As an alternative to providing a group health plan, some employers have made the choice to use a Health Reimbursement Arrangement (HRA) to provide employees with tax-free reimbursement of their individual health insurance policy premiums. Many employers are aware that the Affordable Care Act (ACA) requires employers with 50 or more full time equivalent employees to offer health insurance coverage to substantially all full time employees or pay a penalty. The ACA also eliminates annual and lifetime limits on the benefits that may be provided under an insurance plan. Putting ERISA, HIPAA, and other compliance concerns aside, how do these requirements impact stand-alone HRAs? By definition, a stand-alone HRA only reimburses a limited amount of money; in this scenario, it may reimburse either all or a portion of an employee’s premium for an individual insurance policy.
The U.S. Department of Labor has recently clarified how Section 2711 of the ACA (annual and lifetime limits) applies to stand-alone HRAs. In Part XI of the DOL’s FAQs on Affordable Care Act Implementation, the DOL stated that an HRA that is not integrated with other group health plan coverage meeting the annual and lifetime limits requirements will violate Section 2711. To be integrated with other group health plan coverage, the HRA must only be available to employees covered by a primary group health plan offered by the employer which meets the annual and lifetime limit requirements.
What does this mean for employers? Employers who use stand-alone HRAs to reimburse the individual health insurance policy premiums of employees should reevaluate this strategy as it may not be viable in 2014. Not only would a stand-alone HRA fail to satisfy the annual and lifetime limit requirements of Section 2711 of the ACA, but it would also be unlikely to qualify as employer sponsored minimum essential coverage that could shield an employer from liability under the Employer Mandate.
For more details on how the elimination of annual and lifetime limits will impact HRAs, see the DOL’s FAQs About Affordable Care Act Implementation Part XI.
