Is it still legal to use a self-funded health plan to cover a participant's deductible under group health insurance?

[Peter Gulia]

A few years ago, some small-business employers - in an effort to make health coverage less expensive - used a design of increased deductibles and other cost-sharing provisions of a group health insurance contract, coupled with a self-funded health-reimbursement plan that covered the difference in the deductibles and cost-sharing. Those who advocated this design asserted that the employer's expense under the health-reimbursement plan would be less than the incremental premium attributable to having foregone the lower deductibles and cost-sharing.

After the Affordable Care Act and other law changes, is such a design still permitted?

If not, which statute or rule precludes it?

Does the analysis vary with the size of the employer (for example, more or less than 50 employees)?

If such a design can continue, is a plan-document revision needed to sustain the design's compliance with relevant law?

[lvena]

An employer can still do this, as long as the plan design meets the PPACA benefits requirements, which is not too difficult.

Yes, the size and risk appetite for the employer plays a significant factor in how an employer funds their medical benefits plan. In my mind, there are four types of self-funding available; 1) high-deductible with a fund underneath it (this one), 2) a cooperative self-insured plan either through a captive or not, 3) a stand-alone level-funded self insured plan, and 4) traditional self-funding.

As for plan-document revision, cannot say for sure without reading it. But my guess is that there will probably be a need for a revision.

Does this help?

[Peter Gulia]

Ivena, thank you for your help.

Does the rule precluding a dollar limit on a group health plan's coverage apply to the health-reimbursement plan?

[lvena]

Ivena, thank you for your help.

Does the rule precluding a dollar limit on a group health plan's coverage apply to the health-reimbursement plan?

Little confused by your question, sorry. But the group still needs to structure the benefits within the same guidelines required by PPACA. Just because there is an HRA (or some other funding vehicle) below the high deductible plan does not matter.

[masteff]

Does the rule precluding a dollar limit on a group health plan's coverage apply to the health-reimbursement plan?

Page 4 of this notice is helpful toward answering your question: http://www.irs.gov/pub/irs-drop/n-13-54.pdf

[Peter Gulia]

mastiff, thank you! This is exactly the cookbook I need.

[GBurns]

Since this is a small group state small group/employer health insurance laws may be applicable.

[Peter Gulia]

Does a State's insurance law try to regulate anything beyond the group health insurance contract and its insurer?

If so, does ERISA preempt a State law that would regulate a non-insured health-reimbursement plan?

[GBurns]

State health insurance laws regulate the conditions under which insurance can be sold. Typical wording in many states is:

"

743.734 Group health benefit plans subject to provisions of specified laws; exemptions. (1) Every health benefit plan shall be subject to the provisions of ORS 743.733 to 743.737, if the plan provides health benefits covering one or more employees of a small employer and if any one of the following conditions is met:

(a) Any portion of the premium or benefits is paid by a small employer or any eligible employee is reimbursed, whether through wage adjustments or otherwise, by a small employer for any portion of the health benefit plan premium; or

(b) The health benefit plan is treated by the employer or any of the eligible employees as part of a plan or program for the purposes of section 106, section 125 or section 162 of the Internal Revenue Code of 1986, as amended.

What being further subjected to state insurance laws mean, is state specific.

ERISA preemption is not an issue since the state does not regulate the reimbursement plan itself.

[Peter Gulia]

GBurns, thank you for the further explanation.