Guidance on Applying Health Care Reform to HRAs & Health FSAs

Under new guidance, it appears that stand-alone health reimbursement arrangements (HRAs) providing benefits to anyone other than retirees are no longer viable. That is, in order for an HRA to be exempt from certain health care reform requirements (which they generally cannot meet), HRAs must be “integrated” with group health plan coverage. Integration requires meeting several restrictive conditions. The guidance also addresses health FSAs, employee assistance programs (EAPs), and arrangements under which employers pay or reimburse premiums for individual health coverage or make a specified amount available for that purpose.


The health care reform law prohibits group health plans from having annual dollar limits on benefits. HRAs are group health plans and, almost by definition, they have annual dollar limits. Under an HRA, an employer makes a specified amount available to each employee in order to reimburse qualifying medical expenses, which may include certain health insurance premiums. In previous guidance, federal agencies clarified that HRAs which are integrated with major medical coverage will be considered to comply with the health care reform law’s prohibition of annual limits. Since then, the agencies have provided guidance on what it means for an HRA to be integrated with a major medical program, and the extent to which other HRAs (stand-alone HRAs) can avoid violating the prohibition of annual dollar limits. The agencies have also previously confirmed that excepted benefits — those benefits that meet the requirements for exemption from the HIPAA portability requirements — are not subject to the coverage reforms included in the health care reform law, including the prohibition of annual dollar limits on benefits and the requirement to provide preventive care with no cost sharing.

New Guidance

The new guidance apparently is intended to coordinate previous piecemeal guidance and to fill in gaps. The National Legal & Research Group is reviewing the guidance and will provide additional details in future publication(s). Some highlights from the guidance include:

  • It appears that any HRA, other than a retiree-only HRA, must be integrated with a group health plan in order to avoid violating the health care reform law’s prohibition of annual limits.
  • The guidance sets out two alternative multi-part tests for determining whether an HRA is considered integrated with non-HRA group health coverage. While the tests allow for additional situations to be considered integration, in the case of a typical employer-sponsored HRA/major medical program, integration would exist if: o The major medical portion of the coverage is considered to have at least 60% actuarial value (it is unclear whether it must also be affordable for this purpose)
    • The HRA is available only to employees who are enrolled in the major medical coverage
    • Each employee covered by the HRA is actually enrolled in the major medical coverage
    • The HRA allows each participant to permanently opt out of the HRA and waive future reimbursements from the HRA at least annually and, upon termination of employment, either any remaining balance is forfeited or the participant is permitted to permanently opt out of the HRA and waive future reimbursements (the guidance explains that this condition is necessary because HRA coverage is minimum essential coverage and continuing availability of reimbursements would preclude qualifying for premium assistance in connection with coverage obtained through a health insurance exchange)
  • An HRA generally cannot be considered to be a health FSA for purposes of the exemption from the annual dollar limits prohibition that applies to health FSAs.
  • Any arrangement under which an employer pays, or makes amounts available to pay or reimburse, the cost of health coverage on a tax-favored basis is considered a group health plan that must comply with the coverage reform provisions of the health care reform law, including the prohibition of annual dollar limits on benefits and the requirement that non-grandfathered plans cover certain preventive services with no cost-sharing requirements.
  • If an employer pays or reimburses health insurance premiums (including premiums for individual health insurance) on an after-tax basis, that arrangement will not be considered to be a group health plan that is subject to coverage reforms.
  • The agencies intend to modify previously issued regulations defining excepted benefits to provide that EAP coverage is an excepted benefit (i.e., exempt from the coverage reforms) so long as the EAP does not provide significant benefits in the nature of medical care or treatment.

The new agency guidance applies for plan years beginning on and after January 1, 2014, but may be applied for all prior periods.


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