Final Regs Expand Flexibility, Use of HRAs

Final Regs Expand Flexibility, Use of HRAs

Internal Revenue Service

The IRS and other agencies have published final regulations (T.D. 9867) that allow health reimbursement arrangements to be integrated with individual health insurance coverage or Medicare if specific conditions are met (an individual coverage HRA); the proposed regs also expand the definition of limited excepted benefits and address premium tax credit (PTC) eligibility for individuals offered an individual coverage HRA. Effective August 19, 2019, the final regs adopt proposed regs (<a href="/lr/resolve//28jpz">REG-136724-17</a>) issued in October 2018. While the final regs adopt some changes in response to comments, they are substantially similar to the proposed regs. After considering comments, the agencies finalize the applicability date as proposed. Thus, the final regs generally apply for plan years beginning after December 31, 2019. The final PTC provisions apply for tax years beginning after that date. The proposed regs provided that to be integrated with individual health insurance coverage, the HRA must require participants and any dependents covered by the HRA to be enrolled in individual health insurance coverage and to substantiate compliance with this requirement. Other conditions were also specified in the proposed regs. The agencies are finalizing the proposed regs, including each of the proposed conditions, with various changes and clarifications that are explained in the preamble to the final regs. For example, in response to comments asking that conditions intended to limit adverse selection be strengthened, the final regs adopt those proposed conditions with some changes, including the addition of a minimum class size requirement that will apply to some classes of employees in specified instances. The agencies have determined that allowing individual coverage HRAs will produce significant benefits and is not likely to create a material risk of adverse selection in the individual market because of the sufficiency of, and changes to strengthen, the integration conditions intended to mitigate that risk, which are included in the final regs. The agencies agreed with commentators that the excepted benefit HRA is a way to expand the availability and use of HRAs, thereby providing increased options for healthcare coverage to employers and employees. Thus, the final regs recognize some HRAs as limited excepted benefits, with some changes from the proposed regs to address commentators’ concerns about the potential for adverse selection and confusion. The final regs establish a new excepted benefit HRA under section 9832(c)(2)(C), which can be used to reimburse specified medical care expenses incurred for coverage that is not limited to other types of excepted benefits. The final regs provide that an additional type of HRA, specifically, one that reimburses benefits not limited to other types of excepted benefits, can also qualify as an excepted benefit. Excepted benefit HRAs may reimburse medical care expenses, such as cost sharing for individual health insurance coverage or group health plan coverage that would not otherwise qualify as excepted benefits, if the conditions of the final regs are met. The proposed regs included a change to the section 36B rules to provide guidance for individuals who are offered or covered by an individual coverage HRA and who otherwise may be eligible for the PTC. The proposed regs provided guidance on the PTC eligibility of an individual who is offered, but opts out of, an individual coverage HRA. The final regs retain the proposed rule that a PTC is not allowed for any month in which the individual coverage HRA is affordable. The proposed regs required employers that offer individual coverage HRAs to provide a written notice to each participant. The final regs strengthen the notice requirement and the agencies are providing model notice language regarding the PTC in separate guidance. In the preamble, Treasury and the IRS explained why the final PTC regs regarding when an offer of an individual coverage HRA is considered affordable are not relevant for individuals enrolled in Medicare.

The IRS and other agencies have published final regulations (T.D. 9867) that allow health reimbursement arrangements to be integrated with individual health insurance coverage or Medicare if specific conditions are met (an individual coverage HRA); the proposed regs also expand the definition of limited excepted benefits and address premium tax credit eligibility for individuals offered an individual coverage HRA.

The IRS and other agencies have published final regulations (T.D. 9867) that allow health reimbursement arrangements to be integrated with individual health insurance coverage or Medicare if specific conditions are met (an individual coverage HRA); the proposed regs also expand the definition of limited excepted benefits and address premium tax credit (PTC) eligibility for individuals offered an individual coverage HRA. Effective August 19, 2019, the final regs adopt proposed regs (REG-136724-17) issued in October 2018. While the final regs adopt some changes in response to comments, they are substantially similar to the proposed regs. After considering comments, the agencies finalize the applicability date as proposed. Thus, the final regs generally apply for plan years beginning after December 31, 2019. The final PTC provisions apply for tax years beginning after that date. The proposed regs provided that to be integrated with individual health insurance coverage, the HRA must require participants and any dependents covered by the HRA to be enrolled in individual health insurance coverage and to substantiate compliance with this requirement. Other conditions were also specified in the proposed regs. The agencies are finalizing the proposed regs, including each of the proposed conditions, with various changes and clarifications that are explained in the preamble to the final regs. For example, in response to comments asking that conditions intended to limit adverse selection be strengthened, the final regs adopt those proposed conditions with some changes, including the addition of a minimum class size requirement that will apply to some classes of employees in specified instances. The agencies have determined that allowing individual coverage HRAs will produce significant benefits and is not likely to create a material risk of adverse selection in the individual market because of the sufficiency of, and changes to strengthen, the integration conditions intended to mitigate that risk, which are included in the final regs. The agencies agreed with commentators that the excepted benefit HRA is a way to expand the availability and use of HRAs, thereby providing increased options for healthcare coverage to employers and employees. Thus, the final regs recognize some HRAs as limited excepted benefits, with some changes from the proposed regs to address commentators’ concerns about the potential for adverse selection and confusion. The final regs establish a new excepted benefit HRA under section 9832(c)(2)(C), which can be used to reimburse specified medical care expenses incurred for coverage that is not limited to other types of excepted benefits. The final regs provide that an additional type of HRA, specifically, one that reimburses benefits not limited to other types of excepted benefits, can also qualify as an excepted benefit. Excepted benefit HRAs may reimburse medical care expenses, such as cost sharing for individual health insurance coverage or group health plan coverage that would not otherwise qualify as excepted benefits, if the conditions of the final regs are met. The proposed regs included a change to the section 36B rules to provide guidance for individuals who are offered or covered by an individual coverage HRA and who otherwise may be eligible for the PTC. The proposed regs provided guidance on the PTC eligibility of an individual who is offered, but opts out of, an individual coverage HRA. The final regs retain the proposed rule that a PTC is not allowed for any month in which the individual coverage HRA is affordable. The proposed regs required employers that offer individual coverage HRAs to provide a written notice to each participant. The final regs strengthen the notice requirement and the agencies are providing model notice language regarding the PTC in separate guidance. In the preamble, Treasury and the IRS explained why the final PTC regs regarding when an offer of an individual coverage HRA is considered affordable are not relevant for individuals enrolled in Medicare.

Sec. 36B Refundable credit for coverage under a qualified health plan

Sec. 9801 Increased portability through limitation on preexisting condition exclusions

Sec. 9802 Prohibiting discrimination against individual participants and beneficiaries based on health status

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Final Regs Expand Flexibility, Use of HRAs