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New health reform guidance clarifies rules for pairing HRAs with exchanges

Feds draw roadmap for health care option

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New health reform guidance clarifies rules for pairing HRAs with exchanges

New federal regulatory guidance on the 2010 health care reform law eliminates uncertainties about how employers can pair a popular health care funding approach with one of the hottest benefits trends: having employees obtain coverage via private health insurance exchanges.

The guidance gives a roadmap on how health reimbursement arrangements can and can't be linked to policies employees obtain through private insurance exchanges.

Typically, HRAs are paired with high-deductible health care plans. An employer might credit an employee's HRA with perhaps $1,000 or $2,000.

Employees then could tap their HRA credits to pay for expenses that, for example, fall under the deductible of the linked health care plan. Credits that remain at the end of the plan year roll over for employees to use during the next plan year.

The design of HRAs — a set dollar credit provided by employers to cover a portion of employees' health care expenses — triggered questions from employers about how they would comply with a health care reform law provision that bans annual and lifetime dollar coverage limits on health care expenses.

Questions also were raised about whether employers could simply credit employees' HRAs with a specific amount of money to be used to buy coverage through private exchanges, without violating the ban on annual and lifetime dollar limits.

The departments of Health and Human Services, Labor, and Treasury now have made clear how employers can use these accounts without running afoul of the ban: As long as an account is “integrated” or linked with an employer group plan, the design would not run afoul of the reform law's prohibition of annual and lifetime dollar limits, regulators say.

“The HRA is OK if it is tied to a group plan,” said Chantel Sheaks, a principal with Buck Consultants L.L.C. in Washington

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On the other hand, if the account were linked to an individual health policy, the arrangement would not fly, regulators said.

Regulators said they intend “to issue guidance that an employer-sponsored HRA cannot be integrated with individual market coverage or with an employer plan that provides coverage through individual policies.”

That would rule out, for example, a health plan design in which employers would provide HRA credits for employees to use to purchase individual medical policies from private insurance exchanges.

As a practical matter, though, while employees select health insurance policies from private insurance exchanges, the policies are considered group policies sponsored by the employer.

In addition, exchange providers say employees typically pay for their share of the premium for the employer group health plan they select through payroll deduction, not with credits in their HRAs.

“That is not the design we use,” J.D. Piro, a senior vice president with Aon Hewitt in Norwalk, Conn., said, referring to an HRA premium payment approach. Aon Hewitt recently launched a private insurance exchange offering coverage for employees and their dependents.

Still, the new guidance will prevent an evolution in private health exchange design in which HRAs would be linked to individual health care policies as a way of further limiting employer involvement in providing coverage.

“They may have been heading in that direction, but that pathway seems to be closed off for now,” said Amy Bergner, a managing director with Pricewaterhouse-Coopers L.L.P. in Washington.

The regulatory guidance, though, has no bearing on retiree health care coverage. The health care reform law's ban on annual and lifetime dollar limits does not apply to health care plans only covering retirees.

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Separately, federal regulators made clear that self-funded health insurance plans are considered to offer “minimum essential coverage.”

It's a significant point for employers because, starting in 2014, a company will be charged $2,000 per full-time employee if their plans do not offer such coverage.

It also is an issue for employees and other individuals because they are liable for penalties if they do not enroll in a health care plan offering minimum essential coverage.

Regulators, in a notice of proposed rulemaking, said how a health care plan is funded is irrelevant in determining whether it offers minimum essential coverage.

Group health plans meet the minimum essential coverage standard, regulators said, if they are employer group health plans, “whether an insured group health plan or a self-insured group health plan.''

The issue arose due to language in the health care reform law that described plans offering minimum essential health coverage as a group health plan or group health insurance coverage, with no specific mention of self-funded health plans.

Paul Dennett, senior vice president for health care reform with the American Benefits Council in Washington, said, “Any lingering ambiguity has been eliminated. How a plan is funded” is irrelevant with regard to providing minimum essential coverage.