HR Group Takes on Proposed HRA Regs

December 28, 2018

The Honorable Steven Mnuchin
Secretary
U.S. Department of the Treasury
1500 Pennsylvania Avenue, NW
Washington, D.C. 20220

The Honorable Alexander Acosta
Secretary
U.S. Department of Labor
200 Constitution Avenue, NW
Washington, D.C. 20210

The Honorable Alex Azar
Secretary
U.S. Department of Health & Human Services
200 Independence Avenue, SW
Washington, D.C. 20201

RE: Health Reimbursement Arrangements and Other Account-Based Group Health Plans (REG-136724-17)

Dear Secretaries Mnuchin, Acosta and Azar:

HR Policy Association (“HR Policy” or “the Association”) welcomes the opportunity to provide comments on the notice of proposed rulemaking entitled Health Reimbursement Arrangements and Other Account-Based Group Health Plans (REG-136724-17) that was published in the Federal Register on October 29, 2018,¹ and IRS Notice 2018-88 that was posted on November 19, 2018.²

HR Policy is the lead organization representing chief human resource officers of over 385 of the largest corporations doing business in the United States. The member companies provide health care coverage to over 26 million employees and dependents in the United States, and collectively spend more than $117 billion annually on health care. As the senior human resource executive for their companies, HR Policy Association members play a lead role in health care strategy, design, and implementation of the health care plans their companies offer to their employees and retirees.

The Association strongly supports the proposal to allow employers and employees to use tax-favored dollars from a health reimbursement arrangement (HRA) to purchase coverage in the individual market, both on and off the Affordable Care Act (ACA) exchanges, with the following comments and recommendations.

The Proposed Integration Conditions Are More Than Sufficient to Mitigate the Risk of Market Segmentation and Health Factor Discrimination

According to the proposal, it is the Departments' “view that allowing HRAs to be integrated with individual health insurance coverage could result in opportunities for employers to encourage higher risk employees (that is, those with high expected medical claims or employees with family members with high expected medical claims) to obtain coverage in the individual market.”

HR Policy respectfully disagrees with this assessment for four reasons. First, many firms with self-funded health plans use stop-loss coverage to limit their liability for very large claims so there is little or no incentive for these employers to encourage higher risk employees to obtain coverage in the individual market. According to the 2018 Kaiser Family Foundation Employer Health Benefits Annual Survey, 89 to 91 percent of employers with 50 to 4,999 employees have stop-loss coverage, and 39 percent of employers with 5,000 or more employees have stop-loss coverage.³ Moreover, employers with 5,000 or more employees generally have the financial resources and balanced risk pools to handle high cost claims from year to year.

Second, as the Departments appropriately note, the Health Insurance Portability and Accountability Act of 1996 (HIPAA) generally prohibits group health plans and health insurance issuers in the group market from discriminating against individual participants and beneficiaries in eligibility, benefits, or premiums based on a health factor.⁴ The HIPAA nondiscrimination provisions set forth eight health status related factors including, medical condition (both physical and mental illnesses), claims experience, receipt of health care, medical history, genetic information, evidence of insurability, and disability. These terms are largely overlapping and, in combination, include any factor related to an individual's health.

Third, while statutorily large group market and self-insured group health plans are not required to cover all categories of essential health benefits (EHBs), in February 2015, the Department of Health and Human Services (HHS) published a final rule stating that employer plans that fail to provide “substantial coverage” for in-patient hospitalization services or physician services (or both) do not meet the ACA's minimum value standard.⁵ HHS also noted the ACA's minimum value standard may be “interpreted” to require employers cover “critical benefits,”⁶ but what HHS meant by “substantial coverage” and “critical benefits” where not defined. This regulatory interpretation remains enforce today.

Fourth, the proposed rule includes two provisions designed to prevent employers from selectively shifting unhealthy workers into the individual market. Specifically, the proposed rule requires employers offering an integrated HRA to offer it on the same terms to all similarly situated employees, and bars this type of HRA from being used to subsidize short-term, limited duration coverage. These two proposed provisions in combination with the factors above are more than sufficient to mitigate the risk of market segmentation and health factor discrimination the Departments are concerned about without having to prohibit employers from offering both an integrated HRA and a traditional health plan to the same class of employees.

Comments on Specific Proposed Integration Conditions and Classes of Employees

HR Policy agrees that all individuals covered by an integrated HRA must be enrolled in individual health insurance coverage. However, this condition must be implemented in the least burdensome way. Besides adopting the proxy approach of relying on the sale of a policy in the individual market to deem the policy compliant for purposes of the proposed integration rules, the insurance carrier that sells a policy purchased with HRA funds could provide a list of covered individuals to the employer.

The Association is concerned about the level of complexity, costs and burdens that may be associated with the verification and notification processes in the proposed rule. Specifically, HR Policy is concerned that a requirement to contact individual coverage issuers for enrollment verification for each employee would be too time consuming and overwhelming for many employers. We are also concerned that requiring an employer to seek a monthly self-attestation from each employee to verify enrollment in individual coverage would be equally time consuming and overwhelming. Further, the Association is concerned that an employer would be held liable for inaccurate attestation by an employee which may subject the employer to tax penalties under 4980H of the ACA.

In addition to the eight proposed classes of employees, HR Policy recommends the Departments reconsider permitting plan sponsors to treat salaried and hourly employees as different classes of employees. Changing an employee's status from salaried to hourly has substantial economic and other consequences for both employers and employees, and doing so on the basis of the health of an employee or one of their dependents could be an ERISA violation and/or a HIPAA nondiscrimination violation. Moreover, a change from salaried to hourly pay is often viewed very negatively by employees as a demotion and employees often lose the opportunity to work from home or remotely, as it can be difficult for employers to track employees' hours in those situations as required by the Fair Labor Standards Act. The substantial loss of work/life balance and the economic incentives related to attracting and retaining talent strongly discourage employers from shifting salaried employees to paid-hourly.

HR Policy appreciates the Departments' intent to utilize the three affordability safe harbors under 4980H, the ACA's employer mandate, to calculate the affordability of an HRA for the purchase of individual health insurance coverage. The Association worked directly with Treasury and the Internal Revenue Service in formulating these affordability safe harbors under the ACA and appreciates the proposed rule's important recognition that employers do not know, and should not know, an employee's household income for the purpose of calculating its affordability test requirements under the ACA. In addition, HR Policy appreciates the Departments' recognition that many employers have a non-calendar year plan year and that it is the intent to include a non-calendar year coverage safe harbor in final rules.

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We appreciate the opportunity to comment on the proposed rule. Please let me know if HR Policy can be of any further assistance.

Sincerely,

Mark Wilson
Vice President, Health & Employment Policy
HR Policy Association
Washington, DC