The Affordable Care Act Creates Compliance Challenges For HRAs And Other Arrangements

by Perkins Coie
Contact

On September 13, 2013 the U.S. Department of the Treasury (IRS), the U.S. Department of Health and Human Services (HHS), and the U.S. Department of Labor (DOL), collectively referred to herein as the Departments, coordinated the issuance of guidance regarding the application of certain provisions of the Affordable Care Act (ACA) to health reimbursement arrangements and other employer-sponsored healthcare arrangements.  This guidance is available as IRS Notice 2013-54.  It was also issued in substantially identical form as DOL Technical Release 2013-03.  The Centers for Medicare & Medicaid Services concurred on behalf of HHS with both the IRS’s and DOL’s guidance. 

Health Reimbursement Arrangements

Background

A health reimbursement arrangement (HRA) is an arrangement that can be used to reimburse employees for certain medical care expenses.  HRAs provide a maximum dollar amount available for a given period of coverage and can be unfunded notional accounts or fully-funded trusts.  Amounts not used during the period of coverage may be forfeited or may be carried over and used in subsequent periods of coverage, depending on the terms of the plan.  HRAs must be funded solely by employer contributions and cannot be funded by salary reduction elections through a cafeteria plan or otherwise.  Amounts properly reimbursed pursuant to an HRA are excluded from the gross income of employees.  HRAs are considered to be group health plans within the meaning of the Tax Code and ERISA.

The Departments confirmed that HRAs with fewer than two participants who are current employees on the first day of the plan year, e.g., retiree-only HRAs, (1) provide minimum essential coverage for purposes of making participants in the HRA ineligible for a premium subsidy through the insurance marketplaces (aka exchanges), and (2) generally are not subject to the group health plan mandates discussed below. 

Under the ACA, with limited exceptions, group health plans (1) may not place annual dollar limits on essential health benefits, effective for plan years beginning on or after January 1, 2014; and (2) must provide certain preventive services without imposing any cost-sharing.  The Departments concluded that stand-alone HRAs, i.e., those that are not “integrated” with other group health coverage, do not satisfy either of these mandates.  Therefore, if an employer wishes to continue offering an HRA without violating the ACA, the HRA must be integrated with another group health plan that separately satisfies the annual dollar limit prohibition and the preventive services requirement.

Under the new guidance there are two different approaches available to integrate an HRA with a group health plan for purposes of the annual dollar limit prohibition and the preventive services requirement:  one that applies if the other group health plan provides minimum value, and another that applies if it does not.  Minimum value is defined as coverage of at least 60% of the total allowed cost of benefits provided under the plan—it is a measure of benefits, not a measure of premiums.

Integration Method: Minimum Value Not Required

Under this method, an HRA is integrated with another group health plan if all of the following are satisfied:

  • The employer sponsoring the HRA offers employees a group health plan, other than the HRA, that does not consist solely of excepted benefits and that satisfies the annual dollar limit prohibition and the preventive services requirement (a “non-HRA group health plan”).  Excepted benefits include certain accident-only coverage, disability income, limited-scope dental or vision plans, long-term care benefits, etc.
  • The employee receiving benefits pursuant to the HRA is actually enrolled in a non-HRA group health plan whether sponsored by the employer or another employer.
  • The HRA is only available to employees who are enrolled in a non-HRA group health plan whether sponsored by the employer or another employer.
  • The HRA is limited to reimbursement of one or more of the following:
    • Co-payments;
    • Co-insurance;
    • Deductibles;
    • Premiums under the non-HRA group health plan; and
    • Medical care that does not constitute essential health benefits.
  • Under the terms of the HRA, employees or former employees are permitted to permanently opt out of and waive future reimbursements from the HRA on an annual basis and, upon termination of employment, either the remaining amounts in the HRA are forfeited or the employee is permitted to permanently opt out of and waive future reimbursements from the HRA.

Integration Method: Minimum Value Required

Under this method, an HRA is integrated with another group health plan if all of the following are satisfied:

  • The employer sponsoring the HRA offers employees a group health plan, other than the HRA, that provides minimum value; is not limited to excepted benefits; and satisfies the annual dollar limit prohibition and the preventive services requirement (a “non-HRA MV group health plan”).
  • The employee receiving benefits pursuant to the HRA is actually enrolled in a non-HRA MV group health plan, whether sponsored by the employer or another employer.
  • The HRA is only available to employees who are actually enrolled in a non-HRA MV group health plan, whether sponsored by the employer or another employer.
  • Under the terms of the HRA, employees or former employees are permitted to permanently opt out of and waive future reimbursements from the HRA on an annual basis and, upon termination of employment, either the remaining amounts in the HRA are forfeited or the employee is permitted to permanently opt out of and waive future reimbursements from the HRA.

Unlike integration of an HRA with a non-HRA group health plan that does not provide minimum value, this second method places no restrictions on the types of medical expense reimbursements available under the HRA.

Integration under either method does not require that the HRA and the group health plan coverage with which it is integrated be treated as the same plan.  This means that they need not share the same plan sponsor, the same plan document or file a single Form 5500 with the DOL, if applicable.

No Integration with Individual Health Plans

The Departments stated in the guidance that an HRA used to purchase coverage on the individual market is not considered integrated with such individual coverage for purposes of either the annual dollar limit prohibition or the preventive services requirement.  As a result, such HRAs will be treated as stand-alone and will fail to comply with these requirements.

The IRS previously held that an employer’s reimbursement of an employee’s substantiated premiums for non-employer sponsored health insurance coverage could be excluded from the employee’s gross income.  This exclusion also applies if the employer pays the premiums directly to the insurance provider.  These “employer payment plans” are group health plans for purposes of the Tax Code and ERISA. 

The Departments clarified in the guidance that employer payment plans are subject to the annual dollar limit prohibition and the preventive services requirement.  These plans fail to comply with the annual dollar limit prohibition since they are considered to impose an annual limit up to the cost of the individual insurance coverage purchased by the employee.  They also fail to comply with the preventive services requirement since they do not provide coverage of preventive services without cost-sharing in all cases and they cannot be integrated with any individual health insurance plan that does provide such coverage.

Health Flexible Spending Arrangements

Health flexible spending arrangements (Health FSAs) are another type of arrangement through which employees receive reimbursements for certain medical expenses.  Employee contributions are typically made pursuant to salary reduction agreements on a pre-tax basis, but employers may make separate contributions to the accounts as well.  For plan years beginning after December 31, 2012, the amount of any salary reduction is limited to $2,500.

Health FSAs are generally considered to be group health plans for purposes of the Tax Code and ERISA.  But if a Health FSA is treated as an excepted benefit, it is not subject to the annual dollar limit prohibition and the preventive services requirement under the ACA. 

An employer-sponsored Health FSA offered under a cafeteria plan will be treated as an excepted benefit if the following requirements are satisfied:

  • It is structured such that the maximum benefit payable to any participant does not exceed two times the participant’s salary reduction election for the plan year, or, if greater, $500 plus the amount of the participant’s salary-reduction election.
  • The employer also makes group health plan coverage that is not limited to excepted benefits available to its employees.

However, this exemption only applies to Health FSAs offered under a cafeteria plan of an employer. 

Cafeteria Plans

For taxable years beginning after December 31, 2013, employers can no longer allow employees to pay premiums for individual health plan coverage offered through an insurance marketplace on a pre-tax basis through a cafeteria plan.  In other words, employers may not offer such plans as a qualified benefit under a cafeteria plan.  Under transition guidance, the restriction will not apply to cafeteria plans that were non-calendar-year plans as of September 13, 2013 until the first plan year that begins after December 31, 2013.  But the Departments noted that an employee will not be eligible for a premium subsidy for any month in which the employee was covered by an individual plan purchased through the insurance marketplace as a benefit under a cafeteria plan.

Practical Tips

  • Employers that currently offer stand-alone HRAs should consider whether to integrate the HRA with group health plan coverage that satisfies the annual dollar limit prohibition and the preventive services requirement. It may require some drastic changes depending on the nature of the existing plan.  Another option is to terminate the HRA, depending on the terms of the plan.
  • With respect to employer payment plans, the Departments noted that an employer may establish a payroll practice of forwarding a portion of an employee’s after-tax wages to a health insurance provider at the employee’s direction without establishing a group health plan if certain DOL standards are met.  Employers offering employer payment plans that currently reimburse or pay premiums directly to insurers on a pre-tax basis may want to consider terminating such plans and establishing a payroll practice to allow employees to pay for their individual coverage on an after-tax basis.
  • Employers that currently offer a Health FSA through a cafeteria plan should review the plan’s terms to ensure that the maximum benefit payable does not exceed the greater of (1) two-times a participant’s salary-reduction election for the plan year, and (2) $500 plus a participant’s salary-reduction election for the plan year.  Additionally, in order to avoid the application of the annual dollar limit prohibition and the preventive services requirement to the Health FSA, employers must ensure that group health plan coverage that is not limited to excepted benefits is available to employees.
  • Employers currently offering individual health plan coverage purchased through insurance marketplaces as a qualified benefit under a cafeteria plan will need to amend the plan to drop that option as of the first plan year that begins on or after January 1, 2014.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Perkins Coie | Attorney Advertising

Written by:

Perkins Coie
Contact
more
less

Perkins Coie on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide

JD Supra Privacy Policy

Updated: May 25, 2018:

JD Supra is a legal publishing service that connects experts and their content with broader audiences of professionals, journalists and associations.

This Privacy Policy describes how JD Supra, LLC ("JD Supra" or "we," "us," or "our") collects, uses and shares personal data collected from visitors to our website (located at www.jdsupra.com) (our "Website") who view only publicly-available content as well as subscribers to our services (such as our email digests or author tools)(our "Services"). By using our Website and registering for one of our Services, you are agreeing to the terms of this Privacy Policy.

Please note that if you subscribe to one of our Services, you can make choices about how we collect, use and share your information through our Privacy Center under the "My Account" dashboard (available if you are logged into your JD Supra account).

Collection of Information

Registration Information. When you register with JD Supra for our Website and Services, either as an author or as a subscriber, you will be asked to provide identifying information to create your JD Supra account ("Registration Data"), such as your:

  • Email
  • First Name
  • Last Name
  • Company Name
  • Company Industry
  • Title
  • Country

Other Information: We also collect other information you may voluntarily provide. This may include content you provide for publication. We may also receive your communications with others through our Website and Services (such as contacting an author through our Website) or communications directly with us (such as through email, feedback or other forms or social media). If you are a subscribed user, we will also collect your user preferences, such as the types of articles you would like to read.

Information from third parties (such as, from your employer or LinkedIn): We may also receive information about you from third party sources. For example, your employer may provide your information to us, such as in connection with an article submitted by your employer for publication. If you choose to use LinkedIn to subscribe to our Website and Services, we also collect information related to your LinkedIn account and profile.

Your interactions with our Website and Services: As is true of most websites, we gather certain information automatically. This information includes IP addresses, browser type, Internet service provider (ISP), referring/exit pages, operating system, date/time stamp and clickstream data. We use this information to analyze trends, to administer the Website and our Services, to improve the content and performance of our Website and Services, and to track users' movements around the site. We may also link this automatically-collected data to personal information, for example, to inform authors about who has read their articles. Some of this data is collected through information sent by your web browser. We also use cookies and other tracking technologies to collect this information. To learn more about cookies and other tracking technologies that JD Supra may use on our Website and Services please see our "Cookies Guide" page.

How do we use this information?

We use the information and data we collect principally in order to provide our Website and Services. More specifically, we may use your personal information to:

  • Operate our Website and Services and publish content;
  • Distribute content to you in accordance with your preferences as well as to provide other notifications to you (for example, updates about our policies and terms);
  • Measure readership and usage of the Website and Services;
  • Communicate with you regarding your questions and requests;
  • Authenticate users and to provide for the safety and security of our Website and Services;
  • Conduct research and similar activities to improve our Website and Services; and
  • Comply with our legal and regulatory responsibilities and to enforce our rights.

How is your information shared?

  • Content and other public information (such as an author profile) is shared on our Website and Services, including via email digests and social media feeds, and is accessible to the general public.
  • If you choose to use our Website and Services to communicate directly with a company or individual, such communication may be shared accordingly.
  • Readership information is provided to publishing law firms and authors of content to give them insight into their readership and to help them to improve their content.
  • Our Website may offer you the opportunity to share information through our Website, such as through Facebook's "Like" or Twitter's "Tweet" button. We offer this functionality to help generate interest in our Website and content and to permit you to recommend content to your contacts. You should be aware that sharing through such functionality may result in information being collected by the applicable social media network and possibly being made publicly available (for example, through a search engine). Any such information collection would be subject to such third party social media network's privacy policy.
  • Your information may also be shared to parties who support our business, such as professional advisors as well as web-hosting providers, analytics providers and other information technology providers.
  • Any court, governmental authority, law enforcement agency or other third party where we believe disclosure is necessary to comply with a legal or regulatory obligation, or otherwise to protect our rights, the rights of any third party or individuals' personal safety, or to detect, prevent, or otherwise address fraud, security or safety issues.
  • To our affiliated entities and in connection with the sale, assignment or other transfer of our company or our business.

How We Protect Your Information

JD Supra takes reasonable and appropriate precautions to insure that user information is protected from loss, misuse and unauthorized access, disclosure, alteration and destruction. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. You should keep in mind that no Internet transmission is ever 100% secure or error-free. Where you use log-in credentials (usernames, passwords) on our Website, please remember that it is your responsibility to safeguard them. If you believe that your log-in credentials have been compromised, please contact us at privacy@jdsupra.com.

Children's Information

Our Website and Services are not directed at children under the age of 16 and we do not knowingly collect personal information from children under the age of 16 through our Website and/or Services. If you have reason to believe that a child under the age of 16 has provided personal information to us, please contact us, and we will endeavor to delete that information from our databases.

Links to Other Websites

Our Website and Services may contain links to other websites. The operators of such other websites may collect information about you, including through cookies or other technologies. If you are using our Website or Services and click a link to another site, you will leave our Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We are not responsible for the data collection and use practices of such other sites. This Policy applies solely to the information collected in connection with your use of our Website and Services and does not apply to any practices conducted offline or in connection with any other websites.

Information for EU and Swiss Residents

JD Supra's principal place of business is in the United States. By subscribing to our website, you expressly consent to your information being processed in the United States.

  • Our Legal Basis for Processing: Generally, we rely on our legitimate interests in order to process your personal information. For example, we rely on this legal ground if we use your personal information to manage your Registration Data and administer our relationship with you; to deliver our Website and Services; understand and improve our Website and Services; report reader analytics to our authors; to personalize your experience on our Website and Services; and where necessary to protect or defend our or another's rights or property, or to detect, prevent, or otherwise address fraud, security, safety or privacy issues. Please see Article 6(1)(f) of the E.U. General Data Protection Regulation ("GDPR") In addition, there may be other situations where other grounds for processing may exist, such as where processing is a result of legal requirements (GDPR Article 6(1)(c)) or for reasons of public interest (GDPR Article 6(1)(e)). Please see the "Your Rights" section of this Privacy Policy immediately below for more information about how you may request that we limit or refrain from processing your personal information.
  • Your Rights
    • Right of Access/Portability: You can ask to review details about the information we hold about you and how that information has been used and disclosed. Note that we may request to verify your identification before fulfilling your request. You can also request that your personal information is provided to you in a commonly used electronic format so that you can share it with other organizations.
    • Right to Correct Information: You may ask that we make corrections to any information we hold, if you believe such correction to be necessary.
    • Right to Restrict Our Processing or Erasure of Information: You also have the right in certain circumstances to ask us to restrict processing of your personal information or to erase your personal information. Where you have consented to our use of your personal information, you can withdraw your consent at any time.

You can make a request to exercise any of these rights by emailing us at privacy@jdsupra.com or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

You can also manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard.

We will make all practical efforts to respect your wishes. There may be times, however, where we are not able to fulfill your request, for example, if applicable law prohibits our compliance. Please note that JD Supra does not use "automatic decision making" or "profiling" as those terms are defined in the GDPR.

  • Timeframe for retaining your personal information: We will retain your personal information in a form that identifies you only for as long as it serves the purpose(s) for which it was initially collected as stated in this Privacy Policy, or subsequently authorized. We may continue processing your personal information for longer periods, but only for the time and to the extent such processing reasonably serves the purposes of archiving in the public interest, journalism, literature and art, scientific or historical research and statistical analysis, and subject to the protection of this Privacy Policy. For example, if you are an author, your personal information may continue to be published in connection with your article indefinitely. When we have no ongoing legitimate business need to process your personal information, we will either delete or anonymize it, or, if this is not possible (for example, because your personal information has been stored in backup archives), then we will securely store your personal information and isolate it from any further processing until deletion is possible.
  • Onward Transfer to Third Parties: As noted in the "How We Share Your Data" Section above, JD Supra may share your information with third parties. When JD Supra discloses your personal information to third parties, we have ensured that such third parties have either certified under the EU-U.S. or Swiss Privacy Shield Framework and will process all personal data received from EU member states/Switzerland in reliance on the applicable Privacy Shield Framework or that they have been subjected to strict contractual provisions in their contract with us to guarantee an adequate level of data protection for your data.

California Privacy Rights

Pursuant to Section 1798.83 of the California Civil Code, our customers who are California residents have the right to request certain information regarding our disclosure of personal information to third parties for their direct marketing purposes.

You can make a request for this information by emailing us at privacy@jdsupra.com or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

Some browsers have incorporated a Do Not Track (DNT) feature. These features, when turned on, send a signal that you prefer that the website you are visiting not collect and use data regarding your online searching and browsing activities. As there is not yet a common understanding on how to interpret the DNT signal, we currently do not respond to DNT signals on our site.

Access/Correct/Update/Delete Personal Information

For non-EU/Swiss residents, if you would like to know what personal information we have about you, you can send an e-mail to privacy@jdsupra.com. We will be in contact with you (by mail or otherwise) to verify your identity and provide you the information you request. We will respond within 30 days to your request for access to your personal information. In some cases, we may not be able to remove your personal information, in which case we will let you know if we are unable to do so and why. If you would like to correct or update your personal information, you can manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard. If you would like to delete your account or remove your information from our Website and Services, send an e-mail to privacy@jdsupra.com.

Changes in Our Privacy Policy

We reserve the right to change this Privacy Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our Privacy Policy will become effective upon posting of the revised policy on the Website. By continuing to use our Website and Services following such changes, you will be deemed to have agreed to such changes.

Contacting JD Supra

If you have any questions about this Privacy Policy, the practices of this site, your dealings with our Website or Services, or if you would like to change any of the information you have provided to us, please contact us at: privacy@jdsupra.com.

JD Supra Cookie Guide

As with many websites, JD Supra's website (located at www.jdsupra.com) (our "Website") and our services (such as our email article digests)(our "Services") use a standard technology called a "cookie" and other similar technologies (such as, pixels and web beacons), which are small data files that are transferred to your computer when you use our Website and Services. These technologies automatically identify your browser whenever you interact with our Website and Services.

How We Use Cookies and Other Tracking Technologies

We use cookies and other tracking technologies to:

  1. Improve the user experience on our Website and Services;
  2. Store the authorization token that users receive when they login to the private areas of our Website. This token is specific to a user's login session and requires a valid username and password to obtain. It is required to access the user's profile information, subscriptions, and analytics;
  3. Track anonymous site usage; and
  4. Permit connectivity with social media networks to permit content sharing.

There are different types of cookies and other technologies used our Website, notably:

  • "Session cookies" - These cookies only last as long as your online session, and disappear from your computer or device when you close your browser (like Internet Explorer, Google Chrome or Safari).
  • "Persistent cookies" - These cookies stay on your computer or device after your browser has been closed and last for a time specified in the cookie. We use persistent cookies when we need to know who you are for more than one browsing session. For example, we use them to remember your preferences for the next time you visit.
  • "Web Beacons/Pixels" - Some of our web pages and emails may also contain small electronic images known as web beacons, clear GIFs or single-pixel GIFs. These images are placed on a web page or email and typically work in conjunction with cookies to collect data. We use these images to identify our users and user behavior, such as counting the number of users who have visited a web page or acted upon one of our email digests.

JD Supra Cookies. We place our own cookies on your computer to track certain information about you while you are using our Website and Services. For example, we place a session cookie on your computer each time you visit our Website. We use these cookies to allow you to log-in to your subscriber account. In addition, through these cookies we are able to collect information about how you use the Website, including what browser you may be using, your IP address, and the URL address you came from upon visiting our Website and the URL you next visit (even if those URLs are not on our Website). We also utilize email web beacons to monitor whether our emails are being delivered and read. We also use these tools to help deliver reader analytics to our authors to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

Analytics/Performance Cookies. JD Supra also uses the following analytic tools to help us analyze the performance of our Website and Services as well as how visitors use our Website and Services:

  • HubSpot - For more information about HubSpot cookies, please visit legal.hubspot.com/privacy-policy.
  • New Relic - For more information on New Relic cookies, please visit www.newrelic.com/privacy.
  • Google Analytics - For more information on Google Analytics cookies, visit www.google.com/policies. To opt-out of being tracked by Google Analytics across all websites visit http://tools.google.com/dlpage/gaoptout. This will allow you to download and install a Google Analytics cookie-free web browser.

Facebook, Twitter and other Social Network Cookies. Our content pages allow you to share content appearing on our Website and Services to your social media accounts through the "Like," "Tweet," or similar buttons displayed on such pages. To accomplish this Service, we embed code that such third party social networks provide and that we do not control. These buttons know that you are logged in to your social network account and therefore such social networks could also know that you are viewing the JD Supra Website.

Controlling and Deleting Cookies

If you would like to change how a browser uses cookies, including blocking or deleting cookies from the JD Supra Website and Services you can do so by changing the settings in your web browser. To control cookies, most browsers allow you to either accept or reject all cookies, only accept certain types of cookies, or prompt you every time a site wishes to save a cookie. It's also easy to delete cookies that are already saved on your device by a browser.

The processes for controlling and deleting cookies vary depending on which browser you use. To find out how to do so with a particular browser, you can use your browser's "Help" function or alternatively, you can visit http://www.aboutcookies.org which explains, step-by-step, how to control and delete cookies in most browsers.

Updates to This Policy

We may update this cookie policy and our Privacy Policy from time-to-time, particularly as technology changes. You can always check this page for the latest version. We may also notify you of changes to our privacy policy by email.

Contacting JD Supra

If you have any questions about how we use cookies and other tracking technologies, please contact us at: privacy@jdsupra.com.

- hide

This website uses cookies to improve user experience, track anonymous site usage, store authorization tokens and permit sharing on social media networks. By continuing to browse this website you accept the use of cookies. Click here to read more about how we use cookies.