HRA Guidance Tied Employers' Hands, Has Some Re-Examining Plans, Attorneys Say

Employers hoping to offer health reimbursement arrangements to employees to give them money to spend on the Affordable Care Act health insurance marketplaces have found their hands tied following guidance issued Sept. 13 by the Internal Revenue Service and the Department of Labor, attorneys said during a session of the Groom Law Group's Employee Benefits Seminar.

The guidance, in IRS Notice 2013-54 and the nearly identical DOL Technical Release 2013-03, provided that a group health plan, including an HRA, used to purchase coverage on the individual market won't be considered as integrated with individual market coverage for the purposes of the annual dollar limit prohibition or for the preventive services requirements under the law.

“The IRS really does not want to make it easy for employers to send employees to the individual market because they feel like they want employers to continue what they're doing. They want [them] to continue to cover employees under their group health plan,” Christine L. Keller, a principal at Groom Law Group in Washington, said Oct. 16.

Members of the Obama administration have been vocal about their fears that employers “might start peeling off their sicker individuals, giving them incentives or monetary rewards for going and getting coverage elsewhere,” Keller said.

Regardless of the reasoning behind the guidance in the notice, employers “can't have a standalone health reimbursement arrangement unless you also have a group health plan. So you can't just start stuffing money into an HRA and sending people off,” she said.

‘Big Policy Choice.'

Jon W. Breyfogle, a principal at the Groom Law Group in Washington, called the stance taken by the IRS in the notice “a pretty big policy choice.”

Service providers and employers had indicated a strong interest in a defined contribution health care model in which they could “give people a fixed dollar amount in an HRA [and] let them go shop in the individual market and be done with it,” he said. In addition, employers were hoping they possibly could satisfy the ACA employer mandate if their HRA was generous enough, he said.

“I definitely think it's going to be an issue that's going to get revisited either legislatively with some interest particularly by Republicans to promote it, or even in future administrations because it was sort of a pure policy choice. It was not in the statute,” he said.

Keller said many employers have been “disappointed” by the notice's guidance and some plan administrators now have to re-examine their plans and “revisit arrangements that everybody thought really were perfectly fine before.”

Under the employer mandate, or employer shared-responsibility provisions under tax code Section 4980H, large employers could face penalties starting in 2015 if they fail to provide employees with health-care coverage that is affordable and provides minimum value.

Excerpted from a story that ran in Pension & Benefits Daily (10/16/2013).