, but must require it be provided
before the HRA will reimburse any medical care expense for the newly
added dependent. The reasonable procedures an HRA may use to implement
the substantiation requirement set forth in this paragraph (c)(5)(i)
may include a requirement that a participant substantiate enrollment by
providing either:
(A) A document from a third party (for example, the issuer or an
Exchange) showing that the participant and any dependents covered by
the HRA are, or will be, enrolled in individual health insurance
coverage (for example, an insurance card or an explanation of benefits
document pertaining to the relevant time period or documentation from
the Exchange showing that the individual has completed the application
and plan selection); or
(B) An attestation by the participant stating that the participant
and dependent(s) covered by the HRA are, or will be, enrolled in
individual health insurance coverage, the date coverage began or will
begin, and the name of the provider of the coverage.
(ii) Coverage substantiation with each request for reimbursement of
medical care expenses. Following the initial substantiation of
coverage, with each new request for reimbursement of an incurred
medical care expense for the same plan year, the HRA may not reimburse
a participant for any medical care expenses unless, prior to each
reimbursement, the participant substantiates that the individual on
whose behalf medical care expenses are requested to be reimbursed
continues to be enrolled in individual health insurance coverage for
the month during which the medical care expenses were incurred. The HRA
must implement, and comply with, reasonable procedures to satisfy this
requirement. This substantiation may be in the form of a written
attestation by the participant, which may be part of the form used to
request reimbursement, or a document from a third party (for example, a
health insurance issuer) showing that the participant or the dependent,
if applicable, are or were enrolled in individual health insurance
coverage for the applicable month.
(iii) Reliance on substantiation. For purposes of this paragraph
(c)(5), an HRA may rely on the participant's documentation or
attestation unless the HRA, its plan sponsor, or any other entity
acting in an official capacity on behalf of the HRA has actual
knowledge that any individual covered by the HRA is not, or will not
be, enrolled in individual health insurance coverage for the plan year
(or applicable portion of the plan year) or the month, as applicable.
(6) Notice requirement--(i) Timing. The HRA must provide a written
notice to each participant:
(A) At least 90 calendar days before the beginning of each plan
year for any participant who is not described in either paragraph
(c)(6)(i)(B) or (C) of this section;
(B) No later than the date on which the HRA may first take effect
for the participant, for any participant who is not eligible to
participate at the beginning of the plan year (or is not eligible to
participate at the time the notice is provided at least 90 calendar
days before the beginning of the plan year pursuant to paragraph
(c)(6)(i)(A) of this section); or
(C) No later than the date on which the HRA may first take effect
for the participant, for any participant who is employed by an employer
that is first established less than 120 days before the beginning of
the first plan year of the HRA; this paragraph (c)(6)(i)(C) applies
only with respect to the first plan year of the HRA.
(ii) Content. The notice must include all the information described
in this paragraph (c)(6)(ii) (and may include any additional
information that does not conflict with that information). To the
extent that the Departments of the Treasury, Labor and Health and Human
Services provide model notice language for certain elements of this
required notice, HRAs are permitted, but not required, to use the model
language.
(A) A description of the terms of the HRA, including the maximum
dollar amount available for each participant (including the self-only
HRA amount available for the plan year (or the maximum dollar amount
available for the plan year if the HRA provides for reimbursements up
to a single dollar amount regardless of whether a participant has self-
only or other than self-only coverage)), any rules regarding the
proration of the maximum dollar amount applicable to any participant
(or dependent, if applicable) who is not eligible to participate in the
HRA for the entire plan year, whether (and which of) the participant's
dependents are eligible for the HRA, a statement that there are
different kinds of HRAs (including a qualified small employer health
reimbursement arrangement) and the HRA being offered is an individual
coverage HRA, a statement that the HRA requires the participant and any
covered dependents to be enrolled in individual health insurance
coverage (or Medicare Part A and B or Medicare Part C, if applicable),
a statement that the coverage in which the participant and
[[Page 29005]]
any covered dependents must be enrolled cannot be short-term, limited-
duration insurance or consist solely of excepted benefits, a statement
that individual health insurance coverage in which the participant and
any covered dependents are enrolled is not subject to the Employee
Retirement Income Security Act if the conditions under Sec. 2510.3-
1(l) of this chapter are satisfied, the date as of which coverage under
the HRA may first become effective (both for participants whose
coverage will become effective on the first day of the plan year and
for participants whose HRA coverage may become effective at a later
date), the dates on which the HRA plan year begins and ends, and the
dates on which the amounts newly made available under the HRA will be
made available.
(B) A statement of the right of the participant to opt out of and
waive future reimbursements from the HRA, as set forth under paragraph
(c)(4) of this section.
(C) A description of the potential availability of the premium tax
credit if the participant opts out of and waives future reimbursements
from the HRA and the HRA is not affordable for one or more months under
26 CFR 1.36B-2(c)(5), a statement that even if the participant opts out
of and waives future reimbursements from an HRA, the offer will
prohibit the participant (and, potentially, the participant's
dependents) from receiving a premium tax credit for the participant's
coverage (or the dependent's coverage, if applicable) on an Exchange
for any month that the HRA is affordable under 26 CFR 1.36B-2(c)(5), a
statement describing how the participant may find assistance with
determining affordability, a statement that, if the participant is a
former employee, the offer of the HRA does not render the participant
(or the participant's dependents, if applicable) ineligible for the
premium tax credit regardless of whether it is affordable under 26 CFR
1.36B-2(c)(5), and a statement that if the participant or dependent is
enrolled in Medicare, he or she is ineligible for the premium tax
credit without regard to the offer or acceptance of the HRA;
(D) A statement that if the participant accepts the HRA, the
participant may not claim a premium tax credit for the participant's
Exchange coverage for any month the HRA may be used to reimburse
medical care expenses of the participant, and a premium tax credit may
not be claimed for the Exchange coverage of the participant's
dependents for any month the HRA may be used to reimburse medical care
expenses of the dependents.
(E) A statement that the participant must inform any Exchange to
which the participant applies for advance payments of the premium tax
credit of the availability of the HRA; the self-only HRA amount
available for the HRA plan year (or the maximum dollar amount available
for the plan year if the HRA provides for reimbursements up to a single
dollar amount regardless of whether a participant has self-only or
other than self-only coverage) as set forth in the written notice in
accordance with paragraph (c)(6)(ii)(A) of this section; whether the
HRA is also available to the participant's dependents and if so, which
ones; the date as of which coverage under the HRA may first become
effective; the date on which the plan year begins and the date on which
it ends; and whether the participant is a current employee or former
employee.
(F) A statement that the participant should retain the written
notice because it may be needed to determine whether the participant is
allowed a premium tax credit on the participant's individual income tax
return.
(G) A statement that the HRA may not reimburse any medical care
expense unless the substantiation requirement set forth in paragraph
(c)(5)(ii) of this section is satisfied and a statement that the
participant must also provide the substantiation required by paragraph
(c)(5)(i) of this section.
(H) A statement that if the individual health insurance coverage
(or coverage under Medicare Part A and B or Medicare Part C) of a
participant or dependent ceases, the HRA will not reimburse any medical
care expenses that are incurred by the participant or dependent, as
applicable, after the coverage ceases, and a statement that the
participant must inform the HRA if the participant's or dependent's
individual health insurance coverage (or coverage under Medicare Part A
and B or Medicare Part C) is cancelled or terminated retroactively and
the date on which the cancellation or termination is effective.
(I) The contact information (including a phone number) for an
individual or a group of individuals who participants may contact in
order to receive additional information regarding the HRA. The plan
sponsor may determine which individual or group of individuals is best
suited to be the specified contact.
(J) A statement of availability of a special enrollment period to
enroll in or change individual health insurance coverage, through or
outside of an Exchange, for the participant and any dependents who
newly gain access to the HRA and are not already covered by the HRA.
(d) Classes of employees--(1) In general. This paragraph (d) sets
forth the rules for determining classes of employees. Paragraph (d)(2)
of this section sets forth the specific classes of employees; paragraph
(d)(3) of this section sets forth a minimum class size requirement that
applies in certain circumstances; paragraph (d)(4) of this section sets
forth rules regarding the definition of ``full-time employees,''
``part-time employees,'' and ``seasonal employees''; paragraph (d)(5)
of this section sets forth a special rule for new hires; and paragraph
(d)(6) of this section addresses student premium reduction
arrangements. For purposes of this section, including determining
classes under this paragraph (d), the employer is the common law
employer and is determined without regard to the rules under sections
414(b), (c), (m), and (o) of the Code that would treat the common law
employer as a single employer with certain other entities.
(2) List of classes. Participants may be treated as belonging to a
class of employees based on whether they are, or are not, included in
the classes described in this paragraph (d)(2). If the individual
coverage HRA is offered to former employees, former employees are
considered to be in the same class in which they were included
immediately before separation from service. Before each plan year, a
plan sponsor must determine for the plan year which classes of
employees it intends to treat separately and the definition of the
relevant class(es) it will apply, to the extent these regulations
permit a choice. After the classes and the definitions of the classes
are established for a plan year, a plan sponsor may not make changes to
the classes of employees or the definitions of those relevant classes
with respect to that plan year.
(i) Full-time employees, defined at the election of the plan
sponsor to mean either full-time employees under section 4980H of the
Code (and 26 CFR 54.4980H-1(a)(21)) or employees who are not part-time
employees (as described in 26 CFR 1.105-11(c)(2)(iii)(C));
(ii) Part-time employees, defined at the election of the plan
sponsor to mean either employees who are not full-time employees under
section 4980H of the Code (and under 26 CFR 54.4980H-1(a)(21) (which
defines full-time employee)) or employees who are part-time employees
as described in 26 CFR 1.105-11(c)(2)(iii)(C);
(iii) Employees who are paid on a salary basis;
[[Page 29006]]
(iv) Non-salaried employees (such as, for example, hourly
employees);
(v) Employees whose primary site of employment is in the same
rating area as defined in 45 CFR 147.102(b);
(vi) Seasonal employees, defined at the election of the plan
sponsor to mean seasonal employees as described in either 26 CFR
54.4980H-1(a)(38) or 26 CFR 1.105-11(c)(2)(iii)(C);
(vii) Employees included in a unit of employees covered by a
particular collective bargaining agreement (or an appropriate related
participation agreement) in which the plan sponsor participates (as
described in 26 CFR 1.105-11(c)(2)(iii)(D));
(viii) Employees who have not satisfied a waiting period for
coverage (if the waiting period complies with Sec. 2590.715-2708 of
this part);
(ix) Non-resident aliens with no U.S.-based income (as described in
26 CFR 1.105-11(c)(2)(iii)(E));
(x) Employees who, under all the facts and circumstances, are
employees of an entity that hired the employees for temporary placement
at an entity that is not the common law employer of the employees and
that is not treated as a single employer with the entity that hired the
employees for temporary placement under section 414(b), (c), (m), or
(o) of the Code; or
(xi) A group of participants described as a combination of two or
more of the classes of employees set forth in paragraphs (d)(2)(i)
through (x) of this section.
(3) Minimum class size requirement--(i) In general. If a class of
employees is subject to the minimum class size requirement as set forth
in this paragraph (d)(3), the class must consist of at least a minimum
number of employees (as described in paragraphs (d)(3)(iii) and (iv) of
this section), otherwise, the plan sponsor may not treat that class as
a separate class of employees. Paragraph (d)(3)(ii) of this section
sets forth the circumstances in which the minimum class size
requirement applies to a class of employees, paragraph (d)(3)(iii) of
this section sets forth the rules for determining the applicable class
size minimum, and paragraph (d)(3)(iv) of this section sets forth the
rules for a plan sponsor to determine if it satisfies the minimum class
size requirement with respect to a class of employees.
(ii) Circumstances in which minimum class size requirement
applies--(A) The minimum class size requirement applies only if a plan
sponsor offers a traditional group health plan to one or more classes
of employees and offers an individual coverage HRA to one or more other
classes of employees.
(B) The minimum class size requirement does not apply to a class of
employees offered a traditional group health plan or a class of
employees offered no coverage.
(C) The minimum class size requirement applies to a class of
employees offered an individual coverage HRA if the class is full-time
employees, part-time employees, salaried employees, non-salaried
employees, or employees whose primary site of employment is in the same
rating area (described in paragraph (d)(2)(i), (ii), (iii), (iv), or
(v) of this section, respectively, and referred to collectively as the
applicable classes or individually as an applicable class), except
that:
(1) In the case of the class of employees whose primary site of
employment is in the same rating area (as described in paragraph
(d)(2)(v) of this section), the minimum class size requirement does not
apply if the geographic area defining the class is a State or a
combination of two or more entire States; and
(2) In the case of the classes of employees that are full-time
employees and part-time employees (as described in paragraphs (d)(2)(i)
and (ii) of this section, respectively), the minimum class size
requirement applies only to those classes (and the classes are only
applicable classes) if the employees in one such class are offered a
traditional group health plan while the employees in the other such
class are offered an individual coverage HRA. In such a case, the
minimum class size requirement applies only to the class offered an
individual coverage HRA.
(D) A class of employees offered an individual coverage HRA is also
subject to the minimum class size requirement if the class is a class
of employees created by combining at least one of the applicable
classes (as defined in paragraph (d)(3)(ii)(C) of this section) with
any other class, except that the minimum class size requirement shall
not apply to a class that is the result of a combination of one of the
applicable classes and a class of employees who have not satisfied a
waiting period (as described in paragraph (d)(2)(viii) of this
section).
(iii) Determination of the applicable class size minimum--(A) In
general. The minimum number of employees that must be in a class of
employees that is subject to the minimum class size requirement (the
applicable class size minimum) is determined prior to the beginning of
the plan year for each plan year of the individual coverage HRA and is:
(1) 10, for an employer with fewer than 100 employees;
(2) A number, rounded down to a whole number, equal to 10 percent
of the total number of employees, for an employer with 100 to 200
employees; and
(3) 20, for an employer with more than 200 employees.
(B) Determining employer size. For purposes of this paragraph
(d)(3), the number of employees of an employer is determined in advance
of the plan year of the HRA based on the number of employees that the
employer reasonably expects to employ on the first day of the plan
year.
(iv) Determining if a class satisfies the applicable class size
minimum. For purposes of this paragraph (d)(3), whether a class of
employees satisfies the applicable class size minimum for a plan year
of the individual coverage HRA is based on the number of employees in
the class offered the individual coverage HRA as of the first day of
the plan year. Therefore, this determination is not based on the number
of employees that actually enroll in the individual coverage HRA, and
this determination is not affected by changes in the number of
employees in the class during the plan year.
(4) Consistency requirement. For any plan year, a plan sponsor may
define ``full-time employee,'' ``part-time employee,'' and ``seasonal
employee'' in accordance with the relevant provisions of sections
105(h) or 4980H of the Code, as set forth in paragraphs (d)(2)(i),
(ii), and (vi) of this section, if:
(i) To the extent applicable under the HRA for the plan year, each
of the three classes of employees are defined in accordance with
section 105(h) of the Code or each of the three classes of employees
are defined in accordance with section 4980H of the Code for the plan
year; and
(ii) The HRA plan document sets forth the applicable definitions
prior to the beginning of the plan year to which the definitions will
apply.
(5) Special rule for new hires--(i) In general. Notwithstanding
paragraphs (c)(2) and (3) of this section, a plan sponsor that offers a
traditional group health plan to a class of employees may prospectively
offer the employees in that class of employees who are hired on or
after a certain future date (the new hire date) an individual coverage
HRA (with this group of employees referred to as the new hire
subclass), while continuing to offer employees in that class of
employees who are hired before the new hire date a traditional group
health plan (with the rule set forth in this sentence referred to as
the special
[[Page 29007]]
rule for new hires). For the new hire subclass, the individual coverage
HRA must be offered on the same terms to all participants within the
subclass, in accordance with paragraph (c)(3) of this section. In
accordance with paragraph (c)(2) of this section, a plan sponsor may
not offer a choice between an individual coverage HRA or a traditional
group health plan to any employee in the new hire subclass or to any
employee in the class who is not a member of the new hire subclass.
(ii) New hire date. A plan sponsor may set the new hire date for a
class of employees prospectively as any date on or after January 1,
2020. A plan sponsor may set different new hire dates prospectively for
separate classes of employees.
(iii) Discontinuation of use of special rule for new hires and
multiple applications of the special rule for new hires. A plan sponsor
may discontinue use of the special rule for new hires at any time for
any class of employees. In that case, the new hire subclass is no
longer treated as a separate subclass of employees. In the event a plan
sponsor applies the special rule for new hires to a class of employees
and later discontinues use of the rule to the class of employees, the
plan sponsor may later apply the rule if the application of the rule
would be permitted under the rules for initial application of the
special rule for new hires. If a plan sponsor, in accordance with the
requirements for the special rule for new hires, applies the rule to a
class of employees subsequent to any prior application and
discontinuance of the rule to that class, the new hire date must be
prospective.
(iv) Application of the minimum class size requirement under the
special rule for new hires. The minimum class size requirement set
forth in paragraph (d)(3) of this section does not apply to the new
hire subclass. However, if a plan sponsor subdivides the new hire
subclass subsequent to creating the new hire subclass, the minimum
class size requirement set forth in paragraph (d)(3) of this section
applies to any class of employees created by subdividing the new hire
subclass, if the minimum class size requirement otherwise applies.
(6) Student employees offered student premium reduction
arrangements. For purposes of this section, if an institution of higher
education (as defined in the Higher Education Act of 1965) offers a
student employee a student premium reduction arrangement, the employee
is not considered to be part of the class of employees to which the
employee would otherwise belong. For the purpose of this paragraph
(d)(6) and paragraph (f)(1) of this section, a student premium
reduction arrangement is defined as any program offered by an
institution of higher education under which the cost of insured or
self-insured student health coverage is reduced for certain students
through a credit, offset, reimbursement, stipend or similar
arrangement. A student employee offered a student premium reduction
arrangement is also not counted for purposes of determining the
applicable class size minimum under paragraph (d)(3)(iii) of this
section. If a student employee is not offered a student premium
reduction arrangement (including if the student employee is offered an
individual coverage HRA instead), the student employee is considered to
be part of the class of employees to which the employee otherwise
belongs and is counted for purposes of determining the applicable class
size minimum under paragraph (d)(3)(iii) of this section.
(e) Integration of Individual Coverage HRAs with Medicare--(1)
General rule. An individual coverage HRA will be considered to be
integrated with Medicare (and deemed to comply with PHS Act sections
2711 and 2713 and Sec. 2590.715-2711(d)(4) of this part), provided
that the conditions of paragraph (c) of this section are satisfied,
subject to paragraph (e)(2) of this section. Nothing in this section
requires that a participant and his or her dependents all have the same
type of coverage; therefore, an individual coverage HRA may be
integrated with Medicare for some individuals and with individual
health insurance coverage for others, including, for example, a
participant enrolled in Medicare Part A and B or Part C and his or her
dependents enrolled in individual health insurance coverage.
(2) Application of conditions in paragraph (c) of this section--(i)
In general. Except as provided in paragraph (e)(2)(ii) of this section,
in applying the conditions of paragraph (c) of this section with
respect to integration with Medicare, a reference to ``individual
health insurance coverage'' is deemed to refer to coverage under
Medicare Part A and B or Part C. References in this section to
integration of an HRA with Medicare refer to integration of an
individual coverage HRA with Medicare Part A and B or Part C.
(ii) Exceptions. For purposes of the statement regarding ERISA
under the notice content element under paragraph (c)(6)(ii)(A) of this
section and the statement regarding the availability of a special
enrollment period under the notice content element under paragraph
(c)(6)(ii)(J) of this section, the term individual health insurance
coverage means only individual health insurance coverage and does not
also mean coverage under Medicare Part A and B or Part C.
(f) Examples--(1) Examples regarding classes and the minimum class
size requirement. The following examples illustrate the provisions of
paragraph (c)(3) of this section, taking into account the provisions of
paragraphs (d)(1) through (4) and (d)(6) of this section. In each
example, the HRA is an individual coverage HRA that may reimburse any
medical care expenses, including premiums for individual health
insurance coverage and it is assumed that no participants or dependents
are Medicare beneficiaries.
(i) Example 1: Collectively bargained employees offered
traditional group health plan; non-collectively bargained employees
offered HRA--(A) Facts. For 2020, Plan Sponsor A offers its
employees covered by a collective bargaining agreement a traditional
group health plan (as required by the collective bargaining
agreement) and all other employees (non-collectively bargained
employees) each an HRA on the same terms.
(B) Conclusion. The same terms requirement of paragraph (c)(3)
of this section is satisfied in this paragraph (f)(1)(i) (Example 1)
because collectively bargained and non-collectively bargained
employees may be treated as different classes of employees, one of
which may be offered a traditional group health plan and the other
of which may be offered an individual coverage HRA, and Plan Sponsor
A offers the HRA on the same terms to all participants who are non-
collectively bargained employees. The minimum class size requirement
does not apply to this paragraph (f)(1)(i) (Example 1) even though
Plan Sponsor A offers one class a traditional group health plan and
one class the HRA because collectively bargained and non-
collectively bargained employees are not applicable classes that are
subject to the minimum class size requirement.
(ii) Example 2: Collectively bargained employees in one unit
offered traditional group health plan and in another unit offered
HRA--(A)
Facts. For 2020, Plan Sponsor B offers its employees covered by
a collective bargaining agreement with Local 100 a traditional group
health plan (as required by the collective bargaining agreement),
and its employees covered by a collective bargaining agreement with
Local 200 each an HRA on the same terms (as required by the
collective bargaining agreement).
(B) Conclusion. The same terms requirement of paragraph (c)(3)
of this section is satisfied in this paragraph (f)(1)(ii) (Example
2) because the employees covered by the collective bargaining
agreements with the two separate bargaining units (Local 100 and
Local 200) may be treated as two different classes of employees and
Plan Sponsor B offers an HRA on the same terms to the participants
covered by the agreement with Local 200. The minimum class size
[[Page 29008]]
requirement does not apply to this paragraph (f)(1)(ii) (Example 2)
even though Plan Sponsor B offers the Local 100 employees a
traditional group health plan and the Local 200 employees an HRA
because collectively bargained employees are not applicable classes
that are subject to the minimum class size requirement.
(iii) Example 3: Employees in a waiting period offered no
coverage; other employees offered an HRA--(A) Facts. For 2020, Plan
Sponsor C offers its employees who have completed a waiting period
that complies with the requirements for waiting periods in Sec.
2590.715-2708 of this part each an HRA on the same terms and does
not offer coverage to its employees who have not completed the
waiting period.
(B) Conclusion. The same terms requirement of paragraph (c)(3)
of this section is satisfied in this paragraph (f)(1)(iii) (Example
3) because employees who have completed a waiting period and
employees who have not completed a waiting period may be treated as
different classes and Plan Sponsor C offers the HRA on the same
terms to all participants who have completed the waiting period. The
minimum class size requirement does not apply to this paragraph
(f)(1)(iii) (Example 3) because Plan Sponsor C does not offer at
least one class of employees a traditional group health plan and
because the class of employees who have not completed a waiting
period and the class of employees who have completed a waiting
period are not applicable classes that are subject to the minimum
class size requirement.
(iv) Example 4: Employees in a waiting period offered an HRA;
other employees offered a traditional group health plan--(A) Facts.
For 2020, Plan Sponsor D offers its employees who have completed a
waiting period that complies with the requirements for waiting
periods in Sec. 2590.715-2708 of this part a traditional group
health plan and offers its employees who have not completed the
waiting period each an HRA on the same terms.
(B) Conclusion. The same terms requirement of paragraph (c)(3)
of this section is satisfied in this paragraph (f)(1)(iv) (Example
4) because employees who have completed a waiting period and
employees who have not completed a waiting period may be treated as
different classes and Plan Sponsor D offers an HRA on the same terms
to all participants who have not completed the waiting period. The
minimum class size requirement does not apply to this paragraph
(f)(1)(iv) (Example 4) even though Plan Sponsor D offers employees
who have completed a waiting period a traditional group health plan
and employees who have not completed a waiting period an HRA because
the class of employees who have not completed a waiting period is
not an applicable class that is subject to the minimum class size
requirement (nor is the class made up of employees who have
completed the waiting period).
(v) Example 5: Staffing firm employees temporarily placed with
customers offered an HRA; other employees offered a traditional
group health plan--(A) Facts. Plan Sponsor E is a staffing firm that
places certain of its employees on temporary assignments with
customers that are not the common law employers of Plan Sponsor E's
employees or treated as a single employer with Plan Sponsor E under
section 414(b), (c), (m), or (o) of the Code (unrelated entities);
other employees work in Plan Sponsor E's office managing the
staffing business (non-temporary employees). For 2020, Plan Sponsor
E offers its employees who are on temporary assignments with
customers each an HRA on the same terms. All other employees are
offered a traditional group health plan.
(B) Conclusion. The same terms requirement of paragraph (c)(3)
of this section is satisfied in this paragraph (f)(1)(v) (Example 5)
because the employees who are hired for temporary placement at an
unrelated entity and non-temporary employees of Plan Sponsor E may
be treated as different classes of employees and Plan Sponsor E
offers an HRA on the same terms to all participants temporarily
placed with customers. The minimum class size requirement does not
apply to this paragraph (f)(1)(v) (Example 5) even though Plan
Sponsor E offers one class a traditional group health plan and one
class the HRA because the class of employees hired for temporary
placement is not an applicable class that is subject to the minimum
class size requirement (nor is the class made up of non-temporary
employees).
(vi) Example 6: Staffing firm employees temporarily placed with
customers in rating area 1 offered an HRA; other employees offered a
traditional group health plan--(A) Facts. The facts are the same as
in paragraph (f)(1)(v) of this section (Example 5), except that Plan
Sponsor E has work sites in rating area 1 and rating area 2, and it
offers its 10 employees on temporary assignments with a work site in
rating area 1 an HRA on the same terms. Plan Sponsor E has 200 other
employees in rating areas 1 and 2, including its non-temporary
employees in rating areas 1 and 2 and its employees on temporary
assignments with a work site in rating area 2, all of whom are
offered a traditional group health plan.
(B) Conclusion. The same terms requirement of paragraph (c)(3)
of this section is not satisfied in this paragraph (f)(1)(vi)
(Example 6) because, even though the employees who are temporarily
placed with customers generally may be treated as employees of a
different class, because Plan Sponsor E is also using a rating area
to identify the class offered the HRA (which is an applicable class
for the minimum class size requirement) and is offering one class
the HRA and another class the traditional group health plan, the
minimum class size requirement applies to the class offered the HRA,
and the class offered the HRA fails to satisfy the minimum class
size requirement. Because Plan Sponsor E employs 210 employees, the
applicable class size minimum is 20, and the HRA is offered to only
10 employees.
(vii) Example 7: Employees in State 1 offered traditional group
health plan; employees in State 2 offered HRA--(A) Facts. Plan
Sponsor F employs 45 employees whose work site is in State 1 and 7
employees whose primary site of employment is in State 2. For 2020,
Plan Sponsor F offers its 45 employees in State 1 a traditional
group health plan, and each of its 7 employees in State 2 an HRA on
the same terms.
(B) Conclusion. The same terms requirement of paragraph (c)(3)
of this section is satisfied in this paragraph (f)(1)(vii) (Example
7) because Plan Sponsor F offers the HRA on the same terms to all
employees with a work site in State 2 and that class is a
permissible class under paragraph (d) of this section. This is
because employees whose work sites are in different rating areas may
be considered different classes and a plan sponsor may create a
class of employees by combining classes of employees, including by
combining employees whose work site is in one rating area with
employees whose work site is in a different rating area, or by
combining all employees whose work site is in a state. The minimum
class size requirement does not apply to this paragraph (f)(1)(vii)
(Example 7) because the minimum class size requirement does not
apply if the geographic area defining a class of employees is a
state or a combination of two or more entire states.
(viii) Example 8: Full-time seasonal employees offered HRA; all
other full-time employees offered traditional group health plan;
part-time employees offered no coverage--(A) Facts. Plan Sponsor G
employs 6 full-time seasonal employees, 75 full-time employees who
are not seasonal employees, and 5 part-time employees. For 2020,
Plan Sponsor G offers each of its 6 full-time seasonal employees an
HRA on the same terms, its 75 full-time employees who are not
seasonal employees a traditional group health plan, and offers no
coverage to its 5 part-time employees.
(B) Conclusion. The same terms requirement of paragraph (c)(3)
of this section is satisfied in this paragraph (f)(1)(viii) (Example
8) because full-time seasonal employees and full-time employees who
are not seasonal employees may be considered different classes and
Plan Sponsor G offers the HRA on the same terms to all full-time
seasonal employees. The minimum class size requirement does not
apply to the class offered the HRA in this paragraph (f)(1)(viii)
(Example 8) because part-time employees are not offered coverage and
full-time employees are not an applicable class subject to the
minimum class size requirement if part-time employees are not
offered coverage.
(ix) Example 9: Full-time employees in rating area 1 offered
traditional group health plan; full-time employees in rating area 2
offered HRA; part-time employees offered no coverage--(A) Facts.
Plan Sponsor H employs 17 full-time employees and 10 part-time
employees whose work site is in rating area 1 and 552 full-time
employees whose work site is in rating area 2. For 2020, Plan
Sponsor H offers its 17 full-time employees in rating area 1 a
traditional group health plan and each of its 552 full-time
employees in rating area 2 an HRA on the same terms. Plan Sponsor H
offers no coverage to its 10 part-time employees in rating area 1.
Plan Sponsor H reasonably expects to employ 569 employees on the
first day of the HRA plan year.
[[Page 29009]]
(B) Conclusion. The same terms requirement of paragraph (c)(3)
of this section is satisfied in this paragraph (f)(1)(ix) (Example
9) because employees whose work sites are in different rating areas
may be considered different classes and Plan Sponsor H offers the
HRA on the same terms to all full-time employees in rating area 2.
The minimum class size requirement applies to the class offered the
HRA in this paragraph (f)(1)(ix) (Example 9) because the minimum
class size requirement applies to a class based on a geographic area
unless the geographic area is a state or a combination of two or
more entire states. However, the minimum class size requirement
applies only to the class offered the HRA, and Plan Sponsor H offers
the HRA to the 552 full-time employees in rating area 2 on the first
day of the plan year, satisfying the minimum class size requirement
(because the applicable class size minimum for Plan Sponsor H is
20).
(x) Example 10: Employees in rating area 1 offered HRA;
employees in rating area 2 offered traditional group health plan--
(A) Facts. The facts are the same as in paragraph (f)(1)(ix) of this
section (Example 9) except that Plan Sponsor H offers its 17 full-
time employees in rating area 1 the HRA and offers its 552 full-time
employees in rating area 2 the traditional group health plan.
(B) Conclusion. The same terms requirement of paragraph (c)(3)
of this section is not satisfied in this paragraph (f)(1)(x)
(Example 10) because, even though employees whose work sites are in
different rating areas generally may be considered different classes
and Plan Sponsor H offers the HRA on the same terms to all
participants in rating area 1, the HRA fails to satisfy the minimum
class size requirement. Specifically, the minimum class size
requirement applies to this paragraph (f)(1)(x) (Example 10) because
the minimum class size requirement applies to a class based on a
geographic area unless the geographic area is a state or a
combination of two or more entire states. Further, the applicable
class size minimum for Plan Sponsor H is 20 employees, and the HRA
is only offered to the 17 full-time employees in rating area 1 on
the first day of the HRA plan year.
(xi) Example 11: Employees in State 1 and rating area 1 of State
2 offered HRA; employees in all other rating areas of State 2
offered traditional group health plan--(A) Facts. For 2020, Plan
Sponsor I offers an HRA on the same terms to a total of 200
employees it employs with work sites in State 1 and in rating area 1
of State 2. Plan Sponsor I offers a traditional group health plan to
its 150 employees with work sites in other rating areas in State 2.
Plan Sponsor I reasonably expects to employ 350 employees on the
first day of the HRA plan year.
(B) Conclusion. The same terms requirement of paragraph (c)(3)
of this section is satisfied in this paragraph (f)(1)(xi) (Example
11). Plan Sponsor I may treat all of the employees with a work site
in State 1 and rating area 1 of State 2 as a class of employees
because employees whose work sites are in different rating areas may
be considered different classes and a plan sponsor may create a
class of employees by combining classes of employees, including by
combining employees whose work site is in one rating area with a
class of employees whose work site is in a different rating area.
The minimum class size requirement applies to the class of employees
offered the HRA (made up of employees in State 1 and in rating area
1 of State 2) because the minimum class size requirement applies to
a class based on a geographic area unless the geographic area is a
state or a combination of two or more entire states. In this case,
the class is made up of a state plus a rating area which is not the
entire state. However, this class satisfies the minimum class size
requirement because the applicable class size minimum for Plan
Sponsor I is 20, and Plan Sponsor I offered the HRA to 200 employees
on the first day of the plan year.
(xii) Example 12: Salaried employees offered a traditional group
health plan; hourly employees offered an HRA--(A) Facts. Plan
Sponsor J has 163 salaried employees and 14 hourly employees. For
2020, Plan Sponsor J offers its 163 salaried employees a traditional
group health plan and each of its 14 hourly employees an HRA on the
same terms. Plan Sponsor J reasonably expects to employ 177
employees on the first day of the HRA plan year.
(B) Conclusion. The same terms requirement of paragraph (c)(3)
of this section is not satisfied in this paragraph (f)(1)(xii)
(Example 12) because, even though salaried and hourly employees
generally may be considered different classes and Plan Sponsor J
offers the HRA on the same terms to all hourly employees, the HRA
fails to satisfy the minimum class size requirement. Specifically,
the minimum class size requirement applies in this paragraph
(f)(1)(xii) (Example 12) because employees who are paid on a
salaried basis and employees who are not paid on a salaried basis
are applicable classes subject to the minimum class size
requirement. Because Plan Sponsor J reasonably expects to employ
between 100 and 200 employees on the first day of the plan year, the
applicable class size minimum is 10 percent, rounded down to a whole
number. Ten percent of 177 total employees, rounded down to a whole
number is 17, and the HRA is offered to only 14 hourly employees.
(xiii) Example 13: Part-time employees and full-time employees
offered different HRAs; no traditional group health plan offered--
(A) Facts. Plan Sponsor K has 50 full-time employees and 7 part-time
employees. For 2020, Plan Sponsor K offers its 50 full-time
employees $2,000 each in an HRA otherwise provided on the same terms
and each of its 7 part-time employees $500 in an HRA otherwise
provided on the same terms. Plan Sponsor K reasonably expects to
employ 57 employees on the first day of the HRA plan year.
(B) Conclusion. The same terms requirement of paragraph (c)(3)
of this section is satisfied in this paragraph (f)(1)(xiii) (Example
13) because full-time employees and part-time employees may be
treated as different classes and Plan Sponsor K offers an HRA on the
same terms to all the participants in each class. The minimum class
size requirement does not apply to either the full-time class or the
part-time class because (although in certain circumstances the
minimum class size requirement applies to a class of full-time
employees and a class of part-time employees) Plan Sponsor K does
not offer any class of employees a traditional group health plan,
and the minimum class size requirement applies only when, among
other things, at least one class of employees is offered a
traditional group health plan while another class is offered an HRA.
(xiv) Example 14: No employees offered an HRA--(A) Facts. The
facts are the same facts as in paragraph (f)(1)(xiii) of this
section (Example 13), except that Plan Sponsor K offers its full-
time employees a traditional group health plan and does not offer
any group health plan (either a traditional group health plan or an
HRA) to its part-time employees.
(B) Conclusion. The regulations set forth under this section do
not apply to Plan Sponsor K because Plan Sponsor K does not offer an
individual coverage HRA to any employee.
(xv) Example 15: Full-time employees offered traditional group
health plan; part-time employees offered HRA--(A) Facts. The facts
are the same as in paragraph (f)(1)(xiii) of this section (Example
13), except that Plan Sponsor K offers its full-time employees a
traditional group health plan and offers each of its part-time
employees $500 in an HRA and otherwise on the same terms.
(B) Conclusion. The same terms requirement of paragraph (c)(3)
of this section is not satisfied in this paragraph (f)(1)(xv)
(Example 15) because, even though the full-time employees and the
part-time employees generally may be treated as different classes,
in this paragraph (f)(1)(xv) (Example 15), the minimum class size
requirement applies to the part-time employees, and it is not
satisfied. Specifically, the minimum class size requirement applies
to the part-time employees because that requirement applies to an
applicable class offered an HRA when one class is offered a
traditional group health plan while another class is offered an HRA,
and to the part-time and full-time employee classes when one of
those classes is offered a traditional group health plan while the
other is offered an HRA. Because Plan Sponsor K reasonably expects
to employ fewer than 100 employees on the first day of the HRA plan
year, the applicable class size minimum for Plan Sponsor K is 10
employees, but Plan Sponsor K offered the HRA only to its 7 part-
time employees.
(xvi) Example 16: Satisfying minimum class size requirement
based on employees offered HRA--(A) Facts. Plan Sponsor L employs 78
full-time employees and 12 part-time employees. For 2020, Plan
Sponsor L offers its 78 full-time employees a traditional group
health plan and each of its 12 part-times employees an HRA on the
same terms. Only 6 part-time employees enroll in the HRA. Plan
Sponsor L reasonably expects to employ fewer than 100 employees on
the first day of the HRA plan year.
(B) Conclusion. The same terms requirement of paragraph (c)(3)
of this section is satisfied in this paragraph
[[Page 29010]]
(f)(1)(xvi) (Example 16) because full-time employees and part-time
employees may be treated as different classes, Plan Sponsor L offers
an HRA on the same terms to all the participants in the part-time
class, and the minimum class size requirement is satisfied.
Specifically, whether a class of employees satisfies the applicable
class size minimum is determined as of the first day of the plan
year based on the number of employees in a class that is offered an
HRA, not on the number of employees who enroll in the HRA. The
applicable class size minimum for Plan Sponsor L is 10 employees,
and Plan Sponsor L offered the HRA to its 12 part-time employees.
(xvii) Example 17: Student employees offered student premium
reduction arrangements and same terms requirement--(A) Facts. Plan
Sponsor M is an institution of higher education that offers each of
its part-time employees an HRA on the same terms, except that it
offers its part-time employees who are student employees a student
premium reduction arrangement, and the student premium reduction
arrangement provides different amounts to different part-time
student employees.
(B) Conclusion. The same terms requirement of paragraph (c)(3)
of this section is satisfied in this paragraph (f)(1)(xvii) (Example
17) because Plan Sponsor M offers the HRA on the same terms to its
part-time employees who are not students and because the part-time
student employees offered a student premium reduction arrangement
(and their varying HRAs) are not taken into account as part-time
employees for purposes of determining whether a class of employees
is offered an HRA on the same terms.
(xiii) Example 18: Student employees offered student premium
reduction arrangements and minimum class size requirement--(A)
Facts. Plan Sponsor N is an institution of higher education with 25
hourly employees. Plan Sponsor N offers 15 of its hourly employees,
who are student employees, a student premium reduction arrangement
and it wants to offer its other 10 hourly employees an HRA for 2022.
Plan Sponsor N offers its salaried employees a traditional group
health plan. Plan Sponsor N reasonably expects to have 250 employees
on the first day of the 2022 HRA plan year, 15 of which will have
offers of student premium reduction arrangements.
(B) Conclusion. The same terms requirement of paragraph (c)(3)
of this section is not satisfied in this paragraph (f)(1)(xviii)
(Example 18). The minimum class size requirement will apply to the
class of hourly employees to which Plan Sponsor N wants to offer the
HRA because Plan Sponsor N offers a class of employees a traditional
group health plan and another class the HRA, and the minimum class
size requirement generally applies to a class of hourly employees
offered an HRA. Plan Sponsor N's applicable class size minimum is 20
because Plan Sponsor N reasonably expects to employ 235 employees on
the first day of the plan year (250 employees minus 15 employees
receiving a student premium reduction arrangement). Plan Sponsor N
may not offer the HRA to its hourly employees because the 10
employees offered the HRA as of the first day of the plan year does
not satisfy the applicable class size minimum.
(2) Examples regarding special rule for new hires. The following
examples illustrate the provisions of paragraph (c)(3) of this section,
taking into account the provisions of paragraph (d) of this section, in
particular the special rule for new hires under paragraph (d)(5) of
this section. In each example, the HRA is an individual coverage HRA
that has a calendar year plan year and may reimburse any medical care
expenses, including premiums for individual health insurance coverage.
The examples also assume that no participants or dependents are
Medicare beneficiaries.
(i) Example 1: Application of special rule for new hires to all
employees--(A) Facts. For 2021, Plan Sponsor A offers all employees
a traditional group health plan. For 2022, Plan Sponsor A offers all
employees hired on or after January 1, 2022, an HRA on the same
terms and continues to offer the traditional group health plan to
employees hired before that date. On the first day of the 2022 plan
year, Plan Sponsor A has 2 new hires who are offered the HRA.
(B) Conclusion. The same terms requirement of paragraph (c)(3)
of this section is satisfied in this paragraph (f)(2)(i) (Example 1)
because, under the special rule for new hires in paragraph (d)(5) of
this section, the employees newly hired on and after January 1,
2022, may be treated as a new hire subclass, Plan Sponsor A offers
the HRA on the same terms to all participants in the new hire
subclass, and the minimum class size requirement does not apply to
the new hire subclass.
(ii) Example 2: Application of special rule for new hires to
full-time employees--(A) Facts. For 2021, Plan Sponsor B offers a
traditional group health plan to its full-time employees and does
not offer any coverage to its part-time employees. For 2022, Plan
Sponsor B offers full-time employees hired on or after January 1,
2022, an HRA on the same terms, continues to offer its full-time
employees hired before that date a traditional group health plan,
and continues to offer no coverage to its part-time employees. On
the first day of the 2022 plan year, Plan Sponsor B has 2 new hire,
full-time employees who are offered the HRA.
(B) Conclusion. The same terms requirement of paragraph (c)(3)
of this section is satisfied in this paragraph (f)(2)(ii) (Example
2) because, under the special rule for new hires in paragraph (d)(5)
of this section, the full-time employees newly hired on and after
January 1, 2022, may be treated as a new hire subclass and Plan
Sponsor B offers the HRA on the same terms to all participants in
the new hire subclass. The minimum class size requirement does not
apply to the new hire subclass.
(iii) Example 3: Special rule for new hires impermissibly
applied retroactively--(A) Facts. For 2025, Plan Sponsor C offers a
traditional group health plan to its full-time employees. For 2026,
Plan Sponsor C wants to offer an HRA to its full-time employees
hired on and after January 1, 2023, while continuing to offer a
traditional group health plan to its full-time employees hired
before January 1, 2023.
(B) Conclusion. The special rule for new hires under paragraph
(d)(5) of this section does not apply in this paragraph (f)(2)(iii)
(Example 3) because the rule must be applied prospectively. That is,
Plan Sponsor C may not, in 2026, choose to apply the special rule
for new hires retroactive to 2023. If Plan Sponsor C were to offer
an HRA in this way, it would fail to satisfy the conditions under
paragraphs (c)(2) and (3) of this section because the new hire
subclass would not be treated as a subclass for purposes of applying
those rules and, therefore, all full-time employees would be treated
as one class to which either a traditional group health plan or an
HRA could be offered, but not both.
(iv) Example 4: Permissible second application of the special
rule for new hires to the same class of employees--(A) Facts. For
2021, Plan Sponsor D offers all of its full-time employees a
traditional group health plan. For 2022, Plan Sponsor D applies the
special rule for new hires and offers an HRA on the same terms to
all employees hired on and after January 1, 2022, and continues to
offer a traditional group health plan to full-time employees hired
before that date. For 2025, Plan Sponsor D discontinues use of the
special rule for new hires, and again offers all full-time employees
a traditional group health plan. In 2030, Plan Sponsor D decides to
apply the special rule for new hires to the full-time employee class
again, offering an HRA to all full-time employees hired on and after
January 1, 2030, on the same terms, while continuing to offer
employees hired before that date a traditional group health plan.
(B) Conclusion. Plan Sponsor D has permissibly applied the
special rule for new hires and is in compliance with the
requirements of paragraphs (c)(2) and (3) of this section.
(v) Example 5: Impermissible second application of the special
rule for new hires to the same class of employees--(A) Facts. The
facts are the same as in paragraph (f)(2)(iv) of this section
(Example 4), except that for 2025, Plan Sponsor D discontinues use
of the special rule for new hires by offering all full-time
employees an HRA on the same terms. Further, for 2030, Plan Sponsor
D wants to continue to offer an HRA on the same terms to all full-
time employees hired before January 1, 2030, and to offer all full-
time employees hired on or after January 1, 2030, an HRA in a
different amount.
(B) Conclusion. Plan Sponsor D may not apply the special rule
for new hires for 2030 to the class of full-time employees being
offered an HRA because the special rule for new hires may only be
applied to a class that is being offered a traditional group health
plan.
(vi) Example 6: New full-time employees offered different HRAs
in different rating areas--(A) Facts. Plan Sponsor E has work sites
in rating area 1, rating area 2, and rating area 3. For 2021, Plan
Sponsor E offers its full-time employees a traditional group health
plan. For 2022, Plan Sponsor E offers
[[Page 29011]]
its full-time employees hired on or after January 1, 2022, in rating
area 1 an HRA of $3,000, its full-time employees hired on or after
January 1, 2022, in rating area 2 an HRA of $5,000, and its full-
time employees hired on or after January 1, 2022, in rating area 3
an HRA of $7,000. Within each class offered an HRA, Plan Sponsor E
offers the HRA on the same terms. Plan Sponsor E offers its full-
time employees hired prior to January 1, 2022, in each of those
classes a traditional group health plan. On the first day of the
2022 plan year, there is one new hire, full-time employee in rating
area 1, three new hire, full-time employees in rating area 2, and 10
new hire-full-time employees in rating area 3.
(B) Conclusion. The same terms requirement of paragraph (c)(3)
of this section is satisfied in this paragraph (f)(2)(vi) (Example
6) because, under the special rule for new hires in paragraph (d)(5)
of this section, the full-time employees in each of the three rating
areas newly hired on and after January 1, 2022, may be treated as
three new hire subclasses and Plan Sponsor E offers the HRA on the
same terms to all participants in the new hire subclasses. Further,
the minimum class size requirement does not apply to the new hire
subclasses.
(vii) Example 7: New full-time employee class subdivided based
on rating area--(A) Facts. Plan Sponsor F offers its full-time
employees hired on or after January 1, 2022, an HRA on the same
terms and it continues to offer its full-time employees hired before
that date a traditional group health plan. Plan Sponsor F offers no
coverage to its part-time employees. For the 2025 plan year, Plan
Sponsor F wants to subdivide the full-time new hire subclass so that
those whose work site is in rating area 1 will be offered the
traditional group health plan and those whose work site is in rating
area 2 will continue to receive the HRA. Plan Sponsor F reasonably
expects to employ 219 employees on January 1, 2025. As of January 1,
2025, Plan Sponsor F has 15 full-time employees whose work site in
in rating area 2 and who were hired between January 1, 2022, and
January 1, 2025.
(B) Conclusion. The same terms requirement of paragraph (c)(3)
of this section is not satisfied in this paragraph (f)(2)(vii)
(Example 7) because the new hire subclass has been subdivided in a
manner that is subject to the minimum class size requirement, and
the class offered the HRA fails to satisfy the minimum class size
requirement. Specifically, once the new hire subclass is subdivided
the general rules for applying the minimum class size requirement
apply to the employees offered the HRA in the new hire subclass. In
this case, because the subdivision of the new hire full-time
subclass is based on rating areas; a class based on rating areas is
an applicable class subject to the minimum class size requirement;
and the employees in one rating area are to be offered the HRA,
while the employees in the other rating area are offered the
traditional group health plan, the minimum class size requirement
would apply on and after the date of the subdivision. Further, the
minimum class size requirement would not be satisfied, because the
applicable class size minimum for Plan Sponsor F would be 20, and
only 15 employees in rating area 2 would be offered the HRA.
(viii) Example 8: New full-time employee class subdivided based
on state--(A) Facts. The facts are the same as in paragraph
(f)(2)(vii) of this section (Example 7), except that for the 2025
plan year, Plan Sponsor F intends to subdivide the new hire, full-
time class so that those in State 1 will be offered the traditional
group health plan and those in State 2 will each be offered an HRA
on the same terms.
(B) Conclusion. The same terms requirement of paragraph (c)(3)
of this section is satisfied in this paragraph (f)(2)(viii) (Example
8) because even though the new hire subclass has been subdivided, it
has been subdivided in a manner that is not subject to the minimum
class size requirement as the subdivision is based on the entire
state.
(ix) Example 9: New full-time employees and part-time employees
offered HRA--(A) Facts. In 2021, Plan Sponsor G offers its full-time
employees a traditional group health plan and does not offer
coverage to its part-time employees. For the 2022 plan year, Plan
Sponsor G offers its full-time employees hired on or after January
1, 2022, and all of its part-time employees, including those hired
before January 1, 2022, and those hired on and after January 1,
2022, an HRA on the same terms, and it continues to offer its full-
time employees hired before January 1, 2022, a traditional group
health plan.
(B) Conclusion. The minimum class size requirement applies to
the part-time employees offered the HRA in 2022 because the class is
being offered an HRA; the special rule for new hires does not apply
(because this class was not previously offered a traditional group
health plan) and so it is not a new hire subclass exempt from the
minimum class size requirement; another class of employees (that is,
full-time hired before January 1, 2022) are being offered a
traditional group health plan; and the part-time employee class is
generally an applicable classes that is subject to the minimum class
size requirement. However, because the full-time, new hire subclass
is based on the special rule for new hires, the minimum class size
requirement does not apply to full-time new hires offered an HRA in
2022.
(g) Applicability date. This section applies to plan years
beginning on or after January 1, 2020.
0
14. Section 2590.715-2711 is amended by revising paragraphs (c), (d),
and (e) to read as follows:
Sec. [thinsp]2590.715-2711 No lifetime or annual limits.
* * * * *
(c) Definition of essential health benefits. The term ``essential
health benefits'' means essential health benefits under section 1302(b)
of the Patient Protection and Affordable Care Act and applicable
regulations. For the purpose of this section, a group health plan or a
health insurance issuer that is not required to provide essential
health benefits under section 1302(b) must define ``essential health
benefits'' in a manner that is consistent with the following:
(1) For plan years beginning before January 1, 2020, one of the
EHB-benchmark plans applicable in a State under 45 CFR 156.110, and
including coverage of any additional required benefits that are
considered essential health benefits consistent with 45 CFR
155.170(a)(2), or one of the three Federal Employees Health Benefits
Program (FEHBP) plan options as defined by 45 CFR 156.100(a)(3),
supplemented as necessary, to satisfy the standards in 45 CFR 156.110;
or
(2) For plan years beginning on or after January 1, 2020, an EHB-
benchmark plan selected by a State in accordance with the available
options and requirements for EHB-benchmark plan selection at 45 CFR
156.111, including an EHB-benchmark plan in a State that takes no
action to change its EHB-benchmark plan and thus retains the EHB-
benchmark plan applicable in that State for the prior year in
accordance with 45 CFR 156.111(d)(1), and including coverage of any
additional required benefits that are considered essential health
benefits consistent with 45 CFR 155.170(a)(2).
(d) Health reimbursement arrangements (HRAs) and other account-
based group health plans--(1) In general. If an HRA or other account-
based group health plan is integrated with another group health plan or
individual health insurance coverage and the other group health plan or
individual health insurance coverage, as applicable, separately is
subject to and satisfies the requirements in PHS Act section 2711 and
paragraph (a)(2) of this section, the fact that the benefits under the
HRA or other account-based group health plan are limited does not cause
the HRA or other account-based group health plan to fail to satisfy the
requirements of PHS Act section 2711 and paragraph (a)(2) of this
section. Similarly, if an HRA or other account-based group health plan
is integrated with another group health plan or individual health
insurance coverage and the other group health plan or individual health
insurance coverage, as applicable, separately is subject to and
satisfies the requirements in PHS Act section 2713 and Sec. 2590.715-
2713(a)(1) of this part, the fact that the benefits under the HRA or
other account-based group health plan are limited does not cause the
HRA or other account-based group health plan to fail to satisfy the
requirements of PHS Act section 2713
[[Page 29012]]
and Sec. 2590.715-2713(a)(1) of this part. For the purpose of this
paragraph (d), all individual health insurance coverage, except for
coverage that consists solely of excepted benefits, is treated as being
subject to and complying with PHS Act sections 2711 and 2713.
(2) Requirements for an HRA or other account-based group health
plan to be integrated with another group health plan. An HRA or other
account-based group health plan is integrated with another group health
plan for purposes of PHS Act section 2711 and paragraph (a)(2) of this
section if it satisfies the requirements under one of the integration
methods set forth in paragraph (d)(2)(i) or (ii) of this section. For
purposes of the integration methods under which an HRA or other
account-based group health plan is integrated with another group health
plan, integration does not require that the HRA or other account-based
group health plan and the other group health plan 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. An
HRA or other account-based group health plan integrated with another
group health plan for purposes of PHS Act section 2711 and paragraph
(a)(2) of this section may not be used to purchase individual health
insurance coverage unless that coverage consists solely of excepted
benefits, as defined in 45 CFR 148.220.
(i) Method for integration with a group health plan: Minimum value
not required. An HRA or other account-based group health plan is
integrated with another group health plan for purposes of this
paragraph (d) if:
(A) The plan sponsor offers a group health plan (other than the HRA
or other account-based group health plan) to the employee that does not
consist solely of excepted benefits;
(B) The employee receiving the HRA or other account-based group
health plan is actually enrolled in a group health plan (other than the
HRA or other account-based group health plan) that does not consist
solely of excepted benefits, regardless of whether the plan is offered
by the same plan sponsor (referred to as non-HRA group coverage);
(C) The HRA or other account-based group health plan is available
only to employees who are enrolled in non-HRA group coverage,
regardless of whether the non-HRA group coverage is offered by the plan
sponsor of the HRA or other account-based group health plan (for
example, the HRA may be offered only to employees who do not enroll in
an employer's group health plan but are enrolled in other non-HRA group
coverage, such as a group health plan maintained by the employer of the
employee's spouse);
(D) The benefits under the HRA or other account-based group health
plan are 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 expenses that do not constitute
essential health benefits as defined in paragraph (c) of this section;
and
(E) Under the terms of the HRA or other account-based group health
plan, an employee (or former employee) is permitted to permanently opt
out of and waive future reimbursements from the HRA or other account-
based group health plan at least annually and, upon termination of
employment, either the remaining amounts in the HRA or other account-
based group health plan are forfeited or the employee is permitted to
permanently opt out of and waive future reimbursements from the HRA or
other account-based group health plan (see paragraph (d)(3) of this
section for additional rules regarding forfeiture and waiver).
(ii) Method for integration with another group health plan: Minimum
value required. An HRA or other account-based group health plan is
integrated with another group health plan for purposes of this
paragraph (d) if:
(A) The plan sponsor offers a group health plan (other than the HRA
or other account-based group health plan) to the employee that provides
minimum value pursuant to Code section 36B(c)(2)(C)(ii) (and its
implementing regulations and applicable guidance);
(B) The employee receiving the HRA or other account-based group
health plan is actually enrolled in a group health plan (other than the
HRA or other account-based group health plan) that provides minimum
value pursuant to Code section 36B(c)(2)(C)(ii) (and applicable
guidance), regardless of whether the plan is offered by the plan
sponsor of the HRA or other account-based group health plan (referred
to as non-HRA MV group coverage);
(C) The HRA or other account-based group health plan is available
only to employees who are actually enrolled in non-HRA MV group
coverage, regardless of whether the non-HRA MV group coverage is
offered by the plan sponsor of the HRA or other account-based group
health plan (for example, the HRA may be offered only to employees who
do not enroll in an employer's group health plan but are enrolled in
other non-HRA MV group coverage, such as a group health plan maintained
by an employer of the employee's spouse); and
(D) Under the terms of the HRA or other account-based group health
plan, an employee (or former employee) is permitted to permanently opt
out of and waive future reimbursements from the HRA or other account-
based group health plan at least annually, and, upon termination of
employment, either the remaining amounts in the HRA or other account-
based group health plan are forfeited or the employee is permitted to
permanently opt out of and waive future reimbursements from the HRA or
other account-based group health plan (see paragraph (d)(3) of this
section for additional rules regarding forfeiture and waiver).
(3) Forfeiture. For purposes of integration under paragraphs
(d)(2)(i)(E) and (d)(2)(ii)(D) of this section, forfeiture or waiver
occurs even if the forfeited or waived amounts may be reinstated upon a
fixed date, a participant's death, or the earlier of the two events
(the reinstatement event). For the purpose of this paragraph (d)(3),
coverage under an HRA or other account-based group health plan is
considered forfeited or waived prior to a reinstatement event only if
the participant's election to forfeit or waive is irrevocable, meaning
that, beginning on the effective date of the election and through the
date of the reinstatement event, the participant and the participant's
beneficiaries have no access to amounts credited to the HRA or other
account-based group health plan. This means that upon and after
reinstatement, the reinstated amounts under the HRA or other account-
based group health plan may not be used to reimburse or pay medical
care expenses incurred during the period after forfeiture and prior to
reinstatement.
(4) Requirements for an HRA or other account-based group health
plan to be integrated with individual health insurance coverage or
Medicare Part A and B or Medicare Part C. An HRA or other account-based
group health plan is integrated with individual health insurance
coverage or Medicare Part A and B or Medicare Part C (and treated as
complying with PHS Act sections 2711 and 2713) if the HRA or other
account-based group health plan satisfies the requirements of Sec.
2590.702-2(c) of this part (as modified by Sec. 2590.702-2(e), for
HRAs or other account-based group health plans integrated with Medicare
Part A and B or Medicare Part C).
(5) Integration with Medicare Part B and D. For employers that are
not required to offer their non-HRA group
[[Page 29013]]
health plan coverage to employees who are Medicare beneficiaries, an
HRA or other account-based group health plan that may be used to
reimburse premiums under Medicare Part B or D may be integrated with
Medicare (and deemed to comply with PHS Act sections 2711 and 2713) if
the following requirements are satisfied with respect to employees who
would be eligible for the employer's non-HRA group health plan but for
their eligibility for Medicare (and the integration rules under
paragraphs (d)(2)(i) and (ii) of this section continue to apply to
employees who are not eligible for Medicare):
(i) The plan sponsor offers a group health plan (other than the HRA
or other account-based group health plan and that does not consist
solely of excepted benefits) to employees who are not eligible for
Medicare;
(ii) The employee receiving the HRA or other account-based group
health plan is actually enrolled in Medicare Part B or D;
(iii) The HRA or other account-based group health plan is available
only to employees who are enrolled in Medicare Part B or D; and
(iv) The HRA or other account-based group health plan complies with
paragraphs (d)(2)(i)(E) and (d)(2)(ii)(D) of this section.
(6) Definitions. The following definitions apply for purposes of
this section.
(i) Account-based group health plan. An account-based group health
plan is an employer-provided group health plan that provides
reimbursements of medical care expenses with the reimbursement subject
to a maximum fixed dollar amount for a period. An HRA is a type of
account-based group health plan. An account-based group health plan
does not include a qualified small employer health reimbursement
arrangement, as defined in Code section 9831(d)(2).
(ii) Medical care expenses. Medical care expenses means expenses
for medical care as defined under Code section 213(d).
(e) Applicability date. The provisions of this section are
applicable to group health plans and health insurance issuers for plan
years beginning on or after January 1, 2020. Until the applicability
date for this section, plans and issuers are required to continue to
comply with the corresponding sections of this part, contained in the
29 CFR parts 1927 to end edition, revised as of July 1, 2018.
0
15. Section 2590.732 is amended by revising paragraph (c)(3)(i) and
adding paragraph (c)(3)(viii) to read as follows:
Sec. 2590.732 Special rules relating to group health plans.
* * * * *
(c) * * *
(3) * * *
(i) In general. Limited-scope dental benefits, limited-scope vision
benefits, or long-term care benefits are excepted if they are provided
under a separate policy, certificate, or contract of insurance, or are
otherwise not an integral part of a group health plan as described in
paragraph (c)(3)(ii) of this section. In addition, benefits provided
under a health flexible spending arrangement (health FSA) are excepted
benefits if they satisfy the requirements of paragraph (c)(3)(v) of
this section; benefits provided under an employee assistance program
are excepted benefits if they satisfy the requirements of paragraph
(c)(3)(vi) of this section; benefits provided under limited wraparound
coverage are excepted benefits if they satisfy the requirements of
paragraph (c)(3)(vii) of this section; and benefits provided under a
health reimbursement arrangement or other account-based group health
plan, other than a health FSA, are excepted benefits if they satisfy
the requirements of paragraph (c)(3)(viii) of this section.
* * * * *
(viii) Health reimbursement arrangements (HRAs) and other account-
based group health plans. Benefits provided under an HRA or other
account-based group health plan, other than a health FSA, are excepted
if they satisfy all of the requirements of this paragraph (c)(3)(viii).
See paragraph (c)(3)(v) of this section for the circumstances in which
benefits provided under a health FSA are excepted benefits. For
purposes of this paragraph (c)(3)(viii), the term ``HRA or other
account-based group health plan'' has the same meaning as ``account-
based group health plan'' set forth in Sec. 2590.715-2711(d)(6)(i) of
this part, except that the term does not include health FSAs. For ease
of reference, an HRA or other account-based group health plan that
satisfies the requirements of this paragraph (c)(3)(viii) is referred
to as an excepted benefit HRA.
(A) Otherwise not an integral part of the plan. Other group health
plan coverage that is not limited to excepted benefits and that is not
an HRA or other account-based group health plan must be made available
by the same plan sponsor for the plan year to the participant.
(B) Benefits are limited in amount--(1) Limit on annual amounts
made available. The amounts newly made available for each plan year
under the HRA or other account-based group health plan do not exceed
$1,800. In the case of any plan year beginning after December 31, 2020,
the dollar amount in the preceding sentence shall be increased by an
amount equal to such dollar amount multiplied by the cost-of-living
adjustment. The cost of living adjustment is the percentage (if any) by
which the C-CPI-U for the preceding calendar year exceeds the C-CPI-U
for calendar year 2019. The term ``C-CPI-U'' means the Chained Consumer
Price Index for All Urban Consumers as published by the Bureau of Labor
Statistics of the Department of Labor. The C-CPI-U for any calendar
year is the average of the C-CPI-U as of the close of the 12-month
period ending on March 31 of such calendar year. The values of the C-
CPI-U used for any calendar year shall be the latest values so
published as of the date on which the Bureau publishes the initial
value of the C-CPI-U for the month of March for the preceding calendar
year. Any such increase that is not a multiple of $50 shall be rounded
down to the next lowest multiple of $50. The Department of the Treasury
and the Internal Revenue Service will publish the adjusted amount for
plan years beginning in any calendar year no later than June 1 of the
preceding calendar year.
(2) Carryover amounts. If the terms of the HRA or other account-
based group health plan allow unused amounts to be made available to
participants and dependents in later plan years, such carryover amounts
are disregarded for purposes of determining whether benefits are
limited in amount.
(3) Multiple HRAs or other account-based group health plans. If the
plan sponsor provides more than one HRA or other account-based group
health plan to the participant for the same time period, the amounts
made available under all such plans are aggregated to determine whether
the benefits are limited in amount, except that HRAs or other account-
based group health plans that reimburse only excepted benefits are not
included in determining whether the benefits are limited in amount.
(C) Prohibition on reimbursement of certain health insurance
premiums. The HRA or other account-based group health plan must not
reimburse premiums for individual health insurance coverage, group
health plan coverage (other than COBRA continuation coverage or other
continuation coverage), or Medicare Part A, B, C, or D, except that the
HRA or other account-based group health plan
[[Page 29014]]
may reimburse premiums for such coverage that consists solely of
excepted benefits. See also, paragraph (c)(3)(viii)(F) of this section.
(D) Uniform availability. The HRA or other account-based group
health plan is made available under the same terms to all similarly
situated individuals, as defined in Sec. 2590.702(d) of this part,
regardless of any health factor (as described in Sec. 2590.702(a)).
(E) Notice requirement. See sections 2520.102-3(j)(2) and (3) and
2520.104b-2(a) of this chapter regarding the time, manner, and content
for summary plan descriptions (including a description of conditions
pertaining to eligibility to receive benefits; annual or lifetime caps
or other limits on benefits under the plan; and a description or
summary of the benefits).
(F) Special rule. The HRA or other account-based group health plan
must not reimburse premiums for short-term, limited-duration insurance
(as defined in Sec. 2590.701-2 of this part) if the conditions of this
paragraph (c)(3)(viii)(F) are satisfied.
(1) The HRA or other account-based group health plan is offered by
a small employer (as defined in PHS Act section 2791(e)(4)).
(2) The other group health plan coverage offered by the employer
pursuant to paragraph (c)(3)(viii)(A) of this section is either fully-
insured or partially-insured.
(3) The Secretary of Health and Human Services (HHS) makes a
finding, in consultation with the Secretaries of Labor and the
Treasury, that the reimbursement of premiums for short-term, limited-
duration insurance by excepted benefit HRAs has caused significant harm
to the small group market in the state that is the principal place of
business of the small employer.
(4) The finding by the Secretary of HHS is made after submission of
a written recommendation by the applicable state authority of such
state, in a form and manner specified by HHS. The written
recommendation must include evidence that the reimbursement of premiums
for short-term, limited-duration insurance by excepted benefit HRAs
established by insured or partially-insured small employers in the
state has caused significant harm to the state's small group market,
including with respect to premiums.
(5) The restriction shall be imposed or discontinued by publication
by the Secretary of HHS of a notice in the Federal Register and shall
apply only prospectively and with a reasonable time for plan sponsors
to comply.
* * * * *
DEPARTMENT OF HEALTH AND HUMAN SERVICES
45 CFR Chapter 1
For the reasons stated in the preamble, the Department of Health
and Human Services amends 45 CFR parts 144, 146, 147, and 155 as set
forth below:
PART 144--REQUIREMENTS RELATING TO HEALTH INSURANCE COVERAGE
0
16. The authority for part 144 is revised to read as follows:
Authority: 42 U.S.C. 300gg through 300gg-63, 300gg-91, and
300gg-92.
0
17. Section 144.103 is amended by revising the definition of ``Group
health insurance coverage'' to read as follows:
Sec. 144.103 Definitions.
* * * * *
Group health insurance coverage means health insurance coverage
offered in connection with a group health plan. Individual health
insurance coverage reimbursed by the arrangements described in 29 CFR
2510.3-1(l) is not offered in connection with a group health plan, and
is not group health insurance coverage, provided all the conditions in
29 CFR 2510.3-1(l) are satisfied.
* * * * *
PART 146--REQUIREMENTS FOR THE GROUP HEALTH INSURANCE MARKET
18. The authority citation for part 146 continues to read as
follows:
Authority: 42 U.S.C. 300gg-1 through 300gg-5, 300gg-11 through
300gg-23, 300gg-91, and 300gg-92.
0
19. Section 146.123 is added to read as follows:
Sec. 146.123 Special rule allowing integration of Health
Reimbursement Arrangements (HRAs) and other account-based group health
plans with individual health insurance coverage and medicare and
prohibiting discrimination in HRAs and other account-based group health
plans.
(a) Scope. This section applies to health reimbursement
arrangements (HRAs) and other account-based group health plans, as
defined in Sec. 147.126(d)(6)(i) of this subchapter. For ease of
reference, the term ``HRA'' is used in this section to include other
account-based group health plans. For related regulations, see 26 CFR
1.36B-2(c)(3)(i) and (c)(5), 29 CFR 2510.3-1(l), and 45 CFR 155.420.
(b) Purpose. This section provides the conditions that an HRA must
satisfy in order to be integrated with individual health insurance
coverage for purposes of Public Health Service Act (PHS Act) sections
2711 and 2713 and Sec. 147.126(d)(4) of this subchapter (referred to
as an individual coverage HRA). This section also allows an individual
coverage HRA to be integrated with Medicare for purposes of PHS Act
sections 2711 and 2713 and Sec. 147.126(d)(4) of this subchapter,
subject to the conditions provided in this section (see paragraph (e)
of this section). Some of the conditions set forth in this section
specifically relate to compliance with PHS Act sections 2711 and 2713
and some relate to the effect of having or being offered an individual
coverage HRA on eligibility for the premium tax credit under section
36B of the Internal Revenue Code (Code). In addition, this section
provides conditions that an individual coverage HRA must satisfy in
order to comply with the nondiscrimination provisions in PHS Act
section 2705 and that are consistent with the provisions of the Patient
Protection and Affordable Care Act, Public Law 111-148 (124 Stat. 119
(2010)), and the Health Care and Education Reconciliation Act of 2010,
Public Law 111-152 (124 Stat. 1029 (2010)), each as amended, that are
designed to create a competitive individual market. These conditions
are intended to prevent an HRA plan sponsor from intentionally or
unintentionally, directly or indirectly, steering any participants or
dependents with adverse health factors away from its traditional group
health plan, if any, and toward individual health insurance coverage.
(c) General rule. An HRA will be considered to be integrated with
individual health insurance coverage for purposes of PHS Act sections
2711 and 2713 and Sec. 147.126(d)(4) of this subchapter and will not
be considered to discriminate in violation of PHS Act section 2705
solely because it is integrated with individual health insurance
coverage, provided that the conditions of this paragraph (c) are
satisfied. See paragraph (e) of this section for how these conditions
apply to an individual coverage HRA integrated with Medicare. For
purposes of this section, medical care expenses means medical care
expenses as defined in Sec. 147.126(d)(6)(ii) of this subchapter and
Exchange means Exchange as defined in Sec. 155.20 of this subchapter.
(1) Enrollment in individual health insurance coverage--(i) In
general. The HRA must require that the participant and any dependent(s)
are enrolled in individual health insurance coverage that is subject to
and complies with the requirements in PHS Act sections 2711
[[Page 29015]]
(and Sec. 147.126(a)(2) of this subchapter) and PHS Act section 2713
(and Sec. 147.130(a)(1) of this subchapter), for each month that the
individual(s) are covered by the HRA. For purposes of this paragraph
(c), all individual health insurance coverage, except for individual
health insurance coverage that consists solely of excepted benefits, is
treated as being subject to and complying with PHS Act sections 2711
and 2713. References to individual health insurance coverage in this
paragraph (c) do not include individual health insurance coverage that
consists solely of excepted benefits.
(ii) Forfeiture. The HRA must provide that if any individual
covered by the HRA ceases to be covered by individual health insurance
coverage, the HRA will not reimburse medical care expenses that are
incurred by that individual after the individual health insurance
coverage ceases. In addition, if the participant and all dependents
covered by the participant's HRA cease to be covered by individual
health insurance coverage, the participant must forfeit the HRA. In
either case, the HRA must reimburse medical care expenses incurred by
the individual prior to the cessation of individual health insurance
coverage to the extent the medical care expenses are otherwise covered
by the HRA, but the HRA may limit the period to submit medical care
expenses for reimbursement to a reasonable specified time period. If a
participant or dependent loses coverage under the HRA for a reason
other than cessation of individual health insurance coverage, COBRA and
other continuation coverage requirements may apply.
(iii) Grace periods and retroactive termination of individual
health insurance coverage. In the event an individual is initially
enrolled in individual health insurance coverage and subsequently
timely fails to pay premiums for the coverage, with the result that the
individual is in a grace period, the individual is considered to be
enrolled in individual health insurance coverage for purposes of this
paragraph (c)(1) and the individual coverage HRA must reimburse medical
care expenses incurred by the individual during that time period to the
extent the medical care expenses are otherwise covered by the HRA. If
the individual fails to pay the applicable premium(s) by the end of the
grace period and the coverage is cancelled or terminated, including
retroactively, or if the individual health insurance coverage is
cancelled or terminated retroactively for some other reason (for
example, a rescission), an individual coverage HRA must require that a
participant notify the HRA that coverage has been cancelled or
terminated and the date on which the cancellation or termination is
effective. After the individual coverage HRA has received the notice of
cancellation or termination, the HRA may not reimburse medical care
expenses incurred on and after the date the individual health insurance
coverage was cancelled or terminated, which is considered to be the
date of termination of coverage under the HRA.
(2) No traditional group health plan may be offered to same
participants. To the extent a plan sponsor offers any class of
employees (as defined in paragraph (d) of this section) an individual
coverage HRA, the plan sponsor may not also offer a traditional group
health plan to the same class of employees, except as provided in
paragraph (d)(5) of this section. For purposes of this section, a
traditional group health plan is any group health plan other than
either an account-based group health plan or a group health plan that
consists solely of excepted benefits. Therefore, a plan sponsor may not
offer a choice between an individual coverage HRA or a traditional
group health plan to any participant or dependent.
(3) Same terms requirement--(i) In general. If a plan sponsor
offers an individual coverage HRA to a class of employees described in
paragraph (d) of this section, the HRA must be offered on the same
terms to all participants within the class, except as provided in
paragraphs (c)(3)(ii) through (vi) and (d)(5) of this section.
(ii) Carryover amounts, salary reduction arrangements, and transfer
amounts. Amounts that are not used to reimburse medical care expenses
for any plan year that are made available to participants in later plan
years are disregarded for purposes of determining whether an HRA is
offered on the same terms, provided that the method for determining
whether participants have access to unused amounts in future years, and
the methodology and formula for determining the amounts of unused funds
which they may access in future years, is the same for all participants
in a class of employees. In addition, the ability to pay the portion of
the premium for individual health insurance coverage that is not
covered by the HRA, if any, by using a salary reduction arrangement
under section 125 of the Code is considered to be a term of the HRA for
purposes of this paragraph (c)(3). Therefore, an HRA is not provided on
the same terms unless the salary reduction arrangement, if made
available to any participant in a class of employees, is made available
on the same terms to all participants (other than former employees, as
defined in paragraph (c)(3)(iv) of this section) in the class of
employees. Further, to the extent that a participant in an individual
coverage HRA was previously covered by another HRA and the current
individual coverage HRA makes available amounts that were not used to
reimburse medical care expenses under the prior HRA (transferred
amounts), the transferred amounts are disregarded for purposes of
determining whether the HRA is offered on the same terms, provided that
if the HRA makes available transferred amounts, it does so on the same
terms for all participants in the class of employees.
(iii) Permitted variation. An HRA does not fail to be provided on
the same terms solely because the maximum dollar amount made available
to participants in a class of employees to reimburse medical care
expenses for any plan year increases in accordance with paragraph
(c)(3)(iii)(A) or (B) of this section.
(A) Variation due to number of dependents. An HRA does not fail to
be provided on the same terms to participants in a class of employees
solely because the maximum dollar amount made available to those
participants to reimburse medical care expenses for any plan year
increases as the number of the participant's dependents who are covered
under the HRA increases, so long as the same maximum dollar amount
attributable to the increase in family size is made available to all
participants in that class of employees with the same number of
dependents covered by the HRA.
(B) Variation due to age. An HRA does not fail to be provided on
the same terms to participants in a class of employees solely because
the maximum dollar amount made available under the terms of the HRA to
those participants to reimburse medical care expenses for any plan year
increases as the age of the participant increases, so long as the
requirements in paragraphs (c)(3)(iii)(B)(1) and (2) of this section
are satisfied. For the purpose of this paragraph (c)(3)(iii)(B), the
plan sponsor may determine the age of the participant using any
reasonable method for a plan year, so long as the plan sponsor
determines each participant's age for the purpose of this paragraph
(c)(3)(iii)(B) using the same method for all participants in the class
of employees for the plan year and the method is determined prior to
the plan year.
(1) The same maximum dollar amount attributable to the increase in
age is
[[Page 29016]]
made available to all participants who are the same age.
(2) The maximum dollar amount made available to the oldest
participant(s) is not more than three times the maximum dollar amount
made available to the youngest participant(s).
(iv) Former employees. An HRA does not fail to be treated as
provided on the same terms if the plan sponsor offers the HRA to some,
but not all, former employees within a class of employees. However, if
a plan sponsor offers the HRA to one or more former employees within a
class of employees, the HRA must be offered to the former employee(s)
on the same terms as to all other employees within the class, except as
provided in paragraph (c)(3)(ii) of this section. For purposes of this
section, a former employee is an employee who is no longer performing
services for the employer.
(v) New employees or new dependents. For a participant whose
coverage under the HRA becomes effective later than the first day of
the plan year, the HRA does not fail to be treated as being provided on
the same terms to the participant if the maximum dollar amount made
available to the participant either is the same as the maximum dollar
amount made available to participants in the participant's class of
employees whose coverage became effective as of the first day of the
plan year, or is pro-rated consistent with the portion of the plan year
in which the participant is covered by the HRA. Similarly, if the HRA
provides for variation in the maximum amount made available to
participants in a class of employees based on the number of a
participant's dependents covered by the HRA, and the number of a
participant's dependents covered by the HRA changes during a plan year
(either increasing or decreasing), the HRA does not fail to be treated
as being provided on the same terms to the participant if the maximum
dollar amount made available to the participant either is the same as
the maximum dollar amount made available to participants in the
participant's class of employees who had the same number of dependents
covered by the HRA on the first day of the plan year or is pro-rated
for the remainder of the plan year after the change in the number of
the participant's dependents covered by the HRA consistent with the
portion of the plan year in which that number of dependents are covered
by the HRA. The method the HRA uses to determine amounts made available
for participants whose coverage under the HRA is effective later than
the first day of the plan year or who have changes in the number of
dependents covered by the HRA during a plan year must be the same for
all participants in the class of employees and the method must be
determined prior to the beginning of the plan year.
(vi) HSA-compatible HRAs. An HRA does not fail to be treated as
provided on the same terms if the plan sponsor offers participants in a
class of employees a choice between an HSA-compatible individual
coverage HRA and an individual coverage HRA that is not HSA compatible,
provided both types of HRAs are offered to all participants in the
class of employees on the same terms. For the purpose of this paragraph
(c)(3)(vi), an HSA-compatible individual coverage HRA is an individual
coverage HRA that is limited in accordance with applicable guidance
under section 223 of the Code such that an individual covered by such
an HRA is not disqualified from being an eligible individual under
section 223 of the Code.
(vii) Examples. The following examples illustrate the provisions of
this paragraph (c)(3), without taking into account the provisions of
paragraph (d) of this section. In each example, the HRA is an
individual coverage HRA that has a calendar year plan year and may
reimburse any medical care expenses, including premiums for individual
health insurance coverage (except as provided in paragraph
(c)(3)(vii)(E) of this section (Example 5)). Further, in each example,
assume the HRA is offered on the same terms, except as otherwise
specified in the example and that no participants or dependents are
Medicare beneficiaries.
(A) Example 1: Carryover amounts permitted--(1) Facts. For 2020
and again for 2021, Plan Sponsor A offers all employees $7,000 each
in an HRA, and the HRA provides that amounts that are unused at the
end of a plan year may be carried over to the next plan year, with
no restrictions on the use of the carryover amounts compared to the
use of newly available amounts. At the end of 2020, some employees
have used all of the funds in their HRAs, while other employees have
balances remaining that range from $500 to $1,750 that are carried
over to 2021 for those employees.
(2) Conclusion. The same terms requirement of this paragraph
(c)(3) is satisfied in this paragraph (c)(3)(vii)(A) (Example 1) for
2020 because Plan Sponsor A offers all employees the same amount,
$7,000, in an HRA for that year. The same terms requirement is also
satisfied for 2021 because Plan Sponsor A again offers all employees
the same amount for that year, and the carryover amounts that some
employees have are disregarded in applying the same terms
requirement because the amount of the carryover for each employee
(that employee's balance) and each employee's access to the
carryover amounts is based on the same terms.
(B) Example 2: Employees hired after the first day of the plan
year--(1) Facts. For 2020, Plan Sponsor B offers all employees
employed on January 1, 2020, $7,000 each in an HRA for the plan
year. Employees hired after January 1, 2020, are eligible to enroll
in the HRA with an effective date of the first day of the month
following their date of hire, as long as they have enrolled in
individual health insurance coverage effective on or before that
date, and the amount offered to these employees is pro-rated based
on the number of months remaining in the plan year, including the
month which includes their coverage effective date.
(2) Conclusion. The same terms requirement of this paragraph
(c)(3) is satisfied in this paragraph (c)(3)(vii)(B) (Example 2) for
2020 because Plan Sponsor B offers all employees employed on the
first day of the plan year the same amount, $7,000, in an HRA for
that plan year and all employees hired after January 1, 2020, a pro-
rata amount based on the portion of the plan year during which they
are enrolled in the HRA.
(C) Example 3: HRA amounts offered vary based on number of
dependents--(1) Facts. For 2020, Plan Sponsor C offers its employees
the following amounts in an HRA: $1,500, if the employee is the only
individual covered by the HRA; $3,500, if the employee and one
dependent are covered by the HRA; and $5,000, if the employee and
more than one dependent are covered by the HRA.
(2) Conclusion. The same terms requirement of this paragraph
(c)(3) is satisfied in this paragraph (c)(3)(vii)(C) (Example 3)
because paragraph (c)(3)(iii)(A) of this section allows the maximum
dollar amount made available in an HRA to increase as the number of
the participant's dependents covered by the HRA increases and Plan
Sponsor C makes the same amount available to each employee with the
same number of dependents covered by the HRA.
(D) Example 4: HRA amounts offered vary based on increases in
employees' ages--(1) Facts. For 2020, Plan Sponsor D offers its
employees the following amounts in an HRA: $1,000 each for employees
age 25 to 35; $2,000 each for employees age 36 to 45; $2,500 each
for employees age 46 to 55; and $4,000 each for employees over age
55.
(2) Conclusion. The same terms requirement of this paragraph
(c)(3) is not satisfied in this paragraph (c)(3)(vii)(D) (Example 4)
because the terms of the HRA provide the oldest participants (those
over age 55) with more than three times the amount made available to
the youngest participants (those ages 25 to 35), in violation of
paragraph (c)(3)(iii)(B)(2) of this section.
(E) Example 5: Application of same terms requirement to premium
only HRA--(1) Facts. For 2020, Plan Sponsor E offers its employees
an HRA that reimburses only premiums for individual health insurance
coverage, up to $10,000 for the year. Employee A enrolls in
individual health insurance coverage with a $5,000 premium for the
year and is reimbursed $5,000 from the HRA. Employee B enrolls in
individual
[[Page 29017]]
health insurance coverage with an $8,000 premium for the year and is
reimbursed $8,000 from the HRA.
Conclusion. The same terms requirement of this paragraph (c)(3)
is satisfied in this paragraph (c)(3)(vii)(E) (Example 5) because
Plan Sponsor E offers the HRA on the same terms to all employees,
notwithstanding that some employees receive a greater amount of
reimbursement than others based on the cost of the individual health
insurance coverage selected by the employee.
(4) Opt out. Under the terms of the HRA, a participant who is
otherwise eligible for coverage must be permitted to opt out of and
waive future reimbursements on behalf of the participant and all
dependents eligible for the HRA from the HRA once, and only once, with
respect to each plan year. The HRA may establish timeframes for
enrollment in (and opting out of) the HRA but, in general, the
opportunity to opt out must be provided in advance of the first day of
the plan year. For participants who become eligible to participate in
the HRA on a date other than the first day of the plan year (or who
become eligible fewer than 90 days prior to the plan year or for whom
the notice under paragraph (c)(6) of this section is required to be
provided as set forth in paragraph (c)(6)(i)(C) of this section), or
for a dependent who newly becomes eligible during the plan year, this
opportunity must be provided during the applicable HRA enrollment
period(s) established by the HRA for these individuals. Further, under
the terms of the HRA, upon termination of employment, for a participant
who is covered by the HRA, either the remaining amounts in the HRA must
be forfeited or the participant must be permitted to permanently opt
out of and waive future reimbursements from the HRA on behalf of the
participant and all dependents covered by the HRA.
(5) Reasonable procedures for coverage substantiation--(i)
Substantiation of individual health insurance coverage for the plan
year. The HRA must implement, and comply with, reasonable procedures to
substantiate that participants and each dependent covered by the HRA
are, or will be, enrolled in individual health insurance coverage for
the plan year (or for the portion of the plan year the individual is
covered by the HRA, if applicable). The HRA may establish the date by
which this substantiation must be provided, but, in general, the date
may be no later than the first day of the plan year. However, for a
participant who is not eligible to participate in the HRA on the first
day of the plan year (or who becomes eligible fewer than 90 days prior
to the plan year or for whom the notice under paragraph (c)(6) of this
section is required to be provided as set forth in paragraph
(c)(6)(i)(C) of this section), the HRA may establish the date by which
this substantiation must be provided, but that date may be no later
than the date the HRA coverage begins. Similarly, for a participant who
adds a new dependent during the plan year, the HRA may establish the
date by which this substantiation must be provided, but the date may be
no later than the date the HRA coverage for the new dependent begins;
however, to the extent the dependent's coverage under the HRA is
effective retroactively, the HRA may establish a reasonable time by
which this substantiation is required, but must require it be provided
before the HRA will reimburse any medical care expense for the newly
added dependent. The reasonable procedures an HRA may use to implement
the substantiation requirement set forth in this paragraph (c)(5)(i)
may include a requirement that a participant substantiate enrollment by
providing either:
(A) A document from a third party (for example, the issuer or an
Exchange) showing that the participant and any dependents covered by
the HRA are, or will be, enrolled in individual health insurance
coverage (for example, an insurance card or an explanation of benefits
document pertaining to the relevant time period or documentation from
the Exchange showing that the individual has completed the application
and plan selection); or
(B) An attestation by the participant stating that the participant
and dependent(s) covered by the HRA are, or will be, enrolled in
individual health insurance coverage, the date coverage began or will
begin, and the name of the provider of the coverage.
(ii) Coverage substantiation with each request for reimbursement of
medical care expenses. Following the initial substantiation of
coverage, with each new request for reimbursement of an incurred
medical care expense for the same plan year, the HRA may not reimburse
a participant for any medical care expenses unless, prior to each
reimbursement, the participant substantiates that the individual on
whose behalf medical care expenses are requested to be reimbursed
continues to be enrolled in individual health insurance coverage for
the month during which the medical care expenses were incurred. The HRA
must implement, and comply with, reasonable procedures to satisfy this
requirement. This substantiation may be in the form of a written
attestation by the participant, which may be part of the form used to
request reimbursement, or a document from a third party (for example, a
health insurance issuer) showing that the participant or the dependent,
if applicable, are or were enrolled in individual health insurance
coverage for the applicable month.
(iii) Reliance on substantiation. For purposes of this paragraph
(c)(5), an HRA may rely on the participant's documentation or
attestation unless the HRA, its plan sponsor, or any other entity
acting in an official capacity on behalf of the HRA has actual
knowledge that any individual covered by the HRA is not, or will not
be, enrolled in individual health insurance coverage for the plan year
(or applicable portion of the plan year) or the month, as applicable.
(6) Notice requirement--(i) Timing. The HRA must provide a written
notice to each participant:
(A) At least 90 calendar days before the beginning of each plan
year for any participant who is not described in either paragraph
(c)(6)(i)(B) or (C) of this section;
(B) No later than the date on which the HRA may first take effect
for the participant, for any participant who is not eligible to
participate at the beginning of the plan year (or is not eligible to
participate at the time the notice is provided at least 90 calendar
days before the beginning of the plan year pursuant to paragraph
(c)(6)(i)(A) of this section); or
(C) No later than the date on which the HRA may first take effect
for the participant, for any participant who is employed by an employer
that is first established less than 120 days before the beginning of
the first plan year of the HRA; this paragraph (c)(6)(i)(C) applies
only with respect to the first plan year of the HRA.
(ii) Content. The notice must include all the information described
in this paragraph (c)(6)(ii) (and may include any additional
information that does not conflict with that information). To the
extent that the Departments of the Treasury, Labor and Health and Human
Services provide model notice language for certain elements of this
required notice, HRAs are permitted, but not required, to use the model
language.
(A) A description of the terms of the HRA, including the maximum
dollar amount available for each participant (including the self-only
HRA amount available for the plan year (or the maximum dollar amount
available for the plan year if the HRA provides for reimbursements up
to a single dollar amount regardless of whether a participant has self-
only or other than
[[Page 29018]]
self-only coverage)), any rules regarding the proration of the maximum
dollar amount applicable to any participant (or dependent, if
applicable) who is not eligible to participate in the HRA for the
entire plan year, whether (and which of) the participant's dependents
are eligible for the HRA, a statement that there are different kinds of
HRAs (including a qualified small employer health reimbursement
arrangement) and the HRA being offered is an individual coverage HRA, a
statement that the HRA requires the participant and any covered
dependents to be enrolled in individual health insurance coverage (or
Medicare Part A and B or Medicare Part C, if applicable), a statement
that the coverage in which the participant and any covered dependents
must be enrolled cannot be short-term, limited-duration insurance or
consist solely of excepted benefits, if the HRA is subject to the
Employee Retirement Income Security Act (ERISA), a statement that
individual health insurance coverage in which the participant and any
covered dependents are enrolled is not subject to ERISA, if the
conditions under 29 CFR 2510.3-1(l) are satisfied, the date as of which
coverage under the HRA may first become effective (both for
participants whose coverage will become effective on the first day of
the plan year and for participants whose HRA coverage may become
effective at a later date), the dates on which the HRA plan year begins
and ends, and the dates on which the amounts newly made available under
the HRA will be made available.
(B) A statement of the right of the participant to opt out of and
waive future reimbursements from the HRA, as set forth under paragraph
(c)(4) of this section.
(C) A description of the potential availability of the premium tax
credit if the participant opts out of and waives future reimbursements
from the HRA and the HRA is not affordable for one or more months under
26 CFR 1.36B-2(c)(5), a statement that even if the participant opts out
of and waives future reimbursements from an HRA, the offer will
prohibit the participant (and, potentially, the participant's
dependents) from receiving a premium tax credit for the participant's
coverage (or the dependent's coverage, if applicable) on an Exchange
for any month that the HRA is affordable under 26 CFR 1.36B-2(c)(5), a
statement describing how the participant may find assistance with
determining affordability, a statement that, if the participant is a
former employee, the offer of the HRA does not render the participant
(or the participant's dependents, if applicable) ineligible for the
premium tax credit regardless of whether it is affordable under 26 CFR
1.36B-2(c)(5), and a statement that if the participant or dependent is
enrolled in Medicare, he or she is ineligible for the premium tax
credit without regard to the offer or acceptance of the HRA;
(D) A statement that if the participant accepts the HRA, the
participant may not claim a premium tax credit for the participant's
Exchange coverage for any month the HRA may be used to reimburse
medical care expenses of the participant, and a premium tax credit may
not be claimed for the Exchange coverage of the participant's
dependents for any month the HRA may be used to reimburse medical care
expenses of the dependents.
(E) A statement that the participant must inform any Exchange to
which the participant applies for advance payments of the premium tax
credit of the availability of the HRA; the self-only HRA amount
available for the HRA plan year (or the maximum dollar amount available
for the plan year if the HRA provides for reimbursements up to a single
dollar amount regardless of whether a participant has self-only or
other than self-only coverage) as set forth in the written notice in
accordance with paragraph (c)(6)(ii)(A) of this section; whether the
HRA is also available to the participant's dependents and if so, which
ones; the date as of which coverage under the HRA may first become
effective; the date on which the plan year begins and the date on which
it ends; and whether the participant is a current employee or former
employee.
(F) A statement that the participant should retain the written
notice because it may be needed to determine whether the participant is
allowed a premium tax credit on the participant's individual income tax
return.
(G) A statement that the HRA may not reimburse any medical care
expense unless the substantiation requirement set forth in paragraph
(c)(5)(ii) of this section is satisfied and a statement that the
participant must also provide the substantiation required by paragraph
(c)(5)(i) of this section.
(H) A statement that if the individual health insurance coverage
(or coverage under Medicare Part A and B or Medicare Part C) of a
participant or dependent ceases, the HRA will not reimburse any medical
care expenses that are incurred by the participant or dependent, as
applicable, after the coverage ceases, and a statement that the
participant must inform the HRA if the participant's or dependent's
individual health insurance coverage (or coverage under Medicare Part A
and B or Medicare Part C) is cancelled or terminated retroactively and
the date on which the cancellation or termination is effective.
(I) The contact information (including a phone number) for an
individual or a group of individuals who participants may contact in
order to receive additional information regarding the HRA. The plan
sponsor may determine which individual or group of individuals is best
suited to be the specified contact.
(J) A statement of availability of a special enrollment period to
enroll in or change individual health insurance coverage, through or
outside of an Exchange, for the participant and any dependents who
newly gain access to the HRA and are not already covered by the HRA.
(d) Classes of employees--(1) In general. This paragraph (d) sets
forth the rules for determining classes of employees. Paragraph (d)(2)
of this section sets forth the specific classes of employees; paragraph
(d)(3) of this section sets forth a minimum class size requirement that
applies in certain circumstances; paragraph (d)(4) of this section sets
forth rules regarding the definition of ``full-time employees,''
``part-time employees,'' and ``seasonal employees''; paragraph (d)(5)
of this section sets forth a special rule for new hires; and paragraph
(d)(6) of this section addresses student premium reduction
arrangements. For purposes of this section, including determining
classes under this paragraph (d), the employer is the common law
employer and is determined without regard to the rules under sections
414(b), (c), (m), and (o) of the Code that would treat the common law
employer as a single employer with certain other entities.
(2) List of classes. Participants may be treated as belonging to a
class of employees based on whether they are, or are not, included in
the classes described in this paragraph (d)(2). If the individual
coverage HRA is offered to former employees, former employees are
considered to be in the same class in which they were included
immediately before separation from service. Before each plan year, a
plan sponsor must determine for the plan year which classes of
employees it intends to treat separately and the definition of the
relevant class(es) it will apply, to the extent these regulations
permit a choice. After the classes and the definitions of the classes
are established for a plan year, a plan sponsor may not make changes to
the classes of employees or the definitions of those relevant classes
with respect to that plan year.
[[Page 29019]]
(i) Full-time employees, defined at the election of the plan
sponsor to mean either full-time employees under section 4980H of the
Code (and 26 CFR 54.4980H-1(a)(21)) or employees who are not part-time
employees (as described in 26 CFR 1.105-11(c)(2)(iii)(C));
(ii) Part-time employees, defined at the election of the plan
sponsor to mean either employees who are not full-time employees under
section 4980H of the Code (and under 26 CFR 54.4980H-1(a)(21) (which
defines full-time employee)) or employees who are part-time employees
as described in 26 CFR 1.105-11(c)(2)(iii)(C);
(iii) Employees who are paid on a salary basis;
(iv) Non-salaried employees (such as, for example, hourly
employees);
(v) Employees whose primary site of employment is in the same
rating area as defined in Sec. 147.102(b) of this subchapter;
(vi) Seasonal employees, defined at the election of the plan
sponsor to mean seasonal employees as described in either 26 CFR
54.4980H-1(a)(38) or 26 CFR 1.105-11(c)(2)(iii)(C);
(vii) Employees included in a unit of employees covered by a
particular collective bargaining agreement (or an appropriate related
participation agreement) in which the plan sponsor participates (as
described in 26 CFR 1.105-11(c)(2)(iii)(D));
(viii) Employees who have not satisfied a waiting period for
coverage (if the waiting period complies with Sec. 147.116 of this
subchapter);
(ix) Non-resident aliens with no U.S.-based income (as described in
26 CFR 1.105-11(c)(2)(iii)(E));
(x) Employees who, under all the facts and circumstances, are
employees of an entity that hired the employees for temporary placement
at an entity that is not the common law employer of the employees and
that is not treated as a single employer with the entity that hired the
employees for temporary placement under section 414(b), (c), (m), or
(o) of the Code; or
(xi) A group of participants described as a combination of two or
more of the classes of employees set forth in paragraphs (d)(2)(i)
through (x) of this section.
(3) Minimum class size requirement--(i) In general. If a class of
employees is subject to the minimum class size requirement as set forth
in this paragraph (d)(3), the class must consist of at least a minimum
number of employees (as described in paragraphs (d)(3)(iii) and (iv) of
this section), otherwise, the plan sponsor may not treat that class as
a separate class of employees. Paragraph (d)(3)(ii) of this section
sets forth the circumstances in which the minimum class size
requirement applies to a class of employees, paragraph (d)(3)(iii) of
this section sets forth the rules for determining the applicable class
size minimum, and paragraph (d)(3)(iv) of this section sets forth the
rules for a plan sponsor to determine if it satisfies the minimum class
size requirement with respect to a class of employees.
(ii) Circumstances in which minimum class size requirement
applies--(A) The minimum class size requirement applies only if a plan
sponsor offers a traditional group health plan to one or more classes
of employees and offers an individual coverage HRA to one or more other
classes of employees.
(B) The minimum class size requirement does not apply to a class of
employees offered a traditional group health plan or a class of
employees offered no coverage.
(C) The minimum class size requirement applies to a class of
employees offered an individual coverage HRA if the class is full-time
employees, part-time employees, salaried employees, non-salaried
employees, or employees whose primary site of employment is in the same
rating area (described in paragraph (d)(2)(i), (ii), (iii), (iv), or
(v) of this section, respectively, and referred to collectively as the
applicable classes or individually as an applicable class), except
that:
(1) In the case of the class of employees whose primary site of
employment is in the same rating area (as described in paragraph
(d)(2)(v) of this section), the minimum class size requirement does not
apply if the geographic area defining the class is a State or a
combination of two or more entire States; and
(2) In the case of the classes of employees that are full-time
employees and part-time employees (as described in paragraphs (d)(2)(i)
and (ii) of this section, respectively), the minimum class size
requirement applies only to those classes (and the classes are only
applicable classes) if the employees in one such class are offered a
traditional group health plan while the employees in the other such
class are offered an individual coverage HRA. In such a case, the
minimum class size requirement applies only to the class offered an
individual coverage HRA.
(D) A class of employees offered an individual coverage HRA is also
subject to the minimum class size requirement if the class is a class
of employees created by combining at least one of the applicable
classes (as defined in paragraph (d)(3)(ii)(C) of this section) with
any other class, except that the minimum class size requirement shall
not apply to a class that is the result of a combination of one of the
applicable classes and a class of employees who have not satisfied a
waiting period (as described in paragraph (d)(2)(viii) of this
section).
(iii) Determination of the applicable class size minimum--(A) In
general. The minimum number of employees that must be in a class of
employees that is subject to the minimum class size requirement (the
applicable class size minimum) is determined prior to the beginning of
the plan year for each plan year of the individual coverage HRA and is:
(1) 10, for an employer with fewer than 100 employees;
(2) A number, rounded down to a whole number, equal to 10 percent
of the total number of employees, for an employer with 100 to 200
employees; and
(3) 20, for an employer with more than 200 employees.
(B) Determining employer size. For purposes of this paragraph
(d)(3), the number of employees of an employer is determined in advance
of the plan year of the HRA based on the number of employees that the
employer reasonably expects to employ on the first day of the plan
year.
(iv) Determining if a class satisfies the applicable class size
minimum. For purposes of this paragraph (d)(3), whether a class of
employees satisfies the applicable class size minimum for a plan year
of the individual coverage HRA is based on the number of employees in
the class offered the individual coverage HRA as of the first day of
the plan year. Therefore, this determination is not based on the number
of employees that actually enroll in the individual coverage HRA, and
this determination is not affected by changes in the number of
employees in the class during the plan year.
(4) Consistency requirement. For any plan year, a plan sponsor may
define ``full-time employee,'' ``part-time employee,'' and ``seasonal
employee'' in accordance with the relevant provisions of sections
105(h) or 4980H of the Code, as set forth in paragraphs (d)(2)(i),
(ii), and (vi) of this section, if:
(i) To the extent applicable under the HRA for the plan year, each
of the three classes of employees are defined in accordance with
section 105(h) of the Code or each of the three classes of employees
are defined in accordance with section 4980H of the Code for the plan
year; and
[[Page 29020]]
(ii) The HRA plan document sets forth the applicable definitions
prior to the beginning of the plan year to which the definitions will
apply.
(5) Special rule for new hires--(i) In general. Notwithstanding
paragraphs (c)(2) and (3) of this section, a plan sponsor that offers a
traditional group health plan to a class of employees may prospectively
offer the employees in that class of employees who are hired on or
after a certain future date (the new hire date) an individual coverage
HRA (with this group of employees referred to as the new hire
subclass), while continuing to offer employees in that class of
employees who are hired before the new hire date a traditional group
health plan (with the rule set forth in this sentence referred to as
the special rule for new hires). For the new hire subclass, the
individual coverage HRA must be offered on the same terms to all
participants within the subclass, in accordance with paragraph (c)(3)
of this section. In accordance with paragraph (c)(2) of this section, a
plan sponsor may not offer a choice between an individual coverage HRA
or a traditional group health plan to any employee in the new hire
subclass or to any employee in the class who is not a member of the new
hire subclass.
(ii) New hire date. A plan sponsor may set the new hire date for a
class of employees prospectively as any date on or after January 1,
2020. A plan sponsor may set different new hire dates prospectively for
separate classes of employees.
(iii) Discontinuation of use of special rule for new hires and
multiple applications of the special rule for new hires. A plan sponsor
may discontinue use of the special rule for new hires at any time for
any class of employees. In that case, the new hire subclass is no
longer treated as a separate subclass of employees. In the event a plan
sponsor applies the special rule for new hires to a class of employees
and later discontinues use of the rule to the class of employees, the
plan sponsor may later apply the rule if the application of the rule
would be permitted under the rules for initial application of the
special rule for new hires. If a plan sponsor, in accordance with the
requirements for the special rule for new hires, applies the rule to a
class of employees subsequent to any prior application and
discontinuance of the rule to that class, the new hire date must be
prospective.
(iv) Application of the minimum class size requirement under the
special rule for new hires. The minimum class size requirement set
forth in paragraph (d)(3) of this section does not apply to the new
hire subclass. However, if a plan sponsor subdivides the new hire
subclass subsequent to creating the new hire subclass, the minimum
class size requirement set forth in paragraph (d)(3) of this section
applies to any class of employees created by subdividing the new hire
subclass, if the minimum class size requirement otherwise applies.
(6) Student employees offered student premium reduction
arrangements. For purposes of this section, if an institution of higher
education (as defined in the Higher Education Act of 1965) offers a
student employee a student premium reduction arrangement, the employee
is not considered to be part of the class of employees to which the
employee would otherwise belong. For the purpose of this paragraph
(d)(6) and paragraph (f)(1) of this section, a student premium
reduction arrangement is defined as any program offered by an
institution of higher education under which the cost of insured or
self-insured student health coverage is reduced for certain students
through a credit, offset, reimbursement, stipend or similar
arrangement. A student employee offered a student premium reduction
arrangement is also not counted for purposes of determining the
applicable class size minimum under paragraph (d)(3)(iii) of this
section. If a student employee is not offered a student premium
reduction arrangement (including if the student employee is offered an
individual coverage HRA instead), the student employee is considered to
be part of the class of employees to which the employee otherwise
belongs and is counted for purposes of determining the applicable class
size minimum under paragraph (d)(3)(iii) of this section.
(e) Integration of Individual Coverage HRAs with Medicare--(1)
General rule. An individual coverage HRA will be considered to be
integrated with Medicare (and deemed to comply with PHS Act sections
2711 and 2713 and Sec. 147.126(d)(4) of this subchapter), provided
that the conditions of paragraph (c) of this section are satisfied,
subject to paragraph (e)(2) of this section. Nothing in this section
requires that a participant and his or her dependents all have the same
type of coverage; therefore, an individual coverage HRA may be
integrated with Medicare for some individuals and with individual
health insurance coverage for others, including, for example, a
participant enrolled in Medicare Part A and B or Part C and his or her
dependents enrolled in individual health insurance coverage.
(2) Application of conditions in paragraph (c) of this section--(i)
In general. Except as provided in paragraph (e)(2)(ii) of this section,
in applying the conditions of paragraph (c) of this section with
respect to integration with Medicare, a reference to ``individual
health insurance coverage'' is deemed to refer to coverage under
Medicare Part A and B or Part C. References in this section to
integration of an HRA with Medicare refer to integration of an
individual coverage HRA with Medicare Part A and B or Part C.
(ii) Exceptions. For purposes of the statement regarding ERISA
under the notice content element under paragraph (c)(6)(ii)(A) of this
section and the statement regarding the availability of a special
enrollment period under the notice content element under paragraph
(c)(6)(ii)(J) of this section, the term individual health insurance
coverage means only individual health insurance coverage and does not
also mean coverage under Medicare Part A and B or Part C.
(f) Examples--(1) Examples regarding classes and the minimum class
size requirement. The following examples illustrate the provisions of
paragraph (c)(3) of this section, taking into account the provisions of
paragraphs (d)(1) through (4) and (d)(6) of this section. In each
example, the HRA is an individual coverage HRA that may reimburse any
medical care expenses, including premiums for individual health
insurance coverage and it is assumed that no participants or dependents
are Medicare beneficiaries.
(i) Example 1: Collectively bargained employees offered
traditional group health plan; non-collectively bargained employees
offered HRA--(A) Facts. For 2020, Plan Sponsor A offers its
employees covered by a collective bargaining agreement a traditional
group health plan (as required by the collective bargaining
agreement) and all other employees (non-collectively bargained
employees) each an HRA on the same terms.
(B) Conclusion. The same terms requirement of paragraph (c)(3)
of this section is satisfied in this paragraph (f)(1)(i) (Example 1)
because collectively bargained and non-collectively bargained
employees may be treated as different classes of employees, one of
which may be offered a traditional group health plan and the other
of which may be offered an individual coverage HRA, and Plan Sponsor
A offers the HRA on the same terms to all participants who are non-
collectively bargained employees. The minimum class size requirement
does not apply to this paragraph (f)(1)(i) (Example 1) even though
Plan Sponsor A offers one class a traditional group health plan and
one class the HRA because collectively bargained and non-
collectively bargained employees are not applicable classes that are
subject to the minimum class size requirement.
(ii) Example 2: Collectively bargained employees in one unit
offered traditional
[[Page 29021]]
group health plan and in another unit offered HRA--(A) Facts. For
2020, Plan Sponsor B offers its employees covered by a collective
bargaining agreement with Local 100 a traditional group health plan
(as required by the collective bargaining agreement), and its
employees covered by a collective bargaining agreement with Local
200 each an HRA on the same terms (as required by the collective
bargaining agreement).
(B) Conclusion. The same terms requirement of paragraph (c)(3)
of this section is satisfied in this paragraph (f)(1)(ii) (Example
2) because the employees covered by the collective bargaining
agreements with the two separate bargaining units (Local 100 and
Local 200) may be treated as two different classes of employees and
Plan Sponsor B offers an HRA on the same terms to the participants
covered by the agreement with Local 200. The minimum class size
requirement does not apply to this paragraph (f)(1)(ii) (Example 2)
even though Plan Sponsor B offers the Local 100 employees a
traditional group health plan and the Local 200 employees an HRA
because collectively bargained employees are not applicable classes
that are subject to the minimum class size requirement.
(iii) Example 3: Employees in a waiting period offered no
coverage; other employees offered an HRA--(A) Facts. For 2020, Plan
Sponsor C offers its employees who have completed a waiting period
that complies with the requirements for waiting periods in Sec.
147.116 of this subchapter each an HRA on the same terms and does
not offer coverage to its employees who have not completed the
waiting period.
(B) Conclusion. The same terms requirement of paragraph (c)(3)
of this section is satisfied in this paragraph (f)(1)(iii) (Example
3) because employees who have completed a waiting period and
employees who have not completed a waiting period may be treated as
different classes and Plan Sponsor C offers the HRA on the same
terms to all participants who have completed the waiting period. The
minimum class size requirement does not apply to this paragraph
(f)(1)(iii) (Example 3) because Plan Sponsor C does not offer at
least one class of employees a traditional group health plan and
because the class of employees who have not completed a waiting
period and the class of employees who have completed a waiting
period are not applicable classes that are subject to the minimum
class size requirement.
(iv) Example 4: Employees in a waiting period offered an HRA;
other employees offered a traditional group health plan--(A) Facts.
For 2020, Plan Sponsor D offers its employees who have completed a
waiting period that complies with the requirements for waiting
periods in Sec. 147.116 of this subchapter a traditional group
health plan and offers its employees who have not completed the
waiting period each an HRA on the same terms.
(B) Conclusion. The same terms requirement of paragraph (c)(3)
of this section is satisfied in this paragraph (f)(1)(iv) (Example
4) because employees who have completed a waiting period and
employees who have not completed a waiting period may be treated as
different classes and Plan Sponsor D offers an HRA on the same terms
to all participants who have not completed the waiting period. The
minimum class size requirement does not apply to this paragraph
(f)(1)(iv) (Example 4) even though Plan Sponsor D offers employees
who have completed a waiting period a traditional group health plan
and employees who have not completed a waiting period an HRA because
the class of employees who have not completed a waiting period is
not an applicable class that is subject to the minimum class size
requirement (nor is the class made up of employees who have
completed the waiting period).
(v) Example 5: Staffing firm employees temporarily placed with
customers offered an HRA; other employees offered a traditional
group health plan--(A) Facts. Plan Sponsor E is a staffing firm that
places certain of its employees on temporary assignments with
customers that are not the common law employers of Plan Sponsor E's
employees or treated as a single employer with Plan Sponsor E under
section 414(b), (c), (m), or (o) of the Code (unrelated entities);
other employees work in Plan Sponsor E's office managing the
staffing business (non-temporary employees). For 2020, Plan Sponsor
E offers its employees who are on temporary assignments with
customers each an HRA on the same terms. All other employees are
offered a traditional group health plan.
(B) Conclusion. The same terms requirement of paragraph (c)(3)
of this section is satisfied in this paragraph (f)(1)(v) (Example 5)
because the employees who are hired for temporary placement at an
unrelated entity and non-temporary employees of Plan Sponsor E may
be treated as different classes of employees and Plan Sponsor E
offers an HRA on the same terms to all participants temporarily
placed with customers. The minimum class size requirement does not
apply to this paragraph (f)(1)(v) (Example 5) even though Plan
Sponsor E offers one class a traditional group health plan and one
class the HRA because the class of employees hired for temporary
placement is not an applicable class that is subject to the minimum
class size requirement (nor is the class made up of non-temporary
employees).
(vi) Example 6: Staffing firm employees temporarily placed with
customers in rating area 1 offered an HRA; other employees offered a
traditional group health plan--(A) Facts. The facts are the same as
in paragraph (f)(1)(v) of this section (Example 5), except that Plan
Sponsor E has work sites in rating area 1 and rating area 2, and it
offers its 10 employees on temporary assignments with a work site in
rating area 1 an HRA on the same terms. Plan Sponsor E has 200 other
employees in rating areas 1 and 2, including its non-temporary
employees in rating areas 1 and 2 and its employees on temporary
assignments with a work site in rating area 2, all of whom are
offered a traditional group health plan.
(B) Conclusion. The same terms requirement of paragraph (c)(3)
of this section is not satisfied in this paragraph (f)(1)(vi)
(Example 6) because, even though the employees who are temporarily
placed with customers generally may be treated as employees of a
different class, because Plan Sponsor E is also using a rating area
to identify the class offered the HRA (which is an applicable class
for the minimum class size requirement) and is offering one class
the HRA and another class the traditional group health plan, the
minimum class size requirement applies to the class offered the HRA,
and the class offered the HRA fails to satisfy the minimum class
size requirement. Because Plan Sponsor E employs 210 employees, the
applicable class size minimum is 20, and the HRA is offered to only
10 employees.
(vii) Example 7: Employees in State 1 offered traditional group
health plan; employees in State 2 offered HRA--(A) Facts. Plan
Sponsor F employs 45 employees whose work site is in State 1 and 7
employees whose primary site of employment is in State 2. For 2020,
Plan Sponsor F offers its 45 employees in State 1 a traditional
group health plan, and each of its 7 employees in State 2 an HRA on
the same terms.
(B) Conclusion. The same terms requirement of paragraph (c)(3)
of this section is satisfied in this paragraph (f)(1)(vii) (Example
7) because Plan Sponsor F offers the HRA on the same terms to all
employees with a work site in State 2 and that class is a
permissible class under paragraph (d) of this section. This is
because employees whose work sites are in different rating areas may
be considered different classes and a plan sponsor may create a
class of employees by combining classes of employees, including by
combining employees whose work site is in one rating area with
employees whose work site is in a different rating area, or by
combining all employees whose work site is in a state. The minimum
class size requirement does not apply to this paragraph (f)(1)(vii)
(Example 7) because the minimum class size requirement does not
apply if the geographic area defining a class of employees is a
state or a combination of two or more entire states.
(viii) Example 8: Full-time seasonal employees offered HRA; all
other full-time employees offered traditional group health plan;
part-time employees offered no coverage--(A) Facts. Plan Sponsor G
employs 6 full-time seasonal employees, 75 full-time employees who
are not seasonal employees, and 5 part-time employees. For 2020,
Plan Sponsor G offers each of its 6 full-time seasonal employees an
HRA on the same terms, its 75 full-time employees who are not
seasonal employees a traditional group health plan, and offers no
coverage to its 5 part-time employees.
(B) Conclusion. The same terms requirement of paragraph (c)(3)
of this section is satisfied in this paragraph (f)(1)(viii) (Example
8) because full-time seasonal employees and full-time employees who
are not seasonal employees may be considered different classes and
Plan Sponsor G offers the HRA on the same terms to all full-time
seasonal employees. The minimum class size requirement does not
apply to the class offered the HRA in this paragraph (f)(1)(viii)
(Example 8) because part-time employees are not offered coverage
[[Page 29022]]
and full-time employees are not an applicable class subject to the
minimum class size requirement if part-time employees are not
offered coverage.
(ix) Example 9: Full-time employees in rating area 1 offered
traditional group health plan; full-time employees in rating area 2
offered HRA; part-time employees offered no coverage--(A) Facts.
Plan Sponsor H employs 17 full-time employees and 10 part-time
employees whose work site is in rating area 1 and 552 full-time
employees whose work site is in rating area 2. For 2020, Plan
Sponsor H offers its 17 full-time employees in rating area 1 a
traditional group health plan and each of its 552 full-time
employees in rating area 2 an HRA on the same terms. Plan Sponsor H
offers no coverage to its 10 part-time employees in rating area 1.
Plan Sponsor H reasonably expects to employ 569 employees on the
first day of the HRA plan year.
(B) Conclusion. The same terms requirement of paragraph (c)(3)
of this section is satisfied in this paragraph (f)(1)(ix) (Example
9) because employees whose work sites are in different rating areas
may be considered different classes and Plan Sponsor H offers the
HRA on the same terms to all full-time employees in rating area 2.
The minimum class size requirement applies to the class offered the
HRA in this paragraph (f)(1)(ix) (Example 9) because the minimum
class size requirement applies to a class based on a geographic area
unless the geographic area is a state or a combination of two or
more entire states. However, the minimum class size requirement
applies only to the class offered the HRA, and Plan Sponsor H offers
the HRA to the 552 full-time employees in rating area 2 on the first
day of the plan year, satisfying the minimum class size requirement
(because the applicable class size minimum for Plan Sponsor H is
20).
(x) Example 10: Employees in rating area 1 offered HRA;
employees in rating area 2 offered traditional group health plan--
(A) Facts. The facts are the same as in paragraph (f)(1)(ix) of this
section (Example 9) except that Plan Sponsor H offers its 17 full-
time employees in rating area 1 the HRA and offers its 552 full-time
employees in rating area 2 the traditional group health plan.
(B) Conclusion. The same terms requirement of paragraph (c)(3)
of this section is not satisfied in this paragraph (f)(1)(x)
(Example 10) because, even though employees whose work sites are in
different rating areas generally may be considered different classes
and Plan Sponsor H offers the HRA on the same terms to all
participants in rating area 1, the HRA fails to satisfy the minimum
class size requirement. Specifically, the minimum class size
requirement applies to this paragraph (f)(1)(x) (Example 10) because
the minimum class size requirement applies to a class based on a
geographic area unless the geographic area is a state or a
combination of two or more entire states. Further, the applicable
class size minimum for Plan Sponsor H is 20 employees, and the HRA
is only offered to the 17 full-time employees in rating area 1 on
the first day of the HRA plan year.
(xi) Example 11: Employees in State 1 and rating area 1 of State
2 offered HRA; employees in all other rating areas of State 2
offered traditional group health plan--(A) Facts. For 2020, Plan
Sponsor I offers an HRA on the same terms to a total of 200
employees it employs with work sites in State 1 and in rating area 1
of State 2. Plan Sponsor I offers a traditional group health plan to
its 150 employees with work sites in other rating areas in State 2.
Plan Sponsor I reasonably expects to employ 350 employees on the
first day of the HRA plan year.
(B) Conclusion. The same terms requirement of paragraph (c)(3)
of this section is satisfied in this paragraph (f)(1)(xi) (Example
11). Plan Sponsor I may treat all of the employees with a work site
in State 1 and rating area 1 of State 2 as a class of employees
because employees whose work sites are in different rating areas may
be considered different classes and a plan sponsor may create a
class of employees by combining classes of employees, including by
combining employees whose work site is in one rating area with a
class of employees whose work site is in a different rating area.
The minimum class size requirement applies to the class of employees
offered the HRA (made up of employees in State 1 and in rating area
1 of State 2) because the minimum class size requirement applies to
a class based on a geographic area unless the geographic area is a
state or a combination of two or more entire states. In this case,
the class is made up of a state plus a rating area which is not the
entire state. However, this class satisfies the minimum class size
requirement because the applicable class size minimum for Plan
Sponsor I is 20, and Plan Sponsor I offered the HRA to 200 employees
on the first day of the plan year.
(xii) Example 12: Salaried employees offered a traditional group
health plan; hourly employees offered an HRA--(A) Facts. Plan
Sponsor J has 163 salaried employees and 14 hourly employees. For
2020, Plan Sponsor J offers its 163 salaried employees a traditional
group health plan and each of its 14 hourly employees an HRA on the
same terms. Plan Sponsor J reasonably expects to employ 177
employees on the first day of the HRA plan year.
(B) Conclusion. The same terms requirement of paragraph (c)(3)
of this section is not satisfied in this paragraph (f)(1)(xii)
(Example 12) because, even though salaried and hourly employees
generally may be considered different classes and Plan Sponsor J
offers the HRA on the same terms to all hourly employees, the HRA
fails to satisfy the minimum class size requirement. Specifically,
the minimum class size requirement applies in this paragraph
(f)(1)(xii) (Example 12) because employees who are paid on a
salaried basis and employees who are not paid on a salaried basis
are applicable classes subject to the minimum class size
requirement. Because Plan Sponsor J reasonably expects to employ
between 100 and 200 employees on the first day of the plan year, the
applicable class size minimum is 10 percent, rounded down to a whole
number. Ten percent of 177 total employees, rounded down to a whole
number is 17, and the HRA is offered to only 14 hourly employees.
(xiii) Example 13: Part-time employees and full-time employees
offered different HRAs; no traditional group health plan offered--
(A) Facts. Plan Sponsor K has 50 full-time employees and 7 part-time
employees. For 2020, Plan Sponsor K offers its 50 full-time
employees $2,000 each in an HRA otherwise provided on the same terms
and each of its 7 part-time employees $500 in an HRA otherwise
provided on the same terms. Plan Sponsor K reasonably expects to
employ 57 employees on the first day of the HRA plan year.
(B) Conclusion. The same terms requirement of paragraph (c)(3)
of this section is satisfied in this paragraph (f)(1)(xiii) (Example
13) because full-time employees and part-time employees may be
treated as different classes and Plan Sponsor K offers an HRA on the
same terms to all the participants in each class. The minimum class
size requirement does not apply to either the full-time class or the
part-time class because (although in certain circumstances the
minimum class size requirement applies to a class of full-time
employees and a class of part-time employees) Plan Sponsor K does
not offer any class of employees a traditional group health plan,
and the minimum class size requirement applies only when, among
other things, at least one class of employees is offered a
traditional group health plan while another class is offered an HRA.
(xiv) Example 14: No employees offered an HRA--(A) Facts. The
facts are the same facts as in paragraph (f)(1)(xiii) of this
section (Example 13), except that Plan Sponsor K offers its full-
time employees a traditional group health plan and does not offer
any group health plan (either a traditional group health plan or an
HRA) to its part-time employees.
(B) Conclusion. The regulations set forth under this section do
not apply to Plan Sponsor K because Plan Sponsor K does not offer an
individual coverage HRA to any employee.
(xv) Example 15: Full-time employees offered traditional group
health plan; part-time employees offered HRA--(A) Facts. The facts
are the same as in paragraph (f)(1)(xiii) of this section (Example
13), except that Plan Sponsor K offers its full-time employees a
traditional group health plan and offers each of its part-time
employees $500 in an HRA and otherwise on the same terms.
(B) Conclusion. The same terms requirement of paragraph (c)(3)
of this section is not satisfied in this paragraph (f)(1)(xv)
(Example 15) because, even though the full-time employees and the
part-time employees generally may be treated as different classes,
in this paragraph (f)(1)(xv) (Example 15), the minimum class size
requirement applies to the part-time employees, and it is not
satisfied. Specifically, the minimum class size requirement applies
to the part-time employees because that requirement applies to an
applicable class offered an HRA when one class is offered a
traditional group health plan while another class is offered an HRA,
and to the part-time and full-time employee classes when one of
those classes is offered a traditional group health plan while the
other is offered an HRA. Because Plan Sponsor K reasonably expects
to employ
[[Page 29023]]
fewer than 100 employees on the first day of the HRA plan year, the
applicable class size minimum for Plan Sponsor K is 10 employees,
but Plan Sponsor K offered the HRA only to its 7 part-time
employees.
(xvi) Example 16: Satisfying minimum class size requirement
based on employees offered HRA--(A) Facts. Plan Sponsor L employs 78
full-time employees and 12 part-time employees. For 2020, Plan
Sponsor L offers its 78 full-time employees a traditional group
health plan and each of its 12 part-times employees an HRA on the
same terms. Only 6 part-time employees enroll in the HRA. Plan
Sponsor L reasonably expects to employ fewer than 100 employees on
the first day of the HRA plan year.
(B) Conclusion. The same terms requirement of paragraph (c)(3)
of this section is satisfied in this paragraph (f)(1)(xvi) (Example
16) because full-time employees and part-time employees may be
treated as different classes, Plan Sponsor L offers an HRA on the
same terms to all the participants in the part-time class, and the
minimum class size requirement is satisfied. Specifically, whether a
class of employees satisfies the applicable class size minimum is
determined as of the first day of the plan year based on the number
of employees in a class that is offered an HRA, not on the number of
employees who enroll in the HRA. The applicable class size minimum
for Plan Sponsor L is 10 employees, and Plan Sponsor L offered the
HRA to its 12 part-time employees.
(xvii) Example 17: Student employees offered student premium
reduction arrangements and same terms requirement--(A) Facts. Plan
Sponsor M is an institution of higher education that offers each of
its part-time employees an HRA on the same terms, except that it
offers its part-time employees who are student employees a student
premium reduction arrangement, and the student premium reduction
arrangement provides different amounts to different part-time
student employees.
(B) Conclusion. The same terms requirement of paragraph (c)(3)
of this section is satisfied in this paragraph (f)(1)(xvii) (Example
17) because Plan Sponsor M offers the HRA on the same terms to its
part-time employees who are not students and because the part-time
student employees offered a student premium reduction arrangement
(and their varying HRAs) are not taken into account as part-time
employees for purposes of determining whether a class of employees
is offered an HRA on the same terms.
(xiii) Example 18: Student employees offered student premium
reduction arrangements and minimum class size requirement--(A)
Facts. Plan Sponsor N is an institution of higher education with 25
hourly employees. Plan Sponsor N offers 15 of its hourly employees,
who are student employees, a student premium reduction arrangement
and it wants to offer its other 10 hourly employees an HRA for 2022.
Plan Sponsor N offers its salaried employees a traditional group
health plan. Plan Sponsor N reasonably expects to have 250 employees
on the first day of the 2022 HRA plan year, 15 of which will have
offers of student premium reduction arrangements.
(B) Conclusion. The same terms requirement of paragraph (c)(3)
of this section is not satisfied in this paragraph (f)(1)(xviii)
(Example 18). The minimum class size requirement will apply to the
class of hourly employees to which Plan Sponsor N wants to offer the
HRA because Plan Sponsor N offers a class of employees a traditional
group health plan and another class the HRA, and the minimum class
size requirement generally applies to a class of hourly employees
offered an HRA. Plan Sponsor N's applicable class size minimum is 20
because Plan Sponsor N reasonably expects to employ 235 employees on
the first day of the plan year (250 employees minus 15 employees
receiving a student premium reduction arrangement). Plan Sponsor N
may not offer the HRA to its hourly employees because the 10
employees offered the HRA as of the first day of the plan year does
not satisfy the applicable class size minimum.
(2) Examples regarding special rule for new hires. The following
examples illustrate the provisions of paragraph (c)(3) of this section,
taking into account the provisions of paragraph (d) of this section, in
particular the special rule for new hires under paragraph (d)(5) of
this section. In each example, the HRA is an individual coverage HRA
that has a calendar year plan year and may reimburse any medical care
expenses, including premiums for individual health insurance coverage.
The examples also assume that no participants or dependents are
Medicare beneficiaries.
(i) Example 1: Application of special rule for new hires to all
employees--(A) Facts. For 2021, Plan Sponsor A offers all employees
a traditional group health plan. For 2022, Plan Sponsor A offers all
employees hired on or after January 1, 2022, an HRA on the same
terms and continues to offer the traditional group health plan to
employees hired before that date. On the first day of the 2022 plan
year, Plan Sponsor A has 2 new hires who are offered the HRA.
(B) Conclusion. The same terms requirement of paragraph (c)(3)
of this section is satisfied in this paragraph (f)(2)(i) (Example 1)
because, under the special rule for new hires in paragraph (d)(5) of
this section, the employees newly hired on and after January 1,
2022, may be treated as a new hire subclass, Plan Sponsor A offers
the HRA on the same terms to all participants in the new hire
subclass, and the minimum class size requirement does not apply to
the new hire subclass.
(ii) Example 2: Application of special rule for new hires to
full-time employees--(A) Facts. For 2021, Plan Sponsor B offers a
traditional group health plan to its full-time employees and does
not offer any coverage to its part-time employees. For 2022, Plan
Sponsor B offers full-time employees hired on or after January 1,
2022, an HRA on the same terms, continues to offer its full-time
employees hired before that date a traditional group health plan,
and continues to offer no coverage to its part-time employees. On
the first day of the 2022 plan year, Plan Sponsor B has 2 new hire,
full-time employees who are offered the HRA.
(B) Conclusion. The same terms requirement of paragraph (c)(3)
of this section is satisfied in this paragraph (f)(2)(ii) (Example
2) because, under the special rule for new hires in paragraph (d)(5)
of this section, the full-time employees newly hired on and after
January 1, 2022, may be treated as a new hire subclass and Plan
Sponsor B offers the HRA on the same terms to all participants in
the new hire subclass. The minimum class size requirement does not
apply to the new hire subclass.
(iii) Example 3: Special rule for new hires impermissibly
applied retroactively--(A) Facts. For 2025, Plan Sponsor C offers a
traditional group health plan to its full-time employees. For 2026,
Plan Sponsor C wants to offer an HRA to its full-time employees
hired on and after January 1, 2023, while continuing to offer a
traditional group health plan to its full-time employees hired
before January 1, 2023.
(B) Conclusion. The special rule for new hires under paragraph
(d)(5) of this section does not apply in this paragraph (f)(2)(iii)
(Example 3) because the rule must be applied prospectively. That is,
Plan Sponsor C may not, in 2026, choose to apply the special rule
for new hires retroactive to 2023. If Plan Sponsor C were to offer
an HRA in this way, it would fail to satisfy the conditions under
paragraphs (c)(2) and (3) of this section because the new hire
subclass would not be treated as a subclass for purposes of applying
those rules and, therefore, all full-time employees would be treated
as one class to which either a traditional group health plan or an
HRA could be offered, but not both.
(iv) Example 4: Permissible second application of the special
rule for new hires to the same class of employees--(A) Facts. For
2021, Plan Sponsor D offers all of its full-time employees a
traditional group health plan. For 2022, Plan Sponsor D applies the
special rule for new hires and offers an HRA on the same terms to
all employees hired on and after January 1, 2022, and continues to
offer a traditional group health plan to full-time employees hired
before that date. For 2025, Plan Sponsor D discontinues use of the
special rule for new hires, and again offers all full-time employees
a traditional group health plan. In 2030, Plan Sponsor D decides to
apply the special rule for new hires to the full-time employee class
again, offering an HRA to all full-time employees hired on and after
January 1, 2030, on the same terms, while continuing to offer
employees hired before that date a traditional group health plan.
(B) Conclusion. Plan Sponsor D has permissibly applied the
special rule for new hires and is in compliance with the
requirements of paragraphs (c)(2) and (3) of this section.
(v) Example 5: Impermissible second application of the special
rule for new hires to the same class of employees--(A) Facts. The
facts are the same as in paragraph (f)(2)(iv) of this section
(Example 4), except that for 2025, Plan Sponsor D discontinues use
of the special rule for new hires by offering all full-time
employees an HRA on the same terms. Further, for 2030, Plan
[[Page 29024]]
Sponsor D wants to continue to offer an HRA on the same terms to all
full-time employees hired before January 1, 2030, and to offer all
full-time employees hired on or after January 1, 2030, an HRA in a
different amount.
(B) Conclusion. Plan Sponsor D may not apply the special rule
for new hires for 2030 to the class of full-time employees being
offered an HRA because the special rule for new hires may only be
applied to a class that is being offered a traditional group health
plan.
(vi) Example 6: New full-time employees offered different HRAs
in different rating areas--(A) Facts. Plan Sponsor E has work sites
in rating area 1, rating area 2, and rating area 3. For 2021, Plan
Sponsor E offers its full-time employees a traditional group health
plan. For 2022, Plan Sponsor E offers its full-time employees hired
on or after January 1, 2022, in rating area 1 an HRA of $3,000, its
full-time employees hired on or after January 1, 2022, in rating
area 2 an HRA of $5,000, and its full-time employees hired on or
after January 1, 2022, in rating area 3 an HRA of $7,000. Within
each class offered an HRA, Plan Sponsor E offers the HRA on the same
terms. Plan Sponsor E offers its full-time employees hired prior to
January 1, 2022, in each of those classes a traditional group health
plan. On the first day of the 2022 plan year, there is one new hire,
full-time employee in rating area 1, three new hire, full-time
employees in rating area 2, and 10 new hire-full-time employees in
rating area 3.
(B) Conclusion. The same terms requirement of paragraph (c)(3)
of this section is satisfied in this paragraph (f)(2)(vi) (Example
6) because, under the special rule for new hires in paragraph (d)(5)
of this section, the full-time employees in each of the three rating
areas newly hired on and after January 1, 2022, may be treated as
three new hire subclasses and Plan Sponsor E offers the HRA on the
same terms to all participants in the new hire subclasses. Further,
the minimum class size requirement does not apply to the new hire
subclasses.
(vii) Example 7: New full-time employee class subdivided based
on rating area--(A) Facts. Plan Sponsor F offers its full-time
employees hired on or after January 1, 2022, an HRA on the same
terms and it continues to offer its full-time employees hired before
that date a traditional group health plan. Plan Sponsor F offers no
coverage to its part-time employees. For the 2025 plan year, Plan
Sponsor F wants to subdivide the full-time new hire subclass so that
those whose work site is in rating area 1 will be offered the
traditional group health plan and those whose work site is in rating
area 2 will continue to receive the HRA. Plan Sponsor F reasonably
expects to employ 219 employees on January 1, 2025. As of January 1,
2025, Plan Sponsor F has 15 full-time employees whose work site in
in rating area 2 and who were hired between January 1, 2022, and
January 1, 2025.
(B) Conclusion. The same terms requirement of paragraph (c)(3)
of this section is not satisfied in this paragraph (f)(2)(vii)
(Example 7) because the new hire subclass has been subdivided in a
manner that is subject to the minimum class size requirement, and
the class offered the HRA fails to satisfy the minimum class size
requirement. Specifically, once the new hire subclass is subdivided
the general rules for applying the minimum class size requirement
apply to the employees offered the HRA in the new hire subclass. In
this case, because the subdivision of the new hire full-time
subclass is based on rating areas; a class based on rating areas is
an applicable class subject to the minimum class size requirement;
and the employees in one rating area are to be offered the HRA,
while the employees in the other rating area are offered the
traditional group health plan, the minimum class size requirement
would apply on and after the date of the subdivision. Further, the
minimum class size requirement would not be satisfied, because the
applicable class size minimum for Plan Sponsor F would be 20, and
only 15 employees in rating area 2 would be offered the HRA.
(viii) Example 8: New full-time employee class subdivided based
on state--(A) Facts. The facts are the same as in paragraph
(f)(2)(vii) of this section (Example 7), except that for the 2025
plan year, Plan Sponsor F intends to subdivide the new hire, full-
time class so that those in State 1 will be offered the traditional
group health plan and those in State 2 will each be offered an HRA
on the same terms.
(B) Conclusion. The same terms requirement of paragraph (c)(3)
of this section is satisfied in this paragraph (f)(2)(viii) (Example
8) because even though the new hire subclass has been subdivided, it
has been subdivided in a manner that is not subject to the minimum
class size requirement as the subdivision is based on the entire
state.
(ix) Example 9: New full-time employees and part-time employees
offered HRA--(A) Facts. In 2021, Plan Sponsor G offers its full-time
employees a traditional group health plan and does not offer
coverage to its part-time employees. For the 2022 plan year, Plan
Sponsor G offers its full-time employees hired on or after January
1, 2022, and all of its part-time employees, including those hired
before January 1, 2022, and those hired on and after January 1,
2022, an HRA on the same terms, and it continues to offer its full-
time employees hired before January 1, 2022, a traditional group
health plan.
(B) Conclusion. The minimum class size requirement applies to
the part-time employees offered the HRA in 2022 because the class is
being offered an HRA; the special rule for new hires does not apply
(because this class was not previously offered a traditional group
health plan) and so it is not a new hire subclass exempt from the
minimum class size requirement; another class of employees (that is,
full-time hired before January 1, 2022) are being offered a
traditional group health plan; and the part-time employee class is
generally an applicable classes that is subject to the minimum class
size requirement. However, because the full-time, new hire subclass
is based on the special rule for new hires, the minimum class size
requirement does not apply to full-time new hires offered an HRA in
2022.
(g) Applicability date. This section applies to plan years
beginning on or after January 1, 2020.
0
20. Section 146.145 is amended by revising paragraph (b)(3)(i) and
adding paragraph (b)(3)(viii) to read as follows:
Sec. 146.145 Special rules relating to group health plans.
* * * * *
(b) * * *
(3) * * *
(i) In general. Limited-scope dental benefits, limited-scope vision
benefits, or long-term care benefits are excepted if they are provided
under a separate policy, certificate, or contract of insurance, or are
otherwise not an integral part of a group health plan as described in
paragraph (b)(3)(ii) of this section. In addition, benefits provided
under a health flexible spending arrangement (health FSA) are excepted
benefits if they satisfy the requirements of paragraph (b)(3)(v) of
this section; benefits provided under an employee assistance program
are excepted benefits if they satisfy the requirements of paragraph
(b)(3)(vi) of this section; benefits provided under limited wraparound
coverage are excepted benefits if they satisfy the requirements of
paragraph (b)(3)(vii) of this section; and benefits provided under a
health reimbursement arrangement or other account-based group health
plan, other than a health FSA, are excepted benefits if they satisfy
the requirements of paragraph (b)(3)(viii) of this section.
* * * * *
(viii) Health reimbursement arrangements (HRAs) and other account-
based group health plans. Benefits provided under an HRA or other
account-based group health plan, other than a health FSA, are excepted
if they satisfy all of the requirements of this paragraph (b)(3)(viii).
See paragraph (b)(3)(v) of this section for the circumstances in which
benefits provided under a health FSA are excepted benefits. For
purposes of this paragraph (b)(3)(viii), the term ``HRA or other
account-based group health plan'' has the same meaning as ``account-
based group health plan'' set forth in Sec. 147.126(d)(6)(i) of this
subchapter, except that the term does not include health FSAs. For ease
of reference, an HRA or other account-based group health plan that
satisfies the requirements of this paragraph (b)(3)(viii) is referred
to as an excepted benefit HRA.
(A) Otherwise not an integral part of the plan. Other group health
plan coverage that is not limited to excepted benefits and that is not
an HRA or other account-based group health plan must
[[Page 29025]]
be made available by the same plan sponsor for the plan year to the
participant.
(B) Benefits are limited in amount--(1) Limit on annual amounts
made available. The amounts newly made available for each plan year
under the HRA or other account-based group health plan do not exceed
$1,800. In the case of any plan year beginning after December 31, 2020,
the dollar amount in the preceding sentence shall be increased by an
amount equal to such dollar amount multiplied by the cost-of-living
adjustment. The cost of living adjustment is the percentage (if any) by
which the C-CPI-U for the preceding calendar year exceeds the C-CPI-U
for calendar year 2019. The term ``C-CPI-U'' means the Chained Consumer
Price Index for All Urban Consumers as published by the Bureau of Labor
Statistics of the Department of Labor. The C-CPI-U for any calendar
year is the average of the C-CPI-U as of the close of the 12-month
period ending on March 31 of such calendar year. The values of the C-
CPI-U used for any calendar year shall be the latest values so
published as of the date on which the Bureau publishes the initial
value of the C-CPI-U for the month of March for the preceding calendar
year. Any such increase that is not a multiple of $50 shall be rounded
down to the next lowest multiple of $50. The Department of the Treasury
and the Internal Revenue Service will publish the adjusted amount for
plan years beginning in any calendar year no later than June 1 of the
preceding calendar year.
(2) Carryover amounts. If the terms of the HRA or other account-
based group health plan allow unused amounts to be made available to
participants and dependents in later plan years, such carryover amounts
are disregarded for purposes of determining whether benefits are
limited in amount.
(3) Multiple HRAs or other account-based group health plans. If the
plan sponsor provides more than one HRA or other account-based group
health plan to the participant for the same time period, the amounts
made available under all such plans are aggregated to determine whether
the benefits are limited in amount, except that HRAs or other account-
based group health plans that reimburse only excepted benefits are not
included in determining whether the benefits are limited in amount.
(C) Prohibition on reimbursement of certain health insurance
premiums. The HRA or other account-based group health plan must not
reimburse premiums for individual health insurance coverage, group
health plan coverage (other than COBRA continuation coverage or other
continuation coverage), or Medicare Part A, B, C, or D, except that the
HRA or other account-based group health plan may reimburse premiums for
such coverage that consists solely of excepted benefits. See also,
paragraph (b)(3)(viii)(F) of this section.
(D) Uniform availability. The HRA or other account-based group
health plan is made available under the same terms to all similarly
situated individuals, as defined in Sec. 146.121(d), regardless of any
health factor (as described in Sec. 146.121(a)).
(E) [Reserved]
(F) Special rule. The HRA or other account-based group health plan
must not reimburse premiums for short-term, limited-duration insurance
(as defined in Sec. 144.103 of this subchapter) if the conditions of
this paragraph (b)(3)(viii)(F) are satisfied.
(1) The HRA or other account-based group health plan is offered by
a small employer (as defined in PHS Act section 2791(e)(4)).
(2) The other group health plan coverage offered by the employer
pursuant to paragraph (b)(3)(viii)(A) of this section is either fully-
insured or partially-insured.
(3) The Secretary makes a finding, in consultation with the
Secretaries of Labor and the Treasury, that the reimbursement of
premiums for short-term, limited-duration insurance by excepted benefit
HRAs has caused significant harm to the small group market in the state
that is the principal place of business of the small employer.
(4) The finding by the Secretary is made after submission of a
written recommendation by the applicable state authority of such state,
in a form and manner specified by HHS. The written recommendation must
include evidence that the reimbursement of premiums for short-term,
limited-duration insurance by excepted benefit HRAs established by
insured or partially-insured small employers in the state has caused
significant harm to the state's small group market, including with
respect to premiums.
(5) The restriction shall be imposed or discontinued by publication
by the Secretary of a notice in the Federal Register and shall apply
only prospectively and with a reasonable time for plan sponsors to
comply.
* * * * *
PART 147--HEALTH INSURANCE REFORM REQUIREMENTS FOR THE GROUP AND
INDIVIDUAL HEALTH INSURANCE MARKETS
0
21. The authority citation for part 147 is revised to read as follows:
Authority: 42 U.S.C. 300gg through 300gg-63, 300gg-91, and
300gg-92, as amended.
0
22. Section 147.126 is amended by revising paragraphs (c), (d), and (e)
to read as follows:
Sec. 147.126 No Lifetime or annual limits.
* * * * *
(c) Definition of essential health benefits. The term ``essential
health benefits'' means essential health benefits under section 1302(b)
of the Patient Protection and Affordable Care Act and applicable
regulations. For the purpose of this section, a group health plan or a
health insurance issuer that is not required to provide essential
health benefits under section 1302(b) must define ``essential health
benefits'' in a manner that is consistent with the following:
(1) For plan years beginning before January 1, 2020, one of the
EHB-benchmark plans applicable in a State under Sec. 156.110 of this
subchapter, and including coverage of any additional required benefits
that are considered essential health benefits consistent with Sec.
155.170(a)(2) of this subchapter, or one of the three Federal Employees
Health Benefits Program (FEHBP) plan options as defined by Sec.
156.100(a)(3) of this subchapter, supplemented as necessary, to satisfy
the standards in Sec. 156.110 of this subchapter; or
(2) For plan years beginning on or after January 1, 2020, an EHB-
benchmark plan selected by a State in accordance with the available
options and requirements for EHB-benchmark plan selection at Sec.
156.111 of this subchapter, including an EHB-benchmark plan in a State
that takes no action to change its EHB-benchmark plan and thus retains
the EHB-benchmark plan applicable in that State for the prior year in
accordance with Sec. 156.111(d)(1) of this subchapter, and including
coverage of any additional required benefits that are considered
essential health benefits consistent with Sec. 155.170(a)(2) of this
subchapter.
(d) Health reimbursement arrangements (HRAs) and other account-
based group health plans--(1) In general. If an HRA or other account-
based group health plan is integrated with another group health plan or
individual health insurance coverage and the other group health plan or
individual health insurance coverage, as
[[Page 29026]]
applicable, separately is subject to and satisfies the requirements in
PHS Act section 2711 and paragraph (a)(2) of this section, the fact
that the benefits under the HRA or other account-based group health
plan are limited does not cause the HRA or other account-based group
health plan to fail to satisfy the requirements of PHS Act section 2711
and paragraph (a)(2) of this section. Similarly, if an HRA or other
account-based group health plan is integrated with another group health
plan or individual health insurance coverage and the other group health
plan or individual health insurance coverage, as applicable, separately
is subject to and satisfies the requirements in PHS Act section 2713
and Sec. 147.130(a)(1) of this subchapter, the fact that the benefits
under the HRA or other account-based group health plan are limited does
not cause the HRA or other account-based group health plan to fail to
satisfy the requirements of PHS Act section 2713 and Sec.
147.130(a)(1) of this subchapter. For the purpose of this paragraph
(d), all individual health insurance coverage, except for coverage that
consists solely of excepted benefits, is treated as being subject to
and complying with PHS Act sections 2711 and 2713.
(2) Requirements for an HRA or other account-based group health
plan to be integrated with another group health plan. An HRA or other
account-based group health plan is integrated with another group health
plan for purposes of PHS Act section 2711 and paragraph (a)(2) of this
section if it satisfies the requirements under one of the integration
methods set forth in paragraph (d)(2)(i) or (ii) of this section. For
purposes of the integration methods under which an HRA or other
account-based group health plan is integrated with another group health
plan, integration does not require that the HRA or other account-based
group health plan and the other group health plan 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. An
HRA or other account-based group health plan integrated with another
group health plan for purposes of PHS Act section 2711 and paragraph
(a)(2) of this section may not be used to purchase individual health
insurance coverage unless that coverage consists solely of excepted
benefits, as defined in Sec. 148.220 of this subchapter.
(i) Method for integration with a group health plan: Minimum value
not required. An HRA or other account-based group health plan is
integrated with another group health plan for purposes of this
paragraph (d) if:
(A) The plan sponsor offers a group health plan (other than the HRA
or other account-based group health plan) to the employee that does not
consist solely of excepted benefits;
(B) The employee receiving the HRA or other account-based group
health plan is actually enrolled in a group health plan (other than the
HRA or other account-based group health plan) that does not consist
solely of excepted benefits, regardless of whether the plan is offered
by the same plan sponsor (referred to as non-HRA group coverage);
(C) The HRA or other account-based group health plan is available
only to employees who are enrolled in non-HRA group coverage,
regardless of whether the non-HRA group coverage is offered by the plan
sponsor of the HRA or other account-based group health plan (for
example, the HRA may be offered only to employees who do not enroll in
an employer's group health plan but are enrolled in other non-HRA group
coverage, such as a group health plan maintained by the employer of the
employee's spouse);
(D) The benefits under the HRA or other account-based group health
plan are 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 expenses that do not constitute
essential health benefits as defined in paragraph (c) of this section;
and
(E) Under the terms of the HRA or other account-based group health
plan, an employee (or former employee) is permitted to permanently opt
out of and waive future reimbursements from the HRA or other account-
based group health plan at least annually and, upon termination of
employment, either the remaining amounts in the HRA or other account-
based group health plan are forfeited or the employee is permitted to
permanently opt out of and waive future reimbursements from the HRA or
other account-based group health plan (see paragraph (d)(3) of this
section for additional rules regarding forfeiture and waiver).
(ii) Method for integration with another group health plan: Minimum
value required. An HRA or other account-based group health plan is
integrated with another group health plan for purposes of this
paragraph (d) if:
(A) The plan sponsor offers a group health plan (other than the HRA
or other account-based group health plan) to the employee that provides
minimum value pursuant to section 36B(c)(2)(C)(ii) of the Code (and its
implementing regulations and applicable guidance);
(B) The employee receiving the HRA or other account-based group
health plan is actually enrolled in a group health plan (other than the
HRA or other account-based group health plan) that provides minimum
value pursuant to section 36B(c)(2)(C)(ii) of the Code (and applicable
guidance), regardless of whether the plan is offered by the plan
sponsor of the HRA or other account-based group health plan (referred
to as non-HRA MV group coverage);
(C) The HRA or other account-based group health plan is available
only to employees who are actually enrolled in non-HRA MV group
coverage, regardless of whether the non-HRA MV group coverage is
offered by the plan sponsor of the HRA or other account-based group
health plan (for example, the HRA may be offered only to employees who
do not enroll in an employer's group health plan but are enrolled in
other non-HRA MV group coverage, such as a group health plan maintained
by an employer of the employee's spouse); and
(D) Under the terms of the HRA or other account-based group health
plan, an employee (or former employee) is permitted to permanently opt
out of and waive future reimbursements from the HRA or other account-
based group health plan at least annually, and, upon termination of
employment, either the remaining amounts in the HRA or other account-
based group health plan are forfeited or the employee is permitted to
permanently opt out of and waive future reimbursements from the HRA or
other account-based group health plan (see paragraph (d)(3) of this
section for additional rules regarding forfeiture and waiver).
(3) Forfeiture. For purposes of integration under paragraphs
(d)(2)(i)(E) and (d)(2)(ii)(D) of this section, forfeiture or waiver
occurs even if the forfeited or waived amounts may be reinstated upon a
fixed date, a participant's death, or the earlier of the two events
(the reinstatement event). For the purpose of this paragraph (d)(3),
coverage under an HRA or other account-based group health plan is
considered forfeited or waived prior to a reinstatement event only if
the participant's election to forfeit or waive is irrevocable, meaning
that, beginning on the effective date of the election and through the
date of the reinstatement event, the participant and the participant's
beneficiaries have no access to amounts credited to the HRA or other
account-based group health plan. This means that upon and after
reinstatement, the reinstated amounts
[[Page 29027]]
under the HRA or other account-based group health plan may not be used
to reimburse or pay medical care expenses incurred during the period
after forfeiture and prior to reinstatement.
(4) Requirements for an HRA or other account-based group health
plan to be integrated with individual health insurance coverage or
Medicare Part A and B or Medicare Part C. An HRA or other account-based
group health plan is integrated with individual health insurance
coverage or Medicare Part A and B or Medicare Part C (and treated as
complying with PHS Act sections 2711 and 2713) if the HRA or other
account-based group health plan satisfies the requirements of Sec.
146.123(c) of this subchapter (as modified by Sec. 146.123(e), for
HRAs or other account-based group health plans integrated with Medicare
Part A and B or Medicare Part C).
(5) Integration with Medicare Part B and D. For employers that are
not required to offer their non-HRA group health plan coverage to
employees who are Medicare beneficiaries, an HRA or other account-based
group health plan that may be used to reimburse premiums under Medicare
Part B or D may be integrated with Medicare (and deemed to comply with
PHS Act sections 2711 and 2713) if the following requirements are
satisfied with respect to employees who would be eligible for the
employer's non-HRA group health plan but for their eligibility for
Medicare (and the integration rules under paragraphs (d)(2)(i) and (ii)
of this section continue to apply to employees who are not eligible for
Medicare):
(i) The plan sponsor offers a group health plan (other than the HRA
or other account-based group health plan and that does not consist
solely of excepted benefits) to employees who are not eligible for
Medicare;
(ii) The employee receiving the HRA or other account-based group
health plan is actually enrolled in Medicare Part B or D;
(iii) The HRA or other account-based group health plan is available
only to employees who are enrolled in Medicare Part B or D; and
(iv) The HRA or other account-based group health plan complies with
paragraphs (d)(2)(i)(E) and (d)(2)(ii)(D) of this section.
(6) Definitions. The following definitions apply for purposes of
this section.
(i) Account-based group health plan. An account-based group health
plan is an employer-provided group health plan that provides
reimbursements of medical care expenses with the reimbursement subject
to a maximum fixed dollar amount for a period. An HRA is a type of
account-based group health plan. An account-based group health plan
does not include a qualified small employer health reimbursement
arrangement, as defined in section 9831(d)(2) of the Code.
(ii) Medical care expenses. Medical care expenses means expenses
for medical care as defined under section 213(d) of the Code.
(e) Applicability date. The provisions of this section are
applicable to group health plans and health insurance issuers for plan
years beginning on or after January 1, 2020. Until the applicability
date for this section, plans and issuers are required to continue to
comply with the corresponding sections of this subchapter B, contained
in the 45 CFR, subtitle A, parts 1-199, revised as of October 1, 2018.
PART 155--EXCHANGE ESTABLISHMENT STANDARDS AND OTHER RELATED
STANDARDS UNDER THE AFFORDABLE CARE ACT
0
23. The authority citation for part 155 is revised to read as follows:
Authority: 42 U.S.C. 18021-18024, 18031-18033, 18041-18042,
18051, 18054, 18071, and 18081-18083.
0
24. Section 155.420 is amended
0
a. By revising paragraph (a)(4)(iii) introductory text;
0
b. By adding paragraph (b)(2)(vi);
0
c. By redesignating paragraph (c)(3) as paragraph (c)(4); By adding a
new paragraph (c)(3);
0
d. In paragraph (d)(12) by removing ``; or'' and adding ``;'' in its
place;
0
e. In paragraph (d)(13) by removing the period at the end of the
paragraph and adding ``; or'' in its place; and
0
f. By adding paragraph (d)(14).
The revisions and additions read as follows:
Sec. 155.420 Special enrollment periods.
* * * * *
(a) * * *
(4) * * *
(iii) For the other triggering events specified in paragraph (d) of
this section, except for paragraphs (d)(2)(i), (d)(4), and (d)(6)(i)
and (ii) of this section for becoming newly eligible for cost-sharing
reductions, and paragraphs (d)(8), (9), (10), (12), and (14) of this
section:
* * * * *
(b) * * *
(2) * * *
(vi) If a qualified individual, enrollee, or dependent newly gains
access to an individual coverage HRA or is newly provided a QSEHRA,
each as described in paragraph (d)(14) of this section, and if the plan
selection is made before the day of the triggering event, the Exchange
must ensure that coverage is effective on the first day of the month
following the date of the triggering event or, if the triggering event
is on the first day of a month, on the date of the triggering event. If
the plan selection is made on or after the day of the triggering event,
the Exchange must ensure that coverage is effective on the first day of
the month following plan selection.
* * * * *
(c) * * *
(3) Advanced availability for individuals with an individual
coverage HRA or QSEHRA. A qualified individual, enrollee, or his or her
dependent who is described in paragraph (d)(14) of this section has 60
days before the triggering event to select a QHP, unless the HRA or
QSEHRA was not required to provide the notice setting forth its terms
to such individual or enrollee at least 90 days before the beginning of
the plan year, as specified in 45 CFR 146.123(c)(6), 26 CFR 54.9802-
4(c)(6), and 29 CFR 2590.702-2(c)(6) or section 9831(d)(4) of the
Internal Revenue Code, as applicable, in which case the qualified
individual, enrollee, or his or her dependent has 60 days before or
after the triggering event to select a QHP.
* * * * *
(d) * * *
(14) The qualified individual, enrollee, or dependent newly gains
access to an individual coverage HRA (as defined in 45 CFR 146.123(b))
or is newly provided a qualified small employer health reimbursement
arrangement (QSEHRA) (as defined in section 9831(d)(2) of the Internal
Revenue Code). The triggering event is the first day on which coverage
for the qualified individual, enrollee, or dependent under the
individual coverage HRA can take effect, or the first day on which
coverage under the QSEHRA takes effect. An individual, enrollee, or
dependent will qualify for this special enrollment period regardless of
whether they were previously offered or enrolled in an individual
coverage HRA or previously provided a QSEHRA, so long as the
individual, enrollee, or dependent is not enrolled in the individual
coverage HRA or covered by the QSEHRA on the day immediately prior to
the triggering event.
* * * * *
[FR Doc. 2019-12571 Filed 6-13-19; 4:15 pm]
BILLING CODE 4120-01;4510-29;4830-01-P