Update on Tri-Agency Final Rules on Health Reimbursement Arrangements

The IRS released final rules clarifying how the employer shared responsibility provisions and Section 105(h) nondiscrimination rules apply to health reimbursement arrangements (HRAs) and other account-based group health plans that are integrated with individual health insurance coverage or Medicare. The final rules do not contain any substantive revisions to the proposed rules.

On September 30, 2019, the Internal Revenue Service (IRS) published its proposed rules to clarify how the employer shared responsibility provisions and Section 105(h) nondiscrimination rules apply to health reimbursement arrangements (HRAs) and other account-based group health plans that are integrated with individual health insurance coverage or Medicare. On January 13, 2021, the IRS released final rules that will become effective once they are filed in the Federal Register.

The Centers for Medicare & Medicaid Services (CMS) also previously announced its downloadable tool that gives employers access to specific rate information for the least expensive plan in a certain category (for example, the lowest cost silver plan for self-only coverage offered through the Exchange) based on an employee’s age and geographic location. According to CMS, employers will be able to use this tool to determine whether their offer of coverage through an individual coverage HRA would be considered affordable.

Employers that offer individual coverage HRAs beginning on January 1, 2020, before the IRS publishes its final regulations, employers may rely on the proposed regulations:

• Under Section 4980H for periods during any plan year of individual coverage HRAs beginning before the date that is six months following the final regulations’ publication; and
• Under Section 105(h) for plan years of individual coverage HRAs beginning before the date that is six months following the final regulations’ publication.

The IRS’ final rules on the application of the employer shared responsibility provisions and Section 105(h) nondiscrimination rules on ICHRAs are described below in the Employer Shared Responsibility Provisions and Nondiscrimination sections.

Background

On June 20, 2019, the Department of the Treasury (Treasury), Department of Labor (DOL), and Department of Health and Human Services (HHS) (collectively, the Departments) published their final rules regarding health reimbursement arrangements (HRAs) and other account-based group health plans. The DOL also issued a news release, frequently asked questions, model notice, and model attestations.

The final rules’ goal is to expand the flexibility and use of HRAs to provide individuals with additional options to obtain quality, affordable healthcare. According to the Departments, these changes will facilitate a more efficient healthcare system by increasing employees’ consumer choice and promoting healthcare market competition by adding employer options.

To do so, the final rules expand the use of HRAs by:

• Removing the prohibition against integrating an HRA with individual health insurance coverage (individual coverage HRA)
• Expanding the definition of limited excepted benefits to recognize certain HRAs as limited excepted benefits if certain conditions are met (excepted benefit HRA)
• Providing premium tax credit (PTC) eligibility rules for people who are offered an HRA integrated with individual coverage
• Assuring HRA and Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) plan sponsors that reimbursement of individual coverage by the HRA or QSEHRA does not become part of an ERISA plan when certain conditions are met
• Changing individual market special enrollment periods for individuals who gain access to HRAs integrated with individual coverage or who are provided QSEHRAs

The final rules were effective on August 19, 2019, and generally apply for plan years beginning on or after January 1, 2020.

However, the final rules under Section 36B (regarding PTCs) 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.