On January 24, the Departments of Labor, Health and Human Services, and Treasury (the "Agencies") released an eleventh set of frequently asked questions and answers ("FAQs") regarding implementation of the Patient Protection and Affordable Care Act ("ACA"), including significant guidance with respect to the impact of the prohibition on annual and lifetime limits on health reimbursement arrangements ("HRAs"). Under the FAQs, which give an indication of the provisions that will be included in future regulations, only HRAs that are "integrated" with group health plans are exempt from the prohibition. Other HRAs generally may not impose these limits.
An HRA is an arrangement that: (1) is solely employer-funded; (2) reimburses an employee for medical care expenses incurred by the employee and the employee's spouse and dependants; and (3) provides reimbursements up to a maximum dollar amount for a coverage period. An HRA may, but is not required to, provide that the unused portion of the maximum amount at the end of a coverage period is carried forward to increase the maximum amount in subsequent coverage periods. HRAs are frequently used in connection with high deductible health plans, but also may be used to assist employees generally with health care costs or to reimburse employees for individual health insurance premiums.
The ACA prohibits plans and insurers from imposing lifetime and annual limits on the dollar value of essential health benefits for participants. This prohibition is phased in beginning in 2010, but does not apply to HRAs until plan years beginning on or after January 1, 2014.
While the prohibition generally applies to all group health plans, the ACA specifically provides that the annual and lifetime limit rules do not apply to health flexible spending accounts ("FSAs"), medical savings accounts, and health savings accounts, but it does not address the status of HRAs. The recent FAQs provide that where an HRA is integrated with primary health coverage that satisfies the prohibition on annual and lifetime limits, the fact that benefits under the HRA are limited does not violate the prohibition since the combined benefit satisfies the requirement. On the other hand, a stand-alone HRA does not comply with the prohibition on annual and lifetime limits since it would effectively limit a participant's access to essential health benefits by placing a dollar limit on the reimbursable amount.
In order to be considered "integrated," an HRA must be available only to employees who are covered by an employer's primary group health insurance plan, which must meet the limit requirements. In addition, an HRA will be considered integrated only if an employee actually is enrolled in the primary plan. Finally, an HRA used to purchase individual health insurance coverage is not considered integrated. Limited exceptions apply for stand-alone HRAs offering only retiree coverage, with reimbursement limited to dental, vision or long-term care benefits that are separately provided from a primary group health plan, and where an employer offers group health plan coverage and limits annual HRA benefits to not more than $500. Finally, the Agencies provide transitional relief by indicating that future guidance will allow unused amounts credited in plan years beginning before January 1, 2014 to be used to reimburse medical expenses after December 31, 2013, regardless of any prior limitations on coverage without violating the ACA.
Because of the requirement for HRAs to be "integrated" with primary coverage, some employers may need to adjust or redesign their HRAs beginning in 2014. For example, HRA benefits may need to be limited to employees who elect coverage under an employer's primary group health plan, and employees will not be able to use HRA benefits to purchase individual health insurance coverage. It may become more desirable to provide similar benefits through employer-funded health FSAs, which need not be integrated with primary coverage and are not subject to the prohibition on annual and lifetime limits, but are subject to an annual benefit limit of $2,500.
The Agencies have not announced whether employers will be able to take advantage of another possible exemption, which is not mentioned in the recent FAQs. This exemption is for "flexible spending arrangements" that provide reimbursement for specific expenses (other than long-term care expenses) where the maximum reimbursement available is less than 500% of the value of the coverage. While there is no clear guidance on the 500% limit, it is automatically met by an HRA that does not allow carryover of unused amounts or limits carryovers to less than five times the annual reimbursement amount under the HRA.