Rules for QSEHRAs, EPPs, and HRAs at Issue in Latest FAQ Guidance

Practical Law Legal Update w-005-1120 (Approx. 6 pages)

Rules for QSEHRAs, EPPs, and HRAs at Issue in Latest FAQ Guidance

by Practical Law Employee Benefits & Executive Compensation

QSEHRAs

An FAQ addresses how the recently enacted 21-CCA impacts the Departments' prior guidance regarding health reimbursement arrangements (HRAs) and employer payment plans (EPPs). (For more information, see Practice Note, Defined Contribution Health Plans and, regarding the 21-CCA, see Legal Update, Legislation Addresses Mental Health Parity, Eating Disorders, HIPAA, and HRAs for Small Employers.) Under the Departments' prior guidance, which includes IRS Notice 2013-54 and DOL Technical Release 2013-03, the Departments had concluded that EPPs and HRAs are group health plans subject to the ACA's group market reforms, including the:

Prohibition on annual dollar limits (see Practice Note, Lifetime Limits, Annual Limits, and Essential Health Benefits Under the ACA).
Requirement to provide certain preventive services without cost-sharing (see Practice Notes, Preventive Health Services Under the ACA, Other Than Contraceptives and Contraceptives Coverage Under the ACA).

(Regarding IRS Notice 2013-54 and DOL Technical Release 2013-03, see Legal Update, Guidance Address the ACA's Impact on EAPs, HRAs, and Health FSAs.)

The prior guidance generally provided that EPPs and HRAs will fail to comply with these group market reforms because the arrangements, by definition, impose annual dollar limits on reimbursements or payments of medical expenses on an employee's behalf. The guidance provided that an HRA does not fail to meet the ACA's group market reforms if it is integrated with a group health plan that otherwise complies with the reforms under permitted integration methods.

Earlier this month, however, the 21-CCA included provisions allowing small employers to offer arrangements similar to an HRA or EPP that may be used to pay for or reimburse medical expenses (including coverage on the individual market). The 21-CCA provides for a new type of tax-preferred arrangement (that is, QSEHRAs) that small employers may use to help employees pay for medical expenses. Under the 21-CCA, QSEHRAs are not group health plans (regarding the requirements for QSEHRAs, see Legal Update, Legislation Addresses Mental Health Parity, Eating Disorders, HIPAA, and HRAs for Small Employers).

In its FAQ guidance, the Departments indicate that:

QSEHRAs, because they are statutorily excluded from the group health plan definition, are not subject to the group market reform requirements.
The Departments' prior guidance nonetheless continues to apply to EPPs and HRAs that do not qualify as QSEHRAs.

Prior Relief Applies for Plan Years Beginning in 2016, But Not for Stand-Alone HRAs

The statutory exclusion of QSEHRAs from the group health plan definition is effective for plan years beginning after December 31, 2016. However, for plan years beginning on or before December 31, 2016, the 21-CCA provides that relief under IRS Notice 2015-17 applies (for a discussion of Notice 2015-87, see Legal Update, IRS Guidance Addresses HRAs, COBRA, ACA Information Reporting, and TRICARE). Under Notice 2015-17, the Internal Revenue Code's (Code's) excise taxes for failures to meet the group health plan requirements will not be asserted regarding certain small employers that do not satisfy the market reforms by EPPs that pay, or reimburse employees for, individual health policy premiums or Medicare Part B or Part D premiums (26 U.S.C. § 4980D).

Although this relief was limited to periods before July 1, 2015, it was extended, under the 21-CCA, to apply for plan years beginning on or before December 31, 2016.

However, the relief does not extend to stand-alone HRAs or other arrangements that reimburse employees for medical expenses other than insurance premiums. In addition, as an employer-provided group health plan, coverage by an HRA or EPP that is not a QSEHRA and that is eligible for the extended relief under the 21-CCA would be minimum essential coverage. As a result, a premium tax credit is not allowed for the ACA exchange coverage of an employee (or individuals related to the employee), who is covered by an HRA or EPP other than a QSEHRA (26 U.S.C. § 36; see Article, Health Insurance Exchange and Related Requirements Under the ACA and Legal Update, IRS Finalizes Premium Tax Credit Rules, But Excluding Rules for Opt-Out Arrangements).

Updated Preventive Services Guidelines

In another FAQ, the Departments address when non-grandfathered group health plans and health insurers must begin offering coverage for preventive services without cost-sharing based on the updated Women's Preventive Services Guidelines (see Practice Notes, Preventive Health Services Under the ACA, Other Than Contraceptives: Covered Preventive Services and Grandfathered Health Plans Under the ACA). These guidelines were updated by the Health Resources and Services Administration (HRSA) on December 20, 2016.

According to the Departments, preventive services must be covered consistent with the updated guidelines for plan years beginning on or after December 20, 2017. Until the new guidelines apply, plans must provide preventive services coverage consistent with the previous HRSA guidelines and ACA preventive services rules for any items or services that continue to be recommended.

The updated preventive services guidelines were based on recommendations developed by the Women's Preventive Services Initiative (WPSI), a coalition of national health professional organizations and consumer and patient groups with expertise in women's health.

HIPAA Special Enrollment Following Loss of Individual Market Coverage

In another FAQ, the Departments indicated that if an individual who enrolled in individual market health insurance coverage (including coverage through an ACA exchange), loses eligibility for that coverage, the individual is entitled to a HIPAA special enrollment period in an employer's group health plan. (This assumes the individual is otherwise eligible under the employer's plan and previously declined to enroll in the plan.)

Employees and their dependents are eligible for special enrollment in a group health plan under these circumstances if:

They are otherwise eligible to enroll in the plan.
At the time coverage under the plan was previously offered, they had other group health plan coverage (whether obtained inside or outside of an ACA exchange) for which they later lost eligibility.

As a result, if an individual loses eligibility for coverage in the individual market (including coverage purchased through an exchange), the individual is entitled to special enrollment in group health plan coverage for which the individual is otherwise eligible. However, this rule excludes loss of eligibility due to either:

Failure to pay premiums on a timely basis.
Termination of coverage for cause (for example, making a fraudulent claim or an intentional misrepresentation of a material fact).

Also, these individuals are eligible for special enrollment in an employer's group health plan regardless of whether they may enroll in other individual market coverage (through an exchange or otherwise).

Rules for QSEHRAs, EPPs, and HRAs at Issue in Latest FAQ Guidance | Practical Law