Final HRA Regulations 4-4

by Christoper E. Condeluci, Principal and sole shareholder of CC Law & Policy PLLC in Washington, D.C.

Final HRA Regulations – The Application of ERISA to the “Individual” Market Plan

As I have said in prior updates, I believe that it is good public policy to encourage employers to offer some sort of financial assistance so their employees have the ability to obtain some form of health insurance, especially in situations where an employer is not offering a “group health plan.” Encouraging employers to serve as the “financier” of health insurance – even though the employer is not actually sponsoring a “group health plan” – achieves this policy goal, which the final HRA regulations promotes. However, if an employer that wants to simply act as the “financier” of health insurance is forced to comply ERISA’s requirements, a strong argument can be made the employer will be discouraged from offering the HRA arrangement, which is counter to the policy of keeping employer dollars in the “health care game.”
- Analysis: Based on the above stated points, the final HRA regulations provide that an “individual” market plan that is purchased through an individual market HRA arrangement will NOT be subject to ERISA’s requirements if following requirements are met: (1) The purchase of the “individual” market plan is voluntary for employees, (2) The employer does not select or endorse any particular insurance company or individual market plan, (3) The reimbursement for premiums is limited solely to premiums for an “individual” market plan, (4) The employer does not receive any compensation in connection with the employee’s purchase of an “individual” market plan, and (5) The employee receives annual notice that the “individual” market plan is not subject to ERISA. Most of these requirements are relatively straight-forward. For example, the notice requirement can easily be met by satisfying the “notice” requirement I discussed a couple of weeks back, and including a statement that the “individual” market plan is not subject to ERISA. The requirement that any reimbursement for premiums must be limited solely to an “individual” market plan can also be met upon substantiating that the plan complies with PHSA sections 2711 and 2713 (on the “model substantiation form” I mentioned). The requirement that the purchase of the “individual” market plan is voluntary will be satisfied if enrollment in a plan is not a condition employment. And, the employer’s receipt of compensation from a third-party to cover the cost of operating the HRA is clearly prohibited, so just don’t do it. While the above stated requirements are relatively straight-forward, the requirement that an employer NOT select or “endorse” any particular insurance company or “individual” market plan is NOT straight-forward. There is some existing DOL guidance, as well as court precedent, describing what would – and would not – constitute “endorsement” of a particular insurance company or a particular “individual” market plan. BUT, the Federal Departments needed to provide more detailed guidance on how an employer may satisfy this “endorsement” condition. Fortunately, the Federal Departments did at least provide some additional guidance on what does – and does not – constitute “endorsement.” BUT, some questions remain.

The Application of ERISA to the “Individual” Market Plan (cont.) – “Endorsement”

The final HRA regulations are noteworthy for a number of reasons, many of which I have discussed at length in prior updates. Another noteworthy aspect of the regs is this: For the first time EVER, a Federal regulation recognizes a “private exchange.”
- Analysis: As you may recall, waaaayyy back in the day, I talked a lot about “private exchanges.” I was a “private exchange” fan. I STILL am a “private exchange” fan. I am a huge proponent of allowing employees to access an electronic platform that offers the employee-consumer, among other things, education tools, layman’s terms descriptions of the health plans and/or provider networks, and even an electronic platform that includes a “decision support” system. Most recently, I have talked about “private exchanges” in the context of a Web-Broker Entity (WBE), which essentially is a “private exchange.” I have even gone so far as to argue that the ACA Exchanges should NOT be run by a governmental entity or a quasi-private public entity. Rather, an ACA Exchange should outsource its function to a private-sector entity that has experience with e-commerce. That is what a WBE/“private exchange” is. It’s a private-sector entity that performs enrollment functions and helps individuals in the “individual” market find a health plan that best fits their needs. So why did the final HRA regulations mention “private exchanges” for the first time? Well, if an employer gives a “private exchange” access to its employees to help enroll the employer’s employees in an “individual” market plan, the employer may be found to be crossing-the-line and actually “endorsing” a particular insurance company and/or a particular “individual” market plan. As stated above, this is a NO-NO, and if an employer is found to be “endorsing,” such “endorsement” triggers the application of ERISA to the “individual” market plan. How might an employer that is working with a “private exchange” (including a WBE) cross-the-line and be found to be “endorsing”? Well, the final HRA regulations set forth a general rule for employers, providing that “endorsement” will NOT be present if the employer’s assistance is unbiased, neutral, uniformly available, and does not steer participants and beneficiaries towards a particular insurance company or “individual” market plan. In the case of a “private exchange,” if the “private exchange” limits an employee’s choice of insurance company (i.e., the employer works with a “captive private exchange” that only works for one, single insurance company) OR the “private exchange” promotes certain insurance companies or the companies’ health plans over others, this WOULD constitute impermissible “endorsement.” In addition, if the platform is designed or operated in a way that limits an employee’s ability to select a plan that would otherwise be available to them or that promotes one option over another (e.g., with “recommended” or “starred” listings), this WOULD also constitute impermissible “endorsement.” However, if the “private exchange” works with ALL insurance companies selling “individual” market plans in the rating area of the employee’s worksite, then working with this “private exchange” IS permissible (i.e., there is NO “endorsement”). In addition, if “private exchange” maintains a tool or web-based platform that displays information about ALL “individual” market plans available in the rating area of the employee’s worksite – and the platform presents ALL available health plans in a neutral and unbiased fashion – NO “endorsement” is present. Also, if the “private exchange” platform is an otherwise neutral platform that allows employees to search for an HDHP or health plans that contained specific providers in their network, this would NOT trigger “endorsement” on the part of the employer. Does this mean that a “decision support” system is permissible? It’s not clear to me. The final HRA regs also addressed issues where an employer is simply working with an agent/broker. In this case, an employer could accommodate requests from agents/brokers to speak with the employer’s employees or distribute informational materials at the employer’s worksite, so long as such accommodations are granted on an equal basis. And, the accommodations MUST be granted without any preference for agents/brokers that represent a particular firm or have a relationship with a certain insurance company or companies.

The Application of ERISA to the HRA Arrangement

The final HRA regulations confirmed the individual market HRA arrangement – as an HRA itself – is a “group health plan,” and thus, the arrangement IS subject to ERISA’s requirements, including ERISA’s notice and disclosure requirements (which confirms that the HRA must provide participants with, among other things, a Summary of Benefits and Coverage (SBC), as well as a Summary Plan Description (SPD)). The individual market HRA arrangement must also have a plan document, and the employer must file a Form 5500 each year.
- Analysis: To me, this aspect of the regs (i.e., confirming that ERISA applies to the HRA itself) makes a lot of sense. Also, I believe this builds in a layer of consumer protections that critics of this Administration – and/or these regulations – may overlook. What I mean is this: Because ERISA applies to the HRA, employees will be afforded ALL of the consumer protections under ERISA. This includes robust notice and disclosure requirements and fiduciary duties requiring the employer to “act in the best interest” of its employees when offering the HRA arrangement. Also, ERISA gives an employee a “private right of action” to sue its employer if the employee is somehow disadvantaged or discriminated against by the employer. One area where I think employers need more guidance from the DOL is on the fiduciary obligations imposed on employers in the context of the “individual” market plan purchased through the individual market HRA arrangement. What I mean is this: Yes, on account of sponsoring the HRA – which is itself a “group health plan” – ERISA’s fiduciary duties apply, and they should apply to the HRA arrangement. BUT, what about the “individual” market plan? Employers CANNOT control the insurance company underwriting the “individual” market plan. Actually, if the employer tried to control the insurance company, the employer would probably be found to be “endorsing,” which is a NO-NO. Soooo, I believe the Federal Departments need to make clear that in cases where the “individual” market plan is NOT subject to ERISA, an employee does NOT have a “private right of action” against the employer for any issues associated with the “individual” market plan (instead, the employee can go after the insurance company underwriting the plan). Similarly, in NO event should the employer’s fiduciary duties as sponsor of the HRA extend to the “individual” market plan.

Final HRA Regulations – The “Employer Mandate”

The final HRA regulations confirm that the “offer” of an individual market HRA arrangement is treated as an offer of employer-sponsored coverage. As a result, an employer employing 50 or more full-time equivalent employees (FTEs) will avoid the penalty set forth under Code section 4980H(a) if the individual market HRA arrangement is offered to at least 95% of the employer’s “full-time employees” and their dependents. Similarly, an employer employing 50 or more FTEs will avoid the penalty set forth under Code section 4980H(b) if the individual market HRA arrangement is “affordable” and provides “minimum value.”
- Analysis: The above stated rules are significant because this means that a large employer that is otherwise subject to the “employer mandate” will generally NOT be subject to the “employer mandate” penalty taxes by virtue of NOT offering a “group health plan.” In other words, a large employer subject to the “employer mandate” will NOT be exposed to potential taxes if the employer discontinues its “group health plan” for its “full-time” employees. Similar to my point above about developing policies that would encourage – and NOT discourage – employers from offering an individual market HRA arrangement, the Federal Departments wanted to make sure that large employers would NOT be penalized if they decided to give their employees a tax-free contribution to purchase an “individual” market plan. Soooo, the Federal Departments simply mirrored ALL of the rules a large employer has to follow if they are offering a “group health plan.” And those rules are: The employer MUST make sure that the health plan the employee is purchasing (here, an “individual” market plan) is “affordable,” and the plan must provide “minimum value.” For these purposes, the final HRA regs look to the lowest cost “silver” self-only “individual” market plan as a benchmark for making sure that the plan is “affordable” and that the plan provides “minimum value.” The final HRA regs confirm that lowest cost “silver” self-only individual market plan by definition satisfies the “minimum value” test because the plan already covers more than 60% of the benefits covered under the plan (a “silver” individual market plan is, at a minimum, a 66% “actuarial value” plan). But how does the “affordability” test work? Unfortunately, the final HRA regs do NOT really tell us. All the regs say is that Treasury and the IRS will soon be issuing proposed regulations that will detail how a large employer can satisfy the “affordability” test. BUT, Treasury and the IRS issued Notice 2018-88 at the end of October 2018 that provides some “safe harbors” for satisfying the “affordability” test. The final HRA regs indicate that employers can rely on Notice 2018-88 until Treasury/IRS issue proposed regs. Okay then, what did Notice 2018-88 say? In short, Treasury/IRS recognized the administrative burden associated with looking to the rating area where an employee lives to determine the cost of the lowest cost “silver” self-only individual market plan in that rating area. To reduce the administrative burden of determining “affordability” on an employee-by-employee basis, employers are permitted to look to the lowest cost “silver” self-only plan made available in the rating area where the employee’s worksite is located. Treasury/IRS also recognized that determining “affordability” when the cost of the lowest cost “silver” self-only plan is not available until Nov. 1^st of the year prior to the year the individual market HRA arrangement is problematic. Soooo, Treasury/IRS will allow an employer to determine “affordability” based on the prior year cost of the lowest cost “silver” self-only plan in the rating area of the employee’s worksite. In reality, an employer will look to the cost of the lowest cost “silver” self-only plan in the “current year” when planning their HRA contribution amounts for the following year. Lastly, Notice 2018-88 allows an employer to use the affordability “safe harbors” currently available for “group health plans” (i.e., an employee’s W-2 income or hourly rate of pay). Treasury/IRS also confirmed that large employers that offer an individual market HRA arrangement MUST still comply with the employer “reporting” requirements (i.e., employers must continue to furnish employees with a Form 1095-C and submit to the IRS a Form 1094-C).

Final HRA Regulations – The “Excepted Benefit HRA”

The final HRA regulations essentially resurrected the “stand-alone HRA” that many employers offered to their employees prior to the enactment of the ACA. However, in order to create an arrangement akin to a “stand-alone HRA,” the Federal Departments needed to place certain restrictions on this new HRA that were not otherwise applicable to the old “stand-alone HRAs.”
- Analysis: More specifically, in order to resurrect the “stand-alone HRA,” the Federal Departments needed to develop an HRA that they considered something other than a “group health plan.” To accomplish this, the Departments drew upon their discretion to create an additional “excepted benefit” (because an “excepted benefit” is NOT a “group health plan” under the law). As an “excepted benefit HRA” – and not a “group health plan” – this HRA does NOT violate the ACA (because PHSA sections 2711 and 2713 do NOT apply to “excepted benefits”). However, as an “excepted benefit,” the Departments were required to limit the amount of tax-free contributions that may be set aside in the HRA. According to the final HRA regulations, an “excepted benefit HRA” is limited to $1,800 per year, indexed to chained CPI. Importantly, any amounts carried over from the preceding year are NOT counted toward the annual $1,800 limit. The final HRA regulations also provide that the “excepted benefit HRA” CANNOT be used to pay for premiums for a “group health plan,” or an “individual” market plan, or Medicare Parts A, B, C, and D. But, the HRA dollars set aside in an “excepted benefit HRA” CAN be used to pay for short-term health plan premiums, COBRA, and other “excepted benefits” (e.g., disability, vision, and dental). However, if a State determines that the ability to purchase a short-term health plan through an “excepted benefit HRA” is adversely affecting the “small group” market, small employers may be prohibited from allowing the “excepted benefit HRA” to pay for short-term health plan premiums. This latter requirement was added to the final regulations in response to concerns that allowing employees – especially employees of small employers – to purchase a short-term health plan may adversely affect the “small group” market. An “excepted benefit HRA” is also permitted to reimburse medical expenses associated with “individual” market or “group health plan” coverage (e.g., co-pays and expenses before the deductible is met). This aspect of an “excepted benefit HRA” distinguishes it from a “limited-purpose HRA” that is only permitted to reimburse medical expenses related to a plan that is designed to provide only “excepted benefits.” The Federal Departments clarified that a “limited-purpose HRA” that only reimburses expenses related to an “excepted benefit” is NOT subject to the limitations otherwise applicable to the “excepted benefit HRA” created under the final regulations. Importantly, an employer may ONLY offer an “excepted benefit HRA” to its employees if the employer is also offering them “group health plan” coverage. The employee is NOT required to actually enroll in the “group health plan” to get access to the “excepted benefit HRA.” But again, the employer MUST offer “group health plan” coverage in order to be able to also offer the “excepted benefit HRA.” The “excepted benefit HRA” MUST also be made available to all “similarly situated employees.”