Impermissible Reimbursement Arrangements
Impermissible Reimbursement ArrangementsNovember 18, 2014
Catrina Reyes, J.D., M.P.A., Policy Analyst and Compliance Manager
The Department of Labor (DOL), Health and Human Services (HHS), and Treasury issued a FAQ dated November 6, 2014 reinforcing that any arrangement for reimbursement or payment of premiums for an individual market policy for active employees is impermissible. Health Reimbursement Arrangements (HRAs) and other similar defined contribution arrangements for active employees are also impermissible unless they are “integrated” with an employer’s group health plan or the reimbursement under such arrangements are limited to retirees or certain excepted benefits. Vendors, such as TASC and Zane Benefits, market products to employers wherein employers set-up a Code section 105 reimbursement plan that allows employees to purchase individual insurance policies, and access premium tax credits for Marketplace coverage, if eligible. However, in the FAQs, the DOL, HHS, and Treasury stressed that these arrangements are also impermissible.
In a prior guidance issued on September 13, 2013 (Notice 2013-54), the DOL and Treasury explained why these arrangements are impermissible. Reimbursement arrangements, employer payment plans, and defined contribution reimbursement arrangements generally are considered to be group health plans and are thus subject to rules applicable to group health plans. The Affordable Care Act market reforms, specifically the annual dollar limit prohibition and the preventive services requirements, apply to group health plans. Under the annual dollar limit prohibition, a group health plan may not establish any annual limit on the dollar amount of essential health benefits. The preventive services requirement provides that non-grandfathered group health plans are required to provide certain preventive services without cost-sharing. Reimbursement arrangements, employer payment plans, and defined contribution reimbursement arrangements will fail to comply with the annual dollar limit prohibition, because these arrangements/plans are considered to impose an annual limit up to the cost of the individual market coverage purchased through the arrangement. These arrangements/plans will also fail to comply with the preventive services requirements, because they do not provide preventive services without cost-sharing in all instances.
Impermissible arrangements maintained by private employers will be subject to an excise tax equal to $100 per day ($36,500 per year), per affected beneficiary, with a cap of $500,000 for non-willful violations. They may also be subject to suits by affected participants and beneficiaries to enforce their rights under ERISA. An employer’s impermissible arrangement may also negatively impact their employees. Potential employee consequences could include having to repay subsidies or re-file income taxes. With new rules in place for health and welfare plans, the government is reviewing health and group plans for compliance at an increasingly frequent rate. These rules are already in effect, they were effective for plan years beginning on or after January 1, 2014.
Make sure to advise your prospects and clients.
If they have one of these arrangements in place, contact us at 800.696.4543 or email@example.com for a solution to address their risk.
* The term “medical care” means amounts paid–
(A) for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body,
(B) for transportation primarily for and essential to medical care referred to in subparagraph (A),
(C) for qualified long-term care services, or
(D) for insurance (including amounts paid as premiums under part B of title XVIII of the Social Security Act, relating to supplementary medical insurance for the aged) covering medical care referred to in subparagraphs (A) and (B) or for any qualified long-term care insurance contract.
Excepted benefits include:
(A) Coverage only for accident, or disability income insurance
(B) Liability insurance
(C) Coverage issued as a supplement to liability insurance
(D) Workers’ compensation
(E) Automobile medical payment insurance
(F) Credit-only insurance
(G) Coverage for on-site medical clinics
(H) Other similar insurance coverage, under which benefits for medical care are secondary or incidental to other insurance benefits
The following are excepted benefits if the benefits are provided under a separate policy, certificate, or contract:
(I) Limited scope dental or vision benefits
(J) Benefits for long-term care, nursing home care, home health care, community-based care
(K) Coverage only for a specified disease or illness
(L) Hospital indemnity or other fixed indemnity insurance
(M) Medicare supplemental health insurance, and similar supplemental coverage provided to coverage under a group health plan
IRS Notice 2013-54, http://www.irs.gov/pub/irs-drop/n-13-54.pdf (last updated Sept. 13, 2013).
DOL FAQs about Affordable Care Act Implementation (Part XXII), http://www.dol.gov/ebsa/faqs/faq-aca22.html (last updated Nov. 6, 2014).
ERISA Enforcement, http://www.dol.gov/ebsa/erisa_enforcement.html.