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New Proposed Regulations for HRAs under PPACA

Many of our clients offer Health Reimbursement Arrangements ("HRAs") to help their employees manage health care expenses. HRAs are considered "group health plans" and, as a result, are subject to certain insurance market reforms imposed by the Patient Protection and Affordable Care Act ("PPACA").

Recently, the IRS issued proposed regulations regarding several changes to HRAs under PPACA. WageWorks® has reviewed the proposed regulations and has issued this Compliance Alert to provide our clients with information on several of these proposed changes in order to help our clients prepare for and maintain compliant plans.

Comparative Effectiveness Research Fee:
PPACA requires that plan sponsors and health insurers pay a fee to be attributed to the Patient-Centered Outcomes Research Trust Fund. The fund will establish a nonprofit corporation to conduct clinical effectiveness research to evaluate risks and benefits of medical treatments, services, procedures and drugs.

Newly proposed regulations address comments received in response to the original IRS Notice 2011-35 that was released in June 2011 and include clarification on if and how the fee would be imposed on HRAs, and how to calculate and submit the fee.

Who must comply: Under the proposed regulations, many HRAs will be required to pay the fee.The proposed regulations state that multiple self-insured arrangements maintained by the same employer with the same plan year are subject to a single fee. In other words, an HRA is not subject to the fee if it is integrated with a self-insured health plan. If, however, the HRA is integrated with a fully-insured health plan, the insurance company and the plan sponsor of the self-insured HRA are each required to pay the fee.

Calculating the fee: The initial annual fee is $1.00 per average covered life. The fee increases to $2.00 in 2013, and then to an amount indexed to national health expenditures for each year through 2019, after which the fee ends. The fee will be based on the average number of covered lives under the plan. For HRAs not integrated with a self-insured health plan, the proposed regulations clarify that each participant can be treated as a single life when determining the fee, regardless of the number of dependents on the plan. For example, if an employer has, on average, 25 employees who participate in the HRA for the year, the fee for 2012 would be $25.00.

Effective Dates: These proposed regulations are intended to apply to policy and plan years that end on or after October 1, 2012, and before October 1, 2019. The proposed regulations request comments to be submitted by July 30, 2012.

Next Steps: WageWorks will submit comments on the proposed regulations, specifically in regard to a requested exemption of all HRAs. We will continue to provide you with any new information that becomes available, and will be working to develop resources to help plan sponsors calculate and submit the fee.

Summary of Benefits and Coverage:
PPACA requires that a Summary of Benefits and Coverage ("SBC") be provided to plan participants prior to enrollment or re-enrollment in a plan. The purpose of the SBC is to provide consumers with clear and concise information about their benefit options.

Who must comply: The proposed regulations state that the SBC requirement does not apply to "excepted benefits" (i.e., most Flexible Spending Accounts ("FSAs") and certain HRAs, such as retiree-only HRAs, as well as limited purpose HRAs that cover only dental and vision expenses). The proposed regulations also state that HRAs that do not constitute excepted benefits and are integrated with other major medical coverage can be addressed within the major medical SBC. But a separate SBC must be provided for any stand-alone HRA or HRAs for which the major medical coverage does not include the appropriate information within the SBC.

Since the SBC was designed primarily to address major medical coverage, the proposed regulations clarify that, to the extent a plan’s terms cannot be described in a manner consistent with the SBC template and instructions, the plan must describe the HRA plan terms using its "best efforts" in a manner that is as consistent with the instructions and template format as reasonably possible.

Required coverage examples: The SBC must include coverage examples of specific medical situations and outline exactly how much the insurance carrier and the consumer must each pay for the service. Coverage examples must be formatted in a manner similar to a Nutrition Facts label, and are intended to help consumers understand the cost of services under a specific health plan.

Uniform glossary of coverage and terms: Part of the SBC requirement is that health insurers must provide and make available a uniform glossary to help consumers understand terms and concepts commonly used in health coverage plans, such as "co-pay" and "deductible." The Department of Labor ("DOL") and Department of Health and Human Services ("HHS") have drafted a uniform glossary for this purpose, available on the DOL and HHS websites, which must be provided to consumers in the format authorized by these agencies. A plan or insurer can satisfy this disclosure requirement simply by providing consumers with the website address where the uniform glossary can be found.

Effective Dates: The SBC rules have two different effective dates, depending on the type of enrollment period. The SBC rules are effective on the first day of the first annual enrollment period beginning on or after September 23, 2012, for participants and beneficiaries who enroll during an annual enrollment period. For newly eligible individuals and special enrollees who enroll at a time other than during annual enrollment, the SBC rules are first effective for any enrollment that occurs on or after the plan year that begins on or after September 23, 2012.

Example 1. Employer A sponsors a health plan with a calendar plan year. Each year, the annual enrollment period for the following plan year begins on October 1. Employer A must comply with the SBC rule regarding individuals who enroll during the annual enrollment period that begins October 1, 2012. Thereafter, the SBC rules will apply to all initial and special enrollments that occur on or after January 1, 2013.

Example 2. Employer Z sponsors a health plan with a calendar plan year. Each year, the annual enrollment for the following plan year begins on September 1. For Employer Z, the first annual enrollment period to which the SBC rule will apply is the annual enrollment period that begins September 1, 2013 (for the 2014 plan year). However, the SBC rules will still apply to all initial and special enrollments that occur on or after January 1, 2013.

Next Steps: WageWorks is currently working with legal counsel and industry experts to create an SBC template that can be applied to the various benefits provided under stand-alone health FSAs and HRAs that are subject to the SBC requirements. We will continue to update you on any advancement and will provide further information prior to the effective date of September 23, 2012.

Prohibition on Lifetime and Annual Limits:
PPACA prohibits lifetime limits on essential benefits and allows only restricted annual limits on essential benefits until 2014. After 2014, no annual limits on essential benefits will be permitted.

Who must comply: Many industry experts have questioned whether and how these new rules might apply to HRAs. Certain HRAs will not be subject to the new rules – including HRAs that are part of an integrated group health plan (that complies with the lifetime and annual limit restrictions), retiree-only HRAs, limited purpose HRAs and, possibly, HRAs that meet a special exception for health FSAs. Therefore, it appears that only stand-alone HRAs that cannot satisfy any other exception may be subject to the annual limit restrictions. In addition, HHS released guidance on August 19, 2011, which states that HRAs that are subject to the annual limit requirements, which took effect on September 23, 2010, do not have to apply for a waiver and exempts all HRAs, as a class, from the obligation to apply individually for an annual limit waiver for plan years that begin before January 1, 2014.

Next Steps: It is WageWorks’ position that all HRAs should be exempt from the lifetime and annual limit rules, and WageWorks is working with other industry leaders to obtain favorable guidance from the regulators on this issue. We will continue to update you on any further developments on this issue.

What is an "Integrated" HRA?
One point of continued uncertainty is what constitutes an "integrated" HRA. Currently, the IRS has not formally provided guidance on this issue. Absent this guidance, a more conservative interpretation of the term "integrated" would mean a situation where the HRA and major medical plan are documented and reported under ERISA as one plan that has identical participants, and the HRA only reimburses expenses not covered by the major medical plan (e.g., deductibles or co-pays). A more lenient interpretation of this term would mean that the HRA must be offered in conjunction with a major medical plan that is already subject to and operating in compliance with the final regulations.

Next Steps: Further guidance that clarifies when an HRA is sufficiently "integrated" would be welcome. WageWorks is currently working with other industry experts to submit comments on this topic of concern. We will continue to update you on any further developments on this issue.