John Hickman was quoted in a BNA Pension and Benefits Reporter article discussing the PPACA impact on HRAs and the challenges for practitioners. According to the article, recent guidance has clarified that most HRAs are not subject to PPACA prohibitions on annual benefit limits and it is unclear how HRAs will exist with health exchanges and the cost valuations of health coverage.
“Many questions about health reimbursement arrangements remain unanswered as benefit practitioners try to fit various types of HRAs into a new regulatory regime intended primarily for major medical plans,” Hickman said. “Lawmakers were not focused on HRAs when the Patient Protection and Affordable Care Act of 2010 (Pub. L. No. 111-148) was enacted. We're left applying a number of rules that just don't fit well or, frankly, don't fit at all.”
Hickman continued, “Compliance with a provision in the new health care law that prohibits annual benefit limits is an example of how practitioners often must try to fit a square peg into a round hole.”
“An HRA tandem with a major medical plan is not subject on its own to the annual benefit limit,” he said. “But for HRAs that are independent or detached from any major medical plan, we’re just not quite sure what the rules are for these so-called standalone HRAs.”
“An interim final regulation and proposed rules issued in June 2010 provided some guidance with respect to HRAs (119 PBD, 6/23/10; 37 BPR 1468, 6/29/10; 75 Fed. Reg. 37,188, 6/28/10; 75 Fed. Reg. 37,242, 6/28/10),” Hickman stated. “Under an exemption in the interim final regulation, any HRAs that meet the requirements for tax code Section 106(c) for health care flexible spending accounts are not subject to PPACA‘s prohibition on annual benefit limits.”
Hickman articulated further, “Under an exemption in the interim final regulation, any HRAs that meet the requirements for tax code Section 106(c) for health care flexible spending accounts are not subject to PPACA‘s prohibition on annual benefit limits.”
“Under that exemption, sometimes referred to as ‘the five times rule,’ if the maximum benefit under the HRA is no more than five times the annual cost of health insurance continuation coverage under the Consolidated Omnibus Budget Reconciliation Act, the HRA will be treated as an FSA and, as an FSA, the prohibition on annual benefit limits do not apply,” he said.
When all of the existing guidance is taken into account, Hickman said, “the vast majority of HRAs are not subject to the new health care law's prohibition on annual benefit limits.”
“Several weeks ago,” Hickman explained, “critics of the law overhauling the nation's health care system pointed to a large number of waiver filings from the San Francisco area. As it ended up, many of those filings were for HRAs and were filings that were probably not required.”