Understanding the New Trump Administration Rule Allowing Employers to Reimburse Employees for Individual Coverage Premiums

Understanding the New Trump Administration Rule Allowing Employers to Reimburse Employees for Individual Coverage Premiums

The Trump Administration released a new regulation and an FAQ document on June 13, 2019, that provides a legal window for employers to pay for their employees’ individual health insurance premiums beginning on January 1, 2020. However, as with most things, it’s not as simple as it sounds. Kistler Tiffany Benefits wants our clients to have an understanding of the new coverage possibility, so we’ve broken it down for you. If your company wants to learn more or discuss how the regulation could be applied to your specific benefit plan, please contact your Kistler Tiffany Benefits’ Employee Benefits Consultant.

How Individual Coverage HRAs Will Work in a Nutshell    

For decades, if an employer wanted to offer employees health insurance on a tax-preferred basis, it had to operate a group major medical plan.  Starting January 1, 2020, this rule permits businesses to provide employees with an “individual coverage health reimbursement arrangement” (“individual coverage HRA”) to directly reimburse employees for qualified individual coverage and/or Medicare premiums, provided that specific conditions are met. Employers and employees utilizing the new coverage option will benefit from the same tax advantages associated with a traditional group health plan, and employees with an individual coverage HRA will gain access to a special individual market enrollment period.

Requirements for Employers That Choose the Individual HRA Option

If an employer chooses to establish an individual coverage HRA, then there are many rules to follow.  First, the employer must choose to offer the individual coverage HRA instead of traditional group major medical coverage; employees cannot be offered a choice between both plan options.  A company can limit the individual coverage HRA to certain classes of employees and offer group health insurance to other classes, but there are strict rules and size limitations about what constitutes an acceptable class to prevent discrimination.

Once an employer chooses to offer an individual coverage HRA to one or more classes of employees, then it must provide these employees with a detailed notice about their new coverage option at least 90 days before implementation. This means employers who are considering the individual HRA alternative will need to make a final commitment at least 120 days before open enrollment starts, even though new plan year rates for traditional coverage will probably not be available to use as a price comparison.

Beyond that, any business that elects to offer an individual coverage HRA must require that all beneficiaries who are provided with reimbursements enroll in major medical coverage.  Employers must also cease providing payment if an employee drops this coverage.  To substantiate reimbursements, the employer must require proof of coverage or an employee attestation. Additionally, businesses must offer the HRA on the same terms to all employees in each class and provide an opportunity to opt-out.

Finally, since the individual coverage HRA is still a type of self-funded group health plan, any employer that picks this option needs to complete all of the steps to maintain a compliant self-funded plan. This means preparing and distributing a summary of benefits and coverage and other required notices, maintaining plan documents, and complying with HIPAA privacy and data security requirements, among other rules.  In fact, compliance and liability protection becomes more critical if a group client decides to offer employees an individual coverage HRA.

What Kind of Liability Does An Employer Have With This Plan Option?

An individual health coverage HRA itself is really a self-funded group health plan, so for almost all businesses that means it is subject to the Employee Retirement Income Security Act (ERISA) (the exceptions being state and local government plans and certain plans sponsored by religious institutions).  However, employers offering these plans will want to make sure that they don’t assume ERISA fiduciary responsibility for the individual coverage their employees buy with HRA funds. If this were to happen, then the employer would have legal and financial obligations that would be next-to-impossible to meet.  The new rule includes safe harbor provisions intended to prevent employers from assuming that liability and the Administration promises more detailed guidance is coming about how employers can stay within the bounds of the safe harbor.

What About the Employer Mandate? 

Any sized employer can offer employees an individual health coverage HRA instead of traditional group coverage, and there is no minimum amount an employer must contribute to an individual coverage HRA.  However, offering an individual coverage HRA doesn’t exempt an applicable large employer (ALE) from its responsibility to offer eligible employees affordable minimum value coverage.  The new rules aren’t entirely clear on how an ALE can make sure their individual health coverage HRA meets the affordability standard.  The Trump Administration has promised another new regulation explicitly addressing the affordability requirement soon, but until then, interested ALEs should be cautious.  Not only are all of the rules and liability exposures unknown, but it is also unknown how employer reporting compliance vendors and HRA service providers will handle these complicated issues.

Does an Individual HRA Work for Medicare-eligible People?

The regulation requires participating employer plans to treat all individual coverage HRA beneficiaries in the same class of employees according to the same terms, including any Medicare beneficiaries. Individual coverage HRAs may also reimburse all Medicare-eligible plan participants for traditional Medicare premiums, Medicare Advantage and Part D coverage, and Medicare supplemental insurance premiums.  So, the final rules conclude that as long as a plan does not limit reimbursements only to expenses not covered by Medicare, it will be considered to meet the terms of the federal Medicare Secondary Payer rules. Furthermore, the regulation makes it clear that employers that offer fully compliant individual HRAs to Medicare-eligible people do not violate existing discrimination laws or measures designed to prevent the sale or marketing of duplicative traditional individual coverage to the Medicare population.

How Does This Work with COBRA and State Continuation Requirements? 

If an employer offering an individual coverage HRA is subject to either COBRA continuation of coverage requirements or state continuation of coverage laws, then those requirements still apply to the underlying individual HRA.  However, the new rules also specify that if an employee fails to maintain individual coverage as required by the HRA rules, it does not constitute a COBRA qualifying event. Traditional qualifying events, like loss of coverage due to a termination of employment or a reduction in the number of hours of employment would still apply, and beneficiaries that experience one of those qualifying events would have a right to COBRA or other applicable group continuation coverage through the HRA.  Affected beneficiaries must make a timely election and payments. They also must maintain or enroll in qualified individual coverage to remain COBRA eligible. Alternatively, an individual coverage HRA beneficiary with COBRA or other continuation rights may qualify for a Special Enrollment Period to buy or change his or her individual coverage.

How Does This Rule Work with Cafeteria Plans and Section 105(h) Rules? 

The new rule allows employers to create a Section 125 cafeteria plan alongside an individual coverage HRA, but it is limited to individual coverage purchased off-exchange only.  It is unclear how individual coverage HRAs can meet the current Section 125 plan nondiscrimination testing requirements.  As a self-funded plan, the individual HRA will also need to comply with Section 105(h) nondiscrimination rules.  The Trump administration plans to issue new guidance about this, but until then, employers should proceed carefully.

Is There Anything Else in This Regulation We Should Know About? 

The new rule gives employers the ability to choose to continue to offer traditional group coverage and pair that coverage with a different new type of HRA, known as an “excepted benefits HRA,” beginning on January 1, 2020. Employees could enroll in the excepted benefits HRA and use it to pay for supplemental coverage that meets the definition of an “excepted benefit plan” according to HIPAA.  They could also use it for cost-sharing or other qualified medical expenses not covered by the employer’s major medical plan – even if the employee doesn’t enroll in the group’s major medical coverage.  One thing the rule specifically allows employees to do is to decline their traditional group coverage and instead enroll in the excepted benefits HRA and use the HRA to pay for short-term limited duration insurance (STLDI) coverage.

New HRA Options Moving Forward

While the primary federal individual coverage HRA rules have been finalized, there are still more pieces of guidance and more regulations due out from the federal government concerning this new plan option. Kistler Tiffany Benefits will be watching for new rules and guidelines carefully.  As soon as more information is available about how an individual HRA will work with the employer mandate, employer reporting requirements, nondiscrimination rules, and the ERISA safe harbor, Kistler Tiffany Benefits will provide our clients with more information and analysis. Until then, please contact your Kistler Tiffany Benefits’ Employee Benefits Consultant if you have questions.