Health Reimbursement Arrangements and Other Account-Based Group Health Plans

Citation84 FR 28888
Record Number2019-12571
Published date20 June 2019
SectionRules and Regulations
CourtEmployee Benefits Security Administration,Internal Revenue Service,Labor Department
28888
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1
82 FR 48385 (Oct. 17, 2017). The executive
order was issued on October 12, 2017 and was
published in the Federal Register on October 17,
2017.
2
See IRS Notice 2002–45, 2002–2 CB 93; Revenue
Ruling 2002–41, 2002–2 CB 75; and IRS Notice
2013–54, 2013–40 IRB 287.
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1 and 54
[TD 9867]
RIN 1545–BO46
DEPARTMENT OF LABOR
Employee Benefits Security
Administration
29 CFR Parts 2510 and 2590
RIN 1210–AB87
DEPARTMENT OF HEALTH AND
HUMAN SERVICES
45 CFR Parts 144, 146, 147, and 155
[CMS–9918–F]
RIN 0938–AT90
Health Reimbursement Arrangements
and Other Account-Based Group
Health Plans
AGENCY
: Internal Revenue Service,
Department of the Treasury; Employee
Benefits Security Administration,
Department of Labor; Centers for
Medicare & Medicaid Services,
Department of Health and Human
Services.
ACTION
: Final rule.
SUMMARY
: This document sets forth final
rules to expand opportunities for
working men and women and their
families to access affordable, quality
healthcare through changes to rules
under various provisions of the Public
Health Service Act (PHS Act), the
Employee Retirement Income Security
Act (ERISA), and the Internal Revenue
Code (Code) regarding health
reimbursement arrangements (HRAs)
and other account-based group health
plans. Specifically, the final rules allow
integrating HRAs and other account-
based group health plans with
individual health insurance coverage or
Medicare, if certain conditions are
satisfied (an individual coverage HRA).
The final rules also set forth conditions
under which certain HRAs and other
account-based group health plans will
be recognized as limited excepted
benefits. Also, the Department of the
Treasury (Treasury Department) and the
Internal Revenue Service (IRS) are
finalizing rules regarding premium tax
credit (PTC) eligibility for individuals
offered an individual coverage HRA. In
addition, the Department of Labor (DOL)
is finalizing a clarification to provide
assurance that the individual health
insurance coverage for which premiums
are reimbursed by an individual
coverage HRA or a qualified small
employer health reimbursement
arrangement (QSEHRA) does not
become part of an ERISA plan, provided
certain safe harbor conditions are
satisfied. Finally, the Department of
Health and Human Services (HHS) is
finalizing provisions to provide a
special enrollment period (SEP) in the
individual market for individuals who
newly gain access to an individual
coverage HRA or who are newly
provided a QSEHRA. The goal of the
final rules is to expand the flexibility
and use of HRAs and other account-
based group health plans to provide
more Americans with additional options
to obtain quality, affordable healthcare.
The final rules affect employees and
their family members; employers,
employee organizations, and other plan
sponsors; group health plans; health
insurance issuers; and purchasers of
individual health insurance coverage.
DATES
:
Effective date: These final rules are
effective on August 19, 2019.
Applicability dates: The final rules
generally apply for plan years beginning
on or after January 1, 2020. However,
the final rules under Code section 36B
apply for taxable years beginning on or
after January 1, 2020, and the final rules
providing a new special enrollment
period in the individual market apply
January 1, 2020. See Section VI of the
SUPPLEMENTARY INFORMATION
section for
more information on the applicability
dates.
FOR FURTHER INFORMATION CONTACT
:
Christopher Dellana, Internal Revenue
Service, Department of the Treasury, at
(202) 317–5500; Matthew Litton or
David Sydlik, Employee Benefits
Security Administration, Department of
Labor, at (202) 693–8335; David
Mlawsky, Centers for Medicare &
Medicaid Services, Department of
Health and Human Services, at (410)
786–1565.
Customer Service Information:
Individuals interested in obtaining
information from the DOL concerning
employment-based health coverage laws
may call the EBSA Toll-Free Hotline at
1–866–444–EBSA (3272) or visit the
DOL’s website (www.dol.gov/ebsa). In
addition, information from HHS on
private health insurance coverage and
coverage provided by non-federal
governmental group health plans can be
found on the Centers for Medicare &
Medicaid Services (CMS) website
(www.cms.gov/cciio), and information
on healthcare reform can be found at
www.HealthCare.gov.
SUPPLEMENTARY INFORMATION
:
I. Background
A. Executive Order
On October 12, 2017, President
Trump issued Executive Order 13813,
1
‘‘Promoting Healthcare Choice and
Competition Across the United States,’’
stating, in part, that the ‘‘Administration
will prioritize three areas for
improvement in the near term:
association health plans (AHPs), short-
term, limited-duration insurance
(STLDI), and health reimbursement
arrangements (HRAs).’’ With regard to
HRAs, the Executive Order directs the
Secretaries of the Treasury, Labor, and
HHS to ‘‘consider proposing regulations
or revising guidance, to the extent
permitted by law and supported by
sound policy, to increase the usability of
HRAs, to expand employers’ ability to
offer HRAs to their employees, and to
allow HRAs to be used in conjunction
with nongroup coverage.’’ The
Executive Order further provides that
expanding ‘‘the flexibility and use of
HRAs would provide many Americans,
including employees who work at small
businesses, with more options for
financing their healthcare.’’
B. HRAs and Other Account-Based
Group Health Plans
1. In General
An account-based group health plan
is an employer-provided group health
plan that provides for reimbursement of
expenses for medical care (as defined
under Code section 213(d)) (medical
care expenses), subject to a maximum
fixed-dollar amount of reimbursements
for a period (for example, a calendar
year). An HRA is a type of account-
based group health plan funded solely
by employer contributions (with no
salary reduction contributions or other
contributions by employees) that
reimburses an employee solely for
medical care expenses incurred by the
employee, or the employee’s spouse,
dependents, and children who, as of the
end of the taxable year, have not
attained age 27, up to a maximum dollar
amount for a coverage period.
2
The
reimbursements under these types of
arrangements are excludable from the
employee’s income and wages for
federal income tax and employment tax
purposes. Amounts that remain in the
HRA at the end of the year often may
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3
For more information about employer payment
plans, see IRS Notice 2013–54, Q&A–1 and Q&A–
3, and IRS Notice 2015–17, Q&A–4 and Q&A–5,
2015–14 IRB 845.
4
For simplicity, the preamble generally refers
only to HRAs, but references to HRAs should also
be considered to include other account-based group
health plans as defined in the final rules, unless
otherwise specified. This term does not include
QSEHRAs, under Code section 9831(d); medical
savings accounts (MSAs), under Code section 220;
or health savings accounts (HSAs), under Code
section 223. In addition, for purposes of the final
rules, the term ‘‘HRA or other account-based group
health plan’’ does not include an employer
arrangement that reimburses the cost of individual
health insurance coverage through a cafeteria plan
under Code section 125 (cafeteria plan premium
arrangements); however see later in this preamble
for a clarification that plan sponsors may offer such
an arrangement in addition to an individual
coverage HRA. A QSEHRA is not a group health
plan for purposes of the market requirements of the
Code (except as provided in Code section
4980I(f)(4)), parts 6 and 7 of ERISA, and titles XXII
and XXVII of the PHS Act, and is not included in
the definition of HRAs and other account-based
group health plans for purposes of the final rules
or this preamble. A QSEHRA is, however,
considered a group health plan under the PHS Act
for purposes of part C of title XI of the Social
Security Act (42 U.S.C. 1320d et seq.). See PHS Act
section 2791(a)(1), as amended by the 21st Century
Cures Act (Cures Act), Public Law 114–255, section
18001(c).
5
While the PPACA amendments to PHS Act
section 2722(b) and (c) (formerly PHS Act section
2721(c) and (d)) could be read as restricting the
exemption for excepted benefits so it applies only
with respect to subpart 2 of part A of title XXVII
of the PHS Act, HHS does not intend to use its
resources to enforce the market requirements with
respect to excepted benefits offered by non-federal
governmental plan sponsors and encourages states
to adopt a similar approach with respect to issuers
of excepted benefits. See 75 FR 34537, 34539–34540
(June 17, 2010).
6
While the PPACA amendments to title XXVII of
the PHS Act removed the parallel provision at
section 2722(a) (formerly PHS Act section 2721(a)),
HHS follows a similar approach for retiree-only
non-federal governmental plans and encourages
states to adopt a similar approach with respect to
health insurance issuers of retiree-only plans. See
75 FR 34537, 34539–34540 (June 17, 2010).
7
PHS Act section 2711 applies to grandfathered
health plans, except that the annual dollar limit
prohibition does not apply to grandfathered
individual health insurance coverage.
Grandfathered health plans are health plans that
were in existence as of March 23, 2010, and that
are only subject to certain provisions of PPACA, as
long as they maintain status as grandfathered health
plans under the applicable rules. See 26 CFR
54.9815–1251, 29 CFR 2590.715–1251, and 45 CFR
147.140.
8
For information regarding EHBs, see HHS’s
February 25, 2013 final rules addressing EHBs
under PPACA section 1302 (78 FR 12834 (Feb. 25,
2013)); see also HHS Notice of Benefit and Payment
Parameters for 2016 (80 FR 10871 (Feb. 27, 2015)).
In addition, HHS issued final rules providing states
with additional flexibility to define EHBs, starting
with plan years beginning on or after January 1,
2020. See 45 CFR 156.111 (83 FR 16930 (April 17,
2018)). The current rules under PHS Act section
2711 include a definition of EHBs that applies for
plans that are not required to cover EHBs. See 26
CFR 54.9815–2711(c), 29 CFR 2590.715–2711(c),
and 45 CFR 147.126(c). As explained later in this
preamble, the rules set forth in this document
include amendments to the definition of EHBs
under the PHS Act section 2711 rules to reflect the
updated final EHB rules.
9
As explained in prior guidance, the Departments
of Labor, the Treasury and HHS (the Departments)
have determined that the annual dollar limit
prohibition is not applicable to certain account-
based group health plans that are subject to other
statutory provisions limiting the benefits available
under those plans. See 80 FR 72192, 72201 (Nov.
18, 2015). Specifically, the Departments have
explained that the annual dollar limit prohibition
does not apply to health FSAs that are offered
through a cafeteria plan under Code section 125
(cafeteria plan) because PPACA section 9005
specifically limits salary reduction contributions to
health FSAs to $2,500 (indexed for inflation) per
year. Notwithstanding this exclusion for certain
health FSAs from the application of the annual
dollar limit prohibition, rules under Code section
125 provide that health FSAs are not permitted to
reimburse employees for premiums for health
insurance coverage. See Code section 125(d)(2)(A)
and proposed 26 CFR 1.125–5(k)(4) (72 FR 43938,
43959 (Aug. 6, 2007)). Similarly, although MSAs
and HSAs generally are not treated as group health
plans subject to the market requirements, the
Departments have concluded that the annual dollar
limit prohibition would not apply to an MSA or
HSA even if a particular arrangement did satisfy the
criteria to be a group health plan because both types
of arrangements are subject to specific statutory
provisions that limit the contributions. See 75 FR
37188, 37190 (June 28, 2010); see also IRS Notice
2004–2, Q&A–1 and Q&A–3, 2004–2 IRB 269,
which defines an HSA as a tax-exempt trust or
custodial account and a high-deductible health plan
as a health plan; see also DOL Field Assistance
Bulletin No. 2004–01, available at https://
www.dol.gov/agencies/ebsa/employers-and-
advisers/guidance/field-assistance-bulletins/2004-
01 and DOL Field Assistance Bulletin No. 2006–02,
Continued
be used to reimburse medical care
expenses incurred in later years,
depending on the terms of the HRA.
HRAs are not the only type of
account-based group health plan. For
example, an employer payment plan is
also an account-based group health
plan. An employer payment plan is an
arrangement under which an employer
reimburses an employee for some or all
of the premium expenses incurred for
individual health insurance coverage, or
other non-employer sponsored hospital
or medical insurance. This includes a
reimbursement arrangement described
in Revenue Ruling 61–146, 1961–2 CB
25, or an arrangement under which the
employer uses its funds directly to pay
the premium for individual health
insurance coverage or other non-
employer sponsored hospital or medical
insurance covering the employee.
3
Other examples of account-based group
health plans include health flexible
spending arrangements (health FSAs)
and certain other employer-provided
medical reimbursement plans that are
not HRAs.
4
2. Application of the Patient Protection
and Affordable Care Act to HRAs and
Other Account-Based Group Health
Plans
The Patient Protection and Affordable
Care Act, Public Law 111–148, was
enacted on March 23, 2010 and the
Health Care and Education
Reconciliation Act of 2010, Public Law
111–152, was enacted on March 30,
2010 (collectively, PPACA). PPACA
reorganized, amended, and added to the
provisions of part A of title XXVII of the
PHS Act relating to health coverage
requirements for group health plans and
health insurance issuers in the group
and individual markets. The term
‘‘group health plan’’ includes both
insured and self-insured group health
plans.
PPACA also added section 715 to
ERISA and section 9815 to the Code to
incorporate the provisions of part A of
title XXVII of the PHS Act, PHS Act
sections 2701 through 2728 (the market
requirements), into ERISA and the Code,
making them applicable to group health
plans and health insurance issuers
providing health insurance coverage in
connection with group health plans. In
accordance with Code section 9831(b)
and (c), ERISA section 732(b) and (c),
and PHS Act sections 2722(b) and (c)
and 2763, the market requirements do
not apply to a group health plan or a
health insurance issuer in the group or
individual market in relation to the
provision of excepted benefits described
in Code section 9832(c), ERISA section
733(c), and PHS Act section 2791(c).
5
See the discussion later in this preamble
for additional background on excepted
benefits. In addition, in accordance with
Code section 9831(a)(2) and ERISA
section 732(a), the market requirements
do not apply to a group health plan that
has fewer than two participants who are
current employees on the first day of the
plan year.
6
PHS Act section 2711, as added by
PPACA, generally prohibits group
health plans and health insurance
issuers offering group or individual
health insurance coverage
7
from
establishing for any individual any
lifetime or annual limits on the dollar
value of essential health benefits
(EHBs), as defined in PPACA section
1302(b). PHS Act section 2711,
however, does not prevent a group
health plan, or a health insurance issuer
offering group or individual health
insurance coverage, from placing an
annual or lifetime dollar limit for any
individual on specific covered benefits
that are not EHBs, to the extent these
limits are otherwise permitted under
applicable law.
8
HRAs are subject to PHS Act section
2711. An HRA generally will fail to
comply with PHS Act section 2711
because the arrangement is a group
health plan that imposes an annual
dollar limit on EHBs that the HRA will
reimburse for an individual.
9
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available at https://www.dol.gov/agencies/ebsa/
employers-and-advisers/guidance/field-assistance-
bulletins/2006-02, which provide guidance
regarding HSAs not constituting ‘‘employee welfare
benefit plans’’ covered by ERISA Title I where
employer involvement with the HSA is limited.
Therefore, the final rules do not apply to MSAs,
HSAs, or, in certain circumstances, health FSAs.
10
See also 26 CFR 54.9815–2713, 29 CFR
2590.715–2713, and 45 CFR 147.130.
11
Because MSAs and HSAs generally are not
treated as group health plans, these arrangements
are not subject to PHS Act section 2713. Health
FSAs are group health plans and, unless they are
excepted benefits, will fail to satisfy the
requirements of PHS Act section 2713 unless they
are integrated with other coverage that satisfies
these requirements. For more information about the
application of PHS Act section 2713 to health FSAs,
see IRS Notice 2013–54, Q&A–7; DOL Technical
Release No. 2013–03, Q&A–7, issued on September
13, 2013, available at https://www.dol.gov/agencies/
ebsa/employers-and-advisers/guidance/technical-
releases/13-03; and CMS Insurance Standards
Bulletin, Application of Affordable Care Act
Provisions to Certain Healthcare Arrangements,
September 16, 2013, available at https://
www.cms.gov/CCIIO/Resources/Regulations-and-
Guidance/Downloads/cms-hra-notice-9-16-
2013.pdf.
12
Rules and subregulatory guidance issued on
this topic include: (1) 75 FR 37188 (June 28, 2010);
(2) FAQs about Affordable Care Act Implementation
(Part XI), available at https://www.dol.gov/sites/
default/files/ebsa/about-ebsa/our-activities/
resource-center/faqs/aca-part-xi.pdf or http://
www.cms.gov/CCIIO/Resources/Fact-Sheets-and-
FAQs/aca_implementation_faqs11.html; (3) IRS
Notice 2013–54 and DOL Technical Release No.
2013–03 and CMS Insurance Standards Bulletin,
Application of Affordable Care Act Provisions to
Certain Healthcare Arrangements; (4) IRS FAQ on
Employer Healthcare Arrangements, available at
https://www.irs.gov/affordable-care-act/employer-
health-care-arrangements; (5) FAQs about
Affordable Care Act Implementation (Part XXII),
available at https://www.dol.gov/sites/default/files/
ebsa/about-ebsa/our-activities/resource-center/faqs/
aca-part-xxii.pdf or https://www.cms.gov/CCIIO/
Resources/Fact-Sheets-and-FAQs/Downloads/
FAQs-Part-XXII-FINAL.pdf; (6) IRS Notice 2015–17,
issued on February 18, 2015; (7) 80 FR 72192 (Nov.
18, 2015); (8) IRS Notice 2015–87, 2015–52 IRB 889,
issued on December 16, 2015; (9) IRS Notice 2016–
17, 2016–9 IRB 358, issued on February 5, 2015;
DOL Technical Release No. 2016–01, issued on
February 5, 2016, available at https://www.dol.gov/
agencies/ebsa/employers-and-advisers/guidance/
technical-releases/16-01; and CMS Insurance
Standards Bulletin, Application of the Market
Reforms and Other Provisions of the Affordable
Care Act to Student Health Coverage, issued on
February 5, 2016, available at https://www.cms.gov/
CCIIO/Resources/Regulations-and-Guidance/
Downloads/student-health-bulletin.pdf; (10) FAQs
about Affordable Care Act Implementation Part 33,
available at https://www.dol.gov/sites/default/files/
ebsa/about-ebsa/our-activities/resource-center/faqs/
aca-part-33.pdf or https://www.cms.gov/CCIIO/
Resources/Fact-Sheets-and-FAQs/Downloads/ACA–
FAQ-Set-33-Final.pdf; (11) FAQs about Affordable
Care Act Implementation Part 37, available at
https://www.dol.gov/sites/default/files/ebsa/about-
ebsa/our-activities/resource-center/faqs/aca-part-
37.pdf or https://www.cms.gov/CCIIO/Resources/
Fact-Sheets-and-FAQs/Downloads/FAQs-Part-
37.pdf; (12) 83 FR 54420 (Oct. 29, 2018); and (13)
IRS Notice 2018–88, 2018–49 IRB 817, issued on
November 19, 2018.
13
26 CFR 54.9815–2711(d)(4), 29 CFR 2590.715–
2711(d)(4), and 45 CFR 147.126(d)(4).
14
See 75 FR 37187, 37190–37191 (June 28, 2010).
15
See CMS Insurance Standards Bulletin,
Application of Affordable Care Act Provisions to
Certain Healthcare Arrangements.
16
In addition to describing the integration
methods, IRS Notice 2013–54 and DOL Technical
Release No. 2013–03, in Q&A–5, provided that,
whether or not an HRA is integrated with other
group health plan coverage, unused amounts that
are credited to the HRA while the HRA is integrated
with other group health plan coverage may be used
to reimburse medical care expenses in accordance
with the terms of the HRA after an employee ceases
to be covered by the integrated group health plan
coverage without causing the HRA to fail to comply
with PHS Act sections 2711 and 2713. In IRS Notice
2015–87, Q&A–2, however, the Departments
clarified that an HRA that includes terms permitting
the purchase of individual health insurance
coverage, even if reimbursement is only allowed
after the employee ceases to be covered by other
integrated group health plan coverage, fails to be
integrated with other group health plan coverage
and therefore fails to comply with PHS Act sections
2711 and 2713.
17
See 80 FR 72192 (Nov. 18, 2015).
18
See FAQs about Affordable Care Act
Implementation (Part XXII), available at https://
www.dol.gov/sites/default/files/ebsa/about-ebsa/
our-activities/resource-center/faqs/aca-part-xxii.pdf
or https://www.cms.gov/CCIIO/Resources/Fact-
Sheets-and-FAQs/Downloads/FAQs-Part-XXII-
FINAL.pdf.
19
The Treasury Department and the IRS note that
the information included in this preamble is not
intended to be guidance regarding the proper
federal tax treatment or consequences of any
particular arrangement, except to the extent the
preamble addresses the application of Code sections
36B, 9801, 9802, 9815, 9831, and 9832 and PHS Act
sections 2711 and 2713.
PHS Act section 2713, as added by
PPACA, generally requires non-
grandfathered group health plans, and
health insurance issuers offering non-
grandfathered group or individual
health insurance coverage, to provide
coverage for certain preventive services
without imposing any cost-sharing
requirements for these services.
10
Non-
grandfathered HRAs are subject to and
fail to comply with PHS Act section
2713 because, while HRAs may be used
to reimburse the costs of preventive
services, HRAs do not reimburse such
costs after the HRAs have reimbursed
the maximum dollar amount for a
coverage period, and therefore HRAs fail
to provide the required coverage, and
violate the prohibition on imposing cost
sharing for preventive services.
11
3. Prior Rules and Guidance on
Integration of HRAs and Other Account-
Based Group Health Plans
The Departments previously issued
rules and subregulatory guidance
regarding the application of PHS Act
sections 2711 and 2713 to HRAs.
12
The
rules and guidance generally provide
that, if an HRA is ‘‘integrated’’ with
other group health plan coverage that
complies with PHS Act sections 2711
and 2713, the HRA is considered to be
in compliance with those sections
because the combined arrangement
complies with them. The rules and
guidance also provide that HRAs may be
integrated with Medicare and TRICARE
coverage if certain conditions are
satisfied, but may not be integrated with
individual health insurance coverage for
purposes of complying with PHS Act
sections 2711 and 2713.
13
More specifically, in the preamble to
the 2010 interim final rules under PHS
Act section 2711, the Departments
provided that HRAs may be integrated
with ‘‘other coverage as part of a group
health plan’’ that complies with PHS
Act section 2711 in order for the HRAs
to be considered to satisfy PHS Act
section 2711.
14
The interim final rules
did not, however, set forth rules for
implementing integration; the
integration methods were set forth in
later subregulatory guidance and
subsequently included in the final rules
under PHS Act section 2711 issued in
2015.
On September 13, 2013, the Treasury
Department and the IRS issued Notice
2013–54, the DOL issued Technical
Release 2013–03, and HHS issued
contemporaneous guidance explaining
that HHS concurred with the DOL and
Treasury Department guidance.
15
This
guidance stated that an HRA may not be
integrated with individual health
insurance coverage for purposes of PHS
Act sections 2711 and 2713, but
described methods for integrating an
HRA with another group health plan.
16
The Departments later incorporated the
provisions of this guidance into the final
rules issued in 2015 under PHS Act
section 2711
17
, which are summarized
later in this section of the preamble.
On November 6, 2014, the
Departments issued FAQs about
Affordable Care Act Implementation
(Part XXII).
18
Q&A–1 reiterated and
clarified prior subregulatory guidance
by explaining that if an employer offers
its employees cash to reimburse the
purchase of individual health insurance
coverage, the payment arrangement is a
group health plan, without regard to
whether the employer treats the money
as a pre-tax or post-tax benefit to the
employee, and it may not be integrated
with individual health insurance
coverage, and, therefore, will fail to
comply with PHS Act sections 2711 and
2713.
19
On February 18, 2015, the Treasury
Department and the IRS issued Notice
2015–17. Q&A–3 provided that an
arrangement under which an employer
reimburses (or pays directly) some or all
of the medical care expenses for
employees covered by TRICARE
constitutes an HRA and may not be
integrated with TRICARE to comply
with PHS Act sections 2711 and 2713
because TRICARE is not a group health
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20
See later in this preamble for a clarification of
the meaning of this statement included in IRS
Notice 2015–17, regarding the MSP provisions.
21
See 80 FR 72192 (Nov. 18, 2015). To the extent
the 2015 rules did not incorporate or modify the
prior subregulatory guidance, that guidance remains
in effect.
22
These two methods of integration were
originally discussed in IRS Notice 2013–54, Q&A–
4, and DOL Technical Release No. 2013–03.
23
See 26 CFR 54.9815–2711(d)(2)(ii), 29 CFR
2590.715–2711(d)(2)(ii), and 45 CFR
147.126(d)(2)(ii).
24
See 26 CFR 54.9815–2711(d)(2)(i), 29 CFR
2590.715–2711(d)(2)(i), and 45 CFR 147.126(d)(2)(i).
25
In IRS Notice 2015–87, Q&A–4, the
Departments clarified that an HRA that may be used
to reimburse the medical care expenses of an
employee’s spouse or dependents (a family HRA)
may not be integrated with self-only coverage of the
employee under the employer’s non-HRA group
health plan. On January 12, 2017, the Departments
issued guidance to clarify that a family HRA is
permitted to be integrated with a combination of
coverage under qualifying non-HRA group health
plan coverage for purposes of complying with PHS
Act sections 2711 and 2713, provided that all of the
individuals who are covered under the family HRA
are also covered under qualifying non-HRA group
coverage. See FAQs about Affordable Care Act
Implementation Part 37, available at https://
www.dol.gov/sites/default/files/ebsa/about-ebsa/
our-activities/resource-center/faqs/aca-part-37.pdf
or https://www.cms.gov/CCIIO/Resources/Fact-
Sheets-and-FAQs/Downloads/FAQs-Part-37.pdf.
26
Although, in general, an HRA integrated with
non-HRA group coverage fails to comply with PHS
Act section 2711 if the non-HRA group coverage
with which the HRA is integrated does not cover
a category of EHB and the HRA is available to cover
that category of EHB and limits the coverage to the
HRA’s maximum benefit, the Departments have
provided that if the non-HRA group coverage
satisfies the MV Integration Method, an HRA will
not be treated as failing to comply with PHS Act
section 2711, even if the non-HRA group coverage
with which the HRA is integrated does not cover
a category of EHB and the HRA is available to cover
that category of EHB and limits the coverage to the
HRA’s maximum benefit. See IRS Notice 2013–54,
Q&A–6.
27
See 26 CFR 54.9815–2711(d)(5), 29 CFR
2590.715–2711(d)(5), and 45 CFR 147.126(d)(5).
The 2015 rules did not address the Medicare
integration rules that apply to employers who are
required to offer non-HRA group coverage to
employees who are eligible for Medicare (generally,
employers with 20 or more employees). For a
discussion of those rules, see IRS Notice 2015–17
and the discussion in this preamble.
plan for integration purposes. However,
Q&A–3 stated that an HRA that pays for
or reimburses medical care expenses for
employees covered by TRICARE may be
integrated with another group health
plan offered by the employer for
purposes of PHS Act sections 2711 and
2713 if: (1) The employer offers a group
health plan (other than the HRA) to the
employee that does not consist solely of
excepted benefits and that provides
minimum value (MV); (2) the employee
participating in the HRA is enrolled in
TRICARE; (3) the HRA is available only
to employees who are enrolled in
TRICARE; and (4) the HRA is limited to
reimbursement of cost sharing and
excepted benefits, including TRICARE
supplemental premiums.
Q&A–3 of Notice 2015–17 also
provided that an employer payment
plan through which an employer
reimburses (or pays directly) all or a
portion of Medicare Part B or D
premiums for employees may not be
integrated with Medicare coverage to
comply with PHS Act sections 2711 and
2713 because Medicare coverage is not
a group health plan. However, under the
notice, this type of employer payment
plan may be integrated with another
group health plan offered by the
employer for purposes of PHS Act
sections 2711 and 2713 if: (1) The
employer offers a group health plan
(other than the employer payment plan)
to the employee that does not consist
solely of excepted benefits and that
provides MV; (2) the employee
participating in the employer payment
plan is actually enrolled in Medicare
Part A and B; (3) the employer payment
plan is available only to employees who
are enrolled in Medicare Part A and Part
B or D; and (4) the employer payment
plan is limited to reimbursement of
Medicare Part B or D premiums and
excepted benefits, including Medigap
premiums. Notice 2015–17 also
includes a general reminder that, to the
extent such an arrangement is available
to active employees, it may be subject to
restrictions under other laws, such as
the Medicare secondary payer (MSP)
provisions.
20
See later in this preamble
for a discussion of the rules provided in
the 2015 rules under PHS Act section
2711 allowing Medicare Part B and D
reimbursement arrangements to be
integrated with Medicare in certain
limited circumstances (that is, generally,
for HRAs sponsored by employers with
fewer than 20 employees).
On November 18, 2015, the
Departments finalized the proposed and
interim final rules under PHS Act
section 2711, incorporating certain
subregulatory guidance regarding HRA
integration, and making various
additional clarifications (the 2015
rules).
21
The 2015 rules incorporate
prior subregulatory guidance that HRAs
may not be integrated with individual
health insurance coverage for purposes
of complying with PHS Act sections
2711 and 2713. Consistent with the
initial subregulatory guidance, the 2015
rules provide two methods for
integration of HRAs with other group
health plan coverage.
22
The first method
applies to HRAs integrated with other
group health plan coverage that
provides MV (the MV Integration
Method).
23
The second method applies
to HRAs integrated with other group
health plan coverage that does not
provide MV (the Non-MV Integration
Method).
24
Both the MV Integration Method and
the Non-MV Integration Method require
that: (1) The HRA plan sponsor offer the
employee a group health plan other than
the HRA (non-HRA group coverage); (2)
the employee receiving the HRA be
enrolled in non-HRA group coverage,
even if the non-HRA group coverage is
not offered by the HRA plan sponsor,
such as a group health plan maintained
by an employer of the employee’s
spouse;
25
and (3) the HRA be made
available only to employees who are
enrolled in non-HRA group coverage,
regardless of whether such coverage is
provided by the HRA plan sponsor. For
both integration methods, the non-HRA
group coverage may not consist solely of
excepted benefits and, for the MV
Integration Method, the non-HRA group
coverage offered by the employer and in
which the employee enrolls must
provide MV.
In addition, both the MV Integration
Method and the Non-MV Integration
Method require that, under the terms of
the HRA, an employee (or former
employee) be permitted to permanently
opt out of and waive future
reimbursements at least annually from
the HRA. Both integration methods also
require that, upon termination of
employment, either the funds remaining
in the HRA are forfeited or the employee
is permitted to permanently opt out of
and waive future reimbursements under
the HRA. For this purpose, forfeiture of
the funds remaining in the HRA, or
waiver of future reimbursements under
the HRA, occurs even if the forfeited or
waived amounts may be reinstated upon
a fixed date, the participant’s death, or
the earlier of the two events.
The two methods differ with respect
to the expenses that the HRA may
reimburse. Under the MV Integration
Method, the HRA may reimburse any
medical care expenses, but under the
Non-MV Integration Method, the HRA
may reimburse only co-payments, co-
insurance, deductibles, and premiums
under the non-HRA group coverage, as
well as medical care that does not
constitute EHBs.
26
The 2015 rules also include a special
integration method for certain
arrangements offered by employers that
are not required to offer, and do not
offer, non-HRA group coverage to
employees who are eligible for Medicare
coverage (generally, employers with
fewer than 20 employees), but that offer
non-HRA group coverage that does not
consist solely of excepted benefits to
employees who are not eligible for
Medicare.
27
For these employers, an
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28
71 FR 75013 (Feb. 12, 2007).
29
PPACA section 1201 moved the HIPAA
nondiscrimination provisions from PHS Act section
2702 to PHS Act section 2705, with some
modifications.
30
The HIPAA nondiscrimination provisions set
forth eight health status related factors. The eight
health factors are health status, medical condition
(including both physical and mental illnesses),
claims experience, receipt of healthcare, medical
history, genetic information, evidence of
insurability, and disability. These terms are largely
overlapping and, in combination, include any factor
related to an individual’s health. 66 FR 1377, 1379
(Jan. 8, 2001).
31
See FAQs about Affordable Care Act
Implementation (Part XXII), available at https://
www.dol.gov/sites/default/files/ebsa/about-ebsa/
our-activities/resource-center/faqs/aca-part-xxii.pdf
or https://www.cms.gov/CCIIO/Resources/Fact-
Sheets-and-FAQs/Downloads/FAQs-Part-XXII-
FINAL.pdf.
32
See Code section 9832(c)(2), ERISA section
733(c)(2), and PHS Act section 2791(c)(2).
33
See Code section 9831(c)(1), ERISA section
732(c)(1), and PHS Act section 2722(c)(1) and
2763(b). See also 79 FR 59130, 59131–59134 (Oct.
1, 2014) discussing the application of these
requirements to benefits such as limited-scope
dental and vision benefits and employee assistance
programs.
34
See 26 CFR 54.9831–1(c)(3)(v), (vi), and (vii);
29 CFR 2590.732(c)(3)(v), (vi), and (vii); and 45 CFR
146.145(b)(3)(v), (vi), and (vii).
35
See Code section 5000A(f)(3).
36
See Code section 36B(c)(2)(B).
37
See Code section 4980H(a)(1) and (b)(1). See
also 26 CFR 54.4980H–1(a)(14).
38
Exchanges are entities established under
PPACA section 1311 through which qualified
individuals and qualified employers can purchase
health insurance coverage.
39
See Code section 36B(c)(2)(C)(iii) and 26 CFR
1.36B–2(c)(3)(vii)(A) and 1.36B–3(c).
40
See 26 CFR 1.5000A–2(c).
41
See Code section 5000A(f)(3) and 26 CFR
1.5000A–2(g).
HRA that may be used to reimburse
premiums under Medicare Part B or D
may be integrated with Medicare (and
deemed to comply with PHS Act
sections 2711 and 2713) if the
employees who are offered the HRA are
enrolled in Medicare Part B or D, the
HRA is available only to employees who
are enrolled in Medicare Part B or D,
and the HRA complies with the opt-out
and forfeiture rules under the MV
Integration Method and Non-MV
Integration Method. These employers
may use either of the non-Medicare-
specific integration methods, as
applicable, for HRAs offered to
employees who are ineligible for
Medicare.
C. HIPAA Nondiscrimination Provisions
Prior to the enactment of PPACA,
titles I and IV of the Health Insurance
Portability and Accountability Act of
1996 (HIPAA), Public Law 104–191,
added Code section 9802, ERISA section
702, and PHS Act section 2702 (HIPAA
nondiscrimination provisions). The
Departments published final rules
implementing the HIPAA
nondiscrimination provisions on
December 13, 2006 (the 2006 rules).
28
PPACA section 1201 reorganized and
amended the HIPAA nondiscrimination
provisions of the PHS Act. Although
Code section 9802 and ERISA section
702 were not amended, the
requirements of PHS Act section 2705
were incorporated by reference into
Code section 9815 and ERISA section
715.
29
As amended by PPACA, the
nondiscrimination provisions of PHS
Act section 2705 largely reflect the 2006
rules and extend the HIPAA
nondiscrimination protections (but not
the wellness program exception) to the
individual market. These provisions
generally prohibit group health plans
and health insurance issuers in the
group and individual markets from
discriminating against individual
participants and beneficiaries in
eligibility, benefits, or premiums based
on a health factor.
30
Q&A–2 of FAQs about Affordable
Care Act Implementation (Part XXII)
31
provided that, if an employer offers only
employees with high claims risk a
choice between enrollment in a
traditional group health plan or cash,
the arrangement would not comply with
the market requirements, citing PHS Act
section 2705 (which is incorporated by
reference into Code section 9815 and
ERISA section 715), as well as the
HIPAA nondiscrimination provisions of
Code section 9802 and ERISA section
702. The Q&A explained that these
arrangements violate the
nondiscrimination provisions regardless
of whether: (1) The cash payment is
treated by the employer as pre-tax or
post-tax to the employee, (2) the
employer is involved in the selection or
purchase of any individual market
product, or (3) the employee obtains any
individual health insurance coverage.
The Departments explained that offering
cash as an alternative to health coverage
for individuals with adverse health
factors is an eligibility rule that
discourages participation in the
traditional group health plan, in
contravention of the HIPAA
nondiscrimination provisions.
D. Excepted Benefits
Code section 9831, ERISA section
732, and PHS Act sections 2722 and
2763 provide that the requirements of
chapter 100 of the Code, part 7 of
ERISA, and title XXVII of the PHS Act
do not apply to excepted benefits.
Excepted benefits are described in Code
section 9832, ERISA section 733, and
PHS Act section 2791.
There are four statutory categories of
excepted benefits, including limited
excepted benefits. Under the statutory
provisions, limited excepted benefits
may include limited scope vision or
dental benefits, benefits for long-term
care, nursing home care, home
healthcare, or community-based care, or
any combination thereof, and ‘‘such
other similar, limited benefits as are
specified in regulations’’ by the
Departments.
32
To be excepted benefits
under this category, the benefits must
either: (1) Be insured and provided
under a separate policy, certificate, or
contract of insurance; or (2) otherwise
not be an integral part of the plan.
33
The
Departments previously exercised the
authority to specify additional types of
limited excepted benefits with respect
to certain health FSAs, certain employee
assistance programs, and certain limited
wraparound coverage.
34
Coverage that consists of excepted
benefits is not minimum essential
coverage (MEC).
35
Therefore, an
individual offered or covered by an
excepted benefit is not deemed
ineligible for the PTC by virtue of the
excepted benefit offer or coverage.
36
Further, the offer of an excepted benefit
by an employer is not considered to be
an offer of MEC under an eligible
employer-sponsored plan for purposes
of Code section 4980H, the employer
shared responsibility provisions. Thus,
an employer does not avoid a payment
under Code section 4980H by virtue of
an offer of an excepted benefit.
37
E. Premium Tax Credit
1. In General
Code section 36B allows for the PTC
to be available to applicable taxpayers to
help with the cost of individual health
insurance coverage obtained through an
Exchange.
38
Under Code section 36B(a)
and (b)(1) and 26 CFR 1.36B–3(d), a
taxpayer’s PTC is the sum of the
premium assistance amounts for all
coverage months during the taxable year
for individuals in the taxpayer’s family.
Under Code section 36B(c)(2), a
month is not a coverage month for an
individual if either: (1) The individual
is eligible for coverage under an eligible
employer-sponsored plan and the
coverage is affordable and provides MV;
or (2) the individual is enrolled in an
eligible employer-sponsored plan, even
if the coverage is not affordable or does
not provide MV.
39
An eligible
employer-sponsored plan includes
coverage under a self-insured (as well as
an insured) group health plan
40
and is
MEC unless it consists solely of
excepted benefits.
41
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This employee safe harbor does not apply if the
individual does not respond to a redetermination
notice or, with reckless disregard for the facts,
provides incorrect information to the Exchange. See
26 CFR 1.36B–2(c)(3)(v)(A)(3).
43
See 45 CFR 156.145. See also 80 FR 52678
(Sept. 1, 2015).
44
See Code section 9831(d)(1), ERISA section
733(a)(1), and PHS Act section 2791(a)(1). However,
QSEHRAs are group health plans under the PHS
Act definition for purposes of part C of title XI of
the Social Security Act (42 U.S.C. 1320d et seq.).
See PHS Act section 2791(a)(1), as amended by
Cures Act section 18001(c). In addition, QSEHRAs
were not excluded from ERISA’s definition of
employee welfare benefit plan under ERISA section
3(1) and, therefore, remain subject to the
requirements for employee welfare benefit plans
under ERISA. See H. Rept. 114–634—Small
Business Health Care Relief Act of 2016 (the
relevant provisions of this bill were passed into law
by the Cures Act). Moreover, because QSEHRAs are
employee welfare benefit plans, individual health
insurance coverage that is reimbursed by a
QSEHRA would not become part of an ERISA plan
if the conditions of the DOL safe harbor described
later in this preamble are satisfied.
45
See Code section 9831(d) and IRS Notice 2017–
67, 2017–47 IRB 517, for additional detail.
46
See IRS Notice 2017–20, 2017–11 IRB 1010,
which extended the period for an employer to
furnish an initial written notice to its eligible
employees regarding a QSEHRA, and see FAQs
About Affordable Care Act Implementation Part 35,
Q&A–3, available at https://www.dol.gov/sites/
default/files/ebsa/about-ebsa/our-activities/
resource-center/faqs/aca-part-35.pdf and https://
www.cms.gov/CCIIO/Resources/Fact-Sheets-and-
FAQs/Downloads/FAQ-Part-35_12-20-16.pdf.
An HRA is a self-insured group health
plan and, therefore, is an eligible
employer-sponsored plan. Accordingly,
under existing rules, an individual is
ineligible for the PTC for the
individual’s Exchange coverage for a
month if the individual is covered by an
HRA or is eligible for an HRA that is
affordable and provides MV for the
month.
2. Affordability and Minimum Value
Under Code section 36B(c)(2)(C) and
26 CFR 1.36B–2(c)(3)(v)(A)(1) and (2),
an eligible employer-sponsored plan is
affordable for an employee, or for an
individual who may enroll in the
coverage because of a relationship to the
employee, if the amount the employee
must pay for self-only coverage whether
by salary reduction or otherwise (the
employee’s required contribution) does
not exceed a specified percentage of the
employee’s household income. The
percentage is adjusted annually.
However, 26 CFR 1.36B–2(c)(3)(v)(A)(3)
provides an employee safe harbor under
which an eligible employer-sponsored
plan is not considered affordable for the
entire plan year of the eligible
employer-sponsored plan if, at the time
an individual enrolls in a qualified
health plan (QHP) offered through an
Exchange, the Exchange determines that
the eligible employer-sponsored plan is
not affordable.
42
Thus, the employee
safe harbor locks in the Exchange’s
determination of unaffordability, which
is based on estimated household
income, even if the eligible employer-
sponsored plan ultimately proves to be
affordable based on actual household
income for the tax year.
Under Code section 36B(c)(2)(C)(ii),
an eligible employer-sponsored plan
provides MV if the plan’s share of the
total allowed costs of benefits provided
under the plan is at least 60 percent of
the costs. PPACA section 1302(d)(2)(C)
provides that, in determining the
percentage of the total allowed costs of
benefits provided under a group health
plan, the rules promulgated by HHS
under that paragraph of PPACA apply.
In general, HHS rules provide that an
eligible employer-sponsored plan
provides MV only if the percentage of
the total allowed costs of benefits
provided under the plan is greater than
or equal to 60 percent, and the benefits
under the plan include substantial
coverage of inpatient hospital services
and physician services.
43
F. QSEHRAs
1. In General
The 21st Century Cures Act (Cures
Act) Public Law 114–255 was enacted
on December 13, 2016. Cures Act
section 18001 amended the Code,
ERISA, and the PHS Act to permit an
eligible employer to provide a QSEHRA
to its eligible employees. The Cures Act
provides that a QSEHRA is not a group
health plan for purposes of the market
requirements, and, as a result,
QSEHRAs are not subject to PHS Act
sections 2711 and 2713.
44
For purposes
of these rules, the term ‘‘HRA or other
account-based group health plans’’ does
not include QSEHRAs, unless otherwise
specified.
Pursuant to Code section 9831(d), a
QSEHRA is an arrangement that
generally must be provided on the same
terms, subject to certain exceptions, and
cannot exceed a prescribed maximum
amount.
45
For the purpose of identifying
who can provide a QSEHRA, the statute
provides that an eligible employer is an
employer that is not an applicable large
employer (ALE), as defined in Code
section 4980H(c)(2), and that does not
offer a group health plan to any of its
employees. The statute also requires
that an employer providing a QSEHRA
satisfies certain notice requirements
including a statement that the employee
should provide the information about
the permitted benefit to the applicable
Exchange if the employee applies for
advance payments of the premium tax
credit (APTC).
On October 31, 2017, the Treasury
Department and the IRS issued Notice
2017–67
46
to provide guidance on the
requirements for providing a QSEHRA.
If an eligible employer complies with
the guidance provided in Code section
9831(d) and Notice 2017–67, it may
provide a QSEHRA to its eligible
employees and the QSEHRA is not
required to comply with PHS Act
sections 2711 and 2713 because it is not
subject to those requirements.
2. QSEHRAs and the PTC
The Cures Act also added provisions
to Code section 36B relating to how
participation in a QSEHRA affects a
taxpayer’s eligibility for the PTC and
how participation in a QSEHRA affects
a taxpayer’s computation of the PTC.
Under Code section 36B(c)(4)(A), if an
employee is provided a QSEHRA that
constitutes affordable coverage for a
month, the month is not a coverage
month for the employee or the
employee’s spouse or dependents,
meaning that the PTC is not allowed for
that month. Code section 36B(c)(4)(C)
provides that a QSEHRA constitutes
affordable coverage for a month if the
excess of the monthly premium for the
self-only second lowest cost silver plan
in the employee’s individual market
over
1
12
of the employee’s permitted
benefit, as defined in Code section
9831(d)(3)(C), does not exceed
1
12
of a
specified percentage of the employee’s
household income.
Code section 36B(c)(4)(B) provides
that if an employee is provided a
QSEHRA that does not constitute
affordable coverage for a coverage
month, the PTC otherwise allowable for
the month is reduced by
1
12
of the
employee’s annual permitted benefit
under the QSEHRA.
G. Individual Market Special Enrollment
Periods
Generally, individuals may enroll in
or change to different individual health
insurance coverage only during the
annual open enrollment period
described in 45 CFR 155.410. An
individual may qualify for an SEP to
enroll in or change to a different
Exchange plan outside of the annual
open enrollment period under a variety
of circumstances prescribed by PPACA
section 1311(c)(6)(C) and (D) and as
described in 45 CFR 155.420. These
SEPs are under the jurisdiction of HHS,
and apply to persons seeking individual
health insurance coverage through a
State Exchange or Federally-facilitated
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Group health plans and group health insurance
issuers must provide SEPs under certain
circumstances and the Departments have
jurisdiction over those provisions. See Code section
9801(f), ERISA section 701(f), and PHS Act section
2704(f); see also 26 CFR 54.9801–6, 29 CFR
2590.701–6, and 45 CFR 146.117. The final rules do
not affect the group health plan and group health
insurance issuer SEPs, which continue to apply to
group health plans, including HRAs, and group
health insurance issuers.
48
If an enrollee wants to add their dependent(s)
to their current QHP, but the plan’s business rules
do not allow the dependent(s) to enroll, then the
Exchange must allow the enrollee and his or her
dependent(s) to change to another QHP within the
same level of coverage, or one metal level higher or
lower, if no such QHP is available.
49
For purposes of this preamble and the final
rules, ‘‘individual health insurance coverage’’
means health insurance coverage offered to
individuals in the individual market, but does not
include STLDI. See PHS Act section 2791(b)(5). See
also 26 CFR 54.9801–2, 29 CFR 2590.701–2, and 45
CFR 144.103. Individual health insurance coverage
can include dependent coverage and therefore can
be self-only coverage or other-than-self-only
coverage. ‘‘Individual market’’ means the market for
health insurance coverage offered to individuals
other than in connection with a group health plan.
See PHS Act section 2791(e)(1). See also 26 CFR
54.9801–2, 29 CFR 2590.701–2, and 45 CFR
144.103. As discussed later in this preamble,
‘‘group health insurance coverage’’ means health
insurance coverage offered in connection with a
group health plan. Individual health insurance
coverage reimbursed by the arrangements described
in 29 CFR 2510.3–1(l) (which is finalized in this
rule) is not offered in connection with a group
health plan, and is not group health insurance
coverage, provided all the conditions in 29 CFR
2510.3–1(l) are satisfied. See ERISA section
733(b)(4) and PHS Act section 2791(b)(4). See also
26 CFR 54.9801–2, 29 CFR 2590.701–2, and 45 CFR
144.103.
50
References in the preamble to ‘‘an offer of an
individual coverage HRA’’ or to similar phrases
mean an offer of an HRA designed to be integrated
with individual health insurance coverage under
the final rules that will be considered integrated
with that individual health insurance coverage for
an individual who enrolls in that coverage.
51
On November 19, 2018, the Treasury
Department and the IRS issued Notice 2018–88. IRS
Notice 2018–88 described a number of proposals
related to the application of Code sections 4980H
and 105(h) to individual coverage HRAs. For
additional discussion of IRS Notice 2018–88, see
elsewhere in this preamble.
52
For this purpose, the definition of participant
under 26 CFR 54.9801–2, 29 CFR 2590.701–2, and
Exchange (FFE) and, in most cases, to
individuals seeking individual health
insurance coverage outside an
Exchange.
47
Paragraph (d) of 45 CFR 155.420
describes the triggering events that
qualify individuals, enrollees, and in
some cases, their dependents for SEPs
on the Exchanges through which they
can enroll in a QHP or change from one
QHP to another. Paragraph (b) of 45 CFR
155.420 describes the coverage effective
dates available in connection with each
SEP. Paragraph (c) describes the
availability of each SEP relative to its
triggering event—that is, whether
applicants may select a plan after the
event or also before the event. That
paragraph also describes the length of
time applicants have to select a plan
based on their SEP. Paragraph (a)(4) of
45 CFR 155.420 describes the plan
changes that current Exchange enrollees
and their dependents may make upon
qualifying for an SEP. Generally, current
Exchange enrollees who qualify for most
SEPs may change to another QHP
within the same metal level, or ‘‘plan
category,’’ as their current QHP. Current
enrollees whose dependent(s) qualify
for most SEPs may add their
dependent(s) to their current QHP, or
enroll them in a separate QHP.
48
In
combination, the rules at 45 CFR
155.420(a)(4) are generally referred to as
‘‘plan category limitations.’’
With regard to individual health
insurance coverage sold outside of an
Exchange, 45 CFR 147.104(b)(2)
provides that health insurance issuers
must provide SEPs (referred to in the
regulation as limited open enrollment
periods) for the triggering events
described in 45 CFR 155.420(d), except
for certain triggering events listed under
45 CFR 147.104(b)(2). Additionally, 45
CFR 147.104(b)(4)(ii) and (b)(5) apply
the SEP availability and coverage
effective dates at 45 CFR 155.420 to
SEPs available off-Exchange. However,
the plan category limitations do not
apply outside the Exchanges.
H. Proposed Rules
In response to Executive Order 13813,
the Departments published a notice of
proposed rulemaking entitled ‘‘Health
Reimbursement Arrangements and
Other Account-Based Group Health
Plans’’ on October 29, 2018 (83 FR
54420) (the proposed rules), which
would expand the flexibility and use of
HRAs.
The proposed rules would expand the
use of HRAs in several ways. First, the
proposed rules included a proposal to
remove the current prohibition against
integrating an HRA with individual
health insurance coverage
49
under the
PHS Act section 2711 rules (the
proposed integration rules). The
proposed integration rules included a
proposal to permit an HRA to be
integrated with individual health
insurance coverage and, therefore, to
satisfy PHS Act sections 2711 and 2713,
if the provisions of the proposed rules
under 26 CFR 54.9802–4, 29 CFR
2590.702–2, and 45 CFR 146.123 were
satisfied. These final rules refer to this
type of HRA as an individual coverage
HRA.
Second, the proposed rules provided
an expanded definition of limited
excepted benefits, under Code section
9832(c)(2), ERISA section 733(c)(2), and
PHS Act section 2791(c)(2)(C), to
include certain HRAs that are limited in
amount and with regard to the types of
coverage for which premiums may be
reimbursed, if certain other conditions
are satisfied (an excepted benefit HRA)
(the proposed excepted benefit HRA
rules).
The Treasury Department and the IRS
also proposed rules under Code section
36B for PTC eligibility for individuals
who are offered an individual coverage
HRA
50
(the proposed PTC rules). DOL
proposed a clarification to provide HRA
and QSEHRA plan sponsors with
assurance that the individual health
insurance coverage the premiums of
which are reimbursed by the HRA or
QSEHRA does not become part of an
ERISA plan when certain conditions are
satisfied. Finally, HHS proposed
changes to rules regarding SEPs in the
individual market that would provide
an SEP for individuals who gain access
to individual coverage HRAs or who are
provided QSEHRAs (the proposed SEP
rules).
51
The Departments requested comments
on all aspects of the proposed rules, as
well as requesting comments on a
number of specific issues. The
Departments received over 500
comments in response to the proposed
rules from a range of stakeholders,
including employers, health insurance
issuers, State Exchanges, state
regulators, unions, and individuals. No
requests for a public hearing were
received. After careful consideration of
all of the comments, the Departments
are finalizing the proposed rules with
certain modifications made in response
to comments. These modifications are
discussed later in this preamble.
II. Overview of the Final Rules on
Individual Coverage HRAs and
Excepted Benefit HRAs—the
Departments of the Treasury, Labor,
and Health and Human Services
A. Integration Rules
1. Integration—In General
Consistent with the objectives in
Executive Order 13813 to consider
proposing rules to expand and facilitate
access to HRAs, the proposed rules
included a proposal to remove the
prohibition on integration of an HRA
with individual health insurance
coverage, if certain conditions were
satisfied. More specifically, in order to
ensure compliance with PHS Act
sections 2711 and 2713, the proposed
rules provided that to be integrated with
individual health insurance coverage,
the HRA must require participants
52
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45 CFR 144.103 applies, which is defined as a
participant within the meaning of ERISA section
3(7). Under ERISA section 3(7), ‘‘the term
‘participant’ means any employee or former
employee of an employer, or any member or former
member of an employee organization, who is or
may become eligible to receive a benefit of any type
from an employee benefit plan which covers
employees of such employer or members of such
organization, or whose beneficiaries may be eligible
to receive any such benefit.’’
53
For this purpose, the definition of dependent
under 26 CFR 54.9801–2, 29 CFR 2590.701–2, and
45 CFR 144.103 applies, which is defined as ‘‘any
individual who is or may become eligible for
coverage under the terms of a group health plan
because of a relationship to a participant.’’
54
The final rules use several terms
interchangeably regarding an individual’s
individual coverage HRA status. These terms
generally parallel those used when referring to
group or individual health insurance coverage.
Specifically, ‘‘enrolled in’’ and ‘‘covered by,’’ both
refer to the status of an individual who is
participating in an individual coverage HRA and
can request reimbursements for medical care
expenses reimbursable under the HRA. The date on
which an individual coverage HRA ‘‘takes effect’’ or
‘‘begins’’ refers to the first date on which
reimbursable medical care expenses may be
incurred. For example, an employee whose
individual coverage HRA takes effect on June 1 may
request reimbursements for medical care expenses
incurred on or after that date, if the individual is
enrolled in individual health insurance coverage or
Medicare on or before June 1.
and any dependents
53
covered by the
HRA
54
to be enrolled in individual
health insurance coverage and to
substantiate compliance with this
requirement.
Further, in order to prevent a plan
sponsor from intentionally or
unintentionally, directly or indirectly,
steering any participants or dependents
with adverse health factors away from
the plan sponsor’s traditional group
health plan and into the individual
market, the proposed rules prohibited a
plan sponsor from offering employees
within a class of employees a choice
between a traditional group health plan
and an individual coverage HRA. The
proposed rules also required that an
individual coverage HRA be offered on
the same terms to all employees within
a class of employees, subject to certain
exceptions, and the proposed rules
included proposed classes of employees
that employers could use for this
purpose.
The proposed rules also required
individual coverage HRAs to allow
employees to opt out of and waive
future reimbursements under the HRA
at certain times, and to provide a notice
to eligible participants regarding how
the offer of the HRA, or enrollment in
the HRA, affects the ability to claim the
PTC. This was proposed because an
offer of an HRA may affect an
individual’s eligibility for the PTC, and
enrollment in an HRA does affect an
individual’s eligibility for the PTC.
Each of these conditions, and the
related comments received, are
discussed in the following sections of
this preamble. This section of the
preamble addresses the more general
comments on allowing HRAs to be
integrated with individual health
insurance coverage.
Many commenters supported the
proposed rules. Some of these
commenters expressed general support
for the Departments’ efforts to expand
the availability and use of HRAs and the
priority the Departments have placed on
HRAs. Some commenters stated that the
proposed rules would enable employers
to offer more affordable health coverage
alternatives to employees and could
expand health insurance coverage,
including for lower-wage and part-time
and other particular groups of
employees. Some commenters focused
on the potential benefits for small
employers, commenting that the
proposed HRA expansion would create
new options for small employers that
have otherwise been unable to offer
health insurance coverage due to
PPACA-related requirements. These
commenters asserted that the proposed
HRA expansion would help small
employers provide meaningful benefits,
attract talent, and keep their workforce
healthy. Some commenters expressed
general support for allowing employers
to move to a defined contribution
approach for health insurance coverage,
including because this likely permits
greater employee choice.
Some commenters noted that allowing
individual coverage HRAs could expand
and stabilize the individual health
insurance market while providing
greater administrative simplicity and
reducing administrative costs for
employers. In particular, some
commenters expressed the view that the
proposed rules would strengthen the
individual market due to an increased
number of individuals in the individual
market and because working individuals
who would be added to the individual
market tend to be of lower health risk
than those currently comprising the
individual market risk pool. Some
commenters also stated that employers
may not necessarily be incentivized to
segment their risk and, therefore,
concerns about adverse selection may be
overstated.
Some commenters who generally
supported the proposed rules
emphasized that their support was
contingent on any final rules retaining
the conditions intended to prevent
adverse selection. And some
commenters opposed allowing
individual coverage HRAs. These
commenters stated that the safeguards
in the proposed rules were insufficient
to prevent market segmentation and
destabilization of the individual market.
Several of these commenters argued that
market segmentation could occur if
employers that choose to offer an
individual coverage HRA have higher-
risk employees than those employers
that choose not to offer an individual
coverage HRA and that employers may
still be able to segment risk based on the
proposed classes of employees. Some of
these commenters asked that the rules
be withdrawn, or at least delayed, until
the potential effects on the individual
and group markets could be better
understood.
More generally, commenters
expressed a number of concerns
regarding adverse selection and risk-
pool effects of the proposed rules,
including that the proposed rules would
change the composition of the risk pools
for the individual and small group
markets, making coverage more
expensive and less accessible overall.
Some commenters were concerned that
the proposed rules would be
particularly harmful to self-employed
individuals and small business
employees because those individuals
generally rely on coverage in the
individual market and, according to the
commenters, the proposed rules would
increase premiums in the individual
market. Some commenters were also
concerned that employers may
substantially alter traditional group
health plans to the detriment of all
employees who rely on that coverage
and that there could be negative
implications in the small group market
for states that have merged their
individual and small group market risk
pools. One commenter stated that the
negative effects of the proposed rules,
particularly the increase in individual
market premiums and the attendant
fiscal cost that the commenter expects to
occur, are likely to outweigh the
benefits to employers and their
employees. Another commenter asserted
that the proposed rules would increase
premiums due to both adverse selection
and issuers’ increased uncertainty
regarding the effect of individual
coverage HRAs on the individual
market.
The Departments agree with the
commenters who asserted that allowing
individual coverage HRAs will expand
flexibility and use of HRAs to provide
additional options for employers and
employees to offer and obtain quality,
affordable healthcare. The Departments
also agree that individual coverage
HRAs would expand coverage and may
provide greater administrative
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simplicity and reduce administrative
costs for employers.
The Departments acknowledge the
concerns expressed by commenters that
allowing individual coverage HRAs
could cause adverse selection in the
individual market. As explained in the
preamble to the proposed rules,
allowing individual coverage HRAs
could theoretically result in
opportunities for employers to
encourage higher-risk employees (that
is, employees with high expected
medical claims or employees with
family members with high expected
medical claims) to obtain coverage in
the individual market, external to the
traditional group health plan sponsored
by the employer, in order to reduce the
cost of traditional group health plan
coverage provided by the employer to
lower-risk employees. This could
happen in a number of ways. For
example, if employees were permitted
to choose between participating in an
employer’s traditional group health plan
or an individual coverage HRA, some
higher-risk employees might have an
incentive to select the HRA and enroll
in individual health insurance coverage,
depending on the relative generosity of
the individual coverage HRA and the
individual health insurance coverage as
compared to the traditional group health
plan. There could be significant
differences between these coverage
options because individual health
insurance coverage generally is required
to cover all categories of EHBs, and large
group market and self-insured group
health plans are not required to do so.
An employer could also deliberately
attempt to steer employees with certain
medical conditions away from the
employer’s traditional group health
plan. In either case, if
disproportionately higher-risk
employees enrolled in individual
coverage HRAs, this adverse selection
could raise premiums in the individual
market.
Both in promulgating the proposed
rules and again in response to
comments provided on the proposed
rules, the Departments considered the
possibility that the individual market
could instead be positively impacted.
Lower-risk employees might choose
individual coverage HRAs, while
higher-risk employees might elect to
remain in their employer’s traditional
group health plan. Such an outcome
could result for a host of reasons,
including because higher-risk
employees may be more risk averse to
changing health benefits. Additionally,
individual health insurance coverage
might have more restrictive provider
networks than traditional group health
plans and higher-risk employees are
generally more sensitive to the make-up
of the provider network than lower-risk
employees. In addition, lower-risk
employees might prefer an individual
coverage HRA because it could allow
them to spend less on premiums—
reducing or potentially eliminating out-
of-pocket premiums and potentially
leaving more funds to cover cost
sharing. Further, employers might be
discouraged by the legal risk involved
with attempting to steer higher-risk
employees away from the traditional
group health plan.
However, employers also would face
strong countervailing incentives to
maintain (or improve) the average
health risk of participants in their
traditional group health plans.
Therefore, the Departments have
determined that there is a risk of some
market segmentation and health factor
discrimination that could result from
allowing individual coverage HRAs, but
the Departments also have determined
that the risk can be sufficiently
mitigated with conditions of the type
provided in the proposed rules (and in
the final rules) designed to limit adverse
selection. Moreover, as discussed in
more detail later in this preamble, the
Departments considered the comments
requesting that the Departments
strengthen the conditions intended to
limit adverse selection, and the
Departments are finalizing those
proposed conditions with some changes
in response to comments, including
adding a minimum class size
requirement that will apply to certain
classes of employees in certain
instances. Regarding the concern raised
by commenters that the proposed
conditions would not prevent adverse
selection if employers with higher-risk
employees chose to offer individual
coverage HRAs, the Departments took
that possibility into account in the
regulatory impact analysis.
Therefore, taking all of these
considerations into account, the
Departments have determined that
allowing individual coverage HRAs will
produce significant benefits, including
increased options and coverage, and is
not likely to create a material risk of
adverse selection in the individual
market due to the sufficiency of, and
changes to strengthen, the integration
conditions intended to mitigate that risk
that are finalized in this rulemaking.
Accordingly, the Departments are
finalizing the proposed rules, including
each of the conditions included in the
proposed rules, but with various
changes and clarifications, as explained
later in this preamble.
A number of commenters expressed
concern about the impact on employees
shifting from traditional group health
plans to the individual market. Some
commenters emphasized that in order to
achieve the goals of expanding coverage
and increasing choice and flexibility for
employers, it is vital that the individual
market be stable and well-functioning;
otherwise, employers will be unwilling
to utilize the expanded flexibility. Some
commenters recommended that the
Departments delay issuing the final
integration rules until insurance in the
individual market is more affordable or
until clearer information is available
regarding the long-term stability of the
individual market, including the
impacts of other recent changes such as
the expansion of STLDI and changes to
the PPACA section 1332 waiver
program. Some commenters asked the
Departments to withdraw the proposed
integration rules and, instead, take other
actions to stabilize the individual
market. One commenter requested that
HRA integration with individual health
insurance coverage be allowed only if
each employee is provided at least three
choices for coverage in the individual
market.
The Departments acknowledge that
the extent to which the goals of
expanding coverage and options
through individual coverage HRAs will
be achieved depends on the existence of
a stable individual market. Accordingly,
the Departments are finalizing the
proposed rules with conditions on
individual coverage HRAs intended to
prevent a negative impact on the
individual market. The Departments
expect individual coverage HRAs, with
the safeguards in the final rules, will
substantially increase the size of the
individual market and will not result in
significant changes in the average health
risk of the individual market risk pool.
The Departments also understand that
currently the stability of the individual
market varies a great deal across the
country, and that in some places
improvement will likely be needed
before employers elect to offer
individual coverage HRAs. The
Departments considered these issues in
developing the proposed and final rules
and incorporated significant flexibility,
including geographic flexibility, to
address these issues so that each
employer may choose what is best for its
workforce. However, the final rules do
not require that a minimum number of
individual health insurance plans be
available to employees in order for the
employer to offer an individual coverage
HRA. There is no compelling
justification for such a requirement, and
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55
The Departments note that under IRS Notice
2015–17, HRAs that reimburse certain Medicare
premiums and TRICARE expenses may be
considered integrated with the group health plan
coverage offered to the employee by the employer
although the employee is not enrolled in that group
coverage and is instead enrolled in Medicare or
TRICARE, subject to certain conditions. Further,
under 26 CFR 54.9815–2711(d)(5), 29 CFR
2590.715–2711(d)(5), and 45 CFR 147.126(d)(5), an
employer payment plan for Medicare premiums
offered by certain employers may be considered
integrated with Medicare (and considered to be
compliant with PHS Act sections 2711 and 2713),
subject to certain conditions.
56
Further, for the reasons discussed later in this
preamble, the Departments have determined that
permitting integration of individual coverage HRAs
with Medicare is also justified and appropriate,
subject to certain conditions. References in this
preamble to an individual coverage HRA integrated
with Medicare refer to an individual coverage HRA
integrated with Medicare Part A and B or Medicare
Part C.
it is not necessary to ensure compliance
with PHS Act sections 2711 and 2713.
Employees often have limited choices
with respect to the traditional group
health plans they are offered, if any, and
adopting this type of requirement would
unnecessarily prevent certain employers
from offering an individual coverage
HRA. Further, suggestions regarding
changes to the other rules that affect the
individual market, in order to improve
the individual market, are outside the
scope of this rulemaking.
Some commenters stated that the
proposed rules failed to adequately take
into account the differences between
traditional group health plans and
individual health insurance coverage,
the increased burden on employees in
choosing and enrolling in a plan in the
individual market relative to the burden
on employees under a traditional group
health plan, and the significance of the
change, from the employee’s
perspective. Other commenters stated
that individuals in the individual
market could face more expensive
plans, lower employer contributions,
narrower networks, and higher cost
sharing. Some commenters stated that
these individuals could also face more
confusion and be provided less
assistance, in part due to decreased
federal funding for outreach and
assistance in the individual market.
Some of these commenters asserted
what they believed to be the
comparative advantages of traditional
group health plans, including that those
plans are more robust, cost-effective,
and consumer-friendly. One commenter
expressed general concern about the
shifting of employees from a defined
benefit health plan system to a defined
contribution health plan system,
because, according to the commenter, it
may result in less comprehensive
coverage.
The Departments considered, and are
aware, that an employee’s experience
enrolling in and having coverage under
an individual coverage HRA may be
different than the experience of
enrolling in and having coverage under
a traditional group health plan. The
Departments took this into account in
developing the proposed and final rules,
including by requiring the individual
coverage HRA to provide a notice to
eligible participants explaining the
individual coverage HRA and the
possible consequences of the HRA being
offered and accepted. The Departments
understand that employers tend to act in
the best interest of their workers in
order to recruit and retain talent.
Therefore, an employer offering an
individual coverage HRA generally will
do so because it is a better alternative
for a substantial share of their
employees than a traditional group
health plan or no offer of employer-
sponsored coverage. Further, as
described later in this preamble, DOL is
also clarifying the extent to which
employers may assist employees with
regard to enrollment in individual
health insurance coverage without
resulting in the individual health
insurance coverage becoming part of an
ERISA plan. In addition, the
Departments are continuing to consider
ways to assist employees offered an
individual coverage HRA, including
through clear instructions in the
Exchange application process and other
possible methods of outreach and
assistance. As to the more general
comments asserting that traditional
group health plans have advantages as
compared to individual health
insurance coverage, the Departments
acknowledge that there are differences.
The Departments intend with the final
rules to expand the choices available to
employers and employees and to make
an additional option available for
employers, including those that have
not previously offered traditional group
health plan coverage.
Some commenters questioned the
Departments’ legal authority with regard
to certain aspects of the proposed rules.
A few commenters questioned whether
the Departments have the authority to
allow HRAs to satisfy PHS Act sections
2711 and 2713 by virtue of integration
with other coverage, and a few stated
that the Departments failed to justify the
removal of the regulatory prohibition on
integration of an HRA with individual
health insurance coverage. Further, a
few commenters asserted that the
Departments do not have the authority
to allow individual coverage HRAs
because Congress enacted the Cures Act,
which provided a limited exception to
the prohibition on HRAs provided in
conjunction with individual health
insurance coverage in the form of
QSEHRAs, and the commenters believe
this indicates that Congress did not
intend to allow the Departments to
otherwise remove the regulatory
prohibition on integration of an HRA
with individual health insurance
coverage.
The Departments disagree with these
commenters and, instead, have
determined that the final rules are
justified and within the Departments’
authority. While HRAs are group health
plans subject to PHS Act sections 2711
and 2713 and would fail to comply with
those provisions if they were offered on
their own, PHS Act sections 2711 and
2713 do not speak directly to situations
in which an HRA is integrated with
other coverage that satisfies those
statutory requirements. The
Departments have determined that it is
reasonable, and consistent with the
statutory scheme, to apply PHS Act
sections 2711 and 2713 to the integrated
arrangement rather than to each of its
component parts.
As explained earlier in this preamble,
the Departments previously determined
that it was reasonable to consider an
HRA to be compliant with PHS Act
sections 2711 and 2713 as long as
individuals covered by the HRA had
other employer-provided group health
plan coverage (including coverage
offered by a different employer, such as
a spouse’s employer) that satisfied the
conditions in PHS Act sections 2711
and 2713, subject to certain other
conditions.
55
In that case, under the
combined arrangement, individuals
have the protections intended by
PPACA, in addition to the HRA that
they generally may use to pay for
premiums or other medical care
expenses not covered by the group
health plan. The Departments now
extend this same approach to
integration with individual health
insurance coverage, which the
Departments have determined is
similarly justified and appropriate, as
individual health insurance coverage is
generally subject to and compliant with
PHS Act sections 2711 and 2713.
56
In developing the proposed and final
rules, the Departments considered that
the Cures Act provided for QSEHRAs.
However, in creating QSEHRAs,
Congress did not enact a general
prohibition on integrating an HRA with
individual health insurance coverage.
Instead, Congress allowed a limited
HRA that certain small employers may
provide that is not a group health plan
subject to the market requirements and,
thus, need not be integrated with any
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57
Congress has granted the Departments the
authority to promulgate regulations as may be
necessary or appropriate to carry out the provisions
of the Code, ERISA, and the PHS Act that were
added as a result of HIPAA and PPACA. See Code
section 9833, ERISA section 734, and PHS Act
section 2792.
58
The Departments note that an employer may
not both offer an individual coverage HRA and
provide a QSEHRA, as a result of the QSEHRA rules
under Code section 9831(d) and as a result of the
conditions that apply to individual coverage HRAs.
59
In 2018, 57 percent of firms offered health
benefits to at least some of their workers; 47 percent
of employers with three to nine workers offered
coverage, while virtually all firms with 1,000 or
more workers offered coverage. See Kaiser Family
Foundation, ‘‘Employer Health Benefits 2018
Annual Survey’’, Figure 2.2 at http://files.kff.org/
attachment/Report-Employer-Health-Benefits-
Annual-Survey-2018.
60
HRA expansion is an Administration priority.
In October 2017, the President issued Executive
Order 13813, directing the Departments ‘‘to
consider proposing regulations or revising
guidance, to the extent permitted by law and
supported by sound policy, to increase the usability
of HRAs, to expand employers’ ability to offer HRAs
to their employees, and to allow HRAs to be used
in conjunction with nongroup coverage.’’ The
Executive Order further provides that expanding
‘‘the flexibility and use of HRAs would provide
many Americans, including employees who work at
small businesses, with more options for financing
their healthcare.’’
61
In 1996, Congress enacted the HIPAA
nondiscrimination provisions, which now generally
prohibit group health plans and health insurance
issuers in the group and individual markets from
discriminating against individual participants and
beneficiaries in eligibility, benefits, or premiums
based on a health factor. In 2010, Congress enacted
PPACA, in part, because individual health
insurance coverage was not a viable option for
many individuals who lacked access to group
health plan coverage, given that individual market
issuers in many states could deny coverage, charge
higher premiums based on an individual’s health
risk, or impose preexisting condition exclusions
based on an individual’s health risk. To address
these issues, PPACA included numerous provisions
that were intended to create a competitive
individual market that would make affordable
coverage available to individuals who do not have
access to other health coverage, as set forth in detail
in the preamble to the proposed rules. See 83 FR
54420, 54428–54429 (Oct. 29, 2018).
other health coverage to satisfy PHS Act
sections 2711 and 2713. The fact that
Congress provided some flexibility for
certain employers by creating QSEHRAs
does not preclude the Departments from
providing additional flexibility through
rulemaking to allow individual coverage
HRAs.
57
The final rules do not change
the ability of eligible employers to
provide QSEHRAs. Rather, the final
rules provide an opportunity for all
employers, including those who may or
may not qualify to sponsor a QSEHRA,
to sponsor an individual coverage
HRA.
58
Moreover, by virtue of providing
for QSEHRAs, Congress acknowledged
and left intact the Departments’
regulations allowing for integration of
HRAs with other group health plan
coverage. In so doing, Congress
recognized the Departments’ authority
to allow HRAs to be integrated with
other group health plan coverage, which
is the same authority the Departments
now extend to allow integration of
HRAs with individual health insurance
coverage.
The Departments acknowledge that
the final rules, in allowing individual
coverage HRAs, remove the prohibition
on an HRA being integrated with
individual health insurance coverage
that the Departments had previously
imposed. As noted earlier in this section
of the preamble, in the 2015 rules and
the guidance that preceded those rules,
the Departments determined that HRAs
should not be allowed to be integrated
with individual health insurance
coverage, even though that insurance
coverage is generally subject to and
compliant with PHS Act sections 2711
and 2713. The Departments at that time
declined to allow integration with
individual health insurance coverage
because of concerns about adverse
selection in the individual market.
Since that time, the Departments have
observed that many employers,
especially small employers, continue to
struggle to offer health insurance
coverage to their employees.
59
Further,
the Departments have had additional
time to consider whether, and what type
of, conditions would be sufficient to
mitigate the risk of adverse selection
and health factor discrimination that
might otherwise result from allowing
HRAs to be integrated with individual
health insurance coverage.
The Departments have determined
that the advantages to employers and
employees of individual coverage HRAs
warrant allowing them to be offered,
60
notwithstanding the concerns regarding
potential adverse selection risk to the
individual market. This is because the
Departments expect that the conditions
adopted in the final rules will
significantly mitigate the risk of adverse
selection. As to the benefits, the final
rules will increase flexibility and
choices of health coverage options for
employers and employees. The
increased use of individual coverage
HRAs could potentially reduce
healthcare spending, particularly less
efficient spending, and ultimately result
in increased taxable wages for workers
in firms that currently offer traditional
group health plans. The final rules are
also expected to increase the number of
low- and moderate-wage workers (and
their family members) with health
insurance coverage.
Accordingly, the Departments
disagree with commenters who asserted
that the Departments are precluded from
allowing individual coverage HRAs
because those arrangements were not
previously allowed and that such a
change is not sufficiently justified. The
Departments have considered whether
to allow HRAs to be integrated with
individual health insurance coverage,
and have determined that a change
allowing that integration is warranted,
subject to a number of significant
conditions intended to protect against
the risk of adverse selection and health
factor discrimination. This change
comes after the Departments’
consideration of various factors,
including the need to provide
employers and employees additional
choices with respect to healthcare
coverage, the ability of the conditions in
the final rules to mitigate against
adverse selection and health factor
discrimination, and the anticipated
effect of the final rules to increase
choice and competition and decrease
the number of uninsured individuals.
One commenter stated that allowing
individual coverage HRAs is contrary to
PPACA’s intent to create a stable
individual market. The Departments
acknowledge that allowing individual
coverage HRAs in a way that could lead
to large-scale destabilization of the
individual market could undermine one
purpose of PPACA. However, the
Departments have carefully designed
the final rules to be consistent with
Congress’s intent in enacting both
PPACA and HIPAA.
61
In developing the
proposed and final rules, the
Departments considered how to avoid
permitting discrimination based on
health status or similar practices with
respect to offering individual coverage
HRAs to employees that might have
destabilizing effects on the individual
market or lead to higher premiums in
that market. The Departments have
determined that the risk of market
segmentation and health factor
discrimination is sufficiently significant
to justify including conditions in the
final rules intended to mitigate those
risks, including strengthening certain
conditions provided for in the proposed
rules. Additionally, the Departments
have determined that the strengthened
conditions in the final rules, which are
described at length later in this
preamble, are both sufficient to mitigate
those risks and consistent with HIPAA
and PPACA.
One commenter stated that it would
make little sense to expect individual
coverage HRAs to comply with PHS Act
sections 2711 and 2713 because HRAs
function more like bank accounts than
health insurance policies. The
Departments recognize that HRAs and
health insurance policies can function
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62
Throughout this preamble, references to
individual health insurance coverage in the context
of the integration rules do not include coverage that
consists solely of excepted benefits unless
otherwise specified. Also, see later in this preamble
for a discussion of the conditions that apply if an
individual coverage HRA is integrated with
Medicare, in which case references to individual
health insurance coverage generally are considered
to also refer to Medicare.
63
The Departments note that when an individual
enrolls in individual health insurance coverage, the
coverage generally will have an effective date that
is the first day of a calendar month. Other than for
mid-month enrollment of a new child, individual
health insurance plans generally are not made
available for coverage to start mid-month.
Therefore, individual coverage HRA plan sponsors
will need to take this into account in designing plan
terms for eligibility for individual coverage HRAs,
both with respect to employees offered the HRA for
the full plan year and for those who become
covered by the HRA subsequent to the first day of
the plan year, to ensure compliance with the
enrollment requirement under the final rules.
64
In addition, the commenter expressed
confusion as to how this integration requirement
applies to a dependent who is not covered by the
individual coverage HRA, including a dependent
covered by another type of coverage or a dependent
the employee does not want to identify to the
employer. While under the final rules an individual
coverage HRA must require that each individual
covered by the HRA be enrolled in individual
health insurance coverage, the final rules do not
include a requirement that the HRA cover any
particular dependent(s), provided the HRA
complies with PHS Act section 2714 and 26 CFR
54.9815–2714, 29 CFR 2590.715–2714, and 45 CFR
147.120 (relating to dependent coverage of children
to age 26), nor is there a prohibition on allowing
the participant to exclude certain dependents from
coverage under the HRA.
65
See PPACA section 1302 and PHS Act section
2707(a). However, the Departments note that
grandfathered individual health insurance coverage
and ‘‘grandmothered’’ individual health insurance
coverage subject to the HHS non-enforcement
policy might not cover all EHBs. See later in this
preamble for a discussion of ‘‘grandmothered’’
individual health insurance coverage.
66
Under PPACA section 1332, a state can apply
for a state innovation waiver from HHS and the
Treasury Department, which allows the state, if
approved, to implement innovative programs to
provide access to quality healthcare. States seeking
approval for a state innovation waiver must
demonstrate that the waiver will provide access to
health insurance coverage that is at least as
comprehensive and affordable as would be
provided under PPACA without the waiver, will
provide coverage to at least a comparable number
of residents of the state as would be provided
without a waiver, and will not increase the federal
deficit.
67
HHS and the Treasury Department evaluate
state PPACA section 1332 waiver applications on a
case-by-case basis and will include a determination
of the interaction with the final rules (if any).
differently. However, HRAs are group
health plans and, therefore, generally
are subject to the market requirements
under the PHS Act, except to the extent
that they are excepted benefits or are
retiree-only HRAs. The Departments
lack the statutory authority to exempt
HRAs that are otherwise subject to the
market requirements from the category
of group health plans subject to the
market requirements. The final rules
allow individual coverage HRAs to
comply with the requirements of PHS
Act sections 2711 and 2713 in a manner
that preserves the protections of those
sections.
2. Requirement That All Individuals
Covered by an Individual Coverage HRA
Be Enrolled in Individual Health
Insurance Coverage
a. In General
The proposed rules provided that an
HRA may be integrated with individual
health insurance coverage, and would
be considered compliant with PHS Act
sections 2711 and 2713, if the HRA
requires the participant and any
dependent(s) to be enrolled in
individual health insurance coverage
(other than coverage that consists solely
of excepted benefits)
62
for each month
each individual is covered by the HRA.
Under the proposed rules, if the
participants and dependents merely
have the ability to obtain individual
health insurance coverage, but do not
actually have that coverage, the HRA
would fail to comply with PHS Act
sections 2711 and 2713.
Many commenters supported this
condition and strongly recommended it
be included in the final rules.
Commenters that supported the
condition stated that it would reduce or
prevent the risk of adverse selection and
would ensure that employees directed
out of the group market have access to
a stable individual market. The
Departments agree that the requirement
to have individual health insurance
coverage in order to be covered by an
individual coverage HRA is essential
and, in order to ensure compliance with
PHS Act sections 2711 and 2713, the
final rules adopt this requirement,
generally as set forth in the proposed
integration rules, but with some
clarifications as explained later in this
section of the preamble.
63
One commenter suggested that the
final rules should allow an individual
coverage HRA to provide benefits to
dependents who are not enrolled in
individual health insurance coverage so
long as the employee-participant is
enrolled in individual health insurance
coverage. The Departments decline to
adopt this suggestion because the
requirements of PHS Act sections 2711
and 2713 apply to group health plans
with respect to both participants and
dependents.
64
b. Individual Health Insurance Coverage
With Which an Individual Coverage
HRA May Be Integrated
Commenters generally supported the
rule that individual coverage HRAs
must be integrated with individual
health insurance coverage as defined in
the PHS Act. As discussed in this
section of the preamble, several
commenters requested clarification
regarding whether integration with
various types of individual health
insurance coverage would be allowed
under the proposed rules.
Some commenters requested that the
final rules only permit integration with
individual health insurance coverage
that covers all EHBs or that provides
comprehensive mental health and
substance use disorder benefits. The
Departments decline to make revisions
in response to these comments because
under PPACA, individual health
insurance coverage generally is required
to cover all EHBs, including mental
health and substance use disorder
services.
65
Commenters also requested that the
final rules clarify whether an individual
coverage HRA may be integrated with
individual health insurance coverage
sold in a state that has a waiver under
PPACA section 1332.
66
Some
commenters stated that integration with
that coverage should be permitted so
long as the waiver does not allow
coverage to impose annual or lifetime
dollar limits or exclude benefits for
preventive services. Other commenters
argued that integration with that
coverage should not be permitted
because it might not satisfy all of the
PPACA requirements.
The Departments note that although
PPACA section 1332 allows states to
waive certain provisions of PPACA, it
does not allow states to waive PHS Act
sections 2711 and 2713. Therefore, the
final rules do not prohibit integration of
an HRA with individual health
insurance coverage obtained in a state
with a PPACA section 1332 waiver
because individual health insurance
coverage obtained in that state will be
subject to PHS Act sections 2711 and
2713.
67
Other issues with regard to
PPACA section 1332 are beyond the
scope of this rulemaking.
One commenter requested
confirmation that HRAs may be
integrated with catastrophic plans in the
individual market. Another commenter
requested that the final rules not allow
integration of HRAs with catastrophic
plans because of the limited nature of
those plans. The Departments note that
catastrophic plans, as set forth in
PPACA section 1302(e), are a type of
individual health insurance coverage
available to only certain individuals and
that provide only limited benefits until
the individual has incurred expenses
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68
To be eligible for a catastrophic plan, an
individual must either be under the age of 30 or
qualify for a hardship or affordability exemption
under Code section 5000A. See PPACA section
1302(e) and 45 CFR 156.155. One commenter
suggested that the Departments change the
definition of catastrophic plan so that it is available
to individuals other than those who are eligible
under PPACA section 1302(e). That change is
outside the scope of this rulemaking.
69
See CMS Insurance Standards Bulletin Series—
INFORMATION—Extension of Limited Non-
Enforcement Policy through 2020 (March 25, 2019),
available at https://www.cms.gov/CCIIO/Resources/
Regulations-and-Guidance/Downloads/Limited-
Non-Enforcement-Policy-Extension-Through-
CY2020.pdf.
70
See PHS Act section 2791(b)(5).
sufficient to reach the maximum out-of-
pocket limit under PPACA.
68
However,
catastrophic plans are subject to the
market requirements, including PHS Act
sections 2711 and 2713. Therefore, the
final rules do not prohibit integration of
an individual coverage HRA with
catastrophic plans.
One commenter asked that the
Departments prohibit integration with
‘‘grandmothered’’ individual health
insurance coverage, as it is not
compliant with PPACA. Grandmothered
individual health insurance coverage
refers to certain non-grandfathered
health insurance coverage with respect
to which CMS has announced it will not
take enforcement action even though the
coverage is out of compliance with
certain specified market requirements.
To date, the CMS non-enforcement
policy has been extended to apply to
renewals of such coverage through
policy years beginning on or before
October 1, 2020, provided that all such
coverage comes into compliance with
the specified requirements by January 1,
2021.
69
The Departments note that
although grandmothered individual
health insurance coverage is subject to
a non-enforcement policy for some
market requirements, the non-
enforcement policy does not extend to
compliance with PHS Act sections 2711
and 2713. Accordingly, grandmothered
plans are subject to PHS Act sections
2711 and 2713, and under the final
rules, an individual coverage HRA may
be integrated with grandmothered
individual health insurance coverage.
One commenter requested
clarification as to whether individual
health insurance coverage sold through
a private exchange model qualifies as
coverage that may be integrated with an
HRA. To the extent coverage sold
through a private exchange model is
individual health insurance coverage,
within the meaning of the PHS Act,
70
an
HRA may be integrated with that
coverage. However, the Departments
note that as part of the final rules DOL
is issuing a safe harbor to clarify to
stakeholders when individual health
insurance coverage obtained by a
participant in an individual coverage
HRA would not be part of an employee
welfare benefit plan under ERISA,
which would avoid the individual
health insurance coverage effectively
becoming group coverage. See later in
this preamble for discussion of how this
safe harbor would apply with respect to
individual health insurance coverage
offered through web-based platforms,
such as private exchanges.
One commenter supported the
proposal to prohibit integration with
individual health insurance coverage
that consists solely of excepted benefits,
noting that this aspect of the rule is
consistent with the limited nature of
excepted benefits. The Departments
agree. Because coverage consisting
solely of excepted benefits is not subject
to or generally compliant with PHS Act
sections 2711 and 2713, the final rules
provide that individual coverage HRAs
may not be integrated with individual
health insurance coverage that consists
solely of excepted benefits. However, as
discussed later in this preamble, an
HRA that reimburses only excepted
benefits is not subject to the market
requirements or the final rules.
See later in this preamble for a
discussion of comments received
regarding integration of HRAs with
student health insurance coverage, as
well as types of coverage other than
individual health insurance coverage.
Also, see later in this preamble for a
discussion of the conditions under
which an individual coverage HRA may
be integrated with Medicare.
c. Proxy Approach To Verify
Compliance
Under the proposed rules, all
individual health insurance coverage
(except for coverage that consists solely
of excepted benefits) would be treated
as being subject to and compliant with
PHS Act sections 2711 and 2713. The
Departments explained that requiring a
participant or an individual coverage
HRA to substantiate compliance with
PHS Act sections 2711 and 2713
separately for each individual health
insurance policy in which a participant
or dependent is enrolled would be an
unwieldy and overly burdensome task.
The Departments acknowledged that
this approach would allow integration
with grandfathered individual health
insurance coverage, which is not subject
to, and might not be compliant with,
PHS Act sections 2711 and 2713.
However, the Departments reasoned that
requiring participants or HRAs to
substantiate compliance with PHS Act
sections 2711 and 2713 separately for
each individual health insurance policy
in which a participant or dependent is
enrolled would be impracticable. An
independent assessment of compliance
could require the participant or the HRA
to identify for each individual health
insurance policy in which a participant
or dependent is enrolled: (1) Which
benefits are considered EHBs for
purposes of PHS Act section 2711, and
(2) whether all recommended
preventive services are covered without
cost sharing as required under PHS Act
section 2713.
The Departments also noted that only
a small number of individuals currently
are enrolled in grandfathered individual
health insurance coverage, and that
grandfathered individual health
insurance coverage may not be sold to
new enrollees and may be renewed by
current enrollees only so long as the
coverage satisfies strict conditions.
Additionally, the Departments noted
that the number of individuals with
grandfathered individual health
insurance coverage has declined each
year since PPACA was enacted, and the
already small number of individuals
who have retained grandfathered
coverage is expected to continue to
decline each year. Further, the
Departments stated that because there
are few individuals covered by
grandfathered individual health
insurance coverage, the Departments
anticipate that there will only be
extremely limited instances in which
these individuals will be offered and
accept an individual coverage HRA.
Moreover, because new enrollees cannot
enroll in grandfathered individual
health insurance coverage, employers
offering traditional group health plans
would not be able to shift workers into
this coverage. The Departments also
explained that although plans are
required to disclose grandfathered status
in any summary of benefits provided
under the plan, the Departments were
concerned that the frequency of this
disclosure to participants may be
insufficient to substantiate compliance
if integration with these policies were
prohibited.
For these reasons, the Departments
preliminarily determined that deeming
a policy to be compliant with PHS Act
sections 2711 and 2713 for purposes of
the proposed rules if it is sold in the
individual market, referred to as the
proxy approach, strikes an appropriate
balance. The Departments also solicited
comments on methods by which an
HRA could substantiate whether
individual health insurance coverage is
subject to and complies with PHS Act
sections 2711 and 2713, including how
an HRA might identify which benefits
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71
A few commenters expressed concern with
what they understood to be a proposed requirement
that the employer verify that each individual health
insurance policy in which an employee enrolls
complies with PHS Act sections 2711 and 2713.
Due to this concern, they suggested safe harbors to
avoid imposing this burden on employers, such as
only allowing integration with QHPs or plans of a
certain metal level, and one commenter suggested
implementing a plan compliance certification
system. However, the proposed rules did not
impose a requirement on the employer to verify the
compliance of each individual health insurance
policy in which an employee enrolls with PHS Act
sections 2711 and 2713. Furthermore, the
Departments are not imposing such a requirement
in the final rules, and are finalizing the proxy
approach.
72
One commenter objected to the Departments’
assertion in the preamble to the proposed rules that
only a small number of individuals are currently
enrolled in grandfathered individual health
insurance coverage. However, the study the
commenter cited to support the assertion that there
is a substantial amount of grandfathered individual
health insurance coverage remaining relates to
grandfathered group coverage (not grandfathered
individual health insurance coverage). See Kaiser
Family Foundation, ‘‘Employer Health Benefits
2018 Annual Survey’’, http://files.kff.org/
attachment/Report-Employer-Health-Benefits-
Annual-Survey-2018.
73
With respect to the suggested alternative
approach to the proxy approach that the
Departments could require issuers to provide
employers who sponsor individual coverage HRAs
with a list of individuals covered by individual
health insurance coverage, that alternative approach
appears to also include an assumption that the
policies sold are in compliance with PHS Act
sections 2711 and 2713 (to avoid requiring
confirmation of the compliance of each policy
enrolled in), while adding burdens on the issuers
to track and communicate with employers with
whom they would not otherwise interact. For these
reasons, the final rules do not adopt this alternative
approach.
74
See later in this preamble for a discussion of
the conditions that apply to an individual coverage
HRA integrated with Medicare, including that the
combined arrangement is considered to comply
with PHS Act sections 2711 and 2713.
75
Plans sponsored by certain small employers,
churches, or governments are not subject to Code
section 4980B. See Code section 4980B(d).
76
See Code section 4980B and ERISA sections
601–608. See also 26 CFR 54.4980B–1 et seq. and
29 CFR 2590.606–1, 2590.606–2, 2590.606–3, and
2590.606–4. Non-federal governmental group health
Continued
under the individual health insurance
coverage are considered EHBs for
purposes of PHS Act section 2711 and
whether all recommended preventive
services are covered without cost
sharing. The Departments solicited
comments on whether an alternative
approach, such as a requirement that an
issuer make a representation about
compliance and/or grandfathered status
upon request, would be practical, or
whether any other methods might be
appropriate as an alternative to the
proposed proxy approach.
Some commenters expressed support
for the proxy approach, stating that it
would be unreasonable to require
employers or participants to
substantiate that individual health
insurance coverage is compliant with
PHS Act sections 2711 and 2713. They
stated that the proxy approach is
reasonable with respect to grandfathered
individual health insurance coverage
because the number of individuals with
that coverage is declining and
consumers may not newly purchase
grandfathered individual health
insurance coverage.
71
However, some commenters
encouraged the Departments to prohibit
integration with grandfathered coverage
because it is not required to comply
with the annual dollar limit prohibition
or the preventive services
requirement.
72
Some of these
commenters questioned whether the
Departments had the legal authority to
deem such coverage to be in compliance
with PHS Act sections 2711 and 2713.
One commenter disagreed with the
Departments’ assumption that
employers and employees would be
unable to determine if the individual
health insurance coverage was
compliant with PHS Act sections 2711
and 2713. Another commenter noted
that if only a small number of
individuals currently are enrolled in
grandfathered individual health
insurance coverage, prohibiting
integration with that coverage should
impact very few individuals. One
commenter suggested, as an alternative
to the proxy approach, that issuers
could be required to provide a list of
enrolled individuals to the individual
coverage HRA.
The Departments considered these
comments and have determined that
requiring a participant or an HRA to
substantiate each individual health
insurance policy’s compliance with PHS
Act sections 2711 and 2713 would be an
unwieldy and burdensome task.
Further, state and federal regulators
review policy forms of issuers in the
individual market for compliance with
the federal requirements before the
products can be offered for sale in the
states and undertake market conduct
examinations to ensure compliance with
federal requirements. Thus, it is
reasonable to assume, as a general
matter, that a policy sold in the
individual market complies with PHS
Act sections 2711 and 2713 for purposes
of the final rules.
73
With respect to grandfathered
individual health insurance coverage,
the Departments have concluded that it
is appropriate to adopt the proxy
approach as proposed because the
number of individuals with
grandfathered individual health
insurance coverage is low and expected
to decrease; individual coverage HRAs
and participants may have difficulty
confirming which benefits under the
grandfathered plan are considered EHBs
for purposes of PHS Act section 2711,
whether all recommended preventive
services are covered without cost
sharing, and whether a particular policy
is grandfathered; and grandfathered
coverage may not be sold to new
enrollees.
74
d. Forfeiture
The proposed rules provided that the
requirement that each individual
covered by an individual coverage HRA
must be enrolled in individual health
insurance coverage would apply for
each month that the individual is
covered by the HRA. The proposed rules
further provided that if an individual
covered by the HRA fails to have
individual health insurance coverage for
any month, the HRA would fail to
comply with PHS Act sections 2711 and
2713 for that month. Accordingly, the
proposed rules required that an
individual coverage HRA provide that if
any individual covered by the HRA
ceases to be covered by individual
health insurance coverage, the
individual may not seek reimbursement
under the HRA for claims that are
incurred after the individual health
insurance coverage ceases, subject to
any applicable continuation-of-coverage
requirements. Further, under the
proposed rules, if all individuals in a
given family who are covered by the
individual coverage HRA cease to be
covered by individual health insurance
coverage, the participant must forfeit the
HRA, in accordance with applicable
laws (including COBRA and other
continuation-of-coverage requirements).
One commenter requested that the
Departments clarify how the COBRA
rules apply when an individual loses
access to an individual coverage HRA
due to failing to maintain individual
health insurance coverage. Other
commenters generally requested
guidance on the interaction between
COBRA and individual coverage HRAs.
Generally, HRAs are group health
plans subject to COBRA continuation
coverage requirements under Code
section 4980B and ERISA sections 601
through 608 (COBRA continuation
coverage), unless an exception
applies.
75
Under the COBRA
continuation coverage rules, certain
individuals who lose employer-
sponsored coverage may elect to
continue the coverage by paying a
premium.
76
In order to qualify for
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plans offered by state or local governments to their
respective employees are subject to parallel
continuation of coverage requirements under the
PHS Act. See 42 U.S.C. 300bb–1 et seq.
77
See IRS Notice 2002–45 for more information
on providing COBRA continuation coverage under
an HRA.
78
See 45 CFR 147.104(b)(2) and 155.420(d)(1)(i).
79
The Departments note that while 45 CFR
156.270 provides a specific grace period for
individuals enrolled in the Exchange who are
receiving APTC, this grace period would not be
applicable for an individual covered by an
individual coverage HRA because the individual
will be ineligible for the PTC and APTC. Outside
of the context of Exchange coverage for which
APTC is being provided, grace periods are
determined by state law.
80
See 45 CFR 147.128 for rules regarding
rescissions of individual health insurance coverage.
81
The Departments note that in considering
whether to attempt to recoup reimbursements paid
for medical care expenses under an individual
coverage HRA, including expenses incurred during
a period in which an individual did not have
individual health insurance coverage due to a
retroactive cancellation or termination of coverage,
the individual coverage HRA must consider PHS
Act section 2712, which limits a plan’s ability to
rescind coverage to instances in which an
individual has committed fraud or intentionally
misrepresented a material fact. See 26 CFR
54.9815–2712, 29 CFR 2590.715–2712, and 45 CFR
147.128. See also DOL Advisory Opinion 77–08A
(advising a health plan that depending on the facts
and circumstances, the hardship to the participant
or beneficiary resulting from such recovery or the
cost to the fund of collection efforts may be such
that it would be prudent, within the meaning of
ERISA section 404(a)(1)(B), for the fund not to seek
recovery from the participant or beneficiary).
82
However, as explained earlier in this preamble,
a retiree-only HRA is not subject to the market
requirements. Therefore, a retiree-only HRA need
not comply with the final integration rules,
including the requirement that individuals
receiving the HRA enroll in individual health
insurance coverage.
COBRA continuation coverage, the loss
of coverage must be the result of a
‘‘qualifying event.’’ The Departments
clarify that failure by an individual to
satisfy the integration requirement of
maintaining individual health insurance
coverage is not a qualifying event for
purposes of COBRA or other
continuation of coverage rules. Thus,
the loss of eligibility to participate in an
individual coverage HRA due to the
failure of the individual to maintain
individual health insurance coverage
does not create a right to COBRA or
other group continuation coverage in
the individual coverage HRA.
However, a loss of coverage due to a
termination of employment or a
reduction in the number of hours of
employment generally is a loss of
coverage due to a qualifying event.
Thus, for example, an employee covered
by an individual coverage HRA who,
due to a reduction in hours, is moved
to a class of employees who are not
offered any group health coverage
would have a right to COBRA or other
group continuation coverage in the
HRA, as would an individual who loses
coverage under the HRA due to
termination of employment. That HRA
COBRA or other group continuation
coverage would be conditioned on a
timely election of COBRA or other
group continuation coverage and
payment of COBRA or other group
continuation coverage premiums, as
well as maintaining (or enrolling in)
individual health insurance coverage.
77
Alternatively, an employee who loses
coverage under an individual coverage
HRA for these reasons may qualify for
an SEP to change his or her individual
coverage either on- or off-Exchange.
78
One commenter requested
clarification regarding whether a failure
to maintain individual health insurance
coverage causes retroactive forfeiture of
the individual coverage HRA. Under the
final rules, the required forfeiture
applies prospectively. The individual
coverage HRA must allow an employee
who loses coverage under the HRA due
to failure to maintain individual health
insurance coverage to seek
reimbursement for substantiated
medical care expenses that were
incurred during the coverage period
prior to the failure to maintain
individual health insurance coverage.
However, the individual coverage HRA
may limit the time to submit expenses
to a reasonable specified period. The
final rules include some modifications
to clarify these rules. The final rules
also clarify that the prohibition on
reimbursing amounts for expenses
incurred after an individual’s individual
health insurance coverage ceases
applies to the individual coverage HRA,
rather than to the individual seeking
reimbursement.
One commenter requested
clarification regarding whether an
individual with individual health
insurance coverage who is in an
Exchange grace period
79
is considered
to be enrolled in individual health
insurance coverage for purposes of this
integration requirement. Under the final
rules, in the event an individual
initially enrolled in individual health
insurance coverage fails to pay
premiums for the individual health
insurance coverage timely and is,
therefore, in a grace period, the
individual is considered to be enrolled
in individual health insurance coverage
for purposes of the enrollment
requirement, and the HRA must
reimburse the individual for expenses
incurred during that time period
according to the terms of the HRA. If the
individual fails to pay the applicable
premium(s) by the end of the grace
period and individual health insurance
coverage is cancelled or terminated,
including retroactively, the HRA must
require the individual to notify the HRA
that the individual health insurance
coverage has been cancelled or
terminated and the date on which the
cancellation or termination is effective.
After the individual coverage HRA has
received the notice of cancellation or
termination, the HRA may not
reimburse expenses incurred on and
after the date of cancellation or
termination of the individual health
insurance coverage, which is considered
to be the date of termination of coverage
under the HRA. Although the
commenter specifically asked about
grace periods, the final rules have also
been revised to address other situations
in which coverage is cancelled or
terminated retroactively, including
rescissions,
80
and in those cases, the
same rules regarding notification,
reimbursement, and date of termination
of coverage would apply.
81
One commenter requested that,
following separation from service,
amounts should remain in a former
employee’s individual coverage HRA for
out-of-pocket costs and should remain
available after the individual has access
to other coverage. Under the final rules,
a plan sponsor may permit a former
employee to have continued access to
an individual coverage HRA, and in
some circumstances a former employee
may be able to elect to continue the
HRA under the applicable continuation
of coverage requirements. However, the
final rules do not include an exception
for former employees to the requirement
that individuals covered by an
individual coverage HRA must be
enrolled in individual health insurance
coverage. This is because PHS Act
sections 2711 and 2713 apply with
respect to each individual covered by a
group health plan, including any former
employee. Therefore, a former employee
with an individual coverage HRA is
required to be enrolled in individual
health insurance coverage to ensure that
the former employee has a combined
arrangement that is in compliance with
PHS Act sections 2711 and 2713.
82
3. Prohibition Against Offering a Choice
Between an Individual Coverage HRA
and a Traditional Group Health Plan to
the Same Class of Employees
a. In General
To address the previously described
concerns about potential adverse
selection and health factor
discrimination, the proposed rules
provided that a plan sponsor may offer
an individual coverage HRA to a class
of employees only if the plan sponsor
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83
One commenter requested that the prohibition
against choice not apply to spouses and
dependents, noting that many employers do not
contribute to family premiums under group health
plans. Although the Departments anticipate that
employers will generally not offer dependents an
independent benefit package, for the sake of clarity,
and in response to this comment, the Departments
note that the prohibition is intended to apply to
both participants and dependents, and the final
rules are revised to clarify this intent.
84
Although this condition generally is finalized
as proposed, the text of the final rules is updated
to include a reference to the special rule for new
hires, explained later in this preamble. In general,
under the special rule for new hires, a plan sponsor
may continue to offer some employees in a class of
employees a traditional group health plan (that is,
current employees), while offering new employees
in that class an individual coverage HRA, and,
therefore, in that limited case, a plan sponsor may
offer a traditional group health plan to some
employees in a class of employees and an
individual coverage HRA to other employees in the
same class of employees. However, the special rule
for new hires does not provide an exception to the
rule that no participant may be given a choice
between a traditional group health plan and an
individual coverage HRA.
85
One commenter asked that the Departments
confirm that a traditional group health plan means
a major medical plan and not a group health plan
that consists solely of excepted benefits. The
Departments confirm the definition of traditional
group health plan does not include a group health
plan that consists solely of excepted benefits. The
Continued
does not also offer a traditional group
health plan to the same class of
employees. Therefore, a plan sponsor
would not be permitted to offer any
employee a choice between a traditional
group health plan and an individual
coverage HRA.
Many commenters expressed support
for the prohibition against allowing a
plan sponsor to offer a class of
employees a choice between an
individual coverage HRA and a
traditional group health plan. These
commenters generally stated that this
prohibition is essential to prevent
market segmentation and health status
discrimination. They noted that, while
on its face allowing a choice between
the two types of coverage may seem
appealing, in practice it would lead
employers to encourage higher-risk
employees to go into the individual
market, by making plan design changes
to traditional group health plans to
make them less attractive to higher-risk
employees. This, in turn, could have
significant detrimental effects on the
individual market due to the small size
of the individual market compared to
the size of the group market. One
commenter noted that the prohibition
against offering employees a choice
between a traditional group health plan
and an individual coverage HRA would
protect employers from baseless claims
of discrimination. Another commenter
stated that permitting employers to offer
a choice between an individual coverage
HRA and a traditional group health plan
could raise practical and administrative
issues for employers and issuers,
including in estimating participation in
the traditional group health plan.
A few commenters opposed the
prohibition on offering employees a
choice between a traditional group
health plan and an individual coverage
HRA, asserting that such a rule would
restrict choice for employees and
flexibility for employers. Some of these
commenters asserted that the other
conditions in the proposed rules, such
as the same terms requirement and the
prohibition on integration with STLDI,
each described later in this preamble,
were sufficient to prevent adverse
selection.
A few commenters acknowledged the
risk of market segmentation by
employers in the large group market or
that offer self-insured plans, but
requested that small employers
generally, or small employers offering
plans in the fully insured small group
market, be allowed to offer their
employees a choice between an
individual coverage HRA and a
traditional group health plan. They
noted that small employers would not
have an incentive to send their higher-
risk employees to the individual market
because insured traditional group health
plans in the small group market are part
of a community rated single risk pool.
A few commenters also noted that
allowing small employers to offer
employees a choice would be consistent
with Executive Order 13813, which one
commenter noted specifically referred to
small employers. One commenter
indicated that the prohibition on choice
might dissuade employers from offering
individual coverage HRAs to their
employees. The commenter also noted
that if given the choice, lower-risk
employees, rather than higher-risk
employees, may leave the employer’s
traditional group health plan and
purchase individual health insurance
coverage.
83
The Departments generally agree with
commenters that stated that permitting
employers to offer an employee a choice
between an individual coverage HRA
and a traditional group health plan
could lead to market segmentation.
84
Although some lower-risk employees
may choose to enroll in individual
health insurance coverage if offered a
choice, many employers would have
strong economic incentives to encourage
lower-risk employees to retain
traditional group health plan coverage
and higher-risk employees to enroll in
individual health insurance coverage.
With respect to the suggestion that the
Departments allow employers in the
small group market to offer a choice to
employees, the Departments
acknowledge that the incentives for
these employers to segment risk are
substantially lower than for other
employers offering experience-rated
coverage or self-insured plans. However,
the Departments would not expect many
small employers to offer this choice
because the coverage in the small group
market and individual market is quite
similar and because, as the commenters
note, small employers that purchase
health insurance would not have an
incentive to segment their risk pool.
Although allowing small employers to
offer a choice would not provide small
employers much benefit, it would
increase the complexity of the final
rules for entities involved in
implementation, such as the Exchanges.
Additionally, it could cause some
uncertainty for issuers, and, therefore,
increased premiums, in both the
individual and small group markets.
Accordingly, in the final rules, the
Departments decline to provide an
exception for small employers to the
condition that a plan sponsor may not
offer an employee a choice between a
traditional group health plan and an
individual coverage HRA. While the
Departments are finalizing the proposal
to prohibit choice between an
individual coverage HRA and a
traditional group health plan, the
Departments are generally supportive of
maximizing employee choice and
employer flexibility and so may revisit
this issue in future rulemaking once the
Departments have had the opportunity
to gauge the results of the initial
implementation of individual coverage
HRAs.
b. Definition of Traditional Group
Health Plan
For purposes of the condition that a
plan sponsor may not offer any
employee a choice between an
individual coverage HRA and a
traditional group health plan, under the
proposed rules, the term ‘‘traditional
group health plan’’ was defined as any
group health plan other than: (1) An
account-based group health plan, or (2)
a group health plan that consists solely
of excepted benefits.
Several commenters supported the
proposed definition, which provided
that a ‘‘traditional group health plan’’
excludes a group health plan that
consists solely of excepted benefits, so
that a plan sponsor may offer an
employee both an individual coverage
HRA and a group health plan that
consists solely of excepted benefits.
85
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commenter also noted that an employer may not
provide both a QSEHRA and a group health plan
that consists solely of excepted benefits.
86
See Code section 9831(d)(3)(B)(ii) and IRS
Notice 2017–67.
87
But see later in this preamble for a discussion
of the interaction between excepted benefit HRAs
and individual coverage HRAs.
88
But see Code section 125(f)(3)(B).
89
As noted earlier in this preamble, for purposes
of the final rules, the term ‘‘HRA or other account-
based group health plan’’ does not include an
employer arrangement that reimburses the cost of
individual health insurance coverage through a
cafeteria plan under Code section 125.
90
The Departments note that if an employer
chooses not to distinguish its employees based on
the classes of employees permitted under the final
rules and offers an individual coverage HRA to all
of its employees, the same terms requirement would
apply to all of the employer’s employees.
After considering these comments, the
Departments finalize the definition of
‘‘traditional group health plan’’ in the
proposed rules without change.
Notwithstanding different QSEHRA
rules,
86
under the final rules, a
traditional group health plan does not
include a group health plan that
consists solely of excepted benefits and,
therefore, a plan sponsor generally may
offer an employee both an individual
coverage HRA and a group health plan
that consists solely of excepted
benefits.
87
One commenter requested that the
Departments clarify that the final rules
would not preclude an employer that
offers an individual coverage HRA from
offering a separate HRA under which
only premiums for excepted benefits
may be reimbursed. The Departments
agree that such an arrangement is not
precluded by these final rules. An HRA
under which only excepted benefit
premiums may be reimbursed is an
account-based group health plan (and,
therefore, not considered a traditional
group health plan). Further, the HRA
under which only excepted benefit
premiums may be reimbursed is a group
health plan that provides only excepted
benefits (and, therefore, not considered
a traditional group health plan). See
later in this preamble for a discussion of
the interaction of an excepted benefit
HRA and an individual coverage HRA,
and the difference between an excepted
benefit HRA and an HRA that only
provides excepted benefits.
c. Salary Reduction Arrangements
The preamble to the proposed rules
noted that the Departments were aware
that some employers may want to allow
employees to pay the portion of the
premium for individual health
insurance coverage that is not covered
by an individual coverage HRA, if any,
through a salary reduction arrangement
under a cafeteria plan. Pursuant to Code
section 125(f)(3), an employer generally
may not provide a QHP offered through
an Exchange as a benefit under its
cafeteria plan.
88
Therefore, an employer
generally may not permit employees to
make salary reduction contributions to a
cafeteria plan to purchase a QHP offered
through an Exchange.
However, Code section 125(f)(3) does
not apply to individual health insurance
coverage that is not purchased on an
Exchange. Therefore, for an employee
covered by an individual coverage HRA
who purchases individual health
insurance coverage outside of an
Exchange, the employer may permit the
employee to pay the balance of the
premium for the coverage through its
cafeteria plan, subject to all applicable
cafeteria plan guidance. Such an
arrangement would not be considered to
be a traditional group health plan for
purposes of the final rules.
Some commenters supported allowing
a salary reduction arrangement under a
cafeteria plan alongside an individual
coverage HRA, with one commenter
noting that this flexibility is essential to
ensuring successful take-up of
individual coverage HRAs. One
commenter recommended against
allowing a salary reduction arrangement
alongside an individual coverage HRA
unless further guidance is issued on
cafeteria plans addressing
nondiscrimination rules and penalties.
One commenter requested that the
Departments work with Congress to
eliminate the prohibition, under Code
section 125(f)(3), against purchasing
Exchange coverage under a cafeteria
plan.
Under the final rules, as under the
proposed rules, an employer may permit
an employee covered by an individual
coverage HRA who purchases
individual health insurance coverage
outside of an Exchange to pay the
balance of the premium for the coverage
through its cafeteria plan, subject to all
applicable cafeteria plan guidance. This
arrangement would not be considered to
be a traditional group health plan for
purposes of the final rules. Changes to
the statutory prohibition regarding the
use of cafeteria plans to purchase
Exchange coverage are outside of the
scope of this rulemaking.
Commenters also raised various other
issues related to the interaction between
individual coverage HRAs and cafeteria
plans under Code section 125. A few
commenters expressed support for the
ability to integrate a stand-alone
cafeteria plan with individual health
insurance coverage.
89
And some
commenters requested that the
Departments provide answers to
hypothetical scenarios involving the
intersection of cafeteria plans, HSAs,
and HRAs. Neither the proposed rules
nor the final rules make any changes to
the rules under Code section 125. Thus,
any issues arising under Code section
125, and any guidance requested by
commenters to address those issues, are
beyond the scope of this rulemaking.
The Treasury Department and the IRS,
however, appreciate the comments and
will consider whether to address some
of these issues in future guidance.
4. Same Terms Requirement
a. In General
To address concerns about health
status discrimination leading to adverse
selection in the individual market, the
proposed rules generally required that a
plan sponsor that offers an individual
coverage HRA to a class of employees
must offer the HRA on the same terms
(that is, both in the same amount and
otherwise on the same terms and
conditions) to all employees within the
class of employees.
90
As part of this
proposed condition, the Departments
made clear that offering a more generous
HRA to individuals based on an adverse
health factor would violate the
integration rules.
Commenters generally supported the
same terms requirement as a condition
essential to protecting against market
segmentation and recommended that it
be retained in the final rules. Some
commenters specifically supported the
ability under the proposed rules to vary
the HRA terms and amounts between
different classes of employees. Because
the Departments have concluded that
the same terms requirement is critical to
protecting against adverse selection in
the individual market, the final rules
retain this requirement, but with some
revisions and clarifications in response
to comments as explained later in this
section of the preamble.
One commenter stated that the same
terms requirement prohibits
discrimination that could occur either
by offering less generous benefits to
only certain employees in a class of
employees or by offering more generous
benefits to only certain employees in a
class of employees. The commenter
stated that it is critical that this
prohibition against ‘‘benign’’
discrimination be retained in the final
rules. The Departments agree, and this
aspect of the rule is being adopted as
proposed.
b. Exceptions to the Same Terms
Requirement
The Departments recognize that
premiums for individual health
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91
See PHS Act section 2701(a)(1)(A)(iii).
92
Relatedly, on November 19, 2018, the Treasury
Department and the IRS issued Notice 2018–88,
which addressed the application of the rules under
Code section 105(h) to individual coverage HRAs.
HRAs generally are subject to the rules under Code
section 105(h) and its related rules because they are
self-insured medical reimbursement plans.
However, HRAs that reimburse employees only for
premiums paid to purchase health insurance
policies, including individual health insurance
policies, are not subject to the rules under Code
section 105(h) and its related rules. See 26 CFR
1.105–11(b)(2). Notice 2018–88 described an
anticipated safe harbor that would apply to
individual coverage HRAs that are subject to Code
section 105(h) to address the fact that under the
Code section 105(h) rules, variation in employer
contributions based on age is not allowed. The
Treasury Department and the IRS intend to propose
rules under Code section 105(h) in the near term
that set forth an age variation standard that is
consistent with the rule included in these final
integration rules, and the proposed rules under
Code section 105(h) will be subject to notice and
comment.
insurance coverage obtained by
individual coverage HRA participants
and their dependents may vary and,
thus, some variation in amounts made
available under an individual coverage
HRA, even within a class of employees,
may be appropriate. Therefore, the
proposed rules provided that it would
be permissible to increase the maximum
dollar amount made available under an
individual coverage HRA for
participants within a class of employees
as the age of the participant increases,
so long as the same maximum dollar
amount attributable to that increase in
age was made available to all
participants of the same age within the
same class of employees.
Commenters generally supported the
provision allowing increases in
individual coverage HRA amounts
based on the participant’s age, as
premiums in the individual market
generally increase based on age.
However, some commenters expressed
concern that an unlimited ability to
increase amounts made available under
an individual coverage HRA based on
age could be used to shift older, higher
cost workers to the individual market.
Therefore, these commenters
recommended that, to avoid adverse
selection, the ability to increase
amounts by age be tied to actual
variance in premiums for individual
health insurance coverage, such as the
3:1 age rating rule in PPACA
91
or
through some other reasonable
relationship to the cost of individual
coverage.
The Departments agree that imposing
an outer bound on the ability of a plan
sponsor to vary the maximum amounts
made available under an individual
coverage HRA based on a participant’s
age could further protect against adverse
selection in the individual market,
while not hampering the ability of a
plan sponsor to provide benefits that
account for increased costs for older
workers in the individual market.
Therefore, in response to these
comments, the same terms requirement
is revised under the final rules to
provide that an individual coverage
HRA does not fail to be provided on the
same terms to a class of employees
solely because the maximum dollar
amount made available under the terms
of the HRA increases as the age of the
participant increases, so long as the
maximum dollar amount made available
under the terms of the HRA to the oldest
participant(s) is not more than three
times the maximum dollar amount
made available under the terms of the
HRA to the youngest participant(s). The
final rules retain the rule that the same
maximum dollar amount attributable to
the increase in age must be made
available to all participants in a class of
employees who are the same age.
The Departments considered a
number of different ways to design the
limitation on age variation, including by
incorporating the federal and state age
curves, tying the variation to a specific
premium for a specific policy that a
participant in the class of employees
could purchase, and basing the
maximum dollar amount made available
by the individual coverage HRA on the
degree of age variation in individual
market premiums in the rating area
where each employee resides. However,
the Departments determined that these
options would be unduly complex and
that imposing the 3:1 limit, which is
generally based on the degree of age
variation allowed in individual market
premiums under PHS Act section 2701,
sufficiently limits the potential for
abuse.
92
One commenter expressed concern
that permitting, rather than requiring,
increases in the maximum amount
available under an individual coverage
HRA based on age could invite age
discrimination. Thus, the commenter
argued that the final rules should
require employers to vary individual
coverage HRA amounts based on age to
account for increases in costs for older
workers. The Departments note that
other federal laws and rules address age
discrimination and are the more
appropriate area of regulation in which
to address these concerns. Accordingly,
the Departments decline to require, but
will permit, employers to increase
individual coverage HRA amounts
based on participants’ ages under the
final rules. However, individual
coverage HRAs may be subject to
restrictions imposed under other laws,
such as those that protect against age
discrimination.
One commenter requested that the
Departments clarify the date as of which
the age of the participant may be
determined for this purpose and
suggested the first day of the HRA plan
year. The final rules clarify that a
participant’s age, for purposes of the
same terms requirement, may be
determined by the plan sponsor using
any reasonable method for a plan year,
so long as the plan sponsor determines
each participant’s age for this purpose
using the same method for all
participants in the class of employees
for the plan year and the method is
determined prior to the plan year. For
example, as the commenter suggests, the
plan sponsor may determine each
participant’s age based on their age on
the first day of the individual coverage
HRA plan year.
Additionally, the proposed rules
included a proposal to permit the
maximum dollar amount made available
under an individual coverage HRA
within a class of employees to increase
as the number of the participant’s
dependents covered under the HRA
increased, so long as the same
maximum dollar amount attributable to
that increase in the number of
dependents is made available to all
participants in that class of employees
with the same number of dependents
covered by the HRA. Commenters
generally supported this provision, as
the cost of individual health insurance
coverage generally increases with an
increase in the number of dependents
covered. Some commenters asked for
clarification on the extent to which
employers may increase amounts made
available under an individual coverage
HRA based on an increase in the
number of the participant’s dependents.
One commenter recommended that any
permitted increase be tied to individual
market premium variance in order to
prevent employers from varying HRA
amounts to encourage higher-risk
employees to shift to the individual
market. Another commenter
recommended that employers be
required to vary individual coverage
HRA amounts based on the number of
dependents covered by the HRA in
order to put employees on equal footing
with other individuals and allow them
to purchase insurance based on their
relevant circumstances.
The Departments considered these
comments, but have determined that
providing employers flexibility as to if
and how they vary HRA amounts based
on family size does not raise a
significant risk of adverse selection or
health factor discrimination and,
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93
See e.g., 5 U.S.C. 8905(b).
94
Also, eligibility conditions that are based solely
on the lapse of a time period are permissible for no
more than 90 days under PHS Act section 2708. See
26 CFR 54.9815–2708, 29 CFR 2590.715–2708, and
45 CFR 147.116.
95
See Code section 9831(a)(2) and ERISA section
732(a). HHS follows a similar approach for non-
federal governmental retiree-only plans and
encourages states to adopt a similar approach with
respect to issuers of retiree-only plans. See 75 FR
34537, 34539 (June 17, 2010).
instead, avoids unnecessary complexity.
Therefore, under the final rules, it
remains permissible to vary HRA
amounts based on the number of a
participant’s dependents covered by the
individual coverage HRA as proposed.
Moreover, there is no specific limit on
an employer’s ability to increase HRA
amounts based on the number of a
participant’s dependents covered by the
HRA, so long as the same maximum
dollar amount attributable to that
increase in the number of dependents is
made available to all participants in that
class of employees with the same
number of dependents covered by the
HRA.
Commenters also suggested additional
factors for which employers should be
allowed to vary amounts provided
under an individual coverage HRA
within a class of employees, including
earnings or salary, role/title, and
geographic region. The Departments
note that the suggestions that individual
coverage HRA amounts be allowed to
vary within a class of employees based
on earnings, salary, or role/title raise
adverse selection and health factor
discrimination concerns, as these
classes are more susceptible to
manipulation by an employer.
Accordingly, the Departments decline to
adopt any of these suggestions.
Regarding geographic region, the
Departments acknowledge that
individual health insurance costs vary
based on geography, but the
Departments decline to adopt this
suggestion because the issue is already
addressed under the final rules through
the ability to classify employees based
on the rating area of their primary site
of employment.
A few commenters recommended that
the Departments consider an employer
that contributes the same percentage of
an employee’s individual health
insurance premium (for example, 80
percent) to an individual coverage HRA
to be considered to be providing the
individual coverage HRA on the same
terms to the employees in the class. The
Departments decline to adopt this
suggestion because this type of rule
would add significant complexity to the
same terms requirement, particularly
with respect to determining how to
coordinate the ability to vary based on
age and family size, and would also
raise adverse selection concerns, as well
as more general concerns about the
inherent incentives of a percentage-
based standard and its effect on
healthcare spending.
See later in this preamble for a
discussion of the same terms
requirement as applied to an employer
that offers both an HSA-compatible
individual coverage HRA and an
individual coverage HRA that is not
HSA compatible to the same class of
employees and for a discussion of how
the same terms requirement applies if
an individual coverage HRA makes
amounts available based on amounts
remaining in another HRA by which the
participant was previously covered.
c. Former Employees
The proposed rules generally would
apply to an individual coverage HRA
that includes participants who are
former employees in the same way that
they would apply if the HRA only
provided benefits to current employees.
However, the Departments recognized
that eligibility for post-employment
group health plan coverage, if any,
varies widely and may be subject to age,
service, or other conditions. To avoid
undue disruption of employers’
practices relating to the provision of
post-employment health coverage, the
proposed rules provided that an
individual coverage HRA may be treated
as provided on the same terms even if
the plan sponsor offers the individual
coverage HRA to some, but not all,
former employees within a class of
employees (for example, to all former
employees with a minimum tenure of
employment). But, under the proposed
rules, if a plan sponsor offers the
individual coverage HRA to one or more
former employee(s) within a class of
employees, the HRA must be offered to
those former employee(s) on the same
terms as all other employees within the
class.
One commenter expressed concern
that allowing employers to offer some
retirees an individual coverage HRA,
but not all retirees, creates the potential
for health status discrimination. The
Departments note, however, that many
nondiscriminatory reasons may
influence an employer’s decisions
whether to offer retiree health coverage.
For example, it is not uncommon for
employers to offer retiree health
coverage only to workers that have been
with the company at least 5 years prior
to retirement.
93
Moreover, the HIPAA
nondiscrimination rules (as well as
other applicable federal and state laws)
address discrimination based on a
health factor.
One commenter supported treating
former employees under the same terms
as all members of the class of
employees. Another commenter
requested confirmation that employers
providing retirees and current
employees with different amounts in
individual coverage HRAs would satisfy
the same terms requirement and
requested confirmation that contributing
different amounts to former employees
based on years of service would satisfy
the same terms requirement. The final
rules provide that former employees
within a class of employees offered an
individual coverage HRA need not be
offered an individual coverage HRA, but
if they are, the HRA must be provided
to them on the same terms as other
employees in that class of employees
(based on the class in which the former
employee was included immediately
prior to separation from service).
Therefore, a plan sponsor would not
comply with the same terms
requirement if it provided some
employees in a class of employees larger
or smaller HRA amounts based on years
of service or status as a former
employee.
94
The Departments received a number
of comments on retiree-only HRAs in
response to the proposed rules.
Although the final rules do not modify
the rules for retiree-only HRAs, the
Departments note that the market
requirements do not apply to a group
health plan that has fewer than two
participants who are current employees
on the first day of the plan year.
95
Therefore, a retiree-only HRA need not
satisfy the requirements of any
integration test, including the same
terms requirement.
d. New Employees or New Dependents
One commenter asked for clarification
regarding the application of the same
terms requirement in the case of
coverage changes during the plan year,
including in cases in which an
employee gains a dependent. In
response to this comment, in the final
rules, the Departments clarify the
application of the same terms
requirement both for new employees
and new dependents. Therefore, in the
final rules, the Departments clarify that,
under the same terms requirement, in
the case of a participant who becomes
covered by an individual coverage HRA
after the first day of the plan year, the
individual coverage HRA may make the
full annual amount available or adopt a
reasonable proration methodology. The
Departments also clarify in the final
rules how the same terms requirement
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The one exception to this general rule,
described later in this preamble, is the special rule
for new hires. However, even under the special rule
for new hires, no employee may be offered a choice
between an individual coverage HRA and a
traditional group health plan.
applies if the individual coverage HRA
varies the maximum amount available
based on the number of a participant’s
dependents covered by the HRA and the
number of the participant’s dependents
covered by the HRA either increases or
decreases during the plan year. In that
case, the individual coverage HRA may
make available the same amount made
available to participants in the class
who had the same number of
dependents covered by the HRA on the
first day of the plan year or may adopt
a reasonable proration methodology of
that amount for the remainder of the
plan year. The method the individual
coverage HRA uses to determine
amounts made available for participants
who enroll during the plan year or who
have changes in the number of
dependents covered by the HRA during
a plan year must be the same for all
participants in the class of employees,
and the method must be determined
prior to the beginning of the plan year.
5. Classes of Employees
a. In General
The proposed and final rules require
a plan sponsor that offers an individual
coverage HRA to a class of employees to
offer the individual coverage HRA on
the same terms to each participant
within the class of employees, subject to
certain exceptions. Also, the proposed
and final rules provide that a plan
sponsor may offer individual coverage
HRAs on different terms to different
classes of employees, and may offer
either an individual coverage HRA or a
traditional group health plan to different
classes of employees. However, within a
class of employees, a plan sponsor
generally may not offer some employees
a traditional group health plan and
others an individual coverage HRA
96
(or offer any employee a choice between
a traditional group health plan or an
individual coverage HRA). The
proposed rules enumerated the classes
of employees that would apply for these
purposes. As discussed in more detail in
this section of the preamble, the final
rules make a number of changes to the
list of permissible classes of employees
in response to comments.
Many commenters supported the
general ability of a plan sponsor to offer
individual coverage HRAs on different
terms to different classes of employees
and to offer either a traditional group
health plan or an individual coverage
HRA to different classes of employees.
These commenters applauded the
flexibility provided by this aspect of the
proposed rules, emphasizing that such
flexibility is critical for plan sponsors
that want to offer individual coverage
HRAs.
However, some commenters objected
to this aspect of the proposed rules,
expressing concerns about the ability of
plan sponsors to use the classes of
employees to segment risk. These
commenters suggested that a plan
sponsor that wants to offer an
individual coverage HRA should not be
allowed to offer a traditional group
health plan to any of its employees and,
instead, should be required to offer the
HRA, on the same terms, to all of its
employees and, therefore, fully replace
the traditional group health plan(s) it
may have offered. One commenter
requested that the Departments disallow
the use of different classes of employees
in applying the final rules as a
transitional measure, so that plan
sponsors would not be allowed to offer
some classes of employees a traditional
group health plan and other classes of
employees an individual coverage HRA
for some transitional period of time. A
number of commenters, including some
of those who generally supported the
ability to vary benefits on a class-by-
class basis, expressed concerns about
the possibility of adverse selection and,
therefore, recommended that additional
safeguards be provided, or, at a
minimum, no further flexibility be
provided.
The Departments considered these
comments and have determined that
permitting plan sponsors to offer
different benefits to certain classes of
employees is essential to providing the
flexibility needed to achieve increased
HRA usability and to maximize
employee welfare. The Departments
understand that employers commonly
use certain job-based classifications for
employee benefits and other purposes
and that failing to provide flexibility to
offer different benefits to different
classes of employees, even for a
transitional period of time, could reduce
the use and availability of individual
coverage HRAs. However, the
Departments acknowledge the concerns
regarding the potential for adverse
selection and health factor
discrimination and, therefore, have
concluded that additional parameters in
certain circumstances are needed for
employers to offer different benefits to
different classes of employees in order
to address the potential for adverse
selection and health factor
discrimination. Accordingly, the final
rules permit employers to apply the
integration rules on a class-by-class
basis, as was allowed under the
proposed rules. However, as explained
later in this section of the preamble, the
final rules make a number of changes,
including revisions to the list of
permissible classes of employees, the
addition of a minimum class size
requirement that applies in certain
instances, and clarifications of a number
of other related issues in response to
comments.
b. Proposed and Final Classes
The proposed rules included the
following proposed classes of
employees: (1) Full-time employees
(using either the definition that applies
for purposes of Code section 105(h) or
4980H, as determined by the plan
sponsor); (2) part-time employees (using
either the definition that applies for
purposes of Code section 105(h) or
4980H, as determined by the plan
sponsor); (3) seasonal employees (using
either the definition that applies for
purposes of Code section 105(h) or
4980H, as determined by the plan
sponsor); (4) employees who are
included in a unit of employees covered
by a collective bargaining agreement
(CBA) in which the plan sponsor
participates (as described in 26 CFR
1.105–11(c)(2)(iii)(D)) (the CBA class of
employees); (5) employees who have not
satisfied a waiting period for coverage
(if the waiting period complies with the
waiting period rules in PHS Act section
2708 and its implementing rules) (the
waiting period class); (6) employees
who have not attained age 25 prior to
the beginning of the plan year (as
described in 26 CFR 1.105–
11(c)(2)(iii)(B)) (the under-age-25 class);
(7) employees who are non-resident
aliens with no U.S.-based income (as
described in 26 CFR 1.105–
11(c)(2)(iii)(E)) (generally, foreign
employees who work abroad) (the non-
resident alien class); and (8) employees
whose primary site of employment is in
the same rating area, as defined in 45
CFR 147.102(b) (the rating area class). In
addition, the proposed rules permitted,
as additional classes of employees,
groups of employees described as a
combination of two or more of the
enumerated classes.
As explained in the preamble to the
proposed rules, the Departments took a
number of considerations into account
in determining the proposed classes of
employees. First, the proposed classes
were ones that, based on the
Departments’ experience, employers
historically have used for employee
benefit purposes other than inducing
higher-risk employees to leave the plan
sponsor’s traditional group health plan.
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The Departments note that the under-age-25
class of employees was included in the proposed
rules because it is a class of employees that may be
excluded for certain purposes under Code section
105(h) and under the QSEHRA rules. See earlier in
this preamble for a discussion of the application of
Code section 105(h) to individual coverage HRAs.
Second, the proposed classes of
employees were not ones that could be
easily manipulated in order to transfer
higher-risk individuals (and perceived
higher costs) from the employer’s
traditional group health plan to the
individual market, as it would be
burdensome for employers to shift
employees from one of these classes of
employees to another merely for the
purpose of offering different types of
health benefits to employees based on a
health factor. Therefore, the
Departments determined that these
proposed classes of employees would
balance employers’ reasonable need to
make distinctions among employees
with respect to offering health benefits
with the need to protect against adverse
selection and health factor
discrimination. The Departments
requested comments on the proposed
classes of employees, including whether
additional classes of employees should
be provided and whether the proposed
classes of employees and any potential
additional classes are sufficient to
mitigate adverse selection concerns.
Several commenters supported the
proposed classes of employees, with
some insisting that no additional classes
be added because of the increased
likelihood of risk pool manipulation.
Several commenters expressed support
for the proposed list of specific
enumerated classes, as opposed to an
open-ended standard, as a way to
mitigate adverse selection.
Some commenters objected to the
proposed classes, expressing general
concern that the rules would provide
employers too much flexibility, which
would lead to manipulation of classes
and risk segmentation. Some
commenters requested that specific
classes be eliminated or modified. In
particular, several commenters
expressed concern that the under-age-25
class of employees would lead to
adverse selection. These commenters
stated that this class is not justified
based on a bona fide relationship to
employment or the need to provide
employers flexibility because employers
do not typically structure benefits based
on whether an employee has attained
age 25. Some commenters raised
administrative complexity concerns in
their objections to this proposed class
because employees under age 25 may be
eligible for coverage under their parents’
group health plans. One commenter,
however, supported this class, stating
that it may lead to healthier risk
entering the individual market. The
Departments agree with the commenters
who raised concerns about the under-
age-25 class of employees, both as to the
potential for adverse selection and the
fact that employers do not typically
structure benefits based on this
classification and, therefore, do not
need the flexibility the proposed rules
provided.
97
Therefore, the final rules do
not include the under-age-25 class of
employees as a permitted class of
employees.
With regard to the proposed part-time
employee class, several commenters
supported including the class because of
the additional flexibility it would
provide to employers when determining
whether to offer any benefits to part-
time employees. One commenter
highlighted that some large employers
(who would not be able to provide a
QSEHRA) may want to offer their part-
time employees some level of tax-
preferred health benefits but have no
options today other than offering a
traditional group health plan. Some
commenters also argued that providing
additional flexibility for employers to
offer individual coverage HRAs to part-
time employees who might otherwise
not have been offered any benefits could
lead to increased enrollment in
individual health insurance coverage,
thereby stabilizing the individual
market risk pool and reducing
premiums. One commenter suggested
that the Departments should allow
multiple gradations of part-time
employees (for example, employees who
work 10 to 20 hours per week,
employees who work 20 to 30 hours per
week, etc.). However, one commenter
expressed concern that a part-time
employee class could be a proxy for
higher-risk employees, and could,
therefore, lead to adverse selection, as
the commenter asserted that many
employees who work part-time do so
due to health issues.
The Departments agree with those
commenters who asserted that a part-
time employee class should be included
in the final rules, as it could provide
necessary flexibility to allow some
employers to offer an individual
coverage HRA to part-time employees
who might otherwise not be offered any
group health plan benefits. While the
Departments do not dispute that some
employees may change from full-time
employee status to part-time employee
status due to health issues, the
Departments have determined that
allowing full-time employees and part-
time employees as separate classes of
employees is essential for employer
flexibility, increasing HRA usability,
and maximizing employee welfare.
Further, the Departments have
concluded that the requirements of the
final rules, including these employee
classifications, are sufficiently robust to
mitigate market segmentation.
Therefore, the final rules include full-
time employees and part-time
employees as separate permitted classes
for individual coverage HRAs. However,
see the discussion later in this preamble
regarding the definitions of these terms
and the application of a minimum class
size requirement to these classes in
certain circumstances.
With regard to a class of employees
based on a geographic area, some
commenters expressed concern that
basing the class on the rating area of the
work site could be too granular risking
increased adverse selection. Thus, the
commenters asserted that a class based
on geography should instead be
determined at the state level. While the
Departments understand and considered
the concern raised by commenters, the
Departments have determined, based on
information regarding the significant
differences in individual market
premiums between rating areas within
some states and significant differences
in the number of individual health
insurance plans available between
rating areas within some states, that it
would be an unreasonable limitation on
employer flexibility to prohibit
employers from offering different
benefits based on different work-site
rating areas. The Departments
concluded that a rule that would
prohibit employers from differentiating
between these particular classes of
employees for purposes of offering
individual coverage HRAs would pose
significant costs that might undermine
the willingness of employers to offer an
individual coverage HRA. Therefore, the
final rules allow a class of employees to
be based on the rating area of the
employees’ primary work site. However,
in response to concerns raised by
commenters regarding the potential for
adverse selection and health factor
discrimination with this class of
employees in particular, see the
discussion later in this preamble
regarding the application of a minimum
class size requirement to this class in
certain circumstances.
With regard to the waiting period
class of employees, one commenter
recommended that this class of
employees be limited to a 30-day
waiting period maximum to provide an
additional market segmentation
safeguard. Another commenter
specifically supported this class. The
final rules include the waiting period
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A participation agreement allows non-
collectively bargained employees to participate in a
multiemployer plan. Non-collectively bargained
employees can only participate in a multiemployer
plan if the plan specifically allows it, and a
participation agreement will set forth who is
eligible and the benefits for which they are eligible.
class of employees, which aligns with
the waiting periods allowed under PHS
Act section 2708 and its implementing
rules, because this avoids unneeded
complexity and burden and the
Departments do not consider this class
of employees to raise significant adverse
selection concerns.
Several commenters requested
clarification regarding the CBA class of
employees, which under the proposed
rules was defined as ‘‘employees
included in a unit of employees covered
by a collective bargaining agreement in
which the plan sponsor participates (as
described in 26 CFR 1.105–
11(c)(2)(iii)(D)).’’ Commenters sought
clarification as to whether employers
may establish separate classes for
employees subject to different CBAs or
whether all employees subject to
various CBAs entered into by the
employer would be aggregated and
considered one class of employees for
purposes of offering individual coverage
HRAs. One commenter requested that
the Departments clarify whether a class
of employees based on a CBA would
include all the employees subject to that
CBA or could be based on distinctions
within the CBA. Under the final rules,
employers may establish separate
classes of employees for employees
covered by separate CBAs. However,
under the final rules, an employer is not
specifically permitted to create its own
classes of employees based on any
distinctions relating to employees
within one CBA. However, an employer
is permitted to combine a CBA
classification with other permitted
classes of employees (for example,
combining the CBA class with the full-
time employee and part-time employee
classes to create full-time and part-time
CBA subclasses), thereby allowing the
employer to make certain further
distinctions within the group of
employees subject to the CBA. The
Departments have revised the definition
of this class of employees in the text of
the rules and added an example to the
text to clarify its meaning in response to
comments. Further, to account for, and
to avoid disruption of, the way in which
multiemployer plan coverage is
sometimes offered, the final rules also
clarify that the CBA class may include
employees covered by a CBA and
employees covered by an appropriate
related participation agreement.
98
With regard to the proposed ability to
combine classes of employees more
generally to create subclasses, some
commenters supported the flexibility,
but others expressed concern with the
potential for risk segmentation. Some
commenters recommended that the final
rules not permit combinations of classes
of employees or that, if permitted, the
final rules apply certain additional
safeguards, including a minimum class
size requirement. Several commenters
recommended not allowing
combinations of classes of employees
for small employers but permitting
combinations of classes of employees
for large employers, as long as the
number of employees in a combined
class satisfies a minimum. The
Departments determined that it is
important to provide employers with
the flexibility to combine classes of
employees but, as discussed later in this
preamble, it is also appropriate to apply
a minimum class size requirement in
certain circumstances to mitigate
adverse selection and health factor
discrimination concerns. Therefore, the
final rules continue to allow for the
combination of classes of employees as
proposed but, in certain circumstances,
apply a minimum class size
requirement. The final rules also
include additional examples to illustrate
the ability of plan sponsors to combine
classes of employees.
c. Additional Classes
Some commenters recommended
against adding any classes to the list of
proposed permitted classes of
employees, stating that the proposed
classes of employees were sufficient and
that additional classes of employees
could lead to an increased risk of
adverse selection. However, as
discussed in this section of the
preamble, several other commenters
requested that certain additional classes
of employees be added to the final rules.
In the proposed rules, the
Departments acknowledged that
permitting plan sponsors to treat
salaried and hourly employees as
different classes of employees was
considered, but not proposed. The
Departments noted that employers
might easily be able to change an
employee’s status from salaried to
hourly (and in certain circumstances,
from hourly to salaried) with seemingly
minimal economic or other
consequences for either the employer or
the employees. Some commenters
agreed and strongly opposed adding
hourly and salaried employees as
classes of employees, expressing
concern that classes of employees based
on pay status could facilitate health
status discrimination and be easily
manipulated.
However, several commenters
requested that salaried and hourly
employees be added as separate classes
of employees. These commenters
disagreed with the Departments’
assertion that employers might be able
to easily change employee status from
salaried to hourly and vice versa. The
commenters noted that changing status
from salaried to hourly in particular has
substantial economic and other
consequences for both employers and
employees and that doing so on the
basis of the health of an employee could
violate ERISA section 510. One
commenter noted that employers
historically have provided different
benefits to hourly and salaried workers
and that adding these as permitted
classes of employees could facilitate
increased use of individual coverage
HRAs for employers that might
otherwise decline to offer an individual
coverage HRA. The Departments
considered the issues raised in these
comments. The Departments have
concluded that the benefits of employer
flexibility, increased utilization of
individual coverage HRAs, and
maximizing employee welfare outweigh
the potential risk of adverse selection
and health factor discrimination, due to
a reconsideration of the extent to which
these categories could be manipulated
and because of the application of a
minimum class size requirement, as
described later in this preamble.
Therefore, the final rules include
salaried and non-salaried employees as
permitted classes of employees.
One commenter requested that
employees employed by a staffing firm
for temporary placement at entities
unrelated to the staffing firm (temporary
workers) be treated as a separate class.
The commenter stated that this rule
would facilitate offering of individual
coverage HRAs by staffing firms to full-
time temporary workers (while it is
likely that regular full-time employees
of the staffing firm would continue to
receive an offer of a traditional group
health plan). The commenter further
stated that staffing firms historically
have offered temporary workers
different benefits than regular full-time
employees for reasons other than to
segment risk. The commenter further
stated that it would be burdensome for
staffing firms to shift workers between
the temporary worker and regular
employee classes merely to shift risk.
The Departments agree that adding this
class could increase the usability of
HRAs for staffing firms and benefit their
employees, that this class would be
difficult to manipulate, and, that,
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See IRS Notice 2002–45.
100
The applicability of the Medicare
nondiscrimination rules depends on the size of the
employer and the type of Medicare beneficiary. For
working aged beneficiaries, the rules apply to
employers with 20 or more employees. For disabled
beneficiaries, the rules apply to employers with at
least 100 employees. For ESRD beneficiaries, they
rules apply to employers of any size. See 42 CFR
411.100 et seq.
therefore, this class does not raise a
substantial risk of adverse selection or
health factor discrimination. Therefore,
the final rules include as a permitted
class of employees individuals who,
under all the facts and circumstances,
are the employees of an entity that hired
the employees for temporary placement
at an unrelated entity (that is, another
entity that is not the common law
employer of the employees and that is
not treated as a single employer under
Code section 414(b), (c), (m), or (o) with
the entity that hired the employees for
temporary placement).
One commenter requested that
independent contractors be permitted as
a separate class of employees, and one
commenter requested that the
Departments allow self-employed
business owners to participate in an
individual coverage HRA. HRAs were
established
99
as a means for employers
to provide tax-favored benefits to
employees, but the exclusion from
federal income tax for reimbursements
of medical expenses by HRAs is set
forth in Code sections 105 and 106, both
of which generally are restricted to
employer-provided coverage to
employees. Moreover, Code section
105(g) specifically provides that the
exclusion under Code section 105(b) is
not available to an individual who is an
employee within the meaning of Code
section 401(c)(1) (relating to self-
employed individuals). For these
reasons, businesses that utilize the
services of independent contractors
cannot provide those self-employed
individuals with a tax-favored
individual coverage HRA nor may a self-
employed business owner be provided a
tax-favored individual coverage HRA.
Therefore, the final rules do not adopt
the suggestion to add independent
contractors, or self-employed
individuals more generally, as a
permitted class of employees because
these individuals cannot be provided
tax-favored HRAs.
One commenter requested that
employees eligible for Medicare and
employees enrolled in Medicare be
treated as two separate classes. The
Departments decline to adopt this
suggestion. Sections 1862(b)(1)(A), (B),
and (C) of the Social Security Act (SSA)
generally provide that an employer that
is subject to its provisions may not take
into account an employee’s (or
employee spouse’s) eligibility for
Medicare in the design or offering of its
group health plan.
100
Section
1862(b)(1)(A)(i)(II) provides that a group
health plan must provide to any
employee or spouse age 65 or older the
same benefits, under the same
conditions, that it provides to
employees and spouses under age 65,
regardless of whether the individual or
spouse age 65 or older is entitled to
Medicare. Because Medicare is also
generally available to people with end-
stage renal disease (ESRD) regardless of
their age, SSA section 1862(b)(1)(C)
further provides that a group health
plan may not differentiate in the
benefits it provides between individuals
having ESRD and other individuals on
the basis of the existence of ESRD, the
need for dialysis, or in any other
manner (except during a 30-month
coordination period). Because these
SSA provisions generally prohibit an
employer that is subject to them from
discriminating on the basis of an
employee’s (or the employee’s spouse’s)
Medicare eligibility and treating
Medicare employees (other than
retirees) differently for benefits under
the plan, the Departments decline to
establish separate classes of employees
for employees who are eligible for or
enrolled in Medicare. However, see later
in this preamble for a discussion of the
conditions under which an individual
coverage HRA may be integrated with
Medicare.
Commenters also requested a number
of other classes of employees, with
different commenters suggesting
different classes of employees, such as
classes based on status as a field worker
(such as craft workers and laborers), role
or job title, employee tenure, being
subject to the Davis Bacon Act and
Related Acts or the Service Contract
Act, exempt or non-exempt status under
the Fair Labor Standards Act, and
religion or status as a minister. The
Departments considered each of these
suggestions and have determined that
these suggested classes of employees
raise various issues including ease of
manipulation and potential for adverse
selection and health factor
discrimination, industry-specificity, and
administrability and definitional
challenges. The Departments also took
into account that, in general, the more
classes that are permitted, the greater
the risk of adverse selection and health
factor discrimination. With respect to
the requested class based on employee
tenure, the Departments determined that
such a class could be inconsistent with
the prohibition on waiting periods that
exceed 90 days under PHS Act section
2708, in addition to raising concerns
regarding ease of manipulation and
potential for adverse selection and
health factor discrimination. Therefore,
the Departments have determined that,
on balance, for these suggested
additional classes, the potential risks
posed outweigh the potential benefits,
and the Departments decline to add
these suggested classes of employees to
the final rules. However, see the
discussion later in this preamble
regarding the special rule for new hires,
which is related in part to the comments
suggesting a new class based on
employee tenure.
d. Additional Safeguards
In the preamble to the proposed rules,
the Departments stated that to minimize
burden and complexity, the
Departments had not proposed a
minimum employer size or employee
class size. The Departments identified a
concern that very small employers
could manipulate the classes of
employees, but noted that other
economic incentives related to attracting
and retaining talented workers would
discourage employers from doing so.
Accordingly, the Departments invited
comments on whether employer size or
employee class size should be
considered in determining permissible
classes of employees.
With regard to employer size, some
commenters stated that the risk of
health factor discrimination is higher
with small employers and that the final
rules should prohibit small employers
from using, or combining, classes of
employees to make health coverage
distinctions. However, other
commenters asserted that the concern
that small employers may discriminate
based on health status is invalid,
arguing that small employers are less
likely to discriminate because of both
the complexity required to design
discriminatory programs and the
minimal incentives that small
employers have to remove risk from
their small group market traditional
group health plans that are part of a
community rated single risk pool. For
these reasons, one commenter requested
that the final rules include less
restrictive guardrails for small
employers. The commenter also
requested that large employers offering
only an individual coverage HRA be
permitted additional flexibility to
structure their classes of employees
because the risk of discrimination
would be mitigated as the employer is
not offering a traditional group health
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plan and, therefore, would not have
incentives to remove risk from its plan.
With regard to minimum class size, a
number of commenters requested that
individual coverage HRAs only be
available to classes of employees that
include a minimum number of
employees or are a minimum percentage
of an employer’s workforce. A few
commenters noted that although a
minimum class size requirement would
be restrictive, and perhaps inhibit the
use of individual coverage HRAs, it
would be necessary to prevent risk
segmentation. Some commenters
supported applying a minimum class
size requirement in all cases and some
supported applying such a requirement
only when separate classes of
employees are combined to make
smaller subclasses of employees. Some
commenters made general requests for a
minimum class size requirement (for
example, requests for a meaningful
threshold) and others included specific
suggestions, such as requiring a
minimum class size of 10 percent of
employees, at least 10 percent of the
employer’s workforce or 100 workers, at
least 20 employees, or prohibiting
employers with fewer than 10
employees from being able to create
classes. One commenter requested that
there be no minimum class size
requirement, in particular to provide
flexibility to small employers.
In response to these comments, the
Departments have concluded that it is
appropriate to apply a minimum class
size requirement under the final rules in
certain circumstances. The Departments
sought to develop a rule that is narrowly
tailored both to mitigate the risk of
adverse selection and health factor
discrimination while also avoiding
overly burdening employers or
unnecessarily hampering the use and
flexibility of HRAs to maximize
employee welfare.
In order to balance these various
considerations, the final rules include a
minimum class size requirement that
varies based on employer size and that
applies only to certain classes of
employees in certain circumstances in
which the potential for adverse
selection is greatest. If a class of
employees is subject to the minimum
class size requirement, the class must
include a minimum number of
employees for the individual coverage
HRA to be offered to that class. The final
rules explain the circumstances in
which the minimum class size
requirement applies, how to determine
the applicable class size minimum, and
how an individual coverage HRA
determines if a particular class of
employees satisfies the applicable class
size minimum. The final rules also
provide a number of examples to
illustrate each aspect of the minimum
class size requirement.
As to the circumstances in which the
minimum class size requirement
applies, it applies only if the plan
sponsor offers a traditional group health
plan to at least one other class of
employees and offers an individual
coverage HRA to at least one class of
employees. To the extent the minimum
class size requirement applies, it applies
only to certain classes that are offered
an individual coverage HRA. The
minimum class size requirement does
not apply to a class of employees offered
a traditional group health plan or to a
class of employees that is not offered
any group health plan.
Under the final rules, the minimum
class size requirement generally applies
to the following classes of employees
offered an individual coverage HRA: (1)
Salaried employees, (2) non-salaried
employees, (3) full-time employees, (4)
part-time employees, and (5) employees
whose primary site of employment is in
the same rating area (although the
minimum class size requirement does
not apply if the geographic area defining
the class is a state or a combination of
two or more entire states) (these classes
are referred to collectively as the
applicable classes). However, in the case
of full-time employees and part-time
employees, the minimum class size
requirement applies only to those
classes if the employees in either the
part-time or full-time class are offered a
traditional group health plan while the
employees in the other class are offered
an individual coverage HRA. The
Departments considered each of the
classes of employees permitted under
the final rules to determine which
classes, if any, present a risk of adverse
selection sufficiently significant to
justify the imposition of the minimum
class size requirement. The Departments
determined that classes composed of
salaried employees, non-salaried
employees, full-time employees, part-
time employees, and employees whose
primary site of employment is in the
same rating area (except if the
geographic area defining the class is a
state or a combination of two or more
entire states) present a substantial risk
that employers could apply each of
these classes in a way that targets
certain higher-risk employees and,
therefore, could lead to health factor
discrimination and adverse selection.
However, the Departments determined
that the other permitted classes of
employees (that is, the seasonal
employee class, the CBA class, the
waiting period class, the class based on
non-resident aliens with no U.S.-based
income, and the class of employees for
temporary workers employed by a
staffing firm) are unlikely to be
manipulated by employers in a way that
would lead to health factor
discrimination or adverse selection.
Under the final rules, the minimum
class size requirement applies to a class
of employees created by combining any
of the applicable classes with any other
class of employees, except that the
minimum class size requirement does
not apply to a class that is the result of
any combination of an applicable class
and the waiting period class. Waiting
periods are most typically applied to
new hires, and it is not uncommon for
employers to hire new employees in
small numbers, to respond to attrition
and as workflow increases. Further, the
Departments are of the view that
combinations of classes that include the
waiting period class do not raise a
significant risk of manipulation that
could lead to adverse selection or health
factor discrimination. Therefore, taking
these factors into account, the
Departments have determined that
applying the minimum class size
requirement to a class comprised of an
applicable class and a waiting period
class is not warranted.
Consistent with the comments
received on this topic, the minimum
number of employees that must be
included in a class of employees subject
to the minimum class size requirement
(the applicable class size minimum)
depends on the number of employees
employed by the employer. The plan
sponsor must determine the applicable
class size minimum for each plan year
of the individual coverage HRA. The
applicable class size minimum is: (a) 10,
for an employer with fewer than 100
employees; (b) a number, rounded down
to a whole number, equal to 10 percent
of the total number of employees, for an
employer with 100 to 200 employees;
and (c) 20, for an employer that has
more than 200 employees. In selecting
these thresholds, the Departments
considered the suggestions made by
commenters and sought to strike a
balance between providing employers
with flexibility to offer different
healthcare packages as part of their
compensation framework and design,
and limiting employers’ ability to use
the classes in ways that would create
adverse selection in the individual
market. The Departments agree with
commenters that small employers may
not have significant incentives to
establish classes in a way that would
result in adverse selection or health
discrimination, but also are of the view
that it could be easier for smaller
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101
The Departments reiterate that under the same
terms requirement, an employer offering an
individual coverage HRA to any employee in a class
of employees must offer the HRA, generally on the
same terms and conditions, to all employees in the
class.
102
Code section 9802, ERISA section 702, and
PHS Act section 2705. See also 26 CFR 54.9802–
1, 29 CFR 2590.702, and 45 CFR 146.121.
103
ERISA section 510.
104
SSA section 1862(b)(1)(A), (B), and (C) and 42
CFR 411.102, 411.161, and 411.170.
105
See Code section 9831(a)(2) and ERISA section
732(a). While title XXVII of the PHS Act, as
amended by PPACA, no longer contains a parallel
provision at PHS Act section 2721(a), HHS has
explained that it will not enforce the requirements
of title XXVII of the PHS Act with respect to non-
federal governmental retiree-only plans and
encourages states to adopt a similar approach with
respect to retiree-only plans offered by health
insurance issuers. See 75 FR 34537, 34540 (June 17,
2010).
employers to manipulate the classes of
employees. Further, the Departments
selected thresholds for larger employers
taking into account that, despite their
total size, the classes of employees
could also be manipulated by larger
employers in ways that could lead to
adverse selection and health factor
discrimination. Therefore, the minimum
class size requirement applies to small
employers and large employers, but at
lower thresholds for smaller employers
than for large employers. For the
purpose of applying the minimum class
size requirement, an employer must
determine the number of its employees
based on its reasonable expectation of
the number of employees it expects to
employ on the first day of the plan year
of the individual coverage HRA.
The annual determination of whether
a class of employees satisfies the
applicable class size minimum is based
on the number of employees in the class
who are offered the individual coverage
HRA as of the first day of the plan
year.
101
Therefore, the determination of
whether a class of employees satisfies
the minimum class size requirement is
not based on the number of employees
who enroll in the individual coverage
HRA and is not affected by changes that
occur during the plan year.
Some commenters requested that, in
addition to, or instead of, a minimum
class size requirement, the Departments
should add an anti-abuse rule that
would give the Departments the
discretion to determine whether an
individual coverage HRA is offered in a
manner that is intended to segment
sicker workers based on all the facts and
circumstances. Therefore, even if an
employer followed the other rules set
forth in the final rules, this additional
rule would nevertheless permit the
Departments to address instances of
discrimination based on a health factor.
The Departments decline to add a facts
and circumstances test to the final rules
because the Departments have
concluded that the minimum class size
requirement, as set forth in the final
rules, adequately balances the need to
prevent health factor discrimination
with the need to provide employers
with certainty in order to encourage
expansion and use of individual
coverage HRAs. Moreover, other
applicable nondiscrimination laws
continue to apply. Under the HIPAA
nondiscrimination provisions, for
example, a group health plan (including
an individual coverage HRA) may not
discriminate in eligibility for benefits, or
in premiums or contributions, based on
one or more health factors.
102
In
addition, for ERISA-covered plans, it is
unlawful for any person to discriminate
against a participant or beneficiary for
the purpose of interfering with the
attainment of any right to which the
participant may become entitled under
a health plan or ERISA.
103
Further,
under the SSA, an employer generally
may not take into account that an
individual is entitled to Medicare on the
basis of age or disability, or eligible for,
or entitled to Medicare on the basis of
ESRD, and may not differentiate in the
benefits it provides between individuals
who have ESRD and other individuals
covered under the plan.
104
In addition,
other nondiscrimination laws (such as
the Americans with Disabilities Act)
may also apply, and the Departments
note that compliance with the final
rules is not determinative of compliance
with any other applicable law. A new
facts and circumstances test would add
significant uncertainty for employers
while adding little additional protection
mitigating adverse selection and health
factor discrimination.
e. Former Employees
Under the proposed rules, if an
individual coverage HRA were offered
to former employees, former employees
would be considered to be in the same
class of employees in which they were
included immediately before separation
from service. While the plan sponsor
would not be required to offer the
individual coverage HRA to all former
employees (or to all former employees
in the applicable class of employees), if
it did offer the HRA to a former
employee, it would have to do so on the
same terms as for the other employees
in that class.
A few commenters requested that
employers be permitted to treat former
employees as a separate class of
employees, stating that the rule under
the proposed rules treating former
employees as part of the class of
employees in which they would have
been included immediately prior to
separation from service will impose a
barrier to offering individual coverage
HRAs. These commenters stated that
such a new class of employees would
not raise manipulation concerns
because whether to terminate
employment generally is an
independent decision made by the
employee. Commenters further
suggested that if a class of employees
were created for former employees, the
final rules should also permit subclasses
within the class of former employees
based on years of service.
Some commenters supported the
proposed treatment of former employees
and commented that former employees
should not be permitted as a separate
class of employees under the final rules
because the general age and health
status of former employees would
present adverse selection concerns. One
commenter included a number of
requests regarding retiree-only HRAs in
the context of rehired employees.
Notwithstanding that employers may
continue to offer retiree-only HRAs that
are not subject to the market
requirements (and, therefore, are not
subject to any integration requirements),
the Departments understand the
commenters’ concern regarding adverse
selection and are not aware of a
compelling need to treat former
employees as a separate class of
employees under the final rules in light
of the continued allowance of retiree-
only HRAs that are not subject to any
integration requirements. All of the
rules and eligibility criteria related to
retiree-only HRAs continue to apply
without change.
105
Therefore, the final
rules provide that a former employee is
considered to be a member of the same
class of employees the former employee
was in immediately before separation
from service, as proposed.
Several commenters raised other
classification and administration issues
related to retirees. One commenter
requested clarification that the final
rules would not affect the status of
former employees who participate in
their employer’s traditional group
health plan through COBRA. The
Departments note that the impact of the
final rules on any former employee
participating in an employer’s
traditional group health plan through
COBRA continuation coverage depends
on the facts and circumstances. For
example, COBRA continuation coverage
ends on the date the employer ceases to
provide any group health plan
(including successor plans). If a former
employee is participating in a
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106
However, employers may not permit unused
amounts in an individual coverage HRA, or any
other type of HRA, to be considered transferred to
an excepted benefit HRA because amounts made
available under an excepted benefit HRA are
necessarily limited in order for the HRA to
constitute an excepted benefit. Allowing amounts
remaining in other types of HRAs to be transferred
to an excepted benefit HRA could lead to significant
circumvention of that limit. Also, note that under
the final excepted benefit HRA rules, if the plan
sponsor offers more than one HRA to the
participant for the same time period, the amounts
made available under all such plans are aggregated
to determine whether the benefits are limited in
amount, except that HRAs that reimburse only
excepted benefits are not included in determining
whether the benefits are limited in amount.
traditional group health plan that is
replaced by an individual coverage
HRA, the former employee would have
a right to elect to participate in the
successor plan, the individual coverage
HRA (conditioned on the payment of
premiums and enrollment in individual
health insurance coverage), but would
generally not have a right to continue
coverage in the traditional group health
plan. One commenter requested that the
final rules define ‘‘former employee.’’
The final rules provide that for purposes
of this rule a former employee is an
employee who is no longer performing
services for the employer.
f. Controlled Group
Commenters requested clarification as
to whether the classes of employees are
identified based on the employees of the
common law employer or, rather,
whether the determination is made at
the controlled group level (generally
referring to a group of employers treated
as a single employer with the common
law employer under Code section
414(b), (c), (m), or (o)), such that all
employees of a controlled group of
employers would be combined to create
the classes of employees. Some
commenters recommended that the
Departments confirm that the controlled
group rules do not apply for this
purpose, and some recommended that
the controlled group rules be used to
determine the classes of employees as a
way to reduce the number of small
classes and prevent adverse selection.
After consideration of these
comments, the Departments have
concluded that determining the classes
of employees at the common law
employer level will avoid complexity
for employers and that applying the
minimum class size requirement (to the
extent applicable), as described earlier
in this preamble, at the common law
employer level, is a more
straightforward way of addressing the
adverse selection concerns raised by
some commenters. Accordingly, the
final rules clarify that the classes of
employees are determined based on the
employees of a common law employer,
rather than the employees of a
controlled group of employers.
g. Movement Among Classes
A few commenters requested
clarification regarding the application of
the final rules in the situation in which
an employee moves out of a class of
employees that is offered an individual
coverage HRA and into a different class
of employees that is offered either a
traditional group health plan, a different
individual coverage HRA, or no
coverage. As discussed earlier in this
preamble, the Departments note that as
group health plans, HRAs generally are
subject to the COBRA or other group
continuation of coverage rules.
However, if the change in the
employee’s classification is not the
result of termination of employment or
reduction in hours, there generally is
not a qualifying event resulting in a
COBRA or other group continuation of
coverage right.
Even if an employee who ceases
enrollment in an individual coverage
HRA does not have a right to
continuation of coverage, the HRA must
allow the individual to submit for
reimbursement substantiated medical
care expenses that were incurred during
the coverage period prior to the
termination date of the individual
coverage HRA. In this case, the
individual coverage HRA may limit the
period of time to submit expenses to a
reasonable specified time period after
termination of coverage under the
individual coverage HRA during which
the participant may submit those
claims. Additionally, an employee who
loses coverage under an individual
coverage HRA may qualify for an SEP
for loss of MEC to change his or her
individual health insurance coverage
either on or off an Exchange.
One commenter asked whether an
employee who changes classes of
employees and loses coverage under an
individual coverage HRA may convert
unused amounts to another type of
HRA. The Departments note that under
existing rules, employers generally may
provide employees enrolled in a
traditional group health plan an HRA
that is integrated with that traditional
group health plan and in some
circumstances may provide an HRA that
can be integrated with TRICARE or
Medicare. Nothing in the final rules or
current guidance would prevent
employers from basing the amount in
these types of HRAs on unused amounts
in an individual coverage HRA in which
the individual was previously enrolled,
nor are employers precluded from
basing the amount of an individual
coverage HRA on unused amounts in
these types of HRAs in which the
individual was previously enrolled.
Also, if an employee moves from a class
of employees offered an individual
coverage HRA to a class of employees
offered a different individual coverage
HRA, nothing in the final rules would
prevent the employer from permitting
the unused amounts in the first
individual coverage HRA to be
considered transferred to the second.
Therefore, the final rules are revised to
clarify that amounts made available in
an individual coverage HRA based on
amounts remaining in another HRA
under which the participant was
previously covered are disregarded for
purposes of determining whether the
individual coverage HRA is offered on
the same terms, provided that if the
HRA takes these amounts into account,
it does so on the same terms for all
participants in the class of
employees.
106
Further, with regard to amounts
remaining in an individual coverage
HRA after the individual is no longer
covered by the HRA, the HRA must
allow a participant (and the participant
on behalf of dependents) to submit
claims to the HRA for reimbursement of
substantiated expenses that were
incurred during the coverage period
prior to the termination of the
individual’s coverage under the
individual coverage HRA, even if the
claim is submitted after the individual
is no longer covered by the individual
coverage HRA. However, the HRA may
limit the period to submit expenses to
a reasonable specified time period.
One commenter requested guidance
on situations in which employees are
currently receiving treatment for health
conditions when an employer switches
from a traditional group health plan to
an individual coverage HRA. The
Departments note that a similar issue
arises under existing rules when an
employer switches from one group
health plan to another group health plan
with a different network of providers, so
that providers participating under the
first plan are no longer in network. The
final rules do not address this issue
because it is not specific to this
rulemaking. To the extent an employee
or dependent is switching from an
insured traditional group health plan to
individual health insurance coverage
purchased with an individual coverage
HRA, state ‘‘succeeding carrier’’ or
‘‘extension of benefit’’ laws may
regulate the obligations of the prior or
succeeding issuer to cover an
individual’s ongoing health conditions
at the time of the coverage switch.
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h. Definition of Full-Time Employee,
Part-Time Employee, and Seasonal
Employee
For purposes of identifying classes of
employees, the proposed rules provided
that a plan sponsor may define full-time
employees, part-time employees, and
seasonal employees in accordance with
either the applicable definitions under
Code section 105(h) or those under Code
section 4980H to avoid overlapping
classes of employees. The proposed
rules included a proposal that a plan
sponsor’s choice of which statutory
definitions to apply must be consistent
across these three classes of employees,
to the extent the plan sponsor
differentiates based on these classes.
A few commenters requested that
only one definition for each term be
permitted and requested that the final
rules adopt the definitions in Code
section 4980H. One commenter
recommended that only the definition of
full-time employee under Code section
4980H (which is based on 30 hours per
week) should be permitted. This
commenter asserted that use of the
definition under Code section 105(h)
(which is based on 35 hours per week)
could lead to adverse selection, because
many plans currently offer traditional
group health plan coverage to
employees based on the Code section
4980H definition, and use of another
definition could lead to subdivision of
full-time employees. A few commenters
supported the proposed ability to
choose either set of definitions,
including the requirement to use either
the definitions under Code section
4980H or those under Code section
105(h) consistently across these classes
of employees.
The Departments considered these
comments and have determined that the
final rules should adopt the definitions
provided in the proposed rules. This
approach provides employers with
flexibility, while limiting opportunities
for risk segmentation. The Departments
understand that, to avoid the inclusion
of amounts in income, plan sponsors of
self-insured plans subject to Code
section 105(h) (in particular small
employers not subject to Code section
4980H) may want to design their health
plans to offer a traditional group health
plan and individual coverage HRAs (or
individual coverage HRAs in different
amounts or under different terms and
conditions) to different classes of
employees that are identified in a
manner that complies with the
requirements of Code section 105(h).
The Departments also acknowledge that
certain larger employers have already
determined how to apply the definitions
under Code section 4980H to their
workforces and using those same
definitions for purposes of applying the
integration rules may reduce burden for
those employers. Therefore, the final
rules include flexibility for each
employer to determine which set of
definitions is appropriate for its
workforce, provided the employer uses
the same set of definitions for
classifying its full-time, part-time, and
seasonal employees to the extent it uses
one or more of these classes of
employees.
The proposed rules further provided
that the HRA plan document must set
forth the applicable definitions of full-
time employee, part-time employee, and
seasonal employee prior to the
beginning of the plan year in which the
definitions will apply and that nothing
would prevent an employer from
changing the definitions for a
subsequent plan year. Some
commenters supported that provision,
asserting that it minimizes the potential
for adverse selection, with one
requesting clarification whether it is
permissible to change the definitions of
the classes of employees during the plan
year. One commenter stated that plan
sponsors should not be allowed to
change the definitions each plan year,
asserting that this flexibility could allow
small employers in particular to
segment risk.
The Departments have determined
that in order to mitigate the risk of
market segmentation and minimize
disruption to employees with respect to
a coverage period, it is important for
plan sponsors to determine prior to the
plan year which definitions will apply
and to apply them consistently
throughout the plan year. The
Departments also have concluded that
limiting an employer’s ability to revise
the definitions it applies from one plan
year to the next would be unnecessarily
restrictive. Accordingly, the final rules
generally retain the rules in the
proposed rules. However, the final rules
clarify that adjustments during the plan
year to the definitions used to identify
the classes of employees are not
permitted.
6. Special Rule for New Hires
As explained earlier in this preamble,
some commenters expressed concerns
about the challenges employees may
experience in transitioning from a
traditional group health plan to
individual health insurance coverage,
with some stating that the proposed
rules failed to adequately take into
account the differences between the
coverage types and the significance of
the change from the employee’s
perspective. The Departments are aware
that the transition from coverage under
a traditional group health plan to
coverage under an individual coverage
HRA could represent a substantial
change from an employee perspective,
and, as a result, employers may want to
phase in individual coverage HRAs. By
allowing plan sponsors to offer
traditional group health plans to some
classes of employees while offering
other classes of employees an individual
coverage HRA, the final rules provide
plan sponsors with some flexibility to
manage the transition to individual
coverage HRAs. However, in response to
comments, including those expressing
concern about the transition from
traditional group health plans to
individual coverage HRAs and those
expressing interest in being able to
provide different benefits based on
employee tenure, the Departments have
determined that it is appropriate to
provide additional flexibility to plan
sponsors, in particular for employers
that offer traditional group health plans
that would like to continue to offer that
type of coverage to current employees
who are accustomed to that coverage,
but offer individual coverage HRAs to
newly hired employees.
Therefore, notwithstanding the
general rule that a plan sponsor may
only offer either a traditional group
health plan or an individual coverage
HRA to a class of employees, the final
rules provide that a plan sponsor that
offers a traditional group health plan to
a class of employees may prospectively
offer employees in that class hired on or
after a certain date in the future (the
new hire date) an individual coverage
HRA (the new hire subclass), while
continuing to offer employees in the
class hired before the new hire date a
traditional group health plan (the
special rule for new hires). A plan
sponsor may set the new hire date
prospectively for a class of employees as
any date on or after January 1, 2020. A
plan sponsor may set different new hire
dates prospectively for separate classes
of employees.
Although this special rule provides
additional flexibility, it is still the case
that for the new hire subclass, the
individual coverage HRA must be
offered on the same terms to all
participants within the new hire
subclass, in accordance with the
generally applicable rules under the
same terms requirement. Further, a plan
sponsor may not offer a choice between
an individual coverage HRA or a
traditional group health plan to any
participant, whether a current employee
or a newly hired employee in the new
hire subclass.
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107
To the extent such an arrangement is available
to active employees it may be subject to restrictions
under other laws, such as the MSP provisions.
108
See 26 CFR 54.9815–2711(d)(2)(i)(E),
(d)(2)(ii)(D), and (d)(5)(iv); 29 CFR 2590.715–
2711(d)(2)(i)(E), (d)(2)(ii)(D), and (d)(5)(iv); and 45
CFR 147.126(d)(2)(i)(E), (d)(2)(ii)(D), and (d)(5)(iv).
109
See later in this preamble for a discussion of
the final rules regarding the circumstances in which
an offer of an individual coverage HRA is affordable
and provides MV for purposes of Code section 36B.
110
Note that a former employee is only rendered
ineligible for the PTC if the former employee enrolls
in employer-sponsored coverage; an offer of
coverage (even if it is affordable and provides MV)
does not preclude a former employee from claiming
the PTC. See 26 CFR 1.36B–2(c)(3)(iv).
111
The final rules also clarify that for participants
or dependents who become eligible for the
individual coverage HRA on a date other than the
first day of the plan year (or participants who are
not required to be provided the HRA notice at least
90 days in advance of the plan year (that is,
employees who become eligible less than 90 days
prior to the plan year and employees of newly
established employers)), the option to opt out must
be provided during the HRA enrollment period
established by the HRA for these individuals and
then subsequently on an annual basis in advance
of the plan year.
A plan sponsor may discontinue the
special rule for new hires at any time for
a class of employees. In that case, the
new hire subclass would no longer be
treated as a separate subclass of
employees, and each employee that was
previously treated as part of the new
hire subclass would then be treated as
an employee in the class of which he or
she would have otherwise belonged for
purposes of the final rules. In that case,
if the plan sponsor wanted to offer an
individual coverage HRA, it would need
to do so for all the employees in the
class and generally on the same terms,
as explained earlier in this preamble. It
could also choose instead to offer a
traditional group health plan to some or
all of the employees
107
in the class or
to offer no coverage.
In the event a plan sponsor applies
the special rule for new hires to a class
of employees and later discontinues
using the rule for the class of
employees, the plan sponsor may apply
the special rule for new hires to the
class of employees again, at a later time,
under the same rules as the initial
application of the rule. For example, as
under the basic requirements for the
application of the special rule for new
hires, the plan sponsor would only be
allowed to apply the rule to a class to
which it is offering a traditional group
health plan. If a plan sponsor applies
the special rule for new hires again, in
accordance with the general rules under
the special rule for new hires, the plan
sponsor would choose a prospective
new hire date. In no circumstances may
the special rule for new hires be applied
to a class of employees (including a new
hire subclass) already being offered an
individual coverage HRA, in an attempt
to offer different HRA amounts or other
different terms within a class of
employees based on different hire dates.
The minimum class size requirement
described earlier in this preamble does
not apply to a new hire subclass. This
is because the Departments recognize
that many employers hire only a few
employees, or even only one employee,
at a time and a subclass based on a new
hire date does not present a high risk of
manipulation that could lead to adverse
selection. However, if a plan sponsor
subdivides the new hire subclass based
on a permissible class of employees
subsequent to creating the new hire
subclass, the minimum class size
requirement applies to any class of
employees created by subdividing the
new hire subclass, if the minimum class
size requirement otherwise applies. The
text of the final rules includes examples
to illustrate these rules.
7. Opt-Out Provision
If an individual is covered by an HRA,
including an individual coverage HRA,
for a month, regardless of the amount of
reimbursement available under the
HRA, the individual is not eligible for
the PTC for that month. Because in
some circumstances an individual may
benefit more from claiming the PTC
than from having funds in an HRA
available for reimbursement, the
Departments’ existing rules regarding
integration with non-HRA group
coverage and with Medicare require a
plan sponsor that offers an HRA to
allow participants to opt out of and
waive future reimbursements from the
HRA at least annually.
108
The proposed
rules also included this requirement
with respect to the individual coverage
HRA, so that employees would be
allowed the PTC, if they are otherwise
eligible, if they opt out of and waive
future reimbursements from the HRA
and the HRA is either unaffordable or
does not provide MV.
109
The
Departments have concluded that this
condition is important as a result of the
PTC consequences of HRA coverage,
and, therefore, the final rules retain this
condition, with some clarifications.
Furthermore, consistent with the
current rules for integration with a
group health plan and with Medicare,
the proposed rules required that upon
termination of employment, either the
remaining amounts in the HRA must be
forfeited or the participant must be
allowed to permanently opt out of and
waive future reimbursements from the
HRA. This requirement ensures that the
HRA participant may choose whether to
claim the PTC, if otherwise eligible, or
to continue to participate in the HRA
after the participant’s separation from
service.
110
Commenters generally supported
these opt-out requirements as necessary
to protect PTC eligibility for employees.
Some commenters expressed concern
that due to the complexity of the PTC
affordability rules, employees are likely
to have difficulty understanding
whether or not they should opt out of
an individual coverage HRA. Similarly,
some commenters expressed concern
that some low- and moderate-income
employees may opt into the individual
coverage HRA although they may have
been better off opting out of the HRA
and receiving the PTC, while others
expressed concern that some employees
may opt out of the HRA based on the
misimpression that they will receive the
PTC, when actually they are ineligible
for the PTC.
The Departments appreciate the
concerns expressed regarding the
burden on employees to properly
determine whether the individual
coverage HRA they have been offered is
affordable and provides MV and to
determine whether they will be better
off with the HRA or, if otherwise
eligible, the PTC. These concerns are the
primary reason that the Departments
proposed and are finalizing the
requirement for individual coverage
HRAs to provide a written notice to
each participant. Further, the
Departments will work with the FFEs
and State Exchanges to ensure that their
applications and other relevant
materials are updated to accommodate
individuals who are offered an
individual coverage HRA and are
applying for individual health insurance
coverage with APTC.
Some commenters requested
clarification regarding the timing of the
annual opt-out condition. One
commenter asked the Departments to
clarify how the annual opt-out
condition applies in the case of an HRA
with a non-calendar year plan year. In
response, the final rules clarify that an
HRA may establish timeframes for
enrollment in (and opting out of) the
HRA, but participants generally
111
must
be provided an opportunity to opt out
of the individual coverage HRA once for
each plan year, which must occur in
advance of, and with respect to, the plan
year. That is, individual coverage HRAs
must provide participants with one
advance opportunity to accept, or opt
out of, the individual coverage HRA for
each plan year, but the individual
coverage HRA may not provide
participants with multiple opportunities
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112
The Departments note that this provision
addresses the right of participants to opt out of the
HRA generally, including for their dependents, and
is not intended to preclude an HRA from allowing
a participant who enrolls in the HRA from enrolling
some, but not all, dependents (including new
dependents added during the year). The
Departments also clarify that in the event a
participant gains a dependent during the year, the
HRA must provide the participant the right to
decline to enroll that dependent, if the participant
had enrolled for the plan year.
113
See 26 CFR 54.9815–2711(d)(3), 29 CFR
2590.715–2711(d)(3), and 45 CFR 147.126(d)(3).
114
The Departments clarify that the reference to
‘‘will be’’ applies for participants who provide the
substantiation in advance of when their individual
coverage HRA coverage begins.
115
One commenter asserted that the
substantiation requirements in the proposed rules
are not sufficient but the commenter appears to
have understood that the annual coverage
substantiation requirement is the sole
substantiation requirement. The Departments note
that the final rules, like the proposed rules, also
require that the HRA satisfy the ongoing
substantiation requirement. The Departments
determined that both the annual coverage
substantiation requirement and the ongoing
substantiation requirement are necessary to ensure
that individuals covered by an individual coverage
HRA have individual health insurance coverage.
Also, this commenter asserted that in the proposed
rules the Departments acknowledged that
employees may fail to obtain coverage, and cited to
83 FR 54445 (Oct. 29, 2018), where, in the
regulatory impact analysis the Departments stated
that loss of coverage could occur as a result of the
integration rules ‘‘if some previously covered
employees do not accept the HRA and fail to obtain
their own coverage.’’ The Departments clarify that
this statement related to individuals who opt out of
the HRA and did not address the circumstance in
which an individual with an individual coverage
HRA does not have individual health insurance
coverage.
116
The Departments note that in establishing the
enrollment period for an individual coverage HRA,
to opt into, or out of, the individual
coverage HRA over the course of the
plan year, except that the final rules
require HRAs to provide an opt out
opportunity upon termination of
employment. This is generally
consistent with employees’ ability to
decline traditional group health plan
coverage that is not affordable or does
not provide MV in order to claim the
PTC, if otherwise eligible. See later in
this preamble for a discussion of
comments received on the proposed
PTC rules and an explanation of the
final PTC rules, including for additional
discussion of the application of the PTC
rules to an employee opting out of, or
accepting, an individual coverage HRA
with a non-calendar year plan year.
One commenter requested
clarification as to whether a former
employee offered an individual
coverage HRA must be provided the
annual opportunity to opt out of the
individual coverage HRA. The
Departments clarify that the annual opt-
out condition applies for all participants
eligible to enroll in an individual
coverage HRA, including former
employees. Another commenter
requested clarification whether an
employee’s choice to opt out of an
individual coverage HRA also applies to
the employee’s dependents who are
otherwise eligible for the individual
coverage HRA. The Departments intend
for the opt-out opportunity to extend to
dependents, but expect that an
employer would provide an individual
coverage HRA to an employee’s
dependent only if the employee
participates in the individual coverage
HRA. Therefore, the final rules clarify
that if an employee opts out of an
individual coverage HRA, the
individual coverage HRA is considered
waived for the employee’s eligible
dependents as well.
112
See later in this
preamble for a discussion of the
circumstance in which the offer of an
individual coverage HRA to an
employee’s dependents will render the
dependents ineligible for the PTC.
One commenter requested
clarification as to whether, instead of
permanently forfeiting an individual
coverage HRA upon termination of
employment, an individual coverage
HRA may be suspended for a period of
time, allowing the individual to receive
the PTC during that period of time if
otherwise eligible, and then have the
HRA amounts reinstated in the
individual coverage HRA years in the
future. Although the current rules for
integration of an HRA with other group
coverage allow certain HRA amounts
that would otherwise be permanently
forfeited to be reinstated in the future
upon a fixed date, a participant’s death,
or the earlier of the two events, the final
rules do not include a similar provision
for individual coverage HRAs. The final
rules do not include such a provision
due to the Departments’ concerns about
complexity and burden on employers in
needing to establish procedures for
substantiation of enrollment in
individual health insurance coverage
upon reinstatement, and on an ongoing
basis, possibly many years in the future;
the lack of demand for such a rule from
employers; and potential complexities
related to the interaction with the
PTC.
113
However, as explained earlier in
this section of the preamble, the final
rules require an individual coverage
HRA to provide an annual opportunity
for participants to opt out of the HRA,
which may, depending on the
individual coverage HRA offered, allow
the participant, if otherwise eligible, to
claim the PTC.
8. Substantiation of Coverage Under
Individual Health Insurance Coverage
a. In General
The proposed rules required that
individuals whose medical care
expenses may be reimbursed under an
individual coverage HRA must be
enrolled in individual health insurance
coverage. To facilitate the
administration of this requirement,
under the proposed rules, an individual
coverage HRA would be required to
implement, and comply with,
reasonable procedures to verify that
individuals whose medical care
expenses are reimbursable by the
individual coverage HRA are, or will
be,
114
enrolled in individual health
insurance coverage during the plan year
(annual coverage substantiation
requirement).
Commenters generally supported the
annual coverage substantiation
requirement, asserting that it is
necessary to ensure the effectiveness of
the requirement that individuals
covered by an individual coverage HRA
must be enrolled in individual health
insurance coverage. The Departments
agree; therefore, the final rules adopt the
annual coverage substantiation
requirement, with minor clarifications
described in this section of the
preamble.
115
Some commenters asked the
Departments to clarify the timeframe
within which the substantiation must be
provided, including requests for
clarification as to whether it would be
acceptable for the substantiation to
occur during the individual coverage
HRA enrollment period or prior to the
first request for reimbursement under
the individual coverage HRA, which
commenters stated would be consistent
with typical administrative procedures
for HRAs. For individuals who seek
enrollment in an individual coverage
HRA for the entire HRA plan year, the
Departments intend for the annual
coverage substantiation requirement to
provide verification of an individual’s
enrollment in individual health
insurance coverage for the entire HRA
plan year (and, therefore, that coverage
is in effect as of the first day of the HRA
plan year). Accordingly, the final rules
clarify that the HRA may establish the
date by which the annual coverage
substantiation requirement must be
satisfied, but, in general, the date may
be no later than the first day of the HRA
plan year. Nothing in the final rules
prevents an HRA from setting
reasonable parameters for when the
substantiation must be provided to the
HRA (for example, by the end of the
individual coverage HRA open
enrollment period).
116
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plan sponsors should consider the timeframes for
the relevant individual market enrollment periods.
117
See Code section 105(b), 26 CFR 1.105–2, and
IRS Notice 2002–45.
118
See Prop. Treas. Reg. 1.125–6(d) for rules
regarding reimbursement of medical care expenses
through electronic methods, including some debit
cards that satisfy certain requirements.
119
See IRS Notice 2006–69, 2006–31 IRB 107;
Revenue Ruling 2003–43, 2003–1 CB 935; and Prop.
Treas. Reg. 1.125–6(b)(3)(ii), (d)(i).
120
The Departments note that the final rules
clarify that the ongoing substantiation requirement
applies with respect to the individual on whose
behalf reimbursement is being sought.
121
The Departments are aware that in the case of
an individual coverage HRA with a non-calendar
year plan year, the individual may not have
documentation showing an individual health
insurance policy that spans the entire plan year as
individual health insurance policy years are based
on the calendar year. However, such an HRA may
establish reasonable procedures to implement the
annual coverage substantiation requirement,
including documentation showing coverage for the
first part of the plan year combined with an
attestation that the participant intends to obtain
individual health insurance coverage for the second
part of the plan year or an attestation with respect
to the full plan year.
However, for individuals who become
eligible for the HRA during the HRA
plan year, including dependents, or who
otherwise are not required to be
provided the HRA notice described later
in this preamble 90 days prior to the
plan year (that is, employees who
become eligible fewer than 90 days prior
to the plan year or employees of newly
established employers), the HRA may
establish the date by which the
substantiation must be provided, but the
date may be no later than the date the
HRA coverage begins. These individuals
may not have sufficient time to enroll in
individual health insurance coverage
that is effective on or before the first day
of the HRA plan year. Thus, the final
rules provide a timing requirement that
is consistent with the annual coverage
substantiation requirement to provide
verification of an individual’s
enrollment in individual health
insurance coverage for the portion of the
HRA plan year during which the
individual is covered by the HRA. The
final rules also clarify that, for these
individuals, whether the individual is a
participant or a dependent, the annual
coverage substantiation requirement
requires substantiation that the
individual will have individual health
insurance coverage for the portion of the
HRA plan year during which the
individual is covered by the HRA
(rather than requiring substantiation of
coverage for the entire plan year). The
final rules also clarify that to the extent
a new dependent’s coverage is effective
retroactively, the HRA may establish
any reasonable timeframe for the annual
coverage substantiation but must require
it be provided before the HRA will
reimburse medical care expenses for the
newly added dependent.
In addition to the annual coverage
substantiation requirement, the
proposed rules provided that an
individual coverage HRA may not
reimburse a participant for any medical
care expenses unless, prior to each
reimbursement, the participant provides
substantiation that the participant and,
if applicable, any dependent(s) whose
medical care expenses are requested to
be reimbursed, continues to be enrolled
in individual health insurance coverage
for the month during which the medical
care expenses were incurred (ongoing
substantiation requirement).
Several commenters expressed
support for the ongoing substantiation
requirement, as necessary to ensure the
effectiveness of the requirement that
individuals covered by an individual
coverage HRA must be enrolled in
individual health insurance coverage.
Several commenters, however, were
concerned about what they
characterized as the complexity,
burdens, and liabilities associated with
the ongoing substantiation requirement,
in particular for smaller employers, and
noted that those burdens could deter
employers from adopting individual
coverage HRAs. Some commenters
asserted that the annual coverage
substantiation requirement would be
sufficient to verify enrollment in
individual health insurance coverage
and, therefore, ongoing substantiation
would be unnecessary.
The Departments note that currently,
separate from the market requirements
or integration rules, HRAs are subject to
substantiation requirements with
respect to each request for
reimbursement. This is because in order
to provide a benefit excludable from
income for federal tax purposes,
employer-provided accident or health
plans, including HRAs, may only
reimburse medical care expenses that
have been substantiated as an expense
for medical care.
117
Consequently, each
reimbursement for medical care
expenses by an HRA may only be paid
after the expense has been substantiated
as being for medical care.
118
Each claim
for reimbursement also generally must
include the employee’s certification that
the expense has not otherwise been
reimbursed and that the employee will
not seek reimbursement for the expense
from any other plan.
119
The Departments have determined
that requiring ongoing substantiation of
an individual’s continued enrollment in
individual health insurance coverage for
the month in which the expense was
incurred is not unduly burdensome
because of these existing substantiation
requirements. Further, the Departments
have determined that the ongoing
substantiation requirement is essential
to ensure compliance with the
requirement that an individual covered
by an individual coverage HRA be
enrolled in individual health insurance
coverage and, as explained later in this
section of the preamble, will impose
minimal burden because it can be
satisfied by collecting a written
attestation from the participant on the
same form used for requesting
reimbursement. Thus, the final rules
retain the ongoing substantiation
requirement.
120
Commenters requested that the
Departments confirm the entity to
which the substantiation requirements
apply. Under the final rules, the
substantiation requirements (both the
annual coverage substantiation
requirement and the ongoing
substantiation requirement) apply to the
individual coverage HRA, rather than to
any other entity or individual, such as
an issuer or employee, because the
requirements relate to compliance of the
individual coverage HRA with PHS Act
sections 2711 and 2713. The
substantiation requirements do not
impose any new requirements on
issuers, although individual coverage
HRAs may accept certain
documentation provided by issuers in
the normal course of business to verify
individual health insurance coverage
enrollment.
b. Methods of Substantiation
The proposed rules included a
proposal that the reasonable procedures
an individual coverage HRA may use to
verify enrollment in individual health
insurance coverage for purposes of the
annual coverage substantiation
requirement include the individual
coverage HRA requiring the participant
to provide either: (1) A document from
a third party (for example, the issuer or
Exchange) showing that the participant
and any dependent(s) covered by the
individual coverage HRA are, or will be,
enrolled in individual health insurance
coverage during the plan year (for
example, an insurance card or an
explanation of benefits pertaining to the
plan year or relevant month, as
applicable);
121
or (2) an attestation by
the participant stating that the
participant and any dependent(s) are, or
will be, enrolled in individual health
insurance coverage, the date coverage
began or will begin, and the name of the
provider of the coverage. For the
ongoing substantiation requirement, the
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122
See IRS Notice 2013–54, Q&A–4 (providing
that attestation is sufficient to show that an
individual is enrolled in group coverage, as
required by the rules allowing HRA integration with
a traditional group health plan) and IRS Notice
2017–67, Q&A–41 (providing that attestation is
sufficient to satisfy the QSEHRA requirement that
individuals provide proof that they are covered by
MEC).
123
The Departments note that a document from
an Exchange showing that the individual has
completed the application and plan selection would
not be sufficient to satisfy the ongoing
substantiation requirement; to satisfy that
requirement the individual on whose behalf
reimbursement is sought must be enrolled in
individual health insurance coverage. Therefore,
individual health insurance coverage must become
effective, including retroactively in the case of
delayed SEP verification, in which case
reimbursement can then be sought for expenses
incurred during the coverage period (including
during the period to which the individual health
insurance coverage applies retroactively, assuming
the individual was covered by the HRA during that
time).
124
Code section 9801(e), ERISA section 701(e),
and PHS Act section 2704(e).
125
A couple of commenters requested
clarification that funds in an individual coverage
HRA could be accessed via debit cards. The final
rules do not change the methods currently allowed
for facilitating reimbursements of HRA amounts,
electronic or otherwise.
126
See IRS Notice 2006–69 and Revenue Ruling
2003–43, 2003–1 CB 935.
127
For purposes of the Code provisions affected
by the final rules, the otherwise generally
applicable substantiation and recordkeeping
requirements under Code section 6001 apply,
including the requirements specified in Revenue
Procedure 98–25, 1998–1 CB 689, for records
maintained within an Automated Data Processing
system.
proposed rules permitted that
substantiation could be in the form of a
written attestation by the participant,
which could be part of the form used for
requesting reimbursement.
Commenters generally supported that
the proposed rules provided that
attestation by a participant would be
sufficient to satisfy both the annual
coverage substantiation requirement and
the ongoing substantiation requirement.
However, one commenter stated that
allowing attestation to be used to satisfy
the annual coverage substantiation
requirement is not sufficient to ensure
that individuals covered by an
individual coverage HRA have
individual health insurance coverage.
The Departments acknowledge the
importance of the requirement under
the final rules that individuals with an
individual coverage HRA be enrolled in
individual health insurance coverage
and, therefore, the need for related
substantiation requirements that ensure
that requirement is satisfied. The
Departments note that attestation is
permitted to be used to satisfy similar
requirements in related contexts and
that the Departments generally are not
aware of issues with regard to the
accuracy of attestations used to satisfy
those rules.
122
Further, in setting out
one type of attestation that is sufficient
to satisfy the annual coverage
substantiation requirement, the final
rules state that, in addition to providing
that the individual is (or will be)
enrolled in individual health insurance
coverage, the attestation would also
provide the date coverage began or will
begin and the name of the provider of
the coverage. Moreover, HRAs can use
other reasonable methods to satisfy the
substantiation requirements and, in fact,
the Departments generally expect that
employees will use individual coverage
HRAs to reimburse premiums for the
individual health insurance coverage in
which they are enrolled and, therefore,
employers will be able to confirm
enrollment in individual health
insurance coverage by virtue of
reimbursing the premiums for such
coverage (or paying the premiums for
such coverage directly). Taking these
factors into consideration, the
Departments have determined that
allowing participant attestation, among
other options, to satisfy the
substantiation requirements strikes the
appropriate balance between ensuring
individuals with individual coverage
HRAs are enrolled in individual health
insurance coverage and minimizing
burdens on employers and employees.
Accordingly, the final rules retain this
provision and permit substantiation by
participant attestation.
Some commenters requested that the
final rules provide a model attestation.
In response, to reduce burden on
individual coverage HRAs and their
participants, the Departments are
providing model attestation language
contemporaneously with, but separate
from, the final rules. However, the
Departments note that individual
coverage HRAs will not be required to
use the model attestation.
Some commenters requested
clarification as to whether other
substantiation methods, in addition to
collection of an attestation, would
satisfy the substantiation requirements.
One commenter suggested that a list of
covered individuals provided by the
insurance carrier should be sufficient.
The Departments agree that this would
generally be a type of third-party
document that could be used to verify
enrollment, assuming the individual
coverage HRA timely receives the
substantiation. However, the
Departments note that the final rules do
not require issuers to provide individual
coverage HRAs with lists of covered
individuals nor are individual coverage
HRAs required to contact issuers to
substantiate an individual’s enrollment
in individual health insurance coverage.
In addition, the final rules clarify that a
document from an Exchange showing
that the individual has completed the
application and plan selection would be
sufficient to satisfy the annual coverage
substantiation requirement. This
clarification is intended to address the
situation in which, due to the SEP
verification process, an individual is not
yet enrolled in individual health
insurance coverage but will be enrolled
with a retroactive start date upon
successful completion of the SEP
verification.
123
See later in this
preamble for a discussion of SEPs,
including a new SEP for individuals
who newly gain access to an individual
coverage HRA.
One commenter requested that the
final rules adopt a requirement for
issuers similar to the creditable coverage
certification requirement created by
HIPAA, under which, as suggested by
the commenter, issuers would be
required to generate a letter for all
individuals covered by individual
health insurance coverage for each
month showing payment was made and
that the individual had the coverage for
the month.
124
The Departments decline
to impose such a requirement because it
would increase burden and other
reasonable substantiation methods are
available. One commenter suggested
that the ongoing substantiation
requirement should be considered
satisfied so long as the employer sends
a notice to employees advising them to
contact the employer if they no longer
are enrolled in individual health
insurance coverage. The Departments
decline to adopt this suggestion because
this method of substantiation would be
insufficient to ensure with reasonable
accuracy that a participant had
continued enrollment in individual
health insurance coverage.
Several commenters requested that
individual coverage HRAs be permitted
to comply with the substantiation
requirements electronically, such as
through debit card technology.
125
Some
commenters noted this would provide
consistency with current rules that
allow HRAs to satisfy the current
requirement to substantiate that an
expense is for medical care using debit
cards and other electronic means.
126
Nothing in the final rules would
prohibit an individual coverage HRA
from establishing procedures to comply
with the substantiation requirements
through electronic means, so long as the
procedures are reasonable to verify
enrollment.
127
See also the discussion
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However, see Code section 106(g) regarding
the taxation of QSEHRA reimbursements if an
individual fails to have MEC.
later in this preamble regarding the
interaction of these rules with the safe
harbor that DOL is finalizing, to clarify
that individual health insurance
coverage will not be treated as part of
an ERISA-covered group health plan so
long as certain conditions (including the
prohibition on endorsement) are
satisfied.
c. Reliance on Documentation or
Attestation
The proposed rules provided that, for
both the annual coverage substantiation
requirement and the ongoing
substantiation requirement, an
individual coverage HRA may rely on
the documentation or attestation
provided by the participant unless the
individual coverage HRA has actual
knowledge that any participant or
dependent covered by the individual
coverage HRA is not, or will not be,
enrolled in individual health insurance
coverage for the plan year or the month,
as applicable.
Despite this provision in the proposed
rules, some commenters expressed
concern, and requested clarification,
regarding liability of an individual
coverage HRA if it relies on a
participant’s misrepresentation
regarding enrollment in individual
health insurance coverage. In response
to these comments, the final rules
provide that an individual coverage
HRA may rely on the documentation or
attestation provided by the participant
unless the HRA has actual knowledge
that any participant or dependent
covered by the individual coverage HRA
is not, or will not be, enrolled in
individual health insurance coverage for
the plan year (or the applicable portion
of the plan year) or the month, as
applicable. Therefore, the final rules
provide that an inaccurate attestation or
document will not cause an individual
coverage HRA to fail to be considered
integrated with individual health
insurance coverage unless the HRA has
actual knowledge that the attestation or
document is inaccurate. The
Departments clarify that in the event an
individual coverage HRA subsequently
gains actual knowledge that the
attestation or document was inaccurate,
the HRA may not provide further
reimbursement on behalf of the
individual for expenses incurred during
the period to which the inaccurate
attestation relates.
One commenter requested that the
final rules clarify whose knowledge can
be imputed to the individual coverage
HRA for purposes of liability and one
commenter requested clarification that
vendors contracted by the HRA could
rely on coverage information provided
by the HRA. The individual coverage
HRA will be considered to have actual
knowledge that a participant or
dependent is not, or will not be,
enrolled in individual health insurance
coverage for the plan year or the month,
as applicable, if the HRA, its plan
sponsor, or any other entity acting in an
official capacity on behalf of the HRA
has such actual knowledge.
One commenter suggested that the
final rules apply penalties to individual
participants for an inaccurate
attestation. The final rules do not
impose penalties on participants.
Instead, the final rules, like the
proposed rules, provide conditions
under which an HRA will be considered
integrated with individual health
insurance coverage and, therefore, in
compliance with PHS Act sections 2711
and 2713. Failing to properly integrate
will cause an HRA to run afoul of PHS
Act sections 2711 and 2713. Therefore,
the responsibility to have reasonable
procedures in place to ensure coverage
is integrated falls on the HRA, not the
participants.
One commenter asked that individual
coverage HRA amounts made available
for a month be treated as taxable income
for individuals who do not have
individual health insurance coverage for
the month and that the attestation
requirement and required notice include
a related warning. The Departments
decline to adopt this suggestion.
Whether an individual is enrolled in
individual health insurance coverage for
a month relates to whether the
individual coverage HRA satisfies the
conditions for integration for the month
and does not affect the tax treatment of
reimbursements provided to a
participant under the individual
coverage HRA.
128
One commenter suggested that the
final rules address substantiation
requirements relative to a private
exchange. The Departments note that
the substantiation requirements set forth
in the final rules apply to all individual
coverage HRAs, regardless of the
manner in which the individual health
insurance coverage is purchased. See
later in this preamble for a discussion of
private exchanges and the DOL
clarification regarding the application of
ERISA to individual health insurance
coverage purchased through an
individual coverage HRA.
To mitigate discrimination concerns,
one commenter requested that the
substantiation requirements be
consistent across all classes of
employees. The Departments note that
the substantiation requirements set forth
in the final rules apply to all individual
coverage HRAs, including different
individual coverage HRAs offered to
different classes of employees. The
Departments generally expect plan
sponsors to establish similar procedures
to satisfy the substantiation
requirements for different individual
coverage HRAs they may offer.
However, the Departments decline to
adopt the commenter’s specific
recommendation in order to allow plan
sponsors the flexibility to establish
reasonable procedures to satisfy the
substantiation requirements, which
presumably could differ across the
employer’s workforce, depending on the
characteristics of the workforce or for
other legitimate business reasons.
One commenter requested that
employers offering an individual
coverage HRA to employees or former
employees who are either eligible for or
enrolled in Medicare should be exempt
from the substantiation requirement.
However, as discussed in more detail
later in this preamble, the final rules
permit integration of an individual
coverage HRA with Medicare, and the
substantiation requirements apply to
enrollment in Medicare in the same
manner as they apply to enrollment in
individual health insurance coverage.
Therefore, the final rules do not adopt
this suggestion.
9. Notice Requirement
Because HRAs are different from
traditional group health plans in many
respects, in the preamble to the
proposed rules, the Departments
expressed a concern that individuals
eligible for individual coverage HRAs
might not recognize that the offer or
acceptance of the individual coverage
HRA may have consequences for APTC
and PTC eligibility, as described
elsewhere in this preamble. In order to
ensure that employees who are eligible
to participate in an individual coverage
HRA understand the potential effect that
the offer of and enrollment in the HRA
might have on their ability to receive the
benefit of APTC and claim the PTC, the
proposed rules included a requirement
that an individual coverage HRA
provide written notice to eligible
participants.
Commenters generally supported the
notice requirement, sharing the
Departments’ determination that many
individuals will need the information to
understand the PTC consequences of the
individual coverage HRA. However, a
number of commenters expressed
concerns about the potential for
consumer confusion, notwithstanding
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See PHS Act section 2715(b)(3) (incorporated
in Code section 9815 and ERISA section 715). See
also 26 CFR 54.9815–2715, 29 CFR 2590.715–2715,
and 45 CFR 147.200.
the notice requirement, and some
suggested ways to strengthen the notice.
Other commenters expressed concern
that the notice requirement could
burden employers, with one noting in
particular the burden of providing
notices to former employees.
The Departments have considered
these comments and agree with the
commenters that assert that the notice is
necessary and appropriate for
individuals offered an individual
coverage HRA to understand the
consequences of the offer. Although the
Departments also considered the burden
on employers identified by commenters,
the Departments have determined that
the notice requirement is essential to
implementation of the final rules. Along
with updates to Exchanges’ application
processes, the notice, which will
include information that individuals
will be instructed to provide to
Exchanges during the application
process, is key to ensuring that APTC
and PTC are properly allowed and that
improper APTC payments are
prevented. The notice will also aid
implementation of the new individual
market SEP, as explained later in this
preamble. Therefore, the final rules
retain this requirement, with a number
of revisions made in response to
comments, including that the
Departments are providing model notice
language, separate from, but
contemporaneously with the final rules,
in order to address commenters’
concerns about burden on employers.
The comments received and changes
made in the final rules are described in
the remainder of this section of the
preamble.
a. Notice Content
As proposed, the notice was required
to include certain relevant information,
including a description of the terms of
the individual coverage HRA (including
the self-only maximum dollar amount
made available, which is used in the
affordability determination under the
proposed PTC rules); a statement of the
right of the participant to opt out of and
waive future reimbursement under the
HRA; a description of the potential
availability of the PTC if the participant
opts out of and waives the HRA and the
HRA is not affordable under the
proposed PTC rules; a description of the
PTC eligibility consequences for a
participant who accepts the HRA; a
statement that the participant must
inform any Exchange to which they
apply for APTC of certain relevant
information; and a statement that the
individual coverage HRA is not a
QSEHRA.
Commenters generally supported the
notice content elements, and the final
rules include each of the proposed
notice content elements, some with
clarifications. Some commenters
requested that the notice be required to
include additional content, as explained
in this section of the preamble, and
some commenters requested that the
notice be as simple as possible. Some
commenters requested that the notice
explain the differences between an
employer’s traditional group health plan
and alternative health insurance
products. And one commenter
requested that the specific dollar
amount made available be included in
the notice. The Departments note that
under the final rules, the notice is
required to provide the amount(s) made
available under the individual coverage
HRA. As to the suggestion that the
notice explain common differences
between traditional group health plans
and individual coverage HRAs and
other insurance products, the
Departments decline to adopt the
suggestion due to concerns that it would
cause confusion for participants, as
participants are prohibited from being
offered both a traditional group health
plan and an individual coverage HRA
under the final rules. The intent of the
notice is to explain the individual
coverage HRA that the employee is
being offered to avoid consumer
confusion. Adding information about
other types of coverage would
undermine that goal. Further, traditional
group health plans differ in cost-sharing
structures, network rules, and benefits
covered, and any standardized language
in the notice would have to be general
and would not capture these elements,
as standardized language about
traditional group health plans would
not be describing any particular plan.
Moreover, the individual coverage HRA
must provide a summary of benefits and
coverage (SBC), which will include a
description of the coverage, including
cost sharing; the exceptions, reductions
and limitations on coverage; and other
information.
129
One commenter requested that the
notice be required to contain contact
information for a specific person that
participants can contact with questions.
The Departments agree that this could
be useful information for participants,
without imposing significant additional
burden on employers, and therefore the
final rules add a requirement that the
notice include contact information of an
individual or a group of individuals
who participants may contact with
questions regarding their individual
coverage HRA. For purposes of this new
requirement, the plan sponsor may
determine which individual or group of
individuals is in the best position to
answer these questions. The final rules
provide that the contact information
provided in the notice must, at least,
include a telephone number.
The final rules also newly require that
the notice include a statement of
availability of an SEP for employees and
dependents who newly gain access to
the HRA. This is in part in response to
a commenter who suggested that the
notice could be used to improve
Exchange program integrity by making it
easier for Exchanges that require pre-
enrollment verification to use the notice
to confirm enrollees’ SEP eligibility.
Separate from, but contemporaneously
with the final rules, HHS is providing
model language that will be relevant to
employees purchasing coverage through
or outside an Exchange, including a
State Exchange, which HRAs may use to
satisfy this requirement. The final rules
also clarify that, to facilitate
participants’ timely enrollment in
individual health insurance coverage
using the new SEP described later in
this preamble, the notice must also
indicate the date as of which coverage
under the HRA may first become
effective and the date on which the HRA
plan year begins and ends. The notice
must also include information on when
amounts will be made available (for
example, monthly or annually).
Commenters also requested that the
notice explain the extent to which
individuals enrolled in Medicare may
use an individual coverage HRA. In
response to these comments, and to
reflect the content of the final rules, the
notice content requirements have been
updated to reflect that individual
coverage HRAs may be integrated with
Medicare and to require inclusion of a
statement in that notice that Medicare
beneficiaries are ineligible for the PTC,
without regard to whether the
individual coverage HRA the individual
is offered is affordable or provides MV
or whether the individual accepts the
HRA.
Further, the Departments note that, as
under the proposed rules, while the
written notice must include the
information required by the final rules,
it may include other information, as
long as the additional content does not
conflict with the required information.
b. Notice Individualization
The proposed rules did not include a
requirement that the notice be
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See IRS Notice 2018–88. Further, lowest cost
silver plan data will be made available by HHS for
employers in all states that use the Federal
HealthCare.gov platform to determine whether the
individual coverage HRA offer is affordable for
purposes of the employer shared responsibility
provisions under Code section 4980H.
131
See, e.g., ERISA sections 102, 104(b), and 503
and PHS Act sections 2715 and 2719 (incorporated
in Code section 9815 and ERISA section 715). See
also 26 CFR 54.9815–2715 and 54.9815–2719; 29
CFR 2520.102–3, 2520.104b–1, 2560.503–1,
2590.715–2715, and 2590.715–2719; and 45 CFR
147.136 and 147.200.
132
But see 29 CFR 2520.102–2(c) (requiring that
plans where either 500 participants or at least 10
percent of all participants (or for plans with fewer
than 100 participants, 25 percent of participants)
are literate in the same non-English language
provide those literate only in a non-English
language a reasonable opportunity to become
informed as to their rights and obligations under the
plan).
individualized for each participant.
Although the notice would have been
required to include a description of the
potential availability of the PTC for a
participant who opts out of and waives
an unaffordable individual coverage
HRA, and the individual coverage HRA
amount that is relevant for determining
affordability, the proposed rules did not
require that the HRA include in the
notice a determination of whether the
HRA is considered affordable for the
specific participant.
Some commenters agreed that the
notice should not be required to be
tailored to each participant. However,
others stated that the notice would be
insufficient if not individualized and
requested that the final rules require
that the notice provide information
specific to each participant, including
the premium for the relevant lowest cost
silver plan, or, at a minimum, detailed
instructions for where to find
information on the lowest cost silver
plan, while others requested that the
notice include a completed affordability
and MV calculation specific to each
participant.
While the Departments understand
the concerns about consumer confusion,
under the final rules, the notice is not
required to include a determination of
whether the offer of an individual
coverage HRA is affordable for a
particular participant. Plan sponsors are
not in a position to make this
determination for, or provide it to, each
participant because it would require
information that plan sponsors do not
possess (for example, the participant’s
household income). In addition,
requiring a plan sponsor to determine
the cost of the lowest cost silver plan
that will apply for a specific participant
to determine affordability under the
PTC rules would be burdensome, and
the information is available to the
participant through other means.
Specifically, by November 1, 2019, HHS
will provide resources to assist
individuals offered an individual
coverage HRA and using the Federal
HealthCare.gov platform with
determining their PTC eligibility based
on whether the individual coverage
HRA is considered affordable, and with
understanding when they must enroll in
individual health insurance coverage
based on their individual coverage HRA
effective date, including whether they
may qualify for an SEP. HHS will also
begin working with State Exchanges
immediately to assist with the
development of resources for
individuals using State Exchanges’
applications for coverage. Further,
although some plan sponsors will need
to determine whether the offer of the
individual coverage HRA is affordable
for purposes of the employer shared
responsibility provisions under Code
section 4980H, smaller employers are
not subject to Code section 4980H.
Moreover, the Treasury Department and
the IRS intend to issue guidance in the
near term providing safe harbors or
other methods intended to reduce
burdens and provide more predictability
regarding the application of Code
section 4980H to these arrangements.
130
The Departments acknowledge that it
is critical that participants have the
information that they need to determine
the affordability of their individual
coverage HRA under the PTC rules, and,
accordingly, the final rules add a
requirement that the notice include a
statement about how the participant
may find assistance for determining
their individual coverage HRA
affordability. The model language that
the Departments are providing
contemporaneously with the final rules
includes language that can be used to
satisfy this requirement.
One commenter requested that the
notice be required to be tailored for each
class of employees offered the
individual coverage HRA, in cases in
which different classes are provided
different HRA amounts, rather than
allowing an employer to provide one
notice for several or all classes. The
final rules do not adopt this suggestion
because the Departments have
concluded any marginal advantages
would be outweighed by the additional
employer burdens of creating and
distributing multiple versions of the
notice. However, the Departments note
that the final rules do not prohibit an
employer from providing more
individualized notices, such as different
notices for different classes of
employees, if the employer so chooses.
c. Model Notice
Many commenters requested that the
Departments provide a model notice or
model language for certain parts of the
notice, such as model language to
describe the consequences of opting into
or out of the individual coverage HRA
and language describing the related PTC
consequences. One commenter
suggested that the Departments provide
translations of the model notice into
languages other than English.
In response to these requests, and
published separately from the final
rules, the Departments are providing
model language contemporaneously on
certain aspects of the notice that are not
employer-specific, including model
language describing the PTC
consequences of being offered and
accepting an individual coverage HRA.
In addition, HHS is providing,
contemporaneously, model language
that relates to all Exchanges that can be
used to satisfy the SEP-related notice
content requirement and model
language that can be used to satisfy the
requirement that the notice include a
statement describing how the
participant may find assistance with
determining affordability. While the
Departments hope it will be useful, plan
sponsors are not required to use the
model language.
For individual coverage HRAs,
including ERISA-covered plans, other
disclosure requirements may require
participants to be provided with a
reasonable opportunity to become
informed as to their rights and
obligations under the individual
coverage HRA.
131
Those requirements
are of general applicability, and the
Departments decline to adopt a special
requirement, or model non-English
translation, here.
132
d. Notice Timing and Delivery
Under the proposed rules, the
individual coverage HRA generally
would be required to provide a written
notice to each participant at least 90
days before the beginning of each plan
year. The proposed rules also provided
that for participants not eligible to
participate at the beginning of the plan
year (or not eligible when the notice is
otherwise provided to plan
participants), the individual coverage
HRA would be required to provide the
notice no later than the date on which
the participant is first eligible to
participate in the HRA.
Some commenters supported the
notice timing as proposed and others
indicated that small employers will not
be able to provide notices 90 days prior
to the plan year because they do not
make benefit decisions that far in
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29 CFR 2520.104b–1.
134
67 FR 17263, 17264 (April 9, 2002).
advance. Several commenters requested
that the notice delivery coincide with
the annual Exchange open enrollment
period, others requested it coincide with
each employer’s annual open
enrollment period, and others requested
that plan sponsors have the flexibility to
provide the required notice at any time
prior to the plan year, including upon
initial enrollment in an individual
coverage HRA. One commenter
requested the notice be required to be
provided within 60 days, instead of 90
days, prior to the start of the plan year.
One commenter requested that the
Departments apply the distribution
requirements that apply for purposes of
SBCs and the uniform glossary. One
commenter also asked the Departments
to clarify the notice timing requirement
as applied to individual coverage HRAs
that do not have a calendar year plan
year.
The Departments considered these
comments, but have determined that,
with the addition of a rule for newly
established employers and certain other
clarifications, the final rules should
adopt the notice timing requirement as
proposed, because, for a calendar year
plan year, it ensures that participants
who are current employees will receive
the notice prior to the individual market
annual open enrollment period, and for
employers offering an individual
coverage HRA on a non-calendar year
plan year, it ensures participants who
are current employees will receive the
notice prior to the applicable individual
market SEP. The Departments also
clarify that the notice timing
requirement applies in the same way to
an individual coverage HRA with a
calendar year plan year or with a non-
calendar year plan year. The notice’s
primary purpose is to provide necessary
information to participants that
Exchanges will need in order to
accurately determine eligibility for
APTC. With that purpose in mind, the
Departments have determined that a
shorter timing requirement, including
one mirroring the requirement for the
SBC, or a timing requirement tied to the
employer’s open enrollment period,
would not be sufficient.
As previously noted, the proposed
rules provided an exception to the 90
day notice requirement for participants
who are not eligible to participate either
at the beginning of the plan year or at
the time the notice is provided at least
90 days prior to the plan year. For those
participants, the proposed rules would
allow the individual coverage HRA to
provide the notice no later than the date
on which the participants are first
eligible to participate in the HRA. The
final rules adopt this rule generally as
proposed, but clarify the language to
provide that the date by which the
notice must be provided is the date on
which the HRA may first take effect for
the participant. Further, the
Departments have determined that
individual coverage HRAs sponsored by
employers that are first established
within a short period of time prior to the
first plan year of the HRA may not have
an adequate amount of time to provide
a notice to participants at least 90 days
prior to beginning of the first plan year.
Therefore, the final rules provide that in
the case of an individual coverage HRA
sponsored by an employer that is
established less than 120 days prior to
the beginning of the first plan year of
the HRA, the notice may be provided no
later than the date on which the HRA
may first take effect for the participant,
for that first plan year of the HRA.
Moreover, although the final rules
provide that for participants not eligible
to participate in the individual coverage
HRA at the beginning of the plan year
(or not eligible when the notice is
otherwise provided) and for participants
of newly established employers, the
HRA is not required to provide the
notice until the date on which the HRA
may first take effect for the participant,
the Departments encourage HRAs to
provide the notice as soon as
practicable. As explained later in this
preamble, individuals who newly gain
access to an individual coverage HRA
will have an individual market SEP that
provides the chance to select an
individual health insurance plan in
advance of the date when the HRA may
first take effect, so that individual health
insurance coverage can be effective on
the first date the individual is eligible to
be covered by the HRA. If the notice is
not provided until the day the HRA may
first take effect for the participant,
individuals may not be aware of the
HRA offer and will not be able to enroll
in individual health insurance coverage
that has an effective date on the earliest
effective date of their HRA coverage.
However, the Departments are aware
that in some circumstances it would not
be reasonable to require HRAs to
provide the notice well in advance of
the date the HRA may first take effect
for new employees. Therefore, the final
rules continue to require that the notice
be provided in these circumstances no
later than the date on which the HRA
may first take effect, but if possible,
HRAs should provide the notice sooner.
This will allow new employees to begin
coverage in the HRA as soon as possible.
With regard to delivery methods, the
proposed rules provided that the notice
must be a written notice but did not
further address delivery or format.
Several commenters requested that the
final rules clarify the notice delivery
procedures and requirements, including
allowing for electronic delivery (through
email delivery, internet/intranet
posting, or any other electronic means)
if participants are provided the
appropriate opportunity to opt out of
electronic delivery. One commenter
asked specifically if the notice delivery
would be subject to ERISA’s delivery
rules.
Under the final rules, individual
coverage HRAs that are subject to
ERISA, and individual coverage HRAs
sponsored by nonfederal governmental
plan sponsors, must provide the notice
in a manner reasonably calculated to
ensure actual receipt of the material by
plan participants covered by the HRA.
Additionally, individual coverage HRAs
that are subject to ERISA must provide
the notice in a manner that complies
with the DOL’s rules.
133
For ERISA
plans using electronic disclosure, the
DOL has provided a safe harbor at 29
CFR 2520.104b–1(c). This safe harbor is
not intended to represent the exclusive
means by which the requirements of 29
CFR 2520.104b–1 may be satisfied using
electronic media.
134
As to individual
coverage HRAs sponsored by nonfederal
governmental plan sponsors, HHS is
revising the final rule to provide that the
notice must be provided in a manner
reasonably calculated to ensure actual
receipt of the material by plan
participants covered by the HRA, which
HHS has determined is sufficient to
ensure that participants receive the
required notice.
Commenters also requested that the
Departments confirm that the notice
may be delivered along with other plan
materials, including, but not limited to,
annual enrollment materials or new hire
benefit packages. The Departments
confirm that the individual coverage
HRA notice may be delivered with other
plan materials, so long as it satisfies the
content and timing requirements
specific to the individual coverage HRA
notice.
e. Other Notice Requirements and
Consumer Assistance
Some commenters suggested that all
types of HRAs (including excepted
benefit HRAs and HRAs integrated with
traditional group health plans) should
include notice requirements so that
individuals understand which type of
arrangement they have and the
consequences of the arrangement. The
Departments acknowledge the potential
for consumer confusion as a result of the
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Code section 9831(d)(4) and IRS Notice 2017–
67.
136
See 29 CFR 2520.104b–2 and 29 CFR
2520.104b–3(a), (d)(3).
137
See, e.g., ERISA sections 104(b), 502(c), and
503. See also 29 CFR 2520.104b–1 and 29 CFR
2560.503–1.
138
The final excepted benefit HRA rules
specifically note the ERISA disclosure obligations,
and HHS intends to propose similar disclosure
requirements for non-federal governmental plan
excepted benefit HRAs.
139
Under this definition, student health
insurance coverage must be provided pursuant to a
written agreement between an institution of higher
education (as defined in the Higher Education Act
of 1965) and a health insurance issuer, and
provided to students enrolled in that institution and
their dependents, and does not make health
insurance coverage available other than in
connection with enrollment as a student (or as a
dependent of a student) in the institution, does not
condition eligibility for the health insurance
coverage on any health status-related factor (as
defined in 45 CFR 146.121(a)) relating to a student
(or a dependent of a student), and satisfies any
additional requirements that may be imposed under
state law. See 45 CFR 147.145(a).
140
See 45 CFR 147.145(b).
existence of various types of health
coverage, including various types of
HRAs. However, the Departments
generally decline the suggestion to
impose new notice requirements under
the final rules across all types of HRAs.
The Departments note that this type of
consumer information notice
requirement is typically only imposed
in situations in which there is a specific
justification for it. For example,
individual coverage HRAs are unique in
that specific PTC rules apply, and for
QSEHRAs, which also have specific
PTC rules, notices are already required
under the law.
135
Further, the Departments note that the
proposed rules would have required the
notice to include a statement that the
individual coverage HRA is not a
QSEHRA, and the final rules revise the
statement in response to comments to
clarify further that there are multiple
types of HRAs and the type the
participant is being offered is an
individual coverage HRA (rather than a
QSEHRA or any other type).
Moreover, HRAs that are ERISA-
covered plans must provide a summary
plan description (SPD), summaries of
material modifications, and summaries
of material reductions in covered
services or benefits.
136
The SPD must be
sufficiently comprehensive to apprise
the plan’s participants and beneficiaries
of their rights and obligations under the
plan. It must also include, for example,
the conditions pertaining to eligibility to
receive benefits, and a description or
summary of the benefits, the
circumstances that may result in
disqualification, ineligibility, or denial,
loss, forfeiture, suspension, offset,
reduction, or recovery (for example, by
exercise of subrogation or
reimbursement rights) of any benefits
and the procedures governing claims for
benefits under the plan. HRAs that are
ERISA-covered plans are also required
to provide the instruments under which
the plan is established or operated and
information relevant to a participant’s
adverse benefit determination upon
request.
137
This information should be
adequate to enable individuals to
understand which type of arrangement
they have and the consequences of the
arrangement.
138
One commenter requested that the
Departments clarify the interaction
between the notice requirements
associated with the Fair Labor
Standards Act (FLSA) and the notice
requirement for individual coverage
HRAs. The Departments note that under
FLSA section 18B, an applicable
employer is required to provide notice
to inform employees of coverage
options, including the existence of an
Exchange, and the availability of the
PTC if the employer’s plan does not
provide MV. This notice is provided at
the time of hiring. The FLSA section
18B requirement to provide a notice to
employees of coverage options applies
to employers to which the FLSA
applies. An employer sponsoring an
individual coverage HRA that provides
the required notice under the final rules
must also provide a notice that satisfies
the FLSA notice requirement if the
FLSA applies to the employer. However,
nothing in the final rules prohibits an
employer from combining the notices
for employees eligible for the individual
coverage HRA, provided that both
notice requirements are satisfied.
Commenters also urged the
Departments more generally to create
tools and resources for employees and
employers that are easily accessible to
help determine PTC eligibility and to
dedicate additional funding to the State
Exchanges for increased administration
and assistance to individuals trying to
determine APTC eligibility. A few
commenters suggested that more
education for consumers, enrollment
assisters, and agents and brokers would
be necessary. The Departments
acknowledge the crucial role that the
Exchanges have in implementation and
operationalization of individual
coverage HRAs, and the Departments
will work closely with the Exchanges on
the implementation of the final rules.
The Departments note that language will
be added to the HealthCare.gov
application to help consumers
understand that if they are eligible for
an individual coverage HRA, this offer
may affect their APTC eligibility. As
discussed elsewhere in this preamble,
HHS also intends to provide technical
assistance materials for consumers in
HealthCare.gov states, as well as for
enrollment assisters and agents and
brokers participating in Exchanges that
use HealthCare.gov, so they may help
consumers understand the implications
of their individual coverage HRA offer.
The Departments are also continuing to
consider other ways to provide outreach
and assistance to stakeholders regarding
individual coverage HRAs.
10. Student Health Insurance Coverage
Federal rules under PPACA define
student health insurance coverage as a
type of individual health insurance
coverage.
139
Although those rules
exempt student health insurance
coverage from certain provisions of
PPACA and HIPAA,
140
they do not
exempt this coverage from PHS Act
sections 2711 and 2713. Therefore,
given that student health insurance
coverage is a type of individual health
insurance coverage, and is subject to
PHS Act sections 2711 and 2713, in the
preamble to the proposed rules, the
Departments clarified that an HRA may
be integrated with student health
insurance coverage that satisfies the
requirements in 45 CFR 147.145.
One commenter expressed support for
allowing integration of HRAs with
student health insurance coverage.
Another commenter requested that
integration with student health
insurance coverage not be permitted due
to concerns that HRA plan sponsors
would be required to confirm that the
student health insurance coverage
complies with the market requirements.
The final rules permit HRA integration
with student health insurance coverage
because student health insurance
coverage is individual health insurance
coverage that is subject to PHS Act
sections 2711 and 2713. In response to
concerns about the difficulty of
determining the compliance of
individual health insurance coverage
policies with the market requirements
generally for all individual health
insurance coverage, under the final
rules, all individual health insurance
coverage is treated as compliant with
PHS Act sections 2711 and 2713.
Therefore, plan sponsors are not
required to confirm that any particular
student health insurance policy (or any
other individual health insurance
policy) complies with PHS Act sections
2711 and 2713.
Further, in the preamble to the
proposed rules, the Departments noted
that self-insured student health plans
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See 77 FR 16453, 16455 (March 21, 2012).
142
See FAQs About Affordable Care Act
Implementation Part 33, available at https://
www.dol.gov/sites/default/files/ebsa/about-ebsa/
our-activities/resource-center/faqs/aca-part-33.pdf
or https://www.cms.gov/CCIIO/Resources/Fact-
Sheets-and-FAQs/Downloads/ACA-FAQ-Set-33-
Final.pdf. See also IRS Notice 2016–17; DOL
Technical Release 2016–1; and CMS Insurance
Standards Bulletin, Application of the Market
Reforms and Other Provisions of the Affordable
Care Act to Student Health Coverage, February 5,
2016.
143
Id.
144
See 26 CFR 54.9801–2, 29 CFR 2590.701–2,
and 45 CFR 144.103 for the definition of STLDI.
are not a form of individual health
insurance coverage.
141
Therefore, the
proposed rules did not provide for HRA
integration with self-insured student
health plans. One commenter expressed
concern that it may be difficult for
employers to verify whether an
individual with student health plan
coverage has insured or self-insured
coverage. The Departments appreciate
the comment and recognize that
employers and employees may not
know whether a student health plan is
insured or self-insured, but expect that
employers will take reasonable steps to
ensure compliance with the final rules.
This includes making reasonable efforts
to ensure that, when employees
substantiate enrollment in student
health coverage, they are correctly
substantiating enrollment in a student
health plan provided through insurance
by a licensed issuer. If a student
enrolled in an institution of higher
education has questions about the type
of student health coverage that is offered
by the institution, this information
should be available in the governing
plan document or by contacting the plan
administrator for the student health
plan.
The Departments also confirmed in
the preamble to the proposed rules that
prior guidance,
142
which provided
enforcement relief to institutions of
higher education for certain healthcare
premium reduction arrangements
offered to student employees in
connection with insured or self-insured
student health coverage (student
premium reduction arrangements)
remains in effect, pending any further
guidance. One commenter expressed
support for keeping the current
enforcement relief in effect.
The Departments reiterate that the
previously provided enforcement relief
remains in effect for institutions of
higher education, pending any future
guidance, and the final rules clarify that
a student employee who is offered a
student premium reduction arrangement
is not considered part of the class of
employees of which the employee
would otherwise be a part for purposes
of the final integration rules. This
provision applies only for plan sponsors
that are institutions of higher education.
For this purpose, a student premium
reduction arrangement is defined as any
program offered by an institution of
higher education where the cost of
insured or self-insured student health
coverage is reduced for certain students
through a credit, offset, reimbursement,
stipend or similar arrangement.
143
Therefore, the offer of that type of
arrangement to student employees will
not affect the compliance of an
individual coverage HRA that the
institution of higher education may offer
to other employees. The final rules also
clarify that a student employee offered
a student premium reduction
arrangement is not counted for purposes
of determining whether the minimum
class size requirement is satisfied. The
text of the final rules includes examples.
However, if a student employee is not
offered a student premium reduction
arrangement (including if, instead, the
student employee is offered an
individual coverage HRA), the student
employee is considered to be part of the
class of employees to which he or she
otherwise belongs, and the student
employee is counted in determining
whether the minimum class size
requirement is satisfied. Further, if an
individual coverage HRA is offered to
student employees, the final integration
rules apply to such an arrangement as
they would any other individual
coverage HRA.
11. Integration With Certain Other
Types of Coverage
a. Short-Term, Limited-Duration
Insurance
The Departments considered whether
to propose a rule to permit individual
coverage HRAs to be integrated with
types of non-group coverage other than
individual health insurance coverage,
such as STLDI.
144
The Departments
declined to do so in the proposed rules
because STLDI is not subject to PHS Act
sections 2711 and 2713 and, therefore,
might not be compliant with these
market requirements. However, the
Departments requested comments on
whether integration with STLDI should
be permitted and, if so, what potential
advantages and problems might arise.
Most commenters strongly opposed
allowing integration with STLDI,
expressing concerns that it would cause
significant adverse selection in the
individual market, which would lead to
increased premiums and increased
federal spending (through increased
PTCs). Some of these commenters
asserted that prohibiting integration
with STLDI is necessary to ensure the
integrity and sustainability of the
individual market and that to allow
integration with STLDI would run
counter to, and negate, the various other
provisions in the proposed rules
intended to prevent adverse selection.
Some commenters expressed concern
that STLDI provides insufficient
coverage and consumer protections, that
individuals would unknowingly enroll,
and that brokers would have incentives
to encourage STLDI enrollment. Some
commenters raised legal concerns with
allowing integration of HRAs with
STLDI, noting that STLDI is not subject
to, or generally compliant with, PHS Act
sections 2711 and 2713 and, therefore,
would not be sufficient to ensure that an
individual with an HRA integrated with
STLDI had coverage that was compliant
with these market requirements. One
commenter asserted that an HRA
integrated with STLDI would fail to
comply with the health
nondiscrimination rules under HIPAA
because STLDI is allowed to
discriminate based on health status.
A few commenters supported
allowing integration of an individual
coverage HRA with STLDI, noting that
STLDI is an option that could provide
relief to individuals unable to afford
individual health insurance coverage
and, for some lower-income individuals,
such as those in states that did not
expand Medicaid under PPACA, may be
the only affordable alternative. One
commenter supported integration with
STLDI as long as additional guardrails
were established and another requested
additional notice requirements if
integration of individual coverage HRAs
were to be permitted with STLDI.
The Departments note that STLDI can
be a useful option for certain
individuals otherwise unable to afford
or obtain PPACA-compliant health
insurance. The final rules, however, do
not allow integration with STLDI
because of the concerns raised by
commenters, including that the
combined arrangement would not
necessarily satisfy PHS Act sections
2711 and 2713 and that adverse
selection could result. The Departments
note that the new excepted benefit HRA
finalized elsewhere in the final rules,
which is not subject to PHS Act sections
2711 and 2713, generally may be used
to reimburse premiums for STLDI. See
later in this preamble for a discussion of
the excepted benefit HRA, including a
discussion of the limited circumstance
in which an excepted benefit HRA may
not be used to reimburse STLDI
premiums.
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PHS Act section 2711 applies with respect to
the coverage of EHBs. Because large group market
and self-insured group health plans are not required
to cover EHBs, unlike individual health insurance
coverage which generally is required to cover all
EHBs, in the group health plan integration context,
situations may arise where non-HRA group
coverage with which the HRA is integrated does not
cover every category of EHBs that the HRA covers.
In that case, the HRA applies an annual dollar limit
to a category of EHBs and the non-HRA group
coverage with which it is integrated does not cure
that limit by providing unlimited coverage of that
category of EHBs. In the 2015 rules under PHS Act
section 2711, and in subregulatory guidance that
preceded the 2015 rules, the Departments addressed
this issue by providing two tests. Specifically, if the
non-HRA group coverage with which an HRA is
integrated provides MV, the HRA will not be
considered to fail to comply with PHS Act section
2711, even though the HRA might provide
reimbursement of an EHB that the plan with which
the HRA is integrated does not. If an HRA is
integrated with non-HRA group coverage that does
not provide MV, the 2015 rules limit the types of
expenses that an HRA may reimburse to
reimbursement of co-payments, co-insurance,
deductibles, and premiums under the non-HRA
group coverage, as well as medical care that does
not constitute an EHB. For additional discussion of
the current rules under PHS Act section 2711, see
the discussion earlier in this preamble.
146
26 CFR 54.9815–2711(d)(2), 29 CFR 2590.715–
2711(d)(2), and 45 CFR 147.126(d)(2).
147
IRS Notice 2015–87, Q&A–2.
148
See Code section 5000A(d)(2)(B) and 5000A(f).
149
42 U.S.C. 2000bb(b).
150
Jimmy Swaggart Ministries v. Bd. of
Equalization of California, 493 U.S. 378, 391 (1990).
151
On June 21, 2018, DOL published a final rule
establishing a new test as an alternative to that
described in prior DOL sub-regulatory guidance for
determining who can sponsor an ERISA-covered
AHP as an ‘‘employer.’’ See 83 FR 28912 (June 21,
2018). The AHP rule was intended to expand access
to affordable, high-quality healthcare options,
particularly for employees of small employers and
some self-employed individuals. On March 28,
2019, in State of New York v. United States
Department of Labor, the United States District
Court for the District of Columbia vacated most of
the DOL rule. On April 26, 2019, the Department
of Justice filed a notice of appeal.
b. Spousal Coverage
In developing the proposed rules, the
Departments considered whether to
allow individual coverage HRAs to be
integrated with group health plan
coverage, such as a group health plan
maintained by the employer of the
participant’s spouse, in addition to
individual health insurance coverage.
Like individual health insurance
coverage, group health plan coverage
generally is subject to and compliant
with PHS Act sections 2711 and 2713.
The Departments indicated they did not
propose such a rule because to do so
would add significant complexity to the
individual health insurance coverage
integration test.
145
However, the
Departments requested comments,
including on the demand for such a
rule, and any problems such a rule may
raise.
Several commenters requested that
integration with spousal coverage be
permitted under the individual health
insurance coverage integration test, with
one stating that most group coverage is
likely to cover all EHBs and therefore
the issue of an HRA that covers all EHBs
being integrated with coverage that does
not cover all EHBs is unlikely to arise.
One commenter suggested that the
Departments allow an employee to be
covered by a group health plan and also
have access to an HRA that can be used
to purchase individual health insurance
coverage for a spouse. Other
commenters requested that integration
of an individual coverage HRA with
spousal coverage be prohibited,
expressing skepticism that employers
would take advantage of this option and
noting that the arrangement would add
little value. In light of the Departments’
continued concern with the added
complexity that would be required and
the response from commenters, the final
rules do not allow an individual
coverage HRA to also be integrated with
other group health plan coverage, such
as spousal coverage. This is an area that
the Departments may explore in future
rulemaking. The Departments reiterate
that the current rules under PHS Act
section 2711 allow HRAs to be
integrated with other non-HRA group
health plan coverage, including spousal
coverage, subject to certain
conditions.
146
However, amounts made
available under such an HRA may not
be used to purchase individual health
insurance coverage.
147
Commenters also requested
clarification as to whether two spouses,
each offered an individual coverage
HRA from their respective employers,
may use the separate individual
coverage HRAs to buy a single
individual health insurance policy that
covers both spouses (and any
dependents). Nothing in the final rules
would prohibit this, if the separate
individual coverage HRAs are each in
compliance with the final rules.
However, under the generally applicable
rules for HRAs under the Code, each
individual may only seek
reimbursement for the portion of a
medical care expense that has not
already been reimbursed by some other
means, including from one of the
individual coverage HRAs.
c. Health Care Sharing Ministries
Several commenters requested that
integration of HRAs with health care
sharing ministries be permitted, in part
to provide an alternative option that
alleviates conscience issues faced by
employers and employees with respect
to individual health insurance coverage,
and in part due to the success of health
care sharing ministries in providing
affordable, flexible choices.
The Departments are of the view that
HRAs cannot be integrated with health
care sharing ministries, consistent with
PHS Act sections 2711 and 2713. Under
current law, health care sharing
ministries are not subject to those
provisions, nor are they required to
comply with other market requirements
that apply to individual health
insurance coverage. Health care sharing
ministry arrangements are also not
MEC.
148
Therefore, the integration of an
individual coverage HRA with these
arrangements would not result in a
combined arrangement sufficient to
satisfy PHS Act sections 2711 and 2713,
which means that such a combined
arrangement would not provide the
protections afforded by those
provisions.
One commenter asserted that the
proposed rules would impermissibly
burden the exercise of religion for
purposes of the Religious Freedom
Restoration Act of 1993 (RFRA)
149
because they would not allow
individual coverage HRAs to be
integrated with health care sharing
ministries and thus would make
participation in health care sharing
ministries more expensive relative to
individual coverage HRAs. Specifically,
the commenter asserted that the
proposed rules would impermissibly
burden the free exercise of religion
because, by not allowing HRAs to be
integrated with health care sharing
ministries, the rules would extend
certain tax advantages to individual
coverage HRAs that are not extended to
participants in health care sharing
ministries. However, although the RFRA
provides a claim to persons whose
religious exercise is substantially
burdened by government, the Supreme
Court has held that ‘‘a generally
applicable tax [that] merely decreases
the amount of money [an individual or
entity] has to spend on its religious
activities’’ does not impose a substantial
burden on the exercise of religion.
150
Consequently, the final rules do not
allow individual coverage HRAs to be
integrated with health care sharing
ministries.
d. Multiple Employer Welfare
Arrangements (Including Association
Health Plans)
One commenter requested that
integration of HRAs be permitted with
association health plans (AHPs)
151
and
another commenter opposed allowing
integration with AHPs, because
coverage offered by an AHP is not
required to cover all EHBs, to the extent
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See chapter 55 of title 10, United States Code.
153
IRS Notice 2015–17, Q&A–3, provides that an
arrangement under which an employer reimburses
certain medical care expenses for employees
covered by TRICARE may be considered integrated
with a traditional group health plan offered by the
employer (even though the employee is not enrolled
in the traditional group health plan), subject to
certain conditions. The final rules do not affect this
guidance provided under Notice 2015–17.
the coverage is offered through a large
group market or self-insured group
health plan. AHPs are a type of Multiple
Employer Welfare Arrangement
(MEWA) that are group health plans.
The Departments current, final
regulations at 26 CFR 54.9815–
2711(d)(2), 29 CFR 2590.715–2711(d)(2),
and 45 CFR 147.126(d)(2) set forth
criteria for HRAs to be integrated with
other group health plan coverage
(including MEWAs).
e. TRICARE
The Departments note that, under the
final rules, individual coverage HRAs
may not be integrated with TRICARE.
152
However, for the sake of clarity, the
Departments note that nothing in the
final rules prevents an employer from
offering an individual coverage HRA to
an individual covered by TRICARE,
subject to the provisions of the final
rules, including that if an individual
coverage HRA is offered to an employee
in a class of employees, the HRA must
generally be offered on the same terms
to all the employees in the class.
Further, nothing in the final rules
prevents an individual covered by
TRICARE from enrolling in an
individual coverage HRA, if offered,
subject to the conditions in the final
rules, including that all individuals
covered by an individual coverage HRA
must be enrolled in either individual
health insurance coverage or
Medicare.
153
Consequently, an
individual covered by TRICARE who is
offered an individual coverage HRA will
be enrolled in TRICARE and must also
be enrolled in an individual health
insurance policy (or Medicare, if
applicable) in order to be enrolled in the
individual coverage HRA. The
individual may not enroll in the
individual coverage HRA and only
TRICARE without enrolling in an
individual health insurance policy (or
Medicare). Further, as explained later in
this preamble, HRAs may reimburse
medical care expenses and the HRA
plan sponsor determines which medical
care expenses a particular HRA may
reimburse, consistent with the
discussion later in this preamble. It may
be the case that an HRA will be
available to pay both the premiums and
cost-sharing for individual health
insurance coverage as well as any
medical care expenses related to
TRICARE, subject to the terms of the
HRA.
12. Expenses Eligible for
Reimbursement by an Individual
Coverage HRA
A number of commenters requested
clarification of the expenses that may be
reimbursed under an individual
coverage HRA, such as whether
expenses for premiums for excepted
benefit coverage, cost sharing under
excepted benefit coverage, and cost
sharing under individual health
insurance coverage may be reimbursed.
One commenter recommended that the
final rules require individual coverage
HRAs to provide reimbursement for cost
sharing in addition to premiums, and
another asked for clarification that an
individual coverage HRA is not required
to be used to reimburse premiums for
individual health insurance coverage, so
long as the individual coverage HRA
otherwise satisfies the requirements
under the final rules.
An HRA may provide for
reimbursement of expenses for medical
care, as defined under Code section
213(d). Consistent with the current rules
that apply to HRAs generally, under the
final rules, a plan sponsor has discretion
to specify which medical care expenses
are eligible for reimbursement from an
individual coverage HRA it establishes.
A plan sponsor may allow an HRA to
reimburse all medical care expenses,
may limit an HRA to allow
reimbursements only for premiums,
may limit an HRA to allow
reimbursements only for non-premium
medical care expenses (such as cost
sharing), or may decide which
particular medical care expenses will be
reimbursable and which will not be
reimbursable. However, in the latter
case, the designation of the
reimbursable expenses must not violate
other rules applicable to group health
plans, such as the HIPAA
nondiscrimination rules or the MSP
provisions. The final rules do not
require that an individual coverage HRA
be used (or be allowed to be used) for
reimbursement of premiums for
individual health insurance coverage (or
Medicare). However, as detailed earlier
in this preamble, the final rules require
that individuals covered by an
individual coverage HRA be enrolled in
individual health insurance coverage (or
Medicare). Thus, the Departments
generally anticipate that employers will
allow individual coverage HRAs to
reimburse premiums for such coverage.
Some commenters requested that the
Departments confirm that certain
excepted benefits, including standalone
dental coverage, hospital indemnity or
other fixed indemnity coverage, and
coverage for a specific disease or illness,
provide medical care within the
meaning of Code section 213(d) and,
therefore, that expenses for these types
of coverage are reimbursable by an
individual coverage HRA. Some
commenters requested that expenses
paid with regard to direct primary care
arrangements be recognized as expenses
for medical care under Code section
213(d). In addition, one commenter
requested clarification of whether
payments for participation in health
care sharing ministries qualify as
medical care expenses under Code
section 213(d).
An HRA, including an individual
coverage HRA, generally may reimburse
expenses for medical care, as defined
under Code section 213(d), of an
employee and certain members of the
employee’s family. Under Code section
213(d), medical care expenses generally
include amounts paid (1) for the
diagnosis, cure, mitigation, treatment, or
prevention of disease, or for the purpose
of affecting any structure of function of
the body; (2) for transportation
primarily for and essential to medical
care; (3) for certain qualified long-term
care services; and (4) for insurance
covering medical care. Neither the
proposed rules nor the final rules make
any changes to the rules under Code
section 213. Thus, any issues arising
under Code section 213, and any
guidance requested by commenters to
address those issues, are beyond the
scope of this rulemaking. The Treasury
Department and the IRS, however,
appreciate the comments and plan to
address some of these issues in future
rulemaking or guidance.
13. Interaction of Individual Coverage
HRAs and HSAs
Commenters raised various issues
related to the interaction between
individual coverage HRAs and HSAs.
Section 1201 of the Medicare
Prescription Drug, Improvement, and
Modernization Act of 2003, Public Law
108–173, added section 223 to the Code
to allow eligible individuals to establish
HSAs. Among the requirements for an
individual to qualify as an eligible
individual under Code section 223(c)(1)
is that the individual must be covered
under a high deductible health plan
(HDHP) and have no disqualifying
health coverage. If an individual fails to
satisfy the requirements to be an eligible
individual, contributions to an HSA are
disallowed.
Several commenters asked that the
Treasury Department and the IRS clarify
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154
Revenue Ruling 2004–45, 2004–1 IRB 971.
155
See Revenue Ruling 2004–45, which defines a
limited-purpose HRA as an HRA that pays or
reimburses benefits for ‘‘permitted insurance’’ (for
a specific disease or illness or that provides a fixed
amount per day (or other period) of hospitalization)
or ‘‘permitted coverage’’ (for example, vision or
dental coverage), but not for long-term care services.
In addition, the limited-purpose HRA may pay or
reimburse preventive care benefits. The ruling also
defines a post-deductible HRA as an HRA that does
not pay or reimburse any medical expense incurred
before the minimum annual deductible under Code
section 223(c)(2)(A)(i) is satisfied.
156
IRS Notice 2008–59, 2008–29 IRB 123.
157
The Departments note that under the opt out
requirement, described later in this preamble, each
participant must be given the chance to opt out of
(or into) an individual coverage HRA once, and
only once, with respect to a plan year and to the
extent a participant is offered a choice between an
HSA-compatible HRA and a non-HSA-compatible
HRA, the participant will opt into either one or the
other, for the plan year (or for the portion of the
plan year during which the participant is covered
by the HRA). (Note that participants are also
generally given the chance to waive the HRA upon
termination of employment).
158
See Revenue Ruling 2004–45.
159
Another commenter inquired about the
interaction of individual coverage HRAs and HSAs
and the rules for cafeteria plans under Code section
125. These issues are outside the scope of this
rulemaking, and the Treasury Department and the
IRS are continuing to consider whether future
guidance is needed.
160
See IRS Notice 2002–45.
161
See Code section 223(f). Notwithstanding that
HSA amounts may be withdrawn for non-medical
purposes, subject to inclusion in income and
additional tax, Code section 106(d) provides that in
the case of amounts contributed by an employer to
the HSA of an eligible individual, those amounts
are treated as employer-provided coverage for
medical care expenses under an accident or health
plan to the extent the amounts do not exceed the
annual limits on contributions to an HSA.
162
See Code section 106(e).
whether an individual covered by an
individual coverage HRA may
contribute to an HSA. Some
commenters specifically asked the
Treasury Department and the IRS to
address the application of prior
guidance under the Code, which
provides that certain types of HRAs do
not render an individual ineligible to
contribute to an HSA. Several
commenters expressed support for
HSAs and emphasized the importance
of allowing individuals who have
individual coverage HRAs to contribute
to HSAs.
In Revenue Ruling 2004–45,
154
the
Treasury Department and the IRS
clarified that an otherwise eligible
individual (that is, an individual with
coverage under an HDHP and no other
disqualifying coverage) remains an
eligible individual for purposes of
making contributions to an HSA for
periods during which the individual is
covered by, among other things, a
limited-purpose HRA, a post-deductible
HRA, or combinations of these
arrangements.
155
Subsequently, Q&A–1
of IRS Notice 2008–59
156
stated that a
limited-purpose HRA that is also
available to pay premiums for health
coverage does not disqualify an
otherwise eligible individual from
contributing to an HSA, provided the
individual does not use the HRA to, or
otherwise, obtain coverage that is not
HSA-compatible. This prior guidance
applies to all HRAs, including
individual coverage HRAs. Therefore,
for example, an individual coverage
HRA that solely makes available
reimbursements of individual health
insurance coverage premiums does not
disqualify an otherwise eligible
individual covered under an HDHP and
no other disqualifying coverage from
making contributions to an HSA.
However, an individual coverage HRA
that is not limited in accordance with
the relevant guidance under the Code
would not be HSA-compatible (for
example, an HRA that can reimburse
first dollar cost sharing).
One commenter asked whether
employers are allowed, or required, to
offer both an HSA-compatible
individual coverage HRA and an
individual coverage HRA that is not
HSA compatible to a class of employees.
The Departments recognize that some
employees offered an individual
coverage HRA may choose individual
health insurance coverage that is an
HDHP and other employees may choose
non-HDHP individual health insurance
coverage that is not HSA compatible.
While some employers may offer all
employees in a class of employees an
HSA-compatible individual coverage
HRA, some employers may want to offer
employees in a class of employees a
choice between an HSA-compatible
individual coverage HRA and an
individual coverage HRA that is not
HSA compatible. In response to this
comment, the final rules clarify that an
employer that offers employees in a
class of employees a choice between an
HSA-compatible individual coverage
HRA and an individual coverage HRA
that is not HSA compatible does not fail
to satisfy the same terms requirement
provided both types of individual
coverage HRAs are offered to all
employees in the class on the same
terms.
157
The final rules have been
revised to reflect this rule.
With respect to the post-deductible
feature of certain HSA-compatible
HRAs, one commenter suggested that
the final rules provide that employees
may self-administer the post-deductible
restriction by tracking medical expenses
incurred during the year and refraining
from submitting medical expenses to the
post-deductible HRA until the
minimum deductible is satisfied. The
Treasury Department and the IRS
decline to adopt this approach because
it would be inconsistent with the rules
for the administration of HDHPs.
158
If a
plan sponsor chooses to offer an HSA-
compatible individual coverage HRA
that reimburses medical care expenses
after the minimum deductible under
Code section 223(c)(2)(A)(i) is satisfied,
it is the employer’s responsibility to
track medical care expenses incurred
during the year and ensure that the
individual coverage HRA does not
reimburse medical care expenses (other
than premiums or expenses allowed as
limited purpose) incurred prior to the
satisfaction of the minimum
deductible.
159
The commenter further requested
clarification as to whether unused
amounts in an individual coverage HRA
at the end of the plan year may be
transferred to the employee’s HSA. The
Treasury Department and the IRS note
that amounts available under an HRA,
whether an individual coverage HRA or
another type of HRA, may not be funded
by salary reduction amounts. Moreover,
the amounts are available only to
reimburse Code section 213(d) medical
care expenses and may not be cashed
out.
160
However, amounts in an HSA
may be withdrawn for non-medical
purposes, subject to inclusion in income
and an additional tax.
161
In addition,
Congress previously provided for one-
time distributions from HRAs to HSAs,
in certain circumstances, subject to the
annual HSA contribution limits, but this
special rule was only made available on
a temporary basis, and the rule sunset
at the end of 2011.
162
Therefore,
allowing unused amounts in an
individual coverage HRA to be
transferred to an HSA would be
inconsistent with the relevant
provisions of the Code and is not
permitted.
Finally, some commenters requested
that direct primary care arrangements
not be treated as a health plan or
coverage under Code section 223, so
that an individual may have a direct
primary care arrangement without
becoming ineligible for HSA
contributions. Similar to the discussion
of Code section 213 in the preceding
section of this preamble, neither the
proposed rules nor the final rules make
any changes to the rules under Code
section 223. Thus, any issues arising
under Code section 223, and any
guidance requested by commenters to
address those issues, are beyond the
scope of this rulemaking.
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163
If benefits under an individual health
insurance policy are payable without regard to
other health benefit coverage of such individual, the
policy is not considered to ‘‘duplicate’’ any health
benefits to which the individual is otherwise
entitled under Medicare or Medicaid, and therefore,
the statutory prohibition on the sale of such
coverage does not apply. See SSA section
1882(d)(3)(A)(iv).
164
Group health plans, including HRAs, are
generally exempt from this Medicare anti-
duplication provision. See SSA section
1882(d)(3)(C).
165
SSA section 1882(d)(3)(A)(ii).
166
See CMS Publication #100–05, Medicare
Secondary Payer Manual, available at https://
www.cms.gov/Regulations-and-Guidance/
Guidance/Manuals/internet-Only-Manuals-IOMs-
Items/CMS019017.html?DLPage=1&DLEntries=10&
DLSort=0&DLSortDir=ascending.
167
An individual has current employment status
if the individual is actively working as an employee
or is otherwise described in 42 CFR 411.104.
168
SSA section 1862(b)(1)(A), 42 CFR
411.20(a)(1)(ii), and 42 CFR 411.100(a)(1)(i).
169
SSA section 1862(b)(1)(C).
170
SSA section 1862(b)(1)(B).
14. Interaction of Individual Coverage
HRAs and Medicare
Commenters raised various issues
related to the interaction between
individual coverage HRAs and
Medicare. The comments focused on the
interaction with the Medicare anti-
duplication provision under SSA
section 1882(d)(3)(A)(i)(I) and the MSP
provisions under SSA section 1862(b).
In response to these comments, the final
rules have been revised to provide that
an individual coverage HRA may be
integrated with either individual health
insurance coverage or Medicare Part A
and B or Part C. Also, the Departments
clarify that an individual coverage HRA
may be used to reimburse premiums for
Medicare and Medicare supplemental
health insurance (Medigap), as well as
other medical care expenses, as
discussed in more detail in this section
of the preamble.
a. Background
Comments regarding the interaction
between individual coverage HRAs and
Medicare addressed a number of federal
laws and rules governing the
relationship between group health plans
and the Medicare program. This section
of the preamble briefly summarizes
these laws to provide context for
comments received on the proposed
rules and the provisions of the final
rules related to integration of an
individual coverage HRA with
Medicare.
Under SSA section 1882(d)(3)(A)(i)(I),
it is unlawful for any person to issue or
sell to an individual entitled to benefits
under Medicare Part A or enrolled in
Medicare Part B (including an
individual electing a Medicare Part C
plan) an individual health insurance
policy with the knowledge that the
policy duplicates
163
health benefits to
which the individual is otherwise
entitled under Medicare or Medicaid.
164
Persons who violate SSA section
1882(d)(3)(A)(i)(I) are subject to criminal
fines and imprisonment, as well as civil
monetary penalties.
165
The MSP provisions in SSA section
1862(b) make Medicare the secondary
payer to certain other health plans and
coverage, including group health plans.
These provisions protect the Medicare
trust funds by ensuring that Medicare
does not pay for items and services that
certain health insurance or coverage is
primarily responsible for paying. In
general, the MSP provisions describe
when Medicare is secondary in relation
to other health plans or coverage and
prohibit Medicare from making payment
for an item or service if payment has
been made, or can reasonably be
expected to be made, by a primary plan
when certain conditions are satisfied.
166
SSA section 1862(b) and 42 CFR
411.20 et seq. provide, in part, that
Medicare is the secondary payer, under
specified conditions, for services
covered under any of the following:
Group health plans of employers
that employ at least 20 employees and
that cover Medicare beneficiaries age 65
or older who are covered under the plan
by virtue of the individual’s current
employment status
167
with an employer
or the current employment status of a
spouse of any age.
168
Group health plans (without regard
to the number of individuals employed
and irrespective of current employment
status) that cover individuals who have
ESRD. Except as provided in 42 CFR
411.163, group health plans are always
primary payers throughout the first 30
months of ESRD-based Medicare
eligibility or entitlement.
169
Large group health plans, as defined
by Code section 5000(b)(2) without
regard to Code section 5000(d) (that is,
plans of employers that employ at least
100 employees), that cover Medicare
beneficiaries who are under age 65,
entitled to Medicare on the basis of
disability, and covered under the plan
by virtue of the individual’s or a family
member’s current employment status
with an employer.
170
Generally, under SSA section
1862(b)(1)(A), (B), and (C), a group
health plan may not take into account
that individuals are entitled to Medicare
on the basis of age or disability, or that
individuals are eligible for or entitled to
Medicare on the basis of ESRD, in the
design or offering of the plan. The
provisions at SSA section 1862(b)(1)(A),
(B), and (C) (including subsections
(b)(1)(A)(i)(II) and (b)(1)(C)(ii)) are
collectively referred to as the Medicare
nondiscrimination provisions. Examples
of actions that constitute taking into
account Medicare entitlement are listed
in 42 CFR 411.108.
SSA section 1862(b)(1)(A)(i)(II) and
(ii) provides that group health plans of
employers of 20 or more employees
must provide to any employee or spouse
age 65 or older the same benefits, under
the same conditions, that the plan
provides to those individuals under age
65 (equal benefit rule). For example, a
group health plan of an employer with
20 or more employees may not provide
lesser benefits to individuals age 65 or
over, or charge higher premiums for
individuals age 65 or over, because
these actions would take into account
employees’ entitlement to Medicare on
the basis of age and would provide
different benefits based on whether an
employee is under or over age 65. This
requirement applies regardless of
whether the individual or spouse age 65
or older is entitled to Medicare.
SSA section 1862(b)(1)(C)(ii) provides
that group health plans may not
differentiate in the benefits they provide
between individuals who have ESRD
and other individuals covered under the
plan on the basis of the existence of
ESRD, the need for renal dialysis, or in
any other manner. Actions that
constitute ‘‘differentiating’’ are listed in
42 CFR 411.161(b).
SSA section 1862(b)(3)(C) and 42 CFR
411.103 provide that it is unlawful for
an employer or other entity (for
example, an issuer) to offer any
financial or other benefits as incentives
for an individual entitled to Medicare
not to enroll in, or to terminate
enrollment in, a group health plan that
is, or would be, primary to Medicare.
For example, employers may not offer
benefits to Medicare beneficiaries that
are available only as alternatives to the
employer’s primary group health plan
(for example, prescription drug benefits)
unless the beneficiary has primary
coverage other than Medicare (for
example, primary plan coverage through
his or her spouse’s employer).
b. Integration of Individual Coverage
HRAs With Medicare
Several commenters requested
clarification generally about how
employees who are enrolled in
Medicare may use amounts in an
individual coverage HRA. Some
commenters explained that because of
the Medicare anti-duplication provision
applicable to individual health
insurance coverage, employees who are
Medicare beneficiaries may not be able
to purchase individual health insurance
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171
For group health plans not subject to the MSP
provisions, the existing integration rules permit
integration with Medicare Part B and D if certain
conditions are satisfied, including that the
employer offer traditional group health plan
coverage to its non-Medicare employees. See 26
CFR 54.9815–2711(d)(5), 29 CFR 2590.715–
2711(d)(5), and 45 CFR 147.126(d)(5).
172
See, e.g., SSA sections 1861 and 1833, as
added by PPACA sections 4103 and 4104.
173
The Departments note that although there is
an exception to the same terms requirement that
allows a plan sponsor to offer both an HSA-
compatible individual coverage HRA and an
individual coverage HRA that is not HSA
compatible, Code section 223(b)(7) provides that an
individual ceases to be an eligible individual for
HSA purposes starting with the month he or she is
entitled to benefits under Medicare. IRS Notice
2004–50, 2004–33 IRB 196, Q&A–2, clarifies that
Continued
coverage and, therefore, would be
unable to enroll in an individual
coverage HRA. One commenter
suggested that issuers should have to
make their individual health insurance
policies available to employees eligible
for or enrolled in Medicare, if they are
offered an individual coverage HRA.
Some commenters sought clarification
about the relationship between the
Medicare anti-duplication provision and
the Medicare nondiscrimination
provisions as they relate to individual
coverage HRAs. Specifically, some
commenters asked HHS to clarify that
the inability of employees who are
Medicare beneficiaries to obtain
individual health insurance coverage
due to the Medicare anti-duplication
provision will not cause the individual
coverage HRA or its plan sponsor to
violate rules prohibiting discrimination
based on Medicare status, age,
disability, or other factors. One
commenter suggested that employers
that otherwise comply with the
proposed rules should not be precluded
from offering an individual coverage
HRA because a class of employees
includes a Medicare beneficiary who
cannot obtain individual health
insurance coverage. Another commenter
asked whether employers would be
required to offer Medicare-eligible
employees the same HRA contribution
as non-Medicare-eligible employees in
the same class even though Medicare
beneficiaries may not be able to
purchase individual health insurance
coverage.
In response to these comments, HHS
notes that there is no exception to the
Medicare anti-duplication provision
under SSA section 1882(d)(3)(A)(i)(I) for
individual health insurance coverage
purchased with an HRA. Therefore,
neither the proposed rules nor the final
rules make any changes related to the
application of the Medicare anti-
duplication provision. Thus, the
statutory prohibition against selling an
individual health insurance policy to a
Medicare beneficiary with knowledge
that the policy duplicates benefits under
Medicare continues to apply, regardless
of whether the individual is offered an
individual coverage HRA. However, the
Departments have considered
commenters’ concerns about individual
coverage HRAs and the potential effects
of the Medicare anti-duplication
provision, as well as those related to the
interaction of the MSP provisions, and
have determined that revisions to the
final rules are warranted.
HHS recognizes that, for an individual
coverage HRA, it is necessary to address
how the Medicare anti-duplication
provision interacts with the rules under
SSA section 1862(b)(1) that generally
provide that group health plans may not
take into account entitlement to
Medicare and must provide to any
employee or spouse age 65 or older the
same benefits, under the same
conditions, that the group health plan
provides to individuals under age 65. If
an employer offers an individual
coverage HRA, some employees who are
Medicare beneficiaries may not be able
to obtain individual health insurance
coverage due to the anti-duplication
provision at SSA section
1882(d)(3)(A)(i)(I). This might cause
such employees to be unable to enroll
in the individual coverage HRA,
effectively treating them differently in
violation of the SSA’s equal benefit rule.
To address these comments, the final
rules permit an individual coverage
HRA to be integrated with either
individual health insurance coverage or
Medicare for a participant or dependent
who is enrolled in Medicare Part A and
B or Part C (and the HRA will be
deemed to comply with PHS Act
sections 2711 and 2713), if certain
conditions are satisfied. Under the final
rules, an individual coverage HRA may
be integrated with Medicare regardless
of whether the HRA is subject to the
MSP provisions, because the Medicare
anti-duplication provision applies
without regard to whether the HRA plan
sponsor is subject to the MSP
provisions.
171
The Departments are adopting this
approach due to the challenges
presented by the intersection of the
requirements that apply to individual
coverage HRAs, the MSP requirements
applicable to group health plans, and
the Medicare anti-duplication provision
applicable to individual health
insurance coverage. The Departments
have determined that it is appropriate to
permit an individual coverage HRA to
integrate with Medicare coverage, and
therefore, be considered compliant with
PHS Act sections 2711 and 2713,
because individuals enrolled in
Medicare Part A and B or Part C have
the comprehensive benefit packages
established by Congress, generally with
no annual dollar limits and with
coverage of preventive services without
cost sharing.
172
An individual coverage
HRA that helps pay premiums for, or
supplements, the Medicare benefit
package established by Congress will
not be considered by the Departments to
fail to satisfy PHS Act sections 2711 and
2713. Further, the Departments
determined in the 2015 rules under PHS
Act 2711 that allowing Medicare Part B
and D reimbursement arrangements to
be integrated with Medicare was
sufficient to constitute compliance with
PHS Act sections 2711 and 2713 in the
circumstances described in that
guidance, as discussed earlier in this
preamble.
The final integration rules generally
apply in the same manner to Medicare
coverage as they apply to individual
health insurance coverage. Thus, under
the final rules, an individual coverage
HRA must require individuals whose
medical care expenses may be
reimbursed under the HRA to be
enrolled in either individual health
insurance coverage or Medicare Part A
and B or Part C for each month such
individuals are covered by the HRA.
The individual coverage HRA also must
implement, and comply with,
reasonable procedures to substantiate
enrollment in either individual health
insurance coverage or Medicare Part A
and B or Part C for the HRA plan year
(or for the portion of the plan year the
individual is covered by the individual
coverage HRA) and with each new
request for reimbursement of an
incurred medical care expense. The
Departments clarify that the final rules
do not require that a participant and his
or her dependents all have the same
type of coverage (that is, either
individual health insurance coverage or
Medicare). Therefore, an individual
coverage HRA may be integrated with
Medicare for some individuals in a
family or household and with
individual health insurance coverage for
others in the same family or household.
In addition, under the final rules, an
individual coverage HRA must be
offered on the same terms to all
employees within a class of employees,
regardless of Medicare eligibility or
entitlement, including that the
individual coverage HRA must make the
same amount available to all employees
in the class, subject to the exceptions
provided in the final rules under the
same terms requirement.
173
Moreover,
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mere eligibility for Medicare does not make an
individual ineligible to contribute to an HSA.
Rather, the term ‘‘entitled to benefits under
Medicare,’’ for purposes of an HSA, means both
eligibility for, and enrollment in, Medicare.
174
Although individuals enrolled in Medicare
may not be able to purchase individual health
insurance coverage for themselves through the
Exchange, individuals who do so are not eligible for
the PTC for their Exchange coverage in any event.
See Code section 36B(c)(2)(B) and 26 CFR 1.36B–
2(a)(2).
175
Under IRS Notice 2015–17, an arrangement
under which an employer reimburses (or pays
directly) Medicare Part B or D premiums may be
considered integrated with the group health plan
coverage offered to the employee by the employer
although the employee is not enrolled in that group
coverage and is instead enrolled in Medicare,
subject to certain conditions. IRS Notice 2015–17
also states that to the extent such an arrangement
is available to active employees, it may be subject
to restrictions under other laws, such as the
Medicare secondary payer provisions. For clarity,
the Departments confirm that reimbursement of
Medicare Part B and D premiums under IRS Notice
2015–17 is permitted only for such arrangements
not subject to the MSP provisions.
176
However, as discussed later in this section of
the preamble, an individual coverage HRA may not,
under its terms, limit reimbursement only to
expenses not covered by Medicare.
177
The fact that a participant or dependent in a
class of employees may not be able to enroll in
individual health insurance coverage or Medicare
due to the operation of federal law does not mean
the individual coverage HRA that is offered to that
class of employees violates the same terms
requirement under the final rules or the equal
benefit rule under the SSA.
no employee may be offered a choice
between an individual coverage HRA
and a traditional group health plan,
including an employee enrolled in or
eligible for Medicare. The individual
coverage HRA must also allow
participants, whether or not covered by
Medicare, to opt-out of and waive future
reimbursements from the individual
coverage HRA annually and upon
termination of employment. Finally, the
individual coverage HRA must provide
the notice required by the final rules to
all individuals eligible for the HRA,
including those for whom the HRA
would be integrated with Medicare.
Relatedly, in the final rules, the
Departments clarify the notice content
requirements to reflect that an
individual coverage HRA may be
integrated with Medicare and to include
a statement regarding PTC eligibility for
Medicare beneficiaries.
174
The final
rules also clarify that some of the notice
content elements relate only to
individual health insurance coverage
and not to Medicare.
c. Reimbursement of Expenses Under
Individual Coverage HRAs for Medicare
Beneficiaries
One commenter requested
clarification that offering an individual
coverage HRA to Medicare-eligible
employees will not be considered an
improper financial incentive for those
individuals to select Medicare as their
primary payer. The commenter also
suggested that employees be able to use
amounts in an individual coverage HRA
to pay for medical care expenses not
covered by Medicare, such as dental,
vision, and other out-of-pocket
expenses, including Medicare Part D
premiums, as well as premiums for
Medigap, without it being viewed as
offering an improper incentive.
For group health plans subject to the
MSP provisions, offering an HRA to
reimburse Medicare premiums is
impermissible if it provides a financial
incentive for Medicare beneficiaries to
decline enrollment in the employer’s
group health plan and make Medicare
the primary payer. Under the final rules,
the employer would not be offering
Medicare beneficiaries a financial
incentive as an inducement to decline
group health plan coverage. Rather, the
individual coverage HRA would be the
group health plan coverage offered to a
class of employees that includes
Medicare beneficiaries. Under these
circumstances, unless the employer
could offer an individual coverage HRA
that may be integrated with Medicare,
the employer would risk running afoul
of the equal benefit rule under SSA
section 1862(b)(1)(A)(i). This is because
employees who are Medicare
beneficiaries who are unable to
purchase individual health insurance
coverage would be ineligible for the
employer’s group health plan (that is,
the individual coverage HRA) as a result
of the Medicare anti-duplication
provision.
HHS recognizes that in other
circumstances, offering an HRA to
reimburse Medicare premiums might be
viewed as impermissible because it
would have the effect of making
Medicare the primary payer in relation
to a group health plan.
175
Nevertheless,
for purposes of the final rules, HHS has
concluded that employers need the
flexibility to offer individual coverage
HRAs that may be integrated with
Medicare, and that may provide for
reimbursement of Medicare premiums.
This flexibility does not violate the
prohibition against financial incentives
under SSA section 1862(b)(3)(C). Where
a group health plan is an individual
coverage HRA that can be used to pay
Medicare premiums or other medical
care expenses,
176
there is no incentive
for a Medicare beneficiary to decline or
terminate enrollment under the group
health plan (that is, the individual
coverage HRA). Thus, there is no
violation of the SSA’s financial
incentive prohibition.
Therefore, under the final rules, an
individual coverage HRA that is
integrated with Medicare may reimburse
premiums for Medicare Part A, B, C, or
D, as well as premiums for Medigap
policies. The individual coverage HRA
may also reimburse other medical care
expenses as defined under Code section
213(d) (subject to the exception
discussed later in this section of the
preamble regarding taking Medicare
entitlement into account). Thus, an
individual coverage HRA will not be
considered to provide unequal benefits
to participants who are eligible for
Medicare because those participants
will be able to receive the same benefits
under the HRA regardless of whether
they are able to purchase individual
health insurance coverage.
177
However,
as explained earlier in this preamble,
the plan sponsor generally has
discretion to specify which medical care
expenses (premiums, cost sharing, or
otherwise) are eligible for
reimbursement under the terms of an
individual coverage HRA, as long as the
HRA offers the same benefits, on the
same terms and conditions, to a class of
employees, subject to the exceptions
under the same terms requirement in
the final rules. In addition, as discussed
earlier in this preamble, the designation
of the reimbursable expenses must not
violate other rules applicable to group
health plans, such as the HIPAA
nondiscrimination rules or the MSP
provisions.
To ensure that an individual coverage
HRA that is subject to the MSP
provisions does not violate those rules,
an individual coverage HRA may not,
under its terms, limit reimbursement
only to expenses not covered by
Medicare, as HHS has determined this
could amount to a group health plan
taking into account entitlement to
Medicare in violation of the MSP
provisions. However, an individual
coverage HRA may limit reimbursement
to only premiums or non-premium
medical care expenses (such as cost
sharing), or may decide which
particular medical care expenses will be
reimbursable and which will not be
reimbursable under the terms of the
HRA.
d. Other Medicare Issues
Some commenters sought assurance
that a health insurance issuer providing
individual health insurance coverage
purchased with an individual coverage
HRA would not be required to comply
with MSP reporting requirements or pay
for benefits primary to Medicare where
MSP provisions might apply to the
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See SSA section 1862(b)(1) and (2) (MSP rules
apply only to certain group health plans).
179
The term ‘‘group health plan’’ for purposes of
the MSP provisions is not defined by reference to
ERISA; therefore, this section of the preamble does
not address the application of the ERISA safe harbor
described later in this preamble.
180
See also SSA section 1862(b)(7) and (8).
181
For information about mandatory MMSEA
section 111 reporting for group health plans, see
https://www.cms.gov/Medicare/Coordination-of-
Benefits-and-Recovery/Mandatory-Insurer-
Reporting-For-Group-Health-Plans/Overview.html
and https://www.cms.gov/Medicare/Coordination-
of-Benefits-and-Recovery/Mandatory-Insurer-
Reporting-For-Group-Health-Plans/GHP-Training-
Material/Downloads/Health-Reimbursement-
Arrangement-HRA.pdf.
individual’s HRA. These commenters
recommended clarifying that an HRA
plan sponsor’s failure to satisfy the
conditions of the ERISA safe harbor
described later in this preamble will
have no effect on the MSP status of the
individual health insurance coverage.
HHS notes that individual health
insurance coverage is not subject to the
MSP provisions, including the
reporting, nondiscrimination, and
‘‘primary plan’’ requirements described
earlier in this section of the
preamble.
178
Nothing in the final rules
changes the application of the MSP
provisions. This is true even where
individual health insurance coverage is
integrated with an HRA as allowed
under the final rules.
179
However, an
individual coverage HRA will generally
pay primary to Medicare, consistent
with the MSP provisions applicable to
group health plans. HHS intends to
issue further guidance clarifying the
primary versus secondary payer
responsibility of individual coverage
HRAs for plan sponsors subject to the
MSP provisions.
One commenter requested guidance
about the MSP reporting requirements
that apply to individual coverage HRAs.
Section 111 of the Medicare, Medicaid,
and SCHIP Extension Act of 2007
(MMSEA), Public Law 110–173,
established mandatory reporting
requirements with respect to Medicare
beneficiaries who have coverage under
group health plan arrangements, as well
as for Medicare beneficiaries who
receive settlements, judgments, awards,
or other payment from liability
insurance (including self-insurance), no-
fault insurance, or workers’
compensation.
180
The purpose of this
reporting is to ensure that Medicare
correctly pays for covered services
provided to Medicare beneficiaries
consistent with Medicare payment
rules. HRAs (including individual
coverage HRAs) are group health plans
and, therefore, generally trigger the
MMSEA section 111 reporting
requirements.
181
HHS will provide
future guidance regarding MMSEA
section 111 reporting requirements and
individual coverage HRAs. HHS notes
that entities that currently do not offer
a group health plan and therefore do not
have reporting obligations may be
required to report if they elect to offer
individual coverage HRAs, similar to if
they elected to offer other group health
plan coverage.
15. Other Integration Issues
Some comments were received
regarding dollar limits on individual
coverage HRAs. One commenter
supported that the proposed rules did
not impose any specific dollar limit on
the amount that an employer may
contribute to an individual coverage
HRA. The commenter noted that this is
a welcome difference from QSEHRAs, to
which a statutory dollar limit applies,
and stated that this flexibility will help
encourage employers to offer individual
coverage HRAs. One commenter
requested that the Departments place a
limit on contributions to an individual
coverage HRA to prevent adverse
selection. A few commenters asked that
the Departments require employers to
make certain minimum amounts
available under an individual coverage
HRA to approximate the amount the
employer generally would contribute to
a traditional group health plan as a way
to maintain availability and generosity
of coverage.
In previous guidance on HRAs,
including on integration of HRAs with
other coverage, the Departments
provided no minimum or maximum
contribution amount. Similarly, the
Departments decline to impose a
minimum or maximum contribution
amount on individual coverage HRAs
under the final rules, in order to provide
employers with flexibility and because
the Departments have imposed other
conditions to address the potential for
adverse selection. However, the
Treasury Department and the IRS note
that employers subject to the employer
shared responsibility provisions under
Code section 4980H may want to make
sufficient amounts available to
employees in order to avoid a potential
employer shared responsibility
payment. The Treasury Department and
the IRS intend to propose separate rules
regarding the interaction of individual
coverage HRAs and Code section 4980H
that will be available for public
comment.
Some commenters addressed which
employers should be permitted to offer
an individual coverage HRA. One
commenter applauded the proposed
rules for allowing employers of all sizes
to offer an individual coverage HRA.
One commenter requested that the
Departments only permit individual
coverage HRAs to be offered by small
employers, because, the commenter
asserted, small employers have less
incentive to segment risk and are less
likely to create classes of employees
leading to adverse selection. One
commenter asked that the Departments
only permit large employers to offer an
individual coverage HRA, asserting that
small employers would be able to
manipulate the rules to create small
classes and segment risk. Another
commenter requested that only
employers that do not currently offer
coverage be allowed to offer an
individual coverage HRA.
The Departments considered these
suggestions and determined that
limiting the ability of one or more
categories of employers to offer an
individual coverage HRA in these ways
would unnecessarily restrict the rules
and could decrease the usability of
individual coverage HRAs and harm
employee welfare without a compelling
reason for these limitations. Therefore,
under the final rules, any employer may
offer an individual coverage HRA,
subject to compliance with the
conditions in the final rules. However,
the Departments note that the final rules
include a minimum class size
requirement which applies in certain
instances, to address the issue identified
regarding the ability to create small
classes and segment risk.
One commenter urged HHS to allow
for wellness program demonstration
projects in the individual market under
PHS Act section 2705(l) because the
commenter asserted wellness programs
are a popular aspect of traditional
employer coverage. Because this
comment is outside the scope of this
rulemaking, it is not addressed in the
final rules. However, HHS appreciates
the comment and may consider
addressing this issue in future guidance.
Several commenters emphasized the
importance of strong enforcement of the
conditions in the final rules and
requested that the Departments issue
guidance detailing how the Departments
would enforce the final rules. DOL has
enforcement jurisdiction over private
sector employer-sponsored group health
plans, and HHS has enforcement
jurisdiction over public sector group
health plans, such as those sponsored
by state and local governments.
Individual coverage HRAs are group
health plans, and DOL and HHS will
monitor individual coverage HRAs’
compliance with applicable
requirements, consistent with the
general approach to enforcement with
respect to other group health plans. The
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182
See Revenue Ruling 61–146, 1961–2 CB 25.
183
See IRS Notice 2002–45.
184
Also see the discussion later in the preamble
regarding the final PTC rules, under which amounts
newly made available for an HRA plan year must
be determinable within a reasonable time before the
beginning of the plan year in order to be considered
in determining affordability of the offer of the
individual coverage HRA.
185
See e.g., ERISA sections 101, 103, and 104 and
PHS Act section 2715 (incorporated in Code section
9815 and ERISA section 715).
186
See 78 FR 13406, 13416 (Feb. 27, 2013).
187
See Health Care Financing Administration
Insurance Standards Bulletin 00–05, Guaranteed
Availability Under Title XXVII of the Public Health
Service Act—Applicability of Group Participation
Rules (Nov. 2000), available at https://
www.cms.gov/CCIIO/Resources/Files/Downloads/
hipaa_00_05_508.pdf. However, for purposes of
participation in a Federally-facilitated Small
Business Health Options Program (FF–SHOP), see
the methodology for calculating a minimum
participation rate specified in 45 CFR
155.706(b)(10)(i).
188
See later in this preamble for a discussion of
the interaction of individual coverage HRAs and
excepted benefit HRAs.
189
26 CFR 54.9831–1(c)(3)(v)(A), 29 CFR
2590.732(c)(3)(v)(A), and 45 CFR
146.145(b)(3)(v)(A).
Departments believe that it is
unnecessary to include specific
enforcement guidance for individual
coverage HRAs in the final rules. The
Departments may provide additional
guidance if the Departments become
aware of arrangements that are
inconsistent with the final rules.
One commenter requested that
employers be permitted to pay issuers
directly for individual health insurance
coverage in which individual coverage
HRA participants are enrolled. The
Departments note that existing guidance
for health plans generally allows
employers to pay health insurance
premiums to issuers directly,
182
so this
is already permitted. Also, see the
discussion later in this preamble
regarding a safe harbor for determining
whether an individual health insurance
policy purchased with funds from an
individual coverage HRA will be treated
as part of an ERISA-covered employee
welfare benefit plan.
One commenter requested that the
Departments clarify that a plan sponsor
may make amounts in an individual
coverage HRA available either monthly
or annually at the beginning of the plan
year. The Departments clarify that the
final rules do not change existing rules
for HRAs, which do not require the
entire annual amount to be available at
the beginning of the year and would
allow the HRA to only make amounts
available pro rata over the 12 months of
the year.
183
However, the Departments
note that the amounts made available
under an individual coverage HRA,
including when they will be made
available, must be described in the
notice that is required under the final
rules.
184
The Departments also note that
within a class of employees, the terms
and conditions of an individual
coverage HRA generally must be the
same, including the timing of how
amounts are made available.
One commenter requested that the
Departments interpret ‘‘employer’’ to
include non-employer plan sponsors
such as boards of trustees for
multiemployer plans. The final rules
allow plan sponsors to offer an
individual coverage HRA, and plan
sponsors include, but are not limited to,
employers and could include a board of
trustees for a multiemployer plan.
Various commenters requested
additional reporting requirements or
other types of mandatory data collection
regarding individual coverage HRAs.
The Departments have not identified a
compelling need for this information
that would justify the significant
additional burden this would place on
each employer offering this type of
coverage. Accordingly, the final rules do
not adopt these suggestions. However,
to the extent an individual coverage
HRA is otherwise subject to reporting
requirements under other rules,
including PPACA, the Code, the SSA, or
ERISA, the final rules do not affect the
application of those reporting
requirements.
185
One commenter requested additional
time to comment on the proposal. The
Administrative Procedure Act grants
Executive Agencies discretion to set the
timeframe during which public
comments will be received and
considered. Interested stakeholders
were given 60 days from the publication
of the proposed rules to submit
comments for consideration. Many
comments were received and
considered by the Departments. This
solicitation for public comments
allowed the Departments to gather
sufficient information from interested
stakeholders. The Departments,
therefore, declined to extend the
timeframe to comment on the proposed
rules.
One commenter requested that the
final rules consider enrollment in an
individual coverage HRA as other group
coverage for purposes of determining
whether employers satisfy minimum
participation thresholds for guaranteed
availability. In the large group market,
issuers may not apply minimum
participation rules to deny guaranteed
availability of coverage. In the small
group market, issuers may apply
minimum participation rules, as
allowed under applicable state law.
However, failure to satisfy an issuer’s
minimum participation rules may not be
used to deny guaranteed availability of
coverage between November 15 and
December 15 of each year. The
Departments clarify that in both the
large and small group markets, issuers
may apply minimum participation
rules, pursuant to applicable state law,
as an exception to guaranteed
renewability of coverage
requirements.
186
State law may
determine which individuals to include
in the minimum participation
calculation, including whether issuers
are allowed to include individuals who
have other coverage within the total
number of eligible individuals and
which types of coverage may be counted
as other coverage.
187
Neither the
proposed rules nor the final rules make
changes to these existing, separate
requirements.
One commenter requested that the
Departments provide information about
how an employer would transition from
offering a QSEHRA to offering an
individual coverage HRA. The
Departments note that IRS Notice 2017–
67 provides guidance on the
requirements for providing a QSEHRA.
The guidance in Notice 2017–67
remains unaffected by the final rules.
Additional QSEHRA guidance generally
is outside of the scope of these final
rules, and to the extent an employer
wants to transition from offering a
QSEHRA to offering an individual
coverage HRA, the individual coverage
HRA must comply with the
requirements set forth in the final rules.
One commenter asked the
Departments to clarify that individual
coverage HRA participants may
contribute to a health FSA even if their
employer does not offer traditional
group health plan coverage. The
Departments note that employers
generally may provide excepted benefits
(other than an excepted benefit HRA
188
)
to employees in a class offered an
individual coverage HRA. In addition,
the Departments clarify that the
individual coverage HRA would qualify
as ‘‘other group health plan coverage not
limited to excepted benefits’’ under the
requirements for the health FSA to
qualify as an excepted benefit.
189
Thus,
nothing in the final rules prohibits
employees in a class of employees
offered an individual coverage HRA
from participating in a health FSA
through salary reduction in a cafeteria
plan.
Other comments not responsive to the
provisions and topics addressed by the
proposed rules, or otherwise beyond the
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The Departments further note that, unless the
final rules conflict with the subregulatory guidance
that has been issued under PHS Act section 2711,
that guidance remains in effect.
191
See 83 FR 16930 (April 17, 2018). The
definition of EHB that applies under the PHS Act
section 2711 rules for plan years beginning before
January 1, 2020 is not substantively changed by the
final rules.
192
For more information on the revised EHB
standard, refer to the preamble to the 2019 Payment
Notice (83 FR 16930, 17007 (April 17, 2018)).
193
The proposed rules, and the final rules, do not
apply to health FSAs. For a health FSA to qualify
as an excepted benefit, the rules at 26 CFR 54.9831–
1(c)(3)(v), 29 CFR 2590.732(c)(3)(v), and 45 CFR
146.145(b)(3)(v) continue to apply.
scope of the proposed and final rules,
are not summarized or addressed.
16. Revisions to Current PHS Act
Section 2711 Rules Regarding
Integration With Other Group Health
Plan Coverage and Medicare
The 2015 rules under PHS Act section
2711 provide methods for integrating
HRAs with coverage under another
group health plan, and, in certain
circumstances, with Medicare Part B
and D. The proposed rules did not
include a proposal to substantively
change the current group health plan or
Medicare integration tests under the
existing PHS Act section 2711 rules.
However, the proposed rules included
minor proposed revisions to those rules,
including changing the term ‘‘account-
based plan’’ to ‘‘account-based group
health plan’’ and moving defined terms
to a definitions section. The proposed
rules also proposed to amend the rules
under PHS Act section 2711 to reflect
that HRAs may be integrated with
individual health insurance coverage
subject to the requirements of 26 CFR
54.9802–4, 29 CFR 2590.702–2, and 45
CFR 146.123. The final rules adopt these
changes as proposed, except that the
final rules have been updated to reflect
that individual coverage HRAs may be
integrated with Medicare, for purposes
of compliance with PHS Act sections
2711 and 2713, if certain conditions are
satisfied.
190
In addition, the proposed rules
included a proposal to update the
definition of EHBs set forth in paragraph
(c) of the rules under PHS Act section
2711, which applies for a group health
plan or health insurance issuer not
required to cover EHBs. The update in
the proposed rules reflected the revision
to the EHB-benchmark plan selection
process that was promulgated in the
HHS Notice of Benefit and Payment
Parameters for 2019 Final Rule (2019
Payment Notice) and that applies for
plan years beginning on or after January
1, 2020.
191
The 2019 Payment Notice
revisions provide states with additional
choices with respect to the selection of
benefits and promote affordable
coverage through offering states
additional flexibility in their selection
of an EHB-benchmark plan for plan
years beginning on or after January 1,
2020. The state’s existing EHB-
benchmark plan will continue to apply
for any year for which a state does not
select a new EHB-benchmark plan from
the available EHB-benchmark plan
selection options finalized in the 2019
Payment Notice.
192
The Departments are
finalizing as proposed the update to the
definition of EHB under the PHS Act
section 2711 rules.
One commenter expressed concern
with the change made by HHS to the
definition of EHB in the 2019 Payment
Notice and requested that the
Departments decline to update the rules
under PHS Act section 2711 to reflect
the revised EHB definition. The
Departments clarify that PHS Act
section 2711 defines EHB by reference
to PPACA section 1302(b), under which
HHS has the authority to define EHB.
The update to the definition of EHB in
the PHS Act section 2711 rules is a
technical update made to avoid
applying an out-of-date definition and is
the result of the change HHS finalized
in the 2019 Payment Notice. Issues
regarding EHBs more generally, as well
as the specific changes made in the 2019
Payment Notice, are outside of the scope
of this rulemaking.
B. Excepted Benefit HRAs
1. In General
As the Departments noted in the
preamble to the proposed rules, there
may be scenarios in which an employer
wants to offer an HRA that might not be
integrated with individual health
insurance coverage, non-HRA group
coverage, Medicare, or TRICARE. For
example, some employers may want to
offer an HRA without regard to whether
their employees have other coverage at
all, or without regard to whether their
employees have coverage that is subject
to and satisfies the market requirements.
Therefore, the proposed rules utilized
the Departments’ discretion under Code
section 9832(c)(2)(C), ERISA section
733(c)(2)(C), and PHS Act section
2791(c)(2)(C), and included an
amendment to the prior rules that
would recognize certain limited HRAs
as excepted benefits (excepted benefit
HRAs), if specific conditions were
satisfied.
193
As explained earlier in this preamble,
the Departments have the authority and
discretion to specify in rules additional
limited excepted benefits that are
similar to the limited benefits specified
in the statutes and that either are
insured under a separate policy,
certificate, or contract of insurance, or
are otherwise not an integral part of a
plan. The proposed rules included a
proposal for an excepted benefit HRA
that is consistent with both this
statutory framework and the
Departments’ objective of expanding the
availability and usability of HRAs to
maximize employee welfare.
Specifically, the proposed rules
provided that, to be recognized as an
excepted benefit, the HRA: (1) Must not
be an integral part of the plan, (2) must
provide benefits that are limited in
amount, (3) cannot provide
reimbursement for premiums for certain
health insurance coverage, and (4) must
be made available under the same terms
to all similarly situated individuals.
A number of commenters generally
expressed support for the proposed
excepted benefit HRA rule as a way to
expand the availability and use of
HRAs. Some of the commenters who
supported the proposed excepted
benefit HRA rule opposed allowing the
purchase of STLDI. Also, a number of
commenters opposed the proposed
excepted benefit HRA rule, expressing
concerns that the excepted benefit HRA
could incentivize individuals to obtain
STLDI, cause adverse selection in the
small group and individual market risk
pools, and increase complexity and the
potential for confusion.
The Departments considered these
comments and agree that the excepted
benefit HRA is a way to expand the
availability and use of HRAs, thereby
providing increased options for
healthcare coverage to employers and
employees. Therefore, the final rules
recognize certain HRAs as limited
excepted benefits, with some changes
from the proposed rule, which are
intended to address concerns raised by
commenters regarding the potential for
adverse selection and confusion.
A few commenters questioned the
Departments’ legal authority for
establishing the excepted benefit HRA,
with one requesting that the proposed
excepted benefit HRA rules be
withdrawn. These commenters stated
that the excepted benefit HRA is not
similar to the other limited excepted
benefits because it does not provide
insurance that is limited in scope for a
particular medical condition. The
Departments disagree. As stated earlier
in this section of the preamble, Code
section 9832(c)(2)(C), ERISA section
733(c)(2)(C), and PHS Act section
2791(c)(2)(C) authorize the Secretaries
of the Treasury, Labor, and HHS to issue
rules establishing other, similar limited
benefits as excepted benefits. Similar to
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The Departments note that limited
wraparound coverage was permitted as an excepted
benefit under a temporary pilot program.
Specifically, limited wraparound coverage could be
offered as excepted benefits if it was first offered no
earlier than January 1, 2016, and no later than
December 31, 2018, and would end no later than
on the later of: (1) The date that is 3 years after the
date limited wraparound coverage is first offered, or
(2) the date on which the last collective bargaining
agreement relating to the plan terminates after the
date limited wraparound coverage is first offered
(determined without regard to any extension agreed
to after the date limited wraparound coverage is
first offered). See 26 CFR 54.9831–1(c)(3)(vii)(F), 29
CFR 2590.732(c)(3)(vii)(F), and 45 CFR
146.145(b)(3)(vii)(F).
195
That is, the excepted benefit HRA may
reimburse expenses for excepted benefits, as well as
other types of medical expenses that do not qualify
as excepted benefits.
196
Code section 9831(c)(1), ERISA section
732(c)(1), and PHS Act section 2722(c)(1).
197
One commenter opposed the requirement that
traditional group health plan coverage be made
available to the participants offered the excepted
benefit HRA, but the comment was based on the
misunderstanding that the proposed conditions that
apply to the excepted benefit HRA apply to an HRA
that provides only excepted benefits. The
commenter was concerned that an employer that
did not previously offer a traditional group health
plan, but did previously offer an HRA that provides
only excepted benefits, might discontinue offering
that HRA if the final rules were to apply to the HRA
that provides only excepted benefits. As explained
earlier in this preamble, the final rules do not apply
to HRAs that provide only excepted benefits.
Therefore, if an employer offers an HRA that
provides only excepted benefits, such an
arrangement would not be subject to the
requirements of the final rules, including the
requirement that the plan sponsor must offer a
traditional group health plan.
the exercise of authority with respect to
certain health FSAs, limited
wraparound coverage,
194
and employee
assistance programs, the Departments
utilized this authority to propose rules
to permit HRAs as limited excepted
benefits, if certain conditions are
satisfied. The Departments have
determined that the conditions that
apply to excepted benefit HRAs under
the final rules result in such an
arrangement being sufficiently limited
and sufficiently similar to other limited
excepted benefits. The Departments are
now adopting these final rules on
excepted benefit HRAs, subject to
clarifications, described later in this
section of the preamble.
As a general matter, some commenters
expressed confusion and asked for
clarification regarding the difference, if
any, between the proposed excepted
benefit HRA and an HRA that only
reimburses expenses for excepted
benefits. In IRS Notice 2015–87, Q&A–
5, the Treasury Department and the IRS
explained that an HRA or employer
payment plan that, by its terms,
reimburses (including paying directly
for) premiums for individual health
insurance coverage solely to the extent
that the individual health insurance
coverage covers excepted benefits
would not fail to satisfy the market
requirements because those
requirements do not apply to a group
health plan that is designed to provide
only excepted benefits, either through
reimbursement of premiums or cost
sharing (referred to in this preamble as
an HRA that provides only excepted
benefits). Excepted benefit HRAs, on the
other hand, can provide reimbursement
for costs incurred related to coverage
that is not limited to excepted benefits
(for example, cost sharing for individual
health insurance coverage). Several
commenters asked the Departments to
confirm that an HRA that provides only
excepted benefits is not subject to the
conditions that apply to an excepted
benefit HRA. One commenter was
concerned that if an HRA that provides
only excepted benefits must satisfy the
conditions that apply to an excepted
benefit HRA, the proposed rules would
inadvertently reduce employers’ ability
to fund excepted benefits.
The final rules establish a new
excepted benefit HRA under Code
section 9832(c)(2)(C), ERISA section
733(c)(2)(C), and PHS Act section
2791(c)(2)(C), which can be used to
reimburse certain medical care expenses
incurred with respect to coverage that is
not limited to other types of excepted
benefits. If a plan sponsor offers an HRA
that only provides reimbursement for
other types of excepted benefits (for
example, limited-scope vision and
limited-scope dental benefits), that
arrangement is, itself, already an
excepted benefit and need not satisfy
the criteria of the final excepted benefit
HRA rules. Instead, the final rules
provide that an additional type of HRA,
specifically, one that reimburses
benefits not limited to other types of
excepted benefits, can also qualify as an
excepted benefit.
195
Excepted benefit
HRAs may reimburse medical care
expenses, such as cost sharing for
individual health insurance coverage or
group health plan coverage that would
not otherwise qualify as excepted
benefits, if the conditions of the final
rules are satisfied.
2. Otherwise Not an Integral Part of the
Plan
Among other things, to be a limited
excepted benefit under Code section
9831(c)(1), ERISA section 732(c)(1), and
PHS Act section 2722(c)(1), benefits
must: (1) Be provided under a separate
policy, certificate, or contract of
insurance; or (2) otherwise not be an
integral part of the plan.
196
HRAs are
self-insured group health plans and,
therefore, are not insurance coverage
that can be provided under a separate
policy, certificate, or contract of
insurance. Accordingly, to satisfy the
statutory requirement to be a limited
excepted benefit, among other things, an
HRA must not be an integral part of the
plan.
To satisfy this condition, the
proposed rules specified that other
group health plan coverage (other than
an account-based group health plan or
coverage consisting solely of excepted
benefits) must be made available by the
same plan sponsor for the plan year to
the participants offered the excepted
benefit HRA. Only individuals eligible
to participate in the traditional group
health plan would be eligible to
participate in the excepted benefit HRA.
However, while the plan sponsor would
be required to make an offer of a
traditional group health plan, HRA
participants (and their dependents)
would not be required to enroll in the
traditional group health plan for the
HRA to be an excepted benefit HRA. In
the preamble to the proposed rules, the
Departments noted that this provision is
similar to the requirement that applies
under the limited excepted benefits
rules for health FSAs at 26 CFR
54.9831–1(c)(3)(v), 29 CFR
2590.732(c)(3)(v), and 45 CFR
146.145(b)(3)(v).
Commenters generally supported this
requirement and suggested that it be
retained in the final rules. Some
commenters suggested that the
Departments should go further and
permit employers to offer an excepted
benefit HRA only to individuals who are
actually enrolled in a traditional group
health plan.
197
These commenters
argued that without such a requirement,
healthy employees would decline their
employer’s traditional group health plan
and only participate in the excepted
benefit HRA. These commenters
speculated this might lead to a less
stable small group market risk pool and
higher premiums for employees who
remain in the traditional group health
plan. One commenter was concerned
that if some employers offer traditional
group health plans that are exorbitantly
expensive, many employees would
decline to enroll and rely on their
excepted benefit HRA as their only
source of coverage. One commenter
disagreed with the Departments’
assertion that the requirement to offer a
traditional group health plan satisfies
the requirement that limited excepted
benefits not be an integral part of the
plan. Another commenter stated that
individuals could be without
comprehensive coverage if they do not
enroll in the employer’s traditional
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198
See 26 CFR 54.9831–1(c)(3)(v), 29 CFR
2590.732(c)(3)(v), and 45 CFR 146.145(b)(3)(v). See
also 62 FR 67688 (Dec. 29, 1997).
199
In the context of other HRA integration rules,
the Departments have recognized and supported
employee choice to enroll in primary coverage other
than the employer’s group health plan (such as a
spouse’s plan or Medicare), without these types of
limitations. See, e.g., 26 CFR 54.9815–2711(d)(2)
and (d)(5), 29 CFR 2590.715–2711(d)(2) and (d)(5),
and 45 CFR 147.126(d)(2) and (d)(5).
200
Code section 9832(c)(2)(C), ERISA section
733(c)(2)(C), and PHS Act section 2791(c)(2)(C).
201
See the discussion in the preamble to the
proposed rules at 83 FR 54420, 54437 (Oct. 29,
2018).
202
26 CFR 54.9831–1(c)(3)(v), 29 CFR
2590.732(c)(3)(v), and 45 CFR 146.145(b)(3)(v).
203
See also 80 FR 13995, 13997 (March 18, 2015).
204
The Departments stated in the preamble to the
proposed rules that a range of options were
considered, such as a limit that would mirror the
cap on employer contributions for excepted benefit
health FSAs, a fixed percentage of the cost of
coverage under the plan sponsor’s primary group
health plan, and the cost of coverage under the
second lowest cost silver plan in various markets.
However, consistent with the principle of
promoting HRA usability and availability, rather
than proposing a complex test for the limit on
amounts newly made available in the excepted
benefit HRA, the Departments proposed a
maximum of $1,800 because it approximated the
midpoint amount yielded by the various
methodologies considered. 83 FR 54420, 54437
(Oct. 29, 2018).
group health plan and rely instead on an
excepted benefit HRA, or a combination
of the excepted benefit HRA and other
excepted benefits, without
understanding the limited nature of
excepted benefits. The commenter also
represented that there is a long history
of unscrupulous promoters cobbling
together different types of excepted
benefits and fraudulently marketing
them as major medical insurance,
leaving thousands of participants and
beneficiaries with unpaid claims. One
commenter urged the Departments to
add a requirement that employers
offering an excepted benefit HRA must
maintain their traditional group health
plan at an equivalent level of coverage,
actuarial value, and premium
affordability relative to the coverage
offered prior to offering the excepted
benefit HRA.
The final rules do not adopt a
requirement that excepted benefit HRAs
be limited to employees who are
enrolled in the employer’s traditional
group health plan or impose a
maintenance of effort requirement. First,
the condition that employees must be
offered (but not necessarily enrolled) in
the employer’s traditional group health
plan is similar to that for excepted
benefits health FSAs, pursuant to the
same statutory authority.
198
Second,
limiting eligibility to employees
enrolled in their employer’s traditional
group health plan would make
employees covered under other primary
coverage, such as a spouse’s plan,
ineligible for the excepted benefit HRA.
Applying such a restrictive requirement
would unduly limit some employees’
access to excepted benefit HRAs and
reduce their welfare if they choose a
different primary health coverage option
to best meet their needs.
199
Third, other
factors will likely prevent most
employees from relying on an excepted
benefit HRA as their primary form of
coverage. For example, the dollar limit
imposed on excepted benefit HRAs
(discussed later in this preamble) will
likely make it apparent that an excepted
benefit HRA does not provide adequate
financial protection against unexpected
health costs, even for the healthiest
individuals. Moreover, as discussed
later in this preamble, in general,
excepted benefit HRAs must provide
notice of the dollar limits and other
limitations on coverage under the plan.
Finally, as to the concern that
employers will offer traditional group
health plans that are very expensive,
thereby encouraging employees to enroll
only in the excepted benefit HRA, the
employer shared responsibility
provisions of Code section 4980H (for
ALEs), and employers’ desire to offer
affordable health coverage as a means to
attract and retain talented workers, are
strong incentives for employers to offer
affordable, quality health coverage.
3. Limited in Amount
Under the Code, ERISA and the PHS
Act, limited excepted benefits may
include limited scope vision or dental
benefits, benefits for long-term care,
nursing home care, home healthcare, or
community-based care, or any
combination thereof and may include
‘‘such other similar, limited benefits as
are specified in regulations’’ by the
Departments.
200
Thus, in creating the
excepted benefit HRA, the Departments
had to determine what type of HRA
would be sufficiently limited to qualify
as a limited excepted benefit.
The Departments have applied
limiting principles consistently in prior
rulemakings under which discretion
was exercised to establish additional
types of limited excepted benefits.
201
For example, a health FSA is an
excepted benefit only if the arrangement
is structured so that the maximum
benefit payable to any participant in the
class for a year does not exceed two
times the participant’s salary reduction
election under the arrangement for the
year (or, if greater, $500 plus the amount
of the participant’s salary reduction
election).
202
Additionally, limited
wraparound coverage is a limited
excepted benefit only if it is limited in
amount, such that the cost of coverage
per employee (and any covered
dependents) under the limited
wraparound coverage does not exceed
the greater of the maximum permitted
annual salary reduction contribution
toward a health FSA or 15 percent of the
cost of coverage under the primary plan.
The Departments recognize that
limited excepted benefits that are not
limited in scope by benefit type (such as
limited-scope dental or limited-scope
vision benefits) must be limited in
amount to constitute the type of
ancillary benefit contemplated by the
statutes within the meaning of a
‘‘similar, limited benefit’’ under Code
section 9832(c)(2), ERISA section
733(c)(2), and PHS Act section
2791(c)(2).
203
Accordingly, the Departments
proposed that amounts newly made
available for a plan year in an excepted
benefit HRA may not exceed $1,800,
indexed for inflation for plan years
beginning after December 31, 2020. For
this purpose, inflation was defined in
the proposed rules by reference to the
Chained Consumer Price Index for All
Urban Consumers, unadjusted (C–CPI–
U), published by DOL. Also, the
Departments stated that the adjusted
limit for plan years beginning in a
particular calendar year would be
published early in the fall of the prior
calendar year.
a. Dollar Limit on the Amount That May
Be Made Newly Available During a Plan
Year
Many commenters supported the
proposed dollar limit as a reasonable
mid-point of the different limits that
would result in applying various
methodologies. Several noted it was
sufficient because excepted benefits are
meant to provide ancillary coverage,
and the proposed amount is comparable
to the cost of other excepted benefits,
such as stand-alone dental and vision
plans. One commenter noted that $1,800
would be a generous level of
reimbursement for excepted benefits,
but only a modest support to
participants and beneficiaries seeking
reimbursement for COBRA premiums.
Another commenter asserted that it was
a reasonable middle ground relative to
the various alternatives that the
Departments considered and discussed
in the preamble to the proposed
rules.
204
A few commenters supported
the proposed dollar limit due to their
opposition to allowing excepted benefit
HRAs to provide reimbursement for
STLDI premiums, arguing that if the
limit were any higher some participants
could be more likely to rely on STLDI
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205
See 26 CFR 54.9831–1(c)(3)(vii)(B), 29 CFR
2590.732(c)(3)(vii)(B), and 45 CFR
146.145(b)(3)(vii)(B).
206
See EBSA Field Assistance Bulletin No. 2007–
04 (available at https://www.dol.gov/agencies/ebsa/
employers-and-advisers/guidance/field-assistance-
bulletins/2007–04); CMS Insurance Standards
Bulletin 08–01 (available at http://www.cms.gov/
CCIIO/Resources/Files/Downloads/hipaa_08_01_
508.pdf); and IRS Notice 2008–23.
207
The Departments note, however, that an
excepted benefit HRA is also limited, to some
extent, in scope of reimbursable expenses in that it
may not reimburse premiums for individual health
insurance coverage (other than excepted benefits);
group health coverage (other than COBRA or other
continuation coverage or excepted benefits);
Medicare Part A, B, C, or D; and under certain
circumstances, it cannot reimburse STLDI
premiums.
208
See 26 CFR 54.9831–1(c)(3)(vii)(A) and (D), 29
CFR 2590.732(c)(3)(vii)(A) and (D), and 45 CFR
146.145(b)(3)(vii)(A) and (D). See also 80 FR 13995,
13997 (March 18, 2015).
209
See 26 CFR 54.9831–1(c)(5)(i)(C), 29 CFR
2590.732(c)(5)(i)(C), and 45 CFR 146.145(b)(5)(i)(C).
210
IRS Notice 2005–42, 2005–1 CB 1204 and IRS
Notice 2013–71, 2013–47 IRB 532.
as their primary form of coverage. In
expressing their support for the
proposed dollar limit, a number of
commenters stated that the limit should
not be any higher, due to adverse
selection concerns and concerns about
disincentivizing comprehensive
coverage.
Other commenters requested that
excepted benefit HRAs not be subject to
any dollar limit because a limit would
restrict participants’ ability to choose
the types of treatment or coverage that
is best suited to their needs. Some
commenters argued that the proposed
dollar limit should be higher. Some of
these commenters favored a higher limit
for excepted benefit HRAs based on age
and number of dependents to reflect
that participants who are older or have
dependents are likely to have higher
healthcare costs. Some commenters
suggested specific higher limits that, in
their view, would be appropriate, such
as the maximum annual permitted
benefit for QSEHRAs, the maximum
out-of-pocket limit for HDHPs, the
annual salary reduction contribution
limit for health FSAs, the greater of 15
percent of the cost of coverage under the
employer’s primary group health plan or
the health FSA salary reduction
contribution limit (which is the
threshold for limited wraparound
coverage),
205
or 15 percent of the cost
of coverage under the employer’s
primary group health plan (which is the
threshold for certain supplemental
excepted benefits).
206
The commenters
asserted that the limit should be
increased for various reasons, including
to enable employees to pay for
premiums and cost sharing for excepted
benefit policies, to approximate the
limits allowed for limited wraparound
coverage, to reduce administrative
complexity for plan sponsors by
aligning the limit with a limit that
already exists, to help employees bypass
insurance and pay directly for medical
care, and to enable employees to pay for
more expensive STLDI plans that may,
in some cases, provide comprehensive,
high-quality coverage. Some
commenters noted that setting the limit
as a percentage of the cost of the
employer’s primary group health plan
could partially account for regional
differences for healthcare services.
One commenter stated that a dollar
limit is not sufficient to cause the
excepted benefit HRA to be a limited
excepted benefit and also stated that the
proposed dollar limit was too high, with
the result that the excepted benefit HRA
is not a limited excepted benefit because
the dollar limit is significantly more
than the premium value of the other
limited excepted benefits; therefore,
according to the commenter, the
excepted benefit HRA is not similar to
other limited excepted benefits.
The final rules do not remove or
change the dollar limit for the excepted
benefit HRA. The Departments agree
that significantly increasing the dollar
limit could encourage certain
participants to rely solely on benefits
reimbursed through the excepted benefit
HRA and could lead to adverse
selection. Also, as stated earlier in this
preamble, if a benefit that is generally
not otherwise limited in scope is too
large, it would not constitute a ‘‘similar,
limited benefit’’ under Code section
9832(c)(2), ERISA section 733(c)(2), and
PHS Act section 2791(c)(2). These
governing statutes require that these
benefits be limited, which the
Departments interpret to require a strict
dollar limit because the excepted benefit
HRA is not restricted to reimbursing
specific, limited types of medical
expenses.
207
Further, the Departments
are cognizant that an excepted benefit
HRA, like all excepted benefits, does not
render an individual ineligible for the
PTC and, therefore, a higher dollar limit
on the excepted benefit HRA could
result in individuals being eligible for
both subsidized coverage through the
Exchanges and a higher employer
provided HRA benefit, which would
increase the cost to the federal
government. To the extent commenters
advocated for a higher dollar limit in
order to allow HRAs to be used to
purchase excepted benefits, HRAs that
provide only excepted benefits may be
an alternative option because those
HRAs are not subject to the excepted
benefit HRA rules, including the dollar
limit.
In determining the appropriate dollar
limit for excepted benefit HRAs, the
Departments considered other, similar
limited excepted benefits. The
Departments agree with commenters’
assertions that the proposed limit was
reasonable and rational, especially
considering the relatively low cost of
excepted benefits coverage, such as
dental or vision coverage. While limited
wraparound coverage and similar
supplemental coverage may have higher
overall dollar limits, they are also
limited in additional ways. Limited
wraparound coverage must provide
meaningful benefits beyond coverage of
cost sharing (such as coverage for
expanded in-network medical clinics or
providers, or provide benefits that are
not EHBs and that are not covered by
the eligible health insurance) and, in
general, may only be offered to part-time
employees and retirees (and their
dependents), and only if the employer
makes certain offers of coverage to full-
time employees.
208
Further, similar
supplemental coverage is restricted to
coverage ‘‘specifically designed to fill
gaps in the primary coverage.’’
209
On
the other hand, employee salary
reduction contributions to health FSAs,
which will vary by employee and
cannot exceed $2,700 (adjusted for
inflation), cannot be used to pay
premiums, and generally may not be
rolled over from year to year, except for
a limited runout period or limited
amount.
210
Excepted benefit HRAs are
not subject to all the limitations that
apply to these other limited excepted
benefits; thus, a lower dollar amount is
appropriate for excepted benefit HRAs.
Additionally, although the
Departments recognize that healthcare
expenses may be higher for participants
who are older or have dependents,
adopting a higher limit to account for a
combination of factors like age and
family size could allow an excepted
benefit HRA to be too large and to
resemble major medical coverage.
Moreover, these factors were already
considered and accounted for in
developing the $1,800 limit.
Accordingly, the final rules adopt,
without change, the proposed maximum
that can be newly made available for a
plan year of $1,800.
b. Indexing for Inflation
Many commenters supported the
proposed rule’s approach to indexing
for inflation the amount that may be
made newly available to participants
during a plan year, though some
suggested alternative methods of
indexing may be more appropriate.
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211
See Code sections 125(i) and 223(g).
212
Transfers, however, from other HRAs are not
permitted. See the discussion earlier in this
preamble.
Several commenters suggested that the
chained CPI–U does not accurately
reflect the increases in the cost of
medical care over time because
healthcare prices consistently increase
at a greater rate than prices in the
economy as a whole. Several
commenters suggested that the
appropriate measure of inflation would
be the Consumer Price Index overall
medical care component because it
focuses on consumers’ out-of-pocket
medical expenses, while another
suggested unchained CPI–U. Another
commenter, however, suggested that the
measure selected in the proposed rules
would be the most appropriate measure,
as other types of excepted benefits, such
as limited-scope dental, limited-scope
vision, and fixed indemnity plans, do
not typically have cost trends (that is,
inflation) similar to products that
provide comprehensive medical care.
One commenter expressed support for
the proposed adjustment because it is
consistent with the adjustment of
various other amounts under the Code.
The final excepted benefit HRA rules
index the annual dollar limit of $1,800
to inflation for plan years beginning
after December 31, 2020, and define
inflation by reference to the C–CPI–U, as
was proposed. This index strikes a
reasonable balance among a number of
factors, including balancing the
decreasing real value of a static
excepted benefit HRA annual maximum
contribution amount and the ability of
an employer to maintain a meaningful,
yet limited, excepted benefit HRA that
can carry over unused amounts and
accumulate to higher account balances
over time. Also, C–CPI–U is used to
index most other amounts under the
Code with which employers are
familiar, such as the annual limit on
employee salary reduction contributions
to health FSAs, annual HSA
contributions amounts, and annual
HDHP minimum deductible amounts
and maximum HDHP out-of-pocket
amounts.
211
Therefore, this inflation
adjustment should be familiar to plan
sponsors. Using the same indexing
method is less likely to result in
confusion and will make
implementation and compliance easier.
One commenter urged that the annual
amount should be announced at the
same time that other account-based plan
limits, such as the limits for HSAs and
HSA-eligible HDHPs, are announced, as
employers and plan administrators need
to know these amounts in advance to set
their benefit levels and communicate
them to employees. The Departments
agree that it is essential that the annual
adjustment be made available
sufficiently in advance of the upcoming
plan year to allow plan sponsors to
make benefit determinations. Therefore,
the Departments are revising the final
rules to provide that the C–CPI–U for
any calendar year is the average of the
C–CPI–U as of the close of the 12 month
period ending on March 31 of that
calendar year and that the Treasury
Department and the IRS will publish the
adjusted amount for plan years
beginning in any calendar year no later
than June 1 of the preceding calendar
year, which is the same timing rule that
applies for HSAs and HSA-eligible
HDHPs.
c. Roll-Overs and Aggregation Rules
The proposed rules provided that if a
participant or beneficiary in an excepted
benefit HRA does not use all of the
amounts made available for a plan year,
and the excepted benefit HRA allows for
these amounts to be carried over to later
plan years, then these carryover
amounts would be disregarded for
purposes of determining whether the
$1,800 limit is exceeded.
212
One
commenter specifically expressed
support for this aspect of the proposed
rules, and this feature is retained in the
final rules.
In addition, the proposed rules
provided that if the plan sponsor
provides more than one HRA to a
participant for the same time period, the
amounts made available under all such
plans would be aggregated to determine
whether the $1,800 limit has been
exceeded. One commenter opposed this
aspect of the rule. However, the
Departments retain this provision in the
final rules in order to avoid
circumvention of the $1,800 limit,
which provides the statutory basis for
recognizing this type of HRA as a
limited excepted benefit. However, the
final rules clarify that the aggregation
rules do not take into account amounts
made available under HRAs that
reimburse only excepted benefits
(including premiums for individual
health insurance coverage that consists
solely of excepted benefits). An HRA
that reimburses only excepted benefits
is exempt from the provisions of the
final rules, including those provisions
that apply to individual coverage HRAs
and excepted benefit HRAs.
4. Prohibition on Reimbursement of
Premiums for Certain Types of Coverage
a. In General
To be an excepted benefit HRA, the
proposed rules provided that the HRA
could not reimburse premiums for
Medicare Part B or D, individual health
insurance coverage, or coverage under a
group health plan (other than COBRA or
other group continuation coverage),
except that the HRA could reimburse
premiums for individual health
insurance coverage or group health plan
coverage that consists solely of excepted
benefits. An excepted benefit HRA
would be permitted to reimburse any
other medical care expenses, including
STLDI premiums.
Commenters generally supported the
proposed requirement that an excepted
benefit HRA would not be permitted to
reimburse premiums for individual
health insurance coverage (other than
for such coverage consisting solely of
excepted benefits). These commenters
contended that to allow reimbursement
of individual health insurance coverage
premiums would undermine the basis
for recognizing the HRAs as limited
excepted benefits, and would enhance
employers’ ability to move their higher-
risk employees into the individual
market. The Departments agree that
maintaining the prohibition on the use
of the excepted benefit HRA for
individual health insurance coverage
premiums is one way in which the HRA
is limited, in order to qualify as a
limited excepted benefit, and that the
prohibition mitigates the risk that
excepted benefit HRAs could cause
adverse selection in the individual
market.
In addition, the Departments have
concluded that the prohibition on the
reimbursement of premiums for group
health plan coverage (other than COBRA
or other continuation coverage and
excepted benefits) and individual health
insurance coverage (other than excepted
benefits), is appropriate because other
final rules that are part of this
rulemaking permit individual coverage
HRAs and other rules allow HRAs to be
integrated with non-HRA group health
plan. Further, current guidance allows
HRAs to reimburse premiums for
Medicare Part B and D in certain
circumstances and under the final rules,
individual coverage HRAs that are
integrated with Medicare may be
allowed to reimburse premiums for
Medicare Part A, B, C, or D. Therefore,
an employer that wants to provide an
HRA that reimburses premiums for
individual health insurance coverage,
Medicare Part A, B, C or D, or group
health plan coverage, may do so under
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213
See Notice 2002–45 which states ‘‘[a]n HRA
does not qualify for the exclusion under [Code
section] 105(b) if any person has the right to receive
cash or any other taxable or non-taxable benefit
under the arrangement other than the
reimbursement of medical care expenses. If any
person has such a right under an arrangement
currently or for any future year, all distributions to
all persons made from the arrangement in the
current tax year are included in gross income, even
amounts paid to reimburse medical care expenses.’’
the applicable integration rules.
Accordingly, the final rules retain the
proposed prohibition on reimbursing
premiums for individual health
insurance coverage (other than for such
coverage consisting solely of excepted
benefits) and group health insurance
coverage (other than for such coverage
consisting solely of excepted benefits
and COBRA or other continuation
coverage). Moreover, because the
excepted benefit HRA generally is not
intended to reimburse premiums that
may be reimbursed under the individual
coverage HRA, the final rules also
provide that the excepted benefit HRA
may not reimburse premiums for
Medicare Part A or C, in addition to
Medicare Part B and D, as provided for
in the proposed rules. This approach
ensures that, similar to other limited
excepted benefits, excepted benefit
HRAs provide limited benefits different
from those typically provided by a
traditional group health plan.
Some commenters requested
clarification regarding the medical care
expenses an excepted benefit HRA may
reimburse. In particular, a few
commenters requested that the
Departments clarify that an excepted
benefit HRA can reimburse individuals
for cost sharing under individual health
insurance coverage or group health
plans, although excepted benefit HRAs
may not be used to reimburse premiums
for that coverage. Some commenters
inquired whether an employer could
place limits on the medical care
expenses it allows to be reimbursed by
the excepted benefit HRA, in addition to
those limits imposed by the excepted
benefit HRA rules. In particular, a few
commenters asked whether an employer
could choose not to provide any
reimbursement of certain premiums or
medical care expenses otherwise
allowed under Code section 213(d).
In general, an HRA may provide for
reimbursement for medical care
expenses. Consistent with the current
rules that apply to HRAs generally, a
plan sponsor has discretion to specify
which medical care expenses are
eligible for reimbursement from an
excepted benefit HRA it establishes, in
addition to the limits under the
excepted benefit HRA rules. For
example, a plan sponsor may permit an
excepted benefit HRA to reimburse all
medical care expenses not otherwise
disallowed by the excepted benefit HRA
rules, it may permit reimbursements for
non-premium medical care expenses
only (such as cost sharing), or it may
otherwise decide which particular
medical care expenses will be
reimbursable and which will not be
reimbursable. An excepted benefit HRA
may allow for reimbursement of cost
sharing under individual health
insurance coverage or group health
insurance coverage, although the
excepted benefit HRA may not
reimburse the premiums for that
coverage. Further, a plan sponsor
generally may, but need not, allow
reimbursement of STLDI premiums or
cost sharing under the excepted benefit
HRA. Also, see later in this section of
the preamble for a discussion of the
special circumstance in which excepted
benefit HRAs may not be used to
reimburse STLDI premiums.
Several commenters inquired whether
an excepted benefit HRA could
reimburse expenses related to
participation in a health care sharing
ministry or a direct primary care
arrangement. One commenter asked
whether reimbursement could be
provided for categories of excepted
benefits other than ‘‘limited excepted
benefits,’’ such as those in which
benefits for medical care are secondary
or incidental (for example, travel
insurance). This commenter expressed
concern that there could be potential
conflicts under rules regarding taxable
fringe benefits under the Code. Some
commenters requested clarification
more generally regarding whether an
excepted benefit HRA may only
reimburse excepted benefits that pay
health benefits or all excepted benefits,
with some advocating that excepted
benefit HRAs be allowed to reimburse
all expenses for all excepted benefits
and some advocating that the excepted
benefit HRA only be allowed to
reimburse expenses for excepted
benefits that are medical care. The
Departments clarify that an HRA,
including an excepted benefit HRA,
generally may reimburse medical care
expenses of an employee and certain of
the employee’s family members (subject
to the prohibition on the reimbursement
of certain premiums that apply for
excepted benefit HRAs).
213
Neither the
proposed nor the final rules make any
changes to the rules under Code section
213. Thus, any issues arising under
Code section 213, and any guidance
requested by commenters to address
those issues, are beyond the scope of
this rulemaking. The Treasury
Department and the IRS, however,
appreciate the comments and anticipate
addressing some of these issues in
future rulemaking or guidance.
One commenter stated that excepted
benefit HRAs should not be permitted to
reimburse COBRA premiums because
COBRA generally is more expensive
than other coverage options and the
Departments should not incentivize
individuals to elect COBRA when more
affordable coverage options may be
available. Another commenter opposed
allowing reimbursement for COBRA
premiums because COBRA generally
provides comprehensive coverage and,
to the extent an HRA can be used to
reimburse such coverage, it should not
be considered to be providing limited
benefits within the meaning of the
statutes.
The Departments decline to prohibit
reimbursement for COBRA premiums
under excepted benefit HRAs in the
final rules. Excepted benefit HRA
participants or beneficiaries may choose
to elect COBRA or other group
continuation coverage, even if other
more affordable coverage options are
available. For example, they may want
to ensure they are still able to see their
preferred doctors or maintain coverage
for certain prescription drugs.
Furthermore, nothing in the final rules
requires an employer to make an
excepted benefit HRA available for the
reimbursement of COBRA (or other
group continuation coverage) premiums.
The Departments also do not agree that
an HRA that provides reimbursement
for COBRA (or other group continuation
coverage) premiums would not be
providing limited benefits, consistent
with Code section 9832(c)(2)(C), ERISA
section 733(c)(2)(C), and PHS Act
section 2791(c)(2)(C). As explained
earlier in this preamble, the restriction
on annual contributions to the excepted
benefit HRA ensures this HRA is
limited.
b. Reimbursement of STLDI Premiums
Many commenters requested that
excepted benefit HRAs not be permitted
to provide reimbursement of STLDI
premiums. These commenters expressed
concern that some participants may use
excepted benefit HRA funds to purchase
STLDI policies without understanding
that STLDI might not provide
comprehensive coverage and is not
subject to the same federal consumer
protections that apply to PPACA-
compliant coverage. Some commenters
expressed concerns that individuals
with STLDI could be exposed to serious
financial risk and others expressed
concerns about specific benefits or
conditions not generally covered by
STLDI. One commenter represented that
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214
See PHS Act section 2701 and PPACA section
1312(c). See also 45 CFR 147.102 and 45 CFR
156.80.
215
In 1999, 17 percent of workers eligible for
employer coverage at small firms (those with 3 to
199 workers) turned down the offer of employer
coverage. By 2011, this share had climbed to 22
percent, and in 2018 it was 27 percent. See Kaiser
Family Foundation, ‘‘Employer Health Benefits
2018 Annual Survey,’’ Figure 3.1, available at
http://files.kff.org/attachment/Report-Employer-
Health-Benefits-Annual-Survey-2018.
216
Id.
217
To the extent an excepted benefit HRA
reimburses premiums for STLDI, the insurance,
which is not individual health insurance coverage,
will not be eligible for the safe harbor under 29 CFR
2510.3–1(l). Accordingly, to the extent offered in
connection with a group health plan, the benefits
could be subject to those provisions of ERISA that
apply to excepted benefits (for example, ERISA
parts 1, 4, and 5).
218
See 26 CFR 54.9801–2, 29 CFR 2590.701–2,
and 45 CFR 144.103.
in some states, individuals with an
excepted benefit HRA and STLDI
coverage would not satisfy state law
requirements to maintain
comprehensive coverage and would,
therefore, incur state income tax
penalties. A few commenters stated that
they believed that permitting
reimbursement for STLDI premiums
would mean that the excepted benefit
HRA would not be providing a limited
benefit because STLDI policies typically
cover at least some of the same benefits
as individual health insurance coverage
and because Congress exempted STLDI
from the market requirements by
distinguishing it from individual health
insurance coverage rather than making
it an excepted benefit. Other
commenters were concerned that this
rule would incentivize small employers
to offer an excepted benefit HRA to
purchase STLDI, instead of a QSEHRA
to purchase individual health insurance
coverage.
Several commenters also claimed that
permitting excepted benefit HRAs to
reimburse STLDI premiums would lead
to market segmentation, potentially
negatively affecting the small group
market. These commenters argued that
healthier, lower-cost individuals who
do not have preexisting conditions and
who believe they do not need
comprehensive benefits would enroll in
STLDI, rather than in more
comprehensive group or individual
coverage. In the opinion of these
commenters, this scenario is more likely
to occur in the fully-insured small group
market, where premiums do not vary
based on an individual employer’s
claims experience.
214
In contrast, large
employers whose plans are experience-
rated, or employers that offer self-
insured plans, likely would not offer an
excepted benefit HRA that could be
used to reimburse STLDI premiums
because, according to these commenters,
healthy employees foregoing coverage
under the employer’s traditional group
health plan could result in direct
negative financial consequences on the
cost of maintaining that plan; thus, the
employer would have strong incentives
not to offer an excepted benefit HRA
that could be used to purchase STLDI.
One commenter noted that the benefit of
allowing HRAs to be used for STLDI is
outweighed by the risks to the
individual and small group markets.
Other commenters supported making
STLDI more available generally to
consumers, citing choice and flexibility,
as well as affordability.
The final rules generally do not
prohibit reimbursement of STLDI
premiums by excepted benefit HRAs.
Employees at small firms are
increasingly turning down an offer of
health coverage.
215
Low-wage workers
at small firms are especially likely to
turn down such coverage when offered,
particularly as a given premium is a
larger share of income for a low-wage
employee.
216
Thus, low-wage workers at
smaller firms who are turning down the
employer offer of coverage are
potentially likely to benefit from
permitting the excepted benefit HRA to
reimburse STLDI premiums. To the
extent that people who would use the
excepted benefit HRA to purchase
STLDI would otherwise have been
uninsured and, therefore, would not
have been part of the small group single
risk pool, the small group market is
unaffected by the introduction of an
excepted benefit HRA that may be used
to purchase STLDI. Moreover, the
impact of any adverse selection is likely
to be small because the small group
market is much larger than the STLDI
market. Thus, any potential expansion
of the number of healthier-than-average
STLDI enrollees will have a smaller
proportional impact on expected claims
in the small group market.
While the final rules do not prohibit
reimbursement of STLDI premiums by
excepted benefit HRAs, the final rules
include a special rule in response to
commenters’ concerns about the
potential for adverse selection in the
small group markets, as discussed later
in this preamble.
217
Further, because
individuals offered an excepted benefit
HRA must be offered a traditional group
health plan, individuals with an
excepted benefit HRA who are
considering STLDI will likely be
deciding between STLDI and the
traditional group health plan, rather
than individual health insurance
coverage, premiums for which may not
be reimbursed by an excepted benefit
HRA. Therefore, adverse selection in the
individual market is mitigated.
STLDI may not be suitable coverage
for all individuals in all circumstances
and in many instances it might not
provide coverage that is as
comprehensive as individual health
insurance coverage. However, STLDI
can be a viable health insurance option
for many people in many circumstances.
Also, no individual is required to enroll
in STLDI; rather, it is simply an
additional (and in some circumstances,
more affordable), option that may be
available to them. With respect to
concerns that some excepted benefit
HRA participants may not understand
the limited nature of STLDI, a notice is
required to be prominently displayed in
STLDI contracts and enrollment
application materials advising
consumers of the differences between
STLDI and other health insurance
coverage. Among other things, the
notice must state that the coverage: (1)
Is not required to comply with certain
federal market requirements for health
insurance; (2) may exclude or limit
coverage for preexisting conditions; (3)
may not include coverage for
hospitalization, emergency services,
maternity care, preventive care,
prescription drugs, and mental health
and substance use disorder services; and
(4) may have lifetime or annual dollar
limits on health benefits.
218
The Departments disagree with
commenters’ assertions that permitting
excepted benefit HRAs to reimburse
STLDI would not be providing limited
excepted benefits because STLDI is not
an excepted benefit and often covers
some of the same benefits as individual
health insurance coverage. Nothing in
these final rules would designate STLDI
as a limited excepted benefit. Rather, it
is the HRAs that must satisfy certain
conditions to be recognized as limited
excepted benefits, and the HRAs must
be limited as to amount and are
substantially limited as to the types of
premiums they may reimburse. Further,
STLDI coverage often provides much
more limited benefits than coverage that
is subject to the market requirements.
Taking all of this into account, the
Departments have determined that
excepted benefit HRAs are sufficiently
limited to constitute a limited excepted
benefit, notwithstanding that employers
may generally elect to permit HRA
reimbursement of STLDI premiums.
One commenter noted that the
excepted benefit HRA rules do not
preempt state regulation of STLDI and
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See Code section 9802(a)(1), ERISA section
702(a)(1) and PHS Act 2705(a)(1). See also 26 CFR
54.9802–1(a)(1) and (d), 29 CFR 2590.702(a)(1) and
(d), and 45 CFR 146.121(a)(1) and (d).
220
See 83 FR 54420, 54438 (Oct. 29, 2018).
221
SSA sections 1862(b)(1)(A)(i)(I), (b)(1)(B)(i),
and (b)(1)(C)(i).
222
While title XXVII of the PHS Act, as amended
by PPACA, no longer contains a parallel provision
at PHS Act section 2721(a), HHS has explained that
it will not enforce the requirements of title XXVII
of the PHS Act with respect to nonfederal
governmental retiree-only plans and generally
encourages states to adopt a similar approach with
respect to retiree-only plans offered by issuers. See
75 FR 34538, 34540 (June 17, 2010).
223
26 CFR 1.5000A–2(c).
224
26 CFR 1.36B–2(c)(3). Note that a former
employee is only rendered ineligible for the PTC if
the former employee enrolls in employer-sponsored
coverage; an offer of coverage (even if it is
affordable and provides MV) does not preclude a
former employee from claiming the PTC. See 26
CFR 1.36B–2(c)(3)(iv).
225
See 26 CFR 54.9802–1(d), 29 CFR 2590.702(d),
and 45 CFR 146.121(d).
226
See Compliance Assistance Guide—Health
Benefits Coverage Under Federal Law, available at
https://www.dol.gov/sites/default/files/ebsa/about-
ebsa/our-activities/resource-center/publications/
compliance-assistance-guide.pdf; Self-Compliance
Tool for Part 7 of ERISA: Health Care-Related
Provisions, available at https://www.dol.gov/sites/
default/files/ebsa/about-ebsa/our-activities/
resource-center/publications/compliance-
assistance-guide-appendix-a.pdf; and FAQs on
HIPAA Portability and Nondiscrimination
Requirements for Employers and Advisers,
available at https://www.dol.gov/sites/default/files/
ebsa/about-ebsa/our-activities/resource-center/faqs/
hipaa-compliance.pdf.
so do not inhibit a state from prohibiting
the sale of STLDI. The Departments
agree with the commenter that nothing
in the final rules affects state regulation
of STLDI.
5. Uniform Availability
To prevent an excepted benefit HRA
from intentionally or unintentionally,
directly or indirectly, steering
participants or dependents with adverse
health factors away from the sponsor’s
traditional group health plan, the
proposed rules provided that an
excepted benefit HRA must be made
available under the same terms to all
similarly situated individuals,
regardless of any health factor.
219
The
Departments proposed and are
finalizing this condition to prevent
discrimination based on health status
and to preclude opportunities for an
employer to offer a more generous
excepted benefit HRA to individuals
with an adverse health factor, such as an
illness or a disability, as an incentive
not to enroll in the plan sponsor’s
traditional group health plan.
220
Consistent with the approach outlined
in the proposed rules, under the final
rules, an excepted benefit HRA may not,
for example, be offered only to
employees who have cancer or fail a
physical examination, just as the
excepted benefit HRA may not be
offered only to employees who are
cancer-free or who pass a physical
examination. Similarly, an employer
may not make greater amounts available
in an excepted benefit HRA for
employees who have cancer or who fail
a physical examination, just as an
employer may not make greater amounts
available in an excepted benefit HRA for
employees who are cancer-free or who
pass a physical examination.
Commenters generally supported this
requirement and asserted that it is
necessary to prevent discrimination
based on health status. Two commenters
sought confirmation that an excepted
benefit HRA would not violate the
uniform availability requirement if it
were made available to only certain
individuals, such as pre-Medicare
eligible retirees who decline coverage
under the former employer’s traditional
group health plan and purchase
coverage through the individual market,
so long as those eligibility conditions
are not based on a health factor. In the
Departments’ view, a plan design that
permits enrollment in an excepted
benefit HRA only if coverage is declined
under the traditional group health plan
is inconsistent with the uniform
availability requirement and with the
basic premise that an excepted benefit
HRA must be ancillary to the employer’s
traditional group health plan. HHS
further notes that structuring the
offering or design of a group health plan
based on pre-Medicare status would
generally run afoul of the Medicare
nondiscrimination provisions described
earlier in this preamble.
221
Therefore, an
employer may not condition enrollment
in an excepted benefit HRA on
declining to enroll in the traditional
group health plan.
As noted earlier in this preamble,
Code section 9831(a) and ERISA section
732(a) generally provide that chapter
100 of the Code and part 7 of ERISA,
respectively, do not apply to plans,
including HRAs, with fewer than two
participants who are current employees
on the first day of the plan year
(including retiree-only plans that cover
fewer than two participants who are
current employees).
222
Therefore, a
retiree-only HRA is not subject to the
market requirements and would not
need to qualify as an excepted benefit in
order to avoid the application of PHS
Act sections 2711 and 2713. However, a
retiree-only HRA that does not qualify
as an excepted benefit would qualify as
MEC,
223
and, therefore, a retiree who
accepted such an HRA could not claim
the PTC.
224
One commenter suggested that the
Departments should issue additional
guidance and resources about the
definition of similarly situated
individuals to ensure that this
requirement is properly implemented.
In response to these comments, the final
rules define similarly situated
individuals by reference to the
definition found in the HIPAA
nondiscrimination rules, as was
proposed.
225
Those rules generally
provide that group health plans may,
subject to an anti-abuse provision for
discrimination directed at individuals,
treat groups of participants as distinct
groups if the distinction is based on a
bona fide employment-based
classification consistent with the
employer’s usual business practice.
Whether an employment-based
classification is bona fide is determined
based on all the relevant facts and
circumstances, including whether the
employer uses the classification for
purposes independent of qualification
for health coverage (such as,
determining eligibility for other
employee benefits or determining other
terms of employment). Examples in the
HIPAA nondiscrimination rules of
classifications that may be bona fide,
based on all the relevant facts and
circumstances, include full-time versus
part-time status, different geographic
location, membership in a collective
bargaining unit, date of hire, current
employee versus former employee
status, and different occupations. Under
the anti-abuse provision, however, a
distinction between groups of
individuals is not permitted if the
creation or modification of an
employment or coverage classification is
directed at individual participants or
beneficiaries based on any health factor
of the participants or beneficiaries. In
addition, a plan may, subject to certain
anti-abuse provisions for discrimination
directed at individuals, treat
beneficiaries as distinct groups based on
the bona fide employment-based
classification of the participant through
whom the beneficiary is receiving
coverage; the relationship to the
participant; marital status; with respect
to children of a participant, age or
student status; and other factors if the
factor is not a health factor. Finally, the
HIPAA nondiscrimination rules
generally allow group health plans to
treat participants and beneficiaries as
distinct groups. Additional guidance on
similarly situated individuals is
available on DOL’s website.
226
The final
rules define similarly situated
individuals by reference to the
definition in the HIPAA
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To be an eligible individual under Code
section 223(c)(1), an individual may not be covered
by a health plan that is not an HDHP, except for
certain coverage which is disregarded, as
enumerated in Code section 223(c)(1)(B). Code
section 223(c)(1)(B) does not disregard all excepted
benefits, and an excepted benefit HRA is not
disregarded coverage. Therefore, an excepted
benefit HRA must be HSA-compatible under the
relevant Code section 223 guidance in order to
allow an otherwise eligible individual to remain an
eligible individual under Code section 223.
228
See Code section 223(c)(2). See also Notice
2008–59, Q&A–14, which provides that to be an
HDHP a plan must provide significant benefits, and
if a plan only provides benefits for hospitalization
or in-patient care, the plan would not qualify as an
HDHP.
229
See ERISA sections 102 and 104. See also 29
CFR 2520.104b–2 and 2520.104b–3(a) and (d)(3).
230
See, e.g., ERISA sections 104(b), 502(c), and
503. See also 29 CFR 2520.104b–1 and 2560.503–
1.
nondiscrimination rules, which are also
designed to prevent discrimination in
group health plans based on health
status. These standards are already
familiar to stakeholders and therefore
use of the existing definition will reduce
complexity and the potential burden of
having to use a different definition.
6. Coordination With HSAs
Commenters asked for clarification
regarding the circumstances in which
participation in an excepted benefit
HRA might preclude an individual from
being eligible for an HSA. These
commenters expressed concern that,
because HSA eligibility is restricted if
an individual has certain other types of
health coverage, a loss of HSA eligibility
could occur for some individuals
enrolled in excepted benefit HRAs.
As explained earlier in this preamble,
among the requirements for an
individual to qualify as an eligible
individual under Code section 223(c)(1)
for purposes of HSA eligibility is that
the individual must be covered under
an HDHP and have no disqualifying
health coverage. If an individual fails to
satisfy the requirements to be an eligible
individual, then contributions to an
HSA are disallowed. The Treasury
Department and the IRS have provided
some guidance on the interaction
between HRAs and the requirements of
Code section 223 in Revenue Ruling
2004–45 and IRS Notice 2008–59. More
specifically, as explained earlier in this
preamble, in Revenue Ruling 2004–45,
the Treasury Department and the IRS
clarified that an otherwise eligible
individual (that is, an individual with
coverage under an HDHP and no
disqualifying coverage) remains an
eligible individual for purposes of
making contributions to an HSA for
periods during which the individual is
covered by a limited-purpose HRA, a
post-deductible HRA, or combinations
of these arrangements. Subsequently,
Q&A–1 of IRS Notice 2008–59 stated
that a limited-purpose HRA that is also
available to pay premiums for health
coverage does not disqualify an eligible
individual from contributing to an HSA,
provided the individual does not use
the HRA to, or otherwise, obtain
coverage that is not HSA-compatible.
This prior guidance applies to all
HRAs, including excepted benefit
HRAs.
227
Therefore, for example, an
individual covered by an excepted
benefit HRA that is available to pay
premiums for STLDI is an eligible
individual for purposes of making
contributions to an HSA, assuming the
HRA is used to purchase STLDI that
qualifies as an HDHP (and so, for
example, the STLDI does not pay
benefits prior to satisfying the minimum
required deductible),
228
and the
individual has no disqualifying
coverage.
7. Notice Requirements
Several commenters suggested that
the Departments impose certain notice
requirements for excepted benefit HRAs
in the final rules. Commenters stated
that the required notice should be
similar to the notice required for
individual coverage HRAs, or should, at
a minimum, inform participants and
beneficiaries of the annual dollar limit
for benefits under the excepted benefit
HRA, other terms and conditions of the
excepted benefit HRA, and participants’
and beneficiaries’ rights under the
excepted benefit HRA.
However, the Departments note that
for private-sector, employment-based
plans, other long-standing notice
requirements under Part 1 of ERISA
already apply. ERISA-covered plans,
including excepted benefit HRAs, must
provide an SPD, summaries of material
modifications, and summaries of
material reductions in covered services
or benefits.
229
Under ERISA sections
102 and 104 and their implementing
regulations, an excepted benefit HRA’s
SPD must include, for example, the
conditions pertaining to eligibility to
receive benefits; a description or
summary of the benefits; the
circumstances that may result in
disqualification, ineligibility, or denial,
loss, forfeiture, suspension, offset,
reduction, or recovery (for example, by
exercise of subrogation or
reimbursement rights) of any benefits;
and the procedures governing claims for
benefits under the excepted benefit
HRA. Excepted benefit HRAs that are
ERISA-covered plans are subject to
additional disclosure requirements to
provide instruments under which the
excepted benefit HRA is established or
operated and information relevant to a
participant’s adverse benefit
determination upon request.
230
Under these disclosure provisions,
excepted benefit HRAs that are ERISA-
covered plans should generally provide
information on eligibility to receive
benefits, annual or lifetime caps or other
limits on benefits under the plan, and a
description or summary of the benefits.
Accordingly, for excepted benefit HRAs
that are subject to ERISA, the final rules
include a cross reference to existing
ERISA notice provisions in order to
ensure that excepted benefit HRA plan
sponsors are aware of their obligations
under those provisions. However, the
final rules do not include any additional
notice requirements for ERISA-covered
plans.
In response to commenters’ concerns,
HHS intends to propose in future
rulemaking a notice requirement with
respect to non-federal governmental
plan excepted benefit HRAs. HHS
anticipates proposing that a non-federal
governmental plan excepted benefit
HRA would be required to provide a
notice that states conditions pertaining
to eligibility to receive benefits, annual
or lifetime caps or other limits on
benefits under the excepted benefit
HRA, and a description of, or summary
of, the benefits consistent with the
requirements of 29 CFR 2520.102–3(j)(2)
and (3). HHS anticipates that, under the
proposal, this notice would be required
to be provided in a time and manner
consistent with the requirements of 29
CFR 2520.104b–2(a).
8. Special Rule To Address the Potential
Impact on the Small Group Market of
the Reimbursement of STLDI Premiums
Through Excepted Benefit HRAs
As discussed earlier in this preamble,
the final rules include a special rule in
response to comments regarding the
potential for adverse selection in the
small group market if small, insured
employers also sponsor excepted benefit
HRAs that reimburse STLDI premiums.
Specifically, the final rules provide that
the Departments may restrict excepted
benefit HRAs from reimbursing STLDI
premiums, for certain employers in a
state, if five criteria are satisfied.
First, the restriction applies only to
excepted benefit HRAs offered by small
employers, as defined in PHS Act
section 2791(e)(4), to respond to
concerns by commenters about adverse
selection in the small group market.
Second, the restriction applies only in
situations in which the other group
health plan coverage offered by the
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See 26 CFR 54.9831–1(c)(3)(vii), 29 CFR
2590.732(c)(3)(vii), and 45 CFR 146.145(b)(3)(vii).
232
See Code section 5000A(f)(3).
233
See Code section 4980H(a)(1) and (b)(1). See
also 26 CFR 54.4980H–1(a)(14).
234
See Code section 9801(f), ERISA section
701(f), and PHS Act section 2704(f). See also 26
CFR 54.9801–6(a)(2)(i) and (3)(i), 29 CFR 2590.701–
6(a)(2)(i) and (3)(i), and 45 CFR 146.117(a)(2)(i) and
(3)(i).
235
See 45 CFR 155.420(d)(1)(i), which provides
an SEP in the individual market only for loss of
coverage that constitutes MEC. See also 45 CFR
147.104(b)(2) and 83 FR 38212, 38225 (Aug. 3,
2018) (stating that STLDI ‘‘. . . is not individual
health insurance coverage, nor is it MEC.’’).
small employer is either fully-insured or
partially-insured. This focus on insured
coverage again is designed to narrowly
address the potential for adverse
selection by small, insured employers
that was identified by commenters.
Third, the restriction applies only if the
Secretary of HHS makes a finding, in
consultation with the Secretaries of
Labor and the Treasury, that the
reimbursement of premiums for STLDI
by excepted benefit HRAs in a state has
caused significant harm to the small
group market in the state that is the
principal place of business of the small
employer.
Fourth, this finding may be made only
after submission of a written
recommendation by the applicable state
regulatory authority of such state, in the
form and manner specified by HHS. The
written recommendation must include
evidence that the reimbursement of
STLDI premiums by excepted benefit
HRAs established by insured or
partially-insured small employers in the
state has caused significant harm to the
state’s small group market, including on
small group market premiums. The
evidence may include the State
Insurance Commissioner’s documented
overall assessment of the small group
market in the state. It may also include
representations made by small group
market issuers that an increase in the
purchase of STLDI coverage by
employees of small employers has
caused issuers to increase premiums for
small group market insurance, due to
the issuers’ reasonable belief about
adverse selection. HHS will evaluate
each recommendation on a case-by-case
basis. Factors that HHS may consider in
determining whether significant harm
had occurred include, but are not
limited to, the impact on issuers’
presence in the small group market,
whether there has been more than a de
minimis increase in premiums in the
small group market, enrollment declines
in the small group market related to
individuals purchasing STLDI, and
changes to the health of the small group
market risk pool.
Finally, the restriction (or
discontinuance of the restriction) must
be imposed by publication of a notice by
the Secretary of HHS in the Federal
Register and will be effective
prospectively only, and with a
reasonable time for plan sponsors to
comply.
9. Other Comments on Excepted Benefit
HRAs and Comments Outside the Scope
of This Rulemaking
Some commenters raised issues that
relate to types of excepted benefits other
than excepted benefit HRAs. For
example, several commenters requested
that the Departments extend the pilot
program for limited wraparound
coverage.
231
One commenter requested
that the Departments amend the criteria
for health FSAs to incorporate the
excepted benefit HRA, instead of adding
a new excepted benefit HRA, to avoid
the appearance of too many limited
excepted benefits. Other commenters
requested that the Departments address
questions regarding fixed indemnity and
hospital indemnity insurance. However,
the proposed excepted benefit rules
were limited to establishing criteria for
certain HRAs to qualify as excepted
benefits and, therefore, those comments
are outside the scope of this rulemaking.
Notwithstanding that fact, the
Departments do not intend to extend the
pilot program for limited wraparound
coverage, due to minimal take up and
overlap with various other benefit
options, including the new excepted
benefit HRA, which, like the limited
wraparound coverage excepted benefit,
can be used for cost sharing under and
expenses for services not covered by
individual health insurance coverage,
while not causing covered individuals
to be ineligible for the PTC.
One commenter suggested that the
excepted benefit HRA should only be
allowed to be offered by an employer
that has not previously offered health
coverage, which the commenter appears
to have suggested due to a concern
about employers offering an excepted
benefit HRA instead of comprehensive
coverage. The Departments decline to
limit excepted benefit HRAs in this way
as the excepted benefit HRA is intended
to provide flexibility and additional
healthcare options to all employers and
their employees. However, to the extent
the commenter is concerned about plan
sponsors no longer offering traditional
group health plans, the Departments
reiterate that in order to offer the
excepted benefit HRA, a plan sponsor
must also offer those eligible for the
HRA a traditional group health plan.
Some commenters expressed
confusion regarding the interaction of
the excepted benefit HRA and the
employer shared responsibility
provisions under Code section 4980H.
The Departments note for the sake of
clarity, as explained earlier in this
preamble, that coverage that consists
solely of excepted benefits is not
MEC.
232
Therefore, the offer of an
excepted benefit by an employer is not
considered to be an offer of MEC under
an eligible employer-sponsored plan for
purposes of Code section 4980H.
Although an employer will not avoid
potential liability for a payment under
Code section 4980H by virtue of an offer
of an excepted benefit, including an
excepted benefit HRA, the traditional
group health plan that is required to be
offered in order to offer the excepted
benefit HRA would constitute an offer of
MEC under an eligible employer-
sponsored plan.
233
One commenter inquired whether an
individual enrolled in an excepted
benefit HRA would have a special
enrollment right in the employer’s
traditional group health plan if the
individual had enrolled in STLDI and
then coverage under the STLDI was
rescinded because the individual
became sick. The Departments clarify
that under the special enrollment rules
for group health plans, in general, an
employee or dependent is eligible for
special enrollment if they are otherwise
eligible for the benefit package; when
coverage under the plan was previously
offered, the employee had group health
plan or health insurance coverage; and
then the employee loses eligibility for
other coverage.
234
STLDI is health
insurance coverage and, therefore, loss
of eligibility for STLDI will create a
special enrollment opportunity to enroll
in a group health plan, if the employee
otherwise satisfies the special
enrollment opportunity requirements.
However, under the special enrollment
rules for individual market coverage,
loss of eligibility for STLDI will not
trigger an SEP in the individual
market.
235
Other comments not responsive to the
provisions and topics addressed by the
proposed rules, or otherwise beyond the
scope of the proposed and final rules,
are not addressed.
C. Interaction Between Individual
Coverage HRAs and Excepted Benefit
HRAs
Under the final rules, as under the
proposed rules, a plan sponsor is
permitted to offer an individual
coverage HRA to a class of employees so
long as it does not also offer a
traditional group health plan to the
same class of employees, subject to
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The Departments note that an employer may
not provide a QSEHRA to any employee if it offers
any employee a group health plan. Accordingly, an
employer may not provide a QSEHRA to any
employee if it offers any employee an individual
coverage HRA (which is a group health plan) or an
excepted benefit HRA (which is a group health plan
and which requires an offer of a traditional group
health plan). See Code section 9831(d)(3)(B)(ii).
237
Code section 36B and 26 CFR 1.36B–2(c)(3)(i).
238
26 CFR 1.36B–2(c)(3)(vii)(A).
239
See the discussion earlier in this preamble of
the related requirement under the final integration
rules that plan sponsors provide participants with
an annual opportunity to opt-out of and waive
future reimbursements under an individual
coverage HRA.
additional applicable conditions
discussed elsewhere in this preamble.
However, a plan sponsor may only offer
an excepted benefit HRA if traditional
group health plan coverage is also made
available to the employees who are
eligible to participate in the excepted
benefit HRA. Thus, a plan sponsor
cannot offer both an individual coverage
HRA and an excepted benefit HRA to
any employee.
236
III. Overview of Final Rules Regarding
the Premium Tax Credit—Department
of the Treasury and the IRS
A. In General
Consistent with the objectives in
Executive Order 13813 to expand the
use of HRAs, the proposed rules
included an amendment to the rules
under Code section 36B to provide
guidance for individuals who are
offered or covered by an individual
coverage HRA and who otherwise may
be eligible for the PTC. As explained
earlier in this preamble, an employee
who is offered coverage under an
eligible employer-sponsored plan, and
an individual who may enroll in the
coverage because of a relationship to the
employee (a related individual), are not
eligible for a PTC for any month the
eligible employer-sponsored plan is
affordable and provides MV.
237
Further,
an employee or related individual who
enrolls in an eligible employer-
sponsored plan for a month is ineligible
for a PTC for that month regardless of
whether the coverage is affordable or
provides MV.
238
Because an HRA is a self-insured
group health plan, under existing rules,
an individual who is covered by an
individual coverage HRA is ineligible
for the PTC.
239
However, guidance was
needed regarding the PTC eligibility of
an individual who is offered, but opts
out of, an individual coverage HRA,
and, therefore, the Treasury Department
and the IRS issued the proposed PTC
rules.
Consistent with the rule for
traditional group health plans under
Code section 36B and the existing rules
thereunder, the proposed rules provided
that an employee and a related
individual offered an individual
coverage HRA (a related HRA
individual) would not be eligible for a
PTC for any month the individual
coverage HRA is affordable. Relatedly,
the proposed rules provided that an
affordable individual coverage HRA
would be deemed to provide MV.
Therefore, under the proposed rules, if
an employee and a related HRA
individual are offered an individual
coverage HRA that is affordable, the
employee and related HRA individual
are ineligible for a PTC even if the
employee opts out of the individual
coverage HRA. However, an employee
and a related HRA individual offered an
individual coverage HRA that is not
affordable will be eligible for the PTC
(assuming they are otherwise eligible) if
the employee opts out of the individual
coverage HRA.
Commenters generally acknowledged
that guidance was needed, and some
commenters agreed with the proposed
rules relating to the effect of an
individual coverage HRA offer on an
individual’s PTC eligibility. However, a
number of commenters expressed
concern that the proposed rules would
adversely affect lower-paid employees
and their ability to obtain adequate
subsidies for their healthcare coverage.
The commenters pointed out that the
PTC generally is more valuable than the
individual coverage HRA would be for
lower-paid employees. These
commenters suggested that the
individual coverage HRA would
subsidize the cost of coverage for higher
paid employees while making coverage
more expensive, and likely out of reach,
for the lower-paid employees who
would have been eligible for a PTC but
for the offer of an individual coverage
HRA. Some commenters expressed a
concern that the complexity of the rules
would make it difficult for employees to
make optimal decisions about their
coverage and whether to opt out of the
individual coverage HRA, with some
noting a concern that employees may
mistakenly opt out of an affordable
individual coverage HRA because they
believe that the opt-out preserves their
PTC eligibility, only to find out that
they have lost both PTC eligibility and
the right to reimbursements under the
individual coverage HRA. Some
commenters expressed concern that
employers might inadvertently offer an
individual coverage HRA that leaves
employees worse off than they would
have been had the employer not offered
the HRA, whether or not the employees
opt out of the arrangement. The
Departments note that this concern,
however, is mitigated by the fact that
employers seek to maximize overall
employee welfare in order to recruit and
retain talented workers.
To address these concerns, some
commenters suggested that employees
who are otherwise eligible for the PTC
should be allowed both the PTC and the
individual coverage HRA offered to
them by their employers. Other
commenters suggested a rule to allow
employees to choose between an
individual coverage HRA and the PTC.
Under this suggested rule, an employee
would be able to opt out of the
individual coverage HRA and receive
the PTC in situations in which the PTC
would provide a more generous subsidy
than the individual coverage HRA.
Employees would have this choice
regardless of whether the individual
coverage HRA was affordable or
provided MV.
The final rules retain the rule as
proposed that an employee and a related
HRA individual are not eligible for a
PTC for any month the employee is
offered an individual coverage HRA that
is affordable, even if the employee opts
out of the arrangement. An individual
coverage HRA is an eligible employer-
sponsored plan for purposes of Code
section 36B. Code section 36B(c)(2)(B)
and 26 CFR 1.36B–2(a)(2) provide that
an employee and a related individual
who are offered coverage under an
eligible employer-sponsored plan are
not eligible for a PTC for any month that
the eligible employer-sponsored
coverage is affordable and provides MV.
Under these provisions, an individual
generally is ineligible for a PTC for a
month in which the individual had an
opportunity to enroll in affordable, MV
employer-sponsored coverage,
regardless of whether the individual
actually chose to enroll. Therefore, Code
section 36B and the applicable rules do
not allow individuals to choose between
an offer of employer-sponsored coverage
that is affordable and that provides MV
or Exchange coverage with a PTC.
Furthermore, many of the concerns
raised by commenters also apply to
traditional group health plans; for
example, lower-income individuals may
be better off with the PTC than a
traditional group health plan. Thus,
consistent with the rules for traditional
group health plans, the final rules retain
the rule that a PTC is not allowed for
any month in which the individual
coverage HRA is affordable.
As to the suggestion by commenters
that individuals should be allowed to
both enroll in the individual coverage
HRA and claim the PTC if otherwise
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See Code section 36B(c)(2)(B) and 26 CFR
1.36B–2(a)(2). An individual generally is eligible for
Medicare if the individual meets the criteria for
coverage under the program as of the first day of
the first full month the individual may receive
benefits under the program. See 26 CFR 1.36B–
2(c)(2)(i). However, an individual who meets the
criteria for eligibility for Medicare must complete
the requirements necessary to receive benefits. See
26 CFR 1.36B–2(c)(2)(ii). An individual who fails by
the last day of the third full calendar month
following the event that establishes eligibility for
Medicare to complete the requirements to obtain
that coverage is treated as eligible for Medicare as
of the first day of the fourth calendar month
following the event that establishes eligibility. Id.
241
The Treasury Department and the IRS are
considering whether clarification is needed
regarding how to determine whether an offer of an
individual coverage HRA to an employee enrolled
in Medicare is considered affordable and to provide
MV for purposes of Code section 4980H. The
Treasury Department and the IRS anticipate
addressing that issue in guidance in the near term.
242
If the employer offers an HRA that provides
for a single dollar amount regardless of whether an
employee has self-only or other-than-self-only
coverage, the monthly maximum amount available
to the employee is used to determine affordability.
The monthly maximum amount was proposed to be
the maximum amount available to the employee
divided by the number of months in the plan year
the individual coverage HRA is available to the
employee.
243
With regard to an offer of eligible employer-
sponsored coverage that is not an HRA, an
individual is eligible for the PTC for his or her
Exchange coverage only if the employee’s required
contribution, which is the portion of the annual
premium that would be paid for the lowest cost
self-only MV coverage offered by the employer to
the employee, exceeds a certain percentage of the
employee’s household income. See Code section
36B(c)(2)(C).
eligible, this is precluded by Code
section 36B(c)(2)(C)(iii). Under that
Code section, and as noted earlier in
this preamble, an individual who is
covered for one or more months by a
group health plan, including an
individual coverage HRA, is ineligible
for the PTC for his or her Exchange
coverage for those months. Therefore,
the final PTC rules do not adopt this
suggestion.
The Treasury Department and the IRS
agree with commenters that some lower-
paid employees may be adversely
affected by an employer’s offer of an
individual coverage HRA because the
PTC, if available, could provide a larger
subsidy for the employee’s Exchange
coverage as compared to the individual
coverage HRA. However, this dynamic
already exists under current rules, as an
individual may be required to pay a
greater portion of his or her household
income for a traditional group health
plan than the individual would, in the
absence of an offer of employer-
sponsored coverage, have to pay for
Exchange coverage with a PTC. Under
Code section 36B(b)(3)(A) and current
PTC rules, an individual’s contribution
amount for 2019 Exchange coverage
may be as little as 2.08 percent of
household income for an individual
who claims the PTC whereas the same
individual may have to pay up to 9.86
percent of household income for
coverage offered by the individual’s
employer and still be considered to have
an affordable offer and therefore
ineligible for the PTC. Nevertheless, an
employee in this situation is not
permitted to forego the employer
coverage and choose the Exchange
coverage with a PTC to take advantage
of the smaller contribution amount.
Under the final rules, the same
treatment applies to offers of an
individual coverage HRA: That is,
individuals are not allowed to forego an
individual coverage HRA that is
affordable (and thus deemed to provide
MV) and instead choose the Exchange
coverage with a PTC.
The Departments also appreciate the
concerns expressed by commenters
regarding the burden on employees to
properly determine whether the HRA
they have been offered is affordable and
provides MV and whether they should
opt out of the individual coverage HRA.
These concerns are the primary reason
that the Departments proposed to
require employers that offer individual
coverage HRAs to provide a written
notice to each participant. The final
rules strengthen the notice requirement
and the Departments are providing
model notice language regarding the
PTC, separate from, but
contemporaneous with, the final rules.
Further, the Departments will work
closely with the State Exchanges to
ensure that Exchanges’ applications and
other relevant materials are updated to
assist individuals with an individual
coverage HRA offer who are applying
for, or considering applying for,
individual health insurance coverage, in
determining whether they are eligible
for APTC.
Lastly, the Treasury Department and
the IRS note that under the final rules,
an individual coverage HRA may be
integrated with Medicare, if certain
conditions are satisfied. Individuals
who are enrolled in Medicare for one or
more months during the calendar year
are not eligible for the PTC for their
Exchange coverage for those months.
240
Therefore, the final PTC rules regarding
when an offer of an individual coverage
HRA is considered affordable are not
relevant for individuals enrolled in
Medicare. Those individuals are
ineligible for the PTC without regard to
whether they are offered or covered by
an individual coverage HRA.
241
B. Use of Lowest Cost Silver Plan To
Determine Affordability of an Individual
Coverage HRA
The proposed rules provided that an
individual coverage HRA is affordable
for an employee and a related HRA
individual for a month if the employee’s
required HRA contribution does not
exceed
1
12
of the product of the
employee’s household income and the
required contribution percentage
(defined in 26 CFR 1.36B–2(c)(3)(v)(C)).
The proposed rules defined an
employee’s required HRA contribution
as the excess of: (1) The monthly
premium for the lowest cost silver plan
for self-only coverage available to the
employee through the Exchange for the
rating area in which the employee
resides; over (2) the monthly self-only
HRA amount provided by the
employee’s employer.
242
The monthly
self-only HRA amount was proposed to
be the self-only HRA amount newly
made available to the employee under
the individual coverage HRA for the
plan year, divided by the number of
months in the plan year the individual
coverage HRA is available to the
employee.
In the preamble to the proposed rules,
the Treasury Department and the IRS
explained that the lowest cost silver
plan was chosen because, in the
individual market, the lowest cost silver
plan is the lowest cost Exchange plan
for which the plan’s share of the total
allowed costs of benefits provided
under the plan is certain to be at least
60 percent of such costs, as required by
Code section 36B(c)(2)(C)(ii) for a plan
to provide MV. In selecting the lowest
cost plan for which it is certain that the
plan’s share of the total allowed costs of
benefits provided under the plan will be
at least 60 percent of such costs, the
proposed rules sought to most closely
approximate the PTC eligibility rules
that apply to offers of eligible-employer
sponsored coverage that is not an
HRA.
243
The proposed rules also
provided that an individual coverage
HRA that is affordable is treated as
providing MV, because the plan used to
determine affordability will always
provide MV and so an employee who is
offered an affordable individual
coverage HRA has the ability to
purchase affordable coverage that
provides MV. In the preamble to the
proposed rules, the Treasury
Department and the IRS requested
comments on whether the lowest cost
silver plan is the appropriate metal-level
plan to use to determine affordability of
an individual coverage HRA for PTC
eligibility purposes.
A number of commenters advocated
for retaining the proposed rule’s use of
the lowest cost silver plan as the
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In the individual market, a bronze plan may
have an actuarial value of 56 percent, which would
not ensure the plan’s share of the total allowed
costs of benefits provided under the plan is at least
60 percent of such costs, as required by Code
section 36B(c)(2)(C)(ii) for a plan to provide MV.
See 45 CFR 156.140.
appropriate plan to determine
affordability and MV of an individual
coverage HRA for PTC eligibility. These
commenters stated that although the
lowest cost silver plan generally would
have an actuarial value that is higher
than is required to provide MV under a
traditional group health plan, a bronze-
level plan would not always be
sufficient to provide MV.
244
Therefore,
the commenters found the use of the
lowest cost silver plan to be a
reasonable approximation of the PTC
eligibility rules that apply to offers of
traditional group health plans.
Some commenters suggested using a
gold-level plan to determine
affordability, contending that the
coverage benefits provided by a gold-
level plan more closely resemble the
coverage benefits under a traditional
group health plan. According to these
commenters, using a gold-level plan for
the affordability determination would
ensure that an employee who is offered
an individual coverage HRA would not
pay more for health coverage that
provides fewer benefits than the
employee would have paid for under
either a traditional group health plan or
Exchange coverage with a PTC.
Other commenters suggested that a
bronze-level plan should be used for
determining affordability of an
individual coverage HRA, arguing that a
bronze-level plan is comparable to
coverage under a traditional group
health plan which provides MV because
a bronze-level plan generally has an
actuarial value of 60 percent. According
to these commenters, using a silver-level
plan to determine affordability and MV
for PTC eligibility would provide
employees (and related HRA
individuals) with greater coverage
benefits than required under traditional
group health plans.
A plurality of the commenters on the
issue of the appropriate affordability
plan suggested that the second lowest
cost silver plan (SLCSP) should be used
to determine the affordability of an
individual coverage HRA. These
commenters generally pointed to
administrative ease and the affordability
rules for QSEHRAs as the reasons for
modifying the proposed rule. Under
Code section 36B, a taxpayer who is
eligible for the PTC computes his or her
PTC amount using the premiums for the
SLCSP available to the taxpayer.
Therefore, the commenters asserted that
information concerning the premiums
for a taxpayer’s applicable SLCSP is
already readily available to taxpayers
and providing this information to
taxpayers for their individual coverage
HRA affordability determinations would
not require additional Exchange
resources. In addition, in light of the
fact that the SLCSP is already used for
certain PTC purposes, the commenters
expressed concern that using premiums
for the lowest cost silver plan instead of
the SLCSP could lead to confusion and
miscalculations. Commenters also noted
that the premiums for the SLCSP are
used to determine affordability for
QSEHRAs. Some commenters expressed
concern that using the lowest cost silver
plan for affordability would result in
three different affordability calculations
depending on whether an employee was
offered a traditional group health plan,
a QSEHRA, or an individual coverage
HRA. However, some commenters
opposed the use of the SLCSP,
contending that the higher premiums for
a SLCSP, which may not always provide
greater benefits than the lowest cost
silver plan, do not warrant modifying
the proposed rule’s use of the lowest
cost silver plan to determine
affordability of an individual coverage
HRA.
After consideration of the comments,
the final rules adopt as proposed the use
of the lowest cost silver plan for self-
only coverage available through the
Exchange in the rating area in which the
employee resides to determine whether
an individual coverage HRA is
affordable. As explained in the
preamble to the proposed rules, using
the lowest cost silver plan to determine
the affordability of an individual
coverage HRA is consistent with, and
most closely approximates, the rules
that apply to an offer of a traditional
group health plan, under which an offer
is affordable if the employee’s required
contribution for the lowest cost, self-
only MV coverage offered by the
employer to the employee does not
exceed a specified percentage of the
employee’s household income. Further,
using the lowest cost silver plan, which
will not have an actuarial value lower
than 66 percent, to determine
affordability of an individual coverage
HRA ensures that the plan used to
determine affordability will always
provide MV. As a result, a
determination that an individual
coverage HRA is affordable, using this
standard, is sufficient to ensure that an
employee who is offered an affordable
individual coverage HRA has the ability
to purchase affordable coverage that
provides MV. Therefore, the Treasury
Department and the IRS are also
adopting as proposed the rule that an
individual coverage HRA that is
affordable is treated as providing MV.
The final rules result in consistent
treatment for purposes of Code section
36B for employees offered an individual
coverage HRA and employees offered a
traditional group health plan. In both
instances, the employees may be
allowed the PTC if they decline the offer
and the coverage is either unaffordable
or does not provide MV. Further, in
both instances, the employee’s required
contribution is based on the amount the
employee must pay for self-only
coverage that provides MV because
under the final rules affordability is
determined based on the lowest cost
silver plan offered in the Exchange for
the rating area in which the employee
resides (which, by definition, will
always provide MV). If the amount the
employee must pay is more than the
product of the required contribution
percentage and the employee’s
household income, the employee may
be allowed the PTC. As such, the final
rules are consistent with the
affordability and MV rules that apply to
offers of traditional group health plans.
Although commenters suggested
using a bronze-level or gold-level plan
for the affordability determination, the
final rules do not adopt either of those
suggestions. Using a bronze-level plan
could result in individuals being
determined ineligible for the PTC based
on the cost of a plan that does not
provide MV under Code section
36B(c)(2)(C)(ii) (because a bronze plan
may have an actuarial value as low as
56 percent). While use of a gold-level
plan (which generally has an actuarial
value no lower than 76 percent) would
ensure that the plan used to determine
affordability provides MV, it would be
inconsistent with, and require the use
of, a plan with a higher actuarial value
than in the rules that apply for a
traditional group health plan.
The final rules do not adopt the
suggestion that the SLCSP plan be used
for the affordability determination. The
Treasury Department and the IRS
acknowledge that the SLCSP applies for
other PTC purposes, including
calculation of the PTC amount and the
determination of affordability of a
QSEHRA. However, affordability for a
traditional group health plan is based on
the amount an employee would pay for
a plan for which the share of the total
allowed costs of benefits provided
under the plan is at least 60 percent of
such costs and the lowest cost silver
plan, not the SLCSP, is the plan that
most closely approximates that rule and
provides consistency with these same
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245
For this purpose, the term ‘‘wellness program
incentive’’ has the same meaning as the term
‘‘reward’’ in 26 CFR 54.9802–1(f)(1)(i).
rules as applied to traditional group
health plans under Code section 36B.
Consequently, the final rules provide a
rule that is comparable to the
affordability and MV rules that apply for
traditional group health plans.
As to the concerns expressed by
commenters regarding the potential for
confusion for individuals due to the
different health coverage arrangements
that exist and the different PTC
eligibility rules that apply, see earlier in
this preamble for a discussion of the
steps the Departments are taking to
address those concerns, including
providing a model notice that will
explain the PTC consequences of an
individual coverage HRA.
C. Other Issues Under the PTC Rules
The proposed rules provided that the
affordability of an individual coverage
HRA for a related HRA individual
would be based on the cost of self-only,
not family, coverage available to the
employee through the Exchange for the
rating area in which the employee
resides. One commenter stated that
affordability of an individual coverage
HRA should be based on the cost of
Exchange coverage for all members of
the employee’s family offered the
individual coverage HRA, not just the
self-only cost. The final rules do not
adopt this suggestion. Under 26 CFR
1.36B–2(c)(3)(v)(A)(2), an eligible
employer-sponsored plan is affordable
for a related individual if the portion of
the annual premium the employee must
pay for self-only coverage does not
exceed a percentage of the employee’s
household income. Similarly, under
Code section 36B(c)(4), the affordability
of a QSEHRA for a spouse or dependent
of an employee is based on the cost of
self-only Exchange coverage to the
employee. Consequently, the final rules
are consistent with the existing rules for
other types of employer coverage in
providing that affordability of an
individual coverage HRA for employees
and related HRA individuals is based on
the cost of self-only coverage.
One commenter stated that because of
the likelihood of confusion in the early
years on the part of taxpayers whose
employers offer individual coverage
HRAs, the IRS should waive the
requirement that taxpayers increase
their tax liability for excess APTC (the
excess of a taxpayer’s APTC over his or
her allowed PTC) resulting from an offer
of an affordable individual coverage
HRA. Under Code section 36B(f)(2), a
taxpayer must increase his or her tax
liability for a taxable year by the excess
of the APTC paid on the taxpayer’s
behalf over the PTC the taxpayer is
allowed for the year, subject to a
limitation for taxpayers with household
income less than 400 percent of the
applicable federal poverty line for the
taxpayer’s family size. The Treasury
Department and the IRS do not have the
authority to suspend this statutory rule.
Thus, the final rules do not adopt this
suggestion. The Departments
understand, however, that there is
potential for taxpayer confusion about
individual coverage HRAs and have
taken measures to ensure that taxpayers
are aware of the PTC implications of
accepting or opting out of an individual
coverage HRA. In particular, as
described earlier in this preamble, the
final integration rules require that an
individual coverage HRA provide
eligible participants with a written
notice setting forth certain information
about the individual coverage HRA,
including the potential availability of
PTC if they opt out of the HRA and the
PTC eligibility consequences if they
accept the HRA. Individuals applying
for Exchange coverage will provide
information about the individual
coverage HRA they have been offered to
the Exchange during the application
process, which will help prevent the
improper payment of APTC.
A few commenters raised issues
regarding the application of the PTC
rules to individual coverage HRAs that
are negotiated pursuant to a CBA, with
the commenters asking for special rules
to account for the fact that CBAs are
often negotiated over multiple years,
including that the affordability status
that is determined as of the effective
date of a CBA should apply for all years
covered by the CBA. The final rules do
not adopt the suggestion that special
rules should apply to employees
covered by CBAs. The existing rules
under Code section 36B do not include
special rules for determining the
affordability of traditional group health
plans for employees covered by CBAs.
In addition, such special rules would
likely result in undue complexities for
Exchanges and others. Thus, employees
covered by CBAs must determine
affordability consistent with the rules
that apply to individuals not covered by
such agreements.
A number of comments were received
expressing concerns about the effective
date for the final rules generally, but
many with a specific focus on issues
related to implementing the final PTC
rules by 2020. These comments are
addressed later in this preamble.
Also, commenters expressed concern
about the availability of resources for
verifying eligibility for APTC for
individuals who are offered an
individual coverage HRA. While
Exchanges are required to verify certain
eligibility requirements that affect
Exchange enrollees’ APTC eligibility
with electronic data sources,
commenters stated that electronic data
sources are not available to allow State
Exchanges to verify APTC eligibility
based on an offer of an individual
coverage HRA. Commenters urged the
Departments to dedicate additional
funding to the State Exchanges for
electronic verification of information
about individual coverage HRA offers
that consumers will be required to
provide to Exchanges. In response to
these comments, the Departments note
that Congress generally appropriates
funding for the federal government. The
Departments do not generally have the
authority to determine additional uses
of funds beyond those established by
Congress, including with respect to
additional funding for State Exchanges.
One commenter asked that the
Treasury Department and the IRS
confirm which premium applies in
determining the affordability of an
individual coverage HRA if more than
one premium is available for the lowest
cost silver plan, for example, because
there is one rate for tobacco users and
one rate for non-tobacco users. Existing
rules at 26 CFR 1.36B–3(e) provide that,
in determining a taxpayer’s SLCSP
premium, a monthly premium may not
include any adjustments for tobacco
use. Consequently, in response to the
commenter, the final rules provide that
if there is a silver-level plan that has one
rate for tobacco users and one rate for
non-tobacco users, the rate for non-
tobacco users will apply to determine
affordability of the individual coverage
HRA.
In addition, in the context of a
traditional group health plan, existing
rules at 26 CFR 1.36B–2(c)(3)(v)(A)(4)
provide that nondiscriminatory
wellness program incentives
245
that
affect premiums are treated as earned in
determining an employee’s required
contribution for purposes of
affordability to the extent the incentives
relate exclusively to tobacco use. The
rules further provide that wellness
program incentives that do not relate to
tobacco use or that include a component
unrelated to tobacco use are treated as
not earned for this purpose.
Consequently, the Treasury Department
and the IRS are clarifying in these final
rules that similar rules apply for
purposes of determining the
affordability of an individual coverage
HRA. Thus, if a wellness program
incentive is allowed in the individual
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246
An employee who opts out of a non-calendar
year individual coverage HRA, like an employee
who opts out of a non-calendar year traditional
group health plan, may qualify for an individual
market SEP based on the employee’s enrollment in
a non-calendar year plan that is ending, regardless
of whether he or she has the option to renew, per
45 CFR 155.420(d)(1)(ii). The employee may,
therefore, choose to change his or her individual
health insurance plan, though his or her plan
options may be restricted based on 45 CFR
155.420(a)(4)(iii). Regardless of whether an
employee changes his or her plan, an employee
who is enrolled in Exchange coverage and opts out
of an HRA when permitted to do so may apply to
the Exchange for a redetermination of APTC
eligibility.
247
The proposed rules also clarified how the
generally applicable employer-sponsored coverage
PTC eligibility rules apply to individual coverage
HRAs. The Treasury Department and the IRS are
finalizing those rules as proposed. Further, existing
guidance addresses when amounts newly made
available under an HRA count toward the
affordability or MV of another group health plan
offered by the same employer. See 26 CFR 1.36B–
2(c)(3)(v)(A)(5) and 26 CFR 1.36B–6(c)(4). See also
IRS Notice 2015–87, Q&A–7. As under the proposed
rules, the final rules do not make substantive
revisions to those rules but do make clarifying
updates to 26 CFR 1.36B–2(c)(3)(v)(A)(5), mainly to
incorporate a reference to more recent guidance.
248
The explanation of Code section 4980H
provided here is a summary. For a complete
explanation of the rules, including for definitions
of terms used in this summary, see 26 CFR
54.4980H–1, et seq. (79 FR 8544 (Feb. 12, 2014)).
249
Note that if an ALE offered coverage to all but
five of its full-time employees (and their
dependents), and five is greater than 5 percent of
the employer’s full-time employees, the employer
will not owe an employer shared responsibility
payment under Code section 4980H(a). See 26 CFR
54.4980H–4(a).
market, the lowest cost silver plan
premium will be determined without
regard to any premium discount or
rebate under that program unless the
wellness program incentive relates
exclusively to tobacco use.
The final rules also address a
situation in which the silver-level QHP
used to determine a taxpayer’s lowest
cost silver plan at enrollment later
terminates or closes to enrollment
during the plan year. Specifically, the
final rules provide that, in such a case,
the silver-level QHP that is used to
determine a taxpayer’s lowest cost silver
plan will not cease to be the taxpayer’s
lowest cost silver plan solely because
the plan later terminates or closes to
enrollment. However, a taxpayer’s
lowest cost silver plan used to
determine affordability could change
during the tax year under other
circumstances, such as if the taxpayer
moves into a different rating area.
With respect to which HRA amounts
are taken into account in determining
affordability, the proposed rules
provided that only amounts that are
newly made available and that are
determinable within a reasonable period
of time before the beginning of the plan
year of the HRA are considered. The
proposed rules further provided that
amounts made available from a prior
plan year that carry over to the current
plan year are not taken into account.
The final rules retain these provisions
and also provide that, similarly,
amounts made available under an HRA
to account for amounts remaining in a
different HRA the employer previously
provided to the employee and under
which the employee is no longer
covered are not taken into account for
purposes of determining affordability.
This clarification is generally intended
to address the situation in which an
employee moves between classes of
employees and, as a result, moves
between different HRAs, as discussed
earlier in this preamble.
One commenter asked the Treasury
Department and the IRS to clarify the
application of the PTC rules to an
employee opting out of, or accepting, an
individual coverage HRA with a non-
calendar year plan year.
246
As noted
earlier in this preamble, the final
integration rules clarify that individual
coverage HRAs must provide
participants with one advance
opportunity to opt into, or out of, the
individual coverage HRA for each plan
year, but generally may not provide
participants multiple opportunities to
opt into, or out of, the individual
coverage HRA over the course of the
plan year. In addition, the final PTC
rules provide specific rules to determine
affordability of an individual coverage
HRA for each employment period that is
less than a full calendar year or for the
portions of the plan year of an
individual coverage HRA that fall in
different taxable years of a taxpayer.
Although affordability of an individual
coverage HRA and thus eligibility for
PTC generally are determined on a
monthly basis, the opt-out rules and the
part-year affordability rules work in
conjunction with the employee safe
harbor to provide a taxpayer with an
affordability determination that
generally will apply for the entire plan
year of the individual coverage HRA,
barring any change in circumstance of
the taxpayer. For example, if a taxpayer
opts out of an individual coverage HRA
that begins on July 1, 2020, and an
Exchange determines that the HRA is
unaffordable and the taxpayer is eligible
for APTC, the employee safe harbor in
the final rules provides that the HRA
generally will be treated as unaffordable
for the entire plan year of the HRA (from
July 1, 2020–June 30, 2021). If the
taxpayer decides to forego both APTC
and the individual coverage HRA and
pay the enrollment premium out-of-
pocket, the taxpayer still may claim PTC
on a tax return for the months the
individual coverage HRA was
unaffordable if the taxpayer otherwise is
eligible for PTC.
247
D. Employer Shared Responsibility
Provisions Under Code Section 4980H
As part of implementing the
objectives of Executive Order 13813, the
Treasury Department and the IRS are
considering how Code section 4980H
applies to an employer offering an
individual coverage HRA.
Only ALEs are subject to Code section
4980H.
248
For an employer that is an
ALE, the employer may owe a payment
for a month under Code section
4980H(a) or Code section 4980H(b) or
neither. In general, an ALE will owe a
payment under Code section 4980H(a) if
it fails to offer an eligible employer-
sponsored plan to at least 95 percent of
its full-time employees and their
dependents and at least one full-time
employee is allowed the PTC for the
month.
249
An ALE that offers an eligible
employer-sponsored plan to at least 95
percent of its full-time employees and
their dependents (and therefore is not
liable for a payment under Code section
4980H(a)) may be liable for a payment
under Code section 4980H(b) if at least
one full-time employee is allowed the
PTC, which may occur if the eligible
employer-sponsored plan offered is not
affordable or does not provide MV, or if
the employee was not offered coverage.
On November 19, 2018, the Treasury
Department and the IRS released Notice
2018–88 which addressed the
application of Code section 4980H to
ALEs offering individual coverage
HRAs. In order to provide clarity to
stakeholders, Notice 2018–88 explained
how Code section 4980H would apply
to an ALE that offers an individual
coverage HRA, described potential
additional affordability safe harbors,
requested comments, and provided
examples.
The Treasury Department and the IRS
intend to propose rules under Code
section 4980H on the issues addressed
in Notice 2018–88, taking into account
the comments received. To the extent
comments were received on the
proposed integration rules specific to
the application of Code section 4980H
to employers offering individual
coverage HRAs, those comments will be
addressed in the preamble to the
proposed rules under Code section
4980H.
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250
83 FR 54420, 54440 (Oct. 29, 2018). For
examples of other circumstances under which DOL
has determined an arrangement is not a plan within
the meaning of ERISA, see 29 CFR 2510.3–1(j), 29
CFR 2510.3–2(f), and 29 CFR 2509.99–1. See also
DOL Field Assistance Bulletins No. 2004–01 and
No. 2006–02.
251
In light of the fact that ‘‘group health plan’’ is
defined derivatively in ERISA section 733(a)(1), in
relevant part, as an ‘‘employee welfare benefit plan
to the extent that the plan provides medical care
. . . directly or through insurance, reimbursement,
or otherwise[,]’’ DOL has concluded that a separate
rule relating to the definition of group health plan
is not required.
252
While the proposed rule under 29 CFR
2510.3–1(l) included in the term ‘‘supplemental
salary reduction arrangement’’ cafeteria plan salary
reduction arrangements paying premium amounts
not covered by a QSEHRA, these final rules do not.
See Code section 9831(d)(3)(B)(ii) and IRS Notice
2017–67, Q&A–55 (employer may allow employee
to pay the excess of a health insurance premium
over the amount paid by the QSEHRA with an after-
tax payroll deduction (in contrast to a pre-tax salary
reduction)).
253
See ERISA section 733(b)(4) and PHS Act
sections 2791(b)(4), (5), and (e)(1). See also 26 CFR
54.9801–2, 29 CFR 2590.701–2, and 45 CFR
144.103.
254
See PPACA section 1312 (which defines each
issuer’s enrollees in the individual market to be
members of a single risk pool, and each issuer’s
enrollees in the small group market to be members
of a separate single risk pool, unless a state has
opted to merge the risk pools), PHS Act section
2701 (which sets forth maximum age rating ratios
in the individual and small group markets), and
PHS Act section 2718 (which sets forth medical loss
ratio requirements that differ based on market).
255
83 FR 54420, 54441 (Oct. 29, 2018).
256
For simplicity and readability, the discussion
in this section IV of the preamble generally refers
simply to HRAs, although it is intended to also
capture other account-based group health plans,
QSEHRAs and supplemental salary reduction
arrangements. If the term HRA is intended to refer
only to HRAs in this section IV, it will be clear from
context. Moreover, the title of paragraph (l) of the
DOL final rule is amended to refer to a ‘‘Safe harbor
for health reimbursement arrangements (HRAs) and
certain other arrangements that reimburse
individual health insurance coverage,’’ to better
reflect the regulatory text that follows.
257
The fact that a plan sponsor requires the
coverage to be purchased as a condition for
participation in an HRA or supplemental salary
reduction arrangement does not make the purchase
involuntary. This issue should not arise in the
context of a QSEHRA because in that case, although
individuals must be enrolled in MEC, employers
may not require employees to enroll in individual
health insurance coverage.
258
The limitation on employers, employee
organizations, and other plan sponsors receiving
consideration from an issuer or person affiliated
with an issuer in connection with any participant’s
purchase or renewal of individual health insurance
coverage was not intended to change any ERISA
requirements governing the circumstances under
IV. Overview of the Final Rules
Regarding Individual Health Insurance
Coverage and ERISA Plan Status
A. In General
The proposed rules included an
amendment to DOL rules defining the
ERISA terms ‘‘employee welfare benefit
plan,’’ ‘‘welfare plan,’’ and, derivatively
‘‘group health plan,’’ so that these terms
would not include individual health
insurance coverage, the premiums of
which are reimbursed by an HRA and
certain other arrangements, under
certain conditions. As explained in the
preamble to the proposed rules, the
objective in proposing this clarification
was to provide clarity and assurance to
employees; employers, employee
organizations, and other plan sponsors;
health insurance issuers; state insurance
regulators; and other stakeholders.
Specifically, the objective was to
provide assurance that the insurance
policies sold as individual health
insurance coverage (that is, policies
generally subject to comprehensive
federal and state individual market rules
for minimum and uniform coverage,
standardized rating requirements,
guaranteed availability, and guaranteed
renewability) would not be treated as
part of an HRA or certain other
arrangements for purposes of ERISA if
certain conditions were satisfied.
250
Specifically, DOL proposed an
amendment to 29 CFR 2510.3–1 on the
definition of ‘‘employee welfare benefit
plan’’ in ERISA section 3(1).
251
This
proposed amendment would apply to
individual health insurance coverage
purchased through individual coverage
HRAs. It would also apply to individual
health insurance coverage purchased
through certain other arrangements that
reimburse participants for the purchase
of individual health insurance coverage
that are not subject to the market
requirements (including QSEHRAs and
HRAs that have fewer than two
participants who are current employees
on the first day of the plan year).
Further, this proposed amendment
would apply to an arrangement under
which an employer allows employees to
pay the portion of the premium for off-
Exchange individual health insurance
coverage that is not covered by the HRA
with which the coverage is integrated by
using a salary reduction arrangement
under a cafeteria plan (supplemental
salary reduction arrangement).
252
ERISA section 3(1) broadly defines
ERISA-covered welfare plans to include
‘‘any plan, fund, or program’’ that is
‘‘established or maintained by an
employer or employee organization’’ for
the provision of health benefits
‘‘through the purchase of insurance or
otherwise.’’ At the same time, however,
provisions in the PHS Act generally
treat individual health insurance and
group health insurance as mutually
exclusive categories.
253
If individual
health insurance coverage were
considered to be a group health plan or
part of a group health plan, the
individual health insurance coverage
typically would violate some of the
group market requirements (for
example, the single risk pool
requirement for the small group market;
the rating rules for the small group
market; or the separate medical loss
ratio requirements for large group
insurance coverage, which is lower than
that for individual or small group
insurance).
254
As explained in the
preamble to the proposed rules,
treatment of such individual health
insurance coverage as subject to both
individual market and group market
requirements thus would likely result in
conflicting requirements, uncertainty
and confusion which could inhibit or,
in some instances, even preclude, the
ability to integrate HRAs with
individual health insurance coverage as
contemplated by other provisions in the
proposed rules.
255
Accordingly, DOL
concluded that the ERISA status of this
type of individual health insurance
coverage should be clarified. Under the
proposed rules, the individual health
insurance coverage that is paid for by
the HRA
256
is not covered by ERISA
Title I if all of the conditions of the safe
harbor are satisfied. The conditions in
the safe harbor incorporate criteria well-
recognized under similar ERISA safe
harbor rules and under case law, where
similar arrangements are considered to
be exempt from ERISA Title I.
Under the proposed rules, the status
under ERISA of an HRA, QSEHRA, or
supplemental salary reduction
arrangement would remain unaffected.
Rather, the proposed rules clarified that
individual health insurance coverage
selected by the employee in the
individual market and reimbursed by
such a plan is not part of a group health
plan, is not health insurance coverage
offered in connection with a group
health plan, and is not a part of any
employee welfare benefit plan for
purposes of ERISA Title I, provided all
the following conditions are satisfied:
1. The purchase of any individual
health insurance coverage is completely
voluntary for employees.
257
2. The employer, employee
organization, or other plan sponsor does
not select or endorse any particular
issuer or insurance coverage.
3. Reimbursement for non-group
health insurance premiums is limited
solely to individual health insurance
coverage.
4. The employer, employee
organization, or other plan sponsor
receives no consideration in the form of
cash or otherwise in connection with
the employee’s selection or renewal of
any individual health insurance
coverage.
258
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which plans, including HRAs, may reimburse
employers, employee organizations and other plan
sponsors for certain expenses associated with
administration of the plan.
259
26 CFR 54.9801–2, 29 CFR 2590.701–2, and 45
CFR 144.103.
260
Note that the clarification with respect to the
meaning of group health insurance coverage is not
relevant for QSEHRAs because QSEHRAs generally
are not group health plans. See Code section
9831(d)(1), ERISA section 733(a)(1), and PHS Act
section 2791(a)(1).
261
DOL notes that ‘‘private exchange’’ is a term
that was not specifically defined in any public
comments and is similarly undefined in this
preamble. It is generally meant to refer to a tool or
web-based platform that facilitates individuals’
enrollment in the coverage of their choice. The term
does not include any entity that meets the
definition of an ‘‘Exchange’’ in 45 CFR 155.20.
262
See 29 CFR 2510.3–1(j), 29 CFR 2510.3–2(f),
and 29 CFR 2509.99–1. See also DOL Field
Assistance Bulletins No. 2004–01 and No. 2006–02.
5. Each plan participant is notified
annually that the individual health
insurance coverage is not subject to
ERISA.
Current rules issued by the
Departments define ‘‘group health
insurance coverage’’ as health insurance
coverage offered in connection with a
group health plan.
259
The proposed
rules included an amendment to clarify
that—subject to certain conditions—
individual health insurance coverage is
not group health insurance coverage (or
‘‘health insurance offered in connection
with a group health plan’’). This
amendment was intended to ensure
consistency and avoid any potential
conflicting interpretations regarding
individual health insurance coverage.
Accordingly, if the conditions in 29 CFR
2510.3–1(1) were satisfied, the
individual health insurance coverage
would not be ‘‘health insurance
coverage offered in connection with a
group health plan’’ for purposes of
ERISA, the PHS Act, the Code, and
PPACA, even though the premiums are
reimbursed by an HRA.
260
After consideration of the comments,
the conditions set forth in the proposed
amendment to 29 CFR 2510.3–1, and the
proposed amendment to the
Departments’ rules defining ‘‘group
health insurance coverage,’’ are being
finalized without significant change, but
with minor clarifications in response to
comments.
B. Safe Harbor
The preamble to the proposed rules
referred to the proposed amendment as
a clarification. Some commenters asked
DOL to clarify whether the conditions
established in the proposed amendment
would be considered a safe harbor, or
absolute requirements for plan sponsors.
These commenters asserted that it was
unclear and expressed concern about
the potential unintended consequences
of non-compliance and confusion if all
individual health insurance coverage
reimbursed under an arrangement that
did not satisfy the proposed criteria of
the rule was treated as being subject to
ERISA. Examples highlighted by
commenters include how requirements
under other federal laws such as
HIPAA, the Paul Wellstone and Pete
Domenici Mental Health Parity and
Addiction Equity Act of 2008, and
PPACA would apply to the coverage
(including the single risk pool
requirement, the rating rules for the
small group market, or the medical loss
ratio requirements, as well as the
PPACA section 9010 health insurance
fee), whether health insurance issuers
could be considered plan fiduciaries,
and whether participants could bring
legal actions against health insurance
issuers under ERISA’s private right of
action provisions. They also stated that
factors outside of a plan sponsor’s
control could result in the employer not
satisfying the conditions of the rules. As
one example, a commenter suggested
that an insurance broker could endorse
an insurance product in the context of
a private exchange without the
employer’s knowledge, possibly
resulting in a failure to satisfy the
condition that the plan sponsor not
select or endorse any particular issuer or
insurance coverage.
261
These
commenters suggested that flexibility
would be appropriate to account for
plan sponsors that make reasonable,
good faith efforts to comply with the
conditions in the proposed amendment
but make de minimis errors.
As noted earlier in this section of the
preamble, DOL has set forth several safe
harbors in other rules and guidance
under which DOL has determined an
arrangement is not a plan within the
meaning of ERISA.
262
These safe
harbors are intended to clearly define
circumstances in which a workplace
arrangement falls outside of the scope of
a plan under ERISA without necessarily
specifying all the circumstances under
which a workplace arrangement could
avoid ERISA plan status. Here, too, DOL
intended the proposed rules to
constitute a safe harbor, as reflected in
language in the proposed amendment
providing that an ERISA plan ‘‘shall not
include’’ individual health insurance
coverage. The final rules make clear that
the rule is a safe harbor.
The conditions of the various
regulatory safe harbors noted earlier in
this preamble are highly sensitive to the
particular type of plan at issue, and the
particular legal and factual context
associated with that type of plan.
Accordingly, DOL cautions that the
particular conditions of the safe harbor
provided here are not directly relevant
to other types of plan arrangements,
such as retirement plans, life insurance
plans, or disability plans. In particular,
the employer’s funding of a benefit
arrangement, in most circumstances, is
sufficient to preclude the grant of a safe
harbor. In the particular context of the
individual health insurance policies at
issue here, however, DOL has
concluded that employer funding is not
disqualifying based on its conclusion
that Congress generally intended that
individual and group health insurance
coverage be regulated as mutually
exclusive categories. In this unique
context, DOL has concluded that
employer funding, by itself, is an
insufficient basis for treating the
individual health insurance policy, as
opposed to the HRA, as part of an
ERISA-covered plan.
C. An Employer, Employee
Organization, or Other Plan Sponsor
May Not Select or Endorse Any
Particular Issuer or Insurance Coverage
Paragraph (l)(2) of the proposed
amendment required that the employer,
employee organization, or other plan
sponsor may not select or endorse any
particular issuer or insurance coverage.
The proposed rules clarified that an
HRA plan sponsor would not be
considered to have endorsed a
particular issuer or insurance coverage
if, for example, the plan sponsor offered
general contact information regarding
availability of health insurance in a state
(such as providing information
regarding HealthCare.gov or contact
information for a state insurance
commissioner’s office) or providing
general health insurance educational
information (such as the uniform
glossary of health coverage and medical
terms available at: https://www.dol.gov/
sites/default/files/ebsa/laws-and-
regulations/laws/affordable-care-act/
for-employers-and-advisers/sbc-
uniform-glossary-of-coverage-and-
medical-terms-final.pdf).
Some commenters asked DOL to
provide additional guidance on what
types of activities would or would not
constitute endorsement. These
commenters stated that it would be
important to provide HRA plan
sponsors with flexibility to permit them
to help employees shop for coverage,
especially because many might be
unfamiliar with the processes associated
with obtaining health insurance in the
individual market. Several commenters
asked whether there would be
circumstances in which a plan sponsor
could connect participants or
beneficiaries with an insurance agent or
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While the HRA’s reimbursement of non-group
health insurance premiums is limited solely to
individual health insurance coverage that does not
consist solely of excepted benefits, the HRA may
reimburse Medicare premiums for Medicare
beneficiaries as permitted under 29 CFR 2590.702–
2 without causing the reimbursement of individual health insurance coverage premiums for other
individuals to fall outside the safe harbor.
broker without running afoul of the
prohibition on endorsement. A few
commenters asked whether, or under
what circumstances, an HRA could be
offered in connection with a private
exchange where participants could
make a selection from a set of coverage
options. One commenter stated that
without an ability to use a private
exchange model, most employers will
be reluctant to offer an individual
coverage HRA over a traditional group
health plan, thereby undermining the
purpose of the proposed rules to expand
use and availability of HRAs. One
commenter stated that DOL should
incentivize the use of private exchanges
that would provide price and quality
transparency as well as navigational
support for plan participants shopping
for individual health insurance
coverage, and possibly even require that
private exchanges offer QHPs. Another
commenter urged DOL to ensure that
private exchanges could not be used in
a manner that harms the risk pools or
that is anti-competitive and promotes
one issuer over another. This
commenter suggested that the final rules
specify that an employer cannot use an
individual coverage HRA in conjunction
with a plan purchased through a private
exchange unless the private exchange is
designed in such a way as not to
constitute selection or endorsement by
the employer.
A plan sponsor may provide
assistance to participants and
beneficiaries in shopping for individual
health insurance coverage without being
considered to endorse any particular
coverage if that assistance is unbiased,
neutral, uniformly available, and does
not steer participants and beneficiaries
towards a particular health insurance
issuer or coverage. For example, an HRA
plan sponsor could accommodate
requests from insurance brokers to
speak with employees or distribute
informational materials at their
worksite, so long as such
accommodations are granted on an
equal basis and also without any
preference for brokers that represent a
particular firm or have a relationship
with a certain health insurance issuer.
DOL agrees with commenters that the
use of private exchanges may be a
helpful tool in shopping for coverage.
However, DOL declines to adopt
suggestions regarding adding incentives
or requirements with respect to
transparency standards, navigational
support, or offering QHPs because any
such rules are beyond the scope of this
rulemaking.
Moreover, a private exchange may be
designed in a way that satisfies the
conditions of 29 CFR 2510.3–1(l), in
which case individual health insurance
coverage purchased through the private
exchange would not be considered
group health plan coverage.
Alternatively, a private exchange could
be designed in a way that limits
employees’ choice of issuer, or promotes
certain issuers or coverage options over
others. In that case, coverage offered
through the private exchange would not
satisfy the prohibition on endorsement
in the safe harbor. The final rules
provide a new option for employers to
offer individual coverage HRAs together
with private exchanges that work with
all individual market insurance issuers
in a neutral and unbiased fashion, and
maintain the individual insurance
nature of the individual health
insurance coverage.
For example, under the final rules, an
employer could maintain (or contract
with) a tool or web-based platform that
displays information about all coverage
options in a state and facilitates
enrollment. However, to be eligible for
the safe harbor, the platform would be
required to present all available
coverage options in a way that is
entirely neutral. The platform could not
be designed or operated in a way that
limits users’ ability to select a coverage
option that would otherwise be
available to them or that promotes one
option over another (for example, with
‘‘recommended’’ or ‘‘starred’’ listings),
or the prohibition on endorsement
would not be satisfied. However, an
otherwise neutral platform that allows
users to select certain criteria (such as
a platform that allows participants to
search for an HDHP or plans that
contained specific providers in their
network) and search for coverage
options that fulfilled these criteria
would not be considered to be an
endorsement by the employer of any
particular coverage, and would not
violate this requirement of the final rule.
D. Reimbursement for Non-Group
Health Insurance Premiums Must Be
Limited Solely to Individual Health
Insurance Coverage
Paragraph (l)(3) of the proposed
amendment would require that
reimbursement for non-group health
insurance premiums must be limited
solely to individual health insurance
coverage, as defined in 29
CFR 2590.701–2.
263
DOL included this
condition in order to limit the
application of the proposed safe harbor
to determining whether insurance
policies sold as individual health
insurance coverage would be treated as
part of an employee welfare benefit plan
subject to ERISA.
Several commenters asked DOL to
clarify whether arrangements that
provide reimbursement for individual
health insurance coverage that consists
solely of excepted benefits (for example,
standalone limited-scope dental
benefits) could be considered to satisfy
the proposed safe harbor. For the
reasons explained earlier in this section
of the preamble, in DOL’s view, the
proposed safe harbor was a necessary
clarification for the types of individual
health insurance coverage that might be
reimbursed by an individual coverage
HRA or QSEHRA. However, coverage
that is sold in the individual market that
provides only excepted benefits is not
subject to the market requirements and
does not present the same concerns
about incompatible individual and
group market regulatory regimes. Thus,
the proposed safe harbor was not
intended to address excepted benefit
policies sold in the individual market.
The final rules include additional
language to make this clearer.
In the preamble to the proposed rules,
DOL also invited comments regarding
which forms of payment are
appropriately treated as
‘‘reimbursement’’ to participants for this
purpose. DOL asked whether, for
example, ‘‘reimbursement’’ should be
interpreted to include direct payments,
individual or aggregate, by the
employer, employee organization, or
other plan sponsor to the insurance
company.
Commenters generally favored an
expansive interpretation of the types of
payments that should be treated as
reimbursements. These commenters
argued that permitting employers to pay
health insurance issuers directly would
promote administrative simplicity, and
would enable plan sponsors to
substantiate that participants and
beneficiaries are enrolled in individual
health insurance coverage, as the final
integration rules require. Some
commenters asserted that
‘‘reimbursement’’ should be interpreted
in a manner consistent with current
industry practices for account-based
plans, which permit the transfer of
employer funds to debit cards that can
be used to pay for certain qualified
medical expenses. One commenter also
stated that it should not matter whether
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Any direct payment should include an
affirmative act by the employee requesting that the
employer or plan administrator make the payment,
as part of the enrollment process or otherwise. For
example, as part of the insurance enrollment
process, the employee might direct the employer or
plan administrator to begin making monthly
premium payments for so long as the employee
remains enrolled in the individual health insurance
coverage and remains eligible for HRA benefits.
265
83 FR 54420, 54442 (Oct. 29, 2018).
266
See DOL Advisory Opinion 2001–01A.
267
As stated in the preamble to the proposed
rules, in DOL’s view, the SPD for the HRA,
QSEHRA, or other ERISA plan would fail to satisfy
the style, format, and content requirements in 29
CFR 2520.102–3 unless it contained a discussion of
the status of the HRA or QSEHRA and the
individual health insurance coverage under ERISA
sufficient to apprise the HRA or QSEHRA plan
participants and beneficiaries of their rights and
obligations under the plan and ERISA Title I. 83 FR
54420 at 54441 (Oct. 29, 2018).
employer funds paid from an HRA go
directly to a participant or a health
insurance issuer because the economic
substance of the transaction is the
same—that is, the funds are being used
to discharge an employee’s premium
payment obligations.
DOL agrees with these commenters
and, under the final rules,
‘‘reimbursement’’ may include
employee-initiated payments made
through use of financial instruments,
such as pre-paid debit cards, as well as
direct payments, individual or
aggregate, by the employer, employee
organization, or other plan sponsor to
the health insurance issuer.
264
However,
DOL cautions that plan sponsors should
take care to ensure that payment
practices do not violate the prohibition
on endorsements by effectively limiting
participants’ and beneficiaries’ ability to
select certain coverage options or
favoring certain issuers or coverage
options. For example, if a plan sponsor
were to establish procedures for sending
direct payments to health insurance
issuers, but those procedures excluded
certain health insurance issuers, or
placed additional burdens on HRA
participants if they chose health
insurance coverage offered by some
health insurance issuers, rather than
others, the procedure would be
considered an endorsement, and the
criteria of the safe harbor would not be
satisfied.
E. The Employer, Employee
Organization, or Other Plan Sponsor
Receives No Consideration in
Connection With the Employee’s
Selection or Renewal of Any Individual
Health Insurance Coverage
Paragraph (l)(4) of the proposed
amendment would require that an
employer, employee organization, or
other plan sponsor receive no
consideration in the form of cash or
otherwise in connection with the
employee’s selection or renewal of any
individual health insurance coverage.
Commenters requested more specific
guidance on how a plan may comply
with this condition.
As stated in the preamble to the
proposed rules, this limitation in the
DOL safe harbor rule for HRAs was
focused on employers, employee
organizations, and other plan sponsors
receiving consideration, including from
an issuer or person affiliated with an
issuer in connection with any
participant’s purchase or renewal of
individual health insurance coverage.
The preamble to the proposed rules also
explained that the provision was not
intended to change any ERISA
requirements governing the
circumstances under which ERISA
plans, including HRAs, may reimburse
employers, employee organizations and
other plan sponsors for certain expenses
associated with administration of the
plan.
265
The requirement in the DOL final rule
is different from the ‘‘no compensation’’
criteria established in the safe harbor
rules regarding certain group or group-
type insurance programs established at
29 CFR 2510.3–1(j)(4) and individual
retirement accounts (IRAs) established
at 29 CFR 2510.3–2(d)(iv). In the case of
those rules, there is no ERISA plan, and
the rules limit permissible
compensation that an employer can
receive, including from third parties, to
reasonable compensation, excluding any
profit, for administrative services
actually rendered in connection with
forwarding employee contributions to
the insurer or IRA provider through
payroll deductions or dues checkoffs.
In the context of the DOL final rule,
the HRA is generally an ERISA-covered
plan and the issue is the extent to which
the plan sponsor of the HRA could
receive payments from the HRA or third
parties. As noted above, the preamble to
the proposed rules explained that the
rule was not intended to change any
ERISA requirements governing the
circumstances under which ERISA
plans, including HRAs, may reimburse
employers, employee organizations and
other plan sponsors for expenses
associated with administration of a
plan. Thus, in the case of plan assets
being used for HRA related payments,
reimbursement could not be made for
expenses associated with settlor
functions and activities.
266
The
fiduciary prohibitions in ERISA section
406(a) and 406(b) also would apply in
such cases, so that any reimbursements
would need to be permissible under
ERISA section 408(b)(2) and 29 CFR
2550.408b–2(e). Subparagraph (e)(3) of
those rules states: ‘‘If a fiduciary
provides services to a plan without the
receipt of compensation or other
consideration (other than
reimbursement of direct expenses
properly and actually incurred in the
performance of such services within the
meaning of 2550.408c–2(b)(3)), the
provision of such services does not, in
and of itself, constitute an act described
in section 406(b) of the Act.’’ ERISA
section 408(c) and 29 CFR 2550.408c–2
place additional restrictions on
compensation for services in the case of
a fiduciary who is already receiving full-
time pay from an employer or employee
organization sponsoring the plan.
However, in the case of an unfunded
HRA, with payments from the HRA
made solely out of an employer’s
general assets, there would not be any
plan assets; thus, there could be no
payments to the employer from plan
assets. Moreover, in the case of such an
unfunded HRA, it seems extremely
unlikely that an employer would apply
debits to the notional employee
accounts that are part of the HRA to
‘‘reimburse’’ itself from the HRA for
expenses associated with sponsoring the
HRA. Finally, in DOL’s view, receipt of
compensation from third parties to
cover the cost of operating the HRA
would be prohibited payments in
connection with the employee’s
selection or renewal of any individual
health insurance coverage, and,
therefore, not permissible under
paragraph (l)(4) of the final rules.
Accordingly, such receipt of
compensation would not be permissible
under paragraph (l)(4) of the final rules.
F. Each Plan Participant Must Be
Notified Annually That the Individual
Health Insurance Coverage Is Not
Subject to ERISA
Paragraph (l)(5) of the proposed
amendment included a requirement that
plans provide an annual notice to
participants stating that individual
health insurance coverage funded
through an HRA is not subject to the
requirements of ERISA. For an
individual coverage HRA, the notice
must satisfy the requirements set forth
in the final integration rules at 29 CFR
2590.702–2(c)(6), discussed earlier in
this preamble. For a QSEHRA or an
HRA that is not subject to 29 CFR
2590.702–2(c)(6) (such as a retiree-only
HRA), the proposal set forth model
language to satisfy the condition.
267
The
preamble to the proposed rules also
explained that a supplemental salary
reduction arrangement need not provide
the required notice; instead, the notice
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83 FR 54420, 54441 (Oct. 29, 2018).
269
See e.g., 29 CFR 2520.104b–2 and 2520.104b–
3(a) and (d)(3).
270
See PHS Act section 2715. See also 26 CFR
54.9815–2715, 29 CFR 2590.715–2715, and 45 CFR
147.200.
271
See e.g., ERISA sections 101, 103, and 104;
and PHS Act section 2715A (incorporated in Code
section 9815 and ERISA section 715).
272
See ERISA sections 104(a)(3) and PHS Act
section 2715 (incorporated in Code section 9815
and ERISA section 715). See also 26 CFR 54.9815–
2715(a)(1)(iii); 29 CFR 2520.104–20, 2520.104–44,
and 2590.715–2715(a)(1)(iii); and 45 CFR
147.200(a)(1)(iii).
273
This safe harbor does not relate to HRAs,
QSEHRAs, or other arrangements that constitute an
employee welfare plan that provides reimbursement
for premiums for individual health insurance
coverage because it is limited to arrangements
without employer contributions.
274
As noted earlier in this preamble, an HRA
generally may reimburse expenses for medical care,
as defined under Code section 213(d), of an
employee and certain of the employee’s family
members. Neither the proposed rules nor the final
rules make any changes to the rules under Code
section 213. Thus, any issues arising under Code
section 213, and any guidance requested by
commenters to address those issues, are beyond the
scope of this rulemaking.
275
Generally, payments from a QSEHRA to
reimburse an eligible employee’s medical care
expenses are not includible in the employee’s gross
income if the employee has coverage that provides
MEC as defined in Code section 5000A(f), which
includes individual health insurance coverage.
276
This preamble refers to a QSEHRA being
‘‘provided’’ as opposed to being ‘‘offered’’ because
employees and dependents cannot opt out of a
QSEHRA.
277
The Departments note that the new SEP would
not apply to individuals who gain access to an
excepted benefit HRA, as those individuals are not
required to be enrolled in individual health
insurance coverage, and those HRAs are generally
prohibited from reimbursing premiums for
individual health insurance coverage.
could be provided by the HRA that the
salary reduction arrangement
supplements.
268
DOL invited comment
on whether it would be helpful to issue
additional rules or guidance addressing
the application of ERISA reporting and
disclosure requirements to HRAs
integrated with such non-ERISA
individual health insurance coverage
(for example, SPD content and Form
5500 annual reporting requirements).
Commenters requested that DOL
confirm that HRAs are subject to the
reporting and disclosure requirements
of ERISA, such as the SBC or (for plans
of applicable size) the Form 5500
Annual Report. These commenters said
that reporting and disclosure should be
revised to allow state regulators and
Exchanges to gather necessary
information about the use of HRAs. One
commenter also urged DOL to ensure
that these requirements did not
discourage employers from offering
individual coverage HRAs to their
employees by preserving, for example,
any exemptions from filing reports for
small businesses, or allowing the filing
of simpler reports, such as the Form
5500–SF. Another commenter urged
DOL to review the current required
information, notices and disclosures
that plan sponsors must convey to plan
participants and beneficiaries and to
simplify, combine or eliminate
unnecessary or redundant material.
After considering the comments and
feedback received from stakeholders,
DOL has determined that adding
additional new, potentially
redundant
269
disclosure requirements
beyond the scope of the proposed rules
is not necessary. For example,
individual coverage HRAs are group
health plans and must, therefore,
provide participants with an SBC.
270
ERISA also contains comprehensive
reporting requirements that apply to
group health plans, such as HRAs,
271
and DOL has determined that adding or
changing those reporting requirements
with respect to HRAs is not necessary at
this time. In certain situations, DOL has
provided for exemptions or reporting
exemptions and simplified disclosure
requirements.
272
Provided they satisfy
the requirements under applicable DOL
rules, HRAs and their administrators
remain eligible for this relief.
G. Comments Outside the Scope
Some commenters raised issues
relating to the separate safe harbor for
certain group or group-type insurance
programs at 29 CFR 2510.3–1(j).
273
Several commenters asked DOL to
clarify whether other types of coverage,
such as health care sharing ministries,
might be considered part of an
employee welfare benefit plan subject to
ERISA if they were paid for through an
HRA, QSEHRA, or supplemental salary
reduction arrangement. The safe harbor
is intended to provide assurance to
stakeholders that insurance policies
sold as individual health insurance
coverage, and that are generally subject
to comprehensive federal (and state)
individual market rules, would not be
treated as part of an employee welfare
benefit plan subject to ERISA so long as
the conditions of the safe harbor are
satisfied. DOL has concluded that the
safe harbor is appropriate because of the
significant differences in legal
requirements that would apply to health
insurance coverage based on whether it
is considered individual health
insurance or group coverage. However,
the safe harbor was not intended to
address all circumstances in which
health insurance coverage may be
treated as part of an employee welfare
benefit plan subject to ERISA. DOL may
provide additional clarification in the
future regarding other types of
coverage.
274
V. Overview of Final Rules Regarding
Individual Market Special Enrollment
Periods—Department of Health and
Human Services
A. In General
With the ability to integrate HRAs
with individual health insurance
coverage, many employees may need
access to individual health insurance
coverage, or may want to change to
other individual health insurance
coverage in order to maximize the use
of their individual coverage HRA.
Therefore, HHS proposed a new SEP to
allow employees and their dependents
to enroll in individual health insurance
coverage, or to change from one
individual health insurance plan to
another, outside of the individual
market annual open enrollment period
if they gain access to an individual
coverage HRA.
In addition, because employees and
dependents with a QSEHRA generally
must be enrolled in MEC,
275
and one
category of MEC is individual health
insurance coverage, the proposed rules
also applied the new SEP to individuals
who are provided QSEHRAs.
276
Because
the proposed rules allowed for HRAs to
be integrated with individual health
insurance coverage both on- and off-
Exchange (and because individuals with
QSEHRAs may enroll in individual
health insurance coverage on- or off-
Exchange), the proposed rules included
this new SEP in the limited open
enrollment periods available off-
Exchange, in accordance with current
rules at 45 CFR 147.104(b)(2).
277
After considering the comments, HHS
is adopting the proposed SEP
parameters in these final rules, with
some changes and clarifications in
response to comments, as explained in
more detail later in this section of the
preamble.
1. SEP Triggering Event and Availability
The proposed rules included a new
paragraph 45 CFR 155.420(d)(14) that
would establish an SEP for when an
employee or his or her dependent(s)
gains access to and enrolls in an
individual coverage HRA or is provided
a QSEHRA, so that he or she may enroll
in or change his or her enrollment in
individual health insurance coverage.
The proposed rules also offered the
existing option for advanced availability
to those enrolling through the new SEP.
That is, per 45 CFR 155.420(c)(2),
qualifying individuals would have the
option to apply for coverage and select
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Because employees may not enroll in an
individual coverage HRA if they are not enrolled in
individual health insurance coverage, the
Departments anticipate that some employers may
want to provide employees who are not eligible to
participate in the individual coverage HRA at least
90 days prior to the start of the HRA plan year with
flexibility regarding the start date of their
individual coverage HRA, so that the employees
have sufficient time to enroll in individual health
insurance coverage after receiving the notice.
279
For individuals who are newly hired or who
otherwise become newly eligible for a QSEHRA, the
triggering event is the first day on which coverage
under the QSEHRA is effective. However, a
QSEHRA may not reimburse any incurred medical
care expense until the participant substantiates that
he or she (and the individuals whose expenses are
being reimbursed) has MEC for the month during
which the expense was incurred.
a plan within 60 days before or after
their SEP triggering event.
Many commenters supported
providing an SEP to allow individuals
who newly gain access to an individual
coverage HRA or who are newly
provided a QSEHRA to enroll in or
change their health insurance coverage.
One commenter asked for clarification
that individuals who are already
enrolled in individual health insurance
coverage would be eligible for the SEP
if they newly gain access to an
individual coverage HRA. The final
rules clarify that employees and
dependents may qualify for the new SEP
regardless of whether they are currently
enrolled in individual health insurance
coverage, in order to allow all
individuals who newly gain access to an
individual coverage HRA or who are
newly provided a QSEHRA the
flexibility to take this into account when
choosing an individual health insurance
plan for themselves, and, if applicable,
for their families.
Additionally, the final rules include
changes to the SEP triggering event at 45
CFR 155.420(d)(14) to reflect that
employees and their dependents who
had access to, but who were not
enrolled in, an employer’s individual
coverage HRA during all or at the end
of the preceding plan year may use the
new SEP if they may newly enroll in an
individual coverage HRA at the
beginning of the subsequent HRA plan
year. Similarly, employees and their
dependents who at one time had an
individual coverage HRA or a QSEHRA,
but then had another type of health
coverage (including but not limited to a
different individual coverage HRA or a
different QSEHRA), and are again newly
offered an individual coverage HRA or
newly provided a QSEHRA from the
same employer (for example, because
they moved from one class of employees
to another, or because they were re-
hired by a former employer), may
qualify for this SEP, as they may need
an opportunity to enroll in individual
health insurance coverage, regardless of
whether they were previously offered or
enrolled in an individual coverage HRA
or previously provided a QSEHRA by
the same employer.
In many cases like these, employees
also will be eligible for an SEP due to
a loss of MEC in accordance with 45
CFR 155.420(d)(1)—for example, due to
a loss of coverage sponsored by a
previous employer or other coverage
that they may have had during that
time, such as coverage from a spouse’s
employer. However, some employees
and dependents may not be eligible for
another SEP, such as those who did not
previously have other coverage, or who
previously chose to enroll in coverage
that was not MEC, such as STLDI. The
final rules, therefore, provide that the
SEP at 45 CFR 155.420(d)(14) is
available when a qualified individual,
enrollee, or dependent newly gains
access to an individual coverage HRA or
is newly provided a QSEHRA,
regardless of whether they were
previously offered or enrolled in an
individual coverage HRA or previously
provided a QSEHRA, so long as the
individual is not covered by the HRA or
QSEHRA on the day immediately prior
to the triggering event (that is, for an
individual coverage HRA, the first day
on which coverage under the individual
coverage HRA can become effective or
for a QSEHRA, the first day on which
coverage under the QSEHRA is
effective). In other words, the new SEP
will be available to individuals who
have not previously been offered an
individual coverage HRA or provided a
QSEHRA, as well as those who had
access to the individual coverage HRA
or were provided a QSEHRA during a
prior plan year(s) or earlier during the
current plan year, but are not currently
covered by the individual coverage HRA
or the QSEHRA.
In order to clarify the specific date on
which the coverage effective date and
availability are based, as discussed later
in this preamble, the final rules specify
that the SEP triggering event at 45 CFR
155.420(d)(14) is the first day on which
coverage for the individual under the
individual coverage HRA can take effect
or the first day on which coverage for
the individual under the QSEHRA takes
effect, as applicable. The Departments
anticipate that the first day on which an
individual coverage HRA can become
effective or the date on which a
QSEHRA is effective will generally be
the first day of the plan year. In either
case, the triggering event is the first day
of the plan year. However, an individual
coverage HRA may offer more than one
effective date option to accommodate an
individual who, under the final
integration rules, is not required to be
sent the notice setting forth the terms of
the HRA at least 90 days before the
beginning of the individual coverage
HRA plan year, as required by 26 CFR
54.9802–4(c)(6), 29 CFR 2590.702–
2(c)(6), and 45 CFR 146.123(c)(6) (for
example, an individual who is newly
hired and therefore newly offered the
individual coverage HRA in the middle
of the plan year).
278
For individuals
who are newly hired or who otherwise
newly gain access to an individual
coverage HRA during the plan year, the
triggering event is the first day on which
the individual coverage HRA can take
effect for those who enroll in individual
health insurance coverage that itself
takes effect no later than that date.
279
This is the case even for the individuals
or dependents who do not actually
enroll in the individual coverage HRA
until a later date.
For example, assume an employer
hires a new employee on June 15 and
offers an individual coverage HRA to
the employee that may take effect on
either (1) July 1, if the employee is
enrolled in individual health insurance
coverage that takes effect no later than
that date; or (2) August 1, if the
employee enrolls in individual health
insurance coverage that will take effect
no later than that date. In this case, the
employee’s triggering event is July 1
because that is the first day on which
coverage under the individual coverage
HRA can take effect.
Several commenters supported
applying the advanced availability rules
at 45 CFR 155.420(c)(2) to the proposed
new SEP in order to allow qualified
individuals, enrollees, and dependents
to enroll in or change to a different
individual health insurance plan in
advance of when their individual
coverage HRA or QSEHRA would begin.
As discussed earlier in this preamble in
response to comments on the final
integration rules, many commenters
supported the requirement that
individuals covered by an individual
coverage HRA must be enrolled in
individual health insurance coverage
and that the HRA must implement
reasonable procedures to substantiate
that participants and dependents will be
enrolled in individual health insurance
coverage for the plan year, or for the
portion of the plan year during which
the individual is covered by the HRA,
as applicable. Several commenters
noted the importance that individuals
be enrolled in individual health
insurance coverage by the time that
their individual coverage HRA takes
effect to ensure that they have health
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The Departments note that nothing in the final
SEP rules eliminates the requirement that
individual coverage HRAs comply with the final
integration rules. Individual coverage HRAs must
be designed in accordance with all the applicable
rules, including the final integration rules and the
final SEP rules.
281
Additionally, partial year individual coverage
HRA or QSEHRA coverage may occur due to
employees gaining new dependents during the plan
year. 45 CFR 155.420(c)(1) provides qualified
individuals who gain a new dependent due to the
birth or adoption of a child, or due to a child
support or other court order, and therefore qualify
for the SEP at 45 CFR 155.420(d)(2)(i), with 60 days
to enroll their new dependent in individual health
insurance coverage. As provided at 45 CFR
155.420(b)(2)(i), this coverage takes effect
retroactively to the child’s date of birth or adoption,
or the date of the child support or other court order,
or, at the option of the Exchange, the qualified
individual may request that it take effect
prospectively. To the extent the HIPAA special
enrollment rules or other rules require group health
plans to make such coverage available under such
circumstances, either retroactively or prospectively,
employers should ensure that employees
understand how much time they have to enroll
their new dependent in their individual coverage
HRA, especially if they will have less than the 60
days post-SEP triggering event that they have to
enroll their new dependent in individual health
insurance coverage. See Code section 9801(f) and 26
CFR 54.9801–6; ERISA section 701(f) and 29 CFR
2590.701–6; and PHS Act section 2704(f) and 45
CFR 146.117. The Departments note that QSEHRAs
are not subject to the HIPAA special enrollment
rules. See Code section 9831(d)(1).
insurance coverage that complies with
PHS Act sections 2711 and 2713 at all
times during which they are covered by
the individual coverage HRA. In order
to avoid effectively forfeiting their HRA
because they are not enrolled in
individual health insurance coverage on
the day that their individual coverage
HRA can take effect, employees and
dependents generally will need to make
an individual health insurance plan
selection before that date.
The final SEP rules include several
changes in response to these comments.
First, the proposed rules stated that the
SEP applies to an individual who ‘‘gains
access to and enrolls in’’ an individual
coverage HRA or QSEHRA. The final
SEP rules remove the phrase ‘‘and
enrolls in’’ to clarify that currently being
covered by the individual coverage HRA
or QSEHRA is not necessary to trigger
the SEP. This change is intended to
better align with the requirement that
participants and any dependents must
be enrolled in individual health
insurance coverage that will take effect
no later than the date their individual
coverage HRA takes effect, by ensuring
that individuals will be able to enroll in
individual health insurance coverage
using the new SEP prior to the first day
that their individual coverage HRA may
take effect.
The final SEP rules also include
changes to the advanced availability
rules to ensure that, whenever possible,
employees and their dependents are
enrolled in individual health insurance
coverage (which is generally a
requirement for those with an
individual coverage HRA and an option
for satisfying the requirement to enroll
in MEC for those with a QSEHRA) by
the time coverage under their individual
coverage HRA may take effect or that
their QSEHRA takes effect. Specifically,
the final rules include a new paragraph
at 45 CFR 155.420(c)(3) to provide that
a qualified individual, enrollee, or his or
her dependent who is described in
paragraph (d)(14) has 60 days before the
triggering event to select a QHP, unless
the HRA or QSEHRA was not required
to provide the notice setting forth its
terms to such qualified individual or
enrollee at least 90 days before the first
day of the plan year, as specified in 26
CFR 54.9802–4(c)(6), 29 CFR 2590.702–
2(c)(6) and 45 CFR 146.123(c)(6) or Code
section 9831(d)(4), as applicable, and
therefore the qualified individual,
enrollee, or his or her dependent(s) may
not have received sufficient advance
notice of eligibility for the individual
coverage HRA or QSEHRA to enroll in
individual health insurance coverage
that takes effect by the time their
individual coverage HRA may take
effect or their QSEHRA takes effect, in
which case the qualified individual,
enrollee, or his or her dependent(s) has
60 days before or after the triggering
event to select a QHP.
In other words, qualified individuals
and enrollees to whom employers must
send a notice setting forth the terms of
the individual coverage HRA at least 90
days before the first day of the
individual coverage HRA plan year,
and, if applicable, their dependents,
must enroll in individual health
insurance coverage within 60 days
before the date the individual coverage
HRA may take effect, which would be
the first day of the individual coverage
plan year. Similarly, employees, and, if
applicable, their dependents, who will
be provided a QSEHRA, and whose
employer is required to send them a
written notice at least 90 days before the
beginning of the plan year, have 60 days
prior to the first day of the QSEHRA
plan year to enroll in individual health
insurance coverage. This change will
help ensure that the individual coverage
HRA can comply with the annual
coverage substantiation requirement by
the time that an individual’s or family
member’s individual coverage HRA
takes effect, or that the QSEHRA
satisfies the requirement that
individuals who are provided the
QSEHRA and who intend to satisfy their
requirement to have MEC by enrolling
in individual health insurance coverage
have MEC. It will also reduce gaps in
coverage by helping ensure that
individuals and dependents who will be
eligible for an individual coverage HRA
and are notified at least 90 days before
the beginning of the individual coverage
HRA plan year are covered by
individual health insurance coverage for
the full HRA plan year and do not
inadvertently forfeit their HRA.
In contrast, because individual
coverage HRAs and QSEHRAs must
only provide notice by the day that an
individual coverage HRA may take
effect or that a QSEHRA takes effect for
employees who newly become eligible
for an individual coverage HRA or are
newly provided a QSEHRA less than 90
days prior to the beginning of the
individual coverage HRA or QSEHRA
plan year (or during the plan year),
these employees are unlikely to receive
this notice as far in advance of their SEP
triggering event. Therefore, these
employees may need time after their
triggering event to select an individual
health insurance plan for themselves,
and, if applicable, for their
dependent(s). To accommodate these
employees and their dependents, the
final SEP rules provide them with up to
60 days before or after their triggering
event to enroll in individual health
insurance coverage. Under this rule
combined with the coverage effective
date rules discussed in the next section
of this preamble, newly hired
employees and their dependents may
enroll in individual health insurance
coverage that does not take effect until
up to 3 months after the earliest date
that their individual coverage HRA may
take effect, or up to 3 months after the
date coverage begins under their
QSEHRA.
280
For example, an employee
who starts work on July 25, and whose
individual coverage HRA may take
effect on August 1 (or whose QSEHRA
does take effect on August 1), will have
until September 30—60 days following
the triggering event date—to enroll in an
individual health insurance plan. If the
employee enrolls on September 30, then
his or her individual health insurance
coverage will take effect on October
1.
281
The Departments encourage
employers to work with employees who
do not receive substantial advance
notice of their individual coverage HRA
to help them understand the latest date
by which they must enroll themselves,
and, if applicable, their dependents, in
individual health insurance coverage to
avoid effectively forfeiting their
individual coverage HRA.
2. Coverage Effective Dates
The proposed rules added a new
paragraph at 45 CFR 155.420(b)(2)(vi) to
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Under 45 CFR 155.400(e)(1)(ii), if an
individual has a coverage effective date of April 1,
for example, then the issuer could set a premium
payment deadline as early as April 1, but may,
instead, adopt a policy setting a later due date
(either 30 days after the enrollment transaction was
received, or 30 days after the policy start date,
whichever is later). Therefore, the new enrollee
might have a similar deadline for his or her initial
payment that he or she has for his or her subsequent
payment.
provide that if plan selection is made
before the day of the triggering event,
then the coverage effective date is either
the first day of the first month following
the SEP triggering event, or, if the
triggering event is on the first day of a
month, the date of the triggering event.
Under the proposed rules, if plan
selection is made on or after the day of
the triggering event, coverage would
take effect the first day of the month
following the date of plan selection. For
example, under the proposed rules, if an
individual newly gains access to an
individual coverage HRA or is provided
a QSEHRA for a plan year starting April
1 and enters April 1 in their application
for individual health insurance coverage
as their HRA or QSEHRA effective date,
then so long as the individual selects an
individual health insurance plan before
April 1, the effective date of their new
individual health insurance coverage
will be April 1.
Several commenters supported
providing a coverage effective date of
the first day of the first month following
the individual’s plan selection and SEP
triggering event. One commenter agreed
that a first-of-the-month effective date
was appropriate, but also stated that this
may require issuers to allow an
additional premium payment during an
employee’s first month of
employment.
282
The final rules include coverage
effective dates for this SEP as proposed,
with some edits to incorporate the
changes at 45 CFR 155.420(d)(14) and
for clarity. Additionally, with regard to
timing of premium payments for
individual health insurance coverage,
HHS notes that in other contexts
individual market plans on- and off-
Exchange regularly receive enrollment
information within the same timeframe
that will apply for the new SEP’s
coverage effective date rules. For
example, under current rules, if a
qualified individual or dependent is
going to lose MEC on March 31 and
enrolls in coverage during March, his or
her coverage effective date is April 1.
Therefore, issuers that already
participate in the individual health
insurance market will be accustomed to
setting premium payment deadlines for
enrollees in this situation.
3. Special Enrollment Period
Verification
Several commenters expressed
support for verifying SEP eligibility for
employees newly enrolling in
individual health insurance coverage
based on the new SEP, and one
commenter requested additional
guidance on how the verification would
be administered. HHS confirms that
Exchanges that use the Federal
HealthCare.gov platform will require
these individuals to submit
documentation to confirm their SEP
eligibility prior to effectuating their
enrollment in individual health
insurance coverage through the
Exchange. More information on the
process for submitting documents to
verify SEP eligibility is available on
HealthCare.gov, and HHS will provide
additional guidance on how the FFEs
and State Exchanges on the Federal
platform will confirm eligibility for the
new SEP.
B. Individuals Re-Enrolling in
Individual Coverage HRA or Being
Provided a QSEHRA From the Prior
Plan Year
The proposed rules requested
comments on whether an employee who
is enrolled in an individual coverage
HRA or provided a QSEHRA should be
eligible for the SEP at 45 CFR
155.420(d)(14) annually, at the
beginning of each new plan year of the
individual coverage HRA or QSEHRA,
particularly if the new plan year is not
aligned with the calendar year. The
proposed rules noted that such annual
availability would allow employees to
change to new individual health
insurance coverage in response to
updated information about their
individual coverage HRA or QSEHRA
for each of their plan years, even if their
individual coverage HRA or QSEHRA
plan year is not based on a calendar year
cycle. HHS notes that employees and
dependents enrolled in an individual
coverage HRA or provided a QSEHRA
that has a calendar year plan year would
have this option; that is, they would be
able to change their individual health
insurance plan in response to updated
information about their individual
coverage HRA or QSEHRA during the
individual market open enrollment
period.
Some commenters supported
providing the new SEP annually for
employees and dependents enrolled in
an individual coverage HRA or provided
a QSEHRA and whose individual
coverage HRA or QSEHRA has a non-
calendar year plan year, in order to
allow employees to enroll in or change
to a new plan in response to updated
information about their individual
coverage HRA or QSEHRA each plan
year. Several commenters emphasized
the importance of providing employees
and their dependents with the
opportunity to re-evaluate their
individual health insurance coverage
options at the same time that their
individual coverage HRA or QSEHRA is
likely to change, with one commenter
suggesting that employers should not be
permitted to make changes to their
individual coverage HRA unless
employees may also make changes to
their individual health insurance
coverage during the calendar year.
Another commenter suggested that
providing the new SEP annually would
offer convenience for employees and
employers who choose to begin their
individual coverage HRA plan year on
a date other than January 1.
However, some commenters opposed
providing the new SEP on an annual
basis due to concerns that allowing
consumers to regularly change plans
during the calendar year would harm
the individual market risk pool. One
commenter generally opposed providing
the new SEP annually, but specified that
if HHS chooses to do so, it should only
be available to employees and
dependents whose employer changes
their individual coverage HRA
contribution in excess of a certain
amount, such as $100, and that this
change be verified to prevent employees
who do not qualify for the SEP from
accessing it for reasons related to a
health condition. To ensure that the SEP
would not be available on an annual
basis, one commenter suggested offering
the SEP only after an employee becomes
eligible for an individual coverage HRA
following a period of at least 60 days
during which they were not eligible for
an HRA from the same employer.
Other commenters opposed offering
the new SEP annually based on
concerns that employees who changed
individual health insurance coverage
during the calendar year would be
harmed because their deductibles and
other accumulators would reset twice
per year: Once after the calendar year
individual coverage open enrollment
period, and then again after their SEP.
One commenter suggested that this
could negate the potential advantage to
the employee of changing plans to take
advantage of an update to their
individual coverage HRA or QSEHRA.
Several commenters suggested that to
mitigate this challenge, employers
should provide individual coverage
HRAs on a calendar-year basis to align
updates that they make to their
individual coverage HRA with the
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A QSEHRA continues to be treated as a group
health plan under the PHS Act for purpose of Part
C Title XI of the Social Security Act.
284
45 CFR 155.420(a)(4) does not apply to SEPs
in the individual market off-Exchange.
individual market open enrollment
period, with one commenter
recommending that the Departments
require employers to do so. One
commenter suggested that the final rules
should permit employers to begin
offering individual coverage HRAs at
any time during the calendar year, and
the Departments could then require
these employers to transition to offering
individual coverage HRAs based on a
calendar plan year within a reasonable
period of time, such as 5 years.
HHS determined that employees who
are enrolled in an individual coverage
HRA or who are provided a QSEHRA
should have the option to re-evaluate
their individual health insurance
coverage options for each new
individual coverage HRA or QSEHRA
plan year, regardless of whether the
HRA or QSEHRA is offered or provided
(as applicable) on a calendar plan year
basis. However, the final rules provide
that the new SEP will not be available
on an annual basis at the beginning of
a new individual coverage HRA or
QSEHRA plan year to individuals who
are already enrolled in an individual
coverage HRA or who are already
provided a QSEHRA. This is because
employees offered an individual
coverage HRA or provided a QSEHRA
with a calendar year plan year may re-
evaluate their individual health
insurance coverage options and change
their individual health insurance plan,
if they wish to do so, during the annual
individual market open enrollment
period. Further, individuals with an
individual coverage HRA or QSEHRA
with a non-calendar year plan year will
have an opportunity through an existing
SEP to re-evaluate their coverage
options.
More specifically, because HRAs are
group health plans, employees enrolled
in an individual coverage HRA with a
non-calendar year plan year may qualify
for an SEP on an annual basis pursuant
to existing rules at 45 CFR
155.420(d)(1)(ii) (the non-calendar year
plan year SEP). This SEP applies to
qualified individuals and dependents
enrolled in a group health plan or an
individual health insurance plan with a
non-calendar year plan year, even if the
qualified individual or his or her
dependent has the option to renew the
coverage. In addition, while Cures Act
section 18001(c) provides that the term
‘‘group health plan’’ generally does not
include a QSEHRA,
283
HHS will treat a
QSEHRA with a non-calendar year plan
year as a group health plan for the
limited purpose of the non-calendar
year plan year SEP, and intends to
codify this interpretation in future
rulemaking. For the non-calendar year
plan year SEP, the triggering event is the
last day of the plan year.
HHS has determined that the
availability of the non-calendar year
plan year SEP achieves an appropriate
balance between providing employers
with flexibility to offer an individual
coverage HRA or provide a QSEHRA on
a 12-month cycle that meets their needs
and allowing employees and their
dependents the flexibility to re-assess
their individual health insurance
coverage options at the same time that
the terms of their individual coverage
HRA or QSEHRA may change.
Additionally, per 45 CFR 155.420(a)(4),
the non-calendar year plan year SEP is
subject to plan category limitations for
Exchange enrollees, which HHS has
determined will mitigate commenters’
concerns about the potential risks to
individual market stability that
providing employees with the flexibility
to choose a different plan annually,
outside of the annual individual market
open enrollment period, could pose.
Employers that want to ensure their
employees have the ability to change to
a different individual health insurance
policy each individual coverage HRA or
QSEHRA plan year without being
subject to plan category limitations, and
consider potential changes to their
individual coverage HRA or to their
QSEHRA at the same time that their
costs for individual health insurance
coverage may also change, can align
their individual coverage HRA or
QSEHRA plan year with the calendar
year. HHS will incorporate messaging
into the HealthCare.gov application for
Exchange individual health insurance
coverage and other technical assistance
materials to help employees understand
that changing individual health
insurance coverage during the calendar
year will reset their deductibles and
other accumulators. HHS encourages
State Exchanges to adopt similar
messaging.
C. Plan Category Limitations
To allow employees and their
dependents the flexibility to adequately
respond to newly gaining access to an
individual coverage HRA or newly
being provided a QSEHRA, the
proposed rules included an amendment
to 45 CFR 155.420(a)(4)(iii) to exclude
Exchange enrollees who would qualify
for the new SEP from plan category
limitations.
284
Therefore, under the
proposed rules, individuals eligible for
the new SEP who are currently enrolled
in individual health insurance coverage
on an Exchange would be able to select
any available Exchange plan without
regard to the metal level of their current
coverage.
Several commenters expressed
support for the proposal to exempt the
new SEP from plan category limitations,
noting the importance of providing
access to individual health insurance
coverage or flexibility to change their
current individual health insurance
plan to employees and dependents who
qualify for this new SEP.
HHS agrees with commenters about
the importance of providing access to
individual health insurance coverage or
flexibility to change their current
individual health insurance plan to
employees and dependents who qualify
for the new SEP, and is, therefore,
finalizing the amendment to 45 CFR
155.420(a)(4)(iii) to exempt individuals
eligible for the new SEP from plan
category limitations. However, see the
discussion earlier in this section of the
preamble regarding the application of
plan category limitations to individuals
to whom the non-calendar year plan
year SEP applies.
VI. Applicability Dates
The proposed integration rules and
proposed excepted benefit HRA rules, as
well as the proposed DOL clarification
and the proposed clarification by the
Departments regarding the meaning of
‘‘group health insurance coverage,’’
were proposed to apply to group health
plans and health insurance issuers for
plan years beginning on or after January
1, 2020. The proposed PTC rules were
proposed to apply for taxable years
beginning on or after January 1, 2020,
and the proposed SEP rules were
proposed to apply January 1, 2020. The
proposed rules also provided that
taxpayers and others could not rely on
the proposed rules. The Departments
solicited comments on the proposed
applicability date.
Some commenters requested that the
Departments either provide an earlier
applicability date or maintain the
proposed general applicability date of
January 2020. Some urged finalization
by the end of the first quarter of 2019
to account for the 2020 rate setting
schedule and to allow for
implementation by 2020.
Many commenters expressed concern
that issuers, state insurance regulators,
the Exchanges, and employers would
not be prepared for implementation of
the final rules by 2020 and requested
various applicability date delays,
including a 2021 applicability date, an
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applicability date of 12 or 18 months
following finalization of the rule, and an
indefinite delay to allow further time to
study the market. These commenters
focused on the significance of the
changes made by the proposed rules and
the anticipated complexity of
implementation. Several State
Exchanges submitted comments urging
the Departments to delay the
applicability date for several plan years
or until further support for states is
available. These commenters stated that
it would be very difficult, and in some
instances impossible, to implement the
system changes required by the
proposed integration, PTC, and SEP
rules for the 2020 plan year. One
commenter suggested that individual
coverage HRAs be implemented on a
small scale for only certain employers
and employees or only for a very limited
time period, such as 2 years. Another
commenter requested that the
Departments postpone finalization of
the integration rules until the
Departments develop a federally-hosted
electronic data source to verify
individual coverage HRA offer
information required to determine
APTC eligibility.
The Departments considered the
comments and the concerns raised by
various State Exchanges, issuers,
employers and other stakeholders
related to the ability of the Exchanges to
fully implement changes related to the
final rules in time for open enrollment
for the 2020 plan year. In particular, the
Departments acknowledge the crucial
role that the Exchanges have in
implementation and operationalization
of the final rules, and the Departments
will work closely with the Exchanges on
implementation. The Departments
recognize that Exchanges may be unable
to fully implement changes related to
the final rules in time for open
enrollment for the 2020 plan year.
However, prior to full implementation,
the Departments will work with the
Exchanges on their strategies to provide
information to consumers about
affordability of individual coverage
HRAs and eligibility for APTC,
including how employees can access
individual health insurance coverage
through the Exchanges and determine
whether they should use APTC.
Ongoing technical assistance will be
provided related to the development of
Exchanges’ tools and functionality to
support employers and employees with
understanding HRA affordability
determinations and their impact on
APTC eligibility, as well as the SEP for
those with an offer of an individual
coverage HRA. HHS has already
discussed with State Exchanges what
changes would likely be necessary if the
rule were finalized as proposed to assist
with planning, as well as what kind of
assistance would be most helpful during
implementation. Specific assistance
could include sharing technical and
educational documentation from FFE
implementation that can be leveraged to
support State Exchange efforts. In
addition, the Departments will provide
assistance to Exchanges in developing
information and tools that could be
provided to employers and employees
to help ensure smooth implementation
before the full system changes are
complete. This could include State
Exchanges providing employees with
information on how they can calculate
HRA affordability and the impact on
APTC in the absence of system changes
that can make those calculations for the
employee.
The Departments have also
considered that many individuals
covered by an individual coverage HRA
will prefer to select off-Exchange
individual health insurance plans
because salary reductions through a
cafeteria plan may be used to pay
premiums for off-Exchange coverage, if
the employer so allows, and may not be
used to pay premiums for Exchange
coverage. To the extent a significant
proportion of employees with
individual coverage HRAs purchase
individual health insurance coverage off
the Exchange, concerns about burden on
the Exchanges, and concerns regarding
the effects of timely operationalization
of the PTC rules, are mitigated.
The Departments have also worked to
release the final rules as early in 2019
as possible, in recognition of the
implementation timing issues raised.
With regard to the concerns expressed
about the interaction of the release of
the final rules with rate filing for 2020,
the Departments note that the proposed
rules were published in October 2018,
to provide sufficient notice of the
Departments’ proposals in advance of
the 2020 plan year. While these final
rules adopt some changes in response to
comments, they are substantially similar
to the proposed rules. Even though the
proposed rules provided that taxpayers
and others may not rely on the proposed
rules, the Departments understand that
issuers began considering the potential
impact of the rules on rates well in
advance of the final rules. Further,
issuers generally will have an
opportunity to make changes in
response to the final rules before the
rate filing deadlines for the 2020 plan
year.
The Departments also note, and
considered, that plan sponsors may
choose if and when to offer an
individual coverage HRA (or an
excepted benefit HRA) and may do so
any time on or after the applicability
date. The Departments intend to provide
the guidance necessary for plan
sponsors to offer individual coverage
HRAs and excepted benefit HRAs for
the 2020 plan year, but the Departments
also expect that plan sponsors will take
the time they need to evaluate the final
rules and to take advantage of these new
coverage options if and when is best for
their workforce.
The Departments have also
considered that Executive Order 13813,
issued in October 2017, set forth HRA
expansion as an Administration priority
‘‘in the near term,’’ in order to provide
Americans with more options for
financing their healthcare. Taking all of
these considerations into account, the
Departments have determined that it is
appropriate to finalize the applicability
date, as proposed.
Relatedly, one commenter requested
that a ‘‘no inference’’ standard be the
benchmark for reliance prior to 2020
with regard to individual coverage
HRAs, which the Departments
understand to be a request that the
Departments not take enforcement
against HRAs that failed to comply with
the market requirements prior to 2020,
under the rules and guidance in effect
prior to 2020. The Departments see no
basis to provide such a rule and,
therefore, the final rules do not include
a ‘‘no inference’’ standard for reliance
prior to the applicability date.
Finally, HHS clarifies that, while the
new SEP generally provides advanced
availability to allow eligible individuals
to enroll in individual health insurance
coverage up to 60 days prior to the first
day of coverage under their HRA,
employees who are offered an
individual coverage HRA with a plan
year that begins early in 2020 will not
have the full 60 day advanced
availability period to select individual
health insurance coverage using an SEP
because the new SEP rules take effect on
January 1, 2020. Therefore, plan
sponsors offering an individual coverage
HRA with a plan year that begins on
January 1, 2020 should help eligible
employees understand that they must
enroll in individual health insurance
coverage during the open enrollment
period, November 1, 2019 through
December 15, 2019, for individual
health insurance coverage that takes
effect on January 1, 2020.
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285
Between 2010 and 2018, there has been a
significant decline in the number of small firms
offering coverage. For firms with 3 to 9 workers, the
decline has been from 59 percent to 47 percent, for
firms with 10 to 24 workers, the decline has been
from 76 percent to 64 percent, and for firms with
25 to 49 workers, the decline has been from 92
percent to 71 percent. See Kaiser Family
Foundation, ‘‘Employer Health Benefits 2018
Annual Survey’’, Figure 2.2, at http://files.kff.org/
attachment/Report-Employer-Health-Benefits-
Annual-Survey-2018.
286
Between 2010 and 2018, there has been a
significant decline in the number of workers
covered by their firm’s health benefits. For firms
with 3 to 24 workers, the decline has been from 44
percent to 30 percent and for firms with 25 to 49
workers, the decline has been from 59 percent to
44 percent. Id., Figure 3.9.
287
Id., Figure 4.1
288
An analysis of choices made in the large group
market found that offering multiple plan choices (at
large group prices) was as valuable to the median
consumer as a 13 percent premium reduction. See
Dafny, Leemore, Kate Ho and Mauricio Varela, ‘‘Let
Them Have Choice: Gains from Shifting Away from
Employer-Sponsored Health Insurance and Toward
an Individual Exchange,’’ American Economic
Journal: Economic Policy, 2013, 5(1):32–58.
289
By less efficient healthcare spending, the
Departments generally mean spending that is of low
value from the consumer’s perspective, relative to
the cost. The cost includes out-of-pocket spending
VII. Economic Impact and Paperwork
Burden
A. Summary
The final rules remove the current
prohibition on integrating HRAs with
individual health insurance coverage, if
certain conditions are satisfied. The
final rules also set forth conditions
under which certain HRAs will be
recognized as limited excepted benefits.
In addition, the Treasury Department
and the IRS are finalizing rules
regarding PTC eligibility for individuals
offered an individual coverage HRA.
Further, DOL is finalizing a safe-harbor
clarification to provide assurance that
the individual health insurance
coverage the premiums of which are
reimbursed by an HRA, a QSEHRA or a
supplemental salary reduction
arrangement does not become part of an
ERISA plan, if certain safe harbor
conditions are satisfied, and the
Departments are finalizing a related
clarification to the definition of group
health insurance coverage. Finally, HHS
is finalizing rules to provide an SEP in
the individual market for individuals
who newly gain access to an individual
coverage HRA or who are newly
provided a QSEHRA.
The Departments have examined the
effects of the final rules as required by
Executive Order 13563 (76 FR 3821,
January 21, 2011, Improving Regulation
and Regulatory Review); Executive
Order 12866 (58 FR 51735, October 4,
1993, Regulatory Planning and Review);
the Regulatory Flexibility Act
(September 19, 1980, Pub. L. 96–354);
section 1102(b) of the Social Security
Act (42 U.S.C. 1102(b)); section 202 of
the Unfunded Mandates Reform Act of
1995 (March 22, 1995, Pub. L. 104–4);
Executive Order 13132 (64 FR 43255,
August 10, 1999, Federalism); the
Congressional Review Act (5 U.S.C.
804(2)); and Executive Order 13771 (82
FR 9339, February 3, 2017, Reducing
Regulation and Controlling Regulatory
Costs).
B. Executive Orders 12866 and 13563
Executive Order 12866 directs
agencies to assess all costs and benefits
of available regulatory alternatives and,
if regulation is necessary, to select
regulatory approaches that maximize
net benefits (including potential
economic, environmental, public health
and safety effects, distributive impacts,
and equity). Executive Order 13563 is
supplemental to and reaffirms the
principles, structures, and definitions
governing regulatory review as
established in Executive Order 12866.
Section 3(f) of Executive Order 12866
defines a ‘‘significant regulatory action’’
as an action that is likely to result in a
rule: (1) Having an annual effect on the
economy of $100 million or more in any
one year, or adversely and materially
affecting a sector of the economy,
productivity, competition, jobs, the
environment, public health or safety, or
state, local or tribal governments or
communities (also referred to as
‘‘economically significant’’); (2) creating
a serious inconsistency or otherwise
interfering with an action taken or
planned by another agency; (3)
materially altering the budgetary
impacts of entitlement grants, user fees,
or loan programs or the rights and
obligations of recipients thereof; or (4)
raising novel legal or policy issues
arising out of legal mandates, the
President’s priorities, or the principles
set forth in the Executive Order.
A regulatory impact analysis must be
prepared for major rules with
economically significant effects (for
example, $100 million or more in any
one year), and a ‘‘significant’’ regulatory
action is subject to review by the Office
of Management and Budget (OMB). The
Departments anticipate that this
regulatory action is likely to have
economic impacts of $100 million or
more in at least one year, and thus
meets the definition of a ‘‘significant
rule’’ under Executive Order 12866.
Therefore, the Departments have
provided an assessment of the potential
costs, benefits, and transfers associated
with the final rules. In accordance with
the provisions of Executive Order
12866, the final rules were reviewed by
OMB.
1. Need for Regulatory Action
This regulatory action is taken, in
part, in light of Executive Order 13813
directing the Departments to consider
proposing regulations or revising
guidance to expand the flexibility and
use of HRAs. In addition, this regulatory
action is taken because, since the time
that the Departments previously
prohibited integration with individual
health insurance coverage by regulation,
the Departments have observed that
many employers, especially small
employers, continue to struggle to offer
health insurance coverage to their
employees. There has been a continued
decline in the percentage of small firms
offering health coverage
285
as well as a
decline in the percentage of workers at
small firms receiving health insurance
coverage from their employer.
286
Moreover, 80 percent of firms that offer
coverage only provide a single
option,
287
and economic research
demonstrates that there is a significant
benefit of additional choice for
employees.
288
Further, this regulatory
action is being taken at this time
because the Departments have had
additional time to consider whether,
and what type of, conditions would be
sufficient to mitigate the risk of adverse
selection and health factor
discrimination that might otherwise
result from allowing HRAs to be
integrated with individual health
insurance coverage, and the
Departments expect that the conditions
adopted in the final rules will
significantly mitigate the risk of adverse
selection. The final rules are intended to
increase the usability of HRAs to
provide more Americans, including
employees who work at small
businesses, with more healthcare
options and to increase overall coverage.
These changes will facilitate the
development and operation of a
healthcare system that provides high-
quality care at affordable prices for the
American people by increasing
consumer choice for employees and
promoting competition in healthcare
markets by providing additional options
for employers and employees.
The Departments are of the view that
the benefits of the final rules will
substantially outweigh the costs of the
rules. The final rules will increase
flexibility and choices of health
coverage options for employers and
employees. The use of individual
coverage HRAs could potentially reduce
healthcare spending, particularly less
efficient spending,
289
and ultimately
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such as copayments and deductibles plus amounts
paid by the health plan.
290
The monetized estimates are of the net tax
revenue loss, including reduced income and payroll
tax revenue from employees who would receive
individual coverage HRAs and would not otherwise
have a tax exclusion for a traditional group health
plan, reduced PTC from individuals who would
receive individual coverage HRAs and would
otherwise receive PTC, and increased PTC due to
the increase in Exchange premiums; plus the
increased Medicare outlays net of increased total
premiums paid. As noted in the text later in this
section of the preamble, the quantitative estimates
are subject to considerable uncertainty. For
example, the rule could cause tax revenue to
increase if the adoption of individual coverage
HRAs leads to reduced healthcare spending and
higher taxable wages. Or the rule could result in
larger premium increases in the individual market,
or in premium decreases, if the rule results in more
substantial changes in the health of the individual
market risk pool.
result in increased taxable wages for
workers currently in firms that offer
traditional group health plans. The final
rules are also expected to increase the
number of low- and moderate-wage
workers (and their family members)
with health insurance coverage.
2. Summary of Impacts of Individual
Coverage HRAs
The expected benefits, costs and
transfers of the final rules are
summarized in Table 1 and discussed in
detail later in this section of the
preamble.
T
ABLE
1—A
CCOUNTING
T
ABLE
Benefits:
Qualitative:
Gain of health insurance and potentially improved financial or health outcomes for some employees who are newly offered or newly accept
benefits.
Increased choice and flexibility for employees and employers around compensation arrangements, potentially resulting in more efficient use of
healthcare and more efficient labor markets (including higher taxable wages).
Decreased administrative costs for some employers who no longer offer traditional group health plans for some, or all, employees.
Costs:
Qualitative:
Loss of health insurance and potentially poorer financial or health outcomes for some individuals who experience premium increases.
Less comprehensive coverage and fewer health benefits for some individuals with individual health insurance coverage as compared to
traditional group health plan coverage.
Increased administrative costs for employers, employees, and government agencies to learn about and/or use a new health benefits op-
tion.
Transfers Estimate
(billion) Year
dollar Discount rate
(percent) Period
covered
Annualized Monetized ($/year) ........................................................................ $4.5 2020 7 2020–2029
(Net tax revenue loss) ..................................................................................... 4.9 2020 3 2020–2029
Quantitative:
290
Reduced tax revenue as a result of new individual coverage HRAs
offered by employers previously offering no health benefits, less re-
duced PTC from employees in such firms..
Increase in average individual market premiums of about 1 percent
and resulting increase in PTC..
Small decrease in per capita Medicare premiums and increase in net
Medicare outlays..
Qualitative:
Increased out-of-pocket costs for some employees who move from
traditional group health plans to individual health insurance coverage
and decreased costs for other employees who move from traditional
group health plans to individual health insurance coverage (i.e.,
transfers from reduced within-firm cross-subsidization)..
Reduced tax revenue as a result of new excepted benefit HRA..
In all cases, the counterfactual
baseline for analysis is current law. That
is, the analysis assumes as the baseline
statutes enacted and regulations that are
final as of date of issuance of the final
rules.
Benefits
Gain of health insurance coverage.
Some individuals could experience a
gain in health insurance coverage,
greater financial security and potentially
improved health outcomes, if employees
are newly offered and accept individual
coverage HRAs. As explained in greater
detail in the Transfers section later in
this section of the preamble, the
Departments estimate that, on net, the
number of insured persons will increase
by about 800,000 by 2029, due to the
final rules. Most of these newly insured
individuals are expected to be low- and
moderate-income workers in firms that
currently do not offer a traditional group
health plan.
Some commenters agreed that the
allowance of individual coverage HRAs
creates new options for small employers
who have otherwise been unable to offer
health insurance coverage. Some
commenters mentioned that some
segments of their workforce might
particularly benefit. One commenter
suggested that large employers might
newly provide individual coverage
HRAs to part-time or seasonal/
temporary workers while maintaining
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291
The individual coverage HRA provides an
income and payroll tax exclusion that is available
only to workers and, unlike the PTC, benefits
workers at all income levels, including workers
with incomes in excess of 400 percent of the federal
poverty level. Thus, it is possible that the final rules
could encourage individuals to join the labor force
or to work more hours or seek higher-paying
employment, generating further economic benefits.
In addition, the final rules could increase labor
force mobility (i.e., encourage workers to move
more freely to employers where their productivity
is highest), because workers enrolled in individual
health insurance coverage could find it easier to
retain their coverage when they change jobs.
However, these effects are highly uncertain, are
likely to be relatively small, and might take some
time to occur. Labor supply changes are not
reflected in the revenue estimates provided in the
transfers section later in this section of the
preamble.
292
One study using data for 1997 through 2001
finds that firms with 50 or fewer employees face
loading fees of 42 percent of premiums, whereas
firms with more than 10,000 employees pay loading
fees of just 4 percent. The authors note that these
estimates are roughly consistent with the findings
of earlier research. The authors caution that the
introduction of Exchanges and medical loss ratio
requirements provided for under PPACA should
reduce loading fees for small firms, but conclude
that loading factors for small firms might still be
quite high. See Karaca-Mandic, Pinar, Jean M.
Abraham and Charles E. Phelps, ‘‘How Do Health
Insurance Fees Vary by Group Size? Implications
traditional benefits for their full-time
employees.
Increased choice and flexibility for
employees and employers. As a result of
the final rules, employees will be able
to purchase insurance with a tax
subsidy by use of an individual
coverage HRA, without being locked
into a specific plan or selection of plans
chosen by their employer. As explained
later in this section of the preamble, a
relatively small number of employees
could have fewer choices of plans in the
individual market than the number of
group health plan choices previously
provided by their employer, and some
might be unable to find a new
individual health insurance plan that
covers their preferred healthcare
providers. However, small firms are
more likely to offer individual coverage
HRAs than large firms and small firms
that offer a traditional group health plan
typically offer a single option.
Therefore, employees at the vast
majority of firms are likely to have more
options through an individual coverage
HRA than through a traditional group
plan. The expansion of enrollment in
the individual market due to the final
rules could also induce additional
insurers to provide individual market
coverage. The Departments are of the
view that on net, the final rules will
significantly increase choice and
flexibility for employees. Employers
also will benefit from having another
choice of a tax-preferred health benefit
to offer their employees, giving them
another tool to attract and retain
workers.
Current compensation arrangements
can result in less efficient labor markets
and inefficient healthcare spending.
Employees within a firm (or employees
within certain classes of employees
within a firm) are generally offered the
same set of health benefits. As a result,
some employees receive a greater share
of compensation in the form of benefits
than they would prefer, while others
receive less. An individual coverage
HRA will allow employees to choose
coverage that better suits their
preferences, allowing those who want a
less comprehensive plan to select one
and pay less, while allowing those who
want a more comprehensive plan to pay
more. In addition, some employers offer
plans with a wide choice of providers,
reflecting the diverse preferences and
healthcare needs of their employees.
While a broader network contains
certain benefits, it also weakens the
ability of employers and issuers to
negotiate lower provider prices or
otherwise manage employee care. In
contrast, in the individual market
insurers have an incentive to keep
premiums low relative to the SLCSP,
which is used to determine the PTC.
Hence, insurers are more likely to have
a narrower choice of providers in order
to negotiate lower prices.
By expanding the ability of consumers
to choose coverage that fits their
preferences, the final rules will reduce
these inefficiencies in labor markets and
healthcare spending. Some employees
who will be offered individual coverage
HRAs under the final rules might
choose plans with lower premiums and
higher deductibles and copayments (all
of which could potentially be paid out
of the HRA) and narrower provider
networks than they would choose if
offered a traditional group health plan.
Employees facing higher cost sharing
could become more cost-conscious
consumers of healthcare. Narrower
provider networks could strengthen the
ability of purchasers (through their
insurers) to negotiate lower provider
prices. Both effects could lead to
reduced healthcare spending, which
could in turn lead to reductions in
amounts made available under
individual coverage HRAs and
corresponding increases in taxable
wages. However, these benefits are
uncertain and would take some time to
occur.
291
Moreover, the provision of a
new health benefit that can be used to
pay cost-sharing as well as premiums
and that is available to employees who
were previously uninsured or enrolled
in unsubsidized coverage would be
expected to increase, rather than
decrease, healthcare utilization by some
consumers.
Individual coverage HRAs provide
flexibility for small employers in
particular that might have little
expertise or skill in choosing traditional
group health plans or in administering
coverage effectively for employees.
However, some small employers can
already obtain lower-cost coverage in
the small group market or through AHPs
than they could otherwise provide on
their own. Small employers that are not
ALEs can also forego offering health
benefits and allow their employees to
obtain individual health insurance
coverage, often with PTC subsidization,
without liability under Code section
4980H. Qualified small employers can
also pursue establishment of QSEHRAs.
Thus, small employers whose
employees have particularly high
healthcare costs or small employers that
have little skill or interest in
administering health benefits might use
these other options to control costs even
in the absence of the final rules. If so,
the increased efficiency gain from
providing an additional incentive for
small employers to drop traditional
group health plans in favor of
individual coverage HRAs could be
modest.
Some commenters agreed that the
proposed rules would enable employers
to offer more affordable health coverage
alternatives to employees. Some
commenters expressed general support
for allowing employers to move to a
defined contribution approach for
health insurance coverage. The
Departments agree that a defined
contribution approach is more flexible
for employers because it is easier for
employers to plan for the future.
Furthermore a defined contribution
approach reduces the risk that an
employer’s healthcare costs increase
due to factors outside an employer’s
control.
Reduced administrative costs for
some employers. Employers that offer an
individual coverage HRA rather than a
traditional group health plan could
experience reduced administrative
costs. For example, such employers will
no longer need to choose health
insurance plans or self-insured health
benefits for their employees and manage
those plans. Some of these costs will be
borne by HRA recipients. However,
overall costs may be lower, particularly
for small employers and their
employees, as loading fees (that is,
premiums in excess of expected
insurance claims) appear to be quite
high for small firms that provide
traditional group coverage.
292
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for Healthcare Reform,’’ International Journal of
Health Care Finance and Economics (2011) 11:
181–207.
293
The Departments note however that increased
insurance coverage does not necessarily result in
better physical health. For example, Baicker et al.
found that increased Medicaid coverage in Oregon
‘‘generated no significant improvements in
measured physical health outcomes in the first two
years, but it did increase use of health care services,
raise rates of diabetes detection and management,
lower rates of depression, and reduce financial
strain.’’ See Baicker, K., S. Taubman, H. Allen, M.
Bernstein, J. Gruber, J. Newhouse, E. Schneider, B.
Wright, A. Zaslavsky, and A. Finkelstein. 2013.
‘‘The Oregon Experiment: Effects of Medicaid on
Clinical Outcomes.’’ New England Journal of
Medicine 368: 1713–22. http://www.nejm.org/doi/
full/10.1056/NEJMsa1212321; and survey of the
literature in Chapter 6 of Economic Report of the
President, February 2018, https://
www.whitehouse.gov/wp-content/uploads/2018/02/
ERP_2018_Final-FINAL.pdf.
294
Among firms that offer traditional group
coverage, an estimated 81 percent of firms with 3
to 199 employees offer only one type of plan,
whereas 42 percent larger firms offer one plan, 45
percent offer two and 13 percent offer three or more
plans. See Kaiser Family Foundation Employer
Health Benefits 2018 Annual Survey, Figure 4.1, at
http://files.kff.org/attachment/Report-Employer-
Health-Benefits-Annual-Survey-2018.
Some commenters stated that the
proposed rules would be simpler to
administer than traditional group health
plans, thereby reducing administrative
cost for employers. One commenter
noted that while the costs of
administering an individual coverage
HRA could be lower than the cost of
administering a traditional group health
plan, the difference is not likely to be
large. The Departments are of the view
that it is possible that there will be
modest reductions in administrative
costs for employers who offer an
individual coverage HRA rather than a
traditional group health plan.
Costs
Loss of health insurance coverage.
The Departments recognize that some
individuals could experience a loss in
health insurance coverage and that some
of these people might experience worse
financial or health outcomes as a result
of the final rules.
293
Loss of coverage
could occur if employers drop
traditional group health plans and if
some previously covered employees do
not accept the individual coverage HRA
and fail to obtain their own coverage.
Loss of coverage also could occur if the
addition of new enrollees to the
individual market causes premiums to
rise, resulting in dropping of coverage
by current individual market enrollees.
Finally, loss of coverage could occur if
employees who are currently
purchasing coverage in the Exchange
with the PTC become ineligible for the
PTC by an offer of (or coverage under)
an individual coverage HRA and
experience increases in out-of-pocket
premiums.
In addition, while most employers
that currently offer traditional group
health plans offer only one type of plan,
some employers offer more choices.
294
As a result, a relatively small number of
employees could have fewer choices of
plans in the individual market than the
number of group health plan choices
previously provided by their employer,
and some might be unable to find new
individual health insurance coverage
that covers their preferred healthcare
providers. The Departments requested
comments on this finding and the extent
to which the proposed rules could
reduce employee choice or cause some
individuals to become uninsured.
Some commenters stated that the
proposed rules would lead to adverse
selection, increased premiums and
overall destabilization of the individual
market, causing some to become
uninsured. (Adverse selection and
resulting premium increases are
discussed in greater detail in the
Transfers section of this preamble.)
Several commenters expressed concern
that the offer of an individual coverage
HRA could eliminate consumers’
eligibility for the PTC, increasing the
cost of coverage. Some commenters
suggested that some of these consumers
would become uninsured. One
commenter noted that this problem
would be magnified for families, since
affordability is determined by
comparing the HRA employer
contribution amount to the cost of a self-
only plan, rather than to a family plan.
Several commenters suggested that
increased administrative costs and
confusion would cause some employees
who are offered an individual coverage
HRA to fail to enroll and become
uninsured.
The Departments acknowledge these
concerns, but, as discussed later in this
section of the preamble, estimate that
the number of individuals with
insurance coverage will be increased,
rather than decreased, by adoption of
the final rules. One reason for this is
that the individual coverage HRA
contribution that is offered will render
an individual ineligible for the PTC only
if it is of a sufficient size to make the
offer affordable for the employee (and,
in the case of ALEs, employers must
make amounts available under an
individual coverage HRA sufficient for
the offer to be considered affordable in
order to avoid liability under Code
section 4980H). Thus, even if employees
do transition from receiving PTC to
receiving an offer of an individual
coverage HRA, they are not necessarily
expected to become uninsured. In
addition, the final rules require
employers to notify employees of the
effect of individual coverage HRA offers
and enrollment on PTC eligibility and
require employees to substantiate
enrollment in individual health
insurance coverage in order to receive
reimbursement from an individual
coverage HRA, reducing the likelihood
that confusion will lead to loss of
insurance coverage.
Less comprehensive coverage, fewer
benefits. Some commenters suggested
that some individuals with individual
coverage HRAs, and, therefore,
individual health insurance coverage,
could experience a reduction in the
comprehensiveness or affordability of
healthcare benefits. For example,
commenters noted that an employee
might not be able to afford a policy with
as high an actuarial value as their
current traditional group health plan, or
might be limited to narrower networks
of providers in the individual market.
Another commenter noted that patients
may newly have limited choices,
particularly among physician specialty
care providers. Another commenter said
that some employees could have fewer
choices of plans in the individual
market than the number of group health
plan choices previously provided by
their employer, or might be unable to
find new individual health insurance
coverage that covers their preferred
healthcare providers. Another
commenter stated that the proposed
rules would result in poorer financial
and health outcomes.
The Departments recognize that some
individuals who choose health plans
with less comprehensive benefits or
higher out-of-pocket payments could
experience adverse health or financial
outcomes. However, this is unlikely
because an individual coverage HRA
must be integrated with individual
health insurance coverage, which
generally is required to provide
coverage of all essential health benefits
and at least 60 percent actuarial value
(subject to a de minimis variation).
Moreover, to the extent that
commenters’ assertions about narrower
networks and higher cost sharing in the
individual market are accurate, the
Departments note that higher cost
sharing and narrower networks could
also be beneficial in that they encourage
consumers to be more cost-conscious,
reducing unnecessary and potentially
counterproductive health care
utilization, and thereby reducing
premiums. Such premium decreases
could, in turn, lead to increased wages
across employees in a firm. For
example, an employee might currently
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have access to only one 80 percent
actuarial value traditional group health
plan with a relatively broad network,
but under an individual coverage HRA
will have access to a choice of plans,
with actuarial values generally ranging
from 60 to 80 percent or higher. If he or
she chooses a 60 or 70 percent actuarial
value plan, he or she will have a greater
incentive to be cost-conscious and will
likely spend less on healthcare, leaving
more resources for other forms of
consumption or saving.
Increased administrative costs. In the
impact analysis of the proposed rules,
the Departments noted that the
proposed rules could increase some
administrative costs for employers,
employees, and government entities.
Under the final rules, all employers
will have a new health benefits option
about which to learn. Employers who
offer individual coverage HRAs but did
not offer employer-sponsored health
benefits before will face increased costs
of administering a health benefit. In
addition, all employers that offer
individual coverage HRAs will be
required to establish reasonable
procedures to substantiate that
individuals covered by the HRA are
enrolled in individual health insurance
coverage or Medicare; to provide a
notice to all employees who are eligible
for the HRA explaining the PTC
eligibility consequences of the HRA
offer and acceptance and other
information; and to comply with various
other generally applicable group health
plan requirements, such as maintaining
a plan document and complying with
various reporting requirements.
Employers offering individual coverage
HRAs will need to establish systems to
reimburse premiums and employee out-
of-pocket medical care expenses, or hire
third-party administrators to do so. In
addition, to the extent an employer is
subject to Code section 4980H, the
employer will need to learn about the
final PTC regulations and any other
related guidance under Code section
4980H that the Treasury Department
and the IRS may issue. As noted earlier
in this preamble, administrative costs
associated with individual coverage
HRAs could be lower than costs for
traditional group health plans for some
employers. The Departments expect that
third-party administrators and other
benefit experts will work to minimize
these costs for employers. Because
offering an individual coverage HRA is
voluntary, ultimately, employers that
offer this benefit will do so only because
they experience a net benefit from doing
so.
As to increased administrative burden
and costs for employees, employees
who previously enrolled in a traditional
group health plan and who now receive
an individual coverage HRA will need
to shop for and choose their own
insurance and learn new procedures for
accessing their HRA benefits. In
addition, employees who receive an
individual coverage HRA will need to
substantiate enrollment in individual
health insurance coverage once per plan
year and in connection with each
request for reimbursement.
Further, Exchange enrollees might
experience increased compliance
burdens, to the extent that they must
become familiar with the circumstances
in which an offer of an individual
coverage HRA precludes them from
claiming the PTC. For employees who
previously did not receive an offer of a
traditional group health plan, this may
require learning some of the PTC
eligibility rules, and for employees who
previously received an offer of a
traditional group health plan, this may
require learning new or different rules
for PTC eligibility. Specifically, an
employee who is offered a traditional
group health plan is not eligible to claim
the PTC for his or her Exchange
coverage unless the premium of the
lowest cost employer plan providing
MV for self-only coverage less the
employer contribution for self-only
coverage exceeds 9.5 percent (indexed
for inflation after 2014) of the
employee’s household income
(assuming the employee meets various
other PTC eligibility requirements). In
contrast, under the final PTC rules, an
employee who is offered an individual
coverage HRA will not be eligible to
claim the PTC for his or her Exchange
coverage unless the premium of the
lowest cost silver plan for self-only
coverage offered by the Exchange for the
rating area in which the employee
resides less the individual coverage
HRA contribution amount exceeds 9.5
percent (indexed for inflation after
2014) of the employee’s household
income (assuming the employee meets
various other PTC eligibility
requirements). However, the
Departments note that the final rules
will require HRA plan sponsors to
furnish a notice to participants
providing some of the information
necessary for an individual to determine
if the offer of the HRA could render
them ineligible for the PTC.
In addition, if an enrollee in Exchange
coverage is eligible for the PTC, the
amount of the PTC is based, in part, on
the premium for the SLCSP for the
coverage unit offered in the Exchange
for the rating area in which the
employee resides. As noted earlier, the
final PTC rules use the premium for the
self-only lowest cost silver plan
available to an employee in the
Exchange for the rating area in which
they reside solely for purposes of
determining their individual coverage
HRA affordability and the resulting
impact on PTC eligibility. Therefore,
Exchange enrollees may need to
understand which silver level plan
premium applies to them for APTC
eligibility purposes and which silver
level plan premium applies to their PTC
calculation.
Similarly, the FFEs and State
Exchanges will incur one-time costs to
incorporate the SEP and the PTC
eligibility rules for individuals with an
individual coverage HRA offer into their
instructions for enrollees and Exchange
employees, as well as in application
system logic and automated
calculations. HHS estimates that one-
time costs to account for individual
coverage HRAs for the FFEs will be
approximately $3.9 million. HHS
further estimates that the FFE call
center, eligibility support contractors
verifying SEP and application data, and
other customer support functions will
incur additional annual costs of
approximately $56 million in 2020 to
$243 million by 2022 to serve the
expanded Exchange population.
Assuming that State Exchanges will
incur costs similar to the FFEs, total
one-time costs incurred by the 12 State
Exchanges will be approximately $46.8
million. Total additional ongoing costs
incurred by the call centers, eligibility
support contractors verifying SEP and
application data, and other customer
support functions for the 12 State
Exchanges will be approximately $20
million in 2020 to $85 million by 2022.
Under the final rules, the IRS also will
need to add information regarding
employees offered individual coverage
HRAs to instructions for IRS forms for
taxpayers, employee training materials,
and calculation programs.
In response to the Departments’
request for comments on the extent to
which employer administrative costs
would be increased or decreased by the
rule, some commenters stated that
complying with the individual coverage
HRA rules would be burdensome.
Several commenters expressed
particular concern about the ongoing
substantiation requirement.
Some commenters noted that the
proposed rules would create consumer
confusion. Another commenter noted
that recent cutbacks in funding for
outreach and assistance in the
individual market could exacerbate the
confusion. One commenter stated that
most Americans need a large amount of
professional support when making
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295
Note that the wage reduction for an employee
who is offered a health benefit may be greater or
less than the expected cost of coverage for that
particular employee. Because employees are
generally paid the same regardless of age, health
status, family size or acceptance of benefits, the
model assumes that each employee bears the same
share of the cost of the firm’s coverage. The model
allows for some limited variation of the wage
reduction by wage class and educational status. All
costs and benefits of coverage are taken into
account and assumed to accrue to employees,
including all income and employer and employee
payroll tax exclusions and the avoidance of the
employer shared responsibility payment under
Code section 4980H by firms that offer coverage.
296
Expected healthcare expenses by type of
coverage, age, family size and other characteristics
are estimated using the Medical Expenditure Panel
Survey—Household Component (MEPS–HC). These
predictions are then statistically matched to the
Treasury Department tax data. The MEPS–HC is
conducted by the United States Census Bureau for
the Agency for Healthcare Research and Quality
(AHRQ), Department of Health and Human
Services.
297
It is possible that employers that switch from
offering traditional group health plans to offering
individual coverage HRAs will contribute less to
individual coverage HRAs than they pay for group
coverage, and increase taxable wages by a
corresponding amount. This could happen because
there is greater transparency around health care
costs with an individual coverage HRA than with
a traditional group health plan, and greater
awareness of the cost will likely lower worker
demand for health insurance benefits relative to
wages. On the other hand, it is not clear why an
employer that (based on the incomes and
preferences of its workforce) wants to substitute
contributions to health benefits for wages would not
do so today, in the absence of the availability of
individual coverage HRAs, particularly because the
final rules generally require that individual
coverage HRAs be offered on the same terms to all
employees in a class of employees, as described
earlier in this preamble.
298
The Treasury Department model assumes that
both the employee and employer shares of
premiums for traditional group health plan
coverage are fully tax exempt. In modeling the
choice between an individual coverage HRA and
traditional group health plan coverage, the Treasury
Department assumes that the total amount currently
paid for traditional group health plan coverage will
continue to be tax preferred. If this amount exceeds
the individual health insurance coverage premium,
the excess is assumed to be used for copayments
and deductibles. However, the Treasury Department
Continued
sound health insurance purchasing
decisions and they also need a degree of
help to manage their medical claims and
coverage during the plan year,
particularly in the face of any complex
medical issue.
The Departments requested comments
on the implementation and ongoing
costs to State Exchanges of individual
coverage HRAs, and several
stakeholders expressed concerns about
these increased administrative costs.
Although commenters did not quantify
the costs, one State Exchange said it
estimates a significant expense given the
scope and complexity of the proposal.
Costs identified include administering a
new SEP; making IT changes involving
new definitions and explanation texts;
user testing; adding a table for the
lowest cost silver plan; delaying
implementation of other functions;
administering appeals; and adding
additional staffing for administration,
training and oversight such as for
increased call center activity and
increased complexity. Another
Exchange noted the need to update
Exchange eligibility software to account
for new forms for HRAs, new rules
affecting PTC eligibility and new SEPs.
Several states requested that the
effective date of the final rules be
delayed until State Exchanges have had
sufficient time to implement the new
requirements.
As noted earlier in this preamble, the
Departments have included in the final
rules some provisions to mitigate these
concerns and associated costs. For
example, to ensure that employees who
are eligible to receive an individual
coverage HRA understand the potential
effect on PTC eligibility, employers
must provide a written notice to eligible
participants. To mitigate burden on
employers, the Departments are
providing model language
contemporaneously on certain aspects
of the notice, including model language
describing the PTC consequences. In
addition, ongoing technical assistance
will be provided to State Exchanges
related to system development activities
that will support employers and
employees with HRA affordability
determinations and the impact on APTC
eligibility, as well as the SEP for those
with an offer of an individual coverage
HRA. HHS has already discussed with
State Exchanges what changes would
likely be necessary if the rule were
finalized as proposed to assist with
planning, as well as what kind of
assistance would be most helpful during
implementation. Specific assistance
could include sharing technical and
educational documentation from FFE
implementation that can be leveraged to
support State Exchange efforts. This
assistance could help State Exchanges
implement changes related to the
individual coverage HRA more quickly
and with less overall cost. The
Departments will also provide
assistance to Exchanges in developing
information and tools that could be
provided to employers and employees
to help ensure smooth implementation
before the full system changes are
complete. This could include State
Exchanges providing employees with
information on how they can calculate
HRA affordability and the impact on
APTC in the absence of system changes
that can make those calculations for the
employee.
Transfers
The Treasury Department performed
microsimulation modeling to evaluate
the coverage changes and transfers that
are likely to be induced by the final
rules. The Treasury Department’s model
of health insurance coverage assumes
that workers are paid the marginal
product of their labor. Employers are
assumed to be indifferent between
paying wages and paying compensation
in the form of benefits (as both expenses
are deductible in computing employers’
taxable incomes). The model therefore
assumes that total compensation paid by
a given firm is fixed, and the employer
allocates this compensation between
wages and benefits based on the
aggregated preferences of their
employees. As a result, employees bear
the full cost of employer-sponsored
health coverage (net of the value of any
tax exclusion), in the form of reduced
wages and the employee share of
premiums.
295
The Treasury Department’s model
assumes that employees’ preferences
regarding the type of health coverage (or
no coverage) are determined by their
expected healthcare expenses and the
after-tax cost of employer-sponsored
insurance, Exchange coverage with the
PTC, or Exchange or other individual
health insurance coverage integrated
with an individual coverage HRA, and
the quality of different types of coverage
(including actuarial value).
296
The tax
preference for the individual coverage
HRA is the same as that for a traditional
group health plan, and this estimate
assumes that employers will contribute
the same amount towards an individual
coverage HRA as they would contribute
for a traditional group health plan.
297
Therefore, an employee will prefer an
individual coverage HRA to a traditional
group health plan if the price of
individual health insurance coverage is
lower than the price of traditional group
health plan coverage, as long as the
value of the higher quality of the
traditional group health plan coverage
(if any) does not outweigh the lower
cost of individual health insurance
coverage. The cost of individual health
insurance coverage for an employee
could be lower than the cost of the
firm’s traditional group health plan if
the individual health insurance
coverage is less generous, if the
individual health insurance coverage
risk pool is healthier than the firm’s risk
pool, or if the cost of individual health
insurance coverage to a particular
employee is lower than the cost of the
firm’s coverage (because, for example,
the employee is younger than the
average-age worker in the firm).
298
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does not increase the amount that is tax preferred
in the case where the individual health insurance
coverage premium exceeds the traditional group
health plan premium.
299
The assumption that coverage subsidized by
the PTC is the same as coverage subsidized by an
individual coverage HRA may be incorrect to the
extent that coverage on an Exchange differs from
off-Exchange individual health insurance coverage.
In addition, the assumption that the full premium
for an employee with or without an individual
coverage HRA is tax preferred may be incorrect if
the employer does not offer a salary reduction
arrangement, if the employee does not elect the
salary reduction, or if the employee chooses on-
Exchange rather than off-Exchange coverage. Salary
reduction arrangements may not be used to pay
premiums for Exchange coverage.
300
A crucial component of the model is the use
of Form W–2, Wage and Tax Statement, filed by
employers to report wages and other benefits of
employees. Forms W–2 with the same employer
identification number are grouped together to
represent the employees of the firm.
301
Some small firms—generally those with sicker
than average employees—are able to purchase
community rated coverage in the small group
market at lower cost than they could obtain by self-
insuring or would pay if they had to purchase
coverage in the underwritten large-group market.
Firm coverage costs are over-estimated in the
Treasury Department’s model for these firms. As a
result, the Treasury Department model likely over-
estimates the extent to which small firms will adopt
individual coverage HRAs instead of traditional
group health plan coverage and the premium
increase from this rule.
302
As noted later in this section of the preamble,
however, the Departments’ estimates assume that
individuals with incomes below 200 percent of the
federal poverty level are not newly ineligible for the
PTC by individual coverage HRA offers.
303
The number of persons newly eligible for the
PTC is expected to be very small. Under the
assumption that employers contribute the same
amount towards an individual coverage HRA as
they would for traditional group health plan
coverage, employees would become newly eligible
for the PTC (if otherwise eligible) only if the lowest
cost silver plan premium for self-only individual
health insurance coverage is greater than the total
cost of the lowest cost MV plan offered by the
employer (including the employee and employer
share of premiums).
304
Note, however, that an individual coverage
HRA may not, under its terms, limit reimbursement
only to expenses not covered by Medicare.
305
Currently, very few working aged Medicare
enrollees have enrolled in Medicare Part C and
these estimates are based on the assumption that
this is not likely to change.
When evaluating the choice between
an individual coverage HRA and the
PTC for Exchange coverage, the
available coverage is assumed to be the
same but the tax preferences are
different. Hence, an employee will
prefer the individual coverage HRA if
the value of the income and payroll tax
exclusion (including both the employee
and employer portion of payroll tax) is
greater than the value of the PTC. In
modeling this decision, the Departments
assume that premiums paid by the
employee are tax preferred through the
reimbursement of premiums from the
individual coverage HRA, with any
additional premiums (up to the amount
that would have been paid under a
traditional group health plan) paid
through a salary reduction
arrangement.
299
In the Treasury Department’s model,
employees are aggregated into firms,
based on tax data.
300
The expected
health expenses of employees in the
firm determine the cost of employer-
sponsored insurance for the firm.
301
Employees effectively vote for their
preferred coverage, and each employer’s
offered benefit is determined by the
preferences of the majority of
employees. Employees then decide
whether to accept any offered coverage,
and the resulting enrollment in
traditional or individual health
insurance coverage determines the risk
pools and therefore premiums for both
employer coverage and individual
health insurance coverage. The Treasury
Department’s model, thus, predicts
enrollment and premiums in each type
of coverage.
Transitions from traditional group
health plans to individual coverage
HRAs. Based on microsimulation
modeling, the Departments expect that
the final rules will cause some
participants (and their dependents) to
move from traditional group health
plans to individual coverage HRAs. As
previously noted, the estimates assume
that for this group of firms and
employees, employer contributions to
individual coverage HRAs are the same
as contributions to traditional group
health plans would have been, and the
estimates assume that tax-preferred
salary reductions for individual health
insurance coverage are the same as
salary reductions for traditional group
health plan coverage. Thus, by modeling
construction there is no change in
income or payroll tax revenues for this
group of firms and employees (other
than the changes in the PTC discussed
later in this preamble). The Departments
solicited comments on these
assumptions, and comments received
are summarized further below.
While the tax preference is assumed
to be unchanged for this group, after-tax
out-of-pocket costs could increase for
some employees (whose premiums or
cost sharing are higher in the individual
market than in a traditional group
health plan) and decrease for others.
A small number of employees who are
currently offered a traditional group
health plan nonetheless obtain
individual health insurance coverage
and the PTC, because the traditional
group health plan is unaffordable to
them or does not provide MV. Some of
these employees would no longer be
eligible for the PTC for their Exchange
coverage when the employer switches
from a traditional group health plan to
an individual coverage HRA because the
HRA is determined to be affordable
under the final PTC rules.
302
In
addition, some employees who are
offered individual coverage HRAs
would not accept them, and would be
newly able to obtain the PTC because
the offer of the HRA would be
considered to be unaffordable under the
final PTC rules, even though the
traditional group health plan they were
previously offered is affordable under
current rules.
303
Transitions from no employer-
sponsored health benefit to individual
coverage HRAs. The Departments expect
some employees to be offered individual
coverage HRAs when they previously
received no offer of an employer-
sponsored health plan. As a result,
taxable wages will fall and non-taxable
wages will rise, reducing income tax
and payroll tax revenues. Under this
circumstance, some Exchange enrollees
who previously claimed the PTC will be
precluded from claiming the PTC as a
result of the offer or acceptance of the
HRA, reducing PTC transfers. As
explained further below, the
Departments assume that PTC spending
is reduced only among Exchange
enrollees with incomes greater than 200
percent of the federal poverty level.
Transitions from traditional group
health plans to individual coverage
HRAs integrated with Medicare.
Currently, there are about 2.5 million
people for whom employer coverage is
the primary payer and Medicare is
secondary. Earlier in this preamble, the
Departments clarify that plan sponsors
may allow amounts made available
under an individual coverage HRA to be
used to pay for Medicare and Medigap
premiums, as well as other medical care
expenses.
304
Once premiums (and
deductibles for medical care expenses)
are paid by the individual coverage
HRA, there would be few funds
available to pay for medical care
expenses. Hence, Medicare would
effectively become the primary payer in
the vast majority of cases.
The total costs to the Medicare Part A
program will increase because Medicare
Part A will effectively become the
primary payer. Because enrollment in
Medicare Part A and B or Part C
305
is
a requirement to be covered by an
individual coverage HRA that is
integrated with Medicare and because
employees offered an individual
coverage HRA will not have access to a
traditional group health plan through
their employer, the vast majority of
employees are expected to enroll in
Medicare Part B (and many in Part D).
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306
Employees who are entitled to Medicare on
the basis of age generally tend to have lower
healthcare costs than the average Medicare
beneficiary, improving the overall health of the
Medicare risk pool.
307
These estimates are annualized counts (e.g.,
two persons with six months of coverage each count
as one covered person), and reflect only coverage
for persons under age 65. For more information
about the Treasury Department’s baseline estimates,
see ‘‘Treasury’s Baseline Estimates of Health
Coverage, Fiscal Year 2019 Budget Exercise’’ June
2018, available at https://www.treasury.gov/
resource-center/tax-policy/tax-analysis/Documents/
Treasury%27s-Baseline-Estimates-of-Health-
Coverage-FY-2019.pdf.
308
These revenue estimates do not account for
the possibility that the final rules could lead to
increased taxable wages.
Per enrollee premiums for Medicare Part
B and D will be slightly lower due to the
improved health of the Medicare risk
pool; however, net costs to the Medicare
program will increase due to increased
enrollment and because premiums for
Medicare Part B will not fully offset the
costs of the program.
306
Summary of estimated transfers and
coverage changes. The Departments
estimate that once employers fully
adjust to the final rules, roughly 800,000
firms will offer individual coverage
HRAs. The Departments further estimate
that it will take employers and
employees about five years to fully
adjust to the final rules, with about 10
percent of take-up occurring in 2020
and the full effect realized in 2024 and
beyond.
This would result in an estimated 1.1
million individuals receiving an
individual coverage HRA in 2020,
growing to 11.4 million in 2029.
Conversely, the number of individuals
in traditional group health plan
coverage will fall by an estimated 0.6
million (0.4 percent) in 2020 and 6.9
million (4.5 percent) in 2029. Similarly,
the number of individuals in individual
health insurance coverage without an
individual coverage HRA will fall by an
estimated 0.4 million (2.4 percent) in
2020 and 3.8 million (24.8 percent) in
2029. The number of uninsured persons
will fall by an estimated 0.1 million (0.1
percent) in 2020 and 0.8 million (1.4
percent) in 2029.
307
See Table 2 for
details.
The modeling suggests that employees
in firms that would switch from offering
traditional group health plan coverage
to offering an individual coverage HRA
would have, on average, slightly higher
expected healthcare expenses than
employees in other firms and current
individual market enrollees. As a result,
premiums in the individual market
would be expected to increase by about
1 percent as a result of the final rules,
throughout the 2020–2029 period
examined. The Treasury Department
model is nationally representative and
does not necessarily reflect the expected
experience for every market. The
premium increase could be larger in
some markets if some adverse selection
results, and premiums could fall in
other markets. Furthermore, some
employers might take longer to adopt
the individual coverage HRA, preferring
to wait to see how premiums change;
and, this delay in adoption might be
more likely in markets that are currently
in worse condition. Such differing
behavior adds uncertainty to the
estimates.
Income and payroll tax revenue is
expected to fall by about $500 million
in fiscal year 2020 and $15.5 billion in
2029, as firms newly offer tax-preferred
health benefits in the form of individual
coverage HRAs. At the same time, total
PTC (including the refundable and non-
refundable portion of the credit) is
expected to fall by about $300 million
in 2020 and by about $6.2 billion in
2029. In total, the final rules are
estimated to reduce tax revenue by
about $200 million in fiscal year 2020,
$9.3 billion in fiscal year 2029, and
$51.2 billion over the 10-year period
through fiscal year 2029.
308
The Departments assume that about 1
percent of the 2.5 million individuals
for whom employer coverage is the
primary payer and Medicare is the
secondary payer will enroll in an
individual coverage HRA integrated
with Medicare by the end of the
projection period. As a result, the final
integration rules are estimated to
increase costs to the Medicare trust
funds by less than $50 million in 2020,
$0.3 billion in 2029, and $1.9 billion
over the ten-year period through fiscal
year 2029. The impacts for Medicare
Part B and D reflect the net impact to
the federal government after the
payment of premiums.
T
ABLE
2—E
STIMATED
E
FFECTS OF
I
NDIVIDUAL
C
OVERAGE
HRA
SON
I
NSURANCE
C
OVERAGE AND
T
AX
R
EVENUES
,
2020–2029
Calendar year 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029
Change in Coverage [Millions]:
a
Individual health insurance coverage with
HRA ....................................................... 1.1 2.7 5.3 8.1 10.9 11.0 11.2 11.4 11.4 11.4
Traditional group health plan .................... ¥0.6 ¥1.7 ¥3.3 ¥5.0 ¥6.7 ¥6.8 ¥6.8 ¥6.8 ¥6.9 ¥6.9
Individual health insurance coverage with-
out HRA ................................................. ¥0.4 ¥0.9 ¥1.8 ¥2.7 ¥3.6 ¥3.6 ¥3.7 ¥3.8 ¥3.8 ¥3.8
Uninsured .................................................. ¥0.1 ¥0.2 ¥0.3 ¥0.5 ¥0.6 ¥0.7 ¥0.7 ¥0.7 ¥0.7 ¥0.8
Fiscal year 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029
Change in Revenue [Billions]:
Premium Tax Credit Reduction ................ 0.3 0.8 1.8 3.0 4.4 4.7 5.4 5.7 6.0 6.2
Other Income and Payroll Tax Reduction 0.5 1.7 3.8 6.4 9.4 10.9 12.6 13.9 14.7 15.5
Net Revenue Reduction ............................ 0.2 1.0 1.9 3.4 5.0 6.2 7.2 8.3 8.8 9.3
Medicare Part A
b
...................................... 0.0 0.0 0.0 0.1 0.1 0.1 0.1 0.1 0.1 0.1
Medicare Part B ........................................ 0.0 0.0 0.0 0.1 0.1 0.1 0.1 0.1 0.1 0.1
Medicare Part D ........................................ 0.0 0.0 0.0 0.0 0.0 0.1 0.1 0.1 0.1 0.1
Total Medicare Outlay Cost
c
............. 0.0 0.0 0.1 0.2 0.2 0.2 0.3 0.3 0.3 0.3
Total Cost
d
........................................ 0.2 1.0 2.0 3.6 5.2 6.4 7.5 8.5 9.1 9.6
Notes:
a. Millions of covered lives, annualized.
b. 0 = less than $50 million.
c. Note that the sum of estimated impacts for Medicare Part A, B and D may not equal net Medicare Outlay Cost due to rounding.
d. May not add to sum, due to rounding.
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309
Specifically, the Departments extracted
premiums reported on the population of Forms W–
2, and estimated per person annual premiums from
this information using coverage data from Forms
1095–B and C. See https://www.treasury.gov/
resource-center/tax-policy/tax-analysis/Documents/
Treasury%27s-Baseline-Estimates-of-Health-
Coverage-FY-2019.pdf for a description of this
estimation process. The Departments then
compared this to SLCSP premiums. The
Departments specifically compared single plan
premiums for firms including any 30-year old
covered employee to SLCSP premiums for a 30 year
old, and did the same for firms including any 50-
year old covered employee and SLCSP premiums
for a 50 year old in the same rating area. In both
cases the Departments estimated that traditional
group coverage premiums increase by about 20
cents for every dollar increase in individual market
premiums (p<01). The commenter provided some
evidence of geographic variation in health claims in
the individual market relative to claims in the small
group insured market. This analysis is of limited
use, because most employees who are expected to
be offered an individual coverage HRA are in the
large group market. The Treasury Department data
for this sensitivity analysis includes premiums in
firms of all sizes, but is heavily weighted to firms
filing more than 250 Forms W–2, as these
employers are required to report premium
information.
At least one commenter stated that the
negative effects of the proposed rules,
particularly the increase in the
individual market premiums and the
attendant fiscal costs, are likely to
outweigh the benefits to employers and
their employees. As noted earlier in the
preamble, the increase in individual
market premiums is a modest 1 percent.
While the net fiscal cost in 2025 is $6.2
billion, this includes the cost of new
coverage for 0.7 million individuals. In
addition, as discussed earlier, the
integrated coverage HRA provides
employers and employees with an
additional option for providing health
benefits, a benefit that the Departments
have not quantified. Therefore, the
Departments have concluded that the
benefits of allowing integration of
individual coverage with HRAs
substantially outweigh the costs.
The Departments acknowledge that
the extent to which firms will offer
individual coverage HRAs and the
results on individual market risk pools
and premiums, federal tax revenues,
and private costs and benefits are highly
uncertain. The Departments invited
comments on the modeling assumptions
and proposed estimates of the proposed
rules and assumptions.
Several commenters stated that the
Departments’ analysis failed to take
account of variation in individual
market risk across geographic areas. The
Departments’ acknowledge that the
quantitative estimates are derived from
a nationally representative model,
largely because the MEPS–HC is a
nationally representative survey. The
Departments do not know of any readily
available data on the distribution of
health claims at the firm level for
specific rating areas or states. If the
health risk in the individual market
relative to that of employer risk pools
varies across geographic areas, a
nationally based model will understate
the extent to which employees might
transition to individual markets with
healthier risk pools and overstate
movement into less healthy individual
markets. This would understate
potential premium increases in some
markets and overstate them or
understate premium decreases in others.
To examine this possibility, the
Departments estimated the correlation
between individual market premiums
and traditional group coverage
premiums in all rating areas across the
country.
309
The Departments found that
premiums in the two markets are
positively correlated, and that the
correlation is statistically significant. In
other words, where premiums for
individual health insurance coverage
are higher, premiums in the traditional
employer market also tend to be higher.
The Departments also do not find any
evidence that, to date, employers have
substantially dropped coverage or
disproportionately dropped coverage
and sent less healthy employees to
individual markets with healthier risk
pools. Even if the difference between
individual market health risk and group
market health risk currently varies
across location, there is no clear reason
why that variation would not persist
when the individual coverage HRA is
available. As a result of these
observations, the Departments conclude
that there is little indication that the
individual coverage HRA will be
disproportionately used in areas with
healthier individual market risk pools.
Moreover, it is not evident that adverse
selection into the individual market
would be much more likely in these
lower cost areas, or that those risk pools
would not be able to absorb additional
enrollees from the group market.
One commenter suggested that the
Treasury Department model does not
adequately account for variation in
expected claims risk across employers,
because it does not explicitly account
for the tendency of sicker workers to
work alongside otherwise sicker
workers, and for healthy workers to
work alongside other healthy workers.
The Treasury Department model
imputes the expected health care
expenses of families from MEPS–HC
data, controlling for type of coverage,
age, gender, family size and type,
employment status, education, race,
health status, geographic characteristics
and other characteristics. The Treasury
Department constructed firms using
Form W–2 and other tax data. The
Treasury Department then matched the
MEPS–HC health expenses of families to
families in the tax data (and thereby to
employees within firms), by income,
family size and type, age, gender and
other variables common to the MEPS–
HC and tax data sets. The model should
reflect the clustering of sicker or
healthier workers within firms if such
clustering is correlated with the
characteristics used in the health
expense imputation and matching of
MEPS–HC and tax data. In addition to
conducting a survey of households’
health expenditures (the MEPS–HC), the
U.S. Census Bureau conducts a survey
of employers regarding their health
insurance costs (the Medical
Expenditure Panel Survey—Insurance
Component, or MEPS–IC.) To evaluate
whether the distribution of imputed
healthcare costs within and across firms
in the Treasury Department model is in
fact reasonable, the Departments
obtained MEPS–IC premiums for single
and family plans at each percentile of
the premium distribution, and
compared these to premiums in the
Treasury Department model. The
Departments found that the
distributions looked very similar. That
is, the imputed premiums appear
similar to those reported in the MEPS–
IC, for both lower and higher cost firms.
Therefore, the Departments conclude
that there is no evidence to suggest that
the Treasury Department model does
not reflect clustering by health status or
any other important determinants of
health risk and premiums.
As explained earlier in this section of
the preamble, the Departments
explicitly assume that persons with
incomes below 200 percent of the
federal poverty level who are enrolled
in subsidized individual health
insurance coverage in the baseline do
not move to an individual coverage
HRA or to uninsured status as a result
of the final rules. The Departments also
assume that employees with incomes
above 400 percent of the federal poverty
level who are currently enrolled in a
traditional group health plan do not
become uninsured as a result of his or
her employer switching to an individual
coverage HRA, even if individual health
insurance coverage premiums are
substantially higher than the cost of
their traditional group health plan
coverage. These assumptions are
consistent with allowing the individual
coverage HRA offer to vary across
employees in certain cases, and are
intended to provide estimates that
reasonably reflect expected employer
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and employee behavior. The
Departments acknowledge that
imposition of these assumptions
reduces both the amount of estimated
PTC savings and the amount of
estimated individual coverage HRA
revenue costs. In addition, by imposing
this restriction, the analysis does not
reflect the extent to which lower-income
employees would face higher insurance
costs if an individual coverage HRA
offer renders them ineligible for the
PTC.
One commenter suggested that the
Departments explicitly model coverage
choices for individuals with incomes
below 200 percent or above 400 percent
of the federal poverty level. Other
commenters expressed concern that
low-income workers likely would face
higher coverage costs (and perhaps take-
up less coverage and face worse
financial or health outcomes) because
they will lose eligibility for PTC. One
commenter suggested that the
individual coverage HRA rules could
only benefit families with incomes in
excess of 400 percent of the federal
poverty level. However this commenter
did not take into account the decline in
PTC as income rises as well as the tax
benefit of employer-provided individual
coverage HRAs. In order to consider
these concerns more fully, the
Departments performed additional
analysis to evaluate the potential effect
of the individual coverage HRA on
receipt of PTC and changes in tax
liability across income classes, under
the Departments’ preferred assumption
that persons with low incomes do not
lose PTC and an alternative scenario
where the Departments do not impose
this assumption.
Under the Departments’ preferred set
of assumptions, the individual coverage
HRA reduces tax revenues by a total of
$6.2 billion in calendar year 2025,
consisting of $10.9 billion in reduced
income and payroll taxes partly offset
by $4.7 billion in reduced PTC
(including both the refundable and non-
refundable portions of the credit). In
comparison, the individual coverage
HRA increases tax revenues $1.1 billion
among taxpayers who are enrolled in
individual health insurance coverage in
the Exchange in the baseline. Over 0.9
million families with incomes between
200 and 400 percent of the federal
poverty level pay $2.1 billion more in
taxes (that is, on net the loss in PTC
exceeds the value of income and payroll
tax exclusions received for the
individual coverage HRA), or an average
of nearly $2,300. However, they are not
expected to become uninsured, because
while the tax preference for the HRA is
less than the PTC, the after-tax cost of
coverage is less than the expected cost
of healthcare. About 0.4 million families
with incomes over 400 percent of the
poverty level pay nearly $1.1 billion less
in taxes, with an average tax cut of
nearly $2,900. Note that these estimates
include only the effects on families with
individuals currently enrolled in
individual health insurance coverage in
the Exchange, and do not reflect the tax
decreases experienced by newly insured
persons, or by persons currently
enrolled in individual health insurance
coverage outside of the Exchange. In
addition, the estimates for families with
incomes below 400 percent of the
federal poverty level are net changes,
and include gains for families for whom
the tax exclusion value of the individual
coverage HRA exceeds the PTC offset by
losses for families for whom the PTC
exceeds the value of tax exclusion
gained.
Under an alternative assumption
where persons with incomes below 200
percent of the federal poverty level also
lose PTC if their employer offers an
affordable individual coverage HRA,
about 0.9 million additional families
would pay an additional $3.5 billion in
taxes (in the form of lost PTC that is not
offset by the value of income and
payroll taxes received for individual
coverage HRA), with an average tax
increase of nearly $4,000. These families
are not projected to become uninsured.
The 10-year cost of the final rules would
fall from an estimated $51.2 billion to
$23.7 billion. However, as noted earlier,
the Departments do not expect such
large tax increases among lower-income
families to occur. Rather, the
Departments expect employees who
currently receive substantial amounts of
PTC but are in firms where employees
overall are better off with an individual
coverage HRA will seek out employers
that do not offer an individual coverage
HRA or traditional group health plan, or
that employers will reduce individual
coverage HRA offers or decide not to
offer an individual coverage HRA, so as
not to render all or certain classes of
employees ineligible for the PTC. This
may be particularly true for firms that
do not offer a traditional group health
plan in the baseline.
In addition, the Departments
performed an alternative analysis of the
number of persons with incomes in
excess of 400 percent of the federal
poverty level who are predicted to
become uninsured if employers do not
vary contributions to individual
coverage HRAs by age and employees
do not switch employers to avoid an
increase in health insurance costs. (In
other words, in this scenario the
Departments relax their assumption that
no higher income persons become
uninsured as a result of moving from
traditional group health plan coverage
to being offered an individual coverage
HRA.) In this alternative simulation,
about 1 percent of persons in families
with incomes above 400 percent of the
federal poverty level with traditional
group health plan coverage under the
baseline become uninsured (or nearly
900,000 individuals). However, as noted
earlier in this section of the preamble,
the Departments do not expect such
transitions to occur. Under this
alternative simulation, older individuals
are more likely to become uninsured, in
large part because the Treasury
Department’s model fails to account for
the variation in individual coverage
HRA contributions by age as permitted
under the final rules. Under the final
rules, we expect that employers will
vary individual coverage HRA offers so
as not to completely unwind the cross-
subsidies of older employees by younger
employees and avoid markedly
increasing older employees’ coverage
costs. In the event that coverage costs
for particular employees substantially
increase, those employees are expected
to seek employment at firms that
continue to offer traditional group
health plan coverage.
Several commenters stated that
employers would likely provide the
same amount of individual coverage
HRA contributions to all employees in
a class of employees, without age
variation. As a result, older workers
could face higher coverage costs and
younger workers could face lower costs
when they move from traditional group
health plan coverage to an age-rated
individual health insurance plan.
However, varying HRA amounts based
on age is allowed under the final rules,
subject to certain limits, and other
commenters suggested that employers
would utilize this option, thereby
maintaining existing cross-subsidies of
older workers, which clearly has
economic utility to firms, to some
extent.
Several commenters suggested that
the Departments’ estimates of individual
coverage HRA take-up are overstated,
because the estimates do not account for
increased hassle costs of enrolling in
individual health insurance coverage,
compared to the cost of enrolling in a
traditional group health plan. The
Departments acknowledge earlier in this
section of the preamble that some
individuals will face higher
administrative costs associated with
choosing individual health insurance
plans and enrolling in coverage. This
could result in fewer employers offering
individual coverage HRAs and fewer
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310
The Departments imposed two constraints on
the microsimulation that could be consistent with
allowing the individual coverage HRA offer to vary
across classes of employees within a firm. First, the
Departments assume that persons with incomes
below 200 percent of the federal poverty level who
are enrolled in subsidized individual health
insurance coverage in the baseline do not move to
an individual coverage HRA or to uninsured status
as a result of the final rules. This is consistent with
assuming that employers with low-wage workers
currently receiving Medicaid or the PTC do not
begin to offer individual coverage HRAs large
enough to render such employees ineligible for the
PTC or from receiving public coverage. This
constraint is also consistent with the assumption
that employees who would experience a substantial
subsidy loss will move to other jobs that allow them
to retain their current coverage. This assumption
reduces the amount of PTC savings generated by the
final rules, and also reduces the tax revenue cost
of providing individual coverage HRAs to such
employees. Second, the Departments assume that
employees with incomes above 400 percent of the
federal poverty level who are enrolled in a
traditional group health plan do not become
uninsured as a result of the final rules, even if
individual health insurance plan premiums are
substantially higher than the cost of their traditional
group health plan coverage. This is consistent with
assuming that employers will provide larger
individual coverage HRAs to older employees or to
employees in higher-cost markets than they will
provide to other employees in their firms, in order
to ensure affordable coverage. It is also consistent
with assuming that employees will move to other
firms, if they face large premium or cost-sharing
increases when their employers switch from
traditional group health plan coverage to individual
coverage HRAs.
311
The Treasury Department projects that over
150 million persons under age 65 will be enrolled
in employer-sponsored group health plans in 2020,
compared to about 15 million in the individual
market.
employees enrolling in individual
health insurance coverage integrated
with an HRA. However, commenters did
not attempt to quantify such costs.
Because the magnitude of these costs (in
total and relative to the cost of enrolling
in a traditional group health plan) is
uncertain, the Departments are unable
to quantify the likely effect on
individual coverage HRA take-up.
The Departments particularly
emphasize that these estimates assume
that every employee in a firm would be
offered either an individual coverage
HRA or a traditional group health plan
(but not both and not a choice between
the two), or no employer health benefit.
The estimates further assume that a firm
offering an individual coverage HRA
would offer the same benefit to each
employee in the firm, and would not
vary the contribution by location, age, or
other permitted factors other than self-
only versus non-self-only benefits.
310
In
other words, the estimates assume that
the final rules will be effective in
preventing firms from dividing their
employees by health status or other
factors in a way that would allow firms
to capture greater tax subsidies or
increase individual market premiums or
the PTC.
In estimating the impact of the final
rules on individual coverage HRA
participation and transfers, including
individual market premium increases, it
is important to take into account the
relative sizes of the employer market
and the individual health insurance
market and the relative health risk of
individuals that are likely to transition
from group to individual market
coverage. Because the number of
individuals in traditional group health
plans is large relative to the number of
individuals in individual health
insurance coverage, relatively small
changes in employer offers of coverage
can result in large changes in individual
market premiums.
311
The Departments invited comments
on the extent to which firms with
healthy or less healthy risk pools would
utilize individual coverage HRAs. The
Departments specifically sought
comments on the extent to which
employers would offer different benefits
to different classes of employees,
including the rating area class and
combinations of the classes, and the
resulting effect on individual market
premiums. Many commenters
responded, generally emphasizing the
importance of a stable individual health
insurance market and the need to
maintain and, if possible, strengthen
conditions to prevent adverse selection
as a result of the individual coverage
HRA.
Many commenters noted that, because
the employer group market is very large
relative to the individual market, even
a relatively minor shift of higher-cost
individuals from traditional group
health plans to the individual market
would markedly increase individual
market premiums. In a similar vein, one
commenter noted that the individual
market in their state is too small to
absorb the high health costs from the
few employers who have high enough
health costs to make the individual
coverage HRA strategy economically
attractive. Commenters also noted that
healthcare costs are distributed very
unevenly, and that, as a result, moving
a small number of the highest-cost
employees to the individual market can
have a large impact on premiums.
Several commenters provided their own
scenarios showing that if employers are
able to send a relatively small number
of high-cost individuals to the
individual market it could result in a
very large increase in premiums in the
individual market. Under one example,
if 1 percent to 4 percent of the employer
market with various above-average-
fractions of higher-cost employees
migrates to the individual market,
premiums have the potential to increase
3 percent to 83 percent. In an example
presented by another commenter, if as
few as 5 percent of the persistent top
spenders in the large group market
move to individual market coverage, the
average individual market claim would
increase by 15 percent. Under a third
example discussed by a third
commenter, if 10 percent of employers
designed individual coverage HRAs to
shift the sickest individuals into the
individual market, premiums would
increase by 17.3 percent. If however 100
percent of employers engage in shifting
their sickest employees, premiums
would increase by 93.1 percent in the
individual market. The Departments
note that these scenarios do not take
into account the conditions in the
proposed or final rules intended to
prevent adverse selection. As such they
help to illustrate why the Departments
proposed, and are finalizing, conditions
designed to prevent adverse selection.
These examples are not inconsistent
with the illustrative scenario presented
by the Departments in the preamble to
the proposed rules.
Many commenters said it was
important that the final rules not give
employees a choice between a
traditional group health plan and an
individual coverage HRA in order to
prevent adverse selection in the
individual market, as was prohibited
under the proposed rules. One
commenter gave specifics noting that it
is the employer that is empowered with
deciding which health benefits to offer.
Thus, according to the commenter, it is
not likely that employers would offer
both an individual coverage HRA and a
traditional group health plan if the
employer anticipated that such a choice
would increase claims cost in its
traditional group health plan. The
commenter noted that without the
condition in the proposed and final
rules prohibiting plan sponsors from
offering employees a choice between a
traditional group health plan and an
individual coverage HRA, there would
be market segmentation caused by
incenting high-cost individuals to enroll
in individual market coverage as well as
potential adverse selection based on
difference in benefits, cost-sharing
levels, and networks.
Many commenters said that it is
important that the final rules retain the
condition that individuals be required
to obtain individual health insurance
coverage in order to be covered by an
individual coverage HRA. One
commenter suggested that, otherwise,
healthy individuals might opt out of the
individual market (comprehensive
coverage) and use the individual
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312
Although adverse selection has been observed
in many instances, relatively recent empirical
research suggests that any harm from adverse
selection could, in some circumstances, be modest.
Most of the literature is related to choices between
plans within a firm or other contexts that are not
directly analogous to an employer’s choice between
offering a traditional group plan or an individual
coverage HRA, and as a result the applicability of
the research is somewhat unclear. Therefore the
Departments are including in the final rule
provisions specifically intended to mitigate against
adverse selection while at the same time giving
employers an important new way to provide health
benefits. See e.g., Einav, Liran, Amy Finkelstein,
and Jonathan Levin, ‘‘Beyond Testing: Empirical
Models of Insurance Markets,’’ Annual Review of
Economics, 2010, 2: 311–326; Einav, Liran, Amy
Finkelstein, and Mark Cullen, ‘‘Estimating Welfare
in Insurance Markets Using Variation in Prices,’’
Quarterly Journal of Economics, 2010, 125 (3): 877–
921; Bundorf, M. Kate, Jonathan Levin, and Neale
Mahoney, ‘‘Pricing and Welfare in Health Plan
Choice,’’ American Economic Review, 2012, 102 (7):
3214–3248; and Cardon, James H. and Igal Hendel,
‘‘Asymmetric Information in Health Insurance:
Evidence from the National Medical Expenditure
Survey.’’ RAND Journal of Economics, 2001, 32 (3):
408–427.
coverage HRA to cover out-of-pocket
spending or for noncompliant coverage,
potentially increasing adverse selection
in the individual market. Relatedly,
many commenters supported the
prohibition on integration of an HRA
with STLDI. If enrollees were given a
choice of individual health insurance
coverage or STLDI, in conjunction with
an individual coverage HRA,
commenters explained that healthy
employees would be more likely to
purchase the less expensive STLDI
plans, creating adverse selection for the
individual market.
Commenters generally supported the
condition that individual coverage
HRAs be offered on the same terms to
an entire class of employees and that the
classes to which a plan sponsor may
offer HRAs on different terms be limited
to the classes enumerated in the
proposed rules and any combinations of
those classes. One commenter noted
that the same terms requirement and the
enumerated classes reduce the ability of
employers to target high-cost workers by
targeting particular worker classes. The
commenter explained that allowing
employers to define classes more
narrowly would increase the
opportunity for employers to target
high-cost workers, thereby increasing
the adverse selection risk in the
individual market. Some commenters
recommended that the number of
permitted classes not be expanded in
general to avoid increasing the risk of
adverse selection in the individual
market.
One commenter noted that the
proposed permitted classes of
employees could be combined to offer
employers opportunities to segment
highly specific subsets of employees,
including the more costly populations,
resulting in higher premiums in the
individual market. Several other
commenters expressed concerns that the
proposed integration conditions would
not be adequate to protect against
additional risk segmentation. Another
commenter suggested that premiums in
the individual market could rise
because the proposed rules create
uncertainty, causing insurers to include
an additional risk factor when setting
premiums. Further, the commenter
urged that the proposed rules be
withdrawn as they would be
detrimental to consumers and health
insurance markets in that particular
state. One state with an approved
PPACA section 1332 state innovation
waiver authorizing a re-insurance
program asserted that the proposed
rules could dismantle the market
stability that has been achieved through
state based mechanisms and that states
with re-insurance programs will
unintentionally subsidize employer
health plans due to the influx of people
with high claims.
After consideration of these
comments and related economic
literature,
312
the Departments
concluded that the conditions contained
in the proposed rules intended to
mitigate the risk of adverse selection
(including the prohibition on offering an
employee a choice between an
individual coverage HRA or a
traditional plan, the same terms
requirement, the requirement that
individuals with individual coverage
HRAs be enrolled in individual health
insurance coverage, and the prohibition
on integration with STLDI) are
necessary and, as retained in the final
rules, support the Departments’ finding
that the effect of the rule on individual
market premiums will be modest.
Several commenters suggested that
additional rules should be adopted to
prevent adverse selection. For example,
one commenter stated that employers
should be forbidden from using health
status of any individual or class of
employees as a factor when
differentiating between classes of
employees. Another encouraged strong
federal oversight to ensure employer
compliance with the conditions. Yet
another commenter recommended the
Departments use a facts and
circumstances test to determine whether
individual coverage HRAs are targeted
to high cost employees, in addition to
requiring compliance with the
conditions in the final rules.
The Departments decline to add a
facts and circumstances test to the final
rules. DOL has enforcement jurisdiction
over private sector employer-sponsored
group health plans, and HHS has
enforcement jurisdiction over public
sector group health plans, such as those
sponsored by state and local
governments. Individual coverage HRAs
are group health plans, and DOL and
HHS will monitor individual coverage
HRAs’ compliance with applicable
requirements, consistent with the
general approach to enforcement with
respect to other group health plans. The
Departments are of the view that it is
unnecessary to include specific
enforcement guidance for individual
coverage HRAs in the final rules.
However the Departments may provide
additional guidance if the Departments
become aware of arrangements that are
inconsistent with the conditions of the
final rules.
One commenter noted that the lack of
a limit on the maximum individual
coverage HRA amount could result in
more employers with older or sicker
employee populations providing very
large individual coverage HRAs and
sending those high-cost individuals to
the individual market. This commenter
suggested limiting individual coverage
HRA contributions to a maximum
amount. Another commenter pointed
out that an employer could provide an
individual coverage HRA that covered
both the premiums and cost-sharing
expenses up to the maximum out-of-
pocket limit ($7,900 in 2019) for an
expensive employee and still reduce
health costs. This commenter supported
the same terms requirement and other
rules preventing benign discrimination
to shield against market segmentation.
In previous guidance on HRAs,
including on integration of HRAs with
other coverage, the Departments
provided no minimum or maximum
contribution amount. Similarly, the
Departments decline to impose a
minimum or maximum contribution
amount on individual coverage HRAs
under the final rules, in order to provide
employers with flexibility and because
the Departments have imposed other
conditions to address the potential for
adverse selection.
Commenters also recommended that
the conditions to prevent adverse
selection in the proposed rules be
strengthened by applying the integration
conditions to the aggregated controlled
group of employers rather than to the
common-law employer. The
Departments have concluded that
applying the classes of employees at the
common law employer level will avoid
complexity for employers and that
applying a minimum class size
requirement in certain circumstances, at
the common law employer level, is a
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more straightforward way of addressing
the adverse selection concerns raised by
some commenters. Therefore, the
Departments are not adopting the
suggestion.
One commenter suggested the final
rules should not allow using rating area
as a separate class of employees because
it presents risk for health factor
discrimination, allowing employers to
isolate an employee or a few employees
with costly medical expenses who
happen to work at the same primary
site. While the Departments appreciate
and considered the concern raised by
commenters, the Departments have
determined, based on information
regarding the significant differences in
individual market premiums between
rating areas within some states and
significant differences in the number of
individual health insurance plans
available between rating areas within
some states, that it would be an
unreasonable limitation on employer
flexibility, and, thus, employee welfare,
to prohibit employers from offering
different benefits based on different
work site rating areas.
One commenter argued that the
allowable variation in individual
coverage HRA contributions by
employee age and number of
dependents would need to be parallel to
the variation in premiums by age and
family size in the individual market to
avoid the risk that employers target
large contributions to high-cost
employees. Another commenter pointed
out that employers’ ability to vary
individual coverage HRA amounts by
age should not be limitless, but should
be subject to sound actuarial guardrails,
such as the 3 to 1 PPACA age band
between the youngest and oldest
employees. The Departments agree. In
the final rules, employers are permitted
to vary contributions based on the age
of the participant as long as the
contribution for the oldest participant is
within a 3 to 1 ratio of the contribution
for the youngest participant. Further,
the same maximum dollar amount
attributable to the increase in age must
be made available to all participants of
the same age in the same class of
employees.
Some commenters recommended
removing as a permitted class of
employees the class based on employees
who have not yet attained 25 years of
age because this would enable
employers to offer individual coverage
HRAs to older employees while keeping
young, generally healthier employees in
a traditional group health plan,
increasing adverse selection risk for the
individual market. In addition,
commenters noted that there is no clear
need for this class of employees as
employers do not typically vary current
coverage offering for employees over
and under age 25. After consideration of
these comments, the Departments are
omitting this class in the final rules.
Several commenters suggested a
minimum class size requirement so that
employers cannot combine classes in a
way that less healthy employees can be
isolated into separate classes from
healthy employees. According to these
commenters, each classification should
be required to include a certain
minimum number and/or percentage of
employees. The Departments agree and
sought to develop a rule that is narrowly
tailored to mitigate the risk of adverse
selection, especially when combining
classes, and to avoid overly burdening
employers or unnecessarily hampering
the increased use and flexibility of
individual coverage HRAs. In order to
balance these considerations, the final
rules include a minimum class size
requirement that varies based on
employer size and that applies only to
certain classes of employees in certain
circumstances in which the potential for
health factor discrimination is greatest.
In general, the minimum is equal to 10
employees for an employer with fewer
than 100 employees; equal to 10 percent
of the total number of employees
(rounded down to a whole number), for
an employer with 100 to 200 employees;
and equal to 20 employees for an
employer that has more than 200
employees. See earlier in this preamble
and the final rules for more detail.
Multiple commenters noted that large
employers and self-insured employers
with a greater share of less-healthy
employees could be more likely to offer
individual coverage HRAs than
employers with healthier employees.
The resulting adverse selection could
worsen the individual market risk pool
and increase premiums. The
Departments acknowledge that the
integration conditions generally do not
address this potential problem. This
effect has been included in the
modeling and hence is reflected in the
overall results. As discussed earlier in
this preamble, this effect along with
other effects of the final rules result in
a premium increase of only about 1
percent, indicating a very small effect
on the individual market risk pool.
Other commenters thought individual
coverage HRAs could reduce adverse
selection in the individual market.
Some commenters noted that the
proposed rules would result in many
employees moving to the individual
market, thereby expanding the market
and stabilizing premiums. One
commenter argued that although some
employers may have a higher-risk group
of employees, in general, working
employees are lower-risk than
individuals in the individual market.
Other commenters stated that employers
may not necessarily be incentivized to
segment their risk, that is, they may be
interested in offering individual
coverage HRAs for reasons unrelated to
risk. Another commenter argued that
commonly purchased stop-loss coverage
mitigates the incentive to move
individuals to the individual market;
that HIPAA generally prohibits group
health plans and health insurance
issuers in the group market from
discriminating against individuals based
on health factors; that the requirement
that to provide MV employer plans
provide ‘‘substantial coverage’’ of
inpatient hospital services and
physician services makes it hard for
employers to incentivize high cost
individuals to move to the individual
market by providing limited benefits;
and that the proposed rules’ same terms
requirement and the restriction on
integration of individual coverage HRAs
with STLDI all work together to
eliminate the opportunities for
employers to encourage higher-risk
employees to obtain coverage in the
individual market. One commenter
noted that the Departments struck an
important balance between providing
additional alternatives for employers
while curtailing the opportunity for
some employers to selectively segment
risk and shift their highest-cost
employees to the already fragile
individual market. The Departments
agree that the final rules, with the
integration conditions, strike the right
balance and have the potential to
strengthen the individual market.
Several commenters further
recommended that the Departments add
as a permitted class to the final rules,
salaried and hourly employees, so that
employers may be permitted to make
different offers of coverage, to salaried
and non-salaried workers. Commenters
in support of allowing salaried and
hourly workers as permitted classes of
employees explained that this would
provide additional flexibility for
employers without increasing the risk of
adverse selection. Reasons for this
conclusion included: The classification
is used for a variety of purposes and
reclassifying employees may violate the
FLSA, ERISA and other laws that
prohibit employers from reclassifying
workers solely for the purposes of
interfering with health benefits. One
commenter stated that under such a rule
employers would have more potential
for risk selection than in the permitted
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classes under the proposed rules. After
consideration of these comments, the
Departments are allowing employees
who are paid on a salaried basis and
non-salaried employees (such as hourly
employees) as permitted classes of
employees in the final rule, subject to
the minimum class size requirement.
The Departments also recognized that
transition from coverage under a
traditional group health plan to
coverage under an individual coverage
HRA could represent a substantial
change from an employee perspective,
and as a result employers may find it
difficult to transition to individual
coverage HRAs. Because new hires are
unlikely to increase adverse selection in
the individual market and, if added to
the individual market, would likely
lower average risk, the Departments
have added flexibility for employers by
allowing employers to continue to offer
traditional group health plans to current
employees while offering individual
coverage HRAs to newly hired
employees. Recognizing that the new
hire subclass will start small as
employees are hired after the employer-
specified hiring date for a class of
individuals, the new hire subclass is not
subject to the minimum class size
requirement. However, if an employer
later chooses to further subdivide a new
hire subclass, each subdivision would
be subject to any minimum class size
requirements that otherwise would
apply.
Several commenters suggested that
the Departments delay implementation
of the final rules until further analysis,
particularly regarding risk segmentation,
could be conducted. However,
commenters offered few concrete
suggestions to inform additional
analysis. While the Departments
acknowledge that the exact effects of the
final rules are subject to uncertainty, the
Departments conclude that the benefits
of the rules will outweigh any costs, and
that the benefits of promulgating the
rules without further delay will
outweigh the benefits of additional
analysis. As recommended by a number
of comments, the Departments will
continue to closely monitor premiums
and the stability of the individual
market.
The Departments also emphasize that
these estimates assume that employers
would contribute the same amount to
individual coverage HRAs as they
would to traditional group health plans
and that employees would elect the
same amount of salary reduction to pay
for individual health plans and cost
sharing as they would if they were
enrolled in a traditional group health
plan. But, as noted above, some
employees who would be offered
individual coverage HRAs under the
proposed rules would choose plans with
lower premiums and higher deductibles
and copayments and narrower provider
networks than they would choose if
offered a traditional group health plan.
However, some workers would probably
choose more expansive coverage than
what they were offered in a traditional
group health plan, and a key benefit of
this rule is that it expands workers’
ability to choose coverage that best suits
their preferences. Those workers who
choose plans with higher cost sharing
and narrower provider networks and
become more cost-conscious consumers
of healthcare will likely reduce
healthcare costs and insurance
premiums, eventually reducing average
HRA amounts and salary reductions.
The Departments requested comments
on the assumption that employer and
employee tax-preferred spending on
healthcare would be the same for
individual coverage HRAs as for
traditional group health plans.
One commenter questioned the
Departments’ basis for this assumption.
Based on conversations with employers
of all sizes and industries, the
commenter concluded that it appears
likely that a good portion of employers
would contribute substantially less to
individual coverage HRAs than what
they are currently contributing to
traditional group health plans. The
commenter suggested that this would be
particularly true for certain classes of
employees, and that this may result in
some employees and dependents
becoming uninsured. Several
commenters expressed concern that
employers would contribute less to
individual coverage HRAs than they
currently contribute to their traditional
group health plans, with the result that
coverage would be less affordable for
employees. One commenter suggested
that employers offering an individual
coverage HRA be required to provide a
minimum amount to ensure that the
HRAs are adequate for the purchase of
individual health insurance coverage.
As discussed above, the Departments
decline to adopt this suggestion. In
general, workers bear the cost of
employer contributions to health
benefits in the form of reductions in
wages and non-health benefits. The
current tax system subsidizes health
benefits, and it is not clear that
minimum employer contributions
would improve employee welfare. Other
commenters suggested that employers
should be required to vary the amount
of the individual coverage HRA by age,
geographic region, and/or family size, as
these factors result in variations in
premiums for individual health
insurance coverage. The Departments
are not adopting this suggestion. The
Departments recognize that the cost of
individual health insurance coverage
will vary across employees, and because
the intent of the rule is to expand rather
than restrict employer choices regarding
how to provide coverage, the final rules
allow (but do not require) employers to
take these factors into account in certain
circumstances and subject to certain
conditions. After consideration of these
comments, the Departments
acknowledge that introduction of the
individual coverage HRA could lead
employers to provide lower health
benefits and higher taxable wages than
they would if they provided a
traditional group plan. However,
because the extent to which employers
will do so is uncertain, this effect is not
accounted for in the Departments’
quantitative estimates of transfers (that
is, the fiscal cost) arising from the rules.
Moreover, the Departments are of the
view that employers will design
employee compensation packages to the
benefit of employees since employers
aim to attract and maintain talent.
In addition, the estimates assume that
the entire individual coverage HRA
balance is spent on healthcare
premiums and cost sharing each year.
However, the Departments are of the
view that many employers would allow
employees to carry unspent individual
coverage HRA balances over from year
to year, and that some employers would
allow employees to continue to spend
accumulated individual coverage HRA
funds even after separating from their
employer. Moreover, individual
coverage HRA benefits are generally
subject to COBRA protections, such
that, for example, some employees
could elect to use accumulated funds for
up to 18 months after separation from
service. The ability to carry over
benefits from year to year could further
encourage employees to curtail
healthcare spending, particularly less
efficient spending. This effect could be
modest for several reasons. First, unlike
HSA balances, which can be withdrawn
for non-health purposes subject to tax
but without penalty after age 65 and
with a 20 percent penalty before age 65,
individual coverage HRAs may only be
used to reimburse expenses for medical
care. In addition, unlike HSAs,
individual coverage HRAs are not the
property of the employee and employers
may limit the amount that can be
carried over from year-to-year or
accessed by the employee after
separation, subject to applicable COBRA
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or other continuation of coverage
requirements.
These estimates further assume that
all individual health insurance coverage
integrated with an HRA would be
treated as subject to and compliant with
PHS Act sections 2711 and 2713. The
proposed rules prohibit an individual
coverage HRA from being integrated
with STLDI and excepted benefits,
which are not subject to or generally
compliant with PHS Act sections 2711
and 2713. Grandfathered coverage in the
individual market is not subject to the
annual dollar prohibition in PHS Act
section 2711 or to the preventive
services requirements in PHS Act
section 2713. However, the proposed
rules provided that employees nor
employers were required to confirm that
individual health insurance coverage
integrated with an HRA is not
grandfathered coverage, as requiring
such confirmation would be
administratively burdensome and the
Departments expected that the number
of employees who might use an
individual coverage HRA to buy such
coverage would be extremely small,
because individuals can only renew and
cannot newly enroll in grandfathered
individual health insurance coverage.
Commenters generally agreed that the
vast majority of individual health
insurance coverage is compliant with
PHS Act sections 2711 and 2713. As
noted earlier in the preamble, many
commenters emphasized the importance
of requiring individual coverage HRAs
to be integrated with individual health
insurance coverage, and not with
STLDI, in order to ensure the health and
stability of the individual market risk
pool. The Departments considered these
comments and are finalizing the
requirement that individuals covered by
an individual coverage HRA must be
enrolled in individual health insurance
coverage, as proposed. Further, under
the final rules, an individual coverage
HRA may not be integrated with STLDI.
In summary, the Departments
recognize that allowing HRAs to be
integrated with individual health
insurance coverage creates the potential
for some adverse selection and
increased premiums in the individual
health insurance market. To prevent
that occurrence, the Departments are
retaining in the final rules the key
conditions intended to prevent adverse
selection and health factor
discrimination. In addition, the
Departments are strengthening the
conditions intended to prevent of
adverse selection, including by adding a
minimum class size requirement that
applies to certain classes of employees
in certain circumstances and removing
as a permitted class of employees the
class of employees under age 25, which
had the potential to increase adverse
selection. The addition of the special
rule for new hires could also improve
the health of the overall individual
market risk pool. While the Departments
have also made changes in the final
rules in order to provide employers with
additional flexibility, such as adding as
new permitted classes of employees
non-salaried and salaried employees as
well as staffing firm temporary
employees (as well as adopting the
special rule for new hires), the
Departments have done so in a way that
is narrowly tailored to avoid creating
the risk of adverse selection. Therefore,
after consideration of these changes and
public comments, the Departments are
finalizing the economic modeling of the
individual coverage HRA without
changing the key assumptions.
In light of the Departments’
quantitative estimates and qualitative
analysis, the Departments conclude that
the benefits of the individual coverage
HRA outweigh the costs. In particular,
the Departments estimate that the final
rules will increase the number of
individuals with health insurance and
have only a small effect on individual
market premiums. The final rules will
significantly increase flexibility and
choices of health coverage for employers
and employees. As a result, employers
will benefit from having another choice
of a tax-preferred health benefit to offer
their employees, potentially enabling
them to attract and retain workers. In
addition, the increased use of HRAs
could potentially reduce healthcare
spending and ultimately result in
increased taxable wages.
3. Impact of Excepted Benefit HRA
The final rules also provide for
recognition of a new limited excepted
benefit HRA under which amounts
newly made available for each plan year
are limited to $1,800 (indexed for
inflation for plan years beginning after
December 31, 2020). Among other
conditions, to offer the excepted benefit
HRA, the employer must offer the
employee a group health plan that is not
limited to excepted benefits and that is
not an HRA or other account-based
group health plan, but the employee
would not need to enroll in this group
health plan. The benefit would be
funded by the employer, and in the
Treasury Department’s modeling, this
means that it would be paid for by all
employees in the firm through an
overall reduction in wages. The benefit
could be used to pay for any medical
expense, other than premiums for
individual health insurance coverage,
group health plan coverage (other than
COBRA or other continuation coverage),
or Medicare Part B or D. The excepted
benefit HRA could be used to pay
premiums for coverage that consists
solely of excepted benefits and for other
premiums, such as premiums for STLDI
(subject to the exception described later
in this section of the preamble).
Due to the availability of other tax
preferences for health benefits,
including the tax exclusion for
employer-sponsored benefits, salary
reductions for group and off-Exchange
individual health insurance coverage
premiums when integrated with an
individual coverage HRA, health FSAs,
and non-excepted benefit HRAs, the
Departments are of the view that this
new excepted benefit would be adopted
by a small number of firms. However, it
could provide flexibility for firms that
want to provide a tax preference to
employees that choose STLDI instead of
the employer’s traditional group health
plan.
Several commenters noted that the
excepted benefit HRA could adversely
impact the small employer group market
as employers in the small group market
would be more likely to offer an
excepted benefit HRA that reimburses
STLDI premiums (because these
employers are less likely to be directly
affected by the risk shifting due to the
fact that the small group market is
community rated) and healthier
employees would be more likely to opt
out of the traditional small employer
group plan and use the excepted benefit
to pay for health coverage out of pocket
or purchase STLDI. Several commenters
also expressed concern about the
negative impact on the individual
market, as the excepted benefit HRA
could draw some enrollees away to
STLDI plans. One commenter expressed
concern that sicker employees within a
firm, who could not obtain STLDI,
would bear greater costs. As explained
earlier in this preamble, the
Departments do not believe that
allowing the excepted benefit HRA to be
used to purchase STLDI creates a
significant risk pooling concern.
However, to mitigate potential adverse
selection affecting the small group
market, the final rules provide that the
Departments may restrict excepted
benefit HRAs from being able to
reimburse STLDI premiums for certain
employers in a state, if certain criteria
are satisfied.
Several commenters opposed the new
excepted benefit HRA because it would
allow employers to provide a smaller
health benefit. One commenter
expressed particular concern that low-
wage employers would be particularly
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attracted to this option, to the detriment
of employees. The Departments
conclude that this is not an important
risk or concern. First, employees must
have the option to receive a traditional
group health plan instead of the
excepted benefit HRA, and ERISA-
covered employers must provide a
notice of the dollar limits and other
limitations of the excepted benefit HRA.
In addition, the costs of coverage are
borne all or in part by employees, in the
form of reduced wages, and any
reduction in costly health benefits is
expected to be offset by increased
wages. Third, employees who decline
an employer’s offer of a traditional
group health plan may obtain coverage
through a spouse or the individual
market, and this coverage may also be
subsidized through a tax exclusion or
PTC. Therefore, the availability of this
new tax-preferred benefit is expected to
benefit employees, not harm them.
Several commenters expressed
concern that adding another type of
excepted benefit and another type of
HRA would create confusion among
employers and employees, potentially
resulting in costly mistakes. Some
commenters expressed concern that the
excepted benefit HRA would increase
uninsurance among employees who
forego coverage or use the benefit to
purchase STLDI (which need not
provide comprehensive benefits), thus
putting employees at risk or poor
financial or health outcomes.
Other commenters supported the
provision of the excepted benefit HRA
as proposed, including one who
expressed support for providing
employers with the greatest possible
flexibility to provide health benefits on
a tax preferred basis. The Departments
agree that the excepted benefit HRA will
provide additional flexibility for
employers, and for employees who want
to pay for their health care costs in ways
other than enrolling in their employer-
offered traditional group health plan.
The Departments continue to expect
that due to the availability of other tax
preferences for health benefits,
including larger tax preferences for
employer-provided benefits and the PTC
for individual health insurance
coverage, that adoption of the excepted
benefit HRA is likely to be modest, such
that the risk of introducing adverse
selection into other markets is low. The
Departments conclude that the benefits
of this additional choice and flexibility
provided by this new tax preferred
excepted benefit outweigh the likely
costs.
C. Regulatory Alternatives
In developing the final rules, the
Departments considered various
alternative approaches.
Retaining prohibition on integration
of HRAs with individual health
insurance coverage. The Departments
considered retaining the existing
prohibition on integration of HRAs with
individual health insurance coverage, in
particular in light of commenters who
raised concerns that allowing HRAs to
be integrated with individual health
insurance coverage could lead to
adverse selection and health factor
discrimination in the individual market.
However, the Departments determined
that the adverse selection concerns that
gave rise to the prohibition, and which
some commenters raised, can be
adequately addressed by including
appropriate mitigating conditions in the
final rules. Moreover, the alternative
approach of continuing to prohibit the
integration of HRAs with individual
health insurance coverage would
foreclose the benefits that the
Departments expect to result from
allowing individual coverage HRAs,
including increased flexibility and
choices of health coverage options for
employers and employees; possibly
reduced healthcare spending and
increased taxable wages for workers
currently in firms that offer traditional
group health plans; and increased
numbers of low- and moderate-wage
workers (and their family members)
with health insurance coverage.
Integration conditions to prevent
against adverse selection. The proposed
rules contained a number of conditions
intended to mitigate the risk of adverse
selection, including that an employer
may not offer any employee a choice
between a traditional group health plan
and an individual coverage HRA and
that, if an employer offers an individual
coverage HRA, it must do so on the
same terms and conditions for all the
employees in the class of employees
subject to certain exceptions. The
Departments considered a number of
alternatives related to these conditions
in developing the final rules. As to the
prohibition on choice between an
individual coverage HRA and a
traditional group health plan, the
Departments considered the alternative
of allowing all employers, or, employers
that would qualify to participate in the
small group market, to offer employees
a choice between an individual coverage
HRA and a traditional group health
plan. However, the Departments
determined that retaining this condition
as proposed is important to prevent
against adverse selection and
commenters generally agreed. The
Departments did consider that the
incentives for employers in the small
group market to segment risk are lower
than for other employers offering
experience-rated coverage or self-
insured plans. However, the
Departments would not expect many
small employers to offer this choice
because the coverage in the small group
market and individual market is quite
similar and because small employers
that purchase health insurance would
not have an incentive to segment their
risk pool. Although allowing small
employers to offer a choice would not
provide small employers much benefit,
it would increase the complexity of the
final rules for entities involved in
implementation, such as the Exchanges,
and could cause uncertainty for issuers.
Accordingly, the Departments decline to
provide an exception for small
employers to the condition that a plan
sponsor may not offer an employee a
choice between a traditional group
health plan and an individual coverage
HRA. However, the Departments are
generally supportive of maximizing
employee choice and employer
flexibility and so may revisit this issue
in future rulemaking once the
Departments have had the opportunity
to gauge the results of the initial
implementation of individual coverage
HRAs.
With respect to the proposed
condition that an employer must offer
an individual coverage HRA on the
same terms to all employees within a
class of employees, the Departments
considered whether to allow individual
coverage HRAs to increase amounts
based on age, without any related
parameters, as proposed, or, as an
alternative, whether to place an outer
limit on the ability to age vary, as some
commenters suggested the Departments
should do to protect against adverse
selection. Upon consideration of these
comments, the Departments determined
that imposing a limit on the ability to
increase HRA amounts based on age is
justified in order to protect against
adverse selection. In designing that
limitation on age variation, the
Departments considered a number of
alternatives, including incorporating the
federal and state age curves and tying
the variation to a specific premium for
a specific policy that a participant in the
class of employees could purchase.
However, the Departments determined
that these options would be unduly
complex and that imposing the 3 to 1
limit on the variation of HRA amounts
within a class based on age, which is
generally based on the degree of age
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variation allowed in individual market
premiums under PHS Act section 2701,
sufficiently limits the potential for
abuse.
The proposed rules provided that
plan sponsors may apply the integration
conditions on a class-by-class basis such
that an employer may offer an
individual coverage HRA to a class of
employees while offering a traditional
group health plan to another class of
employees or may offer different
individual coverage HRAs, with
different terms, to different classes of
employees. The Departments considered
whether to retain the ability of
employers to offer or vary individual
coverage HRAs for different classes of
employees or whether employers should
be required to offer all employees an
individual coverage HRA if any
employee is offered an individual
coverage HRA. Although some
commenters raised concerns that the
classes of employees could be
manipulated leading to health factor
discrimination and adverse selection,
the Departments decided to finalize the
ability to offer and vary individual
coverage HRAs on a class-by-class basis
because this aspect of the rule provides
employers with the flexibility needed to
achieve increased HRA usability and to
maximize employee welfare, which is a
sentiment expressed by a number of
commenters. However, the Departments
acknowledge the concern regarding the
potential for adverse selection and
health factor discrimination and,
therefore, have concluded that
additional safeguards are needed in
certain circumstances, as described later
in this section of the preamble.
Under the proposed rules, the
Departments enumerated eight
permitted classes of employees and also
allowed employers to combine the
classes of employees. In the process of
finalizing the rules, the Departments
considered, as an alternative, whether to
provide classes of employees based on
a more general standard (like the one
that applies under the HIPAA
nondiscrimination rules, with a broader
employment-based classification
standard) or whether to finalize
generally as proposed, such that the
final rules would list the specific
permitted classes. The Departments
determined that a broad and open-
ended standard would not be sufficient
to mitigate the risk of adverse selection
and therefore under the final rules, the
Departments enumerate the permitted
classes.
The Departments considered a
number of alternatives with regard to
which classes of employees should be
permitted under the final rules. The
proposed rules contained, as a
permitted class of employees,
employees who had not attained age 25.
The Departments considered whether to
retain this class in the final rules or
whether to remove this from the list of
permitted classes, in response to
commenters who asserted that this class
could lead to adverse selection and does
not reflect the categories employers
typically use to offer benefits. In
response to these comments, the
Departments determined that the final
rules should not include the under-age-
25 class of employees in the list of
permitted classes.
Further, under the proposed rules, the
Departments did not include salaried
employees and hourly employees as
permitted classes of employees. In
finalizing the rules, the Departments
considered whether to add hourly and
salaried employees as permitted classes
or whether to finalize the rule as
proposed. In proposing the rules, the
Departments had noted that they did not
include these classes in the list of
permitted classes due to a concern that
employers might easily be able to
change an employee’s status from
salaried to hourly (and in certain
circumstances, from hourly to salaried),
which could lead to adverse selection.
Commenters asserted that contrary to
the Departments’ concerns these classes
are not easy to manipulate and that
hourly and salaried employees should
be added as permitted classes, in order
to increase the use of individual
coverage HRAs. The Departments have
concluded that the benefits of employer
flexibility, increased utilization of
individual coverage HRAs, and
maximizing employee welfare outweigh
the potential risk of adverse selection
and health factor discrimination, due to
a reconsideration of the extent to which
these categories could be manipulated
and because of the application of a
minimum class size requirement,
discussed later in this section of the
preamble. Therefore, the Departments
add employees paid on a salary basis
and non-salaried employees (such as
hourly employees) to the list of
permitted classes in the final rules.
The Departments also considered, in
response to comments, whether to add
as a class of employees temporary
workers employed by staffing firms. The
Departments determined that adding
this class could increase the usability of
HRAs for staffing firms and benefit their
employees. The Departments also
determined that this class would be
difficult to manipulate, and that,
therefore, this class does not raise a
substantial risk of adverse selection or
health factor discrimination.
Accordingly, the Departments add
temporary workers employed by staffing
firms to the classes of employees
permitted under the final rules.
The Departments also considered
whether or not to add other classes to
the list of permitted classes, as
suggested by commenters, including
classes based on status as a field worker
(such as craft workers and laborers), role
or job title, employee tenure, being
subject to the Davis Bacon Act and
Related Acts or the Service Contract
Act, exempt or non-exempt status under
the Fair Labor Standards Act, and
religion or status as a minister. The
Departments considered each of these
suggestions and determined that these
suggested classes of employees should
not be permitted as they raise various
issues, including ease of manipulation
and potential for adverse selection and
health factor discrimination, industry-
specificity, and administrability and
definitional challenges.
Additional integration safeguards.
The Departments considered a number
of alternative regulatory approaches to
address the concern, acknowledged by
the Departments and expressed by a
number of commenters, that there is a
potential for certain of the permitted
classes of employees to be manipulated
in way that could lead to adverse
selection and health factor
discrimination. The Departments
considered not adopting additional
safeguards, in order to minimize burden
and complexity and based on the
possibility that other economic
incentives related to attracting and
retaining talented workers would
discourage employers from using the
classes to segment risk. However, the
Departments have concluded that it is
appropriate to apply a minimum class
size requirement under the final rules in
certain circumstances. The Departments
sought to develop a rule that is narrowly
tailored both to mitigate the risk of
adverse selection and health factor
discrimination while also avoiding
overly burdening employers or
unnecessarily hampering the use and
flexibility of HRAs to maximize
employee welfare.
The Departments considered a
number of alternatives in designing the
minimum class size requirement. The
Departments considered whether to
apply the minimum class size
requirement to all permitted classes of
employees or only to the classes of
employees that raise more significant
concerns about manipulation. The
Departments determined that the
minimum class size requirement should
apply to only certain of the classes,
referred to as the applicable classes (that
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313
In 1999, 17 percent of workers eligible for
employer coverage at small firms (those with 3 to
199 workers) turned down the offer of employer
coverage. By 2011, this share had climbed to 22
percent, and in 2018 it was 27 percent. See Kaiser
Family Foundation, ‘‘Employer Health Benefits
2018 Survey,’’ Figure 3.1, available at http://
files.kff.org/attachment/Report-Employer-Health-
Benefits-Annual-Survey-2018.
is, full-time employees, part-time
employees, salaried employees, non-
salaried employees, and, in general,
employees whose primary site of
employment is in a rating area). The
Departments also determined that the
minimum class size requirement should
apply if any of these applicable classes
are combined with any other class,
except if the combined class is the result
of one of the applicable classes and the
class of employees in a waiting period,
because the Departments determined
that that combined classis not easily
manipulable. Similarly, although a class
of employees based on worksites in a
rating area is an applicable class for
purposes of the minimum class size
requirement, a class of employees based
on an entire state or a combination of
two or more entire states is not subject
to the minimum class size requirement,
because in that case, weighing concerns
about manipulability against the intent
to provide employers with flexibility
and choice, the Departments determined
the application of the minimum class
size requirement was not warranted.
If a class of employees is subject to
the minimum class size requirement,
the class must include a minimum
number of employees for the individual
coverage HRA to be offered to that class.
As to the number of employees a class
must contain to satisfy the minimum
class size requirement, the Departments
considered a number of alternatives
including whether to provide one
number for all employers or base the
threshold on employer size. The
Departments also considered providing
a set number or a number calculated as
a percentage of the employer’s
employees. The Departments
determined that this safeguard should
be narrowly tailored, so as to prevent
against adverse selection without
unduly restricting employer flexibility.
Therefore, under the final rules, the
applicable minimum class size varies
based on the size of the employer for
smaller employers (that is, those with
under 200 employees) and for
employers with 200 or more employees,
the applicable class size minimum is set
at 20.
In response to comments, the
Departments also considered whether,
in addition to, or instead of, a minimum
class size requirement, the final rules
should contain an anti-abuse rule that
would give the Departments the
discretion to determine whether an
individual coverage HRA is offered in a
manner that is intended to segment
sicker workers based on all the facts and
circumstances. Therefore, even if an
employer followed the other rules set
forth in the final rules, this additional
rule would nevertheless permit the
Departments to address instances of
discrimination based on a health factor.
The Departments decline to add a facts
and circumstances test to the final rules,
because the Departments have
concluded that the minimum class size
requirement adequately balances the
need to prevent health factor
discrimination with the need to provide
employers with certainty in order to
encourage expansion and use of
individual coverage HRAs. Moreover,
other applicable nondiscrimination laws
continue to apply. A new facts and
circumstances test would add
significant uncertainty for employers
while adding little additional protection
mitigating adverse selection and health
factor discrimination.
Additional flexibility for the transition
to individual coverage HRAs from
traditional group health plans. The
Departments also considered regulatory
alternatives that would allow employers
to phase in offering individual coverage
HRAs, in response to comments noting
that the transition from traditional
group health plans to individual
coverage HRAs could be a substantial
change from an employee perspective.
The Departments considered whether
additional flexibility was needed, in
particular because the permitted classes
of employees that apply under the final
rules provide employers some flexibility
to manage the transition to individual
coverage HRAs. However, the
Departments also considered that
certain additional flexibility could
benefit employers and employees,
without adding significant complexity
or increasing the risk of adverse
selection. Accordingly, the final rules
provide that, notwithstanding the
general rule that a plan sponsor may
only offer either a traditional group
health plan or an individual coverage
HRA to a class of employees, a plan
sponsor that offers a traditional group
health plan to a class of employees may
prospectively offer employees in that
class hired on or after a certain date in
the future an individual coverage HRA,
while continuing to offer employees in
the class hired before the new hire date
a traditional group health plan.
Alternatives considered regarding
excepted benefit HRAs. As proposed,
the excepted benefit HRA would allow
for the reimbursement of premiums for
STLDI. In response to commenters
requesting that the excepted benefit
HRA not be permitted to reimburse
STLDI premiums due to adverse
selection concerns and concerns about
the comprehensiveness of STLDI, the
Departments considered whether to
finalize as proposed or whether to
prohibit the reimbursement of STLDI
premiums under all excepted benefit
HRAs. The Departments also considered
whether to prohibit the reimbursement
of STLDI premiums for only certain
excepted benefit HRAs, more
specifically, those sponsored by
employers that offer traditional group
health plans in the small group market,
where commenters asserted this aspect
of the rule would have particularly
damaging effects because employers
would not have a direct negative
financial consequence from offering the
excepted benefit for STLDI in addition
to a traditional small group market plan
in which case lower-risk employees
would likely choose the STLDI and
higher-risk employees would choose the
traditional small group market health
plan. The Departments determined that
excepted benefit HRAs generally should
be allowed to reimburse premiums for
STLDI because it can be a viable health
insurance option for many people in
many circumstances, no individual is
required to enroll in STLDI, and STLDI
disclosure requirements are sufficient to
apprise consumers of its limits. As
explained earlier in this preamble, the
Departments do not expect that allowing
the excepted benefit HRA to reimburse
STLDI premiums will produce adverse
selection in the small group market. In
particular, the Departments note that
individuals who choose to use the
excepted benefit HRA to purchase
STLDI are likely to be uninsured
otherwise, including lower-wage
workers who are increasingly declining
employer offers of traditional group
coverage.
313
The purchase of STLDI
coverage by these individuals will have
no effect on the small group or
individual market.
However, in response to concerns
raised by commenters, the final rules
also contain a special rule to address
commenters’ concerns about the
potential for adverse selection in the
small group markets. Under the special
rule, the Departments may restrict
excepted benefit HRAs from being able
to reimburse STLDI premiums, for
employers offering fully-insured or
partially-insured traditional group
health plans in the small group market
in a state, if certain criteria are satisfied,
including that HHS makes a finding, in
consultation with DOL and the Treasury
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Department, that the reimbursement of
premiums for STLDI by excepted benefit
HRAs has caused significant harm to the
small group market in the state that is
the principal place of business of the
small employer and this finding must be
made after submission of a written
recommendation by the applicable state
regulatory authority of such state.
The proposed excepted benefit HRA
rules did not contain a specific notice
requirement. However, several
commenters suggested that the final
rules impose certain notice
requirements for excepted benefit HRAs,
including to inform participants and
beneficiaries of the annual dollar limit
for benefits under the excepted benefit
HRA, other terms and conditions of the
excepted benefit HRA, and participants’
and beneficiaries’ rights under the
excepted benefit HRA. In response, the
Departments considered whether to
impose a notice requirement, whether to
finalize as proposed with no notice
requirement, or whether to explain the
disclosure requirements otherwise
applicable to excepted benefit HRAs. In
the final rules, the Departments do not
impose a notice requirement on private-
sector, employment-based plans covered
by ERISA but, instead, explain that
excepted benefit HRAs that are subject
to ERISA are already subject to a
number of disclosure provisions, under
which excepted benefit HRAs should
generally provide information on
eligibility to receive benefits, annual or
lifetime caps or other limits on benefits
under the plan, and a description or
summary of the benefits. However, for
non-federal governmental plans, which
are not subject to ERISA, the final rules
announce HHS’ intent to propose a
notice requirement, similar to the
disclosures required under ERISA.
Under the proposed excepted benefit
HRA rules, the Departments proposed
that annual amounts newly made
available under the HRA would be
limited to $1,800, indexed for inflation.
Many commenters supported the
proposed dollar limit as a reasonable
mid-point of the different limits that
would result in applying various
methodologies, however some requested
that the limit be increased, including to
allow for the additional purchase of
excepted benefit policies or for more
expensive STLDI policies and others
requested it not be subject to any dollar
limit. Some of these commenters
favored a higher limit for excepted
benefit HRAs based on age and number
of dependents to reflect that participants
who are older or have dependents are
likely to have higher healthcare costs.
The Departments considered as
regulatory alternatives the various limits
suggested by commenters, including the
annual salary reduction contribution
limit for health FSAs or 15 percent of
the cost of coverage under the
employer’s primary plan. The final rules
do not remove or increase the dollar
limit for the excepted benefit HRA. The
Departments agree that increasing the
dollar limit would encourage certain
participants to rely solely on benefits
reimbursed through the excepted benefit
HRA and could lead to adverse
selection. Also, in order to constitute a
limited excepted benefit, as explained
earlier in this preamble, because the
benefit is not otherwise limited in
scope, the HRA must have a strict dollar
limit.
In determining the appropriate dollar
limit for excepted benefit HRAs, the
Departments considered other, similar
limited excepted benefits. The
Departments agree with commenters’
assertions that the proposed limit was
reasonable and rational, especially
considering the relatively low cost of
excepted benefits coverage, such as
dental or vision coverage. Additionally,
although the Departments recognize that
healthcare expenses may be higher for
participants who are older or have
dependents, adopting a higher limit to
account for a combination of factors like
age and family size could allow an
excepted benefit HRA to be too large
and to resemble major medical coverage
and would add significant complexity to
the rule.
Applicability date. The proposed
rules were generally proposed to be
applicable for plan years beginning on
or after January 1, 2020. In response to
comments expressing concern that
issuers, state insurance regulators, the
Exchanges, and employers would not be
prepared for implementation of the final
rules by 2020, the Departments
considered whether to finalize the
applicability date as proposed or
whether to delay the applicability date
until 2021. The Departments have
determined that, in consideration that
Executive Order 13813, issued in
October 2017, set forth HRA expansion
as an Administration priority ‘‘in the
near term,’’ and in order to provide
Americans with more options for
financing their healthcare, the
regulations should be applicable, as
proposed, for 2020. However, the
Departments acknowledge and also
considered the crucial role that the
Exchanges have in implementation and
operationalization of the final rules, and
the Departments will work closely with
the Exchanges on implementation. The
Departments considered the comments
and the concerns raised by various State
Exchanges, issuers, employers and other
stakeholders related to the ability of the
Exchanges to fully implement changes
related to the final rules in time for open
enrollment for the 2020 plan year. The
Departments recognize that Exchanges
may be unable to fully implement
changes related to the final rules in time
for open enrollment for the 2020 plan
year. However, prior to full
implementation, the Departments will
work with the Exchanges on their
strategies to provide information to
consumers about affordability of
individual coverage HRAs and
eligibility for APTC, including how
employees can access individual health
insurance coverage through the
Exchanges and determine whether they
should use APTC. In fact, multiple
conversations have already occurred
between program and operational
experts at HHS and officials from State
Exchanges regarding implementation in
the event the rule was finalized as
proposed (including with an
applicability date as proposed). Ongoing
technical assistance will be provided
related to the development of tools and
functionality by Exchanges to support
employers and employees with
understanding HRA affordability
determinations and their impact on
APTC eligibility, as well as the SEP for
those with an offer of an individual
coverage HRA. Specific assistance could
include sharing technical and
educational documentation from FFE
implementation that can be leveraged to
support State Exchange efforts. In
addition, the Departments will provide
assistance to Exchanges in developing
information and tools that could be
provided to employers and employees
to help ensure smooth implementation
before the full system changes are
complete. This could include State
Exchanges providing employees with
information on how they can calculate
HRA affordability and determine the
impact on APTC in the absence of
system changes that can make those
calculations for the employee.
The Departments also considered that
many individuals covered by an
individual coverage HRA will prefer to
select off-Exchange individual health
insurance plans because salary
reductions through a cafeteria plan may
be used to pay premiums for off-
Exchange coverage, if the employer so
allows, and may not be used to pay
premiums for Exchange coverage. To the
extent a significant proportion of
employees with individual coverage
HRAs purchase individual health
insurance coverage off the Exchange,
concerns about burden on the
Exchanges, and concerns regarding the
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314
See May 2017 Bureau of Labor Statistics,
Occupational Employment Statistics, National Occupational Employment and Wage Estimates, available at https://www.bls.gov/oes/current/oes_
nat.htm.
effects of timely operationalization of
the PTC rules, are mitigated.
Further, the Departments have
worked to release the final rules as early
in 2019 as possible, in recognition of the
implementation timing issues raised
and the Departments note, and
considered, that plan sponsors may
choose if and when to offer an
individual coverage HRA (or an
excepted benefit HRA) and may do so
any time on or after the applicability
date. The Departments intend to provide
the guidance necessary for plan
sponsors to offer individual coverage
HRAs and excepted benefit HRAs for
the 2020 plan year, but the Departments
also expect that plan sponsors will take
the time they need to evaluate the final
rules and to take advantage of these new
coverage options if and when it is best
for their workforce.
D. Paperwork Reduction Act—
Department of Health and Human
Services
Under the Paperwork Reduction Act
of 1995 (PRA), HHS is required to
provide 30-day notice in the Federal
Register and solicit public comment
before a collection of information
requirement is submitted to OMB for
review and approval. To fairly evaluate
whether an information collection
should be approved by OMB, section
3506(c)(2)(A) of the PRA requires that
HHS solicit comment on the following
issues:
The need for the information
collection and its usefulness in carrying
out the proper functions of our agency.
The accuracy of HHS’ estimate of
the information collection burden.
The quality, utility, and clarity of
the information to be collected.
Recommendations to minimize the
information collection burden on the
affected public, including automated
collection techniques.
1. Wage Estimates
To derive wage estimates, the
Departments generally used data from
the Bureau of Labor Statistics to derive
average labor costs (including a 100
percent increase for fringe benefits and
overhead) for estimating the burden
associated with the information
collection requirements (ICRs).
314
Table
3 below presents the mean hourly wage,
the cost of fringe benefits and overhead,
and the adjusted hourly wage.
As indicated, employee hourly wage
estimates have been adjusted by a factor
of 100 percent. This is necessarily a
rough adjustment, both because fringe
benefits and overhead costs vary
significantly across employers, and
because methods of estimating these
costs vary widely across studies.
Nonetheless, there is no practical
alternative, and the Departments are of
the view that doubling the hourly wage
to estimate total cost is a reasonably
accurate estimation method.
T
ABLE
3—A
DJUSTED
H
OURLY
W
AGES
U
SED IN
B
URDEN
E
STIMATES
Occupation title Occupational
code
Mean
hourly wage
($/hour)
Fringe
benefits and
overhead
($/hour)
Adjusted
hourly wage
($/hour)
Compensation and Benefits Manager ............................................................. 11–3111 $62.50 $62.50 $125.00
Lawyer ............................................................................................................. 23–1011 68.22 68.22 136.44
All Occupations ................................................................................................ 00–0000 24.34 24.34 48.68
2. ICRs Regarding Substantiation of
Individual Health Insurance Coverage
(45 CFR 146.123(c)(5))
Under the final rules, an HRA must
implement reasonable procedures to
annually verify that participants or
dependents, whose medical care
expenses are reimbursable by the HRA
are, or will be, enrolled in individual
health insurance coverage or Medicare
for the entire plan year on or before the
first day of the plan year, or, for an
individual who is not eligible to
participate in the individual coverage
HRA on the first day of the plan year,
by the date HRA coverage begins
(annual coverage substantiation
requirement).
In addition to the annual
substantiation of coverage, with each
new request for reimbursement of an
incurred medical care expense for the
same plan year, the final rules provide
that the HRA may not reimburse a
participant for any medical care
expenses unless, prior to each
reimbursement, the participant provides
substantiation that the individual on
whose behalf reimbursement of medical
care expenses are requested to be
reimbursed were enrolled in individual
health insurance coverage or Medicare
for the month during which the medical
care expenses were incurred. The
attestation may be part of the form used
for requesting reimbursement.
To satisfy these substantiation
requirements, the HRA may require that
the participant submit a document
provided by a third party (for example,
an explanation of benefits or insurance
card) showing that the participant and
any dependent(s) covered by the
individual coverage HRA are, or will be,
enrolled in individual health insurance
coverage or Medicare during the plan
year or an attestation by the participant
stating that the participant and any
dependent(s) are, or will be, enrolled in
individual health insurance coverage or
Medicare, the date coverage began or
will begin, and the name of the provider
of the coverage. Additionally, nothing in
the final rules would prohibit an
individual coverage HRA from
establishing procedures to comply with
the substantiation requirements through
electronic means, so long as the
procedures are reasonable to verify
enrollment. The ongoing substantiation
may be in the form of a written
attestation by the participant, which
may be part of the form used for
requesting reimbursement and which
will minimize the burden on plan
sponsors and participants. The ongoing
substantiation requirement may also be
satisfied by a document from a third
party. The associated cost of
substantiation will be minimal and is,
therefore, not estimated.
The Departments are releasing
guidance providing model attestation
language, separate from the final rules.
However, the Departments note that
individual coverage HRAs will not be
required to use the model attestation.
For those HRAs that elect to use the
model attestation language provided by
the Departments, it will further reduce
burden for HRAs and participants.
The burden related to these ICRs will
be reviewed under emergency review
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315
U.S. Department of the Treasury, Office of Tax
Analysis simulation model suggests that in 2020,
approximately 80,000 employers will offer
individual coverage HRAs, with 1.1 million
individuals receiving an offer of an individual
coverage HRA. These numbers will increase to
200,000 employers and 2.7 million individuals in
2021 and to 400,000 employers and 5.3 million
individuals in 2022. The Departments estimate that
there is, on average, 1 dependent for every
policyholder. The Departments also estimate that
approximately 2 percent of employers are state and
local government entities, accounting for
approximately 14 percent of participants.
316
U.S. Department of the Treasury, Office of Tax
Analysis simulation model provides estimates of
the number of participants and dependents offered
an individual coverage HRA. Number of eligible
participants is estimated based on the assumption
that 75 percent of eligible participants will enroll
in their employers’ plans. See Kaiser Family
Foundation, ‘‘2017 Employer Health Benefits
Survey’’, Section 3, https://www.kff.org/health-
costs/report/2017-employer-health-benefits-survey/.
and approval. They have been
submitted to OMB in conjunction with
this final rule and are pending approval.
3. ICRs Regarding Notice Requirement
for Individual Coverage HRA (45 CFR
146.123(c)(6))
These final rules include a
requirement that an HRA provide
written notice to eligible participants. In
general, the HRA will be required to
provide a written notice to each
participant at least 90 days before the
beginning of each plan year. For
participants who are not yet eligible to
participate at the beginning of the plan
year (or who are not eligible when the
notice is provided at least 90 days prior
to the beginning of the plan year), the
HRA must provide the notice no later
than the date on which the HRA may
first take effect for the participant.
However, the Departments encourage
the HRA to provide the notice as soon
as practicable prior to the date the HRA
may first take effect. The final rules
provide that if the HRA is sponsored by
an employer that is established less than
120 days prior to the beginning of the
first plan year of the HRA, the notice
may be provided no later than the date
on which the HRA may first take effect
for the participant.
The written notice will be required to
include certain relevant information,
including a description of the terms of
the HRA, including the maximum dollar
amount made available that is used in
the affordability determination under
the Code section 36B rules including
information on when the amounts will
be made available (for example,
monthly or annually at the beginning of
the plan year); a statement of the right
of the participant to opt-out of and
waive future reimbursement under the
HRA; a description of the potential
availability of the PTC for a participant
who opts out of and waives an HRA if
the HRA is not affordable under the PTC
rules; a description of the PTC eligibility
consequences for a participant who
accepts the HRA; a statement on how
the participant may find assistance for
determining their individual coverage
HRA affordability; a statement that the
participant must inform any Exchange
to which they apply for advance
payments of the PTC of certain relevant
information; contact information
(including at least a phone number) of
an individual or a group of individuals
who participants may contact with
questions regarding the individual
coverage HRA; a statement that the
participant should retain the written
notice because it may be needed to
determine whether the participant is
allowed the PTC; a statement that the
HRA may not reimburse any medical
care expense unless the substantiation
requirements are satisfied; a statement
of availability of an SEP for employees
and dependents who newly gain access
to the HRA; the date as of which
coverage under the HRA may first
become effective and the date on which
the HRA plan year ends; and a
statement to clarify further that there are
multiple types of HRAs and the type the
participant is being offered is an
individual coverage HRA.
The written notice may include other
information, as long as the additional
content does not conflict with the
required information. The written notice
will not need to include information
specific to a participant.
The Departments are providing model
language contemporaneously on certain
aspects of the notice that are not
employer-specific, including model
language describing the PTC
consequences of being offered and
accepting an individual coverage HRA,
how the participant may find
information to determine whether the
individual coverage HRA offered is
affordable, and language to meet the
requirement to include a statement
regarding the availability of an SEP in
the individual market for individuals for
whom an individual coverage HRA is
newly made available. While the
Departments hope it will be useful to
employers, plan sponsors will not be
required to use the model language and
the final rules do not prohibit an
employer from providing more
individualized notices, such as different
notices for different classes of
employees, if the employer so chooses.
The Departments estimate that for
each HRA plan sponsor, a compensation
and benefits manager will need 2 hours
(at $125 per hour) and a lawyer will
need 1 hour (at $136.44 per hour) to
prepare the notices. The total burden for
an HRA plan sponsor will be 3 hours
with an equivalent cost of
approximately $386. This burden will
be incurred the first time the plan
sponsor provides an individual coverage
HRA. In subsequent years, the burden to
update the notice is expected to be
minimal and therefore is not estimated.
If the HRA plan sponsor elects to use
the model notice, the burden may be
reduced.
HHS estimates that in 2020, an
estimated 1,203 state and local
government entities will offer
individual coverage HRAs.
315
The total
burden to prepare notices will be
approximately 3,610 hours with an
equivalent cost of approximately
$464,984. In 2021 approximately 1,805
additional state and local government
entities will offer individual coverage
HRAs for the first time and will incur
a burden of approximately 5,415 hours
with an equivalent cost of
approximately $697,476. In 2022,
approximately 3,008 additional state
and local government entities will offer
individual coverage HRAs for the first
time and will incur a burden of
approximately 9,024 hours with an
equivalent cost of approximately $1.16
million.
HRA plan sponsors will provide the
notice to eligible participants every
year. HHS estimates that HRA plan
sponsors will provide printed notices to
approximately 99,178 eligible
participants
316
in 2020, 243,438 eligible
participants in 2021 and 477,859
eligible participants in 2022. The
Departments anticipate that the notices
will be approximately 6 pages long and
the cost of materials and printing will be
$0.05 per page, with a total cost of $0.30
per notice. It is assumed that these
notices will be provided along with
other benefits information with no
additional mailing cost. The
Departments assume that approximately
54 percent of notices will be provided
electronically and approximately 46
percent will be provided in print along
with other benefits information.
Therefore, in 2020, state and local
government entities providing
individual coverage HRAs will print
approximately 45,622 notices at a cost
of approximately $13,687. In 2021,
approximately 111,981 notices will be
printed at a cost of approximately
$33,594 and in 2022, approximately
219,815 notices will be printed at a cost
of approximately $65,945.
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T
ABLE
4—A
NNUAL
B
URDEN AND
C
OSTS
Year
Estimated
number of
employers
newly
offering
HRAs
Estimated
number of
notices to
all eligible
participants
Total annual
burden
(hours)
Total
estimated
labor cost
Total
estimated
printing and
materials cost
2020 ........................................................................... 1,203 99,178 3,610 $464,984 $13,687
2021 ........................................................................... 1,805 243,438 5,415 697,476 33,594
2022 ........................................................................... 3,008 477,859 9,024 1,162,461 65,945
3 year average .................................................... 2,005 273,492 6,016 774,974 37,742
The burden related to these ICRs will
be reviewed under emergency review
and approval. They have been
submitted to OMB in conjunction with
this final rule and are pending approval.
4. ICRs Regarding Notice Requirement
for Excepted Benefit HRAs
In response to commenters’ concerns,
the final rules announce HHS’ intent to
propose a notice requirement with
respect to excepted benefit HRAs
sponsored by nonfederal governmental
plan sponsors in future notice and
comment rulemaking. It is anticipated
that the proposed excepted benefit HRA
notice would describe conditions
pertaining to eligibility to receive
benefits, annual or lifetime caps or other
limits on benefits under the plan, and a
description or summary of the benefits
consistent with the requirements of 29
CFR 2520.102–3(j)(2), (3). At that time,
HHS will estimate the burden associated
with this requirement, solicit public
comment, and request OMB approval in
accordance with the PRA, as may be
necessary.
5. ICRs Regarding Notification of
Termination of Coverage (45 CFR
146.123(c)(1)(iii))
Under the final rules, if an
individual’s health insurance coverage
is cancelled or terminated, including
retroactively, for failure to pay
premiums or any other reason (for
example, a rescission), the individual
coverage HRA must require that the
individual notify the HRA that coverage
has been cancelled or terminated and
the date on which the cancellation or
termination is effective. The associated
cost of this notification will be minimal
and is, therefore, not estimated.
The burden related to these ICRs will
be reviewed under emergency review
and approval. They have been
submitted to OMB in conjunction with
this final rule and are pending approval.
6. ICRs Regarding Special Rule for
Excepted Benefit HRAs (45 CFR
146.145(b)(3)(viii)(F))
Under the final rules, an excepted
benefit HRA offered by certain small
employers must not reimburse
premiums for STLDI in a state, if the
Secretary of HHS makes a finding (in
consultation with the Secretaries of
Labor and the Treasury) that the
reimbursement of premiums for STLDI
by excepted benefit HRAs has caused
significant harm to the small group
market in the state that is the principal
place of business of the small employer.
The finding by the Secretary of HHS
may be made only after submission of
a written recommendation by the
applicable state authority of such state,
in a form and manner as specified in
guidance published by HHS. The
written recommendation must include
evidence that the reimbursement of
premiums for STLDI by excepted benefit
HRAs established by fully-insured or
partially-insured small employers in the
state has caused significant harm to the
state’s small group market, including
with respect to premiums. HHS
anticipates fewer than 10 states will
submit recommendations annually.
Under 5 CFR 1320.3(c)(4), this ICR
will not be subject to the PRA as we
anticipate it will affect fewer than 10
entities in a 12-month period.
7. ICRs Regarding SEPs (45 CFR
155.420(d)(14))
The final SEP rules include a new
SEP at 45 CFR 155.420(d)(14), to allow
individuals who newly gain access to an
individual coverage HRA or are newly
provided a QSEHRA to enroll in or
change their individual health
insurance coverage. As stated earlier in
the preamble, the FFEs will require
individuals to submit documentation to
confirm their SEP eligibility prior to
effectuating their enrollment, and
encourages State Exchanges to do so, as
well. Consistent with other SEPs subject
to pre-enrollment verification,
individuals will be required to provide
supporting documentation, such as the
HRA notice required under the final
rules, within 30 days of plan selection.
HHS estimates that an additional
330,000 consumers will submit
documents in 2020 to verify their
eligibility to enroll through the SEP in
the Exchanges, and that a consumer
will, on average, spend approximately 1
hour gathering and submitting required
documentation. Using the average
hourly wage for all occupations (at an
hourly rate of $48.68), the opportunity
cost to a consumer completing this task
is estimated to be approximately $48.68.
The total annual burden on those
consumers submitting documentation
will be approximately 330,000 hours
with an equivalent cost of
approximately $16,064,400. As new
individual coverage HRA enrollments
increase, these costs also increase in
subsequent years. In 2021, an additional
480,000 consumers will submit
documents and incur burden of 480,000
hours with an equivalent cost of
approximately $23,366,400 and in 2022
an additional 780,000 consumers will
submit documents and incur burden of
780,000 hours with an equivalent cost of
approximately $37,970,400. The three-
year average is 530,000 additional
consumers submitting documents, with
a total burden of 530,000 hours and an
equivalent cost of $25,800,400 per year.
HHS will amend the information
collection currently approved under
OMB control number 0938–1207
(Medicaid and Children’s Health
Insurance Programs: Essential Health
Benefits in Alternative Benefit Plans,
Eligibility Notices, Fair Hearing and
Appeal Processes, and Premiums and
Cost Sharing; Exchanges: Eligibility and
Enrollment (CMS–10468)) to account for
this additional burden.
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T
ABLE
5—A
NNUAL
R
ECORDKEEPING AND
R
EPORTING
R
EQUIREMENTS
Regulation section OMB
control No. Respondents Responses Burden per
response
(hours)
Total annual
burden
(hours)
Hourly labor
cost of
reporting
Total labor
cost of
reporting
Printing and
materials
cost Total cost
§146.123(c)(6) (Notice for Indi-
vidual Coverage HRAs).
0938–NEW ......... 2,005 273,492 3 6,016 $128.81 $774,974 $37,742 $812,716
45 CFR 155.420(d)(14) (SEP) ..... 0938–1207 ......... 530,000 530,000 1 530,000 48.68 25,800,400 0 25,800,400
Total ...................................... ............................. 532,005 803,492 ........................ 536,016 ........................ 26,575,374 37,742 26,613,116
8. Submission of PRA-Related
Comments
HHS has submitted a copy of the final
rules to OMB for its review of the rule’s
information collection and
recordkeeping requirements. The
requirements are not effective until they
have been approved by OMB.
To obtain copies of the supporting
statement and any related forms for the
collections discussed in this rule, please
visit CMS’ website at www.cms.hhs.gov/
PaperworkReductionActof1995, or call
the Reports Clearance Office at 410–
786–1326. HHS invites public
comments on these information
collection requirements. If you wish to
comment, please identify the rule
(CMS–9918–F), the ICR’s CFR citation,
CMS ID number, and OMB control
number. Comments and
recommendations must be received by
the OMB desk officer via one of the
following transmissions:
OMB, Office of Information and
Regulatory Affairs, Attention: CMS Desk
Officer, Fax: (202) 395–5806 OR, Email:
OIRA_submission@omb.eop.gov.
To obtain copies of a supporting
statement and any related forms for the
collection(s) summarized in this rule,
you may make your request using one
of following:
1. Access CMS’ website address at
https://www.cms.gov/Regulations-and-
Guidance/Legislation/
PaperworkReductionActof1995/PRA-
Listing.html.
2. Email your request, including your
address, phone number, OMB number,
and CMS document identifier, to
Paperwork@cms.hhs.gov.
3. Call the Reports Clearance Office at
(410) 786–1326.
ICR-related comments are due July 22,
2019.
E. Paperwork Reduction Act—
Department of Labor and Department of
the Treasury
As part of the continuing effort to
reduce paperwork and respondent
burden, the Departments conduct a
preclearance consultation program to
provide the general public and federal
agencies with an opportunity to
comment on proposed and continuing
collections of information in accordance
with the PRA. This helps to ensure that
the public understands the
Departments’ collection instructions,
respondents can provide the requested
data in the desired format, reporting
burden (time and financial resources) is
minimized, collection instruments are
clearly understood, and the
Departments can properly assess the
impact of collection requirements on
respondents.
Under the PRA, an agency may not
conduct or sponsor, and an individual
is not required to respond to, a
collection of information unless it
displays a valid OMB control number.
In accordance with the requirements of
the PRA, DOL published notice on
October 29, 2018 (83 FR 54420, 54454)
requesting an OMB control number for
three new information collections (ICs)
contained in the proposed rules. Two
ICs are sponsored jointly by DOL and
the Treasury Department: (1)
Verification of Enrollment in Individual
Health Insurance Coverage (26 CFR
54.9802–4(c)(5), 29 CFR 2590.702–
2(c)(5) and 45 CFR 146.123(c)(5)); and
(2) HRA Notice to Participants (26 CFR
54.9802–4(c)(6), 29 CFR 2590.702–
2(c)(6) and 45 CFR 146.123(c)(6)). A
third IC is sponsored solely by DOL (29
CFR 2510.3–1): (3) Notice to
Participants that Individual Health
Insurance Coverage Policy is Not
Subject to Title I of ERISA. In response
to comments received on the proposal,
the Departments have added two
additional information collections
entitled Participant Notify Individual
Coverage HRA of Cancelled or
Terminated Coverage (26 CFR 54.9802–
4(c)(1)(iii), 29 CFR 2590.702–2(c)(1)(iii)
and 45 CFR 146.123(c)(1)(iii)) and
Notice for Excepted Benefit HRAs (26
CFR 54.9831–1(c)(3)(viii)(E), 29 CFR
2590.732(c)(3)(viii)(E) and 45 CFR
146.145(c)(3)(viii)(E)).
With regard to the Treasury
Department, the collection of
information contained in these
regulations is submitted to OMB for
review in accordance with the PRA as
follows. The collection of information in
these regulations is in 26 CFR 54.9815–
2711(d)(4) and 26 CFR 54.9802–
4(c)(1)(iii), (c)(5) and (c)(6). The burden
for the collection of information
contained in these regulations is
reflected in the burden for OMB Control
Number 1545–0123 for the U. S.
Business Income Tax Return, 1545–0074
for U.S. Individual Income Tax Return,
and 1545–0047 Return of Organizations
Exempt From Income Tax. The
estimated annual burden per
respondent, estimated annual burden
per recordkeeper, or estimated number
of respondents is updated annually.
The Departments submitted an
information collection request (ICR) to
OMB in accordance with 44 U.S.C.
3507(d) contemporaneously with the
publication of the proposed rules for
OMB’s review. A copy of the ICR may
be obtained by contacting the PRA
addressee identified or at http://
www.RegInfo.gov. PRA Addressee: G.
Christopher Cosby, Office of Policy and
Research, U.S. Department of Labor,
Employee Benefits Security
Administration, 200 Constitution
Avenue NW, Room N– 5718,
Washington, DC 20210. Telephone (202)
693–8410; Fax: (202) 219–5333. These
are not toll-free numbers. ICRs
submitted to OMB also are available at
http://www.RegInfo.gov.
In connection with the final rules, the
Departments are submitting an ICR to
OMB requesting approval of a new
collection of information under OMB
Control Number 1210–0160. Below is a
description of the information
collections contained in the final rules
and their burden.
1. Verification of Enrollment in
Individual Health Insurance Coverage
In order for an HRA to be integrated
with individual health insurance
coverage (or Medicare, if applicable),
among other requirements, in general,
the HRA must implement, and comply
with, reasonable procedures to
substantiate that participants and
dependents covered by the HRA are, or
will be, enrolled in individual health
insurance coverage (or Medicare, if
applicable) for the plan year (or for the
portion of the plan year the individual
is covered by the HRA, if applicable).
This requirement may be satisfied by
providing a document from a third
party, like an issuer, verifying coverage.
As an alternative procedure, this
requirement may also be satisfied if the
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317
U.S. Department of the Treasury, Office of Tax
Analysis used a simulation model to obtain these
estimates. For 2020, the model estimated that
80,000 employers will offer individual coverage
HRAs and 1.1 million individuals will be offered
those HRAs. Based on DOL estimates about 98
percent of these will be in the private market, and
the rest will be through public employers like state
and local governments. There are on average one
dependent for every policy holder. ‘‘Health
Insurance Coverage Bulletin’’, Abstract of the
Auxiliary Data for the March 2016 Annual Social
and Economic Supplement of the Current
Population Survey, July 25, 2017. https://
www.dol.gov/sites/default/files/ebsa/researchers/
data/health-and-welfare/health-insurance-
coverage-bulletin-2016.pdf.
318
Comparable numbers for 2021 are 118,195
private employers will newly offer individual
coverage HRAs and 1,556,562 eligible participants
in all individual coverage HRAs will receive
notices, and for 2022 196,992 private employers
will newly offer individual coverage HRAs and
3,055,474 eligible participants in all individual
coverage HRAs will receive notices.
319
Number of eligible participants is estimated
based on Treasury estimates of the number of
individuals enrolled in individual coverage HRAs,
the assumption that there are two enrollees per
employee participant, and the assumption that 75
percent of eligible participants would enroll in their
employers’ plans. See Kaiser Family Foundation,
‘‘2017 Employer Health Benefits Survey’’, Section 3,
https://www.kff.org/health-costs/report/2017-
employer-health-benefits-survey/.
HRA requires participants to provide an
attestation of coverage, including the
date coverage begins and the provider of
the coverage.
In addition, following the initial
substantiation of coverage, with each
new request for reimbursement of an
incurred medical care expense for the
same plan year, the HRA may not
reimburse participants for any medical
care expenses unless, prior to each
reimbursement, the participant provides
substantiation that the individual whose
medical care expenses are requested to
be reimbursed continues to be enrolled
in individual health insurance coverage
(or Medicare, if applicable) for the
month during which the medical care
expenses were incurred. The HRA must
implement, and comply with,
reasonable procedures to satisfy this
requirement. This substantiation may be
in the form of a written attestation by
the participant, which may be part of
the form used for requesting
reimbursement, or a document from a
third party (for example, a health
insurance issuer).
Documentation, including proof that
expenditure of funds is for a medical
care expense, is currently universal
when seeking reimbursement from an
HRA. For the new requirements
contained in the final rules regarding
verification of enrollment in individual
health insurance coverage (or Medicare,
if applicable), the HRA can require
proof of coverage or attestations of
coverage as part of the processes that
already exist for when participants seek
reimbursement from HRAs for
premiums or other medical care
expenses. The additional burden is de
minimis, because the attestation can be
a part of the information already
required when seeking reimbursement.
To the extent an HRA develops
additional processes for the requirement
that individuals verify enrollment in
individual health insurance coverage (or
Medicare) for the plan year, the
additional burden is also expected to be
de minimis because it involves either
attestation or providing documents that
already exist.
The Departments are providing model
attestation language, separate from the
final rules. However, the Departments
note that individual coverage HRAs will
not be required to use the model
attestation. For those HRAs that elect to
use the model attestation language
provided by the Departments, it will
further reduce burden for the HRAs and
participants.
Section II.A.8 of this preamble
discusses comments received on the
requirement to verify enrollment
including II.A.8.a In General, II.A.8.b
Methods of Substantiation, and II.A.8.c
Reliance on Documentation or
Attestation.
2. HRA Notice to Participants
The final rules (29 CFR 2590.702–
2(c)(6)(ii)) require an HRA to provide
written notice to eligible participants
including, among other things, the
following information: (1) A description
of the terms of the HRA, including the
amounts newly made available as used
in the affordability determination under
the Code section 36B final rules; (2) a
statement of the right of the participant
to opt-out of and waive future
reimbursement under the HRA; (3) a
description of the potential availability
of the PTC for a participant who opts
out of and waives an HRA if the HRA
is not affordable under the final PTC
rules; and (4) a description of the PTC
eligibility consequences for a
participant who accepts the HRA. The
written notice may include other
information, as long as the additional
information does not conflict with the
required information. The written notice
does not need to include information
specific to a participant. In response to
public comments, the Departments are
separately publishing a model notice
that can be used to satisfy these
requirements, although the HRA will be
required to add certain information
specific to the particular HRA. The
Departments note that individual
coverage HRAs will not be required to
use the model notice. For those HRAs
that elect to use the model notice
language provided by the Departments,
it will further reduce burden for the
HRAs.
In general, the HRA must provide the
written notice to each participant at
least 90 days before the beginning of
each plan year. For participants who are
not yet eligible to participate at the
beginning of the plan year (or who are
not eligible when the notice is provided
at least 90 days prior to the beginning
of the plan year), the HRA must provide
the notice no later than the date on
which the HRA may first take effect for
the participant. Also, for any participant
who is employed by an employer that is
first established less than 120 days
before the beginning of the first plan
year of the HRA, the notice must be
provided no later than the date on
which the HRA may first take effect for
the participant.
Section II.A.9 of the preamble
discusses comments received on the
notice, the Departments’ responses and
changes made to the notice requirement
including II.A.9.a Notice Content,
II.A.9.b Notice Individualization,
II.A.9.c Model Notice, II.A.9.d Notice
Timing and Delivery.
The Departments estimate that a
compensation and benefits manager
would require two hours (at $125 per
hour) and a lawyer would require one
hour (at $136.44 per hour) to prepare
the notice for each HRA. Thus, the total
hour burden for each HRA would be 3
hours with an equivalent cost of
approximately $386. The Departments
estimate that each notice would be six
pages, with total materials and printing
cost of $0.30 per notice ($0.05 per page).
The Departments estimate that 78,797
private employers would
317
newly offer
individual coverage HRAs in 2020
318
as
a result of the final rules in the first
year. Therefore, the Departments
estimate the total hour burden for these
HRAs to prepare the notices would be
236,390 hours with an equivalent cost of
$30,450,216.
All individual coverage HRAs are
required to annually send the notice to
all eligible participants (those eligible to
enroll). The Departments estimate that
there would be 634,155 eligible
participants at private employers in
2020 that would need to receive the
notice.
319
The Departments assume that
approximately 54 percent of notices
would be provided electronically and
approximately 46 percent would be
provided in print along with other
benefits information. Therefore, a total
of 291,711 notices will be printed at a
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320
See 29 CFR 2520.104b–2, 2520.104b–3(a), and
(d)(3).
cost of $87,513. Tables 6 and 7 provide
estimates for years 2020, 2021 and 2022.
T
ABLE
6—B
URDEN
T
O
P
REPARE
HRA N
OTICE FOR THE
F
IRST
T
IME
-P
RIVATE
S
ECTOR
E
MPLOYERS
Year
Number of
employers
newly
offering
HRAs
Legal cost
per hour
Number
of hours
for legal
Benefit
manager cost
per hour
Number
of hours for
benefit
manager
Total hour
burden
Total
equivalent
cost
(a) (b) (c) (d) = 1 * (b) (e) (f) = 2 * (b) (g) = (d) + (f) (c) * (d) + (e) * (f)
2020 .................................. 78,797 $136.44 78,797 $125.00 157,593 236,390 $30,450,216
2021 .................................. 118,195 136.44 118,195 125.00 236,390 354,585 45,675,324
2022 .................................. 196,992 136.44 196,992 125.00 393,984 590,976 76,125,539
T
ABLE
7—B
URDEN
T
O
P
ROVIDE
N
OTICE TO
A
LL
E
LIGIBLE
P
RIVATE
S
ECTOR
P
ARTICIPANTS
Year Total
number
of notices
Number
of notices
sent by mail
Cost per
notice Total cost
burden
(a) (b) (c) (d) (e) = (c) * (d)
2020 ........................................................................................................... 634,155 291,711 $0.30 $87,513
2021 ........................................................................................................... 1,556,562 716,019 0.30 214,806
2022 ........................................................................................................... 3,055,474 1,405,518 0.30 421,655
3. Notice to Participants That Individual
Health Insurance Coverage Policy Is Not
Subject to Title I of ERISA
In the final rules, DOL clarifies that
individual health insurance coverage,
the premiums of which are reimbursed
by an HRA, QSEHRA, or supplemental
salary reduction arrangement is not
considered an ‘‘employee welfare
benefit plan’’ with the consumer
protections provided under ERISA, if
certain safe harbor conditions are
satisfied. HRA plan sponsors are
required to notify participants of this
fact (29 CFR 2510.3–1(l)(5)). For an
HRA, this notice requirement is satisfied
if annually the notice requirement in 26
CFR 54.9802–4(c)(6) and 29 CFR
2590.702–2(c)(6) is satisfied, which is
part of the HRA Notice to Participants
discussed earlier in this preamble.
Therefore, this notice requirement
imposes no additional burden. For
QSEHRAs and for HRAs not subject to
26 CFR 54.9802–4(c)(6) and 29 CFR
2590.702–2(c)(6), but that reimburse
premiums for individual health
insurance coverage, the plan sponsor
may use the following language to
satisfy this condition: ‘‘The individual
health insurance coverage that is paid
for by this plan, if any, is not subject to
the rules and consumer protections of
the Employee Retirement Income
Security Act. You should contact your
state insurance department for more
information regarding your rights and
responsibilities if you purchase
individual health insurance coverage.’’
The Departments estimate that this
burden will be de minimis, because the
required text is provided in the rule and
can be included with other notices.
Section II.A.9 of the preamble
discusses comments received on the
notice required to be provided to
participants eligible for an individual
coverage HRA.
4. Participant Notifies Individual
Coverage HRA of Cancelled or
Terminated Coverage
The final rules require that if a
covered individual fails to pay the
applicable premium(s) by the end of a
grace period and the coverage is
cancelled or terminated, including
retroactively, or if individual health
insurance coverage is cancelled or
terminated retroactively for some other
reason (for example, a rescission), the
individual coverage HRA must require
that the individual notify the HRA that
coverage has been cancelled or
terminated and the date on which the
coverage cancellation or termination is
effective (26 CFR 54.9802–4(c)(1)(iii), 29
CFR 2590.702–254.9801–4(c)(1)(iii) and
45 CFR 146.123(c)(1)(iii)). The
Departments have concluded that the
burden associated with this notification
requirement is de minimis for
participants that cancel coverage,
because they can satisfy the requirement
by making a phone call or sending an
email.
Other related comments are discussed
in section II.A.2.d of this preamble.
5. Notice for Excepted Benefit HRAs
In response to commenters’ concerns,
the final rules announce HHS’ intent to
propose a notice requirement with
respect to excepted benefit HRAs
sponsored by non-federal governmental
plan sponsors in future notice and
comment rulemaking. It is anticipated
that the proposed excepted benefit HRA
notice would be required to state
conditions pertaining to eligibility to
receive benefits, annual or lifetime caps
or other limits on benefits under the
excepted benefit HRA, and a description
of or summary of the benefits consistent
with the content and timing of DOL’s
SPD requirements.
For private-sector, employment-based
plans, other notice requirements under
Part 1 of ERISA already apply. For
example, excepted benefit HRAs that are
ERISA-covered plans must provide a
SPD, SMM, and summaries of material
reductions in covered services or
benefits.
320
The excepted benefit HRA’s
SPD must include, for example, the
conditions pertaining to eligibility to
receive benefits; a description or
summary of the benefits; the
circumstances that may result in
disqualification, ineligibility, or denial,
loss, forfeiture, suspension, offset,
reduction, or recovery (for example, by
exercise of subrogation or
reimbursement rights) of any benefits;
and the procedures governing claims for
benefits under the excepted benefit
HRA. Accordingly, for excepted benefit
HRAs that are subject to ERISA, the
burden for providing information
regarding excepted benefit HRAs is
captured under DOL’s SPD information
collection (OMB Control Number 1210–
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0039), which includes a growth factor
for new SPDs and SMMs provided to
participants to notify them regarding
coverage under new plans and plan
amendments.
Additional comments are discussed in
section II.B.7 of this preamble.
The information collections are
summarized as follows:
Type of Review: New Collection.
Agency: DOL–EBSA, Treasury—IRS.
Title: Notice for Health
Reimbursement Arrangements
integrated with Individual Health
Insurance Coverage.
OMB Numbers: 1210–0160 (DOL),
1545–0123, 1545–0074, and 1545–0047
(Treasury).
Affected Public: Private Sector.
Total Respondents: 1,442,876 three-
year average.
Total Responses: 18,798,855 three-
year average.
Frequency of Response: Annually.
Estimated Total Annual Burden
Hours: 196,992 for each agency
(combined total is 393,984 hours). Three
year average.
Estimated Total Annual Burden Cost:
$120,662 for each agency (combined
total is $241,325). Three year average.
F. Regulatory Flexibility Act
The Regulatory Flexibility Act (5
U.S.C. 601 et seq.) (RFA) imposes
certain requirements with respect to
federal rules that are subject to the
notice and comment requirements of
section 553(b) of the Administrative
Procedure Act (5 U.S.C. 551 et seq.) and
which are likely to have a significant
economic impact on a substantial
number of small entities. Unless an
agency certifies that a final rule is not
likely to have a significant economic
impact on a substantial number of small
entities, section 604 of the RFA requires
that the agency prepare a final
regulatory flexibility analysis describing
the impact of the rule on small entities.
Small entities include small businesses,
organizations, and governmental
jurisdictions.
The RFA generally defines a ‘‘small
entity’’ as (1) a proprietary firm meeting
the size standards of the Small Business
Administration (SBA) (13 CFR 121.201),
(2) a nonprofit organization that is not
dominant in its field, or (3) a small
government jurisdiction with a
population of less than 50,000. (States
and individuals are not included in the
definition of ‘‘small entity.’’) The
Departments use as their measure of
significant economic impact on a
substantial number of small entities a
change in revenues of more than 3 to 5
percent.
The Departments do not expect the
final rules to produce costs or benefits
in excess of 3 to 5 percent of revenues
for small entities. Entities that choose to
offer an individual coverage HRA
instead of a traditional group health
plan are likely to experience a modest
increase or decrease in administrative
burden associated with health benefits.
Entities that newly offer health benefits
in the form of an individual coverage
HRA would bear modest administrative
costs. However, offering an individual
coverage HRA is entirely voluntary on
the part of employers, and no employer
that would experience substantial costs
would be expected to offer an
individual coverage HRA. In addition,
the final rules would provide large and
small employers with an additional
choice of a tax-preferred health benefit
to offer their employees, potentially
enabling them to attract and retain
workers and maintain a healthier
workforce.
In addition, section 1102(b) of the
Social Security Act requires agencies to
prepare a regulatory impact analysis if
a rule may have a significant economic
impact on the operations of a substantial
number of small rural hospitals. This
analysis must conform to the provisions
of section 604 of the RFA. The final
rules will not have a direct effect on
small rural hospitals though there may
be an indirect effect. By reducing the
number of uninsured persons, the final
rules could reduce administrative costs,
such as billing costs and the costs of
helping patients obtain public health
benefits. The final rules could also
reduce the cost of uncompensated care
borne by small rural hospitals and other
healthcare providers (and shift such
costs to insured persons). However, the
Departments have determined that the
final rules will not have a significant
impact on the operations of a substantial
number of small rural hospitals.
G. Impact of Regulations on Small
Business—Department of the Treasury
Pursuant to section 7805(f) of the
Code, the proposed rule that preceded
this final rule was submitted to the
Chief Counsel for Advocacy of the Small
Business Administration for comment
on its impact on small business, and no
comments were received.
H. Unfunded Mandates Reform Act
Section 202 of the Unfunded
Mandates Reform Act of 1995 (UMRA)
requires that agencies assess anticipated
costs and benefits and take certain other
actions before issuing a final rule that
includes any Federal mandate that may
result in expenditures in any 1 year by
state, local, or Tribal governments, in
the aggregate, or by the private sector, of
$100 million in 1995 dollars, updated
annually for inflation. In 2019, that
threshold is approximately $154
million. These final rules do not include
any Federal mandate that may result in
expenditures by state, local, or tribal
governments, or by the private sector in
excess of that threshold.
I. Federalism
Executive Order 13132 outlines
fundamental principles of federalism. It
requires adherence to specific criteria by
Federal agencies in formulating and
implementing policies that have
‘‘substantial direct effects’’ on the states,
the relationship between the national
government and states, or on the
distribution of power and
responsibilities among the various
levels of government. Federal agencies
promulgating regulations that have
these federalism implications must
consult with state and local officials,
and describe the extent of their
consultation and the nature of the
concerns of state and local officials in
the preamble to the final rules. Federal
officials have discussed the issues
related to implementation of the
policies in the proposed rules with state
regulatory officials. Over multiple
individual and group conversations,
federal and state officials shared
information about how and when
Exchange systems and processes could
be updated to support implementation
of individual coverage HRAs while
minimizing burden and confusion for
both employers and consumers. State
Exchanges expressed interest in how the
FFEs would update information and
systems to support employers and
employees with HRA affordability
determinations and the impact on APTC
eligibility. The FFEs explained possible
ways in which the federal platform
would approach these issues and
operations if the rules were finalized as
proposed and agreed to share related
documentation once implementation
begins, to support state efforts. Some
State Exchanges expressed concerns in
these conversations that fully
implementing these changes would take
several months and likely would not be
finished before individual coverage
HRAs become available starting on
January 1, 2020. The FFEs offered
suggestions for information that could
be provided to employers and
consumers to address these concerns
and ensure smooth implementation
before system changes are complete.
J. Congressional Review Act
This final rule is subject to the
Congressional Review Act provisions of
the Small Business Regulatory
Enforcement Fairness Act of 1996 (5
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U.S.C. 801 et seq.) and will be
transmitted to the Congress and to the
Comptroller General for review in
accordance with such provisions.
K. Reducing Regulation and Controlling
Regulatory Cost
Executive Order 13771, titled
Reducing Regulation and Controlling
Regulatory Costs, was issued on January
30, 2017 and requires that the costs
associated with significant new
regulations ‘‘shall, to the extent
permitted by law, be offset by the
elimination of existing costs associated
with at least two prior regulations.’’
This final rule is an Executive Order
13771 deregulatory action.
Statutory Authority
The Department of the Treasury
regulations are adopted pursuant to the
authority contained in sections 7805
and 9833 of the Code.
The Department of Labor regulations
are adopted pursuant to the authority
contained in 29 U.S.C. 1002, 1135, 1182,
1185d, 1191a, 1191b, and 1191c;
Secretary of Labor’s Order 1–2011, 77
FR 1088 (Jan. 9, 2012).
The Department of Health and Human
Services regulations are adopted
pursuant to the authority contained in
sections 2701 through 2763, 2791, 2792,
and 2794 of the PHS Act (42 U.S.C.
300gg–300gg–63, 300gg–91, 300gg–92
and 300gg–94), as amended; sections
1311 and 1321 of PPACA (42 U.S.C.
13031 and 18041).
List of Subjects
26 CFR Part 1
Income taxes, Reporting and
recordkeeping requirements.
26 CFR Part 54
Excise taxes, Health care, Health
insurance, Pensions, Reporting and
recordkeeping requirements.
29 CFR Part 2510
Employee benefit plans, Pensions.
29 CFR Part 2590
Continuation coverage, Disclosure,
Employee benefit plans, Group health
plans, Health care, Health insurance,
Medical child support, Reporting and
recordkeeping requirements.
45 CFR Parts 144 and 146
Health care, Health insurance,
Reporting and recordkeeping
requirements.
45 CFR Part 147
Health care, Health insurance,
Reporting and recordkeeping
requirements, and State regulation of
health insurance.
45 CFR Part 155
Exchange establishment standards
and other related standards under the
Affordable Care Act.
Kirsten Wielobob,
Deputy Commissioner for Services and
Enforcement, Internal Revenue Service.
Approved: June 6, 2019.
David J. Kautter,
Assistant Secretary of the Treasury (Tax
Policy).
Signed at Washington, DC, this 10th day of
June, 2019.
Preston Rutledge,
Assistant Secretary, Employee Benefits
Security Administration, Department of
Labor.
Dated: June 7, 2019.
Seema Verma,
Administrator, Centers for Medicare &
Medicaid Services.
Dated: June 7, 2019.
Alex M. Azar II,
Secretary, Department of Health and Human
Services.
DEPARTMENT OF THE TREASURY
Internal Revenue Service
Amendments to the Regulations
Accordingly, 26 CFR parts 1 and 54
are amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation
for part 1 continues to read in part as
follows:
Authority: 26 U.S.C. 7805.
* * * * *
Par 2. Section 1.36B–0 is amended
by—
a. Adding entries for §§ 1.36B–
2(c)(3)(i)(A) and (B).
b. Revising the entry for § 1.36B–
2(c)(5).
c. Adding entries for §§ 1.36B–
2(c)(5)(i) and (ii), 1.36B–2(c)(5)(iii),
1.36B–2(c)(5)(iii)(A) and (B), and 1.36B–
2(c)(5)(iv) through (ix).
The additions and revision read as
follows:
§ 1.36B–0 Table of contents.
* * * * *
§ 1.36B–2 Eligibility for premium tax
credit.
* * * * *
(c) * * *
(3) * * *
(i) In general.
(A) Plans other than health
reimbursement arrangements (HRAs) or
other account-based group health plans
described in paragraph (c)(3)(i)(B) of
this section.
(B) HRAs and other account-based
group health plans integrated with
individual health insurance coverage.
* * * * *
(5) Affordable HRA or other account-
based group health plan.
(i) In general.
(ii) Required HRA contribution.
(iii) Monthly amounts.
(A) Monthly lowest cost silver plan
premium.
(B) Monthly HRA amount.
(iv) Employee safe harbor.
(v) Amounts used for affordability
determination.
(vi) Affordability for part-year period.
(vii) Related individual not allowed as
a personal exemption deduction.
(viii) Post-employment coverage.
(ix) Examples.
* * * * *
Par. 3. Section 1.36B–2 is amended
by:
a. Redesignating the text of paragraph
(c)(3)(i) as paragraph (c)(3)(i)(A).
b. Revising the subject heading to
newly designated paragraph (c)(3)(i)(A).
c. Adding paragraph (c)(3)(i)(B).
d. Adding a sentence at the end of
paragraphs (c)(3)(ii) and (c)(3)(v)(A)(1)
and (2).
e. Revising paragraphs (c)(3)(v)(A)(3)
and (5).
f. Adding a sentence at the end of
paragraph (c)(3)(vi).
g. Adding paragraph (c)(5).
h. Revising paragraph (e)(1).
i. Adding paragraph (e)(3).
The revisions and additions read as
follows:
§ 1.36B–2 Eligibility for premium tax
credit.
* * * * *
(c) * * *
(3) * * *
(i) * * *
(A) Plans other than health
reimbursement arrangements (HRAs) or
other account-based group health plans
described in paragraph (c)(3)(i)(B) of
this section. ***
(B) HRAs and other account-based
group health plans integrated with
individual health insurance coverage.
An employee who is offered an HRA or
other account-based group health plan
that would be integrated with
individual health insurance coverage (or
Medicare Part A and B or Medicare Part
C), within the meaning of §§ 54.9802–4
and 54.9815–2711(d)(4) of this chapter,
if the employee enrolls in individual
health insurance coverage (or Medicare
Part A and B or Medicare Part C), and
an individual who is offered the HRA or
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other account-based group health plan
because of a relationship to the
employee (a related HRA individual),
are eligible for minimum essential
coverage under an eligible employer-
sponsored plan for any month for which
the HRA or other account-based group
health plan is offered if the HRA or
other account-based group health plan
is affordable for the month under
paragraph (c)(5) of this section or if the
employee does not opt out of and waive
future reimbursements from the HRA or
other account-based group health plan.
An HRA or other account-based group
health plan described in this paragraph
(c)(3)(i)(B) that is affordable for a month
under paragraph (c)(5) of this section is
treated as providing minimum value for
the month. For purposes of paragraphs
(c)(3) and (5) of this section, the
definitions under § 54.9815–2711(d)(6)
of this chapter apply.
(ii) * * * The plan year for an HRA
or other account-based group health
plan described in paragraph (c)(3)(i)(B)
of this section is the plan’s 12-month
coverage period (or the remainder of the
12-month coverage period for a newly
eligible individual or an individual who
enrolls during a special enrollment
period).
* * * * *
(v) * * *
(A) * * *
(1) * * * See paragraph (c)(5) of this
section for rules for when an HRA or
other account-based group health plan
described in paragraph (c)(3)(i)(B) of
this section is affordable for an
employee for a month.
(2) * * * See paragraph (c)(5) of this
section for rules for when an HRA or
other account-based group health plan
described in paragraph (c)(3)(i)(B) of
this section is affordable for a related
HRA individual for a month.
(3) Employee safe harbor. An eligible
employer-sponsored plan is not
affordable for an employee or a related
individual for a plan year if, when the
employee or a related individual enrolls
in a qualified health plan for a period
coinciding with the plan year (in whole
or in part), an Exchange determines that
the eligible employer-sponsored plan is
not affordable for that plan year. This
paragraph (c)(3)(v)(A)(3) does not apply
to a determination made as part of the
redetermination process described in 45
CFR 155.335 unless the individual
receiving an Exchange redetermination
notification affirmatively responds and
provides current information about
affordability. This paragraph
(c)(3)(v)(A)(3) does not apply for an
individual who, with intentional or
reckless disregard for the facts, provides
incorrect information to an Exchange
concerning the portion of the annual
premium for coverage for the employee
or related individual under the plan. A
reckless disregard of the facts occurs if
the taxpayer makes little or no effort to
determine whether the information
provided to the Exchange is accurate
under circumstances that demonstrate a
substantial deviation from the standard
of conduct a reasonable person would
observe. A disregard of the facts is
intentional if the taxpayer knows that
the information provided to the
Exchange is inaccurate. See paragraph
(c)(5) of this section for an employee
safe harbor that applies when an
Exchange determines that an HRA or
other account-based group health plan
described in paragraph (c)(3)(i)(B) of
this section is not affordable for an
employee or a related HRA individual
for the period of enrollment in a
qualified health plan.
* * * * *
(5) Employer contributions to HRAs
integrated with eligible employer-
sponsored plans. Amounts newly made
available for the current plan year under
an HRA that an employee may use to
pay premiums, or may use to pay cost-
sharing or benefits not covered by the
primary plan in addition to premiums,
reduce the employee’s required
contribution if the HRA would be
integrated, within the meaning of
§ 54.9815–2711(d)(2) of this chapter,
with an eligible employer-sponsored
plan for an employee enrolled in the
plan. The eligible employer-sponsored
plan and the HRA must be offered by
the same employer. Employer
contributions to an HRA described in
this paragraph (c)(3)(v)(A)(5) reduce an
employee’s required contribution only
to the extent the amount of the annual
contribution is required under the terms
of the plan or otherwise determinable
within a reasonable time before the
employee must decide whether to enroll
in the eligible employer-sponsored plan.
* * * * *
(vi) * * * An HRA or other account-
based group health plan described in
paragraph (c)(3)(i)(B) of this section that
is affordable for a month under
paragraph (c)(5) of this section is treated
as providing minimum value for the
month.
* * * * *
(5) Affordable HRA or other account-
based group health plan—(i) In general.
Except as otherwise provided in this
paragraph (c)(5), an HRA or other
account-based group health plan
described in paragraph (c)(3)(i)(B) of
this section is affordable for a month if
the employee’s required HRA
contribution (as defined in paragraph
(c)(5)(ii) of this section) for the month
does not exceed 1/12 of the product of
the employee’s household income for
the taxable year and the required
contribution percentage (as defined in
paragraph (c)(3)(v)(C) of this section).
(ii) Required HRA contribution. An
employee’s required HRA contribution
is the excess of—
(A) The monthly premium for the
lowest cost silver plan for self-only
coverage of the employee offered in the
Exchange for the rating area in which
the employee resides, over
(B) The monthly self-only HRA or
other account-based group health plan
amount (or the monthly maximum
amount available to the employee under
the HRA or other account-based group
health plan if the HRA or other account-
based group health plan provides for
reimbursements up to a single dollar
amount regardless of whether an
employee has self-only or other-than-
self-only coverage).
(iii) Monthly amounts—(A) Monthly
lowest cost silver plan premium. For
purposes of paragraph (c)(5)(ii)(A) of
this section, the premium for the lowest
cost silver plan is determined without
regard to any wellness program
incentive that affects premiums unless
the wellness program incentive relates
exclusively to tobacco use, in which
case the incentive is treated as earned.
If the premium differs for tobacco users
and non-tobacco users, the premium for
the lowest cost silver plan is the
premium that applies to non-tobacco
users. For the purpose of this paragraph
(c)(5)(iii)(A), the term wellness program
incentive has the same meaning as the
term reward in 26 CFR 54.9802–
1(f)(1)(i). A silver-level qualified health
plan that is used for purposes of
determining a taxpayer’s lowest cost
silver plan for self-only coverage under
paragraph (c)(5)(ii)(A) of this section
does not cease to be the taxpayer’s
lowest cost silver plan for self-only
coverage solely because the plan
terminates or closes to enrollment
during the taxable year.
(B) Monthly HRA amount. For
purposes of paragraph (c)(5)(ii)(B) of
this section, the monthly self-only HRA
or other account-based group health
plan amount is the self-only HRA or
other account-based group health plan
amount newly made available under the
HRA for the plan year, divided by the
number of months in the plan year the
HRA or other account-based group
health plan is available to the employee.
The monthly maximum amount
available to the employee under the
HRA or other account-based group
health plan is the maximum amount
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newly made available for the plan year
to the employee under the plan, divided
by the number of months in the plan
year the HRA or other account-based
group health plan is available to the
employee.
(iv) Employee safe harbor. An HRA or
other account-based group health plan
described in paragraph (c)(3)(i)(B) of
this section is not affordable for a month
for an employee or a related HRA
individual if, when the employee or
related HRA individual enrolls in a
qualified health plan for a period
coinciding with the period the HRA or
other account-based group health plan
is available to the employee or related
HRA individual (in whole or in part), an
Exchange determines that the HRA or
other account-based group health plan
is not affordable for the period of
enrollment in the qualified health plan.
This paragraph (c)(5)(iv) does not apply
to a determination made as part of the
redetermination process described in 45
CFR 155.335 unless the individual
receiving an Exchange redetermination
notification affirmatively responds and
provides current information about
affordability. This paragraph (c)(5)(iv)
does not apply for an individual who,
with intentional or reckless disregard
for the facts, provides incorrect
information to an Exchange concerning
the relevant HRA or other account-based
group health plan amount offered by the
employee’s employer. A reckless
disregard of the facts occurs if the
taxpayer makes little or no effort to
determine whether the information
provided to the Exchange is accurate
under circumstances that demonstrate a
substantial deviation from the standard
of conduct a reasonable person would
observe. A disregard of the facts is
intentional if the taxpayer knows that
the information provided to the
Exchange is inaccurate.
(v) Amounts used for affordability
determination. Only amounts that are
newly made available for the plan year
of the HRA or other account-based
group health plan described in
paragraph (c)(3)(i)(B) of this section and
determinable within a reasonable time
before the beginning of the plan year of
the HRA or other account-based health
plan are considered in determining
whether an HRA or other account-based
group health plan described in
paragraph (c)(3)(i)(B) of this section is
affordable. Amounts made available for
a prior plan year that carry over to the
current plan year are not taken into
account for purposes of this paragraph
(c)(5). Similarly, amounts made
available to account for amounts
remaining in a different HRA or other
account-based group health plan the
employer previously provided to the
employee and under which the
employee is no longer covered are not
taken into account for purposes of this
paragraph (c)(5).
(vi) Affordability for part-year period.
Affordability under this paragraph (c)(5)
is determined separately for each
employment period that is less than a
full calendar year or for the portions of
the plan year of an employer’s HRA or
other account-based group health plan
that fall in different taxable years of an
applicable taxpayer. An HRA or other
account-based group health plan
described in paragraph (c)(3)(i)(B) of
this section is affordable for a part-year
period if the employee’s annualized
required HRA contribution for the part-
year period does not exceed the
required contribution percentage of the
applicable taxpayer’s household income
for the taxable year. The employee’s
annualized required HRA contribution
is the employee’s required HRA
contribution for the part-year period
times a fraction, the numerator of which
is 12 and the denominator of which is
the number of months in the part-year
period during the applicable taxpayer’s
taxable year. Only full calendar months
are included in the computation under
this paragraph (c)(5)(vi).
(vii) Related individual not allowed as
a personal exemption deduction. A
related HRA individual is treated as
ineligible for minimum essential
coverage under an HRA or other
account-based group health plan
described in paragraph (c)(3)(i)(B) of
this section for months that the
employee opted out of and waived
future reimbursements from the HRA or
other account-based group health plan
and the employee is not allowed a
personal exemption deduction under
section 151 for the related HRA
individual.
(viii) Post-employment coverage. An
individual who is offered an HRA or
other account-based group health plan
described in paragraph (c)(3)(i)(B) of
this section, for months after an
employee terminates employment with
the employer offering the HRA or other
account-based group health plan, is
eligible for minimum essential coverage
under the HRA or other account-based
group health plan for months after
termination of employment only if the
employee does not forfeit or opt out of
and waive future reimbursements from
the HRA or other account-based group
health plan for months after termination
of employment.
(ix) Examples. The following
examples illustrate the provisions of
this paragraph (c)(5). The required
contribution percentage is defined in
paragraph (c)(3)(v)(C) of this section and
is updated annually. Because the
required contribution percentage for
2020 has not yet been determined, the
examples assume a required
contribution percentage for 2020 of 9.78
percent.
(A) Example 1: Determination of
affordability—(1) Facts. In 2020 Taxpayer A
is single, has no dependents, and has
household income of $28,000. A is an
employee of Employer X for all of 2020. X
offers its employees an HRA described in
paragraph (c)(3)(i)(B) of this section that
reimburses $2,400 of medical care expenses
for single employees with no children (the
self-only HRA amount) and $4,000 for
employees with a spouse or children for the
medical expenses of the employees and their
family members. A enrolls in a qualified
health plan through the Exchange in the
rating area in which A resides and remains
enrolled for all of 2020. The monthly
premium for the lowest cost silver plan for
self-only coverage of A that is offered in the
Exchange for the rating area in which A
resides is $500.
(2) Conclusion. A’s required HRA
contribution, as defined in paragraph
(c)(5)(ii) of this section, is $300, the excess
of $500 (the monthly premium for the lowest
cost silver plan for self-only coverage of A)
over $200 (1/12 of the self-only HRA amount
provided by Employer X to its employees). In
addition, 1/12 of the product of 9.78 percent
and A’s household income is $228 ($28,000
× .0978 = $2,738; $2,738/12 = $228). Because
A’s required HRA contribution of $300
exceeds $228 (1/12 of the product of 9.78
percent and A’s household income), the HRA
is unaffordable for A for each month of 2020
under paragraph (c)(5) of this section. If A
opts out of and waives future
reimbursements from the HRA, A is not
eligible for minimum essential coverage
under the HRA for each month of 2020 under
paragraph (c)(3)(i)(B) of this section.
(B) Example 2: Determination of
affordability for a related HRA individual
(1) Facts. In 2020 Taxpayer B is married and
has one child who is a dependent of B for
2020. B has household income of $28,000. B
is an employee of Employer X for all of 2020.
X offers its employees an HRA described in
paragraph (c)(3)(i)(B) of this section that
reimburses $3,600 of medical care expenses
for single employees with no children (the
self-only HRA amount) and $5,000 for
employees with a spouse or children for the
medical expenses of the employees and their
family members. B, B’s spouse, and B’s child
enroll in a qualified health plan through the
Exchange in the rating area in which B
resides and they remain enrolled for all of
2020. No advance credit payments are made
for their coverage. The monthly premium for
the lowest cost silver plan for self-only
coverage of B that is offered in the Exchange
for the rating area in which B resides is $500.
(2) Conclusion. B’s required HRA
contribution, as defined in paragraph
(c)(5)(ii) of this section, is $200, the excess
of $500 (the monthly premium for the lowest
cost silver plan for self-only coverage for B)
over $300 (1/12 of the self-only HRA amount
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provided by Employer X to its employees). In
addition, 1/12 of the product of 9.78 percent
and B’s household income for 2020 is $228
($28,000 × .0978 = $2,738; $2,738/12 = $228).
Because B’s required HRA contribution of
$200 does not exceed $228 (1/12 of the
product of 9.78 percent and B’s household
income for 2020), the HRA is affordable for
B under paragraph (c)(5) of this section, and
B is eligible for minimum essential coverage
under an eligible employer-sponsored plan
for each month of 2020 under paragraph
(c)(3)(i)(B) of this section. In addition, B’s
spouse and child are also eligible for
minimum essential coverage under an
eligible employer-sponsored plan for each
month of 2020 under paragraph (c)(3)(i)(B) of
this section.
(C) Example 3: Exchange determines that
HRA is unaffordable—(1) Facts. The facts are
the same as in paragraph (c)(5)(ix)(B) of this
section (Example 2), except that B, when
enrolling in Exchange coverage for B’s
family, received a determination by the
Exchange that the HRA was unaffordable,
because B believed B’s household income
would be lower than it turned out to be.
Consequently, advance credit payments were
made for their 2020 coverage.
(2) Conclusion. Under paragraph (c)(5)(iv)
of this section, the HRA is considered
unaffordable for B, B’s spouse, and B’s child
for each month of 2020 provided that B did
not, with intentional or reckless disregard for
the facts, provide incorrect information to the
Exchange concerning the HRA.
(D) Example 4: Affordability determined
for part of a taxable year (part-year period)
(1) Facts. Taxpayer C is an employee of
Employer X. C’s household income for 2020
is $28,000. X offers its employees an HRA
described in paragraph (c)(3)(i)(B) of this
section that reimburses medical care
expenses of $3,600 for single employees
without children (the self-only HRA amount)
and $5,000 to employees with a spouse or
children for the medical expenses of the
employees and their family members. X’s
HRA plan year is September 1 to August 31
and C is first eligible to participate in the
HRA for the period beginning September 1,
2020. C enrolls in a qualified health plan
through the Exchange in the rating area in
which C resides for all of 2020. The monthly
premium for the lowest cost silver plan for
self-only coverage of C that is offered in the
Exchange for the rating area in which C
resides for 2020 is $500.
(2) Conclusion. Under paragraph (c)(3)(vi)
of this section, the affordability of the HRA
is determined separately for the period
September 1 through December 31, 2020, and
for the period January 1 through August 31,
2021. C’s required HRA contribution, as
defined in paragraph (c)(5)(ii) of this section,
for the period September 1 through December
31, 2020, is $200, the excess of $500 (the
monthly premium for the lowest cost silver
plan for self-only coverage for C) over $300
(1/12 of the self-only HRA amount provided
by X to its employees). In addition, 1/12 of
the product of 9.78 percent and C’s
household income is $228 ($28,000 × .0978
= $2,738; $2,738/12 = $228). Because C’s
required HRA contribution of $200 does not
exceed $228, the HRA is affordable for C for
each month in the period September 1
through December 31, 2020, under paragraph
(c)(5) of this section. Affordability for the
period January 1 through August 31, 2021, is
determined using C’s 2021 household income
and required HRA contribution.
(E) Example 5: Carryover amounts ignored
in determining affordability—(1) Facts.
Taxpayer D is an employee of Employer X for
all of 2020 and 2021. D is single. For each
of 2020 and 2021, X offers its employees an
HRA described in paragraph (c)(3)(i)(B) of
this section that provides reimbursement for
medical care expenses of $2,400 to single
employees with no children (the self-only
HRA amount) and $4,000 to employees with
a spouse or children for the medical expenses
of the employees and their family members.
Under the terms of the HRA, amounts that an
employee does not use in a calendar year
may be carried over and used in the next
calendar year. In 2020, D used only $1,500
of her $2,400 maximum reimbursement and
the unused $900 is carried over and may be
used by D in 2021.
(2) Conclusion. Under paragraph (c)(5)(v)
of this section, only the $2,400 self-only HRA
amount offered to D for 2021 is considered
in determining whether D’s HRA is
affordable for D. The $900 carryover amount
is not considered in determining the
affordability of the HRA.
* * * * *
(e) * * *
(1) Except as provided in paragraphs
(e)(2) and (3) of this section, this section
applies to taxable years ending after
December 31, 2013.
* * * * *
(3) Paragraphs (c)(3)(i)(B) and (c)(5) of
this section, and the last sentences of
paragraphs (c)(3)(ii), (c)(3)(v)(A)(1)
through (3), and (c)(3)(vi) of this section
apply to taxable years beginning on or
after January 1, 2020.
PART 54—PENSION EXCISE TAXES
Par. 4. The authority citation for part
54 is amended by adding an entry for
§ 54.9802–4 in numerical order to read
in part as follows:
Authority: 26 U.S.C. 7805.
* * * * *
Section 54.9802–4 is also issued under 26
U.S.C. 9833.
* * * * *
Par. 5. Section 54.9801–2 is amended
by revising the definition of ‘‘Group
health insurance coverage’’ to read as
follows:
§ 54.9801–2 Definitions.
* * * * *
Group health insurance coverage
means health insurance coverage offered
in connection with a group health plan.
Individual health insurance coverage
reimbursed by the arrangements
described in 29 CFR 2510.3–1(l) is not
offered in connection with a group
health plan, and is not group health
insurance coverage, provided all the
conditions in 29 CFR 2510.3–1(l) are
satisfied.
* * * * *
Par. 6. Section 54.9802–4 is added to
read as follows:
§ 54.9802–4 Special Rule Allowing
Integration of Health Reimbursement
Arrangements (HRAs) and Other Account-
Based Group Health Plans with Individual
Health Insurance Coverage and Medicare
and Prohibiting Discrimination In HRAs and
Other Account-Based Group Health Plans.
(a) Scope. This section applies to
health reimbursement arrangements
(HRAs) and other account-based group
health plans, as defined in § 54.9815–
2711(d)(6)(i) of this chapter. For ease of
reference, the term ‘‘HRA’’ is used in
this section to include other account-
based group health plans. For related
regulations, see 26 CFR 1.36B–2(c)(3)(i)
and (c)(5), 29 CFR 2510.3–1(l), and 45
CFR 155.420.
(b) Purpose. This section provides the
conditions that an HRA must satisfy in
order to be integrated with individual
health insurance coverage for purposes
of Public Health Service Act (PHS Act)
sections 2711 and 2713 and § 54.9815–
2711(d)(4) of this chapter (referred to as
an individual coverage HRA). This
section also allows an individual
coverage HRA to be integrated with
Medicare for purposes of PHS Act
sections 2711 and 2713 and § 54.9815–
2711(d)(4), subject to the conditions
provided in this section (see paragraph
(e) of this section). Some of the
conditions set forth in this section
specifically relate to compliance with
PHS Act sections 2711 and 2713 and
some relate to the effect of having or
being offered an individual coverage
HRA on eligibility for the premium tax
credit under section 36B. In addition,
this section provides conditions that an
individual coverage HRA must satisfy in
order to comply with the
nondiscrimination provisions in section
9802 and PHS Act section 2705 (which
is incorporated in section 9815) and that
are consistent with the provisions of the
Patient Protection and Affordable Care
Act, Public Law 111–148 (124 Stat. 119
(2010)), and the Health Care and
Education Reconciliation Act of 2010,
Public Law 111–152 (124 Stat. 1029
(2010)), each as amended, that are
designed to create a competitive
individual market. These conditions are
intended to prevent an HRA plan
sponsor from intentionally or
unintentionally, directly or indirectly,
steering any participants or dependents
with adverse health factors away from
its traditional group health plan, if any,
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and toward individual health insurance
coverage.
(c) General rule. An HRA will be
considered to be integrated with
individual health insurance coverage for
purposes of PHS Act sections 2711 and
2713 and § 54.9815–2711(d)(4) of this
chapter and will not be considered to
discriminate in violation of section 9802
and PHS Act section 2705 solely
because it is integrated with individual
health insurance coverage, provided
that the conditions of this paragraph (c)
are satisfied. See paragraph (e) of this
section for how these conditions apply
to an individual coverage HRA
integrated with Medicare. For purposes
of this section, medical care expenses
means medical care expenses as defined
in § 54.9815–2711(d)(6)(ii) of this
chapter and Exchange means Exchange
as defined in 45 CFR 155.20.
(1) Enrollment in individual health
insurance coverage—(i) In general. The
HRA must require that the participant
and any dependent(s) are enrolled in
individual health insurance coverage
that is subject to and complies with the
requirements in PHS Act section 2711
(and § 54.9815–2711(a)(2) of this
chapter) and PHS Act section 2713 (and
§ 54.9815–2713(a)(1) of this chapter), for
each month that the individual(s) are
covered by the HRA. For purposes of
this paragraph (c), all individual health
insurance coverage, except for
individual health insurance coverage
that consists solely of excepted benefits,
is treated as being subject to and
complying with PHS Act sections 2711
and 2713. References to individual
health insurance coverage in this
paragraph (c) do not include individual
health insurance coverage that consists
solely of excepted benefits.
(ii) Forfeiture. The HRA must provide
that if any individual covered by the
HRA ceases to be covered by individual
health insurance coverage, the HRA will
not reimburse medical care expenses
that are incurred by that individual after
the individual health insurance
coverage ceases. In addition, if the
participant and all dependents covered
by the participant’s HRA cease to be
covered by individual health insurance
coverage, the participant must forfeit the
HRA. In either case, the HRA must
reimburse medical care expenses
incurred by the individual prior to the
cessation of individual health insurance
coverage to the extent the medical care
expenses are otherwise covered by the
HRA, but the HRA may limit the period
to submit medical care expenses for
reimbursement to a reasonable specified
time period. If a participant or
dependent loses coverage under the
HRA for a reason other than cessation of
individual health insurance coverage,
COBRA and other continuation coverage
requirements may apply.
(iii) Grace periods and retroactive
termination of individual health
insurance coverage. In the event an
individual is initially enrolled in
individual health insurance coverage
and subsequently timely fails to pay
premiums for the coverage, with the
result that the individual is in a grace
period, the individual is considered to
be enrolled in individual health
insurance coverage for purposes of this
paragraph (c)(1) and the individual
coverage HRA must reimburse medical
care expenses incurred by the
individual during that time period to
the extent the medical care expenses are
otherwise covered by the HRA. If the
individual fails to pay the applicable
premium(s) by the end of the grace
period and the coverage is cancelled or
terminated, including retroactively, or if
the individual health insurance
coverage is cancelled or terminated
retroactively for some other reason (for
example, a rescission), an individual
coverage HRA must require that a
participant notify the HRA that coverage
has been cancelled or terminated and
the date on which the cancellation or
termination is effective. After the
individual coverage HRA has received
the notice of cancellation or
termination, the HRA may not
reimburse medical care expenses
incurred on and after the date the
individual health insurance coverage
was cancelled or terminated, which is
considered to be the date of termination
of coverage under the HRA.
(2) No traditional group health plan
may be offered to same participants. To
the extent a plan sponsor offers any
class of employees (as defined in
paragraph (d) of this section) an
individual coverage HRA, the plan
sponsor may not also offer a traditional
group health plan to the same class of
employees, except as provided in
paragraph (d)(5) of this section. For
purposes of this section, a traditional
group health plan is any group health
plan other than either an account-based
group health plan or a group health plan
that consists solely of excepted benefits.
Therefore, a plan sponsor may not offer
a choice between an individual coverage
HRA or a traditional group health plan
to any participant or dependent.
(3) Same terms requirement—(i) In
general. If a plan sponsor offers an
individual coverage HRA to a class of
employees described in paragraph (d) of
this section, the HRA must be offered on
the same terms to all participants within
the class, except as provided in
paragraphs (c)(3)(ii) through (vi) and
(d)(5) of this section.
(ii) Carryover amounts, salary
reduction arrangements, and transfer
amounts. Amounts that are not used to
reimburse medical care expenses for any
plan year that are made available to
participants in later plan years are
disregarded for purposes of determining
whether an HRA is offered on the same
terms, provided that the method for
determining whether participants have
access to unused amounts in future
years, and the methodology and formula
for determining the amounts of unused
funds which they may access in future
years, is the same for all participants in
a class of employees. In addition, the
ability to pay the portion of the
premium for individual health
insurance coverage that is not covered
by the HRA, if any, by using a salary
reduction arrangement under section
125 is considered to be a term of the
HRA for purposes of this paragraph
(c)(3). Therefore, an HRA is not
provided on the same terms unless the
salary reduction arrangement, if made
available to any participant in a class of
employees, is made available on the
same terms to all participants (other
than former employees, as defined in
paragraph (c)(3)(iv) of this section) in
the class of employees. Further, to the
extent that a participant in an
individual coverage HRA was
previously covered by another HRA and
the current individual coverage HRA
makes available amounts that were not
used to reimburse medical care
expenses under the prior HRA
(transferred amounts), the transferred
amounts are disregarded for purposes of
determining whether the HRA is offered
on the same terms, provided that if the
HRA makes available transferred
amounts, it does so on the same terms
for all participants in the class of
employees.
(iii) Permitted variation. An HRA does
not fail to be provided on the same
terms solely because the maximum
dollar amount made available to
participants in a class of employees to
reimburse medical care expenses for any
plan year increases in accordance with
paragraph (c)(3)(iii)(A) or (B) of this
section.
(A) Variation due to number of
dependents. An HRA does not fail to be
provided on the same terms to
participants in a class of employees
solely because the maximum dollar
amount made available to those
participants to reimburse medical care
expenses for any plan year increases as
the number of the participant’s
dependents who are covered under the
HRA increases, so long as the same
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maximum dollar amount attributable to
the increase in family size is made
available to all participants in that class
of employees with the same number of
dependents covered by the HRA.
(B) Variation due to age. An HRA
does not fail to be provided on the same
terms to participants in a class of
employees solely because the maximum
dollar amount made available under the
terms of the HRA to those participants
to reimburse medical care expenses for
any plan year increases as the age of the
participant increases, so long as the
requirements in paragraphs
(c)(3)(iii)(B)(1) and (2) of this section are
satisfied. For the purpose of this
paragraph (c)(3)(iii)(B), the plan sponsor
may determine the age of the participant
using any reasonable method for a plan
year, so long as the plan sponsor
determines each participant’s age for the
purpose of this paragraph (c)(3)(iii)(B)
using the same method for all
participants in the class of employees
for the plan year and the method is
determined prior to the plan year.
(1) The same maximum dollar amount
attributable to the increase in age is
made available to all participants who
are the same age.
(2) The maximum dollar amount
made available to the oldest
participant(s) is not more than three
times the maximum dollar amount
made available to the youngest
participant(s).
(iv) Former employees. An HRA does
not fail to be treated as provided on the
same terms if the plan sponsor offers the
HRA to some, but not all, former
employees within a class of employees.
However, if a plan sponsor offers the
HRA to one or more former employees
within a class of employees, the HRA
must be offered to the former
employee(s) on the same terms as to all
other employees within the class, except
as provided in paragraph (c)(3)(ii) of this
section. For purposes of this section, a
former employee is an employee who is
no longer performing services for the
employer.
(v) New employees or new
dependents. For a participant whose
coverage under the HRA becomes
effective later than the first day of the
plan year, the HRA does not fail to be
treated as being provided on the same
terms to the participant if the maximum
dollar amount made available to the
participant either is the same as the
maximum dollar amount made available
to participants in the participant’s class
of employees whose coverage became
effective as of the first day of the plan
year, or is pro-rated consistent with the
portion of the plan year in which the
participant is covered by the HRA.
Similarly, if the HRA provides for
variation in the maximum amount made
available to participants in a class of
employees based on the number of a
participant’s dependents covered by the
HRA, and the number of a participant’s
dependents covered by the HRA
changes during a plan year (either
increasing or decreasing), the HRA does
not fail to be treated as being provided
on the same terms to the participant if
the maximum dollar amount made
available to the participant either is the
same as the maximum dollar amount
made available to participants in the
participant’s class of employees who
had the same number of dependents
covered by the HRA on the first day of
the plan year or is pro-rated for the
remainder of the plan year after the
change in the number of the
participant’s dependents covered by the
HRA consistent with the portion of the
plan year in which that number of
dependents are covered by the HRA.
The method the HRA uses to determine
amounts made available for participants
whose coverage under the HRA is
effective later than the first day of the
plan year or who have changes in the
number of dependents covered by the
HRA during a plan year must be the
same for all participants in the class of
employees and the method must be
determined prior to the beginning of the
plan year.
(vi) HSA-compatible HRAs. An HRA
does not fail to be treated as provided
on the same terms if the plan sponsor
offers participants in a class of
employees a choice between an HSA-
compatible individual coverage HRA
and an individual coverage HRA that is
not HSA compatible, provided both
types of HRAs are offered to all
participants in the class of employees
on the same terms. For the purpose of
this paragraph (c)(3)(vi), an HSA-
compatible individual coverage HRA is
an individual coverage HRA that is
limited in accordance with applicable
guidance under section 223 such that an
individual covered by such an HRA is
not disqualified from being an eligible
individual under section 223.
(vii) Examples. The following
examples illustrate the provisions of
this paragraph (c)(3), without taking into
account the provisions of paragraph (d)
of this section. In each example, the
HRA is an individual coverage HRA that
has a calendar year plan year and may
reimburse any medical care expenses,
including premiums for individual
health insurance coverage (except as
provided in paragraph (c)(3)(vii)(E) of
this section (Example 5)). Further, in
each example, assume the HRA is
offered on the same terms, except as
otherwise specified in the example and
that no participants or dependents are
Medicare beneficiaries.
(A) Example 1: Carryover amounts
permitted—(1) Facts. For 2020 and again for
2021, Plan Sponsor A offers all employees
$7,000 each in an HRA, and the HRA
provides that amounts that are unused at the
end of a plan year may be carried over to the
next plan year, with no restrictions on the
use of the carryover amounts compared to the
use of newly available amounts. At the end
of 2020, some employees have used all of the
funds in their HRAs, while other employees
have balances remaining that range from
$500 to $1,750 that are carried over to 2021
for those employees.
(2) Conclusion. The same terms
requirement of this paragraph (c)(3) is
satisfied in this paragraph (c)(3)(vii)(A)
(Example 1) for 2020 because Plan Sponsor
A offers all employees the same amount,
$7,000, in an HRA for that year. The same
terms requirement is also satisfied for 2021
because Plan Sponsor A again offers all
employees the same amount for that year,
and the carryover amounts that some
employees have are disregarded in applying
the same terms requirement because the
amount of the carryover for each employee
(that employee’s balance) and each
employee’s access to the carryover amounts
is based on the same terms.
(B) Example 2: Employees hired after the
first day of the plan year—(1) Facts. For
2020, Plan Sponsor B offers all employees
employed on January 1, 2020, $7,000 each in
an HRA for the plan year. Employees hired
after January 1, 2020, are eligible to enroll in
the HRA with an effective date of the first
day of the month following their date of hire,
as long as they have enrolled in individual
health insurance coverage effective on or
before that date, and the amount offered to
these employees is pro-rated based on the
number of months remaining in the plan
year, including the month which includes
their coverage effective date.
(2) Conclusion. The same terms
requirement of this paragraph (c)(3) is
satisfied in this paragraph (c)(3)(vii)(B)
(Example 2) for 2020 because Plan Sponsor
B offers all employees employed on the first
day of the plan year the same amount,
$7,000, in an HRA for that plan year and all
employees hired after January 1, 2020, a pro-
rata amount based on the portion of the plan
year during which they are enrolled in the
HRA.
(C) Example 3: HRA amounts offered vary
based on number of dependents—(1) Facts.
For 2020, Plan Sponsor C offers its
employees the following amounts in an HRA:
$1,500, if the employee is the only individual
covered by the HRA; $3,500, if the employee
and one dependent are covered by the HRA;
and $5,000, if the employee and more than
one dependent are covered by the HRA.
(2) Conclusion. The same terms
requirement of this paragraph (c)(3) is
satisfied in this paragraph (c)(3)(vii)(C)
(Example 3) because paragraph (c)(3)(iii)(A)
of this section allows the maximum dollar
amount made available in an HRA to increase
as the number of the participant’s
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dependents covered by the HRA increases
and Plan Sponsor C makes the same amount
available to each employee with the same
number of dependents covered by the HRA.
(D) Example 4: HRA amounts offered vary
based on increases in employees’ ages—(1)
Facts. For 2020, Plan Sponsor D offers its
employees the following amounts in an HRA:
$1,000 each for employees age 25 to 35;
$2,000 each for employees age 36 to 45;
$2,500 each for employees age 46 to 55; and
$4,000 each for employees over age 55.
(2) Conclusion. The same terms
requirement of this paragraph (c)(3) is not
satisfied in this paragraph (c)(3)(vii)(D)
(Example 4) because the terms of the HRA
provide the oldest participants (those over
age 55) with more than three times the
amount made available to the youngest
participants (those ages 25 to 35), in violation
of paragraph (c)(3)(iii)(B)(2) of this section.
(E) Example 5: Application of same terms
requirement to premium only HRA—(1)
Facts. For 2020, Plan Sponsor E offers its
employees an HRA that reimburses only
premiums for individual health insurance
coverage, up to $10,000 for the year.
Employee A enrolls in individual health
insurance coverage with a $5,000 premium
for the year and is reimbursed $5,000 from
the HRA. Employee B enrolls in individual
health insurance coverage with an $8,000
premium for the year and is reimbursed
$8,000 from the HRA.
(2) Conclusion. The same terms
requirement of this paragraph (c)(3) is
satisfied in this paragraph (c)(3)(vii)(E)
(Example 5) because Plan Sponsor E offers
the HRA on the same terms to all employees,
notwithstanding that some employees receive
a greater amount of reimbursement than
others based on the cost of the individual
health insurance coverage selected by the
employee.
(4) Opt out. Under the terms of the
HRA, a participant who is otherwise
eligible for coverage must be permitted
to opt out of and waive future
reimbursements on behalf of the
participant and all dependents eligible
for the HRA from the HRA once, and
only once, with respect to each plan
year. The HRA may establish
timeframes for enrollment in (and
opting out of) the HRA but, in general,
the opportunity to opt out must be
provided in advance of the first day of
the plan year. For participants who
become eligible to participate in the
HRA on a date other than the first day
of the plan year (or who become eligible
fewer than 90 days prior to the plan year
or for whom the notice under paragraph
(c)(6) of this section is required to be
provided as set forth in paragraph
(c)(6)(i)(C) of this section), or for a
dependent who newly becomes eligible
during the plan year, this opportunity
must be provided during the applicable
HRA enrollment period(s) established
by the HRA for these individuals.
Further, under the terms of the HRA,
upon termination of employment, for a
participant who is covered by the HRA,
either the remaining amounts in the
HRA must be forfeited or the participant
must be permitted to permanently opt
out of and waive future reimbursements
from the HRA on behalf of the
participant and all dependents covered
by the HRA.
(5) Reasonable procedures for
coverage substantiation—(i)
Substantiation of individual health
insurance coverage for the plan year.
The HRA must implement, and comply
with, reasonable procedures to
substantiate that participants and each
dependent covered by the HRA are, or
will be, enrolled in individual health
insurance coverage for the plan year (or
for the portion of the plan year the
individual is covered by the HRA, if
applicable). The HRA may establish the
date by which this substantiation must
be provided, but, in general, the date
may be no later than the first day of the
plan year. However, for a participant
who is not eligible to participate in the
HRA on the first day of the plan year (or
who becomes eligible fewer than 90
days prior to the plan year or for whom
the notice under paragraph (c)(6) of this
section is required to be provided as set
forth in paragraph (c)(6)(i)(C) of this
section), the HRA may establish the date
by which this substantiation must be
provided, but that date may be no later
than the date the HRA coverage begins.
Similarly, for a participant who adds a
new dependent during the plan year,
the HRA may establish the date by
which this substantiation must be
provided, but the date may be no later
than the date the HRA coverage for the
new dependent begins; however, to the
extent the dependent’s coverage under
the HRA is effective retroactively, the
HRA may establish a reasonable time by
which this substantiation is required,
but must require it be provided before
the HRA will reimburse any medical
care expense for the newly added
dependent. The reasonable procedures
an HRA may use to implement the
substantiation requirement set forth in
this paragraph (c)(5)(i) may include a
requirement that a participant
substantiate enrollment by providing
either:
(A) A document from a third party
(for example, the issuer or an Exchange)
showing that the participant and any
dependents covered by the HRA are, or
will be, enrolled in individual health
insurance coverage (for example, an
insurance card or an explanation of
benefits document pertaining to the
relevant time period or documentation
from the Exchange showing that the
individual has completed the
application and plan selection); or
(B) An attestation by the participant
stating that the participant and
dependent(s) covered by the HRA are, or
will be, enrolled in individual health
insurance coverage, the date coverage
began or will begin, and the name of the
provider of the coverage.
(ii) Coverage substantiation with each
request for reimbursement of medical
care expenses. Following the initial
substantiation of coverage, with each
new request for reimbursement of an
incurred medical care expense for the
same plan year, the HRA may not
reimburse a participant for any medical
care expenses unless, prior to each
reimbursement, the participant
substantiates that the individual on
whose behalf medical care expenses are
requested to be reimbursed continues to
be enrolled in individual health
insurance coverage for the month during
which the medical care expenses were
incurred. The HRA must implement,
and comply with, reasonable procedures
to satisfy this requirement. This
substantiation may be in the form of a
written attestation by the participant,
which may be part of the form used to
request reimbursement, or a document
from a third party (for example, a health
insurance issuer) showing that the
participant or the dependent, if
applicable, are or were enrolled in
individual health insurance coverage for
the applicable month.
(iii) Reliance on substantiation. For
purposes of this paragraph (c)(5), an
HRA may rely on the participant’s
documentation or attestation unless the
HRA, its plan sponsor, or any other
entity acting in an official capacity on
behalf of the HRA has actual knowledge
that any individual covered by the HRA
is not, or will not be, enrolled in
individual health insurance coverage for
the plan year (or applicable portion of
the plan year) or the month, as
applicable.
(6) Notice requirement—(i) Timing.
The HRA must provide a written notice
to each participant:
(A) At least 90 calendar days before
the beginning of each plan year for any
participant who is not described in
either paragraph (c)(6)(i)(B) or (C) of this
section;
(B) No later than the date on which
the HRA may first take effect for the
participant, for any participant who is
not eligible to participate at the
beginning of the plan year (or is not
eligible to participate at the time the
notice is provided at least 90 calendar
days before the beginning of the plan
year pursuant to paragraph (c)(6)(i)(A) of
this section); or
(C) No later than the date on which
the HRA may first take effect for the
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participant, for any participant who is
employed by an employer that is first
established less than 120 days before the
beginning of the first plan year of the
HRA; this paragraph (c)(6)(i)(C) applies
only with respect to the first plan year
of the HRA.
(ii) Content. The notice must include
all the information described in this
paragraph (c)(6)(ii) (and may include
any additional information that does not
conflict with that information). To the
extent that the Departments of the
Treasury, Labor and Health and Human
Services provide model notice language
for certain elements of this required
notice, HRAs are permitted, but not
required, to use the model language.
(A) A description of the terms of the
HRA, including the maximum dollar
amount available for each participant
(including the self-only HRA amount
available for the plan year (or the
maximum dollar amount available for
the plan year if the HRA provides for
reimbursements up to a single dollar
amount regardless of whether a
participant has self-only or other than
self-only coverage)), any rules regarding
the proration of the maximum dollar
amount applicable to any participant (or
dependent, if applicable) who is not
eligible to participate in the HRA for the
entire plan year, whether (and which of)
the participant’s dependents are eligible
for the HRA, a statement that there are
different kinds of HRAs (including a
qualified small employer health
reimbursement arrangement) and the
HRA being offered is an individual
coverage HRA, a statement that the HRA
requires the participant and any covered
dependents to be enrolled in individual
health insurance coverage (or Medicare
Part A and B or Medicare Part C, if
applicable), a statement that the
coverage in which the participant and
any covered dependents must be
enrolled cannot be short-term, limited-
duration insurance or consist solely of
excepted benefits, if the HRA is subject
to the Employee Retirement Income
Security Act (ERISA), a statement that
individual health insurance coverage in
which the participant and any covered
dependents are enrolled is not subject to
ERISA, if the conditions under 29 CFR
2510.3–1(l) are satisfied, the date as of
which coverage under the HRA may
first become effective (both for
participants whose coverage will
become effective on the first day of the
plan year and for participants whose
HRA coverage may become effective at
a later date), the dates on which the
HRA plan year begins and ends, and the
dates on which the amounts newly
made available under the HRA will be
made available.
(B) A statement of the right of the
participant to opt out of and waive
future reimbursements from the HRA, as
set forth under paragraph (c)(4) of this
section.
(C) A description of the potential
availability of the premium tax credit if
the participant opts out of and waives
future reimbursements from the HRA
and the HRA is not affordable for one
or more months under § 1.36B–2(c)(5) of
this chapter, a statement that even if the
participant opts out of and waives
future reimbursements from an HRA,
the offer will prohibit the participant
(and, potentially, the participant’s
dependents) from receiving a premium
tax credit for the participant’s coverage
(or the dependent’s coverage, if
applicable) on an Exchange for any
month that the HRA is affordable under
§ 1.36B–2(c)(5) of this chapter, a
statement describing how the
participant may find assistance with
determining affordability, a statement
that, if the participant is a former
employee, the offer of the HRA does not
render the participant (or the
participant’s dependents, if applicable)
ineligible for the premium tax credit
regardless of whether it is affordable
under § 1.36B–2(c)(5) of this chapter,
and a statement that if the participant or
dependent is enrolled in Medicare, he
or she is ineligible for the premium tax
credit without regard to the offer or
acceptance of the HRA;
(D) A statement that if the participant
accepts the HRA, the participant may
not claim a premium tax credit for the
participant’s Exchange coverage for any
month the HRA may be used to
reimburse medical care expenses of the
participant, and a premium tax credit
may not be claimed for the Exchange
coverage of the participant’s dependents
for any month the HRA may be used to
reimburse medical care expenses of the
dependents.
(E) A statement that the participant
must inform any Exchange to which the
participant applies for advance
payments of the premium tax credit of
the availability of the HRA; the self-only
HRA amount available for the HRA plan
year (or the maximum dollar amount
available for the plan year if the HRA
provides for reimbursements up to a
single dollar amount regardless of
whether a participant has self-only or
other than self-only coverage) as set
forth in the written notice in accordance
with paragraph (c)(6)(ii)(A) of this
section; whether the HRA is also
available to the participant’s dependents
and if so, which ones; the date as of
which coverage under the HRA may
first become effective; the date on which
the plan year begins and the date on
which it ends; and whether the
participant is a current employee or
former employee.
(F) A statement that the participant
should retain the written notice because
it may be needed to determine whether
the participant is allowed a premium
tax credit on the participant’s individual
income tax return.
(G) A statement that the HRA may not
reimburse any medical care expense
unless the substantiation requirement
set forth in paragraph (c)(5)(ii) of this
section is satisfied and a statement that
the participant must also provide the
substantiation required by paragraph
(c)(5)(i) of this section.
(H) A statement that if the individual
health insurance coverage (or coverage
under Medicare Part A and B or
Medicare Part C) of a participant or
dependent ceases, the HRA will not
reimburse any medical care expenses
that are incurred by the participant or
dependent, as applicable, after the
coverage ceases, and a statement that
the participant must inform the HRA if
the participant’s or dependent’s
individual health insurance coverage (or
coverage under Medicare Part A and B
or Medicare Part C) is cancelled or
terminated retroactively and the date on
which the cancellation or termination is
effective.
(I) The contact information (including
a phone number) for an individual or a
group of individuals who participants
may contact in order to receive
additional information regarding the
HRA. The plan sponsor may determine
which individual or group of
individuals is best suited to be the
specified contact.
(J) A statement of availability of a
special enrollment period to enroll in or
change individual health insurance
coverage, through or outside of an
Exchange, for the participant and any
dependents who newly gain access to
the HRA and are not already covered by
the HRA.
(d) Classes of employees—(1) In
general. This paragraph (d) sets forth the
rules for determining classes of
employees. Paragraph (d)(2) of this
section sets forth the specific classes of
employees; paragraph (d)(3) of this
section sets forth a minimum class size
requirement that applies in certain
circumstances; paragraph (d)(4) of this
section sets forth rules regarding the
definition of ‘‘full-time employees,’’
‘‘part-time employees,’’ and ‘‘seasonal
employees’’; paragraph (d)(5) of this
section sets forth a special rule for new
hires; and paragraph (d)(6) of this
section addresses student premium
reduction arrangements. For purposes of
this section, including determining
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classes under this paragraph (d), the
employer is the common law employer
and is determined without regard to the
rules under sections 414(b), (c), (m), and
(o) that would treat the common law
employer as a single employer with
certain other entities.
(2) List of classes. Participants may be
treated as belonging to a class of
employees based on whether they are,
or are not, included in the classes
described in this paragraph (d)(2). If the
individual coverage HRA is offered to
former employees, former employees are
considered to be in the same class in
which they were included immediately
before separation from service. Before
each plan year, a plan sponsor must
determine for the plan year which
classes of employees it intends to treat
separately and the definition of the
relevant class(es) it will apply, to the
extent these regulations permit a choice.
After the classes and the definitions of
the classes are established for a plan
year, a plan sponsor may not make
changes to the classes of employees or
the definitions of those relevant classes
with respect to that plan year.
(i) Full-time employees, defined at the
election of the plan sponsor to mean
either full-time employees under section
4980H (and § 54.4980H–1(a)(21) of this
chapter) or employees who are not part-
time employees (as described in
§ 1.105–11(c)(2)(iii)(C) of this chapter);
(ii) Part-time employees, defined at
the election of the plan sponsor to mean
either employees who are not full-time
employees under section 4980H (and
under § 54.4980H–1(a)(21) of this
chapter (which defines full-time
employee)) or employees who are part-
time employees as described in § 1.105–
11(c)(2)(iii)(C) of this chapter;
(iii) Employees who are paid on a
salary basis;
(iv) Non-salaried employees (such as,
for example, hourly employees);
(v) Employees whose primary site of
employment is in the same rating area
as defined in 45 CFR 147.102(b);
(vi) Seasonal employees, defined at
the election of the plan sponsor to mean
seasonal employees as described in
either § 54.4980H–1(a)(38) or §1.105–
11(c)(2)(iii)(C) of this chapter;
(vii) Employees included in a unit of
employees covered by a particular
collective bargaining agreement (or an
appropriate related participation
agreement) in which the plan sponsor
participates (as described in § 1.105–
11(c)(2)(iii)(D) of this chapter);
(viii) Employees who have not
satisfied a waiting period for coverage
(if the waiting period complies with
§ 54.9815–2708 of this chapter);
(ix) Non-resident aliens with no U.S.-
based income (as described in § 1.105–
11(c)(2)(iii)(E) of this chapter);
(x) Employees who, under all the facts
and circumstances, are employees of an
entity that hired the employees for
temporary placement at an entity that is
not the common law employer of the
employees and that is not treated as a
single employer with the entity that
hired the employees for temporary
placement under section 414(b), (c), (m),
or (o); or
(xi) A group of participants described
as a combination of two or more of the
classes of employees set forth in
paragraphs (d)(2)(i) through (x) of this
section.
(3) Minimum class size requirement
(i) In general. If a class of employees is
subject to the minimum class size
requirement as set forth in this
paragraph (d)(3), the class must consist
of at least a minimum number of
employees (as described in paragraphs
(d)(3)(iii) and (iv) of this section),
otherwise, the plan sponsor may not
treat that class as a separate class of
employees. Paragraph (d)(3)(ii) of this
section sets forth the circumstances in
which the minimum class size
requirement applies to a class of
employees, paragraph (d)(3)(iii) of this
section sets forth the rules for
determining the applicable class size
minimum, and paragraph (d)(3)(iv) of
this section sets forth the rules for a
plan sponsor to determine if it satisfies
the minimum class size requirement
with respect to a class of employees.
(ii) Circumstances in which minimum
class size requirement applies—(A) The
minimum class size requirement applies
only if a plan sponsor offers a
traditional group health plan to one or
more classes of employees and offers an
individual coverage HRA to one or more
other classes of employees.
(B) The minimum class size
requirement does not apply to a class of
employees offered a traditional group
health plan or a class of employees
offered no coverage.
(C) The minimum class size
requirement applies to a class of
employees offered an individual
coverage HRA if the class is full-time
employees, part-time employees,
salaried employees, non-salaried
employees, or employees whose
primary site of employment is in the
same rating area (described in paragraph
(d)(2)(i), (ii), (iii), (iv), or (v) of this
section, respectively, and referred to
collectively as the applicable classes or
individually as an applicable class),
except that:
(1) In the case of the class of
employees whose primary site of
employment is in the same rating area
(as described in paragraph (d)(2)(v) of
this section), the minimum class size
requirement does not apply if the
geographic area defining the class is a
State or a combination of two or more
entire States; and
(2) In the case of the classes of
employees that are full-time employees
and part-time employees (as described
in paragraphs (d)(2)(i) and (ii) of this
section, respectively), the minimum
class size requirement applies only to
those classes (and the classes are only
applicable classes) if the employees in
one such class are offered a traditional
group health plan while the employees
in the other such class are offered an
individual coverage HRA. In such a
case, the minimum class size
requirement applies only to the class
offered an individual coverage HRA.
(D) A class of employees offered an
individual coverage HRA is also subject
to the minimum class size requirement
if the class is a class of employees
created by combining at least one of the
applicable classes (as defined in
paragraph (d)(3)(ii)(C) of this section)
with any other class, except that the
minimum class size requirement shall
not apply to a class that is the result of
a combination of one of the applicable
classes and a class of employees who
have not satisfied a waiting period (as
described in paragraph (d)(2)(viii) of
this section).
(iii) Determination of the applicable
class size minimum—(A) In general.
The minimum number of employees
that must be in a class of employees that
is subject to the minimum class size
requirement (the applicable class size
minimum) is determined prior to the
beginning of the plan year for each plan
year of the individual coverage HRA
and is:
(1) 10, for an employer with fewer
than 100 employees;
(2) A number, rounded down to a
whole number, equal to 10 percent of
the total number of employees, for an
employer with 100 to 200 employees;
and
(3) 20, for an employer with more
than 200 employees.
(B) Determining employer size. For
purposes of this paragraph (d)(3), the
number of employees of an employer is
determined in advance of the plan year
of the HRA based on the number of
employees that the employer reasonably
expects to employ on the first day of the
plan year.
(iv) Determining if a class satisfies the
applicable class size minimum. For
purposes of this paragraph (d)(3),
whether a class of employees satisfies
the applicable class size minimum for a
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plan year of the individual coverage
HRA is based on the number of
employees in the class offered the
individual coverage HRA as of the first
day of the plan year. Therefore, this
determination is not based on the
number of employees that actually
enroll in the individual coverage HRA,
and this determination is not affected by
changes in the number of employees in
the class during the plan year.
(4) Consistency requirement. For any
plan year, a plan sponsor may define
‘‘full-time employee,’’ ‘‘part-time
employee,’’ and ‘‘seasonal employee’’ in
accordance with the relevant provisions
of sections 105(h) or 4980H, as set forth
in paragraphs (d)(2)(i), (ii), and (vi) of
this section, if:
(i) To the extent applicable under the
HRA for the plan year, each of the three
classes of employees are defined in
accordance with section 105(h) or each
of the three classes of employees are
defined in accordance with section
4980H for the plan year; and
(ii) The HRA plan document sets forth
the applicable definitions prior to the
beginning of the plan year to which the
definitions will apply.
(5) Special rule for new hires—(i) In
general. Notwithstanding paragraphs
(c)(2) and (3) of this section, a plan
sponsor that offers a traditional group
health plan to a class of employees may
prospectively offer the employees in
that class of employees who are hired
on or after a certain future date (the new
hire date) an individual coverage HRA
(with this group of employees referred
to as the new hire subclass), while
continuing to offer employees in that
class of employees who are hired before
the new hire date a traditional group
health plan (with the rule set forth in
this sentence referred to as the special
rule for new hires). For the new hire
subclass, the individual coverage HRA
must be offered on the same terms to all
participants within the subclass, in
accordance with paragraph (c)(3) of this
section. In accordance with paragraph
(c)(2) of this section, a plan sponsor may
not offer a choice between an individual
coverage HRA or a traditional group
health plan to any employee in the new
hire subclass or to any employee in the
class who is not a member of the new
hire subclass.
(ii) New hire date. A plan sponsor
may set the new hire date for a class of
employees prospectively as any date on
or after January 1, 2020. A plan sponsor
may set different new hire dates
prospectively for separate classes of
employees.
(iii) Discontinuation of use of special
rule for new hires and multiple
applications of the special rule for new
hires. A plan sponsor may discontinue
use of the special rule for new hires at
any time for any class of employees. In
that case, the new hire subclass is no
longer treated as a separate subclass of
employees. In the event a plan sponsor
applies the special rule for new hires to
a class of employees and later
discontinues use of the rule to the class
of employees, the plan sponsor may
later apply the rule if the application of
the rule would be permitted under the
rules for initial application of the
special rule for new hires. If a plan
sponsor, in accordance with the
requirements for the special rule for
new hires, applies the rule to a class of
employees subsequent to any prior
application and discontinuance of the
rule to that class, the new hire date must
be prospective.
(iv) Application of the minimum class
size requirement under the special rule
for new hires. The minimum class size
requirement set forth in paragraph (d)(3)
of this section does not apply to the new
hire subclass. However, if a plan
sponsor subdivides the new hire
subclass subsequent to creating the new
hire subclass, the minimum class size
requirement set forth in paragraph (d)(3)
of this section applies to any class of
employees created by subdividing the
new hire subclass, if the minimum class
size requirement otherwise applies.
(6) Student employees offered student
premium reduction arrangements. For
purposes of this section, if an institution
of higher education (as defined in the
Higher Education Act of 1965) offers a
student employee a student premium
reduction arrangement, the employee is
not considered to be part of the class of
employees to which the employee
would otherwise belong. For the
purpose of this paragraph (d)(6) and
paragraph (f)(1) of this section, a student
premium reduction arrangement is
defined as any program offered by an
institution of higher education under
which the cost of insured or self-insured
student health coverage is reduced for
certain students through a credit, offset,
reimbursement, stipend or similar
arrangement. A student employee
offered a student premium reduction
arrangement is also not counted for
purposes of determining the applicable
class size minimum under paragraph
(d)(3)(iii) of this section. If a student
employee is not offered a student
premium reduction arrangement
(including if the student employee is
offered an individual coverage HRA
instead), the student employee is
considered to be part of the class of
employees to which the employee
otherwise belongs and is counted for
purposes of determining the applicable
class size minimum under paragraph
(d)(3)(iii) of this section.
(e) Integration of Individual Coverage
HRAs with Medicare—(1) General rule.
An individual coverage HRA will be
considered to be integrated with
Medicare (and deemed to comply with
PHS Act sections 2711 and 2713 and
§ 54.9815–2711(d)(4) of this chapter),
provided that the conditions of
paragraph (c) of this section are
satisfied, subject to paragraph (e)(2) of
this section. Nothing in this section
requires that a participant and his or her
dependents all have the same type of
coverage; therefore, an individual
coverage HRA may be integrated with
Medicare for some individuals and with
individual health insurance coverage for
others, including, for example, a
participant enrolled in Medicare Part A
and B or Part C and his or her
dependents enrolled in individual
health insurance coverage.
(2) Application of conditions in
paragraph (c) of this section—(i) In
general. Except as provided in
paragraph (e)(2)(ii) of this section, in
applying the conditions of paragraph (c)
of this section with respect to
integration with Medicare, a reference to
‘‘individual health insurance coverage’’
is deemed to refer to coverage under
Medicare Part A and B or Part C.
References in this section to integration
of an HRA with Medicare refer to
integration of an individual coverage
HRA with Medicare Part A and B or Part
C.
(ii) Exceptions. For purposes of the
statement regarding ERISA under the
notice content element under paragraph
(c)(6)(ii)(A) of this section and the
statement regarding the availability of a
special enrollment period under the
notice content element under paragraph
(c)(6)(ii)(J) of this section, the term
individual health insurance coverage
means only individual health insurance
coverage and does not also mean
coverage under Medicare Part A and B
or Part C.
(f) Examples—(1) Examples regarding
classes and the minimum class size
requirement. The following examples
illustrate the provisions of paragraph
(c)(3) of this section, taking into account
the provisions of paragraphs (d)(1)
through (4) and (d)(6) of this section. In
each example, the HRA is an individual
coverage HRA that may reimburse any
medical care expenses, including
premiums for individual health
insurance coverage and it is assumed
that no participants or dependents are
Medicare beneficiaries.
(i) Example 1: Collectively bargained
employees offered traditional group health
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plan; non-collectively bargained employees
offered HRA—(A) Facts. For 2020, Plan
Sponsor A offers its employees covered by a
collective bargaining agreement a traditional
group health plan (as required by the
collective bargaining agreement) and all other
employees (non-collectively bargained
employees) each an HRA on the same terms.
(B) Conclusion. The same terms
requirement of paragraph (c)(3) of this
section is satisfied in this paragraph (f)(1)(i)
(Example 1) because collectively bargained
and non-collectively bargained employees
may be treated as different classes of
employees, one of which may be offered a
traditional group health plan and the other of
which may be offered an individual coverage
HRA, and Plan Sponsor A offers the HRA on
the same terms to all participants who are
non-collectively bargained employees. The
minimum class size requirement does not
apply to this paragraph (f)(1)(i) (Example 1)
even though Plan Sponsor A offers one class
a traditional group health plan and one class
the HRA because collectively bargained and
non-collectively bargained employees are not
applicable classes that are subject to the
minimum class size requirement.
(ii) Example 2: Collectively bargained
employees in one unit offered traditional
group health plan and in another unit offered
HRA—(A) Facts. For 2020, Plan Sponsor B
offers its employees covered by a collective
bargaining agreement with Local 100 a
traditional group health plan (as required by
the collective bargaining agreement), and its
employees covered by a collective bargaining
agreement with Local 200 each an HRA on
the same terms (as required by the collective
bargaining agreement).
(B) Conclusion. The same terms
requirement of paragraph (c)(3) of this
section is satisfied in this paragraph (f)(1)(ii)
(Example 2) because the employees covered
by the collective bargaining agreements with
the two separate bargaining units (Local 100
and Local 200) may be treated as two
different classes of employees and Plan
Sponsor B offers an HRA on the same terms
to the participants covered by the agreement
with Local 200. The minimum class size
requirement does not apply to this paragraph
(f)(1)(ii) (Example 2) even though Plan
Sponsor B offers the Local 100 employees a
traditional group health plan and the Local
200 employees an HRA because collectively
bargained employees are not applicable
classes that are subject to the minimum class
size requirement.
(iii) Example 3: Employees in a waiting
period offered no coverage; other employees
offered an HRA—(A) Facts. For 2020, Plan
Sponsor C offers its employees who have
completed a waiting period that complies
with the requirements for waiting periods in
§ 54.9815–2708 of this chapter each an HRA
on the same terms and does not offer
coverage to its employees who have not
completed the waiting period.
(B) Conclusion. The same terms
requirement of paragraph (c)(3) of this
section is satisfied in this paragraph (f)(1)(iii)
(Example 3) because employees who have
completed a waiting period and employees
who have not completed a waiting period
may be treated as different classes and Plan
Sponsor C offers the HRA on the same terms
to all participants who have completed the
waiting period. The minimum class size
requirement does not apply to this paragraph
(f)(1)(iii) (Example 3) because Plan Sponsor
C does not offer at least one class of
employees a traditional group health plan
and because the class of employees who have
not completed a waiting period and the class
of employees who have completed a waiting
period are not applicable classes that are
subject to the minimum class size
requirement.
(iv) Example 4: Employees in a waiting
period offered an HRA; other employees
offered a traditional group health plan—(A)
Facts. For 2020, Plan Sponsor D offers its
employees who have completed a waiting
period that complies with the requirements
for waiting periods in § 54.9815–2708 of this
chapter a traditional group health plan and
offers its employees who have not completed
the waiting period each an HRA on the same
terms.
(B) Conclusion. The same terms
requirement of paragraph (c)(3) of this
section is satisfied in this paragraph (f)(1)(iv)
(Example 4) because employees who have
completed a waiting period and employees
who have not completed a waiting period
may be treated as different classes and Plan
Sponsor D offers an HRA on the same terms
to all participants who have not completed
the waiting period. The minimum class size
requirement does not apply to this paragraph
(f)(1)(iv) (Example 4) even though Plan
Sponsor D offers employees who have
completed a waiting period a traditional
group health plan and employees who have
not completed a waiting period an HRA
because the class of employees who have not
completed a waiting period is not an
applicable class that is subject to the
minimum class size requirement (nor is the
class made up of employees who have
completed the waiting period).
(v) Example 5: Staffing firm employees
temporarily placed with customers offered an
HRA; other employees offered a traditional
group health plan—(A) Facts. Plan Sponsor
E is a staffing firm that places certain of its
employees on temporary assignments with
customers that are not the common law
employers of Plan Sponsor E’s employees or
treated as a single employer with Plan
Sponsor E under section 414(b), (c), (m), or
(o) (unrelated entities); other employees work
in Plan Sponsor E’s office managing the
staffing business (non-temporary employees).
For 2020, Plan Sponsor E offers its employees
who are on temporary assignments with
customers each an HRA on the same terms.
All other employees are offered a traditional
group health plan.
(B) Conclusion. The same terms
requirement of paragraph (c)(3) of this
section is satisfied in this paragraph (f)(1)(v)
(Example 5) because the employees who are
hired for temporary placement at an
unrelated entity and non-temporary
employees of Plan Sponsor E may be treated
as different classes of employees and Plan
Sponsor E offers an HRA on the same terms
to all participants temporarily placed with
customers. The minimum class size
requirement does not apply to this paragraph
(f)(1)(v) (Example 5) even though Plan
Sponsor E offers one class a traditional group
health plan and one class the HRA because
the class of employees hired for temporary
placement is not an applicable class that is
subject to the minimum class size
requirement (nor is the class made up of non-
temporary employees).
(vi) Example 6: Staffing firm employees
temporarily placed with customers in rating
area 1 offered an HRA; other employees
offered a traditional group health plan—(A)
Facts. The facts are the same as in paragraph
(f)(1)(v) of this section (Example 5), except
that Plan Sponsor E has work sites in rating
area 1 and rating area 2, and it offers its 10
employees on temporary assignments with a
work site in rating area 1 an HRA on the
same terms. Plan Sponsor E has 200 other
employees in rating areas 1 and 2, including
its non-temporary employees in rating areas
1 and 2 and its employees on temporary
assignments with a work site in rating area
2, all of whom are offered a traditional group
health plan.
(B) Conclusion. The same terms
requirement of paragraph (c)(3) of this
section is not satisfied in this paragraph
(f)(1)(vi) (Example 6) because, even though
the employees who are temporarily placed
with customers generally may be treated as
employees of a different class, because Plan
Sponsor E is also using a rating area to
identify the class offered the HRA (which is
an applicable class for the minimum class
size requirement) and is offering one class
the HRA and another class the traditional
group health plan, the minimum class size
requirement applies to the class offered the
HRA, and the class offered the HRA fails to
satisfy the minimum class size requirement.
Because Plan Sponsor E employs 210
employees, the applicable class size
minimum is 20, and the HRA is offered to
only 10 employees.
(vii) Example 7: Employees in State 1
offered traditional group health plan;
employees in State 2 offered HRA—(A) Facts.
Plan Sponsor F employs 45 employees whose
work site is in State 1 and 7 employees
whose primary site of employment is in State
2. For 2020, Plan Sponsor F offers its 45
employees in State 1 a traditional group
health plan, and each of its 7 employees in
State 2 an HRA on the same terms.
(B) Conclusion. The same terms
requirement of paragraph (c)(3) of this
section is satisfied in this paragraph (f)(1)(vii)
(Example 7) because Plan Sponsor F offers
the HRA on the same terms to all employees
with a work site in State 2 and that class is
a permissible class under paragraph (d) of
this section. This is because employees
whose work sites are in different rating areas
may be considered different classes and a
plan sponsor may create a class of employees
by combining classes of employees,
including by combining employees whose
work site is in one rating area with
employees whose work site is in a different
rating area, or by combining all employees
whose work site is in a state. The minimum
class size requirement does not apply to this
paragraph (f)(1)(vii) (Example 7) because the
minimum class size requirement does not
apply if the geographic area defining a class
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of employees is a state or a combination of
two or more entire states.
(viii) Example 8: Full-time seasonal
employees offered HRA; all other full-time
employees offered traditional group health
plan; part-time employees offered no
coverage—(A) Facts. Plan Sponsor G employs
6 full-time seasonal employees, 75 full-time
employees who are not seasonal employees,
and 5 part-time employees. For 2020, Plan
Sponsor G offers each of its 6 full-time
seasonal employees an HRA on the same
terms, its 75 full-time employees who are not
seasonal employees a traditional group
health plan, and offers no coverage to its 5
part-time employees.
(B) Conclusion. The same terms
requirement of paragraph (c)(3) of this
section is satisfied in this paragraph
(f)(1)(viii) (Example 8) because full-time
seasonal employees and full-time employees
who are not seasonal employees may be
considered different classes and Plan
Sponsor G offers the HRA on the same terms
to all full-time seasonal employees. The
minimum class size requirement does not
apply to the class offered the HRA in this
paragraph (f)(1)(viii) (Example 8) because
part-time employees are not offered coverage
and full-time employees are not an
applicable class subject to the minimum class
size requirement if part-time employees are
not offered coverage.
(ix) Example 9: Full-time employees in
rating area 1 offered traditional group health
plan; full-time employees in rating area 2
offered HRA; part-time employees offered no
coverage—(A) Facts. Plan Sponsor H
employs 17 full-time employees and 10 part-
time employees whose work site is in rating
area 1 and 552 full-time employees whose
work site is in rating area 2. For 2020, Plan
Sponsor H offers its 17 full-time employees
in rating area 1 a traditional group health
plan and each of its 552 full-time employees
in rating area 2 an HRA on the same terms.
Plan Sponsor H offers no coverage to its 10
part-time employees in rating area 1. Plan
Sponsor H reasonably expects to employ 569
employees on the first day of the HRA plan
year.
(B) Conclusion. The same terms
requirement of paragraph (c)(3) of this
section is satisfied in this paragraph (f)(1)(ix)
(Example 9) because employees whose work
sites are in different rating areas may be
considered different classes and Plan
Sponsor H offers the HRA on the same terms
to all full-time employees in rating area 2.
The minimum class size requirement applies
to the class offered the HRA in this paragraph
(f)(1)(ix) (Example 9) because the minimum
class size requirement applies to a class
based on a geographic area unless the
geographic area is a state or a combination of
two or more entire states. However, the
minimum class size requirement applies only
to the class offered the HRA, and Plan
Sponsor H offers the HRA to the 552 full-time
employees in rating area 2 on the first day
of the plan year, satisfying the minimum
class size requirement (because the
applicable class size minimum for Plan
Sponsor H is 20).
(x) Example 10: Employees in rating area
1 offered HRA; employees in rating area 2
offered traditional group health plan—(A)
Facts. The facts are the same as in paragraph
(f)(1)(ix) of this section (Example 9) except
that Plan Sponsor H offers its 17 full-time
employees in rating area 1 the HRA and
offers its 552 full-time employees in rating
area 2 the traditional group health plan.
(B) Conclusion. The same terms
requirement of paragraph (c)(3) of this
section is not satisfied in this paragraph
(f)(1)(x) (Example 10) because, even though
employees whose work sites are in different
rating areas generally may be considered
different classes and Plan Sponsor H offers
the HRA on the same terms to all participants
in rating area 1, the HRA fails to satisfy the
minimum class size requirement.
Specifically, the minimum class size
requirement applies to this paragraph (f)(1)(x)
(Example 10) because the minimum class
size requirement applies to a class based on
a geographic area unless the geographic area
is a state or a combination of two or more
entire states. Further, the applicable class
size minimum for Plan Sponsor H is 20
employees, and the HRA is only offered to
the 17 full-time employees in rating area 1 on
the first day of the HRA plan year.
(xi) Example 11: Employees in State 1 and
rating area 1 of State 2 offered HRA;
employees in all other rating areas of State
2 offered traditional group health plan—(A)
Facts. For 2020, Plan Sponsor I offers an
HRA on the same terms to a total of 200
employees it employs with work sites in
State 1 and in rating area 1 of State 2. Plan
Sponsor I offers a traditional group health
plan to its 150 employees with work sites in
other rating areas in State 2. Plan Sponsor I
reasonably expects to employ 350 employees
on the first day of the HRA plan year.
(B) Conclusion. The same terms
requirement of paragraph (c)(3) of this
section is satisfied in this paragraph (f)(1)(xi)
(Example 11). Plan Sponsor I may treat all of
the employees with a work site in State 1 and
rating area 1 of State 2 as a class of
employees because employees whose work
sites are in different rating areas may be
considered different classes and a plan
sponsor may create a class of employees by
combining classes of employees, including
by combining employees whose work site is
in one rating area with a class of employees
whose work site is in a different rating area.
The minimum class size requirement applies
to the class of employees offered the HRA
(made up of employees in State 1 and in
rating area 1 of State 2) because the minimum
class size requirement applies to a class
based on a geographic area unless the
geographic area is a state or a combination of
two or more entire states. In this case, the
class is made up of a state plus a rating area
which is not the entire state. However, this
class satisfies the minimum class size
requirement because the applicable class size
minimum for Plan Sponsor I is 20, and Plan
Sponsor I offered the HRA to 200 employees
on the first day of the plan year.
(xii) Example 12: Salaried employees
offered a traditional group health plan;
hourly employees offered an HRA—(A) Facts.
Plan Sponsor J has 163 salaried employees
and 14 hourly employees. For 2020, Plan
Sponsor J offers its 163 salaried employees a
traditional group health plan and each of its
14 hourly employees an HRA on the same
terms. Plan Sponsor J reasonably expects to
employ 177 employees on the first day of the
HRA plan year.
(B) Conclusion. The same terms
requirement of paragraph (c)(3) of this
section is not satisfied in this paragraph
(f)(1)(xii) (Example 12) because, even though
salaried and hourly employees generally may
be considered different classes and Plan
Sponsor J offers the HRA on the same terms
to all hourly employees, the HRA fails to
satisfy the minimum class size requirement.
Specifically, the minimum class size
requirement applies in this paragraph
(f)(1)(xii) (Example 12) because employees
who are paid on a salaried basis and
employees who are not paid on a salaried
basis are applicable classes subject to the
minimum class size requirement. Because
Plan Sponsor J reasonably expects to employ
between 100 and 200 employees on the first
day of the plan year, the applicable class size
minimum is 10 percent, rounded down to a
whole number. Ten percent of 177 total
employees, rounded down to a whole
number is 17, and the HRA is offered to only
14 hourly employees.
(xiii) Example 13: Part-time employees and
full-time employees offered different HRAs;
no traditional group health plan offered—(A)
Facts. Plan Sponsor K has 50 full-time
employees and 7 part-time employees. For
2020, Plan Sponsor K offers its 50 full-time
employees $2,000 each in an HRA otherwise
provided on the same terms and each of its
7 part-time employees $500 in an HRA
otherwise provided on the same terms. Plan
Sponsor K reasonably expects to employ 57
employees on the first day of the HRA plan
year.
(B) Conclusion. The same terms
requirement of paragraph (c)(3) of this
section is satisfied in this paragraph
(f)(1)(xiii) (Example 13) because full-time
employees and part-time employees may be
treated as different classes and Plan Sponsor
K offers an HRA on the same terms to all the
participants in each class. The minimum
class size requirement does not apply to
either the full-time class or the part-time
class because (although in certain
circumstances the minimum class size
requirement applies to a class of full-time
employees and a class of part-time
employees) Plan Sponsor K does not offer
any class of employees a traditional group
health plan, and the minimum class size
requirement applies only when, among other
things, at least one class of employees is
offered a traditional group health plan while
another class is offered an HRA.
(xiv) Example 14: No employees offered an
HRA—(A) Facts. The facts are the same facts
as in paragraph (f)(1)(xiii) of this section
(Example 13), except that Plan Sponsor K
offers its full-time employees a traditional
group health plan and does not offer any
group health plan (either a traditional group
health plan or an HRA) to its part-time
employees.
(B) Conclusion. The regulations set forth
under this section do not apply to Plan
Sponsor K because Plan Sponsor K does not
offer an individual coverage HRA to any
employee.
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(xv) Example 15: Full-time employees
offered traditional group health plan; part-
time employees offered HRA—(A) Facts. The
facts are the same as in paragraph (f)(1)(xiii)
of this section (Example 13), except that Plan
Sponsor K offers its full-time employees a
traditional group health plan and offers each
of its part-time employees $500 in an HRA
and otherwise on the same terms.
(B) Conclusion. The same terms
requirement of paragraph (c)(3) of this
section is not satisfied in this paragraph
(f)(1)(xv) (Example 15) because, even though
the full-time employees and the part-time
employees generally may be treated as
different classes, in this paragraph (f)(1)(xv)
(Example 15), the minimum class size
requirement applies to the part-time
employees, and it is not satisfied.
Specifically, the minimum class size
requirement applies to the part-time
employees because that requirement applies
to an applicable class offered an HRA when
one class is offered a traditional group health
plan while another class is offered an HRA,
and to the part-time and full-time employee
classes when one of those classes is offered
a traditional group health plan while the
other is offered an HRA. Because Plan
Sponsor K reasonably expects to employ
fewer than 100 employees on the first day of
the HRA plan year, the applicable class size
minimum for Plan Sponsor K is 10
employees, but Plan Sponsor K offered the
HRA only to its 7 part-time employees.
(xvi) Example 16: Satisfying minimum
class size requirement based on employees
offered HRA—(A) Facts. Plan Sponsor L
employs 78 full-time employees and 12 part-
time employees. For 2020, Plan Sponsor L
offers its 78 full-time employees a traditional
group health plan and each of its 12 part-
times employees an HRA on the same terms.
Only 6 part-time employees enroll in the
HRA. Plan Sponsor L reasonably expects to
employ fewer than 100 employees on the first
day of the HRA plan year.
(B) Conclusion. The same terms
requirement of paragraph (c)(3) of this
section is satisfied in this paragraph
(f)(1)(xvi) (Example 16) because full-time
employees and part-time employees may be
treated as different classes, Plan Sponsor L
offers an HRA on the same terms to all the
participants in the part-time class, and the
minimum class size requirement is satisfied.
Specifically, whether a class of employees
satisfies the applicable class size minimum is
determined as of the first day of the plan year
based on the number of employees in a class
that is offered an HRA, not on the number
of employees who enroll in the HRA. The
applicable class size minimum for Plan
Sponsor L is 10 employees, and Plan Sponsor
L offered the HRA to its 12 part-time
employees.
(xvii) Example 17: Student employees
offered student premium reduction
arrangements and same terms requirement
(A) Facts. Plan Sponsor M is an institution
of higher education that offers each of its
part-time employees an HRA on the same
terms, except that it offers its part-time
employees who are student employees a
student premium reduction arrangement, and
the student premium reduction arrangement
provides different amounts to different part-
time student employees.
(B) Conclusion. The same terms
requirement of paragraph (c)(3) of this
section is satisfied in this paragraph
(f)(1)(xvii) (Example 17) because Plan
Sponsor M offers the HRA on the same terms
to its part-time employees who are not
students and because the part-time student
employees offered a student premium
reduction arrangement (and their varying
HRAs) are not taken into account as part-time
employees for purposes of determining
whether a class of employees is offered an
HRA on the same terms.
(xiii) Example 18: Student employees
offered student premium reduction
arrangements and minimum class size
requirement—(A) Facts. Plan Sponsor N is an
institution of higher education with 25
hourly employees. Plan Sponsor N offers 15
of its hourly employees, who are student
employees, a student premium reduction
arrangement and it wants to offer its other 10
hourly employees an HRA for 2022. Plan
Sponsor N offers its salaried employees a
traditional group health plan. Plan Sponsor
N reasonably expects to have 250 employees
on the first day of the 2022 HRA plan year,
15 of which will have offers of student
premium reduction arrangements.
(B) Conclusion. The same terms
requirement of paragraph (c)(3) of this
section is not satisfied in this paragraph
(f)(1)(xviii) (Example 18). The minimum
class size requirement will apply to the class
of hourly employees to which Plan Sponsor
N wants to offer the HRA because Plan
Sponsor N offers a class of employees a
traditional group health plan and another
class the HRA, and the minimum class size
requirement generally applies to a class of
hourly employees offered an HRA. Plan
Sponsor N’s applicable class size minimum
is 20 because Plan Sponsor N reasonably
expects to employ 235 employees on the first
day of the plan year (250 employees minus
15 employees receiving a student premium
reduction arrangement). Plan Sponsor N may
not offer the HRA to its hourly employees
because the 10 employees offered the HRA as
of the first day of the plan year does not
satisfy the applicable class size minimum.
(2) Examples regarding special rule
for new hires. The following examples
illustrate the provisions of paragraph
(c)(3) of this section, taking into account
the provisions of paragraph (d) of this
section, in particular the special rule for
new hires under paragraph (d)(5) of this
section. In each example, the HRA is an
individual coverage HRA that has a
calendar year plan year and may
reimburse any medical care expenses,
including premiums for individual
health insurance coverage. The
examples also assume that no
participants or dependents are Medicare
beneficiaries.
(i) Example 1: Application of special rule
for new hires to all employees—(A) Facts. For
2021, Plan Sponsor A offers all employees a
traditional group health plan. For 2022, Plan
Sponsor A offers all employees hired on or
after January 1, 2022, an HRA on the same
terms and continues to offer the traditional
group health plan to employees hired before
that date. On the first day of the 2022 plan
year, Plan Sponsor A has 2 new hires who
are offered the HRA.
(B) Conclusion. The same terms
requirement of paragraph (c)(3) of this
section is satisfied in this paragraph (f)(2)(i)
(Example 1) because, under the special rule
for new hires in paragraph (d)(5) of this
section, the employees newly hired on and
after January 1, 2022, may be treated as a new
hire subclass, Plan Sponsor A offers the HRA
on the same terms to all participants in the
new hire subclass, and the minimum class
size requirement does not apply to the new
hire subclass.
(ii) Example 2: Application of special rule
for new hires to full-time employees—(A)
Facts. For 2021, Plan Sponsor B offers a
traditional group health plan to its full-time
employees and does not offer any coverage to
its part-time employees. For 2022, Plan
Sponsor B offers full-time employees hired
on or after January 1, 2022, an HRA on the
same terms, continues to offer its full-time
employees hired before that date a traditional
group health plan, and continues to offer no
coverage to its part-time employees. On the
first day of the 2022 plan year, Plan Sponsor
B has 2 new hire, full-time employees who
are offered the HRA.
(B) Conclusion. The same terms
requirement of paragraph (c)(3) of this
section is satisfied in this paragraph (f)(2)(ii)
(Example 2) because, under the special rule
for new hires in paragraph (d)(5) of this
section, the full-time employees newly hired
on and after January 1, 2022, may be treated
as a new hire subclass and Plan Sponsor B
offers the HRA on the same terms to all
participants in the new hire subclass. The
minimum class size requirement does not
apply to the new hire subclass.
(iii) Example 3: Special rule for new hires
impermissibly applied retroactively—(A)
Facts. For 2025, Plan Sponsor C offers a
traditional group health plan to its full-time
employees. For 2026, Plan Sponsor C wants
to offer an HRA to its full-time employees
hired on and after January 1, 2023, while
continuing to offer a traditional group health
plan to its full-time employees hired before
January 1, 2023.
(B) Conclusion. The special rule for new
hires under paragraph (d)(5) of this section
does not apply in this paragraph (f)(2)(iii)
(Example 3) because the rule must be applied
prospectively. That is, Plan Sponsor C may
not, in 2026, choose to apply the special rule
for new hires retroactive to 2023. If Plan
Sponsor C were to offer an HRA in this way,
it would fail to satisfy the conditions under
paragraphs (c)(2) and (3) of this section
because the new hire subclass would not be
treated as a subclass for purposes of applying
those rules and, therefore, all full-time
employees would be treated as one class to
which either a traditional group health plan
or an HRA could be offered, but not both.
(iv) Example 4: Permissible second
application of the special rule for new hires
to the same class of employees—(A) Facts.
For 2021, Plan Sponsor D offers all of its full-
time employees a traditional group health
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plan. For 2022, Plan Sponsor D applies the
special rule for new hires and offers an HRA
on the same terms to all employees hired on
and after January 1, 2022, and continues to
offer a traditional group health plan to full-
time employees hired before that date. For
2025, Plan Sponsor D discontinues use of the
special rule for new hires, and again offers
all full-time employees a traditional group
health plan. In 2030, Plan Sponsor D decides
to apply the special rule for new hires to the
full-time employee class again, offering an
HRA to all full-time employees hired on and
after January 1, 2030, on the same terms,
while continuing to offer employees hired
before that date a traditional group health
plan.
(B) Conclusion. Plan Sponsor D has
permissibly applied the special rule for new
hires and is in compliance with the
requirements of paragraphs (c)(2) and (3) of
this section.
(v) Example 5: Impermissible second
application of the special rule for new hires
to the same class of employees—(A) Facts.
The facts are the same as in paragraph
(f)(2)(iv) of this section (Example 4), except
that for 2025, Plan Sponsor D discontinues
use of the special rule for new hires by
offering all full-time employees an HRA on
the same terms. Further, for 2030, Plan
Sponsor D wants to continue to offer an HRA
on the same terms to all full-time employees
hired before January 1, 2030, and to offer all
full-time employees hired on or after January
1, 2030, an HRA in a different amount.
(B) Conclusion. Plan Sponsor D may not
apply the special rule for new hires for 2030
to the class of full-time employees being
offered an HRA because the special rule for
new hires may only be applied to a class that
is being offered a traditional group health
plan.
(vi) Example 6: New full-time employees
offered different HRAs in different rating
areas—(A) Facts. Plan Sponsor E has work
sites in rating area 1, rating area 2, and rating
area 3. For 2021, Plan Sponsor E offers its
full-time employees a traditional group
health plan. For 2022, Plan Sponsor E offers
its full-time employees hired on or after
January 1, 2022, in rating area 1 an HRA of
$3,000, its full-time employees hired on or
after January 1, 2022, in rating area 2 an HRA
of $5,000, and its full-time employees hired
on or after January 1, 2022, in rating area 3
an HRA of $7,000. Within each class offered
an HRA, Plan Sponsor E offers the HRA on
the same terms. Plan Sponsor E offers its full-
time employees hired prior to January 1,
2022, in each of those classes a traditional
group health plan. On the first day of the
2022 plan year, there is one new hire, full-
time employee in rating area 1, three new
hire, full-time employees in rating area 2, and
10 new hire-full-time employees in rating
area 3.
(B) Conclusion. The same terms
requirement of paragraph (c)(3) of this
section is satisfied in this paragraph (f)(2)(vi)
(Example 6) because, under the special rule
for new hires in paragraph (d)(5) of this
section, the full-time employees in each of
the three rating areas newly hired on and
after January 1, 2022, may be treated as three
new hire subclasses and Plan Sponsor E
offers the HRA on the same terms to all
participants in the new hire subclasses.
Further, the minimum class size requirement
does not apply to the new hire subclasses.
(vii) Example 7: New full-time employee
class subdivided based on rating area—(A)
Facts. Plan Sponsor F offers its full-time
employees hired on or after January 1, 2022,
an HRA on the same terms and it continues
to offer its full-time employees hired before
that date a traditional group health plan. Plan
Sponsor F offers no coverage to its part-time
employees. For the 2025 plan year, Plan
Sponsor F wants to subdivide the full-time
new hire subclass so that those whose work
site is in rating area 1 will be offered the
traditional group health plan and those
whose work site is in rating area 2 will
continue to receive the HRA. Plan Sponsor F
reasonably expects to employ 219 employees
on January 1, 2025. As of January 1, 2025,
Plan Sponsor F has 15 full-time employees
whose work site in in rating area 2 and who
were hired between January 1, 2022, and
January 1, 2025.
(B) Conclusion. The same terms
requirement of paragraph (c)(3) of this
section is not satisfied in this paragraph
(f)(2)(vii) (Example 7) because the new hire
subclass has been subdivided in a manner
that is subject to the minimum class size
requirement, and the class offered the HRA
fails to satisfy the minimum class size
requirement. Specifically, once the new hire
subclass is subdivided the general rules for
applying the minimum class size
requirement apply to the employees offered
the HRA in the new hire subclass. In this
case, because the subdivision of the new hire
full-time subclass is based on rating areas; a
class based on rating areas is an applicable
class subject to the minimum class size
requirement; and the employees in one rating
area are to be offered the HRA, while the
employees in the other rating area are offered
the traditional group health plan, the
minimum class size requirement would
apply on and after the date of the
subdivision. Further, the minimum class size
requirement would not be satisfied, because
the applicable class size minimum for Plan
Sponsor F would be 20, and only 15
employees in rating area 2 would be offered
the HRA.
(viii) Example 8: New full-time employee
class subdivided based on state—(A) Facts.
The facts are the same as in paragraph
(f)(2)(vii) of this section (Example 7), except
that for the 2025 plan year, Plan Sponsor F
intends to subdivide the new hire, full-time
class so that those in State 1 will be offered
the traditional group health plan and those
in State 2 will each be offered an HRA on the
same terms.
(B) Conclusion. The same terms
requirement of paragraph (c)(3) of this
section is satisfied in this paragraph
(f)(2)(viii) (Example 8) because even though
the new hire subclass has been subdivided,
it has been subdivided in a manner that is
not subject to the minimum class size
requirement as the subdivision is based on
the entire state.
(ix) Example 9: New full-time employees
and part-time employees offered HRA—(A)
Facts. In 2021, Plan Sponsor G offers its full-
time employees a traditional group health
plan and does not offer coverage to its part-
time employees. For the 2022 plan year, Plan
Sponsor G offers its full-time employees
hired on or after January 1, 2022, and all of
its part-time employees, including those
hired before January 1, 2022, and those hired
on and after January 1, 2022, an HRA on the
same terms, and it continues to offer its full-
time employees hired before January 1, 2022,
a traditional group health plan.
(B) Conclusion. The minimum class size
requirement applies to the part-time
employees offered the HRA in 2022 because
the class is being offered an HRA; the special
rule for new hires does not apply (because
this class was not previously offered a
traditional group health plan) and so it is not
a new hire subclass exempt from the
minimum class size requirement; another
class of employees (that is, full-time hired
before January 1, 2022) are being offered a
traditional group health plan; and the part-
time employee class is generally an
applicable classes that is subject to the
minimum class size requirement. However,
because the full-time, new hire subclass is
based on the special rule for new hires, the
minimum class size requirement does not
apply to full-time new hires offered an HRA
in 2022.
(g) Applicability date. This section
applies to plan years beginning on or
after January 1, 2020.
Par. 7. Section 54.9815–2711 is
amended by revising paragraphs (c), (d),
and (e) to read as follows:
§ 54.9815–2711 No lifetime or annual
limits.
* * * * *
(c) Definition of essential health
benefits. The term ‘‘essential health
benefits’’ means essential health
benefits under section 1302(b) of the
Patient Protection and Affordable Care
Act and applicable regulations. For the
purpose of this section, a group health
plan or a health insurance issuer that is
not required to provide essential health
benefits under section 1302(b) must
define ‘‘essential health benefits’’ in a
manner that is consistent with the
following:
(1) For plan years beginning before
January 1, 2020, one of the EHB-
benchmark plans applicable in a State
under 45 CFR 156.110, and including
coverage of any additional required
benefits that are considered essential
health benefits consistent with 45 CFR
155.170(a)(2), or one of the three Federal
Employees Health Benefits Program
(FEHBP) plan options as defined by 45
CFR 156.100(a)(3), supplemented as
necessary, to satisfy the standards in 45
CFR 156.110; or
(2) For plan years beginning on or
after January 1, 2020, an EHB-
benchmark plan selected by a State in
accordance with the available options
and requirements for EHB-benchmark
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plan selection at 45 CFR 156.111,
including an EHB-benchmark plan in a
State that takes no action to change its
EHB-benchmark plan and thus retains
the EHB-benchmark plan applicable in
that State for the prior year in
accordance with 45 CFR 156.111(d)(1),
and including coverage of any
additional required benefits that are
considered essential health benefits
consistent with 45 CFR 155.170(a)(2).
(d) Health reimbursement
arrangements (HRAs) and other
account-based group health plans—(1)
In general. If an HRA or other account-
based group health plan is integrated
with another group health plan or
individual health insurance coverage
and the other group health plan or
individual health insurance coverage, as
applicable, separately is subject to and
satisfies the requirements in PHS Act
section 2711 and paragraph (a)(2) of this
section, the fact that the benefits under
the HRA or other account-based group
health plan are limited does not cause
the HRA or other account-based group
health plan to fail to satisfy the
requirements of PHS Act section 2711
and paragraph (a)(2) of this section.
Similarly, if an HRA or other account-
based group health plan is integrated
with another group health plan or
individual health insurance coverage
and the other group health plan or
individual health insurance coverage, as
applicable, separately is subject to and
satisfies the requirements in PHS Act
section 2713 and § 54.9815–2713(a)(1)
of this chapter, the fact that the benefits
under the HRA or other account-based
group health plan are limited does not
cause the HRA or other account-based
group health plan to fail to satisfy the
requirements of PHS Act section 2713
and § 54.9815–2713(a)(1) of this chapter.
For the purpose of this paragraph (d), all
individual health insurance coverage,
except for coverage that consists solely
of excepted benefits, is treated as being
subject to and complying with PHS Act
sections 2711 and 2713.
(2) Requirements for an HRA or other
account-based group health plan to be
integrated with another group health
plan. An HRA or other account-based
group health plan is integrated with
another group health plan for purposes
of PHS Act section 2711 and paragraph
(a)(2) of this section if it satisfies the
requirements under one of the
integration methods set forth in
paragraph (d)(2)(i) or (ii) of this section.
For purposes of the integration methods
under which an HRA or other account-
based group health plan is integrated
with another group health plan,
integration does not require that the
HRA or other account-based group
health plan and the other group health
plan with which it is integrated share
the same plan sponsor, the same plan
document or governing instruments, or
file a single Form 5500, if applicable.
An HRA or other account-based group
health plan integrated with another
group health plan for purposes of PHS
Act section 2711 and paragraph (a)(2) of
this section may not be used to purchase
individual health insurance coverage
unless that coverage consists solely of
excepted benefits, as defined in 45 CFR
148.220.
(i) Method for integration with a
group health plan: Minimum value not
required. An HRA or other account-
based group health plan is integrated
with another group health plan for
purposes of this paragraph (d) if:
(A) The plan sponsor offers a group
health plan (other than the HRA or other
account-based group health plan) to the
employee that does not consist solely of
excepted benefits;
(B) The employee receiving the HRA
or other account-based group health
plan is actually enrolled in a group
health plan (other than the HRA or other
account-based group health plan) that
does not consist solely of excepted
benefits, regardless of whether the plan
is offered by the same plan sponsor
(referred to as non-HRA group
coverage);
(C) The HRA or other account-based
group health plan is available only to
employees who are enrolled in non-
HRA group coverage, regardless of
whether the non-HRA group coverage is
offered by the plan sponsor of the HRA
or other account-based group health
plan (for example, the HRA may be
offered only to employees who do not
enroll in an employer’s group health
plan but are enrolled in other non-HRA
group coverage, such as a group health
plan maintained by the employer of the
employee’s spouse);
(D) The benefits under the HRA or
other account-based group health plan
are limited to reimbursement of one or
more of the following—co-payments, co-
insurance, deductibles, and premiums
under the non-HRA group coverage, as
well as medical care expenses that do
not constitute essential health benefits
as defined in paragraph (c) of this
section; and
(E) Under the terms of the HRA or
other account-based group health plan,
an employee (or former employee) is
permitted to permanently opt out of and
waive future reimbursements from the
HRA or other account-based group
health plan at least annually and, upon
termination of employment, either the
remaining amounts in the HRA or other
account-based group health plan are
forfeited or the employee is permitted to
permanently opt out of and waive future
reimbursements from the HRA or other
account-based group health plan (see
paragraph (d)(3) of this section for
additional rules regarding forfeiture and
waiver).
(ii) Method for integration with
another group health plan: Minimum
value required. An HRA or other
account-based group health plan is
integrated with another group health
plan for purposes of this paragraph (d)
if:
(A) The plan sponsor offers a group
health plan (other than the HRA or other
account-based group health plan) to the
employee that provides minimum value
pursuant to section 36B(c)(2)(C)(ii) (and
its implementing regulations and
applicable guidance);
(B) The employee receiving the HRA
or other account-based group health
plan is actually enrolled in a group
health plan (other than the HRA or other
account-based group health plan) that
provides minimum value pursuant to
section 36B(c)(2)(C)(ii) (and applicable
guidance), regardless of whether the
plan is offered by the plan sponsor of
the HRA or other account-based group
health plan (referred to as non-HRA MV
group coverage);
(C) The HRA or other account-based
group health plan is available only to
employees who are actually enrolled in
non-HRA MV group coverage, regardless
of whether the non-HRA MV group
coverage is offered by the plan sponsor
of the HRA or other account-based
group health plan (for example, the
HRA may be offered only to employees
who do not enroll in an employer’s
group health plan but are enrolled in
other non-HRA MV group coverage,
such as a group health plan maintained
by an employer of the employee’s
spouse); and
(D) Under the terms of the HRA or
other account-based group health plan,
an employee (or former employee) is
permitted to permanently opt out of and
waive future reimbursements from the
HRA or other account-based group
health plan at least annually, and, upon
termination of employment, either the
remaining amounts in the HRA or other
account-based group health plan are
forfeited or the employee is permitted to
permanently opt out of and waive future
reimbursements from the HRA or other
account-based group health plan (see
paragraph (d)(3) of this section for
additional rules regarding forfeiture and
waiver).
(3) Forfeiture. For purposes of
integration under paragraphs (d)(2)(i)(E)
and (d)(2)(ii)(D) of this section,
forfeiture or waiver occurs even if the
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forfeited or waived amounts may be
reinstated upon a fixed date, a
participant’s death, or the earlier of the
two events (the reinstatement event).
For the purpose of this paragraph (d)(3),
coverage under an HRA or other
account-based group health plan is
considered forfeited or waived prior to
a reinstatement event only if the
participant’s election to forfeit or waive
is irrevocable, meaning that, beginning
on the effective date of the election and
through the date of the reinstatement
event, the participant and the
participant’s beneficiaries have no
access to amounts credited to the HRA
or other account-based group health
plan. This means that upon and after
reinstatement, the reinstated amounts
under the HRA or other account-based
group health plan may not be used to
reimburse or pay medical care expenses
incurred during the period after
forfeiture and prior to reinstatement.
(4) Requirements for an HRA or other
account-based group health plan to be
integrated with individual health
insurance coverage or Medicare Part A
and B or Medicare Part C. An HRA or
other account-based group health plan
is integrated with individual health
insurance coverage or Medicare Part A
and B or Medicare Part C (and treated
as complying with PHS Act sections
2711 and 2713) if the HRA or other
account-based group health plan
satisfies the requirements of § 54.9802–
4(c) of this chapter (as modified by
§ 54.9802–4(e), for HRAs or other
account-based group health plans
integrated with Medicare Part A and B
or Medicare Part C).
(5) Integration with Medicare Part B
and D. For employers that are not
required to offer their non-HRA group
health plan coverage to employees who
are Medicare beneficiaries, an HRA or
other account-based group health plan
that may be used to reimburse
premiums under Medicare Part B or D
may be integrated with Medicare (and
deemed to comply with PHS Act
sections 2711 and 2713) if the following
requirements are satisfied with respect
to employees who would be eligible for
the employer’s non-HRA group health
plan but for their eligibility for Medicare
(and the integration rules under
paragraphs (d)(2)(i) and (ii) of this
section continue to apply to employees
who are not eligible for Medicare):
(i) The plan sponsor offers a group
health plan (other than the HRA or other
account-based group health plan and
that does not consist solely of excepted
benefits) to employees who are not
eligible for Medicare;
(ii) The employee receiving the HRA
or other account-based group health
plan is actually enrolled in Medicare
Part B or D;
(iii) The HRA or other account-based
group health plan is available only to
employees who are enrolled in
Medicare Part B or D; and
(iv) The HRA or other account-based
group health plan complies with
paragraphs (d)(2)(i)(E) and (d)(2)(ii)(D)
of this section.
(6) Definitions. The following
definitions apply for purposes of this
section.
(i) Account-based group health plan.
An account-based group health plan is
an employer-provided group health plan
that provides reimbursements of
medical care expenses with the
reimbursement subject to a maximum
fixed dollar amount for a period. An
HRA is a type of account-based group
health plan. An account-based group
health plan does not include a qualified
small employer health reimbursement
arrangement, as defined in section
9831(d)(2).
(ii) Medical care expenses. Medical
care expenses means expenses for
medical care as defined under section
213(d).
(e) Applicability date. The provisions
of this section are applicable to group
health plans and health insurance
issuers for plan years beginning on or
after January 1, 2020. Until the
applicability date for this section, plans
and issuers are required to continue to
comply with the corresponding sections
of 26 CFR part 54, contained in the 26
CFR, subchapter D, revised as of April
1, 2018.
Par. 8. Section 54.9831–1 is amended
by revising paragraph (c)(3)(i) and
adding paragraph (c)(3)(viii) to read as
follows:
§ 54.9831–1 Special rules relating to group
health plans.
* * * * *
(c) * * *
(3) * * *
(i) In general. Limited-scope dental
benefits, limited-scope vision benefits,
or long-term care benefits are excepted
if they are provided under a separate
policy, certificate, or contract of
insurance, or are otherwise not an
integral part of a group health plan as
described in paragraph (c)(3)(ii) of this
section. In addition, benefits provided
under a health flexible spending
arrangement (health FSA) are excepted
benefits if they satisfy the requirements
of paragraph (c)(3)(v) of this section;
benefits provided under an employee
assistance program are excepted benefits
if they satisfy the requirements of
paragraph (c)(3)(vi) of this section;
benefits provided under limited
wraparound coverage are excepted
benefits if they satisfy the requirements
of paragraph (c)(3)(vii) of this section;
and benefits provided under a health
reimbursement arrangement or other
account-based group health plan, other
than a health FSA, are excepted benefits
if they satisfy the requirements of
paragraph (c)(3)(viii) of this section.
* * * * *
(viii) Health reimbursement
arrangements (HRAs) and other
account-based group health plans.
Benefits provided under an HRA or
other account-based group health plan,
other than a health FSA, are excepted if
they satisfy all of the requirements of
this paragraph (c)(3)(viii). See paragraph
(c)(3)(v) of this section for the
circumstances in which benefits
provided under a health FSA are
excepted benefits. For purposes of this
paragraph (c)(3)(viii), the term ‘‘HRA or
other account-based group health plan’’
has the same meaning as ‘‘account-
based group health plan’’ set forth in
§ 54.9815–2711(d)(6)(i) of this part,
except that the term does not include
health FSAs. For ease of reference, an
HRA or other account-based group
health plan that satisfies the
requirements of this paragraph
(c)(3)(viii) is referred to as an excepted
benefit HRA.
(A) Otherwise not an integral part of
the plan. Other group health plan
coverage that is not limited to excepted
benefits and that is not an HRA or other
account-based group health plan must
be made available by the same plan
sponsor for the plan year to the
participant.
(B) Benefits are limited in amount
(1) Limit on annual amounts made
available. The amounts newly made
available for each plan year under the
HRA or other account-based group
health plan do not exceed $1,800. In the
case of any plan year beginning after
December 31, 2020, the dollar amount
in the preceding sentence shall be
increased by an amount equal to such
dollar amount multiplied by the cost-of-
living adjustment. The cost of living
adjustment is the percentage (if any) by
which the C–CPI–U for the preceding
calendar year exceeds the C–CPI–U for
calendar year 2019. The term ‘‘C–CPI–
U’’ means the Chained Consumer Price
Index for All Urban Consumers as
published by the Bureau of Labor
Statistics of the Department of Labor.
The C–CPI–U for any calendar year is
the average of the C–CPI–U as of the
close of the 12-month period ending on
March 31 of such calendar year. The
values of the C–CPI–U used for any
calendar year shall be the latest values
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so published as of the date on which the
Bureau publishes the initial value of the
C–CPI–U for the month of March for the
preceding calendar year. Any such
increase that is not a multiple of $50
shall be rounded down to the next
lowest multiple of $50. The Department
of the Treasury and the Internal
Revenue Service will publish the
adjusted amount for plan years
beginning in any calendar year no later
than June 1 of the preceding calendar
year.
(2) Carryover amounts. If the terms of
the HRA or other account-based group
health plan allow unused amounts to be
made available to participants and
dependents in later plan years, such
carryover amounts are disregarded for
purposes of determining whether
benefits are limited in amount.
(3) Multiple HRAs or other account-
based group health plans. If the plan
sponsor provides more than one HRA or
other account-based group health plan
to the participant for the same time
period, the amounts made available
under all such plans are aggregated to
determine whether the benefits are
limited in amount, except that HRAs or
other account-based group health plans
that reimburse only excepted benefits
are not included in determining
whether the benefits are limited in
amount.
(C) Prohibition on reimbursement of
certain health insurance premiums. The
HRA or other account-based group
health plan must not reimburse
premiums for individual health
insurance coverage, group health plan
coverage (other than COBRA
continuation coverage or other
continuation coverage), or Medicare Part
A, B, C, or D, except that the HRA or
other account-based group health plan
may reimburse premiums for such
coverage that consists solely of excepted
benefits. See also, paragraph
(c)(3)(viii)(F) of this section.
(D) Uniform availability. The HRA or
other account-based group health plan
is made available under the same terms
to all similarly situated individuals, as
defined in § 54.9802–1(d) of this part,
regardless of any health factor (as
described in § 54.9802–1(a)).
(E) Notice requirement. See 29 CFR
2520.102–3(j)(2) and (3) and 29 CFR
2520.104b–2(a) for rules regarding the
time, manner, and content for summary
plan descriptions (including a
description of conditions pertaining to
eligibility to receive benefits; annual or
lifetime caps or other limits on benefits
under the plan; and a description or
summary of the benefits) applicable to
plans subject to Tile I of the Employee
Retirement Income Security Act of 1974,
as amended.
(F) Special rule. The HRA or other
account-based group health plan must
not reimburse premiums for short-term,
limited-duration insurance (as defined
in § 54.9801–2 of this part) if the
conditions of this paragraph
(c)(3)(viii)(F) are satisfied.
(1) The HRA or other account-based
group health plan is offered by a small
employer (as defined in PHS Act section
2791(e)(4)).
(2) The other group health plan
coverage offered by the employer
pursuant to paragraph (c)(3)(viii)(A) of
this section is either fully-insured or
partially-insured.
(3) The Secretary of Health and
Human Services (HHS) makes a finding,
in consultation with the Secretaries of
Labor and the Treasury, that the
reimbursement of premiums for short-
term, limited-duration insurance by
excepted benefit HRAs has caused
significant harm to the small group
market in the state that is the principal
place of business of the small employer.
(4) The finding by the Secretary of
HHS is made after submission of a
written recommendation by the
applicable state authority of such state,
in a form and manner specified by HHS.
The written recommendation must
include evidence that the
reimbursement of premiums for short-
term, limited-duration insurance by
excepted benefit HRAs established by
insured or partially-insured small
employers in the state has caused
significant harm to the state’s small
group market, including with respect to
premiums.
(5) The restriction shall be imposed or
discontinued by publication by the
Secretary of HHS of a notice in the
Federal Register and shall apply only
prospectively and with a reasonable
time for plan sponsors to comply.
* * * * *
DEPARTMENT OF LABOR
Employee Benefits Security
Administration
29 CFR Chapter XXV
For the reasons stated in the
preamble, the Department of Labor
amends 29 CFR parts 2510 and 2590 as
set forth below:
PART 2510—DEFINITION OF TERMS
USED IN SUBCHAPTERS C, D, E, F, G,
AND L OF THIS CHAPTER
9. The authority citation for part 2510
is revised to read as follows:
Authority: 29 U.S.C. 1002(1), 1002(3),
1002(2), 1002(5), 1002(16), 1002(21),
1002(37), 1002(38), 1002(40), 1002(42), 1031,
and 1135; Secretary of Labor’s Order No. 1–
2011, 77 FR 1088 (Jan. 9, 2012); Secs. 2510.3–
21, 2510.3–101 and 2510.3–102 also issued
under sec. 102 of Reorganization Plan No. 4
of 1978, 5 U.S.C. App. at 237 (2012), E.O.
12108, 44 FR 1065 (Jan. 3, 1979) and 29
U.S.C. 1135 note. Sec. 2510.3–38 is also
issued under sec. 1, Pub. L. 105–72, 111 Stat.
1457 (1997).
10. Section 2510.3–1 is amended by
adding paragraph (l) to read as follows:
§ 2510.3–1 Employee welfare benefit plan.
* * * * *
(l) Safe harbor for health
reimbursement arrangements (HRAs)
and certain other arrangements that
reimburse individual health insurance
coverage. For purposes of title I of the
Act and this chapter, the terms
‘‘employee welfare benefit plan’’ and
‘‘welfare plan’’ shall not include
individual health insurance coverage
the premiums of which are reimbursed
by a health reimbursement arrangement
(HRA) (or other account-based group
health plan), including an HRA or other
account-based group health plan
integrated with individual health
insurance coverage (as described in
§ 2590.702–2 of this chapter), an HRA
that covers fewer than two current
employees (as described in
§ 2590.732(b) of this chapter) and that
reimburses premiums for individual
health insurance coverage, a qualified
small employer health reimbursement
arrangement (QSEHRA), as defined in
section 9831(d)(2) of the Code, or an
arrangement under which an employer
allows employees to pay the portion of
the premium for individual health
insurance coverage that is not covered
by an HRA or other account-based group
health plan with which the coverage is
integrated by using a salary reduction
arrangement in a cafeteria plan under
section 125 of the Code (supplemental
salary reduction arrangement), if all the
conditions of this paragraph (l) are
satisfied.
(1) The purchase of any individual
health insurance coverage is completely
voluntary for participants and
beneficiaries. The fact that a plan
sponsor requires such coverage to be
purchased as a condition for
participation in an HRA or
supplemental salary reduction
arrangement does not make the
purchase involuntary.
(2) The employer, employee
organization, or other plan sponsor does
not select or endorse any particular
issuer or insurance coverage. In
contrast, providing general contact
information regarding availability of
health insurance in a state (such as
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providing information regarding
www.HealthCare.gov or contact
information for a state insurance
commissioner’s office) or providing
general health insurance educational
information (such as the uniform
glossary of health coverage and medical
terms available at: https://www.dol.gov/
sites/default/files/ebsa/laws-and-
regulations/laws/affordable-care-act/
for-employers-and-advisers/sbc-
uniform-glossary-of-coverage-and-
medical-terms-final.pdf) is permitted.
(3) Reimbursement for non-group
health insurance premiums is limited
solely to individual health insurance
coverage (as defined in § 2590.701–2 of
this chapter) that does not consist solely
of excepted benefits (as defined in
§ 2590.732(c) of this chapter).
(4) The employer, employee
organization, or other plan sponsor
receives no consideration in the form of
cash or otherwise in connection with
the employee’s selection or renewal of
any individual health insurance
coverage.
(5) Each plan participant is notified
annually that the individual health
insurance coverage is not subject to title
I of ERISA. For an HRA that is
integrated with individual health
insurance coverage, the notice must
satisfy the notice requirement set forth
in § 2590.702–2(c)(6) of this chapter. A
QSEHRA or an HRA not subject to the
notice requirement set forth in
§ 2590.702–2(c)(6) of this chapter may
use the following language to satisfy this
condition: ‘‘The individual health
insurance coverage that is paid for by
this plan, if any, is not subject to the
rules and consumer protections of the
Employee Retirement Income Security
Act. You should contact your state
insurance department for more
information regarding your rights and
responsibilities if you purchase
individual health insurance coverage.’’
A supplemental salary reduction
arrangement is not required to provide
this notice as the notice will be
provided by the HRA that such an
arrangement supplements.
PART 2590—RULES AND
REGULATIONS FOR GROUP HEALTH
PLANS.
11. The authority citation for part
2590 continues to read as follows:
Authority: 29 U.S.C. 1027, 1059, 1135,
1161–1168, 1169, 1181–1183, 1181 note,
1185, 1185a, 1185b, 1191, 1191a, 1191b, and
1191c; sec. 101(g), Pub. L. 104–191, 110 Stat.
1936; sec. 401(b), Pub. L. 105–200, 112 Stat.
645 (42 U.S.C. 651 note); sec. 512(d), Pub. L.
110–343, 122 Stat. 3881; sec. 1001, 1201, and
1562(e), Pub. L. 111–148, 124 Stat. 119, as
amended by Pub. L. 111–152, 124 Stat. 1029;
Division M, Pub. L. 113–235, 128 Stat. 2130;
Secretary of Labor’s Order 1–2011, 77 FR
1088 (Jan. 9, 2012).
12. Section 2590.701–2 is amended by
revising the definition of ‘‘group health
insurance coverage’’ to read as follows:
§ 2590.701–2 Definitions.
* * * * *
Group health insurance coverage
means health insurance coverage offered
in connection with a group health plan.
Individual health insurance coverage
reimbursed by the arrangements
described in 29 CFR 2510.3–1(l) is not
offered in connection with a group
health plan, and is not group health
insurance coverage, provided all the
conditions in 29 CFR 2510.3–1(l) are
satisfied.
* * * * *
13. Section 2590.702–2 is added to
read as follows:
§ 2590.702–2 Special Rule Allowing
Integration of Health Reimbursement
Arrangements (HRAs) and Other Account-
Based Group Health Plans with Individual
Health Insurance Coverage and Medicare
and Prohibiting Discrimination In HRAs and
Other Account-Based Group Health Plans.
(a) Scope. This section applies to
health reimbursement arrangements
(HRAs) and other account-based group
health plans, as defined in § 2590.715–
2711(d)(6)(i) of this part. For ease of
reference, the term ‘‘HRA’’ is used in
this section to include other account-
based group health plans. For related
regulations, see 26 CFR 1.36B–2(c)(3)(i)
and (c)(5), 29 CFR 2510.3–1(l), and 45
CFR 155.420.
(b) Purpose. This section provides the
conditions that an HRA must satisfy in
order to be integrated with individual
health insurance coverage for purposes
of Public Health Service Act (PHS Act)
sections 2711 and 2713 and § 2590.715–
2711(d)(4) of this part (referred to as an
individual coverage HRA). This section
also allows an individual coverage HRA
to be integrated with Medicare for
purposes of PHS Act sections 2711 and
2713 and § 2590.715–2711(d)(4), subject
to the conditions provided in this
section (see paragraph (e) of this
section). Some of the conditions set
forth in this section specifically relate to
compliance with PHS Act sections 2711
and 2713 and some relate to the effect
of having or being offered an individual
coverage HRA on eligibility for the
premium tax credit under section 36B of
the Code. In addition, this section
provides conditions that an individual
coverage HRA must satisfy in order to
comply with the nondiscrimination
provisions in ERISA section 702 and
PHS Act section 2705 (which is
incorporated in ERISA section 715) and
that are consistent with the provisions
of the Patient Protection and Affordable
Care Act, Public Law 111–148 (124 Stat.
119 (2010)), and the Health Care and
Education Reconciliation Act of 2010,
Public Law 111–152 (124 Stat. 1029
(2010)), each as amended, that are
designed to create a competitive
individual market. These conditions are
intended to prevent an HRA plan
sponsor from intentionally or
unintentionally, directly or indirectly,
steering any participants or dependents
with adverse health factors away from
its traditional group health plan, if any,
and toward individual health insurance
coverage.
(c) General rule. An HRA will be
considered to be integrated with
individual health insurance coverage for
purposes of PHS Act sections 2711 and
2713 and § 2590.715–2711(d)(4) of this
part and will not be considered to
discriminate in violation of ERISA
section 702 and PHS Act section 2705
solely because it is integrated with
individual health insurance coverage,
provided that the conditions of this
paragraph (c) are satisfied. See
paragraph (e) of this section for how
these conditions apply to an individual
coverage HRA integrated with Medicare.
For purposes of this section, medical
care expenses means medical care
expenses as defined in § 2590.715–
2711(d)(6)(ii) of this part and Exchange
means Exchange as defined in 45 CFR
155.20.
(1) Enrollment in individual health
insurance coverage—(i) In general. The
HRA must require that the participant
and any dependent(s) are enrolled in
individual health insurance coverage
that is subject to and complies with the
requirements in PHS Act sections 2711
(and § 2590.715–2711(a)(2) of this part)
and PHS Act section 2713 (and
§ 2590.715–2713(a)(1) of this part), for
each month that the individual(s) are
covered by the HRA. For purposes of
this paragraph (c), all individual health
insurance coverage, except for
individual health insurance coverage
that consists solely of excepted benefits,
is treated as being subject to and
complying with PHS Act sections 2711
and 2713. References to individual
health insurance coverage in this
paragraph (c) do not include individual
health insurance coverage that consists
solely of excepted benefits.
(ii) Forfeiture. The HRA must provide
that if any individual covered by the
HRA ceases to be covered by individual
health insurance coverage, the HRA will
not reimburse medical care expenses
that are incurred by that individual after
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the individual health insurance
coverage ceases. In addition, if the
participant and all dependents covered
by the participant’s HRA cease to be
covered by individual health insurance
coverage, the participant must forfeit the
HRA. In either case, the HRA must
reimburse medical care expenses
incurred by the individual prior to the
cessation of individual health insurance
coverage to the extent the medical care
expenses are otherwise covered by the
HRA, but the HRA may limit the period
to submit medical care expenses for
reimbursement to a reasonable specified
time period. If a participant or
dependent loses coverage under the
HRA for a reason other than cessation of
individual health insurance coverage,
COBRA and other continuation coverage
requirements may apply.
(iii) Grace periods and retroactive
termination of individual health
insurance coverage. In the event an
individual is initially enrolled in
individual health insurance coverage
and subsequently timely fails to pay
premiums for the coverage, with the
result that the individual is in a grace
period, the individual is considered to
be enrolled in individual health
insurance coverage for purposes of this
paragraph (c)(1) and the individual
coverage HRA must reimburse medical
care expenses incurred by the
individual during that time period to
the extent the medical care expenses are
otherwise covered by the HRA. If the
individual fails to pay the applicable
premium(s) by the end of the grace
period and the coverage is cancelled or
terminated, including retroactively, or if
the individual health insurance
coverage is cancelled or terminated
retroactively for some other reason (for
example, a rescission), an individual
coverage HRA must require that a
participant notify the HRA that coverage
has been cancelled or terminated and
the date on which the cancellation or
termination is effective. After the
individual coverage HRA has received
the notice of cancellation or
termination, the HRA may not
reimburse medical care expenses
incurred on and after the date the
individual health insurance coverage
was cancelled or terminated, which is
considered to be the date of termination
of coverage under the HRA.
(2) No traditional group health plan
may be offered to same participants. To
the extent a plan sponsor offers any
class of employees (as defined in
paragraph (d) of this section) an
individual coverage HRA, the plan
sponsor may not also offer a traditional
group health plan to the same class of
employees, except as provided in
paragraph (d)(5) of this section. For
purposes of this section, a traditional
group health plan is any group health
plan other than either an account-based
group health plan or a group health plan
that consists solely of excepted benefits.
Therefore, a plan sponsor may not offer
a choice between an individual coverage
HRA or a traditional group health plan
to any participant or dependent.
(3) Same terms requirement—(i) In
general. If a plan sponsor offers an
individual coverage HRA to a class of
employees described in paragraph (d) of
this section, the HRA must be offered on
the same terms to all participants within
the class, except as provided in
paragraphs (c)(3)(ii) through (vi) and
(d)(5) of this section.
(ii) Carryover amounts, salary
reduction arrangements, and transfer
amounts. Amounts that are not used to
reimburse medical care expenses for any
plan year that are made available to
participants in later plan years are
disregarded for purposes of determining
whether an HRA is offered on the same
terms, provided that the method for
determining whether participants have
access to unused amounts in future
years, and the methodology and formula
for determining the amounts of unused
funds which they may access in future
years, is the same for all participants in
a class of employees. In addition, the
ability to pay the portion of the
premium for individual health
insurance coverage that is not covered
by the HRA, if any, by using a salary
reduction arrangement under section
125 of the Code is considered to be a
term of the HRA for purposes of this
paragraph (c)(3). Therefore, an HRA is
not provided on the same terms unless
the salary reduction arrangement, if
made available to any participant in a
class of employees, is made available on
the same terms to all participants (other
than former employees, as defined in
paragraph (c)(3)(iv) of this section) in
the class of employees. Further, to the
extent that a participant in an
individual coverage HRA was
previously covered by another HRA and
the current individual coverage HRA
makes available amounts that were not
used to reimburse medical care
expenses under the prior HRA
(transferred amounts), the transferred
amounts are disregarded for purposes of
determining whether the HRA is offered
on the same terms, provided that if the
HRA makes available transferred
amounts, it does so on the same terms
for all participants in the class of
employees.
(iii) Permitted variation. An HRA does
not fail to be provided on the same
terms solely because the maximum
dollar amount made available to
participants in a class of employees to
reimburse medical care expenses for any
plan year increases in accordance with
paragraph (c)(3)(iii)(A) or (B) of this
section.
(A) Variation due to number of
dependents. An HRA does not fail to be
provided on the same terms to
participants in a class of employees
solely because the maximum dollar
amount made available to those
participants to reimburse medical care
expenses for any plan year increases as
the number of the participant’s
dependents who are covered under the
HRA increases, so long as the same
maximum dollar amount attributable to
the increase in family size is made
available to all participants in that class
of employees with the same number of
dependents covered by the HRA.
(B) Variation due to age. An HRA
does not fail to be provided on the same
terms to participants in a class of
employees solely because the maximum
dollar amount made available under the
terms of the HRA to those participants
to reimburse medical care expenses for
any plan year increases as the age of the
participant increases, so long as the
requirements in paragraphs
(c)(3)(iii)(B)(1) and (2) of this section are
satisfied. For the purpose of this
paragraph (c)(3)(iii)(B), the plan sponsor
may determine the age of the participant
using any reasonable method for a plan
year, so long as the plan sponsor
determines each participant’s age for the
purpose of this paragraph (c)(3)(iii)(B)
using the same method for all
participants in the class of employees
for the plan year and the method is
determined prior to the plan year.
(1) The same maximum dollar amount
attributable to the increase in age is
made available to all participants who
are the same age.
(2) The maximum dollar amount
made available to the oldest
participant(s) is not more than three
times the maximum dollar amount
made available to the youngest
participant(s).
(iv) Former employees. An HRA does
not fail to be treated as provided on the
same terms if the plan sponsor offers the
HRA to some, but not all, former
employees within a class of employees.
However, if a plan sponsor offers the
HRA to one or more former employees
within a class of employees, the HRA
must be offered to the former
employee(s) on the same terms as to all
other employees within the class, except
as provided in paragraph (c)(3)(ii) of this
section. For purposes of this section, a
former employee is an employee who is
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no longer performing services for the
employer.
(v) New employees or new
dependents. For a participant whose
coverage under the HRA becomes
effective later than the first day of the
plan year, the HRA does not fail to be
treated as being provided on the same
terms to the participant if the maximum
dollar amount made available to the
participant either is the same as the
maximum dollar amount made available
to participants in the participant’s class
of employees whose coverage became
effective as of the first day of the plan
year, or is pro-rated consistent with the
portion of the plan year in which the
participant is covered by the HRA.
Similarly, if the HRA provides for
variation in the maximum amount made
available to participants in a class of
employees based on the number of a
participant’s dependents covered by the
HRA, and the number of a participant’s
dependents covered by the HRA
changes during a plan year (either
increasing or decreasing), the HRA does
not fail to be treated as being provided
on the same terms to the participant if
the maximum dollar amount made
available to the participant either is the
same as the maximum dollar amount
made available to participants in the
participant’s class of employees who
had the same number of dependents
covered by the HRA on the first day of
the plan year or is pro-rated for the
remainder of the plan year after the
change in the number of the
participant’s dependents covered by the
HRA consistent with the portion of the
plan year in which that number of
dependents are covered by the HRA.
The method the HRA uses to determine
amounts made available for participants
whose coverage under the HRA is
effective later than the first day of the
plan year or who have changes in the
number of dependents covered by the
HRA during a plan year must be the
same for all participants in the class of
employees and the method must be
determined prior to the beginning of the
plan year.
(vi) HSA-compatible HRAs. An HRA
does not fail to be treated as provided
on the same terms if the plan sponsor
offers participants in a class of
employees a choice between an HSA-
compatible individual coverage HRA
and an individual coverage HRA that is
not HSA compatible, provided both
types of HRAs are offered to all
participants in the class of employees
on the same terms. For the purpose of
this paragraph (c)(3)(vi), an HSA-
compatible individual coverage HRA is
an individual coverage HRA that is
limited in accordance with applicable
guidance under section 223 of the Code
such that an individual covered by such
an HRA is not disqualified from being
an eligible individual under section 223
of the Code.
(vii) Examples. The following
examples illustrate the provisions of
this paragraph (c)(3), without taking into
account the provisions of paragraph (d)
of this section. In each example, the
HRA is an individual coverage HRA that
has a calendar year plan year and may
reimburse any medical care expenses,
including premiums for individual
health insurance coverage (except as
provided in paragraph (c)(3)(vii)(E) of
this section (Example 5)). Further, in
each example, assume the HRA is
offered on the same terms, except as
otherwise specified in the example and
that no participants or dependents are
Medicare beneficiaries.
(A) Example 1: Carryover amounts
permitted—(1) Facts. For 2020 and again for
2021, Plan Sponsor A offers all employees
$7,000 each in an HRA, and the HRA
provides that amounts that are unused at the
end of a plan year may be carried over to the
next plan year, with no restrictions on the
use of the carryover amounts compared to the
use of newly available amounts. At the end
of 2020, some employees have used all of the
funds in their HRAs, while other employees
have balances remaining that range from
$500 to $1,750 that are carried over to 2021
for those employees.
(2) Conclusion. The same terms
requirement of this paragraph (c)(3) is
satisfied in this paragraph (c)(3)(vii)(A)
(Example 1) for 2020 because Plan Sponsor
A offers all employees the same amount,
$7,000, in an HRA for that year. The same
terms requirement is also satisfied for 2021
because Plan Sponsor A again offers all
employees the same amount for that year,
and the carryover amounts that some
employees have are disregarded in applying
the same terms requirement because the
amount of the carryover for each employee
(that employee’s balance) and each
employee’s access to the carryover amounts
is based on the same terms.
(B) Example 2: Employees hired after the
first day of the plan year—(1)
Facts. For 2020, Plan Sponsor B offers all
employees employed on January 1, 2020,
$7,000 each in an HRA for the plan year.
Employees hired after January 1, 2020, are
eligible to enroll in the HRA with an effective
date of the first day of the month following
their date of hire, as long as they have
enrolled in individual health insurance
coverage effective on or before that date, and
the amount offered to these employees is pro-
rated based on the number of months
remaining in the plan year, including the
month which includes their coverage
effective date.
(2) Conclusion. The same terms
requirement of this paragraph (c)(3) is
satisfied in this paragraph (c)(3)(vii)(B)
(Example 2) for 2020 because Plan Sponsor
B offers all employees employed on the first
day of the plan year the same amount,
$7,000, in an HRA for that plan year and all
employees hired after January 1, 2020, a pro-
rata amount based on the portion of the plan
year during which they are enrolled in the
HRA.
(C) Example 3: HRA amounts offered vary
based on number of dependents—(1) Facts.
For 2020, Plan Sponsor C offers its
employees the following amounts in an HRA:
$1,500, if the employee is the only individual
covered by the HRA; $3,500, if the employee
and one dependent are covered by the HRA;
and $5,000, if the employee and more than
one dependent are covered by the HRA.
(2) Conclusion. The same terms
requirement of this paragraph (c)(3) is
satisfied in this paragraph (c)(3)(vii)(C)
(Example 3) because paragraph (c)(3)(iii)(A)
of this section allows the maximum dollar
amount made available in an HRA to increase
as the number of the participant’s
dependents covered by the HRA increases
and Plan Sponsor C makes the same amount
available to each employee with the same
number of dependents covered by the HRA.
(D) Example 4: HRA amounts offered vary
based on increases in employees’ ages—(1)
Facts. For 2020, Plan Sponsor D offers its
employees the following amounts in an HRA:
$1,000 each for employees age 25 to 35;
$2,000 each for employees age 36 to 45;
$2,500 each for employees age 46 to 55; and
$4,000 each for employees over age 55.
(2) Conclusion. The same terms
requirement of this paragraph (c)(3) is not
satisfied in this paragraph (c)(3)(vii)(D)
(Example 4) because the terms of the HRA
provide the oldest participants (those over
age 55) with more than three times the
amount made available to the youngest
participants (those ages 25 to 35), in violation
of paragraph (c)(3)(iii)(B)(2) of this section.
(E) Example 5: Application of same terms
requirement to premium only HRA—(1)
Facts. For 2020, Plan Sponsor E offers its
employees an HRA that reimburses only
premiums for individual health insurance
coverage, up to $10,000 for the year.
Employee A enrolls in individual health
insurance coverage with a $5,000 premium
for the year and is reimbursed $5,000 from
the HRA. Employee B enrolls in individual
health insurance coverage with an $8,000
premium for the year and is reimbursed
$8,000 from the HRA.
(2) Conclusion. The same terms
requirement of this paragraph (c)(3) is
satisfied in this paragraph (c)(3)(vii)(E)
(Example 5) because Plan Sponsor E offers
the HRA on the same terms to all employees,
notwithstanding that some employees receive
a greater amount of reimbursement than
others based on the cost of the individual
health insurance coverage selected by the
employee.
(4) Opt out. Under the terms of the
HRA, a participant who is otherwise
eligible for coverage must be permitted
to opt out of and waive future
reimbursements on behalf of the
participant and all dependents eligible
for the HRA from the HRA once, and
only once, with respect to each plan
year. The HRA may establish
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timeframes for enrollment in (and
opting out of) the HRA but, in general,
the opportunity to opt out must be
provided in advance of the first day of
the plan year. For participants who
become eligible to participate in the
HRA on a date other than the first day
of the plan year (or who become eligible
fewer than 90 days prior to the plan year
or for whom the notice under paragraph
(c)(6) of this section is required to be
provided as set forth in paragraph
(c)(6)(i)(C) of this section), or for a
dependent who newly becomes eligible
during the plan year, this opportunity
must be provided during the applicable
HRA enrollment period(s) established
by the HRA for these individuals.
Further, under the terms of the HRA,
upon termination of employment, for a
participant who is covered by the HRA,
either the remaining amounts in the
HRA must be forfeited or the participant
must be permitted to permanently opt
out of and waive future reimbursements
from the HRA on behalf of the
participant and all dependents covered
by the HRA.
(5) Reasonable procedures for
coverage substantiation—(i)
Substantiation of individual health
insurance coverage for the plan year.
The HRA must implement, and comply
with, reasonable procedures to
substantiate that participants and each
dependent covered by the HRA are, or
will be, enrolled in individual health
insurance coverage for the plan year (or
for the portion of the plan year the
individual is covered by the HRA, if
applicable). The HRA may establish the
date by which this substantiation must
be provided, but, in general, the date
may be no later than the first day of the
plan year. However, for a participant
who is not eligible to participate in the
HRA on the first day of the plan year (or
who becomes eligible fewer than 90
days prior to the plan year or for whom
the notice under paragraph (c)(6) of this
section is required to be provided as set
forth in paragraph (c)(6)(i)(C) of this
section), the HRA may establish the date
by which this substantiation must be
provided, but that date may be no later
than the date the HRA coverage begins.
Similarly, for a participant who adds a
new dependent during the plan year,
the HRA may establish the date by
which this substantiation must be
provided, but the date may be no later
than the date the HRA coverage for the
new dependent begins; however, to the
extent the dependent’s coverage under
the HRA is effective retroactively, the
HRA may establish a reasonable time by
which this substantiation is required,
but must require it be provided before
the HRA will reimburse any medical
care expense for the newly added
dependent. The reasonable procedures
an HRA may use to implement the
substantiation requirement set forth in
this paragraph (c)(5)(i) may include a
requirement that a participant
substantiate enrollment by providing
either:
(A) A document from a third party
(for example, the issuer or an Exchange)
showing that the participant and any
dependents covered by the HRA are, or
will be, enrolled in individual health
insurance coverage (for example, an
insurance card or an explanation of
benefits document pertaining to the
relevant time period or documentation
from the Exchange showing that the
individual has completed the
application and plan selection); or
(B) An attestation by the participant
stating that the participant and
dependent(s) covered by the HRA are, or
will be, enrolled in individual health
insurance coverage, the date coverage
began or will begin, and the name of the
provider of the coverage.
(ii) Coverage substantiation with each
request for reimbursement of medical
care expenses. Following the initial
substantiation of coverage, with each
new request for reimbursement of an
incurred medical care expense for the
same plan year, the HRA may not
reimburse a participant for any medical
care expenses unless, prior to each
reimbursement, the participant
substantiates that the individual on
whose behalf medical care expenses are
requested to be reimbursed continues to
be enrolled in individual health
insurance coverage for the month during
which the medical care expenses were
incurred. The HRA must implement,
and comply with, reasonable procedures
to satisfy this requirement. This
substantiation may be in the form of a
written attestation by the participant,
which may be part of the form used to
request reimbursement, or a document
from a third party (for example, a health
insurance issuer) showing that the
participant or the dependent, if
applicable, are or were enrolled in
individual health insurance coverage for
the applicable month.
(iii) Reliance on substantiation. For
purposes of this paragraph (c)(5), an
HRA may rely on the participant’s
documentation or attestation unless the
HRA, its plan sponsor, or any other
entity acting in an official capacity on
behalf of the HRA has actual knowledge
that any individual covered by the HRA
is not, or will not be, enrolled in
individual health insurance coverage for
the plan year (or applicable portion of
the plan year) or the month, as
applicable.
(6) Notice requirement—(i) Timing.
The HRA must provide a written notice
to each participant:
(A) At least 90 calendar days before
the beginning of each plan year for any
participant who is not described in
either paragraph (c)(6)(i)(B) or (C) of this
section;
(B) No later than the date on which
the HRA may first take effect for the
participant, for any participant who is
not eligible to participate at the
beginning of the plan year (or is not
eligible to participate at the time the
notice is provided at least 90 calendar
days before the beginning of the plan
year pursuant to paragraph (c)(6)(i)(A) of
this section); or
(C) No later than the date on which
the HRA may first take effect for the
participant, for any participant who is
employed by an employer that is first
established less than 120 days before the
beginning of the first plan year of the
HRA; this paragraph (c)(6)(i)(C) applies
only with respect to the first plan year
of the HRA.
(ii) Content. The notice must include
all the information described in this
paragraph (c)(6)(ii) (and may include
any additional information that does not
conflict with that information). To the
extent that the Departments of the
Treasury, Labor and Health and Human
Services provide model notice language
for certain elements of this required
notice, HRAs are permitted, but not
required, to use the model language.
(A) A description of the terms of the
HRA, including the maximum dollar
amount available for each participant
(including the self-only HRA amount
available for the plan year (or the
maximum dollar amount available for
the plan year if the HRA provides for
reimbursements up to a single dollar
amount regardless of whether a
participant has self-only or other than
self-only coverage)), any rules regarding
the proration of the maximum dollar
amount applicable to any participant (or
dependent, if applicable) who is not
eligible to participate in the HRA for the
entire plan year, whether (and which of)
the participant’s dependents are eligible
for the HRA, a statement that there are
different kinds of HRAs (including a
qualified small employer health
reimbursement arrangement) and the
HRA being offered is an individual
coverage HRA, a statement that the HRA
requires the participant and any covered
dependents to be enrolled in individual
health insurance coverage (or Medicare
Part A and B or Medicare Part C, if
applicable), a statement that the
coverage in which the participant and
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any covered dependents must be
enrolled cannot be short-term, limited-
duration insurance or consist solely of
excepted benefits, a statement that
individual health insurance coverage in
which the participant and any covered
dependents are enrolled is not subject to
the Employee Retirement Income
Security Act if the conditions under
§ 2510.3–1(l) of this chapter are
satisfied, the date as of which coverage
under the HRA may first become
effective (both for participants whose
coverage will become effective on the
first day of the plan year and for
participants whose HRA coverage may
become effective at a later date), the
dates on which the HRA plan year
begins and ends, and the dates on which
the amounts newly made available
under the HRA will be made available.
(B) A statement of the right of the
participant to opt out of and waive
future reimbursements from the HRA, as
set forth under paragraph (c)(4) of this
section.
(C) A description of the potential
availability of the premium tax credit if
the participant opts out of and waives
future reimbursements from the HRA
and the HRA is not affordable for one
or more months under 26 CFR 1.36B–
2(c)(5), a statement that even if the
participant opts out of and waives
future reimbursements from an HRA,
the offer will prohibit the participant
(and, potentially, the participant’s
dependents) from receiving a premium
tax credit for the participant’s coverage
(or the dependent’s coverage, if
applicable) on an Exchange for any
month that the HRA is affordable under
26 CFR 1.36B–2(c)(5), a statement
describing how the participant may find
assistance with determining
affordability, a statement that, if the
participant is a former employee, the
offer of the HRA does not render the
participant (or the participant’s
dependents, if applicable) ineligible for
the premium tax credit regardless of
whether it is affordable under 26 CFR
1.36B–2(c)(5), and a statement that if the
participant or dependent is enrolled in
Medicare, he or she is ineligible for the
premium tax credit without regard to
the offer or acceptance of the HRA;
(D) A statement that if the participant
accepts the HRA, the participant may
not claim a premium tax credit for the
participant’s Exchange coverage for any
month the HRA may be used to
reimburse medical care expenses of the
participant, and a premium tax credit
may not be claimed for the Exchange
coverage of the participant’s dependents
for any month the HRA may be used to
reimburse medical care expenses of the
dependents.
(E) A statement that the participant
must inform any Exchange to which the
participant applies for advance
payments of the premium tax credit of
the availability of the HRA; the self-only
HRA amount available for the HRA plan
year (or the maximum dollar amount
available for the plan year if the HRA
provides for reimbursements up to a
single dollar amount regardless of
whether a participant has self-only or
other than self-only coverage) as set
forth in the written notice in accordance
with paragraph (c)(6)(ii)(A) of this
section; whether the HRA is also
available to the participant’s dependents
and if so, which ones; the date as of
which coverage under the HRA may
first become effective; the date on which
the plan year begins and the date on
which it ends; and whether the
participant is a current employee or
former employee.
(F) A statement that the participant
should retain the written notice because
it may be needed to determine whether
the participant is allowed a premium
tax credit on the participant’s individual
income tax return.
(G) A statement that the HRA may not
reimburse any medical care expense
unless the substantiation requirement
set forth in paragraph (c)(5)(ii) of this
section is satisfied and a statement that
the participant must also provide the
substantiation required by paragraph
(c)(5)(i) of this section.
(H) A statement that if the individual
health insurance coverage (or coverage
under Medicare Part A and B or
Medicare Part C) of a participant or
dependent ceases, the HRA will not
reimburse any medical care expenses
that are incurred by the participant or
dependent, as applicable, after the
coverage ceases, and a statement that
the participant must inform the HRA if
the participant’s or dependent’s
individual health insurance coverage (or
coverage under Medicare Part A and B
or Medicare Part C) is cancelled or
terminated retroactively and the date on
which the cancellation or termination is
effective.
(I) The contact information (including
a phone number) for an individual or a
group of individuals who participants
may contact in order to receive
additional information regarding the
HRA. The plan sponsor may determine
which individual or group of
individuals is best suited to be the
specified contact.
(J) A statement of availability of a
special enrollment period to enroll in or
change individual health insurance
coverage, through or outside of an
Exchange, for the participant and any
dependents who newly gain access to
the HRA and are not already covered by
the HRA.
(d) Classes of employees—(1) In
general. This paragraph (d) sets forth the
rules for determining classes of
employees. Paragraph (d)(2) of this
section sets forth the specific classes of
employees; paragraph (d)(3) of this
section sets forth a minimum class size
requirement that applies in certain
circumstances; paragraph (d)(4) of this
section sets forth rules regarding the
definition of ‘‘full-time employees,’’
‘‘part-time employees,’’ and ‘‘seasonal
employees’’; paragraph (d)(5) of this
section sets forth a special rule for new
hires; and paragraph (d)(6) of this
section addresses student premium
reduction arrangements. For purposes of
this section, including determining
classes under this paragraph (d), the
employer is the common law employer
and is determined without regard to the
rules under sections 414(b), (c), (m), and
(o) of the Code that would treat the
common law employer as a single
employer with certain other entities.
(2) List of classes. Participants may be
treated as belonging to a class of
employees based on whether they are,
or are not, included in the classes
described in this paragraph (d)(2). If the
individual coverage HRA is offered to
former employees, former employees are
considered to be in the same class in
which they were included immediately
before separation from service. Before
each plan year, a plan sponsor must
determine for the plan year which
classes of employees it intends to treat
separately and the definition of the
relevant class(es) it will apply, to the
extent these regulations permit a choice.
After the classes and the definitions of
the classes are established for a plan
year, a plan sponsor may not make
changes to the classes of employees or
the definitions of those relevant classes
with respect to that plan year.
(i) Full-time employees, defined at the
election of the plan sponsor to mean
either full-time employees under section
4980H of the Code (and 26 CFR
54.4980H–1(a)(21)) or employees who
are not part-time employees (as
described in 26 CFR 1.105–
11(c)(2)(iii)(C));
(ii) Part-time employees, defined at
the election of the plan sponsor to mean
either employees who are not full-time
employees under section 4980H of the
Code (and under 26 CFR 54.4980H–
1(a)(21) (which defines full-time
employee)) or employees who are part-
time employees as described in 26 CFR
1.105–11(c)(2)(iii)(C);
(iii) Employees who are paid on a
salary basis;
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(iv) Non-salaried employees (such as,
for example, hourly employees);
(v) Employees whose primary site of
employment is in the same rating area
as defined in 45 CFR 147.102(b);
(vi) Seasonal employees, defined at
the election of the plan sponsor to mean
seasonal employees as described in
either 26 CFR 54.4980H–1(a)(38) or 26
CFR 1.105–11(c)(2)(iii)(C);
(vii) Employees included in a unit of
employees covered by a particular
collective bargaining agreement (or an
appropriate related participation
agreement) in which the plan sponsor
participates (as described in 26 CFR
1.105–11(c)(2)(iii)(D));
(viii) Employees who have not
satisfied a waiting period for coverage
(if the waiting period complies with
§ 2590.715–2708 of this part);
(ix) Non-resident aliens with no U.S.-
based income (as described in 26 CFR
1.105–11(c)(2)(iii)(E));
(x) Employees who, under all the facts
and circumstances, are employees of an
entity that hired the employees for
temporary placement at an entity that is
not the common law employer of the
employees and that is not treated as a
single employer with the entity that
hired the employees for temporary
placement under section 414(b), (c), (m),
or (o) of the Code; or
(xi) A group of participants described
as a combination of two or more of the
classes of employees set forth in
paragraphs (d)(2)(i) through (x) of this
section.
(3) Minimum class size requirement
(i) In general. If a class of employees is
subject to the minimum class size
requirement as set forth in this
paragraph (d)(3), the class must consist
of at least a minimum number of
employees (as described in paragraphs
(d)(3)(iii) and (iv) of this section),
otherwise, the plan sponsor may not
treat that class as a separate class of
employees. Paragraph (d)(3)(ii) of this
section sets forth the circumstances in
which the minimum class size
requirement applies to a class of
employees, paragraph (d)(3)(iii) of this
section sets forth the rules for
determining the applicable class size
minimum, and paragraph (d)(3)(iv) of
this section sets forth the rules for a
plan sponsor to determine if it satisfies
the minimum class size requirement
with respect to a class of employees.
(ii) Circumstances in which minimum
class size requirement applies—(A) The
minimum class size requirement applies
only if a plan sponsor offers a
traditional group health plan to one or
more classes of employees and offers an
individual coverage HRA to one or more
other classes of employees.
(B) The minimum class size
requirement does not apply to a class of
employees offered a traditional group
health plan or a class of employees
offered no coverage.
(C) The minimum class size
requirement applies to a class of
employees offered an individual
coverage HRA if the class is full-time
employees, part-time employees,
salaried employees, non-salaried
employees, or employees whose
primary site of employment is in the
same rating area (described in paragraph
(d)(2)(i), (ii), (iii), (iv), or (v) of this
section, respectively, and referred to
collectively as the applicable classes or
individually as an applicable class),
except that:
(1) In the case of the class of
employees whose primary site of
employment is in the same rating area
(as described in paragraph (d)(2)(v) of
this section), the minimum class size
requirement does not apply if the
geographic area defining the class is a
State or a combination of two or more
entire States; and
(2) In the case of the classes of
employees that are full-time employees
and part-time employees (as described
in paragraphs (d)(2)(i) and (ii) of this
section, respectively), the minimum
class size requirement applies only to
those classes (and the classes are only
applicable classes) if the employees in
one such class are offered a traditional
group health plan while the employees
in the other such class are offered an
individual coverage HRA. In such a
case, the minimum class size
requirement applies only to the class
offered an individual coverage HRA.
(D) A class of employees offered an
individual coverage HRA is also subject
to the minimum class size requirement
if the class is a class of employees
created by combining at least one of the
applicable classes (as defined in
paragraph (d)(3)(ii)(C) of this section)
with any other class, except that the
minimum class size requirement shall
not apply to a class that is the result of
a combination of one of the applicable
classes and a class of employees who
have not satisfied a waiting period (as
described in paragraph (d)(2)(viii) of
this section).
(iii) Determination of the applicable
class size minimum—(A) In general.
The minimum number of employees
that must be in a class of employees that
is subject to the minimum class size
requirement (the applicable class size
minimum) is determined prior to the
beginning of the plan year for each plan
year of the individual coverage HRA
and is:
(1) 10, for an employer with fewer
than 100 employees;
(2) A number, rounded down to a
whole number, equal to 10 percent of
the total number of employees, for an
employer with 100 to 200 employees;
and
(3) 20, for an employer with more
than 200 employees.
(B) Determining employer size. For
purposes of this paragraph (d)(3), the
number of employees of an employer is
determined in advance of the plan year
of the HRA based on the number of
employees that the employer reasonably
expects to employ on the first day of the
plan year.
(iv) Determining if a class satisfies the
applicable class size minimum. For
purposes of this paragraph (d)(3),
whether a class of employees satisfies
the applicable class size minimum for a
plan year of the individual coverage
HRA is based on the number of
employees in the class offered the
individual coverage HRA as of the first
day of the plan year. Therefore, this
determination is not based on the
number of employees that actually
enroll in the individual coverage HRA,
and this determination is not affected by
changes in the number of employees in
the class during the plan year.
(4) Consistency requirement. For any
plan year, a plan sponsor may define
‘‘full-time employee,’’ ‘‘part-time
employee,’’ and ‘‘seasonal employee’’ in
accordance with the relevant provisions
of sections 105(h) or 4980H of the Code,
as set forth in paragraphs (d)(2)(i), (ii),
and (vi) of this section, if:
(i) To the extent applicable under the
HRA for the plan year, each of the three
classes of employees are defined in
accordance with section 105(h) of the
Code or each of the three classes of
employees are defined in accordance
with section 4980H of the Code for the
plan year; and
(ii) The HRA plan document sets forth
the applicable definitions prior to the
beginning of the plan year to which the
definitions will apply.
(5) Special rule for new hires—(i) In
general. Notwithstanding paragraphs
(c)(2) and (3) of this section, a plan
sponsor that offers a traditional group
health plan to a class of employees may
prospectively offer the employees in
that class of employees who are hired
on or after a certain future date (the new
hire date) an individual coverage HRA
(with this group of employees referred
to as the new hire subclass), while
continuing to offer employees in that
class of employees who are hired before
the new hire date a traditional group
health plan (with the rule set forth in
this sentence referred to as the special
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rule for new hires). For the new hire
subclass, the individual coverage HRA
must be offered on the same terms to all
participants within the subclass, in
accordance with paragraph (c)(3) of this
section. In accordance with paragraph
(c)(2) of this section, a plan sponsor may
not offer a choice between an individual
coverage HRA or a traditional group
health plan to any employee in the new
hire subclass or to any employee in the
class who is not a member of the new
hire subclass.
(ii) New hire date. A plan sponsor
may set the new hire date for a class of
employees prospectively as any date on
or after January 1, 2020. A plan sponsor
may set different new hire dates
prospectively for separate classes of
employees.
(iii) Discontinuation of use of special
rule for new hires and multiple
applications of the special rule for new
hires. A plan sponsor may discontinue
use of the special rule for new hires at
any time for any class of employees. In
that case, the new hire subclass is no
longer treated as a separate subclass of
employees. In the event a plan sponsor
applies the special rule for new hires to
a class of employees and later
discontinues use of the rule to the class
of employees, the plan sponsor may
later apply the rule if the application of
the rule would be permitted under the
rules for initial application of the
special rule for new hires. If a plan
sponsor, in accordance with the
requirements for the special rule for
new hires, applies the rule to a class of
employees subsequent to any prior
application and discontinuance of the
rule to that class, the new hire date must
be prospective.
(iv) Application of the minimum class
size requirement under the special rule
for new hires. The minimum class size
requirement set forth in paragraph (d)(3)
of this section does not apply to the new
hire subclass. However, if a plan
sponsor subdivides the new hire
subclass subsequent to creating the new
hire subclass, the minimum class size
requirement set forth in paragraph (d)(3)
of this section applies to any class of
employees created by subdividing the
new hire subclass, if the minimum class
size requirement otherwise applies.
(6) Student employees offered student
premium reduction arrangements. For
purposes of this section, if an institution
of higher education (as defined in the
Higher Education Act of 1965) offers a
student employee a student premium
reduction arrangement, the employee is
not considered to be part of the class of
employees to which the employee
would otherwise belong. For the
purpose of this paragraph (d)(6) and
paragraph (f)(1) of this section, a student
premium reduction arrangement is
defined as any program offered by an
institution of higher education under
which the cost of insured or self-insured
student health coverage is reduced for
certain students through a credit, offset,
reimbursement, stipend or similar
arrangement. A student employee
offered a student premium reduction
arrangement is also not counted for
purposes of determining the applicable
class size minimum under paragraph
(d)(3)(iii) of this section. If a student
employee is not offered a student
premium reduction arrangement
(including if the student employee is
offered an individual coverage HRA
instead), the student employee is
considered to be part of the class of
employees to which the employee
otherwise belongs and is counted for
purposes of determining the applicable
class size minimum under paragraph
(d)(3)(iii) of this section.
(e) Integration of Individual Coverage
HRAs with Medicare—(1) General rule.
An individual coverage HRA will be
considered to be integrated with
Medicare (and deemed to comply with
PHS Act sections 2711 and 2713 and
§ 2590.715–2711(d)(4) of this part),
provided that the conditions of
paragraph (c) of this section are
satisfied, subject to paragraph (e)(2) of
this section. Nothing in this section
requires that a participant and his or her
dependents all have the same type of
coverage; therefore, an individual
coverage HRA may be integrated with
Medicare for some individuals and with
individual health insurance coverage for
others, including, for example, a
participant enrolled in Medicare Part A
and B or Part C and his or her
dependents enrolled in individual
health insurance coverage.
(2) Application of conditions in
paragraph (c) of this section—(i) In
general. Except as provided in
paragraph (e)(2)(ii) of this section, in
applying the conditions of paragraph (c)
of this section with respect to
integration with Medicare, a reference to
‘‘individual health insurance coverage’’
is deemed to refer to coverage under
Medicare Part A and B or Part C.
References in this section to integration
of an HRA with Medicare refer to
integration of an individual coverage
HRA with Medicare Part A and B or Part
C.
(ii) Exceptions. For purposes of the
statement regarding ERISA under the
notice content element under paragraph
(c)(6)(ii)(A) of this section and the
statement regarding the availability of a
special enrollment period under the
notice content element under paragraph
(c)(6)(ii)(J) of this section, the term
individual health insurance coverage
means only individual health insurance
coverage and does not also mean
coverage under Medicare Part A and B
or Part C.
(f) Examples—(1) Examples regarding
classes and the minimum class size
requirement. The following examples
illustrate the provisions of paragraph
(c)(3) of this section, taking into account
the provisions of paragraphs (d)(1)
through (4) and (d)(6) of this section. In
each example, the HRA is an individual
coverage HRA that may reimburse any
medical care expenses, including
premiums for individual health
insurance coverage and it is assumed
that no participants or dependents are
Medicare beneficiaries.
(i) Example 1: Collectively bargained
employees offered traditional group health
plan; non-collectively bargained employees
offered HRA—(A) Facts. For 2020, Plan
Sponsor A offers its employees covered by a
collective bargaining agreement a traditional
group health plan (as required by the
collective bargaining agreement) and all other
employees (non-collectively bargained
employees) each an HRA on the same terms.
(B) Conclusion. The same terms
requirement of paragraph (c)(3) of this
section is satisfied in this paragraph (f)(1)(i)
(Example 1) because collectively bargained
and non-collectively bargained employees
may be treated as different classes of
employees, one of which may be offered a
traditional group health plan and the other of
which may be offered an individual coverage
HRA, and Plan Sponsor A offers the HRA on
the same terms to all participants who are
non-collectively bargained employees. The
minimum class size requirement does not
apply to this paragraph (f)(1)(i) (Example 1)
even though Plan Sponsor A offers one class
a traditional group health plan and one class
the HRA because collectively bargained and
non-collectively bargained employees are not
applicable classes that are subject to the
minimum class size requirement.
(ii) Example 2: Collectively bargained
employees in one unit offered traditional
group health plan and in another unit offered
HRA—(A)
Facts. For 2020, Plan Sponsor B offers its
employees covered by a collective bargaining
agreement with Local 100 a traditional group
health plan (as required by the collective
bargaining agreement), and its employees
covered by a collective bargaining agreement
with Local 200 each an HRA on the same
terms (as required by the collective
bargaining agreement).
(B) Conclusion. The same terms
requirement of paragraph (c)(3) of this
section is satisfied in this paragraph (f)(1)(ii)
(Example 2) because the employees covered
by the collective bargaining agreements with
the two separate bargaining units (Local 100
and Local 200) may be treated as two
different classes of employees and Plan
Sponsor B offers an HRA on the same terms
to the participants covered by the agreement
with Local 200. The minimum class size
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requirement does not apply to this paragraph
(f)(1)(ii) (Example 2) even though Plan
Sponsor B offers the Local 100 employees a
traditional group health plan and the Local
200 employees an HRA because collectively
bargained employees are not applicable
classes that are subject to the minimum class
size requirement.
(iii) Example 3: Employees in a waiting
period offered no coverage; other employees
offered an HRA—(A) Facts. For 2020, Plan
Sponsor C offers its employees who have
completed a waiting period that complies
with the requirements for waiting periods in
§ 2590.715–2708 of this part each an HRA on
the same terms and does not offer coverage
to its employees who have not completed the
waiting period.
(B) Conclusion. The same terms
requirement of paragraph (c)(3) of this
section is satisfied in this paragraph (f)(1)(iii)
(Example 3) because employees who have
completed a waiting period and employees
who have not completed a waiting period
may be treated as different classes and Plan
Sponsor C offers the HRA on the same terms
to all participants who have completed the
waiting period. The minimum class size
requirement does not apply to this paragraph
(f)(1)(iii) (Example 3) because Plan Sponsor
C does not offer at least one class of
employees a traditional group health plan
and because the class of employees who have
not completed a waiting period and the class
of employees who have completed a waiting
period are not applicable classes that are
subject to the minimum class size
requirement.
(iv) Example 4: Employees in a waiting
period offered an HRA; other employees
offered a traditional group health plan—(A)
Facts. For 2020, Plan Sponsor D offers its
employees who have completed a waiting
period that complies with the requirements
for waiting periods in § 2590.715–2708 of
this part a traditional group health plan and
offers its employees who have not completed
the waiting period each an HRA on the same
terms.
(B) Conclusion. The same terms
requirement of paragraph (c)(3) of this
section is satisfied in this paragraph (f)(1)(iv)
(Example 4) because employees who have
completed a waiting period and employees
who have not completed a waiting period
may be treated as different classes and Plan
Sponsor D offers an HRA on the same terms
to all participants who have not completed
the waiting period. The minimum class size
requirement does not apply to this paragraph
(f)(1)(iv) (Example 4) even though Plan
Sponsor D offers employees who have
completed a waiting period a traditional
group health plan and employees who have
not completed a waiting period an HRA
because the class of employees who have not
completed a waiting period is not an
applicable class that is subject to the
minimum class size requirement (nor is the
class made up of employees who have
completed the waiting period).
(v) Example 5: Staffing firm employees
temporarily placed with customers offered an
HRA; other employees offered a traditional
group health plan—(A) Facts. Plan Sponsor
E is a staffing firm that places certain of its
employees on temporary assignments with
customers that are not the common law
employers of Plan Sponsor E’s employees or
treated as a single employer with Plan
Sponsor E under section 414(b), (c), (m), or
(o) of the Code (unrelated entities); other
employees work in Plan Sponsor E’s office
managing the staffing business (non-
temporary employees). For 2020, Plan
Sponsor E offers its employees who are on
temporary assignments with customers each
an HRA on the same terms. All other
employees are offered a traditional group
health plan.
(B) Conclusion. The same terms
requirement of paragraph (c)(3) of this
section is satisfied in this paragraph (f)(1)(v)
(Example 5) because the employees who are
hired for temporary placement at an
unrelated entity and non-temporary
employees of Plan Sponsor E may be treated
as different classes of employees and Plan
Sponsor E offers an HRA on the same terms
to all participants temporarily placed with
customers. The minimum class size
requirement does not apply to this paragraph
(f)(1)(v) (Example 5) even though Plan
Sponsor E offers one class a traditional group
health plan and one class the HRA because
the class of employees hired for temporary
placement is not an applicable class that is
subject to the minimum class size
requirement (nor is the class made up of non-
temporary employees).
(vi) Example 6: Staffing firm employees
temporarily placed with customers in rating
area 1 offered an HRA; other employees
offered a traditional group health plan—(A)
Facts. The facts are the same as in paragraph
(f)(1)(v) of this section (Example 5), except
that Plan Sponsor E has work sites in rating
area 1 and rating area 2, and it offers its 10
employees on temporary assignments with a
work site in rating area 1 an HRA on the
same terms. Plan Sponsor E has 200 other
employees in rating areas 1 and 2, including
its non-temporary employees in rating areas
1 and 2 and its employees on temporary
assignments with a work site in rating area
2, all of whom are offered a traditional group
health plan.
(B) Conclusion. The same terms
requirement of paragraph (c)(3) of this
section is not satisfied in this paragraph
(f)(1)(vi) (Example 6) because, even though
the employees who are temporarily placed
with customers generally may be treated as
employees of a different class, because Plan
Sponsor E is also using a rating area to
identify the class offered the HRA (which is
an applicable class for the minimum class
size requirement) and is offering one class
the HRA and another class the traditional
group health plan, the minimum class size
requirement applies to the class offered the
HRA, and the class offered the HRA fails to
satisfy the minimum class size requirement.
Because Plan Sponsor E employs 210
employees, the applicable class size
minimum is 20, and the HRA is offered to
only 10 employees.
(vii) Example 7: Employees in State 1
offered traditional group health plan;
employees in State 2 offered HRA—(A) Facts.
Plan Sponsor F employs 45 employees whose
work site is in State 1 and 7 employees
whose primary site of employment is in State
2. For 2020, Plan Sponsor F offers its 45
employees in State 1 a traditional group
health plan, and each of its 7 employees in
State 2 an HRA on the same terms.
(B) Conclusion. The same terms
requirement of paragraph (c)(3) of this
section is satisfied in this paragraph (f)(1)(vii)
(Example 7) because Plan Sponsor F offers
the HRA on the same terms to all employees
with a work site in State 2 and that class is
a permissible class under paragraph (d) of
this section. This is because employees
whose work sites are in different rating areas
may be considered different classes and a
plan sponsor may create a class of employees
by combining classes of employees,
including by combining employees whose
work site is in one rating area with
employees whose work site is in a different
rating area, or by combining all employees
whose work site is in a state. The minimum
class size requirement does not apply to this
paragraph (f)(1)(vii) (Example 7) because the
minimum class size requirement does not
apply if the geographic area defining a class
of employees is a state or a combination of
two or more entire states.
(viii) Example 8: Full-time seasonal
employees offered HRA; all other full-time
employees offered traditional group health
plan; part-time employees offered no
coverage—(A) Facts. Plan Sponsor G employs
6 full-time seasonal employees, 75 full-time
employees who are not seasonal employees,
and 5 part-time employees. For 2020, Plan
Sponsor G offers each of its 6 full-time
seasonal employees an HRA on the same
terms, its 75 full-time employees who are not
seasonal employees a traditional group
health plan, and offers no coverage to its 5
part-time employees.
(B) Conclusion. The same terms
requirement of paragraph (c)(3) of this
section is satisfied in this paragraph
(f)(1)(viii) (Example 8) because full-time
seasonal employees and full-time employees
who are not seasonal employees may be
considered different classes and Plan
Sponsor G offers the HRA on the same terms
to all full-time seasonal employees. The
minimum class size requirement does not
apply to the class offered the HRA in this
paragraph (f)(1)(viii) (Example 8) because
part-time employees are not offered coverage
and full-time employees are not an
applicable class subject to the minimum class
size requirement if part-time employees are
not offered coverage.
(ix) Example 9: Full-time employees in
rating area 1 offered traditional group health
plan; full-time employees in rating area 2
offered HRA; part-time employees offered no
coverage—(A) Facts. Plan Sponsor H
employs 17 full-time employees and 10 part-
time employees whose work site is in rating
area 1 and 552 full-time employees whose
work site is in rating area 2. For 2020, Plan
Sponsor H offers its 17 full-time employees
in rating area 1 a traditional group health
plan and each of its 552 full-time employees
in rating area 2 an HRA on the same terms.
Plan Sponsor H offers no coverage to its 10
part-time employees in rating area 1. Plan
Sponsor H reasonably expects to employ 569
employees on the first day of the HRA plan
year.
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(B) Conclusion. The same terms
requirement of paragraph (c)(3) of this
section is satisfied in this paragraph (f)(1)(ix)
(Example 9) because employees whose work
sites are in different rating areas may be
considered different classes and Plan
Sponsor H offers the HRA on the same terms
to all full-time employees in rating area 2.
The minimum class size requirement applies
to the class offered the HRA in this paragraph
(f)(1)(ix) (Example 9) because the minimum
class size requirement applies to a class
based on a geographic area unless the
geographic area is a state or a combination of
two or more entire states. However, the
minimum class size requirement applies only
to the class offered the HRA, and Plan
Sponsor H offers the HRA to the 552 full-time
employees in rating area 2 on the first day
of the plan year, satisfying the minimum
class size requirement (because the
applicable class size minimum for Plan
Sponsor H is 20).
(x) Example 10: Employees in rating area
1 offered HRA; employees in rating area 2
offered traditional group health plan—(A)
Facts. The facts are the same as in paragraph
(f)(1)(ix) of this section (Example 9) except
that Plan Sponsor H offers its 17 full-time
employees in rating area 1 the HRA and
offers its 552 full-time employees in rating
area 2 the traditional group health plan.
(B) Conclusion. The same terms
requirement of paragraph (c)(3) of this
section is not satisfied in this paragraph
(f)(1)(x) (Example 10) because, even though
employees whose work sites are in different
rating areas generally may be considered
different classes and Plan Sponsor H offers
the HRA on the same terms to all participants
in rating area 1, the HRA fails to satisfy the
minimum class size requirement.
Specifically, the minimum class size
requirement applies to this paragraph (f)(1)(x)
(Example 10) because the minimum class
size requirement applies to a class based on
a geographic area unless the geographic area
is a state or a combination of two or more
entire states. Further, the applicable class
size minimum for Plan Sponsor H is 20
employees, and the HRA is only offered to
the 17 full-time employees in rating area 1 on
the first day of the HRA plan year.
(xi) Example 11: Employees in State 1 and
rating area 1 of State 2 offered HRA;
employees in all other rating areas of State
2 offered traditional group health plan—(A)
Facts. For 2020, Plan Sponsor I offers an
HRA on the same terms to a total of 200
employees it employs with work sites in
State 1 and in rating area 1 of State 2. Plan
Sponsor I offers a traditional group health
plan to its 150 employees with work sites in
other rating areas in State 2. Plan Sponsor I
reasonably expects to employ 350 employees
on the first day of the HRA plan year.
(B) Conclusion. The same terms
requirement of paragraph (c)(3) of this
section is satisfied in this paragraph (f)(1)(xi)
(Example 11). Plan Sponsor I may treat all of
the employees with a work site in State 1 and
rating area 1 of State 2 as a class of
employees because employees whose work
sites are in different rating areas may be
considered different classes and a plan
sponsor may create a class of employees by
combining classes of employees, including
by combining employees whose work site is
in one rating area with a class of employees
whose work site is in a different rating area.
The minimum class size requirement applies
to the class of employees offered the HRA
(made up of employees in State 1 and in
rating area 1 of State 2) because the minimum
class size requirement applies to a class
based on a geographic area unless the
geographic area is a state or a combination of
two or more entire states. In this case, the
class is made up of a state plus a rating area
which is not the entire state. However, this
class satisfies the minimum class size
requirement because the applicable class size
minimum for Plan Sponsor I is 20, and Plan
Sponsor I offered the HRA to 200 employees
on the first day of the plan year.
(xii) Example 12: Salaried employees
offered a traditional group health plan;
hourly employees offered an HRA—(A) Facts.
Plan Sponsor J has 163 salaried employees
and 14 hourly employees. For 2020, Plan
Sponsor J offers its 163 salaried employees a
traditional group health plan and each of its
14 hourly employees an HRA on the same
terms. Plan Sponsor J reasonably expects to
employ 177 employees on the first day of the
HRA plan year.
(B) Conclusion. The same terms
requirement of paragraph (c)(3) of this
section is not satisfied in this paragraph
(f)(1)(xii) (Example 12) because, even though
salaried and hourly employees generally may
be considered different classes and Plan
Sponsor J offers the HRA on the same terms
to all hourly employees, the HRA fails to
satisfy the minimum class size requirement.
Specifically, the minimum class size
requirement applies in this paragraph
(f)(1)(xii) (Example 12) because employees
who are paid on a salaried basis and
employees who are not paid on a salaried
basis are applicable classes subject to the
minimum class size requirement. Because
Plan Sponsor J reasonably expects to employ
between 100 and 200 employees on the first
day of the plan year, the applicable class size
minimum is 10 percent, rounded down to a
whole number. Ten percent of 177 total
employees, rounded down to a whole
number is 17, and the HRA is offered to only
14 hourly employees.
(xiii) Example 13: Part-time employees and
full-time employees offered different HRAs;
no traditional group health plan offered—(A)
Facts. Plan Sponsor K has 50 full-time
employees and 7 part-time employees. For
2020, Plan Sponsor K offers its 50 full-time
employees $2,000 each in an HRA otherwise
provided on the same terms and each of its
7 part-time employees $500 in an HRA
otherwise provided on the same terms. Plan
Sponsor K reasonably expects to employ 57
employees on the first day of the HRA plan
year.
(B) Conclusion. The same terms
requirement of paragraph (c)(3) of this
section is satisfied in this paragraph
(f)(1)(xiii) (Example 13) because full-time
employees and part-time employees may be
treated as different classes and Plan Sponsor
K offers an HRA on the same terms to all the
participants in each class. The minimum
class size requirement does not apply to
either the full-time class or the part-time
class because (although in certain
circumstances the minimum class size
requirement applies to a class of full-time
employees and a class of part-time
employees) Plan Sponsor K does not offer
any class of employees a traditional group
health plan, and the minimum class size
requirement applies only when, among other
things, at least one class of employees is
offered a traditional group health plan while
another class is offered an HRA.
(xiv) Example 14: No employees offered an
HRA—(A) Facts. The facts are the same facts
as in paragraph (f)(1)(xiii) of this section
(Example 13), except that Plan Sponsor K
offers its full-time employees a traditional
group health plan and does not offer any
group health plan (either a traditional group
health plan or an HRA) to its part-time
employees.
(B) Conclusion. The regulations set forth
under this section do not apply to Plan
Sponsor K because Plan Sponsor K does not
offer an individual coverage HRA to any
employee.
(xv) Example 15: Full-time employees
offered traditional group health plan; part-
time employees offered HRA—(A) Facts. The
facts are the same as in paragraph (f)(1)(xiii)
of this section (Example 13), except that Plan
Sponsor K offers its full-time employees a
traditional group health plan and offers each
of its part-time employees $500 in an HRA
and otherwise on the same terms.
(B) Conclusion. The same terms
requirement of paragraph (c)(3) of this
section is not satisfied in this paragraph
(f)(1)(xv) (Example 15) because, even though
the full-time employees and the part-time
employees generally may be treated as
different classes, in this paragraph (f)(1)(xv)
(Example 15), the minimum class size
requirement applies to the part-time
employees, and it is not satisfied.
Specifically, the minimum class size
requirement applies to the part-time
employees because that requirement applies
to an applicable class offered an HRA when
one class is offered a traditional group health
plan while another class is offered an HRA,
and to the part-time and full-time employee
classes when one of those classes is offered
a traditional group health plan while the
other is offered an HRA. Because Plan
Sponsor K reasonably expects to employ
fewer than 100 employees on the first day of
the HRA plan year, the applicable class size
minimum for Plan Sponsor K is 10
employees, but Plan Sponsor K offered the
HRA only to its 7 part-time employees.
(xvi) Example 16: Satisfying minimum
class size requirement based on employees
offered HRA—(A) Facts. Plan Sponsor L
employs 78 full-time employees and 12 part-
time employees. For 2020, Plan Sponsor L
offers its 78 full-time employees a traditional
group health plan and each of its 12 part-
times employees an HRA on the same terms.
Only 6 part-time employees enroll in the
HRA. Plan Sponsor L reasonably expects to
employ fewer than 100 employees on the first
day of the HRA plan year.
(B) Conclusion. The same terms
requirement of paragraph (c)(3) of this
section is satisfied in this paragraph
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(f)(1)(xvi) (Example 16) because full-time
employees and part-time employees may be
treated as different classes, Plan Sponsor L
offers an HRA on the same terms to all the
participants in the part-time class, and the
minimum class size requirement is satisfied.
Specifically, whether a class of employees
satisfies the applicable class size minimum is
determined as of the first day of the plan year
based on the number of employees in a class
that is offered an HRA, not on the number
of employees who enroll in the HRA. The
applicable class size minimum for Plan
Sponsor L is 10 employees, and Plan Sponsor
L offered the HRA to its 12 part-time
employees.
(xvii) Example 17: Student employees
offered student premium reduction
arrangements and same terms requirement
(A) Facts. Plan Sponsor M is an institution
of higher education that offers each of its
part-time employees an HRA on the same
terms, except that it offers its part-time
employees who are student employees a
student premium reduction arrangement, and
the student premium reduction arrangement
provides different amounts to different part-
time student employees.
(B) Conclusion. The same terms
requirement of paragraph (c)(3) of this
section is satisfied in this paragraph
(f)(1)(xvii) (Example 17) because Plan
Sponsor M offers the HRA on the same terms
to its part-time employees who are not
students and because the part-time student
employees offered a student premium
reduction arrangement (and their varying
HRAs) are not taken into account as part-time
employees for purposes of determining
whether a class of employees is offered an
HRA on the same terms.
(xiii) Example 18: Student employees
offered student premium reduction
arrangements and minimum class size
requirement—(A) Facts. Plan Sponsor N is an
institution of higher education with 25
hourly employees. Plan Sponsor N offers 15
of its hourly employees, who are student
employees, a student premium reduction
arrangement and it wants to offer its other 10
hourly employees an HRA for 2022. Plan
Sponsor N offers its salaried employees a
traditional group health plan. Plan Sponsor
N reasonably expects to have 250 employees
on the first day of the 2022 HRA plan year,
15 of which will have offers of student
premium reduction arrangements.
(B) Conclusion. The same terms
requirement of paragraph (c)(3) of this
section is not satisfied in this paragraph
(f)(1)(xviii) (Example 18). The minimum
class size requirement will apply to the class
of hourly employees to which Plan Sponsor
N wants to offer the HRA because Plan
Sponsor N offers a class of employees a
traditional group health plan and another
class the HRA, and the minimum class size
requirement generally applies to a class of
hourly employees offered an HRA. Plan
Sponsor N’s applicable class size minimum
is 20 because Plan Sponsor N reasonably
expects to employ 235 employees on the first
day of the plan year (250 employees minus
15 employees receiving a student premium
reduction arrangement). Plan Sponsor N may
not offer the HRA to its hourly employees
because the 10 employees offered the HRA as
of the first day of the plan year does not
satisfy the applicable class size minimum.
(2) Examples regarding special rule
for new hires. The following examples
illustrate the provisions of paragraph
(c)(3) of this section, taking into account
the provisions of paragraph (d) of this
section, in particular the special rule for
new hires under paragraph (d)(5) of this
section. In each example, the HRA is an
individual coverage HRA that has a
calendar year plan year and may
reimburse any medical care expenses,
including premiums for individual
health insurance coverage. The
examples also assume that no
participants or dependents are Medicare
beneficiaries.
(i) Example 1: Application of special rule
for new hires to all employees—(A) Facts. For
2021, Plan Sponsor A offers all employees a
traditional group health plan. For 2022, Plan
Sponsor A offers all employees hired on or
after January 1, 2022, an HRA on the same
terms and continues to offer the traditional
group health plan to employees hired before
that date. On the first day of the 2022 plan
year, Plan Sponsor A has 2 new hires who
are offered the HRA.
(B) Conclusion. The same terms
requirement of paragraph (c)(3) of this
section is satisfied in this paragraph (f)(2)(i)
(Example 1) because, under the special rule
for new hires in paragraph (d)(5) of this
section, the employees newly hired on and
after January 1, 2022, may be treated as a new
hire subclass, Plan Sponsor A offers the HRA
on the same terms to all participants in the
new hire subclass, and the minimum class
size requirement does not apply to the new
hire subclass.
(ii) Example 2: Application of special rule
for new hires to full-time employees—(A)
Facts. For 2021, Plan Sponsor B offers a
traditional group health plan to its full-time
employees and does not offer any coverage to
its part-time employees. For 2022, Plan
Sponsor B offers full-time employees hired
on or after January 1, 2022, an HRA on the
same terms, continues to offer its full-time
employees hired before that date a traditional
group health plan, and continues to offer no
coverage to its part-time employees. On the
first day of the 2022 plan year, Plan Sponsor
B has 2 new hire, full-time employees who
are offered the HRA.
(B) Conclusion. The same terms
requirement of paragraph (c)(3) of this
section is satisfied in this paragraph (f)(2)(ii)
(Example 2) because, under the special rule
for new hires in paragraph (d)(5) of this
section, the full-time employees newly hired
on and after January 1, 2022, may be treated
as a new hire subclass and Plan Sponsor B
offers the HRA on the same terms to all
participants in the new hire subclass. The
minimum class size requirement does not
apply to the new hire subclass.
(iii) Example 3: Special rule for new hires
impermissibly applied retroactively—(A)
Facts. For 2025, Plan Sponsor C offers a
traditional group health plan to its full-time
employees. For 2026, Plan Sponsor C wants
to offer an HRA to its full-time employees
hired on and after January 1, 2023, while
continuing to offer a traditional group health
plan to its full-time employees hired before
January 1, 2023.
(B) Conclusion. The special rule for new
hires under paragraph (d)(5) of this section
does not apply in this paragraph (f)(2)(iii)
(Example 3) because the rule must be applied
prospectively. That is, Plan Sponsor C may
not, in 2026, choose to apply the special rule
for new hires retroactive to 2023. If Plan
Sponsor C were to offer an HRA in this way,
it would fail to satisfy the conditions under
paragraphs (c)(2) and (3) of this section
because the new hire subclass would not be
treated as a subclass for purposes of applying
those rules and, therefore, all full-time
employees would be treated as one class to
which either a traditional group health plan
or an HRA could be offered, but not both.
(iv) Example 4: Permissible second
application of the special rule for new hires
to the same class of employees—(A) Facts.
For 2021, Plan Sponsor D offers all of its full-
time employees a traditional group health
plan. For 2022, Plan Sponsor D applies the
special rule for new hires and offers an HRA
on the same terms to all employees hired on
and after January 1, 2022, and continues to
offer a traditional group health plan to full-
time employees hired before that date. For
2025, Plan Sponsor D discontinues use of the
special rule for new hires, and again offers
all full-time employees a traditional group
health plan. In 2030, Plan Sponsor D decides
to apply the special rule for new hires to the
full-time employee class again, offering an
HRA to all full-time employees hired on and
after January 1, 2030, on the same terms,
while continuing to offer employees hired
before that date a traditional group health
plan.
(B) Conclusion. Plan Sponsor D has
permissibly applied the special rule for new
hires and is in compliance with the
requirements of paragraphs (c)(2) and (3) of
this section.
(v) Example 5: Impermissible second
application of the special rule for new hires
to the same class of employees—(A) Facts.
The facts are the same as in paragraph
(f)(2)(iv) of this section (Example 4), except
that for 2025, Plan Sponsor D discontinues
use of the special rule for new hires by
offering all full-time employees an HRA on
the same terms. Further, for 2030, Plan
Sponsor D wants to continue to offer an HRA
on the same terms to all full-time employees
hired before January 1, 2030, and to offer all
full-time employees hired on or after January
1, 2030, an HRA in a different amount.
(B) Conclusion. Plan Sponsor D may not
apply the special rule for new hires for 2030
to the class of full-time employees being
offered an HRA because the special rule for
new hires may only be applied to a class that
is being offered a traditional group health
plan.
(vi) Example 6: New full-time employees
offered different HRAs in different rating
areas—(A) Facts. Plan Sponsor E has work
sites in rating area 1, rating area 2, and rating
area 3. For 2021, Plan Sponsor E offers its
full-time employees a traditional group
health plan. For 2022, Plan Sponsor E offers
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its full-time employees hired on or after
January 1, 2022, in rating area 1 an HRA of
$3,000, its full-time employees hired on or
after January 1, 2022, in rating area 2 an HRA
of $5,000, and its full-time employees hired
on or after January 1, 2022, in rating area 3
an HRA of $7,000. Within each class offered
an HRA, Plan Sponsor E offers the HRA on
the same terms. Plan Sponsor E offers its full-
time employees hired prior to January 1,
2022, in each of those classes a traditional
group health plan. On the first day of the
2022 plan year, there is one new hire, full-
time employee in rating area 1, three new
hire, full-time employees in rating area 2, and
10 new hire-full-time employees in rating
area 3.
(B) Conclusion. The same terms
requirement of paragraph (c)(3) of this
section is satisfied in this paragraph (f)(2)(vi)
(Example 6) because, under the special rule
for new hires in paragraph (d)(5) of this
section, the full-time employees in each of
the three rating areas newly hired on and
after January 1, 2022, may be treated as three
new hire subclasses and Plan Sponsor E
offers the HRA on the same terms to all
participants in the new hire subclasses.
Further, the minimum class size requirement
does not apply to the new hire subclasses.
(vii) Example 7: New full-time employee
class subdivided based on rating area—(A)
Facts. Plan Sponsor F offers its full-time
employees hired on or after January 1, 2022,
an HRA on the same terms and it continues
to offer its full-time employees hired before
that date a traditional group health plan. Plan
Sponsor F offers no coverage to its part-time
employees. For the 2025 plan year, Plan
Sponsor F wants to subdivide the full-time
new hire subclass so that those whose work
site is in rating area 1 will be offered the
traditional group health plan and those
whose work site is in rating area 2 will
continue to receive the HRA. Plan Sponsor F
reasonably expects to employ 219 employees
on January 1, 2025. As of January 1, 2025,
Plan Sponsor F has 15 full-time employees
whose work site in in rating area 2 and who
were hired between January 1, 2022, and
January 1, 2025.
(B) Conclusion. The same terms
requirement of paragraph (c)(3) of this
section is not satisfied in this paragraph
(f)(2)(vii) (Example 7) because the new hire
subclass has been subdivided in a manner
that is subject to the minimum class size
requirement, and the class offered the HRA
fails to satisfy the minimum class size
requirement. Specifically, once the new hire
subclass is subdivided the general rules for
applying the minimum class size
requirement apply to the employees offered
the HRA in the new hire subclass. In this
case, because the subdivision of the new hire
full-time subclass is based on rating areas; a
class based on rating areas is an applicable
class subject to the minimum class size
requirement; and the employees in one rating
area are to be offered the HRA, while the
employees in the other rating area are offered
the traditional group health plan, the
minimum class size requirement would
apply on and after the date of the
subdivision. Further, the minimum class size
requirement would not be satisfied, because
the applicable class size minimum for Plan
Sponsor F would be 20, and only 15
employees in rating area 2 would be offered
the HRA.
(viii) Example 8: New full-time employee
class subdivided based on state—(A) Facts.
The facts are the same as in paragraph
(f)(2)(vii) of this section (Example 7), except
that for the 2025 plan year, Plan Sponsor F
intends to subdivide the new hire, full-time
class so that those in State 1 will be offered
the traditional group health plan and those
in State 2 will each be offered an HRA on the
same terms.
(B) Conclusion. The same terms
requirement of paragraph (c)(3) of this
section is satisfied in this paragraph
(f)(2)(viii) (Example 8) because even though
the new hire subclass has been subdivided,
it has been subdivided in a manner that is
not subject to the minimum class size
requirement as the subdivision is based on
the entire state.
(ix) Example 9: New full-time employees
and part-time employees offered HRA—(A)
Facts. In 2021, Plan Sponsor G offers its full-
time employees a traditional group health
plan and does not offer coverage to its part-
time employees. For the 2022 plan year, Plan
Sponsor G offers its full-time employees
hired on or after January 1, 2022, and all of
its part-time employees, including those
hired before January 1, 2022, and those hired
on and after January 1, 2022, an HRA on the
same terms, and it continues to offer its full-
time employees hired before January 1, 2022,
a traditional group health plan.
(B) Conclusion. The minimum class size
requirement applies to the part-time
employees offered the HRA in 2022 because
the class is being offered an HRA; the special
rule for new hires does not apply (because
this class was not previously offered a
traditional group health plan) and so it is not
a new hire subclass exempt from the
minimum class size requirement; another
class of employees (that is, full-time hired
before January 1, 2022) are being offered a
traditional group health plan; and the part-
time employee class is generally an
applicable classes that is subject to the
minimum class size requirement. However,
because the full-time, new hire subclass is
based on the special rule for new hires, the
minimum class size requirement does not
apply to full-time new hires offered an HRA
in 2022.
(g) Applicability date. This section
applies to plan years beginning on or
after January 1, 2020.
14. Section 2590.715–2711 is
amended by revising paragraphs (c), (d),
and (e) to read as follows:
§ 2590.715–2711 No lifetime or annual
limits.
* * * * *
(c) Definition of essential health
benefits. The term ‘‘essential health
benefits’’ means essential health
benefits under section 1302(b) of the
Patient Protection and Affordable Care
Act and applicable regulations. For the
purpose of this section, a group health
plan or a health insurance issuer that is
not required to provide essential health
benefits under section 1302(b) must
define ‘‘essential health benefits’’ in a
manner that is consistent with the
following:
(1) For plan years beginning before
January 1, 2020, one of the EHB-
benchmark plans applicable in a State
under 45 CFR 156.110, and including
coverage of any additional required
benefits that are considered essential
health benefits consistent with 45 CFR
155.170(a)(2), or one of the three Federal
Employees Health Benefits Program
(FEHBP) plan options as defined by 45
CFR 156.100(a)(3), supplemented as
necessary, to satisfy the standards in 45
CFR 156.110; or
(2) For plan years beginning on or
after January 1, 2020, an EHB-
benchmark plan selected by a State in
accordance with the available options
and requirements for EHB-benchmark
plan selection at 45 CFR 156.111,
including an EHB-benchmark plan in a
State that takes no action to change its
EHB-benchmark plan and thus retains
the EHB-benchmark plan applicable in
that State for the prior year in
accordance with 45 CFR 156.111(d)(1),
and including coverage of any
additional required benefits that are
considered essential health benefits
consistent with 45 CFR 155.170(a)(2).
(d) Health reimbursement
arrangements (HRAs) and other
account-based group health plans—(1)
In general. If an HRA or other account-
based group health plan is integrated
with another group health plan or
individual health insurance coverage
and the other group health plan or
individual health insurance coverage, as
applicable, separately is subject to and
satisfies the requirements in PHS Act
section 2711 and paragraph (a)(2) of this
section, the fact that the benefits under
the HRA or other account-based group
health plan are limited does not cause
the HRA or other account-based group
health plan to fail to satisfy the
requirements of PHS Act section 2711
and paragraph (a)(2) of this section.
Similarly, if an HRA or other account-
based group health plan is integrated
with another group health plan or
individual health insurance coverage
and the other group health plan or
individual health insurance coverage, as
applicable, separately is subject to and
satisfies the requirements in PHS Act
section 2713 and § 2590.715–2713(a)(1)
of this part, the fact that the benefits
under the HRA or other account-based
group health plan are limited does not
cause the HRA or other account-based
group health plan to fail to satisfy the
requirements of PHS Act section 2713
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and § 2590.715–2713(a)(1) of this part.
For the purpose of this paragraph (d), all
individual health insurance coverage,
except for coverage that consists solely
of excepted benefits, is treated as being
subject to and complying with PHS Act
sections 2711 and 2713.
(2) Requirements for an HRA or other
account-based group health plan to be
integrated with another group health
plan. An HRA or other account-based
group health plan is integrated with
another group health plan for purposes
of PHS Act section 2711 and paragraph
(a)(2) of this section if it satisfies the
requirements under one of the
integration methods set forth in
paragraph (d)(2)(i) or (ii) of this section.
For purposes of the integration methods
under which an HRA or other account-
based group health plan is integrated
with another group health plan,
integration does not require that the
HRA or other account-based group
health plan and the other group health
plan with which it is integrated share
the same plan sponsor, the same plan
document or governing instruments, or
file a single Form 5500, if applicable.
An HRA or other account-based group
health plan integrated with another
group health plan for purposes of PHS
Act section 2711 and paragraph (a)(2) of
this section may not be used to purchase
individual health insurance coverage
unless that coverage consists solely of
excepted benefits, as defined in 45 CFR
148.220.
(i) Method for integration with a
group health plan: Minimum value not
required. An HRA or other account-
based group health plan is integrated
with another group health plan for
purposes of this paragraph (d) if:
(A) The plan sponsor offers a group
health plan (other than the HRA or other
account-based group health plan) to the
employee that does not consist solely of
excepted benefits;
(B) The employee receiving the HRA
or other account-based group health
plan is actually enrolled in a group
health plan (other than the HRA or other
account-based group health plan) that
does not consist solely of excepted
benefits, regardless of whether the plan
is offered by the same plan sponsor
(referred to as non-HRA group
coverage);
(C) The HRA or other account-based
group health plan is available only to
employees who are enrolled in non-
HRA group coverage, regardless of
whether the non-HRA group coverage is
offered by the plan sponsor of the HRA
or other account-based group health
plan (for example, the HRA may be
offered only to employees who do not
enroll in an employer’s group health
plan but are enrolled in other non-HRA
group coverage, such as a group health
plan maintained by the employer of the
employee’s spouse);
(D) The benefits under the HRA or
other account-based group health plan
are limited to reimbursement of one or
more of the following—co-payments, co-
insurance, deductibles, and premiums
under the non-HRA group coverage, as
well as medical care expenses that do
not constitute essential health benefits
as defined in paragraph (c) of this
section; and
(E) Under the terms of the HRA or
other account-based group health plan,
an employee (or former employee) is
permitted to permanently opt out of and
waive future reimbursements from the
HRA or other account-based group
health plan at least annually and, upon
termination of employment, either the
remaining amounts in the HRA or other
account-based group health plan are
forfeited or the employee is permitted to
permanently opt out of and waive future
reimbursements from the HRA or other
account-based group health plan (see
paragraph (d)(3) of this section for
additional rules regarding forfeiture and
waiver).
(ii) Method for integration with
another group health plan: Minimum
value required. An HRA or other
account-based group health plan is
integrated with another group health
plan for purposes of this paragraph (d)
if:
(A) The plan sponsor offers a group
health plan (other than the HRA or other
account-based group health plan) to the
employee that provides minimum value
pursuant to Code section 36B(c)(2)(C)(ii)
(and its implementing regulations and
applicable guidance);
(B) The employee receiving the HRA
or other account-based group health
plan is actually enrolled in a group
health plan (other than the HRA or other
account-based group health plan) that
provides minimum value pursuant to
Code section 36B(c)(2)(C)(ii) (and
applicable guidance), regardless of
whether the plan is offered by the plan
sponsor of the HRA or other account-
based group health plan (referred to as
non-HRA MV group coverage);
(C) The HRA or other account-based
group health plan is available only to
employees who are actually enrolled in
non-HRA MV group coverage, regardless
of whether the non-HRA MV group
coverage is offered by the plan sponsor
of the HRA or other account-based
group health plan (for example, the
HRA may be offered only to employees
who do not enroll in an employer’s
group health plan but are enrolled in
other non-HRA MV group coverage,
such as a group health plan maintained
by an employer of the employee’s
spouse); and
(D) Under the terms of the HRA or
other account-based group health plan,
an employee (or former employee) is
permitted to permanently opt out of and
waive future reimbursements from the
HRA or other account-based group
health plan at least annually, and, upon
termination of employment, either the
remaining amounts in the HRA or other
account-based group health plan are
forfeited or the employee is permitted to
permanently opt out of and waive future
reimbursements from the HRA or other
account-based group health plan (see
paragraph (d)(3) of this section for
additional rules regarding forfeiture and
waiver).
(3) Forfeiture. For purposes of
integration under paragraphs (d)(2)(i)(E)
and (d)(2)(ii)(D) of this section,
forfeiture or waiver occurs even if the
forfeited or waived amounts may be
reinstated upon a fixed date, a
participant’s death, or the earlier of the
two events (the reinstatement event).
For the purpose of this paragraph (d)(3),
coverage under an HRA or other
account-based group health plan is
considered forfeited or waived prior to
a reinstatement event only if the
participant’s election to forfeit or waive
is irrevocable, meaning that, beginning
on the effective date of the election and
through the date of the reinstatement
event, the participant and the
participant’s beneficiaries have no
access to amounts credited to the HRA
or other account-based group health
plan. This means that upon and after
reinstatement, the reinstated amounts
under the HRA or other account-based
group health plan may not be used to
reimburse or pay medical care expenses
incurred during the period after
forfeiture and prior to reinstatement.
(4) Requirements for an HRA or other
account-based group health plan to be
integrated with individual health
insurance coverage or Medicare Part A
and B or Medicare Part C. An HRA or
other account-based group health plan
is integrated with individual health
insurance coverage or Medicare Part A
and B or Medicare Part C (and treated
as complying with PHS Act sections
2711 and 2713) if the HRA or other
account-based group health plan
satisfies the requirements of § 2590.702–
2(c) of this part (as modified by
§ 2590.702–2(e), for HRAs or other
account-based group health plans
integrated with Medicare Part A and B
or Medicare Part C).
(5) Integration with Medicare Part B
and D. For employers that are not
required to offer their non-HRA group
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health plan coverage to employees who
are Medicare beneficiaries, an HRA or
other account-based group health plan
that may be used to reimburse
premiums under Medicare Part B or D
may be integrated with Medicare (and
deemed to comply with PHS Act
sections 2711 and 2713) if the following
requirements are satisfied with respect
to employees who would be eligible for
the employer’s non-HRA group health
plan but for their eligibility for Medicare
(and the integration rules under
paragraphs (d)(2)(i) and (ii) of this
section continue to apply to employees
who are not eligible for Medicare):
(i) The plan sponsor offers a group
health plan (other than the HRA or other
account-based group health plan and
that does not consist solely of excepted
benefits) to employees who are not
eligible for Medicare;
(ii) The employee receiving the HRA
or other account-based group health
plan is actually enrolled in Medicare
Part B or D;
(iii) The HRA or other account-based
group health plan is available only to
employees who are enrolled in
Medicare Part B or D; and
(iv) The HRA or other account-based
group health plan complies with
paragraphs (d)(2)(i)(E) and (d)(2)(ii)(D)
of this section.
(6) Definitions. The following
definitions apply for purposes of this
section.
(i) Account-based group health plan.
An account-based group health plan is
an employer-provided group health plan
that provides reimbursements of
medical care expenses with the
reimbursement subject to a maximum
fixed dollar amount for a period. An
HRA is a type of account-based group
health plan. An account-based group
health plan does not include a qualified
small employer health reimbursement
arrangement, as defined in Code section
9831(d)(2).
(ii) Medical care expenses. Medical
care expenses means expenses for
medical care as defined under Code
section 213(d).
(e) Applicability date. The provisions
of this section are applicable to group
health plans and health insurance
issuers for plan years beginning on or
after January 1, 2020. Until the
applicability date for this section, plans
and issuers are required to continue to
comply with the corresponding sections
of this part, contained in the 29 CFR
parts 1927 to end edition, revised as of
July 1, 2018.
15. Section 2590.732 is amended by
revising paragraph (c)(3)(i) and adding
paragraph (c)(3)(viii) to read as follows:
§ 2590.732 Special rules relating to group
health plans.
* * * * *
(c) * * *
(3) * * *
(i) In general. Limited-scope dental
benefits, limited-scope vision benefits,
or long-term care benefits are excepted
if they are provided under a separate
policy, certificate, or contract of
insurance, or are otherwise not an
integral part of a group health plan as
described in paragraph (c)(3)(ii) of this
section. In addition, benefits provided
under a health flexible spending
arrangement (health FSA) are excepted
benefits if they satisfy the requirements
of paragraph (c)(3)(v) of this section;
benefits provided under an employee
assistance program are excepted benefits
if they satisfy the requirements of
paragraph (c)(3)(vi) of this section;
benefits provided under limited
wraparound coverage are excepted
benefits if they satisfy the requirements
of paragraph (c)(3)(vii) of this section;
and benefits provided under a health
reimbursement arrangement or other
account-based group health plan, other
than a health FSA, are excepted benefits
if they satisfy the requirements of
paragraph (c)(3)(viii) of this section.
* * * * *
(viii) Health reimbursement
arrangements (HRAs) and other
account-based group health plans.
Benefits provided under an HRA or
other account-based group health plan,
other than a health FSA, are excepted if
they satisfy all of the requirements of
this paragraph (c)(3)(viii). See paragraph
(c)(3)(v) of this section for the
circumstances in which benefits
provided under a health FSA are
excepted benefits. For purposes of this
paragraph (c)(3)(viii), the term ‘‘HRA or
other account-based group health plan’’
has the same meaning as ‘‘account-
based group health plan’’ set forth in
§ 2590.715–2711(d)(6)(i) of this part,
except that the term does not include
health FSAs. For ease of reference, an
HRA or other account-based group
health plan that satisfies the
requirements of this paragraph
(c)(3)(viii) is referred to as an excepted
benefit HRA.
(A) Otherwise not an integral part of
the plan. Other group health plan
coverage that is not limited to excepted
benefits and that is not an HRA or other
account-based group health plan must
be made available by the same plan
sponsor for the plan year to the
participant.
(B) Benefits are limited in amount
(1) Limit on annual amounts made
available. The amounts newly made
available for each plan year under the
HRA or other account-based group
health plan do not exceed $1,800. In the
case of any plan year beginning after
December 31, 2020, the dollar amount
in the preceding sentence shall be
increased by an amount equal to such
dollar amount multiplied by the cost-of-
living adjustment. The cost of living
adjustment is the percentage (if any) by
which the C–CPI–U for the preceding
calendar year exceeds the C–CPI–U for
calendar year 2019. The term ‘‘C–CPI–
U’’ means the Chained Consumer Price
Index for All Urban Consumers as
published by the Bureau of Labor
Statistics of the Department of Labor.
The C–CPI–U for any calendar year is
the average of the C–CPI–U as of the
close of the 12-month period ending on
March 31 of such calendar year. The
values of the C–CPI–U used for any
calendar year shall be the latest values
so published as of the date on which the
Bureau publishes the initial value of the
C–CPI–U for the month of March for the
preceding calendar year. Any such
increase that is not a multiple of $50
shall be rounded down to the next
lowest multiple of $50. The Department
of the Treasury and the Internal
Revenue Service will publish the
adjusted amount for plan years
beginning in any calendar year no later
than June 1 of the preceding calendar
year.
(2) Carryover amounts. If the terms of
the HRA or other account-based group
health plan allow unused amounts to be
made available to participants and
dependents in later plan years, such
carryover amounts are disregarded for
purposes of determining whether
benefits are limited in amount.
(3) Multiple HRAs or other account-
based group health plans. If the plan
sponsor provides more than one HRA or
other account-based group health plan
to the participant for the same time
period, the amounts made available
under all such plans are aggregated to
determine whether the benefits are
limited in amount, except that HRAs or
other account-based group health plans
that reimburse only excepted benefits
are not included in determining
whether the benefits are limited in
amount.
(C) Prohibition on reimbursement of
certain health insurance premiums. The
HRA or other account-based group
health plan must not reimburse
premiums for individual health
insurance coverage, group health plan
coverage (other than COBRA
continuation coverage or other
continuation coverage), or Medicare Part
A, B, C, or D, except that the HRA or
other account-based group health plan
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may reimburse premiums for such
coverage that consists solely of excepted
benefits. See also, paragraph
(c)(3)(viii)(F) of this section.
(D) Uniform availability. The HRA or
other account-based group health plan
is made available under the same terms
to all similarly situated individuals, as
defined in § 2590.702(d) of this part,
regardless of any health factor (as
described in § 2590.702(a)).
(E) Notice requirement. See sections
2520.102–3(j)(2) and (3) and 2520.104b–
2(a) of this chapter regarding the time,
manner, and content for summary plan
descriptions (including a description of
conditions pertaining to eligibility to
receive benefits; annual or lifetime caps
or other limits on benefits under the
plan; and a description or summary of
the benefits).
(F) Special rule. The HRA or other
account-based group health plan must
not reimburse premiums for short-term,
limited-duration insurance (as defined
in § 2590.701–2 of this part) if the
conditions of this paragraph
(c)(3)(viii)(F) are satisfied.
(1) The HRA or other account-based
group health plan is offered by a small
employer (as defined in PHS Act section
2791(e)(4)).
(2) The other group health plan
coverage offered by the employer
pursuant to paragraph (c)(3)(viii)(A) of
this section is either fully-insured or
partially-insured.
(3) The Secretary of Health and
Human Services (HHS) makes a finding,
in consultation with the Secretaries of
Labor and the Treasury, that the
reimbursement of premiums for short-
term, limited-duration insurance by
excepted benefit HRAs has caused
significant harm to the small group
market in the state that is the principal
place of business of the small employer.
(4) The finding by the Secretary of
HHS is made after submission of a
written recommendation by the
applicable state authority of such state,
in a form and manner specified by HHS.
The written recommendation must
include evidence that the
reimbursement of premiums for short-
term, limited-duration insurance by
excepted benefit HRAs established by
insured or partially-insured small
employers in the state has caused
significant harm to the state’s small
group market, including with respect to
premiums.
(5) The restriction shall be imposed or
discontinued by publication by the
Secretary of HHS of a notice in the
Federal Register and shall apply only
prospectively and with a reasonable
time for plan sponsors to comply.
* * * * *
DEPARTMENT OF HEALTH AND
HUMAN SERVICES
45 CFR Chapter 1
For the reasons stated in the
preamble, the Department of Health and
Human Services amends 45 CFR parts
144, 146, 147, and 155 as set forth
below:
PART 144—REQUIREMENTS
RELATING TO HEALTH INSURANCE
COVERAGE
16. The authority for part 144 is
revised to read as follows:
Authority: 42 U.S.C. 300gg through 300gg–
63, 300gg–91, and 300gg–92.
17. Section 144.103 is amended by
revising the definition of ‘‘Group health
insurance coverage’’ to read as follows:
§ 144.103 Definitions.
* * * * *
Group health insurance coverage
means health insurance coverage offered
in connection with a group health plan.
Individual health insurance coverage
reimbursed by the arrangements
described in 29 CFR 2510.3–1(l) is not
offered in connection with a group
health plan, and is not group health
insurance coverage, provided all the
conditions in 29 CFR 2510.3–1(l) are
satisfied.
* * * * *
PART 146—REQUIREMENTS FOR THE
GROUP HEALTH INSURANCE
MARKET
18. The authority citation for part 146
continues to read as follows:
Authority: 42 U.S.C. 300gg–1 through
300gg–5, 300gg–11 through 300gg–23, 300gg–
91, and 300gg–92.
19. Section 146.123 is added to read
as follows:
§ 146.123 Special rule allowing integration
of Health Reimbursement Arrangements
(HRAs) and other account-based group
health plans with individual health
insurance coverage and medicare and
prohibiting discrimination in HRAs and
other account-based group health plans.
(a) Scope. This section applies to
health reimbursement arrangements
(HRAs) and other account-based group
health plans, as defined in
§ 147.126(d)(6)(i) of this subchapter. For
ease of reference, the term ‘‘HRA’’ is
used in this section to include other
account-based group health plans. For
related regulations, see 26 CFR 1.36B–
2(c)(3)(i) and (c)(5), 29 CFR 2510.3–1(l),
and 45 CFR 155.420.
(b) Purpose. This section provides the
conditions that an HRA must satisfy in
order to be integrated with individual
health insurance coverage for purposes
of Public Health Service Act (PHS Act)
sections 2711 and 2713 and
§ 147.126(d)(4) of this subchapter
(referred to as an individual coverage
HRA). This section also allows an
individual coverage HRA to be
integrated with Medicare for purposes
of PHS Act sections 2711 and 2713 and
§ 147.126(d)(4) of this subchapter,
subject to the conditions provided in
this section (see paragraph (e) of this
section). Some of the conditions set
forth in this section specifically relate to
compliance with PHS Act sections 2711
and 2713 and some relate to the effect
of having or being offered an individual
coverage HRA on eligibility for the
premium tax credit under section 36B of
the Internal Revenue Code (Code). In
addition, this section provides
conditions that an individual coverage
HRA must satisfy in order to comply
with the nondiscrimination provisions
in PHS Act section 2705 and that are
consistent with the provisions of the
Patient Protection and Affordable Care
Act, Public Law 111–148 (124 Stat. 119
(2010)), and the Health Care and
Education Reconciliation Act of 2010,
Public Law 111–152 (124 Stat. 1029
(2010)), each as amended, that are
designed to create a competitive
individual market. These conditions are
intended to prevent an HRA plan
sponsor from intentionally or
unintentionally, directly or indirectly,
steering any participants or dependents
with adverse health factors away from
its traditional group health plan, if any,
and toward individual health insurance
coverage.
(c) General rule. An HRA will be
considered to be integrated with
individual health insurance coverage for
purposes of PHS Act sections 2711 and
2713 and § 147.126(d)(4) of this
subchapter and will not be considered
to discriminate in violation of PHS Act
section 2705 solely because it is
integrated with individual health
insurance coverage, provided that the
conditions of this paragraph (c) are
satisfied. See paragraph (e) of this
section for how these conditions apply
to an individual coverage HRA
integrated with Medicare. For purposes
of this section, medical care expenses
means medical care expenses as defined
in § 147.126(d)(6)(ii) of this subchapter
and Exchange means Exchange as
defined in § 155.20 of this subchapter.
(1) Enrollment in individual health
insurance coverage—(i) In general. The
HRA must require that the participant
and any dependent(s) are enrolled in
individual health insurance coverage
that is subject to and complies with the
requirements in PHS Act sections 2711
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(and § 147.126(a)(2) of this subchapter)
and PHS Act section 2713 (and
§ 147.130(a)(1) of this subchapter), for
each month that the individual(s) are
covered by the HRA. For purposes of
this paragraph (c), all individual health
insurance coverage, except for
individual health insurance coverage
that consists solely of excepted benefits,
is treated as being subject to and
complying with PHS Act sections 2711
and 2713. References to individual
health insurance coverage in this
paragraph (c) do not include individual
health insurance coverage that consists
solely of excepted benefits.
(ii) Forfeiture. The HRA must provide
that if any individual covered by the
HRA ceases to be covered by individual
health insurance coverage, the HRA will
not reimburse medical care expenses
that are incurred by that individual after
the individual health insurance
coverage ceases. In addition, if the
participant and all dependents covered
by the participant’s HRA cease to be
covered by individual health insurance
coverage, the participant must forfeit the
HRA. In either case, the HRA must
reimburse medical care expenses
incurred by the individual prior to the
cessation of individual health insurance
coverage to the extent the medical care
expenses are otherwise covered by the
HRA, but the HRA may limit the period
to submit medical care expenses for
reimbursement to a reasonable specified
time period. If a participant or
dependent loses coverage under the
HRA for a reason other than cessation of
individual health insurance coverage,
COBRA and other continuation coverage
requirements may apply.
(iii) Grace periods and retroactive
termination of individual health
insurance coverage. In the event an
individual is initially enrolled in
individual health insurance coverage
and subsequently timely fails to pay
premiums for the coverage, with the
result that the individual is in a grace
period, the individual is considered to
be enrolled in individual health
insurance coverage for purposes of this
paragraph (c)(1) and the individual
coverage HRA must reimburse medical
care expenses incurred by the
individual during that time period to
the extent the medical care expenses are
otherwise covered by the HRA. If the
individual fails to pay the applicable
premium(s) by the end of the grace
period and the coverage is cancelled or
terminated, including retroactively, or if
the individual health insurance
coverage is cancelled or terminated
retroactively for some other reason (for
example, a rescission), an individual
coverage HRA must require that a
participant notify the HRA that coverage
has been cancelled or terminated and
the date on which the cancellation or
termination is effective. After the
individual coverage HRA has received
the notice of cancellation or
termination, the HRA may not
reimburse medical care expenses
incurred on and after the date the
individual health insurance coverage
was cancelled or terminated, which is
considered to be the date of termination
of coverage under the HRA.
(2) No traditional group health plan
may be offered to same participants. To
the extent a plan sponsor offers any
class of employees (as defined in
paragraph (d) of this section) an
individual coverage HRA, the plan
sponsor may not also offer a traditional
group health plan to the same class of
employees, except as provided in
paragraph (d)(5) of this section. For
purposes of this section, a traditional
group health plan is any group health
plan other than either an account-based
group health plan or a group health plan
that consists solely of excepted benefits.
Therefore, a plan sponsor may not offer
a choice between an individual coverage
HRA or a traditional group health plan
to any participant or dependent.
(3) Same terms requirement—(i) In
general. If a plan sponsor offers an
individual coverage HRA to a class of
employees described in paragraph (d) of
this section, the HRA must be offered on
the same terms to all participants within
the class, except as provided in
paragraphs (c)(3)(ii) through (vi) and
(d)(5) of this section.
(ii) Carryover amounts, salary
reduction arrangements, and transfer
amounts. Amounts that are not used to
reimburse medical care expenses for any
plan year that are made available to
participants in later plan years are
disregarded for purposes of determining
whether an HRA is offered on the same
terms, provided that the method for
determining whether participants have
access to unused amounts in future
years, and the methodology and formula
for determining the amounts of unused
funds which they may access in future
years, is the same for all participants in
a class of employees. In addition, the
ability to pay the portion of the
premium for individual health
insurance coverage that is not covered
by the HRA, if any, by using a salary
reduction arrangement under section
125 of the Code is considered to be a
term of the HRA for purposes of this
paragraph (c)(3). Therefore, an HRA is
not provided on the same terms unless
the salary reduction arrangement, if
made available to any participant in a
class of employees, is made available on
the same terms to all participants (other
than former employees, as defined in
paragraph (c)(3)(iv) of this section) in
the class of employees. Further, to the
extent that a participant in an
individual coverage HRA was
previously covered by another HRA and
the current individual coverage HRA
makes available amounts that were not
used to reimburse medical care
expenses under the prior HRA
(transferred amounts), the transferred
amounts are disregarded for purposes of
determining whether the HRA is offered
on the same terms, provided that if the
HRA makes available transferred
amounts, it does so on the same terms
for all participants in the class of
employees.
(iii) Permitted variation. An HRA does
not fail to be provided on the same
terms solely because the maximum
dollar amount made available to
participants in a class of employees to
reimburse medical care expenses for any
plan year increases in accordance with
paragraph (c)(3)(iii)(A) or (B) of this
section.
(A) Variation due to number of
dependents. An HRA does not fail to be
provided on the same terms to
participants in a class of employees
solely because the maximum dollar
amount made available to those
participants to reimburse medical care
expenses for any plan year increases as
the number of the participant’s
dependents who are covered under the
HRA increases, so long as the same
maximum dollar amount attributable to
the increase in family size is made
available to all participants in that class
of employees with the same number of
dependents covered by the HRA.
(B) Variation due to age. An HRA
does not fail to be provided on the same
terms to participants in a class of
employees solely because the maximum
dollar amount made available under the
terms of the HRA to those participants
to reimburse medical care expenses for
any plan year increases as the age of the
participant increases, so long as the
requirements in paragraphs
(c)(3)(iii)(B)(1) and (2) of this section are
satisfied. For the purpose of this
paragraph (c)(3)(iii)(B), the plan sponsor
may determine the age of the participant
using any reasonable method for a plan
year, so long as the plan sponsor
determines each participant’s age for the
purpose of this paragraph (c)(3)(iii)(B)
using the same method for all
participants in the class of employees
for the plan year and the method is
determined prior to the plan year.
(1) The same maximum dollar amount
attributable to the increase in age is
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made available to all participants who
are the same age.
(2) The maximum dollar amount
made available to the oldest
participant(s) is not more than three
times the maximum dollar amount
made available to the youngest
participant(s).
(iv) Former employees. An HRA does
not fail to be treated as provided on the
same terms if the plan sponsor offers the
HRA to some, but not all, former
employees within a class of employees.
However, if a plan sponsor offers the
HRA to one or more former employees
within a class of employees, the HRA
must be offered to the former
employee(s) on the same terms as to all
other employees within the class, except
as provided in paragraph (c)(3)(ii) of this
section. For purposes of this section, a
former employee is an employee who is
no longer performing services for the
employer.
(v) New employees or new
dependents. For a participant whose
coverage under the HRA becomes
effective later than the first day of the
plan year, the HRA does not fail to be
treated as being provided on the same
terms to the participant if the maximum
dollar amount made available to the
participant either is the same as the
maximum dollar amount made available
to participants in the participant’s class
of employees whose coverage became
effective as of the first day of the plan
year, or is pro-rated consistent with the
portion of the plan year in which the
participant is covered by the HRA.
Similarly, if the HRA provides for
variation in the maximum amount made
available to participants in a class of
employees based on the number of a
participant’s dependents covered by the
HRA, and the number of a participant’s
dependents covered by the HRA
changes during a plan year (either
increasing or decreasing), the HRA does
not fail to be treated as being provided
on the same terms to the participant if
the maximum dollar amount made
available to the participant either is the
same as the maximum dollar amount
made available to participants in the
participant’s class of employees who
had the same number of dependents
covered by the HRA on the first day of
the plan year or is pro-rated for the
remainder of the plan year after the
change in the number of the
participant’s dependents covered by the
HRA consistent with the portion of the
plan year in which that number of
dependents are covered by the HRA.
The method the HRA uses to determine
amounts made available for participants
whose coverage under the HRA is
effective later than the first day of the
plan year or who have changes in the
number of dependents covered by the
HRA during a plan year must be the
same for all participants in the class of
employees and the method must be
determined prior to the beginning of the
plan year.
(vi) HSA-compatible HRAs. An HRA
does not fail to be treated as provided
on the same terms if the plan sponsor
offers participants in a class of
employees a choice between an HSA-
compatible individual coverage HRA
and an individual coverage HRA that is
not HSA compatible, provided both
types of HRAs are offered to all
participants in the class of employees
on the same terms. For the purpose of
this paragraph (c)(3)(vi), an HSA-
compatible individual coverage HRA is
an individual coverage HRA that is
limited in accordance with applicable
guidance under section 223 of the Code
such that an individual covered by such
an HRA is not disqualified from being
an eligible individual under section 223
of the Code.
(vii) Examples. The following
examples illustrate the provisions of
this paragraph (c)(3), without taking into
account the provisions of paragraph (d)
of this section. In each example, the
HRA is an individual coverage HRA that
has a calendar year plan year and may
reimburse any medical care expenses,
including premiums for individual
health insurance coverage (except as
provided in paragraph (c)(3)(vii)(E) of
this section (Example 5)). Further, in
each example, assume the HRA is
offered on the same terms, except as
otherwise specified in the example and
that no participants or dependents are
Medicare beneficiaries.
(A) Example 1: Carryover amounts
permitted—(1) Facts. For 2020 and again for
2021, Plan Sponsor A offers all employees
$7,000 each in an HRA, and the HRA
provides that amounts that are unused at the
end of a plan year may be carried over to the
next plan year, with no restrictions on the
use of the carryover amounts compared to the
use of newly available amounts. At the end
of 2020, some employees have used all of the
funds in their HRAs, while other employees
have balances remaining that range from
$500 to $1,750 that are carried over to 2021
for those employees.
(2) Conclusion. The same terms
requirement of this paragraph (c)(3) is
satisfied in this paragraph (c)(3)(vii)(A)
(Example 1) for 2020 because Plan Sponsor
A offers all employees the same amount,
$7,000, in an HRA for that year. The same
terms requirement is also satisfied for 2021
because Plan Sponsor A again offers all
employees the same amount for that year,
and the carryover amounts that some
employees have are disregarded in applying
the same terms requirement because the
amount of the carryover for each employee
(that employee’s balance) and each
employee’s access to the carryover amounts
is based on the same terms.
(B) Example 2: Employees hired after the
first day of the plan year—(1) Facts. For
2020, Plan Sponsor B offers all employees
employed on January 1, 2020, $7,000 each in
an HRA for the plan year. Employees hired
after January 1, 2020, are eligible to enroll in
the HRA with an effective date of the first
day of the month following their date of hire,
as long as they have enrolled in individual
health insurance coverage effective on or
before that date, and the amount offered to
these employees is pro-rated based on the
number of months remaining in the plan
year, including the month which includes
their coverage effective date.
(2) Conclusion. The same terms
requirement of this paragraph (c)(3) is
satisfied in this paragraph (c)(3)(vii)(B)
(Example 2) for 2020 because Plan Sponsor
B offers all employees employed on the first
day of the plan year the same amount,
$7,000, in an HRA for that plan year and all
employees hired after January 1, 2020, a pro-
rata amount based on the portion of the plan
year during which they are enrolled in the
HRA.
(C) Example 3: HRA amounts offered vary
based on number of dependents—(1) Facts.
For 2020, Plan Sponsor C offers its
employees the following amounts in an HRA:
$1,500, if the employee is the only individual
covered by the HRA; $3,500, if the employee
and one dependent are covered by the HRA;
and $5,000, if the employee and more than
one dependent are covered by the HRA.
(2) Conclusion. The same terms
requirement of this paragraph (c)(3) is
satisfied in this paragraph (c)(3)(vii)(C)
(Example 3) because paragraph (c)(3)(iii)(A)
of this section allows the maximum dollar
amount made available in an HRA to increase
as the number of the participant’s
dependents covered by the HRA increases
and Plan Sponsor C makes the same amount
available to each employee with the same
number of dependents covered by the HRA.
(D) Example 4: HRA amounts offered vary
based on increases in employees’ ages—(1)
Facts. For 2020, Plan Sponsor D offers its
employees the following amounts in an HRA:
$1,000 each for employees age 25 to 35;
$2,000 each for employees age 36 to 45;
$2,500 each for employees age 46 to 55; and
$4,000 each for employees over age 55.
(2) Conclusion. The same terms
requirement of this paragraph (c)(3) is not
satisfied in this paragraph (c)(3)(vii)(D)
(Example 4) because the terms of the HRA
provide the oldest participants (those over
age 55) with more than three times the
amount made available to the youngest
participants (those ages 25 to 35), in violation
of paragraph (c)(3)(iii)(B)(2) of this section.
(E) Example 5: Application of same terms
requirement to premium only HRA—(1)
Facts. For 2020, Plan Sponsor E offers its
employees an HRA that reimburses only
premiums for individual health insurance
coverage, up to $10,000 for the year.
Employee A enrolls in individual health
insurance coverage with a $5,000 premium
for the year and is reimbursed $5,000 from
the HRA. Employee B enrolls in individual
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health insurance coverage with an $8,000
premium for the year and is reimbursed
$8,000 from the HRA.
Conclusion. The same terms requirement of
this paragraph (c)(3) is satisfied in this
paragraph (c)(3)(vii)(E) (Example 5) because
Plan Sponsor E offers the HRA on the same
terms to all employees, notwithstanding that
some employees receive a greater amount of
reimbursement than others based on the cost
of the individual health insurance coverage
selected by the employee.
(4) Opt out. Under the terms of the
HRA, a participant who is otherwise
eligible for coverage must be permitted
to opt out of and waive future
reimbursements on behalf of the
participant and all dependents eligible
for the HRA from the HRA once, and
only once, with respect to each plan
year. The HRA may establish
timeframes for enrollment in (and
opting out of) the HRA but, in general,
the opportunity to opt out must be
provided in advance of the first day of
the plan year. For participants who
become eligible to participate in the
HRA on a date other than the first day
of the plan year (or who become eligible
fewer than 90 days prior to the plan year
or for whom the notice under paragraph
(c)(6) of this section is required to be
provided as set forth in paragraph
(c)(6)(i)(C) of this section), or for a
dependent who newly becomes eligible
during the plan year, this opportunity
must be provided during the applicable
HRA enrollment period(s) established
by the HRA for these individuals.
Further, under the terms of the HRA,
upon termination of employment, for a
participant who is covered by the HRA,
either the remaining amounts in the
HRA must be forfeited or the participant
must be permitted to permanently opt
out of and waive future reimbursements
from the HRA on behalf of the
participant and all dependents covered
by the HRA.
(5) Reasonable procedures for
coverage substantiation—(i)
Substantiation of individual health
insurance coverage for the plan year.
The HRA must implement, and comply
with, reasonable procedures to
substantiate that participants and each
dependent covered by the HRA are, or
will be, enrolled in individual health
insurance coverage for the plan year (or
for the portion of the plan year the
individual is covered by the HRA, if
applicable). The HRA may establish the
date by which this substantiation must
be provided, but, in general, the date
may be no later than the first day of the
plan year. However, for a participant
who is not eligible to participate in the
HRA on the first day of the plan year (or
who becomes eligible fewer than 90
days prior to the plan year or for whom
the notice under paragraph (c)(6) of this
section is required to be provided as set
forth in paragraph (c)(6)(i)(C) of this
section), the HRA may establish the date
by which this substantiation must be
provided, but that date may be no later
than the date the HRA coverage begins.
Similarly, for a participant who adds a
new dependent during the plan year,
the HRA may establish the date by
which this substantiation must be
provided, but the date may be no later
than the date the HRA coverage for the
new dependent begins; however, to the
extent the dependent’s coverage under
the HRA is effective retroactively, the
HRA may establish a reasonable time by
which this substantiation is required,
but must require it be provided before
the HRA will reimburse any medical
care expense for the newly added
dependent. The reasonable procedures
an HRA may use to implement the
substantiation requirement set forth in
this paragraph (c)(5)(i) may include a
requirement that a participant
substantiate enrollment by providing
either:
(A) A document from a third party
(for example, the issuer or an Exchange)
showing that the participant and any
dependents covered by the HRA are, or
will be, enrolled in individual health
insurance coverage (for example, an
insurance card or an explanation of
benefits document pertaining to the
relevant time period or documentation
from the Exchange showing that the
individual has completed the
application and plan selection); or
(B) An attestation by the participant
stating that the participant and
dependent(s) covered by the HRA are, or
will be, enrolled in individual health
insurance coverage, the date coverage
began or will begin, and the name of the
provider of the coverage.
(ii) Coverage substantiation with each
request for reimbursement of medical
care expenses. Following the initial
substantiation of coverage, with each
new request for reimbursement of an
incurred medical care expense for the
same plan year, the HRA may not
reimburse a participant for any medical
care expenses unless, prior to each
reimbursement, the participant
substantiates that the individual on
whose behalf medical care expenses are
requested to be reimbursed continues to
be enrolled in individual health
insurance coverage for the month during
which the medical care expenses were
incurred. The HRA must implement,
and comply with, reasonable procedures
to satisfy this requirement. This
substantiation may be in the form of a
written attestation by the participant,
which may be part of the form used to
request reimbursement, or a document
from a third party (for example, a health
insurance issuer) showing that the
participant or the dependent, if
applicable, are or were enrolled in
individual health insurance coverage for
the applicable month.
(iii) Reliance on substantiation. For
purposes of this paragraph (c)(5), an
HRA may rely on the participant’s
documentation or attestation unless the
HRA, its plan sponsor, or any other
entity acting in an official capacity on
behalf of the HRA has actual knowledge
that any individual covered by the HRA
is not, or will not be, enrolled in
individual health insurance coverage for
the plan year (or applicable portion of
the plan year) or the month, as
applicable.
(6) Notice requirement—(i) Timing.
The HRA must provide a written notice
to each participant:
(A) At least 90 calendar days before
the beginning of each plan year for any
participant who is not described in
either paragraph (c)(6)(i)(B) or (C) of this
section;
(B) No later than the date on which
the HRA may first take effect for the
participant, for any participant who is
not eligible to participate at the
beginning of the plan year (or is not
eligible to participate at the time the
notice is provided at least 90 calendar
days before the beginning of the plan
year pursuant to paragraph (c)(6)(i)(A) of
this section); or
(C) No later than the date on which
the HRA may first take effect for the
participant, for any participant who is
employed by an employer that is first
established less than 120 days before the
beginning of the first plan year of the
HRA; this paragraph (c)(6)(i)(C) applies
only with respect to the first plan year
of the HRA.
(ii) Content. The notice must include
all the information described in this
paragraph (c)(6)(ii) (and may include
any additional information that does not
conflict with that information). To the
extent that the Departments of the
Treasury, Labor and Health and Human
Services provide model notice language
for certain elements of this required
notice, HRAs are permitted, but not
required, to use the model language.
(A) A description of the terms of the
HRA, including the maximum dollar
amount available for each participant
(including the self-only HRA amount
available for the plan year (or the
maximum dollar amount available for
the plan year if the HRA provides for
reimbursements up to a single dollar
amount regardless of whether a
participant has self-only or other than
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self-only coverage)), any rules regarding
the proration of the maximum dollar
amount applicable to any participant (or
dependent, if applicable) who is not
eligible to participate in the HRA for the
entire plan year, whether (and which of)
the participant’s dependents are eligible
for the HRA, a statement that there are
different kinds of HRAs (including a
qualified small employer health
reimbursement arrangement) and the
HRA being offered is an individual
coverage HRA, a statement that the HRA
requires the participant and any covered
dependents to be enrolled in individual
health insurance coverage (or Medicare
Part A and B or Medicare Part C, if
applicable), a statement that the
coverage in which the participant and
any covered dependents must be
enrolled cannot be short-term, limited-
duration insurance or consist solely of
excepted benefits, if the HRA is subject
to the Employee Retirement Income
Security Act (ERISA), a statement that
individual health insurance coverage in
which the participant and any covered
dependents are enrolled is not subject to
ERISA, if the conditions under 29 CFR
2510.3–1(l) are satisfied, the date as of
which coverage under the HRA may
first become effective (both for
participants whose coverage will
become effective on the first day of the
plan year and for participants whose
HRA coverage may become effective at
a later date), the dates on which the
HRA plan year begins and ends, and the
dates on which the amounts newly
made available under the HRA will be
made available.
(B) A statement of the right of the
participant to opt out of and waive
future reimbursements from the HRA, as
set forth under paragraph (c)(4) of this
section.
(C) A description of the potential
availability of the premium tax credit if
the participant opts out of and waives
future reimbursements from the HRA
and the HRA is not affordable for one
or more months under 26 CFR 1.36B–
2(c)(5), a statement that even if the
participant opts out of and waives
future reimbursements from an HRA,
the offer will prohibit the participant
(and, potentially, the participant’s
dependents) from receiving a premium
tax credit for the participant’s coverage
(or the dependent’s coverage, if
applicable) on an Exchange for any
month that the HRA is affordable under
26 CFR 1.36B–2(c)(5), a statement
describing how the participant may find
assistance with determining
affordability, a statement that, if the
participant is a former employee, the
offer of the HRA does not render the
participant (or the participant’s
dependents, if applicable) ineligible for
the premium tax credit regardless of
whether it is affordable under 26 CFR
1.36B–2(c)(5), and a statement that if the
participant or dependent is enrolled in
Medicare, he or she is ineligible for the
premium tax credit without regard to
the offer or acceptance of the HRA;
(D) A statement that if the participant
accepts the HRA, the participant may
not claim a premium tax credit for the
participant’s Exchange coverage for any
month the HRA may be used to
reimburse medical care expenses of the
participant, and a premium tax credit
may not be claimed for the Exchange
coverage of the participant’s dependents
for any month the HRA may be used to
reimburse medical care expenses of the
dependents.
(E) A statement that the participant
must inform any Exchange to which the
participant applies for advance
payments of the premium tax credit of
the availability of the HRA; the self-only
HRA amount available for the HRA plan
year (or the maximum dollar amount
available for the plan year if the HRA
provides for reimbursements up to a
single dollar amount regardless of
whether a participant has self-only or
other than self-only coverage) as set
forth in the written notice in accordance
with paragraph (c)(6)(ii)(A) of this
section; whether the HRA is also
available to the participant’s dependents
and if so, which ones; the date as of
which coverage under the HRA may
first become effective; the date on which
the plan year begins and the date on
which it ends; and whether the
participant is a current employee or
former employee.
(F) A statement that the participant
should retain the written notice because
it may be needed to determine whether
the participant is allowed a premium
tax credit on the participant’s individual
income tax return.
(G) A statement that the HRA may not
reimburse any medical care expense
unless the substantiation requirement
set forth in paragraph (c)(5)(ii) of this
section is satisfied and a statement that
the participant must also provide the
substantiation required by paragraph
(c)(5)(i) of this section.
(H) A statement that if the individual
health insurance coverage (or coverage
under Medicare Part A and B or
Medicare Part C) of a participant or
dependent ceases, the HRA will not
reimburse any medical care expenses
that are incurred by the participant or
dependent, as applicable, after the
coverage ceases, and a statement that
the participant must inform the HRA if
the participant’s or dependent’s
individual health insurance coverage (or
coverage under Medicare Part A and B
or Medicare Part C) is cancelled or
terminated retroactively and the date on
which the cancellation or termination is
effective.
(I) The contact information (including
a phone number) for an individual or a
group of individuals who participants
may contact in order to receive
additional information regarding the
HRA. The plan sponsor may determine
which individual or group of
individuals is best suited to be the
specified contact.
(J) A statement of availability of a
special enrollment period to enroll in or
change individual health insurance
coverage, through or outside of an
Exchange, for the participant and any
dependents who newly gain access to
the HRA and are not already covered by
the HRA.
(d) Classes of employees—(1) In
general. This paragraph (d) sets forth the
rules for determining classes of
employees. Paragraph (d)(2) of this
section sets forth the specific classes of
employees; paragraph (d)(3) of this
section sets forth a minimum class size
requirement that applies in certain
circumstances; paragraph (d)(4) of this
section sets forth rules regarding the
definition of ‘‘full-time employees,’’
‘‘part-time employees,’’ and ‘‘seasonal
employees’’; paragraph (d)(5) of this
section sets forth a special rule for new
hires; and paragraph (d)(6) of this
section addresses student premium
reduction arrangements. For purposes of
this section, including determining
classes under this paragraph (d), the
employer is the common law employer
and is determined without regard to the
rules under sections 414(b), (c), (m), and
(o) of the Code that would treat the
common law employer as a single
employer with certain other entities.
(2) List of classes. Participants may be
treated as belonging to a class of
employees based on whether they are,
or are not, included in the classes
described in this paragraph (d)(2). If the
individual coverage HRA is offered to
former employees, former employees are
considered to be in the same class in
which they were included immediately
before separation from service. Before
each plan year, a plan sponsor must
determine for the plan year which
classes of employees it intends to treat
separately and the definition of the
relevant class(es) it will apply, to the
extent these regulations permit a choice.
After the classes and the definitions of
the classes are established for a plan
year, a plan sponsor may not make
changes to the classes of employees or
the definitions of those relevant classes
with respect to that plan year.
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(i) Full-time employees, defined at the
election of the plan sponsor to mean
either full-time employees under section
4980H of the Code (and 26 CFR
54.4980H–1(a)(21)) or employees who
are not part-time employees (as
described in 26 CFR 1.105–
11(c)(2)(iii)(C));
(ii) Part-time employees, defined at
the election of the plan sponsor to mean
either employees who are not full-time
employees under section 4980H of the
Code (and under 26 CFR 54.4980H–
1(a)(21) (which defines full-time
employee)) or employees who are part-
time employees as described in 26 CFR
1.105–11(c)(2)(iii)(C);
(iii) Employees who are paid on a
salary basis;
(iv) Non-salaried employees (such as,
for example, hourly employees);
(v) Employees whose primary site of
employment is in the same rating area
as defined in § 147.102(b) of this
subchapter;
(vi) Seasonal employees, defined at
the election of the plan sponsor to mean
seasonal employees as described in
either 26 CFR 54.4980H–1(a)(38) or 26
CFR 1.105–11(c)(2)(iii)(C);
(vii) Employees included in a unit of
employees covered by a particular
collective bargaining agreement (or an
appropriate related participation
agreement) in which the plan sponsor
participates (as described in 26 CFR
1.105–11(c)(2)(iii)(D));
(viii) Employees who have not
satisfied a waiting period for coverage
(if the waiting period complies with
§ 147.116 of this subchapter);
(ix) Non-resident aliens with no U.S.-
based income (as described in 26 CFR
1.105–11(c)(2)(iii)(E));
(x) Employees who, under all the facts
and circumstances, are employees of an
entity that hired the employees for
temporary placement at an entity that is
not the common law employer of the
employees and that is not treated as a
single employer with the entity that
hired the employees for temporary
placement under section 414(b), (c), (m),
or (o) of the Code; or
(xi) A group of participants described
as a combination of two or more of the
classes of employees set forth in
paragraphs (d)(2)(i) through (x) of this
section.
(3) Minimum class size requirement
(i) In general. If a class of employees is
subject to the minimum class size
requirement as set forth in this
paragraph (d)(3), the class must consist
of at least a minimum number of
employees (as described in paragraphs
(d)(3)(iii) and (iv) of this section),
otherwise, the plan sponsor may not
treat that class as a separate class of
employees. Paragraph (d)(3)(ii) of this
section sets forth the circumstances in
which the minimum class size
requirement applies to a class of
employees, paragraph (d)(3)(iii) of this
section sets forth the rules for
determining the applicable class size
minimum, and paragraph (d)(3)(iv) of
this section sets forth the rules for a
plan sponsor to determine if it satisfies
the minimum class size requirement
with respect to a class of employees.
(ii) Circumstances in which minimum
class size requirement applies—(A) The
minimum class size requirement applies
only if a plan sponsor offers a
traditional group health plan to one or
more classes of employees and offers an
individual coverage HRA to one or more
other classes of employees.
(B) The minimum class size
requirement does not apply to a class of
employees offered a traditional group
health plan or a class of employees
offered no coverage.
(C) The minimum class size
requirement applies to a class of
employees offered an individual
coverage HRA if the class is full-time
employees, part-time employees,
salaried employees, non-salaried
employees, or employees whose
primary site of employment is in the
same rating area (described in paragraph
(d)(2)(i), (ii), (iii), (iv), or (v) of this
section, respectively, and referred to
collectively as the applicable classes or
individually as an applicable class),
except that:
(1) In the case of the class of
employees whose primary site of
employment is in the same rating area
(as described in paragraph (d)(2)(v) of
this section), the minimum class size
requirement does not apply if the
geographic area defining the class is a
State or a combination of two or more
entire States; and
(2) In the case of the classes of
employees that are full-time employees
and part-time employees (as described
in paragraphs (d)(2)(i) and (ii) of this
section, respectively), the minimum
class size requirement applies only to
those classes (and the classes are only
applicable classes) if the employees in
one such class are offered a traditional
group health plan while the employees
in the other such class are offered an
individual coverage HRA. In such a
case, the minimum class size
requirement applies only to the class
offered an individual coverage HRA.
(D) A class of employees offered an
individual coverage HRA is also subject
to the minimum class size requirement
if the class is a class of employees
created by combining at least one of the
applicable classes (as defined in
paragraph (d)(3)(ii)(C) of this section)
with any other class, except that the
minimum class size requirement shall
not apply to a class that is the result of
a combination of one of the applicable
classes and a class of employees who
have not satisfied a waiting period (as
described in paragraph (d)(2)(viii) of
this section).
(iii) Determination of the applicable
class size minimum—(A) In general.
The minimum number of employees
that must be in a class of employees that
is subject to the minimum class size
requirement (the applicable class size
minimum) is determined prior to the
beginning of the plan year for each plan
year of the individual coverage HRA
and is:
(1) 10, for an employer with fewer
than 100 employees;
(2) A number, rounded down to a
whole number, equal to 10 percent of
the total number of employees, for an
employer with 100 to 200 employees;
and
(3) 20, for an employer with more
than 200 employees.
(B) Determining employer size. For
purposes of this paragraph (d)(3), the
number of employees of an employer is
determined in advance of the plan year
of the HRA based on the number of
employees that the employer reasonably
expects to employ on the first day of the
plan year.
(iv) Determining if a class satisfies the
applicable class size minimum. For
purposes of this paragraph (d)(3),
whether a class of employees satisfies
the applicable class size minimum for a
plan year of the individual coverage
HRA is based on the number of
employees in the class offered the
individual coverage HRA as of the first
day of the plan year. Therefore, this
determination is not based on the
number of employees that actually
enroll in the individual coverage HRA,
and this determination is not affected by
changes in the number of employees in
the class during the plan year.
(4) Consistency requirement. For any
plan year, a plan sponsor may define
‘‘full-time employee,’’ ‘‘part-time
employee,’’ and ‘‘seasonal employee’’ in
accordance with the relevant provisions
of sections 105(h) or 4980H of the Code,
as set forth in paragraphs (d)(2)(i), (ii),
and (vi) of this section, if:
(i) To the extent applicable under the
HRA for the plan year, each of the three
classes of employees are defined in
accordance with section 105(h) of the
Code or each of the three classes of
employees are defined in accordance
with section 4980H of the Code for the
plan year; and
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(ii) The HRA plan document sets forth
the applicable definitions prior to the
beginning of the plan year to which the
definitions will apply.
(5) Special rule for new hires—(i) In
general. Notwithstanding paragraphs
(c)(2) and (3) of this section, a plan
sponsor that offers a traditional group
health plan to a class of employees may
prospectively offer the employees in
that class of employees who are hired
on or after a certain future date (the new
hire date) an individual coverage HRA
(with this group of employees referred
to as the new hire subclass), while
continuing to offer employees in that
class of employees who are hired before
the new hire date a traditional group
health plan (with the rule set forth in
this sentence referred to as the special
rule for new hires). For the new hire
subclass, the individual coverage HRA
must be offered on the same terms to all
participants within the subclass, in
accordance with paragraph (c)(3) of this
section. In accordance with paragraph
(c)(2) of this section, a plan sponsor may
not offer a choice between an individual
coverage HRA or a traditional group
health plan to any employee in the new
hire subclass or to any employee in the
class who is not a member of the new
hire subclass.
(ii) New hire date. A plan sponsor
may set the new hire date for a class of
employees prospectively as any date on
or after January 1, 2020. A plan sponsor
may set different new hire dates
prospectively for separate classes of
employees.
(iii) Discontinuation of use of special
rule for new hires and multiple
applications of the special rule for new
hires. A plan sponsor may discontinue
use of the special rule for new hires at
any time for any class of employees. In
that case, the new hire subclass is no
longer treated as a separate subclass of
employees. In the event a plan sponsor
applies the special rule for new hires to
a class of employees and later
discontinues use of the rule to the class
of employees, the plan sponsor may
later apply the rule if the application of
the rule would be permitted under the
rules for initial application of the
special rule for new hires. If a plan
sponsor, in accordance with the
requirements for the special rule for
new hires, applies the rule to a class of
employees subsequent to any prior
application and discontinuance of the
rule to that class, the new hire date must
be prospective.
(iv) Application of the minimum class
size requirement under the special rule
for new hires. The minimum class size
requirement set forth in paragraph (d)(3)
of this section does not apply to the new
hire subclass. However, if a plan
sponsor subdivides the new hire
subclass subsequent to creating the new
hire subclass, the minimum class size
requirement set forth in paragraph (d)(3)
of this section applies to any class of
employees created by subdividing the
new hire subclass, if the minimum class
size requirement otherwise applies.
(6) Student employees offered student
premium reduction arrangements. For
purposes of this section, if an institution
of higher education (as defined in the
Higher Education Act of 1965) offers a
student employee a student premium
reduction arrangement, the employee is
not considered to be part of the class of
employees to which the employee
would otherwise belong. For the
purpose of this paragraph (d)(6) and
paragraph (f)(1) of this section, a student
premium reduction arrangement is
defined as any program offered by an
institution of higher education under
which the cost of insured or self-insured
student health coverage is reduced for
certain students through a credit, offset,
reimbursement, stipend or similar
arrangement. A student employee
offered a student premium reduction
arrangement is also not counted for
purposes of determining the applicable
class size minimum under paragraph
(d)(3)(iii) of this section. If a student
employee is not offered a student
premium reduction arrangement
(including if the student employee is
offered an individual coverage HRA
instead), the student employee is
considered to be part of the class of
employees to which the employee
otherwise belongs and is counted for
purposes of determining the applicable
class size minimum under paragraph
(d)(3)(iii) of this section.
(e) Integration of Individual Coverage
HRAs with Medicare—(1) General rule.
An individual coverage HRA will be
considered to be integrated with
Medicare (and deemed to comply with
PHS Act sections 2711 and 2713 and
§ 147.126(d)(4) of this subchapter),
provided that the conditions of
paragraph (c) of this section are
satisfied, subject to paragraph (e)(2) of
this section. Nothing in this section
requires that a participant and his or her
dependents all have the same type of
coverage; therefore, an individual
coverage HRA may be integrated with
Medicare for some individuals and with
individual health insurance coverage for
others, including, for example, a
participant enrolled in Medicare Part A
and B or Part C and his or her
dependents enrolled in individual
health insurance coverage.
(2) Application of conditions in
paragraph (c) of this section—(i) In
general. Except as provided in
paragraph (e)(2)(ii) of this section, in
applying the conditions of paragraph (c)
of this section with respect to
integration with Medicare, a reference to
‘‘individual health insurance coverage’’
is deemed to refer to coverage under
Medicare Part A and B or Part C.
References in this section to integration
of an HRA with Medicare refer to
integration of an individual coverage
HRA with Medicare Part A and B or Part
C.
(ii) Exceptions. For purposes of the
statement regarding ERISA under the
notice content element under paragraph
(c)(6)(ii)(A) of this section and the
statement regarding the availability of a
special enrollment period under the
notice content element under paragraph
(c)(6)(ii)(J) of this section, the term
individual health insurance coverage
means only individual health insurance
coverage and does not also mean
coverage under Medicare Part A and B
or Part C.
(f) Examples—(1) Examples regarding
classes and the minimum class size
requirement. The following examples
illustrate the provisions of paragraph
(c)(3) of this section, taking into account
the provisions of paragraphs (d)(1)
through (4) and (d)(6) of this section. In
each example, the HRA is an individual
coverage HRA that may reimburse any
medical care expenses, including
premiums for individual health
insurance coverage and it is assumed
that no participants or dependents are
Medicare beneficiaries.
(i) Example 1: Collectively bargained
employees offered traditional group health
plan; non-collectively bargained employees
offered HRA—(A) Facts. For 2020, Plan
Sponsor A offers its employees covered by a
collective bargaining agreement a traditional
group health plan (as required by the
collective bargaining agreement) and all other
employees (non-collectively bargained
employees) each an HRA on the same terms.
(B) Conclusion. The same terms
requirement of paragraph (c)(3) of this
section is satisfied in this paragraph (f)(1)(i)
(Example 1) because collectively bargained
and non-collectively bargained employees
may be treated as different classes of
employees, one of which may be offered a
traditional group health plan and the other of
which may be offered an individual coverage
HRA, and Plan Sponsor A offers the HRA on
the same terms to all participants who are
non-collectively bargained employees. The
minimum class size requirement does not
apply to this paragraph (f)(1)(i) (Example 1)
even though Plan Sponsor A offers one class
a traditional group health plan and one class
the HRA because collectively bargained and
non-collectively bargained employees are not
applicable classes that are subject to the
minimum class size requirement.
(ii) Example 2: Collectively bargained
employees in one unit offered traditional
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group health plan and in another unit offered
HRA—(A) Facts. For 2020, Plan Sponsor B
offers its employees covered by a collective
bargaining agreement with Local 100 a
traditional group health plan (as required by
the collective bargaining agreement), and its
employees covered by a collective bargaining
agreement with Local 200 each an HRA on
the same terms (as required by the collective
bargaining agreement).
(B) Conclusion. The same terms
requirement of paragraph (c)(3) of this
section is satisfied in this paragraph (f)(1)(ii)
(Example 2) because the employees covered
by the collective bargaining agreements with
the two separate bargaining units (Local 100
and Local 200) may be treated as two
different classes of employees and Plan
Sponsor B offers an HRA on the same terms
to the participants covered by the agreement
with Local 200. The minimum class size
requirement does not apply to this paragraph
(f)(1)(ii) (Example 2) even though Plan
Sponsor B offers the Local 100 employees a
traditional group health plan and the Local
200 employees an HRA because collectively
bargained employees are not applicable
classes that are subject to the minimum class
size requirement.
(iii) Example 3: Employees in a waiting
period offered no coverage; other employees
offered an HRA—(A) Facts. For 2020, Plan
Sponsor C offers its employees who have
completed a waiting period that complies
with the requirements for waiting periods in
§ 147.116 of this subchapter each an HRA on
the same terms and does not offer coverage
to its employees who have not completed the
waiting period.
(B) Conclusion. The same terms
requirement of paragraph (c)(3) of this
section is satisfied in this paragraph (f)(1)(iii)
(Example 3) because employees who have
completed a waiting period and employees
who have not completed a waiting period
may be treated as different classes and Plan
Sponsor C offers the HRA on the same terms
to all participants who have completed the
waiting period. The minimum class size
requirement does not apply to this paragraph
(f)(1)(iii) (Example 3) because Plan Sponsor
C does not offer at least one class of
employees a traditional group health plan
and because the class of employees who have
not completed a waiting period and the class
of employees who have completed a waiting
period are not applicable classes that are
subject to the minimum class size
requirement.
(iv) Example 4: Employees in a waiting
period offered an HRA; other employees
offered a traditional group health plan—(A)
Facts. For 2020, Plan Sponsor D offers its
employees who have completed a waiting
period that complies with the requirements
for waiting periods in § 147.116 of this
subchapter a traditional group health plan
and offers its employees who have not
completed the waiting period each an HRA
on the same terms.
(B) Conclusion. The same terms
requirement of paragraph (c)(3) of this
section is satisfied in this paragraph (f)(1)(iv)
(Example 4) because employees who have
completed a waiting period and employees
who have not completed a waiting period
may be treated as different classes and Plan
Sponsor D offers an HRA on the same terms
to all participants who have not completed
the waiting period. The minimum class size
requirement does not apply to this paragraph
(f)(1)(iv) (Example 4) even though Plan
Sponsor D offers employees who have
completed a waiting period a traditional
group health plan and employees who have
not completed a waiting period an HRA
because the class of employees who have not
completed a waiting period is not an
applicable class that is subject to the
minimum class size requirement (nor is the
class made up of employees who have
completed the waiting period).
(v) Example 5: Staffing firm employees
temporarily placed with customers offered an
HRA; other employees offered a traditional
group health plan—(A) Facts. Plan Sponsor
E is a staffing firm that places certain of its
employees on temporary assignments with
customers that are not the common law
employers of Plan Sponsor E’s employees or
treated as a single employer with Plan
Sponsor E under section 414(b), (c), (m), or
(o) of the Code (unrelated entities); other
employees work in Plan Sponsor E’s office
managing the staffing business (non-
temporary employees). For 2020, Plan
Sponsor E offers its employees who are on
temporary assignments with customers each
an HRA on the same terms. All other
employees are offered a traditional group
health plan.
(B) Conclusion. The same terms
requirement of paragraph (c)(3) of this
section is satisfied in this paragraph (f)(1)(v)
(Example 5) because the employees who are
hired for temporary placement at an
unrelated entity and non-temporary
employees of Plan Sponsor E may be treated
as different classes of employees and Plan
Sponsor E offers an HRA on the same terms
to all participants temporarily placed with
customers. The minimum class size
requirement does not apply to this paragraph
(f)(1)(v) (Example 5) even though Plan
Sponsor E offers one class a traditional group
health plan and one class the HRA because
the class of employees hired for temporary
placement is not an applicable class that is
subject to the minimum class size
requirement (nor is the class made up of non-
temporary employees).
(vi) Example 6: Staffing firm employees
temporarily placed with customers in rating
area 1 offered an HRA; other employees
offered a traditional group health plan—(A)
Facts. The facts are the same as in paragraph
(f)(1)(v) of this section (Example 5), except
that Plan Sponsor E has work sites in rating
area 1 and rating area 2, and it offers its 10
employees on temporary assignments with a
work site in rating area 1 an HRA on the
same terms. Plan Sponsor E has 200 other
employees in rating areas 1 and 2, including
its non-temporary employees in rating areas
1 and 2 and its employees on temporary
assignments with a work site in rating area
2, all of whom are offered a traditional group
health plan.
(B) Conclusion. The same terms
requirement of paragraph (c)(3) of this
section is not satisfied in this paragraph
(f)(1)(vi) (Example 6) because, even though
the employees who are temporarily placed
with customers generally may be treated as
employees of a different class, because Plan
Sponsor E is also using a rating area to
identify the class offered the HRA (which is
an applicable class for the minimum class
size requirement) and is offering one class
the HRA and another class the traditional
group health plan, the minimum class size
requirement applies to the class offered the
HRA, and the class offered the HRA fails to
satisfy the minimum class size requirement.
Because Plan Sponsor E employs 210
employees, the applicable class size
minimum is 20, and the HRA is offered to
only 10 employees.
(vii) Example 7: Employees in State 1
offered traditional group health plan;
employees in State 2 offered HRA—(A) Facts.
Plan Sponsor F employs 45 employees whose
work site is in State 1 and 7 employees
whose primary site of employment is in State
2. For 2020, Plan Sponsor F offers its 45
employees in State 1 a traditional group
health plan, and each of its 7 employees in
State 2 an HRA on the same terms.
(B) Conclusion. The same terms
requirement of paragraph (c)(3) of this
section is satisfied in this paragraph (f)(1)(vii)
(Example 7) because Plan Sponsor F offers
the HRA on the same terms to all employees
with a work site in State 2 and that class is
a permissible class under paragraph (d) of
this section. This is because employees
whose work sites are in different rating areas
may be considered different classes and a
plan sponsor may create a class of employees
by combining classes of employees,
including by combining employees whose
work site is in one rating area with
employees whose work site is in a different
rating area, or by combining all employees
whose work site is in a state. The minimum
class size requirement does not apply to this
paragraph (f)(1)(vii) (Example 7) because the
minimum class size requirement does not
apply if the geographic area defining a class
of employees is a state or a combination of
two or more entire states.
(viii) Example 8: Full-time seasonal
employees offered HRA; all other full-time
employees offered traditional group health
plan; part-time employees offered no
coverage—(A) Facts. Plan Sponsor G employs
6 full-time seasonal employees, 75 full-time
employees who are not seasonal employees,
and 5 part-time employees. For 2020, Plan
Sponsor G offers each of its 6 full-time
seasonal employees an HRA on the same
terms, its 75 full-time employees who are not
seasonal employees a traditional group
health plan, and offers no coverage to its 5
part-time employees.
(B) Conclusion. The same terms
requirement of paragraph (c)(3) of this
section is satisfied in this paragraph
(f)(1)(viii) (Example 8) because full-time
seasonal employees and full-time employees
who are not seasonal employees may be
considered different classes and Plan
Sponsor G offers the HRA on the same terms
to all full-time seasonal employees. The
minimum class size requirement does not
apply to the class offered the HRA in this
paragraph (f)(1)(viii) (Example 8) because
part-time employees are not offered coverage
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and full-time employees are not an
applicable class subject to the minimum class
size requirement if part-time employees are
not offered coverage.
(ix) Example 9: Full-time employees in
rating area 1 offered traditional group health
plan; full-time employees in rating area 2
offered HRA; part-time employees offered no
coverage—(A) Facts. Plan Sponsor H
employs 17 full-time employees and 10 part-
time employees whose work site is in rating
area 1 and 552 full-time employees whose
work site is in rating area 2. For 2020, Plan
Sponsor H offers its 17 full-time employees
in rating area 1 a traditional group health
plan and each of its 552 full-time employees
in rating area 2 an HRA on the same terms.
Plan Sponsor H offers no coverage to its 10
part-time employees in rating area 1. Plan
Sponsor H reasonably expects to employ 569
employees on the first day of the HRA plan
year.
(B) Conclusion. The same terms
requirement of paragraph (c)(3) of this
section is satisfied in this paragraph (f)(1)(ix)
(Example 9) because employees whose work
sites are in different rating areas may be
considered different classes and Plan
Sponsor H offers the HRA on the same terms
to all full-time employees in rating area 2.
The minimum class size requirement applies
to the class offered the HRA in this paragraph
(f)(1)(ix) (Example 9) because the minimum
class size requirement applies to a class
based on a geographic area unless the
geographic area is a state or a combination of
two or more entire states. However, the
minimum class size requirement applies only
to the class offered the HRA, and Plan
Sponsor H offers the HRA to the 552 full-time
employees in rating area 2 on the first day
of the plan year, satisfying the minimum
class size requirement (because the
applicable class size minimum for Plan
Sponsor H is 20).
(x) Example 10: Employees in rating area
1 offered HRA; employees in rating area 2
offered traditional group health plan—(A)
Facts. The facts are the same as in paragraph
(f)(1)(ix) of this section (Example 9) except
that Plan Sponsor H offers its 17 full-time
employees in rating area 1 the HRA and
offers its 552 full-time employees in rating
area 2 the traditional group health plan.
(B) Conclusion. The same terms
requirement of paragraph (c)(3) of this
section is not satisfied in this paragraph
(f)(1)(x) (Example 10) because, even though
employees whose work sites are in different
rating areas generally may be considered
different classes and Plan Sponsor H offers
the HRA on the same terms to all participants
in rating area 1, the HRA fails to satisfy the
minimum class size requirement.
Specifically, the minimum class size
requirement applies to this paragraph (f)(1)(x)
(Example 10) because the minimum class
size requirement applies to a class based on
a geographic area unless the geographic area
is a state or a combination of two or more
entire states. Further, the applicable class
size minimum for Plan Sponsor H is 20
employees, and the HRA is only offered to
the 17 full-time employees in rating area 1 on
the first day of the HRA plan year.
(xi) Example 11: Employees in State 1 and
rating area 1 of State 2 offered HRA;
employees in all other rating areas of State
2 offered traditional group health plan—(A)
Facts. For 2020, Plan Sponsor I offers an
HRA on the same terms to a total of 200
employees it employs with work sites in
State 1 and in rating area 1 of State 2. Plan
Sponsor I offers a traditional group health
plan to its 150 employees with work sites in
other rating areas in State 2. Plan Sponsor I
reasonably expects to employ 350 employees
on the first day of the HRA plan year.
(B) Conclusion. The same terms
requirement of paragraph (c)(3) of this
section is satisfied in this paragraph (f)(1)(xi)
(Example 11). Plan Sponsor I may treat all of
the employees with a work site in State 1 and
rating area 1 of State 2 as a class of
employees because employees whose work
sites are in different rating areas may be
considered different classes and a plan
sponsor may create a class of employees by
combining classes of employees, including
by combining employees whose work site is
in one rating area with a class of employees
whose work site is in a different rating area.
The minimum class size requirement applies
to the class of employees offered the HRA
(made up of employees in State 1 and in
rating area 1 of State 2) because the minimum
class size requirement applies to a class
based on a geographic area unless the
geographic area is a state or a combination of
two or more entire states. In this case, the
class is made up of a state plus a rating area
which is not the entire state. However, this
class satisfies the minimum class size
requirement because the applicable class size
minimum for Plan Sponsor I is 20, and Plan
Sponsor I offered the HRA to 200 employees
on the first day of the plan year.
(xii) Example 12: Salaried employees
offered a traditional group health plan;
hourly employees offered an HRA—(A) Facts.
Plan Sponsor J has 163 salaried employees
and 14 hourly employees. For 2020, Plan
Sponsor J offers its 163 salaried employees a
traditional group health plan and each of its
14 hourly employees an HRA on the same
terms. Plan Sponsor J reasonably expects to
employ 177 employees on the first day of the
HRA plan year.
(B) Conclusion. The same terms
requirement of paragraph (c)(3) of this
section is not satisfied in this paragraph
(f)(1)(xii) (Example 12) because, even though
salaried and hourly employees generally may
be considered different classes and Plan
Sponsor J offers the HRA on the same terms
to all hourly employees, the HRA fails to
satisfy the minimum class size requirement.
Specifically, the minimum class size
requirement applies in this paragraph
(f)(1)(xii) (Example 12) because employees
who are paid on a salaried basis and
employees who are not paid on a salaried
basis are applicable classes subject to the
minimum class size requirement. Because
Plan Sponsor J reasonably expects to employ
between 100 and 200 employees on the first
day of the plan year, the applicable class size
minimum is 10 percent, rounded down to a
whole number. Ten percent of 177 total
employees, rounded down to a whole
number is 17, and the HRA is offered to only
14 hourly employees.
(xiii) Example 13: Part-time employees and
full-time employees offered different HRAs;
no traditional group health plan offered—(A)
Facts. Plan Sponsor K has 50 full-time
employees and 7 part-time employees. For
2020, Plan Sponsor K offers its 50 full-time
employees $2,000 each in an HRA otherwise
provided on the same terms and each of its
7 part-time employees $500 in an HRA
otherwise provided on the same terms. Plan
Sponsor K reasonably expects to employ 57
employees on the first day of the HRA plan
year.
(B) Conclusion. The same terms
requirement of paragraph (c)(3) of this
section is satisfied in this paragraph
(f)(1)(xiii) (Example 13) because full-time
employees and part-time employees may be
treated as different classes and Plan Sponsor
K offers an HRA on the same terms to all the
participants in each class. The minimum
class size requirement does not apply to
either the full-time class or the part-time
class because (although in certain
circumstances the minimum class size
requirement applies to a class of full-time
employees and a class of part-time
employees) Plan Sponsor K does not offer
any class of employees a traditional group
health plan, and the minimum class size
requirement applies only when, among other
things, at least one class of employees is
offered a traditional group health plan while
another class is offered an HRA.
(xiv) Example 14: No employees offered an
HRA—(A) Facts. The facts are the same facts
as in paragraph (f)(1)(xiii) of this section
(Example 13), except that Plan Sponsor K
offers its full-time employees a traditional
group health plan and does not offer any
group health plan (either a traditional group
health plan or an HRA) to its part-time
employees.
(B) Conclusion. The regulations set forth
under this section do not apply to Plan
Sponsor K because Plan Sponsor K does not
offer an individual coverage HRA to any
employee.
(xv) Example 15: Full-time employees
offered traditional group health plan; part-
time employees offered HRA—(A) Facts. The
facts are the same as in paragraph (f)(1)(xiii)
of this section (Example 13), except that Plan
Sponsor K offers its full-time employees a
traditional group health plan and offers each
of its part-time employees $500 in an HRA
and otherwise on the same terms.
(B) Conclusion. The same terms
requirement of paragraph (c)(3) of this
section is not satisfied in this paragraph
(f)(1)(xv) (Example 15) because, even though
the full-time employees and the part-time
employees generally may be treated as
different classes, in this paragraph (f)(1)(xv)
(Example 15), the minimum class size
requirement applies to the part-time
employees, and it is not satisfied.
Specifically, the minimum class size
requirement applies to the part-time
employees because that requirement applies
to an applicable class offered an HRA when
one class is offered a traditional group health
plan while another class is offered an HRA,
and to the part-time and full-time employee
classes when one of those classes is offered
a traditional group health plan while the
other is offered an HRA. Because Plan
Sponsor K reasonably expects to employ
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fewer than 100 employees on the first day of
the HRA plan year, the applicable class size
minimum for Plan Sponsor K is 10
employees, but Plan Sponsor K offered the
HRA only to its 7 part-time employees.
(xvi) Example 16: Satisfying minimum
class size requirement based on employees
offered HRA—(A) Facts. Plan Sponsor L
employs 78 full-time employees and 12 part-
time employees. For 2020, Plan Sponsor L
offers its 78 full-time employees a traditional
group health plan and each of its 12 part-
times employees an HRA on the same terms.
Only 6 part-time employees enroll in the
HRA. Plan Sponsor L reasonably expects to
employ fewer than 100 employees on the first
day of the HRA plan year.
(B) Conclusion. The same terms
requirement of paragraph (c)(3) of this
section is satisfied in this paragraph
(f)(1)(xvi) (Example 16) because full-time
employees and part-time employees may be
treated as different classes, Plan Sponsor L
offers an HRA on the same terms to all the
participants in the part-time class, and the
minimum class size requirement is satisfied.
Specifically, whether a class of employees
satisfies the applicable class size minimum is
determined as of the first day of the plan year
based on the number of employees in a class
that is offered an HRA, not on the number
of employees who enroll in the HRA. The
applicable class size minimum for Plan
Sponsor L is 10 employees, and Plan Sponsor
L offered the HRA to its 12 part-time
employees.
(xvii) Example 17: Student employees
offered student premium reduction
arrangements and same terms requirement
(A) Facts. Plan Sponsor M is an institution
of higher education that offers each of its
part-time employees an HRA on the same
terms, except that it offers its part-time
employees who are student employees a
student premium reduction arrangement, and
the student premium reduction arrangement
provides different amounts to different part-
time student employees.
(B) Conclusion. The same terms
requirement of paragraph (c)(3) of this
section is satisfied in this paragraph
(f)(1)(xvii) (Example 17) because Plan
Sponsor M offers the HRA on the same terms
to its part-time employees who are not
students and because the part-time student
employees offered a student premium
reduction arrangement (and their varying
HRAs) are not taken into account as part-time
employees for purposes of determining
whether a class of employees is offered an
HRA on the same terms.
(xiii) Example 18: Student employees
offered student premium reduction
arrangements and minimum class size
requirement—(A) Facts. Plan Sponsor N is an
institution of higher education with 25
hourly employees. Plan Sponsor N offers 15
of its hourly employees, who are student
employees, a student premium reduction
arrangement and it wants to offer its other 10
hourly employees an HRA for 2022. Plan
Sponsor N offers its salaried employees a
traditional group health plan. Plan Sponsor
N reasonably expects to have 250 employees
on the first day of the 2022 HRA plan year,
15 of which will have offers of student
premium reduction arrangements.
(B) Conclusion. The same terms
requirement of paragraph (c)(3) of this
section is not satisfied in this paragraph
(f)(1)(xviii) (Example 18). The minimum
class size requirement will apply to the class
of hourly employees to which Plan Sponsor
N wants to offer the HRA because Plan
Sponsor N offers a class of employees a
traditional group health plan and another
class the HRA, and the minimum class size
requirement generally applies to a class of
hourly employees offered an HRA. Plan
Sponsor N’s applicable class size minimum
is 20 because Plan Sponsor N reasonably
expects to employ 235 employees on the first
day of the plan year (250 employees minus
15 employees receiving a student premium
reduction arrangement). Plan Sponsor N may
not offer the HRA to its hourly employees
because the 10 employees offered the HRA as
of the first day of the plan year does not
satisfy the applicable class size minimum.
(2) Examples regarding special rule
for new hires. The following examples
illustrate the provisions of paragraph
(c)(3) of this section, taking into account
the provisions of paragraph (d) of this
section, in particular the special rule for
new hires under paragraph (d)(5) of this
section. In each example, the HRA is an
individual coverage HRA that has a
calendar year plan year and may
reimburse any medical care expenses,
including premiums for individual
health insurance coverage. The
examples also assume that no
participants or dependents are Medicare
beneficiaries.
(i) Example 1: Application of special rule
for new hires to all employees—(A) Facts. For
2021, Plan Sponsor A offers all employees a
traditional group health plan. For 2022, Plan
Sponsor A offers all employees hired on or
after January 1, 2022, an HRA on the same
terms and continues to offer the traditional
group health plan to employees hired before
that date. On the first day of the 2022 plan
year, Plan Sponsor A has 2 new hires who
are offered the HRA.
(B) Conclusion. The same terms
requirement of paragraph (c)(3) of this
section is satisfied in this paragraph (f)(2)(i)
(Example 1) because, under the special rule
for new hires in paragraph (d)(5) of this
section, the employees newly hired on and
after January 1, 2022, may be treated as a new
hire subclass, Plan Sponsor A offers the HRA
on the same terms to all participants in the
new hire subclass, and the minimum class
size requirement does not apply to the new
hire subclass.
(ii) Example 2: Application of special rule
for new hires to full-time employees—(A)
Facts. For 2021, Plan Sponsor B offers a
traditional group health plan to its full-time
employees and does not offer any coverage to
its part-time employees. For 2022, Plan
Sponsor B offers full-time employees hired
on or after January 1, 2022, an HRA on the
same terms, continues to offer its full-time
employees hired before that date a traditional
group health plan, and continues to offer no
coverage to its part-time employees. On the
first day of the 2022 plan year, Plan Sponsor
B has 2 new hire, full-time employees who
are offered the HRA.
(B) Conclusion. The same terms
requirement of paragraph (c)(3) of this
section is satisfied in this paragraph (f)(2)(ii)
(Example 2) because, under the special rule
for new hires in paragraph (d)(5) of this
section, the full-time employees newly hired
on and after January 1, 2022, may be treated
as a new hire subclass and Plan Sponsor B
offers the HRA on the same terms to all
participants in the new hire subclass. The
minimum class size requirement does not
apply to the new hire subclass.
(iii) Example 3: Special rule for new hires
impermissibly applied retroactively—(A)
Facts. For 2025, Plan Sponsor C offers a
traditional group health plan to its full-time
employees. For 2026, Plan Sponsor C wants
to offer an HRA to its full-time employees
hired on and after January 1, 2023, while
continuing to offer a traditional group health
plan to its full-time employees hired before
January 1, 2023.
(B) Conclusion. The special rule for new
hires under paragraph (d)(5) of this section
does not apply in this paragraph (f)(2)(iii)
(Example 3) because the rule must be applied
prospectively. That is, Plan Sponsor C may
not, in 2026, choose to apply the special rule
for new hires retroactive to 2023. If Plan
Sponsor C were to offer an HRA in this way,
it would fail to satisfy the conditions under
paragraphs (c)(2) and (3) of this section
because the new hire subclass would not be
treated as a subclass for purposes of applying
those rules and, therefore, all full-time
employees would be treated as one class to
which either a traditional group health plan
or an HRA could be offered, but not both.
(iv) Example 4: Permissible second
application of the special rule for new hires
to the same class of employees—(A) Facts.
For 2021, Plan Sponsor D offers all of its full-
time employees a traditional group health
plan. For 2022, Plan Sponsor D applies the
special rule for new hires and offers an HRA
on the same terms to all employees hired on
and after January 1, 2022, and continues to
offer a traditional group health plan to full-
time employees hired before that date. For
2025, Plan Sponsor D discontinues use of the
special rule for new hires, and again offers
all full-time employees a traditional group
health plan. In 2030, Plan Sponsor D decides
to apply the special rule for new hires to the
full-time employee class again, offering an
HRA to all full-time employees hired on and
after January 1, 2030, on the same terms,
while continuing to offer employees hired
before that date a traditional group health
plan.
(B) Conclusion. Plan Sponsor D has
permissibly applied the special rule for new
hires and is in compliance with the
requirements of paragraphs (c)(2) and (3) of
this section.
(v) Example 5: Impermissible second
application of the special rule for new hires
to the same class of employees—(A) Facts.
The facts are the same as in paragraph
(f)(2)(iv) of this section (Example 4), except
that for 2025, Plan Sponsor D discontinues
use of the special rule for new hires by
offering all full-time employees an HRA on
the same terms. Further, for 2030, Plan
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Sponsor D wants to continue to offer an HRA
on the same terms to all full-time employees
hired before January 1, 2030, and to offer all
full-time employees hired on or after January
1, 2030, an HRA in a different amount.
(B) Conclusion. Plan Sponsor D may not
apply the special rule for new hires for 2030
to the class of full-time employees being
offered an HRA because the special rule for
new hires may only be applied to a class that
is being offered a traditional group health
plan.
(vi) Example 6: New full-time employees
offered different HRAs in different rating
areas—(A) Facts. Plan Sponsor E has work
sites in rating area 1, rating area 2, and rating
area 3. For 2021, Plan Sponsor E offers its
full-time employees a traditional group
health plan. For 2022, Plan Sponsor E offers
its full-time employees hired on or after
January 1, 2022, in rating area 1 an HRA of
$3,000, its full-time employees hired on or
after January 1, 2022, in rating area 2 an HRA
of $5,000, and its full-time employees hired
on or after January 1, 2022, in rating area 3
an HRA of $7,000. Within each class offered
an HRA, Plan Sponsor E offers the HRA on
the same terms. Plan Sponsor E offers its full-
time employees hired prior to January 1,
2022, in each of those classes a traditional
group health plan. On the first day of the
2022 plan year, there is one new hire, full-
time employee in rating area 1, three new
hire, full-time employees in rating area 2, and
10 new hire-full-time employees in rating
area 3.
(B) Conclusion. The same terms
requirement of paragraph (c)(3) of this
section is satisfied in this paragraph (f)(2)(vi)
(Example 6) because, under the special rule
for new hires in paragraph (d)(5) of this
section, the full-time employees in each of
the three rating areas newly hired on and
after January 1, 2022, may be treated as three
new hire subclasses and Plan Sponsor E
offers the HRA on the same terms to all
participants in the new hire subclasses.
Further, the minimum class size requirement
does not apply to the new hire subclasses.
(vii) Example 7: New full-time employee
class subdivided based on rating area—(A)
Facts. Plan Sponsor F offers its full-time
employees hired on or after January 1, 2022,
an HRA on the same terms and it continues
to offer its full-time employees hired before
that date a traditional group health plan. Plan
Sponsor F offers no coverage to its part-time
employees. For the 2025 plan year, Plan
Sponsor F wants to subdivide the full-time
new hire subclass so that those whose work
site is in rating area 1 will be offered the
traditional group health plan and those
whose work site is in rating area 2 will
continue to receive the HRA. Plan Sponsor F
reasonably expects to employ 219 employees
on January 1, 2025. As of January 1, 2025,
Plan Sponsor F has 15 full-time employees
whose work site in in rating area 2 and who
were hired between January 1, 2022, and
January 1, 2025.
(B) Conclusion. The same terms
requirement of paragraph (c)(3) of this
section is not satisfied in this paragraph
(f)(2)(vii) (Example 7) because the new hire
subclass has been subdivided in a manner
that is subject to the minimum class size
requirement, and the class offered the HRA
fails to satisfy the minimum class size
requirement. Specifically, once the new hire
subclass is subdivided the general rules for
applying the minimum class size
requirement apply to the employees offered
the HRA in the new hire subclass. In this
case, because the subdivision of the new hire
full-time subclass is based on rating areas; a
class based on rating areas is an applicable
class subject to the minimum class size
requirement; and the employees in one rating
area are to be offered the HRA, while the
employees in the other rating area are offered
the traditional group health plan, the
minimum class size requirement would
apply on and after the date of the
subdivision. Further, the minimum class size
requirement would not be satisfied, because
the applicable class size minimum for Plan
Sponsor F would be 20, and only 15
employees in rating area 2 would be offered
the HRA.
(viii) Example 8: New full-time employee
class subdivided based on state—(A) Facts.
The facts are the same as in paragraph
(f)(2)(vii) of this section (Example 7), except
that for the 2025 plan year, Plan Sponsor F
intends to subdivide the new hire, full-time
class so that those in State 1 will be offered
the traditional group health plan and those
in State 2 will each be offered an HRA on the
same terms.
(B) Conclusion. The same terms
requirement of paragraph (c)(3) of this
section is satisfied in this paragraph
(f)(2)(viii) (Example 8) because even though
the new hire subclass has been subdivided,
it has been subdivided in a manner that is
not subject to the minimum class size
requirement as the subdivision is based on
the entire state.
(ix) Example 9: New full-time employees
and part-time employees offered HRA—(A)
Facts. In 2021, Plan Sponsor G offers its full-
time employees a traditional group health
plan and does not offer coverage to its part-
time employees. For the 2022 plan year, Plan
Sponsor G offers its full-time employees
hired on or after January 1, 2022, and all of
its part-time employees, including those
hired before January 1, 2022, and those hired
on and after January 1, 2022, an HRA on the
same terms, and it continues to offer its full-
time employees hired before January 1, 2022,
a traditional group health plan.
(B) Conclusion. The minimum class size
requirement applies to the part-time
employees offered the HRA in 2022 because
the class is being offered an HRA; the special
rule for new hires does not apply (because
this class was not previously offered a
traditional group health plan) and so it is not
a new hire subclass exempt from the
minimum class size requirement; another
class of employees (that is, full-time hired
before January 1, 2022) are being offered a
traditional group health plan; and the part-
time employee class is generally an
applicable classes that is subject to the
minimum class size requirement. However,
because the full-time, new hire subclass is
based on the special rule for new hires, the
minimum class size requirement does not
apply to full-time new hires offered an HRA
in 2022.
(g) Applicability date. This section
applies to plan years beginning on or
after January 1, 2020.
20. Section 146.145 is amended by
revising paragraph (b)(3)(i) and adding
paragraph (b)(3)(viii) to read as follows:
§ 146.145 Special rules relating to group
health plans.
* * * * *
(b) * * *
(3) * * *
(i) In general. Limited-scope dental
benefits, limited-scope vision benefits,
or long-term care benefits are excepted
if they are provided under a separate
policy, certificate, or contract of
insurance, or are otherwise not an
integral part of a group health plan as
described in paragraph (b)(3)(ii) of this
section. In addition, benefits provided
under a health flexible spending
arrangement (health FSA) are excepted
benefits if they satisfy the requirements
of paragraph (b)(3)(v) of this section;
benefits provided under an employee
assistance program are excepted benefits
if they satisfy the requirements of
paragraph (b)(3)(vi) of this section;
benefits provided under limited
wraparound coverage are excepted
benefits if they satisfy the requirements
of paragraph (b)(3)(vii) of this section;
and benefits provided under a health
reimbursement arrangement or other
account-based group health plan, other
than a health FSA, are excepted benefits
if they satisfy the requirements of
paragraph (b)(3)(viii) of this section.
* * * * *
(viii) Health reimbursement
arrangements (HRAs) and other
account-based group health plans.
Benefits provided under an HRA or
other account-based group health plan,
other than a health FSA, are excepted if
they satisfy all of the requirements of
this paragraph (b)(3)(viii). See paragraph
(b)(3)(v) of this section for the
circumstances in which benefits
provided under a health FSA are
excepted benefits. For purposes of this
paragraph (b)(3)(viii), the term ‘‘HRA or
other account-based group health plan’’
has the same meaning as ‘‘account-
based group health plan’’ set forth in
§ 147.126(d)(6)(i) of this subchapter,
except that the term does not include
health FSAs. For ease of reference, an
HRA or other account-based group
health plan that satisfies the
requirements of this paragraph
(b)(3)(viii) is referred to as an excepted
benefit HRA.
(A) Otherwise not an integral part of
the plan. Other group health plan
coverage that is not limited to excepted
benefits and that is not an HRA or other
account-based group health plan must
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be made available by the same plan
sponsor for the plan year to the
participant.
(B) Benefits are limited in amount
(1) Limit on annual amounts made
available. The amounts newly made
available for each plan year under the
HRA or other account-based group
health plan do not exceed $1,800. In the
case of any plan year beginning after
December 31, 2020, the dollar amount
in the preceding sentence shall be
increased by an amount equal to such
dollar amount multiplied by the cost-of-
living adjustment. The cost of living
adjustment is the percentage (if any) by
which the C–CPI–U for the preceding
calendar year exceeds the C–CPI–U for
calendar year 2019. The term ‘‘C–CPI–
U’’ means the Chained Consumer Price
Index for All Urban Consumers as
published by the Bureau of Labor
Statistics of the Department of Labor.
The C–CPI–U for any calendar year is
the average of the C–CPI–U as of the
close of the 12-month period ending on
March 31 of such calendar year. The
values of the C–CPI–U used for any
calendar year shall be the latest values
so published as of the date on which the
Bureau publishes the initial value of the
C–CPI–U for the month of March for the
preceding calendar year. Any such
increase that is not a multiple of $50
shall be rounded down to the next
lowest multiple of $50. The Department
of the Treasury and the Internal
Revenue Service will publish the
adjusted amount for plan years
beginning in any calendar year no later
than June 1 of the preceding calendar
year.
(2) Carryover amounts. If the terms of
the HRA or other account-based group
health plan allow unused amounts to be
made available to participants and
dependents in later plan years, such
carryover amounts are disregarded for
purposes of determining whether
benefits are limited in amount.
(3) Multiple HRAs or other account-
based group health plans. If the plan
sponsor provides more than one HRA or
other account-based group health plan
to the participant for the same time
period, the amounts made available
under all such plans are aggregated to
determine whether the benefits are
limited in amount, except that HRAs or
other account-based group health plans
that reimburse only excepted benefits
are not included in determining
whether the benefits are limited in
amount.
(C) Prohibition on reimbursement of
certain health insurance premiums. The
HRA or other account-based group
health plan must not reimburse
premiums for individual health
insurance coverage, group health plan
coverage (other than COBRA
continuation coverage or other
continuation coverage), or Medicare Part
A, B, C, or D, except that the HRA or
other account-based group health plan
may reimburse premiums for such
coverage that consists solely of excepted
benefits. See also, paragraph
(b)(3)(viii)(F) of this section.
(D) Uniform availability. The HRA or
other account-based group health plan
is made available under the same terms
to all similarly situated individuals, as
defined in § 146.121(d), regardless of
any health factor (as described in
§ 146.121(a)).
(E) [Reserved]
(F) Special rule. The HRA or other
account-based group health plan must
not reimburse premiums for short-term,
limited-duration insurance (as defined
in § 144.103 of this subchapter) if the
conditions of this paragraph
(b)(3)(viii)(F) are satisfied.
(1) The HRA or other account-based
group health plan is offered by a small
employer (as defined in PHS Act section
2791(e)(4)).
(2) The other group health plan
coverage offered by the employer
pursuant to paragraph (b)(3)(viii)(A) of
this section is either fully-insured or
partially-insured.
(3) The Secretary makes a finding, in
consultation with the Secretaries of
Labor and the Treasury, that the
reimbursement of premiums for short-
term, limited-duration insurance by
excepted benefit HRAs has caused
significant harm to the small group
market in the state that is the principal
place of business of the small employer.
(4) The finding by the Secretary is
made after submission of a written
recommendation by the applicable state
authority of such state, in a form and
manner specified by HHS. The written
recommendation must include evidence
that the reimbursement of premiums for
short-term, limited-duration insurance
by excepted benefit HRAs established
by insured or partially-insured small
employers in the state has caused
significant harm to the state’s small
group market, including with respect to
premiums.
(5) The restriction shall be imposed or
discontinued by publication by the
Secretary of a notice in the Federal
Register and shall apply only
prospectively and with a reasonable
time for plan sponsors to comply.
* * * * *
PART 147—HEALTH INSURANCE
REFORM REQUIREMENTS FOR THE
GROUP AND INDIVIDUAL HEALTH
INSURANCE MARKETS
21. The authority citation for part 147
is revised to read as follows:
Authority: 42 U.S.C. 300gg through 300gg–
63, 300gg–91, and 300gg–92, as amended.
22. Section 147.126 is amended by
revising paragraphs (c), (d), and (e) to
read as follows:
§ 147.126 No Lifetime or annual limits.
* * * * *
(c) Definition of essential health
benefits. The term ‘‘essential health
benefits’’ means essential health
benefits under section 1302(b) of the
Patient Protection and Affordable Care
Act and applicable regulations. For the
purpose of this section, a group health
plan or a health insurance issuer that is
not required to provide essential health
benefits under section 1302(b) must
define ‘‘essential health benefits’’ in a
manner that is consistent with the
following:
(1) For plan years beginning before
January 1, 2020, one of the EHB-
benchmark plans applicable in a State
under § 156.110 of this subchapter, and
including coverage of any additional
required benefits that are considered
essential health benefits consistent with
§ 155.170(a)(2) of this subchapter, or one
of the three Federal Employees Health
Benefits Program (FEHBP) plan options
as defined by § 156.100(a)(3) of this
subchapter, supplemented as necessary,
to satisfy the standards in § 156.110 of
this subchapter; or
(2) For plan years beginning on or
after January 1, 2020, an EHB-
benchmark plan selected by a State in
accordance with the available options
and requirements for EHB-benchmark
plan selection at § 156.111 of this
subchapter, including an EHB-
benchmark plan in a State that takes no
action to change its EHB-benchmark
plan and thus retains the EHB-
benchmark plan applicable in that State
for the prior year in accordance with
§ 156.111(d)(1) of this subchapter, and
including coverage of any additional
required benefits that are considered
essential health benefits consistent with
§ 155.170(a)(2) of this subchapter.
(d) Health reimbursement
arrangements (HRAs) and other
account-based group health plans—(1)
In general. If an HRA or other account-
based group health plan is integrated
with another group health plan or
individual health insurance coverage
and the other group health plan or
individual health insurance coverage, as
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applicable, separately is subject to and
satisfies the requirements in PHS Act
section 2711 and paragraph (a)(2) of this
section, the fact that the benefits under
the HRA or other account-based group
health plan are limited does not cause
the HRA or other account-based group
health plan to fail to satisfy the
requirements of PHS Act section 2711
and paragraph (a)(2) of this section.
Similarly, if an HRA or other account-
based group health plan is integrated
with another group health plan or
individual health insurance coverage
and the other group health plan or
individual health insurance coverage, as
applicable, separately is subject to and
satisfies the requirements in PHS Act
section 2713 and § 147.130(a)(1) of this
subchapter, the fact that the benefits
under the HRA or other account-based
group health plan are limited does not
cause the HRA or other account-based
group health plan to fail to satisfy the
requirements of PHS Act section 2713
and § 147.130(a)(1) of this subchapter.
For the purpose of this paragraph (d), all
individual health insurance coverage,
except for coverage that consists solely
of excepted benefits, is treated as being
subject to and complying with PHS Act
sections 2711 and 2713.
(2) Requirements for an HRA or other
account-based group health plan to be
integrated with another group health
plan. An HRA or other account-based
group health plan is integrated with
another group health plan for purposes
of PHS Act section 2711 and paragraph
(a)(2) of this section if it satisfies the
requirements under one of the
integration methods set forth in
paragraph (d)(2)(i) or (ii) of this section.
For purposes of the integration methods
under which an HRA or other account-
based group health plan is integrated
with another group health plan,
integration does not require that the
HRA or other account-based group
health plan and the other group health
plan with which it is integrated share
the same plan sponsor, the same plan
document or governing instruments, or
file a single Form 5500, if applicable.
An HRA or other account-based group
health plan integrated with another
group health plan for purposes of PHS
Act section 2711 and paragraph (a)(2) of
this section may not be used to purchase
individual health insurance coverage
unless that coverage consists solely of
excepted benefits, as defined in
§ 148.220 of this subchapter.
(i) Method for integration with a
group health plan: Minimum value not
required. An HRA or other account-
based group health plan is integrated
with another group health plan for
purposes of this paragraph (d) if:
(A) The plan sponsor offers a group
health plan (other than the HRA or other
account-based group health plan) to the
employee that does not consist solely of
excepted benefits;
(B) The employee receiving the HRA
or other account-based group health
plan is actually enrolled in a group
health plan (other than the HRA or other
account-based group health plan) that
does not consist solely of excepted
benefits, regardless of whether the plan
is offered by the same plan sponsor
(referred to as non-HRA group
coverage);
(C) The HRA or other account-based
group health plan is available only to
employees who are enrolled in non-
HRA group coverage, regardless of
whether the non-HRA group coverage is
offered by the plan sponsor of the HRA
or other account-based group health
plan (for example, the HRA may be
offered only to employees who do not
enroll in an employer’s group health
plan but are enrolled in other non-HRA
group coverage, such as a group health
plan maintained by the employer of the
employee’s spouse);
(D) The benefits under the HRA or
other account-based group health plan
are limited to reimbursement of one or
more of the following—co-payments, co-
insurance, deductibles, and premiums
under the non-HRA group coverage, as
well as medical care expenses that do
not constitute essential health benefits
as defined in paragraph (c) of this
section; and
(E) Under the terms of the HRA or
other account-based group health plan,
an employee (or former employee) is
permitted to permanently opt out of and
waive future reimbursements from the
HRA or other account-based group
health plan at least annually and, upon
termination of employment, either the
remaining amounts in the HRA or other
account-based group health plan are
forfeited or the employee is permitted to
permanently opt out of and waive future
reimbursements from the HRA or other
account-based group health plan (see
paragraph (d)(3) of this section for
additional rules regarding forfeiture and
waiver).
(ii) Method for integration with
another group health plan: Minimum
value required. An HRA or other
account-based group health plan is
integrated with another group health
plan for purposes of this paragraph (d)
if:
(A) The plan sponsor offers a group
health plan (other than the HRA or other
account-based group health plan) to the
employee that provides minimum value
pursuant to section 36B(c)(2)(C)(ii) of
the Code (and its implementing
regulations and applicable guidance);
(B) The employee receiving the HRA
or other account-based group health
plan is actually enrolled in a group
health plan (other than the HRA or other
account-based group health plan) that
provides minimum value pursuant to
section 36B(c)(2)(C)(ii) of the Code (and
applicable guidance), regardless of
whether the plan is offered by the plan
sponsor of the HRA or other account-
based group health plan (referred to as
non-HRA MV group coverage);
(C) The HRA or other account-based
group health plan is available only to
employees who are actually enrolled in
non-HRA MV group coverage, regardless
of whether the non-HRA MV group
coverage is offered by the plan sponsor
of the HRA or other account-based
group health plan (for example, the
HRA may be offered only to employees
who do not enroll in an employer’s
group health plan but are enrolled in
other non-HRA MV group coverage,
such as a group health plan maintained
by an employer of the employee’s
spouse); and
(D) Under the terms of the HRA or
other account-based group health plan,
an employee (or former employee) is
permitted to permanently opt out of and
waive future reimbursements from the
HRA or other account-based group
health plan at least annually, and, upon
termination of employment, either the
remaining amounts in the HRA or other
account-based group health plan are
forfeited or the employee is permitted to
permanently opt out of and waive future
reimbursements from the HRA or other
account-based group health plan (see
paragraph (d)(3) of this section for
additional rules regarding forfeiture and
waiver).
(3) Forfeiture. For purposes of
integration under paragraphs (d)(2)(i)(E)
and (d)(2)(ii)(D) of this section,
forfeiture or waiver occurs even if the
forfeited or waived amounts may be
reinstated upon a fixed date, a
participant’s death, or the earlier of the
two events (the reinstatement event).
For the purpose of this paragraph (d)(3),
coverage under an HRA or other
account-based group health plan is
considered forfeited or waived prior to
a reinstatement event only if the
participant’s election to forfeit or waive
is irrevocable, meaning that, beginning
on the effective date of the election and
through the date of the reinstatement
event, the participant and the
participant’s beneficiaries have no
access to amounts credited to the HRA
or other account-based group health
plan. This means that upon and after
reinstatement, the reinstated amounts
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under the HRA or other account-based
group health plan may not be used to
reimburse or pay medical care expenses
incurred during the period after
forfeiture and prior to reinstatement.
(4) Requirements for an HRA or other
account-based group health plan to be
integrated with individual health
insurance coverage or Medicare Part A
and B or Medicare Part C. An HRA or
other account-based group health plan
is integrated with individual health
insurance coverage or Medicare Part A
and B or Medicare Part C (and treated
as complying with PHS Act sections
2711 and 2713) if the HRA or other
account-based group health plan
satisfies the requirements of § 146.123(c)
of this subchapter (as modified by
§ 146.123(e), for HRAs or other account-
based group health plans integrated
with Medicare Part A and B or Medicare
Part C).
(5) Integration with Medicare Part B
and D. For employers that are not
required to offer their non-HRA group
health plan coverage to employees who
are Medicare beneficiaries, an HRA or
other account-based group health plan
that may be used to reimburse
premiums under Medicare Part B or D
may be integrated with Medicare (and
deemed to comply with PHS Act
sections 2711 and 2713) if the following
requirements are satisfied with respect
to employees who would be eligible for
the employer’s non-HRA group health
plan but for their eligibility for Medicare
(and the integration rules under
paragraphs (d)(2)(i) and (ii) of this
section continue to apply to employees
who are not eligible for Medicare):
(i) The plan sponsor offers a group
health plan (other than the HRA or other
account-based group health plan and
that does not consist solely of excepted
benefits) to employees who are not
eligible for Medicare;
(ii) The employee receiving the HRA
or other account-based group health
plan is actually enrolled in Medicare
Part B or D;
(iii) The HRA or other account-based
group health plan is available only to
employees who are enrolled in
Medicare Part B or D; and
(iv) The HRA or other account-based
group health plan complies with
paragraphs (d)(2)(i)(E) and (d)(2)(ii)(D)
of this section.
(6) Definitions. The following
definitions apply for purposes of this
section.
(i) Account-based group health plan.
An account-based group health plan is
an employer-provided group health plan
that provides reimbursements of
medical care expenses with the
reimbursement subject to a maximum
fixed dollar amount for a period. An
HRA is a type of account-based group
health plan. An account-based group
health plan does not include a qualified
small employer health reimbursement
arrangement, as defined in section
9831(d)(2) of the Code.
(ii) Medical care expenses. Medical
care expenses means expenses for
medical care as defined under section
213(d) of the Code.
(e) Applicability date. The provisions
of this section are applicable to group
health plans and health insurance
issuers for plan years beginning on or
after January 1, 2020. Until the
applicability date for this section, plans
and issuers are required to continue to
comply with the corresponding sections
of this subchapter B, contained in the 45
CFR, subtitle A, parts 1–199, revised as
of October 1, 2018.
PART 155—EXCHANGE
ESTABLISHMENT STANDARDS AND
OTHER RELATED STANDARDS
UNDER THE AFFORDABLE CARE ACT
23. The authority citation for part 155
is revised to read as follows:
Authority: 42 U.S.C. 18021–18024, 18031–
18033, 18041–18042, 18051, 18054, 18071,
and 18081–18083.
24. Section 155.420 is amended
a. By revising paragraph (a)(4)(iii)
introductory text;
b. By adding paragraph (b)(2)(vi);
c. By redesignating paragraph (c)(3) as
paragraph (c)(4); By adding a new
paragraph (c)(3);
d. In paragraph (d)(12) by removing ‘‘;
or’’ and adding ‘‘;’’ in its place;
e. In paragraph (d)(13) by removing
the period at the end of the paragraph
and adding ‘‘; or’’ in its place; and
f. By adding paragraph (d)(14).
The revisions and additions read as
follows:
§ 155.420 Special enrollment periods.
* * * * *
(a) * * *
(4) * * *
(iii) For the other triggering events
specified in paragraph (d) of this
section, except for paragraphs (d)(2)(i),
(d)(4), and (d)(6)(i) and (ii) of this
section for becoming newly eligible for
cost-sharing reductions, and paragraphs
(d)(8), (9), (10), (12), and (14) of this
section:
* * * * *
(b) * * *
(2) * * *
(vi) If a qualified individual, enrollee,
or dependent newly gains access to an
individual coverage HRA or is newly
provided a QSEHRA, each as described
in paragraph (d)(14) of this section, and
if the plan selection is made before the
day of the triggering event, the Exchange
must ensure that coverage is effective on
the first day of the month following the
date of the triggering event or, if the
triggering event is on the first day of a
month, on the date of the triggering
event. If the plan selection is made on
or after the day of the triggering event,
the Exchange must ensure that coverage
is effective on the first day of the month
following plan selection.
* * * * *
(c) * * *
(3) Advanced availability for
individuals with an individual coverage
HRA or QSEHRA. A qualified
individual, enrollee, or his or her
dependent who is described in
paragraph (d)(14) of this section has 60
days before the triggering event to select
a QHP, unless the HRA or QSEHRA was
not required to provide the notice
setting forth its terms to such individual
or enrollee at least 90 days before the
beginning of the plan year, as specified
in 45 CFR 146.123(c)(6), 26 CFR
54.9802–4(c)(6), and 29 CFR 2590.702–
2(c)(6) or section 9831(d)(4) of the
Internal Revenue Code, as applicable, in
which case the qualified individual,
enrollee, or his or her dependent has 60
days before or after the triggering event
to select a QHP.
* * * * *
(d) * * *
(14) The qualified individual,
enrollee, or dependent newly gains
access to an individual coverage HRA
(as defined in 45 CFR 146.123(b)) or is
newly provided a qualified small
employer health reimbursement
arrangement (QSEHRA) (as defined in
section 9831(d)(2) of the Internal
Revenue Code). The triggering event is
the first day on which coverage for the
qualified individual, enrollee, or
dependent under the individual
coverage HRA can take effect, or the first
day on which coverage under the
QSEHRA takes effect. An individual,
enrollee, or dependent will qualify for
this special enrollment period
regardless of whether they were
previously offered or enrolled in an
individual coverage HRA or previously
provided a QSEHRA, so long as the
individual, enrollee, or dependent is not
enrolled in the individual coverage HRA
or covered by the QSEHRA on the day
immediately prior to the triggering
event.
* * * * *
[FR Doc. 2019–12571 Filed 6–13–19; 4:15 pm]
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