Texas Attorney General Embraces Health Reimbursement Accounts

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By Jacklyn Wille

Small employers in Texas soon may have an easier time offering health reimbursement arrangements to their workers, under a new opinion letter from the state’s attorney general.

Certain Texas regulations of HRAs now may be invalid under a 2016 federal health law, Texas Attorney General Ken Paxton (R) wrote in a Feb. 13 opinion letter. The federal 21st Century Cures Act—which provides that certain HRAs offered by small employers don’t have to comply with federal requirements for group health plans—likely means the state’s more stringent regulation of HRAs is invalid because it interferes with the federal Employee Retirement Income Security Act, Paxton said.

The opinion letter is a victory for Republican state Sen. Charles Perry, who told the attorney general in 2017 that the state’s regulations were so strict they “essentially invalidate the practical effect of an HRA.” Under current Texas law, many HRAs offered by small employers are subject to insurance regulations for group health plans, including rules mandating which benefits must be offered and rules making the arrangements available to those in poor health. If courts agree with Perry that these provisions are now pre-empted by ERISA, small employers in Texas will be able to offer self-funded HRAs without jumping through as many legal hurdles.

HRAs are tax-advantaged accounts that allow employers to reimburse workers for medical expenses and health insurance premiums. The 21st Century Cures Act allows employers with fewer than 50 workers that don’t sponsor group health plans to offer HRAs that don’t have to comply with federal laws governing group health plans. In 2017, the Internal Revenue Service issued guidance on how employers can offer these arrangements.

The attorney general’s opinion letter reverses an earlier insurance department bulletin that was issued by a different attorney general before the Affordable Care Act was passed, Greta E. Cowart, an employee benefits attorney in Winstead PC’s Dallas office, said.

The creation of qualified small-employer HRAs in the 21st Century Cures Act was “carefully considered and addressed important issues such as whether the QSEHRAs were group health plans subject to the full ACA requirements (they are not) and whether they are ERISA plans,” Cowart told Bloomberg Law in an email.

“When health reimbursement accounts evolved into being around 2002, they arose out of Internal Revenue Service guidance in response to changes in the health care market prior to enactment of the ACA and without any statutory changes to clearly guide states to understand that these were employee welfare benefit plans under ERISA and self-insured,” Cowart said. “The new opinion comes to what I believe is the correct analysis and decision based on the new federal statutes creating and clarifying the status of QSEHRAs.”

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