Final HRA Regulations 2-4
Final HRA Regulations
by Christoper E. Condeluci, Principal and sole shareholder of CC Law & Policy PLLC in Washington, D.C.
Final HRA Regulations Released – “Discrimination”?
- At the end of last year, I noted that there were NOT that many negative stories about the proposed HRA regs. In my opinion, this made sense because (as I noted yesterday) a strong argument can be made that the HRA rules will help the “individual” market, or at a minimum – in most if not all markets – the HRA rules are NOT likely to have a negative impact. However, back then, we did see some stories arguing that the HRA rules will result in “discrimination,” especially discrimination against less healthy people. Fast forward to last week. We again did not see much on the “sabotage” claim. BUT, critics did turn up the volume on the discrimination issue. As I said last year, I respectfully disagree with the claim that the HRA regs will allow employers to discriminate against their employees, especially less healthy employees. Why? First and foremost, the HRA rules mirror the non-discrimination rules in the employer plan market. For decades, these “group health plan” non-discrimination rules have prevented employers from discriminating against their employees (both their low-income employees as well as their less healthy employees). Critics of the final HRA regs have NOT complained about the non-discrimination requirements applicable to “group health plans.” Why are they raising concerns now? I will keep my powder dry on that question. Here is what the final HRA regs say: The HRA regs create 2 new types of HRAs – (1) an HRA that can used to purchase an “individual” market plan on a tax-free basis (i.e., an “individual market HRA arrangement”) and (2) an HRA that can offer up to $1,800 to pay for medical expenses OTHER THAN premiums for an “individual” market plan, a “group health plan,” and Medicare (i.e., an “excepted benefit HRA”). Most of the claims of discrimination are directed at the “individual market HRA arrangement,” so for now, we will be focusing on this type of HRA. BUT, there are also claims of discrimination in the case of the “excepted benefit HRA,” which I will discuss in further detail when I talk about the “excepted benefit HRA” in a subsequent email.
The HRA Regs Create an “All-Or-Nothing Proposition” for Employers
According to the final HRA regs, an employer MUST decide whether it wants to offer (1) a “group health plan” OR (2) the “individual market HRA arrangement” to a particular “class” of employees. This is what I call the “all-or-nothing-proposition,” where the employer CANNOT have it both ways. That is, the employer CANNOT offer a “group health plan” to a certain segment of a particular “class” of employees AND ALSO an “individual market HRA arrangement” to another segment of this same “class” of employees. In other words, this rule does NOT allow an employer to carve-out its less healthy employees in a particular “class” of employees, and dump them into the “individual” market, while also offering “group health plan” coverage to healthy employees in this “class.” Soooo, just based on this “all-or-nothing-proposition,” a strong argument can be made that the HRA regs will NOT breed discrimination.
“Classes” of Employees
Now, critics of the HRA regs will likely agree with my comments above. But they will counter and say that the HRA regs allow employers to carve-up their workforce by the “classes” I noted above, and it is this ability to carve-up employees by “classes” that will breed discrimination. Again, I respectfully disagree. So what are the employee “classes”? According to the proposed HRA regulations issued last year, the “classes” broke down like this: (1) Full-Time Employee “Class,” (2) Part-Time Employee “Class,” (3) Union Employee “Class,” (4) Seasonal Employee “Class,” (5) Foreign Employee “Class,” (6) Employees In a Waiting Period “Class,” (7) Employees Under Age 25 “Class,” and (8) Employees In Different Geographic Locations (i.e., Rating Areas) “Class.” The final HRA regs eliminated the Employees Under Age 25 “Class,” but kept all of the other “classes.” The final regs also added 3 new “classes”: (1) Salaried Employee “Class,” (2) Non-Salaried Employee “Class,” and (3) Temporary Workers Employed By a Staffing Firm (who temporarily work for an unrelated employer) “Class.” So, connecting-the-dots on this “all or nothing proposition” + the “classes,” we know this: An employer CANNOT offer a “group health plan” to some of its Full-Time Employees and also an “individual market HRA arrangement” to other Full-Time Employees. Again, it is “all or nothing.” BUT, an employer CAN offer a “group health plan” to its Full-Time Employee “Class” and also an “individual market HRA arrangement” to its Part-Time Employee “Class” or its Seasonal Employee “Class” or its Foreign Employee “Class” or Employees In a Waiting Period “Class”…well, you get the gist.
Will These “Classes” of Employees Breed Discrimination?
I do NOT believe that allowing employers to offer different types of coverage (i.e., a “group health plan” or an “individual market HRA arrangement”) to different “classes” of employees will breed discrimination. First, the “employer mandate” requires employers with 50 or more full-time equivalent employees (FTEs) to offer health coverage to their Full-Time Employees or pay a penalty tax. The “employer mandate” does NOT penalize these employers if they do NOT offer coverage to their (1) Part-Time Employees, (2) Seasonal Employees, (3) Foreign Employees, and (4) Employees In a Waiting Period. Because of this, MOST employers with 50 or more FTEs do NOT offer “group health plan” coverage to these types of employees. Soooo, these employees are NOT getting offered ANY type of health coverage to begin with. Soooo, how can an employer discriminate against employees they are NOT even offering any health coverage to in the first place? You are right, they CAN’T. As I contended last year (and in yesterday’s email), the ability to now offer an “individual market HRA arrangement” to these “classes” of employees will actually allow employers to provide certain “classes” of employees some sort of access to health insurance for the first time. To me – as Ron Burgundy would say – that is kind of a big deal. It is this aspect of the final HRA regs that I believe actually provides employers with NEW planning opportunities (as I also mentioned yesterday). For example, a large or mid-sized employer that NEVER offered “group health plan” coverage to their Part-Time or Seasonal Employees can NOW do so to attract and retain part-time and seasonal workers. Small employers who are not subject to the “employer mandate” can too. This is a win-win. It’s the opposite of discrimination. When it comes to Union Employees, health coverage for these employees is “collectively bargained,” so by definition there can be NO discrimination that is going to occur if an employer chooses to offer a “group health plan” to its non-union employees and an “individual market HRA arrangement” to its union employees. If union employees feel they are being discriminated against, they can air their concerns at the negotiating table. They also have a right to go “on strike.”
Could Things Go Side-Ways When It Comes to These “Classes” of Employees?
In general, NO. However, I am willing to concede the following: In the case of Employees In Different Geographic Locations (i.e., which is broken down by “rating areas” in a particular State), there may be instances where an employer houses less healthy employees in a particular worksite, while housing healthier employees in another worksite located in a different rating area. And, based on the ability to offer different coverage options to employees working at these different worksites, an argument can be made that employers can discriminate. BUT, here is something to consider: The current “group health plan” requirements generally allow employers to offer different types of “group health plan” coverage to employees located in different geographic areas. And, most if not all employers that actually do this do NOT engage in this practice to discriminate against their employees. As a result, I do NOT see this dynamic changing simply because an employer is now allowed to only offer a “group health plan” to employees at certain worksites while also offering an “individual market HRA arrangement” to other employees at other worksites located in different rating areas. Maybe there is some unsavory activity that occurs around the margins. But, I just don’t see it. In addition, the “group health plan” non-discrimination requirements provide that a certain percentage of “similarly situated non-highly compensated employees” (e.g., full-time employees working at different worksites in different rating areas) MUST be eligible to use a Section 125 Cafeteria plan to pay for their health coverage on a pre-tax basis, assuming a Section 125 Cafeteria plan is offered. Employee benefit attorney geeks like me call this the “Eligibility Test.” Because virtually every employer that offers a “group health plan” also offers a Section 125 Cafeteria plan, an employer that chooses to offer a “group health plan” to employees at certain worksites while also offering an “individual market HRA arrangement” to other employees in different rating areas runs the risk of failing to satisfy the “Eligibility Test” if they get too cute and start carving-up their workforce. I will also concede this: The final regulations added Salaried and Hourly Employees as “classes.” Which means, an employer can offer a “group health plan” to its salaried employees and an “individual market HRA arrangement” to its hourly employees. If you are to stereotype, you would suggest that hourly workers are less healthy than salaried workers, and thus, if an employer offered different coverage to these different “classes,” this is tantamount of discrimination. In some cases, I cannot say that employers will NOT act in a discriminatory manner. BUT, in most cases, I CANNOT see employers discriminating here. It is important to emphasize that first, employers can already provide different benefits to salaried and hourly workers so long as the employer does NOT violate the “group health plan” non-discrimination requirements. And, the “group health plan” non-discrimination requirements will continue to apply in cases where an employer offers a “group health plan” to its salaried employees and an “individual market HRA arrangement” to its non-salaried employees. In addition, if an employee feels that they were re-classified from a salaried employee to an hourly employee because the employer did NOT want to cover them under its “group health plan,” the employee can file a legal claim under ERISA section 510. BTW, ERISA 510 litigation is fairly common these days, and currently, employers do NOT mess around so as to potentially expose themselves to liability. I cannot see this dynamic changing simply because an employer is now allowed to only offer a “group health plan” to salaried employees while also offering an “individual market HRA arrangement” to non-salaried employees.
Minimum “Class” Size As an Additional Safeguard
The final HRA regs added an additional “safeguard” to prevent discrimination by requiring a minimum number of employees to be set aside in a particular “class” of employees when an employer chooses to offer an “individual market HRA arrangement.” Importantly, this minimum “class” size requirement ONLY applies if an employer chooses to offer a “group health plan” to at least one “class” of its employees AND ALSO to offer an “individual market HRA arrangement” to another “class” of employees. In addition, this size requirement ONLY applies to the “individual market HRA arrangement.” It does NOT apply to the “group health plan.” Lastly, this size requirement ONLY applies to certain “classes” that are offered the “individual market HRA arrangement”: (1) Salaried Employee “Class,” (2) Non-Salaried Employee “Class,” (3) Full-Time Employee “Class,” (4) Part-Time Employee “Class,” and (5) Employees In Different Rating Areas “Class.” The size of the minimum “class” size depends on the number of employees employed by the employer. For example, for an employer with fewer than 100 employees, the minimum number of employees that may be set aside in a “class” and offered an “individual market HRA arrangement” is 10. If an employer employs between 100 and 200 employees, 10% of the total number of employees must be offered an “individual market HRA arrangement.” And for employers with more than 200 employee, the minimum size is 20. Note, compliance with this minimum size requirement is based on how many employees are “offered” the “individual market HRA arrangement,” and not based on how many employees actually “enrolled” in the arrangement.
Same Terms and Conditions
The final HRA regs also require that an “individual market HRA arrangement” MUST be offered to ALL employees in a specified “class” of employees. Importantly, the amount of money that can be put in the HRA to purchase an “individual” market plan is uncapped. In other words, NO dollar limit is placed on the HRA contribution. An employer can vary the HRA contribution by “age” and by “family size.” In other words, an employer can give an older person a higher contribution amount than a younger person. This makes good policy sense because – as we all know – health care is more expensive the older you are. In addition, an employer can give an employee +1 dependent and employees with multiple dependents higher contribution amounts than single employees. Again, this makes sense because the more dependents you have, the more expensive health insurance gets. HOWEVER, if the employer varies its HRA contributions by “age” and/or “family size,” the employer MUST give the SAME contribution amount to ALL employees in the same “class” who are the SAME age and/or have the SAME family size. This again, mirrors the “group health plan” non-discrimination rules that say that ALL “similarly situated employees” must get the same employer contribution amount for health insurance. Note, the final HRA regs added a requirement to the “age” variation. In particular, the HRA contribution amount for older employees CANNOT be three times higher than the HRA contribution amount for younger employees. I have heard some people claim that employers are going to go the other way. That is, they claim that employers are going to give a lower contribution amount to older employees, and higher contribution amount to younger workers. Ummm, that is age discrimination that is actionable under the Age Discrimination in Employment Act (ADEA), which continues to apply, even to employers that choose to offer an “individual market HRA arrangement.” Which I suppose leads me to conclude by also saying this: Other Federal laws like ADEA, the Americans with Disability Act (ADA), and the prohibition under the Medicare laws that prevent employers from taking into account any entitlement to Medicare or differentiating benefits for individuals with end-stage renal disorder (ERSD) ALL apply. Based on this – and based on everything else articulated above – I hope that you too can now objectively conclude that little if any discrimination is going to arise on account of the final HRA regs, contrary to what some critics are saying.