New HRA Rules are About to Make Larger Companies Cry Foul

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According to recently published materials from the Internal Revenue Service, the U.S. Department of Labor’s Employee Benefits Security Administration, and the U.S. Department of Health and Human Services, big employers that use the new individual Health Reimbursement Arrangement (HRA) programs are going to have a harder time avoiding the Affordable Care Act mandate penalties.

That’s because, under the new rules, employers deemed to be big enough to be subject to the ACA’s “shared responsibility” rules will now have to make sure their employees can afford the ACA’s exchange plan. This, according to health care and labor lawyers at Foley Hoag LLP.

Foley Hoag’s lawyers, who include Thomas Barker, Christopher Feudo and Ross Margulies, are sending out the message in a recent alert that larger companies may now find themselves with larger headaches to continue to reach compliance under the new arrangement.

Normally, the lawyers state, an employee who was offered an individual coverage HRA would not be able to use an ACA exchange plan premium tax credit subsidy. They would not be able to cause the IRS to impose employer coverage mandate penalties.

To explain, the lawyers write: “If an individual is offered the HRA option, but declines it, the individual may be able to qualify for the credit if the HRA, when combined with individual market coverage, is unaffordable.”

So under the new rules, an employer could end up facing substantial penalties, should permanent, full-time workers that decline individual coverage HRAs wind up qualifying for the ACA exchange plan premium tax credit.

Another challenge the lawyers caught regards the rising expense of the individual coverage plans themselves.

Should employers want to attract the best talent they can, they’ll need to increase HRA contributions on an annual basis, which would eventually exceed the amount they’re paying for the same coverage on a group basis.

Employers sometimes also contribute up to $1,800 per year for employees to elect for use in buying “excepted benefits,” usually in the form of dental or hospital indemnity insurance.

It all adds up. Regulation impact analysts at the U.S. Department of Labor estimate the new regulations could eventually lead to over 800,000 employers nationwide replacing their group health plans with individual coverage HRA programs.

While the new changes affect all larger companies, some may find a level of appeal to the rules. William Sweetnam Jr., a legislative and technical director at the Employers Council on Flexible Compensation, has stated that the individual coverage HRA program could have some appeal, for example, with employers that aren’t big enough to be subject to the ACA employer mandate, which would give them some advantage. Those companies may also elect to provide coverage for employees not affected by the mandate. Such employees include temporary workers or part-timers.

“An employer may be concerned that its employees are struggling with deductible and co-pays for the health insurance that they have…” Sweetnam says, “And they may want to offer a small amount of assistance to them through an HRA.”

For their part, the Foley Hoag lawyers have concluded that how this will all turn out is, as of yet, unclear. “The Treasury Department and the IRS are planning to propose new rules on this topic,” they write.

We’ll just have to stay tuned.