With the rising cost of health coverage, employers have been looking for new and consumer-focused methods of providing health benefits to employees. One of those approaches has been the use of health reimbursement arrangements, or HRAs.
An HRA is an employer-sponsored group health plan consisting of an account that participants can use to pay eligible medical expenses. HRAs are employer-established arrangements that are funded only through employer contributions. There are no salary reduction contributions to an HRA. Contributions are not subject to income or employment taxes, and benefits used for medical care are exempt from tax. Unused balances may be carried over indefinitely, although employers may limit the carryovers by plan design. HRAs may (but are not required to) be coupled with high deductible health plans, or may just be offered as a vehicle for purchasing health coverage. HRAs are sometimes used as a means of providing retirees with health coverage.
The Affordable Care Act restricts a group health plan from including annual or lifetime dollar limits. HRAs, by design, impose limits on funds available to employees.
In early health care reform guidance, the agencies responsible for implementing health care reform stated that an HRA that was integrated with a group health plan that satisfied the restrictions on dollar limits under health care reform and would not be considered to violate the Affordable Care Act. The thought was that when taken together, the HRA and the underlying health plan would satisfy the health care reform requirements. The agencies released new Frequently Asked Questions about Health Care Reform and HRAs, and indicated that additional guidance would be forthcoming. Specifically, the new guidance provides:
- An employer-sponsored HRA that is integrated with individual (not group) coverage or with any plan providing coverage through individual policies will not satisfy the health care reform restriction on dollar limits;
- An employee with an HRA must actually enroll in the other coverage for the two components of health coverage to be considered "integrated;" and
- Some transition guidance will be available for amounts under HRAs in effect on January 1, 2013 and with unused amounts credited before to January 1, 2014.
Employers with HRAs must pay attention to forthcoming guidance to determine if their plan's structure meets the requirements and restrictions on dollar limitations imposed under health care reform.
