Question: How can employers offering a specialty HRA for infertility, abortion-related travel assistance, or other specific medical expenses satisfy the ACA HRA integration requirements?

Short Answer: Employees and dependents covered by the specialty HRA must also be enrolled in an employer-sponsored group major medical plan through either the employer offering the HRA or through another employer, such as the spouse’s medical plan.

ACA Prohibition of “Stand-Alone” Non-Integrated HRAs: A Short History

Perhaps appropriately enough, this compliance chronicle begins on Friday the 13th.  On September 13, 2013, the DOL issued Technical Release 2013-03, and the IRS issued Notice 2013-54, collectively referred to as the “Friday the 13th Guidance.”  These extensive releases kicked off a long series of Departmental guidance addressing the ACA prohibition of HRA coverage that is not “integrated” with an employer-sponsored group major medical plan.

The Friday the 13th Guidance introduced employers to the basic integration requirements, focusing primarily on the conditions for integration and emphasizing the inability to integrate through individual policies.

The IRS followed up the Friday the 13th Guidance two years later in 2015 with many more details through Notice 2015-17 and Notice 2015-87, collectively referred to as the “ACA Potluck Guidance.”  This additional guidance reiterated the prohibition of non-integrated HRAs and introduced the concept of “family HRA” integration, requiring the employee’s covered spouse and dependents to also be enrolled in an employer-sponsored group major medical plan.

In 2019, the Friday the 13th Guidance and ACA Potluck Guidance were eventually distilled into a comprehensive set of tri-agency regulations that compiled all the HRA integration rules in a single set of official regulatory guidance.

What is a Specialty HRA?

HRAs are defined contribution, account-based arrangements that employers can establish to reimburse qualifying medical expenses of employees and their dependents.

HRAs designed for the purpose of reimbursing expenses not sufficiently covered by the group health plan are typically referred to as a “specialty HRA” in reference to their focus on special types of medical expenses, as opposed to a more traditional cost-sharing HRA designed to address the umbrella deductible, co-insurance, and co-pay cost-sharing amounts under the medical plan. 

Common examples of specialty HRAs are those designed for infertility expenses, abortion travel expenses, gender dysphoria expenses, mental health expenses, and autism-related expenses.  Employers should work with a TPA to properly establish, maintain, and administer a specialty HRA.

For more details, see:

• Newfront Office Hours Webinar: Fringe Benefits for Employers

• Potential Consequences of Reimbursing Medical Expenses Outside of a Plan or HRA

• Compliance Considerations for Employer Reimbursement of Abortion-Related Expenses

• Post-Deductible HRAs Preserve HSA Eligibility

• COBRA for Specialty HRAs

• Nondiscrimination Rules for Specialty HRAs

• Common Infertility HRA Expenses

• Setting Up a Specialty HRA

The ACA HRA Integration Requirements for Specialty HRAs

There are four requirements for employers to satisfy the ACA HRA integration rules for any specialty HRA offered to an employee:

1. Minimum Value Plan: The employer offers a major medical plan to the employee that provides minimum value under the ACA standard;

2. Group Health Plan Enrollment: The employee is actually enrolled in an employer-sponsored group major medical plan that provides minimum value;

3. HRA Eligibility Restricted: The HRA must be available only to employees who are actually enrolled in an employer-sponsored group major medical plan that provides minimum value; and

4. Right to Opt-Out: The employer must offer the employee the ability to permanently opt-out of the HRA at least annually and upon termination of employment.

Note: Slightly different integration rules (which are inapplicable to a specialty HRA) apply for HRAs that are restricted to cost-sharing under the employer’s major medical plan.

Individual Policies Do Not Satisfy ACA HRA Integration Requirements

The most important element of the ACA HRA integration requirements is that the specialty HRA cannot be integrated with an individual policy, such as coverage available on the Exchange.  Specialty HRAs can be integrated only with employer-sponsored group major medical plans providing minimum value.

Note: Separate rules (which are inapplicable to a specialty HRA) have created the ability for employers to reimburse individual policy premiums through an Individual Coverage HRA (ICHRA).  Those ICHRA rules impose many significant limitations, including a requirement that the employee not be eligible for both an ICHRA and the traditional employer-sponsored group major medical plan.

• For more details: Newfront ICHRA for Employers Guide.

Group Health Plan Enrollment Not Restricted to Employer Sponsoring HRA

The most common misconceptions related to the ACA HRA integration rules surround the issue of whether the employee needs to be covered under the major medical plan of the employer offering the HRA. 

The rules are clear that the employee may enroll in any employer-sponsored group major medical plan that provides minimum value, regardless of whether the plan is sponsored by the same employer offering the HRA.

In other words, employees who waive the employer’s medical plan may still be eligible for the specialty HRA if they are enrolled in another employer-sponsored group major medical plan that provides minimum value.  For example, the employee may be enrolled in the group health plan of a spouse, domestic partner, or parent.

Employer Specialty HRA Eligibility Plan Design Options

Employers have two main options in determining how to structure eligibility for the specialty HRA:

1. Limit HRA Participation to Employees Enrolled in Employer’s Major Medical Plan: Under this approach, employees who waive the employer’s major medical plan will not be eligible for the HRA.

2. Allow Waived Employees to Participate in HRA if Enrolled in Other Employer’s Plan: Under this approach, the HRA will be available to employees who waive the employer’s major medical plan if the employee is enrolled in another employer-sponsored group major medical plan (e.g., through a spouse, domestic partner, or parent) that provides minimum value.

Employers May Rely on the Reasonable Representation of Other Coverage

Employers that choose the second approach above (i.e., to permit HRA coverage for employees who waive the major medical plan) must confirm that the waived employee is enrolled in another employer-sponsored group major medical plan that provides minimum value for the employee to be covered by the specialty HRA.

Tri-agency FAQ guidance confirms that the employer “may rely on the reasonable representation of an employee” that the employee is also covered by another employer-sponsored group major medical plan that provides minimum value.  For these purposes, the employee’s certification of other qualifying coverage should be sufficient.

For employers that wish to impose a documentation requirement to substantiate that the employee is covered by another employer-sponsored group major medical plan that provides minimum value, some possible options include:

• A letter from the other employer on the employer’s letterhead confirming coverage;

• EOBs or other correspondence from the plan or issuer indicating coverage;

• Paystubs showing payroll deductions for health coverage;

• Third-party statements verifying coverage;

• Phone call confirmation from the plan, employer, carrier, or TPA verifying coverage;

• Health plan ID cards; and

• Records from medical providers indicating coverage.

Family Members Covered by Specialty HRA Must Also Be Enrolled in Group Health Plan

A “family HRA” is an HRA that will reimburse not only the medical expenses of the employee, but also the medical expenses of the employee’s spouse and/or dependents.

Where the employer’s specialty HRA plan design includes coverage for the employee’s family members, those family members must also be enrolled in an employer-sponsored group major medical plan that provides minimum value.

As with employees, such family members’ other qualifying group health plan coverage can be through a different employer and can be verified by “the reasonable representation of an employee. 

Excepted Benefits Do Not Qualify for Other Group Health Plan Coverage

The ACA HRA integration rules require that the employee (and any covered family members) be enrolled in an employer-sponsored group major medical plan that provides minimum value.  “Excepted benefits” do not qualify for these purposes.  This means that a dental plan, vision plan, health FSA, EAP, or other similar arrangement that is not a traditional major medical plan will not be sufficient.

• For more details: The ACA and HIPAA Excepted Benefits.

Other Group Health Plan Coverage Must Provide Minimum Value

A medical plan provides minimum value if the percentage of the total costs of benefit provided under the plan is no less than 60%.  This means that the plan must have at least a 60% actuarial value (i.e., to match at least a Bronze level plan). 

Virtually all employer-sponsored medical plans provide minimum value.  A small minority of plans—typically referred to as “skinny plans”—do not meet this standard, but it is very uncommon because the employer is exposed to potential ACA employer mandate penalty liability for such offers.

• For more details: Newfront ACA Employer Mandate & ACA Reporting Guide.

Potential Penalties for Failure to Comply with HRA ACA Integration Requirements

Non-integrated HRAs cannot satisfy the ACA market reform requirements for group health plans.  Such non-integrated HRAs fail to comply with the ACA prohibition of annual limits on the dollar amount of essential benefits.  They also do not satisfy the ACA requirement to provide certain preventive services without imposing any cost-sharing requirements.

The potential penalties for offering a non-integrated specialty HRA are excise taxes under IRC §4980D of $100 per day, per employee.  That could potentially result in employer excise tax penalties of $36,500 per employee per year.

Given this significant potential liability, employers should work with their TPA to ensure their specialty HRA is designed to comply with these ACA HRA integration requirements.

Relevant Cites:

29 CFR §2590.715-2711(d)(2):

(2) Requirements for an HRA or other account-based group health plan to be integrated with another group health plan.
An HRA or other account-based group health plan is integrated with another group health plan for purposes of PHS Act section 2711 and paragraph (a)(2) of this section if it satisfies the requirements under one of the integration methods set forth in paragraph (d)(2)(i) or (ii) of this section. For purposes of the integration methods under which an HRA or other account-based group health plan is integrated with another group health plan, integration does not require that the HRA or other account-based group health plan and the other group health plan with which it is integrated share the same plan sponsor, the same plan document or governing instruments, or file a single Form 5500, if applicable. An HRA or other account-based group health plan integrated with another group health plan for purposes of PHS Act section 2711 and paragraph (a)(2) of this section may not be used to purchase individual health insurance coverage unless that coverage consists solely of excepted benefits, as defined in 45 CFR 148.220.

…

(ii) Method for integration with another group health plan: Minimum value required. An HRA or other account-based group health plan is integrated with another group health plan for purposes of this paragraph (d) if:

(A) The plan sponsor offers a group health plan (other than the HRA or other account-based group health plan) to the employee that provides minimum value pursuant to Code section 36B(c)(2)(C)(ii) (and its implementing regulations and applicable guidance);

(B) The employee receiving the HRA or other account-based group health plan is actually enrolled in a group health plan (other than the HRA or other account-based group health plan) that provides minimum value pursuant to Code section 36B(c)(2)(C)(ii) (and applicable guidance), regardless of whether the plan is offered by the plan sponsor of the HRA or other account-based group health plan (referred to as non-HRA MV group coverage);

(C) The HRA or other account-based group health plan is available only to employees who are actually enrolled in non-HRA MV group coverage, regardless of whether the non-HRA MV group coverage is offered by the plan sponsor of the HRA or other account-based group health plan (for example, the HRA may be offered only to employees who do not enroll in an employer's group health plan but are enrolled in other non-HRA MV group coverage, such as a group health plan maintained by an employer of the employee's spouse); and

(D) Under the terms of the HRA or other account-based group health plan, an employee (or former employee) is permitted to permanently opt out of and waive future reimbursements from the HRA or other account-based group health plan at least annually, and, upon termination of employment, either the remaining amounts in the HRA or other account-based group health plan are forfeited or the employee is permitted to permanently opt out of and waive future reimbursements from the HRA or other account-based group health plan (see paragraph (d)(3) of this section for additional rules regarding forfeiture and waiver).

Tri-Agency ACA FAQ Part 37:

Q1: May a family HRA be integrated with a non-HRA group health plan sponsored by the employer of the employee’s spouse that covers all of the individuals covered by the family HRA if that non-HRA group health plan otherwise meets the applicable integration requirements?

 Yes. For purposes of determining whether a family HRA is “integrated” with a non-HRA group health plan, an employer may rely on the reasonable representation of an employee that the employee and other individuals covered by the family HRA are also covered by another non-HRA group health plan that otherwise meets the applicable integration requirements (a qualifying non-HRA group health plan).

IRC §4980D(b)(1):

(b) Amount of tax.

(1) In general.

The amount of the tax imposed by subsection (a) on any failure shall be $100 for each day in the noncompliance period with respect to each individual to whom such failure relates.

Disclaimer: The intent of this analysis is to provide the recipient with general information regarding the status of, and/or potential concerns related to, the recipient’s current employee benefits issues. This analysis does not necessarily fully address the recipient’s specific issue, and it should not be construed as, nor is it intended to provide, legal advice. Furthermore, this message does not establish an attorney-client relationship.  Questions regarding specific issues should be addressed to the person(s) who provide legal advice to the recipient regarding employee benefits issues (e.g., the recipient’s general counsel or an attorney hired by the recipient who specializes in employee benefits law).