Early Retiree medical insurance options/HRA

[careta]

I am researching options to offer pre-65 retiree insurance to select early retirees who meet specific age, service and level requirements. Specifically, I am trying to determine whether it is permissible (in terms of ERISA, Section 105(h) etc.) to offer an HRA (retiree-only?) to these individuals to purchase exchange coverage on their own or perhaps via a private exchange (such as Mercer 365 marketplace). 

One of my concerns is whether this would pass 105(h) discrimination rules since it would only offered to select employees (who would be executives based on the proposed criteria). From what I have researched, I believe this type of arrangement would not be subject to discrimination testing under 105(h), if we only reimbursed premiums. In terms of ERISA, since this type of arrangement entails the retiree to select and pay their own premiums (albeit from the HRA), would this type of arrangement be exempt from the requirements of ERISA (i.e. recordkeeping, plan doc etc.)?

I'm sure there are other considerations I may have overlooked. Appreciate any guidance on this or alternative suggestions on acceptable approaches. 

[Brian Gilmore]

All HRAs are group health plans subject to ERISA.  So you will need the plan doc, SPD, Form 5500, etc.

The retiree-only exception (fewer than two participants who are current employees) allows you to structure the plan to avoid the ACA market reform (and HIPAA portability) requirements.  That means you can have a standard retiree-only stand-alone (i.e., not integrated with a group major medical) HRA without application of the ACA prohibition on individual policy reimbursement (or the need to use an ICHRA to avoid it).

There is a special §105(h) rule for retired employees that basically just requires the plan not be structured to discriminate in favor of retirees who were highly compensated while active (e.g., the retiree coverage is not limited to or more generous for top management).

Treas. Reg. §1.105-11(c)(3)(iii):

(iii) Retired employees. To the extent that an employer provides benefits under a self-insured medical reimbursement plan to a retired employee that would otherwise be excludible from gross income under section 105(b), determined without regard to section 105(h), such benefits shall not be considered a discriminatory benefit under this paragraph (c). The preceding sentence shall not apply to a retired employee who was a highly compensated individual unless the type, and the dollar limitations, of benefits provided retired employees who were highly compensated individuals are the same for all other retired participants. If this subdivision applies to a retired participant, that individual is not considered an employee for purposes of determining the highest paid 25 percent of all employees under paragraph (d) of this section solely by reason of receiving such plan benefits.

You may be able to avoid application of §105(h) altogether if you truly limited coverage to §106, but I think you would want to be very careful there because there would be many restrictions.  My understanding is that these are almost always established as a retiree-only HRA (which is under §105).

[careta]

Brian, this is incredibly helpful, thank you. 

Other than a fully-insured stand alone retiree policy for this (which I believe is still exempt from 105(h), is there any way to offer pre-65 coverage to this selective class without the 105(h) issue? Would the ICHRA approach be acceptable (if it only reimburses premiums, per notice 2018-88)?

[Brian Gilmore]

The ICHRA rules are designed as a workaround to the ACA individual policy reimbursement and stand-alone HRA prohibitions for active employees. 

Details here if you're interested: 2021 ABD ICHRA for Employers Guide

ICHRAs don't apply for a retiree-only plan because they already have the ACA market reform exemption for plans with fewer than two current employees.  That's why we've had pre-65 retiree-only HRAs flourishing since the start of the ACA marketplace in 2014--and also why there has been such a pent-up demand for ICHRAs for actives.

Be very careful if you are designing a purported §106 only plan.  Any HRA feature (e.g., carryover) would trigger §105.  And I believe the off-the-shelf vendor products are all retiree-only HRAs.

[careta]

Thanks again for your helpful insight!