The Departments clarify that they consider benefits under an EAP to constitute excepted benefits only if the EAP does not provide significant benefits in the nature of medical care or treatment (to learn more about excepted benefits, see Practice Note, Summaries of Benefits and Coverage under the ACA: SBC Requirement and Excepted Benefits, Health FSAs, HRAs and HSAs: Excepted Benefits). To make this determination, employers may use a reasonable, good faith interpretation of whether an EAP provides significant benefits in the nature of medical care or treatment.

The Departments intend to issue regulations adopting this test for whether an EAP's benefits are excepted benefits. However, Notice 2013-54 and Technical Release 2013-03 apply:

Under the January 2013 FAQs, employer-sponsored HRAs cannot be integrated with individual market coverage, and an HRA used to purchase coverage on the individual market will therefore fail to comply with the ACA's annual dollar limit prohibition (see Practice Note, Lifetime Limits, Annual Limits, and Essential Health Benefits Under the ACA). In the guidance, the Departments clarify that group health plans, including HRAs, that are used to purchase coverage on the individual market similarly are not integrated with that individual market coverage for purposes of the annual dollar limit prohibition.

The Departments provided the example of a group health plan, such as an employer payment plan, that reimburses employees for an employee's substantiated individual insurance policy premiums. The employer payment plan will not comply with the annual dollar limit prohibition because it:

The ACA's preventive services rules require plans and insurers to provide coverage for certain preventive services without imposing cost-sharing requirements, such as co-payments, co-insurance or deductibles (see Practice Notes, Coverage of Preventive Health Services Under the ACA and Cost-Sharing Restrictions Under the ACA). Under the guidance, an HRA that is integrated with a group health plan complies with the preventive services requirements if the group health plan coverage itself complies with the preventive services requirements.

The Departments explain that an HRA is integrated with a group health plan for purposes of the annual dollar limit prohibition and preventive services requirements if it meets the requirements under either of two integration methods described in the guidance.

Under both of the methods, integration does not require that the HRA and the coverage with which it is integrated:

The guidance addresses whether an employee who is covered by both an HRA and a group health plan with which the HRA is integrated, but who then ceases to be covered under the group health plan, can use the remaining amounts. Regardless of whether the HRA is integrated with another group health plan, unused amounts that were credited to an HRA while the HRA was integrated with other group health plan coverage may be used to reimburse medical expenses (consistent with the HRA's terms), after the employee is no longer covered under group health plan. Using remaining amounts in this manner does not cause the HRA to fail to comply with the annual dollar limit prohibition or the preventive services requirements.

In general, an HRA integrated with a group health plan violates the ACA's annual dollar limit prohibition if:

According to the Departments, this situation should not arise for a group health plan funded through non-grandfathered health insurance coverage in the small group market, because small group market plans generally must cover all categories of EHBs.

In this context, the guidance also addresses the integration method available for plans that provide MV (see Minimum Value Required). Specifically, an HRA that is integrated with a group health plan providing MV will not be treated as imposing an annual limit in violation of the annual dollar limit prohibition, even if:

Health FSAs that are considered to provide only excepted benefits are not subject to the ACA's annual dollar limit prohibition and preventive services requirements. However, if an employer provides a health FSA that does not qualify as excepted benefits, the health FSA generally is subject to the annual dollar limit prohibition and preventive services requirements. Also, because a health FSA that is not excepted benefits is not integrated with a group health plan, it will fail to meet the preventive services requirements.

The guidance addresses questions regarding whether HRAs that are not integrated with a group health plan may be treated as a health FSA under applicable Internal Revenue Code (Code) rules. The Departments note that under Notice 2002-45, (2002), an HRA is a health FSA if the maximum amount of reimbursement reasonably available to a participant under an HRA does not substantially exceed the value of coverage under the HRA. Also, the Departments are considering whether an HRA may be treated as a health FSA for purposes of the exclusion from the annual dollar limit prohibition. However, the treatment of an HRA as a health FSA that is not excepted benefits would not exempt the HRA from compliance with the preventive services requirements, among other ACA provisions, which the HRA would fail to meet because the HRA would not be integrated with a group health plan. This analysis applies even if an HRA reimburses only premiums.

The Departments clarify that an exemption from the annual dollar limit prohibition for health FSAs, under the final regulations for the annual dollar limit prohibition, does not apply to health FSAs that are not offered through cafeteria plans (see Practice Notes, Lifetime Limits, Annual Limits, and Essential Health Benefits Under the ACA and Cafeteria Plans). According to the Departments, this exemption applies only to health FSAs offered through a cafeteria plan, which are subject to a separate annual limit under Code Section 125(i). Because there is not a similar limit for health FSAs that are not part of a cafeteria plan, there is no reason to imply that they are not subject to the annual dollar limit prohibition.

To clarify this issue, the Departments plan to amend the annual dollar limit prohibition regulations retroactively applicable as of September 13, 2013. As a result, a health FSA that is not offered under a cafeteria plan is subject to the annual dollar limit prohibition.

The Departments clarify that an HRA with fewer than two participants who are current employees on the first day of the plan year, such as a retiree-only HRA, qualifies as MEC. Also, the annual dollar limit and preventive services requirements generally do not apply to a retiree-only HRA, and therefore would not impact an employer's choice to offer a retiree-only HRA.

The guidance offers a more detailed roadmap for when HRAs are considered adequately integrated with a group health plan for purposes of satisfying the annual limit prohibition and preventive services rules. Employers with stand-alone HRAs will need to determine whether they can integrate their HRAs with group health plan coverage using one of the integration methods provided. Though the various criteria under the two methods offered would appear to limit their usefulness, the Departments offered at least some flexibility by not requiring, for purposes of demonstrating HRA/group health plan integration, the same plan documents and plan sponsor or a single Form 5500 filing.