Stand-Alone Health Reimbursement Arrangements May Not Be Dead After All

LR-stethoscope-shtrstck-highresMany employers offer employees Health Reimbursement Arrangements (“HRAs”) to assist employees meet their health care related expenses.  Often such employer funded arrangements are not “integrated” with an insured health plan, rather they are offered as a “stand-alone” arrangement.  On September 13, 2013, the Internal Revenue Service with the concurrence of the U.S. Departments of Labor and Health and Human Services, declared stand-alone HRAs effectively dead for plan years starting after December 31, 2013.  On December 24, 2013, the IRS issued proposed regulations indicating that the declaration of death was premature.

In September 2013, the IRS noted that all HRAs are group health plans.  As such, HRAs as stand-alone plans, cannot satisfy certain requirements of the Affordable Care Act.  Specifically, these HRAs are unable to satisfy the requirement that group health plans not impose annual limits on essential benefits.  Also, HRAs cannot provide preventative care services without cost sharing as required by the Affordable Care Act.  A small reprieve from this death sentence was created for HRAs that only cover “excepted benefits” since such plans are not required to comply with the Affordable Care Act.

Upon closer inspection, however, the “excepted benefits” exclusion from Affordable Care Act coverage is not particularly helpful.  Many employers have used HRAs to reimburse their employees dental and vision care expenses.  While the definition of “excepted benefits” includes limited scope dental and vision benefits, the definition of “limited scope dental and vision benefits” requires that the employer charge a premium for the coverage.  However, charging employees a premium for participating in a stand-alone employer funded HRA is simply not a practical solution to this problem.

The IRS and other agencies responsible for the implementation of the Affordable Care Act finally saw the light.  The proposed regulations eliminate the premium requirement for limited scope benefit arrangements so employers can continue to offer stand-alone HRAs.  Employers may rely on the proposed rule until final regulations are issued. If any changes are to made in the final regulations the changes will not be effective before January 1, 2015.  While common sense often does not prevail, it is unlikely that this common sense change in the regulation will be dropped in the final rule. If an employer wants to reimburse its employees’ dental and vision benefits through an HRA, it can now do so without regard to the requirements of the Affordable Care Act.