Premium Reimbursement Plans - Still Acceptable?

[Guest StainedGlass]

I'm working to determine whether a company that reimburses its employees up to $5,000 each for the cost of their acquiring health insurance can keep this plan in 2014. Some suggested that this type of arrangement would violate the rules on annual limits (particularly in light of FAQ 11). However, I'm becoming convinced that this type of plan will remain permissible in 2014, given that it is only reimbursing premiums - which do not constitute an essential health benefit. This is based on 29 C.F.R. 2590.715-2711(b)(1), which states:

"The rules of this section do not prevent a group health plan, or a health insurance issuer offering group health insurance coverage, from placing annual or lifetime dollar limits with respect to any individual on specific covered benefits that are not essential health benefits to the extent that such limits are otherwise permitted under applicable Federal or State law."

I would be interested in getting thoughts from other practitioners. For anyone interested, I noticed this debate was also happening in the comments section of the below article.

http://healthaffairs.org/blog/2013/01/25/implementing-health-reform-health-reimbursement-arrangements-and-more/

[GBurns]

What size group and What state?

If it is a small group (usually under 50 lives) there could be the issues of state insurance laws and the insurance company's Individual Application.

[Chaz]

You are talking a PRA for individual policies, correct?

The Q/A referenced in your link seems to have put the kibosh on these:

Q2: May an HRA used to purchase coverage on the individual market be considered integrated with that individual market coverage and therefore satisfy the requirements of PHS Act section 2711?

No. The Departments intend to issue guidance providing that for purposes of PHS Act section 2711, an employer-sponsored HRA cannot be integrated with individual market coverage or with an employer plan that provides coverage through individual policies and therefore will violate PHS Act section 2711.

[Clarifying Health]

PHS Act Section 2711 has caused some confusion in regards to HRAs. This section, in general, prohibits group health plans from imposing lifetime or annual limits on the dollar value of essential health benefits. However, there is an exception to these regulations as stated by (ii) in the quoted text below:

"§ 2590.715-2711

No lifetime or annual limits.

(a) Prohibition—

(1) Lifetime limits. Except as provided in paragraph (b) of this section, a group health plan, or a health insurance issuer offering group health insurance coverage, may not establish any lifetime limit on the dollar amount of benefits for any individual.

(2) Annual limits— (i) General rule. Except as provided in paragraphs (a)(2)(ii), (b), and (d) of this section, a group health plan, or a health insurance issuer offering group health insurance coverage, may not establish any annual limit on the dollar amount of benefits for any individual.

(ii) Exception for health flexible spending arrangements. A health flexible spending arrangement (as defined in section 106©(2) of the Internal Revenue Code) is not subject to the requirement in paragraph (a)(2)(i) of this section.

..."

Under section 106©(2) there are certain types of stand alone HRAs that are exceptions to this regulation. Section 106©(2) states:

"Section 106©(2) Flexible spending arrangement - For purposes of this subsection, a flexible spending arrangement is a benefit program which provides employees with coverage under which—

(A) specified incurred expenses may be reimbursed (subject to reimbursement maximums and other reasonable conditions), and

(B) the maximum amount of reimbursement which is reasonably available to a participant for such coverage is less than 500 percent of the value of such coverage."

So, in order to ensure that your stand alone HRA is exempted from the Section 2711 rules, it must:

- Set a cap on annual rollover so that the maximum amount of available reimbursement is always less than 5 times the annual value of the HRA

- Modify the HRA plan to exclude qualified long term care premiums as defined in IRC section 7702B©

[Flyboyjohn]

Assuming that Premium Reimbursement Accounts (PRA) or Health Reimbursement Accounts (HRA) or whatever you want to call reimbursing employees for their individually purchased health insurance is still income tax free to the employee would the rates of reimbursement be tested under old section 105(h)?

[GBurns]

It seems that you might be taking 106©(2) out of context. Look at the subject matter of 106©. It clearly pertains to "long-term care benefits":

© Inclusion of long-term care benefits provided through flexible spending arrangements

(1) In general

Effective on and after January 1, 1997, gross income of an employee shall include employer-provided coverage for qualified long-term care services (as defined in section 7702B ©) to the extent that such coverage is provided through a flexible spending or similar arrangement.

(2) Flexible spending arrangement

For purposes of this subsection, a flexible spending arrangement is a benefit program which provides employees with coverage under which—

(A) specified incurred expenses may be reimbursed (subject to reimbursement maximums and other reasonable conditions), and

(B) the maximum amount of reimbursement which is reasonably available to a participant for such coverage is less than 500 percent of the value of such coverage.

In the case of an insured plan, the maximum amount reasonably available shall be determined on the basis of the underlying coverage.

************************

There have been many opinions published on this same issue and the overwhelming consensus is that what you are proposing will not work. Here is 1 which I picked because it is a collection of other opinions with cites and links:

http://www.shrm.org/hrdisciplines/benefits/Articles/Pages/HRAs-Exchanges.aspx