ACA and the Impact on Health Reimbursement Arrangements (HRAs)
The health reimbursement arrangement (HRA) allows employers (and employee organizations) to put money in a special account for employees to pay for health care expenses. The Internal Revenue Services (IRS) defines an HRA as:
…an arrangement that: (1) is funded solely by the employer and not funded directly or indirectly by salary reduction election or otherwise under a 125 cafeteria plan; (2) pays or reimburses the employee for qualified medical care expenses…incurred by the employee and the employee’s spouse and dependents…; and (3) provides payments and reimbursements up to a maximum dollar amount for a specific coverage period, and any unused portion at the end of a coverage period is carried forward to increase the maximum reimbursement amount in subsequent coverage periods.
HRAs have become quite popular over the past few years. They are often combined with high deductible health plans to give employees health benefits coverage and help them pay for health care received before the deductible is satisfied.
The Affordable Care Act no longer allows employer-sponsored plans or health insurance companies to put lifetime or annual dollar limits on essential health benefits. Recent rules stated that an HRA combined with health coverage as part of an employer-sponsored plan would not violate the law if the employer-sponsored plan does not apply lifetime or annual dollar limits to essential health benefits. An HRA is not combined with employer-sponsored health coverage unless the HRA is open only to employees covered by the employer-sponsored health plan.
A stand-alone HRA is looked at as an employer-sponsored health plan. An employer can fund an HRA for employees and let them buy individual market insurance with pre-tax dollars. Some employers had hoped that they could put a fixed dollar amount (known as a “defined contribution”) in an employee’s HRA when the health insurance marketplace (or exchange) opens for enrollment in October 2013, with plans effective January 1, 2014. Employers thought that their HRA contributions would let employees take advantage of the premium tax credits or subsidies available through the exchanges to buy an individual policy.
An FAQ issued by the Department of Labor on January 24, 2013 explains that such a contribution is not allowed under the health care reform law. While further guidance will be issued, the Department stated that stand-alone HRAs used to buy an individual policy is not considered combined employer-sponsored coverage that follows the annual dollar limit requirement. If employees are offered an HRA and employer- sponsored coverage and turn down the employer-sponsored coverage, the stand-alone HRA will violate the law. The FAQ does allow amounts already in a stand-alone HRA before January 1, 2014 to be drawn on after that time if certain standards are met.