As October gets closer, a lot of views are surfacing. However, one provision of the Affordable Care Act hasn’t garnered much attention but it does need some serious thought—the Health Reimbursement Arrangement (HRA). The subject of what will become of HRAs in the advent of healthcare reforms seems a bit confusing. To address this, we will first summarize the traditional role of HRAs and then discuss how HRAs are affected by the ACA.
Deciphering the Traditional HRA
In 202, the IRS created the HRA, which allowed employers to offer defined, pre-tax dollar benefit to their employees. The HRA is essentially an employer-funded contribution for covering employees’ expenses for healthcare services. HRAs have gained widespread presence in the last decade but to some extent, they have been criticized too, mainly because they are often coupled with high-deductible, group health insurance plans.
At the end of the plan year, all unused monies are carried over into the new plan year. The simplest type of an HRA, called Stand-Alone HRA, is commonly offered to retirees. The group HRA plan is more common and a fit for medium to large organizations. It typically is incorporated as a part of the company’s overall group health insurance plans and has an annual limit.
Explaining the Issue: How HRAs Challenge ACA
A problem can exist if the traditional HRAs’ ACA-compatibility is evaluated, due to Section 2711 of the Public Health Services Act. This section prohibits health plans from placing annual or lifetime dollar limits. Since HRAs offer a defined amount of coverage, they contradict Section 2711. When such HRAs are integrated with other health plans, they can escape violating section 2711, i.e. as long as the group health plan doesn’t impose annual coverage limits. On the other hand, if the employer doesn’t offer HRA and the employee buys subsidized health insurance from the state health insurance marketplace, the employer will be subject to penalties.
Relief in the form of HRA Waivers
The Health and Human Services (HHS) has offered a waiver to employer-contributed health insurance plans with annual limit that began on or after September 23, 2011. Furthermore, HHS has exempted some of the HRA-inclusive group health plans from requesting a waiver by issuing a guidance that states all HRAs that came into effect prior to September 23, 2010 don’t need to individually apply for annual limit waivers during the phase-in period that extends up to January 2014. However, the annual limits should be progressively increased during the phase-in period and ultimately the no-limit rule will take effect. Plans that begin on or after January 1, 2014 will have the no annual limit mandate imposed upon them.