This post details recent Dept. of Health & Human Services (HHS) guidance on the annual limit requirement/waiver process and its effect on Health Reimbursement Arrangements (HRAs).

Background:

One provision of the Patient Protection and Affordable Care Act (PPACA), which went into effect back in September of 2010, prohibits health plans from imposing annual “caps” on the reimbursement of essential health benefits.[1]  The interim final regulation provides that for plan years beginning before 2014, a group health plan may impose a restricted annual limit on essential health benefits, but only if the annual limit is at least one of the following:

• $750,000 annual limit for plan years beginning on/after Sept. 2010 but before Sept. 1, 2011;
• $1.25M annual limit for plan years beginning on/after Sept. 2011 but before Sept. 1, 2012; and
• $2M annual limit for plan years beginning on/after Sept. 23, 2012 but before Jan. 1, 2014.

Effect on HRAs

In the same interim final regulation, certain categories of HRAs were declared automatically exempt from the annual limit requirement.

• Integrated HRAs– those that are “integrated” with, or tied to, a high deductible health plan or other health insurance coverage. (Status = EXEMPT)
• Retiree HRAs– those that reimburse only those expenses incurred after the participant’s employment has ended.  (Status = EXEMPT)
• Limited Scope HRAs– those that reimburse dental and/or vision expenses only.  (Status = EXEMPT)
• Stand-Alone HRAs – per HHS guidance issued in late August 2011, HRAs in existence prior to Sept. 23, 2010 are exempt from the requirement to individually apply for a waiver or extension (see below) for plan years beginning before 2014.

Waiver Applications

Established health plans with annual caps were permitted to apply for a waiver from the provision. If granted, the waiver would allow a plan’s current cap to remain in effect until the plan removes the limit or until 2014, whichever comes first. At last check, 491 HRA waivers had been granted (out of a total of 1,472 waivers requested). 

In anticipation that they would be inundated with waiver requests, HHS set a firm deadline of September 22nd… This means applications are no longer being considered. 

What does this mean for HRAs established since Sept. 23, 2010?

While it appears that they are not covered by this new HRA exemption, these plans may or may not have been eligible to apply for an annual limit waiver under the HHS program that expired September 22. In sum, this effectively means that these restrictions will apply to future new HRAs unless said HRAs are otherwise exempt from the PPACA annual limit restrictions (e.g., exempted because the HRA is integrated with other health coverage, provides “retiree-only” coverage, etc.).

If employers are forced to raise their annual limits to the recommended amounts, they may be compelled to drop or dramatically reduce the benefits they provide. The employer benefits provided by TASC (in the HRA) go beyond any health insurance offerings, and we hold firm in our belief that these plans fit within the spirit and intent of the “Integrated HRA” exception/exemption. Recent healthcare regulations mandated by PPACA already pose significant challenges to small business owners, including the management of medical reimbursement plans, adherence to new regulations and strict deadlines, and so on.  Meanwhile, this requirement may single-handedly reduce access to these benefits and negatively affect the individuals covered. 

[1] Essential health benefits that are subject to the restriction on annual limits include the following: ambulatory, emergency, hospitalization, laboratory, maternity/newborn care, mental health/substance abuse, pediatric, preventative/wellness services, and rehabilitative care.