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How can dental-only HRA be excepted benefit?


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One issue under health care reform is how the prohibition on lifetime/annual limits applies to HRAs. Some commenters have noted that this prohibition does not apply to dental-only HRAs that qualify as excepted benefits under HIPAA. My question is how a dental-only HRA can qualify as a HIPAA excepted benfit. To be an excepted benefit, the participant must make a separate election for the benefit and and must have to pay something extra for the benefit. Since an HRA must be funded with employer dollars (and not with employee pre-tax contributions), how can the HRA satisfy the second part of the test? Perhaps with employee after-tax contributions?

Has anyone thought about this?

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My understanding is that dental and vision benefits are defined as excepted benefits, whether fully insured or HRA.

ya i agree with you there. they are defined as excepted benefits

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According to the interim regulations, the restriction on annual limits applies differently to certain account-based plans, especially where other rules apply to limit the benefits available.

HRAs are a type of account-based group health plan and typically consist of a promise by an employer to reimburse medical expenses for the year up to a certain amount, with unused amounts available to reimburse medical expenses in future years (see Notice 2002-45). By its definition, an HRA imposes annual limits on essential health benefits. That is, reimbursements an HRA participant may receive during a year are limited to the balance of his or her notional HRA account.

As a result, the following HRA plans have been exempted from the annual limit requirements:

"Integrated" HRAs

"Flexible Spending Arrangement" HRAs

"Excluded" HRAs

"Excepted" HRAs

"Retiree" HRAs"

Read More: Determining if an HRA is Exempted from Annual & Lifetime Limits

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Thanks for the responses to date. The problem with the responses to date is that they fail to take into account the very specific rules for "excepted benefits" under HIPAA.

For limited scope dental benefits to be excepted benefits, they must either (1) be provided under a separate policy, contract, or certificate of insurance, or (2) not be an integral part of a group health plan. 45 CFR 146.145©(3)(i).

HRAs are not insured, so requirement (1) will not be satisfied.

Requirement (2) (not an integral part of a group health plan) has a two part test: (A) Participants must have a right to opt out of the coverage, and (B) if a participant opts in to coverage, the participant must pay an additional premium or contribution for the coverage. 45 CFR 146.145©(3)(ii).

Part (A) is not a problem, since it's pretty easy to make participation in the dental HRA voluntary.

Part (B) appears to be a problem. Under IRS guidance, HRAs must be funded solely with employer contributions. Notice 2002-45, Section I. So, there's a fundamental conflict between the excepted benefits provision (participant contribution required) and the HRA rules (only employer contributions permitted).

My question is whether anyone has found a way to resolve this conflict. Make employee contributions to the HRA after-tax?

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