Health Reimbursement Arrangements and Other Account-Based Group Health Plans, 54420-54477 [2018-23183]

Download as PDF 54420 Federal Register / Vol. 83, No. 209 / Monday, October 29, 2018 / Proposed Rules DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Parts 1 and 54 [REG–136724–17] RIN 1545–BO46 DEPARTMENT OF LABOR Employee Benefits Security Administration 29 CFR Parts 2510 and 2590 RIN 1210–AB87 DEPARTMENT OF HEALTH AND HUMAN SERVICES 45 CFR Parts 144, 146, 147, and 155 [CMS–9918–P] RIN 0938–AT90 Health Reimbursement Arrangements and Other Account-Based Group Health Plans Internal Revenue Service, Department of the Treasury; Employee Benefits Security Administration, Department of Labor; Centers for Medicare & Medicaid Services, Department of Health and Human Services. ACTION: Notice of proposed rulemaking. AGENCY: This document sets forth proposed rules to expand opportunities for working men and women and their families to access affordable, quality healthcare through proposed changes to regulations under various provisions of the Public Health Service Act (PHS Act), the Employee Retirement Income Security Act (ERISA), and the Internal Revenue Code (Code) regarding health reimbursement arrangements (HRAs) and other account-based group health plans. (For simplicity, this preamble generally refers only to HRAs, but references to HRAs should also be considered to include other accountbased group health plans, unless indicated otherwise.) Specifically, these proposed rules allow integrating HRAs with individual health insurance coverage, if certain conditions are met. The proposed rules also set forth conditions under which certain HRAs would be recognized as limited excepted benefits. Also, the Department of the Treasury (Treasury Department) and the Internal Revenue Service (IRS) propose rules regarding premium tax credit (PTC) eligibility for individuals offered coverage under an HRA integrated with individual health amozie on DSK3GDR082PROD with PROPOSALS2 SUMMARY: VerDate Sep<11>2014 18:32 Oct 26, 2018 Jkt 247001 insurance coverage. In addition, the Department of Labor (DOL) proposes a clarification to provide plan sponsors with assurance that the individual health insurance coverage the premiums of which are reimbursed by an HRA or a qualified small employer health reimbursement arrangement (QSEHRA) does not become part of an ERISA plan, provided certain conditions are met. Finally, the Department of Health and Human Services (HHS) proposes rules that would provide a special enrollment period in the individual market for individuals who gain access to an HRA integrated with individual health insurance coverage or who are provided a QSEHRA. The goal of these proposed rules is to expand the flexibility and use of HRAs to provide more Americans with additional options to obtain quality, affordable healthcare. The proposed rules would affect employees and their family members; employers, employee organizations, and other plan sponsors; group health plans; health insurance issuers; and purchasers of individual health insurance coverage. DATES: Comments are due on or before December 28, 2018. ADDRESSES: Written comments may be submitted to the addresses specified below. Any comment that is submitted will be shared with the DOL and HHS. Please do not submit duplicates. All comments will be made available to the public. Warning: Do not include any personally identifiable information (such as name, address, or other contact information) or confidential business information that you do not want publicly disclosed. All comments are posted on the internet exactly as received, and can be retrieved by most internet search engines. No deletions, modifications, or redactions will be made to the comments received, as they are public records. Comments may be submitted anonymously. Comments, identified by REG– 136724–17, may be submitted by one of the following methods: Federal eRulemaking Portal: https:// www.regulations.gov. Follow the instructions for submitting comments. Mail: CC:PA:LPD:PR (REG–136724– 17), Room 5205, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044. Hand or courier delivery: Monday through Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG– 136724–17), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue NW, Washington, DC 20224. Comments received will be posted without change to www.regulations.gov and available for public inspection. PO 00000 Frm 00002 Fmt 4701 Sfmt 4702 Inspection of Public Comments: All comments received before the close of the comment period are available for viewing by the public, including any personally identifiable information that is included in a comment. All comments received before the close of the comment period will be posted on the following website as soon as possible after they have been received: https://www.regulations.gov. Follow the search instructions on that website to view public comments. FOR FURTHER INFORMATION CONTACT: Christopher Dellana, Internal Revenue Service, Department of the Treasury, at (202) 317–5500; Elizabeth Schumacher or Matthew Litton, Employee Benefits Security Administration, Department of Labor, at (202) 693–8335; David Mlawsky or Cam Clemmons, Centers for Medicare & Medicaid Services, Department of Health and Human Services, at (410) 786–1565. Customer Service Information: Individuals interested in obtaining information from the DOL concerning employment-based health coverage laws may call the EBSA Toll-Free Hotline at 1–866–444–EBSA (3272) or visit the DOL’s website (www.dol.gov/ebsa). In addition, information from HHS on private health insurance coverage and coverage provided by nonfederal governmental group health plans can be found on the Centers for Medicare & Medicaid Services (CMS) website (www.cms.gov/cciio), and information on healthcare reform can be found at www.HealthCare.gov. SUPPLEMENTARY INFORMATION: I. Background A. Executive Order 13813 On October 12, 2017, President Trump issued Executive Order 13813,1 ‘‘Promoting Healthcare Choice and Competition Across the United States,’’ stating, in part, that the ‘‘Administration will prioritize three areas for improvement in the near term: Association health plans (AHPs), shortterm, limited-duration insurance (STLDI), and health reimbursement arrangements (HRAs).’’ With regard to HRAs, the Executive Order directs the Secretaries of the Treasury, Labor, and HHS to ‘‘consider proposing regulations or revising guidance, to the extent permitted by law and supported by sound policy, to increase the usability of HRAs, to expand employers’ ability to offer HRAs to their employees, and to allow HRAs to be used in conjunction with nongroup coverage.’’ The Executive Order further provides that 1 82 E:\FR\FM\29OCP2.SGM FR 48385 (Oct. 17, 2017). 29OCP2 Federal Register / Vol. 83, No. 209 / Monday, October 29, 2018 / Proposed Rules expanding ‘‘the flexibility and use of HRAs would provide many Americans, including employees who work at small businesses, with more options for financing their healthcare.’’ The proposed rules have been developed in response to this Executive Order.2 B. Health Reimbursement Arrangements and Other Account-Based Group Health Plans 1. In General amozie on DSK3GDR082PROD with PROPOSALS2 An account-based group health plan is an employer-provided group health plan that provides for reimbursement of expenses for medical care (as defined under section 213(d) of the Code) (medical care expenses), subject to a maximum fixed-dollar amount of reimbursements for a period (for example, a calendar year). An HRA is a type of account-based group health plan funded solely by employer contributions (with no salary reduction contributions or other contributions by employees) that reimburses an employee solely for medical care expenses incurred by the employee, or the employee’s spouse, dependents, and children who, as of the end of the taxable year, have not attained age 27, up to a maximum dollar amount for a coverage period.3 The reimbursements under these types of arrangements are excludable from the employee’s income and wages for Federal income tax and employment tax purposes. Amounts that remain in the HRA at the end of the year often may be used to reimburse medical care expenses incurred in later years, depending on the terms of the HRA. HRAs are not the only type of account-based group health plan. For example, an employer payment plan is also an account-based group health plan. An employer payment plan is an arrangement under which an employer reimburses an employee for some or all of the premium expenses incurred for individual health insurance coverage, or other non-employer sponsored hospital or medical insurance, such as a reimbursement arrangement described in Revenue Ruling 61–146, 1961–2 CB 25, or an arrangement under which the employer uses its funds directly to pay 2 In response to Executive Order 13813, on June 21, 2018, DOL published the Definition of Employer under Section 3(5) of ERISA—Association Health Plans final rule and on August 3, 2018, DOL, HHS and the Treasury Department published the ShortTerm, Limited-Duration Insurance final rule. See the Association Health Plan final rule at 83 FR 28912 and the Short-Term, Limited-Duration Insurance final rule at 83 FR 38212. 3 See IRS Notice 2002–45, 2002–02 CB 93; Revenue Ruling 2002–41, 2002–2 CB 75; IRS Notice 2013–54, 2013–40 IRB 287. VerDate Sep<11>2014 18:32 Oct 26, 2018 Jkt 247001 the premium for individual health insurance coverage or other nonemployer sponsored hospital or medical insurance covering the employee.4 Other examples of account-based group health plans include health flexible spending arrangements (health FSAs) and certain other employer-provided medical reimbursement plans that are not HRAs.5 2. Application of the Patient Protection and Affordable Care Act to HRAs and Other Account-Based Group Health Plans The Patient Protection and Affordable Care Act, Public Law 111–148, was enacted on March 23, 2010; the Health Care and Education Reconciliation Act of 2010, Public Law 111–152, was enacted on March 30, 2010 (collectively, PPACA). PPACA reorganized, amended, and added to the provisions of part A of title XXVII of the PHS Act relating to health coverage requirements for group health plans and health insurance issuers in the group and individual markets. The term ‘‘group health plan’’ includes both insured and self-insured group health plans. PPACA also added section 715 to ERISA and section 9815 to the Code to incorporate the provisions of part A of title XXVII of the PHS Act, PHS Act sections 2701 through 2728 (the market requirements), into ERISA and the Code, making them applicable to group health plans and health insurance issuers providing health insurance coverage in connection with group health plans. In 4 For more information about employer payment plans, see IRS Notice 2013–54, Q1 & Q3, and IRS Notice 2015–17, Q4 & Q5, 2015–14 IRB 845. 5 A QSEHRA, as defined in section 9831(d) of the Code, is not a group health plan for purposes of the market requirements of the Code (except as provided in section 4980I(f)(4) of the Code), parts 6 and 7 of ERISA, and title XXII and XXVII of the PHS Act, and is not included in the definition of HRAs and other account-based group health plans for purposes of these proposed regulations or this preamble. A QSEHRA is, however, considered a group health plan under the PHS Act for purposes of part C of title XI of the Social Security Act (42 U.S.C. 1320d, et seq.). See section 2791(a)(1) of the PHS Act, as amended by section 18001(c) of the Cures Act. As previously noted, the preamble generally refers only to HRAs, but references to HRAs should also be considered to include other account-based group health plans as defined in these proposed rules, unless otherwise specified. This term does not include QSEHRAs, medical savings accounts (MSAs), or health savings accounts (HSAs). In addition, for purposes of these proposed rules, the term ‘‘HRA or other accountbased group health plan’’ does not include an employer arrangement that reimburses the cost of individual health insurance coverage in a cafeteria plan under section 125 of the Code (cafeteria plan premium arrangements); however see later in this preamble for a clarification that plan sponsors may offer such an arrangement in addition to an HRA integrated with individual health insurance coverage in certain circumstances and see later in this preamble for a related comment solicitation. PO 00000 Frm 00003 Fmt 4701 Sfmt 4702 54421 accordance with section 9831(b) and (c) of the Code, section 732(b) and (c) of ERISA, and sections 2722(b), (c) and 2763 of the PHS Act, the market requirements do not apply to a group health plan or health insurance issuers in the group or individual markets in relation to their provision of excepted benefits described in section 9832(c) of the Code, section 733(c) of ERISA, and section 2791(c) of the PHS Act.6 See the discussion later in this preamble for additional background on excepted benefits. In addition, in accordance with section 9831(a)(2) of the Code and section 732(a) of ERISA, the market requirements do not apply to a group health plan that has fewer than two participants who are current employees on the first day of the plan year.7 PHS Act section 2711, as added by PPACA, generally prohibits group health plans and health insurance issuers offering group or individual health insurance coverage 8 from establishing for any individual any lifetime or annual limits on the dollar value of essential health benefits (EHBs), as defined in section 1302(b) of PPACA. PHS Act section 2711, however, does not prevent a group health plan, or a health insurance issuer offering group or individual health insurance coverage, from placing an annual or lifetime dollar limit for any individual on specific covered benefits that are not EHBs, to the extent these limits are otherwise permitted under applicable law.9 6 While the PPACA amendments to PHS Act section 2722(b) and (c) (formerly section 2721(c) and (d)) could be read as restricting the exemption for excepted benefits so that it applies only with respect to subpart 2 of part A of title XXVII of the PHS Act, HHS does not intend to use its resources to enforce the market requirements with respect to excepted benefits offered by non-federal governmental plans and encourages States to adopt a similar approach with respect to issuers of excepted benefits. See 75 FR 34537 at 34539–34540 (June 17, 2010). 7 While the PPACA amendments to title XXVII of the PHS Act removed the parallel provision at section 2722(a) (formerly section 2721(a)), HHS follows a similar approach for retiree-only nonfederal governmental plans and encourages States to adopt a similar approach with respect to health insurance issuers of retiree-only plans. See 75 FR 34537, 34539–34540 (June 17, 2010). 8 PHS Act section 2711 applies to grandfathered health plans, except that the annual dollar limit prohibition does not apply to grandfathered individual health insurance coverage. Grandfathered health plans are health plans that were in existence as of March 23, 2010, and that are only subject to certain provisions of PPACA, as long as they maintain status as grandfathered health plans under the applicable regulations. See 26 CFR 54.9815–1251, 29 CFR 2590.715–1251, and 45 CFR 147.140. 9 For information regarding EHBs, see HHS’s February 25, 2013 final regulations addressing EHBs under section 1302 of PPACA (78 FR 12834); E:\FR\FM\29OCP2.SGM Continued 29OCP2 54422 Federal Register / Vol. 83, No. 209 / Monday, October 29, 2018 / Proposed Rules amozie on DSK3GDR082PROD with PROPOSALS2 HRAs are subject to PHS Act section 2711. An HRA generally will fail to comply with PHS Act section 2711 because the arrangement is a group health plan that imposes an annual dollar limit on EHBs that the HRA will reimburse for an individual. As explained in prior guidance, however, the Treasury Department, DOL, and HHS (collectively, the Departments) have determined that the annual dollar limit prohibition is not applicable to certain account-based group health plans that are subject to other statutory provisions limiting the benefits available under those plans.10 Specifically, the Departments have explained that the annual dollar limit prohibition does not apply to health FSAs that are offered through a cafeteria plan under section 125 of the Code (cafeteria plan) because section 9005 of PPACA specifically limits salary reduction contributions to health FSAs to $2,500 (indexed for inflation) per year.11 Similarly, although medical savings accounts (MSAs) under section 220 of the Code and health savings accounts (HSAs) under section 223 of the Code generally are not treated as group health plans subject to the market requirements,12 the Departments have concluded that the annual dollar limit prohibition would not apply to an MSA or HSA even if a particular arrangement did meet the criteria to be a group health plan because both types of arrangements are subject to specific statutory provisions that limit the contributions.13 Therefore, the proposed see also HHS Notice of Benefit and Payment Parameters for 2016 (80 FR 10871, Feb. 27, 2015). In addition, HHS issued final rules providing States with additional flexibility to define EHBs, starting with plan years beginning on or after January 1, 2020. 45 CFR 156.111 (83 FR 16930, Apr. 17, 2018). The current regulations under PHS Act section 2711 include a definition of EHBs that applies for plans that are not required to provide EHBs. See 26 CFR 54.9815–2711(c), 29 CFR 2590.715–2711(c), and 45 CFR 147.126(c). As explained later in this preamble, the proposed rules set forth in this document include proposed amendments to the definition of EHBs under the PHS Act section 2711 regulations to reflect the updated final EHB rules. 10 See 80 FR 72192, 72201 (November 18, 2015). 11 Notwithstanding this exclusion for certain health FSAs from the application of the annual dollar limit prohibition, regulations under section 125 of the Code provide that health FSAs are not permitted to reimburse employees for premiums for health coverage. See proposed 26 CFR 1.125–5(k)(4) (72 FR 43938, 43959 (Aug. 6, 2007)). 12 See 75 FR 37188, 37190 (June 28, 2010) and IRS Notice 2004–2, Q1 & Q3, 2004–2 IRB 269, which defines an HSA as a tax-exempt trust or custodial account and a high-deductible health plan as a health plan; see also DOL Field Assistance Bulletins 2004–01 and 2006–02, providing guidance regarding HSAs not constituting ‘‘employee welfare benefit plans’’ covered by title I of ERISA where employer involvement with the HSA is limited. 13 See 75 FR 37188, 37190 (June 28, 2010). VerDate Sep<11>2014 18:32 Oct 26, 2018 Jkt 247001 rules do not apply to MSAs, HSAs, or, in certain circumstances, health FSAs. PHS Act section 2713, as added by PPACA, requires non-grandfathered group health plans, and health insurance issuers offering nongrandfathered group or individual health insurance coverage, to provide coverage for certain preventive services without imposing any cost-sharing requirements for these services.14 Nongrandfathered HRAs are subject to and fail to comply with PHS Act section 2713 because, while HRAs may be used to reimburse the costs of preventive services, HRAs do not reimburse such costs after the HRAs have reimbursed the maximum dollar amount for a coverage period, and therefore HRAs fail to provide the required coverage, and violate the prohibition on imposing cost-sharing for preventive services.15 3. Prior Regulations and Guidance on Integration of HRAs and Other AccountBased Group Health Plans The Departments have previously issued regulations and subregulatory guidance regarding the application of PHS Act sections 2711 and 2713 to HRAs.16 The regulations and guidance 14 See also 26 CFR 54.9815–2713; 29 CFR 2590.715–2713; and 45 CFR 147.130. 15 Because MSAs and HSAs are generally not treated as group health plans, these arrangements are not subject to PHS Act section 2713. Health FSAs are group health plans and, unless they are excepted benefits, will fail to satisfy the requirements of PHS Act section 2713 unless integrated with other coverage that satisfies these requirements. For more information about the application of PHS Act section 2713 to health FSAs, see IRS Notice 2013–54, Q&A 7; DOL Technical Release 2013–03, Q&A–7; and Insurance Standards Bulletin, Application of Affordable Care Act Provisions to Certain Healthcare Arrangements, September 16, 2013, available at https:// www.cms.gov/CCIIO/Resources/Regulations-andGuidance/Downloads/cms-hra-notice-9-162013.pdf. 16 Regulations and subregulatory guidance issued on this topic include: (1) 75 FR 37188 (June 28, 2010); (2) FAQs about Affordable Care Act Implementation (Part XI), available at https:// www.dol.gov/sites/default/files/ebsa/about-ebsa/ our-activities/resource-center/faqs/aca-part-xi.pdf or https://www.cms.gov/CCIIO/Resources/FactSheets-and-FAQs/aca_implementation_ faqs11.html; (3) IRS Notice 2013–54 and DOL Technical Release 2013–03, issued on September 13, 2013, and Insurance Standards Bulletin, Application of Affordable Care Act Provisions to Certain Healthcare Arrangements, September 16, 2013, available at: https://www.cms.gov/CCIIO/ Resources/Regulations-and-Guidance/Downloads/ cms-hra-notice-9-16-2013.pdf; (4) IRS FAQ on Employer Healthcare Arrangements, available at https://www.irs.gov/affordable-care-act/employerhealth-care-arrangements; (5) FAQs about Affordable Care Act Implementation (Part XXII), available at https://www.dol.gov/sites/default/files/ ebsa/about-ebsa/our-activities/resource-center/faqs/ aca-part-xxii.pdf or https://www.cms.gov/CCIIO/ Resources/Fact-Sheets-and-FAQs/Downloads/ FAQs-Part-XXII-FINAL.pdf; (6) IRS Notice 2015–17, issued on February 18, 2015, (as detailed in Notice PO 00000 Frm 00004 Fmt 4701 Sfmt 4702 generally provide that, if an HRA is ‘‘integrated’’ with other group health plan coverage that complies with PHS Act sections 2711 and 2713, the HRA would be considered in compliance because the combined arrangement complies with PHS Act sections 2711 and 2713. The regulations and guidance also provide that HRAs may be integrated with Medicare and TRICARE coverage if certain conditions are met, but may not be integrated with individual health insurance coverage for purposes of complying with PHS Act sections 2711 and 2713.17 In the preamble to the 2010 interim final regulations under PHS Act section 2711, the Departments provided that HRAs may be integrated with ‘‘other coverage as part of a group health plan’’ that complies with PHS Act section 2711 in order for the HRAs to be considered to satisfy PHS Act section 2711.18 The interim final regulations did not, however, set forth rules for implementing integration; the integration methods were set forth in later subregulatory guidance and subsequently included in the final regulations under PHS Act section 2711. On September 13, 2013, the Treasury Department and the IRS issued Notice 2013–54, the DOL issued Technical Release 2013–03, and HHS issued contemporaneous guidance explaining that HHS concurred with the DOL and Treasury Department guidance.19 This guidance stated that an HRA may not be integrated with individual health insurance coverage for purposes of PHS Act sections 2711 and 2713, but described methods for integrating an 2015–17, DOL and HHS reviewed and agreed with the guidance in Part II); (7) 80 FR 72192 (November 18, 2015); (8) Notice 2015–87, issued on December 16, 2015; (9) IRS Notice 2016–17, DOL Technical Release No. 2016–01, and Insurance Standards Bulletin, Application of the Market Reforms and Other Provisions of the Affordable Care Act to Student Health Coverage, each issued on February 5, 2016, available at https://www.cms.gov/CCIIO/ Resources/Regulations-and-Guidance/Downloads/ student-health-bulletin.pdf; (10) FAQs about Affordable Care Act Implementation Part 33, available at https://www.dol.gov/sites/default/files/ ebsa/about-ebsa/our-activities/resource-center/faqs/ aca-part-33.pdf or https://www.cms.gov/CCIIO/ Resources/Fact-Sheets-and-FAQs/Downloads/ACAFAQ-Set-33-Final.pdf; and (11) FAQs about Affordable Care Act Implementation Part 37, available at https://www.dol.gov/sites/default/files/ ebsa/about-ebsa/our-activities/resource-center/faqs/ aca-part-37.pdf or https://www.cms.gov/CCIIO/ Resources/Fact-Sheets-and-FAQs/Downloads/ FAQs-Part-37.pdf. 17 26 CFR 54.9815–2711(d)(4); 29 CFR 2590.715– 2711(d)(4) and 45 CFR 147.126(d)(4). 18 See 75 FR 37188, 37190–37191 (June 28, 2010). 19 See Insurance Standards Bulletin, Application of Affordable Care Act Provisions to Certain Healthcare Arrangements, September 16, 2013, available at https://www.cms.gov/CCIIO/Resources/ Regulations-and-Guidance/Downloads/cms-hranotice-9-16-2013.pdf. E:\FR\FM\29OCP2.SGM 29OCP2 Federal Register / Vol. 83, No. 209 / Monday, October 29, 2018 / Proposed Rules amozie on DSK3GDR082PROD with PROPOSALS2 HRA with another group health plan.20 The provisions in this guidance were later incorporated into the final regulations under PHS Act section 2711, which are summarized later in this section of the preamble. On November 6, 2014, the Departments issued FAQs about Affordable Care Act Implementation (Part XXII).21 Q&A–1 reiterated and clarified prior subregulatory guidance by explaining that if an employer offers its employees cash to reimburse the purchase of individual health insurance coverage, the payment arrangement is a group health plan, without regard to whether the employer treats the money as a pre-tax or post-tax benefit to the employee, and may not be integrated with individual health insurance coverage, and therefore will fail to comply with PHS Act sections 2711 and 2713.22 On February 18, 2015, the Treasury Department and the IRS issued Notice 2015–17. Q&A–3 of Notice 2015–17 provides that an arrangement under which an employer reimburses (or pays directly) some or all of the medical care expenses for employees covered by TRICARE constitutes an HRA and may not be integrated with TRICARE to comply with PHS Act sections 2711 and 2713 because TRICARE is not a group health plan for integration purposes. However, Q&A–3 states that an HRA that pays for or reimburses medical care expenses for employees covered by TRICARE may be integrated with 20 In addition to describing the integration methods, IRS Notice 2013–54 and DOL Technical Release 2013–03, in Q&A–5, provided that, whether or not an HRA is integrated with other group health plan coverage, unused amounts that are credited to the HRA while the HRA is integrated with other group health plan coverage may be used to reimburse medical care expenses in accordance with the terms of the HRA after an employee ceases to be covered by the integrated group health plan coverage without causing the HRA to fail to comply with PHS Act sections 2711 and 2713. In IRS Notice 2015–87, Q&A–2, however, the Departments clarified that an HRA that includes terms permitting the purchase of individual health insurance coverage, even if reimbursement is only allowed after the employee ceases to be covered by other integrated group health plan coverage, fails to be integrated with other group health plan coverage and therefore fails to comply with PHS Act sections 2711 and 2713. 21 See FAQs about Affordable Care Act Implementation (Part XXII), available at https:// www.dol.gov/sites/default/files/ebsa/about-ebsa/ our-activities/resource-center/faqs/aca-part-xxii.pdf or https://www.cms.gov/CCIIO/Resources/FactSheets-and-FAQs/Downloads/FAQs-Part-XXIIFINAL.pdf. 22 The Treasury Department and the IRS note that the information included in this preamble is not intended to be guidance regarding the proper Federal tax treatment or consequences of any particular arrangement, except to the extent the preamble addresses the application of sections 36B, 9801, 9802, 9815, 9831 and 9832 of the Code and PHS Act sections 2711 and 2713. VerDate Sep<11>2014 18:32 Oct 26, 2018 Jkt 247001 another group health plan offered by the employer for purposes of PHS Act sections 2711 and 2713 if (1) the employer offers a group health plan (other than the HRA) to the employee that does not consist solely of excepted benefits and that provides minimum value (MV); (2) the employee participating in the HRA is enrolled in TRICARE; (3) the HRA is available only to employees who are enrolled in TRICARE; and (4) the HRA is limited to reimbursement of cost sharing and excepted benefits, including TRICARE supplemental premiums. Notice 2015– 17 also included a general reminder that to the extent such an arrangement is available to active employees it may be subject to restrictions under other laws that prohibit offering financial or other incentives for TRICARE-eligible employees to decline employerprovided group health plan coverage, similar to the Medicare secondary payer rules. Q&A–3 of Notice 2015–17 also provides that an employer payment plan through which an employer reimburses (or pays directly) all or a portion of Medicare part B or D premiums for employees may not be integrated with Medicare coverage to comply with PHS Act sections 2711 and 2713 because Medicare coverage is not a group health plan. But it provides that this type of employer payment plan may be integrated with another group health plan offered by the employer for purposes of PHS Act sections 2711 and 2713 if: (1) The employer offers a group health plan (other than the employer payment plan) to the employee that does not consist solely of excepted benefits and that provides MV; (2) the employee participating in the employer payment plan is actually enrolled in Medicare parts A and B; (3) the employer payment plan is available only to employees who are enrolled in Medicare part A and part B or D; and (4) the employer payment plan is limited to reimbursement of Medicare part B or D premiums and excepted benefits, including Medigap premiums. Notice 2015–17 also includes a general reminder that to the extent such an arrangement is available to active employees it may be subject to restrictions under other laws, such as the Medicare secondary payer provisions. See later in this preamble for a discussion of the rules provided in the final regulations under PHS Act section 2711 allowing Medicare part B and D reimbursement arrangements to be integrated with Medicare in certain limited circumstances (that is, generally, PO 00000 Frm 00005 Fmt 4701 Sfmt 4702 54423 for HRAs sponsored by employers with fewer than 20 employees). On November 18, 2015, the Departments finalized the proposed and interim final rules under PHS Act section 2711, incorporating certain subregulatory guidance regarding HRA integration, and making various additional clarifications (the 2015 regulations).23 Consistent with the initial subregulatory guidance, the final regulations under PHS Act section 2711 provide two methods for integration of HRAs with other group health plan coverage.24 The first method applies to HRAs integrated with other group health plan coverage that provides MV (the MV Integration Method).25 The second method applies to HRAs integrated with other group health plan coverage that does not provide MV (the Non-MV Integration Method).26 Both the MV Integration Method and the Non-MV Integration Method require that: (1) The HRA plan sponsor offer the employee a group health plan other than the HRA (non-HRA group coverage); (2) the employee receiving the HRA be enrolled in non-HRA group coverage, even if the non-HRA group coverage is not offered by the HRA plan sponsor, such as a group health plan maintained by an employer of the employee’s spouse; 27 and (3) the HRA is made available only to employees who are enrolled in non-HRA group coverage, regardless of whether such coverage is provided by the HRA plan sponsor. For both methods, the non-HRA group coverage may not consist solely of excepted benefits and, for the MV 23 See 80 FR 72192 (November 18, 2015). To the extent the final regulations did not incorporate or modify the prior subregulatory guidance, such guidance remains in effect. 24 These two methods of integration were originally discussed in IRS Notice 2013–54, Q4, and DOL Technical Release 2013–03, available at https://www.dol.gov/agencies/ebsa/employers-andadvisers/guidance/technical-releases/13-03. 25 See 26 CFR 54.9815–2711(d)(2)(ii); 29 CFR 2590.715–2711(d)(2)(ii); 45 CFR 147.126(d)(2)(ii). 26 See 26 CFR 54.9815–2711(d)(2)(i); 29 CFR 2590.715–2711(d)(2)(i); 45 CFR 147.126(d)(2)(i). 27 In IRS Notice 2015–87, Q&A–4, the Departments clarified that an HRA that may be used to reimburse the medical care expenses of an employee’s spouse or dependents (a family HRA) may not be integrated with self-only coverage of the employee under the employer’s non-HRA group health plan. On January 12, 2017, the Departments issued guidance to clarify that a family HRA is permitted to be integrated with a combination of coverage under qualifying non-HRA group health plan coverage for purposes of complying with PHS Act sections 2711 and 2713, provided that all of the individuals who are covered under the family HRA are also covered under qualifying non-HRA group coverage. See FAQs about Affordable Care Act Implementation Part 37, available at https:// www.dol.gov/sites/default/files/ebsa/about-ebsa/ our-activities/resource-center/faqs/aca-part-37.pdf or https://www.cms.gov/CCIIO/Resources/FactSheets-and-FAQs/Downloads/FAQs-Part-37.pdf. E:\FR\FM\29OCP2.SGM 29OCP2 54424 Federal Register / Vol. 83, No. 209 / Monday, October 29, 2018 / Proposed Rules amozie on DSK3GDR082PROD with PROPOSALS2 Integration Method, the non-HRA group coverage offered by the employer and in which the employee enrolls must provide MV. In addition, both the MV Integration Method and the Non-MV Integration Method require that, under the terms of the HRA, an employee (or former employee) be permitted to permanently opt out of and waive future reimbursements at least annually from the HRA. Both integration methods also require that, upon termination of employment, either the funds remaining in the HRA are forfeited or the employee is permitted to permanently opt out of and waive future reimbursements under the HRA. For this purpose, forfeiture of the funds remaining in the HRA, or waiver of future reimbursements under the HRA, occurs even if the forfeited or waived amounts may be reinstated upon a fixed date, the participant’s death, or the earlier of the two events. The two methods differ with respect to the expenses that the HRA may reimburse. Under the MV Integration Method, the HRA may reimburse any medical care expenses, but under the Non-MV Integration Method, the HRA may reimburse only co-payments, coinsurance, deductibles, and premiums under the non-HRA group coverage, as well as medical care that does not constitute EHBs.28 The 2015 regulations also include a special integration method for certain arrangements offered by employers that are not required to offer, and do not offer, non-HRA group coverage to employees who are eligible for Medicare coverage (generally, employers with fewer than 20 employees), but that offer non-HRA group coverage that does not consist solely of excepted benefits to employees who are not eligible for Medicare.29 For these employers, an HRA that may be used to reimburse premiums under Medicare part B or D 28 Although, in general, an HRA integrated with non-HRA group coverage fails to comply with PHS Act section 2711 if the non-HRA group coverage with which the HRA is integrated does not cover a category of EHB and the HRA is available to cover that category of EHB and limits the coverage to the HRA’s maximum benefit, the Departments have provided that if non-HRA group coverage satisfies the MV Integration Method, an HRA will not be treated as failing to comply with PHS Act section 2711, even if the non-HRA group coverage with which the HRA is integrated does not cover a category of EHB and the HRA is available to cover that category of EHB and limits the coverage to the HRA’s maximum benefit. See IRS Notice 2013–54, Q&A 6. 29 See 26 CFR 54.9815–2711(d)(5); 29 CFR 2590.715–2711(d)(5); 45 CFR 147.126(d)(5). The final regulations did not address the Medicare integration rules that apply to employers with 20 or more employees. For a discussion of those rules, see IRS Notice 2015–17 and the discussion elsewhere in this preamble. VerDate Sep<11>2014 18:32 Oct 26, 2018 Jkt 247001 may be integrated with Medicare (and deemed to comply with PHS Act sections 2711 and 2713) if the employees who are offered the HRA are enrolled in Medicare part B or D, the HRA is available only to employees who are enrolled in Medicare part B or D, and the HRA complies with the opt-out and forfeiture rules under the MV Integration Method and Non-MV Integration Method. These employers may use either of the non-Medicarespecific integration methods, as applicable, for HRAs offered to employees who are ineligible for Medicare. The 2015 regulations also incorporate prior subregulatory guidance that HRAs cannot be integrated with individual health insurance coverage for purposes of complying with PHS Act sections 2711 and 2713.30 C. HIPAA Nondiscrimination Provisions Prior to the enactment of PPACA, titles I and IV of the Health Insurance Portability and Accountability Act of 1996 (HIPAA), Public Law 104–191, added section 9802 of the Code, section 702 of ERISA, and section 2702 of the PHS Act (HIPAA nondiscrimination provisions). The Departments published joint final regulations implementing the HIPAA nondiscrimination provisions on December 13, 2006.31 Section 1201 of PPACA reorganized and amended the HIPAA nondiscrimination provisions of 30 See 26 CFR 54.9815–2711(d)(4); 29 CFR 2590.715–2711(d)(4); 45 CFR 147.126(d)(4). Also see IRS Notice 2013–54, Q&A–1, and DOL Technical Release 2013–03, Q&A–1. This principle was also reiterated and clarified in the various other pieces of subregulatory guidance summarized elsewhere in this section of the preamble. See also IRS Notice 2015–87, Q&A–5, in which the Departments clarified that an HRA that by its terms may only be used to reimburse (or pay directly for) premiums for individual health insurance coverage consisting solely of excepted benefits will not fail to comply with PHS Act sections 2711 and 2713 because those provisions do not apply to a group health plan that is designed to provide only excepted benefits. For guidance on enforcement relief for certain premium reduction arrangements offered by institutions of higher education to students with respect to student health insurance coverage, which is a type of individual health insurance coverage, see FAQs about Affordable Care Act Implementation part 33, available at https:// www.dol.gov/sites/default/files/ebsa/about-ebsa/ our-activities/resource-center/faqs/aca-part-33.pdf or https://www.cms.gov/CCIIO/Resources/FactSheets-and-FAQs/Downloads/ACA-FAQ-Set-33Final.pdf. See also IRS Notice 2016–17, 2016–9 IRB 358; DOL Technical Release 2016–1, available at https://www.dol.gov/ebsa/newsroom/tr16-01.html; and Insurance Standards Bulletin, Application of the Market Reforms and Other Provisions of the Affordable Care Act to Student Health Coverage, February 5, 2016, available at https://www.cms.gov/ CCIIO/Resources/Regulations-and-Guidance/ Downloads/student-health-bulletin.pdf. See elsewhere in this preamble for additional discussion of student health insurance coverage. 31 71 FR 75014. PO 00000 Frm 00006 Fmt 4701 Sfmt 4702 the PHS Act. (Although section 9802 of the Code and section 702 of ERISA were not amended, the requirements of section 2705 of the PHS Act are also incorporated by reference into section 9815 of the Code and section 715 of ERISA.) 32 As amended by PPACA, the nondiscrimination provisions of section 2705 of the PHS Act largely reflect the 2006 regulations and extend the HIPAA nondiscrimination protections (but not the wellness program exception) to the individual market. These provisions generally prohibit group health plans and health insurance issuers in the group and individual markets from discriminating against individual participants and beneficiaries in eligibility, benefits, or premiums based on a health factor.33 Q&A–2 of FAQs about Affordable Care Act Implementation (Part XXII) 34 provided that, if an employer offers employees with high claims risk a choice between enrollment in a traditional group health plan or cash, the arrangement would not comply with the market requirements, citing section 2705 of the PHS Act (which is incorporated by reference into section 9815 of the Code and section 715 of ERISA), as well as the HIPAA nondiscrimination provisions of section 9802 of the Code and section 702 of ERISA. The Q&A explained that such arrangements will violate the nondiscrimination provisions regardless of whether: (1) The cash payment is treated by the employer as pre-tax or post-tax to the employee, (2) the employer is involved in the selection or purchase of any individual market product, or (3) the employee obtains any individual health insurance coverage. The Departments explained that, in the Departments’ view, offering cash as an alternative to health coverage for individuals with adverse health factors is an eligibility rule that discourages participation in the traditional group 32 PPACA section 1201 moved the HIPAA nondiscrimination provisions from PHS Act section 2702 to PHS Act section 2705, with some modification. 33 The HIPAA nondiscrimination provisions set forth eight health status related factors. The eight health factors are health status, medical condition (including both physical and mental illnesses), claims experience, receipt of health care, medical history, genetic information, evidence of insurability, and disability. These terms are largely overlapping and, in combination, include any factor related to an individual’s health. 66 FR 1377, 1379 (January 8, 2001). 34 See FAQs about Affordable Care Act Implementation (Part XXII), available at https:// www.dol.gov/sites/default/files/ebsa/about-ebsa/ our-activities/resource-center/faqs/aca-part-xxii.pdf or https://www.cms.gov/CCIIO/Resources/FactSheets-and-FAQs/Downloads/FAQs-Part-XXIIFINAL.pdf. E:\FR\FM\29OCP2.SGM 29OCP2 Federal Register / Vol. 83, No. 209 / Monday, October 29, 2018 / Proposed Rules health plan, in contravention of the HIPAA nondiscrimination provisions. the Code by virtue of an offer of an excepted benefit.40 D. Excepted Benefits E. Premium Tax Credit Section 9831 of the Code, section 732 of ERISA, and sections 2722 and 2763 of the PHS Act provide that the requirements of chapter 100 of the Code, part 7 of ERISA, and title XXVII of the PHS Act, do not apply to excepted benefits. Excepted benefits are described in section 9832 of the Code, section 733 of ERISA, and section 2791 of the PHS Act. There are four statutory categories of excepted benefits. One such category of excepted benefits is limited excepted benefits. Under the statutory provisions, limited excepted benefits may include limited scope vision or dental benefits, benefits for long-term care, nursing home care, home health care, or community-based care, or any combination thereof, and ‘‘such other similar, limited benefits as are specified in regulations’’ by the Departments.35 To be excepted benefits under this category, the benefits must either: (1) Be insured and provided under a separate policy, certificate, or contract of insurance; or (2) otherwise not be an integral part of the plan.36 The Departments previously exercised the authority to specify additional types of limited excepted benefits with respect to certain health FSAs, certain employee assistance programs, and certain limited wraparound coverage.37 Coverage that consists of excepted benefits is not minimum essential coverage (MEC).38 Therefore, an individual offered or covered by an excepted benefit is not deemed ineligible for the PTC by virtue of the excepted benefit offer or coverage.39 Further, the offer of an excepted benefit by an employer is not considered to be an offer of MEC under an eligible employer-sponsored plan for purposes of section 4980H of the Code, the employer shared responsibility provisions; thus, an employer will not avoid a payment under section 4980H of 1. In General Section 36B of the Code allows for the PTC to be available to applicable taxpayers to help with the cost of individual health insurance coverage obtained through an Exchange.41 Under section 36B(a) and (b)(1) of the Code and 26 CFR 1.36B–3(d), a taxpayer’s PTC is the sum of the premium assistance amounts for all coverage months during the taxable year for individuals in the taxpayer’s family. An individual is eligible for the PTC for a month if the individual meets various requirements for the month (a coverage month). Among other things, under section 36B(c)(2) of the Code, a month is not a coverage month for an individual if either: (1) The individual is eligible for coverage under an eligible employer-sponsored plan and the coverage is affordable and provides MV; or (2) the individual is enrolled in an eligible employer-sponsored plan, even if the coverage is not affordable or does not provide MV.42 An eligible employer-sponsored plan includes coverage under a self-insured (as well as an insured) group health plan 43 and is MEC unless it consists solely of excepted benefits.44 An HRA is a self-insured group health plan and therefore is an eligible employer-sponsored plan. Accordingly, an individual currently is ineligible for the PTC for the individual’s Exchange coverage for a month if the individual is covered by an HRA or is eligible for an HRA that is affordable and provides MV for the month. Although Treasury Department and IRS guidance provides that an HRA is an eligible employersponsored plan and therefore individuals covered by an HRA are ineligible for the PTC,45 to date, the Treasury Department and the IRS have not provided guidance as to the circumstances in which an HRA is considered to be affordable or to provide MV.46 amozie on DSK3GDR082PROD with PROPOSALS2 35 See section 9832(c)(2) of the Code, section 733(c)(2) of ERISA, and section 2791(c)(2) of the PHS Act. 36 See section 9831(c)(1) of the Code, ERISA section 732(c)(1), and PHS Act section 2722(c)(1) and 2763(b). See also the discussion in 2014 final regulations concerning the application of these requirements to benefits such as limited-scope dental and vision benefits and employee assistance programs at 79 FR 59130, 59131–59134 (Oct. 1, 2014). 37 See 26 CFR 54.9831–1(c)(3)(v), (vi) and (vii); 29 CFR 2590.732(c)(3)(v), (vi) and (vii); 45 CFR 146.145(b)(3)(v), (vi) and (vii). 38 See section 5000A(f)(3) of the Code. 39 See section 36B(c)(2)(B) of the Code. VerDate Sep<11>2014 18:32 Oct 26, 2018 Jkt 247001 40 See section 4980H(a)(1), (b)(1) of the Code. See also 26 CFR 54.4980H–1(a)(14). 41 Exchanges are entities established under section 1311 of PPACA through which qualified individuals and qualified employers can purchase health insurance coverage. 42 See section 36B(c)(2)(C)(iii) of the Code and 26 CFR 1.36B–2(c)(3)(vii)(A) and 1.36B–3(c). 43 See 26 CFR 1.5000A–2(c). 44 See section 5000A(f)(3) of the Code and 26 CFR 1.5000A–2(g). 45 See IRS Notice 2013–54, Q&A 10. 46 The Treasury Department and the IRS have provided guidance regarding when amounts newly made available under an HRA count toward the affordability or MV of another group health plan PO 00000 Frm 00007 Fmt 4701 Sfmt 4702 54425 2. Affordability and Minimum Value Section 36B(c)(2)(C) of the Code and 26 CFR 1.36B–2(c)(3)(v)(A)(1) and (2) provide that an eligible employersponsored plan is affordable for an employee, or for an individual who may enroll in the coverage because of a relationship to the employee, if the amount the employee must pay for selfonly coverage whether by salary reduction or otherwise (the employee’s required contribution) does not exceed a specified percentage of the employee’s household income. The percentage is adjusted annually. However, 26 CFR 1.36B–2(c)(3)(v)(A)(3) provides an employee safe harbor under which an eligible employer-sponsored plan is not considered affordable for an entire plan year if, at the time an individual enrolls in a qualified health plan offered through an Exchange, the Exchange determines that the eligible employersponsored plan is not affordable.47 Thus, the employee safe harbor locks in the Exchange’s determination of affordability, which is based on estimated household income, even if the eligible employer-sponsored plan ultimately proves to be affordable based on actual household income for the tax year. Under section 36B(c)(2)(C)(ii) of the Code, a plan provides MV if the plan’s share of the total allowed costs of benefits provided under the plan is at least 60 percent of the costs. Section 1302(d)(2)(C) of PPACA provides that, in determining the percentage of the total allowed costs of benefits provided under a group health plan, the regulations promulgated by HHS under that paragraph apply. HHS regulations provide that an employer-sponsored plan provides MV only if the percentage of the total allowed costs of benefits provided under the plan is greater than or equal to 60 percent, and the benefits under the plan include substantial coverage of inpatient hospital services and physician services.48 F. Qualified Small Employer Health Reimbursement Arrangements 1. In General The 21st Century Cures Act (Cures Act), Public Law 114–255, was enacted on December 13, 2016. Section 18001 of offered by the same employer. See 26 CFR 1.36B– 2(c)(3)(v)(A)(5) and 26 CFR 1.36B–6(c)(4). See also IRS Notice 2015–87, Q&A 7. This document does not make substantive revisions to those rules. 47 This employee safe harbor does not apply if the individual does not respond to a redetermination notice or, with reckless disregard for the facts, provides incorrect information to the Exchange. See 26 CFR 1.36B–2(c)(3)(v)(A)(3). 48 See 45 CFR 156.145. See also 80 FR 52678 (Sept. 1, 2015). E:\FR\FM\29OCP2.SGM 29OCP2 54426 Federal Register / Vol. 83, No. 209 / Monday, October 29, 2018 / Proposed Rules amozie on DSK3GDR082PROD with PROPOSALS2 the Cures Act amends the Code, ERISA, and the PHS Act to permit an eligible employer to provide a QSEHRA to its eligible employees. The Cures Act provides that a QSEHRA is not a group health plan for purposes of the market requirements, and, as a result, QSEHRAs are not subject to PHS Act sections 2711 and 2713.49 For purposes of the proposed rules, QSEHRAs are not included in the term ‘‘HRA or other account-based group health plans.’’ Pursuant to section 9831(d) of the Code, a QSEHRA is an arrangement that meets certain conditions, including the following: • The arrangement provides, after the eligible employee provides proof of coverage,50 for the payment or reimbursement of medical care expenses incurred by the employee or the employee’s family members (in accordance with the terms of the arrangement); • The amount of payments for and reimbursements of medical care expenses incurred by the employee or the employee’s family members for any year does not exceed $4,950 ($10,000 51 for an arrangement that also provides for payments or reimbursements of medical care expenses of the eligible employee’s family members (family coverage)); and • The arrangement generally is provided on the same terms to all eligible employees of the eligible employer.52 49 See Section 9831(d)(1) of the Code, section 733(a)(1) of ERISA, and section 2791(a)(1) of the PHS Act. However, QSEHRAs are group health plans under the PHS Act definition for purposes of part C of title XI of the Social Security Act (42 U.S.C. 1320d, et seq.). See section 2791(a)(1) of the PHS Act, as amended by section 18001(c) of the Cures Act. In addition, QSEHRAs were not excluded from ERISA’s definition of employee welfare benefit plan under section 3(1) of ERISA and, therefore, remain subject to the requirements for employee welfare benefit plans under ERISA. See H. Rept. 114–634—Small Business Health Care Relief Act of 2016 (the relevant provisions of this bill were passed into law by the Cures Act). Moreover, because QSEHRAs are employee welfare benefit plans, individual health insurance coverage that is reimbursed by a QSEHRA would not become part of an ERISA plan if the conditions of the DOL proposed clarification described later in this preamble are met. 50 Under section 106(g) of the Code, payments or reimbursements from a QSEHRA are not treated as paid or reimbursed under employer-provided coverage for medical expenses under an accident or health plan for purposes of sections 106 and 105 of the Code if, for the month in which the medical care is provided, the individual does not have minimum essential coverage within the meaning of section 5000A(f) of the Code. See IRS Notice 2017– 67 for additional discussion of this minimum essential coverage requirement. 51 Section 9831(d)(2)(D)(ii) of the Code provides that both statutory dollar limits are adjusted for inflation beginning after 2016. The adjusted limits for 2018 are $5,050 for self-only coverage and $10,250 for family coverage. 52 Section 9831(d)(2)(C) of the Code provides that an arrangement shall not fail to be treated as VerDate Sep<11>2014 18:32 Oct 26, 2018 Jkt 247001 For the purpose of identifying who can provide a QSEHRA, the statute provides that an eligible employer is an employer that is not an applicable large employer (ALE), as defined in section 4980H(c)(2) of the Code and that does not offer a group health plan to any of its employees. The statute also requires that an employer providing a QSEHRA provide a written notice to each eligible employee (as defined in section 9831(d)(3)(A) of the Code) not later than 90 days before the beginning of the plan year (or, in the case of an employee who is not eligible to participate in the arrangement as of the beginning of the plan year, the date on which the employee is first eligible). Section 9831(d)(4) of the Code requires that the notice contain certain content, including information about the maximum dollar amount of payments and reimbursements that may be made under the terms of the QSEHRA for the year to the employee (the permitted benefit), and a statement that the employee should provide the information about the permitted benefit to the applicable Exchange if the employee applies for advance payments of the PTC. On October 31, 2017, the Treasury Department and the IRS issued Notice 2017–67 53 to provide guidance on the requirements for providing a QSEHRA to eligible employees, the tax consequences of the arrangement, and the requirements for providing written notice of the arrangement to eligible employees. If an eligible employer complies with the guidance provided in section 9831(d) of the Code and Notice 2017– 67, it may provide a QSEHRA to its eligible employees and the QSEHRA does not have to comply with PHS Act sections 2711 and 2713 because it is not subject to those requirements. 2. QSEHRAs and the PTC The Cures Act also added provisions to section 36B of the Code relating to how a QSEHRA affects a taxpayer’s eligibility for the PTC and how a QSEHRA affects a taxpayer’s computation of the PTC. Under section provided on the same terms merely because the employee’s permitted benefit varies in accordance with the variation in price of an insurance policy in the relevant individual health insurance market based on the employee’s age or the number of family members whose expenses may be reimbursed under the arrangement. See section 9831(d)(2)(C) of the Code and IRS Notice 2017–67 for additional detail. 53 See IRS Notice 2017–67, 2017–47 IRB 517. See also IRS Notice 2017–20, 2017–11 IRB 1010, which extended the period for an employer to furnish an initial written notice to its eligible employees regarding a QSEHRA. PO 00000 Frm 00008 Fmt 4701 Sfmt 4702 36B(c)(4)(A) of the Code, if an employee is provided a QSEHRA that constitutes affordable coverage for a month, the month is not a coverage month for the employee or the employee’s spouse or dependents, meaning that the PTC is not allowed for that month. Section 36B(c)(4)(C) of the Code provides that a QSEHRA constitutes affordable coverage for a month if the excess of the monthly premium for the self-only second lowest cost silver plan in the employee’s individual market over 1⁄12 of the employee’s permitted benefit, as defined in section 9831(d)(3)(C) of the Code, does not exceed 1⁄12 of a percentage of the employee’s household income. The percentage, which is adjusted annually, is 9.56 for 2018.54 Section 36B(c)(4)(B) of the Code provides that if an employee is provided a QSEHRA that does not constitute affordable coverage for a coverage month the PTC otherwise allowable for the month is reduced by 1⁄12 of the employee’s annual permitted benefit under the QSEHRA. G. Individual Market Special Enrollment Periods Generally, individuals may enroll in or change to different individual health insurance coverage before the beginning of the calendar year only during the annual open enrollment period described in 45 CFR 155.410. An individual may qualify for a special enrollment period to enroll in or change to a different Exchange plan outside of the annual open enrollment period under a variety of circumstances prescribed by section 1311(c)(6)(C) and (D) of PPACA and as described in 45 CFR 155.420. These special enrollment periods are under the jurisdiction of HHS, and apply to persons seeking individual health insurance coverage through a State or Federal Exchange and, in some cases, to individuals seeking individual health insurance coverage outside an Exchange.55 54 IRS Notice 2017–67 provides that for purposes of determining whether a QSEHRA constitutes affordable coverage under section 36B(c)(4) of the Code the permitted benefit for self-only coverage is used, regardless of whether the permitted benefit provided to a particular eligible employee is for self-only or family coverage. Further, if the amount of permitted benefit varies based on the age of the employee, the age-applicable self-only coverage amount is used. 55 Group health plans must provide special enrollment periods under certain circumstances and the Departments have jurisdiction over those provisions. See section 9801(f) of the Code, section 701(f) of ERISA, and section 2704(f) of the PHS Act; see also 26 CFR 54.9801–6, 29 CFR 2590.701–6, 45 CFR 146.117, and 45 CFR 147.104(b)(3)–(5). The proposed rules do not affect the group health plan special enrollment periods, which continue to apply to group health plans, including HRAs. E:\FR\FM\29OCP2.SGM 29OCP2 Federal Register / Vol. 83, No. 209 / Monday, October 29, 2018 / Proposed Rules Paragraph (d) of 45 CFR 155.420 describes the special enrollment periods available on the Exchanges to qualified individuals, enrollees, and their dependents. Paragraph (b) of 45 CFR 155.420 describes the coverage effective dates available in connection with each special enrollment period, and paragraph (a)(4) describes the plan changes a qualified individual, enrollee, or dependent may make upon qualifying for a special enrollment period. With regard to individual health insurance coverage sold outside of the Exchange, 45 CFR 147.104(b)(2) provides that health insurance issuers must provide special enrollment periods for the triggering events described in 45 CFR 155.420(d), except for certain triggering events listed under 45 CFR 147.104(b)(2). II. Overview of the Proposed Rules on HRA Integration and Excepted Benefits—the Departments of the Treasury, Labor, and Health and Human Services amozie on DSK3GDR082PROD with PROPOSALS2 In developing the proposed rules, the Departments carefully considered how to meet the objectives of Executive Order 13813 in a way that is permitted by law and supported by sound policy. The proposed rules are intended to increase the usability of HRAs to provide more Americans, including employees who work at small businesses, with additional healthcare options. Such changes will facilitate the development and operation of a more efficient healthcare system that provides high-quality care at affordable prices by increasing consumer choice for employees and promoting competition in healthcare markets by adding additional options for employers. In addition, the proposed rules include certain conditions designed to prevent negative consequences that would be inconsistent with certain provisions of HIPAA and PPACA. The proposed rules would expand the use of HRAs in several ways. First, the proposed rules would remove the current prohibition against integrating an HRA with individual health insurance coverage 56 under the PHS Act 56 For purposes of this preamble and the proposed regulations, ‘‘individual health insurance coverage’’ means health insurance coverage offered to individuals in the individual market, but does not include STLDI. See PHS Act section 2791(b)(5), 26 CFR 54.9801–2, 29 CFR 2590.701–2, and 45 CFR 144.103. Individual health insurance coverage can include dependent coverage and therefore can be self-only coverage or other-than-self-only coverage. ‘‘Individual market’’ means the market for health insurance coverage offered to individuals other than in connection with a group health plan. See PHS Act section 2791(e)(1), 26 CFR 54.9801–2, 29 CFR 2590.701–2, and 45 CFR 144.103. ‘‘Group health VerDate Sep<11>2014 18:32 Oct 26, 2018 Jkt 247001 section 2711 regulations.57 The proposed rules would instead permit an HRA to be integrated with individual health insurance coverage and, therefore, to satisfy PHS Act sections 2711 and 2713, if the provisions of the proposed rules under 26 CFR 54.9802– 4, 29 CFR 2590.702–2, and 45 CFR 146.123 are met (hereinafter, ‘‘the proposed integration rules’’). Second, the proposed rules would expand the definition of limited excepted benefits, under section 9832(c)(2) of the Code, section 733(c)(2) of ERISA, and section 2791(c)(2)(C) of the PHS Act, to recognize certain HRAs limited in amount and that are limited with regard to the types of coverage for which premiums may be reimbursed, as limited excepted benefits if certain other conditions are met (an ‘‘excepted benefit HRA’’). As discussed later in this preamble, the Treasury Department and the IRS are also proposing regulations under section 36B of the Code that would provide the PTC eligibility rules for individuals who are offered an HRA integrated 58 with individual health insurance coverage.59 DOL is also proposing a clarification to provide HRA and QSEHRA plan sponsors with assurance that the individual health insurance coverage the premiums of which are reimbursed by the HRA or QSEHRA does not become part of an ERISA plan when certain conditions are met. Finally, HHS is proposing changes insurance coverage’’ means health insurance coverage offered in connection with a group health plan. See ERISA section 733(b)(4), PHS Act section 2791(b)(4), 26 CFR 54.9801–2, 29 CFR 2590.701–2, and 45 CFR 144.103. 57 These proposed rules would make several nonsubstantive modifications to language throughout the regulations implementing PHS Act section 2711 to account for this change. See later in this preamble for a summary of these changes. The proposed regulations do not substantively change the current rules for integration of an HRA with non-HRA group coverage, Medicare or TRICARE. Unless the proposed regulations explicitly conflict with the subregulatory guidance that has been issued under PHS Act section 2711, that guidance remains in effect. 58 References in the preamble to ‘‘an offer of an HRA integrated with individual health insurance coverage’’ or to similar phrases mean an offer of an HRA designed to be integrated with individual health insurance coverage under the proposed integration rules and that will be considered integrated with such individual health insurance coverage for an individual who enrolls in such coverage. 59 The Treasury Department and the IRS are not proposing regulations under section 36B of the Code related to the excepted benefit HRA because the application of the PTC eligibility rules to excepted benefits is clear under current law. Also, the Treasury Department and the IRS are not proposing regulations under section 4980H of the Code, but see the discussion later in this preamble regarding how an offer of an HRA that is integrated with individual health insurance coverage is treated under section 4980H of the Code. PO 00000 Frm 00009 Fmt 4701 Sfmt 4702 54427 to regulations regarding special enrollment periods in the individual market that would provide special enrollment periods for individuals who gain access to HRAs integrated with individual health insurance coverage or who are provided QSEHRAs. The Departments request comments on all aspects of the proposed rules. The following explanation of the proposed rules also solicits comments on specific topics of particular interest to the Departments. A. Integration Rules Pursuant to the President’s Executive Order to consider proposing regulations to expand and facilitate access to HRAs, the proposed rules would remove the prohibition on integration of an HRA with individual health insurance coverage, if certain conditions are met, and propose requirements that an HRA must meet in order to be integrated with individual health insurance coverage. In order to ensure compliance with PHS Act sections 2711 and 2713, the proposed integration rules provide that to be integrated with individual health insurance coverage, the HRA must require participants 60 and any dependents 61 covered by the HRA to be enrolled in individual health insurance coverage (other than coverage that consists solely of excepted benefits) and to substantiate compliance with this requirement. Further, in crafting the proposed integration rules, the Departments have considered the possibility that expanding access to HRAs could lead to employers offering coverage options to their employees in a manner that discriminates based on health status and that negatively impacts the individual market for health insurance coverage. In 1996, Congress enacted the HIPAA nondiscrimination provisions, which now generally prohibit group health plans and health insurance issuers in the group and individual markets from discriminating against individual 60 For this purpose, the definition of participant under 26 CFR 54.9801–2, 29 CFR 2590.701–2, and 45 CFR 144.103 applies, which is defined as a participant within the meaning of section 3(7) of ERISA. Under section 3(7) of ERISA, ‘‘the term ‘participant’ means any employee or former employee of an employer, or any member or former member of an employee organization, who is or may become eligible to receive a benefit of any type from an employee benefit plan which covers employees of such employer or members of such organization, or whose beneficiaries may be eligible to receive any such benefit.’’ 61 For this purpose, the definition of dependent under 26 CFR 54.9801–2, 29 CFR 2590.701–2, and 45 CFR 144.103 applies, which is defined as ‘‘any individual who is or may become eligible for coverage under the terms of a group health plan because of a relationship to a participant.’’ E:\FR\FM\29OCP2.SGM 29OCP2 amozie on DSK3GDR082PROD with PROPOSALS2 54428 Federal Register / Vol. 83, No. 209 / Monday, October 29, 2018 / Proposed Rules participants and beneficiaries in eligibility, benefits, or premiums based on a health factor. Later, in 2010, Congress enacted PPACA (which included PHS Act sections 2711 and 2713), in part, because individual health insurance coverage was not a viable option for many individuals since issuers in many States could deny coverage or charge higher premiums based on an individual’s health risk. To address these issues, PPACA included numerous provisions that were intended to create a competitive individual market that would make affordable coverage available to individuals who do not have access to other health coverage, as described in more detail later in this section of the preamble. In developing these proposed regulations, the Departments have carefully considered how to exercise their rulemaking authority in a manner that is consistent with Congress’s overall intent in enacting HIPAA and PPACA. As part of that process, the Departments have considered how to avoid permitting discrimination based on health status or similar employer practices with respect to offering HRAs to employees that might have destabilizing effects on the individual market or lead to higher premiums in that market. The Departments are of the view that allowing HRAs to be integrated with individual health insurance coverage could result in opportunities for employers to encourage higher risk employees (that is, those with high expected medical claims or employees with family members with high expected medical claims) to obtain coverage in the individual market, external to the traditional group health plan sponsored by the employer, in order to reduce the cost of traditional group health plan coverage provided by the employer to lower risk employees.62 This could happen in a number of ways. For example, if employees are permitted to choose between participating in an employer’s traditional group health plan or participating in an HRA integrated with individual health insurance coverage, some higher risk employees may have an incentive to select the HRA and enroll in individual health insurance coverage. This is because most individual health insurance coverage must cover all EHBs and large group market and self-insured group health plans are not required to cover all categories of EHBs. An employer could also deliberately attempt to steer 62 Amy Monahan and Daniel Schwarcz, ‘‘Will Employers Undermine Health Care Reform by Dumping Sick Employees?’’ Virginia Law Review, Vol. 97 (2011). VerDate Sep<11>2014 18:32 Oct 26, 2018 Jkt 247001 employees with certain medical conditions away from the employer’s traditional group health plan. In either case, if HRAs integrated with individual health insurance coverage are used disproportionately by higher risk employees, such arrangements could worsen adverse selection and raise premiums in the individual market. The Departments also considered the possibility that the market would develop the opposite way. Lower risk employees might choose HRAs integrated with individual health insurance coverage, while higher risk employees might remain with the relative certainty of their employer’s traditional group health plan. Such an outcome could result for a host of reasons, including because higher risk employees tend to be more risk averse with respect to changing health benefits and because individual health insurance coverage might have much more restrictive provider networks than traditional group health plans and higher risk employees tend to be more sensitive to the make-up of the provider network than lower risk employees. Also, lower risk employees may prefer an HRA integrated with individual health insurance coverage, as compared to a more generous traditional group health plan, because it could allow them to spend less on premiums and have more funds available to cover cost sharing. Further, employers would have incentives to avoid legal concerns that could be raised by an attempt to steer higher risk employees toward an HRA integrated with individual health insurance coverage. However, employers will face countervailing incentives to maintain (or improve) the average health risk that they insure. Therefore, the Departments have determined that the risk of market segmentation and health factor discrimination is sufficiently significant to justify including conditions in the proposed regulations intended to address those risks. Accordingly, the proposed regulations would add new regulations at 26 CFR 54.9802–4, 29 CFR 2590.702–2, and 45 CFR 146.123 to prevent a plan sponsor from intentionally or unintentionally, directly or indirectly, steering any participants or dependents with adverse health factors away from the plan sponsor’s traditional group health plan and into the individual market. In particular, the proposed integration rules prohibit a plan sponsor from offering the same class of employees both a traditional group health plan and an HRA integrated with individual health insurance coverage. In addition, to the extent a plan sponsor offers an PO 00000 Frm 00010 Fmt 4701 Sfmt 4702 HRA that is integrated with individual health insurance coverage to a class of employees, the proposed integration rules require that the HRA be offered on the same terms to all employees within the class, subject to certain exceptions described later in this preamble. In the Departments’ view, these proposed integration requirements are necessary and appropriate to avoid the risk of market segmentation and to ensure there are protections against discrimination based on health status when HRAs are permitted to integrate with individual health insurance coverage for purposes of compliance with PHS Act sections 2711 and 2713. The Departments also are of the view these requirements are consistent with Congress’s intent in enacting both HIPAA and PPACA as well as in granting the Departments the authority to promulgate such regulations as may be necessary or appropriate to carry out the provisions of the Code, ERISA, and the PHS Act that were added as a result of those Acts.63 More specifically, these proposed integration requirements are intended to mitigate circumstances in which higher risk employees are incentivized (based on the design of the traditional group health plan versus the offer of the HRA) to obtain coverage in the individual market. These proposed integration conditions avoid creating a high risk of market segmentation. As noted earlier in this preamble, PPACA includes several provisions designed to create a competitive individual market that makes affordable coverage available to individuals who do not have access to other health coverage. See PPACA section 1311 (establishing the Exchanges), section 1312(c) (instructing health insurance issuers to consider all enrollees in all health plans in a market—either individual or small group—as members of a single risk pool), section 1401 (establishing the PTC to help qualifying individuals and families pay for individual health insurance coverage), section 1402 (reducing cost-sharing for qualifying individuals enrolled in qualified health plans), and section 1501 (requiring nonexempt applicable individuals to maintain MEC or be subject to the individual shared responsibility payment).64 These provisions are 63 See section 9833 of the Code, section 734 of ERISA, and section 2792 of the PHS Act. 64 Section 5000A of the Code, added by PPACA, provides that all non-exempt applicable individuals must maintain MEC or pay an individual shared responsibility payment. On December 22, 2017, the President signed tax reform legislation (Pub. L. 115– 97, 131 Stat. 2054) under which the individual E:\FR\FM\29OCP2.SGM 29OCP2 amozie on DSK3GDR082PROD with PROPOSALS2 Federal Register / Vol. 83, No. 209 / Monday, October 29, 2018 / Proposed Rules intended, in part, to draw more individuals of all risk profiles into the individual market and make premiums for individual market coverage more affordable. In addition, PPACA requires that non-grandfathered individual health insurance coverage cover generally the same categories of EHBs, in part, to prevent health insurance coverage with better benefits from becoming prohibitively expensive as lower-risk individuals gravitate to less expensive individual health insurance coverage with limited benefits while higher risk individuals select more expensive individual health insurance coverage with more generous benefits. PPACA also includes risk adjustment, reinsurance, and risk corridor programs to provide consumers with affordable health insurance coverage, to reduce incentives for issuers to avoid enrolling higher risk individuals, and to stabilize premiums in the individual and small group markets inside and outside of the Exchanges. Taken altogether, these PPACA provisions intend to create a robust and competitive individual market, in part by ensuring that risk pools included both higher risk and lower risk individuals. If integration of HRAs led to market segmentation, it would result in significant destabilization in the individual market, undermining those provisions of PPACA that are intended to create a robust and competitive individual market. The text of PHS Act sections 2711 and 2713 is ambiguous with regard to whether and how separate plans can integrate to comply with its provisions, and the structural and practical policy concerns discussed earlier in this preamble could, if realized, prompt the Departments to adopt an interpretation of PHS Act sections 2711 and 2713 that prohibits integration of HRAs with individual health insurance coverage. By requiring employers who wish to take advantage of HRA integration with individual health insurance coverage to adhere to the protections described in more detail later in this preamble, in particular the prohibition on offering an HRA integrated with individual health insurance coverage and a traditional group health plan to the same employees, the Departments intend to prevent large-scale destabilization of the individual market, thus allowing the Departments to interpret PHS Act sections 2711 and 2713 to permit integration with individual health insurance coverage. Accordingly, the proposed regulations provide shared responsibility payment is reduced to $0 effective as of January 1, 2019. VerDate Sep<11>2014 18:32 Oct 26, 2018 Jkt 247001 integration rules that are intended to avoid creating a high risk of market segmentation. Lastly, because eligibility for coverage under an HRA may affect an individual’s eligibility for the PTC and enrollment in an HRA affects an individual’s eligibility for the PTC, the proposed integration rules allow employees of employers who offer an HRA to opt out of and waive future reimbursements under the HRA. The Departments also propose that HRAs be required to provide a notice to participants eligible for coverage under an HRA integrated with individual health insurance coverage with information regarding how the offer of the HRA or enrollment in the HRA affects their ability to claim the PTC. The conditions in the proposed integration rules are discussed in detail below. 1. Requirement That All Individuals Covered by the HRA Are Enrolled in Individual Health Insurance Coverage As discussed earlier in this preamble, an HRA is a group health plan that does not comply with PHS Act sections 2711 and 2713 on its own. However, the Departments previously have determined that an HRA can be considered to be in compliance with PHS Act sections 2711 and 2713 if it is integrated with non-HRA group coverage that is subject to and complies with these sections of the PHS Act. In the past, the Departments have made the determination that it is appropriate to treat an HRA as complying with PHS Act sections 2711 and 2713 when integrated with other group health plan coverage because, generally, an individual covered by the combined arrangement has coverage that complies with PHS Act sections 2711 and 2713. (Similarly, as discussed elsewhere in this preamble, other combined arrangements involving Medicare and TRICARE, are also considered to comply with PHS Act sections 2711 and 2713.) The proposed integration rules similarly provide that an HRA may be integrated with individual health insurance coverage, and will be considered compliant with PHS Act sections 2711 and 2713, if the HRA requires the participant and any dependent(s) to be enrolled in individual health insurance coverage (other than coverage that consists solely of excepted benefits) for each month the individual(s) are covered by the HRA. If the individual covered by the HRA merely has the ability to obtain individual health insurance coverage, but does not actually have that coverage, the HRA would fail to comply with PHS PO 00000 Frm 00011 Fmt 4701 Sfmt 4702 54429 Act sections 2711 and 2713. This proposed requirement would apply with respect to all individuals whose medical care expenses may be reimbursed under the HRA, not just the participant. For purposes of integrating an HRA with individual health insurance coverage, the Departments are proposing to treat all individual health insurance coverage as subject to and compliant with PHS Act sections 2711 and 2713, except for coverage that consists solely of excepted benefits. While this would allow for integration with grandfathered individual health insurance coverage, which is not subject to and may not be compliant with PHS Act sections 2711 and 2713, only a small number of individuals are currently enrolled in grandfathered individual health insurance coverage and grandfathered coverage may not be sold in the individual market to new enrollees and may only be renewed by current enrollees so long as the coverage meets strict conditions. Additionally, the number of individuals with grandfathered individual health insurance coverage has declined each year since PPACA was enacted, and the already small number of individuals who have retained grandfathered coverage will continue to decline each year. Because it is the Departments’ understanding that there are few individuals covered by grandfathered individual health insurance coverage, the Departments are of the view that there will be few instances where such individuals will be offered and accept an HRA that would be integrated with their grandfathered individual health insurance coverage. Moreover, new enrollees cannot enroll in grandfathered individual health insurance coverage, so employers offering traditional group health plans would not be able to shift workers into this coverage. Furthermore, even for non-grandfathered individual health insurance coverage, requiring participants or plan sponsors to substantiate compliance with PHS Act sections 2711 and 2713 for each individual health insurance policy separately is impracticable given that most participants and HRAs are unlikely to be able to reasonably determine the compliance of the individual health insurance policy. An independent assessment of compliance could require the participant or HRA to identify which benefits under each individual health insurance coverage enrolled in by a participant or dependent are considered EHBs for purposes of PHS Act section 2711, and whether all preventive services are covered without cost-sharing under E:\FR\FM\29OCP2.SGM 29OCP2 amozie on DSK3GDR082PROD with PROPOSALS2 54430 Federal Register / Vol. 83, No. 209 / Monday, October 29, 2018 / Proposed Rules each individual health insurance coverage enrolled in by a participant or dependent. The Departments are of the view that this would be an unwieldy and burdensome task. The Departments’ final rules for grandfathered plans provide that ‘‘a plan or health insurance coverage must include a statement that the plan or coverage believes it is a grandfathered health plan . . . in any summary of benefits provided under the plan.’’ 65 The Departments remain concerned, however, that the frequency of this disclosure to participants may be insufficient to substantiate compliance for purposes of these rules. For comparison’s sake, ERISA plans must provide a new SPD only every 5 years, and the required disclosure for individual market coverage will differ from state to state. Additionally, other plan materials that provide a summary of benefits that may trigger the grandfathered plan disclosure requirement may not be subject to any specific timing requirements. Furthermore, the Departments have concerns as to whether participants will be able to locate or receive the disclosure materials in the time necessary to allow for a determination of whether the plan with which the HRA will be integrated is grandfathered (and therefore unlikely to comply with sections 2711 and 2713 of the PHS Act) or non-grandfathered (and therefore generally compliant). For example, for ERISA plans, a plan sponsor has 30 days to fulfill a disclosure request. Additionally, despite the fact that individual health insurance coverage may include a disclosure that the policy is grandfathered, there may be instances in which such disclosure is not accurate, or other instances where nongrandfathered individual health insurance coverage does not comply with PHS Act sections 2711 or 2713. For these reasons, the Departments have preliminarily determined that adopting this proxy approach of relying on the sale of the policy in the individual market to deem the policy compliant for purposes of the proposed integration rules strikes an appropriate balance. (See later in this preamble for a discussion of the substantiation requirements that would apply under the proposed integration rules). The Departments solicit comments on methods by which an HRA could substantiate whether individual health insurance coverage is subject to and complies with PHS Act sections 2711 and 2713, including how an HRA might 65 26 CFR 54.9815–1251(a)(2); 29 CFR 2590.715– 1251(a)(2); 45 CFR 147.140(a)(2). VerDate Sep<11>2014 18:32 Oct 26, 2018 Jkt 247001 identify which benefits under the individual health insurance coverage are considered EHBs for purposes of PHS Act section 2711 and how an HRA might determine if all preventive services are covered without costsharing. The Departments solicit comments on whether an alternative approach, such as a requirement that an issuer make a representation about compliance and/or grandfather status upon request, would be practical, or whether any other methods might be appropriate as an alternative to the previously outlined proposed proxy approach. Under the proposed integration rules, the requirement that each individual whose medical care expenses may be reimbursed under the HRA must be enrolled in individual health insurance coverage (other than coverage that consists solely of excepted benefits) would apply for each month that the individual is covered by the HRA. If an individual whose medical care expenses may be reimbursed under an HRA fails to have such individual health insurance coverage for any month, the HRA would fail to comply with PHS Act sections 2711 and 2713 for that month. Accordingly, the proposed rules provide that an HRA may not be integrated with individual health insurance coverage unless the HRA provides that medical care expenses for any individual covered by the HRA will not be reimbursed if the individual ceases to be covered by individual health insurance coverage and, if the individuals covered by the HRA cease to be covered by such individual health insurance coverage, the participant must forfeit the HRA, in accordance with applicable laws (including COBRA and other continuation of coverage requirements).66 2. Prohibition Against Offering Both an HRA Integrated With Individual Health Insurance Coverage and a Traditional Group Health Plan to the Same Class of Employees a. In General To address the previously described concerns about potential adverse selection and health factor discrimination, under the proposed integration rules, a plan sponsor may offer an HRA integrated with individual health insurance coverage to a class of employees only if the plan sponsor does not also offer a traditional group health 66 For an explanation of the application of COBRA to HRAs, see section VII of IRS Notice 2002–45. PO 00000 Frm 00012 Fmt 4701 Sfmt 4702 plan to the same class of employees.67 Therefore, a plan sponsor would not be permitted to allow any employee within a class of employees a choice between a traditional group health plan or an HRA integrated with individual health insurance coverage. For this purpose, the term ‘‘traditional group health plan’’ means any group health plan other than either an account-based group health plan or a group health plan that consists solely of excepted benefits. The Departments solicit comments on whether employers should be able to offer employees a choice between a traditional group health plan or an HRA integrated with individual health insurance coverage, and on the definition of ‘‘traditional group health plan,’’ including whether an alternate definition or term might be appropriate and whether a definition should be codified as part of these proposed regulations. b. Classes of Employees In addition, as described in more detail later in the preamble, the proposed integration rules require a plan sponsor that offers an HRA integrated with individual health insurance coverage to a class of employees to offer the HRA on the same terms to each participant within the class of employees, subject to certain exceptions. The proposed integration rules provide that a plan sponsor may only offer the HRA on different terms to different groups of employees, and may only offer either an HRA integrated with individual health insurance coverage or a traditional group health plan by groups of employees, if those groups are specific classes of employees identified by the proposed rules. The classes are: (1) Full-time employees (using either the definition that applies for purposes of section 105(h) or 4980H of the Code, as determined by the plan sponsor); (2) part-time employees (using either the definition that applies for purposes of section 105(h) or 4980H of the Code, as determined by the plan sponsor); (3) seasonal employees (using either the definition that applies for purposes of section 105(h) or 4980H of the Code, as determined by the plan sponsor); (4) employees who are included in a unit of employees covered by a collective bargaining agreement (CBA) in which the plan sponsor participates (as described in 26 CFR 1.105– 11(c)(2)(iii)(D)); (5) employees who have not satisfied a waiting period for 67 The Departments note that an employer may not provide a QSEHRA to any employee if it offers any employee a group health plan, including a traditional group health plan or an HRA. See section 9831(d)(3)(B)(ii) of the Code. E:\FR\FM\29OCP2.SGM 29OCP2 amozie on DSK3GDR082PROD with PROPOSALS2 Federal Register / Vol. 83, No. 209 / Monday, October 29, 2018 / Proposed Rules coverage (if the waiting period complies with the waiting period rules in PHS Act section 2708 and its implementing regulations); 68 (6) employees who have not attained age 25 prior to the beginning of the plan year (as described in 26 CFR 1.105–11(c)(2)(iii)(B)); (7) non-resident aliens with no U.S.-based income (as described in 26 CFR 1.105– 11(c)(2)(iii)(E)) (generally, foreign employees who work abroad); and (8) employees whose primary site of employment is in the same rating area, as defined in 45 CFR 147.102(b). In addition, the proposed integration rules allow as additional classes, groups of employees described as a combination of two or more of the enumerated classes. For example, part-time employees included in a unit of employees covered by a CBA might be one class of employees, and full-time employees included in the same unit of employees covered by a CBA might be another class of employees. In that case, for example, the employer could offer an HRA to the part-time employees and not offer (or offer on different terms) an HRA to the full-time employees, but could not differentiate between the parttime employees covered under the CBA except based on any of them being in another class or, if within the same class, except as otherwise allowed under the same-terms requirement as explained later in this preamble. If an HRA is offered to former employees (such as retirees), former employees are considered to be in the same class they were in immediately before separation from service. The Departments have concluded that it is appropriate to permit plan sponsors to offer different benefits to these classes of employees under the proposed integration rules. First, many employers historically have offered varying benefit packages to members of these different classes of employees clearly for purposes other than inducing higher risk employees to leave the plan sponsor’s traditional group health plan. Second, the Departments have determined that it would be burdensome for employers to shift employees from one of these classes of employees to another merely for the purpose of offering different types of health benefits to employees based on a health factor, thereby reducing the risk that a plan sponsor will offer an HRA integrated with individual health insurance coverage only to its higher risk employees. Accordingly, the classes of employees identified in these proposed rules would balance employers’ reasonable need to make distinctions among employees with respect to offering health benefits with the public interest in protecting the stability of the individual market risk pools. Historically, employers have often provided different benefit packages to employees included in a unit of employees covered by a CBA, full-time employees, part-time employees, seasonal employees, employees who work abroad, employees of different ages, employees based on whether they have completed a waiting period, and employees in different locations. This is particularly true in the case of health benefits. For example, unions typically bargain with employers over health benefits provided to employees who are members of that union, and the health benefits that an employer provides pursuant to a CBA are often different than those that it provides to its employees who are not covered by the CBA. Similarly, health benefit packages offered to employees often vary by location, in part because certain healthcare providers or health insurance issuers operate only in some areas and not in others. A rule that prohibited employers from differentiating between these classes of employees for purposes of offering HRAs integrated with individual health insurance coverage would pose significant costs that might undermine the willingness of employers to offer HRAs in the first place. The Departments are of the view that these classes of employees are not ones that could be easily manipulated in order to transfer the risks (and perceived higher costs) from the employer’s traditional group health plan to the individual market. For example, labor laws generally prevent an employer from classifying an employee as subject to a CBA when the employee traditionally has not been subject to a CBA. Similarly, economic and labor forces generally make it difficult for employers to increase or reduce significantly the number of hours worked by employees in particular positions. In certain situations, ERISA may also prevent an employer from changing employee’s hours in order to interfere with an employee’s ability to participate in a health plan.69 The Departments have not proposed permitting plan sponsors to treat salaried and hourly employees as different classes of employees for purposes of these rules, however, as many employers might easily be able to change an employee’s status from 68 26 CFR 54.9815–2708; 29 CFR 2590.715–2708; 45 CFR 147.116. 69 See e.g., Marin v. Dave & Buster’s, Inc., 159 F. Supp. 3d 460 (SDNY 2016). VerDate Sep<11>2014 18:32 Oct 26, 2018 Jkt 247001 PO 00000 Frm 00013 Fmt 4701 Sfmt 4702 54431 salaried to hourly (and in certain circumstances, from hourly to salaried) with seemingly minimal economic or other consequences for either the employer or the employees. To minimize burden and complexity, the Departments do not propose a minimum employer size or employee class size for purposes of applying the proposed integration rules. The Departments recognize that very small employers could manipulate these classes (for example, a very small employer could put someone who is a higher-risk employee in a separate class on his or her own), but note that other economic incentives related to attracting and retaining talent would discourage employers from doing so. The Departments invite comments on whether employer size or employee class size should be considered in determining permissible classes of employees. In defining certain classes of employees to which different benefits may be offered in the proposed rules, the Departments propose to adopt definitions that are the same as those that apply under sections 105(h) and 4980H of the Code. Specifically, for purposes of identifying classes of employees for purpose of the proposed integration regulations, an HRA plan sponsor may define ‘‘full-time employee,’’ ‘‘part-time employee,’’ and ‘‘seasonal employee’’ in accordance with either of those definitions under sections 105(h) and 4980H of the Code, but it must be consistent across these three classes of employees, to the extent it differentiates based on these classes, in using either sections 105(h) or 4980H of the Code to avoid overlapping classes of employees, and the HRA plan document must set forth the applicable definitions prior to the beginning of the plan year in which the definitions will apply. Thus, an HRA plan document may provide that, for the plan year, the term ‘‘full-time employee’’ means a full-time employee under section 4980H of the Code and the regulations thereunder and ‘‘parttime employee’’ means an employee who is not a full-time employee under section 4980H of the Code and the regulations thereunder, for the applicable plan year. But an HRA plan document may not provide that, for the plan year, the term ‘‘full-time employee’’ has the meaning set forth in section 4980H of the Code and the regulations thereunder, and the term ‘‘part-time employee’’ has the meaning set forth in 26 CFR 1.105– 11(c)(2)(iii)(C), for the applicable plan year. Nothing would prevent an employer from changing the definitions E:\FR\FM\29OCP2.SGM 29OCP2 54432 Federal Register / Vol. 83, No. 209 / Monday, October 29, 2018 / Proposed Rules amozie on DSK3GDR082PROD with PROPOSALS2 for a subsequent plan year so long as each class is defined in accordance with the same provision for the applicable plan year and the HRA plan document is updated to reflect the applicable definitions prior to the beginning of the plan year in which the definitions would apply. For the other classes of employees, the relevant definition under section 105(h) of the Code applies, except for the class of employees based on worksite rating area. The Departments propose to adopt the Code section 105(h) definitions, in part, because they reflect a relatively common understanding of the terms ‘‘full-time,’’ ‘‘part-time’’ and ‘‘seasonal’’ employees and because HRAs generally are subject to the nondiscrimination rules of section 105(h) of the Code. The Departments understand that plan sponsors may want to design their employee health plans, which may include offering a traditional group health plan and HRAs (or HRAs in different amounts or under different terms and conditions) to different classes of employees in a manner that complies with the requirements of Code section 105(h) to avoid the inclusion of amounts in income under that section.70 The Departments have concluded that defining the classes of employees to which different offers of coverage may be made by using the Code section 105(h) definitions may be helpful in accomplishing that result. As noted earlier, the Departments propose to allow employers to adopt the Code section 4980H definitions as an alternative set of definitions for identifying full-time, part-time, and seasonal employees. The Departments acknowledge that certain employers have already determined how those definitions apply to their workforce and using those same definitions for purposes of applying the proposed integration rules may reduce burden for those employers. Section 4980H of the Code applies to ALEs, which generally includes employers that employed at least 50 full-time employees (including full-time equivalent employees) in the prior calendar year.71 An employer 70 HRAs generally are subject to the rules under section 105(h) of the Code and its related regulations as self-insured medical reimbursement plans. In general, section 105(h) of the Code provides that certain amounts paid to highly compensated individuals under self-insured medical reimbursement plans are includible in the income of the highly compensated individual. In the near term, the Treasury Department and the IRS intend to issue guidance that addresses the interaction of section 105(h) of the Code and HRAs integrated with individual health insurance coverage. 71 Discussion of how section 4980H of the Code would affect an ALE that offers an HRA integrated VerDate Sep<11>2014 18:32 Oct 26, 2018 Jkt 247001 must classify its employees as either full-time or part-time employees, and in some cases as seasonal employees, in accordance with section 4980H of the Code and the regulations thereunder, in order to determine whether it is an ALE and, if so, to determine which employees it must offer coverage to in order to avoid liabilities under section 4980H of the Code and to complete the associated reporting requirements. Accordingly, ALEs that want to offer HRAs to a particular class of employees, or offer HRAs of differing amounts or under different terms and conditions based on particular classes of employees, may prefer to use the Code section 4980H definitions with which they are familiar and which they have historically communicated to employees through the reporting requirements. The Departments understand, however, that some ALEs may still wish to use the Code section 105(h) definitions, and some non-ALEs may wish to use the Code section 4980H definitions. Therefore, the proposed rules would offer each employer the flexibility to determine which set of definitions are appropriate for its workforce, provided the employer uses the same set of definitions for classifying its full-time, part-time, and seasonal employees to the extent it uses each of these classifications. The proposed employee classes are intended to provide the flexibility needed to achieve increased HRA usability while establishing parameters sufficient to address the health status discrimination and adverse selection concerns described earlier in this preamble. The Departments considered whether employers should be allowed to offer or vary HRAs integrated with individual health insurance coverage for classes of employees based on a very general standard (like the one that generally applies under the HIPAA nondiscrimination rules, with a broad employment-based classification standard) or a more finite list of classes of employees that have been used in other rules for various employee benefits purposes (for example, under section 105(h) and/or 4980H of the Code). The Departments’ view is that a broad and open-ended standard would not be sufficient to mitigate health factor discrimination that could increase adverse selection in the individual market. The classes the Departments propose to permit are ones which, based on the Departments’ experience, employers use for other employee benefits and other purposes, with the with individual health insurance coverage is included later in this preamble. PO 00000 Frm 00014 Fmt 4701 Sfmt 4702 result that an employer would be unlikely to shift employees between the classes simply for purposes of offering an HRA. The Departments request comments on the proposed classes of employees, the definitions used, and whether additional classes of employees should be provided (for example, classifications based on form of compensation (hourly versus salaried), employee role or title, occupation, or whether the individual is a former employee). The Departments also seek comment on whether any additional classifications within the proposed classes of employees should be allowed, for example, allowing classifications based on more specific geographic locations, multiple gradations of part-time employees, or gradations based on employee tenure. In addition, the Departments request comments on whether the proposed classes of employees, including the class of employees based on employees having a primary worksite in a particular rating area and the rule allowing combinations of classes of employees, and any potential additional classes, are sufficient to mitigate adverse selection and health status discrimination concerns. c. Salary Reduction Arrangements The Departments have been made aware that some employers may wish to allow employees to pay the portion of the premium for individual health insurance coverage that is not covered by an HRA integrated with individual health insurance coverage, if any, by using a salary reduction arrangement under a cafeteria plan. Pursuant to section 125(f)(3) of the Code, an employer may not provide a qualified health plan (as defined in section 1301(a) of PPACA) offered through the Exchange as a benefit under its cafeteria plan.72 Therefore, an employer may not permit employees to make salary reduction contributions to a cafeteria plan to purchase a qualified health plan (including individual health insurance coverage) offered through an Exchange. However, section 125(f)(3) of the Code does not apply to individual health insurance coverage that is not purchased on an Exchange. Therefore, for an employee who purchases individual health insurance coverage outside the Exchange, the employer could permit the employee to pay the balance of the premium for the coverage through its cafeteria plan, subject to all 72 Note that section 125(f)(3)(B) of the Code provides an exception to this prohibition for certain small employers offering employees the opportunity to enroll in the group market through an Exchange. E:\FR\FM\29OCP2.SGM 29OCP2 Federal Register / Vol. 83, No. 209 / Monday, October 29, 2018 / Proposed Rules amozie on DSK3GDR082PROD with PROPOSALS2 applicable guidance.73 To the extent the arrangement to pay the balance of the premium is a group health plan, such an arrangement would not be considered to be a traditional group health plan for purposes of the proposed integration rules. For a discussion of the application of the same-terms requirement to such an arrangement, see the next section of this preamble. For a general comment solicitation on cafeteria plan premiums arrangements, see later in this preamble. 3. Same-Terms Requirement To address the Departments’ concerns about health status discrimination leading to additional adverse selection in the individual market, the proposed integration rules generally require that a plan sponsor that offers an HRA integrated with individual health insurance coverage to a class of employees must offer the HRA on the same terms (that is, both in the same amount and otherwise on the same terms and conditions) to all employees within the class. For this purpose, a class of employees has the meaning described earlier in this preamble, but see later in this section of the preamble for a discussion of the application of this requirement to former employees. As part of this proposed requirement, the Departments make clear that offering a more generous HRA to individuals based on an adverse health factor violates the integration rules. The Departments recognize, however, that premiums for individual health insurance coverage obtained by HRA participants and their dependents may vary and thus some variation in amounts made available under an HRA, even within a class of employees, may be appropriate. Therefore, under the proposed integration rules, the maximum dollar amount made available under the HRA for participants within a class of employees may increase as the age of the participant increases, so long as the same maximum dollar amount attributable to that increase in age is made available to all participants of the same age within the same class of employees. In addition, under the proposed integration rules, the maximum dollar amount made available under an HRA within a class of employees may increase as the number of the participant’s dependents who are covered under the HRA increases, so long as the same maximum dollar amount attributable to that increase in family size is made available to all participants in that class of employees 73 See Prop. Reg. 26 CFR 1.125–1(m); see also Rev. Rul. 61–146, 1961–2 CB 25. VerDate Sep<11>2014 18:32 Oct 26, 2018 Jkt 247001 with the same number of dependents covered by the HRA. Under this exception, a plan sponsor may increase the HRA amount for a class of employees for both age and family size, which would mean, for example, that a plan sponsor could offer two employees in a class of employees of the same age different HRA amounts if the different HRA amounts are attributable to differences in family size. By permitting such variation, the Departments seek to balance the disparate costs of health insurance in the individual market with the need to prevent health status discrimination against HRA participants and their dependents. Further, although the proposed integration regulations would generally apply to a former employee in the same way that they apply to a current employee (and former employees are considered to be in the same class that they were in immediately before separation from service), the Departments recognize that eligibility for post-employment health coverage, if any, varies widely and may be subject to age, service or other conditions. To avoid undue disruption of employers’ practices relating to the provision of post-employment health coverage, the proposed integration rules provide that an HRA may be treated as provided on the same terms even if the plan sponsor offers the HRA to some former employees (for example, to all former employees with a minimum tenure of employment) but fails to offer the HRA to the other former employees within a class of employees. But if a plan sponsor does offer the HRA to one or more former employee(s) within a class of employees, the HRA must be offered to those former employee(s) on the same terms as all other employees within the class.74 For example, if a plan sponsor offers an HRA to all of its current fulltime employees and also to its former employees who were full-time employees immediately prior to separation from service who had at least five years of service, the plan sponsor must provide the HRA on the same terms to the eligible former employees and to the current full-time employees, subject to the generally applicable exceptions to the same terms 74 Note that the market requirements do not apply to a group health plan that has fewer than two participants who are current employees on the first day of the plan year. See section 9831(a)(2) of the Code and section 732(a) of ERISA. HHS follows a similar approach for non-federal governmental retiree-only plans and encourages States to adopt a similar approach with respect to issuers of retireeonly plans. See 75 FR 34539 (June 17, 2010). Therefore, a retiree-only HRA need not meet the requirements of any integration test. PO 00000 Frm 00015 Fmt 4701 Sfmt 4702 54433 requirement described elsewhere in this section of the preamble. The proposed integration rules further provide that if a participant or dependent in an HRA integrated with individual health insurance coverage does not use all of the amounts made available in the HRA to reimburse medical care expenses for a plan year, and the HRA allows for these amounts to be made available to participants and their dependents in later plan years, these carryover amounts would be disregarded for purposes of determining whether the HRA is offered on the same terms, so long as the method for determining whether participants have access to unused amounts in future years, and the methodology and formula for determining the amounts of unused funds that they may access in future years, is the same for all participants in a class of employees. In addition, the proposed rules provide that the ability to pay the portion of the premium for individual health insurance coverage that is not covered by the HRA, if any, by using a salary reduction arrangement under a cafeteria plan 75 is considered to be a term of the HRA for purposes of the proposed integration rules; therefore an HRA shall fail to be treated as provided on the same terms unless such a salary reduction arrangement, if made available to any participant in a class of employees, is made available on the same terms to all participants (other than former employees) in a class of employees. Further, the Treasury Department and the IRS are aware that an HRA under which the maximum dollar amount varies based on age may face issues regarding the application of section 105(h) of the Code and the regulations thereunder. Accordingly, the Treasury Department and the IRS intend to issue guidance in the near term that describes an anticipated safe harbor that would allow increases in the maximum dollar amount made available under an HRA integrated with individual health insurance coverage, if certain conditions are met, without a consequence under section 105(h) of the Code.76 75 As previously noted, pursuant to section 125(f)(3) of the Code, a cafeteria plan may not permit employees to use salary reduction contributions made to a cafeteria plan to purchase individual health insurance coverage offered through an Exchange. 76 HRAs generally are subject to the rules under Code section 105(h) and its related regulations as self-insured medical reimbursement plans. In general, Code section 105(h) provides that certain amounts paid to highly compensated individuals under self-insured medical reimbursement plans are includible in the income of the highly compensated individual. The regulations under E:\FR\FM\29OCP2.SGM Continued 29OCP2 54434 Federal Register / Vol. 83, No. 209 / Monday, October 29, 2018 / Proposed Rules amozie on DSK3GDR082PROD with PROPOSALS2 4. Opt-Out Provision As described elsewhere in this preamble, if an individual is covered by an HRA integrated with individual health insurance coverage for a month, regardless of the amount of reimbursement available under the HRA, the individual is not eligible for the PTC for that month. Because in some circumstances an individual may be better off claiming the PTC than receiving reimbursements under an HRA, the Departments’ existing rules regarding integration with non-HRA group coverage and with Medicare require plan sponsors that offer HRAs to allow participants to opt out of and waive future reimbursements from the HRA at least annually.77 These proposed rules include the same requirement. Thus, current employees may be allowed the PTC, if they are otherwise eligible, if they opt out of and waive future reimbursements from the HRA and the HRA is either unaffordable or does not provide MV.78 Furthermore, as with the current integration rules, the proposed integration rules require that upon termination of employment, either the remaining amounts in the HRA must be forfeited or the participant must be allowed to permanently opt out of and waive future reimbursements from the HRA to ensure that the HRA participant Code section 105(h) provide that, for purposes of the nondiscriminatory benefits rule under Code section 105(h)(4), ‘‘a plan may establish a maximum limit for the amount of reimbursement which may be paid a participant for any single benefit or a combination of benefits. However, any maximum limit attributable to employer contributions must be uniform for all participants and for all dependents of employees who are participants and may not be modified by reason of a participant’s age or years of service.’’ See 26 CFR 1.105–11(c)(3)(i). The guidance that the Treasury Department and the IRS intend to issue is also anticipated to address the application of the Code section 105(h) uniformity requirement to an HRA integrated with individual health insurance coverage more generally. 77 See 26 CFR 54.9815–2711(d)(2)(i)(E), (d)(2)(ii)(D), (d)(5)(iv), 29 CFR 2590.715– 2711(d)(2)(i)(E), (d)(2)(ii)(D), (d)(5)(iv), and 45 CFR 147.126(d)(2)(i)(E), (d)(2)(ii)(D) and (d)(5)(iv). Note that the rule for integration of an HRA with nonHRA group coverage allows certain HRA amounts that are forfeited to be reinstated in the future, but the proposed rules do not contain a similar provision for HRAs integrated with individual health insurance coverage due to concerns by the Departments about complexity and burden on employers. See 26 CFR 54.9815–2711(d)(3), 29 CFR 2590.715–2711(d)(3), and 45 CFR 147.126(d)(3). 78 See elsewhere in this preamble for a discussion of rules being proposed by the Treasury Department and the IRS regarding the circumstances in which an offer of an HRA integrated with individual health insurance coverage is affordable and provides MV. Also note that a former employee is only rendered ineligible for the PTC if the former employee enrolls in employer-sponsored coverage; an offer of coverage (even if it is affordable and provides MV) does not preclude a former employee from claiming the PTC. VerDate Sep<11>2014 18:32 Oct 26, 2018 Jkt 247001 may choose whether to claim the PTC, if otherwise eligible, or to continue to participate in the HRA after the participant’s separation from service. 5. Substantiation and Verification of Individual Health Insurance Coverage As discussed earlier in this preamble, the proposed integration rules would require that the individuals whose medical care expenses may be reimbursed under the HRA must be enrolled in individual health insurance coverage. To facilitate the administration of this requirement, under the proposed integration rules, an HRA must implement, and comply with, reasonable procedures to verify that individuals whose medical care expenses are reimbursable by the HRA are, or will be, enrolled in individual health insurance coverage (other than coverage that consists solely of excepted benefits) during the plan year. The reasonable procedures may include a requirement that a participant substantiate enrollment in individual health insurance coverage by providing either: (1) A document from a third party (for example, the issuer) showing that the participant and any dependent(s) covered by the HRA are, or will be, enrolled in individual health insurance coverage during the plan year (for example, an insurance card or an explanation of benefits pertaining to the relevant time period); or (2) an attestation by the participant stating that the participant and any dependent(s) are or will be enrolled in individual health insurance coverage, the date coverage began or will begin, and the name of the provider of the coverage.79 For this purpose, an HRA may rely on the documentation or attestation provided by the participant unless the HRA has actual knowledge that any individual covered by the HRA is not, or will not be, enrolled in individual health insurance coverage (other than coverage that consists solely of excepted benefits) for the plan year. In addition, following the initial substantiation of coverage, with each new request for reimbursement of an incurred medical care expense for the same plan year, the proposed integration rules provide that the HRA may not reimburse a participant for any medical care expenses unless, prior to each reimbursement, the participant provides substantiation (which may be 79 For purposes of the Code provisions affected by the proposed regulations, the otherwise generally applicable substantiation and recordkeeping requirements under section 6001 of the Code apply, including the requirements specified in Rev. Proc. 98–25 (1998–1 CB 689) for records maintained within an Automated Data Processing system. PO 00000 Frm 00016 Fmt 4701 Sfmt 4702 in the form of a written attestation) that the participant and, if applicable, any dependent(s) whose medical care expenses are requested to be reimbursed continue to be enrolled in individual health insurance coverage (other than coverage that consists solely of excepted benefits) for the month during which the medical care expenses were incurred. The attestation may be part of the form used for requesting reimbursement. As with the substantiation of enrollment for the plan year, for this purpose, an HRA may rely on the documentation or attestation provided by the participant unless the HRA has actual knowledge that the participant and any individual seeking reimbursement for the month were not enrolled in individual health insurance coverage (other than coverage that consists solely of excepted benefits) for the month. 6. Notice Requirement Because HRAs are different from traditional employer-provided health coverage in many respects, the Departments are concerned that individuals eligible for HRAs integrated with individual health insurance coverage may not recognize that the offer and/or acceptance of an HRA will have consequences for PTC eligibility, as described elsewhere in this preamble. Therefore, in order to ensure that participants who are eligible to participate in an HRA integrated with individual health insurance coverage understand the potential effect that the offer of and enrollment in the HRA might have on their ability to claim the PTC, these proposed rules include a requirement that an HRA provide written notice to eligible participants. The HRA would be required to provide a written notice to each participant at least 90 days before the beginning of each plan year. For participants who are not yet eligible to participate at the beginning of the plan year (or who are not eligible when the notice is provided at least 90 days prior to the beginning of the plan year), the HRA would be required to provide the notice no later than the date on which the participant is first eligible to participate in the HRA. The proposed written notice would be required to include certain relevant information, including a description of the terms of the HRA, including the maximum dollar amount made available, as used in the affordability determination under the Code section 36B proposed rules;80 a statement of the 80 The Departments note that in order to comply with the notice requirement, the HRA must determine the amounts that will be newly made E:\FR\FM\29OCP2.SGM 29OCP2 amozie on DSK3GDR082PROD with PROPOSALS2 Federal Register / Vol. 83, No. 209 / Monday, October 29, 2018 / Proposed Rules right of the participant to opt-out of and waive future reimbursement under the HRA; a description of the potential availability of the PTC if the participant opts out of and waives the HRA and the HRA is not affordable under the proposed PTC regulations; a description of the PTC eligibility consequences for a participant who accepts the HRA; a statement that the participant must inform any Exchange to which they apply for advance payments of the PTC of the availability of the HRA, the amount of the HRA, the number of months the HRA is available to participants during the plan year, whether the HRA is available to their dependents and whether they are a current or former employee; a statement that the participant should retain the written notice because it may be needed to determine whether the participant is allowed the PTC; a statement that the HRA may not reimburse any medical care expense unless the substantiation requirements are met; and a statement that it is the responsibility of the participant to inform the HRA if the participant or any dependent whose medical care expenses are reimbursable by the HRA is no longer enrolled in individual health insurance coverage. This notice would provide some of the information the participant needs in order for the participant to ascertain the consequences of the HRA for PTC eligibility, and would inform them of their responsibilities for the HRA. If the requirements of the Department of Labor’s proposed rules at 29 CFR 2510.3–1(l) are met, the notice would be required to also include a statement to advise participants that individual health insurance coverage integrated with the HRA is not subject to ERISA (see section IV of this preamble and the Department of Labor’s proposed rules at 29 CFR 2510.3–1(l) for additional explanation regarding this requirement). The written notice would be required to include the information required by the proposed integration rules, and would be permitted to include other information, as long as the additional information does not conflict with the required information. The written notice would not need to include information specific to a participant. More specifically, although the notice must contain a description of the potential availability of the PTC for a participant who opts out of and waives an unaffordable HRA and must include the HRA amount that is relevant available for the plan year prior to the plan year. A similar requirement applies under the proposed premium tax credit regulations. See proposed 26 CFR 1.36B–2(c)(5)(v). VerDate Sep<11>2014 18:32 Oct 26, 2018 Jkt 247001 for determining affordability under the proposed rules at 26 CFR 1.36B–2(c)(5), the proposed rules would not require the HRA to include in the notice a determination of whether the HRA is considered affordable for the participant. The participant would need additional information (that is, their household income and the premium for the lowest cost silver plan in the Exchange for the rating area where they reside) to determine whether the HRA is affordable under the proposed PTC rules, as described in detail in section III of this preamble. 7. Student Health Insurance Coverage Federal regulations under PPACA define student health insurance coverage as a type of individual health insurance coverage.81 Although those regulations exempt student health insurance coverage from certain provisions of PPACA and HIPAA,82 they do not exempt such coverage from sections 2711 and 2713 of the PHS Act. Therefore, given that student health insurance coverage is a type of individual health insurance coverage, and is required to comply with sections 2711 and 2713 of the PHS Act, the Departments clarify that under the proposed integration rules an HRA may be integrated with student health insurance coverage that satisfies the requirements in 45 CFR 147.145.83 The Departments also wish to confirm that prior guidance,84 which provided 81 Under this definition, student health insurance coverage must be provided pursuant to a written agreement between an institution of higher education (as defined in the Higher Education Act of 1965) and a health insurance issuer, and provided to students enrolled in that institution and their dependents, and does not make health insurance coverage available other than in connection with enrollment as a student (or as a dependent of a student) in the institution, does not condition eligibility for the health insurance coverage on any health status-related factor (as defined in 45 CFR 146.121(a)) relating to a student (or a dependent of a student), and meets any additional requirements that may be imposed under State law. See 45 CFR 147.145(a). 82 See 45 CFR 147.145(b). 83 Self-insured student health plans are not a form of individual health insurance coverage. Therefore, these proposed integration regulations do not provide for HRA integration with self-insured student health plans. 84 See FAQs About Affordable Care Act Implementation Part 33, available at https:// www.dol.gov/sites/default/files/ebsa/about-ebsa/ our-activities/resource-center/faqs/aca-part-33.pdf or https://www.cms.gov/CCIIO/Resources/FactSheets-and-FAQs/Downloads/ACA-FAQ-Set-33Final.pdf. See also IRS Notice 2016–17, 2016–9 IRB 358; DOL Technical Release 2016–1, available at https://www.dol.gov/ebsa/newsroom/tr16-01.html; and Insurance Standards Bulletin, Application of the Market Reforms and Other Provisions of the Affordable Care Act to Student Health Coverage, February 5, 2016, available at https://www.cms.gov/ CCIIO/Resources/Regulations-and-Guidance/ Downloads/student-health-bulletin.pdf. PO 00000 Frm 00017 Fmt 4701 Sfmt 4702 54435 enforcement relief to institutions of higher education for certain healthcare premium reduction arrangements offered in connection with student health coverage (insured or selfinsured), remains in effect, pending further guidance. 8. Comment Solicitation Regarding Various Integration-Related Issues In developing the proposed integration rules, the Departments considered whether to allow HRAs intended to satisfy the individual health insurance coverage integration test also to be integrated with group health plan coverage, such as a group health plan maintained by the employer of the participant’s spouse, in addition to individual health insurance coverage, because like individual health insurance coverage, group health plan coverage is generally subject to and compliant with PHS Act sections 2711 and 2713. The Departments are not proposing such a rule because allowing such integration would add significant complexity to the individual health insurance coverage integration test.85 The Departments request comments regarding whether the Departments should allow for such integration and if so, with respect to PHS Act section 2711 compliance, how such an integration test should be designed to take into account that, while most individual health insurance coverage is required to cover all EHBs, large group market and self-insured group health plans are not required to cover all EHBs. The Departments request comments on the demand for 85 PHS Act section 2711 applies with respect to the provision of EHBs. Because large group market and self-insured group health plan coverage are not required to provide EHBs, unlike individual health insurance coverage which is generally required to provide all EHBs, in the group health plan integration context, situations may arise where nonHRA group coverage with which the HRA is integrated does not cover every category of EHBs that the HRA covers. In that case, the HRA applies an annual dollar limit to a category of EHBs and the non-HRA group coverage with which it is integrated does not cure that limit by providing unlimited coverage of that category of EHBs. In the 2015 regulations under PHS Act section 2711, and in subregulatory guidance that preceded the Departments final rules, the Departments addressed this issue by providing two tests. Specifically, if the non-HRA group coverage with which an HRA is integrated provides MV, the HRA will not be considered to fail to comply with PHS Act section 2711, even though the HRA might provide reimbursement of an EHB that the plan with which the HRA is integrated does not. If an HRA is integrated with non-HRA group coverage that does not provide MV, the 2015 regulations limit the types of expenses that an HRA may reimburse to reimbursement of co-payments, co-insurance, deductibles, and premiums under the non-HRA group coverage, as well as medical care that does not constitute EHBs. For additional discussion of the final regulations under PHS Act section 2711 see the discussion earlier in this preamble. E:\FR\FM\29OCP2.SGM 29OCP2 amozie on DSK3GDR082PROD with PROPOSALS2 54436 Federal Register / Vol. 83, No. 209 / Monday, October 29, 2018 / Proposed Rules such a rule, and any problems such a rule may raise. The Departments also considered whether to propose a rule to permit HRAs to be integrated with other types of non-group coverage other than individual health insurance coverage, such as STLDI.86 However, while all individual health insurance coverage that is currently written is nongrandfathered coverage, and therefore is subject to and, presumably, compliant with PHS Act sections 2711 and 2713 (and most individual market coverage that is renewed is also nongrandfathered), other types of non-group coverage, such as STLDI, may not be subject to PHS Act sections 2711 and 2713, in which case, integration would not be sufficient to ensure that the combined benefit package satisfies these requirements. The Departments request comments on whether integration with STLDI (which is not required to, but which may, satisfy PHS Act sections 2711 and 2713) should be permitted, including whether integration should be permitted with any other type of coverage that satisfies PHS Act sections 2711 and 2713, how such integration rules should be structured, as well as comments on what, if any, potential benefits and problems might arise from allowing these types of HRA integration. The Departments also seek comment on whether allowing such integration would raise any concerns about health status discrimination leading to additional adverse selection in the individual market. The Departments also seek comment on whether the ability to integrate an HRA with individual health insurance coverage has the potential to increase participation in and strengthen the viability of States’ individual market risk pools. Further, the Departments invite comment on whether the proposed integration safeguards are appropriate and narrowly tailored to mitigate adverse selection and the potential for discrimination based on health status, or whether less restrictive safeguards would suffice. Further, as noted earlier in this preamble, the proposed integration rules do not address cafeteria plan premium arrangements, other than to provide that plan sponsors may offer such an arrangement in addition to an HRA integrated with individual health insurance coverage in certain circumstances. The Departments invite comments on whether employers may seek to provide cafeteria plan premium 86 See the definition of short-term, limitedduration insurance (STLDI) under 26 CFR 54.9801– 2, 29 CFR 2590.701–2, 45 CFR 144.103. VerDate Sep<11>2014 18:32 Oct 26, 2018 Jkt 247001 arrangements, including as a standalone arrangement, and, if so, what additional guidance is needed in order to facilitate the offering of such arrangements. In particular, the Departments solicit comments on whether the definition of the term ‘‘account-based group health plan’’ should include cafeteria plan premium arrangements in order to permit these arrangements to integrate with individual health insurance coverage subject to the requirements of the rule, including how that treatment would be coordinated with other requirements applicable to employee benefit plans. 9. Revisions to PHS Act Section 2711 Regulations Regarding Integration With Other Group Health Plan Coverage and Medicare The 2015 regulations under PHS Act section 2711 provide methods for integrating HRAs with coverage under another group health plan, and, in certain circumstances, with Medicare parts B and D. These proposed rules do not substantively change the current group health plan or Medicare integration tests under the existing PHS Act section 2711 regulations. However, these proposed rules include minor proposed revisions to those regulations, including changing the term ‘‘accountbased plan’’ to ‘‘account-based group health plan’’ and moving defined terms to a definitions section. More substantively, these proposed rules would amend the regulations under PHS Act section 2711 to reflect that HRAs may be integrated with individual health insurance coverage subject to the requirements of 26 CFR 54.9802–4, 29 CFR 2590.702–2, and 45 CFR 146.123. Paragraph (d)(4) of 26 CFR 54.9815–2711, 29 CFR 2590.715–2711 and 45 CFR 147.126 is revised accordingly. In addition, for the sake of clarity, the proposed rules add to paragraph (d)(2) in each of the aforementioned PHS Act section 2711 regulations that an HRA integrated with non-HRA group coverage may not be used to purchase individual health insurance coverage (other than coverage that consists solely of excepted benefits), as the Departments previously clarified in Notice 2015–87, Q&A 2. In addition, the proposed rules update the definition of EHBs set forth in paragraph (c) of the regulations under PHS Act section 2711, which applies for a group health plan or health insurance issuer not required to cover EHBs. The update in the proposed rules reflects the revision to the EHB-benchmark plan selection process that was promulgated in the HHS Notice of Benefit and Payment Parameters for 2019 Final Rule PO 00000 Frm 00018 Fmt 4701 Sfmt 4702 (2019 Payment Notice) and that applies for plan years beginning on or after January 1, 2020.87 The 2019 Payment Notice revisions provide States with additional choices with respect to the selection of benefits and promote affordable coverage through offering States additional flexibility in their selection of an EHB-benchmark plan for plan years beginning on or after January 1, 2020. The State’s existing EHBbenchmark plan will continue to apply for any year for which a State does not select a new EHB-benchmark plan from the available EHB-benchmark plan selection options finalized in the 2019 Payment Notice.88 B. Excepted Benefit HRAs There may be scenarios in which an employer wishes to offer an HRA that may not be integrated with non-HRA group coverage, Medicare, TRICARE, or individual health insurance coverage. For example, some employers may wish to offer an HRA without regard to whether its employees have other coverage at all or without regard to whether its employees have coverage that is subject to and satisfies the market requirements. Therefore, these proposed rules would utilize the Departments’ discretion under section 9832(c)(2)(C) of the Code, section 733(c)(2)(C) of ERISA, and section 2791(c)(2)(C) of the PHS Act, to recognize HRAs as limited excepted benefits, if certain conditions are met.89 As explained earlier in this preamble, the Departments have the authority and discretion to specify in regulations additional limited excepted benefits, that are similar to the limited benefits specified in the statute and that either are insured under a separate policy, certificate, or contract, or are otherwise not an integral part of a plan. The Departments are proposing an excepted benefit HRA that is both consistent with this statutory framework and consistent with the Departments’ objective of expanding the availability and usability of HRAs. The proposed rules provide the following four requirements for an HRA to qualify as an excepted benefit HRA: (1) The HRA must not be an integral part of the plan, (2) the HRA must 87 See 83 FR 16930 (April 17, 2018). The definition of EHB that applies under the PHS Act section 2711 regulations for plan years beginning before January 1, 2020 would not be substantively changed by the proposed rules. 88 For more information on the revised EHB standard, refer to the preamble to the 2019 Payment Notice, beginning at page 17007. 89 The proposed rules that recognize certain HRAs as limited excepted benefits do not apply to health FSAs. For a health FSA to qualify as an excepted benefit, the current regulations continue to apply. E:\FR\FM\29OCP2.SGM 29OCP2 Federal Register / Vol. 83, No. 209 / Monday, October 29, 2018 / Proposed Rules provide benefits that are limited in amount, (3) the HRA cannot provide reimbursement for premiums for certain health insurance coverage, and (4) the HRA must be made available under the same terms to all similarly situated individuals. amozie on DSK3GDR082PROD with PROPOSALS2 1. Otherwise Not an Integral Part of the Plan HRAs are self-insured group health plans and, therefore, are not insurance coverage that can be provided under a separate policy, certificate, or contract of insurance. Accordingly, HRAs must meet the statutory requirement to not be ‘‘an integral part of the plan.’’ To satisfy this condition, the proposed rules specify that for an HRA to be an excepted benefit, other group health plan coverage (other than an accountbased group health plan or coverage consisting solely of excepted benefits) must be made available by the same plan sponsor for the plan year to the participants offered the HRA. Only individuals who are eligible for participation in the other group health plan would be eligible for participation in the excepted benefit HRA. However, while the plan sponsor would be required to make an offer of other group health plan coverage in order to meet this requirement, HRA participants (and their dependents) would not be required to enroll in the other group health plan in order to be eligible for the excepted benefit HRA. This provision of the proposed excepted benefit HRA is similar to the requirement that applies under the limited excepted benefits regulations for health FSAs at 26 CFR 54.9831– 1(c)(3)(v), 29 CFR 2590.732(c)(3)(v), and 45 CFR 146.145(b)(3)(v). 2. Limited in Amount In creating the excepted benefit HRA, the Departments had to determine what type of HRA would be sufficiently limited to qualify as a limited excepted benefit. Under the statute, limited benefits may include limited scope vision or dental benefits, benefits for long-term care, nursing home care, home health care, or community-based care, or any combination thereof and may include ‘‘such other similar, limited benefits as are specified in regulations’’ by the Departments. The Departments consistently have applied limiting principles in prior rulemakings under which discretion was exercised to establish additional types of limited excepted benefits. For example, health FSAs constitute excepted benefits only if the arrangement is structured so that the maximum benefit payable to any VerDate Sep<11>2014 18:32 Oct 26, 2018 Jkt 247001 participant in the class for a year may not exceed two times the participant’s salary reduction election under the arrangement for the year (or, if greater, may not exceed $500 plus the amount of the participant’s salary reduction election).90 Additionally, limited wraparound coverage is a limited excepted benefit only if it is limited in amount, such that the cost of coverage per employee (and any covered dependents) under the limited wraparound coverage does not exceed the greater of the maximum permitted annual salary reduction contribution toward a health FSA,91 or 15 percent of the cost of coverage under the primary plan.92 In the proposed rules, the Departments propose that the amounts newly made available for a plan year in an excepted benefit HRA may not exceed $1,800, indexed for inflation for plan years beginning after December 31, 2020. For this purpose, inflation is defined in these proposed rules by reference to the Chained Consumer Price Index for All Urban Consumers, unadjusted (C–CPI–U), published by the Department of Labor. The adjusted limit for plan years beginning in a particular calendar year will be made available early in the fall of the prior calendar year. In proposing this limit, the Departments considered several factors, including the limits on employer contributions to excepted benefit health FSAs (set at $500 in 1997 if there are no employee contributions to the FSA, although it might be much higher if there are employee contributions).93 The Departments also considered indexing $500 for medical inflation using the medical care component of the Consumer Price Index for all Urban Consumers (CPI–U). The Departments considered the relationship between $500 and the average cost of insurance in 1997. The Departments also considered a limit of 15 percent-of-thecost-of-coverage-under-the-primary-plan test, which is the limit used for both supplemental excepted benefits in the group market and limited wraparound coverage, as a benchmark to ensure that the benefits are limited in amount.94 In 90 26 CFR 54.9831–1(c)(3)(v); 29 CFR 2590.732(c)(3)(v); 45 CFR 146.145(b)(3)(v). 91 See section 125(i) of the Code. 92 26 CFR 54.9831–1(c)(3)(vii); 29 CFR 2590.732(c)(3)(vii); 45 CFR 146.145(b)(3)(vii). 93 See 26 CFR 54.9831–1(c)(3)(v)(B); 29 CFR 2590.732(c)(3)(v)(B); 45 CFR 146.145(b)(3)(v)(B). 94 See 26 CFR 54.9831–1(c)(3)(vii)(B)(2); 29 CFR 2590.732(c)(3)(vii)(B)(2); 45 CFR 146.145(b)(3)(vii)(B)(2). See also EBSA Field Assistance Bulletin No. 2007–04 (available at https://www.dol.gov/agencies/ebsa/employers-andadvisers/guidance/field-assistance-bulletins/2007- PO 00000 Frm 00019 Fmt 4701 Sfmt 4702 54437 considering how such a limit could be an appropriate limit for excepted benefit HRAs, the Departments considered 15 percent of the cost of group coverage for both employee-only and family coverage. However, the Departments also considered how to determine the primary plan in circumstances in which the participant does not enroll in a traditional group health plan, and concluded that such a determination would likely be difficult for employers. The Departments also considered using the cost of coverage for the secondlowest cost silver plan in various markets. These methodologies produced a wide range of possible excepted benefit HRA limits from $1,100 to $2,850. Consistent with the principle of promoting HRA use and availability, rather than proposing a complex test for the limit on amounts newly made available in the excepted benefit HRA, the Departments are proposing a maximum of $1,800 (indexed for inflation) on amounts newly made available for a plan year. This approximates the midpoint amount yielded by the various methodologies considered. In proposing to index the amount by C–CPI–U, the Departments considered several factors, including the difficulties of administering an HRA with a changing amount, and the cost, including the cost to the Departments to publish the amount and provide notice every year, as balanced with the decreasing real value of a set HRA limit and the ability of an employer to maintain the HRA benefit at $1,800, should it choose to do so. The Departments invite comment on the amount of the proposed maximum dollar limit and whether an alternate amount or formula for determining the maximum dollar limit for an excepted benefit HRA would be more appropriate and, if so, what that alternative would be and why. The Departments specifically request comments on whether the proposed HRA maximum amount of $1,800 should be higher if the HRA covers dependents (or alternatively, whether the $1,800 maximum amount should be lower if the HRA only covers the employee). The Departments also invite comments on the measure of inflation used, including whether the amount should be indexed to inflation (and if there are any administrability concerns associated with indexing), if C–CPI–U is the correct measure of inflation, or whether an 04); CMS Insurance Standards Bulletin 08–01 (available at https://www.cms.gov/CCIIO/Resources/ Files/Downloads/hipaa_08_01_508.pdf); and IRS Notice 2008–23 (2008–07 IRB 433). E:\FR\FM\29OCP2.SGM 29OCP2 54438 Federal Register / Vol. 83, No. 209 / Monday, October 29, 2018 / Proposed Rules amozie on DSK3GDR082PROD with PROPOSALS2 alternate measure, such as the overall medical care component for CPI–U, or the method specified under section 9831(d)(2)(D) of the Code for QSEHRAs, should be used. The Departments also invite comment on whether the publication of the adjusted limit for plan years beginning in a particular calendar year by early fall of the preceding calendar year will provide employers with sufficient time to adjust the excepted benefit HRA for the upcoming year. If a participant or dependent in an excepted benefit HRA does not use all of the amounts made available in the excepted benefit HRA to reimburse medical care expenses for a plan year, and the excepted benefit HRA allows for these amounts to be made available to the participant and dependents in later plan years, the Departments propose that these carryover amounts would be disregarded for purposes of determining whether the benefits in the excepted benefit HRA are limited in amount. Further, the proposed rules provide that if the plan sponsor provides more than one excepted benefit HRA to the participant for the same time period, the amounts made available under such plans are aggregated to determine whether the benefits are limited in amount. 3. Prohibition on Reimbursement of Premiums for Certain Types of Coverage As the third requirement for an HRA to be recognized as a limited excepted benefit, the Departments propose that the HRA would not be permitted to reimburse premiums for individual health insurance coverage, coverage under a group health plan (other than COBRA or other group continuation coverage), or Medicare parts B or D. However, the proposed rules would allow an excepted benefit HRA to reimburse premiums for individual health insurance coverage that consists solely of excepted benefits or coverage under a group health plan that consists solely of excepted benefits, as well as for STLDI premiums, and for COBRA premiums. The Departments have concluded that this limit is appropriate in light of the requirement that excepted benefits under this statutory provision provide only limited benefits. In addition, the Departments have concluded that this condition is appropriate because under our concurrent proposal to permit HRAs to be integrated with individual health insurance coverage and the current regulations that allow HRAs to be integrated with group health plan coverage and to reimburse premiums for Medicare parts B and D in certain VerDate Sep<11>2014 18:32 Oct 26, 2018 Jkt 247001 circumstances, an employer that wishes to provide an HRA that reimburses premiums for individual health insurance coverage, coverage under a group health plan, or Medicare parts B or D may do so under the applicable integration rules. Such an approach ensures that excepted benefit HRAs provide limited benefits different from what a traditional group health plan would provide, similar to limited scope dental or vision plans and benefits for long-term care, nursing home care, home health care, and community-based care. This proposed condition would not limit the ability of an excepted benefit HRA to reimburse premiums for COBRA or other group continuation coverage (premiums for which are generally paid with after-tax funds) or STLDI. Further, the excepted benefit HRA may reimburse premiums other than those listed as specifically excluded. The Departments request comments on this condition, including whether additional clarity is needed regarding whether premiums for certain types of coverage may be reimbursed under the proposed excepted benefit HRA. 4. Uniform Availability To prevent a plan sponsor from intentionally or unintentionally, directly or indirectly, steering any participants or dependents with adverse health factors away from the sponsor’s traditional group health plan, the fourth and final requirement for an HRA to be recognized as a limited excepted benefit relates to uniform availability. Specifically, an excepted benefit HRA would be required to be made available under the same terms to all similarly situated individuals (as defined in the HIPAA nondiscrimination regulations) regardless of any health factor. In the Departments’ view, this condition is necessary to prevent discrimination based on health status and to preclude opportunities for an employer to offer a more generous excepted benefit HRA to individuals with an adverse health factor, such as an illness or a disability, as an incentive not to enroll in the plan sponsor’s traditional group health plan. Therefore, the Departments are proposing a uniform-availability requirement and wish to make it clear that benefits must be provided uniformly, without regard to any health factor. Accordingly, for example, the HRA could not be offered only to employees who have cancer or fail a physical examination, just as the HRA could not be offered only to employees who are cancer-free or who pass a physical examination. Similarly, an employer could not make greater PO 00000 Frm 00020 Fmt 4701 Sfmt 4702 amounts available to an HRA for employees who have cancer or who fail a physical examination, just as an employer could not make greater amounts available to an HRA for employees who are cancer-free or who pass a physical examination. The Departments request comment on whether additional standards are necessary to prevent abuse and discrimination based on a health factor. C. Interaction Between HRAs Integrated With Individual Health Insurance Coverage and Excepted Benefits HRAs Under the proposed rules, an employer would be permitted to offer an HRA integrated with individual health insurance coverage to a class of employees so long as it does not also offer a traditional group health plan to the same class of employees, subject to additional conditions discussed elsewhere in this preamble. However, an employer could only offer an excepted benefit HRA if traditional group health plan coverage is also made available to the employees who are eligible to participate in the excepted benefit HRA. Thus, an employer would not be permitted to offer both an HRA integrated with individual health insurance coverage and an excepted benefit HRA to any employee.95 III. Overview of the Proposed Rules Regarding the Premium Tax Credit— Department of the Treasury and IRS A. Premium Tax Credit Under Section 36B of the Code Consistent with the objectives in Executive Order 13813 to expand the use of HRAs, the proposed rules would amend the regulations under section 36B of the Code to provide guidance for individuals who are offered or covered by an HRA integrated with individual health insurance coverage as described in the proposed integration rules and who otherwise may be eligible for the PTC. An individual who is covered by an HRA integrated with individual health insurance coverage is ineligible for the PTC. However, see the discussion earlier in this preamble of the related requirement under the proposed integration rules that plan sponsors provide participants with the periodic opportunity to opt-out of and waive future reimbursements under an HRA. 95 The Departments note that an employer may not provide a QSEHRA to any employee if it offers any employee a group health plan. Accordingly, an employer may not provide a QSEHRA to any employee if it offers any employee an HRA that may be integrated with individual health insurance coverage or an excepted benefit HRA. See section 9831(d)(3)(B)(ii) of the Code. E:\FR\FM\29OCP2.SGM 29OCP2 amozie on DSK3GDR082PROD with PROPOSALS2 Federal Register / Vol. 83, No. 209 / Monday, October 29, 2018 / Proposed Rules The proposed rules under section 36B of the Code describe the PTC eligibility of an individual who is offered, but opts out of, an HRA that is integrated with individual health insurance coverage. Consistent with section 36B of the Code and the existing regulations thereunder, the proposed rules provide that an employee who is offered, but opts out of, an HRA integrated with individual health insurance coverage, and an individual who is offered such an HRA because of a relationship to the employee (a related HRA individual), are eligible for MEC under an eligible employer-sponsored plan for any month the HRA is affordable and provides MV. Thus, these individuals are ineligible for the PTC for their Exchange coverage for months the HRA is affordable and provides MV. Under the proposed rules, an HRA integrated with individual health insurance coverage is affordable for an employee (and a related HRA individual) for a month if the employee’s required HRA contribution does not exceed 1/12 of the product of the employee’s household income and the required contribution percentage (defined in 26 CFR 1.36B–2(c)(3)(v)(C)). For this purpose, an employee’s required HRA contribution would be the excess of: (1) The monthly premium for the lowest cost silver plan for self-only coverage available to the employee through the Exchange for the rating area in which the employee resides; over (2) the monthly self-only HRA amount provided by the employee’s employer, or, if the employer offers an HRA that provides for a single dollar amount regardless of whether an employee has self-only or other-than-self-only coverage, the monthly maximum amount available to the employee. Under the proposed rules, the monthly self-only HRA amount would be the self-only HRA amount newly made available to the employee from the employee’s employer under the HRA for the plan year, divided by the number of months in the plan year the HRA is available to the employee. The monthly maximum amount available to the employee under the HRA, which is relevant if the HRA provides one amount regardless of the number of individuals covered, would be the maximum amount newly made available to the employee under the HRA, divided by the number of months in the plan year the HRA is available to the employee. The affordability rule in the proposed rules uses the lowest cost silver plan for self-only coverage available to the employee through the Exchange for the rating area in which the employee VerDate Sep<11>2014 18:32 Oct 26, 2018 Jkt 247001 resides, without regard to the type of plan in which the employee actually enrolls. The lowest cost silver plan was chosen because, in the individual market, the lowest cost silver plan is the lowest cost Exchange plan for which the plan’s share of the total allowed costs of benefits provided under the plan is certain to be at least 60 percent of such costs, as required by section 36B(c)(2)(C)(ii) of the Code for a plan to provide MV. Specifically, section 36B(c)(2)(C)(ii) of the Code and 26 CFR 1.36B–6 provide that an eligible employer-sponsored plan provides MV only if the plan’s share of the total allowed costs of benefits provided to an employee under the plan is at least 60 percent.96 In selecting the lowest cost plan for which it is certain that the plan’s share of the total allowed costs of benefits provided under the plan will be at least 60 percent of such costs, the proposed rules seek to most closely approximate the PTC eligibility rules that apply to offers of eligible-employer sponsored coverage that is not an HRA.97 That is, the PTC eligibility rules under the proposed regulations for an HRA offer, as well as under section 36B of the Code for an offer of traditional employer coverage, are both based on the affordability of a plan available to the employee for which the plan’s share of the total allowed costs of benefits provided under the plan must be at least 60 percent of such costs. (See the discussion later in this section of when an HRA integrated with individual health insurance coverage is considered to provide MV.) The Treasury Department and the IRS seek comment on whether the silver level plan used for this purpose should be the second lowest cost silver plan,98 instead of the lowest cost silver plan, for self-only coverage offered in the Exchange for the rating area in which the employee resides or whether another plan should be used, and any operational or other issues that the use of the plan proposed 96 In the individual market, a bronze plan may have an actuarial value of 56 percent, which would not ensure the plan’s share of the total allowed costs of benefits provided under the plan is at least 60 percent of such costs, as required by section 36B(c)(2)(C)(ii) of the Code for a plan to provide MV. See 45 CFR 156.140. 97 With regard to an offer of eligible employersponsored coverage that is not an HRA, an individual is eligible for the PTC only if the employee’s required contribution, which is the portion of the annual premium that would be paid for the lowest cost self-only MV coverage offered by the employer to the employee, exceeds a certain percentage of the employee’s household income. See section 36B(c)(2)(C) of the Code. 98 Note that the monthly premium for self-only coverage for the second lowest cost silver plan in the employee’s individual health insurance market is used to determine the affordability of a QSEHRA. See section 36B(c)(4)(C) of the Code. PO 00000 Frm 00021 Fmt 4701 Sfmt 4702 54439 or any alternative plan would entail. The proposed rules further provide that only amounts that are newly made available for the plan year of the HRA would be taken into account for determining affordability, provided that the amounts are determinable within a reasonable time before the beginning of the plan year of the HRA. Additionally, consistent with the rules for traditional employer coverage, 99 the proposed rules require affordability to be determined separately for each employment period that is less than a full calendar year or for the portions of the plan year of the HRA that fall within different taxable years of the employee. In addition, the proposed rules include examples of affordability calculations. The proposed rules also address the circumstances in which an HRA is considered to provide MV. As noted earlier in this section of the preamble, section 36B of the Code generally provides that an offer of employer coverage prevents an employee from being allowed the PTC for his or her Exchange coverage only if the employer coverage is both affordable and provides MV. With respect to an offer of an HRA integrated with individual health insurance coverage, the individual health insurance coverage that is proposed to be used for purposes of the affordability test is the lowest cost silver level Exchange coverage for the rating area in which the employee resides, which, as previously noted, will always provide MV. A determination that the integrated arrangement is affordable under the proposed regulations is therefore sufficient to ensure that an employee who is offered an HRA integrated with individual health insurance coverage, and that is determined to be affordable, has the ability to purchase affordable coverage that provides MV. Consequently, the proposed rules provide that an HRA integrated with individual health insurance coverage that is affordable is treated as providing MV. Determining PTC eligibility in the manner provided under the proposed rules is consistent with current rules for traditional employer coverage. That is, the proposed rules result in consistent treatment for purposes of section 36B of the Code for employees offered an HRA integrated with individual health insurance coverage and employees offered traditional employer coverage. In both instances, the employees may be allowed the PTC if they decline the offer and the coverage is either unaffordable or does not provide MV. Further, in both instances, the employee’s required 99 See E:\FR\FM\29OCP2.SGM 26 CFR 1.36B–2(c)(3)(v)(B). 29OCP2 54440 Federal Register / Vol. 83, No. 209 / Monday, October 29, 2018 / Proposed Rules contribution is based on the amount the employee must pay for self-only coverage that provides MV because under the proposed rules affordability would be determined based on the lowest cost silver plan offered in the Exchange for the rating area in which the employee resides (which by definition will always provide MV). If the amount the employee must pay is more than the product of the required contribution percentage and the employee’s household income, the employee may be allowed the PTC. The proposed rules also clarify the ways in which the generally applicable employer-sponsored coverage PTC eligibility rules apply to HRAs integrated with individual health insurance coverage.100 For example, as with traditional coverage under eligible employer-sponsored plans, the proposed rules provide that an HRA integrated with individual health insurance coverage is not affordable for a month for an employee or related HRA individual if, at the time of enrollment in a qualified health plan, an Exchange determines that the HRA is not affordable. This employee safe harbor locks in an Exchange’s determination of unaffordability, which is based on estimated household income, even if the HRA ultimately proves to be affordable based on actual household income for the tax year. Consistent with the existing regulations under section 36B of the Code, the employee safe harbor does not apply (1) to a determination made as part of the redetermination process described in 45 CFR 155.335 unless the individual receiving an Exchange redetermination notification affirmatively responds and provides current information on affordability; or (2) for an individual who, with intentional or reckless disregard for the facts, provides incorrect information to an Exchange concerning the relevant HRA amount. amozie on DSK3GDR082PROD with PROPOSALS2 B. Employer Shared Responsibility Provisions Under Section 4980H of the Code As part of implementing the objectives of Executive Order 13813, the Treasury Department and the IRS have considered how section 4980H of the Code would apply to an employer 100 The Treasury Department and the IRS have provided guidance regarding when amounts newly made available under an HRA count toward the affordability or MV of another group health plan offered by the same employer. See 26 CFR 1.36B– 2(c)(3)(v)(A)(5) and 26 CFR 1.36B–6(c)(4). See also IRS Notice 2015–87, Q&A 7. This document does not make substantive revisions to those rules but does make clarifying updates to 26 CFR 1.36B– 2(c)(3)(v)(A)(5), mainly to incorporate a reference to more recent guidance. VerDate Sep<11>2014 18:32 Oct 26, 2018 Jkt 247001 offering an HRA integrated with individual health insurance coverage, as set forth in the proposed integration rules and taking into account the proposed rules described previously in this preamble under section 36B of the Code. Only ALEs are subject to section 4980H of the Code.101 The Departments anticipate that many employers that would be interested in offering an HRA integrated with individual health insurance coverage, as set forth in the proposed integration rules, may be smaller employers and, therefore, may not need to consider section 4980H of the Code when designing their HRA program. For an employer that is an ALE, the employer may owe a payment for a month under section 4980H(a) or section 4980H(b) of the Code or neither. In general, an employer will owe a payment under section 4980H(a) of the Code if it fails to offer an eligible employer-sponsored plan to at least 95 percent of its full-time employees and their dependents and at least one fulltime employee is allowed the PTC for the month.102 An HRA is an eligible employer-sponsored plan; therefore, if an ALE offers an eligible employersponsored plan (including an HRA) to at least 95 percent of its full-time employees and their dependents, the ALE would not be liable for a payment under section 4980H(a) of the Code for the month. An employer that is an ALE and which offers an eligible employersponsored plan to at least 95 percent of its full-time employees and their dependents (and therefore is not liable for a payment under section 4980H(a) of the Code) may be liable for a payment under section 4980H(b) of the Code if at least one full-time employee is allowed the PTC, which may occur if the eligible employer-sponsored plan offered was not affordable or did not provide MV, or if the employee was not offered coverage. The extent to which a fulltime employee who was offered an HRA will be eligible for the PTC depends on the rules proposed under section 36B of the Code. However, in the near term, the Treasury Department and the IRS intend 101 The explanation of section 4980H of the Code provided here is a summary. For a complete explanation of the rules, including for definitions of terms used in this summary, see 26 CFR 54.4980H–1, et seq., published in the Federal Register at 79 FR 8544 (Feb. 12, 2014). 102 Note that if an ALE offered coverage to all but five of its full-time employees (and their dependents), and five is greater than 5 percent of the employer’s full-time employees, the employer will not owe an employer shared responsibility payment under section 4980H(a) of the Code. See 26 CFR 54.4980H–4(a). PO 00000 Frm 00022 Fmt 4701 Sfmt 4702 to issue guidance that describes an anticipated safe harbor for purposes of determining whether an employer that has offered an HRA integrated with individual health insurance coverage would be treated as having made an offer of affordable coverage that provides MV for purposes of section 4980H of the Code, regardless of whether the employee who received that offer declines the HRA and claims the PTC.103 IV. Individual Health Insurance Coverage and ERISA Plan Status This document includes a DOL-only proposed regulation that would clarify that the ERISA terms ‘‘employee welfare benefit plan,’’ ‘‘welfare plan,’’ and, as a direct result, ‘‘group health plan’’ would not include individual health insurance coverage the premiums of which are reimbursed by an HRA and certain other arrangements, provided that the employer, employee organization, or other plan sponsor is not involved in the selection of the individual health insurance coverage, among other criteria. Later, this section of the preamble also describes a related clarification made to regulations of all three Departments. DOL’s objective in proposing this regulatory clarification is to provide employees; employers, employee organizations, and other plan sponsors; health insurance issuers; state insurance regulators; and other stakeholders with assurance that insurance policies sold as individual health insurance coverage, and subject to comprehensive Federal (and state) individual market rules for minimum and uniform coverage, standardized pricing, guaranteed availability, and guaranteed renewability, are not part of an HRA or certain other arrangements for purposes of ERISA.104 Specifically, DOL is proposing an amendment to 29 CFR 2510.3–1 on the definition of ‘‘employee welfare benefit plan’’ in section 3(1) of ERISA.105 This proposed 103 In addition to setting forth a potential affordability safe harbor, the Treasury Department and the IRS intend to clarify in the upcoming guidance that the affordability safe harbors set forth under 26 CFR 54.4980H–5(e)(2) are available to employers offering an HRA integrated with individual health insurance coverage, subject to the relevant conditions set forth in those regulations. 104 For examples of other circumstances under which DOL has determined an arrangement is not a plan within the meaning of ERISA, see 29 CFR 2510.3–1(j), 29 CFR 2510.3–2(f), and 29 CFR 2509.99–1. See also DOL Field Assistance Bulletins 2004–01 and 2006–02. 105 In light of the fact that ‘‘group health plan’’ is defined derivatively in ERISA section 733(a)(1), in relevant part, as an ‘‘employee welfare benefit plan to the extent that the plan provided medical care . . . directly or through insurance, reimbursement, or otherwise[,]’’ DOL has concluded that a separate E:\FR\FM\29OCP2.SGM 29OCP2 Federal Register / Vol. 83, No. 209 / Monday, October 29, 2018 / Proposed Rules amozie on DSK3GDR082PROD with PROPOSALS2 amendment would also apply to certain existing arrangements that reimburse participants for the purchase of individual health insurance coverage that are not subject to the market requirements (including QSEHRAs and HRAs that have fewer than two participants who are current employees on the first day of the plan year). Further, this proposed amendment would apply to an arrangement under which an employer allows employees to pay the portion of the premium for individual health insurance coverage that is not covered by the HRA with which the coverage is integrated or that is not covered by a QSEHRA by using a salary reduction arrangement under a cafeteria plan (supplemental salary reduction arrangement). Section 3(1) of ERISA specifically defines ERISA-covered welfare plans to include ‘‘any plan, fund, or program’’ ‘‘established or maintained by an employer or employee organization’’ for the provision of health benefits ‘‘through the purchase of insurance or otherwise.’’ At the same time, provisions in the PHS Act generally treat individual health insurance and group health insurance as mutually exclusive categories.106 If individual health insurance coverage were considered to be a group health plan or part of a group health plan, the individual health insurance coverage would likely violate some of the market requirements (for example, the single risk pool requirement). Treatment of such individual health insurance coverage as subject to both individual market and group market requirements thus could result in conflicting requirements, uncertainty and confusion which could inhibit or, in some instances, even preclude, the ability to integrate HRAs with individual health insurance coverage as contemplated by other provisions in the proposed rules. In light of the PHS Act’s treatment of group and individual health insurance coverage policies as mutually exclusive regulation relating to the definition of group health plan is not needed. 106 As described earlier, individual health insurance coverage means health insurance coverage offered to individuals in the individual market, but does not include STLDI. See PHS Act section 2791(b)(5), 26 CFR 54.9801–2, 29 CFR 2590.701–2, and 45 CFR 144.103. Individual market means the market for health insurance coverage offered to individuals other than in connection with a group health plan. See PHS Act section 2791(e)(1), 26 CFR 54.9801–2, 29 CFR 2590.701–2, and 45 CFR 144.103. Group health insurance coverage means health insurance coverage offered in connection with a group health plan. See ERISA section 733(b)(4), PHS Act section 2791(b)(4), 26 CFR 54.9801–2, 29 CFR 2590.701–2, and 45 CFR 144.103. VerDate Sep<11>2014 18:32 Oct 26, 2018 Jkt 247001 categories and the other provisions in this rulemaking addressing the permissible integration of individual health insurance coverage with HRAs, DOL concluded that the ERISA status of such individual health insurance coverage should be clarified in the context of the proposed rules.107 Under the proposed regulatory clarification, the status under ERISA of an HRA, QSEHRA, or supplemental salary reduction arrangement would remain unaffected. However, under the proposal, individual health insurance coverage selected by the employee in the individual market and reimbursed by such a plan would not be treated as part of a group health plan, or as health insurance coverage offered in connection with a group health plan, or as a part of any employee welfare benefit plan for purposes of title I of ERISA, provided all the following conditions are satisfied: • The purchase of any individual health insurance coverage is completely voluntary for employees.108 • The employer, employee organization, or other plan sponsor does not select or endorse any particular issuer or insurance coverage. Providing general contact information regarding availability of health insurance in a state (such as providing information regarding www.healthcare.gov or contact information for a state insurance commissioner’s office) or providing general health insurance educational information (such as the uniform glossary of health coverage and medical terms available at: https://www.dol.gov/ sites/default/files/ebsa/laws-andregulations/laws/affordable-care-act/ for-employers-and-advisers/sbcuniform-glossary-of-coverage-andmedical-terms-final.pdf) is permitted. • Reimbursement for nongroup health insurance premiums is limited solely to individual health insurance coverage. • The employer, employee organization, or other plan sponsor 107 It is the intention of DOL that integration of an HRA with individual health insurance coverage obtained in the individual market, as described in the proposed rules, generally will not result in the individual health insurance coverage being treated as an ‘‘employee welfare benefit plan’’ or a ‘‘group health plan’’ within the meaning of title I of ERISA. However, depending on the particular facts and circumstances surrounding the involvement of an employer, the issue may not be free from doubt. Consequently, DOL proposes the clarification herein. 108 The fact that a plan sponsor requires such coverage to be purchased as a condition for participation in an HRA or supplemental salary reduction arrangement does not make the purchase involuntary. This issue should not arise in the context of a QSEHRA because in that case, although individuals must be enrolled in MEC, employers may not require employees to enroll in individual health insurance coverage. PO 00000 Frm 00023 Fmt 4701 Sfmt 4702 54441 receives no consideration in the form of cash or otherwise in connection with the employee’s selection or renewal of any individual health insurance coverage. • Each plan participant is notified annually that the individual health insurance coverage is not subject to ERISA. For an HRA integrated with individual health insurance coverage, the notice must meet the requirements set forth in the proposed integration rules at 29 CFR 2590.702–2(c)(6). For a QSEHRA or an HRA that is not subject to 29 CFR 2590.702–2(c)(6), model language is provided in the DOL proposed amendment, which can be used to satisfy the condition.109 A supplemental salary reduction arrangement need not provide the required notice; the notice will be provided by the HRA or QSEHRA that the salary reduction arrangement supplements. DOL invites comments on all aspects of the proposed regulatory clarification. Some of the conditions parallel or are similar to conditions in other existing DOL regulations and related guidance for other types of arrangements, and DOL specifically invites comments on whether all of these conditions are necessary or whether other conditions should be used in place of, or in addition to, those being proposed in this document. DOL has issued guidance describing certain types of employee communications that would not constitute ‘‘endorsement’’ as that condition applies under its regulations on payroll-deduction IRAs, see 29 CFR 2509.99–1, and specifically invites comments on whether similar regulatory or interpretive guidance would be helpful in the context of this proposed regulation. DOL also specifically invites comments on which forms of payment are appropriately treated as ‘‘reimbursement’’ to participants for purposes of this regulatory clarification, consistent with the terms and purposes of ERISA section 3(1). For example, should ‘‘reimbursement’’ be interpreted to include direct payments, individual or aggregate, by the employer, employee organization, or other plan sponsor to the insurance company? DOL also specifically invites comments on whether a better approach would involve providing relief from specified 109 In DOL’s view, the summary plan description (SPD) for the HRA, QSEHRA, or other ERISA plan would fail to satisfy the style, format, and content requirements in 29 CFR 2520.102–3 and 29 CFR 2520.102–3 unless it contained a discussion of the status of the HRA or QSEHRA and the individual health insurance coverage under ERISA sufficient to apprise the HRA or QSEHRA plan participants and beneficiaries of their rights and obligations under the plan and Title I of ERISA. E:\FR\FM\29OCP2.SGM 29OCP2 amozie on DSK3GDR082PROD with PROPOSALS2 54442 Federal Register / Vol. 83, No. 209 / Monday, October 29, 2018 / Proposed Rules otherwise-applicable obligations under ERISA Title I, rather than carving the policy out as if it were outside of ERISA Title I. Additionally, existing regulations of all three Departments define ‘‘group health insurance coverage’’ as health insurance coverage offered in connection with a group health plan.110 The Departments propose to amend that definition by clarifying that individual health insurance coverage the premiums of which are reimbursed by an HRA or a supplemental salary reduction arrangement is not offered in connection with a group health plan, and is not group health insurance coverage, provided all the conditions in proposed 29 CFR 2510.3–1(l) (described earlier in this preamble) are satisfied.111 In light of the fact that HRAs are subject to many statutory rules and regulations not specifically addressed in this proposed rulemaking, including various reporting, disclosure, fiduciary, and enforcement provisions under title I of ERISA, DOL also specifically invites comment on whether it would be helpful for DOL to issue additional regulations or guidance addressing the application of ERISA reporting and disclosure requirements to HRAs integrated with such non-ERISA individual health insurance coverage (for example, SPD content and Form 5500 annual reporting requirements). Similarly, the limitation in the proposal on employers, employee organizations, and other plan sponsors receiving consideration from an issuer or person affiliated with an issuer in connection with any participant’s purchase or renewal of individual health insurance coverage was not intended to change any ERISA requirements governing the circumstances under which plans, including HRAs, may reimburse employers, employee organizations and other plan sponsors for certain expenses associated with administration of the plan. DOL specifically invites comments on whether there are particular issues in that area related to HRAs, QSEHRAs, or supplemental salary reduction arrangements that would benefit from additional regulatory or interpretive guidance. 110 26 CFR 54.9801–2; 29 CFR 2590.701–2, 45 CFR 144.103. 111 Note that the clarification with respect to the meaning of group health insurance coverage is not relevant for QSEHRAs because QSEHRAs are not group health plans. VerDate Sep<11>2014 18:32 Oct 26, 2018 Jkt 247001 V. Overview of the Proposed Rules Regarding Individual Market Special Enrollment Periods—Department of Health and Human Services As set forth earlier in this preamble, the Departments are proposing regulations to expand the usability of HRAs and to provide flexibility to employers. The proposed rules allowing integration of an HRA with individual health insurance coverage require that the individuals whose medical care expenses may be reimbursed under the HRA must be enrolled in individual health insurance coverage (other than coverage that consists solely of excepted benefits). With the ability to integrate HRAs with individual health insurance coverage, many employees may need access to individual health insurance coverage, on or off Exchange, or may wish to change to another individual health insurance plan in order to take advantage of this employee benefit. Therefore, HHS is proposing a regulation to allow employees and their dependents to enroll in individual health insurance coverage or to change from one individual health insurance coverage plan to another outside of the individual market annual open enrollment period if they gain access to an HRA integrated with individual health insurance coverage. In addition, because employees and dependents with a QSEHRA generally must be enrolled in MEC,112 and a significant category of MEC is individual health insurance coverage, HHS has determined that it is also appropriate to apply the new special enrollment period to individuals who are provided QSEHRAs.113 More specifically, HHS proposes to add new paragraph 45 CFR 155.420(d)(14) to establish a special enrollment period for when a qualified individual, enrollee, or his or her dependent gains access to and enrolls in an HRA integrated with individual health insurance coverage or is provided a QSEHRA, so that the individual and his or her dependents may enroll in or 112 Generally, payments from a QSEHRA to reimburse an eligible employee’s medical care expenses are not includible in the employee’s gross income if the employee has coverage that provides MEC as defined in section 5000A(f) of the Code, which includes individual health insurance coverage. 113 The Departments note that the new special enrollment period provided in the proposed rules applies only for individuals who gain access to HRAs integrated with individual health insurance coverage or for individuals who are provided QSEHRAs. Therefore, the new special enrollment period provided in the proposed rules would not apply for individuals who gain access to the proposed excepted benefit HRA. PO 00000 Frm 00024 Fmt 4701 Sfmt 4702 change his or her enrollment in individual health insurance coverage. 45 CFR 155.420(d)(14) would provide access to coverage in the circumstance in which an employer after the start of the calendar year newly begins offering an HRA to its employees that is integrated with individual health insurance coverage or newly begins providing a QSEHRA to its employees. HHS anticipates that many employers that choose to offer an HRA integrated with individual health insurance coverage or to provide a QSEHRA will do so on a calendar year basis, which will allow employees to enroll in or change individual health insurance coverage during the annual open enrollment period. However, HHS is aware that employers may begin offering HRAs and providing QSEHRAs to their employees at any time during the calendar year and has determined that employers are best suited to determine which twelve-month period to use for their plan year. In addition, the new special enrollment period would apply to individuals who newly gain access to and enroll in an HRA integrated with individual health insurance coverage or who are provided a QSEHRA outside of open enrollment, for example, because the employee is hired after the start of the calendar year. HHS notes that for some situations in which an employee would newly gain access to an HRA integrated with individual health insurance coverage or would newly be provided a QSEHRA, access to coverage already exists under current authority in 45 CFR 155.410 or 155.420(d). For example, if an employer begins offering an HRA integrated with individual health insurance coverage or begins providing a QSEHRA effective January 1, employees may already enroll in or change individual health insurance coverage during the annual open enrollment period described in 45 CFR 155.410 with such coverage becoming effective January 1 (to coincide with the availability of the HRA or QSEHRA). Similarly, if an employer previously offered another type of group health plan coverage and decides to stop offering that coverage after the start of the calendar year to some or all of its employees (or the plan year ends after the start of the calendar year) and instead begins offering those employees an HRA integrated with individual health insurance coverage or begins providing a QSEHRA to them, the employees might already qualify for a special enrollment period due to a loss of MEC in accordance with 45 CFR 155.420(d)(1). In addition, an employee without a prior offer of employer coverage who is enrolled in Exchange E:\FR\FM\29OCP2.SGM 29OCP2 amozie on DSK3GDR082PROD with PROPOSALS2 Federal Register / Vol. 83, No. 209 / Monday, October 29, 2018 / Proposed Rules coverage with advance payments of the PTC and cost-sharing reductions (CSRs) currently may qualify for the special enrollment periods in 45 CFR 155.420(d)(6)(i) or (ii) upon gaining access to an HRA integrated with individual health insurance coverage or being provided a QSEHRA after the start of the calendar year, if that results in the loss of eligibility for advance payments of the PTC or a reduction or loss of eligibility for CSRs. However, if this same employee was enrolled in Exchange coverage without advance payments of the PTC or CSRs, he or she would not qualify for this special enrollment period upon gaining access to an HRA integrated with individual health insurance coverage or being provided a QSEHRA after the start of the calendar year, and would instead need the proposed new special enrollment period in 45 CFR 155.420(d)(14) in order to change Exchange coverage. Because access to and enrollment in health coverage varies by employers and among employees, as does employees’ current ability to qualify for a special enrollment period should they gain access to an HRA integrated with individual health insurance coverage or be provided a QSEHRA, HHS has concluded that it is necessary to establish a new special enrollment period as proposed under 45 CFR 155.420(d)(14) so that all employees (and their dependents) who gain access outside of the individual market open enrollment period (for example, after the start of the calendar year) and enroll in HRAs integrated with individual health insurance coverage or are provided QSEHRAs, regardless of their prior coverage situations, may utilize this employee benefit by enrolling in or changing their enrollment in individual health insurance coverage at that time. HHS proposes to establish a coverage effective date for the special enrollment period in 45 CFR 155.420(d)(14) of the first day of the first month following the individual’s plan selection, which is proposed at 45 CFR 155.420(b)(2)(vi). HHS has concluded that a first-of-thefollowing-month coverage effective date is appropriate for this special enrollment period because it aligns with the coverage effective date option elected by the Federally-facilitated Exchanges (FFEs) for qualified individuals, enrollees, or dependents, including employees, who qualify for a special enrollment period for loss of MEC under 45 CFR 155.420(d)(1). This coverage effective date also aligns with the coverage effective date option elected by the FFEs for the special enrollment period at 45 CFR 155.420(d)(6)(iii), applicable when VerDate Sep<11>2014 18:32 Oct 26, 2018 Jkt 247001 employees enrolled in employersponsored coverage are determined newly eligible for advance payments of the PTC based in part on a finding that they are ineligible for coverage in an eligible-employer sponsored plan in accordance with 26 CFR 1.36B–2(c)(3). HHS has concluded that these existing qualifying events, also known as triggering events, and the new proposed qualifying event are similar to one another and affect potentially overlapping populations and, therefore, should entitle qualifying individuals to the same coverage start dates. Similarly, HHS proposes to offer the option for advance availability, in addition to subsequent availability, for the proposed special enrollment period in 45 CFR 155.420(d)(14), which would allow qualified individuals, enrollees, and dependents to qualify for this special enrollment period up to 60 days in advance of the qualifying event, as described in paragraph 45 CFR 155.420(c)(2) of the proposed rules. Under this advance availability in combination with 45 CFR 155.420(b)(2)(vi), if an individual’s plan selection is made before the date of the qualifying event, then coverage would be effective the first day of the month following the date of the qualifying event, or, if the triggering event is on the first day of a month, on the date of the triggering event. In cases where the qualifying event is the first day of the month, for example, if an individual will gain access to an HRA that can be integrated with individual health insurance coverage on April 1, so long as a plan is selected prior to that date (before or on March 31), the effective date of this new coverage will be the date of the qualifying event (April 1). Advance availability allows individuals who are aware of an upcoming change in eligibility or coverage status to report this change to the Exchanges ahead of time, select a plan, and enroll with a coverage effective date that helps minimize a potential gap in coverage. Because participants whose employers begin offering HRAs integrated with individual health insurance coverage or begin providing QSEHRAs generally must be notified at least 90 days prior to the plan year, participants would have advance knowledge of either benefit. Therefore, HHS has concluded that it makes sense to allow the participant to report this upcoming change to the Exchanges in advance, if desired. Individuals may alternatively elect to report the qualifying event up to 60 days after the date of the qualifying event and qualify for the special enrollment period during the regular PO 00000 Frm 00025 Fmt 4701 Sfmt 4702 54443 special enrollment period window, in accordance with 45 CFR 155.420(c)(1). In addition, in order to allow participants and their dependents the flexibility to adequately respond to gaining access to an HRA integrated with individual health insurance coverage or to being provided a QSEHRA, HHS also proposes to amend 45 CFR 155.420(a)(4)(iii) to exclude Exchange enrollees who would qualify for the proposed special enrollment period in 45 CFR 155.420(d)(14) from plan enrollment restrictions upon qualifying for this special enrollment period. Lastly, since these proposed rules would allow for HRAs to be integrated with individual health insurance coverage both on and off Exchange (and because individuals with QSEHRAs may enroll in individual health insurance coverage both on and off Exchange), HHS proposes to include this special enrollment period in the limited open enrollment periods available off Exchange, in accordance with current regulations at 45 CFR 147.104(b)(2). Therefore, an employee or an employee’s dependent who gains access to an HRA integrated with individual health insurance coverage or who is provided a QSEHRA may elect to enroll in or change to different Exchange or off-Exchange individual health insurance coverage. HHS seeks comments on these proposals. If an employer begins offering an HRA or providing a QSEHRA to its employees during the calendar year outside of the Exchange annual open enrollment period, subsequent plan years likely will also begin during the calendar year. Therefore, HHS also seeks comments about whether the proposed new special enrollment period at 45 CFR 155.420(d)(14) should be available to employees who have and are enrolled in an HRA or are provided a QSEHRA each year at the time their new health plan year starts. This would allow employees to enroll in or change to a new plan in response to updated information about their HRA or QSEHRA benefit for each of their group health plan years. VI. Applicability Date The proposed HRA integration and HRA excepted benefit provisions described in section II of this preamble, as well as the DOL clarification and the clarification by the Departments described in section IV of this preamble, are proposed to apply to group health plans and health insurance issuers for plan years beginning on or after January 1, 2020. The PTC provisions described in section III of this preamble are E:\FR\FM\29OCP2.SGM 29OCP2 54444 Federal Register / Vol. 83, No. 209 / Monday, October 29, 2018 / Proposed Rules proposed to be effective for taxable years beginning on and after January 1, 2020, and the HHS special enrollment period provisions described in section V of this preamble are proposed to be effective January 1, 2020. Taxpayers and others may not rely on these proposed rules. The Departments solicit comments on this proposed applicability date. VII. Economic Impact and Paperwork Burden A. Summary The proposed rules would remove the current prohibition on integrating HRAs with individual health insurance coverage, if certain conditions are met. The proposed rules also set forth conditions under which certain HRAs would be recognized as limited excepted benefits. In addition, the Treasury Department and the IRS are proposing rules regarding PTC eligibility for individuals offered coverage under an HRA integrated with individual health insurance coverage. Further, DOL is proposing a clarification to provide HRA, QSEHRA and supplemental salary reduction arrangement plan sponsors with assurance that the individual health insurance coverage the premiums of which are reimbursed by an HRA, QSEHRA or supplemental salary reduction arrangement would not become part of an ERISA plan if certain conditions are met, and the Departments are proposing a related clarification to the definition of group health insurance coverage. Finally, HHS is proposing rules that would provide a special enrollment period in the individual market for individuals who gain access to an HRA integrated with individual health insurance coverage or who are provided a QSEHRA. The Departments have examined the effects of the proposed rules as required by Executive Order 13563 (76 FR 3821, January 21, 2011, Improving Regulation and Regulatory Review); Executive Order 12866 (58 FR 51735, October 4, 1993, Regulatory Planning and Review); the Regulatory Flexibility Act (September 19, 1980, Pub. L. 96–354); section 1102(b) of the Social Security Act (42 U.S.C. 1102(b)); section 202 of the Unfunded Mandates Reform Act of 1995 (March 22, 1995, Pub. L. 104–4); Executive Order 13132 (64 FR 43255, August 10, 1999, Federalism); the Congressional Review Act (5 U.S.C. 804(2)); and Executive Order 13771 (82 FR 9339, February 3, 2017, Reducing Regulation and Controlling Regulatory Costs). the definition of a ‘‘significant rule’’ under Executive Order 12866. Therefore, the Departments have provided an assessment of the potential costs, benefits, and transfers associated with the proposed rules. In accordance with the provisions of Executive Order 12866, the proposed rules were reviewed by OMB. B. Executive Orders 12866 and 13563. Executive Order 12866 directs agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). Executive Order 13563 is supplemental to and reaffirms the principles, structures, and definitions governing regulatory review as established in Executive Order 12866. Section 3(f) of Executive Order 12866 defines a ‘‘significant regulatory action’’ as an action that is likely to result in a rule: (1) Having an annual effect on the economy of $100 million or more in any 1 year, or adversely and materially affecting a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or state, local or tribal governments or communities (also referred to as ‘‘economically significant’’); (2) creating a serious inconsistency or otherwise interfering with an action taken or planned by another agency; (3) materially altering the budgetary impacts of entitlement grants, user fees, or loan programs or the rights and obligations of recipients thereof; or (4) raising novel legal or policy issues arising out of legal mandates, the President’s priorities, or the principles set forth in the Executive Order. A regulatory impact analysis must be prepared for major rules with economically significant effects (for example, $100 million or more in any 1 year), and a ‘‘significant’’ regulatory action is subject to review by the Office of Management and Budget (OMB). The Departments anticipate that this regulatory action is likely to have economic impacts of $100 million or more in at least 1 year, and thus meets 1. Need for Regulatory Action This regulatory action is taken in light of Executive Order 13813 directing the Departments to consider proposing regulations or revising guidance to expand the flexibility and use of HRAs. Consistent with Executive Order 13813, the proposed rules are intended to increase the usability of HRAs to provide more Americans, including employees who work at small businesses, with more healthcare options. Such changes will facilitate the development and operation of a healthcare system that provides highquality care at affordable prices for the American people by increasing consumer choice for employees and promoting competition in healthcare markets by providing additional options for employers. The Departments are of the view that the benefits of the proposed rules would substantially outweigh the costs of the rules. The proposed rules would increase flexibility and choices of health coverage options for employers and employees. The increased use of HRAs could potentially reduce healthcare spending, particularly less efficient spending,114 and ultimately result in increased taxable wages for workers currently in firms that offer traditional group health plans. The proposed rules are also expected to increase the number of low- and moderate-wage workers (and their family members) with health insurance coverage. 2. .Summary of Impacts of Proposed HRA Integrated With Individual Health Insurance Coverage. The expected costs, benefits and transfers of the proposed rules are summarized in Table 1 and discussed in detail later in this section of the preamble. amozie on DSK3GDR082PROD with PROPOSALS2 TABLE 1—ACCOUNTING TABLE Costs: Qualitative: • Loss of health insurance and potentially poorer financial or health outcomes for some individuals who experience premium increases. 114 By less efficient healthcare spending, the Departments generally mean spending that is of low VerDate Sep<11>2014 18:32 Oct 26, 2018 Jkt 247001 value from the consumer’s perspective, relative to its cost. PO 00000 Frm 00026 Fmt 4701 Sfmt 4702 E:\FR\FM\29OCP2.SGM 29OCP2 54445 Federal Register / Vol. 83, No. 209 / Monday, October 29, 2018 / Proposed Rules TABLE 1—ACCOUNTING TABLE—Continued • Increased administrative costs for employers, employees, and government agencies to learn about and/or use a new health benefits option. Benefits: Qualitative: • Gain of health insurance and potentially improved financial or health outcomes for some employees who are newly offered or newly accept benefits. • Increased choice and flexibility for employees and employers around compensation arrangements, potentially resulting in more efficient use of healthcare and more efficient labor markets (including higher taxable wages). • Decreased administrative costs for some employers who no longer offer traditional group health plans for some, or all, employees. Estimate (billion) Transfers Annualized Monetized ($/year) (Net tax revenue loss) ................................... Year dollar $2.7 $2.8 2020 2020 Discount rate (percent) Period covered 7 3 2020–2028 2020–2028 Quantitative: 115 • Reduced tax revenue as a result of new HRAs offered by employers previously offering no health benefits, less reduced PTC from employees in such firms. • Increase in average individual market premiums of less than 1 percent and resulting increase in PTC. Qualitative: • Increased out-of-pocket costs for some employees who move from traditional group health plans to individual health insurance coverage and decreased costs for other employees who move from traditional group health plans to individual health insurance coverage (i.e., transfers from reduced within-firm cross-subsidization). • Reduced tax revenue as a result of new excepted benefit HRA. In all cases, the counterfactual baseline for analysis is current law. That is, the analysis assumes as the baseline statutes enacted and regulations that are final as of date of issuance of the proposed rules. This includes PPACA, the reduction of the individual shared responsibility payment to $0, as enacted in Public Law 115–97, the AHP final rule,116 the STLDI final rule,117 and all other administrative actions finalized as of the date of issuance of the proposed rules. Costs amozie on DSK3GDR082PROD with PROPOSALS2 Loss of health insurance coverage. The Departments recognize that some individuals could experience a loss in health insurance coverage and that some 115 The monetized estimates are of the net tax revenue loss, including reduced income and payroll tax revenue from employees who would receive HRAs and would not otherwise have a tax exclusion for a traditional group health plan, reduced PTC from individuals who would receive HRAs and would otherwise receive PTC, and increased PTC due to the increase in Exchange premiums. As noted in the text later in this section of the preamble, the quantitative estimates are subject to considerable uncertainty. For example, the rule could cause tax revenue to increase if the adoption of HRAs leads to reduced healthcare spending and higher taxable wages. Or the rule could result in larger premium increases in the individual market, or in premium decreases, if the rule results in more substantial changes in the health of the individual market risk pool. The Departments request comments on the likely costs, benefits and transfers that would result from the proposed rule. 116 See 83 FR 28912. 117 See 83 FR 38212. VerDate Sep<11>2014 18:32 Oct 26, 2018 Jkt 247001 of these people would experience worse financial or health outcomes as a result of the proposed rules.118 Loss of coverage could occur if employers drop traditional group health plans and if some previously covered employees do not accept the HRA and fail to obtain their own coverage. Loss of coverage could also occur if the addition of new enrollees to the individual market causes premiums to rise, resulting in dropping of coverage by current individual market enrollees. In addition, some employees could have fewer choices of plans in the individual market than the number of group health plan choices previously provided by their employer, or might be unable to find new individual health insurance coverage that covers their preferred healthcare providers. As discussed below, the Departments estimate that 118 The Departments note however that increased insurance coverage does not necessarily result in better health. For example, Baicker et al. found that increased Medicaid coverage in Oregon ‘‘generated no significant improvements in measured physical health outcomes in the first two years, but it did increase use of health care services, raise rates of diabetes detection and management, lower rates of depression, and reduce financial strain.’’ See Baicker, K., S. Taubman, H. Allen, M. Bernstein, J. Gruber, J. Newhouse, E. Schneider, B. Wright, A. Zaslavsky, and A. Finkelstein. 2013. ‘‘The Oregon Experiment: Effects of Medicaid on Clinical Outcomes.’’ New England Journal of Medicine 368: 1713–22. https://www.nejm.org/doi/full/10.1056/ NEJMsa1212321; and survey of the literature in Chapter 6 of Economic Report of the President, February 2018, https://www.whitehouse.gov/wpcontent/uploads/2018/02/ERP_2018_FinalFINAL.pdf. PO 00000 Frm 00027 Fmt 4701 Sfmt 4702 choice and coverage would, on net, be increased by adoption of the proposed rules. The Departments request comments on this finding and the extent to which the proposed rules could reduce employee choice or cause some individuals to become uninsured. Increased administrative costs. The proposed rules would also increase some administrative costs for employers, employees, and government entities. All employers would have a new health benefits option about which to learn. Employers who offer HRAs integrated with individual health insurance coverage but did not offer employer-sponsored health benefits before would face increased costs of administering a health benefit. In addition, all employers that offer HRAs integrated with individual health insurance coverage would be required to establish reasonable procedures to substantiate that individuals covered by the HRA are enrolled in individual health insurance coverage; to provide a notice to all employees who are eligible for the HRA explaining the PTC eligibility consequences of the HRA offer and acceptance and other information; and to comply with various other generally applicable group health plan requirements, such as maintaining a plan document and complying with various reporting requirements. Employers offering HRAs integrated with individual health insurance coverage would need to establish E:\FR\FM\29OCP2.SGM 29OCP2 amozie on DSK3GDR082PROD with PROPOSALS2 54446 Federal Register / Vol. 83, No. 209 / Monday, October 29, 2018 / Proposed Rules systems to reimburse premiums and employee out-of-pocket medical care expenses, or hire third-party administrators to do so. In addition, to the extent an employer is subject to section 4980H of the Code, the employer would need to learn about the proposed PTC regulations and any other related guidance under section 4980H of the Code that the Treasury Department and the IRS may issue. As noted later in this preamble, administrative costs associated with HRAs integrated with individual health insurance coverage could be lower than costs for traditional group health plans for some employers. The Departments request comment on the extent to which employer administrative costs would be increased or decreased by the proposed rules. As to increased administrative burden and costs for employees, employees who previously enrolled in a traditional group health plan and who now receive an HRA integrated with individual health insurance coverage would need to shop for and choose their own insurance and learn new procedures for accessing their HRA benefits. In addition, employees who receive an HRA integrated with individual health insurance coverage would need to substantiate enrollment in individual health insurance coverage once per plan year and in connection with each request for reimbursement. Further, Exchange enrollees might experience increased compliance burdens, to the extent that they must become familiar with the circumstances in which an offer of an HRA integrated with individual health insurance coverage precludes them from claiming the PTC. For employees who previously did not receive an offer of a traditional group health plan, this would require learning the PTC eligibility rules, and for employees who previously received an offer of a traditional group health plan, this would require learning new and different rules for PTC eligibility. Specifically, an employee who is offered a traditional group health plan is not eligible to claim the PTC for his or her Exchange coverage unless the premium of the lowest cost employer plan providing MV for self-only coverage less the employer contribution for self-only coverage exceeds 9.5 percent (indexed for inflation after 2014) of the employee’s household income (assuming the employee meets various other PTC eligibility requirements). In contrast, under the proposed PTC regulations, an employee who is offered an HRA integrated with individual health insurance coverage would not be eligible to claim the PTC for his or her Exchange coverage unless the premium VerDate Sep<11>2014 18:32 Oct 26, 2018 Jkt 247001 of the lowest cost silver plan for selfonly coverage offered by the Exchange for the rating area in which the employee resides less the HRA amount exceeds 9.5 percent (indexed for inflation after 2014) of the employee’s household income (assuming the employee meets various other PTC eligibility requirements). However, the Departments note that the proposed rules would require HRA plan sponsors to furnish a notice to participants providing some of the information necessary for an individual to determine if the offer of the HRA could render them ineligible for the PTC. In addition, if an enrollee in Exchange coverage is eligible for the PTC, the amount of the PTC is based, in part, on the premium for the second lowest cost silver plan for the coverage unit offered in the Exchange for the rating area in which the employee resides. As noted earlier, the proposed PTC rule uses the premium for the lowest cost silver plan offered in the Exchange for the rating area in which the employee resides solely for purposes of PTC eligibility criterion related to an offer of an HRA integrated with individual health insurance coverage. Therefore, Exchange enrollees would need to understand which silver level plan premium applies to them for eligibility purposes and which silver level plan premium applies to their PTC calculation. Similarly, the Federally-facilitated and State-based Exchanges would incur one-time costs to incorporate the proposed special enrollment period and the PTC regulations, if finalized, into their instructions for enrollees and Exchange employees and in automated calculations. HHS estimates that onetime costs to account for HRAs integrated with individual health insurance coverage for the FFE would be approximately $2.7 million to $3.6 million. In addition, the FFE call center and eligibility support contractors would incur additional annual cost of approximately $255 million annually by 2028 to serve the expanded Exchange population. Assuming that State-based Exchanges (SBEs) would incur costs similar to the FFE, total one-time costs incurred by the 12 SBEs would be $32.4 million to $43.2 million. Total additional ongoing costs incurred by the call centers and eligibility support contractors for the 12 SBEs would be approximately $85 million annually by 2028. The Departments request comments on the implementation and ongoing costs for SBEs. The IRS also would need to add information regarding employees offered HRAs integrated with individual health PO 00000 Frm 00028 Fmt 4701 Sfmt 4702 insurance coverage to instructions for IRS forms for taxpayers, employee training materials, and calculation programs. The Departments are of the view that the total increase in administrative costs is likely to be modest, and would be significantly outweighed by the benefits of the rule outlined in the next section. Benefits Gain of health insurance coverage. Some individuals could experience a gain in health insurance coverage, greater financial security and potentially improved health outcomes, if employees are newly offered and accept HRAs integrated with individual health insurance coverage. As explained in greater detail in the Transfers section later in this preamble, the Departments estimate that on net, the number of insured persons would increase by about 800,000 by 2028, due to the proposed rules. Most of these newly insured individuals are expected to be low- and moderate-income workers in firms that currently do not offer a traditional group health plan. Increased choice and flexibility for employees and employers. As a result of the proposed rules, employees would be able to purchase insurance with a tax subsidy by use of an HRA, without being locked into a specific plan or selection of plans chosen by their employer. As noted earlier in this preamble, some employees could have fewer choices of plans in the individual market than the number of group health plan choices previously provided by their employer, or might be unable to find a new individual health insurance coverage that covers their preferred healthcare providers. However, the expansion of enrollment in the individual market due to the proposed rules could also induce additional insurers to provide individual market coverage. The Departments are of the view that on net, the rule would significantly increase choice and flexibility for employees. Employers also would benefit from having another choice of a tax-preferred health benefit to offer their employees, potentially enabling them to attract and retain workers. Current compensation arrangements can result in less efficient labor markets and inefficient healthcare spending. Employees within a firm (or employees within certain classes within a firm) are generally offered the same set of health benefits. As a result, some employees receive a greater share of compensation in the form of benefits than they would prefer, while others receive less. In addition, some employers offer plans E:\FR\FM\29OCP2.SGM 29OCP2 Federal Register / Vol. 83, No. 209 / Monday, October 29, 2018 / Proposed Rules amozie on DSK3GDR082PROD with PROPOSALS2 with a wide choice of providers, reflecting the diverse preferences and healthcare needs of their employees. This weakens the ability of employers and insurers to negotiate lower provider prices or otherwise manage employee care. By expanding the ability of consumers to choose coverage that fits their preferences, the proposed rules would reduce these inefficiencies in labor markets and healthcare spending. Some employees who would be offered HRAs under the proposed rules would choose plans with lower premiums and higher deductibles and copayments (all of which could potentially be paid out of the HRA) and narrower provider networks than they would choose if offered a traditional group health plan. Employees facing higher cost-sharing could become more cost-conscious consumers of healthcare. Narrower provider networks could strengthen the ability of purchasers (through their insurers) to negotiate lower provider prices. Both effects could lead to reduced healthcare spending, which could in turn lead to reductions in amounts made available under HRAs integrated with individual health insurance coverage and corresponding increases in taxable wages. However, these benefits are uncertain and would take some time to occur.119 Moreover, the provision of a new health benefit that can be used to pay cost-sharing as well as premiums and that is available to employees who were previously uninsured or enrolled in unsubsidized coverage would be expected to increase, rather than decrease, healthcare utilization by some consumers. Small employers in particular might have little expertise or skill in choosing traditional group health plans or in administering coverage effectively for employees. However, some small employers can already obtain lower-cost coverage in the small group market or through AHPs than they could 119 The proposed HRA integrated with individual health insurance coverage provides an income and payroll tax exclusion that is available only to workers and, unlike the PTC, benefits workers at all income levels, including workers with incomes in excess of 400 percent of the federal poverty level. Thus, it is possible that the proposed rules could encourage individuals to join the labor force or to work more hours or seek higher-paying employment, generating further economic benefits. In addition, the proposed rules could increase labor force mobility (i.e., encourage workers to move more freely to employers where their productivity is highest), because workers enrolled in individual health insurance coverage could find it easier to retain their coverage when they change jobs. However, these effects are highly uncertain, are likely to be relatively small, and might take some time to occur. Labor supply changes are not reflected in the revenue estimates provided in the transfers section below. VerDate Sep<11>2014 18:32 Oct 26, 2018 Jkt 247001 otherwise provide on their own. Small employers that are not ALEs can also forego offering health benefits and allow their employees to obtain individual health insurance coverage, often with PTC subsidization, without liability under section 4980H of the Code. Qualified small employers can also pursue establishment of QSEHRAs. Thus, small employers whose employees have particularly high healthcare costs or that have little skill or interest in administering health benefits might use these other options to control costs even in the absence of the proposed rules. If so, any increased efficiency gain from providing an additional incentive for small employers to drop traditional group health plans in favor of HRAs integrated with individual health insurance coverage could be modest. Reduced administrative costs for some employers. Employers that offer an HRA integrated with individual health insurance coverage rather than a traditional group health plan could experience reduced administrative costs. For example, such employers would no longer need to choose health insurance plans or self-insured health benefits for their employees and manage those plans. However, some of these costs would be borne by HRA recipients, as part of their individual market premiums. Transfers The Treasury Department performed microsimulation modeling to evaluate the coverage changes and transfers that are likely to be induced by the proposed rules. The Treasury Department’s model of health insurance coverage assumes that workers are paid the marginal product of their labor. Employers are assumed to be indifferent between paying wages and paying compensation in the form of benefits (as both expenses are deductible in computing employers’ taxable incomes). The model therefore assumes that total compensation paid by a given firm is fixed, and the employer allocates this compensation between wages and benefits based on the aggregated preferences of their employees. As a result, employees bear the full cost of employer-sponsored health coverage (net of the value of any tax exclusion), in the form of reduced wages and the employee share of premiums.120 120 Note that the wage reduction for an employee who is offered a health benefit may be greater or less than the expected cost of coverage for that particular employee. Because employees are generally paid the same regardless of age, health status, family size or acceptance of benefits, the model assumes that each employee bears the same PO 00000 Frm 00029 Fmt 4701 Sfmt 4702 54447 The Treasury Department’s model assumes that employees’ preferences regarding the type of health coverage (or no coverage) are determined by their expected healthcare expenses and the after-tax cost of employer-sponsored insurance, Exchange coverage with the PTC, or Exchange or other individual health insurance coverage integrated with an HRA, and the quality of different types of coverage (including actuarial value).121 The tax preference for the HRA integrated with individual health insurance coverage is the same as that for a traditional group health plan, and this estimate assumes that employers would contribute the same amount towards an HRA integrated with individual health insurance coverage as they would contribute for a traditional group health plan.122 Therefore, an employee would prefer an HRA integrated with individual health insurance coverage to a traditional group health plan if the price of individual health insurance coverage is lower than the price of traditional group health plan coverage, as long as the value of the higher quality of the traditional group health plan coverage (if any) does not outweigh the lower cost of individual health insurance coverage. The cost of individual health insurance coverage for an employee could be lower than the cost of the firm’s traditional group health plan if the individual health insurance coverage is less generous, if the individual health insurance coverage share of the cost of the firm’s coverage. The model allows for some limited variation of the wage reduction by wage class and educational status. All costs and benefits of coverage are taken into account and assumed to accrue to employees, including all income and employer and employee payroll tax exclusions and the avoidance of the employer shared responsibility payment under section 4980H of the Code by firms that offer coverage. 121 Expected health care expenses by type of coverage, age, family size and other characteristics are estimated using the Medical Expenditure Panel Survey—Household Component (MEPS–HC). These predictions are then statistically matched to our tax data. The MEPS–HC is conducted by the United States Census Bureau for the Agency for Healthcare Research and Quality (AHRQ), Department of Health and Human Services. 122 It is possible that employers that switch from offering traditional group health plans to offering HRAs integrated with individual health insurance coverage will contribute less to HRAs than they pay for group coverage, and increase taxable wages by a corresponding amount. However, it is not clear why an employer that (based on the incomes and preferences of its workforce) wants to substitute contributions to health benefits for wages would not do so today, in the absence of the availability of HRAs integrated with individual health insurance coverage, particularly since the proposed rules generally require that HRAs integrated with individual health insurance coverage be offered on the same terms to all employees in a class of employees, as described earlier in this preamble. E:\FR\FM\29OCP2.SGM 29OCP2 54448 Federal Register / Vol. 83, No. 209 / Monday, October 29, 2018 / Proposed Rules amozie on DSK3GDR082PROD with PROPOSALS2 risk pool is healthier than the firm’s risk pool, or if the cost of individual health insurance coverage to a particular employee is lower than the cost of the firm’s coverage (because, for example, the employee is younger than the average-age worker in the firm). When evaluating the choice between an HRA integrated with individual health insurance coverage and the PTC for Exchange coverage, the available coverage is assumed to be the same, but the tax preferences are different. Hence, an employee would prefer the HRA if the value of the income and payroll tax exclusion (including both the employee and employer portion of payroll tax) is greater than the value of the PTC. In modeling this decision, the Departments assume that the employee share of premiums is tax-preferred, either through a salary reduction plan or, for an individual with an HRA integrated with individual health insurance coverage, through reimbursement of premiums from the HRA, with any additional premiums paid through a salary reduction arrangement.123 In the Treasury Department’s model, employees are aggregated into firms, based on tax data.124 The expected health expenses of employees in the firm determine the cost of employersponsored insurance for the firm.125 Employees effectively vote for their preferred coverage, and each employer’s 123 The assumption that coverage subsidized by the PTC is the same as coverage subsidized by an HRA may be incorrect to the extent that coverage on the Exchange differs from off-Exchange individual health insurance coverage. In addition, the assumption that the full premium for an employee with or without an HRA is tax preferred may be incorrect if the employer does not offer a salary reduction plan, if the employee does not elect the salary reduction, or if the employee chooses on-Exchange rather than off-Exchange coverage. Salary reductions may not be used to pay premiums for Exchange coverage. The Departments invite comments on whether these assumptions are important or likely to be incorrect. 124 A crucial component of the model is the use of Form W–2, Wage and Tax Statement, filed by employers to report wages and other benefits of employees. Forms W–2 with the same employer identification number are grouped together to represent the employees of the firm. 125 Some small firms are able to purchase community rated coverage in the small group market at lower cost than they could obtain by selfinsuring or would pay if they had to purchase coverage in the underwritten large-group market. Firm coverage costs are over-estimated in Treasury’s model for these firms. As a result, our model likely over-estimates the extent to which small firms would adopt HRAs integrated with individual health insurance coverage. On the other hand, our assumption that administrative burdens and costs for employees and employers are about the same for HRAs integrated with individual coverage as for traditional group health plans could result in an under-estimate of the extent to which small firms with higher than average administrative costs would adopt HRAs integrated with individual health insurance coverage. VerDate Sep<11>2014 18:32 Oct 26, 2018 Jkt 247001 offered benefit is determined by the preferences of the majority of employees. Employees then decide whether to accept any offered coverage, and the resulting enrollment determines premiums for both employer coverage and individual health insurance coverage. The Treasury Department’s model thus predicts enrollment and premiums in each type of coverage. Transitions from traditional group health plans to HRAs integrated with individual health insurance coverage. Based on microsimulation modeling, the Departments expect that the proposed rules would cause some participants (and their dependents) to move from traditional group health plans to HRAs integrated with individual health insurance coverage. As previously noted, the estimates assume that for this group of firms and employees, employer contributions to HRAs integrated with individual health insurance coverage are the same as contributions to traditional group health plans would have been, and the estimates assume that tax-preferred salary reductions for individual health insurance coverage are the same as salary reductions for traditional group health plan coverage. Thus, by modeling construction there is no change in income or payroll tax revenues for this group of firms and employees (other than the changes in the PTC discussed later in this preamble). The Departments welcome comments on these assumptions. While the tax preference is assumed to be unchanged for this group, after-tax out-of-pocket costs could increase for some employees (whose premiums or cost-sharing are higher in the individual market than in a traditional group health plan) and decrease for others. Some employees who are offered a traditional group health plan nonetheless obtain individual health insurance coverage and the PTC, because the traditional group health plan is unaffordable to them or does not provide MV. Some of these employees would no longer be eligible for the PTC for their Exchange coverage when the employer switches from a traditional group health plan to an HRA integrated with individual health insurance coverage because the HRA integrated with individual health insurance coverage is determined to be affordable under the proposed PTC eligibility rules.126 In addition, some employees who are offered HRAs integrated with individual health insurance coverage 126 As noted below, however, the Departments’ estimates assume that individuals with incomes below 200 percent of the federal poverty level are not newly firewalled from the PTC by HRA offers. PO 00000 Frm 00030 Fmt 4701 Sfmt 4702 would not accept them, and would be newly able to obtain the PTC because the offer of the HRA would be considered to be unaffordable under the proposed PTC rules, even though the traditional group health plan they were previously offered is affordable under current rules.127 Transitions from no employersponsored health benefit to HRAs integrated with individual health insurance coverage. The Departments expect some employees to be offered HRAs integrated with individual health insurance coverage when they previously received no offer of an employer-sponsored health plan. As a result, taxable wages would fall and non-taxable wages would rise, reducing income tax and payroll tax revenues. In addition, some Exchange enrollees who previously claimed the PTC would be precluded from claiming the PTC as a result of the offer or acceptance of the HRA, reducing PTC transfers. As explained further below, the Departments assume that PTC spending is reduced only among Exchange enrollees with incomes greater than 200 percent of the federal poverty level. Summary of transfers and coverage changes. The Departments estimate that once employers fully adjust to the proposed rules, roughly 800,000 firms would offer HRAs integrated with individual health insurance coverage. The Departments further estimate that it would take employers and employees about five years to fully adjust to the proposed rules, with about 10 percent of take-up occurring in 2020 and the full effect realized in 2024 and beyond. This would result in an estimated 1.0 million individuals receiving an HRA integrated with individual health insurance coverage in 2020, growing to 10.7 million in 2028. Conversely, the number of individuals in traditional group health plan coverage would fall by an estimated 0.6 million (0.4 percent) in 2020 and 6.8 million (4.5 percent) in 2028. Similarly, the number of individuals in individual health insurance coverage without an HRA would fall by an estimated 0.3 million (2.2 percent) in 2020 and 3.2 million (23.2 percent) in 2028. The number of uninsured persons would fall by an estimated 0.1 million in 2020 and by an 127 The number of persons newly eligible for the PTC is expected to be very small. Under the assumption that employers contribute the same amount towards an HRA as they would for traditional group coverage, employees would become newly eligible for the PTC (if otherwise eligible) only if the lowest cost silver plan premium for self-only individual health insurance coverage is greater than the total cost of the lowest cost MV plan offered by the employer (including the employee and employer share of premiums). E:\FR\FM\29OCP2.SGM 29OCP2 54449 Federal Register / Vol. 83, No. 209 / Monday, October 29, 2018 / Proposed Rules estimated 0.8 million (1.3 percent) in 2028.128 See Table 2 for details. The modeling suggests that employees in firms that would switch from offering traditional group health plan coverage to offering an HRA integrated with individual health insurance coverage would have, on average, slightly higher expected healthcare expenses than employees in other firms and current individual market enrollees. As a result, premiums in the individual market would be expected to increase by less than 1 percent as a result of the proposed rules, throughout the 2020– 2028 period examined. The Treasury Department model is nationally representative and does not necessarily reflect the expected experience for every market. The premium increase resulting from adverse selection could be larger in some markets, and premiums could fall in other markets. The Departments invite comments on the extent to which firms with healthy or less healthy risk pools would utilize HRAs integrated with individual health insurance coverage. Income and payroll tax revenues would be expected to fall by about $500 million in fiscal year 2020 and $13.0 billion in 2028, as firms newly offer taxpreferred health benefits in the form of HRAs integrated with individual health insurance coverage. At the same time, total PTC would be expected to fall by about $100 million in 2020 and by about $6.9 billion in 2028. In total, the proposed rule is estimated to reduce tax revenue by about $400 million in fiscal year 2020, $6 billion in fiscal year 2028, and $29.8 billion over the nine-year period through fiscal year 2028.129 TABLE 2—ESTIMATED EFFECTS OF HRAS INTEGRATED WITH INDIVIDUAL HEALTH INSURANCE COVERAGE ON INSURANCE COVERAGE AND TAX REVENUES, 2020–2028 Calendar year 2020 Change in Coverage [Millions]: a Individual health insurance coverage with HRA ........... Traditional group health plan Individual health insurance coverage without HRA ...... Uninsured .............................. Fiscal year 2021 2022 2023 2024 2025 2026 2027 2028 1.0 ¥0.6 2.5 ¥1.6 5.0 ¥3.3 7.7 ¥4.9 10.3 ¥6.6 10.4 ¥6.7 10.6 ¥6.7 10.7 ¥6.8 10.7 ¥6.8 ¥0.3 ¥0.1 ¥0.7 ¥0.2 ¥1.5 ¥0.3 ¥2.2 ¥0.5 ¥3.0 ¥0.7 ¥3.0 ¥0.7 ¥3.1 ¥0.7 ¥3.2 ¥0.7 ¥3.2 ¥0.8 2020 Change in Revenue [Billions]: Premium Tax Credit Reduction ..................................... Other Income and Payroll Tax Reduction ................... Net Revenue Reduction ....... 2021 2022 2023 2024 2025 2026 2027 2028 0.1 0.5 1.7 3.2 4.8 5.4 6.0 6.5 6.9 0.5 0.4 1.5 1.0 3.3 1.5 5.7 2.4 8.3 3.4 9.6 4.2 11.1 5.0 12.2 5.8 13.0 6.0 amozie on DSK3GDR082PROD with PROPOSALS2 Notes: a. Millions of covered lives, annualized. The Departments acknowledge that the extent to which firms would offer HRAs integrated with individual health insurance coverage and the results on individual market risk pools and premiums, federal tax revenues, and private costs and benefits are highly uncertain. The Departments invite comment on the estimates and assumptions discussed previously in this preamble. The Departments particularly emphasize that these estimates assume that every employee in a firm would be offered either an HRA integrated with individual health insurance coverage or a traditional group health plan (but not both and not a choice between the two), or no employer health benefit. The estimates further assume that a firm offering such an HRA would offer the same benefit to each employee in the firm, and would not vary the contribution by location, age, or other permitted factors other than self-only versus non-self-only benefits.130 In other words, the estimates assume that the proposed rules would be effective in preventing firms from dividing their employees by health status or other factors in a way that would allow firms to capture greater tax subsidies or increase individual market premiums or the PTC. HRA participation and transfers including individual market premium increases would likely be higher if these assumptions are incorrect. Because the number of individuals in traditional group health plans is large relative to the number of individuals in individual health insurance coverage, relatively 128 These estimates are annualized counts (e.g., two persons with six months of coverage each count as one covered person), and reflect only coverage for persons under age 65. For more information about Treasury’s baseline estimates, see ‘‘Treasury’s Baseline Estimates of Health Coverage, Fiscal Year 2019 Budget Exercise’’ June 2018, available at https://www.treasury.gov/resource-center/taxpolicy/tax-analysis/Documents/Treasury%27sBaseline-Estimates-of-Health-Coverage-FY2019.pdf. 129 These revenue estimates do not account for the possibility that the proposed rules would lead to increased taxable wages. 130 The Departments imposed two constraints on the microsimulation that could be consistent with allowing the HRA offer to vary across employees within a firm. First, the Departments assume that persons with incomes below 200 percent of the federal poverty level who are enrolled in subsidized individual health insurance coverage in the baseline do not move to an HRA or to uninsured status as a result of the proposed rule. This is consistent with assuming that employers with lowwage workers currently receiving Medicaid or the PTC do not begin to offer HRAs large enough to render such employees ineligible for the PTC or from receiving public coverage. This constraint is also consistent with the assumption that employees who would experience a substantial subsidy loss would move to other jobs that would allow them to retain their current coverage. This assumption reduces the amount of PTC savings generated by the proposal, and also reduces the tax revenue cost of providing HRAs to such employees. Second, the Departments assume that employees with incomes above 400 percent of the federal poverty level who are enrolled in a traditional group health plan do not become uninsured as a result of the proposed rule, even if individual plan premiums are substantially higher than the cost of their traditional group health plan coverage. This is consistent with assuming that employers would provide larger HRAs to older employees or to employees in highercost markets than they would provide to other employees in their firms, in order to ensure affordable coverage. It is also consistent with assuming that employees would move to other firms, if they face large premium or cost-sharing increases when their employers switch from traditional group coverage to HRAs integrated with individual health insurance coverage. VerDate Sep<11>2014 18:32 Oct 26, 2018 Jkt 247001 PO 00000 Frm 00031 Fmt 4701 Sfmt 4702 E:\FR\FM\29OCP2.SGM 29OCP2 54450 Federal Register / Vol. 83, No. 209 / Monday, October 29, 2018 / Proposed Rules amozie on DSK3GDR082PROD with PROPOSALS2 small changes in employer offers of coverage can result in large changes in individual market premiums.131 Consider the following illustrative, simplified example. The Departments estimate that about 80 percent of individuals in employer-sponsored coverage are relatively healthy and 20 percent are relatively unhealthy. Relatively healthy persons in the employer market have health costs equal to about a quarter of average single enrollee costs in the individual market and unhealthy persons in the employer market have health costs that are about three times the cost of the average person in the individual market.132 Thus, if 5 million individuals moved from the employer market to the individual market, and these 5 million were representative of the average for the employer market with a ratio of healthy to unhealthy of 4 to 1, then individual market premiums would fall by about 3 percent. If, however, a disproportionate number of unhealthy employees enter the individual market, premiums in the individual market would rise. For example, if 3 million healthy and 2 million unhealthy enrollees entered the individual market, premiums would increase by an estimated 14 percent. The Departments seek comment on the extent to which employers would offer different benefits to different classes of employees, including the classes based on rating area and all other classes, and on combinations of the classes, and the resulting effect on individual market premiums. The Departments also emphasize that these estimates assume that employers would contribute the same amount to HRAs integrated with individual health insurance coverage as they would to traditional group health plans and that employees would elect the same amount of salary reduction to pay for individual health plans and cost-sharing as they would if they were enrolled in a traditional group health plan. But, as noted above, some employees who would be offered HRAs under the proposed rule would choose plans with 131 The Treasury Department projects that over 150 million persons under age 65 will be enrolled in employer-sponsored group health plans in 2020, compared to about 15 million in the individual market. 132 Estimates are derived from RTI MarketScan claims data for 2014. These data indicate that 80 percent of persons in the employer market have no Hierarchical Condition Codes (HCCs) while 20 percent had one or more HCCs. Persons with no HCCs had costs equal to 24 percent of average single enrollee costs in the individual market and persons with one or more HCCs had costs equal to three times the average individual market enrollee cost. VerDate Sep<11>2014 18:32 Oct 26, 2018 Jkt 247001 lower premiums and higher deductibles and copayments and narrower provider networks than they would choose if offered a traditional group health plan. Higher cost-sharing and narrower provider networks could cause individuals to be more cost-conscious consumers of healthcare. In addition, the estimates assume that the entire HRA balance is spent on healthcare premiums and cost-sharing each year. However, the Departments are of the view that many employers would allow employees to carry unspent HRA balances over from year to year, and that some employers would allow employees to continue to spend accumulated HRA funds even after separating from their employer. Moreover, HRA benefits are subject to COBRA protections, such that some employees would elect to use accumulated funds for up to 18 months after separation from service. The ability to carry over benefits from year to year could further encourage employees to curtail healthcare spending, particularly less efficient spending. This effect could be modest for several reasons. First, unlike HSA balances, which can be withdrawn for non-health purposes subject to tax but without penalty after age 65 and with a 20 percent penalty before age 65, HRAs may only be used for healthcare. In addition, unlike HSAs, HRAs are not the property of the employee and employers may limit the amount that can be carried over from year-to-year or accessed by the employee after separation. The Departments welcome comment on the extent to which HRA balances would likely be allowed to accumulate over time and accessed after employees separate from employment, and the extent to which employees would be incentivized to become more cost conscious consumers of healthcare. These estimates further assume that all individual health insurance coverage integrated with an HRA would be treated as subject to and compliant with sections 2711 and 2713 of the PHS Act. The proposed rules prohibit an HRA from being integrated with STLDI and excepted benefits, which are not subject to the market requirements. Grandfathered coverage in the individual market is not subject to the annual dollar prohibition in section 2711 of the PHS Act or to the preventive services requirements in section 2713 of the PHS Act. However, the proposed rules would not require employees or employers to confirm that individual health insurance coverage integrated with an HRA is not grandfathered coverage. Requiring such confirmation would be administratively burdensome PO 00000 Frm 00032 Fmt 4701 Sfmt 4702 and the Departments expect that the number of employees who might use an HRA to buy such coverage would be extremely small, because individuals can only renew and cannot newly enroll in grandfathered individual health insurance coverage. 3. Impact of Excepted Benefit HRA The proposed rules also provide for recognition of a new limited excepted benefit HRA under which amounts newly made available for each plan year are limited to $1,800 (indexed for inflation after 2020). Among other conditions, to offer the excepted benefit HRA, the employer must offer the employee a group health plan that is not limited to excepted benefits and that is not an HRA, but the employee would not need to enroll in this group health plan. The benefit would be funded by the employer, and in the Treasury Department’s modeling, this means that it would be paid for by all employees in the firm through an overall reduction in wages. The benefit could be used to pay for any medical expense, other than premiums for individual health insurance coverage, group health plan coverage (other than COBRA, state, or other continuation coverage), or Medicare parts B or D. The excepted benefit HRA could be used to pay premiums for coverage that consists solely of excepted benefits and for other premiums, such as premiums for STLDI. Due to the availability of other tax preferences for health benefits, including the tax exclusion for employer-sponsored benefits, salary reductions for group and off-Exchange individual health insurance coverage premiums when integrated with an HRA, health FSAs, and non-excepted benefit HRAs, the Departments are of the view that this new excepted benefit would be adopted by a small number of firms. However, it could provide flexibility for firms that want to provide a tax preference to employees that choose STLDI instead of the employer’s traditional group health plan. The Departments welcome comments on the costs and benefits of the proposed excepted benefit HRA and the extent to which firms and employees would be likely to adopt such HRAs. C. Regulatory Alternatives In developing the proposed rules, the Departments considered various alternative approaches. Retaining prohibition on integration of HRAs with individual health insurance coverage. The Departments considered retaining the existing prohibition on integration of HRAs with individual health insurance coverage. E:\FR\FM\29OCP2.SGM 29OCP2 amozie on DSK3GDR082PROD with PROPOSALS2 Federal Register / Vol. 83, No. 209 / Monday, October 29, 2018 / Proposed Rules However, the Departments determined that the adverse selection concerns that gave rise to the prohibition could be adequately addressed by including appropriate mitigating conditions in the proposed integration rules. Further, the Departments determined that eliminating the prohibition on integrating HRAs with individual health insurance coverage would increase the usability of HRAs which would provide more Americans, including employees who work at small businesses, with additional healthcare options. Such changes would facilitate the development and operation of a healthcare system that provides highquality care at affordable prices for the American people by increasing consumer choice for employees and promoting competition in healthcare markets by adding additional options for employers. Alternative approaches for safeguards intended to prevent health discrimination and adverse selection under the proposed integration rules. In developing the safeguards designed to prevent adverse selection, the Departments considered whether such safeguards are needed and alternatives for the design of such safeguards. As explained in more detail earlier in this preamble, although the Departments considered that it is possible that the consequences of HRA expansion for the individual market could be positive, the Departments determined that allowing HRAs to be integrated with individual health insurance coverage is more likely to result in opportunities for employers to discriminate by encouraging higher risk employees to obtain coverage in the individual market in order to reduce the cost of traditional group health plan coverage provided by the employer to lower risk employees. Such an arrangement could worsen adverse selection and raise premiums in the individual market if HRAs integrated with individual health insurance coverage are used disproportionately by higher risk employees. Thus, there is risk with permitting HRAs to be integrated with individual health insurance coverage without appropriate safeguards. Accordingly, to significantly temper these concerns, the proposed integration rules prohibit a plan sponsor from offering the same class of employees both a traditional group health plan and an HRA integrated with individual health insurance coverage (or a choice between the two). In addition, to the extent a plan sponsor offers an HRA integrated with individual health insurance coverage to a class of employees, the proposed integration VerDate Sep<11>2014 18:32 Oct 26, 2018 Jkt 247001 rules require that the HRA be offered on the same terms to all employees within the class, subject to certain exceptions. In designing these safeguards, the Departments considered various alternatives, including prohibiting an employer that offers an HRA integrated with individual health insurance coverage from offering a traditional group health plan to any of its employees. The Departments instead decided to allow employers to offer either a traditional group health plan or an HRA integrated with individual health insurance coverage (but not a choice between the two) to different classes of employees, based on the determination that such a rule provides an appropriate safeguard against the adverse selection concerns while also providing employers sufficient flexibility, which is intended to allow employers of all sizes to take advantage of the expansion provided in the proposed integration rules. As explained in more detail earlier in the preamble, the Departments also considered various options for defining the classes of employees that may be used in applying these safeguards. The Departments considered whether employers should be allowed to offer or vary HRAs integrated with individual health insurance coverage for classes of employees based on a very general standard (like the one that applies under the HIPAA nondiscrimination rules, with a broad employment-based classification standard) or a more finite list of classes of employees that have been used in other rules for various employee benefits purposes (for example, under section 105(h) and/or section 4980H of the Code). The Departments’ view is that a broad and open-ended standard would not be sufficient to mitigate the risk of adverse selection that more defined categories would help address those concerns. Earlier in the preamble, the Departments solicit comments on all aspects of these classes of employees, including whether these are the appropriate classes of employees, whether alternate classes, such as the categories of similarly situated individuals under the HIPAA nondiscrimination provisions, are preferable, whether additional classes are required and whether allowing benefits to vary based on classes of employees could lead to adverse selection. Earlier in this preamble, the Departments also seek comment on whether the ability to integrate an HRA with individual health insurance coverage has the potential to increase participation in and strengthen the viability of states’ individual market risk PO 00000 Frm 00033 Fmt 4701 Sfmt 4702 54451 pools. Further, the Departments also invite comment on whether the proposed integration safeguards are appropriate and narrowly tailored to prevent adverse selection and health status discrimination or whether less restrictive safeguards would suffice. Allowing integration with coverage other than individual health insurance coverage under the proposed rules. The Departments considered whether to allow HRAs intended to satisfy the individual health insurance coverage integration test also to be integrated with non-HRA group coverage, such as a group health plan maintained by the employer of the participant’s spouse, in addition to individual health insurance coverage, because, like individual health insurance coverage, group health plan coverage is generally subject to and compliant with sections 2711 and 2713 of the PHS Act. The Departments decided against proposing such a rule because allowing such integration would add significant complexity to the individual health insurance coverage integration test, as described earlier in this preamble. However, earlier in this preamble, the Departments request comments regarding whether the Departments should allow for such integration and, if so, with respect to compliance with section 2711 of the PHS Act, how such an integration test should be designed to take into account that, while most individual health insurance coverage is required to cover all EHBs, large group market and selfinsured group health plans are not required to cover all EHBs. Earlier in this preamble the Departments also request comments on the demand for such a rule and any problems such a rule may raise. In addition, the Departments considered whether to propose a rule to permit HRAs to be integrated with other types of non-group coverage other than individual health insurance coverage, such as STLDI. However, while all new individual health insurance coverage that is currently sold is nongrandfathered coverage (and most coverage that is renewed in also nongrandfathered) and is therefore generally subject to and compliant with sections 2711 and 2713 of the PHS Act, other types of coverage, such as STLDI, are not subject to and therefore may not be compliant with sections 2711 and 2713 of the PHS Act, in which case, integration would not be sufficient to ensure that the combined benefit package satisfies these requirements. Earlier in this preamble, the Departments request comments on whether integration with STLDI (which is not required to satisfy sections 2711 E:\FR\FM\29OCP2.SGM 29OCP2 amozie on DSK3GDR082PROD with PROPOSALS2 54452 Federal Register / Vol. 83, No. 209 / Monday, October 29, 2018 / Proposed Rules and 2713 of the PHS Act) should be permitted, whether integration should be permitted with any other type of coverage that satisfies sections 2711 and 2713 of the PHS Act, how such integration rules should be structured, as well as comments on what, if any, potential benefits and problems might arise from allowing these types of HRA integration. Earlier in this preamble the Departments also seek comments on whether allowing such integration would raise any concerns about health status discrimination leading to additional adverse selection in the individual market. Alternatives for annual limits on amounts made available under the excepted benefit HRA and alternatives for indexing such amount. With regard to the excepted benefit HRA, in the proposed rules, the Departments propose that the amounts newly made available for a plan year may not exceed $1,800 (indexed for inflation after 2020). For this purpose, inflation is defined in the proposed rules by reference to C– CPI–U, published by the Department of Labor. In proposing this limit, the Departments considered various alternative amounts, including the limits on employer contributions to excepted benefit health FSAs (set at $500 in 1997 if there are no employee contributions to the health FSA, although it might be much higher if there are employee contributions). The Departments considered the relationship between $500 and the average cost of insurance in 1997. The Departments also considered a limit of 15 percent-of-the-cost-of-coverageunder-the-primary-plan test, which is the limit used for both supplemental excepted benefits in the group market and limited wraparound coverage, as a benchmark to ensure that the benefits are limited in amount. In considering how such a limit could be an appropriate limit for excepted benefit HRAs, the Departments considered 15 percent of the cost of group coverage for both employee-only and family coverage. However, the Departments also considered how to determine the primary plan in circumstances in which the participant does not enroll in a traditional group health plan, and concluded that such a determination VerDate Sep<11>2014 18:32 Oct 26, 2018 Jkt 247001 would likely be difficult for employers. The Departments also considered using the cost of coverage for the second lowest cost silver plan in various markets. These methodologies produced a wide range of possible excepted benefit HRA limits from $1,100 to $2,850. Consistent with the principle of promoting HRA use and availability, rather than proposing a complex test for the limit on amounts newly made available in the excepted benefit HRA, the Departments are proposing a maximum of $1,800 (indexed for inflation after 2020) on amounts newly made available for a plan year that approximates the midpoint amount yielded by the various methodologies considered. Earlier in this preamble, the Departments request comments on this amount, and whether an alternate amount or formula for determining the maximum dollar limit for an excepted benefit HRA would be more appropriate and, if so, what that alternative would be and why. Further, earlier in this preamble, the Departments seek comment on whether the maximum dollar limit should be adjusted depending on whether a participant has dependent(s) and, if so, by what amount the maximum dollar limit should be adjusted to in that case. With regard to indexing the dollar limit on amounts made newly available under the excepted benefit HRA, in proposing to index the amount by C– CPI–U, the Departments considered whether or not to index the amount, including the difficulties of administering an HRA with a changing amount, and the cost, including the cost to the Departments to publish the amount and provide notice every year, as balanced with the decreasing real value of a set HRA limit. The Departments determined that the benefit of indexing the amount outweighs the increased complexity for the Departments and for stakeholders. Earlier in this preamble, the Departments invite comments on the measure of inflation used, including whether the amount should be indexed to inflation (and if there are any administrability concerns associated with indexing), if C–CPI–U is the correct measure of inflation, or whether an alternate measure, such as the overall PO 00000 Frm 00034 Fmt 4701 Sfmt 4702 medical care component for CPI–U, or the method specified under section 9831(d)(2)(D) of the Code for QSEHRAs, should be used. D. Paperwork Reduction Act— Department of Health and Human Services Under the Paperwork Reduction Act of 1995 (PRA), we are required to provide 60-day notice in the Federal Register and solicit public comment before a collection of information requirement is submitted to OMB for review and approval. To fairly evaluate whether an information collection should be approved by OMB, section 3506(c)(2)(A) of the PRA requires that we solicit comment on the following issues: • The need for the information collection and its usefulness in carrying out the proper functions of our agency. • The accuracy of our estimate of the information collection burden. • The quality, utility, and clarity of the information to be collected. • Recommendations to minimize the information collection burden on the affected public, including automated collection techniques. 1. Wage Estimates To derive wage estimates, the Departments generally used data from the Bureau of Labor Statistics to derive average labor costs (including a 100 percent increase for fringe benefits and overhead) for estimating the burden associated with the ICRs.133 Table 2 below presents the mean hourly wage, the cost of fringe benefits and overhead, and the adjusted hourly wage. As indicated, employee hourly wage estimates have been adjusted by a factor of 100 percent. This is necessarily a rough adjustment, both because fringe benefits and overhead costs vary significantly across employers, and because methods of estimating these costs vary widely across studies. Nonetheless, there is no practical alternative, and the Departments are of the view that doubling the hourly wage to estimate total cost is a reasonably accurate estimation method. 133 See May 2017 Bureau of Labor Statistics, Occupational Employment Statistics, National Occupational Employment and Wage Estimates at https://www.bls.gov/oes/current/oes_nat.htm. E:\FR\FM\29OCP2.SGM 29OCP2 Federal Register / Vol. 83, No. 209 / Monday, October 29, 2018 / Proposed Rules 54453 TABLE 1—ADJUSTED HOURLY WAGES USED IN BURDEN ESTIMATES Occupational code Occupation title Compensation and Benefits Manager ............................................................. Lawyer ............................................................................................................. amozie on DSK3GDR082PROD with PROPOSALS2 2. ICRs Regarding Substantiation of Individual Health Insurance Coverage Under the proposed regulations, an HRA must implement reasonable procedures to verify that individuals whose medical care expenses are reimbursable by the HRA are, or will be, enrolled in individual health insurance coverage (other than coverage that consists solely of excepted benefits) for the plan year. In addition, following the initial substantiation of coverage, with each new request for reimbursement of an incurred medical care expense for the same plan year, the proposed regulations provide that the HRA may not reimburse a participant for any medical care expenses unless, prior to each reimbursement, the participant provides substantiation that the participant and, if applicable, any dependent(s) whose medical care expenses are requested to be reimbursed were enrolled in individual health insurance coverage (other than coverage that consists solely of excepted benefits) for the month during which the medical care expenses were incurred. The attestation may be part of the form used for requesting reimbursement. To satisfy this requirement, the HRA may require that the participant submit an attestation or a document provided by a third party (for example, an explanation of benefit or insurance card) as substantiation. The associated cost would be negligible and is, therefore, not estimated. 3. ICRs Regarding Notice Requirement These proposed regulations include a requirement that an HRA provide written notice to eligible participants. The HRA would be required to provide a written notice to each participant at least 90 days before the beginning of each plan year. For participants who are not yet eligible to participate at the beginning of the plan year (or who are not eligible when the notice is provided at least 90 days prior to the beginning of the plan year), the HRA must provide the notice no later than the date on which the participant is first eligible to participate in the HRA. The proposed written notice would be required to include certain relevant VerDate Sep<11>2014 18:32 Oct 26, 2018 Jkt 247001 11–3111 23–1011 information, including a description of the terms of the HRA, including the amount made available that is used in the affordability determination under the Code section 36B proposed rules; a statement of the right of the participant to opt-out of and waive future reimbursement under the HRA; a description of the potential availability of the PTC for a participant who opts out of and waives an HRA if the HRA is not affordable under the proposed PTC regulations; a description of the PTC eligibility consequences for a participant who accepts the HRA; a statement that the participant must inform any Exchange to which they apply for advance payments of the PTC of the availability of the HRA, the amount of the HRA, the number of months the HRA is available to participants during the plan year, whether it is available to their dependents and whether they are a current or former employee; a statement that the participant should retain the written notice because it may be needed to determine whether the participant is allowed the PTC; a statement that the HRA may not reimburse any medical care expense unless the substantiation requirements are met; and a statement that it is the responsibility of the participant to inform the HRA if the participant or any dependent whose medical care expenses are reimbursable by the HRA is no longer enrolled in individual health insurance coverage. The written notice may include other information, as long as the additional information does not conflict with the required information. The written notice would not need to include information specific to a participant. The Departments estimate that for each HRA plan sponsor, a compensation and benefits manager would need 2 hours (at $125 per hour) and a lawyer would need 1 hour (at $136.44 per hour) to prepare the notices. The total burden for an HRA plan sponsor would be 3 hours with an equivalent cost of approximately $386. This burden would be incurred the first time the plan sponsor provides an HRA that is integrated with individual health insurance coverage. In subsequent years, the burden to update the notice in PO 00000 Frm 00035 Fmt 4701 Sfmt 4702 Mean hourly wage ($/hour) $62.50 68.22 Fringe benefits and overhead ($/hour) $62.50 68.22 Adjusted hourly wage ($/hour) $125.00 136.44 expected to be minimal and therefore is not estimated. HHS estimates that in 2020, an estimated 1,203 state and local government entities would offer HRAs that are integrated with individual health insurance coverage.134 The total burden to prepare notices would be approximately 3,610 hours with an equivalent cost of approximately $464,984. In 2021 approximately 1,805 additional state and local government entities would offer HRAs that are integrated with individual health insurance coverage for the first time and would incur a burden of approximately 5,415 hours with an equivalent cost of approximately $697,476. In 2022, approximately 3,008 additional state and local government entities would offer HRAs that are integrated with individual health insurance coverage for the first time and would incur a burden of approximately 9,024 hours with an equivalent cost of approximately $1.16 million. HRA plan sponsors would provide the notice to eligible participants every year. HHS estimates that HRA plan sponsors would provide printed notices to approximately 90,162 eligible participants 135 in 2020, 225,405 eligible participants in 2021 and 450,810 eligible participants in 2022. The Departments anticipate that the notices would be approximately 2 pages long and the cost of materials and printing 134 U.S. Department of the Treasury, Office of Tax Analysis simulation model suggests that in 2020, approximately 80,000 employers will offer HRAs, with 1.0 million individuals receiving an HRA integrated with individual health insurance coverage. These numbers would increase to 200,000 employers and 2.5 million individuals in 2021 and to 400,000 employers and 5 million individuals in 2022. The Departments estimate that there is, on average, 1 dependent for every policyholder. The Departments also estimate that approximately 2 percent of employers are state and local government entities, accounting for approximately 14 percent of participants. 135 U.S. Department of the Treasury, Office of Tax Analysis simulation model provides estimates of the number of participants and dependents receiving an HRA integrated with individual health insurance coverage. Number of eligible participants is estimated based on the assumption that 75 percent of eligible participants would enroll in their employers’ plans. See Section 3 of the Kaiser ‘‘2017 Employer Health Benefits Survey’’. https:// www.kff.org/health-costs/report/2017-employerhealth-benefits-survey/. E:\FR\FM\29OCP2.SGM 29OCP2 54454 Federal Register / Vol. 83, No. 209 / Monday, October 29, 2018 / Proposed Rules would be $0.05 per page, with a total cost of $0.10 per notice. It is assumed that these notices would be provided along with other benefits information with no additional mailing cost. The Departments assume that approximately 54 percent of notices would be provided approximately 41,475 notices at a cost of approximately $4,147. In 2021, approximately 103,686 notices would be printed at a cost of $10,369 and in 2022, approximately 207,373 notices would be printed at a cost of a $20,737. electronically and approximately 46 percent would be provided in print along with other benefits information. Therefore, in 2020, state and local government entities providing HRAs that are integrated with individual health insurance coverage would print TABLE 2—PROPOSED ANNUAL BURDEN AND COSTS Estimated number of employers newly offering HRAs Year 2020 ..................................................................................... 2021 ..................................................................................... 2022 ..................................................................................... 3 year Average .................................................................... Estimated number of notices to all eligible participants 1,203 1,805 3,008 2,005 Total annual burden (hours) 90,162 225,405 450,810 255,459 Total estimated labor cost 3,610 5,415 9,024 6,016 Total estimated printing and materials cost $464,984 697,476 1,162,461 774,974 $4,147 10,369 20,737 11,751 TABLE 3—PROPOSED RECORDKEEPING AND REPORTING REQUIREMENTS Regulation section § 146.123(c)(5), § 146.123(c)(6) OMB Control No. Respondents 0938–0702 2,005 HHS intends to amend the information collection currently approved under OMB control number 0938–0702 ‘‘Information Collection Requirements Referenced in HIPAA for the Group Market, Supporting Regulations 45 CFR 146, and forms/ instructions’’ (CMS-10430), to account for this additional burden. amozie on DSK3GDR082PROD with PROPOSALS2 4. Submission of PRA-Related Comments We have submitted a copy of this proposed rule to OMB for its review of the rule’s information collection and recordkeeping requirements. The requirements are not effective until they have been approved by OMB. We invite public comments on these information collection requirements. If you wish to comment, please identify the rule (CMS–9918–P) and, where applicable, the ICR’s CFR citation, CMS ID number, and OMB control number. To obtain copies of a supporting statement and any related forms for the proposed collection(s) summarized in this notice, you may make your request using one of following: 1. Access CMS’s website address at https://www.cms.gov/Regulations-andGuidance/Legislation/Paperwork ReductionActof1995/PRA-Listing.html. 2. Email your request, including your address, phone number, OMB number, and CMS document identifier, to Paperwork@cms.hhs.gov. 3. Call the Reports Clearance Office at (410) 786–1326. VerDate Sep<11>2014 18:32 Oct 26, 2018 Jkt 247001 Responses Burden per response (hours) 255,459 3 Total annual burden (hours) Hourly labor cost of reporting 6,016 $128.81 See this rule’s DATES and ADDRESSES sections for the comment due date and for additional instructions. E. Paperwork Reduction Act— Department of Labor and Department of the Treasury As part of its continuing effort to reduce paperwork and respondent burden, the Departments conduct a preclearance consultation program to provide the general public and Federal agencies with an opportunity to comment on proposed and continuing collections of information in accordance with the PRA. This helps to ensure that the public understands the Departments’ collection instructions, respondents can provide the requested data in the desired format, reporting burden (time and financial resources) is minimized, collection instruments are clearly understood, and the Departments can properly assess the impact of collection requirements on respondents. Under the PRA, an agency may not conduct or sponsor, and an individual is not required to respond to, a collection of information unless it displays a valid OMB control number. In accordance with the requirements of the PRA, DOL is requesting an OMB control number for three new information collections (ICs) contained in the proposed rules. Two ICs are sponsored jointly by DOL and the Treasury Department: (1) Verification of Enrollment in Individual Health Insurance Coverage (29 CFR 2590.702– 2(c)(5)); and (2) HRA Notice to PO 00000 Frm 00036 Fmt 4701 Sfmt 4702 Total labor cost of reporting $774,974 Printing and materials cost $11,751 Total cost $786,724 Participants (29 CFR 2590.702–2(c)(6)). A third IC is sponsored solely by DOL (29 CFR 2510.3–1): (3) Notice to Participants that Individual Health Insurance Coverage Policy is Not Subject to Title I of ERISA. With regard to the Treasury Department, the collection of information contained in these regulations is submitted to OMB for review in accordance with the PRA as follows. The collection of information in these regulations is in 26 CFR 54.9815– 2711(d)(4) and 26 CFR 54.9802–4(c)(5) and (c)(6). The burden for the collection of information contained in these regulations is reflected in the burden for OMB Control Number 1545–0123 for the U.S. Business Income Tax Return, 1545– 0074 for U.S. Individual Income Tax Return, and 1545–0047 Return of Organizations Exempt From Income Tax. The tax-exempt organization form instructions will be updated in the next revision. The estimated annual burden per respondent, estimated annual burden per recordkeeper, or estimated number of respondents is updated annually. The Departments have submitted a copy of the proposed rule, Health Reimbursement Arrangements and Other Account-Based Group Health Plans, to OMB in accordance with 44 U.S.C. 3507(d) for review of its information collections. The Departments and OMB are particularly interested in comments that: • Evaluate whether the collection of information is necessary for the proper performance of the functions of the E:\FR\FM\29OCP2.SGM 29OCP2 Federal Register / Vol. 83, No. 209 / Monday, October 29, 2018 / Proposed Rules amozie on DSK3GDR082PROD with PROPOSALS2 agency, including whether the information will have practical utility; • Evaluate the accuracy of the agency’s estimate of the burden of the collection of information, including the validity of the methodology and assumptions used; • Enhance the quality, utility, and clarity of the information to be collected; and • Minimize the burden of the collection of information on those who are to respond, including through the use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology, e.g., permitting electronic submission of responses. In addition to filing comments on the information collections with the agencies on the same basis as any other aspect of this rule, interested parties may file comments on the information collection requirements with the Office of Management and Budget (OMB). The method for submitting comments to the agencies is explained earlier in the Addresses section of the document. Comments to OMB should be sent to the Office of Information and Regulatory Affairs, Office of Management and Budget, Room 10235, New Executive Office Building, Washington, DC 20503; Attention: Desk Officer for the Employee Benefits Security Administration. Notwithstanding the 60-day comment period to submit comments to the agencies, in order to ensure consideration, OMB requests that comments be submitted within 30 days of publication of this proposed rule. In addition, comments should identify the applicable OMB control number. PRA Addressee: Address requests for copies of the ICR to G. Christopher Cosby, Office of Policy and Research, U.S. Department of Labor, Employee Benefits Security Administration, 200 Constitution Avenue NW, Room N– 5718, Washington, DC 20210. Telephone (202) 693–8410; Fax: (202) 219–5333. These are not toll-free numbers. ICRs submitted to OMB also are available at https://www.RegInfo.gov. Below is a description of the information collections and their burden. 1. Verification of Enrollment in Individual Health Insurance Coverage In order for an HRA to be integrated with individual health insurance, among other requirements, the HRA must implement, and comply with, reasonable procedures to verify that participants and dependents are, or will be, enrolled in individual health insurance coverage during the plan year. VerDate Sep<11>2014 18:32 Oct 26, 2018 Jkt 247001 This requirement can be satisfied by providing a document from a third party, like an issuer, verifying coverage. As an alternative procedure, this requirement could also be satisfied if the HRA requires participants to provide an attestation of coverage, including the date coverage begins and the provider of the coverage. In addition, following the initial substantiation of coverage, with each new request for reimbursement of an incurred medical care expense for the same plan year, the HRA may not reimburse participants for any medical care expenses unless, prior to each reimbursement, the participant provides substantiation (which may be in the form of a written attestation) that the participant and, if applicable, the dependent whose medical care expenses are requested to be reimbursed, continue to be enrolled in individual health insurance coverage for the month during which the medical care expenses were incurred. The attestation may be part of the form used for requesting reimbursement. Documentation, including proof that expenditure of funds is for a medical care expense, is currently universal when seeking reimbursement from an HRA. For the new requirements contained in the proposed regulations regarding verification of enrollment in individual health insurance coverage, the HRA can require proof of coverage or attestations of coverage as part of the processes that already exist for when participants seek reimbursement from HRAs for premiums or other medical care expenses. The additional burden is de minimis, because the attestation can be a part of the information already required when seeking reimbursement. To the extent an HRA develops additional processes for the requirement that individuals verify enrollment in individual health insurance coverage for the plan year, the additional burden is also expected to be de minimis because it involves either attestation or providing documents that already exist. 2. HRA Notice to Participants These proposed regulations require an HRA to provide written notice to eligible participants including, among other things, the following information: (1) A description of the terms of the HRA, including the amounts newly made available as used in the affordability determination under the Code section 36B proposed regulations; (2) a statement of the right of the participant to opt-out of and waive future reimbursement under the HRA; (3) a description of the potential availability of the PTC for a participant PO 00000 Frm 00037 Fmt 4701 Sfmt 4702 54455 who opts out of and waives an HRA if the HRA is not affordable under the proposed PTC regulations; and (4) a description of the PTC eligibility consequences for a participant who accepts the HRA. The written notice may include other information, as long as the additional information does not conflict with the required information. The written notice does not need to include information specific to a participant. The HRA must provide the written notice to each participant at least 90 days before the beginning of each plan year. For participants who are not yet eligible to participate at the beginning of the plan year (or who are not eligible when the notice is provided at least 90 days prior to the beginning of the plan year), the HRA must provide the notice no later than the date on which the participant is first eligible to participate in the HRA. The Departments estimate that a compensation and benefits manager would require two hours (at $125 per hour) and a lawyer would require one hour (at $136.44 per hour) to prepare the notice for each HRA. Thus, the total hour burden for each HRA would be 3 hours with an equivalent cost of approximately $386. The Departments estimate that each notice would be two pages, with total materials and printing cost of $0.10 per notice ($0.05 per page). The Departments estimate that 78,797 private employers would 136 newly offer HRAs integrated with individual health insurance coverage in 2020 137 as a result of the proposed rules in the first year. Therefore, the Departments estimate for the total hour burden for these HRAs to prepare the notices would be 236,390 hours with an equivalent cost of $30,450,216. 136 U.S. Department of the Treasury, Office of Tax Analysis used a simulation model to obtain these estimates. For 2020 the model estimated that 80,000 employers would offer HRAs integrated with individual health insurance coverage and one million individuals would enroll in those HRAs. Based on DOL estimates about 98 percent of these will be in the private market, and the rest will be though public employers like state and local governments. There are on average one dependent for every policy holder. ‘‘Health Insurance Coverage Bulletin’’, Abstract of the Auxiliary Data for the March 2016 Annual Social and Economic Supplement of the Current Population Survey, July 25, 2017. https://www.dol.gov/sites/default/files/ ebsa/researchers/data/health-and-welfare/healthinsurance-coverage-bulletin-2016.pdf 137 Comparable numbers for 2021 are 118,195 private employers would newly offer HRAs integrated with individual health insurance coverage and 1,441,262 eligible participants in all HRAs would receive notices, and for 2022 196,992 private employers would newly offer HRAs integrated with individual health insurance coverage and 2,882,523 eligible participants in all HRAs would receive notices. E:\FR\FM\29OCP2.SGM 29OCP2 54456 Federal Register / Vol. 83, No. 209 / Monday, October 29, 2018 / Proposed Rules participants at private employers in 2020 that would need to receive the notice.138 The Departments assume that approximately 54 percent of notices would be provided electronically and approximately 46 percent would be All HRAs integrated with individual health insurance coverage are required to annually send the notice to all eligible participants (those eligible to enroll). The Departments estimate that there would be 576,505 eligible provided in print along with other benefits information. Therefore, a total of 265,192 notices will be printed at a cost of $26,519. Tables 1 and 2 provide estimates for years 2020, 2021 and 2022. TABLE 1—BURDEN TO PREPARE HRA NOTICE FOR THE FIRST TIME-PRIVATE SECTOR EMPLOYERS Year Number of employers newly offering HRAs Legal cost per hour Number of hours for legal Benefit manager cost per hour Number of hours for benefit manager Total hour burden Total equivalent cost (a) (b) (c) (d) = 1 * (b) (e) (f) = 2 * (b) (g) = (d) + (f) (c) * (d) + (e) * (f) 2020 ...................................... 2021 ...................................... 2022 ...................................... 78,797 118,195 196,992 $136.44 136.44 136.44 78,797 118,195 196,992 $125.00 125.00 125.00 157,593 236,390 393,984 236,390 354,585 590,976 $30,450,216 45,675,324 76,125,539 TABLE 2—BURDEN TO PROVIDE NOTICE TO ALL ELIGIBLE PRIVATE SECTOR PARTICIPANTS Year Total number of notices Number of notices sent by mail Cost per notice Total cost burden (a) (b) (c) (d) (e) = (c) * (d) amozie on DSK3GDR082PROD with PROPOSALS2 2020 ........................................................................................................... 2021 ........................................................................................................... 2022 ........................................................................................................... 576,505 1,441,262 2,882,523 3. Notice to Participants That Individual Health Insurance Coverage Policy is not Subject to Title I of ERISA In the proposed rules, DOL clarifies that individual health insurance coverage the premiums of which are reimbursed by an HRA, QSEHRA, or supplemental salary reduction arrangement is not considered an ‘‘employee welfare benefit plan’’ with the consumer protections provided under ERISA. HRA plan sponsors are required to notify participants of this fact. For an HRA, this notice requirement is met if annually the notice requirement in 29 CFR 2590.702– 2(c)(6) is met, which is part of the HRA Notice to Participants. Therefore, this notice requirement imposes no additional burden. For QSEHRAs and for HRAs not subject to 29 CFR 2590.702–2(c)(6) but that reimburse premiums for individual health insurance coverage, this notice requirement is met if the plan sponsor annually includes language provided in the rule in the Summary Plan Description. DOL estimates that this burden will be de minimis, because the required text is provided by DOL and the required information can be included with other notices. The information collections are summarized as follows: Type of Review: New Collection. Agency: DOL–EBSA, Treasury—IRS. Title: Notice for Health Reimbursement Arrangements integrated with Individual Health Insurance Coverage. OMB Numbers: 1210–new (DOL), 1545–0123, 1545–0074, and 1545–0047 (Treasury). Affected Public: Private Sector. Total Respondents: 131,328 three-year average. Total Responses: 1,633,430 three-year average. Frequency of Response: Annually. Estimated Total Annual Burden Hours: 196,992 for each agency (combined total is 393,984 hours). Three year average. Estimated Total Annual Burden Cost: $37,569 for each agency (combined total is $75,138). Three year average. 138 Number of eligible participants is estimated based on Treasury estimates of the number of individuals enrolled in HRAs integrated with individual coverage, the assumption that there are two enrollees per employee participant, and the assumption that 75 percent of eligible participants would enroll in their employers’ plans. See Section 3 of the Kaiser ‘‘2017 Employer Health Benefits VerDate Sep<11>2014 18:32 Oct 26, 2018 Jkt 247001 F. Regulatory Flexibility Act The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) imposes certain requirements with respect to Federal rules that are subject to the notice and comment requirements of section 553(b) of the Administrative Procedure Act (5 U.S.C. 551 et seq.) and which are likely to have a significant economic impact on a substantial number of small entities. Unless an agency certifies that a proposed rule is PO 00000 Frm 00038 Fmt 4701 Sfmt 4702 265,192 662,980 1,325,961 $0.10 0.10 0.10 $26,519 66,298 132,596 not likely to have a significant economic impact on a substantial number of small entities, section 603 of RFA requires that the agency present an initial regulatory flexibility analysis at the time of the publication of the notice of proposed rulemaking describing the impact of the rule on small entities and seeking public comment on such impact. Small entities include small businesses, organizations, and governmental jurisdictions. The RFA generally defines a ‘‘small entity’’ as (1) a proprietary firm meeting the size standards of the Small Business Administration (SBA) (13 CFR 121.201), (2) a nonprofit organization that is not dominant in its field, or (3) a small government jurisdiction with a population of less than 50,000. (States and individuals are not included in the definition of ‘‘small entity.’’) The Departments use as their measure of significant economic impact on a substantial number of small entities a change in revenues of more than 3 to 5 percent. The Departments do not expect the proposed rules to produce costs or benefits in excess of 3 to 5 percent of revenues for small entities. Entities that choose to offer an HRA integrated with individual health insurance coverage instead of a traditional group health Survey’’. https://www.kff.org/health-costs/report/ 2017-employer-health-benefits-survey/. E:\FR\FM\29OCP2.SGM 29OCP2 Federal Register / Vol. 83, No. 209 / Monday, October 29, 2018 / Proposed Rules plan are likely to experience a modest increase or decrease in administrative burden associated with health benefits. Entities that newly offer health benefits in the form of an HRA integrated with individual health insurance coverage would bear modest administrative costs. However, offering an HRA that is integrated with individual health insurance coverage is entirely voluntary on the part of employers, and no employer that would experience substantial costs would be expected to offer an HRA integrated with individual health insurance coverage. In addition, the proposed rules would provide large and small employers with an additional choice of a tax-preferred health benefit to offer their employees, potentially enabling them to attract and retain workers and maintain a healthier workforce. In addition, section 1102(b) of the Social Security Act requires agencies to prepare a regulatory impact analysis if a rule may have a significant economic impact on the operations of a substantial number of small rural hospitals. This analysis must conform to the provisions of section 603 of the RFA. The proposed rules will not have a direct effect on small rural hospitals though there may be an indirect effect. By reducing the number of uninsured persons, the proposed rules could reduce administrative costs, such as billing costs and the costs of helping patients obtain public health benefits. The proposed rules could also reduce the cost of uncompensated care born by small rural hospitals and other healthcare providers (and shift such costs to insured persons). However, the Departments have determined that the proposed rules will not have a significant impact on the operations of a substantial number of small rural hospitals. amozie on DSK3GDR082PROD with PROPOSALS2 G. Impact of Regulations on Small Business—Department of the Treasury Pursuant to section 7805(f) of the Code, the proposed rules have been submitted to the Chief Counsel for Advocacy of the SBA for comment on its impact on small business. H. Unfunded Mandates Reform Act Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) requires that agencies assess anticipated costs and benefits and take certain other actions before issuing a proposed rule that includes any Federal mandate that may result in expenditures in any 1 year by state, local, or Tribal governments, in the aggregate, or by the private sector, of $100 million in 1995 dollars, updated annually for inflation. In 2018, that VerDate Sep<11>2014 18:32 Oct 26, 2018 Jkt 247001 threshold is approximately $150 million. The proposed rules do not include any Federal mandate that may result in expenditures by state, local, or tribal governments, or the private sector, that may impose an annual burden that exceeds that threshold. I. Federalism Executive Order 13132 outlines fundamental principles of federalism. It requires adherence to specific criteria by Federal agencies in formulating and implementing policies that have ‘‘substantial direct effects’’ on the states, the relationship between the national government and states, or on the distribution of power and responsibilities among the various levels of government. Federal agencies promulgating regulations that have these federalism implications must consult with state and local officials, and describe the extent of their consultation and the nature of the concerns of state and local officials in the preamble to the final regulations. In the Departments’ view, the proposed rules do not have federalism implications. J. Congressional Review Act The proposed rules are subject to the Congressional Review Act provisions of the Small Business Regulatory Enforcement Fairness Act of 1996 (5 U.S.C. 801 et seq.), and, upon finalization, will be transmitted to the Congress and to the Comptroller General for review in accordance with such provisions. K. Reducing Regulation and Controlling Regulatory Cost The Department of Health and Human Services regulations are proposed to be adopted pursuant to the authority contained in sections 2701 through 2763, 2791, 2792, and 2794 of the PHS Act (42 U.S.C. 300gg–300gg–63, 300gg– 91, 300gg–92 and 300gg–94), as amended; sections 1311 and 1321 of PPACA (42 U.S.C. 13031 and 18041). List of Subjects 26 CFR Part 1 Income Taxes, Reporting and recordkeeping requirements. 26 CFR Part 54 Excise taxes, Health care, Health insurance, Pensions, Reporting and recordkeeping requirements. 29 CFR Part 2510 Employee benefit plans, Pensions. 29 CFR Part 2590 Continuation coverage, Disclosure, Employee benefit plans, Group health plans, Health care, Health insurance, Medical child support, Reporting and recordkeeping requirements. 45 CFR Parts 144 and 146 Health care, Health insurance, Reporting and recordkeeping requirements. 45 CFR Part 147 Health care, Health insurance, Reporting and recordkeeping requirements, and State regulation of health insurance. Executive Order 13771, titled Reducing Regulation and Controlling Regulatory Costs, was issued on January 30, 2017 and requires that the costs associated with significant new regulations ‘‘shall, to the extent permitted by law, be offset by the elimination of existing costs associated with at least two prior regulations.’’ The proposed rules, if finalized as proposed, are expected to be an Executive Order 13771 deregulatory action. Statutory Authority The Department of the Treasury regulations are proposed to be adopted pursuant to the authority contained in sections 7805 and 9833 of the Code. The Department of Labor regulations are proposed pursuant to the authority contained in 29 U.S.C. 1002, 1135, 1182, 1185d, 1191a, 1191b, and 1191c; Secretary of Labor’s Order 1–2011, 77 FR 1088 (Jan. 9, 2012). PO 00000 Frm 00039 Fmt 4701 Sfmt 4702 54457 E:\FR\FM\29OCP2.SGM 29OCP2 54458 Federal Register / Vol. 83, No. 209 / Monday, October 29, 2018 / Proposed Rules 45 CFR Part 155 Exchange establishment standards and other related standards under the Affordable Care Act. Kirsten Wielobob, Deputy Commissioner for Services and Enforcement, Internal Revenue Service. Signed at Washington DC, this 16th day of October, 2018. Preston Rutledge, Assistant Secretary, Employee Benefits Security Administration, Department of Labor. Dated: October 17, 2018. Seema Verma, Administrator, Centers for Medicare & Medicaid Services. Dated: October 18, 2018. Alex M. Azar II, Secretary, Department of Health and Human Services. DEPARTMENT OF THE TREASURY Internal Revenue Service Proposed Amendments to the Regulations Accordingly, 26 CFR parts 1 and 54 are proposed to be amended as follows: PART 1—INCOME TAXES Paragraph 1. The authority citation for part 1 continues to read in part as follows: ■ Authority: 26 U.S.C. 7805. * * * * * * * * Par. 2. Section 1.36B–2 is amended by: ■ a. Redesignating paragraph (c)(3)(i) as paragraph (c)(3)(i)(A) and revising the subject heading of newly designated paragraph (c)(3)(i)(A). ■ b. Adding a new paragraph (c)(3)(i) subject heading and paragraph (c)(3)(i)(B). ■ c. Adding a sentence at the end of paragraphs (c)(3)(ii) and (c)(3)(v)(A)(1) and (2). ■ d. Revising paragraphs (c)(3)(v)(A)(3) and (5). ■ e. Adding a sentence at the end of paragraph (c)(3)(vi). ■ f. Adding paragraph (c)(5). ■ g. Revising paragraph (e)(1). ■ h. Adding paragraph (e)(3). The revisions and additions read as follows: amozie on DSK3GDR082PROD with PROPOSALS2 ■ § 1.36B–2 credit. Eligibility for premium tax * * * * * (c) * * * (3) * * * (i) In general—(A) Plans other than health reimbursement arrangements (HRAs) or other account-based group health plans described in paragraph (c)(3)(i)(B) of this section. * * * VerDate Sep<11>2014 18:32 Oct 26, 2018 Jkt 247001 (B) HRAs and other account-based group health plans integrated with individual health insurance coverage. An employee who is offered an HRA or other account-based group health plan that would be integrated with individual health insurance coverage, within the meaning of §§ 54.9802–4 and 54.9815–2711(d)(4) of this chapter, if the individual enrolls in individual health insurance coverage, and an individual who is offered the HRA or other account-based group health plan because of a relationship to the employee (a related HRA individual), are eligible for minimum essential coverage under an eligible employersponsored plan for any month for which the HRA or other account-based group health plan is offered if the HRA or other account-based group health plan is affordable for the month under paragraph (c)(5) of this section or if the employee does not opt out of and waive future reimbursements from the HRA or other account-based group health plan. An HRA or other account-based group health plan described in this paragraph (c)(3)(i)(B) that is affordable for a month under paragraph (c)(5) of this section is treated as providing minimum value for the month. For purposes of paragraphs (c)(3) and (5) of this section, the definitions under § 54.9815–2711(d)(6) of this chapter apply. (ii) * * * The plan year for an HRA or other account-based group health plan described in paragraph (c)(3)(i)(B) of this section is the plan’s 12-month coverage period (or the remainder of the 12-month coverage period for a newly eligible individual or an individual who enrolls during a special enrollment period). * * * * * (v) * * * (A) * * * (1) * * * See paragraph (c)(5) of this section for rules for when an HRA or other account-based group health plan described in paragraph (c)(3)(i)(B) of this section is affordable for an employee for a month. (2) * * * See paragraph (c)(5) of this section for rules for when an HRA or other account-based group health plan described in paragraph (c)(3)(i)(B) of this section is affordable for a related HRA individual for a month. (3) Employee safe harbor. An eligible employer-sponsored plan is not affordable for an employee or a related individual for a plan year if, when the employee or a related individual enrolls in a qualified health plan for a period coinciding with the plan year (in whole or in part), an Exchange determines that the eligible employer-sponsored plan is PO 00000 Frm 00040 Fmt 4701 Sfmt 4702 not affordable for that plan year. This paragraph (c)(3)(v)(A)(3) does not apply to a determination made as part of the redetermination process described in 45 CFR 155.335 unless the individual receiving an Exchange redetermination notification affirmatively responds and provides current information on affordability. This paragraph (c)(3)(v)(A)(3) does not apply for an individual who, with intentional or reckless disregard for the facts, provides incorrect information to an Exchange concerning the portion of the annual premium for coverage for the employee or related individual under the plan. A reckless disregard of the facts occurs if the taxpayer makes little or no effort to determine whether the information provided to the Exchange is accurate under circumstances that demonstrate a substantial deviation from the standard of conduct a reasonable person would observe. A disregard of the facts is intentional if the taxpayer knows that the information provided to the Exchange is inaccurate. See paragraph (c)(5) of this section for an employee safe harbor that applies when an Exchange determines that an HRA or other account-based group health plan described in paragraph (c)(3)(i)(B) of this section is not affordable for an employee or a related HRA individual for the period of enrollment in a qualified health plan. * * * * * (5) Employer contributions to HRAs integrated with eligible employersponsored plans. Amounts newly made available for the current plan year under an HRA that an employee may use to pay premiums, or may use to pay costsharing or benefits not covered by the primary plan in addition to premiums, reduce the employee’s required contribution if the HRA would be integrated, within the meaning of § 54.9815–2711(d)(2) of this chapter, with an eligible employer-sponsored plan for an employee enrolled in the plan. The eligible employer-sponsored plan and the HRA must be offered by the same employer. Employer contributions to an HRA described in this paragraph (c)(3)(v)(A)(5) reduce an employee’s required contribution only to the extent the amount of the annual contribution is required under the terms of the plan or otherwise determinable within a reasonable time before the employee must decide whether to enroll in the eligible employer-sponsored plan. * * * * * (vi) * * * An HRA or other accountbased group health plan described in paragraph (c)(3)(i)(B) of this section that is affordable for a month under E:\FR\FM\29OCP2.SGM 29OCP2 amozie on DSK3GDR082PROD with PROPOSALS2 Federal Register / Vol. 83, No. 209 / Monday, October 29, 2018 / Proposed Rules paragraph (c)(5) of this section is treated as providing minimum value for the month. * * * * * (5) Affordable HRA or other accountbased group health plan—(i) In general. Except as otherwise provided in this paragraph (c)(5), an HRA or other account-based group health plan described in paragraph (c)(3)(i)(B) of this section is affordable for a month if the employee’s required HRA contribution (as defined in paragraph (c)(5)(ii) of this section) for the month does not exceed 1/12 of the product of the employee’s household income for the taxable year and the required contribution percentage (as defined in paragraph (c)(3)(v)(C) of this section). (ii) Required HRA contribution—An employee’s required HRA contribution is the excess of — (A) The monthly premium for the lowest cost silver plan for self-only coverage of the employee offered in the Exchange for the rating area in which the employee resides, over (B) The monthly self-only HRA or other account-based group health plan amount (or the monthly maximum amount available to the employee under the HRA or other account-based group health plan if the HRA or other accountbased group health plan provides for reimbursements up to a single dollar amount regardless of whether an employee has self-only or other-thanself-only coverage). (iii) Monthly amount. For purposes of paragraph (c)(5)(ii) of this section, the monthly self-only HRA or other account-based group health plan amount is the self-only HRA or other account-based group health plan amount newly made available under the HRA for the plan year, divided by the number of months in the plan year the HRA or other account-based group health plan is available to the employee. The monthly maximum amount newly made available to the employee under the HRA or other account-based group health plan is the maximum amount newly-made available for the plan year to the employee under the plan, divided by the number of months in the plan year the HRA or other account-based group health plan is available to the employee. (iv) Employee safe harbor. An HRA or other account-based group health plan described in paragraph (c)(3)(i)(B) of this section is not affordable for a month for an employee or a related HRA individual if, when the employee or related HRA individual enrolls in a qualified health plan for a period coinciding with the period the HRA or VerDate Sep<11>2014 18:32 Oct 26, 2018 Jkt 247001 other account-based group health plan is available to the employee or related HRA individual (in whole or in part), an Exchange determines that the HRA or other account-based group health plan is not affordable for the period of enrollment in the qualified health plan. This paragraph (c)(5)(iv) does not apply to a determination made as part of the redetermination process described in 45 CFR 155.335 unless the individual receiving an Exchange redetermination notification affirmatively responds and provides current information on affordability. This paragraph (c)(5)(iv) does not apply for an individual who, with intentional or reckless disregard for the facts, provides incorrect information to an Exchange concerning the relevant HRA or other account-based group health plan amount offered by the employee’s employer. A reckless disregard of the facts occurs if the taxpayer makes little or no effort to determine whether the information provided to the Exchange is accurate under circumstances that demonstrate a substantial deviation from the standard of conduct a reasonable person would observe. A disregard of the facts is intentional if the taxpayer knows that the information provided to the Exchange is inaccurate. (v) Amounts used for affordability determination. Only amounts that are newly made available for the plan year of the HRA or other account-based group health plan described in paragraph (c)(3)(i)(B) of this section and determinable within a reasonable time before the beginning of the plan year of the HRA or other account-based health plan are considered in determining whether an HRA or other account-based group health plan described in paragraph (c)(3)(i)(B) of this section is affordable. Amounts made available for a prior plan year that carry over to the current plan year are not taken into account for purposes of this paragraph (c)(5). (vi) Affordability for part-year period. Affordability under this paragraph (c)(5) is determined separately for each employment period that is less than a full calendar year or for the portions of the plan year of an employer’s HRA or other account-based group health plan that fall in different taxable years of an applicable taxpayer. An HRA or other account-based group health plan described in paragraph (c)(3)(i)(B) of this section is affordable for a part-year period if the employee’s annualized required HRA contribution for the partyear period does not exceed the required contribution percentage of the applicable taxpayer’s household income for the taxable year. The employee’s PO 00000 Frm 00041 Fmt 4701 Sfmt 4702 54459 annualized required HRA contribution is the employee’s required HRA contribution for the part-year period times a fraction, the numerator of which is 12 and the denominator of which is the number of months in the part-year period during the applicable taxpayer’s taxable year. Only full calendar months are included in the computation under this paragraph (c)(5)(vi). (vii) Related individual not allowed as a personal exemption deduction. A related HRA individual is treated as ineligible for minimum essential coverage under an HRA or other account-based group health plan described in paragraph (c)(3)(i)(B) of this section for months that the employee opted out of and waived future reimbursements from the HRA or other account-based group health plan and the employee is not allowed a personal exemption deduction under section 151 for the related HRA individual. (viii) Post-employment coverage. An individual who is offered an HRA or other account-based group health plan described in paragraph (c)(3)(i)(B) of this section, for months after an employee terminates employment with the employer offering the HRA or other account-based group health plan, is eligible for minimum essential coverage under the HRA or other account-based group health plan for months after termination of employment only if the employee does not forfeit or opt out of and waive future reimbursements from the HRA or other account-based group health plan for months after termination of employment. (ix) Examples. The following examples illustrate the provisions of this paragraph (c)(5). The required contribution percentage is defined in paragraph (c)(3)(v)(C) of this section and is updated annually. Because the required contribution percentage for 2020 has not yet been determined, the examples assume a required contribution percentage for 2020 of 9.86%. (A) Example 1. Determination of affordability. (1) In 2020 Taxpayer A is single, has no dependents, and has household income of $28,000. A is an employee of Employer X for all of 2020. X offers its employees an HRA described in paragraph (c)(3)(i)(B) of this section that reimburses $2,400 of medical care expenses for single employees with no children (the self-only HRA amount) and $4,000 for employees with a spouse or children for the medical expenses of the employees and their family members. A enrolls in a qualified health plan through the Exchange in the rating area in which A resides and remains enrolled for all of 2020. The monthly premium for the lowest cost silver plan for E:\FR\FM\29OCP2.SGM 29OCP2 amozie on DSK3GDR082PROD with PROPOSALS2 54460 Federal Register / Vol. 83, No. 209 / Monday, October 29, 2018 / Proposed Rules self-only coverage of A that is offered in the Exchange for the rating area in which A resides is $500. (2) A’s required HRA contribution, as defined in paragraph (c)(5)(ii) of this section, is $300, the excess of $500 (the monthly premium for the lowest cost silver plan for self-only coverage of A) over $200 (1/12 of the self-only HRA amount provided by Employer X to its employees). In addition, 1/ 12 of the product of 9.86 percent and A’s household income is $230 ($28,000 × .0986 = $2,761; $2,761/12 = $230). Because A’s required HRA contribution of $300 exceeds $230 (1/12 of the product of 9.86 percent and A’s household income), the HRA is unaffordable for A for each month of 2020 under paragraph (c)(5) of this section. If A opts out of and waives future reimbursements from the HRA, A is not eligible for minimum essential coverage under the HRA for each month of 2020 under paragraph (c)(3)(i)(B) of this section. (B) Example 2. Determination of affordability for a related HRA individual. (1) In 2020 Taxpayer B is married and has one child who is a dependent of B for 2020. B has household income of $28,000. B is an employee of Employer X for all of 2020. X offers its employees an HRA described in paragraph (c)(3)(i)(B) of this section that reimburses $3,600 of medical care expenses for single employees with no children (the self-only HRA amount) and $5,000 for employees with a spouse or children for the medical expenses of the employees and their family members. B, B’s spouse, and B’s child enroll in a qualified health plan through the Exchange in the rating area in which B resides and they remain enrolled for all of 2020. No advance credit payments are made for their coverage. The monthly premium for the lowest cost silver plan for self-only coverage of B that is offered in the Exchange for the rating area in which B resides is $500. (2) B’s required HRA contribution, as defined in paragraph (c)(5)(ii) of this section, is $200, the excess of $500 (the monthly premium for the lowest cost silver plan for self-only coverage for B) over $300 (1/12 of the self-only HRA amount provided by Employer X to its employees). In addition, 1/ 12 of the product of 9.86 percent and B’s household income for 2020 is $230 ($28,000 × .0986 = $2,761; $2,761/12 = $230). Because B’s required HRA contribution of $200 does not exceed $230 (1/12 of the product of 9.86 percent and B’s household income for 2020), the HRA is affordable for B under paragraph (c)(5) of this section, and B is eligible for minimum essential coverage under an eligible employer-sponsored plan for each month of 2020 under paragraph (c)(3)(i)(B) of this section. In addition, B’s spouse and child are also eligible for minimum essential coverage under an eligible employersponsored plan for each month of 2020 under paragraph (c)(3)(i)(B) of this section. (C) Example 3. Exchange determines that HRA is unaffordable. (1) The facts are the same as in Example 2, except that B, when enrolling in Exchange coverage for B’s family, received a determination by the Exchange that the HRA was unaffordable, because B believed B’s household income would be lower than it turned out to be. VerDate Sep<11>2014 18:32 Oct 26, 2018 Jkt 247001 Consequently, advance credit payments were made for their 2020 coverage. (2) Under paragraph (c)(5)(iv) of this section, the HRA is considered unaffordable for B, B’s spouse, and B’s child for each month of 2020 provided that B did not, with intentional or reckless disregard for the facts, provide incorrect information to the Exchange concerning the HRA or B’s household income. (D) Example 4. Affordability determined for part of a taxable year (part-year period). (1) Taxpayer C is an employee of Employer X. C’s household income for 2020 is $28,000. X offers its employees an HRA described in paragraph (c)(3)(i)(B) of this section that reimburses medical care expenses of $3,600 for single employees without children (the self-only HRA amount) and $5,000 to employees with a spouse or children for the medical expenses of the employees and their family members. X’s HRA plan year is September 1 to August 31 and C is first eligible to participate in the HRA for the period beginning September 1, 2020. C enrolls in a qualified health plan through the Exchange in the rating area in which C resides for all of 2020. The monthly premium for the lowest cost silver plan for self-only coverage of C that is offered in the Exchange for the rating area in which C resides for 2020 is $500. (2) Under paragraph (c)(3)(vi) of this section, the affordability of the HRA is determined separately for the period September 1 through December 31, 2020, and for the period January 1 through August 31, 2021. C’s required HRA contribution, as defined in paragraph (c)(5)(ii) of this section, for the period September 1 through December 31, 2020, is $200, the excess of $500 (the monthly premium for the lowest cost silver plan for self-only coverage for C) over $300 (1/12 of the self-only HRA amount provided by X to its employees). In addition, 1/12 of the product of 9.86 percent and C’s household income is $230 ($28,000 × .0986 = $2,761; $2,677/12 = $230). Because C’s required HRA contribution of $200 does not exceed $230, the HRA is affordable for C for each month in the period September 1 through December 31, 2020, under paragraph (c)(5) of this section. Affordability for the period January 1 through August 31, 2021, is determined using C’s 2021 household income and required HRA contribution. (E) Example 5. Carryover amounts ignored in determining affordability. (1) Taxpayer D is an employee of Employer X for all of 2020 and 2021. D is single. For each of 2020 and 2021, X offers its employees an HRA described in paragraph (c)(3)(i)(B) of this section that provides reimbursement for medical care expenses of $2,400 to single employees with no children (the self-only HRA amount) and $4,000 to employees with a spouse or children for the medical expenses of the employees and their family members. Under the terms of the HRA, amounts that an employee does not use in a calendar year may be carried over and used in the next calendar year. In 2020, D used only $1,500 of her $2,400 maximum reimbursement and the unused $900 is carried over and may be used by D in 2021. (2) Under paragraph (c)(5)(v) of this section, only the $2,400 self-only HRA PO 00000 Frm 00042 Fmt 4701 Sfmt 4702 amount offered to D for 2021 is considered in determining whether D’s HRA is affordable. The $900 carryover amount is not considered in determining the affordability of the HRA. * * * * * (e) * * * (1) Except as provided in paragraphs (e)(2) and (3) of this section, this section applies to taxable years ending after December 31, 2013. * * * * * (3) Paragraphs (c)(3)(i)(B) and (c)(5) of this section, and the last sentences at the end of paragraphs (c)(3)(ii), (c)(3)(v)(A)(1), (c)(3)(v)(A)(2), (c)(3)(v)(A)(3), and (c)(3)(vi) of this section apply to taxable years beginning on or after January 1, 2020. PART 54—PENSION EXCISE TAXES Par. 3. The authority citation for part 54 is amended by adding an entry for § 54.9802–4 in numerical order to read in part as follows: ■ Authority: 26 U.S.C. 7805. * * * * * * * * Section 54.9802–4 also issued under 26 U.S.C. 9833. * * * * * Par. 4. Section 54.9801–2 is amended by revising the definition of ‘‘Group health insurance coverage’’ to read as follows: ■ § 54.9801–2 Definitions. * * * * * Group health insurance coverage means health insurance coverage offered in connection with a group health plan. Individual health insurance coverage reimbursed by the arrangements described in 29 CFR 2510.3–1(l) is not offered in connection with a group health plan, and is not group health insurance coverage, provided all the conditions in 29 CFR 2510.3–1(l) are satisfied. * * * * * ■ Par. 5. Section 54.9802–4 is added to read as follows: § 54.9802–4 Special rule allowing integration of health reimbursement arrangements (HRAs) and other accountbased group health plans with individual health insurance coverage and prohibiting discrimination in HRAs and other accountbased group health plans. (a) Scope. This section applies to health reimbursement arrangements (HRAs) and other account-based group health plans, as defined in § 54.9815– 2711(d)(6)(i) of this part. For ease of reference, the term ‘‘HRA’’ is used in this section to include other accountbased group health plans. (b) Purpose. This section provides the conditions that an HRA must satisfy in E:\FR\FM\29OCP2.SGM 29OCP2 amozie on DSK3GDR082PROD with PROPOSALS2 Federal Register / Vol. 83, No. 209 / Monday, October 29, 2018 / Proposed Rules order to be integrated with individual health insurance coverage for purposes of Public Health Service Act (PHS Act) sections 2711 and 2713 and § 54.9815– 2711(d)(4) of this part. Some of the conditions set forth in this section specifically relate to compliance with PHS Act sections 2711 and 2713 and some relate to the effect of having or being offered an HRA on eligibility for the premium tax credit under section 36B. In addition, this section provides conditions that an HRA integrated with individual health insurance coverage must satisfy in order to comply with the nondiscrimination provisions in section 9802 and section 2705 of the PHS Act (which is incorporated in section 9815) and that are consistent with the provisions of the Patient Protection and Affordable Care Act, Public Law 111– 148 (124 Stat. 119 (2010)), and the Health Care and Education Reconciliation Act of 2010, Public Law 111–152 (124 Stat. 1029 (2010)), each as amended, that are designed to create a competitive individual market. These conditions are intended to prevent an HRA plan sponsor from intentionally or unintentionally, directly or indirectly, steering any participants or dependents with adverse health factors away from its traditional group health plan, if any, and toward individual health insurance coverage. (c) General rule. An HRA will be considered to be integrated with individual health insurance coverage for purposes of PHS Act sections 2711 and 2713 and § 54.9815–2711(d)(4) of this part and will not be considered to discriminate in violation of section 9802 and PHS Act section 2705 solely because it offers an HRA integrated with individual health insurance coverage, provided that the conditions of this paragraph (c) are satisfied. (1) Enrollment in individual health insurance coverage. The HRA must require that the participant and any dependent(s) are enrolled in individual health insurance coverage that is subject to and complies with the requirements in PHS Act sections 2711 and 2713 for each month that the individual(s) are covered by the HRA. For this purpose, all individual health insurance coverage, except for individual health insurance coverage that consists solely of excepted benefits, is treated as being subject to and complying with PHS Act sections 2711 and 2713. References to individual health insurance coverage in this paragraph (c) do not include individual health insurance coverage that consists solely of excepted benefits. The HRA must also provide that, subject to applicable COBRA or other continuation of coverage requirements, VerDate Sep<11>2014 18:32 Oct 26, 2018 Jkt 247001 if any individual covered by the HRA ceases to be covered by such individual health insurance coverage, the individual may not seek reimbursement under the HRA for claims that are incurred after the individual health insurance coverage ceases. In addition, subject to applicable COBRA or other continuation of coverage requirements, if the participant and all of the dependents covered by the participant’s HRA cease to be covered by such individual health insurance coverage, the participant must forfeit the HRA. (2) No traditional group health plan may be offered to same participants. To the extent a plan sponsor offers any class of employees (as defined in paragraph (d) of this section) an HRA integrated with individual health insurance coverage, the plan sponsor may not also offer a traditional group health plan to the same class of employees. For this purpose, a traditional group health plan is any group health plan other than either an account-based group health plan or a group health plan that consists solely of excepted benefits. Therefore, a plan sponsor may not offer a choice between an HRA integrated with individual health insurance coverage or a traditional group health plan to any participant. (3) Same terms requirement. To the extent a plan sponsor offers an HRA integrated with individual health insurance coverage to a class of employees described in paragraph (d) of this section, the HRA must be offered on the same terms to all participants within the class, except as provided in paragraphs (c)(3)(i) and (ii) of this section and except that the HRA will not fail to be treated as provided on the same terms even if the plan sponsor offers the HRA to some, but not all, former employees within a class of employees. However, if a plan sponsor offers the HRA to one or more former employees within a class of employees, the HRA must be offered to the former employee(s) on the same terms as to all other employees within the class. Also, amounts that are not used to reimburse medical care expenses (as defined in § 54.9815–2711(d)(6)(ii) of this part) for any plan year that are made available to participants in later plan years are disregarded for purposes of determining whether an HRA is offered on the same terms, provided that the method for determining whether participants have access to unused amounts in future years, and the methodology and formula for determining the amounts of unused funds which they may access in future years, is the same for all participants in a class of employees. In addition, the PO 00000 Frm 00043 Fmt 4701 Sfmt 4702 54461 ability to pay the portion of the premium for individual health insurance coverage that is not covered by the HRA, if any, by using a salary reduction arrangement under section 125 is considered to be a term of the HRA for purposes of this paragraph; therefore, an HRA shall fail to be treated as provided on the same terms unless such a salary reduction arrangement, if made available to any participant in a class of employees, is made available on the same terms to all participants (other than former employees) in the class of employees. Further, the HRA shall not fail to be treated as provided on the same terms because the maximum dollar amount made available to participants in a class of employees to reimburse medical care expenses for any plan year increases: (i) As the age of the participant increases, so long as the same maximum dollar amount attributable to the increase in age is made available to all participants in that class of employees who are the same age; or (ii) As the number of the participant’s dependents who are covered under the HRA increases, so long as the same maximum dollar amount attributable to the increase in family size is made available to all participants in that class of employees with the same number of dependents covered by the HRA. (4) Opt out. Under the terms of the HRA, a participant who is otherwise eligible for coverage must be permitted to opt out of and waive future reimbursements from the HRA at least annually, and, upon termination of employment, either the remaining amounts in the HRA are forfeited or the participant is permitted to permanently opt out of and waive future reimbursements from the HRA. (5) Reasonable procedures for verification and substantiation—(i) General rule for verification of individual health insurance coverage for the plan year. The HRA must implement, and comply with, reasonable procedures to verify that participants and dependents are, or will be, enrolled in individual health insurance coverage for the plan year. The reasonable procedures may include a requirement that a participant substantiate enrollment by providing either: (A) A document from a third party (for example, the issuer) showing that the participant and any dependents covered by the HRA are, or will be, enrolled in individual health insurance coverage (for example, an insurance card or an explanation of benefits document pertaining to the relevant time period); or E:\FR\FM\29OCP2.SGM 29OCP2 amozie on DSK3GDR082PROD with PROPOSALS2 54462 Federal Register / Vol. 83, No. 209 / Monday, October 29, 2018 / Proposed Rules (B) An attestation by the participant stating that the participant and dependent(s) covered by the HRA are or will be enrolled in individual health insurance coverage, the date coverage began or will begin, and the name of the provider of the coverage. (ii) Coverage substantiation with each request for reimbursement of medical care expenses. Following the initial verification of coverage, with each new request for reimbursement of an incurred medical care expense for the same plan year, the HRA may not reimburse participants for any medical care expenses unless, prior to each reimbursement, the participant provides substantiation (which may be in the form of a written attestation) that the participant and if applicable, the dependent whose medical care expenses are requested to be reimbursed continue to be enrolled in individual health insurance coverage for the month during which the medical care expenses were incurred. The attestation may be part of the form used for requesting reimbursement. (iii) Reliance on substantiation. For purposes of this paragraph (c)(5), an HRA may rely on the participant’s documentation or attestation unless the HRA has actual knowledge that any individual covered by the HRA is not, or will not be, enrolled in individual health insurance coverage for the plan year or the month, as applicable. (6) Notice requirement—(i) Timing. The HRA must provide a written notice to each participant at least 90 days before the beginning of each plan year or, for a participant who is not eligible to participate at the beginning of the plan year (or who is not eligible to participate at the time the notice is provided at least 90 days before the beginning of the plan year), no later than the date on which the participant is first eligible to participate in the HRA. (ii) Content. The notice must include all the information described in this paragraph (c)(6)(ii) (and may include any additional information as long as it does not conflict with the required information set forth in paragraph (c)(6)(ii)(A) through (H) of this section). (A) A description of the terms of the HRA, including the maximum dollar amount available for each participant (including the self-only HRA amount available for the plan year (or the maximum dollar amount available for the plan year if the HRA provides for reimbursements up to a single dollar amount regardless of whether a participant has self-only or family coverage)), any rules regarding the proration of the maximum dollar amount applicable to any participant VerDate Sep<11>2014 18:32 Oct 26, 2018 Jkt 247001 who is not eligible to participate in the HRA for the entire plan year, whether the participant’s family members are eligible for the HRA, a statement that the HRA is not a qualified small employer health reimbursement arrangement, a statement that the HRA requires the participant and any dependents to be enrolled in individual health insurance coverage, a statement that the participant is required to substantiate the existence of such enrollment, a statement that the coverage enrolled in cannot be shortterm, limited-duration insurance or excepted benefits, and, if the requirements under 29 CFR 2510.3–1(l) are met, a statement that the individual health insurance coverage enrolled in is not subject to the Employee Retirement Income Security Act (ERISA). (B) A statement of the right of the participant to opt out of and waive future reimbursements from the HRA, as set forth under paragraph (c)(4) of this section. (C) A description of the potential availability of the premium tax credit if the participant opts out of and waives future reimbursements from the HRA and the HRA is not affordable for one or more months under § 1.36B–2(c)(5) of this chapter, a statement that even if the participant opts out of and waives future reimbursements from an HRA, the offer will prohibit the participant (and, potentially, the participant’s dependents) from receiving a premium tax credit for the participant’s coverage (or the dependent’s coverage, if applicable) on the Exchange (as defined in 45 CFR 155.20) for any month that the HRA is affordable under § 1.36B– 2(c)(5) of this chapter, and a statement that, if the participant is a former employee, the offer of the HRA does not render the participant ineligible for the premium tax credit regardless of whether it is affordable under § 1.36B– 2(c)(5) of this chapter; (D) A statement that if the participant accepts the HRA, the participant may not claim a premium tax credit for the participant’s Exchange coverage for any month the HRA may be used to reimburse medical care expenses of the participant and a premium tax credit may not be claimed for the Exchange coverage of the participant’s dependents for any month the HRA may be used to reimburse medical care expenses of the dependents. (E) A statement that the participant must inform any Exchange to which the participant applies for advance payments of the premium tax credit of the availability of the HRA, the self-only HRA amount available for the plan year (or the maximum dollar amount PO 00000 Frm 00044 Fmt 4701 Sfmt 4702 available for the plan year if the HRA provides for reimbursements up to a single dollar amount regardless of whether a participant has self-only or family coverage) as set forth in the written notice in accordance with paragraph (c)(6)(ii)(A) of this section, the number of months in the plan year the HRA is available to the participant, whether the HRA is also available to the participant’s dependents, and whether the participant is a current employee or former employee. (F) A statement that the participant should retain the written notice because it may be needed to determine whether the participant is allowed a premium tax credit on the participant’s individual income tax return and, if so, the months the participant is allowed the premium tax credit. (G) A statement that the HRA may not reimburse any medical care expense unless the substantiation requirement set forth in paragraph (c)(5) of this section is satisfied. (H) A statement that it is the responsibility of the participant to inform the HRA if the participant or any dependent whose medical care expenses are reimbursable by the HRA is no longer enrolled in individual health insurance coverage. (d) Classes of employees—(1) List of classes. Participants may be treated as belonging to a class of employees based on whether they are, or are not, included in the classes described in this paragraph (d)(1). If the HRA is offered to former employees, former employees are considered to be in the same class in which they were in immediately before separation from service. (See paragraph (d)(2) of this section for additional rules regarding the definition of ‘‘full-time employees,’’ ‘‘part-time employees,’’ and ‘‘seasonal employees.’’) (i) Full-time employees, defined to mean either full-time employees under section 4980H and the regulations thereunder (§ 54.4980H–1(a)(21) of this part) or employees who are not parttime employees (as described in § 1.105–11(c)(2)(iii)(C) of this chapter); (ii) Part-time employees, defined to mean either employees who are not fulltime employees under section 4980H and § 54.4980H–1 and –3 of this part or part-time employees as described in § 1.105–11(c)(2)(iii)(C) of this chapter; (iii) Seasonal employees, defined to mean seasonal employees as described in either § 54.4980H–1(a)(38) of this part or § 1.105–11(c)(2)(iii)(C) of this chapter; (iv) Employees included in a unit of employees covered by a collective bargaining agreement in which the plan E:\FR\FM\29OCP2.SGM 29OCP2 Federal Register / Vol. 83, No. 209 / Monday, October 29, 2018 / Proposed Rules amozie on DSK3GDR082PROD with PROPOSALS2 sponsor participates (as described in § 1.105–11(c)(2)(iii)(D) of this chapter); (v) Employees who have not satisfied a waiting period for coverage (if the waiting period complies with § 54.9815–2708 of this part); (vi) Employees who have not attained age 25 prior to the beginning of the plan year (as described in § 1.105– 11(c)(2)(iii)(B) of this chapter); (vii) Non-resident aliens with no U.S.based income (as described in § 1.105– 11(c)(2)(iii)(E) of this chapter); (viii) Employees whose primary site of employment is in the same rating area as defined in 45 CFR 147.102(b); or (ix) A group of participants described as a combination of two or more of the classes of employees set forth in paragraphs (d)(1)(i) through (viii) of this section. (For example, part-time employees included in a unit of employees covered by a collective bargaining agreement could be one class of employees and full-time employees included in a unit of employees covered by the same collective bargaining agreement could be another class of employees.) (2) Consistency requirement. For any plan year, a plan sponsor may define ‘‘full-time employee,’’ ‘‘part-time employee,’’ and ‘‘seasonal employee’’ in accordance with the relevant provisions of section 105(h) and § 1.105–11 of this chapter or of section 4980H and § 54.4980H–1 and –3 of this part if: (i) To the extent applicable under the HRA for the plan year, each of the three classes of employees are defined in accordance with either section 105(h) or section 4980H for the plan year; and (ii) The HRA plan document sets forth the applicable definitions prior to the beginning of the plan year in which the definitions will apply. (e) Examples. The following examples illustrate the provisions of paragraphs (c)(2) and (3) of this section. In each example, the HRA may reimburse any medical care expenses, including premiums for individual health insurance coverage. (1) Example 1. (i) Facts. For 2020, Plan Sponsor X offers the following to its employees. Full-time employees in rating area A are offered $2,000 each in an HRA. Part-time employees in rating area A are offered $500 each in an HRA. All employees in rating area B are offered a traditional group health plan. (ii) Conclusion. The requirements of paragraphs (c)(2) and (3) of this section are satisfied in this Example 1. (2) Example 2. (i) Facts. For 2020, Plan Sponsor Y offers the following to its employees. Employees covered by a collective bargaining agreement in which Plan Sponsor Y participates are offered a traditional group health plan (as required by VerDate Sep<11>2014 18:32 Oct 26, 2018 Jkt 247001 the collective bargaining agreement). All other employees (non-collectively bargained employees) are offered the following amounts in an HRA: $1,000 each for employees age 25 to 35; $2,000 each for employees age 36 to 45; $2,500 each for employees age 46 to 55; and $4,000 each for employees over age 55. Non-collectively bargained employees who have not attained age 25 by January 1, 2020 are not offered an HRA or a traditional group health plan. (ii) Conclusion. The requirements of paragraphs (c)(2) and (3) of this section are satisfied in this Example 2. (3) Example 3. (i) Facts. For 2020, Plan Sponsor Z offers the following amounts in an HRA to its employees who have completed the plan’s waiting period, which complies with the requirements for waiting periods in § 54.9815–2708 of this part: $1,500, if the employee is the only individual covered by the HRA; $3,500, if the employee and one additional family member are covered by the HRA; and $5,000, if the employee and more than one additional family member are covered by the HRA. (ii) Conclusion. The requirements of paragraphs (c)(2) and (3) of this section are satisfied in this Example 3. (f) Applicability date. This section applies to plan years beginning on or after January 1, 2020. ■ Par. 6. Section 54.9815–2711 is amended by revising paragraphs (c), (d), and (e) to read as follows: § 54.9815–2711 limits. No lifetime or annual * * * * * (c) Definition of essential health benefits. The term ‘‘essential health benefits’’ means essential health benefits under section 1302(b) of the Patient Protection and Affordable Care Act. For this purpose, a group health plan or a health insurance issuer that is not required to provide essential health benefits under section 1302(b) must define ‘‘essential health benefits’’ in a manner that is consistent with the following paragraphs (c)(1) or (2): (1) For plan years beginning before January 1, 2020, one of the EHBbenchmark plans applicable in a State under 45 CFR 156.110, and including coverage of any additional required benefits that are considered essential health benefits consistent with 45 CFR 155.170(a)(2), or one of the three Federal Employee Health Benefits Program (FEHBP) plan options as defined by 45 CFR 156.100(a)(3), and including coverage of additional required benefits under 45 CFR 156.110; or (2) For plan years beginning on or after January 1, 2020, an EHBbenchmark plan selected by a State in accordance with the available options and requirements for EHB-benchmark plan selection at 45 CFR 156.111, including an EHB-benchmark plan in a PO 00000 Frm 00045 Fmt 4701 Sfmt 4702 54463 State that takes no action to change its EHB-benchmark plan and thus retains the EHB-benchmark plan applicable in that State for the prior year in accordance with 45 CFR 156.111(d)(1), and including coverage of any additional required benefits that are considered essential health benefits consistent with 45 CFR 155.170(a)(2). (d) Health reimbursement arrangements (HRAs) and other account-based group health plans—(1) In general. If an HRA or other accountbased group health plan is integrated with another group health plan or individual health insurance coverage and the other group health plan or individual health insurance coverage, as applicable, separately is subject to and satisfies the requirements in PHS Act section 2711 and paragraph (a)(2) of this section, the fact that the benefits under the HRA or other account-based group health plan are limited does not cause the HRA or other account-based group health plan to fail to meet the requirements of PHS Act section 2711 and paragraph (a)(2) of this section. Similarly, if an HRA or other accountbased group health plan is integrated with another group health plan or individual health insurance coverage and the other group health plan or individual health insurance coverage, as applicable, separately is subject to and satisfies the requirements in PHS Act section 2713 and § 54.9815–2713(a)(1) of this part, the fact that the benefits under the HRA or other account-based group health plan are limited does not cause the HRA or other account-based group health plan to fail to meet the requirements of PHS Act section 2713 and § 54.9815–2713(a)(1) of this part. For this purpose, all individual health insurance coverage, except for coverage that consists solely of excepted benefits, is treated as being subject to and complying with PHS Act sections 2711 and 2713. (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 meets 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 accountbased 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 E:\FR\FM\29OCP2.SGM 29OCP2 amozie on DSK3GDR082PROD with PROPOSALS2 54464 Federal Register / Vol. 83, No. 209 / Monday, October 29, 2018 / Proposed Rules 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. (i) Method for integration with a group health plan: Minimum value not required. An HRA or other accountbased group health plan is integrated with another group health plan for purposes of this paragraph 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 does not consist solely of excepted benefits; (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 does not consist solely of excepted benefits, regardless of whether the plan is offered by the same plan sponsor (referred to as non-HRA group coverage); (C) The HRA or other account-based group health plan is available only to employees who are enrolled in nonHRA group coverage, regardless of whether the non-HRA 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 group coverage, such as a group health plan maintained by the employer of the employee’s spouse); (D) The benefits under the HRA or other account-based group health plan are limited to reimbursement of one or more of the following—co-payments, coinsurance, deductibles, and premiums under the non-HRA group coverage, as well as medical care expenses that do not constitute essential health benefits as defined in paragraph (c) of this section; and (E) 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 VerDate Sep<11>2014 18:32 Oct 26, 2018 Jkt 247001 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). (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 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 section 36B(c)(2)(C)(ii) and § 1.36B–6 of this chapter; (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 section 36B(c)(2)(C)(ii) and § 1.36B–6 of this chapter 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). (3) Forfeiture. For purposes of integration under paragraphs (d)(2)(i)(E) and (d)(2)(ii)(D) of this section, forfeiture or waiver occurs even if the forfeited or waived amounts may be reinstated upon a fixed date, a participant’s death, or the earlier of the two events (the reinstatement event). PO 00000 Frm 00046 Fmt 4701 Sfmt 4702 For this purpose, coverage under an HRA or other account-based group health plan is considered forfeited or waived prior to a reinstatement event only if the participant’s election to forfeit or waive is irrevocable, meaning that, beginning on the effective date of the election and through the date of the reinstatement event, the participant and the participant’s beneficiaries have no access to amounts credited to the HRA or other account-based group health plan. This means that upon and after reinstatement, the reinstated amounts under the HRA or other account-based group health plan may not be used to reimburse or pay medical care expenses incurred during the period after forfeiture and prior to reinstatement. (4) Requirements for an HRA or other account-based group health plan to be integrated with individual health insurance coverage. An HRA or other account-based group health plan is integrated with individual health insurance coverage (and treated as complying with PHS Act sections 2711 and 2713) if the HRA or other accountbased group health plan meets the requirements of § 54.9802–4(c) of this part. (5) Integration with Medicare parts B and D. For employers that are not required to offer their non-HRA group health plan coverage to employees who are Medicare beneficiaries, an HRA or other account-based group health plan that may be used to reimburse premiums under Medicare part B or D may be integrated with Medicare (and deemed to comply with PHS Act sections 2711 and 2713) if the requirements of this paragraph (d)(5) are satisfied with respect to employees who would be eligible for the employer’s non-HRA group health plan but for their eligibility for Medicare (and the integration rules under paragraphs (d)(2)(i) and (ii) of this section continue to apply to employees who are not eligible for Medicare): (i) The plan sponsor offers a group health plan (other than the HRA or other account-based group health plan and that does not consist solely of excepted benefits) to employees who are not eligible for Medicare; (ii) The employee receiving the HRA or other account-based group health plan is actually enrolled in Medicare part B or D; (iii) The HRA or other account-based group health plan is available only to employees who are enrolled in Medicare part B or D; and (iv) The HRA or other account-based group health plan complies with paragraphs (d)(2)(i)(E) and (d)(2)(ii)(D) of this section. E:\FR\FM\29OCP2.SGM 29OCP2 Federal Register / Vol. 83, No. 209 / Monday, October 29, 2018 / Proposed Rules (6) Definitions. The following definitions apply for purposes of this section. (i) Account-based group health plan. An account-based group health plan is an employer-provided group health plan that provides reimbursements of medical care expenses with the reimbursement subject to a maximum fixed dollar amount for a period. An HRA is a type of account-based group health plan. An account-based group health plan does not include a qualified small employer health reimbursement arrangement, as defined in section 9831(d)(2). (ii) Medical care expenses. Medical care expenses means expenses for medical care as defined under section 213(d). (e) Applicability date. The provisions of this section are applicable to group health plans and health insurance issuers for plan years beginning on or after January 1, 2020. Until [APPLICABILITY DATE OF FINAL RULE], plans and issuers are required to continue to comply with the corresponding sections of 26 CFR part 54, contained in the 26 CFR subchapter D, revised as of April 1, 2018. ■ Par 7. Section 54.9831–1 is amended by revising paragraph (c)(3)(i) and adding paragraph (c)(3)(viii) to read as follows: § 54.9831–1 Special rules relating to group health plans. amozie on DSK3GDR082PROD with PROPOSALS2 * * * * * (c) * * * (3) * * * (i) In general. Limited-scope dental benefits, limited-scope vision benefits, or long-term care benefits are excepted if they are provided under a separate policy, certificate, or contract of insurance, or are otherwise not an integral part of a group health plan as described in paragraph (c)(3)(ii) of this section. In addition, benefits provided under a health flexible spending arrangement (health FSA) are excepted benefits if they satisfy the requirements of paragraph (c)(3)(v) of this section; benefits provided under an employee assistance program are excepted benefits if they satisfy the requirements of paragraph (c)(3)(vi) of this section; benefits provided under limited wraparound coverage are excepted benefits if they satisfy the requirements of paragraph (c)(3)(vii) of this section; and benefits provided under a health reimbursement arrangement or other account-based group health plan, other than a health FSA, are excepted benefits if they satisfy the requirements of paragraph (c)(3)(viii) of this section. * * * * * VerDate Sep<11>2014 18:32 Oct 26, 2018 Jkt 247001 (viii) Health reimbursement arrangements (HRAs) and other account-based group health plans. Benefits provided under an HRA or other account-based group health plan, other than a health FSA, are excepted if they satisfy all of the requirements of this paragraph (c)(3)(viii). See paragraph (c)(3)(v) of this section of these regulations for the circumstances in which benefits provided under a health FSA are excepted benefits. For purposes of this paragraph, the term ‘‘HRA or other account-based group health plan’’ has the same meaning as ‘‘account based group health plan’’ set forth in § 54.9815–2711(d)(6)(i) of this part, except that the term does not include health FSAs. (A) Otherwise not an integral part of the plan. Other group health plan coverage that is not limited to excepted benefits and that is not an HRA or other account-based group health plan must be made available by the same plan sponsor for the plan year to the participant. (B) Benefits are limited in amount— (1) Limit on annual amounts made available. The amounts newly made available for each plan year under the HRA or other account-based group health plan do not exceed $1,800. In the case of any plan year beginning after December 31, 2020, the dollar amount in the preceding sentence shall be increased by an amount equal to such dollar amount multiplied by the cost-ofliving adjustment. The cost of living adjustment is the percentage (if any) by which the C–CPI–U for the preceding calendar year exceeds the C–CPI–U for calendar year 2019. The term ‘‘C–CPI– U’’ means the Chained Consumer Price Index for All Urban Consumers as published by the Bureau of Labor Statistics of the Department of Labor. The C–CPI–U for any calendar year is the average of the C–CPI–U as of the close of the 12-month period ending on August 31 of such calendar year. The values of the C–CPI–U used for any calendar year shall be the latest values so published as of the date on which the Bureau publishes the initial value of the C–CPI–U for the month of August for the preceding calendar year. Any such increase that is not a multiple of $50 shall be rounded to the next lowest multiple of $50. (2) Carryover amounts. If the terms of the HRA or other account-based group health plan allow unused amounts to be made available to participants and dependents in later plan years, such carryover amounts are disregarded for purposes of determining whether benefits are limited in amount. PO 00000 Frm 00047 Fmt 4701 Sfmt 4702 54465 (3) Multiple HRAs or other accountbased group health plans. If the plan sponsor provides more than one HRA or other account-based group health plan to the participant for the same time period, the amounts made available under all such plans are aggregated to determine whether the benefits are limited in amount. (C) Prohibition on reimbursement of certain health insurance premiums. The HRA or other account-based group health plan must not reimburse premiums for individual health insurance coverage, group health plan coverage (other than COBRA continuation coverage or other continuation coverage), or Medicare parts B or D, except that the HRA or other account-based group health plan may reimburse premiums for such coverage that consists solely of excepted benefits. (D) Uniform availability. The HRA or other account-based group health plan is made available under the same terms to all similarly situated individuals, as defined in § 54.9802–1(d) of this part, regardless of any health factor (as described in § 54.9802–1(a)). * * * * * DEPARTMENT OF LABOR Employee Benefits Security Administration 29 CFR Chapter XXV For the reasons stated in the preamble, the Department of Labor proposes to amend 29 CFR parts 2510 and 2590 as set forth below: PART 2510—DEFINITION OF TERMS USED IN SUBCHAPTERS C, D, E, F, G, AND L OF THIS CHAPTER 8. The authority citation for part 2510 is revised to read as follows: ■ Authority: 29 U.S.C. 1002(1), 1002(3), 1002(2), 1002(5), 1002(16), 1002(21), 1002(37), 1002(38), 1002(40), 1002(42), 1031, and 1135; Secretary of Labor’s Order No. 1– 2011, 77 FR 1088 (Jan. 9, 2012); Secs. 2510.3– 21, 2510.3–101 and 2510.3–102 also issued under sec. 102 of Reorganization Plan No. 4 of 1978, 5 U.S.C. App. at 237 (2012), E.O. 12108, 44 FR 1065 (Jan. 3, 1979) and 29 U.S.C. 1135 note. Sec. 2510.3–38 is also issued under sec. 1, Pub. L. 105–72, 111 Stat. 1457 (1997). 9. In § 2510.3–1, add paragraph (l) to read as follows: ■ § 2510.3–1 Employee welfare benefit plan. * * * * * (l) Health reimbursement arrangements (HRAs) and other account-based group health plans that reimburse individual health insurance coverage. For purposes of title I of the E:\FR\FM\29OCP2.SGM 29OCP2 amozie on DSK3GDR082PROD with PROPOSALS2 54466 Federal Register / Vol. 83, No. 209 / Monday, October 29, 2018 / Proposed Rules Act and this chapter, the terms ‘‘employee welfare benefit plan’’ and ‘‘welfare plan’’ shall not include individual health insurance coverage the premiums of which are reimbursed by a health reimbursement arrangement (HRA) (or other account-based group health plan), including an HRA or other account-based group health plan integrated with individual health insurance coverage (as described in § 2590.702–2 of this chapter), an HRA that covers less than two current employees (as described in § 2590.732(b) of this chapter) and that reimburses premiums for individual health insurance coverage, a qualified small employer health reimbursement arrangement (QSEHRA), as defined in section 9831(d)(2) of the Code, or an arrangement under which an employer allows employees to pay the portion of the premium for individual health insurance coverage that is not covered by an HRA or other account-based group health plan with which the coverage is integrated or that is not covered by a QSEHRA by using a salary reduction arrangement in a cafeteria plan under section 125 of the Code (supplemental salary reduction arrangement), if all the conditions of this paragraph (l) are satisfied. (1) The purchase of any individual health insurance coverage is completely voluntary for participants and beneficiaries. The fact that a plan sponsor requires such coverage to be purchased as a condition for participation in an HRA or supplemental salary reduction arrangement does not make the purchase involuntary. (2) The employer, employee organization, or other plan sponsor does not select or endorse any particular issuer or insurance coverage. In contrast, providing general contact information regarding availability of health insurance in a state (such as providing information regarding www.HealthCare.gov or contact information for a state insurance commissioner’s office) or providing general health insurance educational information (such as the uniform glossary of health coverage and medical terms available at: https://www.dol.gov/ sites/default/files/ebsa/laws-andregulations/laws/affordable-care-act/ for-employers-and-advisers/sbcuniform-glossary-of-coverage-andmedical-terms-final.pdf) is permitted. (3) Reimbursement for nongroup health insurance premiums is limited solely to individual health insurance coverage, as defined in § 2590.701–2 of this chapter. VerDate Sep<11>2014 18:32 Oct 26, 2018 Jkt 247001 (4) The employer, employee organization, or other plan sponsor receives no consideration in the form of cash or otherwise in connection with the employee’s selection or renewal of any individual health insurance coverage. (5) Each plan participant is notified annually that the individual health insurance coverage is not subject to title I of ERISA. For an HRA that is integrated with individual health insurance coverage, the notice must meet the notice requirement set forth in § 2590.702–2(c)(6) of this chapter. A QSEHRA or an HRA not subject to the notice requirement set forth in § 2590.702–2(c)(6) of this chapter may use the following language to satisfy this condition: ‘‘The individual health insurance coverage that is paid for by this plan, if any, is not subject to the rules and consumer protections of the Employee Retirement Income Security Act. You should contact your state insurance department for more information regarding your rights and responsibilities if you purchase individual health insurance coverage.’’ A supplemental salary reduction arrangement is not required to provide this notice as the notice will be provided by the HRA or the QSEHRA that such an arrangement supplements. PART 2590—RULES AND REGULATIONS FOR GROUP HEALTH PLANS 10. The authority citation for part 2590 continues to read as follows: ■ Authority: 29 U.S.C. 1027, 1059, 1135, 1161–1168, 1169, 1181–1183, 1181 note, 1185, 1185a, 1185b, 1191, 1191a, 1191b, and 1191c; sec. 101(g), Pub. L. 104–191, 110 Stat. 1936; sec. 401(b), Pub. L. 105–200, 112 Stat. 645 (42 U.S.C. 651 note); sec. 512(d), Pub. L. 110–343, 122 Stat. 3881; sec. 1001, 1201, and 1562(e), Pub. L. 111–148, 124 Stat. 119, as amended by Pub. L. 111–152, 124 Stat. 1029; Division M, Pub. L. 113–235, 128 Stat. 2130; Secretary of Labor’s Order 1–2011, 77 FR 1088 (Jan. 9, 2012). 11. Section § 2590.701–2 is amended by revising the definition of ‘‘group health insurance coverage’’ to read as follows: ■ § 2590.701–2 Definitions. * * * * * Group health insurance coverage means health insurance coverage offered in connection with a group health plan. Individual health insurance coverage reimbursed by the arrangements described in 29 CFR 2510.3–1(l) is not offered in connection with a group health plan, and is not group health insurance coverage, provided all the PO 00000 Frm 00048 Fmt 4701 Sfmt 4702 conditions in 29 CFR 2510.3–1(l) are satisfied. * * * * * ■ 12. Add § 2590.702–2 to read as follows: § 2590.702–2 Special rule allowing integration of health reimbursement arrangements (HRAs) and other accountbased group health plans with individual health insurance coverage and prohibiting discrimination in HRAs and other accountbased group health plans. (a) Scope. This section applies to health reimbursement arrangements (HRAs) and other account-based group health plans, as defined in § 2590.715– 2711(d)(6)(i) of this part. For ease of reference, the term ‘‘HRA’’ is used in this section to include other accountbased group health plans. (b) Purpose. This section provides the conditions that an HRA must satisfy in order to be integrated with individual health insurance coverage for purposes of Public Health Service Act (PHS Act) sections 2711 and 2713 and § 2590.715– 2711(d)(4) of this part. Some of the conditions set forth in this section specifically relate to compliance with PHS Act sections 2711 and 2713 and some relate to the effect of having or being offered an HRA on eligibility for the premium tax credit under section 36B of the Internal Revenue Code (Code). In addition, this section provides conditions that an HRA integrated with individual health insurance coverage must satisfy in order to comply with the nondiscrimination provisions in section 702 of ERISA and section 2705 of the PHS Act (which is incorporated in ERISA section 715) and that are consistent with the provisions of the Patient Protection and Affordable Care Act, Public Law 111–148 (124 Stat. 119 (2010)), and the Health Care and Education Reconciliation Act of 2010, Public Law 111–152 (124 Stat. 1029 (2010)), each as amended, that are designed to create a competitive individual market. These conditions are intended to prevent an HRA plan sponsor from intentionally or unintentionally, directly or indirectly, steering any participants or dependents with adverse health factors away from its traditional group health plan, if any, and toward individual health insurance coverage. (c) General rule. An HRA will be considered to be integrated with individual health insurance coverage for purposes of PHS Act sections 2711 and 2713 and § 2590.715–2711(d)(4) of this part and will not be considered to discriminate in violation of ERISA section 702 and PHS Act section 2705 solely because it offers an HRA E:\FR\FM\29OCP2.SGM 29OCP2 amozie on DSK3GDR082PROD with PROPOSALS2 Federal Register / Vol. 83, No. 209 / Monday, October 29, 2018 / Proposed Rules integrated with individual health insurance coverage, provided that the conditions of this paragraph (c) are satisfied. (1) Enrollment in individual health insurance coverage. The HRA must require that the participant and any dependent(s) are enrolled in individual health insurance coverage that is subject to and complies with the requirements in PHS Act sections 2711 and 2713 for each month that the individual(s) are covered by the HRA. For this purpose, all individual health insurance coverage, except for individual health insurance coverage that consists solely of excepted benefits, is treated as being subject to and complying with PHS Act sections 2711 and 2713. References to individual health insurance coverage in this paragraph (c) do not include individual health insurance coverage that consists solely of excepted benefits. The HRA must also provide that, subject to applicable COBRA or other continuation of coverage requirements, if any individual covered by the HRA ceases to be covered by such individual health insurance coverage, the individual may not seek reimbursement under the HRA for claims that are incurred after the individual health insurance coverage ceases. In addition, subject to applicable COBRA or other continuation of coverage requirements, if the participant and all of the dependents covered by the participant’s HRA cease to be covered by such individual health insurance coverage, the participant must forfeit the HRA. (2) No traditional group health plan may be offered to same participants. To the extent a plan sponsor offers any class of employees (as defined in paragraph (d) of this section) an HRA integrated with individual health insurance coverage, the plan sponsor may not also offer a traditional group health plan to the same class of employees. For this purpose, a traditional group health plan is any group health plan other than either an account-based group health plan or a group health plan that consists solely of excepted benefits. Therefore, a plan sponsor may not offer a choice between an HRA integrated with individual health insurance coverage or a traditional group health plan to any participant. (3) Same terms requirement. To the extent a plan sponsor offers an HRA integrated with individual health insurance coverage to a class of employees described in paragraph (d) of this section, the HRA must be offered on the same terms to all participants within the class, except as provided in paragraphs (c)(3)(i) and (ii) of this VerDate Sep<11>2014 18:32 Oct 26, 2018 Jkt 247001 section and except that the HRA will not fail to be treated as provided on the same terms even if the plan sponsor offers the HRA to some, but not all, former employees within a class of employees. However, if a plan sponsor offers the HRA to one or more former employees within a class of employees, the HRA must be offered to the former employee(s) on the same terms as to all other employees within the class. Also, amounts that are not used to reimburse medical care expenses (as defined in § 2590.715–2711(d)(6)(ii) of this part) for any plan year that are made available to participants in later plan years are disregarded for purposes of determining whether an HRA is offered on the same terms, provided that the method for determining whether participants have access to unused amounts in future years, and the methodology and formula for determining the amounts of unused funds which they may access in future years, is the same for all participants in a class of employees. In addition, the ability to pay the portion of the premium for individual health insurance coverage that is not covered by the HRA, if any, by using a salary reduction arrangement under section 125 of the Code is considered to be a term of the HRA for purposes of this paragraph; therefore, an HRA shall fail to be treated as provided on the same terms unless such a salary reduction arrangement, if made available to any participant in a class of employees, is made available on the same terms to all participants (other than former employees) in the class of employees. Further, the HRA shall not fail to be treated as provided on the same terms because the maximum dollar amount made available to participants in a class of employees to reimburse medical care expenses for any plan year increases: (i) As the age of the participant increases, so long as the same maximum dollar amount attributable to the increase in age is made available to all participants in that class of employees who are the same age; or (ii) As the number of the participant’s dependents who are covered under the HRA increases, so long as the same maximum dollar amount attributable to the increase in family size is made available to all participants in that class of employees with the same number of dependents covered by the HRA. (4) Opt out. Under the terms of the HRA, a participant who is otherwise eligible for coverage must be permitted to opt out of and waive future reimbursements from the HRA at least annually, and, upon termination of employment, either the remaining amounts in the HRA are forfeited or the PO 00000 Frm 00049 Fmt 4701 Sfmt 4702 54467 participant is permitted to permanently opt out of and waive future reimbursements from the HRA. (5) Reasonable procedures for verification and substantiation—(i) General rule for verification of individual health insurance coverage for the plan year. The HRA must implement, and comply with, reasonable procedures to verify that participants and dependents are, or will be, enrolled in individual health insurance coverage for the plan year. The reasonable procedures may include a requirement that a participant substantiate enrollment by providing either: (A) A document from a third party (for example, the issuer) showing that the participant and any dependents covered by the HRA are, or will be, enrolled in individual health insurance coverage (for example, an insurance card or an explanation of benefits document pertaining to the relevant time period); or (B) An attestation by the participant stating that the participant and dependent(s) covered by the HRA are or will be enrolled in individual health insurance coverage, the date coverage began or will begin, and the name of the provider of the coverage. (ii) Coverage substantiation with each request for reimbursement of medical care expenses. Following the initial verification of coverage, with each new request for reimbursement of an incurred medical care expense for the same plan year, the HRA may not reimburse participants for any medical care expenses unless, prior to each reimbursement, the participant provides substantiation (which may be in the form of a written attestation) that the participant and if applicable, the dependent whose medical care expenses are requested to be reimbursed continue to be enrolled in individual health insurance coverage for the month during which the medical care expenses were incurred. The attestation may be part of the form used for requesting reimbursement. (iii) Reliance on substantiation. For purposes of this paragraph (c)(5), an HRA may rely on the participant’s documentation or attestation unless the HRA has actual knowledge that any individual covered by the HRA is not, or will not be, enrolled in individual health insurance coverage for the plan year or the month, as applicable. (6) Notice requirement—(i) Timing. The HRA must provide a written notice to each participant at least 90 days before the beginning of each plan year or, for a participant who is not eligible to participate at the beginning of the E:\FR\FM\29OCP2.SGM 29OCP2 amozie on DSK3GDR082PROD with PROPOSALS2 54468 Federal Register / Vol. 83, No. 209 / Monday, October 29, 2018 / Proposed Rules plan year (or who is not eligible to participate at the time the notice is provided at least 90 days before the beginning of the plan year), no later than the date on which the participant is first eligible to participate in the HRA. (ii) Content. The notice must include all the information described in this paragraph (c)(6)(ii) (and may include any additional information as long as it does not conflict with the required information set forth in paragraph (c)(6)(ii)(A) through (H) of this section). (A) A description of the terms of the HRA, including the maximum dollar amount available for each participant (including the self-only HRA amount available for the plan year (or the maximum dollar amount available for the plan year if the HRA provides for reimbursements up to a single dollar amount regardless of whether a participant has self-only or family coverage)), any rules regarding the proration of the maximum dollar amount applicable to any participant who is not eligible to participate in the HRA for the entire plan year, whether the participant’s family members are eligible for the HRA, a statement that the HRA is not a qualified small employer health reimbursement arrangement, a statement that the HRA requires the participant and any dependents to be enrolled in individual health insurance coverage, a statement that the participant is required to substantiate the existence of such enrollment, a statement that the coverage enrolled in cannot be shortterm, limited-duration insurance or excepted benefits, and, if the requirements under § 2510.3–1(l) of this chapter are met, a statement that the individual health insurance coverage enrolled in is not subject to the Employee Retirement Income Security Act (ERISA). (B) A statement of the right of the participant to opt out of and waive future reimbursements from the HRA, as set forth under paragraph (c)(4) of this section. (C) A description of the potential availability of the premium tax credit if the participant opts out of and waives future reimbursements from the HRA and the HRA is not affordable for one or more months under 26 CFR 1.36B– 2(c)(5), a statement that even if the participant opts out of and waives future reimbursements from an HRA, the offer will prohibit the participant (and, potentially, the participant’s dependents) from receiving a premium tax credit for the participant’s coverage (or the dependent’s coverage, if applicable) on the Exchange (as defined in 45 CFR 155.20) for any month that VerDate Sep<11>2014 18:32 Oct 26, 2018 Jkt 247001 the HRA is affordable under 26 CFR 1.36B–2(c)(5), and a statement that, if the participant is a former employee, the offer of the HRA does not render the participant ineligible for the premium tax credit regardless of whether it is affordable under 26 CFR 1.36B–2(c)(5). (D) A statement that if the participant accepts the HRA, the participant may not claim a premium tax credit for the participant’s Exchange coverage for any month the HRA may be used to reimburse medical care expenses of the participant and a premium tax credit may not be claimed for the Exchange coverage of the participant’s dependents for any month the HRA may be used to reimburse medical care expenses of the dependents. (E) A statement that the participant must inform any Exchange to which the participant applies for advance payments of the premium tax credit of the availability of the HRA, the self-only HRA amount available for the plan year (or the maximum dollar amount available for the plan year if the HRA provides for reimbursements up to a single dollar amount regardless of whether a participant has self-only or family coverage) as set forth in the written notice in accordance with paragraph (c)(6)(ii)(A) of this section, the number of months in the plan year the HRA is available to the participant, whether the HRA is also available to the participant’s dependents, and whether the participant is a current employee or former employee. (F) A statement that the participant should retain the written notice because it may be needed to determine whether the participant is allowed a premium tax credit on the participant’s individual income tax return and, if so, the months the participant is allowed the premium tax credit. (G) A statement that the HRA may not reimburse any medical care expense unless the substantiation requirement set forth in paragraph (c)(5) of this section is satisfied. (H) A statement that it is the responsibility of the participant to inform the HRA if the participant or any dependent whose medical care expenses are reimbursable by the HRA is no longer enrolled in individual health insurance coverage. (d) Classes of employees—(1) List of classes. Participants may be treated as belonging to a class of employees based on whether they are, or are not, included in the classes described in this paragraph (d)(1). If the HRA is offered to former employees, former employees are considered to be in the same class in which they were in immediately before separation from service. (See PO 00000 Frm 00050 Fmt 4701 Sfmt 4702 paragraph (d)(2) of this section for additional rules regarding the definition of ‘‘full-time employees,’’ ‘‘part-time employees,’’ and ‘‘seasonal employees.’’) (i) Full-time employees, defined to mean either full-time employees under section 4980H of the Code and the regulations thereunder (26 CFR 54.4980H–1(a)(21)) or employees who are not part-time employees (as described in 26 CFR 1.105– 11(c)(2)(iii)(C)); (ii) Part-time employees, defined to mean either employees who are not fulltime employees under section 4980H of the Code and 26 CFR 54.4980H–1 and –3 or part-time employees as described in 26 CFR 1.105–11(c)(2)(iii)(C); (iii) Seasonal employees, defined to mean seasonal employees as described in either 26 CFR 54.4980H–1(a)(38) or 26 CFR 1.105–11(c)(2)(iii)(C); (iv) Employees included in a unit of employees covered by a collective bargaining agreement in which the plan sponsor participates (as described in 26 CFR 1.105–11(c)(2)(iii)(D)); (v) Employees who have not satisfied a waiting period for coverage (if the waiting period complies with § 2590.715–2708 of this part); (vi) Employees who have not attained age 25 prior to the beginning of the plan year (as described in 26 CFR 1.105– 11(c)(2)(iii)(B)); (vii) Non-resident aliens with no U.S.based income (as described in 26 CFR 1.105–11(c)(2)(iii)(E)); (viii) Employees whose primary site of employment is in the same rating area as defined in 45 CFR 147.102(b); or (ix) A group of participants described as a combination of two or more of the classes of employees set forth in paragraphs (d)(1)(i) through (viii) of this section. (For example, part-time employees included in a unit of employees covered by a collective bargaining agreement could be one class of employees and full-time employees included in a unit of employees covered by the same collective bargaining agreement could be another class of employees.) (2) Consistency requirement. For any plan year, a plan sponsor may define ‘‘full-time employee,’’ ‘‘part-time employee,’’ and ‘‘seasonal employee’’ in accordance with the relevant provisions of section 105(h) of the Code and 26 CFR 1.105–11 or of section 4980H of the Code and 26 CFR 54.4980H–1 and –3 if: (i) To the extent applicable under the HRA for the plan year, each of the three classes of employees are defined in accordance with either section 105(h) of the Code or section 4980H of the Code for the plan year; and E:\FR\FM\29OCP2.SGM 29OCP2 Federal Register / Vol. 83, No. 209 / Monday, October 29, 2018 / Proposed Rules (ii) The HRA plan document sets forth the applicable definitions prior to the beginning of the plan year in which the definitions will apply. (e) Examples. The following examples illustrate the provisions of paragraphs (c)(2) and (3) of this section. In each example, the HRA may reimburse any medical care expenses, including premiums for individual health insurance coverage. (1) Example 1. (i) Facts. For 2020, Plan Sponsor X offers the following to its employees. Full-time employees in rating area A are offered $2,000 each in an HRA. Part-time employees in rating area A are offered $500 each in an HRA. All employees in rating area B are offered a traditional group health plan. (ii) Conclusion. The requirements of paragraphs (c)(2) and (3) of this section are satisfied in this Example 1. (2) Example 2. (i) Facts. For 2020, Plan Sponsor Y offers the following to its employees. Employees covered by a collective bargaining agreement in which Plan Sponsor Y participates are offered a traditional group health plan (as required by the collective bargaining agreement). All other employees (non-collectively bargained employees) are offered the following amounts in an HRA: $1,000 each for employees age 25 to 35; $2,000 each for employees age 36 to 45; $2,500 each for employees age 46 to 55; and $4,000 each for employees over age 55. Non-collectively bargained employees who have not attained age 25 by January 1, 2020 are not offered an HRA or a traditional group health plan. (ii) Conclusion. The requirements of paragraphs (c)(2) and (3) of this section are satisfied in this Example 2. (3) Example 3. (i) Facts. For 2020, Plan Sponsor Z offers the following amounts in an HRA to its employees who have completed the plan’s waiting period, which complies with the requirements for waiting periods in § 2590.715–2708 of this part: $1,500, if the employee is the only individual covered by the HRA; $3,500, if the employee and one additional family member are covered by the HRA; and $5,000, if the employee and more than one additional family member are covered by the HRA. (ii) Conclusion. The requirements of paragraphs (c)(2) and (3) of this section are satisfied in this Example 3. amozie on DSK3GDR082PROD with PROPOSALS2 (f) Applicability date. This section applies to plan years beginning on or after January 1, 2020. ■ 13. Section 2590.715–2711 is amended by revising paragraphs (c), (d), and (e) to read as follows: § 2590.715–2711 limits. No lifetime or annual * * * * * (c) Definition of essential health benefits. The term ‘‘essential health benefits’’ means essential health benefits under section 1302(b) of the Patient Protection and Affordable Care Act. For this purpose, a group health VerDate Sep<11>2014 18:32 Oct 26, 2018 Jkt 247001 plan or a health insurance issuer that is not required to provide essential health benefits under section 1302(b) must define ‘‘essential health benefits’’ in a manner that is consistent with the following paragraphs (c)(1) or (2): (1) For plan years beginning before January 1, 2020, one of the EHBbenchmark plans applicable in a State under 45 CFR 156.110, and including coverage of any additional required benefits that are considered essential health benefits consistent with 45 CFR 155.170(a)(2), or one of the three Federal Employee Health Benefits Program (FEHBP) plan options as defined by 45 CFR 156.100(a)(3), and including coverage of additional required benefits under 45 CFR 156.110; or (2) For plan years beginning on or after January 1, 2020, an EHBbenchmark plan selected by a State in accordance with the available options and requirements for EHB-benchmark plan selection at 45 CFR 156.111, including an EHB-benchmark plan in a State that takes no action to change its EHB-benchmark plan and thus retains the EHB-benchmark plan applicable in that State for the prior year in accordance with 45 CFR 156.111(d)(1), and including coverage of any additional required benefits that are considered essential health benefits consistent with 45 CFR 155.170(a)(2). (d) Health reimbursement arrangements (HRAs) and other account-based group health plans—(1) In general. If an HRA or other accountbased group health plan is integrated with another group health plan or individual health insurance coverage and the other group health plan or individual health insurance coverage, as applicable, separately is subject to and satisfies the requirements in PHS Act section 2711 and paragraph (a)(2) of this section, the fact that the benefits under the HRA or other account-based group health plan are limited does not cause the HRA or other account-based group health plan to fail to meet the requirements of PHS Act section 2711 and paragraph (a)(2) of this section. Similarly, if an HRA or other accountbased group health plan is integrated with another group health plan or individual health insurance coverage and the other group health plan or individual health insurance coverage, as applicable, separately is subject to and satisfies the requirements in PHS Act section 2713 and § 2590.715–2713(a)(1) of this part, the fact that the benefits under the HRA or other account-based group health plan are limited does not cause the HRA or other account-based group health plan to fail to meet the requirements of PHS Act section 2713 PO 00000 Frm 00051 Fmt 4701 Sfmt 4702 54469 and § 2590.715–2713(a)(1) of this part. For this purpose, all individual health insurance coverage, except for coverage that consists solely of excepted benefits, is treated as being subject to and complying with PHS Act sections 2711 and 2713. (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 meets 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 accountbased 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. (i) Method for integration with a group health plan: Minimum value not required. An HRA or other accountbased group health plan is integrated with another group health plan for purposes of this paragraph 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 does not consist solely of excepted benefits; (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 does not consist solely of excepted benefits, regardless of whether the plan is offered by the same plan sponsor (referred to as non-HRA group coverage); (C) The HRA or other account-based group health plan is available only to employees who are enrolled in nonHRA group coverage, regardless of whether the non-HRA 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 E:\FR\FM\29OCP2.SGM 29OCP2 amozie on DSK3GDR082PROD with PROPOSALS2 54470 Federal Register / Vol. 83, No. 209 / Monday, October 29, 2018 / Proposed Rules plan but are enrolled in other non-HRA group coverage, such as a group health plan maintained by the employer of the employee’s spouse); (D) The benefits under the HRA or other account-based group health plan are limited to reimbursement of one or more of the following—co-payments, coinsurance, deductibles, and premiums under the non-HRA group coverage, as well as medical care expenses that do not constitute essential health benefits as defined in paragraph (c) of this section; and (E) 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). (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 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 26 CFR 1.36B–6; (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 26 CFR 1.36B–6, 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 VerDate Sep<11>2014 18:32 Oct 26, 2018 Jkt 247001 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). (3) Forfeiture. For purposes of integration under paragraphs (d)(2)(i)(E) and (d)(2)(ii)(D) of this section, forfeiture or waiver occurs even if the forfeited or waived amounts may be reinstated upon a fixed date, a participant’s death, or the earlier of the two events (the reinstatement event). For this purpose, coverage under an HRA or other account-based group health plan is considered forfeited or waived prior to a reinstatement event only if the participant’s election to forfeit or waive is irrevocable, meaning that, beginning on the effective date of the election and through the date of the reinstatement event, the participant and the participant’s beneficiaries have no access to amounts credited to the HRA or other account-based group health plan. This means that upon and after reinstatement, the reinstated amounts under the HRA or other account-based group health plan may not be used to reimburse or pay medical care expenses incurred during the period after forfeiture and prior to reinstatement. (4) Requirements for an HRA or other account-based group health plan to be integrated with individual health insurance coverage. An HRA or other account-based group health plan is integrated with individual health insurance coverage (and treated as complying with PHS Act sections 2711 and 2713) if the HRA or other accountbased group health plan meets the requirements of § 2590.702–2(c) of this part. (5) Integration with Medicare parts B and D. For employers that are not required to offer their non-HRA group health plan coverage to employees who are Medicare beneficiaries, an HRA or other account-based group health plan that may be used to reimburse premiums under Medicare part B or D may be integrated with Medicare (and deemed to comply with PHS Act sections 2711 and 2713) if the PO 00000 Frm 00052 Fmt 4701 Sfmt 4702 requirements of this paragraph (d)(5) are satisfied with respect to employees who would be eligible for the employer’s non-HRA group health plan but for their eligibility for Medicare (and the integration rules under paragraphs (d)(2)(i) and (ii) of this section continue to apply to employees who are not eligible for Medicare): (i) The plan sponsor offers a group health plan (other than the HRA or other account-based group health plan and that does not consist solely of excepted benefits) to employees who are not eligible for Medicare; (ii) The employee receiving the HRA or other account-based group health plan is actually enrolled in Medicare part B or D; (iii) The HRA or other account-based group health plan is available only to employees who are enrolled in Medicare part B or D; and (iv) The HRA or other account-based group health plan complies with paragraphs (d)(2)(i)(E) and (d)(2)(ii)(D) of this section. (6) Definitions. The following definitions apply for purposes of this section. (i) Account-based group health plan. An account-based group health plan is an employer-provided group health plan that provides reimbursements of medical care expenses with the reimbursement subject to a maximum fixed dollar amount for a period. An HRA is a type of account-based group health plan. An account-based group health plan does not include a qualified small employer health reimbursement arrangement, as defined in Code section 9831(d)(2). (ii) Medical care expenses. Medical care expenses means expenses for medical care as defined under Code section 213(d). (e) Applicability date. The provisions of this section are applicable to group health plans and health insurance issuers for plan years beginning on or after January 1, 2020. Until [APPLICABILITY DATE OF FINAL RULE], plans and issuers are required to continue to comply with the corresponding sections of this part, contained in the 29 CFR parts 1927 to end edition, revised as of July 1, 2018. ■ 14. Section 2590.732 is amended by revising paragraph (c)(3)(i) and adding paragraph (c)(3)(viii) to read as follows: § 2590.732 Special rules relating to group health plans. * * * * * (c) * * * (3) * * * (i) In general. Limited-scope dental benefits, limited-scope vision benefits, E:\FR\FM\29OCP2.SGM 29OCP2 amozie on DSK3GDR082PROD with PROPOSALS2 Federal Register / Vol. 83, No. 209 / Monday, October 29, 2018 / Proposed Rules or long-term care benefits are excepted if they are provided under a separate policy, certificate, or contract of insurance, or are otherwise not an integral part of a group health plan as described in paragraph (c)(3)(ii) of this section. In addition, benefits provided under a health flexible spending arrangement (health FSA) are excepted benefits if they satisfy the requirements of paragraph (c)(3)(v) of this section; benefits provided under an employee assistance program are excepted benefits if they satisfy the requirements of paragraph (c)(3)(vi) of this section; benefits provided under limited wraparound coverage are excepted benefits if they satisfy the requirements of paragraph (c)(3)(vii) of this section; and benefits provided under a health reimbursement arrangement or other account-based group health plan, other than a health FSA, are excepted benefits if they satisfy the requirements of paragraph (c)(3)(viii) of this section. * * * * * (viii) Health reimbursement arrangements (HRAs) and other account-based group health plans. Benefits provided under an HRA or other account-based group health plan, other than a health FSA, are excepted if they satisfy all of the requirements of this paragraph (c)(3)(viii). See paragraph (c)(3)(v) of this section of these regulations for the circumstances in which benefits provided under a health FSA are excepted benefits. For purposes of this paragraph, the term ‘‘HRA or other account-based group health plan’’ has the same meaning as ‘‘accountbased group health plan’’ set forth in § 2590.715–2711(d)(6)(i) of this part, except that the term does not include health FSAs. (A) Otherwise not an integral part of the plan. Other group health plan coverage that is not limited to excepted benefits and that is not an HRA or other account-based group health plan must be made available by the same plan sponsor for the plan year to the participant. (B) Benefits are limited in amount— (1) Limit on annual amounts made available. The amounts newly made available for each plan year under the HRA or other account-based group health plan do not exceed $1,800. In the case of any plan year beginning after December 31, 2020, the dollar amount in the preceding sentence shall be increased by an amount equal to such dollar amount multiplied by the cost-ofliving adjustment. The cost of living adjustment is the percentage (if any) by which the C–CPI–U for the preceding calendar year exceeds the C–CPI–U for VerDate Sep<11>2014 18:32 Oct 26, 2018 Jkt 247001 calendar year 2019. The term ‘‘C–CPI– U’’ means the Chained Consumer Price Index for All Urban Consumers as published by the Bureau of Labor Statistics of the Department of Labor. The C–CPI–U for any calendar year is the average of the C–CPI–U as of the close of the 12-month period ending on August 31 of such calendar year. The values of the C–CPI–U used for any calendar year shall be the latest values so published as of the date on which the Bureau publishes the initial value of the C–CPI–U for the month of August for the preceding calendar year. Any such increase that is not a multiple of $50 shall be rounded to the next lowest multiple of $50. (2) Carryover amounts. If the terms of the HRA or other account-based group health plan allow unused amounts to be made available to participants and dependents in later plan years, such carryover amounts are disregarded for purposes of determining whether benefits are limited in amount. (3) Multiple HRAs or other accountbased group health plans. If the plan sponsor provides more than one HRA or other account-based group health plan to the participant for the same time period, the amounts made available under all such plans are aggregated to determine whether the benefits are limited in amount. (C) Prohibition on reimbursement of certain health insurance premiums. The HRA or other account-based group health plan must not reimburse premiums for individual health insurance coverage, group health plan coverage (other than COBRA continuation coverage or other continuation coverage), or Medicare parts B or D, except that the HRA or other account-based group health plan may reimburse premiums for such coverage that consists solely of excepted benefits. (D) Uniform availability. The HRA or other account-based group health plan is made available under the same terms to all similarly situated individuals, as defined in § 2590.702(d) of this part, regardless of any health factor (as described in § 2590.702(a)). * * * * * Department of Health and Human Services 45 CFR Chapter 1 For the reasons stated in the preamble, the Department of Health and Human Services proposes to amend 45 CFR parts 144, 146, 147, and 155 as set forth below: PO 00000 Frm 00053 Fmt 4701 Sfmt 4702 54471 PART 144—REQUIREMENTS RELATING TO HEALTH INSURANCE COVERAGE 15. The authority citation for part 144 is revised to read as follows: ■ Authority: 42 U.S.C. 300gg through 300gg– 63, 300gg–91, and 300gg–92. 16. Section 144.103 is amended by revising the definition of ‘‘Group health insurance coverage’’ to read as follows: ■ § 144.103 Definitions. * * * * * Group health insurance coverage means health insurance coverage offered in connection with a group health plan. Individual health insurance coverage reimbursed by the arrangements described in 29 CFR 2510.3–1(l) is not offered in connection with a group health plan, and is not group health insurance coverage, provided all the conditions in 29 CFR 2510.3–1(l) are satisfied. * * * * * PART 146—REQUIREMENTS FOR THE GROUP HEALTH INSURANCE MARKET 17. The authority citation for part 146 continues to read as follows: ■ Authority: 42 U.S.C. 300gg–1 through 300gg–5, 300gg–11 through 300gg–23, 300gg– 91, and 300gg–92. ■ 18. Add § 146.123 to read as follows: § 146.123 Special rule allowing integration of health reimbursement arrangements (HRAs) and other account-based group health plans with individual health insurance coverage and prohibiting discrimination in HRAs and other accountbased group health plans. (a) Scope. This section applies to health reimbursement arrangements (HRAs) and other account-based group health plans, as defined in § 147.126(d)(6)(i) of this subchapter. For ease of reference, the term ‘‘HRA’’ is used in this section to include other account-based group health plans. (b) Purpose. This section provides the conditions that an HRA must satisfy in order to be integrated with individual health insurance coverage for purposes of Public Health Service Act (PHS Act) sections 2711 and 2713 and § 147.126(d)(4) of this subchapter. Some of the conditions set forth in this section specifically relate to compliance with PHS Act sections 2711 and 2713 and some relate to the effect of having or being offered an HRA on eligibility for the premium tax credit under section 36B of the Internal Revenue Code (Code). In addition, this section provides conditions that an HRA E:\FR\FM\29OCP2.SGM 29OCP2 amozie on DSK3GDR082PROD with PROPOSALS2 54472 Federal Register / Vol. 83, No. 209 / Monday, October 29, 2018 / Proposed Rules integrated with individual health insurance coverage must satisfy in order to comply with the nondiscrimination provisions in section 2705 of the PHS Act) and that are consistent with the provisions of the Patient Protection and Affordable Care Act, Public Law 111– 148 (124 Stat. 119 (2010)), and the Health Care and Education Reconciliation Act of 2010, Public Law 111–152 (124 Stat. 1029 (2010)), each as amended, that are designed to create a competitive individual market. These conditions are intended to prevent an HRA plan sponsor from intentionally or unintentionally, directly or indirectly, steering any participants or dependents with adverse health factors away from its traditional group health plan, if any, and toward individual health insurance coverage. (c) General rule. An HRA will be considered to be integrated with individual health insurance coverage for purposes of PHS Act sections 2711 and 2713 and § 147.126(d)(4) of this subchapter and will not be considered to discriminate in violation of PHS Act section 2705 solely because it offers an HRA integrated with individual health insurance coverage, provided that the conditions of this paragraph (c) are satisfied. (1) Enrollment in individual health insurance coverage. The HRA must require that the participant and any dependent(s) are enrolled in individual health insurance coverage that is subject to and complies with the requirements in PHS Act sections 2711 and 2713 for each month that the individual(s) are covered by the HRA. For this purpose, all individual health insurance coverage, except for individual health insurance coverage that consists solely of excepted benefits, is treated as being subject to and complying with PHS Act sections 2711 and 2713. References to individual health insurance coverage in this paragraph (c) do not include individual health insurance coverage that consists solely of excepted benefits. The HRA must also provide that, subject to applicable COBRA or other continuation of coverage requirements, if any individual covered by the HRA ceases to be covered by such individual health insurance coverage, the individual may not seek reimbursement under the HRA for claims that are incurred after the individual health insurance coverage ceases. In addition, subject to applicable COBRA or other continuation of coverage requirements, if the participant and all of the dependents covered by the participant’s HRA cease to be covered by such individual health insurance coverage, the participant must forfeit the HRA. VerDate Sep<11>2014 18:32 Oct 26, 2018 Jkt 247001 (2) No traditional group health plan may be offered to same participants. To the extent a plan sponsor offers any class of employees (as defined in paragraph (d) of this section) an HRA integrated with individual health insurance coverage, the plan sponsor may not also offer a traditional group health plan to the same class of employees. For this purpose, a traditional group health plan is any group health plan other than either an account-based group health plan or a group health plan that consists solely of excepted benefits. Therefore, a plan sponsor may not offer a choice between an HRA integrated with individual health insurance coverage or a traditional group health plan to any participant. (3) Same terms requirement. To the extent a plan sponsor offers an HRA integrated with individual health insurance coverage to a class of employees described in paragraph (d) of this section, the HRA must be offered on the same terms to all participants within the class, except as provided in paragraphs (c)(3)(i) and (ii) of this section and except that the HRA will not fail to be treated as provided on the same terms even if the plan sponsor offers the HRA to some, but not all, former employees within a class of employees. However, if a plan sponsor offers the HRA to one or more former employees within a class of employees, the HRA must be offered to the former employee(s) on the same terms as to all other employees within the class. Also, amounts that are not used to reimburse medical care expenses (as defined in § 147.126(d)(6)(ii) of this subchapter) for any plan year that are made available to participants in later plan years are disregarded for purposes of determining whether an HRA is offered on the same terms, provided that the method for determining whether participants have access to unused amounts in future years, and the methodology and formula for determining the amounts of unused funds which they may access in future years, is the same for all participants in a class of employees. In addition, the ability to pay the portion of the premium for individual health insurance coverage that is not covered by the HRA, if any, by using a salary reduction arrangement under section 125 of the Code is considered to be a term of the HRA for purposes of this paragraph; therefore, an HRA shall fail to be treated as provided on the same terms unless such a salary reduction arrangement, if made available to any participant in a class of employees, is made available on the same terms to all PO 00000 Frm 00054 Fmt 4701 Sfmt 4702 participants (other than former employees) in the class of employees. Further, the HRA shall not fail to be treated as provided on the same terms because the maximum dollar amount made available to participants in a class of employees to reimburse medical care expenses for any plan year increases: (i) As the age of the participant increases, so long as the same maximum dollar amount attributable to the increase in age is made available to all participants in that class of employees who are the same age; or (ii) As the number of the participant’s dependents who are covered under the HRA increases, so long as the same maximum dollar amount attributable to the increase in family size is made available to all participants in that class of employees with the same number of dependents covered by the HRA. (4) Opt out. Under the terms of the HRA, a participant who is otherwise eligible for coverage must be permitted to opt out of and waive future reimbursements from the HRA at least annually, and, upon termination of employment, either the remaining amounts in the HRA are forfeited or the participant is permitted to permanently opt out of and waive future reimbursements from the HRA. (5) Reasonable procedures for verification and substantiation—(i) General rule for verification of individual health insurance coverage for the plan year. The HRA must implement, and comply with, reasonable procedures to verify that participants and dependents are, or will be, enrolled in individual health insurance coverage for the plan year. The reasonable procedures may include a requirement that a participant substantiate enrollment by providing either: (A) A document from a third party (for example, the issuer) showing that the participant and any dependents covered by the HRA are, or will be, enrolled in individual health insurance coverage (for example, an insurance card or an explanation of benefits document pertaining to the relevant time period); or (B) An attestation by the participant stating that the participant and dependent(s) covered by the HRA are or will be enrolled in individual health insurance coverage, the date coverage began or will begin, and the name of the provider of the coverage. (ii) Coverage substantiation with each request for reimbursement of medical care expenses. Following the initial verification of coverage, with each new request for reimbursement of an incurred medical care expense for the E:\FR\FM\29OCP2.SGM 29OCP2 amozie on DSK3GDR082PROD with PROPOSALS2 Federal Register / Vol. 83, No. 209 / Monday, October 29, 2018 / Proposed Rules same plan year, the HRA may not reimburse participants for any medical care expenses unless, prior to each reimbursement, the participant provides substantiation (which may be in the form of a written attestation) that the participant and if applicable, the dependent whose medical care expenses are requested to be reimbursed continue to be enrolled in individual health insurance coverage for the month during which the medical care expenses were incurred. The attestation may be part of the form used for requesting reimbursement. (iii) Reliance on substantiation. For purposes of this paragraph (c)(5), an HRA may rely on the participant’s documentation or attestation unless the HRA has actual knowledge that any individual covered by the HRA is not, or will not be, enrolled in individual health insurance coverage for the plan year or the month, as applicable. (6) Notice requirement—(i) Timing. The HRA must provide a written notice to each participant at least 90 days before the beginning of each plan year or, for a participant who is not eligible to participate at the beginning of the plan year (or who is not eligible to participate at the time the notice is provided at least 90 days before the beginning of the plan year), no later than the date on which the participant is first eligible to participate in the HRA. (ii) Content. The notice must include all the information described in this paragraph (c)(6)(ii) (and may include any additional information as long as it does not conflict with the required information set forth in paragraph (c)(6)(ii)(A) through (H) of this section). (A) A description of the terms of the HRA, including the maximum dollar amount available for each participant (including the self-only HRA amount available for the plan year (or the maximum dollar amount available for the plan year if the HRA provides for reimbursements up to a single dollar amount regardless of whether a participant has self-only or family coverage)), any rules regarding the proration of the maximum dollar amount applicable to any participant who is not eligible to participate in the HRA for the entire plan year, whether the participant’s family members are eligible for the HRA, a statement that the HRA is not a qualified small employer health reimbursement arrangement, a statement that the HRA requires the participant and any dependents to be enrolled in individual health insurance coverage, a statement that the participant is required to substantiate the existence of such enrollment, a statement that the VerDate Sep<11>2014 18:32 Oct 26, 2018 Jkt 247001 coverage enrolled in cannot be shortterm, limited-duration insurance or excepted benefits, and, if the requirements under 29 CFR 2510.3–1(l) are met, a statement that the individual health insurance coverage enrolled in is not subject to the Employee Retirement Income Security Act (ERISA). (B) A statement of the right of the participant to opt out of and waive future reimbursements from the HRA, as set forth under paragraph (c)(4) of this section. (C) A description of the potential availability of the premium tax credit if the participant opts out of and waives future reimbursements from the HRA and the HRA is not affordable for one or more months under 26 CFR 1.36B– 2(c)(5), a statement that even if the participant opts out of and waives future reimbursements from an HRA, the offer will prohibit the participant (and, potentially, the participant’s dependents) from receiving a premium tax credit for the participant’s coverage (or the dependent’s coverage, if applicable) on the Exchange (as defined in 45 CFR 155.20) for any month that the HRA is affordable under 26 CFR 1.36B–2(c)(5), and a statement that, if the participant is a former employee, the offer of the HRA does not render the participant ineligible for the premium tax credit regardless of whether it is affordable under 26 CFR 1.36B–2(c)(5); (D) A statement that if the participant accepts the HRA, the participant may not claim a premium tax credit for the participant’s Exchange coverage for any month the HRA may be used to reimburse medical care expenses of the participant and a premium tax credit may not be claimed for the Exchange coverage of the participant’s dependents for any month the HRA may be used to reimburse medical care expenses of the dependents. (E) A statement that the participant must inform any Exchange to which the participant applies for advance payments of the premium tax credit of the availability of the HRA, the self-only HRA amount available for the plan year (or the maximum dollar amount available for the plan year if the HRA provides for reimbursements up to a single dollar amount regardless of whether a participant has self-only or family coverage) as set forth in the written notice in accordance with paragraph (c)(6)(ii)(A) of this section, the number of months in the plan year the HRA is available to the participant, whether the HRA is also available to the participant’s dependents, and whether the participant is a current employee or former employee. PO 00000 Frm 00055 Fmt 4701 Sfmt 4702 54473 (F) A statement that the participant should retain the written notice because it may be needed to determine whether the participant is allowed a premium tax credit on the participant’s individual income tax return and, if so, the months the participant is allowed the premium tax credit. (G) A statement that the HRA may not reimburse any medical care expense unless the substantiation requirement set forth in paragraph (c)(5) of this section is satisfied. (H) A statement that it is the responsibility of the participant to inform the HRA if the participant or any dependent whose medical care expenses are reimbursable by the HRA is no longer enrolled in individual health insurance coverage. (d) Classes of employees—(1) List of classes. Participants may be treated as belonging to a class of employees based on whether they are, or are not, included in the classes described in this paragraph (d)(1). If the HRA is offered to former employees, former employees are considered to be in the same class in which they were in immediately before separation from service. (See paragraph (d)(2) of this section for additional rules regarding the definition of ‘‘full-time employees,’’ ‘‘part-time employees,’’ and ‘‘seasonal employees.’’) (i) Full-time employees, defined to mean either full-time employees under section 4980H of the Code and the regulations thereunder (26 CFR 54.4980H–1(a)(21)) or employees who are not part-time employees (as described in 26 CFR 1.105– 11(c)(2)(iii)(C)); (ii) Part-time employees, defined to mean either employees who are not fulltime employees under section 4980H of the Code and 26 CFR 54.4980H–1 and –3 or part-time employees as described in 26 CFR 1.105–11(c)(2)(iii)(C); (iii) Seasonal employees, defined to mean seasonal employees as described in either 26 CFR 54.4980H–1(a)(38) or 26 CFR 1.105–11(c)(2)(iii)(C); (iv) Employees included in a unit of employees covered by a collective bargaining agreement in which the plan sponsor participates (as described in 26 CFR 1.105–11(c)(2)(iii)(D)); (v) Employees who have not satisfied a waiting period for coverage (if the waiting period complies with § 147.116 of this subchapter); (vi) Employees who have not attained age 25 prior to the beginning of the plan year (as described in 26 CFR 1.105– 11(c)(2)(iii)(B)); (vii) Non-resident aliens with no U.S.based income (as described in 26 CFR 1.105–11(c)(2)(iii)(E)); E:\FR\FM\29OCP2.SGM 29OCP2 54474 Federal Register / Vol. 83, No. 209 / Monday, October 29, 2018 / Proposed Rules amozie on DSK3GDR082PROD with PROPOSALS2 (viii) Employees whose primary site of employment is in the same rating area as defined in § 147.102(b) of this subchapter; or (ix) A group of participants described as a combination of two or more of the classes of employees set forth in paragraphs (d)(1)(i) through (viii) of this section. (For example, part-time employees included in a unit of employees covered by a collective bargaining agreement could be one class of employees and full-time employees included in a unit of employees covered by the same collective bargaining agreement could be another class of employees.) (2) Consistency requirement. For any plan year, a plan sponsor may define ‘‘full-time employee,’’ ‘‘part-time employee,’’ and ‘‘seasonal employee’’ in accordance with the relevant provisions of sections 105(h) of the Code and 26 CFR 1.105–11 or of section 4980H of the Code and 26 CFR 54.4980H–1 and –3 if: (i) To the extent applicable under the HRA for the plan year, each of the three classes of employees are defined in accordance with either section 105(h) of the Code or section 4980H of the Code for the plan year; and (ii) The HRA plan document sets forth the applicable definitions prior to the beginning of the plan year in which the definitions will apply. (e) Examples. The following examples illustrate the provisions of paragraphs (c)(2) and (3) of this section. In each example, the HRA may reimburse any medical care expenses, including premiums for individual health insurance coverage. (1) Example 1. (i) Facts. For 2020, Plan Sponsor X offers the following to its employees. Full-time employees in rating area A are offered $2,000 each in an HRA. Part-time employees in rating area A are offered $500 each in an HRA. All employees in rating area B are offered a traditional group health plan. (ii) Conclusion. The requirements of paragraphs (c)(2) and (3) of this section are satisfied in this Example 1. (2) Example 2. (i) Facts. For 2020, Plan Sponsor Y offers the following to its employees. Employees covered by a collective bargaining agreement in which Plan Sponsor Y participates are offered a traditional group health plan (as required by the collective bargaining agreement). All other employees (non-collectively bargained employees) are offered the following amounts in an HRA: $1,000 each for employees age 25 to 35; $2,000 each for employees age 36 to 45; $2,500 each for employees age 46 to 55; and $4,000 each for employees over age 55. Non-collectively bargained employees who have not attained age 25 by January 1, 2020 are not offered an HRA or a traditional group health plan. VerDate Sep<11>2014 18:32 Oct 26, 2018 Jkt 247001 (ii) Conclusion. The requirements of paragraphs (c)(2) and (3) of this section are satisfied in this Example 2. (3) Example 3. (i) Facts. For 2020, Plan Sponsor Z offers the following amounts in an HRA to its employees who have completed the plan’s waiting period, which complies with the requirements for waiting periods in § 147.116 of this subchapter: $1,500, if the employee is the only individual covered by the HRA; $3,500, if the employee and one additional family member are covered by the HRA; and $5,000, if the employee and more than one additional family member are covered by the HRA. (ii) Conclusion. The requirements of paragraphs (c)(2) and (3) of this section are satisfied in this Example 3. (f) Applicability date. This section applies to plan years beginning on or after January 1, 2020. ■ 19. Section 146.145 is amended by revising paragraph (b)(3)(i) and adding paragraph (b)(3)(viii) to read as follows: § 146.145 Special rules relating to group health plans. * * * * * (b) * * * (3) * * * (i) In general. Limited-scope dental benefits, limited-scope vision benefits, or long-term care benefits are excepted if they are provided under a separate policy, certificate, or contract of insurance, or are otherwise not an integral part of a group health plan as described in paragraph (b)(3)(ii) of this section. In addition, benefits provided under a health flexible spending arrangement (health FSA) are excepted benefits if they satisfy the requirements of paragraph (b)(3)(v) of this section; benefits provided under an employee assistance program are excepted benefits if they satisfy the requirements of paragraph (b)(3)(vi) of this section; benefits provided under limited wraparound coverage are excepted benefits if they satisfy the requirements of paragraph (b)(3)(vii) of this section; and benefits provided under a health reimbursement arrangement or other account-based group health plan, other than a health FSA, are excepted benefits if they satisfy the requirements of paragraph (b)(3)(viii) of this section. * * * * * (viii) Health reimbursement arrangements (HRAs) and other account-based group health plans. Benefits provided under an HRA or other account-based group health plan, other than a health FSA, are excepted if they satisfy all of the requirements of this paragraph (b)(3)(viii). See paragraph (b)(3)(v) of this section for the circumstances in which benefits provided under a health FSA are excepted benefits. For purposes of this PO 00000 Frm 00056 Fmt 4701 Sfmt 4702 paragraph, the term ‘‘HRA or other account-based group health plan’’ has the same meaning as ‘‘account-based group health plan’’ set forth in § 147.126(d)(6)(i) of this subchapter, except that the term does not include health FSAs. (A) Otherwise not an integral part of the plan. Other group health plan coverage that is not limited to excepted benefits and that is not an HRA or other account-based group health plan must be made available by the same plan sponsor for the plan year to the participant. (B) Benefits are limited in amount— (1) Limit on annual amounts made available. The amounts newly made available for each plan year under the HRA or other account-based group health plan do not exceed $1,800. In the case of any plan year beginning after December 31, 2020, the dollar amount in the preceding sentence shall be increased by an amount equal to such dollar amount multiplied by the cost-ofliving adjustment. The cost of living adjustment is the percentage (if any) by which the C–CPI–U for the preceding calendar year exceeds the C–CPI–U for calendar year 2019. The term ‘‘C–CPI– U’’ means the Chained Consumer Price Index for All Urban Consumers as published by the Bureau of Labor Statistics of the Department of Labor. The C–CPI–U for any calendar year is the average of the C–CPI–U as of the close of the 12-month period ending on August 31 of such calendar year. The values of the C–CPI–U used for any calendar year shall be the latest values so published as of the date on which the Bureau publishes the initial value of the C–CPI–U for the month of August for the preceding calendar year. Any such increase that is not a multiple of $50 shall be rounded to the next lowest multiple of $50. (2) Carryover amounts. If the terms of the HRA or other account-based group health plan allow unused amounts to be made available to participants and dependents in later plan years, such carryover amounts are disregarded for purposes of determining whether benefits are limited in amount. (3) Multiple HRAs or other accountbased group health plans. If the plan sponsor provides more than one HRA or other account-based group health plan to the participant for the same time period, the amounts made available under all such plans are aggregated to determine whether the benefits are limited in amount. (C) Prohibition on reimbursement of certain health insurance premiums. The HRA or other account-based group health plan must not reimburse E:\FR\FM\29OCP2.SGM 29OCP2 Federal Register / Vol. 83, No. 209 / Monday, October 29, 2018 / Proposed Rules premiums for individual health insurance coverage, group health plan coverage (other than COBRA continuation coverage or other continuation coverage), or Medicare parts B or D, except that the HRA or other account-based group health plan may reimburse premiums for such coverage that consists solely of excepted benefits. (D) Uniform availability. The HRA or other account-based group health plan is made available under the same terms to all similarly-situated individuals, as defined in § 146.121(d) of this part, regardless of any health factor (as described in § 146.121(a)). * * * * * PART 147—HEALTH INSURANCE REFORM REQUIREMENTS FOR THE GROUP AND INDIVIDUAL HEALTH INSURANCE MARKETS 20. The authority citation for part 147 is revised to read as follows: ■ Authority: 42 U.S.C. 300gg through 300gg– 63, 300gg–91, and 300gg–92, as amended. 21. Section 147.126 is amended by revising paragraphs (c), (d), and (e) to read as follows: ■ § 147.126 No lifetime or annual limits. amozie on DSK3GDR082PROD with PROPOSALS2 * * * * * (c) Definition of essential health benefits. The term ‘‘essential health benefits’’ means essential health benefits under section 1302(b) of the Patient Protection and Affordable Care Act. For this purpose, a group health plan or a health insurance issuer that is not required to provide essential health benefits under section 1302(b) must define ‘‘essential health benefits’’ in a manner that is consistent with the following paragraphs (c)(1) or (2): (1) For plan years beginning before January 1, 2020, one of the EHBbenchmark plans applicable in a State under 45 CFR 156.110, and including coverage of any additional required benefits that are considered essential health benefits consistent with 45 CFR 155.170(a)(2), or one of the three Federal Employee Health Benefits Program (FEHBP) plan options as defined by 45 CFR 156.100(a)(3), and including coverage of additional required benefits under 45 CFR 156.110; or (2) For plan years beginning on or after January 1, 2020, an EHBbenchmark plan selected by a State in accordance with the available options and requirements for EHB-benchmark plan selection at 45 CFR 156.111, including an EHB-benchmark plan in a State that takes no action to change its EHB-benchmark plan and thus retains the EHB-benchmark plan applicable in VerDate Sep<11>2014 18:32 Oct 26, 2018 Jkt 247001 that State for the prior year in accordance with 45 CFR 156.111(d)(1), and including coverage of any additional required benefits that are considered essential health benefits consistent with 45 CFR 155.170(a)(2). (d) Health reimbursement arrangements (HRAs) and other account-based group health plans—(1) In general. If an HRA or other accountbased group health plan is integrated with another group health plan or individual health insurance coverage and the other group health plan or individual health insurance coverage, as applicable, separately is subject to and satisfies the requirements in PHS Act section 2711 and paragraph (a)(2) of this section, the fact that the benefits under the HRA or other account-based group health plan are limited does not cause the HRA or other account-based group health plan to fail to meet the requirements of PHS Act section 2711 and paragraph (a)(2) of this section. Similarly, if an HRA or other accountbased group health plan is integrated with another group health plan or individual health insurance coverage and the other group health plan or individual health insurance coverage, as applicable, separately is subject to and satisfies the requirements in PHS Act section 2713 and § 147.130(a)(1) of this subchapter, the fact that the benefits under the HRA or other account-based group health plan are limited does not cause the HRA or other account-based group health plan to fail to meet the requirements of PHS Act section 2713 and § 147.130(a)(1) of this subchapter. For this purpose, all individual health insurance coverage, except for coverage that consists solely of excepted benefits, is treated as being subject to and complying with PHS Act sections 2711 and 2713. (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 meets 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 accountbased 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. PO 00000 Frm 00057 Fmt 4701 Sfmt 4702 54475 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 § 148.220 of this subchapter. (i) Method for integration with a group health plan: Minimum value not required. An HRA or other accountbased group health plan is integrated with another group health plan for purposes of this paragraph 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 does not consist solely of excepted benefits; (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 does not consist solely of excepted benefits, regardless of whether the plan is offered by the same plan sponsor (referred to as non-HRA group coverage); (C) The HRA or other account-based group health plan is available only to employees who are enrolled in nonHRA group coverage, regardless of whether the non-HRA 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 group coverage, such as a group health plan maintained by the employer of the employee’s spouse); (D) The benefits under the HRA or other account-based group health plan are limited to reimbursement of one or more of the following—co-payments, coinsurance, deductibles, and premiums under the non-HRA group coverage, as well as medical care expenses that do not constitute essential health benefits as defined in paragraph (c) of this section; and (E) 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 E:\FR\FM\29OCP2.SGM 29OCP2 amozie on DSK3GDR082PROD with PROPOSALS2 54476 Federal Register / Vol. 83, No. 209 / Monday, October 29, 2018 / Proposed Rules additional rules regarding forfeiture and waiver). (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 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 26 CFR 1.36B–6; (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 26 CFR 1.36B–6, 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). (3) Forfeiture. For purposes of integration under paragraphs (d)(2)(i)(E) and (d)(2)(ii)(D) of this section, forfeiture or waiver occurs even if the forfeited or waived amounts may be reinstated upon a fixed date, a participant’s death, or the earlier of the two events (the reinstatement event). For this purpose, coverage under an HRA or other account-based group health plan is considered forfeited or VerDate Sep<11>2014 18:32 Oct 26, 2018 Jkt 247001 waived prior to a reinstatement event only if the participant’s election to forfeit or waive is irrevocable, meaning that, beginning on the effective date of the election and through the date of the reinstatement event, the participant and the participant’s beneficiaries have no access to amounts credited to the HRA or other account-based group health plan. This means that upon and after reinstatement, the reinstated amounts under the HRA or other account-based group health plan may not be used to reimburse or pay medical care expenses incurred during the period after forfeiture and prior to reinstatement. (4) Requirements for an HRA or other account-based group health plan to be integrated with individual health insurance coverage. An HRA or other account-based group health plan is integrated with individual health insurance coverage (and treated as complying with PHS Act sections 2711 and 2713) if the HRA or other accountbased group health plan meets the requirements of 45 CFR 146.123(c). (5) Integration with Medicare parts B and D. For employers that are not required to offer their non-HRA group health plan coverage to employees who are Medicare beneficiaries, an HRA or other account-based group health plan that may be used to reimburse premiums under Medicare part B or D may be integrated with Medicare (and deemed to comply with PHS Act sections 2711 and 2713) if the requirements of this paragraph (d)(5) are satisfied with respect to employees who would be eligible for the employer’s non-HRA group health plan but for their eligibility for Medicare (and the integration rules under paragraphs (d)(2)(i) and (ii) of this section continue to apply to employees who are not eligible for Medicare): (i) The plan sponsor offers a group health plan (other than the HRA or other account-based group health plan and that does not consist solely of excepted benefits) to employees who are not eligible for Medicare; (ii) The employee receiving the HRA or other account-based group health plan is actually enrolled in Medicare part B or D; (iii) The HRA or other account-based group health plan is available only to employees who are enrolled in Medicare part B or D; and (iv) The HRA or other account-based group health plan complies with paragraphs (d)(2)(i)(E) and (d)(2)(ii)(D) of this section. (6) Definitions. The following definitions apply for purposes of this section. PO 00000 Frm 00058 Fmt 4701 Sfmt 4702 (i) Account-based group health plan. An account-based group health plan is an employer-provided group health plan that provides reimbursements of medical care expenses with the reimbursement subject to a maximum fixed dollar amount for a period. An HRA is a type of account-based group health plan. An account-based group health plan does not include a qualified small employer health reimbursement arrangement, as defined in Code section 9831(d)(2). (ii) Medical care expenses. Medical care expenses means expenses for medical care as defined under Code section 213(d). (e) Applicability date. The provisions of this section are applicable to group health plans and health insurance issuers for plan years beginning on or after January 1, 2020. Until [APPLICABILITY DATE OF FINAL RULE] plans and issuers are required to continue to comply with the corresponding sections of this subchapter B, contained in the 45 CFR, subtitle A, parts 1–199, revised as of July 1, 2018. PART 155—EXCHANGE ESTABLISHMENT STANDARDS AND OTHER RELATED STANDARDS UNDER THE AFFORDABLE CARE ACT 22. The authority citation for part 155 is revised to read as follows: ■ Authority: 42 U.S.C. 18021–18024, 18031– 18033, 18041–18042, 18051, 18054, 18071, and 18081–18083. 23. Section 155.420 is amended a. By revising paragraph (a)(4)(iii) introductory text; ■ b. By adding paragraph (b)(2)(vi); ■ c. By revising paragraph (c)(2); ■ d. In paragraph (d)(12) by removing ‘‘;or’’ and adding ‘‘;’’ in its place; ■ e. In paragraph (d)(13) by removing the period at the end of the paragraph and adding ‘‘; or’’ in its place; and ■ f. By adding paragraph (d)(14). The revisions and additions read as follows: ■ ■ § 155.420 Special enrollment periods. * * * * * (a) * * * (4) * * * (iii) For the other triggering events specified in paragraph (d) of this section, except for paragraphs (d)(2)(i), (d)(4), and (d)(6)(i) and (ii) of this section for becoming newly eligible for cost sharing reductions, and paragraphs (d)(8), (9), (10), (12), and (14) of this section: * * * * * (b) * * * (2) * * * E:\FR\FM\29OCP2.SGM 29OCP2 Federal Register / Vol. 83, No. 209 / Monday, October 29, 2018 / Proposed Rules amozie on DSK3GDR082PROD with PROPOSALS2 (vi) If a qualified individual, enrollee, or dependent gains access to a health reimbursement arrangement or other account-based group health plan integrated with individual health insurance coverage or is provided a qualified small employer health reimbursement arrangement, each as described in paragraph (d)(14) of this section, and if the plan selection is made before the day of the triggering event, the Exchange must ensure that coverage is effective on the first day of the month following the date of the triggering event or, if the triggering event is on the first day of a month, on the date of the triggering event. If the plan selection is made on or after the day of the triggering event, the Exchange must ensure that the coverage effective VerDate Sep<11>2014 18:32 Oct 26, 2018 Jkt 247001 date is on the first day of the following month. * * * * * (c) * * * (2) Advanced availability. A qualified individual or his or her dependent who is described in paragraph (d)(1), (d)(6)(iii), or (d)(14) of this section has 60 days before or after the triggering event to select a QHP. At the option of the Exchange, a qualified individual or his or her dependent who is described in paragraph (d)(7) of this section; who is described in paragraph (d)(6)(iv) of this section and becomes newly eligible for advance payments of the premium tax credit as a result of a permanent move to a new State; or who is described in paragraph (d)(3) of this section and becomes newly eligible for enrollment in a QHP through the PO 00000 Frm 00059 Fmt 4701 Sfmt 9990 54477 Exchange because he or she newly satisfies the requirements under § 155.305(a)(2), has 60 days before or after the triggering event to select a QHP. * * * * * (d) * * * (14) The qualified individual, enrollee, or dependent gains access to and enrolls in a health reimbursement arrangement or other account-based group health plan (as defined in 45 CFR 147.126(d)(6)(i)) that will be integrated with individual health insurance coverage, in accordance with 45 CFR 146.123(c), or is provided a qualified small employer health reimbursement arrangement, as defined in section 9831(d)(2) of the Internal Revenue Code. [FR Doc. 2018–23183 Filed 10–23–18; 8:45 am] BILLING CODE 4830–01–P; 4510–29–P; 4120–01–P E:\FR\FM\29OCP2.SGM 29OCP2

Agencies

[Federal Register Volume 83, Number 209 (Monday, October 29, 2018)]
[Proposed Rules]
[Pages 54420-54477]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-23183]



[[Page 54419]]

Vol. 83

Monday,

No. 209

October 29, 2018

Part II





Department of the Treasury





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Internal Revenue Service





Department of Labor





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Employee Benefits Security Administration





Department of Health and Human Services





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26 CFR Parts 1 and 54

29 CFR Parts 2510 and 2590

45 CFR Parts 144, 146, 147, et al.





 Health Reimbursement Arrangements and Other Account-Based Group Health 
Plans; Proposed Rule

Federal Register / Vol. 83, No. 209 / Monday, October 29, 2018 / 
Proposed Rules

[[Page 54420]]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1 and 54

[REG-136724-17]
RIN 1545-BO46

DEPARTMENT OF LABOR

Employee Benefits Security Administration

29 CFR Parts 2510 and 2590

RIN 1210-AB87

DEPARTMENT OF HEALTH AND HUMAN SERVICES

45 CFR Parts 144, 146, 147, and 155

[CMS-9918-P]
RIN 0938-AT90


Health Reimbursement Arrangements and Other Account-Based Group 
Health Plans

AGENCY: Internal Revenue Service, Department of the Treasury; Employee 
Benefits Security Administration, Department of Labor; Centers for 
Medicare & Medicaid Services, Department of Health and Human Services.

ACTION: Notice of proposed rulemaking.

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SUMMARY: This document sets forth proposed rules to expand 
opportunities for working men and women and their families to access 
affordable, quality healthcare through proposed changes to regulations 
under various provisions of the Public Health Service Act (PHS Act), 
the Employee Retirement Income Security Act (ERISA), and the Internal 
Revenue Code (Code) regarding health reimbursement arrangements (HRAs) 
and other account-based group health plans. (For simplicity, this 
preamble generally refers only to HRAs, but references to HRAs should 
also be considered to include other account-based group health plans, 
unless indicated otherwise.) Specifically, these proposed rules allow 
integrating HRAs with individual health insurance coverage, if certain 
conditions are met. The proposed rules also set forth conditions under 
which certain HRAs would be recognized as limited excepted benefits. 
Also, the Department of the Treasury (Treasury Department) and the 
Internal Revenue Service (IRS) propose rules regarding premium tax 
credit (PTC) eligibility for individuals offered coverage under an HRA 
integrated with individual health insurance coverage. In addition, the 
Department of Labor (DOL) proposes a clarification to provide plan 
sponsors with assurance that the individual health insurance coverage 
the premiums of which are reimbursed by an HRA or a qualified small 
employer health reimbursement arrangement (QSEHRA) does not become part 
of an ERISA plan, provided certain conditions are met. Finally, the 
Department of Health and Human Services (HHS) proposes rules that would 
provide a special enrollment period in the individual market for 
individuals who gain access to an HRA integrated with individual health 
insurance coverage or who are provided a QSEHRA. The goal of these 
proposed rules is to expand the flexibility and use of HRAs to provide 
more Americans with additional options to obtain quality, affordable 
healthcare. The proposed rules would affect employees and their family 
members; employers, employee organizations, and other plan sponsors; 
group health plans; health insurance issuers; and purchasers of 
individual health insurance coverage.

DATES: Comments are due on or before December 28, 2018.

ADDRESSES: Written comments may be submitted to the addresses specified 
below. Any comment that is submitted will be shared with the DOL and 
HHS. Please do not submit duplicates.
    All comments will be made available to the public. Warning: Do not 
include any personally identifiable information (such as name, address, 
or other contact information) or confidential business information that 
you do not want publicly disclosed. All comments are posted on the 
internet exactly as received, and can be retrieved by most internet 
search engines. No deletions, modifications, or redactions will be made 
to the comments received, as they are public records. Comments may be 
submitted anonymously.
    Comments, identified by REG-136724-17, may be submitted by one of 
the following methods:
    Federal eRulemaking Portal: https://www.regulations.gov. Follow the 
instructions for submitting comments.
    Mail: CC:PA:LPD:PR (REG-136724-17), Room 5205, Internal Revenue 
Service, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044.
    Hand or courier delivery: Monday through Friday between the hours 
of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG-136724-17), Courier's Desk, 
Internal Revenue Service, 1111 Constitution Avenue NW, Washington, DC 
20224.
    Comments received will be posted without change to 
www.regulations.gov and available for public inspection.
    Inspection of Public Comments: All comments received before the 
close of the comment period are available for viewing by the public, 
including any personally identifiable information that is included in a 
comment. All comments received before the close of the comment period 
will be posted on the following website as soon as possible after they 
have been received: https://www.regulations.gov. Follow the search 
instructions on that website to view public comments.

FOR FURTHER INFORMATION CONTACT: Christopher Dellana, Internal Revenue 
Service, Department of the Treasury, at (202) 317-5500; Elizabeth 
Schumacher or Matthew Litton, Employee Benefits Security 
Administration, Department of Labor, at (202) 693-8335; David Mlawsky 
or Cam Clemmons, Centers for Medicare & Medicaid Services, Department 
of Health and Human Services, at (410) 786-1565.
    Customer Service Information: Individuals interested in obtaining 
information from the DOL concerning employment-based health coverage 
laws may call the EBSA Toll-Free Hotline at 1-866-444-EBSA (3272) or 
visit the DOL's website (www.dol.gov/ebsa). In addition, information 
from HHS on private health insurance coverage and coverage provided by 
nonfederal governmental group health plans can be found on the Centers 
for Medicare & Medicaid Services (CMS) website (www.cms.gov/cciio), and 
information on healthcare reform can be found at www.HealthCare.gov.

SUPPLEMENTARY INFORMATION: 

I. Background

A. Executive Order 13813

    On October 12, 2017, President Trump issued Executive Order 
13813,\1\ ``Promoting Healthcare Choice and Competition Across the 
United States,'' stating, in part, that the ``Administration will 
prioritize three areas for improvement in the near term: Association 
health plans (AHPs), short-term, limited-duration insurance (STLDI), 
and health reimbursement arrangements (HRAs).'' With regard to HRAs, 
the Executive Order directs the Secretaries of the Treasury, Labor, and 
HHS to ``consider proposing regulations or revising guidance, to the 
extent permitted by law and supported by sound policy, to increase the 
usability of HRAs, to expand employers' ability to offer HRAs to their 
employees, and to allow HRAs to be used in conjunction with nongroup 
coverage.'' The Executive Order further provides that

[[Page 54421]]

expanding ``the flexibility and use of HRAs would provide many 
Americans, including employees who work at small businesses, with more 
options for financing their healthcare.'' The proposed rules have been 
developed in response to this Executive Order.\2\
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    \1\ 82 FR 48385 (Oct. 17, 2017).
    \2\ In response to Executive Order 13813, on June 21, 2018, DOL 
published the Definition of Employer under Section 3(5) of ERISA--
Association Health Plans final rule and on August 3, 2018, DOL, HHS 
and the Treasury Department published the Short-Term, Limited-
Duration Insurance final rule. See the Association Health Plan final 
rule at 83 FR 28912 and the Short-Term, Limited-Duration Insurance 
final rule at 83 FR 38212.
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B. Health Reimbursement Arrangements and Other Account-Based Group 
Health Plans

1. In General
    An account-based group health plan is an employer-provided group 
health plan that provides for reimbursement of expenses for medical 
care (as defined under section 213(d) of the Code) (medical care 
expenses), subject to a maximum fixed-dollar amount of reimbursements 
for a period (for example, a calendar year). An HRA is a type of 
account-based group health plan funded solely by employer contributions 
(with no salary reduction contributions or other contributions by 
employees) that reimburses an employee solely for medical care expenses 
incurred by the employee, or the employee's spouse, dependents, and 
children who, as of the end of the taxable year, have not attained age 
27, up to a maximum dollar amount for a coverage period.\3\ The 
reimbursements under these types of arrangements are excludable from 
the employee's income and wages for Federal income tax and employment 
tax purposes. Amounts that remain in the HRA at the end of the year 
often may be used to reimburse medical care expenses incurred in later 
years, depending on the terms of the HRA.
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    \3\ See IRS Notice 2002-45, 2002-02 CB 93; Revenue Ruling 2002-
41, 2002-2 CB 75; IRS Notice 2013-54, 2013-40 IRB 287.
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    HRAs are not the only type of account-based group health plan. For 
example, an employer payment plan is also an account-based group health 
plan. An employer payment plan is an arrangement under which an 
employer reimburses an employee for some or all of the premium expenses 
incurred for individual health insurance coverage, or other non-
employer sponsored hospital or medical insurance, such as a 
reimbursement arrangement described in Revenue Ruling 61-146, 1961-2 CB 
25, or an arrangement under which the employer uses its funds directly 
to pay the premium for individual health insurance coverage or other 
non-employer sponsored hospital or medical insurance covering the 
employee.\4\ Other examples of account-based group health plans include 
health flexible spending arrangements (health FSAs) and certain other 
employer-provided medical reimbursement plans that are not HRAs.\5\
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    \4\ For more information about employer payment plans, see IRS 
Notice 2013-54, Q1 & Q3, and IRS Notice 2015-17, Q4 & Q5, 2015-14 
IRB 845.
    \5\ A QSEHRA, as defined in section 9831(d) of the Code, is not 
a group health plan for purposes of the market requirements of the 
Code (except as provided in section 4980I(f)(4) of the Code), parts 
6 and 7 of ERISA, and title XXII and XXVII of the PHS Act, and is 
not included in the definition of HRAs and other account-based group 
health plans for purposes of these proposed regulations or this 
preamble. A QSEHRA is, however, considered a group health plan under 
the PHS Act for purposes of part C of title XI of the Social 
Security Act (42 U.S.C. 1320d, et seq.). See section 2791(a)(1) of 
the PHS Act, as amended by section 18001(c) of the Cures Act. As 
previously noted, the preamble generally refers only to HRAs, but 
references to HRAs should also be considered to include other 
account-based group health plans as defined in these proposed rules, 
unless otherwise specified. This term does not include QSEHRAs, 
medical savings accounts (MSAs), or health savings accounts (HSAs). 
In addition, for purposes of these proposed rules, the term ``HRA or 
other account-based group health plan'' does not include an employer 
arrangement that reimburses the cost of individual health insurance 
coverage in a cafeteria plan under section 125 of the Code 
(cafeteria plan premium arrangements); however see later in this 
preamble for a clarification that plan sponsors may offer such an 
arrangement in addition to an HRA integrated with individual health 
insurance coverage in certain circumstances and see later in this 
preamble for a related comment solicitation.
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2. Application of the Patient Protection and Affordable Care Act to 
HRAs and Other Account-Based Group Health Plans
    The Patient Protection and Affordable Care Act, Public Law 111-148, 
was enacted on March 23, 2010; the Health Care and Education 
Reconciliation Act of 2010, Public Law 111-152, was enacted on March 
30, 2010 (collectively, PPACA). PPACA reorganized, amended, and added 
to the provisions of part A of title XXVII of the PHS Act relating to 
health coverage requirements for group health plans and health 
insurance issuers in the group and individual markets. The term ``group 
health plan'' includes both insured and self-insured group health 
plans.
    PPACA also added section 715 to ERISA and section 9815 to the Code 
to incorporate the provisions of part A of title XXVII of the PHS Act, 
PHS Act sections 2701 through 2728 (the market requirements), into 
ERISA and the Code, making them applicable to group health plans and 
health insurance issuers providing health insurance coverage in 
connection with group health plans. In accordance with section 9831(b) 
and (c) of the Code, section 732(b) and (c) of ERISA, and sections 
2722(b), (c) and 2763 of the PHS Act, the market requirements do not 
apply to a group health plan or health insurance issuers in the group 
or individual markets in relation to their provision of excepted 
benefits described in section 9832(c) of the Code, section 733(c) of 
ERISA, and section 2791(c) of the PHS Act.\6\ See the discussion later 
in this preamble for additional background on excepted benefits. In 
addition, in accordance with section 9831(a)(2) of the Code and section 
732(a) of ERISA, the market requirements do not apply to a group health 
plan that has fewer than two participants who are current employees on 
the first day of the plan year.\7\
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    \6\ While the PPACA amendments to PHS Act section 2722(b) and 
(c) (formerly section 2721(c) and (d)) could be read as restricting 
the exemption for excepted benefits so that it applies only with 
respect to subpart 2 of part A of title XXVII of the PHS Act, HHS 
does not intend to use its resources to enforce the market 
requirements with respect to excepted benefits offered by non-
federal governmental plans and encourages States to adopt a similar 
approach with respect to issuers of excepted benefits. See 75 FR 
34537 at 34539-34540 (June 17, 2010).
    \7\ While the PPACA amendments to title XXVII of the PHS Act 
removed the parallel provision at section 2722(a) (formerly section 
2721(a)), HHS follows a similar approach for retiree-only non-
federal governmental plans and encourages States to adopt a similar 
approach with respect to health insurance issuers of retiree-only 
plans. See 75 FR 34537, 34539-34540 (June 17, 2010).
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    PHS Act section 2711, as added by PPACA, generally prohibits group 
health plans and health insurance issuers offering group or individual 
health insurance coverage \8\ from establishing for any individual any 
lifetime or annual limits on the dollar value of essential health 
benefits (EHBs), as defined in section 1302(b) of PPACA. PHS Act 
section 2711, however, does not prevent a group health plan, or a 
health insurance issuer offering group or individual health insurance 
coverage, from placing an annual or lifetime dollar limit for any 
individual on specific covered benefits that are not EHBs, to the 
extent these limits are otherwise permitted under applicable law.\9\
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    \8\ PHS Act section 2711 applies to grandfathered health plans, 
except that the annual dollar limit prohibition does not apply to 
grandfathered individual health insurance coverage. Grandfathered 
health plans are health plans that were in existence as of March 23, 
2010, and that are only subject to certain provisions of PPACA, as 
long as they maintain status as grandfathered health plans under the 
applicable regulations. See 26 CFR 54.9815-1251, 29 CFR 2590.715-
1251, and 45 CFR 147.140.
    \9\ For information regarding EHBs, see HHS's February 25, 2013 
final regulations addressing EHBs under section 1302 of PPACA (78 FR 
12834); see also HHS Notice of Benefit and Payment Parameters for 
2016 (80 FR 10871, Feb. 27, 2015). In addition, HHS issued final 
rules providing States with additional flexibility to define EHBs, 
starting with plan years beginning on or after January 1, 2020. 45 
CFR 156.111 (83 FR 16930, Apr. 17, 2018). The current regulations 
under PHS Act section 2711 include a definition of EHBs that applies 
for plans that are not required to provide EHBs. See 26 CFR 54.9815-
2711(c), 29 CFR 2590.715-2711(c), and 45 CFR 147.126(c). As 
explained later in this preamble, the proposed rules set forth in 
this document include proposed amendments to the definition of EHBs 
under the PHS Act section 2711 regulations to reflect the updated 
final EHB rules.

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[[Page 54422]]

    HRAs are subject to PHS Act section 2711. An HRA generally will 
fail to comply with PHS Act section 2711 because the arrangement is a 
group health plan that imposes an annual dollar limit on EHBs that the 
HRA will reimburse for an individual.
    As explained in prior guidance, however, the Treasury Department, 
DOL, and HHS (collectively, the Departments) have determined that the 
annual dollar limit prohibition is not applicable to certain account-
based group health plans that are subject to other statutory provisions 
limiting the benefits available under those plans.\10\ Specifically, 
the Departments have explained that the annual dollar limit prohibition 
does not apply to health FSAs that are offered through a cafeteria plan 
under section 125 of the Code (cafeteria plan) because section 9005 of 
PPACA specifically limits salary reduction contributions to health FSAs 
to $2,500 (indexed for inflation) per year.\11\ Similarly, although 
medical savings accounts (MSAs) under section 220 of the Code and 
health savings accounts (HSAs) under section 223 of the Code generally 
are not treated as group health plans subject to the market 
requirements,\12\ the Departments have concluded that the annual dollar 
limit prohibition would not apply to an MSA or HSA even if a particular 
arrangement did meet the criteria to be a group health plan because 
both types of arrangements are subject to specific statutory provisions 
that limit the contributions.\13\ Therefore, the proposed rules do not 
apply to MSAs, HSAs, or, in certain circumstances, health FSAs.
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    \10\ See 80 FR 72192, 72201 (November 18, 2015).
    \11\ Notwithstanding this exclusion for certain health FSAs from 
the application of the annual dollar limit prohibition, regulations 
under section 125 of the Code provide that health FSAs are not 
permitted to reimburse employees for premiums for health coverage. 
See proposed 26 CFR 1.125-5(k)(4) (72 FR 43938, 43959 (Aug. 6, 
2007)).
    \12\ See 75 FR 37188, 37190 (June 28, 2010) and IRS Notice 2004-
2, Q1 & Q3, 2004-2 IRB 269, which defines an HSA as a tax-exempt 
trust or custodial account and a high-deductible health plan as a 
health plan; see also DOL Field Assistance Bulletins 2004-01 and 
2006-02, providing guidance regarding HSAs not constituting 
``employee welfare benefit plans'' covered by title I of ERISA where 
employer involvement with the HSA is limited.
    \13\ See 75 FR 37188, 37190 (June 28, 2010).
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    PHS Act section 2713, as added by PPACA, requires non-grandfathered 
group health plans, and health insurance issuers offering non-
grandfathered group or individual health insurance coverage, to provide 
coverage for certain preventive services without imposing any cost-
sharing requirements for these services.\14\ Non-grandfathered HRAs are 
subject to and fail to comply with PHS Act section 2713 because, while 
HRAs may be used to reimburse the costs of preventive services, HRAs do 
not reimburse such costs after the HRAs have reimbursed the maximum 
dollar amount for a coverage period, and therefore HRAs fail to provide 
the required coverage, and violate the prohibition on imposing cost-
sharing for preventive services.\15\
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    \14\ See also 26 CFR 54.9815-2713; 29 CFR 2590.715-2713; and 45 
CFR 147.130.
    \15\ Because MSAs and HSAs are generally not treated as group 
health plans, these arrangements are not subject to PHS Act section 
2713. Health FSAs are group health plans and, unless they are 
excepted benefits, will fail to satisfy the requirements of PHS Act 
section 2713 unless integrated with other coverage that satisfies 
these requirements. For more information about the application of 
PHS Act section 2713 to health FSAs, see IRS Notice 2013-54, Q&A 7; 
DOL Technical Release 2013-03, Q&A-7; and Insurance Standards 
Bulletin, Application of Affordable Care Act Provisions to Certain 
Healthcare Arrangements, September 16, 2013, available at https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/cms-hra-notice-9-16-2013.pdf.
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3. Prior Regulations and Guidance on Integration of HRAs and Other 
Account-Based Group Health Plans
    The Departments have previously issued regulations and 
subregulatory guidance regarding the application of PHS Act sections 
2711 and 2713 to HRAs.\16\ The regulations and guidance generally 
provide that, if an HRA is ``integrated'' with other group health plan 
coverage that complies with PHS Act sections 2711 and 2713, the HRA 
would be considered in compliance because the combined arrangement 
complies with PHS Act sections 2711 and 2713. The regulations and 
guidance also provide that HRAs may be integrated with Medicare and 
TRICARE coverage if certain conditions are met, but may not be 
integrated with individual health insurance coverage for purposes of 
complying with PHS Act sections 2711 and 2713.\17\
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    \16\ Regulations and subregulatory guidance issued on this topic 
include: (1) 75 FR 37188 (June 28, 2010); (2) FAQs about Affordable 
Care Act Implementation (Part XI), available at https://www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-xi.pdf or https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/aca_implementation_faqs11.html; (3) IRS Notice 2013-
54 and DOL Technical Release 2013-03, issued on September 13, 2013, 
and Insurance Standards Bulletin, Application of Affordable Care Act 
Provisions to Certain Healthcare Arrangements, September 16, 2013, 
available at: https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/cms-hra-notice-9-16-2013.pdf; (4) IRS FAQ on 
Employer Healthcare Arrangements, available at https://www.irs.gov/affordable-care-act/employer-health-care-arrangements; (5) FAQs 
about Affordable Care Act Implementation (Part XXII), available at 
https://www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-xxii.pdf or https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/Downloads/FAQs-Part-XXII-FINAL.pdf; (6) IRS Notice 2015-17, issued on February 18, 
2015, (as detailed in Notice 2015-17, DOL and HHS reviewed and 
agreed with the guidance in Part II); (7) 80 FR 72192 (November 18, 
2015); (8) Notice 2015-87, issued on December 16, 2015; (9) IRS 
Notice 2016-17, DOL Technical Release No. 2016-01, and Insurance 
Standards Bulletin, Application of the Market Reforms and Other 
Provisions of the Affordable Care Act to Student Health Coverage, 
each issued on February 5, 2016, available at https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/student-health-bulletin.pdf; (10) FAQs about Affordable Care Act Implementation 
Part 33, available at https://www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-33.pdf or 
https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/Downloads/ACA-FAQ-Set-33-Final.pdf; and (11) FAQs about Affordable Care Act 
Implementation Part 37, available at https://www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-37.pdf or https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/Downloads/FAQs-Part-37.pdf.
    \17\ 26 CFR 54.9815-2711(d)(4); 29 CFR 2590.715-2711(d)(4) and 
45 CFR 147.126(d)(4).
---------------------------------------------------------------------------

    In the preamble to the 2010 interim final regulations under PHS Act 
section 2711, the Departments provided that HRAs may be integrated with 
``other coverage as part of a group health plan'' that complies with 
PHS Act section 2711 in order for the HRAs to be considered to satisfy 
PHS Act section 2711.\18\ The interim final regulations did not, 
however, set forth rules for implementing integration; the integration 
methods were set forth in later subregulatory guidance and subsequently 
included in the final regulations under PHS Act section 2711.
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    \18\ See 75 FR 37188, 37190-37191 (June 28, 2010).
---------------------------------------------------------------------------

    On September 13, 2013, the Treasury Department and the IRS issued 
Notice 2013-54, the DOL issued Technical Release 2013-03, and HHS 
issued contemporaneous guidance explaining that HHS concurred with the 
DOL and Treasury Department guidance.\19\ This guidance stated that an 
HRA may not be integrated with individual health insurance coverage for 
purposes of PHS Act sections 2711 and 2713, but described methods for 
integrating an

[[Page 54423]]

HRA with another group health plan.\20\ The provisions in this guidance 
were later incorporated into the final regulations under PHS Act 
section 2711, which are summarized later in this section of the 
preamble.
---------------------------------------------------------------------------

    \19\ See Insurance Standards Bulletin, Application of Affordable 
Care Act Provisions to Certain Healthcare Arrangements, September 
16, 2013, available at https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/cms-hra-notice-9-16-2013.pdf.
    \20\ In addition to describing the integration methods, IRS 
Notice 2013-54 and DOL Technical Release 2013-03, in Q&A-5, provided 
that, whether or not an HRA is integrated with other group health 
plan coverage, unused amounts that are credited to the HRA while the 
HRA is integrated with other group health plan coverage may be used 
to reimburse medical care expenses in accordance with the terms of 
the HRA after an employee ceases to be covered by the integrated 
group health plan coverage without causing the HRA to fail to comply 
with PHS Act sections 2711 and 2713. In IRS Notice 2015-87, Q&A-2, 
however, the Departments clarified that an HRA that includes terms 
permitting the purchase of individual health insurance coverage, 
even if reimbursement is only allowed after the employee ceases to 
be covered by other integrated group health plan coverage, fails to 
be integrated with other group health plan coverage and therefore 
fails to comply with PHS Act sections 2711 and 2713.
---------------------------------------------------------------------------

    On November 6, 2014, the Departments issued FAQs about Affordable 
Care Act Implementation (Part XXII).\21\ Q&A-1 reiterated and clarified 
prior subregulatory guidance by explaining that if an employer offers 
its employees cash to reimburse the purchase of individual health 
insurance coverage, the payment arrangement is a group health plan, 
without regard to whether the employer treats the money as a pre-tax or 
post-tax benefit to the employee, and may not be integrated with 
individual health insurance coverage, and therefore will fail to comply 
with PHS Act sections 2711 and 2713.\22\
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    \21\ See FAQs about Affordable Care Act Implementation (Part 
XXII), available at https://www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-xxii.pdf or 
https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/Downloads/FAQs-Part-XXII-FINAL.pdf.
    \22\ The Treasury Department and the IRS note that the 
information included in this preamble is not intended to be guidance 
regarding the proper Federal tax treatment or consequences of any 
particular arrangement, except to the extent the preamble addresses 
the application of sections 36B, 9801, 9802, 9815, 9831 and 9832 of 
the Code and PHS Act sections 2711 and 2713.
---------------------------------------------------------------------------

    On February 18, 2015, the Treasury Department and the IRS issued 
Notice 2015-17. Q&A-3 of Notice 2015-17 provides that an arrangement 
under which an employer reimburses (or pays directly) some or all of 
the medical care expenses for employees covered by TRICARE constitutes 
an HRA and may not be integrated with TRICARE to comply with PHS Act 
sections 2711 and 2713 because TRICARE is not a group health plan for 
integration purposes. However, Q&A-3 states that an HRA that pays for 
or reimburses medical care expenses for employees covered by TRICARE 
may be integrated with another group health plan offered by the 
employer for purposes of PHS Act sections 2711 and 2713 if (1) the 
employer offers a group health plan (other than the HRA) to the 
employee that does not consist solely of excepted benefits and that 
provides minimum value (MV); (2) the employee participating in the HRA 
is enrolled in TRICARE; (3) the HRA is available only to employees who 
are enrolled in TRICARE; and (4) the HRA is limited to reimbursement of 
cost sharing and excepted benefits, including TRICARE supplemental 
premiums. Notice 2015-17 also included a general reminder that to the 
extent such an arrangement is available to active employees it may be 
subject to restrictions under other laws that prohibit offering 
financial or other incentives for TRICARE-eligible employees to decline 
employer-provided group health plan coverage, similar to the Medicare 
secondary payer rules.
    Q&A-3 of Notice 2015-17 also provides that an employer payment plan 
through which an employer reimburses (or pays directly) all or a 
portion of Medicare part B or D premiums for employees may not be 
integrated with Medicare coverage to comply with PHS Act sections 2711 
and 2713 because Medicare coverage is not a group health plan. But it 
provides that this type of employer payment plan may be integrated with 
another group health plan offered by the employer for purposes of PHS 
Act sections 2711 and 2713 if: (1) The employer offers a group health 
plan (other than the employer payment plan) to the employee that does 
not consist solely of excepted benefits and that provides MV; (2) the 
employee participating in the employer payment plan is actually 
enrolled in Medicare parts A and B; (3) the employer payment plan is 
available only to employees who are enrolled in Medicare part A and 
part B or D; and (4) the employer payment plan is limited to 
reimbursement of Medicare part B or D premiums and excepted benefits, 
including Medigap premiums. Notice 2015-17 also includes a general 
reminder that to the extent such an arrangement is available to active 
employees it may be subject to restrictions under other laws, such as 
the Medicare secondary payer provisions. See later in this preamble for 
a discussion of the rules provided in the final regulations under PHS 
Act section 2711 allowing Medicare part B and D reimbursement 
arrangements to be integrated with Medicare in certain limited 
circumstances (that is, generally, for HRAs sponsored by employers with 
fewer than 20 employees).
    On November 18, 2015, the Departments finalized the proposed and 
interim final rules under PHS Act section 2711, incorporating certain 
subregulatory guidance regarding HRA integration, and making various 
additional clarifications (the 2015 regulations).\23\ Consistent with 
the initial subregulatory guidance, the final regulations under PHS Act 
section 2711 provide two methods for integration of HRAs with other 
group health plan coverage.\24\ The first method applies to HRAs 
integrated with other group health plan coverage that provides MV (the 
MV Integration Method).\25\ The second method applies to HRAs 
integrated with other group health plan coverage that does not provide 
MV (the Non-MV Integration Method).\26\
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    \23\ See 80 FR 72192 (November 18, 2015). To the extent the 
final regulations did not incorporate or modify the prior 
subregulatory guidance, such guidance remains in effect.
    \24\ These two methods of integration were originally discussed 
in IRS Notice 2013-54, Q4, and DOL Technical Release 2013-03, 
available at https://www.dol.gov/agencies/ebsa/employers-and-advisers/guidance/technical-releases/13-03.
    \25\ See 26 CFR 54.9815-2711(d)(2)(ii); 29 CFR 2590.715-
2711(d)(2)(ii); 45 CFR 147.126(d)(2)(ii).
    \26\ See 26 CFR 54.9815-2711(d)(2)(i); 29 CFR 2590.715-
2711(d)(2)(i); 45 CFR 147.126(d)(2)(i).
---------------------------------------------------------------------------

    Both the MV Integration Method and the Non-MV Integration Method 
require that: (1) The HRA plan sponsor offer the employee a group 
health plan other than the HRA (non-HRA group coverage); (2) the 
employee receiving the HRA be enrolled in non-HRA group coverage, even 
if the non-HRA group coverage is not offered by the HRA plan sponsor, 
such as a group health plan maintained by an employer of the employee's 
spouse; \27\ and (3) the HRA is made available only to employees who 
are enrolled in non-HRA group coverage, regardless of whether such 
coverage is provided by the HRA plan sponsor. For both methods, the 
non-HRA group coverage may not consist solely of excepted benefits and, 
for the MV

[[Page 54424]]

Integration Method, the non-HRA group coverage offered by the employer 
and in which the employee enrolls must provide MV.
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    \27\ In IRS Notice 2015-87, Q&A-4, the Departments clarified 
that an HRA that may be used to reimburse the medical care expenses 
of an employee's spouse or dependents (a family HRA) may not be 
integrated with self-only coverage of the employee under the 
employer's non-HRA group health plan. On January 12, 2017, the 
Departments issued guidance to clarify that a family HRA is 
permitted to be integrated with a combination of coverage under 
qualifying non-HRA group health plan coverage for purposes of 
complying with PHS Act sections 2711 and 2713, provided that all of 
the individuals who are covered under the family HRA are also 
covered under qualifying non-HRA group coverage. See FAQs about 
Affordable Care Act Implementation Part 37, available at https://www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-37.pdf or https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/Downloads/FAQs-Part-37.pdf.
---------------------------------------------------------------------------

    In addition, both the MV Integration Method and the Non-MV 
Integration Method require that, under the terms of the HRA, an 
employee (or former employee) be permitted to permanently opt out of 
and waive future reimbursements at least annually from the HRA. Both 
integration methods also require that, upon termination of employment, 
either the funds remaining in the HRA are forfeited or the employee is 
permitted to permanently opt out of and waive future reimbursements 
under the HRA. For this purpose, forfeiture of the funds remaining in 
the HRA, or waiver of future reimbursements under the HRA, occurs even 
if the forfeited or waived amounts may be reinstated upon a fixed date, 
the participant's death, or the earlier of the two events.
    The two methods differ with respect to the expenses that the HRA 
may reimburse. Under the MV Integration Method, the HRA may reimburse 
any medical care expenses, but under the Non-MV Integration Method, the 
HRA may reimburse only co-payments, co-insurance, deductibles, and 
premiums under the non-HRA group coverage, as well as medical care that 
does not constitute EHBs.\28\
---------------------------------------------------------------------------

    \28\ Although, in general, an HRA integrated with non-HRA group 
coverage fails to comply with PHS Act section 2711 if the non-HRA 
group coverage with which the HRA is integrated does not cover a 
category of EHB and the HRA is available to cover that category of 
EHB and limits the coverage to the HRA's maximum benefit, the 
Departments have provided that if non-HRA group coverage satisfies 
the MV Integration Method, an HRA will not be treated as failing to 
comply with PHS Act section 2711, even if the non-HRA group coverage 
with which the HRA is integrated does not cover a category of EHB 
and the HRA is available to cover that category of EHB and limits 
the coverage to the HRA's maximum benefit. See IRS Notice 2013-54, 
Q&A 6.
---------------------------------------------------------------------------

    The 2015 regulations also include a special integration method for 
certain arrangements offered by employers that are not required to 
offer, and do not offer, non-HRA group coverage to employees who are 
eligible for Medicare coverage (generally, employers with fewer than 20 
employees), but that offer non-HRA group coverage that does not consist 
solely of excepted benefits to employees who are not eligible for 
Medicare.\29\ For these employers, an HRA that may be used to reimburse 
premiums under Medicare part B or D may be integrated with Medicare 
(and deemed to comply with PHS Act sections 2711 and 2713) if the 
employees who are offered the HRA are enrolled in Medicare part B or D, 
the HRA is available only to employees who are enrolled in Medicare 
part B or D, and the HRA complies with the opt-out and forfeiture rules 
under the MV Integration Method and Non-MV Integration Method. These 
employers may use either of the non-Medicare-specific integration 
methods, as applicable, for HRAs offered to employees who are 
ineligible for Medicare.
---------------------------------------------------------------------------

    \29\ See 26 CFR 54.9815-2711(d)(5); 29 CFR 2590.715-2711(d)(5); 
45 CFR 147.126(d)(5). The final regulations did not address the 
Medicare integration rules that apply to employers with 20 or more 
employees. For a discussion of those rules, see IRS Notice 2015-17 
and the discussion elsewhere in this preamble.
---------------------------------------------------------------------------

    The 2015 regulations also incorporate prior subregulatory guidance 
that HRAs cannot be integrated with individual health insurance 
coverage for purposes of complying with PHS Act sections 2711 and 
2713.\30\
---------------------------------------------------------------------------

    \30\ See 26 CFR 54.9815-2711(d)(4); 29 CFR 2590.715-2711(d)(4); 
45 CFR 147.126(d)(4). Also see IRS Notice 2013-54, Q&A-1, and DOL 
Technical Release 2013-03, Q&A-1. This principle was also reiterated 
and clarified in the various other pieces of subregulatory guidance 
summarized elsewhere in this section of the preamble. See also IRS 
Notice 2015-87, Q&A-5, in which the Departments clarified that an 
HRA that by its terms may only be used to reimburse (or pay directly 
for) premiums for individual health insurance coverage consisting 
solely of excepted benefits will not fail to comply with PHS Act 
sections 2711 and 2713 because those provisions do not apply to a 
group health plan that is designed to provide only excepted 
benefits. For guidance on enforcement relief for certain premium 
reduction arrangements offered by institutions of higher education 
to students with respect to student health insurance coverage, which 
is a type of individual health insurance coverage, see FAQs about 
Affordable Care Act Implementation part 33, available at https://www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-33.pdf or https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/Downloads/ACA-FAQ-Set-33-Final.pdf. 
See also IRS Notice 2016-17, 2016-9 IRB 358; DOL Technical Release 
2016-1, available at https://www.dol.gov/ebsa/newsroom/tr16-01.html; 
and Insurance Standards Bulletin, Application of the Market Reforms 
and Other Provisions of the Affordable Care Act to Student Health 
Coverage, February 5, 2016, available at https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/student-health-bulletin.pdf. See elsewhere in this preamble for additional 
discussion of student health insurance coverage.
---------------------------------------------------------------------------

C. HIPAA Nondiscrimination Provisions

    Prior to the enactment of PPACA, titles I and IV of the Health 
Insurance Portability and Accountability Act of 1996 (HIPAA), Public 
Law 104-191, added section 9802 of the Code, section 702 of ERISA, and 
section 2702 of the PHS Act (HIPAA nondiscrimination provisions). The 
Departments published joint final regulations implementing the HIPAA 
nondiscrimination provisions on December 13, 2006.\31\ Section 1201 of 
PPACA reorganized and amended the HIPAA nondiscrimination provisions of 
the PHS Act. (Although section 9802 of the Code and section 702 of 
ERISA were not amended, the requirements of section 2705 of the PHS Act 
are also incorporated by reference into section 9815 of the Code and 
section 715 of ERISA.) \32\ As amended by PPACA, the nondiscrimination 
provisions of section 2705 of the PHS Act largely reflect the 2006 
regulations and extend the HIPAA nondiscrimination protections (but not 
the wellness program exception) to the individual market. These 
provisions generally prohibit group health plans and health insurance 
issuers in the group and individual markets from discriminating against 
individual participants and beneficiaries in eligibility, benefits, or 
premiums based on a health factor.\33\
---------------------------------------------------------------------------

    \31\ 71 FR 75014.
    \32\ PPACA section 1201 moved the HIPAA nondiscrimination 
provisions from PHS Act section 2702 to PHS Act section 2705, with 
some modification.
    \33\ The HIPAA nondiscrimination provisions set forth eight 
health status related factors. The eight health factors are health 
status, medical condition (including both physical and mental 
illnesses), claims experience, receipt of health care, medical 
history, genetic information, evidence of insurability, and 
disability. These terms are largely overlapping and, in combination, 
include any factor related to an individual's health. 66 FR 1377, 
1379 (January 8, 2001).
---------------------------------------------------------------------------

    Q&A-2 of FAQs about Affordable Care Act Implementation (Part XXII) 
\34\ provided that, if an employer offers employees with high claims 
risk a choice between enrollment in a traditional group health plan or 
cash, the arrangement would not comply with the market requirements, 
citing section 2705 of the PHS Act (which is incorporated by reference 
into section 9815 of the Code and section 715 of ERISA), as well as the 
HIPAA nondiscrimination provisions of section 9802 of the Code and 
section 702 of ERISA. The Q&A explained that such arrangements will 
violate the nondiscrimination provisions regardless of whether: (1) The 
cash payment is treated by the employer as pre-tax or post-tax to the 
employee, (2) the employer is involved in the selection or purchase of 
any individual market product, or (3) the employee obtains any 
individual health insurance coverage. The Departments explained that, 
in the Departments' view, offering cash as an alternative to health 
coverage for individuals with adverse health factors is an eligibility 
rule that discourages participation in the traditional group

[[Page 54425]]

health plan, in contravention of the HIPAA nondiscrimination 
provisions.
---------------------------------------------------------------------------

    \34\ See FAQs about Affordable Care Act Implementation (Part 
XXII), available at https://www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-xxii.pdf or 
https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/Downloads/FAQs-Part-XXII-FINAL.pdf.
---------------------------------------------------------------------------

D. Excepted Benefits

    Section 9831 of the Code, section 732 of ERISA, and sections 2722 
and 2763 of the PHS Act provide that the requirements of chapter 100 of 
the Code, part 7 of ERISA, and title XXVII of the PHS Act, do not apply 
to excepted benefits. Excepted benefits are described in section 9832 
of the Code, section 733 of ERISA, and section 2791 of the PHS Act.
    There are four statutory categories of excepted benefits. One such 
category of excepted benefits is limited excepted benefits. Under the 
statutory provisions, limited excepted benefits may include limited 
scope vision or dental benefits, benefits for long-term care, nursing 
home care, home health care, or community-based care, or any 
combination thereof, and ``such other similar, limited benefits as are 
specified in regulations'' by the Departments.\35\ To be excepted 
benefits under this category, the benefits must either: (1) Be insured 
and provided under a separate policy, certificate, or contract of 
insurance; or (2) otherwise not be an integral part of the plan.\36\ 
The Departments previously exercised the authority to specify 
additional types of limited excepted benefits with respect to certain 
health FSAs, certain employee assistance programs, and certain limited 
wraparound coverage.\37\
---------------------------------------------------------------------------

    \35\ See section 9832(c)(2) of the Code, section 733(c)(2) of 
ERISA, and section 2791(c)(2) of the PHS Act.
    \36\ See section 9831(c)(1) of the Code, ERISA section 
732(c)(1), and PHS Act section 2722(c)(1) and 2763(b). See also the 
discussion in 2014 final regulations concerning the application of 
these requirements to benefits such as limited-scope dental and 
vision benefits and employee assistance programs at 79 FR 59130, 
59131-59134 (Oct. 1, 2014).
    \37\ See 26 CFR 54.9831-1(c)(3)(v), (vi) and (vii); 29 CFR 
2590.732(c)(3)(v), (vi) and (vii); 45 CFR 146.145(b)(3)(v), (vi) and 
(vii).
---------------------------------------------------------------------------

    Coverage that consists of excepted benefits is not minimum 
essential coverage (MEC).\38\ Therefore, an individual offered or 
covered by an excepted benefit is not deemed ineligible for the PTC by 
virtue of the excepted benefit offer or coverage.\39\ Further, the 
offer of an excepted benefit by an employer is not considered to be an 
offer of MEC under an eligible employer-sponsored plan for purposes of 
section 4980H of the Code, the employer shared responsibility 
provisions; thus, an employer will not avoid a payment under section 
4980H of the Code by virtue of an offer of an excepted benefit.\40\
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    \38\ See section 5000A(f)(3) of the Code.
    \39\ See section 36B(c)(2)(B) of the Code.
    \40\ See section 4980H(a)(1), (b)(1) of the Code. See also 26 
CFR 54.4980H-1(a)(14).
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E. Premium Tax Credit

1. In General
    Section 36B of the Code allows for the PTC to be available to 
applicable taxpayers to help with the cost of individual health 
insurance coverage obtained through an Exchange.\41\ Under section 
36B(a) and (b)(1) of the Code and 26 CFR 1.36B-3(d), a taxpayer's PTC 
is the sum of the premium assistance amounts for all coverage months 
during the taxable year for individuals in the taxpayer's family.
---------------------------------------------------------------------------

    \41\ Exchanges are entities established under section 1311 of 
PPACA through which qualified individuals and qualified employers 
can purchase health insurance coverage.
---------------------------------------------------------------------------

    An individual is eligible for the PTC for a month if the individual 
meets various requirements for the month (a coverage month). Among 
other things, under section 36B(c)(2) of the Code, a month is not a 
coverage month for an individual if either: (1) The individual is 
eligible for coverage under an eligible employer-sponsored plan and the 
coverage is affordable and provides MV; or (2) the individual is 
enrolled in an eligible employer-sponsored plan, even if the coverage 
is not affordable or does not provide MV.\42\ An eligible employer-
sponsored plan includes coverage under a self-insured (as well as an 
insured) group health plan \43\ and is MEC unless it consists solely of 
excepted benefits.\44\
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    \42\ See section 36B(c)(2)(C)(iii) of the Code and 26 CFR 1.36B-
2(c)(3)(vii)(A) and 1.36B-3(c).
    \43\ See 26 CFR 1.5000A-2(c).
    \44\ See section 5000A(f)(3) of the Code and 26 CFR 1.5000A-
2(g).
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    An HRA is a self-insured group health plan and therefore is an 
eligible employer-sponsored plan. Accordingly, an individual currently 
is ineligible for the PTC for the individual's Exchange coverage for a 
month if the individual is covered by an HRA or is eligible for an HRA 
that is affordable and provides MV for the month. Although Treasury 
Department and IRS guidance provides that an HRA is an eligible 
employer-sponsored plan and therefore individuals covered by an HRA are 
ineligible for the PTC,\45\ to date, the Treasury Department and the 
IRS have not provided guidance as to the circumstances in which an HRA 
is considered to be affordable or to provide MV.\46\
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    \45\ See IRS Notice 2013-54, Q&A 10.
    \46\ The Treasury Department and the IRS have provided guidance 
regarding when amounts newly made available under an HRA count 
toward the affordability or MV of another group health plan offered 
by the same employer. See 26 CFR 1.36B-2(c)(3)(v)(A)(5) and 26 CFR 
1.36B-6(c)(4). See also IRS Notice 2015-87, Q&A 7. This document 
does not make substantive revisions to those rules.
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2. Affordability and Minimum Value
    Section 36B(c)(2)(C) of the Code and 26 CFR 1.36B-2(c)(3)(v)(A)(1) 
and (2) provide that an eligible employer-sponsored plan is affordable 
for an employee, or for an individual who may enroll in the coverage 
because of a relationship to the employee, if the amount the employee 
must pay for self-only coverage whether by salary reduction or 
otherwise (the employee's required contribution) does not exceed a 
specified percentage of the employee's household income. The percentage 
is adjusted annually. However, 26 CFR 1.36B-2(c)(3)(v)(A)(3) provides 
an employee safe harbor under which an eligible employer-sponsored plan 
is not considered affordable for an entire plan year if, at the time an 
individual enrolls in a qualified health plan offered through an 
Exchange, the Exchange determines that the eligible employer-sponsored 
plan is not affordable.\47\ Thus, the employee safe harbor locks in the 
Exchange's determination of affordability, which is based on estimated 
household income, even if the eligible employer-sponsored plan 
ultimately proves to be affordable based on actual household income for 
the tax year.
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    \47\ This employee safe harbor does not apply if the individual 
does not respond to a redetermination notice or, with reckless 
disregard for the facts, provides incorrect information to the 
Exchange. See 26 CFR 1.36B-2(c)(3)(v)(A)(3).
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    Under section 36B(c)(2)(C)(ii) of the Code, a plan provides MV if 
the plan's share of the total allowed costs of benefits provided under 
the plan is at least 60 percent of the costs. Section 1302(d)(2)(C) of 
PPACA provides that, in determining the percentage of the total allowed 
costs of benefits provided under a group health plan, the regulations 
promulgated by HHS under that paragraph apply. HHS regulations provide 
that an employer-sponsored plan provides MV only if the percentage of 
the total allowed costs of benefits provided under the plan is greater 
than or equal to 60 percent, and the benefits under the plan include 
substantial coverage of inpatient hospital services and physician 
services.\48\
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    \48\ See 45 CFR 156.145. See also 80 FR 52678 (Sept. 1, 2015).
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F. Qualified Small Employer Health Reimbursement Arrangements

1. In General
    The 21st Century Cures Act (Cures Act), Public Law 114-255, was 
enacted on December 13, 2016. Section 18001 of

[[Page 54426]]

the Cures Act amends the Code, ERISA, and the PHS Act to permit an 
eligible employer to provide a QSEHRA to its eligible employees. The 
Cures Act provides that a QSEHRA is not a group health plan for 
purposes of the market requirements, and, as a result, QSEHRAs are not 
subject to PHS Act sections 2711 and 2713.\49\ For purposes of the 
proposed rules, QSEHRAs are not included in the term ``HRA or other 
account-based group health plans.''
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    \49\ See Section 9831(d)(1) of the Code, section 733(a)(1) of 
ERISA, and section 2791(a)(1) of the PHS Act. However, QSEHRAs are 
group health plans under the PHS Act definition for purposes of part 
C of title XI of the Social Security Act (42 U.S.C. 1320d, et seq.). 
See section 2791(a)(1) of the PHS Act, as amended by section 
18001(c) of the Cures Act. In addition, QSEHRAs were not excluded 
from ERISA's definition of employee welfare benefit plan under 
section 3(1) of ERISA and, therefore, remain subject to the 
requirements for employee welfare benefit plans under ERISA. See H. 
Rept. 114-634--Small Business Health Care Relief Act of 2016 (the 
relevant provisions of this bill were passed into law by the Cures 
Act). Moreover, because QSEHRAs are employee welfare benefit plans, 
individual health insurance coverage that is reimbursed by a QSEHRA 
would not become part of an ERISA plan if the conditions of the DOL 
proposed clarification described later in this preamble are met.
---------------------------------------------------------------------------

    Pursuant to section 9831(d) of the Code, a QSEHRA is an arrangement 
that meets certain conditions, including the following:
     The arrangement provides, after the eligible employee 
provides proof of coverage,\50\ for the payment or reimbursement of 
medical care expenses incurred by the employee or the employee's family 
members (in accordance with the terms of the arrangement);
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    \50\ Under section 106(g) of the Code, payments or 
reimbursements from a QSEHRA are not treated as paid or reimbursed 
under employer-provided coverage for medical expenses under an 
accident or health plan for purposes of sections 106 and 105 of the 
Code if, for the month in which the medical care is provided, the 
individual does not have minimum essential coverage within the 
meaning of section 5000A(f) of the Code. See IRS Notice 2017-67 for 
additional discussion of this minimum essential coverage 
requirement.
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     The amount of payments for and reimbursements of medical 
care expenses incurred by the employee or the employee's family members 
for any year does not exceed $4,950 ($10,000 \51\ for an arrangement 
that also provides for payments or reimbursements of medical care 
expenses of the eligible employee's family members (family coverage)); 
and
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    \51\ Section 9831(d)(2)(D)(ii) of the Code provides that both 
statutory dollar limits are adjusted for inflation beginning after 
2016. The adjusted limits for 2018 are $5,050 for self-only coverage 
and $10,250 for family coverage.
---------------------------------------------------------------------------

     The arrangement generally is provided on the same terms to 
all eligible employees of the eligible employer.\52\
---------------------------------------------------------------------------

    \52\ Section 9831(d)(2)(C) of the Code provides that an 
arrangement shall not fail to be treated as provided on the same 
terms merely because the employee's permitted benefit varies in 
accordance with the variation in price of an insurance policy in the 
relevant individual health insurance market based on the employee's 
age or the number of family members whose expenses may be reimbursed 
under the arrangement. See section 9831(d)(2)(C) of the Code and IRS 
Notice 2017-67 for additional detail.
---------------------------------------------------------------------------

    For the purpose of identifying who can provide a QSEHRA, the 
statute provides that an eligible employer is an employer that is not 
an applicable large employer (ALE), as defined in section 4980H(c)(2) 
of the Code and that does not offer a group health plan to any of its 
employees. The statute also requires that an employer providing a 
QSEHRA provide a written notice to each eligible employee (as defined 
in section 9831(d)(3)(A) of the Code) not later than 90 days before the 
beginning of the plan year (or, in the case of an employee who is not 
eligible to participate in the arrangement as of the beginning of the 
plan year, the date on which the employee is first eligible). Section 
9831(d)(4) of the Code requires that the notice contain certain 
content, including information about the maximum dollar amount of 
payments and reimbursements that may be made under the terms of the 
QSEHRA for the year to the employee (the permitted benefit), and a 
statement that the employee should provide the information about the 
permitted benefit to the applicable Exchange if the employee applies 
for advance payments of the PTC.
    On October 31, 2017, the Treasury Department and the IRS issued 
Notice 2017-67 \53\ to provide guidance on the requirements for 
providing a QSEHRA to eligible employees, the tax consequences of the 
arrangement, and the requirements for providing written notice of the 
arrangement to eligible employees.
---------------------------------------------------------------------------

    \53\ See IRS Notice 2017-67, 2017-47 IRB 517. See also IRS 
Notice 2017-20, 2017-11 IRB 1010, which extended the period for an 
employer to furnish an initial written notice to its eligible 
employees regarding a QSEHRA.
---------------------------------------------------------------------------

    If an eligible employer complies with the guidance provided in 
section 9831(d) of the Code and Notice 2017-67, it may provide a QSEHRA 
to its eligible employees and the QSEHRA does not have to comply with 
PHS Act sections 2711 and 2713 because it is not subject to those 
requirements.
2. QSEHRAs and the PTC
    The Cures Act also added provisions to section 36B of the Code 
relating to how a QSEHRA affects a taxpayer's eligibility for the PTC 
and how a QSEHRA affects a taxpayer's computation of the PTC. Under 
section 36B(c)(4)(A) of the Code, if an employee is provided a QSEHRA 
that constitutes affordable coverage for a month, the month is not a 
coverage month for the employee or the employee's spouse or dependents, 
meaning that the PTC is not allowed for that month. Section 
36B(c)(4)(C) of the Code provides that a QSEHRA constitutes affordable 
coverage for a month if the excess of the monthly premium for the self-
only second lowest cost silver plan in the employee's individual market 
over \1/12\ of the employee's permitted benefit, as defined in section 
9831(d)(3)(C) of the Code, does not exceed \1/12\ of a percentage of 
the employee's household income. The percentage, which is adjusted 
annually, is 9.56 for 2018.\54\
---------------------------------------------------------------------------

    \54\ IRS Notice 2017-67 provides that for purposes of 
determining whether a QSEHRA constitutes affordable coverage under 
section 36B(c)(4) of the Code the permitted benefit for self-only 
coverage is used, regardless of whether the permitted benefit 
provided to a particular eligible employee is for self-only or 
family coverage. Further, if the amount of permitted benefit varies 
based on the age of the employee, the age-applicable self-only 
coverage amount is used.
---------------------------------------------------------------------------

    Section 36B(c)(4)(B) of the Code provides that if an employee is 
provided a QSEHRA that does not constitute affordable coverage for a 
coverage month the PTC otherwise allowable for the month is reduced by 
\1/12\ of the employee's annual permitted benefit under the QSEHRA.

G. Individual Market Special Enrollment Periods

    Generally, individuals may enroll in or change to different 
individual health insurance coverage before the beginning of the 
calendar year only during the annual open enrollment period described 
in 45 CFR 155.410. An individual may qualify for a special enrollment 
period to enroll in or change to a different Exchange plan outside of 
the annual open enrollment period under a variety of circumstances 
prescribed by section 1311(c)(6)(C) and (D) of PPACA and as described 
in 45 CFR 155.420. These special enrollment periods are under the 
jurisdiction of HHS, and apply to persons seeking individual health 
insurance coverage through a State or Federal Exchange and, in some 
cases, to individuals seeking individual health insurance coverage 
outside an Exchange.\55\
---------------------------------------------------------------------------

    \55\ Group health plans must provide special enrollment periods 
under certain circumstances and the Departments have jurisdiction 
over those provisions. See section 9801(f) of the Code, section 
701(f) of ERISA, and section 2704(f) of the PHS Act; see also 26 CFR 
54.9801-6, 29 CFR 2590.701-6, 45 CFR 146.117, and 45 CFR 
147.104(b)(3)-(5). The proposed rules do not affect the group health 
plan special enrollment periods, which continue to apply to group 
health plans, including HRAs.

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[[Page 54427]]

    Paragraph (d) of 45 CFR 155.420 describes the special enrollment 
periods available on the Exchanges to qualified individuals, enrollees, 
and their dependents. Paragraph (b) of 45 CFR 155.420 describes the 
coverage effective dates available in connection with each special 
enrollment period, and paragraph (a)(4) describes the plan changes a 
qualified individual, enrollee, or dependent may make upon qualifying 
for a special enrollment period.
    With regard to individual health insurance coverage sold outside of 
the Exchange, 45 CFR 147.104(b)(2) provides that health insurance 
issuers must provide special enrollment periods for the triggering 
events described in 45 CFR 155.420(d), except for certain triggering 
events listed under 45 CFR 147.104(b)(2).

II. Overview of the Proposed Rules on HRA Integration and Excepted 
Benefits--the Departments of the Treasury, Labor, and Health and Human 
Services

    In developing the proposed rules, the Departments carefully 
considered how to meet the objectives of Executive Order 13813 in a way 
that is permitted by law and supported by sound policy. The proposed 
rules are intended to increase the usability of HRAs to provide more 
Americans, including employees who work at small businesses, with 
additional healthcare options. Such changes will facilitate the 
development and operation of a more efficient healthcare system that 
provides high-quality care at affordable prices by increasing consumer 
choice for employees and promoting competition in healthcare markets by 
adding additional options for employers. In addition, the proposed 
rules include certain conditions designed to prevent negative 
consequences that would be inconsistent with certain provisions of 
HIPAA and PPACA.
    The proposed rules would expand the use of HRAs in several ways. 
First, the proposed rules would remove the current prohibition against 
integrating an HRA with individual health insurance coverage \56\ under 
the PHS Act section 2711 regulations.\57\ The proposed rules would 
instead permit an HRA to be integrated with individual health insurance 
coverage and, therefore, to satisfy PHS Act sections 2711 and 2713, if 
the provisions of the proposed rules under 26 CFR 54.9802-4, 29 CFR 
2590.702-2, and 45 CFR 146.123 are met (hereinafter, ``the proposed 
integration rules'').
---------------------------------------------------------------------------

    \56\ For purposes of this preamble and the proposed regulations, 
``individual health insurance coverage'' means health insurance 
coverage offered to individuals in the individual market, but does 
not include STLDI. See PHS Act section 2791(b)(5), 26 CFR 54.9801-2, 
29 CFR 2590.701-2, and 45 CFR 144.103. Individual health insurance 
coverage can include dependent coverage and therefore can be self-
only coverage or other-than-self-only coverage. ``Individual 
market'' means the market for health insurance coverage offered to 
individuals other than in connection with a group health plan. See 
PHS Act section 2791(e)(1), 26 CFR 54.9801-2, 29 CFR 2590.701-2, and 
45 CFR 144.103. ``Group health insurance coverage'' means health 
insurance coverage offered in connection with a group health plan. 
See ERISA section 733(b)(4), PHS Act section 2791(b)(4), 26 CFR 
54.9801-2, 29 CFR 2590.701-2, and 45 CFR 144.103.
    \57\ These proposed rules would make several non-substantive 
modifications to language throughout the regulations implementing 
PHS Act section 2711 to account for this change. See later in this 
preamble for a summary of these changes. The proposed regulations do 
not substantively change the current rules for integration of an HRA 
with non-HRA group coverage, Medicare or TRICARE. Unless the 
proposed regulations explicitly conflict with the subregulatory 
guidance that has been issued under PHS Act section 2711, that 
guidance remains in effect.
---------------------------------------------------------------------------

    Second, the proposed rules would expand the definition of limited 
excepted benefits, under section 9832(c)(2) of the Code, section 
733(c)(2) of ERISA, and section 2791(c)(2)(C) of the PHS Act, to 
recognize certain HRAs limited in amount and that are limited with 
regard to the types of coverage for which premiums may be reimbursed, 
as limited excepted benefits if certain other conditions are met (an 
``excepted benefit HRA'').
    As discussed later in this preamble, the Treasury Department and 
the IRS are also proposing regulations under section 36B of the Code 
that would provide the PTC eligibility rules for individuals who are 
offered an HRA integrated \58\ with individual health insurance 
coverage.\59\ DOL is also proposing a clarification to provide HRA and 
QSEHRA plan sponsors with assurance that the individual health 
insurance coverage the premiums of which are reimbursed by the HRA or 
QSEHRA does not become part of an ERISA plan when certain conditions 
are met. Finally, HHS is proposing changes to regulations regarding 
special enrollment periods in the individual market that would provide 
special enrollment periods for individuals who gain access to HRAs 
integrated with individual health insurance coverage or who are 
provided QSEHRAs.
---------------------------------------------------------------------------

    \58\ References in the preamble to ``an offer of an HRA 
integrated with individual health insurance coverage'' or to similar 
phrases mean an offer of an HRA designed to be integrated with 
individual health insurance coverage under the proposed integration 
rules and that will be considered integrated with such individual 
health insurance coverage for an individual who enrolls in such 
coverage.
    \59\ The Treasury Department and the IRS are not proposing 
regulations under section 36B of the Code related to the excepted 
benefit HRA because the application of the PTC eligibility rules to 
excepted benefits is clear under current law. Also, the Treasury 
Department and the IRS are not proposing regulations under section 
4980H of the Code, but see the discussion later in this preamble 
regarding how an offer of an HRA that is integrated with individual 
health insurance coverage is treated under section 4980H of the 
Code.
---------------------------------------------------------------------------

    The Departments request comments on all aspects of the proposed 
rules. The following explanation of the proposed rules also solicits 
comments on specific topics of particular interest to the Departments.

A. Integration Rules

    Pursuant to the President's Executive Order to consider proposing 
regulations to expand and facilitate access to HRAs, the proposed rules 
would remove the prohibition on integration of an HRA with individual 
health insurance coverage, if certain conditions are met, and propose 
requirements that an HRA must meet in order to be integrated with 
individual health insurance coverage. In order to ensure compliance 
with PHS Act sections 2711 and 2713, the proposed integration rules 
provide that to be integrated with individual health insurance 
coverage, the HRA must require participants \60\ and any dependents 
\61\ covered by the HRA to be enrolled in individual health insurance 
coverage (other than coverage that consists solely of excepted 
benefits) and to substantiate compliance with this requirement.
---------------------------------------------------------------------------

    \60\ For this purpose, the definition of participant under 26 
CFR 54.9801-2, 29 CFR 2590.701-2, and 45 CFR 144.103 applies, which 
is defined as a participant within the meaning of section 3(7) of 
ERISA. Under section 3(7) of ERISA, ``the term `participant' means 
any employee or former employee of an employer, or any member or 
former member of an employee organization, who is or may become 
eligible to receive a benefit of any type from an employee benefit 
plan which covers employees of such employer or members of such 
organization, or whose beneficiaries may be eligible to receive any 
such benefit.''
    \61\ For this purpose, the definition of dependent under 26 CFR 
54.9801-2, 29 CFR 2590.701-2, and 45 CFR 144.103 applies, which is 
defined as ``any individual who is or may become eligible for 
coverage under the terms of a group health plan because of a 
relationship to a participant.''
---------------------------------------------------------------------------

    Further, in crafting the proposed integration rules, the 
Departments have considered the possibility that expanding access to 
HRAs could lead to employers offering coverage options to their 
employees in a manner that discriminates based on health status and 
that negatively impacts the individual market for health insurance 
coverage. In 1996, Congress enacted the HIPAA nondiscrimination 
provisions, which now generally prohibit group health plans and health 
insurance issuers in the group and individual markets from 
discriminating against individual

[[Page 54428]]

participants and beneficiaries in eligibility, benefits, or premiums 
based on a health factor. Later, in 2010, Congress enacted PPACA (which 
included PHS Act sections 2711 and 2713), in part, because individual 
health insurance coverage was not a viable option for many individuals 
since issuers in many States could deny coverage or charge higher 
premiums based on an individual's health risk. To address these issues, 
PPACA included numerous provisions that were intended to create a 
competitive individual market that would make affordable coverage 
available to individuals who do not have access to other health 
coverage, as described in more detail later in this section of the 
preamble. In developing these proposed regulations, the Departments 
have carefully considered how to exercise their rulemaking authority in 
a manner that is consistent with Congress's overall intent in enacting 
HIPAA and PPACA. As part of that process, the Departments have 
considered how to avoid permitting discrimination based on health 
status or similar employer practices with respect to offering HRAs to 
employees that might have destabilizing effects on the individual 
market or lead to higher premiums in that market.
    The Departments are of the view that allowing HRAs to be integrated 
with individual health insurance coverage could result in opportunities 
for employers to encourage higher risk employees (that is, those with 
high expected medical claims or employees with family members with high 
expected medical claims) to obtain coverage in the individual market, 
external to the traditional group health plan sponsored by the 
employer, in order to reduce the cost of traditional group health plan 
coverage provided by the employer to lower risk employees.\62\ This 
could happen in a number of ways. For example, if employees are 
permitted to choose between participating in an employer's traditional 
group health plan or participating in an HRA integrated with individual 
health insurance coverage, some higher risk employees may have an 
incentive to select the HRA and enroll in individual health insurance 
coverage. This is because most individual health insurance coverage 
must cover all EHBs and large group market and self-insured group 
health plans are not required to cover all categories of EHBs. An 
employer could also deliberately attempt to steer employees with 
certain medical conditions away from the employer's traditional group 
health plan. In either case, if HRAs integrated with individual health 
insurance coverage are used disproportionately by higher risk 
employees, such arrangements could worsen adverse selection and raise 
premiums in the individual market.
---------------------------------------------------------------------------

    \62\ Amy Monahan and Daniel Schwarcz, ``Will Employers Undermine 
Health Care Reform by Dumping Sick Employees?'' Virginia Law Review, 
Vol. 97 (2011).
---------------------------------------------------------------------------

    The Departments also considered the possibility that the market 
would develop the opposite way. Lower risk employees might choose HRAs 
integrated with individual health insurance coverage, while higher risk 
employees might remain with the relative certainty of their employer's 
traditional group health plan. Such an outcome could result for a host 
of reasons, including because higher risk employees tend to be more 
risk averse with respect to changing health benefits and because 
individual health insurance coverage might have much more restrictive 
provider networks than traditional group health plans and higher risk 
employees tend to be more sensitive to the make-up of the provider 
network than lower risk employees. Also, lower risk employees may 
prefer an HRA integrated with individual health insurance coverage, as 
compared to a more generous traditional group health plan, because it 
could allow them to spend less on premiums and have more funds 
available to cover cost sharing. Further, employers would have 
incentives to avoid legal concerns that could be raised by an attempt 
to steer higher risk employees toward an HRA integrated with individual 
health insurance coverage.
    However, employers will face countervailing incentives to maintain 
(or improve) the average health risk that they insure. Therefore, the 
Departments have determined that the risk of market segmentation and 
health factor discrimination is sufficiently significant to justify 
including conditions in the proposed regulations intended to address 
those risks. Accordingly, the proposed regulations would add new 
regulations at 26 CFR 54.9802-4, 29 CFR 2590.702-2, and 45 CFR 146.123 
to prevent a plan sponsor from intentionally or unintentionally, 
directly or indirectly, steering any participants or dependents with 
adverse health factors away from the plan sponsor's traditional group 
health plan and into the individual market. In particular, the proposed 
integration rules prohibit a plan sponsor from offering the same class 
of employees both a traditional group health plan and an HRA integrated 
with individual health insurance coverage. In addition, to the extent a 
plan sponsor offers an HRA that is integrated with individual health 
insurance coverage to a class of employees, the proposed integration 
rules require that the HRA be offered on the same terms to all 
employees within the class, subject to certain exceptions described 
later in this preamble.
    In the Departments' view, these proposed integration requirements 
are necessary and appropriate to avoid the risk of market segmentation 
and to ensure there are protections against discrimination based on 
health status when HRAs are permitted to integrate with individual 
health insurance coverage for purposes of compliance with PHS Act 
sections 2711 and 2713. The Departments also are of the view these 
requirements are consistent with Congress's intent in enacting both 
HIPAA and PPACA as well as in granting the Departments the authority to 
promulgate such regulations as may be necessary or appropriate to carry 
out the provisions of the Code, ERISA, and the PHS Act that were added 
as a result of those Acts.\63\ More specifically, these proposed 
integration requirements are intended to mitigate circumstances in 
which higher risk employees are incentivized (based on the design of 
the traditional group health plan versus the offer of the HRA) to 
obtain coverage in the individual market.
---------------------------------------------------------------------------

    \63\ See section 9833 of the Code, section 734 of ERISA, and 
section 2792 of the PHS Act.
---------------------------------------------------------------------------

    These proposed integration conditions avoid creating a high risk of 
market segmentation. As noted earlier in this preamble, PPACA includes 
several provisions designed to create a competitive individual market 
that makes affordable coverage available to individuals who do not have 
access to other health coverage. See PPACA section 1311 (establishing 
the Exchanges), section 1312(c) (instructing health insurance issuers 
to consider all enrollees in all health plans in a market--either 
individual or small group--as members of a single risk pool), section 
1401 (establishing the PTC to help qualifying individuals and families 
pay for individual health insurance coverage), section 1402 (reducing 
cost-sharing for qualifying individuals enrolled in qualified health 
plans), and section 1501 (requiring non-exempt applicable individuals 
to maintain MEC or be subject to the individual shared responsibility 
payment).\64\ These provisions are

[[Page 54429]]

intended, in part, to draw more individuals of all risk profiles into 
the individual market and make premiums for individual market coverage 
more affordable. In addition, PPACA requires that non-grandfathered 
individual health insurance coverage cover generally the same 
categories of EHBs, in part, to prevent health insurance coverage with 
better benefits from becoming prohibitively expensive as lower-risk 
individuals gravitate to less expensive individual health insurance 
coverage with limited benefits while higher risk individuals select 
more expensive individual health insurance coverage with more generous 
benefits. PPACA also includes risk adjustment, reinsurance, and risk 
corridor programs to provide consumers with affordable health insurance 
coverage, to reduce incentives for issuers to avoid enrolling higher 
risk individuals, and to stabilize premiums in the individual and small 
group markets inside and outside of the Exchanges. Taken altogether, 
these PPACA provisions intend to create a robust and competitive 
individual market, in part by ensuring that risk pools included both 
higher risk and lower risk individuals.
---------------------------------------------------------------------------

    \64\ Section 5000A of the Code, added by PPACA, provides that 
all non-exempt applicable individuals must maintain MEC or pay an 
individual shared responsibility payment. On December 22, 2017, the 
President signed tax reform legislation (Pub. L. 115-97, 131 Stat. 
2054) under which the individual shared responsibility payment is 
reduced to $0 effective as of January 1, 2019.
---------------------------------------------------------------------------

    If integration of HRAs led to market segmentation, it would result 
in significant destabilization in the individual market, undermining 
those provisions of PPACA that are intended to create a robust and 
competitive individual market. The text of PHS Act sections 2711 and 
2713 is ambiguous with regard to whether and how separate plans can 
integrate to comply with its provisions, and the structural and 
practical policy concerns discussed earlier in this preamble could, if 
realized, prompt the Departments to adopt an interpretation of PHS Act 
sections 2711 and 2713 that prohibits integration of HRAs with 
individual health insurance coverage. By requiring employers who wish 
to take advantage of HRA integration with individual health insurance 
coverage to adhere to the protections described in more detail later in 
this preamble, in particular the prohibition on offering an HRA 
integrated with individual health insurance coverage and a traditional 
group health plan to the same employees, the Departments intend to 
prevent large-scale destabilization of the individual market, thus 
allowing the Departments to interpret PHS Act sections 2711 and 2713 to 
permit integration with individual health insurance coverage. 
Accordingly, the proposed regulations provide integration rules that 
are intended to avoid creating a high risk of market segmentation.
    Lastly, because eligibility for coverage under an HRA may affect an 
individual's eligibility for the PTC and enrollment in an HRA affects 
an individual's eligibility for the PTC, the proposed integration rules 
allow employees of employers who offer an HRA to opt out of and waive 
future reimbursements under the HRA. The Departments also propose that 
HRAs be required to provide a notice to participants eligible for 
coverage under an HRA integrated with individual health insurance 
coverage with information regarding how the offer of the HRA or 
enrollment in the HRA affects their ability to claim the PTC.
    The conditions in the proposed integration rules are discussed in 
detail below.
1. Requirement That All Individuals Covered by the HRA Are Enrolled in 
Individual Health Insurance Coverage
    As discussed earlier in this preamble, an HRA is a group health 
plan that does not comply with PHS Act sections 2711 and 2713 on its 
own. However, the Departments previously have determined that an HRA 
can be considered to be in compliance with PHS Act sections 2711 and 
2713 if it is integrated with non-HRA group coverage that is subject to 
and complies with these sections of the PHS Act. In the past, the 
Departments have made the determination that it is appropriate to treat 
an HRA as complying with PHS Act sections 2711 and 2713 when integrated 
with other group health plan coverage because, generally, an individual 
covered by the combined arrangement has coverage that complies with PHS 
Act sections 2711 and 2713. (Similarly, as discussed elsewhere in this 
preamble, other combined arrangements involving Medicare and TRICARE, 
are also considered to comply with PHS Act sections 2711 and 2713.)
    The proposed integration rules similarly provide that an HRA may be 
integrated with individual health insurance coverage, and will be 
considered compliant with PHS Act sections 2711 and 2713, if the HRA 
requires the participant and any dependent(s) to be enrolled in 
individual health insurance coverage (other than coverage that consists 
solely of excepted benefits) for each month the individual(s) are 
covered by the HRA. If the individual covered by the HRA merely has the 
ability to obtain individual health insurance coverage, but does not 
actually have that coverage, the HRA would fail to comply with PHS Act 
sections 2711 and 2713. This proposed requirement would apply with 
respect to all individuals whose medical care expenses may be 
reimbursed under the HRA, not just the participant.
    For purposes of integrating an HRA with individual health insurance 
coverage, the Departments are proposing to treat all individual health 
insurance coverage as subject to and compliant with PHS Act sections 
2711 and 2713, except for coverage that consists solely of excepted 
benefits. While this would allow for integration with grandfathered 
individual health insurance coverage, which is not subject to and may 
not be compliant with PHS Act sections 2711 and 2713, only a small 
number of individuals are currently enrolled in grandfathered 
individual health insurance coverage and grandfathered coverage may not 
be sold in the individual market to new enrollees and may only be 
renewed by current enrollees so long as the coverage meets strict 
conditions. Additionally, the number of individuals with grandfathered 
individual health insurance coverage has declined each year since PPACA 
was enacted, and the already small number of individuals who have 
retained grandfathered coverage will continue to decline each year. 
Because it is the Departments' understanding that there are few 
individuals covered by grandfathered individual health insurance 
coverage, the Departments are of the view that there will be few 
instances where such individuals will be offered and accept an HRA that 
would be integrated with their grandfathered individual health 
insurance coverage. Moreover, new enrollees cannot enroll in 
grandfathered individual health insurance coverage, so employers 
offering traditional group health plans would not be able to shift 
workers into this coverage. Furthermore, even for non-grandfathered 
individual health insurance coverage, requiring participants or plan 
sponsors to substantiate compliance with PHS Act sections 2711 and 2713 
for each individual health insurance policy separately is impracticable 
given that most participants and HRAs are unlikely to be able to 
reasonably determine the compliance of the individual health insurance 
policy. An independent assessment of compliance could require the 
participant or HRA to identify which benefits under each individual 
health insurance coverage enrolled in by a participant or dependent are 
considered EHBs for purposes of PHS Act section 2711, and whether all 
preventive services are covered without cost-sharing under

[[Page 54430]]

each individual health insurance coverage enrolled in by a participant 
or dependent. The Departments are of the view that this would be an 
unwieldy and burdensome task.
    The Departments' final rules for grandfathered plans provide that 
``a plan or health insurance coverage must include a statement that the 
plan or coverage believes it is a grandfathered health plan . . . in 
any summary of benefits provided under the plan.'' \65\ The Departments 
remain concerned, however, that the frequency of this disclosure to 
participants may be insufficient to substantiate compliance for 
purposes of these rules. For comparison's sake, ERISA plans must 
provide a new SPD only every 5 years, and the required disclosure for 
individual market coverage will differ from state to state. 
Additionally, other plan materials that provide a summary of benefits 
that may trigger the grandfathered plan disclosure requirement may not 
be subject to any specific timing requirements. Furthermore, the 
Departments have concerns as to whether participants will be able to 
locate or receive the disclosure materials in the time necessary to 
allow for a determination of whether the plan with which the HRA will 
be integrated is grandfathered (and therefore unlikely to comply with 
sections 2711 and 2713 of the PHS Act) or non-grandfathered (and 
therefore generally compliant). For example, for ERISA plans, a plan 
sponsor has 30 days to fulfill a disclosure request. Additionally, 
despite the fact that individual health insurance coverage may include 
a disclosure that the policy is grandfathered, there may be instances 
in which such disclosure is not accurate, or other instances where non-
grandfathered individual health insurance coverage does not comply with 
PHS Act sections 2711 or 2713. For these reasons, the Departments have 
preliminarily determined that adopting this proxy approach of relying 
on the sale of the policy in the individual market to deem the policy 
compliant for purposes of the proposed integration rules strikes an 
appropriate balance. (See later in this preamble for a discussion of 
the substantiation requirements that would apply under the proposed 
integration rules).
---------------------------------------------------------------------------

    \65\ 26 CFR 54.9815-1251(a)(2); 29 CFR 2590.715-1251(a)(2); 45 
CFR 147.140(a)(2).
---------------------------------------------------------------------------

    The Departments solicit comments on methods by which an HRA could 
substantiate whether individual health insurance coverage is subject to 
and complies with PHS Act sections 2711 and 2713, including how an HRA 
might identify which benefits under the individual health insurance 
coverage are considered EHBs for purposes of PHS Act section 2711 and 
how an HRA might determine if all preventive services are covered 
without cost-sharing. The Departments solicit comments on whether an 
alternative approach, such as a requirement that an issuer make a 
representation about compliance and/or grandfather status upon request, 
would be practical, or whether any other methods might be appropriate 
as an alternative to the previously outlined proposed proxy approach.
    Under the proposed integration rules, the requirement that each 
individual whose medical care expenses may be reimbursed under the HRA 
must be enrolled in individual health insurance coverage (other than 
coverage that consists solely of excepted benefits) would apply for 
each month that the individual is covered by the HRA. If an individual 
whose medical care expenses may be reimbursed under an HRA fails to 
have such individual health insurance coverage for any month, the HRA 
would fail to comply with PHS Act sections 2711 and 2713 for that 
month. Accordingly, the proposed rules provide that an HRA may not be 
integrated with individual health insurance coverage unless the HRA 
provides that medical care expenses for any individual covered by the 
HRA will not be reimbursed if the individual ceases to be covered by 
individual health insurance coverage and, if the individuals covered by 
the HRA cease to be covered by such individual health insurance 
coverage, the participant must forfeit the HRA, in accordance with 
applicable laws (including COBRA and other continuation of coverage 
requirements).\66\
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    \66\ For an explanation of the application of COBRA to HRAs, see 
section VII of IRS Notice 2002-45.
---------------------------------------------------------------------------

2. Prohibition Against Offering Both an HRA Integrated With Individual 
Health Insurance Coverage and a Traditional Group Health Plan to the 
Same Class of Employees
a. In General
    To address the previously described concerns about potential 
adverse selection and health factor discrimination, under the proposed 
integration rules, a plan sponsor may offer an HRA integrated with 
individual health insurance coverage to a class of employees only if 
the plan sponsor does not also offer a traditional group health plan to 
the same class of employees.\67\ Therefore, a plan sponsor would not be 
permitted to allow any employee within a class of employees a choice 
between a traditional group health plan or an HRA integrated with 
individual health insurance coverage. For this purpose, the term 
``traditional group health plan'' means any group health plan other 
than either an account-based group health plan or a group health plan 
that consists solely of excepted benefits. The Departments solicit 
comments on whether employers should be able to offer employees a 
choice between a traditional group health plan or an HRA integrated 
with individual health insurance coverage, and on the definition of 
``traditional group health plan,'' including whether an alternate 
definition or term might be appropriate and whether a definition should 
be codified as part of these proposed regulations.
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    \67\ The Departments note that an employer may not provide a 
QSEHRA to any employee if it offers any employee a group health 
plan, including a traditional group health plan or an HRA. See 
section 9831(d)(3)(B)(ii) of the Code.
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b. Classes of Employees
    In addition, as described in more detail later in the preamble, the 
proposed integration rules require a plan sponsor that offers an HRA 
integrated with individual health insurance coverage to a class of 
employees to offer the HRA on the same terms to each participant within 
the class of employees, subject to certain exceptions. The proposed 
integration rules provide that a plan sponsor may only offer the HRA on 
different terms to different groups of employees, and may only offer 
either an HRA integrated with individual health insurance coverage or a 
traditional group health plan by groups of employees, if those groups 
are specific classes of employees identified by the proposed rules. The 
classes are: (1) Full-time employees (using either the definition that 
applies for purposes of section 105(h) or 4980H of the Code, as 
determined by the plan sponsor); (2) part-time employees (using either 
the definition that applies for purposes of section 105(h) or 4980H of 
the Code, as determined by the plan sponsor); (3) seasonal employees 
(using either the definition that applies for purposes of section 
105(h) or 4980H of the Code, as determined by the plan sponsor); (4) 
employees who are included in a unit of employees covered by a 
collective bargaining agreement (CBA) in which the plan sponsor 
participates (as described in 26 CFR 1.105-11(c)(2)(iii)(D)); (5) 
employees who have not satisfied a waiting period for

[[Page 54431]]

coverage (if the waiting period complies with the waiting period rules 
in PHS Act section 2708 and its implementing regulations); \68\ (6) 
employees who have not attained age 25 prior to the beginning of the 
plan year (as described in 26 CFR 1.105-11(c)(2)(iii)(B)); (7) non-
resident aliens with no U.S.-based income (as described in 26 CFR 
1.105-11(c)(2)(iii)(E)) (generally, foreign employees who work abroad); 
and (8) employees whose primary site of employment is in the same 
rating area, as defined in 45 CFR 147.102(b). In addition, the proposed 
integration rules allow as additional classes, groups of employees 
described as a combination of two or more of the enumerated classes. 
For example, part-time employees included in a unit of employees 
covered by a CBA might be one class of employees, and full-time 
employees included in the same unit of employees covered by a CBA might 
be another class of employees. In that case, for example, the employer 
could offer an HRA to the part-time employees and not offer (or offer 
on different terms) an HRA to the full-time employees, but could not 
differentiate between the part-time employees covered under the CBA 
except based on any of them being in another class or, if within the 
same class, except as otherwise allowed under the same-terms 
requirement as explained later in this preamble. If an HRA is offered 
to former employees (such as retirees), former employees are considered 
to be in the same class they were in immediately before separation from 
service.
---------------------------------------------------------------------------

    \68\ 26 CFR 54.9815-2708; 29 CFR 2590.715-2708; 45 CFR 147.116.
---------------------------------------------------------------------------

    The Departments have concluded that it is appropriate to permit 
plan sponsors to offer different benefits to these classes of employees 
under the proposed integration rules. First, many employers 
historically have offered varying benefit packages to members of these 
different classes of employees clearly for purposes other than inducing 
higher risk employees to leave the plan sponsor's traditional group 
health plan. Second, the Departments have determined that it would be 
burdensome for employers to shift employees from one of these classes 
of employees to another merely for the purpose of offering different 
types of health benefits to employees based on a health factor, thereby 
reducing the risk that a plan sponsor will offer an HRA integrated with 
individual health insurance coverage only to its higher risk employees. 
Accordingly, the classes of employees identified in these proposed 
rules would balance employers' reasonable need to make distinctions 
among employees with respect to offering health benefits with the 
public interest in protecting the stability of the individual market 
risk pools.
    Historically, employers have often provided different benefit 
packages to employees included in a unit of employees covered by a CBA, 
full-time employees, part-time employees, seasonal employees, employees 
who work abroad, employees of different ages, employees based on 
whether they have completed a waiting period, and employees in 
different locations. This is particularly true in the case of health 
benefits. For example, unions typically bargain with employers over 
health benefits provided to employees who are members of that union, 
and the health benefits that an employer provides pursuant to a CBA are 
often different than those that it provides to its employees who are 
not covered by the CBA. Similarly, health benefit packages offered to 
employees often vary by location, in part because certain healthcare 
providers or health insurance issuers operate only in some areas and 
not in others. A rule that prohibited employers from differentiating 
between these classes of employees for purposes of offering HRAs 
integrated with individual health insurance coverage would pose 
significant costs that might undermine the willingness of employers to 
offer HRAs in the first place.
    The Departments are of the view that these classes of employees are 
not ones that could be easily manipulated in order to transfer the 
risks (and perceived higher costs) from the employer's traditional 
group health plan to the individual market. For example, labor laws 
generally prevent an employer from classifying an employee as subject 
to a CBA when the employee traditionally has not been subject to a CBA. 
Similarly, economic and labor forces generally make it difficult for 
employers to increase or reduce significantly the number of hours 
worked by employees in particular positions. In certain situations, 
ERISA may also prevent an employer from changing employee's hours in 
order to interfere with an employee's ability to participate in a 
health plan.\69\ The Departments have not proposed permitting plan 
sponsors to treat salaried and hourly employees as different classes of 
employees for purposes of these rules, however, as many employers might 
easily be able to change an employee's status from salaried to hourly 
(and in certain circumstances, from hourly to salaried) with seemingly 
minimal economic or other consequences for either the employer or the 
employees.
---------------------------------------------------------------------------

    \69\ See e.g., Marin v. Dave & Buster's, Inc., 159 F. Supp. 3d 
460 (SDNY 2016).
---------------------------------------------------------------------------

    To minimize burden and complexity, the Departments do not propose a 
minimum employer size or employee class size for purposes of applying 
the proposed integration rules. The Departments recognize that very 
small employers could manipulate these classes (for example, a very 
small employer could put someone who is a higher-risk employee in a 
separate class on his or her own), but note that other economic 
incentives related to attracting and retaining talent would discourage 
employers from doing so. The Departments invite comments on whether 
employer size or employee class size should be considered in 
determining permissible classes of employees.
    In defining certain classes of employees to which different 
benefits may be offered in the proposed rules, the Departments propose 
to adopt definitions that are the same as those that apply under 
sections 105(h) and 4980H of the Code.
    Specifically, for purposes of identifying classes of employees for 
purpose of the proposed integration regulations, an HRA plan sponsor 
may define ``full-time employee,'' ``part-time employee,'' and 
``seasonal employee'' in accordance with either of those definitions 
under sections 105(h) and 4980H of the Code, but it must be consistent 
across these three classes of employees, to the extent it 
differentiates based on these classes, in using either sections 105(h) 
or 4980H of the Code to avoid overlapping classes of employees, and the 
HRA plan document must set forth the applicable definitions prior to 
the beginning of the plan year in which the definitions will apply. 
Thus, an HRA plan document may provide that, for the plan year, the 
term ``full-time employee'' means a full-time employee under section 
4980H of the Code and the regulations thereunder and ``part-time 
employee'' means an employee who is not a full-time employee under 
section 4980H of the Code and the regulations thereunder, for the 
applicable plan year. But an HRA plan document may not provide that, 
for the plan year, the term ``full-time employee'' has the meaning set 
forth in section 4980H of the Code and the regulations thereunder, and 
the term ``part-time employee'' has the meaning set forth in 26 CFR 
1.105-11(c)(2)(iii)(C), for the applicable plan year. Nothing would 
prevent an employer from changing the definitions

[[Page 54432]]

for a subsequent plan year so long as each class is defined in 
accordance with the same provision for the applicable plan year and the 
HRA plan document is updated to reflect the applicable definitions 
prior to the beginning of the plan year in which the definitions would 
apply.
    For the other classes of employees, the relevant definition under 
section 105(h) of the Code applies, except for the class of employees 
based on worksite rating area. The Departments propose to adopt the 
Code section 105(h) definitions, in part, because they reflect a 
relatively common understanding of the terms ``full-time,'' ``part-
time'' and ``seasonal'' employees and because HRAs generally are 
subject to the nondiscrimination rules of section 105(h) of the Code. 
The Departments understand that plan sponsors may want to design their 
employee health plans, which may include offering a traditional group 
health plan and HRAs (or HRAs in different amounts or under different 
terms and conditions) to different classes of employees in a manner 
that complies with the requirements of Code section 105(h) to avoid the 
inclusion of amounts in income under that section.\70\ The Departments 
have concluded that defining the classes of employees to which 
different offers of coverage may be made by using the Code section 
105(h) definitions may be helpful in accomplishing that result.
---------------------------------------------------------------------------

    \70\ HRAs generally are subject to the rules under section 
105(h) of the Code and its related regulations as self-insured 
medical reimbursement plans. In general, section 105(h) of the Code 
provides that certain amounts paid to highly compensated individuals 
under self-insured medical reimbursement plans are includible in the 
income of the highly compensated individual. In the near term, the 
Treasury Department and the IRS intend to issue guidance that 
addresses the interaction of section 105(h) of the Code and HRAs 
integrated with individual health insurance coverage.
---------------------------------------------------------------------------

    As noted earlier, the Departments propose to allow employers to 
adopt the Code section 4980H definitions as an alternative set of 
definitions for identifying full-time, part-time, and seasonal 
employees. The Departments acknowledge that certain employers have 
already determined how those definitions apply to their workforce and 
using those same definitions for purposes of applying the proposed 
integration rules may reduce burden for those employers. Section 4980H 
of the Code applies to ALEs, which generally includes employers that 
employed at least 50 full-time employees (including full-time 
equivalent employees) in the prior calendar year.\71\ An employer must 
classify its employees as either full-time or part-time employees, and 
in some cases as seasonal employees, in accordance with section 4980H 
of the Code and the regulations thereunder, in order to determine 
whether it is an ALE and, if so, to determine which employees it must 
offer coverage to in order to avoid liabilities under section 4980H of 
the Code and to complete the associated reporting requirements. 
Accordingly, ALEs that want to offer HRAs to a particular class of 
employees, or offer HRAs of differing amounts or under different terms 
and conditions based on particular classes of employees, may prefer to 
use the Code section 4980H definitions with which they are familiar and 
which they have historically communicated to employees through the 
reporting requirements. The Departments understand, however, that some 
ALEs may still wish to use the Code section 105(h) definitions, and 
some non-ALEs may wish to use the Code section 4980H definitions. 
Therefore, the proposed rules would offer each employer the flexibility 
to determine which set of definitions are appropriate for its 
workforce, provided the employer uses the same set of definitions for 
classifying its full-time, part-time, and seasonal employees to the 
extent it uses each of these classifications.
---------------------------------------------------------------------------

    \71\ Discussion of how section 4980H of the Code would affect an 
ALE that offers an HRA integrated with individual health insurance 
coverage is included later in this preamble.
---------------------------------------------------------------------------

    The proposed employee classes are intended to provide the 
flexibility needed to achieve increased HRA usability while 
establishing parameters sufficient to address the health status 
discrimination and adverse selection concerns described earlier in this 
preamble. The Departments considered whether employers should be 
allowed to offer or vary HRAs integrated with individual health 
insurance coverage for classes of employees based on a very general 
standard (like the one that generally applies under the HIPAA 
nondiscrimination rules, with a broad employment-based classification 
standard) or a more finite list of classes of employees that have been 
used in other rules for various employee benefits purposes (for 
example, under section 105(h) and/or 4980H of the Code). The 
Departments' view is that a broad and open-ended standard would not be 
sufficient to mitigate health factor discrimination that could increase 
adverse selection in the individual market. The classes the Departments 
propose to permit are ones which, based on the Departments' experience, 
employers use for other employee benefits and other purposes, with the 
result that an employer would be unlikely to shift employees between 
the classes simply for purposes of offering an HRA.
    The Departments request comments on the proposed classes of 
employees, the definitions used, and whether additional classes of 
employees should be provided (for example, classifications based on 
form of compensation (hourly versus salaried), employee role or title, 
occupation, or whether the individual is a former employee). The 
Departments also seek comment on whether any additional classifications 
within the proposed classes of employees should be allowed, for 
example, allowing classifications based on more specific geographic 
locations, multiple gradations of part-time employees, or gradations 
based on employee tenure. In addition, the Departments request comments 
on whether the proposed classes of employees, including the class of 
employees based on employees having a primary worksite in a particular 
rating area and the rule allowing combinations of classes of employees, 
and any potential additional classes, are sufficient to mitigate 
adverse selection and health status discrimination concerns.
c. Salary Reduction Arrangements
    The Departments have been made aware that some employers may wish 
to allow employees to pay the portion of the premium for individual 
health insurance coverage that is not covered by an HRA integrated with 
individual health insurance coverage, if any, by using a salary 
reduction arrangement under a cafeteria plan. Pursuant to section 
125(f)(3) of the Code, an employer may not provide a qualified health 
plan (as defined in section 1301(a) of PPACA) offered through the 
Exchange as a benefit under its cafeteria plan.\72\ Therefore, an 
employer may not permit employees to make salary reduction 
contributions to a cafeteria plan to purchase a qualified health plan 
(including individual health insurance coverage) offered through an 
Exchange.
---------------------------------------------------------------------------

    \72\ Note that section 125(f)(3)(B) of the Code provides an 
exception to this prohibition for certain small employers offering 
employees the opportunity to enroll in the group market through an 
Exchange.
---------------------------------------------------------------------------

    However, section 125(f)(3) of the Code does not apply to individual 
health insurance coverage that is not purchased on an Exchange. 
Therefore, for an employee who purchases individual health insurance 
coverage outside the Exchange, the employer could permit the employee 
to pay the balance of the premium for the coverage through its 
cafeteria plan, subject to all

[[Page 54433]]

applicable guidance.\73\ To the extent the arrangement to pay the 
balance of the premium is a group health plan, such an arrangement 
would not be considered to be a traditional group health plan for 
purposes of the proposed integration rules. For a discussion of the 
application of the same-terms requirement to such an arrangement, see 
the next section of this preamble. For a general comment solicitation 
on cafeteria plan premiums arrangements, see later in this preamble.
---------------------------------------------------------------------------

    \73\ See Prop. Reg. 26 CFR 1.125-1(m); see also Rev. Rul. 61-
146, 1961-2 CB 25.
---------------------------------------------------------------------------

3. Same-Terms Requirement
    To address the Departments' concerns about health status 
discrimination leading to additional adverse selection in the 
individual market, the proposed integration rules generally require 
that a plan sponsor that offers an HRA integrated with individual 
health insurance coverage to a class of employees must offer the HRA on 
the same terms (that is, both in the same amount and otherwise on the 
same terms and conditions) to all employees within the class. For this 
purpose, a class of employees has the meaning described earlier in this 
preamble, but see later in this section of the preamble for a 
discussion of the application of this requirement to former employees. 
As part of this proposed requirement, the Departments make clear that 
offering a more generous HRA to individuals based on an adverse health 
factor violates the integration rules.
    The Departments recognize, however, that premiums for individual 
health insurance coverage obtained by HRA participants and their 
dependents may vary and thus some variation in amounts made available 
under an HRA, even within a class of employees, may be appropriate. 
Therefore, under the proposed integration rules, the maximum dollar 
amount made available under the HRA for participants within a class of 
employees may increase as the age of the participant increases, so long 
as the same maximum dollar amount attributable to that increase in age 
is made available to all participants of the same age within the same 
class of employees. In addition, under the proposed integration rules, 
the maximum dollar amount made available under an HRA within a class of 
employees may increase as the number of the participant's dependents 
who are covered under the HRA increases, so long as the same maximum 
dollar amount attributable to that increase in family size is made 
available to all participants in that class of employees with the same 
number of dependents covered by the HRA. Under this exception, a plan 
sponsor may increase the HRA amount for a class of employees for both 
age and family size, which would mean, for example, that a plan sponsor 
could offer two employees in a class of employees of the same age 
different HRA amounts if the different HRA amounts are attributable to 
differences in family size. By permitting such variation, the 
Departments seek to balance the disparate costs of health insurance in 
the individual market with the need to prevent health status 
discrimination against HRA participants and their dependents.
    Further, although the proposed integration regulations would 
generally apply to a former employee in the same way that they apply to 
a current employee (and former employees are considered to be in the 
same class that they were in immediately before separation from 
service), the Departments recognize that eligibility for post-
employment health coverage, if any, varies widely and may be subject to 
age, service or other conditions. To avoid undue disruption of 
employers' practices relating to the provision of post-employment 
health coverage, the proposed integration rules provide that an HRA may 
be treated as provided on the same terms even if the plan sponsor 
offers the HRA to some former employees (for example, to all former 
employees with a minimum tenure of employment) but fails to offer the 
HRA to the other former employees within a class of employees. But if a 
plan sponsor does offer the HRA to one or more former employee(s) 
within a class of employees, the HRA must be offered to those former 
employee(s) on the same terms as all other employees within the 
class.\74\ For example, if a plan sponsor offers an HRA to all of its 
current full-time employees and also to its former employees who were 
full-time employees immediately prior to separation from service who 
had at least five years of service, the plan sponsor must provide the 
HRA on the same terms to the eligible former employees and to the 
current full-time employees, subject to the generally applicable 
exceptions to the same terms requirement described elsewhere in this 
section of the preamble.
---------------------------------------------------------------------------

    \74\ Note that the market requirements do not apply to a group 
health plan that has fewer than two participants who are current 
employees on the first day of the plan year. See section 9831(a)(2) 
of the Code and section 732(a) of ERISA. HHS follows a similar 
approach for non-federal governmental retiree-only plans and 
encourages States to adopt a similar approach with respect to 
issuers of retiree-only plans. See 75 FR 34539 (June 17, 2010). 
Therefore, a retiree-only HRA need not meet the requirements of any 
integration test.
---------------------------------------------------------------------------

    The proposed integration rules further provide that if a 
participant or dependent in an HRA integrated with individual health 
insurance coverage does not use all of the amounts made available in 
the HRA to reimburse medical care expenses for a plan year, and the HRA 
allows for these amounts to be made available to participants and their 
dependents in later plan years, these carryover amounts would be 
disregarded for purposes of determining whether the HRA is offered on 
the same terms, so long as the method for determining whether 
participants have access to unused amounts in future years, and the 
methodology and formula for determining the amounts of unused funds 
that they may access in future years, is the same for all participants 
in a class of employees. In addition, the proposed rules provide that 
the ability to pay the portion of the premium for individual health 
insurance coverage that is not covered by the HRA, if any, by using a 
salary reduction arrangement under a cafeteria plan \75\ is considered 
to be a term of the HRA for purposes of the proposed integration rules; 
therefore an HRA shall fail to be treated as provided on the same terms 
unless such a salary reduction arrangement, if made available to any 
participant in a class of employees, is made available on the same 
terms to all participants (other than former employees) in a class of 
employees.
---------------------------------------------------------------------------

    \75\ As previously noted, pursuant to section 125(f)(3) of the 
Code, a cafeteria plan may not permit employees to use salary 
reduction contributions made to a cafeteria plan to purchase 
individual health insurance coverage offered through an Exchange.
---------------------------------------------------------------------------

    Further, the Treasury Department and the IRS are aware that an HRA 
under which the maximum dollar amount varies based on age may face 
issues regarding the application of section 105(h) of the Code and the 
regulations thereunder. Accordingly, the Treasury Department and the 
IRS intend to issue guidance in the near term that describes an 
anticipated safe harbor that would allow increases in the maximum 
dollar amount made available under an HRA integrated with individual 
health insurance coverage, if certain conditions are met, without a 
consequence under section 105(h) of the Code.\76\
---------------------------------------------------------------------------

    \76\ HRAs generally are subject to the rules under Code section 
105(h) and its related regulations as self-insured medical 
reimbursement plans. In general, Code section 105(h) provides that 
certain amounts paid to highly compensated individuals under self-
insured medical reimbursement plans are includible in the income of 
the highly compensated individual. The regulations under Code 
section 105(h) provide that, for purposes of the nondiscriminatory 
benefits rule under Code section 105(h)(4), ``a plan may establish a 
maximum limit for the amount of reimbursement which may be paid a 
participant for any single benefit or a combination of benefits. 
However, any maximum limit attributable to employer contributions 
must be uniform for all participants and for all dependents of 
employees who are participants and may not be modified by reason of 
a participant's age or years of service.'' See 26 CFR 1.105-
11(c)(3)(i). The guidance that the Treasury Department and the IRS 
intend to issue is also anticipated to address the application of 
the Code section 105(h) uniformity requirement to an HRA integrated 
with individual health insurance coverage more generally.

---------------------------------------------------------------------------

[[Page 54434]]

4. Opt-Out Provision
    As described elsewhere in this preamble, if an individual is 
covered by an HRA integrated with individual health insurance coverage 
for a month, regardless of the amount of reimbursement available under 
the HRA, the individual is not eligible for the PTC for that month. 
Because in some circumstances an individual may be better off claiming 
the PTC than receiving reimbursements under an HRA, the Departments' 
existing rules regarding integration with non-HRA group coverage and 
with Medicare require plan sponsors that offer HRAs to allow 
participants to opt out of and waive future reimbursements from the HRA 
at least annually.\77\ These proposed rules include the same 
requirement. Thus, current employees may be allowed the PTC, if they 
are otherwise eligible, if they opt out of and waive future 
reimbursements from the HRA and the HRA is either unaffordable or does 
not provide MV.\78\
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    \77\ See 26 CFR 54.9815-2711(d)(2)(i)(E), (d)(2)(ii)(D), 
(d)(5)(iv), 29 CFR 2590.715-2711(d)(2)(i)(E), (d)(2)(ii)(D), 
(d)(5)(iv), and 45 CFR 147.126(d)(2)(i)(E), (d)(2)(ii)(D) and 
(d)(5)(iv). Note that the rule for integration of an HRA with non-
HRA group coverage allows certain HRA amounts that are forfeited to 
be reinstated in the future, but the proposed rules do not contain a 
similar provision for HRAs integrated with individual health 
insurance coverage due to concerns by the Departments about 
complexity and burden on employers. See 26 CFR 54.9815-2711(d)(3), 
29 CFR 2590.715-2711(d)(3), and 45 CFR 147.126(d)(3).
    \78\ See elsewhere in this preamble for a discussion of rules 
being proposed by the Treasury Department and the IRS regarding the 
circumstances in which an offer of an HRA integrated with individual 
health insurance coverage is affordable and provides MV. Also note 
that a former employee is only rendered ineligible for the PTC if 
the former employee enrolls in employer-sponsored coverage; an offer 
of coverage (even if it is affordable and provides MV) does not 
preclude a former employee from claiming the PTC.
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    Furthermore, as with the current integration rules, the proposed 
integration rules require that upon termination of employment, either 
the remaining amounts in the HRA must be forfeited or the participant 
must be allowed to permanently opt out of and waive future 
reimbursements from the HRA to ensure that the HRA participant may 
choose whether to claim the PTC, if otherwise eligible, or to continue 
to participate in the HRA after the participant's separation from 
service.
5. Substantiation and Verification of Individual Health Insurance 
Coverage
    As discussed earlier in this preamble, the proposed integration 
rules would require that the individuals whose medical care expenses 
may be reimbursed under the HRA must be enrolled in individual health 
insurance coverage. To facilitate the administration of this 
requirement, under the proposed integration rules, an HRA must 
implement, and comply with, reasonable procedures to verify that 
individuals whose medical care expenses are reimbursable by the HRA 
are, or will be, enrolled in individual health insurance coverage 
(other than coverage that consists solely of excepted benefits) during 
the plan year. The reasonable procedures may include a requirement that 
a participant substantiate enrollment in individual health insurance 
coverage by providing either: (1) A document from a third party (for 
example, the issuer) showing that the participant and any dependent(s) 
covered by the HRA are, or will be, enrolled in individual health 
insurance coverage during the plan year (for example, an insurance card 
or an explanation of benefits pertaining to the relevant time period); 
or (2) an attestation by the participant stating that the participant 
and any dependent(s) are or will be enrolled in individual health 
insurance coverage, the date coverage began or will begin, and the name 
of the provider of the coverage.\79\ For this purpose, an HRA may rely 
on the documentation or attestation provided by the participant unless 
the HRA has actual knowledge that any individual covered by the HRA is 
not, or will not be, enrolled in individual health insurance coverage 
(other than coverage that consists solely of excepted benefits) for the 
plan year.
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    \79\ For purposes of the Code provisions affected by the 
proposed regulations, the otherwise generally applicable 
substantiation and recordkeeping requirements under section 6001 of 
the Code apply, including the requirements specified in Rev. Proc. 
98-25 (1998-1 CB 689) for records maintained within an Automated 
Data Processing system.
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    In addition, following the initial substantiation of coverage, with 
each new request for reimbursement of an incurred medical care expense 
for the same plan year, the proposed integration rules provide that the 
HRA may not reimburse a participant for any medical care expenses 
unless, prior to each reimbursement, the participant provides 
substantiation (which may be in the form of a written attestation) that 
the participant and, if applicable, any dependent(s) whose medical care 
expenses are requested to be reimbursed continue to be enrolled in 
individual health insurance coverage (other than coverage that consists 
solely of excepted benefits) for the month during which the medical 
care expenses were incurred. The attestation may be part of the form 
used for requesting reimbursement. As with the substantiation of 
enrollment for the plan year, for this purpose, an HRA may rely on the 
documentation or attestation provided by the participant unless the HRA 
has actual knowledge that the participant and any individual seeking 
reimbursement for the month were not enrolled in individual health 
insurance coverage (other than coverage that consists solely of 
excepted benefits) for the month.
6. Notice Requirement
    Because HRAs are different from traditional employer-provided 
health coverage in many respects, the Departments are concerned that 
individuals eligible for HRAs integrated with individual health 
insurance coverage may not recognize that the offer and/or acceptance 
of an HRA will have consequences for PTC eligibility, as described 
elsewhere in this preamble. Therefore, in order to ensure that 
participants who are eligible to participate in an HRA integrated with 
individual health insurance coverage understand the potential effect 
that the offer of and enrollment in the HRA might have on their ability 
to claim the PTC, these proposed rules include a requirement that an 
HRA provide written notice to eligible participants. The HRA would be 
required to provide a written notice to each participant at least 90 
days before the beginning of each plan year. For participants who are 
not yet eligible to participate at the beginning of the plan year (or 
who are not eligible when the notice is provided at least 90 days prior 
to the beginning of the plan year), the HRA would be required to 
provide the notice no later than the date on which the participant is 
first eligible to participate in the HRA.
    The proposed written notice would be required to include certain 
relevant information, including a description of the terms of the HRA, 
including the maximum dollar amount made available, as used in the 
affordability determination under the Code section 36B proposed 
rules;\80\ a statement of the

[[Page 54435]]

right of the participant to opt-out of and waive future reimbursement 
under the HRA; a description of the potential availability of the PTC 
if the participant opts out of and waives the HRA and the HRA is not 
affordable under the proposed PTC regulations; a description of the PTC 
eligibility consequences for a participant who accepts the HRA; a 
statement that the participant must inform any Exchange to which they 
apply for advance payments of the PTC of the availability of the HRA, 
the amount of the HRA, the number of months the HRA is available to 
participants during the plan year, whether the HRA is available to 
their dependents and whether they are a current or former employee; a 
statement that the participant should retain the written notice because 
it may be needed to determine whether the participant is allowed the 
PTC; a statement that the HRA may not reimburse any medical care 
expense unless the substantiation requirements are met; and a statement 
that it is the responsibility of the participant to inform the HRA if 
the participant or any dependent whose medical care expenses are 
reimbursable by the HRA is no longer enrolled in individual health 
insurance coverage.
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    \80\ The Departments note that in order to comply with the 
notice requirement, the HRA must determine the amounts that will be 
newly made available for the plan year prior to the plan year. A 
similar requirement applies under the proposed premium tax credit 
regulations. See proposed 26 CFR 1.36B-2(c)(5)(v).
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    This notice would provide some of the information the participant 
needs in order for the participant to ascertain the consequences of the 
HRA for PTC eligibility, and would inform them of their 
responsibilities for the HRA. If the requirements of the Department of 
Labor's proposed rules at 29 CFR 2510.3-1(l) are met, the notice would 
be required to also include a statement to advise participants that 
individual health insurance coverage integrated with the HRA is not 
subject to ERISA (see section IV of this preamble and the Department of 
Labor's proposed rules at 29 CFR 2510.3-1(l) for additional explanation 
regarding this requirement).
    The written notice would be required to include the information 
required by the proposed integration rules, and would be permitted to 
include other information, as long as the additional information does 
not conflict with the required information.
    The written notice would not need to include information specific 
to a participant. More specifically, although the notice must contain a 
description of the potential availability of the PTC for a participant 
who opts out of and waives an unaffordable HRA and must include the HRA 
amount that is relevant for determining affordability under the 
proposed rules at 26 CFR 1.36B-2(c)(5), the proposed rules would not 
require the HRA to include in the notice a determination of whether the 
HRA is considered affordable for the participant. The participant would 
need additional information (that is, their household income and the 
premium for the lowest cost silver plan in the Exchange for the rating 
area where they reside) to determine whether the HRA is affordable 
under the proposed PTC rules, as described in detail in section III of 
this preamble.
7. Student Health Insurance Coverage
    Federal regulations under PPACA define student health insurance 
coverage as a type of individual health insurance coverage.\81\ 
Although those regulations exempt student health insurance coverage 
from certain provisions of PPACA and HIPAA,\82\ they do not exempt such 
coverage from sections 2711 and 2713 of the PHS Act. Therefore, given 
that student health insurance coverage is a type of individual health 
insurance coverage, and is required to comply with sections 2711 and 
2713 of the PHS Act, the Departments clarify that under the proposed 
integration rules an HRA may be integrated with student health 
insurance coverage that satisfies the requirements in 45 CFR 
147.145.\83\
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    \81\ Under this definition, student health insurance coverage 
must be provided pursuant to a written agreement between an 
institution of higher education (as defined in the Higher Education 
Act of 1965) and a health insurance issuer, and provided to students 
enrolled in that institution and their dependents, and does not make 
health insurance coverage available other than in connection with 
enrollment as a student (or as a dependent of a student) in the 
institution, does not condition eligibility for the health insurance 
coverage on any health status-related factor (as defined in 45 CFR 
146.121(a)) relating to a student (or a dependent of a student), and 
meets any additional requirements that may be imposed under State 
law. See 45 CFR 147.145(a).
    \82\ See 45 CFR 147.145(b).
    \83\ Self-insured student health plans are not a form of 
individual health insurance coverage. Therefore, these proposed 
integration regulations do not provide for HRA integration with 
self-insured student health plans.
---------------------------------------------------------------------------

    The Departments also wish to confirm that prior guidance,\84\ which 
provided enforcement relief to institutions of higher education for 
certain healthcare premium reduction arrangements offered in connection 
with student health coverage (insured or self-insured), remains in 
effect, pending further guidance.
---------------------------------------------------------------------------

    \84\ See FAQs About Affordable Care Act Implementation Part 33, 
available at https://www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-33.pdf or https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/Downloads/ACA-FAQ-Set-33-Final.pdf. See also IRS Notice 2016-17, 2016-9 IRB 358; DOL 
Technical Release 2016-1, available at https://www.dol.gov/ebsa/newsroom/tr16-01.html; and Insurance Standards Bulletin, Application 
of the Market Reforms and Other Provisions of the Affordable Care 
Act to Student Health Coverage, February 5, 2016, available at 
https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/student-health-bulletin.pdf.
---------------------------------------------------------------------------

8. Comment Solicitation Regarding Various Integration-Related Issues
    In developing the proposed integration rules, the Departments 
considered whether to allow HRAs intended to satisfy the individual 
health insurance coverage integration test also to be integrated with 
group health plan coverage, such as a group health plan maintained by 
the employer of the participant's spouse, in addition to individual 
health insurance coverage, because like individual health insurance 
coverage, group health plan coverage is generally subject to and 
compliant with PHS Act sections 2711 and 2713. The Departments are not 
proposing such a rule because allowing such integration would add 
significant complexity to the individual health insurance coverage 
integration test.\85\ The Departments request comments regarding 
whether the Departments should allow for such integration and if so, 
with respect to PHS Act section 2711 compliance, how such an 
integration test should be designed to take into account that, while 
most individual health insurance coverage is required to cover all 
EHBs, large group market and self-insured group health plans are not 
required to cover all EHBs. The Departments request comments on the 
demand for

[[Page 54436]]

such a rule, and any problems such a rule may raise.
---------------------------------------------------------------------------

    \85\ PHS Act section 2711 applies with respect to the provision 
of EHBs. Because large group market and self-insured group health 
plan coverage are not required to provide EHBs, unlike individual 
health insurance coverage which is generally required to provide all 
EHBs, in the group health plan integration context, situations may 
arise where non-HRA group coverage with which the HRA is integrated 
does not cover every category of EHBs that the HRA covers. In that 
case, the HRA applies an annual dollar limit to a category of EHBs 
and the non-HRA group coverage with which it is integrated does not 
cure that limit by providing unlimited coverage of that category of 
EHBs. In the 2015 regulations under PHS Act section 2711, and in 
subregulatory guidance that preceded the Departments final rules, 
the Departments addressed this issue by providing two tests. 
Specifically, if the non-HRA group coverage with which an HRA is 
integrated provides MV, the HRA will not be considered to fail to 
comply with PHS Act section 2711, even though the HRA might provide 
reimbursement of an EHB that the plan with which the HRA is 
integrated does not. If an HRA is integrated with non-HRA group 
coverage that does not provide MV, the 2015 regulations limit the 
types of expenses that an HRA may reimburse to reimbursement of co-
payments, co-insurance, deductibles, and premiums under the non-HRA 
group coverage, as well as medical care that does not constitute 
EHBs. For additional discussion of the final regulations under PHS 
Act section 2711 see the discussion earlier in this preamble.
---------------------------------------------------------------------------

    The Departments also considered whether to propose a rule to permit 
HRAs to be integrated with other types of non-group coverage other than 
individual health insurance coverage, such as STLDI.\86\ However, while 
all individual health insurance coverage that is currently written is 
non-grandfathered coverage, and therefore is subject to and, 
presumably, compliant with PHS Act sections 2711 and 2713 (and most 
individual market coverage that is renewed is also non-grandfathered), 
other types of non-group coverage, such as STLDI, may not be subject to 
PHS Act sections 2711 and 2713, in which case, integration would not be 
sufficient to ensure that the combined benefit package satisfies these 
requirements. The Departments request comments on whether integration 
with STLDI (which is not required to, but which may, satisfy PHS Act 
sections 2711 and 2713) should be permitted, including whether 
integration should be permitted with any other type of coverage that 
satisfies PHS Act sections 2711 and 2713, how such integration rules 
should be structured, as well as comments on what, if any, potential 
benefits and problems might arise from allowing these types of HRA 
integration. The Departments also seek comment on whether allowing such 
integration would raise any concerns about health status discrimination 
leading to additional adverse selection in the individual market.
---------------------------------------------------------------------------

    \86\ See the definition of short-term, limited-duration 
insurance (STLDI) under 26 CFR 54.9801-2, 29 CFR 2590.701-2, 45 CFR 
144.103.
---------------------------------------------------------------------------

    The Departments also seek comment on whether the ability to 
integrate an HRA with individual health insurance coverage has the 
potential to increase participation in and strengthen the viability of 
States' individual market risk pools. Further, the Departments invite 
comment on whether the proposed integration safeguards are appropriate 
and narrowly tailored to mitigate adverse selection and the potential 
for discrimination based on health status, or whether less restrictive 
safeguards would suffice.
    Further, as noted earlier in this preamble, the proposed 
integration rules do not address cafeteria plan premium arrangements, 
other than to provide that plan sponsors may offer such an arrangement 
in addition to an HRA integrated with individual health insurance 
coverage in certain circumstances. The Departments invite comments on 
whether employers may seek to provide cafeteria plan premium 
arrangements, including as a standalone arrangement, and, if so, what 
additional guidance is needed in order to facilitate the offering of 
such arrangements. In particular, the Departments solicit comments on 
whether the definition of the term ``account-based group health plan'' 
should include cafeteria plan premium arrangements in order to permit 
these arrangements to integrate with individual health insurance 
coverage subject to the requirements of the rule, including how that 
treatment would be coordinated with other requirements applicable to 
employee benefit plans.
9. Revisions to PHS Act Section 2711 Regulations Regarding Integration 
With Other Group Health Plan Coverage and Medicare
    The 2015 regulations under PHS Act section 2711 provide methods for 
integrating HRAs with coverage under another group health plan, and, in 
certain circumstances, with Medicare parts B and D. These proposed 
rules do not substantively change the current group health plan or 
Medicare integration tests under the existing PHS Act section 2711 
regulations. However, these proposed rules include minor proposed 
revisions to those regulations, including changing the term ``account-
based plan'' to ``account-based group health plan'' and moving defined 
terms to a definitions section.
    More substantively, these proposed rules would amend the 
regulations under PHS Act section 2711 to reflect that HRAs may be 
integrated with individual health insurance coverage subject to the 
requirements of 26 CFR 54.9802-4, 29 CFR 2590.702-2, and 45 CFR 
146.123. Paragraph (d)(4) of 26 CFR 54.9815-2711, 29 CFR 2590.715-2711 
and 45 CFR 147.126 is revised accordingly. In addition, for the sake of 
clarity, the proposed rules add to paragraph (d)(2) in each of the 
aforementioned PHS Act section 2711 regulations that an HRA integrated 
with non-HRA group coverage may not be used to purchase individual 
health insurance coverage (other than coverage that consists solely of 
excepted benefits), as the Departments previously clarified in Notice 
2015-87, Q&A 2.
    In addition, the proposed rules update the definition of EHBs set 
forth in paragraph (c) of the regulations under PHS Act section 2711, 
which applies for a group health plan or health insurance issuer not 
required to cover EHBs. The update in the proposed rules reflects the 
revision to the EHB-benchmark plan selection process that was 
promulgated in the HHS Notice of Benefit and Payment Parameters for 
2019 Final Rule (2019 Payment Notice) and that applies for plan years 
beginning on or after January 1, 2020.\87\ The 2019 Payment Notice 
revisions provide States with additional choices with respect to the 
selection of benefits and promote affordable coverage through offering 
States additional flexibility in their selection of an EHB-benchmark 
plan for plan years beginning on or after January 1, 2020. The State's 
existing EHB-benchmark plan will continue to apply for any year for 
which a State does not select a new EHB-benchmark plan from the 
available EHB-benchmark plan selection options finalized in the 2019 
Payment Notice.\88\
---------------------------------------------------------------------------

    \87\ See 83 FR 16930 (April 17, 2018). The definition of EHB 
that applies under the PHS Act section 2711 regulations for plan 
years beginning before January 1, 2020 would not be substantively 
changed by the proposed rules.
    \88\ For more information on the revised EHB standard, refer to 
the preamble to the 2019 Payment Notice, beginning at page 17007.
---------------------------------------------------------------------------

B. Excepted Benefit HRAs

    There may be scenarios in which an employer wishes to offer an HRA 
that may not be integrated with non-HRA group coverage, Medicare, 
TRICARE, or individual health insurance coverage. For example, some 
employers may wish to offer an HRA without regard to whether its 
employees have other coverage at all or without regard to whether its 
employees have coverage that is subject to and satisfies the market 
requirements. Therefore, these proposed rules would utilize the 
Departments' discretion under section 9832(c)(2)(C) of the Code, 
section 733(c)(2)(C) of ERISA, and section 2791(c)(2)(C) of the PHS 
Act, to recognize HRAs as limited excepted benefits, if certain 
conditions are met.\89\
---------------------------------------------------------------------------

    \89\ The proposed rules that recognize certain HRAs as limited 
excepted benefits do not apply to health FSAs. For a health FSA to 
qualify as an excepted benefit, the current regulations continue to 
apply.
---------------------------------------------------------------------------

    As explained earlier in this preamble, the Departments have the 
authority and discretion to specify in regulations additional limited 
excepted benefits, that are similar to the limited benefits specified 
in the statute and that either are insured under a separate policy, 
certificate, or contract, or are otherwise not an integral part of a 
plan. The Departments are proposing an excepted benefit HRA that is 
both consistent with this statutory framework and consistent with the 
Departments' objective of expanding the availability and usability of 
HRAs.
    The proposed rules provide the following four requirements for an 
HRA to qualify as an excepted benefit HRA: (1) The HRA must not be an 
integral part of the plan, (2) the HRA must

[[Page 54437]]

provide benefits that are limited in amount, (3) the HRA cannot provide 
reimbursement for premiums for certain health insurance coverage, and 
(4) the HRA must be made available under the same terms to all 
similarly situated individuals.
1. Otherwise Not an Integral Part of the Plan
    HRAs are self-insured group health plans and, therefore, are not 
insurance coverage that can be provided under a separate policy, 
certificate, or contract of insurance. Accordingly, HRAs must meet the 
statutory requirement to not be ``an integral part of the plan.'' To 
satisfy this condition, the proposed rules specify that for an HRA to 
be an excepted benefit, other group health plan coverage (other than an 
account-based group health plan or coverage consisting solely of 
excepted benefits) must be made available by the same plan sponsor for 
the plan year to the participants offered the HRA. Only individuals who 
are eligible for participation in the other group health plan would be 
eligible for participation in the excepted benefit HRA. However, while 
the plan sponsor would be required to make an offer of other group 
health plan coverage in order to meet this requirement, HRA 
participants (and their dependents) would not be required to enroll in 
the other group health plan in order to be eligible for the excepted 
benefit HRA.
    This provision of the proposed excepted benefit HRA is similar to 
the requirement that applies under the limited excepted benefits 
regulations for health FSAs at 26 CFR 54.9831-1(c)(3)(v), 29 CFR 
2590.732(c)(3)(v), and 45 CFR 146.145(b)(3)(v).
2. Limited in Amount
    In creating the excepted benefit HRA, the Departments had to 
determine what type of HRA would be sufficiently limited to qualify as 
a limited excepted benefit. Under the statute, limited benefits may 
include limited scope vision or dental benefits, benefits for long-term 
care, nursing home care, home health care, or community-based care, or 
any combination thereof and may include ``such other similar, limited 
benefits as are specified in regulations'' by the Departments.
    The Departments consistently have applied limiting principles in 
prior rulemakings under which discretion was exercised to establish 
additional types of limited excepted benefits. For example, health FSAs 
constitute excepted benefits only if the arrangement is structured so 
that the maximum benefit payable to any participant in the class for a 
year may not exceed two times the participant's salary reduction 
election under the arrangement for the year (or, if greater, may not 
exceed $500 plus the amount of the participant's salary reduction 
election).\90\ Additionally, limited wraparound coverage is a limited 
excepted benefit only if it is limited in amount, such that the cost of 
coverage per employee (and any covered dependents) under the limited 
wraparound coverage does not exceed the greater of the maximum 
permitted annual salary reduction contribution toward a health FSA,\91\ 
or 15 percent of the cost of coverage under the primary plan.\92\
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    \90\ 26 CFR 54.9831-1(c)(3)(v); 29 CFR 2590.732(c)(3)(v); 45 CFR 
146.145(b)(3)(v).
    \91\ See section 125(i) of the Code.
    \92\ 26 CFR 54.9831-1(c)(3)(vii); 29 CFR 2590.732(c)(3)(vii); 45 
CFR 146.145(b)(3)(vii).
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    In the proposed rules, the Departments propose that the amounts 
newly made available for a plan year in an excepted benefit HRA may not 
exceed $1,800, indexed for inflation for plan years beginning after 
December 31, 2020. For this purpose, inflation is defined in these 
proposed rules by reference to the Chained Consumer Price Index for All 
Urban Consumers, unadjusted (C-CPI-U), published by the Department of 
Labor. The adjusted limit for plan years beginning in a particular 
calendar year will be made available early in the fall of the prior 
calendar year.
    In proposing this limit, the Departments considered several 
factors, including the limits on employer contributions to excepted 
benefit health FSAs (set at $500 in 1997 if there are no employee 
contributions to the FSA, although it might be much higher if there are 
employee contributions).\93\ The Departments also considered indexing 
$500 for medical inflation using the medical care component of the 
Consumer Price Index for all Urban Consumers (CPI-U). The Departments 
considered the relationship between $500 and the average cost of 
insurance in 1997. The Departments also considered a limit of 15 
percent-of-the-cost-of-coverage-under-the-primary-plan test, which is 
the limit used for both supplemental excepted benefits in the group 
market and limited wraparound coverage, as a benchmark to ensure that 
the benefits are limited in amount.\94\ In considering how such a limit 
could be an appropriate limit for excepted benefit HRAs, the 
Departments considered 15 percent of the cost of group coverage for 
both employee-only and family coverage. However, the Departments also 
considered how to determine the primary plan in circumstances in which 
the participant does not enroll in a traditional group health plan, and 
concluded that such a determination would likely be difficult for 
employers. The Departments also considered using the cost of coverage 
for the second-lowest cost silver plan in various markets. These 
methodologies produced a wide range of possible excepted benefit HRA 
limits from $1,100 to $2,850. Consistent with the principle of 
promoting HRA use and availability, rather than proposing a complex 
test for the limit on amounts newly made available in the excepted 
benefit HRA, the Departments are proposing a maximum of $1,800 (indexed 
for inflation) on amounts newly made available for a plan year. This 
approximates the midpoint amount yielded by the various methodologies 
considered.
---------------------------------------------------------------------------

    \93\ See 26 CFR 54.9831-1(c)(3)(v)(B); 29 CFR 
2590.732(c)(3)(v)(B); 45 CFR 146.145(b)(3)(v)(B).
    \94\ See 26 CFR 54.9831-1(c)(3)(vii)(B)(2); 29 CFR 
2590.732(c)(3)(vii)(B)(2); 45 CFR 146.145(b)(3)(vii)(B)(2). See also 
EBSA Field Assistance Bulletin No. 2007-04 (available at https://www.dol.gov/agencies/ebsa/employers-and-advisers/guidance/field-assistance-bulletins/2007-04); CMS Insurance Standards Bulletin 08-
01 (available at https://www.cms.gov/CCIIO/Resources/Files/Downloads/hipaa_08_01_508.pdf); and IRS Notice 2008-23 (2008-07 IRB 433).
---------------------------------------------------------------------------

    In proposing to index the amount by C-CPI-U, the Departments 
considered several factors, including the difficulties of administering 
an HRA with a changing amount, and the cost, including the cost to the 
Departments to publish the amount and provide notice every year, as 
balanced with the decreasing real value of a set HRA limit and the 
ability of an employer to maintain the HRA benefit at $1,800, should it 
choose to do so.
    The Departments invite comment on the amount of the proposed 
maximum dollar limit and whether an alternate amount or formula for 
determining the maximum dollar limit for an excepted benefit HRA would 
be more appropriate and, if so, what that alternative would be and why. 
The Departments specifically request comments on whether the proposed 
HRA maximum amount of $1,800 should be higher if the HRA covers 
dependents (or alternatively, whether the $1,800 maximum amount should 
be lower if the HRA only covers the employee). The Departments also 
invite comments on the measure of inflation used, including whether the 
amount should be indexed to inflation (and if there are any 
administrability concerns associated with indexing), if C-CPI-U is the 
correct measure of inflation, or whether an

[[Page 54438]]

alternate measure, such as the overall medical care component for CPI-
U, or the method specified under section 9831(d)(2)(D) of the Code for 
QSEHRAs, should be used. The Departments also invite comment on whether 
the publication of the adjusted limit for plan years beginning in a 
particular calendar year by early fall of the preceding calendar year 
will provide employers with sufficient time to adjust the excepted 
benefit HRA for the upcoming year.
    If a participant or dependent in an excepted benefit HRA does not 
use all of the amounts made available in the excepted benefit HRA to 
reimburse medical care expenses for a plan year, and the excepted 
benefit HRA allows for these amounts to be made available to the 
participant and dependents in later plan years, the Departments propose 
that these carryover amounts would be disregarded for purposes of 
determining whether the benefits in the excepted benefit HRA are 
limited in amount.
    Further, the proposed rules provide that if the plan sponsor 
provides more than one excepted benefit HRA to the participant for the 
same time period, the amounts made available under such plans are 
aggregated to determine whether the benefits are limited in amount.
3. Prohibition on Reimbursement of Premiums for Certain Types of 
Coverage
    As the third requirement for an HRA to be recognized as a limited 
excepted benefit, the Departments propose that the HRA would not be 
permitted to reimburse premiums for individual health insurance 
coverage, coverage under a group health plan (other than COBRA or other 
group continuation coverage), or Medicare parts B or D. However, the 
proposed rules would allow an excepted benefit HRA to reimburse 
premiums for individual health insurance coverage that consists solely 
of excepted benefits or coverage under a group health plan that 
consists solely of excepted benefits, as well as for STLDI premiums, 
and for COBRA premiums.
    The Departments have concluded that this limit is appropriate in 
light of the requirement that excepted benefits under this statutory 
provision provide only limited benefits. In addition, the Departments 
have concluded that this condition is appropriate because under our 
concurrent proposal to permit HRAs to be integrated with individual 
health insurance coverage and the current regulations that allow HRAs 
to be integrated with group health plan coverage and to reimburse 
premiums for Medicare parts B and D in certain circumstances, an 
employer that wishes to provide an HRA that reimburses premiums for 
individual health insurance coverage, coverage under a group health 
plan, or Medicare parts B or D may do so under the applicable 
integration rules. Such an approach ensures that excepted benefit HRAs 
provide limited benefits different from what a traditional group health 
plan would provide, similar to limited scope dental or vision plans and 
benefits for long-term care, nursing home care, home health care, and 
community-based care.
    This proposed condition would not limit the ability of an excepted 
benefit HRA to reimburse premiums for COBRA or other group continuation 
coverage (premiums for which are generally paid with after-tax funds) 
or STLDI. Further, the excepted benefit HRA may reimburse premiums 
other than those listed as specifically excluded. The Departments 
request comments on this condition, including whether additional 
clarity is needed regarding whether premiums for certain types of 
coverage may be reimbursed under the proposed excepted benefit HRA.
4. Uniform Availability
    To prevent a plan sponsor from intentionally or unintentionally, 
directly or indirectly, steering any participants or dependents with 
adverse health factors away from the sponsor's traditional group health 
plan, the fourth and final requirement for an HRA to be recognized as a 
limited excepted benefit relates to uniform availability. Specifically, 
an excepted benefit HRA would be required to be made available under 
the same terms to all similarly situated individuals (as defined in the 
HIPAA nondiscrimination regulations) regardless of any health factor. 
In the Departments' view, this condition is necessary to prevent 
discrimination based on health status and to preclude opportunities for 
an employer to offer a more generous excepted benefit HRA to 
individuals with an adverse health factor, such as an illness or a 
disability, as an incentive not to enroll in the plan sponsor's 
traditional group health plan. Therefore, the Departments are proposing 
a uniform-availability requirement and wish to make it clear that 
benefits must be provided uniformly, without regard to any health 
factor. Accordingly, for example, the HRA could not be offered only to 
employees who have cancer or fail a physical examination, just as the 
HRA could not be offered only to employees who are cancer-free or who 
pass a physical examination. Similarly, an employer could not make 
greater amounts available to an HRA for employees who have cancer or 
who fail a physical examination, just as an employer could not make 
greater amounts available to an HRA for employees who are cancer-free 
or who pass a physical examination. The Departments request comment on 
whether additional standards are necessary to prevent abuse and 
discrimination based on a health factor.

C. Interaction Between HRAs Integrated With Individual Health Insurance 
Coverage and Excepted Benefits HRAs

    Under the proposed rules, an employer would be permitted to offer 
an HRA integrated with individual health insurance coverage to a class 
of employees so long as it does not also offer a traditional group 
health plan to the same class of employees, subject to additional 
conditions discussed elsewhere in this preamble. However, an employer 
could only offer an excepted benefit HRA if traditional group health 
plan coverage is also made available to the employees who are eligible 
to participate in the excepted benefit HRA. Thus, an employer would not 
be permitted to offer both an HRA integrated with individual health 
insurance coverage and an excepted benefit HRA to any employee.\95\
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    \95\ The Departments note that an employer may not provide a 
QSEHRA to any employee if it offers any employee a group health 
plan. Accordingly, an employer may not provide a QSEHRA to any 
employee if it offers any employee an HRA that may be integrated 
with individual health insurance coverage or an excepted benefit 
HRA. See section 9831(d)(3)(B)(ii) of the Code.
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III. Overview of the Proposed Rules Regarding the Premium Tax Credit--
Department of the Treasury and IRS

A. Premium Tax Credit Under Section 36B of the Code

    Consistent with the objectives in Executive Order 13813 to expand 
the use of HRAs, the proposed rules would amend the regulations under 
section 36B of the Code to provide guidance for individuals who are 
offered or covered by an HRA integrated with individual health 
insurance coverage as described in the proposed integration rules and 
who otherwise may be eligible for the PTC.
    An individual who is covered by an HRA integrated with individual 
health insurance coverage is ineligible for the PTC. However, see the 
discussion earlier in this preamble of the related requirement under 
the proposed integration rules that plan sponsors provide participants 
with the periodic opportunity to opt-out of and waive future 
reimbursements under an HRA.

[[Page 54439]]

    The proposed rules under section 36B of the Code describe the PTC 
eligibility of an individual who is offered, but opts out of, an HRA 
that is integrated with individual health insurance coverage. 
Consistent with section 36B of the Code and the existing regulations 
thereunder, the proposed rules provide that an employee who is offered, 
but opts out of, an HRA integrated with individual health insurance 
coverage, and an individual who is offered such an HRA because of a 
relationship to the employee (a related HRA individual), are eligible 
for MEC under an eligible employer-sponsored plan for any month the HRA 
is affordable and provides MV. Thus, these individuals are ineligible 
for the PTC for their Exchange coverage for months the HRA is 
affordable and provides MV.
    Under the proposed rules, an HRA integrated with individual health 
insurance coverage is affordable for an employee (and a related HRA 
individual) for a month if the employee's required HRA contribution 
does not exceed 1/12 of the product of the employee's household income 
and the required contribution percentage (defined in 26 CFR 1.36B-
2(c)(3)(v)(C)). For this purpose, an employee's required HRA 
contribution would be the excess of: (1) The monthly premium for the 
lowest cost silver plan for self-only coverage available to the 
employee through the Exchange for the rating area in which the employee 
resides; over (2) the monthly self-only HRA amount provided by the 
employee's employer, or, if the employer offers an HRA that provides 
for a single dollar amount regardless of whether an employee has self-
only or other-than-self-only coverage, the monthly maximum amount 
available to the employee. Under the proposed rules, the monthly self-
only HRA amount would be the self-only HRA amount newly made available 
to the employee from the employee's employer under the HRA for the plan 
year, divided by the number of months in the plan year the HRA is 
available to the employee. The monthly maximum amount available to the 
employee under the HRA, which is relevant if the HRA provides one 
amount regardless of the number of individuals covered, would be the 
maximum amount newly made available to the employee under the HRA, 
divided by the number of months in the plan year the HRA is available 
to the employee.
    The affordability rule in the proposed rules uses the lowest cost 
silver plan for self-only coverage available to the employee through 
the Exchange for the rating area in which the employee resides, without 
regard to the type of plan in which the employee actually enrolls. The 
lowest cost silver plan was chosen because, in the individual market, 
the lowest cost silver plan is the lowest cost Exchange plan for which 
the plan's share of the total allowed costs of benefits provided under 
the plan is certain to be at least 60 percent of such costs, as 
required by section 36B(c)(2)(C)(ii) of the Code for a plan to provide 
MV. Specifically, section 36B(c)(2)(C)(ii) of the Code and 26 CFR 
1.36B-6 provide that an eligible employer-sponsored plan provides MV 
only if the plan's share of the total allowed costs of benefits 
provided to an employee under the plan is at least 60 percent.\96\ In 
selecting the lowest cost plan for which it is certain that the plan's 
share of the total allowed costs of benefits provided under the plan 
will be at least 60 percent of such costs, the proposed rules seek to 
most closely approximate the PTC eligibility rules that apply to offers 
of eligible-employer sponsored coverage that is not an HRA.\97\ That 
is, the PTC eligibility rules under the proposed regulations for an HRA 
offer, as well as under section 36B of the Code for an offer of 
traditional employer coverage, are both based on the affordability of a 
plan available to the employee for which the plan's share of the total 
allowed costs of benefits provided under the plan must be at least 60 
percent of such costs. (See the discussion later in this section of 
when an HRA integrated with individual health insurance coverage is 
considered to provide MV.) The Treasury Department and the IRS seek 
comment on whether the silver level plan used for this purpose should 
be the second lowest cost silver plan,\98\ instead of the lowest cost 
silver plan, for self-only coverage offered in the Exchange for the 
rating area in which the employee resides or whether another plan 
should be used, and any operational or other issues that the use of the 
plan proposed or any alternative plan would entail. The proposed rules 
further provide that only amounts that are newly made available for the 
plan year of the HRA would be taken into account for determining 
affordability, provided that the amounts are determinable within a 
reasonable time before the beginning of the plan year of the HRA. 
Additionally, consistent with the rules for traditional employer 
coverage, \99\ the proposed rules require affordability to be 
determined separately for each employment period that is less than a 
full calendar year or for the portions of the plan year of the HRA that 
fall within different taxable years of the employee. In addition, the 
proposed rules include examples of affordability calculations.
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    \96\ In the individual market, a bronze plan may have an 
actuarial value of 56 percent, which would not ensure the plan's 
share of the total allowed costs of benefits provided under the plan 
is at least 60 percent of such costs, as required by section 
36B(c)(2)(C)(ii) of the Code for a plan to provide MV. See 45 CFR 
156.140.
    \97\ With regard to an offer of eligible employer-sponsored 
coverage that is not an HRA, an individual is eligible for the PTC 
only if the employee's required contribution, which is the portion 
of the annual premium that would be paid for the lowest cost self-
only MV coverage offered by the employer to the employee, exceeds a 
certain percentage of the employee's household income. See section 
36B(c)(2)(C) of the Code.
    \98\ Note that the monthly premium for self-only coverage for 
the second lowest cost silver plan in the employee's individual 
health insurance market is used to determine the affordability of a 
QSEHRA. See section 36B(c)(4)(C) of the Code.
    \99\ See 26 CFR 1.36B-2(c)(3)(v)(B).
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    The proposed rules also address the circumstances in which an HRA 
is considered to provide MV. As noted earlier in this section of the 
preamble, section 36B of the Code generally provides that an offer of 
employer coverage prevents an employee from being allowed the PTC for 
his or her Exchange coverage only if the employer coverage is both 
affordable and provides MV. With respect to an offer of an HRA 
integrated with individual health insurance coverage, the individual 
health insurance coverage that is proposed to be used for purposes of 
the affordability test is the lowest cost silver level Exchange 
coverage for the rating area in which the employee resides, which, as 
previously noted, will always provide MV. A determination that the 
integrated arrangement is affordable under the proposed regulations is 
therefore sufficient to ensure that an employee who is offered an HRA 
integrated with individual health insurance coverage, and that is 
determined to be affordable, has the ability to purchase affordable 
coverage that provides MV. Consequently, the proposed rules provide 
that an HRA integrated with individual health insurance coverage that 
is affordable is treated as providing MV.
    Determining PTC eligibility in the manner provided under the 
proposed rules is consistent with current rules for traditional 
employer coverage. That is, the proposed rules result in consistent 
treatment for purposes of section 36B of the Code for employees offered 
an HRA integrated with individual health insurance coverage and 
employees offered traditional employer coverage. In both instances, the 
employees may be allowed the PTC if they decline the offer and the 
coverage is either unaffordable or does not provide MV. Further, in 
both instances, the employee's required

[[Page 54440]]

contribution is based on the amount the employee must pay for self-only 
coverage that provides MV because under the proposed rules 
affordability would be determined based on the lowest cost silver plan 
offered in the Exchange for the rating area in which the employee 
resides (which by definition will always provide MV). If the amount the 
employee must pay is more than the product of the required contribution 
percentage and the employee's household income, the employee may be 
allowed the PTC.
    The proposed rules also clarify the ways in which the generally 
applicable employer-sponsored coverage PTC eligibility rules apply to 
HRAs integrated with individual health insurance coverage.\100\ For 
example, as with traditional coverage under eligible employer-sponsored 
plans, the proposed rules provide that an HRA integrated with 
individual health insurance coverage is not affordable for a month for 
an employee or related HRA individual if, at the time of enrollment in 
a qualified health plan, an Exchange determines that the HRA is not 
affordable. This employee safe harbor locks in an Exchange's 
determination of unaffordability, which is based on estimated household 
income, even if the HRA ultimately proves to be affordable based on 
actual household income for the tax year. Consistent with the existing 
regulations under section 36B of the Code, the employee safe harbor 
does not apply (1) to a determination made as part of the 
redetermination process described in 45 CFR 155.335 unless the 
individual receiving an Exchange redetermination notification 
affirmatively responds and provides current information on 
affordability; or (2) for an individual who, with intentional or 
reckless disregard for the facts, provides incorrect information to an 
Exchange concerning the relevant HRA amount.
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    \100\ The Treasury Department and the IRS have provided guidance 
regarding when amounts newly made available under an HRA count 
toward the affordability or MV of another group health plan offered 
by the same employer. See 26 CFR 1.36B-2(c)(3)(v)(A)(5) and 26 CFR 
1.36B-6(c)(4). See also IRS Notice 2015-87, Q&A 7. This document 
does not make substantive revisions to those rules but does make 
clarifying updates to 26 CFR 1.36B-2(c)(3)(v)(A)(5), mainly to 
incorporate a reference to more recent guidance.
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B. Employer Shared Responsibility Provisions Under Section 4980H of the 
Code

    As part of implementing the objectives of Executive Order 13813, 
the Treasury Department and the IRS have considered how section 4980H 
of the Code would apply to an employer offering an HRA integrated with 
individual health insurance coverage, as set forth in the proposed 
integration rules and taking into account the proposed rules described 
previously in this preamble under section 36B of the Code.
    Only ALEs are subject to section 4980H of the Code.\101\ The 
Departments anticipate that many employers that would be interested in 
offering an HRA integrated with individual health insurance coverage, 
as set forth in the proposed integration rules, may be smaller 
employers and, therefore, may not need to consider section 4980H of the 
Code when designing their HRA program.
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    \101\ The explanation of section 4980H of the Code provided here 
is a summary. For a complete explanation of the rules, including for 
definitions of terms used in this summary, see 26 CFR 54.4980H-1, et 
seq., published in the Federal Register at 79 FR 8544 (Feb. 12, 
2014).
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    For an employer that is an ALE, the employer may owe a payment for 
a month under section 4980H(a) or section 4980H(b) of the Code or 
neither. In general, an employer will owe a payment under section 
4980H(a) of the Code if it fails to offer an eligible employer-
sponsored plan to at least 95 percent of its full-time employees and 
their dependents and at least one full-time employee is allowed the PTC 
for the month.\102\ An HRA is an eligible employer-sponsored plan; 
therefore, if an ALE offers an eligible employer-sponsored plan 
(including an HRA) to at least 95 percent of its full-time employees 
and their dependents, the ALE would not be liable for a payment under 
section 4980H(a) of the Code for the month.
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    \102\ Note that if an ALE offered coverage to all but five of 
its full-time employees (and their dependents), and five is greater 
than 5 percent of the employer's full-time employees, the employer 
will not owe an employer shared responsibility payment under section 
4980H(a) of the Code. See 26 CFR 54.4980H-4(a).
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    An employer that is an ALE and which offers an eligible employer-
sponsored plan to at least 95 percent of its full-time employees and 
their dependents (and therefore is not liable for a payment under 
section 4980H(a) of the Code) may be liable for a payment under section 
4980H(b) of the Code if at least one full-time employee is allowed the 
PTC, which may occur if the eligible employer-sponsored plan offered 
was not affordable or did not provide MV, or if the employee was not 
offered coverage. The extent to which a full-time employee who was 
offered an HRA will be eligible for the PTC depends on the rules 
proposed under section 36B of the Code. However, in the near term, the 
Treasury Department and the IRS intend to issue guidance that describes 
an anticipated safe harbor for purposes of determining whether an 
employer that has offered an HRA integrated with individual health 
insurance coverage would be treated as having made an offer of 
affordable coverage that provides MV for purposes of section 4980H of 
the Code, regardless of whether the employee who received that offer 
declines the HRA and claims the PTC.\103\
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    \103\ In addition to setting forth a potential affordability 
safe harbor, the Treasury Department and the IRS intend to clarify 
in the upcoming guidance that the affordability safe harbors set 
forth under 26 CFR 54.4980H-5(e)(2) are available to employers 
offering an HRA integrated with individual health insurance 
coverage, subject to the relevant conditions set forth in those 
regulations.
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IV. Individual Health Insurance Coverage and ERISA Plan Status

    This document includes a DOL-only proposed regulation that would 
clarify that the ERISA terms ``employee welfare benefit plan,'' 
``welfare plan,'' and, as a direct result, ``group health plan'' would 
not include individual health insurance coverage the premiums of which 
are reimbursed by an HRA and certain other arrangements, provided that 
the employer, employee organization, or other plan sponsor is not 
involved in the selection of the individual health insurance coverage, 
among other criteria. Later, this section of the preamble also 
describes a related clarification made to regulations of all three 
Departments. DOL's objective in proposing this regulatory clarification 
is to provide employees; employers, employee organizations, and other 
plan sponsors; health insurance issuers; state insurance regulators; 
and other stakeholders with assurance that insurance policies sold as 
individual health insurance coverage, and subject to comprehensive 
Federal (and state) individual market rules for minimum and uniform 
coverage, standardized pricing, guaranteed availability, and guaranteed 
renewability, are not part of an HRA or certain other arrangements for 
purposes of ERISA.\104\ Specifically, DOL is proposing an amendment to 
29 CFR 2510.3-1 on the definition of ``employee welfare benefit plan'' 
in section 3(1) of ERISA.\105\ This proposed

[[Page 54441]]

amendment would also apply to certain existing arrangements that 
reimburse participants for the purchase of individual health insurance 
coverage that are not subject to the market requirements (including 
QSEHRAs and HRAs that have fewer than two participants who are current 
employees on the first day of the plan year). Further, this proposed 
amendment would apply to an arrangement under which an employer allows 
employees to pay the portion of the premium for individual health 
insurance coverage that is not covered by the HRA with which the 
coverage is integrated or that is not covered by a QSEHRA by using a 
salary reduction arrangement under a cafeteria plan (supplemental 
salary reduction arrangement).
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    \104\ For examples of other circumstances under which DOL has 
determined an arrangement is not a plan within the meaning of ERISA, 
see 29 CFR 2510.3-1(j), 29 CFR 2510.3-2(f), and 29 CFR 2509.99-1. 
See also DOL Field Assistance Bulletins 2004-01 and 2006-02.
    \105\ In light of the fact that ``group health plan'' is defined 
derivatively in ERISA section 733(a)(1), in relevant part, as an 
``employee welfare benefit plan to the extent that the plan provided 
medical care . . . directly or through insurance, reimbursement, or 
otherwise[,]'' DOL has concluded that a separate regulation relating 
to the definition of group health plan is not needed.
---------------------------------------------------------------------------

    Section 3(1) of ERISA specifically defines ERISA-covered welfare 
plans to include ``any plan, fund, or program'' ``established or 
maintained by an employer or employee organization'' for the provision 
of health benefits ``through the purchase of insurance or otherwise.'' 
At the same time, provisions in the PHS Act generally treat individual 
health insurance and group health insurance as mutually exclusive 
categories.\106\ If individual health insurance coverage were 
considered to be a group health plan or part of a group health plan, 
the individual health insurance coverage would likely violate some of 
the market requirements (for example, the single risk pool 
requirement). Treatment of such individual health insurance coverage as 
subject to both individual market and group market requirements thus 
could result in conflicting requirements, uncertainty and confusion 
which could inhibit or, in some instances, even preclude, the ability 
to integrate HRAs with individual health insurance coverage as 
contemplated by other provisions in the proposed rules.
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    \106\ As described earlier, individual health insurance coverage 
means health insurance coverage offered to individuals in the 
individual market, but does not include STLDI. See PHS Act section 
2791(b)(5), 26 CFR 54.9801-2, 29 CFR 2590.701-2, and 45 CFR 144.103. 
Individual market means the market for health insurance coverage 
offered to individuals other than in connection with a group health 
plan. See PHS Act section 2791(e)(1), 26 CFR 54.9801-2, 29 CFR 
2590.701-2, and 45 CFR 144.103. Group health insurance coverage 
means health insurance coverage offered in connection with a group 
health plan. See ERISA section 733(b)(4), PHS Act section 
2791(b)(4), 26 CFR 54.9801-2, 29 CFR 2590.701-2, and 45 CFR 144.103.
---------------------------------------------------------------------------

    In light of the PHS Act's treatment of group and individual health 
insurance coverage policies as mutually exclusive categories and the 
other provisions in this rulemaking addressing the permissible 
integration of individual health insurance coverage with HRAs, DOL 
concluded that the ERISA status of such individual health insurance 
coverage should be clarified in the context of the proposed rules.\107\
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    \107\ It is the intention of DOL that integration of an HRA with 
individual health insurance coverage obtained in the individual 
market, as described in the proposed rules, generally will not 
result in the individual health insurance coverage being treated as 
an ``employee welfare benefit plan'' or a ``group health plan'' 
within the meaning of title I of ERISA. However, depending on the 
particular facts and circumstances surrounding the involvement of an 
employer, the issue may not be free from doubt. Consequently, DOL 
proposes the clarification herein.
---------------------------------------------------------------------------

    Under the proposed regulatory clarification, the status under ERISA 
of an HRA, QSEHRA, or supplemental salary reduction arrangement would 
remain unaffected. However, under the proposal, individual health 
insurance coverage selected by the employee in the individual market 
and reimbursed by such a plan would not be treated as part of a group 
health plan, or as health insurance coverage offered in connection with 
a group health plan, or as a part of any employee welfare benefit plan 
for purposes of title I of ERISA, provided all the following conditions 
are satisfied:
     The purchase of any individual health insurance coverage 
is completely voluntary for employees.\108\
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    \108\ The fact that a plan sponsor requires such coverage to be 
purchased as a condition for participation in an HRA or supplemental 
salary reduction arrangement does not make the purchase involuntary. 
This issue should not arise in the context of a QSEHRA because in 
that case, although individuals must be enrolled in MEC, employers 
may not require employees to enroll in individual health insurance 
coverage.
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     The employer, employee organization, or other plan sponsor 
does not select or endorse any particular issuer or insurance coverage. 
Providing general contact information regarding availability of health 
insurance in a state (such as providing information regarding 
www.healthcare.gov or contact information for a state insurance 
commissioner's office) or providing general health insurance 
educational information (such as the uniform glossary of health 
coverage and medical terms available at: https://www.dol.gov/sites/default/files/ebsa/laws-and-regulations/laws/affordable-care-act/for-employers-and-advisers/sbc-uniform-glossary-of-coverage-and-medical-terms-final.pdf) is permitted.
     Reimbursement for nongroup health insurance premiums is 
limited solely to individual health insurance coverage.
     The employer, employee organization, or other plan sponsor 
receives no consideration in the form of cash or otherwise in 
connection with the employee's selection or renewal of any individual 
health insurance coverage.
     Each plan participant is notified annually that the 
individual health insurance coverage is not subject to ERISA. For an 
HRA integrated with individual health insurance coverage, the notice 
must meet the requirements set forth in the proposed integration rules 
at 29 CFR 2590.702-2(c)(6). For a QSEHRA or an HRA that is not subject 
to 29 CFR 2590.702-2(c)(6), model language is provided in the DOL 
proposed amendment, which can be used to satisfy the condition.\109\ A 
supplemental salary reduction arrangement need not provide the required 
notice; the notice will be provided by the HRA or QSEHRA that the 
salary reduction arrangement supplements.
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    \109\ In DOL's view, the summary plan description (SPD) for the 
HRA, QSEHRA, or other ERISA plan would fail to satisfy the style, 
format, and content requirements in 29 CFR 2520.102-3 and 29 CFR 
2520.102-3 unless it contained a discussion of the status of the HRA 
or QSEHRA and the individual health insurance coverage under ERISA 
sufficient to apprise the HRA or QSEHRA plan participants and 
beneficiaries of their rights and obligations under the plan and 
Title I of ERISA.
---------------------------------------------------------------------------

    DOL invites comments on all aspects of the proposed regulatory 
clarification. Some of the conditions parallel or are similar to 
conditions in other existing DOL regulations and related guidance for 
other types of arrangements, and DOL specifically invites comments on 
whether all of these conditions are necessary or whether other 
conditions should be used in place of, or in addition to, those being 
proposed in this document. DOL has issued guidance describing certain 
types of employee communications that would not constitute 
``endorsement'' as that condition applies under its regulations on 
payroll-deduction IRAs, see 29 CFR 2509.99-1, and specifically invites 
comments on whether similar regulatory or interpretive guidance would 
be helpful in the context of this proposed regulation. DOL also 
specifically invites comments on which forms of payment are 
appropriately treated as ``reimbursement'' to participants for purposes 
of this regulatory clarification, consistent with the terms and 
purposes of ERISA section 3(1). For example, should ``reimbursement'' 
be interpreted to include direct payments, individual or aggregate, by 
the employer, employee organization, or other plan sponsor to the 
insurance company? DOL also specifically invites comments on whether a 
better approach would involve providing relief from specified

[[Page 54442]]

otherwise-applicable obligations under ERISA Title I, rather than 
carving the policy out as if it were outside of ERISA Title I.
    Additionally, existing regulations of all three Departments define 
``group health insurance coverage'' as health insurance coverage 
offered in connection with a group health plan.\110\ The Departments 
propose to amend that definition by clarifying that individual health 
insurance coverage the premiums of which are reimbursed by an HRA or a 
supplemental salary reduction arrangement is not offered in connection 
with a group health plan, and is not group health insurance coverage, 
provided all the conditions in proposed 29 CFR 2510.3-1(l) (described 
earlier in this preamble) are satisfied.\111\
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    \110\ 26 CFR 54.9801-2; 29 CFR 2590.701-2, 45 CFR 144.103.
    \111\ Note that the clarification with respect to the meaning of 
group health insurance coverage is not relevant for QSEHRAs because 
QSEHRAs are not group health plans.
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    In light of the fact that HRAs are subject to many statutory rules 
and regulations not specifically addressed in this proposed rulemaking, 
including various reporting, disclosure, fiduciary, and enforcement 
provisions under title I of ERISA, DOL also specifically invites 
comment on whether it would be helpful for DOL to issue additional 
regulations or guidance addressing the application of ERISA reporting 
and disclosure requirements to HRAs integrated with such non-ERISA 
individual health insurance coverage (for example, SPD content and Form 
5500 annual reporting requirements). Similarly, the limitation in the 
proposal on employers, employee organizations, and other plan sponsors 
receiving consideration from an issuer or person affiliated with an 
issuer in connection with any participant's purchase or renewal of 
individual health insurance coverage was not intended to change any 
ERISA requirements governing the circumstances under which plans, 
including HRAs, may reimburse employers, employee organizations and 
other plan sponsors for certain expenses associated with administration 
of the plan. DOL specifically invites comments on whether there are 
particular issues in that area related to HRAs, QSEHRAs, or 
supplemental salary reduction arrangements that would benefit from 
additional regulatory or interpretive guidance.

V. Overview of the Proposed Rules Regarding Individual Market Special 
Enrollment Periods--Department of Health and Human Services

    As set forth earlier in this preamble, the Departments are 
proposing regulations to expand the usability of HRAs and to provide 
flexibility to employers. The proposed rules allowing integration of an 
HRA with individual health insurance coverage require that the 
individuals whose medical care expenses may be reimbursed under the HRA 
must be enrolled in individual health insurance coverage (other than 
coverage that consists solely of excepted benefits). With the ability 
to integrate HRAs with individual health insurance coverage, many 
employees may need access to individual health insurance coverage, on 
or off Exchange, or may wish to change to another individual health 
insurance plan in order to take advantage of this employee benefit. 
Therefore, HHS is proposing a regulation to allow employees and their 
dependents to enroll in individual health insurance coverage or to 
change from one individual health insurance coverage plan to another 
outside of the individual market annual open enrollment period if they 
gain access to an HRA integrated with individual health insurance 
coverage.
    In addition, because employees and dependents with a QSEHRA 
generally must be enrolled in MEC,\112\ and a significant category of 
MEC is individual health insurance coverage, HHS has determined that it 
is also appropriate to apply the new special enrollment period to 
individuals who are provided QSEHRAs.\113\
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    \112\ Generally, payments from a QSEHRA to reimburse an eligible 
employee's medical care expenses are not includible in the 
employee's gross income if the employee has coverage that provides 
MEC as defined in section 5000A(f) of the Code, which includes 
individual health insurance coverage.
    \113\ The Departments note that the new special enrollment 
period provided in the proposed rules applies only for individuals 
who gain access to HRAs integrated with individual health insurance 
coverage or for individuals who are provided QSEHRAs. Therefore, the 
new special enrollment period provided in the proposed rules would 
not apply for individuals who gain access to the proposed excepted 
benefit HRA.
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    More specifically, HHS proposes to add new paragraph 45 CFR 
155.420(d)(14) to establish a special enrollment period for when a 
qualified individual, enrollee, or his or her dependent gains access to 
and enrolls in an HRA integrated with individual health insurance 
coverage or is provided a QSEHRA, so that the individual and his or her 
dependents may enroll in or change his or her enrollment in individual 
health insurance coverage.
    45 CFR 155.420(d)(14) would provide access to coverage in the 
circumstance in which an employer after the start of the calendar year 
newly begins offering an HRA to its employees that is integrated with 
individual health insurance coverage or newly begins providing a QSEHRA 
to its employees. HHS anticipates that many employers that choose to 
offer an HRA integrated with individual health insurance coverage or to 
provide a QSEHRA will do so on a calendar year basis, which will allow 
employees to enroll in or change individual health insurance coverage 
during the annual open enrollment period. However, HHS is aware that 
employers may begin offering HRAs and providing QSEHRAs to their 
employees at any time during the calendar year and has determined that 
employers are best suited to determine which twelve-month period to use 
for their plan year. In addition, the new special enrollment period 
would apply to individuals who newly gain access to and enroll in an 
HRA integrated with individual health insurance coverage or who are 
provided a QSEHRA outside of open enrollment, for example, because the 
employee is hired after the start of the calendar year.
    HHS notes that for some situations in which an employee would newly 
gain access to an HRA integrated with individual health insurance 
coverage or would newly be provided a QSEHRA, access to coverage 
already exists under current authority in 45 CFR 155.410 or 155.420(d). 
For example, if an employer begins offering an HRA integrated with 
individual health insurance coverage or begins providing a QSEHRA 
effective January 1, employees may already enroll in or change 
individual health insurance coverage during the annual open enrollment 
period described in 45 CFR 155.410 with such coverage becoming 
effective January 1 (to coincide with the availability of the HRA or 
QSEHRA). Similarly, if an employer previously offered another type of 
group health plan coverage and decides to stop offering that coverage 
after the start of the calendar year to some or all of its employees 
(or the plan year ends after the start of the calendar year) and 
instead begins offering those employees an HRA integrated with 
individual health insurance coverage or begins providing a QSEHRA to 
them, the employees might already qualify for a special enrollment 
period due to a loss of MEC in accordance with 45 CFR 155.420(d)(1). In 
addition, an employee without a prior offer of employer coverage who is 
enrolled in Exchange

[[Page 54443]]

coverage with advance payments of the PTC and cost-sharing reductions 
(CSRs) currently may qualify for the special enrollment periods in 45 
CFR 155.420(d)(6)(i) or (ii) upon gaining access to an HRA integrated 
with individual health insurance coverage or being provided a QSEHRA 
after the start of the calendar year, if that results in the loss of 
eligibility for advance payments of the PTC or a reduction or loss of 
eligibility for CSRs. However, if this same employee was enrolled in 
Exchange coverage without advance payments of the PTC or CSRs, he or 
she would not qualify for this special enrollment period upon gaining 
access to an HRA integrated with individual health insurance coverage 
or being provided a QSEHRA after the start of the calendar year, and 
would instead need the proposed new special enrollment period in 45 CFR 
155.420(d)(14) in order to change Exchange coverage.
    Because access to and enrollment in health coverage varies by 
employers and among employees, as does employees' current ability to 
qualify for a special enrollment period should they gain access to an 
HRA integrated with individual health insurance coverage or be provided 
a QSEHRA, HHS has concluded that it is necessary to establish a new 
special enrollment period as proposed under 45 CFR 155.420(d)(14) so 
that all employees (and their dependents) who gain access outside of 
the individual market open enrollment period (for example, after the 
start of the calendar year) and enroll in HRAs integrated with 
individual health insurance coverage or are provided QSEHRAs, 
regardless of their prior coverage situations, may utilize this 
employee benefit by enrolling in or changing their enrollment in 
individual health insurance coverage at that time.
    HHS proposes to establish a coverage effective date for the special 
enrollment period in 45 CFR 155.420(d)(14) of the first day of the 
first month following the individual's plan selection, which is 
proposed at 45 CFR 155.420(b)(2)(vi). HHS has concluded that a first-
of-the-following-month coverage effective date is appropriate for this 
special enrollment period because it aligns with the coverage effective 
date option elected by the Federally-facilitated Exchanges (FFEs) for 
qualified individuals, enrollees, or dependents, including employees, 
who qualify for a special enrollment period for loss of MEC under 45 
CFR 155.420(d)(1). This coverage effective date also aligns with the 
coverage effective date option elected by the FFEs for the special 
enrollment period at 45 CFR 155.420(d)(6)(iii), applicable when 
employees enrolled in employer-sponsored coverage are determined newly 
eligible for advance payments of the PTC based in part on a finding 
that they are ineligible for coverage in an eligible-employer sponsored 
plan in accordance with 26 CFR 1.36B-2(c)(3). HHS has concluded that 
these existing qualifying events, also known as triggering events, and 
the new proposed qualifying event are similar to one another and affect 
potentially overlapping populations and, therefore, should entitle 
qualifying individuals to the same coverage start dates.
    Similarly, HHS proposes to offer the option for advance 
availability, in addition to subsequent availability, for the proposed 
special enrollment period in 45 CFR 155.420(d)(14), which would allow 
qualified individuals, enrollees, and dependents to qualify for this 
special enrollment period up to 60 days in advance of the qualifying 
event, as described in paragraph 45 CFR 155.420(c)(2) of the proposed 
rules. Under this advance availability in combination with 45 CFR 
155.420(b)(2)(vi), if an individual's plan selection is made before the 
date of the qualifying event, then coverage would be effective the 
first day of the month following the date of the qualifying event, or, 
if the triggering event is on the first day of a month, on the date of 
the triggering event. In cases where the qualifying event is the first 
day of the month, for example, if an individual will gain access to an 
HRA that can be integrated with individual health insurance coverage on 
April 1, so long as a plan is selected prior to that date (before or on 
March 31), the effective date of this new coverage will be the date of 
the qualifying event (April 1). Advance availability allows individuals 
who are aware of an upcoming change in eligibility or coverage status 
to report this change to the Exchanges ahead of time, select a plan, 
and enroll with a coverage effective date that helps minimize a 
potential gap in coverage. Because participants whose employers begin 
offering HRAs integrated with individual health insurance coverage or 
begin providing QSEHRAs generally must be notified at least 90 days 
prior to the plan year, participants would have advance knowledge of 
either benefit. Therefore, HHS has concluded that it makes sense to 
allow the participant to report this upcoming change to the Exchanges 
in advance, if desired. Individuals may alternatively elect to report 
the qualifying event up to 60 days after the date of the qualifying 
event and qualify for the special enrollment period during the regular 
special enrollment period window, in accordance with 45 CFR 
155.420(c)(1).
    In addition, in order to allow participants and their dependents 
the flexibility to adequately respond to gaining access to an HRA 
integrated with individual health insurance coverage or to being 
provided a QSEHRA, HHS also proposes to amend 45 CFR 155.420(a)(4)(iii) 
to exclude Exchange enrollees who would qualify for the proposed 
special enrollment period in 45 CFR 155.420(d)(14) from plan enrollment 
restrictions upon qualifying for this special enrollment period.
    Lastly, since these proposed rules would allow for HRAs to be 
integrated with individual health insurance coverage both on and off 
Exchange (and because individuals with QSEHRAs may enroll in individual 
health insurance coverage both on and off Exchange), HHS proposes to 
include this special enrollment period in the limited open enrollment 
periods available off Exchange, in accordance with current regulations 
at 45 CFR 147.104(b)(2). Therefore, an employee or an employee's 
dependent who gains access to an HRA integrated with individual health 
insurance coverage or who is provided a QSEHRA may elect to enroll in 
or change to different Exchange or off-Exchange individual health 
insurance coverage.
    HHS seeks comments on these proposals. If an employer begins 
offering an HRA or providing a QSEHRA to its employees during the 
calendar year outside of the Exchange annual open enrollment period, 
subsequent plan years likely will also begin during the calendar year. 
Therefore, HHS also seeks comments about whether the proposed new 
special enrollment period at 45 CFR 155.420(d)(14) should be available 
to employees who have and are enrolled in an HRA or are provided a 
QSEHRA each year at the time their new health plan year starts. This 
would allow employees to enroll in or change to a new plan in response 
to updated information about their HRA or QSEHRA benefit for each of 
their group health plan years.

VI. Applicability Date

    The proposed HRA integration and HRA excepted benefit provisions 
described in section II of this preamble, as well as the DOL 
clarification and the clarification by the Departments described in 
section IV of this preamble, are proposed to apply to group health 
plans and health insurance issuers for plan years beginning on or after 
January 1, 2020. The PTC provisions described in section III of this 
preamble are

[[Page 54444]]

proposed to be effective for taxable years beginning on and after 
January 1, 2020, and the HHS special enrollment period provisions 
described in section V of this preamble are proposed to be effective 
January 1, 2020. Taxpayers and others may not rely on these proposed 
rules. The Departments solicit comments on this proposed applicability 
date.

VII. Economic Impact and Paperwork Burden

A. Summary

    The proposed rules would remove the current prohibition on 
integrating HRAs with individual health insurance coverage, if certain 
conditions are met. The proposed rules also set forth conditions under 
which certain HRAs would be recognized as limited excepted benefits. In 
addition, the Treasury Department and the IRS are proposing rules 
regarding PTC eligibility for individuals offered coverage under an HRA 
integrated with individual health insurance coverage. Further, DOL is 
proposing a clarification to provide HRA, QSEHRA and supplemental 
salary reduction arrangement plan sponsors with assurance that the 
individual health insurance coverage the premiums of which are 
reimbursed by an HRA, QSEHRA or supplemental salary reduction 
arrangement would not become part of an ERISA plan if certain 
conditions are met, and the Departments are proposing a related 
clarification to the definition of group health insurance coverage. 
Finally, HHS is proposing rules that would provide a special enrollment 
period in the individual market for individuals who gain access to an 
HRA integrated with individual health insurance coverage or who are 
provided a QSEHRA.
    The Departments have examined the effects of the proposed rules as 
required by Executive Order 13563 (76 FR 3821, January 21, 2011, 
Improving Regulation and Regulatory Review); Executive Order 12866 (58 
FR 51735, October 4, 1993, Regulatory Planning and Review); the 
Regulatory Flexibility Act (September 19, 1980, Pub. L. 96-354); 
section 1102(b) of the Social Security Act (42 U.S.C. 1102(b)); section 
202 of the Unfunded Mandates Reform Act of 1995 (March 22, 1995, Pub. 
L. 104-4); Executive Order 13132 (64 FR 43255, August 10, 1999, 
Federalism); the Congressional Review Act (5 U.S.C. 804(2)); and 
Executive Order 13771 (82 FR 9339, February 3, 2017, Reducing 
Regulation and Controlling Regulatory Costs).

B. Executive Orders 12866 and 13563.

    Executive Order 12866 directs agencies to assess all costs and 
benefits of available regulatory alternatives and, if regulation is 
necessary, to select regulatory approaches that maximize net benefits 
(including potential economic, environmental, public health and safety 
effects, distributive impacts, and equity). Executive Order 13563 is 
supplemental to and reaffirms the principles, structures, and 
definitions governing regulatory review as established in Executive 
Order 12866.
    Section 3(f) of Executive Order 12866 defines a ``significant 
regulatory action'' as an action that is likely to result in a rule: 
(1) Having an annual effect on the economy of $100 million or more in 
any 1 year, or adversely and materially affecting a sector of the 
economy, productivity, competition, jobs, the environment, public 
health or safety, or state, local or tribal governments or communities 
(also referred to as ``economically significant''); (2) creating a 
serious inconsistency or otherwise interfering with an action taken or 
planned by another agency; (3) materially altering the budgetary 
impacts of entitlement grants, user fees, or loan programs or the 
rights and obligations of recipients thereof; or (4) raising novel 
legal or policy issues arising out of legal mandates, the President's 
priorities, or the principles set forth in the Executive Order.
    A regulatory impact analysis must be prepared for major rules with 
economically significant effects (for example, $100 million or more in 
any 1 year), and a ``significant'' regulatory action is subject to 
review by the Office of Management and Budget (OMB). The Departments 
anticipate that this regulatory action is likely to have economic 
impacts of $100 million or more in at least 1 year, and thus meets the 
definition of a ``significant rule'' under Executive Order 12866. 
Therefore, the Departments have provided an assessment of the potential 
costs, benefits, and transfers associated with the proposed rules. In 
accordance with the provisions of Executive Order 12866, the proposed 
rules were reviewed by OMB.
1. Need for Regulatory Action
    This regulatory action is taken in light of Executive Order 13813 
directing the Departments to consider proposing regulations or revising 
guidance to expand the flexibility and use of HRAs. Consistent with 
Executive Order 13813, the proposed rules are intended to increase the 
usability of HRAs to provide more Americans, including employees who 
work at small businesses, with more healthcare options. Such changes 
will facilitate the development and operation of a healthcare system 
that provides high-quality care at affordable prices for the American 
people by increasing consumer choice for employees and promoting 
competition in healthcare markets by providing additional options for 
employers.
    The Departments are of the view that the benefits of the proposed 
rules would substantially outweigh the costs of the rules. The proposed 
rules would increase flexibility and choices of health coverage options 
for employers and employees. The increased use of HRAs could 
potentially reduce healthcare spending, particularly less efficient 
spending,\114\ and ultimately result in increased taxable wages for 
workers currently in firms that offer traditional group health plans. 
The proposed rules are also expected to increase the number of low- and 
moderate-wage workers (and their family members) with health insurance 
coverage.
---------------------------------------------------------------------------

    \114\ By less efficient healthcare spending, the Departments 
generally mean spending that is of low value from the consumer's 
perspective, relative to its cost.
---------------------------------------------------------------------------

2. .Summary of Impacts of Proposed HRA Integrated With Individual 
Health Insurance Coverage.
    The expected costs, benefits and transfers of the proposed rules 
are summarized in Table 1 and discussed in detail later in this section 
of the preamble.

                        Table 1--Accounting Table
------------------------------------------------------------------------
 
-------------------------------------------------------------------------
Costs:
------------------------------------------------------------------------
Qualitative:
     Loss of health insurance and potentially poorer financial
     or health outcomes for some individuals who experience premium
     increases.

[[Page 54445]]

 
     Increased administrative costs for employers, employees,
     and government agencies to learn about and/or use a new health
     benefits option.
------------------------------------------------------------------------
Benefits:
------------------------------------------------------------------------
Qualitative:
     Gain of health insurance and potentially improved financial
     or health outcomes for some employees who are newly offered or
     newly accept benefits.
     Increased choice and flexibility for employees and
     employers around compensation arrangements, potentially resulting
     in more efficient use of healthcare and more efficient labor
     markets (including higher taxable wages).
     Decreased administrative costs for some employers who no
     longer offer traditional group health plans for some, or all,
     employees.
------------------------------------------------------------------------


 
                                                     Estimate                     Discount  rate      Period
                    Transfers                        (billion)      Year dollar      (percent)        covered
----------------------------------------------------------------------------------------------------------------
Annualized Monetized ($/year) (Net tax revenue              $2.7            2020               7       2020-2028
 loss)..........................................
                                                            $2.8            2020               3       2020-2028
----------------------------------------------------------------------------------------------------------------
Quantitative: \115\
 Reduced tax revenue as a result of new HRAs offered by employers previously offering no health
 benefits, less reduced PTC from employees in such firms.
     Increase in average individual market premiums of less than 1 percent and resulting increase in
     PTC........................................................................................................
----------------------------------------------------------------------------------------------------------------
Qualitative:
 Increased out-of-pocket costs for some employees who move from traditional group health plans to
 individual health insurance coverage and decreased costs for other employees who move from traditional group
 health plans to individual health insurance coverage (i.e., transfers from reduced within-firm cross-
 subsidization).
 Reduced tax revenue as a result of new excepted benefit HRA.
----------------------------------------------------------------------------------------------------------------

    In all cases, the counterfactual baseline for analysis is current 
law. That is, the analysis assumes as the baseline statutes enacted and 
regulations that are final as of date of issuance of the proposed 
rules. This includes PPACA, the reduction of the individual shared 
responsibility payment to $0, as enacted in Public Law 115-97, the AHP 
final rule,\116\ the STLDI final rule,\117\ and all other 
administrative actions finalized as of the date of issuance of the 
proposed rules.
---------------------------------------------------------------------------

    \115\ The monetized estimates are of the net tax revenue loss, 
including reduced income and payroll tax revenue from employees who 
would receive HRAs and would not otherwise have a tax exclusion for 
a traditional group health plan, reduced PTC from individuals who 
would receive HRAs and would otherwise receive PTC, and increased 
PTC due to the increase in Exchange premiums. As noted in the text 
later in this section of the preamble, the quantitative estimates 
are subject to considerable uncertainty. For example, the rule could 
cause tax revenue to increase if the adoption of HRAs leads to 
reduced healthcare spending and higher taxable wages. Or the rule 
could result in larger premium increases in the individual market, 
or in premium decreases, if the rule results in more substantial 
changes in the health of the individual market risk pool. The 
Departments request comments on the likely costs, benefits and 
transfers that would result from the proposed rule.
    \116\ See 83 FR 28912.
    \117\ See 83 FR 38212.
---------------------------------------------------------------------------

Costs
    Loss of health insurance coverage. The Departments recognize that 
some individuals could experience a loss in health insurance coverage 
and that some of these people would experience worse financial or 
health outcomes as a result of the proposed rules.\118\ Loss of 
coverage could occur if employers drop traditional group health plans 
and if some previously covered employees do not accept the HRA and fail 
to obtain their own coverage. Loss of coverage could also occur if the 
addition of new enrollees to the individual market causes premiums to 
rise, resulting in dropping of coverage by current individual market 
enrollees. In addition, some employees could have fewer choices of 
plans in the individual market than the number of group health plan 
choices previously provided by their employer, or might be unable to 
find new individual health insurance coverage that covers their 
preferred healthcare providers. As discussed below, the Departments 
estimate that choice and coverage would, on net, be increased by 
adoption of the proposed rules. The Departments request comments on 
this finding and the extent to which the proposed rules could reduce 
employee choice or cause some individuals to become uninsured.
---------------------------------------------------------------------------

    \118\ The Departments note however that increased insurance 
coverage does not necessarily result in better health. For example, 
Baicker et al. found that increased Medicaid coverage in Oregon 
``generated no significant improvements in measured physical health 
outcomes in the first two years, but it did increase use of health 
care services, raise rates of diabetes detection and management, 
lower rates of depression, and reduce financial strain.'' See 
Baicker, K., S. Taubman, H. Allen, M. Bernstein, J. Gruber, J. 
Newhouse, E. Schneider, B. Wright, A. Zaslavsky, and A. Finkelstein. 
2013. ``The Oregon Experiment: Effects of Medicaid on Clinical 
Outcomes.'' New England Journal of Medicine 368: 1713-22. https://www.nejm.org/doi/full/10.1056/NEJMsa1212321; and survey of the 
literature in Chapter 6 of Economic Report of the President, 
February 2018, https://www.whitehouse.gov/wp-content/uploads/2018/02/ERP_2018_Final-FINAL.pdf.
---------------------------------------------------------------------------

    Increased administrative costs. The proposed rules would also 
increase some administrative costs for employers, employees, and 
government entities.
    All employers would have a new health benefits option about which 
to learn. Employers who offer HRAs integrated with individual health 
insurance coverage but did not offer employer-sponsored health benefits 
before would face increased costs of administering a health benefit. In 
addition, all employers that offer HRAs integrated with individual 
health insurance coverage would be required to establish reasonable 
procedures to substantiate that individuals covered by the HRA are 
enrolled in individual health insurance coverage; to provide a notice 
to all employees who are eligible for the HRA explaining the PTC 
eligibility consequences of the HRA offer and acceptance and other 
information; and to comply with various other generally applicable 
group health plan requirements, such as maintaining a plan document and 
complying with various reporting requirements. Employers offering HRAs 
integrated with individual health insurance coverage would need to 
establish

[[Page 54446]]

systems to reimburse premiums and employee out-of-pocket medical care 
expenses, or hire third-party administrators to do so. In addition, to 
the extent an employer is subject to section 4980H of the Code, the 
employer would need to learn about the proposed PTC regulations and any 
other related guidance under section 4980H of the Code that the 
Treasury Department and the IRS may issue. As noted later in this 
preamble, administrative costs associated with HRAs integrated with 
individual health insurance coverage could be lower than costs for 
traditional group health plans for some employers. The Departments 
request comment on the extent to which employer administrative costs 
would be increased or decreased by the proposed rules.
    As to increased administrative burden and costs for employees, 
employees who previously enrolled in a traditional group health plan 
and who now receive an HRA integrated with individual health insurance 
coverage would need to shop for and choose their own insurance and 
learn new procedures for accessing their HRA benefits. In addition, 
employees who receive an HRA integrated with individual health 
insurance coverage would need to substantiate enrollment in individual 
health insurance coverage once per plan year and in connection with 
each request for reimbursement.
    Further, Exchange enrollees might experience increased compliance 
burdens, to the extent that they must become familiar with the 
circumstances in which an offer of an HRA integrated with individual 
health insurance coverage precludes them from claiming the PTC. For 
employees who previously did not receive an offer of a traditional 
group health plan, this would require learning the PTC eligibility 
rules, and for employees who previously received an offer of a 
traditional group health plan, this would require learning new and 
different rules for PTC eligibility. Specifically, an employee who is 
offered a traditional group health plan is not eligible to claim the 
PTC for his or her Exchange coverage unless the premium of the lowest 
cost employer plan providing MV for self-only coverage less the 
employer contribution for self-only coverage exceeds 9.5 percent 
(indexed for inflation after 2014) of the employee's household income 
(assuming the employee meets various other PTC eligibility 
requirements). In contrast, under the proposed PTC regulations, an 
employee who is offered an HRA integrated with individual health 
insurance coverage would not be eligible to claim the PTC for his or 
her Exchange coverage unless the premium of the lowest cost silver plan 
for self-only coverage offered by the Exchange for the rating area in 
which the employee resides less the HRA amount exceeds 9.5 percent 
(indexed for inflation after 2014) of the employee's household income 
(assuming the employee meets various other PTC eligibility 
requirements). However, the Departments note that the proposed rules 
would require HRA plan sponsors to furnish a notice to participants 
providing some of the information necessary for an individual to 
determine if the offer of the HRA could render them ineligible for the 
PTC.
    In addition, if an enrollee in Exchange coverage is eligible for 
the PTC, the amount of the PTC is based, in part, on the premium for 
the second lowest cost silver plan for the coverage unit offered in the 
Exchange for the rating area in which the employee resides. As noted 
earlier, the proposed PTC rule uses the premium for the lowest cost 
silver plan offered in the Exchange for the rating area in which the 
employee resides solely for purposes of PTC eligibility criterion 
related to an offer of an HRA integrated with individual health 
insurance coverage. Therefore, Exchange enrollees would need to 
understand which silver level plan premium applies to them for 
eligibility purposes and which silver level plan premium applies to 
their PTC calculation.
    Similarly, the Federally-facilitated and State-based Exchanges 
would incur one-time costs to incorporate the proposed special 
enrollment period and the PTC regulations, if finalized, into their 
instructions for enrollees and Exchange employees and in automated 
calculations. HHS estimates that one-time costs to account for HRAs 
integrated with individual health insurance coverage for the FFE would 
be approximately $2.7 million to $3.6 million. In addition, the FFE 
call center and eligibility support contractors would incur additional 
annual cost of approximately $255 million annually by 2028 to serve the 
expanded Exchange population. Assuming that State-based Exchanges 
(SBEs) would incur costs similar to the FFE, total one-time costs 
incurred by the 12 SBEs would be $32.4 million to $43.2 million. Total 
additional ongoing costs incurred by the call centers and eligibility 
support contractors for the 12 SBEs would be approximately $85 million 
annually by 2028. The Departments request comments on the 
implementation and ongoing costs for SBEs. The IRS also would need to 
add information regarding employees offered HRAs integrated with 
individual health insurance coverage to instructions for IRS forms for 
taxpayers, employee training materials, and calculation programs.
    The Departments are of the view that the total increase in 
administrative costs is likely to be modest, and would be significantly 
outweighed by the benefits of the rule outlined in the next section.
Benefits
    Gain of health insurance coverage. Some individuals could 
experience a gain in health insurance coverage, greater financial 
security and potentially improved health outcomes, if employees are 
newly offered and accept HRAs integrated with individual health 
insurance coverage. As explained in greater detail in the Transfers 
section later in this preamble, the Departments estimate that on net, 
the number of insured persons would increase by about 800,000 by 2028, 
due to the proposed rules. Most of these newly insured individuals are 
expected to be low- and moderate-income workers in firms that currently 
do not offer a traditional group health plan.
    Increased choice and flexibility for employees and employers. As a 
result of the proposed rules, employees would be able to purchase 
insurance with a tax subsidy by use of an HRA, without being locked 
into a specific plan or selection of plans chosen by their employer. As 
noted earlier in this preamble, some employees could have fewer choices 
of plans in the individual market than the number of group health plan 
choices previously provided by their employer, or might be unable to 
find a new individual health insurance coverage that covers their 
preferred healthcare providers. However, the expansion of enrollment in 
the individual market due to the proposed rules could also induce 
additional insurers to provide individual market coverage. The 
Departments are of the view that on net, the rule would significantly 
increase choice and flexibility for employees. Employers also would 
benefit from having another choice of a tax-preferred health benefit to 
offer their employees, potentially enabling them to attract and retain 
workers.
    Current compensation arrangements can result in less efficient 
labor markets and inefficient healthcare spending. Employees within a 
firm (or employees within certain classes within a firm) are generally 
offered the same set of health benefits. As a result, some employees 
receive a greater share of compensation in the form of benefits than 
they would prefer, while others receive less. In addition, some 
employers offer plans

[[Page 54447]]

with a wide choice of providers, reflecting the diverse preferences and 
healthcare needs of their employees. This weakens the ability of 
employers and insurers to negotiate lower provider prices or otherwise 
manage employee care.
    By expanding the ability of consumers to choose coverage that fits 
their preferences, the proposed rules would reduce these inefficiencies 
in labor markets and healthcare spending. Some employees who would be 
offered HRAs under the proposed rules would choose plans with lower 
premiums and higher deductibles and copayments (all of which could 
potentially be paid out of the HRA) and narrower provider networks than 
they would choose if offered a traditional group health plan. Employees 
facing higher cost-sharing could become more cost-conscious consumers 
of healthcare. Narrower provider networks could strengthen the ability 
of purchasers (through their insurers) to negotiate lower provider 
prices. Both effects could lead to reduced healthcare spending, which 
could in turn lead to reductions in amounts made available under HRAs 
integrated with individual health insurance coverage and corresponding 
increases in taxable wages. However, these benefits are uncertain and 
would take some time to occur.\119\ Moreover, the provision of a new 
health benefit that can be used to pay cost-sharing as well as premiums 
and that is available to employees who were previously uninsured or 
enrolled in unsubsidized coverage would be expected to increase, rather 
than decrease, healthcare utilization by some consumers.
---------------------------------------------------------------------------

    \119\ The proposed HRA integrated with individual health 
insurance coverage provides an income and payroll tax exclusion that 
is available only to workers and, unlike the PTC, benefits workers 
at all income levels, including workers with incomes in excess of 
400 percent of the federal poverty level. Thus, it is possible that 
the proposed rules could encourage individuals to join the labor 
force or to work more hours or seek higher-paying employment, 
generating further economic benefits. In addition, the proposed 
rules could increase labor force mobility (i.e., encourage workers 
to move more freely to employers where their productivity is 
highest), because workers enrolled in individual health insurance 
coverage could find it easier to retain their coverage when they 
change jobs. However, these effects are highly uncertain, are likely 
to be relatively small, and might take some time to occur. Labor 
supply changes are not reflected in the revenue estimates provided 
in the transfers section below.
---------------------------------------------------------------------------

    Small employers in particular might have little expertise or skill 
in choosing traditional group health plans or in administering coverage 
effectively for employees. However, some small employers can already 
obtain lower-cost coverage in the small group market or through AHPs 
than they could otherwise provide on their own. Small employers that 
are not ALEs can also forego offering health benefits and allow their 
employees to obtain individual health insurance coverage, often with 
PTC subsidization, without liability under section 4980H of the Code. 
Qualified small employers can also pursue establishment of QSEHRAs. 
Thus, small employers whose employees have particularly high healthcare 
costs or that have little skill or interest in administering health 
benefits might use these other options to control costs even in the 
absence of the proposed rules. If so, any increased efficiency gain 
from providing an additional incentive for small employers to drop 
traditional group health plans in favor of HRAs integrated with 
individual health insurance coverage could be modest.
    Reduced administrative costs for some employers. Employers that 
offer an HRA integrated with individual health insurance coverage 
rather than a traditional group health plan could experience reduced 
administrative costs. For example, such employers would no longer need 
to choose health insurance plans or self-insured health benefits for 
their employees and manage those plans. However, some of these costs 
would be borne by HRA recipients, as part of their individual market 
premiums.
Transfers
    The Treasury Department performed microsimulation modeling to 
evaluate the coverage changes and transfers that are likely to be 
induced by the proposed rules. The Treasury Department's model of 
health insurance coverage assumes that workers are paid the marginal 
product of their labor. Employers are assumed to be indifferent between 
paying wages and paying compensation in the form of benefits (as both 
expenses are deductible in computing employers' taxable incomes). The 
model therefore assumes that total compensation paid by a given firm is 
fixed, and the employer allocates this compensation between wages and 
benefits based on the aggregated preferences of their employees. As a 
result, employees bear the full cost of employer-sponsored health 
coverage (net of the value of any tax exclusion), in the form of 
reduced wages and the employee share of premiums.\120\
---------------------------------------------------------------------------

    \120\ Note that the wage reduction for an employee who is 
offered a health benefit may be greater or less than the expected 
cost of coverage for that particular employee. Because employees are 
generally paid the same regardless of age, health status, family 
size or acceptance of benefits, the model assumes that each employee 
bears the same share of the cost of the firm's coverage. The model 
allows for some limited variation of the wage reduction by wage 
class and educational status. All costs and benefits of coverage are 
taken into account and assumed to accrue to employees, including all 
income and employer and employee payroll tax exclusions and the 
avoidance of the employer shared responsibility payment under 
section 4980H of the Code by firms that offer coverage.
---------------------------------------------------------------------------

    The Treasury Department's model assumes that employees' preferences 
regarding the type of health coverage (or no coverage) are determined 
by their expected healthcare expenses and the after-tax cost of 
employer-sponsored insurance, Exchange coverage with the PTC, or 
Exchange or other individual health insurance coverage integrated with 
an HRA, and the quality of different types of coverage (including 
actuarial value).\121\ The tax preference for the HRA integrated with 
individual health insurance coverage is the same as that for a 
traditional group health plan, and this estimate assumes that employers 
would contribute the same amount towards an HRA integrated with 
individual health insurance coverage as they would contribute for a 
traditional group health plan.\122\ Therefore, an employee would prefer 
an HRA integrated with individual health insurance coverage to a 
traditional group health plan if the price of individual health 
insurance coverage is lower than the price of traditional group health 
plan coverage, as long as the value of the higher quality of the 
traditional group health plan coverage (if any) does not outweigh the 
lower cost of individual health insurance coverage. The cost of 
individual health insurance coverage for an employee could be lower 
than the cost of the firm's traditional group health plan if the 
individual health insurance coverage is less generous, if the 
individual health insurance coverage

[[Page 54448]]

risk pool is healthier than the firm's risk pool, or if the cost of 
individual health insurance coverage to a particular employee is lower 
than the cost of the firm's coverage (because, for example, the 
employee is younger than the average-age worker in the firm).
---------------------------------------------------------------------------

    \121\ Expected health care expenses by type of coverage, age, 
family size and other characteristics are estimated using the 
Medical Expenditure Panel Survey--Household Component (MEPS-HC). 
These predictions are then statistically matched to our tax data. 
The MEPS-HC is conducted by the United States Census Bureau for the 
Agency for Healthcare Research and Quality (AHRQ), Department of 
Health and Human Services.
    \122\ It is possible that employers that switch from offering 
traditional group health plans to offering HRAs integrated with 
individual health insurance coverage will contribute less to HRAs 
than they pay for group coverage, and increase taxable wages by a 
corresponding amount. However, it is not clear why an employer that 
(based on the incomes and preferences of its workforce) wants to 
substitute contributions to health benefits for wages would not do 
so today, in the absence of the availability of HRAs integrated with 
individual health insurance coverage, particularly since the 
proposed rules generally require that HRAs integrated with 
individual health insurance coverage be offered on the same terms to 
all employees in a class of employees, as described earlier in this 
preamble.
---------------------------------------------------------------------------

    When evaluating the choice between an HRA integrated with 
individual health insurance coverage and the PTC for Exchange coverage, 
the available coverage is assumed to be the same, but the tax 
preferences are different. Hence, an employee would prefer the HRA if 
the value of the income and payroll tax exclusion (including both the 
employee and employer portion of payroll tax) is greater than the value 
of the PTC. In modeling this decision, the Departments assume that the 
employee share of premiums is tax-preferred, either through a salary 
reduction plan or, for an individual with an HRA integrated with 
individual health insurance coverage, through reimbursement of premiums 
from the HRA, with any additional premiums paid through a salary 
reduction arrangement.\123\
---------------------------------------------------------------------------

    \123\ The assumption that coverage subsidized by the PTC is the 
same as coverage subsidized by an HRA may be incorrect to the extent 
that coverage on the Exchange differs from off-Exchange individual 
health insurance coverage. In addition, the assumption that the full 
premium for an employee with or without an HRA is tax preferred may 
be incorrect if the employer does not offer a salary reduction plan, 
if the employee does not elect the salary reduction, or if the 
employee chooses on-Exchange rather than off-Exchange coverage. 
Salary reductions may not be used to pay premiums for Exchange 
coverage. The Departments invite comments on whether these 
assumptions are important or likely to be incorrect.
---------------------------------------------------------------------------

    In the Treasury Department's model, employees are aggregated into 
firms, based on tax data.\124\ The expected health expenses of 
employees in the firm determine the cost of employer-sponsored 
insurance for the firm.\125\ Employees effectively vote for their 
preferred coverage, and each employer's offered benefit is determined 
by the preferences of the majority of employees. Employees then decide 
whether to accept any offered coverage, and the resulting enrollment 
determines premiums for both employer coverage and individual health 
insurance coverage. The Treasury Department's model thus predicts 
enrollment and premiums in each type of coverage.
---------------------------------------------------------------------------

    \124\ A crucial component of the model is the use of Form W-2, 
Wage and Tax Statement, filed by employers to report wages and other 
benefits of employees. Forms W-2 with the same employer 
identification number are grouped together to represent the 
employees of the firm.
    \125\ Some small firms are able to purchase community rated 
coverage in the small group market at lower cost than they could 
obtain by self-insuring or would pay if they had to purchase 
coverage in the underwritten large-group market. Firm coverage costs 
are over-estimated in Treasury's model for these firms. As a result, 
our model likely over-estimates the extent to which small firms 
would adopt HRAs integrated with individual health insurance 
coverage. On the other hand, our assumption that administrative 
burdens and costs for employees and employers are about the same for 
HRAs integrated with individual coverage as for traditional group 
health plans could result in an under-estimate of the extent to 
which small firms with higher than average administrative costs 
would adopt HRAs integrated with individual health insurance 
coverage.
---------------------------------------------------------------------------

    Transitions from traditional group health plans to HRAs integrated 
with individual health insurance coverage. Based on microsimulation 
modeling, the Departments expect that the proposed rules would cause 
some participants (and their dependents) to move from traditional group 
health plans to HRAs integrated with individual health insurance 
coverage. As previously noted, the estimates assume that for this group 
of firms and employees, employer contributions to HRAs integrated with 
individual health insurance coverage are the same as contributions to 
traditional group health plans would have been, and the estimates 
assume that tax-preferred salary reductions for individual health 
insurance coverage are the same as salary reductions for traditional 
group health plan coverage. Thus, by modeling construction there is no 
change in income or payroll tax revenues for this group of firms and 
employees (other than the changes in the PTC discussed later in this 
preamble). The Departments welcome comments on these assumptions.
    While the tax preference is assumed to be unchanged for this group, 
after-tax out-of-pocket costs could increase for some employees (whose 
premiums or cost-sharing are higher in the individual market than in a 
traditional group health plan) and decrease for others.
    Some employees who are offered a traditional group health plan 
nonetheless obtain individual health insurance coverage and the PTC, 
because the traditional group health plan is unaffordable to them or 
does not provide MV. Some of these employees would no longer be 
eligible for the PTC for their Exchange coverage when the employer 
switches from a traditional group health plan to an HRA integrated with 
individual health insurance coverage because the HRA integrated with 
individual health insurance coverage is determined to be affordable 
under the proposed PTC eligibility rules.\126\ In addition, some 
employees who are offered HRAs integrated with individual health 
insurance coverage would not accept them, and would be newly able to 
obtain the PTC because the offer of the HRA would be considered to be 
unaffordable under the proposed PTC rules, even though the traditional 
group health plan they were previously offered is affordable under 
current rules.\127\
---------------------------------------------------------------------------

    \126\ As noted below, however, the Departments' estimates assume 
that individuals with incomes below 200 percent of the federal 
poverty level are not newly firewalled from the PTC by HRA offers.
    \127\ The number of persons newly eligible for the PTC is 
expected to be very small. Under the assumption that employers 
contribute the same amount towards an HRA as they would for 
traditional group coverage, employees would become newly eligible 
for the PTC (if otherwise eligible) only if the lowest cost silver 
plan premium for self-only individual health insurance coverage is 
greater than the total cost of the lowest cost MV plan offered by 
the employer (including the employee and employer share of 
premiums).
---------------------------------------------------------------------------

    Transitions from no employer-sponsored health benefit to HRAs 
integrated with individual health insurance coverage. The Departments 
expect some employees to be offered HRAs integrated with individual 
health insurance coverage when they previously received no offer of an 
employer-sponsored health plan. As a result, taxable wages would fall 
and non-taxable wages would rise, reducing income tax and payroll tax 
revenues. In addition, some Exchange enrollees who previously claimed 
the PTC would be precluded from claiming the PTC as a result of the 
offer or acceptance of the HRA, reducing PTC transfers. As explained 
further below, the Departments assume that PTC spending is reduced only 
among Exchange enrollees with incomes greater than 200 percent of the 
federal poverty level.
    Summary of transfers and coverage changes. The Departments estimate 
that once employers fully adjust to the proposed rules, roughly 800,000 
firms would offer HRAs integrated with individual health insurance 
coverage. The Departments further estimate that it would take employers 
and employees about five years to fully adjust to the proposed rules, 
with about 10 percent of take-up occurring in 2020 and the full effect 
realized in 2024 and beyond.
    This would result in an estimated 1.0 million individuals receiving 
an HRA integrated with individual health insurance coverage in 2020, 
growing to 10.7 million in 2028. Conversely, the number of individuals 
in traditional group health plan coverage would fall by an estimated 
0.6 million (0.4 percent) in 2020 and 6.8 million (4.5 percent) in 
2028. Similarly, the number of individuals in individual health 
insurance coverage without an HRA would fall by an estimated 0.3 
million (2.2 percent) in 2020 and 3.2 million (23.2 percent) in 2028. 
The number of uninsured persons would fall by an estimated 0.1 million 
in 2020 and by an

[[Page 54449]]

estimated 0.8 million (1.3 percent) in 2028.\128\ See Table 2 for 
details.
---------------------------------------------------------------------------

    \128\ These estimates are annualized counts (e.g., two persons 
with six months of coverage each count as one covered person), and 
reflect only coverage for persons under age 65. For more information 
about Treasury's baseline estimates, see ``Treasury's Baseline 
Estimates of Health Coverage, Fiscal Year 2019 Budget Exercise'' 
June 2018, available at https://www.treasury.gov/resource-center/tax-policy/tax-analysis/Documents/Treasury%27s-Baseline-Estimates-of-Health-Coverage-FY-2019.pdf.
---------------------------------------------------------------------------

    The modeling suggests that employees in firms that would switch 
from offering traditional group health plan coverage to offering an HRA 
integrated with individual health insurance coverage would have, on 
average, slightly higher expected healthcare expenses than employees in 
other firms and current individual market enrollees. As a result, 
premiums in the individual market would be expected to increase by less 
than 1 percent as a result of the proposed rules, throughout the 2020-
2028 period examined. The Treasury Department model is nationally 
representative and does not necessarily reflect the expected experience 
for every market. The premium increase resulting from adverse selection 
could be larger in some markets, and premiums could fall in other 
markets. The Departments invite comments on the extent to which firms 
with healthy or less healthy risk pools would utilize HRAs integrated 
with individual health insurance coverage.
    Income and payroll tax revenues would be expected to fall by about 
$500 million in fiscal year 2020 and $13.0 billion in 2028, as firms 
newly offer tax-preferred health benefits in the form of HRAs 
integrated with individual health insurance coverage. At the same time, 
total PTC would be expected to fall by about $100 million in 2020 and 
by about $6.9 billion in 2028. In total, the proposed rule is estimated 
to reduce tax revenue by about $400 million in fiscal year 2020, $6 
billion in fiscal year 2028, and $29.8 billion over the nine-year 
period through fiscal year 2028.\129\
---------------------------------------------------------------------------

    \129\ These revenue estimates do not account for the possibility 
that the proposed rules would lead to increased taxable wages.

        Table 2--Estimated Effects of HRAs Integrated with Individual Health Insurance Coverage on Insurance Coverage and Tax Revenues, 2020-2028
--------------------------------------------------------------------------------------------------------------------------------------------------------
                    Calendar year                         2020       2021       2022       2023       2024       2025       2026       2027       2028
--------------------------------------------------------------------------------------------------------------------------------------------------------
Change in Coverage [Millions]: \a\
    Individual health insurance coverage with HRA....        1.0        2.5        5.0        7.7       10.3       10.4       10.6       10.7       10.7
    Traditional group health plan....................       -0.6       -1.6       -3.3       -4.9       -6.6       -6.7       -6.7       -6.8       -6.8
    Individual health insurance coverage without HRA.       -0.3       -0.7       -1.5       -2.2       -3.0       -3.0       -3.1       -3.2       -3.2
    Uninsured........................................       -0.1       -0.2       -0.3       -0.5       -0.7       -0.7       -0.7       -0.7       -0.8
--------------------------------------------------------------------------------------------------------------------------------------------------------


 
                     Fiscal year                          2020       2021       2022       2023       2024       2025       2026       2027       2028
--------------------------------------------------------------------------------------------------------------------------------------------------------
Change in Revenue [Billions]:
    Premium Tax Credit Reduction.....................        0.1        0.5        1.7        3.2        4.8        5.4        6.0        6.5        6.9
    Other Income and Payroll Tax Reduction...........        0.5        1.5        3.3        5.7        8.3        9.6       11.1       12.2       13.0
    Net Revenue Reduction............................        0.4        1.0        1.5        2.4        3.4        4.2        5.0        5.8        6.0
--------------------------------------------------------------------------------------------------------------------------------------------------------
Notes:
a. Millions of covered lives, annualized.

    The Departments acknowledge that the extent to which firms would 
offer HRAs integrated with individual health insurance coverage and the 
results on individual market risk pools and premiums, federal tax 
revenues, and private costs and benefits are highly uncertain. The 
Departments invite comment on the estimates and assumptions discussed 
previously in this preamble.
    The Departments particularly emphasize that these estimates assume 
that every employee in a firm would be offered either an HRA integrated 
with individual health insurance coverage or a traditional group health 
plan (but not both and not a choice between the two), or no employer 
health benefit. The estimates further assume that a firm offering such 
an HRA would offer the same benefit to each employee in the firm, and 
would not vary the contribution by location, age, or other permitted 
factors other than self-only versus non-self-only benefits.\130\ In 
other words, the estimates assume that the proposed rules would be 
effective in preventing firms from dividing their employees by health 
status or other factors in a way that would allow firms to capture 
greater tax subsidies or increase individual market premiums or the 
PTC.
---------------------------------------------------------------------------

    \130\ The Departments imposed two constraints on the 
microsimulation that could be consistent with allowing the HRA offer 
to vary across employees within a firm. First, the Departments 
assume that persons with incomes below 200 percent of the federal 
poverty level who are enrolled in subsidized individual health 
insurance coverage in the baseline do not move to an HRA or to 
uninsured status as a result of the proposed rule. This is 
consistent with assuming that employers with low-wage workers 
currently receiving Medicaid or the PTC do not begin to offer HRAs 
large enough to render such employees ineligible for the PTC or from 
receiving public coverage. This constraint is also consistent with 
the assumption that employees who would experience a substantial 
subsidy loss would move to other jobs that would allow them to 
retain their current coverage. This assumption reduces the amount of 
PTC savings generated by the proposal, and also reduces the tax 
revenue cost of providing HRAs to such employees. Second, the 
Departments assume that employees with incomes above 400 percent of 
the federal poverty level who are enrolled in a traditional group 
health plan do not become uninsured as a result of the proposed 
rule, even if individual plan premiums are substantially higher than 
the cost of their traditional group health plan coverage. This is 
consistent with assuming that employers would provide larger HRAs to 
older employees or to employees in higher-cost markets than they 
would provide to other employees in their firms, in order to ensure 
affordable coverage. It is also consistent with assuming that 
employees would move to other firms, if they face large premium or 
cost-sharing increases when their employers switch from traditional 
group coverage to HRAs integrated with individual health insurance 
coverage.
---------------------------------------------------------------------------

    HRA participation and transfers including individual market premium 
increases would likely be higher if these assumptions are incorrect. 
Because the number of individuals in traditional group health plans is 
large relative to the number of individuals in individual health 
insurance coverage, relatively

[[Page 54450]]

small changes in employer offers of coverage can result in large 
changes in individual market premiums.\131\ Consider the following 
illustrative, simplified example. The Departments estimate that about 
80 percent of individuals in employer-sponsored coverage are relatively 
healthy and 20 percent are relatively unhealthy. Relatively healthy 
persons in the employer market have health costs equal to about a 
quarter of average single enrollee costs in the individual market and 
unhealthy persons in the employer market have health costs that are 
about three times the cost of the average person in the individual 
market.\132\ Thus, if 5 million individuals moved from the employer 
market to the individual market, and these 5 million were 
representative of the average for the employer market with a ratio of 
healthy to unhealthy of 4 to 1, then individual market premiums would 
fall by about 3 percent. If, however, a disproportionate number of 
unhealthy employees enter the individual market, premiums in the 
individual market would rise. For example, if 3 million healthy and 2 
million unhealthy enrollees entered the individual market, premiums 
would increase by an estimated 14 percent.
---------------------------------------------------------------------------

    \131\ The Treasury Department projects that over 150 million 
persons under age 65 will be enrolled in employer-sponsored group 
health plans in 2020, compared to about 15 million in the individual 
market.
    \132\ Estimates are derived from RTI MarketScan claims data for 
2014. These data indicate that 80 percent of persons in the employer 
market have no Hierarchical Condition Codes (HCCs) while 20 percent 
had one or more HCCs. Persons with no HCCs had costs equal to 24 
percent of average single enrollee costs in the individual market 
and persons with one or more HCCs had costs equal to three times the 
average individual market enrollee cost.
---------------------------------------------------------------------------

    The Departments seek comment on the extent to which employers would 
offer different benefits to different classes of employees, including 
the classes based on rating area and all other classes, and on 
combinations of the classes, and the resulting effect on individual 
market premiums.
    The Departments also emphasize that these estimates assume that 
employers would contribute the same amount to HRAs integrated with 
individual health insurance coverage as they would to traditional group 
health plans and that employees would elect the same amount of salary 
reduction to pay for individual health plans and cost-sharing as they 
would if they were enrolled in a traditional group health plan. But, as 
noted above, some employees who would be offered HRAs under the 
proposed rule would choose plans with lower premiums and higher 
deductibles and copayments and narrower provider networks than they 
would choose if offered a traditional group health plan. Higher cost-
sharing and narrower provider networks could cause individuals to be 
more cost-conscious consumers of healthcare.
    In addition, the estimates assume that the entire HRA balance is 
spent on healthcare premiums and cost-sharing each year. However, the 
Departments are of the view that many employers would allow employees 
to carry unspent HRA balances over from year to year, and that some 
employers would allow employees to continue to spend accumulated HRA 
funds even after separating from their employer. Moreover, HRA benefits 
are subject to COBRA protections, such that some employees would elect 
to use accumulated funds for up to 18 months after separation from 
service. The ability to carry over benefits from year to year could 
further encourage employees to curtail healthcare spending, 
particularly less efficient spending. This effect could be modest for 
several reasons. First, unlike HSA balances, which can be withdrawn for 
non-health purposes subject to tax but without penalty after age 65 and 
with a 20 percent penalty before age 65, HRAs may only be used for 
healthcare. In addition, unlike HSAs, HRAs are not the property of the 
employee and employers may limit the amount that can be carried over 
from year-to-year or accessed by the employee after separation. The 
Departments welcome comment on the extent to which HRA balances would 
likely be allowed to accumulate over time and accessed after employees 
separate from employment, and the extent to which employees would be 
incentivized to become more cost conscious consumers of healthcare.
    These estimates further assume that all individual health insurance 
coverage integrated with an HRA would be treated as subject to and 
compliant with sections 2711 and 2713 of the PHS Act. The proposed 
rules prohibit an HRA from being integrated with STLDI and excepted 
benefits, which are not subject to the market requirements. 
Grandfathered coverage in the individual market is not subject to the 
annual dollar prohibition in section 2711 of the PHS Act or to the 
preventive services requirements in section 2713 of the PHS Act. 
However, the proposed rules would not require employees or employers to 
confirm that individual health insurance coverage integrated with an 
HRA is not grandfathered coverage. Requiring such confirmation would be 
administratively burdensome and the Departments expect that the number 
of employees who might use an HRA to buy such coverage would be 
extremely small, because individuals can only renew and cannot newly 
enroll in grandfathered individual health insurance coverage.
3. Impact of Excepted Benefit HRA
    The proposed rules also provide for recognition of a new limited 
excepted benefit HRA under which amounts newly made available for each 
plan year are limited to $1,800 (indexed for inflation after 2020). 
Among other conditions, to offer the excepted benefit HRA, the employer 
must offer the employee a group health plan that is not limited to 
excepted benefits and that is not an HRA, but the employee would not 
need to enroll in this group health plan. The benefit would be funded 
by the employer, and in the Treasury Department's modeling, this means 
that it would be paid for by all employees in the firm through an 
overall reduction in wages. The benefit could be used to pay for any 
medical expense, other than premiums for individual health insurance 
coverage, group health plan coverage (other than COBRA, state, or other 
continuation coverage), or Medicare parts B or D. The excepted benefit 
HRA could be used to pay premiums for coverage that consists solely of 
excepted benefits and for other premiums, such as premiums for STLDI.
    Due to the availability of other tax preferences for health 
benefits, including the tax exclusion for employer-sponsored benefits, 
salary reductions for group and off-Exchange individual health 
insurance coverage premiums when integrated with an HRA, health FSAs, 
and non-excepted benefit HRAs, the Departments are of the view that 
this new excepted benefit would be adopted by a small number of firms. 
However, it could provide flexibility for firms that want to provide a 
tax preference to employees that choose STLDI instead of the employer's 
traditional group health plan. The Departments welcome comments on the 
costs and benefits of the proposed excepted benefit HRA and the extent 
to which firms and employees would be likely to adopt such HRAs.

C. Regulatory Alternatives

    In developing the proposed rules, the Departments considered 
various alternative approaches.
    Retaining prohibition on integration of HRAs with individual health 
insurance coverage. The Departments considered retaining the existing 
prohibition on integration of HRAs with individual health insurance 
coverage.

[[Page 54451]]

However, the Departments determined that the adverse selection concerns 
that gave rise to the prohibition could be adequately addressed by 
including appropriate mitigating conditions in the proposed integration 
rules. Further, the Departments determined that eliminating the 
prohibition on integrating HRAs with individual health insurance 
coverage would increase the usability of HRAs which would provide more 
Americans, including employees who work at small businesses, with 
additional healthcare options. Such changes would facilitate the 
development and operation of a healthcare system that provides high-
quality care at affordable prices for the American people by increasing 
consumer choice for employees and promoting competition in healthcare 
markets by adding additional options for employers.
    Alternative approaches for safeguards intended to prevent health 
discrimination and adverse selection under the proposed integration 
rules. In developing the safeguards designed to prevent adverse 
selection, the Departments considered whether such safeguards are 
needed and alternatives for the design of such safeguards. As explained 
in more detail earlier in this preamble, although the Departments 
considered that it is possible that the consequences of HRA expansion 
for the individual market could be positive, the Departments determined 
that allowing HRAs to be integrated with individual health insurance 
coverage is more likely to result in opportunities for employers to 
discriminate by encouraging higher risk employees to obtain coverage in 
the individual market in order to reduce the cost of traditional group 
health plan coverage provided by the employer to lower risk employees. 
Such an arrangement could worsen adverse selection and raise premiums 
in the individual market if HRAs integrated with individual health 
insurance coverage are used disproportionately by higher risk 
employees. Thus, there is risk with permitting HRAs to be integrated 
with individual health insurance coverage without appropriate 
safeguards.
    Accordingly, to significantly temper these concerns, the proposed 
integration rules prohibit a plan sponsor from offering the same class 
of employees both a traditional group health plan and an HRA integrated 
with individual health insurance coverage (or a choice between the 
two). In addition, to the extent a plan sponsor offers an HRA 
integrated with individual health insurance coverage to a class of 
employees, the proposed integration rules require that the HRA be 
offered on the same terms to all employees within the class, subject to 
certain exceptions.
    In designing these safeguards, the Departments considered various 
alternatives, including prohibiting an employer that offers an HRA 
integrated with individual health insurance coverage from offering a 
traditional group health plan to any of its employees. The Departments 
instead decided to allow employers to offer either a traditional group 
health plan or an HRA integrated with individual health insurance 
coverage (but not a choice between the two) to different classes of 
employees, based on the determination that such a rule provides an 
appropriate safeguard against the adverse selection concerns while also 
providing employers sufficient flexibility, which is intended to allow 
employers of all sizes to take advantage of the expansion provided in 
the proposed integration rules.
    As explained in more detail earlier in the preamble, the 
Departments also considered various options for defining the classes of 
employees that may be used in applying these safeguards. The 
Departments considered whether employers should be allowed to offer or 
vary HRAs integrated with individual health insurance coverage for 
classes of employees based on a very general standard (like the one 
that applies under the HIPAA nondiscrimination rules, with a broad 
employment-based classification standard) or a more finite list of 
classes of employees that have been used in other rules for various 
employee benefits purposes (for example, under section 105(h) and/or 
section 4980H of the Code). The Departments' view is that a broad and 
open-ended standard would not be sufficient to mitigate the risk of 
adverse selection that more defined categories would help address those 
concerns. Earlier in the preamble, the Departments solicit comments on 
all aspects of these classes of employees, including whether these are 
the appropriate classes of employees, whether alternate classes, such 
as the categories of similarly situated individuals under the HIPAA 
nondiscrimination provisions, are preferable, whether additional 
classes are required and whether allowing benefits to vary based on 
classes of employees could lead to adverse selection.
    Earlier in this preamble, the Departments also seek comment on 
whether the ability to integrate an HRA with individual health 
insurance coverage has the potential to increase participation in and 
strengthen the viability of states' individual market risk pools. 
Further, the Departments also invite comment on whether the proposed 
integration safeguards are appropriate and narrowly tailored to prevent 
adverse selection and health status discrimination or whether less 
restrictive safeguards would suffice.
    Allowing integration with coverage other than individual health 
insurance coverage under the proposed rules. The Departments considered 
whether to allow HRAs intended to satisfy the individual health 
insurance coverage integration test also to be integrated with non-HRA 
group coverage, such as a group health plan maintained by the employer 
of the participant's spouse, in addition to individual health insurance 
coverage, because, like individual health insurance coverage, group 
health plan coverage is generally subject to and compliant with 
sections 2711 and 2713 of the PHS Act. The Departments decided against 
proposing such a rule because allowing such integration would add 
significant complexity to the individual health insurance coverage 
integration test, as described earlier in this preamble. However, 
earlier in this preamble, the Departments request comments regarding 
whether the Departments should allow for such integration and, if so, 
with respect to compliance with section 2711 of the PHS Act, how such 
an integration test should be designed to take into account that, while 
most individual health insurance coverage is required to cover all 
EHBs, large group market and self-insured group health plans are not 
required to cover all EHBs. Earlier in this preamble the Departments 
also request comments on the demand for such a rule and any problems 
such a rule may raise.
    In addition, the Departments considered whether to propose a rule 
to permit HRAs to be integrated with other types of non-group coverage 
other than individual health insurance coverage, such as STLDI. 
However, while all new individual health insurance coverage that is 
currently sold is non-grandfathered coverage (and most coverage that is 
renewed in also non-grandfathered) and is therefore generally subject 
to and compliant with sections 2711 and 2713 of the PHS Act, other 
types of coverage, such as STLDI, are not subject to and therefore may 
not be compliant with sections 2711 and 2713 of the PHS Act, in which 
case, integration would not be sufficient to ensure that the combined 
benefit package satisfies these requirements. Earlier in this preamble, 
the Departments request comments on whether integration with STLDI 
(which is not required to satisfy sections 2711

[[Page 54452]]

and 2713 of the PHS Act) should be permitted, whether integration 
should be permitted with any other type of coverage that satisfies 
sections 2711 and 2713 of the PHS Act, how such integration rules 
should be structured, as well as comments on what, if any, potential 
benefits and problems might arise from allowing these types of HRA 
integration. Earlier in this preamble the Departments also seek 
comments on whether allowing such integration would raise any concerns 
about health status discrimination leading to additional adverse 
selection in the individual market.
    Alternatives for annual limits on amounts made available under the 
excepted benefit HRA and alternatives for indexing such amount. With 
regard to the excepted benefit HRA, in the proposed rules, the 
Departments propose that the amounts newly made available for a plan 
year may not exceed $1,800 (indexed for inflation after 2020). For this 
purpose, inflation is defined in the proposed rules by reference to C-
CPI-U, published by the Department of Labor.
    In proposing this limit, the Departments considered various 
alternative amounts, including the limits on employer contributions to 
excepted benefit health FSAs (set at $500 in 1997 if there are no 
employee contributions to the health FSA, although it might be much 
higher if there are employee contributions). The Departments considered 
the relationship between $500 and the average cost of insurance in 
1997. The Departments also considered a limit of 15 percent-of-the-
cost-of-coverage-under-the-primary-plan test, which is the limit used 
for both supplemental excepted benefits in the group market and limited 
wraparound coverage, as a benchmark to ensure that the benefits are 
limited in amount. In considering how such a limit could be an 
appropriate limit for excepted benefit HRAs, the Departments considered 
15 percent of the cost of group coverage for both employee-only and 
family coverage. However, the Departments also considered how to 
determine the primary plan in circumstances in which the participant 
does not enroll in a traditional group health plan, and concluded that 
such a determination would likely be difficult for employers. The 
Departments also considered using the cost of coverage for the second 
lowest cost silver plan in various markets.
    These methodologies produced a wide range of possible excepted 
benefit HRA limits from $1,100 to $2,850. Consistent with the principle 
of promoting HRA use and availability, rather than proposing a complex 
test for the limit on amounts newly made available in the excepted 
benefit HRA, the Departments are proposing a maximum of $1,800 (indexed 
for inflation after 2020) on amounts newly made available for a plan 
year that approximates the midpoint amount yielded by the various 
methodologies considered. Earlier in this preamble, the Departments 
request comments on this amount, and whether an alternate amount or 
formula for determining the maximum dollar limit for an excepted 
benefit HRA would be more appropriate and, if so, what that alternative 
would be and why. Further, earlier in this preamble, the Departments 
seek comment on whether the maximum dollar limit should be adjusted 
depending on whether a participant has dependent(s) and, if so, by what 
amount the maximum dollar limit should be adjusted to in that case.
    With regard to indexing the dollar limit on amounts made newly 
available under the excepted benefit HRA, in proposing to index the 
amount by C-CPI-U, the Departments considered whether or not to index 
the amount, including the difficulties of administering an HRA with a 
changing amount, and the cost, including the cost to the Departments to 
publish the amount and provide notice every year, as balanced with the 
decreasing real value of a set HRA limit. The Departments determined 
that the benefit of indexing the amount outweighs the increased 
complexity for the Departments and for stakeholders. Earlier in this 
preamble, the Departments invite comments on the measure of inflation 
used, including whether the amount should be indexed to inflation (and 
if there are any administrability concerns associated with indexing), 
if C-CPI-U is the correct measure of inflation, or whether an alternate 
measure, such as the overall medical care component for CPI-U, or the 
method specified under section 9831(d)(2)(D) of the Code for QSEHRAs, 
should be used.

D. Paperwork Reduction Act--Department of Health and Human Services

    Under the Paperwork Reduction Act of 1995 (PRA), we are required to 
provide 60-day notice in the Federal Register and solicit public 
comment before a collection of information requirement is submitted to 
OMB for review and approval. To fairly evaluate whether an information 
collection should be approved by OMB, section 3506(c)(2)(A) of the PRA 
requires that we solicit comment on the following issues:
     The need for the information collection and its usefulness 
in carrying out the proper functions of our agency.
     The accuracy of our estimate of the information collection 
burden.
     The quality, utility, and clarity of the information to be 
collected.
     Recommendations to minimize the information collection 
burden on the affected public, including automated collection 
techniques.
1. Wage Estimates
    To derive wage estimates, the Departments generally used data from 
the Bureau of Labor Statistics to derive average labor costs (including 
a 100 percent increase for fringe benefits and overhead) for estimating 
the burden associated with the ICRs.\133\ Table 2 below presents the 
mean hourly wage, the cost of fringe benefits and overhead, and the 
adjusted hourly wage.
---------------------------------------------------------------------------

    \133\ See May 2017 Bureau of Labor Statistics, Occupational 
Employment Statistics, National Occupational Employment and Wage 
Estimates at https://www.bls.gov/oes/current/oes_nat.htm.
---------------------------------------------------------------------------

    As indicated, employee hourly wage estimates have been adjusted by 
a factor of 100 percent. This is necessarily a rough adjustment, both 
because fringe benefits and overhead costs vary significantly across 
employers, and because methods of estimating these costs vary widely 
across studies. Nonetheless, there is no practical alternative, and the 
Departments are of the view that doubling the hourly wage to estimate 
total cost is a reasonably accurate estimation method.

[[Page 54453]]



                             Table 1--Adjusted Hourly Wages Used in Burden Estimates
----------------------------------------------------------------------------------------------------------------
                                                                                      Fringe
                                                   Occupational     Mean hourly    benefits and      Adjusted
                Occupation title                       code        wage ($/hour)   overhead ($/   hourly wage ($/
                                                                                       hour)           hour)
----------------------------------------------------------------------------------------------------------------
Compensation and Benefits Manager...............         11-3111          $62.50          $62.50         $125.00
Lawyer..........................................         23-1011           68.22           68.22          136.44
----------------------------------------------------------------------------------------------------------------

2. ICRs Regarding Substantiation of Individual Health Insurance 
Coverage
    Under the proposed regulations, an HRA must implement reasonable 
procedures to verify that individuals whose medical care expenses are 
reimbursable by the HRA are, or will be, enrolled in individual health 
insurance coverage (other than coverage that consists solely of 
excepted benefits) for the plan year.
    In addition, following the initial substantiation of coverage, with 
each new request for reimbursement of an incurred medical care expense 
for the same plan year, the proposed regulations provide that the HRA 
may not reimburse a participant for any medical care expenses unless, 
prior to each reimbursement, the participant provides substantiation 
that the participant and, if applicable, any dependent(s) whose medical 
care expenses are requested to be reimbursed were enrolled in 
individual health insurance coverage (other than coverage that consists 
solely of excepted benefits) for the month during which the medical 
care expenses were incurred. The attestation may be part of the form 
used for requesting reimbursement.
    To satisfy this requirement, the HRA may require that the 
participant submit an attestation or a document provided by a third 
party (for example, an explanation of benefit or insurance card) as 
substantiation. The associated cost would be negligible and is, 
therefore, not estimated.
3. ICRs Regarding Notice Requirement
    These proposed regulations include a requirement that an HRA 
provide written notice to eligible participants. The HRA would be 
required to provide a written notice to each participant at least 90 
days before the beginning of each plan year. For participants who are 
not yet eligible to participate at the beginning of the plan year (or 
who are not eligible when the notice is provided at least 90 days prior 
to the beginning of the plan year), the HRA must provide the notice no 
later than the date on which the participant is first eligible to 
participate in the HRA.
    The proposed written notice would be required to include certain 
relevant information, including a description of the terms of the HRA, 
including the amount made available that is used in the affordability 
determination under the Code section 36B proposed rules; a statement of 
the right of the participant to opt-out of and waive future 
reimbursement under the HRA; a description of the potential 
availability of the PTC for a participant who opts out of and waives an 
HRA if the HRA is not affordable under the proposed PTC regulations; a 
description of the PTC eligibility consequences for a participant who 
accepts the HRA; a statement that the participant must inform any 
Exchange to which they apply for advance payments of the PTC of the 
availability of the HRA, the amount of the HRA, the number of months 
the HRA is available to participants during the plan year, whether it 
is available to their dependents and whether they are a current or 
former employee; a statement that the participant should retain the 
written notice because it may be needed to determine whether the 
participant is allowed the PTC; a statement that the HRA may not 
reimburse any medical care expense unless the substantiation 
requirements are met; and a statement that it is the responsibility of 
the participant to inform the HRA if the participant or any dependent 
whose medical care expenses are reimbursable by the HRA is no longer 
enrolled in individual health insurance coverage. The written notice 
may include other information, as long as the additional information 
does not conflict with the required information. The written notice 
would not need to include information specific to a participant.
    The Departments estimate that for each HRA plan sponsor, a 
compensation and benefits manager would need 2 hours (at $125 per hour) 
and a lawyer would need 1 hour (at $136.44 per hour) to prepare the 
notices. The total burden for an HRA plan sponsor would be 3 hours with 
an equivalent cost of approximately $386. This burden would be incurred 
the first time the plan sponsor provides an HRA that is integrated with 
individual health insurance coverage. In subsequent years, the burden 
to update the notice in expected to be minimal and therefore is not 
estimated.
    HHS estimates that in 2020, an estimated 1,203 state and local 
government entities would offer HRAs that are integrated with 
individual health insurance coverage.\134\ The total burden to prepare 
notices would be approximately 3,610 hours with an equivalent cost of 
approximately $464,984. In 2021 approximately 1,805 additional state 
and local government entities would offer HRAs that are integrated with 
individual health insurance coverage for the first time and would incur 
a burden of approximately 5,415 hours with an equivalent cost of 
approximately $697,476. In 2022, approximately 3,008 additional state 
and local government entities would offer HRAs that are integrated with 
individual health insurance coverage for the first time and would incur 
a burden of approximately 9,024 hours with an equivalent cost of 
approximately $1.16 million.
---------------------------------------------------------------------------

    \134\ U.S. Department of the Treasury, Office of Tax Analysis 
simulation model suggests that in 2020, approximately 80,000 
employers will offer HRAs, with 1.0 million individuals receiving an 
HRA integrated with individual health insurance coverage. These 
numbers would increase to 200,000 employers and 2.5 million 
individuals in 2021 and to 400,000 employers and 5 million 
individuals in 2022. The Departments estimate that there is, on 
average, 1 dependent for every policyholder. The Departments also 
estimate that approximately 2 percent of employers are state and 
local government entities, accounting for approximately 14 percent 
of participants.
---------------------------------------------------------------------------

    HRA plan sponsors would provide the notice to eligible participants 
every year. HHS estimates that HRA plan sponsors would provide printed 
notices to approximately 90,162 eligible participants \135\ in 2020, 
225,405 eligible participants in 2021 and 450,810 eligible participants 
in 2022. The Departments anticipate that the notices would be 
approximately 2 pages long and the cost of materials and printing

[[Page 54454]]

would be $0.05 per page, with a total cost of $0.10 per notice. It is 
assumed that these notices would be provided along with other benefits 
information with no additional mailing cost. The Departments assume 
that approximately 54 percent of notices would be provided 
electronically and approximately 46 percent would be provided in print 
along with other benefits information. Therefore, in 2020, state and 
local government entities providing HRAs that are integrated with 
individual health insurance coverage would print approximately 41,475 
notices at a cost of approximately $4,147. In 2021, approximately 
103,686 notices would be printed at a cost of $10,369 and in 2022, 
approximately 207,373 notices would be printed at a cost of a $20,737.
---------------------------------------------------------------------------

    \135\ U.S. Department of the Treasury, Office of Tax Analysis 
simulation model provides estimates of the number of participants 
and dependents receiving an HRA integrated with individual health 
insurance coverage. Number of eligible participants is estimated 
based on the assumption that 75 percent of eligible participants 
would enroll in their employers' plans. See Section 3 of the Kaiser 
``2017 Employer Health Benefits Survey''. https://www.kff.org/health-costs/report/2017-employer-health-benefits-survey/.

                                    Table 2--Proposed Annual Burden and Costs
----------------------------------------------------------------------------------------------------------------
                                     Estimated       Estimated
                                     number of       number of                         Total           Total
              Year                   employers    notices to all   Total annual      estimated       estimated
                                  newly offering     eligible     burden (hours)    labor cost     printing and
                                       HRAs        participants                                   materials cost
----------------------------------------------------------------------------------------------------------------
2020............................           1,203          90,162           3,610        $464,984          $4,147
2021............................           1,805         225,405           5,415         697,476          10,369
2022............................           3,008         450,810           9,024       1,162,461          20,737
3 year Average..................           2,005         255,459           6,016         774,974          11,751
----------------------------------------------------------------------------------------------------------------


                                               Table 3--Proposed Recordkeeping and Reporting Requirements
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                            Total        Hourly                   Printing
                                     OMB Control                             Burden per     annual     labor cost  Total labor      and
         Regulation section              No.      Respondents   Responses     response      burden         of        cost of     materials    Total cost
                                                                              (hours)      (hours)     reporting    reporting       cost
--------------------------------------------------------------------------------------------------------------------------------------------------------
Sec.   146.123(c)(5), Sec.             0938-0702        2,005      255,459            3        6,016      $128.81     $774,974      $11,751     $786,724
 146.123(c)(6).....................
--------------------------------------------------------------------------------------------------------------------------------------------------------

    HHS intends to amend the information collection currently approved 
under OMB control number 0938-0702 ``Information Collection 
Requirements Referenced in HIPAA for the Group Market, Supporting 
Regulations 45 CFR 146, and forms/instructions'' (CMS-10430), to 
account for this additional burden.
4. Submission of PRA-Related Comments
    We have submitted a copy of this proposed rule to OMB for its 
review of the rule's information collection and recordkeeping 
requirements. The requirements are not effective until they have been 
approved by OMB.
    We invite public comments on these information collection 
requirements. If you wish to comment, please identify the rule (CMS-
9918-P) and, where applicable, the ICR's CFR citation, CMS ID number, 
and OMB control number.
    To obtain copies of a supporting statement and any related forms 
for the proposed collection(s) summarized in this notice, you may make 
your request using one of following:
    1. Access CMS's website address at https://www.cms.gov/Regulations-and-Guidance/Legislation/PaperworkReductionActof1995/PRA-Listing.html.
    2. Email your request, including your address, phone number, OMB 
number, and CMS document identifier, to [email protected].
    3. Call the Reports Clearance Office at (410) 786-1326.
    See this rule's DATES and ADDRESSES sections for the comment due 
date and for additional instructions.

E. Paperwork Reduction Act--Department of Labor and Department of the 
Treasury

    As part of its continuing effort to reduce paperwork and respondent 
burden, the Departments conduct a preclearance consultation program to 
provide the general public and Federal agencies with an opportunity to 
comment on proposed and continuing collections of information in 
accordance with the PRA. This helps to ensure that the public 
understands the Departments' collection instructions, respondents can 
provide the requested data in the desired format, reporting burden 
(time and financial resources) is minimized, collection instruments are 
clearly understood, and the Departments can properly assess the impact 
of collection requirements on respondents.
    Under the PRA, an agency may not conduct or sponsor, and an 
individual is not required to respond to, a collection of information 
unless it displays a valid OMB control number. In accordance with the 
requirements of the PRA, DOL is requesting an OMB control number for 
three new information collections (ICs) contained in the proposed 
rules. Two ICs are sponsored jointly by DOL and the Treasury 
Department: (1) Verification of Enrollment in Individual Health 
Insurance Coverage (29 CFR 2590.702-2(c)(5)); and (2) HRA Notice to 
Participants (29 CFR 2590.702-2(c)(6)). A third IC is sponsored solely 
by DOL (29 CFR 2510.3-1): (3) Notice to Participants that Individual 
Health Insurance Coverage Policy is Not Subject to Title I of ERISA.
    With regard to the Treasury Department, the collection of 
information contained in these regulations is submitted to OMB for 
review in accordance with the PRA as follows. The collection of 
information in these regulations is in 26 CFR 54.9815-2711(d)(4) and 26 
CFR 54.9802-4(c)(5) and (c)(6). The burden for the collection of 
information contained in these regulations is reflected in the burden 
for OMB Control Number 1545-0123 for the U.S. Business Income Tax 
Return, 1545-0074 for U.S. Individual Income Tax Return, and 1545-0047 
Return of Organizations Exempt From Income Tax. The tax-exempt 
organization form instructions will be updated in the next revision. 
The estimated annual burden per respondent, estimated annual burden per 
recordkeeper, or estimated number of respondents is updated annually.
    The Departments have submitted a copy of the proposed rule, Health 
Reimbursement Arrangements and Other Account-Based Group Health Plans, 
to OMB in accordance with 44 U.S.C. 3507(d) for review of its 
information collections. The Departments and OMB are particularly 
interested in comments that:
     Evaluate whether the collection of information is 
necessary for the proper performance of the functions of the

[[Page 54455]]

agency, including whether the information will have practical utility;
     Evaluate the accuracy of the agency's estimate of the 
burden of the collection of information, including the validity of the 
methodology and assumptions used;
     Enhance the quality, utility, and clarity of the 
information to be collected; and
     Minimize the burden of the collection of information on 
those who are to respond, including through the use of appropriate 
automated, electronic, mechanical, or other technological collection 
techniques or other forms of information technology, e.g., permitting 
electronic submission of responses.
    In addition to filing comments on the information collections with 
the agencies on the same basis as any other aspect of this rule, 
interested parties may file comments on the information collection 
requirements with the Office of Management and Budget (OMB). The method 
for submitting comments to the agencies is explained earlier in the 
Addresses section of the document. Comments to OMB should be sent to 
the Office of Information and Regulatory Affairs, Office of Management 
and Budget, Room 10235, New Executive Office Building, Washington, DC 
20503; Attention: Desk Officer for the Employee Benefits Security 
Administration. Notwithstanding the 60-day comment period to submit 
comments to the agencies, in order to ensure consideration, OMB 
requests that comments be submitted within 30 days of publication of 
this proposed rule. In addition, comments should identify the 
applicable OMB control number. PRA Addressee: Address requests for 
copies of the ICR to G. Christopher Cosby, Office of Policy and 
Research, U.S. Department of Labor, Employee Benefits Security 
Administration, 200 Constitution Avenue NW, Room N- 5718, Washington, 
DC 20210. Telephone (202) 693-8410; Fax: (202) 219-5333. These are not 
toll-free numbers. ICRs submitted to OMB also are available at https://www.RegInfo.gov.
    Below is a description of the information collections and their 
burden.
1. Verification of Enrollment in Individual Health Insurance Coverage
    In order for an HRA to be integrated with individual health 
insurance, among other requirements, the HRA must implement, and comply 
with, reasonable procedures to verify that participants and dependents 
are, or will be, enrolled in individual health insurance coverage 
during the plan year. This requirement can be satisfied by providing a 
document from a third party, like an issuer, verifying coverage. As an 
alternative procedure, this requirement could also be satisfied if the 
HRA requires participants to provide an attestation of coverage, 
including the date coverage begins and the provider of the coverage.
    In addition, following the initial substantiation of coverage, with 
each new request for reimbursement of an incurred medical care expense 
for the same plan year, the HRA may not reimburse participants for any 
medical care expenses unless, prior to each reimbursement, the 
participant provides substantiation (which may be in the form of a 
written attestation) that the participant and, if applicable, the 
dependent whose medical care expenses are requested to be reimbursed, 
continue to be enrolled in individual health insurance coverage for the 
month during which the medical care expenses were incurred. The 
attestation may be part of the form used for requesting reimbursement.
    Documentation, including proof that expenditure of funds is for a 
medical care expense, is currently universal when seeking reimbursement 
from an HRA. For the new requirements contained in the proposed 
regulations regarding verification of enrollment in individual health 
insurance coverage, the HRA can require proof of coverage or 
attestations of coverage as part of the processes that already exist 
for when participants seek reimbursement from HRAs for premiums or 
other medical care expenses. The additional burden is de minimis, 
because the attestation can be a part of the information already 
required when seeking reimbursement. To the extent an HRA develops 
additional processes for the requirement that individuals verify 
enrollment in individual health insurance coverage for the plan year, 
the additional burden is also expected to be de minimis because it 
involves either attestation or providing documents that already exist.
2. HRA Notice to Participants
    These proposed regulations require an HRA to provide written notice 
to eligible participants including, among other things, the following 
information: (1) A description of the terms of the HRA, including the 
amounts newly made available as used in the affordability determination 
under the Code section 36B proposed regulations; (2) a statement of the 
right of the participant to opt-out of and waive future reimbursement 
under the HRA; (3) a description of the potential availability of the 
PTC for a participant who opts out of and waives an HRA if the HRA is 
not affordable under the proposed PTC regulations; and (4) a 
description of the PTC eligibility consequences for a participant who 
accepts the HRA. The written notice may include other information, as 
long as the additional information does not conflict with the required 
information. The written notice does not need to include information 
specific to a participant.
    The HRA must provide the written notice to each participant at 
least 90 days before the beginning of each plan year. For participants 
who are not yet eligible to participate at the beginning of the plan 
year (or who are not eligible when the notice is provided at least 90 
days prior to the beginning of the plan year), the HRA must provide the 
notice no later than the date on which the participant is first 
eligible to participate in the HRA.
    The Departments estimate that a compensation and benefits manager 
would require two hours (at $125 per hour) and a lawyer would require 
one hour (at $136.44 per hour) to prepare the notice for each HRA. 
Thus, the total hour burden for each HRA would be 3 hours with an 
equivalent cost of approximately $386. The Departments estimate that 
each notice would be two pages, with total materials and printing cost 
of $0.10 per notice ($0.05 per page). The Departments estimate that 
78,797 private employers would \136\ newly offer HRAs integrated with 
individual health insurance coverage in 2020 \137\ as a result of the 
proposed rules in the first year. Therefore, the Departments estimate 
for the total hour burden for these HRAs to prepare the notices would 
be 236,390 hours with an equivalent cost of $30,450,216.
---------------------------------------------------------------------------

    \136\ U.S. Department of the Treasury, Office of Tax Analysis 
used a simulation model to obtain these estimates. For 2020 the 
model estimated that 80,000 employers would offer HRAs integrated 
with individual health insurance coverage and one million 
individuals would enroll in those HRAs. Based on DOL estimates about 
98 percent of these will be in the private market, and the rest will 
be though public employers like state and local governments. There 
are on average one dependent for every policy holder. ``Health 
Insurance Coverage Bulletin'', Abstract of the Auxiliary Data for 
the March 2016 Annual Social and Economic Supplement of the Current 
Population Survey, July 25, 2017. https://www.dol.gov/sites/default/files/ebsa/researchers/data/health-and-welfare/health-insurance-coverage-bulletin-2016.pdf
    \137\ Comparable numbers for 2021 are 118,195 private employers 
would newly offer HRAs integrated with individual health insurance 
coverage and 1,441,262 eligible participants in all HRAs would 
receive notices, and for 2022 196,992 private employers would newly 
offer HRAs integrated with individual health insurance coverage and 
2,882,523 eligible participants in all HRAs would receive notices.

---------------------------------------------------------------------------

[[Page 54456]]

    All HRAs integrated with individual health insurance coverage are 
required to annually send the notice to all eligible participants 
(those eligible to enroll). The Departments estimate that there would 
be 576,505 eligible participants at private employers in 2020 that 
would need to receive the notice.\138\ The Departments assume that 
approximately 54 percent of notices would be provided electronically 
and approximately 46 percent would be provided in print along with 
other benefits information. Therefore, a total of 265,192 notices will 
be printed at a cost of $26,519. Tables 1 and 2 provide estimates for 
years 2020, 2021 and 2022.
---------------------------------------------------------------------------

    \138\ Number of eligible participants is estimated based on 
Treasury estimates of the number of individuals enrolled in HRAs 
integrated with individual coverage, the assumption that there are 
two enrollees per employee participant, and the assumption that 75 
percent of eligible participants would enroll in their employers' 
plans. See Section 3 of the Kaiser ``2017 Employer Health Benefits 
Survey''. https://www.kff.org/health-costs/report/2017-employer-health-benefits-survey/.

                                                        Table 1--Burden To Prepare HRA Notice for the First Time-Private Sector Employers
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                        Number of                                                       Number of
                                                                        employers    Legal cost per     Number of        Benefit        hours for
                                Year                                 newly offering       hour          hours for     manager cost       benefit     Total hour burden    Total equivalent cost
                                                                          HRAs                            legal         per hour         manager
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
(a)                                                                             (b)             (c)   (d) = 1 * (b)             (e)   (f) = 2 * (b)    (g) = (d) + (f)     (c) * (d) + (e) * (f)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2020...............................................................          78,797         $136.44          78,797         $125.00         157,593            236,390               $30,450,216
2021...............................................................         118,195          136.44         118,195          125.00         236,390            354,585                45,675,324
2022...............................................................         196,992          136.44         196,992          125.00         393,984            590,976                76,125,539
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------


                  Table 2--Burden To Provide Notice to All Eligible Private Sector Participants
----------------------------------------------------------------------------------------------------------------
                                                                  Number of
                     Year                       Total number    notices sent      Cost per     Total cost burden
                                                 of notices        by mail         notice
----------------------------------------------------------------------------------------------------------------
(a)                                                       (b)             (c)             (d)    (e) = (c) * (d)
----------------------------------------------------------------------------------------------------------------
2020.........................................         576,505         265,192           $0.10            $26,519
2021.........................................       1,441,262         662,980            0.10             66,298
2022.........................................       2,882,523       1,325,961            0.10            132,596
----------------------------------------------------------------------------------------------------------------

3. Notice to Participants That Individual Health Insurance Coverage 
Policy is not Subject to Title I of ERISA
    In the proposed rules, DOL clarifies that individual health 
insurance coverage the premiums of which are reimbursed by an HRA, 
QSEHRA, or supplemental salary reduction arrangement is not considered 
an ``employee welfare benefit plan'' with the consumer protections 
provided under ERISA. HRA plan sponsors are required to notify 
participants of this fact. For an HRA, this notice requirement is met 
if annually the notice requirement in 29 CFR 2590.702-2(c)(6) is met, 
which is part of the HRA Notice to Participants. Therefore, this notice 
requirement imposes no additional burden. For QSEHRAs and for HRAs not 
subject to 29 CFR 2590.702-2(c)(6) but that reimburse premiums for 
individual health insurance coverage, this notice requirement is met if 
the plan sponsor annually includes language provided in the rule in the 
Summary Plan Description. DOL estimates that this burden will be de 
minimis, because the required text is provided by DOL and the required 
information can be included with other notices.
    The information collections are summarized as follows:
    Type of Review: New Collection.
    Agency: DOL-EBSA, Treasury--IRS.
    Title: Notice for Health Reimbursement Arrangements integrated with 
Individual Health Insurance Coverage.
    OMB Numbers: 1210-new (DOL), 1545-0123, 1545-0074, and 1545-0047 
(Treasury).
    Affected Public: Private Sector.
    Total Respondents: 131,328 three-year average.
    Total Responses: 1,633,430 three-year average.
    Frequency of Response: Annually.
    Estimated Total Annual Burden Hours: 196,992 for each agency 
(combined total is 393,984 hours). Three year average.
    Estimated Total Annual Burden Cost: $37,569 for each agency 
(combined total is $75,138). Three year average.

F. Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) imposes 
certain requirements with respect to Federal rules that are subject to 
the notice and comment requirements of section 553(b) of the 
Administrative Procedure Act (5 U.S.C. 551 et seq.) and which are 
likely to have a significant economic impact on a substantial number of 
small entities. Unless an agency certifies that a proposed rule is not 
likely to have a significant economic impact on a substantial number of 
small entities, section 603 of RFA requires that the agency present an 
initial regulatory flexibility analysis at the time of the publication 
of the notice of proposed rulemaking describing the impact of the rule 
on small entities and seeking public comment on such impact. Small 
entities include small businesses, organizations, and governmental 
jurisdictions.
    The RFA generally defines a ``small entity'' as (1) a proprietary 
firm meeting the size standards of the Small Business Administration 
(SBA) (13 CFR 121.201), (2) a nonprofit organization that is not 
dominant in its field, or (3) a small government jurisdiction with a 
population of less than 50,000. (States and individuals are not 
included in the definition of ``small entity.'') The Departments use as 
their measure of significant economic impact on a substantial number of 
small entities a change in revenues of more than 3 to 5 percent.
    The Departments do not expect the proposed rules to produce costs 
or benefits in excess of 3 to 5 percent of revenues for small entities. 
Entities that choose to offer an HRA integrated with individual health 
insurance coverage instead of a traditional group health

[[Page 54457]]

plan are likely to experience a modest increase or decrease in 
administrative burden associated with health benefits. Entities that 
newly offer health benefits in the form of an HRA integrated with 
individual health insurance coverage would bear modest administrative 
costs. However, offering an HRA that is integrated with individual 
health insurance coverage is entirely voluntary on the part of 
employers, and no employer that would experience substantial costs 
would be expected to offer an HRA integrated with individual health 
insurance coverage. In addition, the proposed rules would provide large 
and small employers with an additional choice of a tax-preferred health 
benefit to offer their employees, potentially enabling them to attract 
and retain workers and maintain a healthier workforce.
    In addition, section 1102(b) of the Social Security Act requires 
agencies to prepare a regulatory impact analysis if a rule may have a 
significant economic impact on the operations of a substantial number 
of small rural hospitals. This analysis must conform to the provisions 
of section 603 of the RFA. The proposed rules will not have a direct 
effect on small rural hospitals though there may be an indirect effect. 
By reducing the number of uninsured persons, the proposed rules could 
reduce administrative costs, such as billing costs and the costs of 
helping patients obtain public health benefits. The proposed rules 
could also reduce the cost of uncompensated care born by small rural 
hospitals and other healthcare providers (and shift such costs to 
insured persons). However, the Departments have determined that the 
proposed rules will not have a significant impact on the operations of 
a substantial number of small rural hospitals.

G. Impact of Regulations on Small Business--Department of the Treasury

    Pursuant to section 7805(f) of the Code, the proposed rules have 
been submitted to the Chief Counsel for Advocacy of the SBA for comment 
on its impact on small business.

H. Unfunded Mandates Reform Act

    Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) 
requires that agencies assess anticipated costs and benefits and take 
certain other actions before issuing a proposed rule that includes any 
Federal mandate that may result in expenditures in any 1 year by state, 
local, or Tribal governments, in the aggregate, or by the private 
sector, of $100 million in 1995 dollars, updated annually for 
inflation. In 2018, that threshold is approximately $150 million. The 
proposed rules do not include any Federal mandate that may result in 
expenditures by state, local, or tribal governments, or the private 
sector, that may impose an annual burden that exceeds that threshold.

I. Federalism

    Executive Order 13132 outlines fundamental principles of 
federalism. It requires adherence to specific criteria by Federal 
agencies in formulating and implementing policies that have 
``substantial direct effects'' on the states, the relationship between 
the national government and states, or on the distribution of power and 
responsibilities among the various levels of government. Federal 
agencies promulgating regulations that have these federalism 
implications must consult with state and local officials, and describe 
the extent of their consultation and the nature of the concerns of 
state and local officials in the preamble to the final regulations. In 
the Departments' view, the proposed rules do not have federalism 
implications.

J. Congressional Review Act

    The proposed rules are subject to the Congressional Review Act 
provisions of the Small Business Regulatory Enforcement Fairness Act of 
1996 (5 U.S.C. 801 et seq.), and, upon finalization, will be 
transmitted to the Congress and to the Comptroller General for review 
in accordance with such provisions.

K. Reducing Regulation and Controlling Regulatory Cost

    Executive Order 13771, titled Reducing Regulation and Controlling 
Regulatory Costs, was issued on January 30, 2017 and requires that the 
costs associated with significant new regulations ``shall, to the 
extent permitted by law, be offset by the elimination of existing costs 
associated with at least two prior regulations.'' The proposed rules, 
if finalized as proposed, are expected to be an Executive Order 13771 
deregulatory action.
Statutory Authority
    The Department of the Treasury regulations are proposed to be 
adopted pursuant to the authority contained in sections 7805 and 9833 
of the Code.
    The Department of Labor regulations are proposed pursuant to the 
authority contained in 29 U.S.C. 1002, 1135, 1182, 1185d, 1191a, 1191b, 
and 1191c; Secretary of Labor's Order 1-2011, 77 FR 1088 (Jan. 9, 
2012).
    The Department of Health and Human Services regulations are 
proposed to be adopted pursuant to the authority contained in sections 
2701 through 2763, 2791, 2792, and 2794 of the PHS Act (42 U.S.C. 
300gg-300gg-63, 300gg-91, 300gg-92 and 300gg-94), as amended; sections 
1311 and 1321 of PPACA (42 U.S.C. 13031 and 18041).

List of Subjects

26 CFR Part 1

    Income Taxes, Reporting and recordkeeping requirements.

26 CFR Part 54

    Excise taxes, Health care, Health insurance, Pensions, Reporting 
and recordkeeping requirements.

29 CFR Part 2510

    Employee benefit plans, Pensions.

29 CFR Part 2590

    Continuation coverage, Disclosure, Employee benefit plans, Group 
health plans, Health care, Health insurance, Medical child support, 
Reporting and recordkeeping requirements.

45 CFR Parts 144 and 146

    Health care, Health insurance, Reporting and recordkeeping 
requirements.

45 CFR Part 147

    Health care, Health insurance, Reporting and recordkeeping 
requirements, and State regulation of health insurance.

[[Page 54458]]

45 CFR Part 155

    Exchange establishment standards and other related standards under 
the Affordable Care Act.

Kirsten Wielobob,
Deputy Commissioner for Services and Enforcement, Internal Revenue 
Service.
    Signed at Washington DC, this 16th day of October, 2018.
Preston Rutledge,
Assistant Secretary, Employee Benefits Security Administration, 
Department of Labor.
    Dated: October 17, 2018.
Seema Verma,
Administrator, Centers for Medicare & Medicaid Services.
    Dated: October 18, 2018.
Alex M. Azar II,
Secretary, Department of Health and Human Services.

DEPARTMENT OF THE TREASURY

Internal Revenue Service

Proposed Amendments to the Regulations

    Accordingly, 26 CFR parts 1 and 54 are proposed to be amended as 
follows:

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 continues to read in 
part as follows:

    Authority: 26 U.S.C. 7805. * * *
* * * * *
0
Par. 2. Section 1.36B-2 is amended by:
0
a. Redesignating paragraph (c)(3)(i) as paragraph (c)(3)(i)(A) and 
revising the subject heading of newly designated paragraph 
(c)(3)(i)(A).
0
b. Adding a new paragraph (c)(3)(i) subject heading and paragraph 
(c)(3)(i)(B).
0
c. Adding a sentence at the end of paragraphs (c)(3)(ii) and 
(c)(3)(v)(A)(1) and (2).
0
d. Revising paragraphs (c)(3)(v)(A)(3) and (5).
0
e. Adding a sentence at the end of paragraph (c)(3)(vi).
0
 f. Adding paragraph (c)(5).
0
 g. Revising paragraph (e)(1).
0
 h. Adding paragraph (e)(3).
    The revisions and additions read as follows:


Sec.  1.36B-2   Eligibility for premium tax credit.

* * * * *
    (c) * * *
    (3) * * *
    (i) In general--(A) Plans other than health reimbursement 
arrangements (HRAs) or other account-based group health plans described 
in paragraph (c)(3)(i)(B) of this section. * * *
    (B) HRAs and other account-based group health plans integrated with 
individual health insurance coverage. An employee who is offered an HRA 
or other account-based group health plan that would be integrated with 
individual health insurance coverage, within the meaning of Sec. Sec.  
54.9802-4 and 54.9815-2711(d)(4) of this chapter, if the individual 
enrolls in individual health insurance coverage, and an individual who 
is offered the HRA or other account-based group health plan because of 
a relationship to the employee (a related HRA individual), are eligible 
for minimum essential coverage under an eligible employer-sponsored 
plan for any month for which the HRA or other account-based group 
health plan is offered if the HRA or other account-based group health 
plan is affordable for the month under paragraph (c)(5) of this section 
or if the employee does not opt out of and waive future reimbursements 
from the HRA or other account-based group health plan. An HRA or other 
account-based group health plan described in this paragraph 
(c)(3)(i)(B) that is affordable for a month under paragraph (c)(5) of 
this section is treated as providing minimum value for the month. For 
purposes of paragraphs (c)(3) and (5) of this section, the definitions 
under Sec.  54.9815-2711(d)(6) of this chapter apply.
    (ii) * * * The plan year for an HRA or other account-based group 
health plan described in paragraph (c)(3)(i)(B) of this section is the 
plan's 12-month coverage period (or the remainder of the 12-month 
coverage period for a newly eligible individual or an individual who 
enrolls during a special enrollment period).
* * * * *
    (v) * * *
    (A) * * *
    (1) * * * See paragraph (c)(5) of this section for rules for when 
an HRA or other account-based group health plan described in paragraph 
(c)(3)(i)(B) of this section is affordable for an employee for a month.
    (2) * * * See paragraph (c)(5) of this section for rules for when 
an HRA or other account-based group health plan described in paragraph 
(c)(3)(i)(B) of this section is affordable for a related HRA individual 
for a month.
    (3) Employee safe harbor. An eligible employer-sponsored plan is 
not affordable for an employee or a related individual for a plan year 
if, when the employee or a related individual enrolls in a qualified 
health plan for a period coinciding with the plan year (in whole or in 
part), an Exchange determines that the eligible employer-sponsored plan 
is not affordable for that plan year. This paragraph (c)(3)(v)(A)(3) 
does not apply to a determination made as part of the redetermination 
process described in 45 CFR 155.335 unless the individual receiving an 
Exchange redetermination notification affirmatively responds and 
provides current information on affordability. This paragraph 
(c)(3)(v)(A)(3) does not apply for an individual who, with intentional 
or reckless disregard for the facts, provides incorrect information to 
an Exchange concerning the portion of the annual premium for coverage 
for the employee or related individual under the plan. A reckless 
disregard of the facts occurs if the taxpayer makes little or no effort 
to determine whether the information provided to the Exchange is 
accurate under circumstances that demonstrate a substantial deviation 
from the standard of conduct a reasonable person would observe. A 
disregard of the facts is intentional if the taxpayer knows that the 
information provided to the Exchange is inaccurate. See paragraph 
(c)(5) of this section for an employee safe harbor that applies when an 
Exchange determines that an HRA or other account-based group health 
plan described in paragraph (c)(3)(i)(B) of this section is not 
affordable for an employee or a related HRA individual for the period 
of enrollment in a qualified health plan.
* * * * *
    (5) Employer contributions to HRAs integrated with eligible 
employer-sponsored plans. Amounts newly made available for the current 
plan year under an HRA that an employee may use to pay premiums, or may 
use to pay cost-sharing or benefits not covered by the primary plan in 
addition to premiums, reduce the employee's required contribution if 
the HRA would be integrated, within the meaning of Sec.  54.9815-
2711(d)(2) of this chapter, with an eligible employer-sponsored plan 
for an employee enrolled in the plan. The eligible employer-sponsored 
plan and the HRA must be offered by the same employer. Employer 
contributions to an HRA described in this paragraph (c)(3)(v)(A)(5) 
reduce an employee's required contribution only to the extent the 
amount of the annual contribution is required under the terms of the 
plan or otherwise determinable within a reasonable time before the 
employee must decide whether to enroll in the eligible employer-
sponsored plan.
* * * * *
    (vi) * * * An HRA or other account-based group health plan 
described in paragraph (c)(3)(i)(B) of this section that is affordable 
for a month under

[[Page 54459]]

paragraph (c)(5) of this section is treated as providing minimum value 
for the month.
* * * * *
    (5) Affordable HRA or other account-based group health plan--(i) In 
general. Except as otherwise provided in this paragraph (c)(5), an HRA 
or other account-based group health plan described in paragraph 
(c)(3)(i)(B) of this section is affordable for a month if the 
employee's required HRA contribution (as defined in paragraph 
(c)(5)(ii) of this section) for the month does not exceed 1/12 of the 
product of the employee's household income for the taxable year and the 
required contribution percentage (as defined in paragraph (c)(3)(v)(C) 
of this section).
    (ii) Required HRA contribution--An employee's required HRA 
contribution is the excess of --
    (A) The monthly premium for the lowest cost silver plan for self-
only coverage of the employee offered in the Exchange for the rating 
area in which the employee resides, over
    (B) The monthly self-only HRA or other account-based group health 
plan amount (or the monthly maximum amount available to the employee 
under the HRA or other account-based group health plan if the HRA or 
other account-based group health plan provides for reimbursements up to 
a single dollar amount regardless of whether an employee has self-only 
or other-than-self-only coverage).
    (iii) Monthly amount. For purposes of paragraph (c)(5)(ii) of this 
section, the monthly self-only HRA or other account-based group health 
plan amount is the self-only HRA or other account-based group health 
plan amount newly made available under the HRA for the plan year, 
divided by the number of months in the plan year the HRA or other 
account-based group health plan is available to the employee. The 
monthly maximum amount newly made available to the employee under the 
HRA or other account-based group health plan is the maximum amount 
newly-made available for the plan year to the employee under the plan, 
divided by the number of months in the plan year the HRA or other 
account-based group health plan is available to the employee.
    (iv) Employee safe harbor. An HRA or other account-based group 
health plan described in paragraph (c)(3)(i)(B) of this section is not 
affordable for a month for an employee or a related HRA individual if, 
when the employee or related HRA individual enrolls in a qualified 
health plan for a period coinciding with the period the HRA or other 
account-based group health plan is available to the employee or related 
HRA individual (in whole or in part), an Exchange determines that the 
HRA or other account-based group health plan is not affordable for the 
period of enrollment in the qualified health plan. This paragraph 
(c)(5)(iv) does not apply to a determination made as part of the 
redetermination process described in 45 CFR 155.335 unless the 
individual receiving an Exchange redetermination notification 
affirmatively responds and provides current information on 
affordability. This paragraph (c)(5)(iv) does not apply for an 
individual who, with intentional or reckless disregard for the facts, 
provides incorrect information to an Exchange concerning the relevant 
HRA or other account-based group health plan amount offered by the 
employee's employer. A reckless disregard of the facts occurs if the 
taxpayer makes little or no effort to determine whether the information 
provided to the Exchange is accurate under circumstances that 
demonstrate a substantial deviation from the standard of conduct a 
reasonable person would observe. A disregard of the facts is 
intentional if the taxpayer knows that the information provided to the 
Exchange is inaccurate.
    (v) Amounts used for affordability determination. Only amounts that 
are newly made available for the plan year of the HRA or other account-
based group health plan described in paragraph (c)(3)(i)(B) of this 
section and determinable within a reasonable time before the beginning 
of the plan year of the HRA or other account-based health plan are 
considered in determining whether an HRA or other account-based group 
health plan described in paragraph (c)(3)(i)(B) of this section is 
affordable. Amounts made available for a prior plan year that carry 
over to the current plan year are not taken into account for purposes 
of this paragraph (c)(5).
    (vi) Affordability for part-year period. Affordability under this 
paragraph (c)(5) is determined separately for each employment period 
that is less than a full calendar year or for the portions of the plan 
year of an employer's HRA or other account-based group health plan that 
fall in different taxable years of an applicable taxpayer. An HRA or 
other account-based group health plan described in paragraph 
(c)(3)(i)(B) of this section is affordable for a part-year period if 
the employee's annualized required HRA contribution for the part-year 
period does not exceed the required contribution percentage of the 
applicable taxpayer's household income for the taxable year. The 
employee's annualized required HRA contribution is the employee's 
required HRA contribution for the part-year period times a fraction, 
the numerator of which is 12 and the denominator of which is the number 
of months in the part-year period during the applicable taxpayer's 
taxable year. Only full calendar months are included in the computation 
under this paragraph (c)(5)(vi).
    (vii) Related individual not allowed as a personal exemption 
deduction. A related HRA individual is treated as ineligible for 
minimum essential coverage under an HRA or other account-based group 
health plan described in paragraph (c)(3)(i)(B) of this section for 
months that the employee opted out of and waived future reimbursements 
from the HRA or other account-based group health plan and the employee 
is not allowed a personal exemption deduction under section 151 for the 
related HRA individual.
    (viii) Post-employment coverage. An individual who is offered an 
HRA or other account-based group health plan described in paragraph 
(c)(3)(i)(B) of this section, for months after an employee terminates 
employment with the employer offering the HRA or other account-based 
group health plan, is eligible for minimum essential coverage under the 
HRA or other account-based group health plan for months after 
termination of employment only if the employee does not forfeit or opt 
out of and waive future reimbursements from the HRA or other account-
based group health plan for months after termination of employment.
    (ix) Examples. The following examples illustrate the provisions of 
this paragraph (c)(5). The required contribution percentage is defined 
in paragraph (c)(3)(v)(C) of this section and is updated annually. 
Because the required contribution percentage for 2020 has not yet been 
determined, the examples assume a required contribution percentage for 
2020 of 9.86%.
    (A) Example 1. Determination of affordability. (1) In 2020 
Taxpayer A is single, has no dependents, and has household income of 
$28,000. A is an employee of Employer X for all of 2020. X offers 
its employees an HRA described in paragraph (c)(3)(i)(B) of this 
section that reimburses $2,400 of medical care expenses for single 
employees with no children (the self-only HRA amount) and $4,000 for 
employees with a spouse or children for the medical expenses of the 
employees and their family members. A enrolls in a qualified health 
plan through the Exchange in the rating area in which A resides and 
remains enrolled for all of 2020. The monthly premium for the lowest 
cost silver plan for

[[Page 54460]]

self-only coverage of A that is offered in the Exchange for the 
rating area in which A resides is $500.
    (2) A's required HRA contribution, as defined in paragraph 
(c)(5)(ii) of this section, is $300, the excess of $500 (the monthly 
premium for the lowest cost silver plan for self-only coverage of A) 
over $200 (1/12 of the self-only HRA amount provided by Employer X 
to its employees). In addition, 1/12 of the product of 9.86 percent 
and A's household income is $230 ($28,000 x .0986 = $2,761; $2,761/
12 = $230). Because A's required HRA contribution of $300 exceeds 
$230 (1/12 of the product of 9.86 percent and A's household income), 
the HRA is unaffordable for A for each month of 2020 under paragraph 
(c)(5) of this section. If A opts out of and waives future 
reimbursements from the HRA, A is not eligible for minimum essential 
coverage under the HRA for each month of 2020 under paragraph 
(c)(3)(i)(B) of this section.
    (B) Example 2. Determination of affordability for a related HRA 
individual. (1) In 2020 Taxpayer B is married and has one child who 
is a dependent of B for 2020. B has household income of $28,000. B 
is an employee of Employer X for all of 2020. X offers its employees 
an HRA described in paragraph (c)(3)(i)(B) of this section that 
reimburses $3,600 of medical care expenses for single employees with 
no children (the self-only HRA amount) and $5,000 for employees with 
a spouse or children for the medical expenses of the employees and 
their family members. B, B's spouse, and B's child enroll in a 
qualified health plan through the Exchange in the rating area in 
which B resides and they remain enrolled for all of 2020. No advance 
credit payments are made for their coverage. The monthly premium for 
the lowest cost silver plan for self-only coverage of B that is 
offered in the Exchange for the rating area in which B resides is 
$500.
    (2) B's required HRA contribution, as defined in paragraph 
(c)(5)(ii) of this section, is $200, the excess of $500 (the monthly 
premium for the lowest cost silver plan for self-only coverage for 
B) over $300 (1/12 of the self-only HRA amount provided by Employer 
X to its employees). In addition, 1/12 of the product of 9.86 
percent and B's household income for 2020 is $230 ($28,000 x .0986 = 
$2,761; $2,761/12 = $230). Because B's required HRA contribution of 
$200 does not exceed $230 (1/12 of the product of 9.86 percent and 
B's household income for 2020), the HRA is affordable for B under 
paragraph (c)(5) of this section, and B is eligible for minimum 
essential coverage under an eligible employer-sponsored plan for 
each month of 2020 under paragraph (c)(3)(i)(B) of this section. In 
addition, B's spouse and child are also eligible for minimum 
essential coverage under an eligible employer-sponsored plan for 
each month of 2020 under paragraph (c)(3)(i)(B) of this section.
    (C) Example 3. Exchange determines that HRA is unaffordable. (1) 
The facts are the same as in Example 2, except that B, when 
enrolling in Exchange coverage for B's family, received a 
determination by the Exchange that the HRA was unaffordable, because 
B believed B's household income would be lower than it turned out to 
be. Consequently, advance credit payments were made for their 2020 
coverage.
    (2) Under paragraph (c)(5)(iv) of this section, the HRA is 
considered unaffordable for B, B's spouse, and B's child for each 
month of 2020 provided that B did not, with intentional or reckless 
disregard for the facts, provide incorrect information to the 
Exchange concerning the HRA or B's household income.
    (D) Example 4. Affordability determined for part of a taxable 
year (part-year period). (1) Taxpayer C is an employee of Employer 
X. C's household income for 2020 is $28,000. X offers its employees 
an HRA described in paragraph (c)(3)(i)(B) of this section that 
reimburses medical care expenses of $3,600 for single employees 
without children (the self-only HRA amount) and $5,000 to employees 
with a spouse or children for the medical expenses of the employees 
and their family members. X's HRA plan year is September 1 to August 
31 and C is first eligible to participate in the HRA for the period 
beginning September 1, 2020. C enrolls in a qualified health plan 
through the Exchange in the rating area in which C resides for all 
of 2020. The monthly premium for the lowest cost silver plan for 
self-only coverage of C that is offered in the Exchange for the 
rating area in which C resides for 2020 is $500.
    (2) Under paragraph (c)(3)(vi) of this section, the 
affordability of the HRA is determined separately for the period 
September 1 through December 31, 2020, and for the period January 1 
through August 31, 2021. C's required HRA contribution, as defined 
in paragraph (c)(5)(ii) of this section, for the period September 1 
through December 31, 2020, is $200, the excess of $500 (the monthly 
premium for the lowest cost silver plan for self-only coverage for 
C) over $300 (1/12 of the self-only HRA amount provided by X to its 
employees). In addition, 1/12 of the product of 9.86 percent and C's 
household income is $230 ($28,000 x .0986 = $2,761; $2,677/12 = 
$230). Because C's required HRA contribution of $200 does not exceed 
$230, the HRA is affordable for C for each month in the period 
September 1 through December 31, 2020, under paragraph (c)(5) of 
this section. Affordability for the period January 1 through August 
31, 2021, is determined using C's 2021 household income and required 
HRA contribution.
    (E) Example 5. Carryover amounts ignored in determining 
affordability. (1) Taxpayer D is an employee of Employer X for all 
of 2020 and 2021. D is single. For each of 2020 and 2021, X offers 
its employees an HRA described in paragraph (c)(3)(i)(B) of this 
section that provides reimbursement for medical care expenses of 
$2,400 to single employees with no children (the self-only HRA 
amount) and $4,000 to employees with a spouse or children for the 
medical expenses of the employees and their family members. Under 
the terms of the HRA, amounts that an employee does not use in a 
calendar year may be carried over and used in the next calendar 
year. In 2020, D used only $1,500 of her $2,400 maximum 
reimbursement and the unused $900 is carried over and may be used by 
D in 2021.
    (2) Under paragraph (c)(5)(v) of this section, only the $2,400 
self-only HRA amount offered to D for 2021 is considered in 
determining whether D's HRA is affordable. The $900 carryover amount 
is not considered in determining the affordability of the HRA.

* * * * *
    (e) * * * (1) Except as provided in paragraphs (e)(2) and (3) of 
this section, this section applies to taxable years ending after 
December 31, 2013.
* * * * *
    (3) Paragraphs (c)(3)(i)(B) and (c)(5) of this section, and the 
last sentences at the end of paragraphs (c)(3)(ii), (c)(3)(v)(A)(1), 
(c)(3)(v)(A)(2), (c)(3)(v)(A)(3), and (c)(3)(vi) of this section apply 
to taxable years beginning on or after January 1, 2020.

PART 54--PENSION EXCISE TAXES

0
Par. 3. The authority citation for part 54 is amended by adding an 
entry for Sec.  54.9802-4 in numerical order to read in part as 
follows:

    Authority:  26 U.S.C. 7805. * * *
* * * * *

    Section 54.9802-4 also issued under 26 U.S.C. 9833.

* * * * *
0
Par. 4. Section 54.9801-2 is amended by revising the definition of 
``Group health insurance coverage'' to read as follows:


Sec.  54.9801-2  Definitions.

* * * * *
    Group health insurance coverage means health insurance coverage 
offered in connection with a group health plan. Individual health 
insurance coverage reimbursed by the arrangements described in 29 CFR 
2510.3-1(l) is not offered in connection with a group health plan, and 
is not group health insurance coverage, provided all the conditions in 
29 CFR 2510.3-1(l) are satisfied.
* * * * *
0
Par. 5. Section 54.9802-4 is added to read as follows:


Sec.  54.9802-4  Special rule allowing integration of health 
reimbursement arrangements (HRAs) and other account-based group health 
plans with individual health insurance coverage and prohibiting 
discrimination in HRAs and other account-based group health plans.

    (a) Scope. This section applies to health reimbursement 
arrangements (HRAs) and other account-based group health plans, as 
defined in Sec.  54.9815-2711(d)(6)(i) of this part. For ease of 
reference, the term ``HRA'' is used in this section to include other 
account-based group health plans.
    (b) Purpose. This section provides the conditions that an HRA must 
satisfy in

[[Page 54461]]

order to be integrated with individual health insurance coverage for 
purposes of Public Health Service Act (PHS Act) sections 2711 and 2713 
and Sec.  54.9815-2711(d)(4) of this part. Some of the conditions set 
forth in this section specifically relate to compliance with PHS Act 
sections 2711 and 2713 and some relate to the effect of having or being 
offered an HRA on eligibility for the premium tax credit under section 
36B. In addition, this section provides conditions that an HRA 
integrated with individual health insurance coverage must satisfy in 
order to comply with the nondiscrimination provisions in section 9802 
and section 2705 of the PHS Act (which is incorporated in section 9815) 
and that are consistent with the provisions of the Patient Protection 
and Affordable Care Act, Public Law 111-148 (124 Stat. 119 (2010)), and 
the Health Care and Education Reconciliation Act of 2010, Public Law 
111-152 (124 Stat. 1029 (2010)), each as amended, that are designed to 
create a competitive individual market. These conditions are intended 
to prevent an HRA plan sponsor from intentionally or unintentionally, 
directly or indirectly, steering any participants or dependents with 
adverse health factors away from its traditional group health plan, if 
any, and toward individual health insurance coverage.
    (c) General rule. An HRA will be considered to be integrated with 
individual health insurance coverage for purposes of PHS Act sections 
2711 and 2713 and Sec.  54.9815-2711(d)(4) of this part and will not be 
considered to discriminate in violation of section 9802 and PHS Act 
section 2705 solely because it offers an HRA integrated with individual 
health insurance coverage, provided that the conditions of this 
paragraph (c) are satisfied.
    (1) Enrollment in individual health insurance coverage. The HRA 
must require that the participant and any dependent(s) are enrolled in 
individual health insurance coverage that is subject to and complies 
with the requirements in PHS Act sections 2711 and 2713 for each month 
that the individual(s) are covered by the HRA. For this purpose, all 
individual health insurance coverage, except for individual health 
insurance coverage that consists solely of excepted benefits, is 
treated as being subject to and complying with PHS Act sections 2711 
and 2713. References to individual health insurance coverage in this 
paragraph (c) do not include individual health insurance coverage that 
consists solely of excepted benefits. The HRA must also provide that, 
subject to applicable COBRA or other continuation of coverage 
requirements, if any individual covered by the HRA ceases to be covered 
by such individual health insurance coverage, the individual may not 
seek reimbursement under the HRA for claims that are incurred after the 
individual health insurance coverage ceases. In addition, subject to 
applicable COBRA or other continuation of coverage requirements, if the 
participant and all of the dependents covered by the participant's HRA 
cease to be covered by such individual health insurance coverage, the 
participant must forfeit the HRA.
    (2) No traditional group health plan may be offered to same 
participants. To the extent a plan sponsor offers any class of 
employees (as defined in paragraph (d) of this section) an HRA 
integrated with individual health insurance coverage, the plan sponsor 
may not also offer a traditional group health plan to the same class of 
employees. For this purpose, a traditional group health plan is any 
group health plan other than either an account-based group health plan 
or a group health plan that consists solely of excepted benefits. 
Therefore, a plan sponsor may not offer a choice between an HRA 
integrated with individual health insurance coverage or a traditional 
group health plan to any participant.
    (3) Same terms requirement. To the extent a plan sponsor offers an 
HRA integrated with individual health insurance coverage to a class of 
employees described in paragraph (d) of this section, the HRA must be 
offered on the same terms to all participants within the class, except 
as provided in paragraphs (c)(3)(i) and (ii) of this section and except 
that the HRA will not fail to be treated as provided on the same terms 
even if the plan sponsor offers the HRA to some, but not all, former 
employees within a class of employees. However, if a plan sponsor 
offers the HRA to one or more former employees within a class of 
employees, the HRA must be offered to the former employee(s) on the 
same terms as to all other employees within the class. Also, amounts 
that are not used to reimburse medical care expenses (as defined in 
Sec.  54.9815-2711(d)(6)(ii) of this part) for any plan year that are 
made available to participants in later plan years are disregarded for 
purposes of determining whether an HRA is offered on the same terms, 
provided that the method for determining whether participants have 
access to unused amounts in future years, and the methodology and 
formula for determining the amounts of unused funds which they may 
access in future years, is the same for all participants in a class of 
employees. In addition, the ability to pay the portion of the premium 
for individual health insurance coverage that is not covered by the 
HRA, if any, by using a salary reduction arrangement under section 125 
is considered to be a term of the HRA for purposes of this paragraph; 
therefore, an HRA shall fail to be treated as provided on the same 
terms unless such a salary reduction arrangement, if made available to 
any participant in a class of employees, is made available on the same 
terms to all participants (other than former employees) in the class of 
employees. Further, the HRA shall not fail to be treated as provided on 
the same terms because the maximum dollar amount made available to 
participants in a class of employees to reimburse medical care expenses 
for any plan year increases:
    (i) As the age of the participant increases, so long as the same 
maximum dollar amount attributable to the increase in age is made 
available to all participants in that class of employees who are the 
same age; or
    (ii) As the number of the participant's dependents who are covered 
under the HRA increases, so long as the same maximum dollar amount 
attributable to the increase in family size is made available to all 
participants in that class of employees with the same number of 
dependents covered by the HRA.
    (4) Opt out. Under the terms of the HRA, a participant who is 
otherwise eligible for coverage must be permitted to opt out of and 
waive future reimbursements from the HRA at least annually, and, upon 
termination of employment, either the remaining amounts in the HRA are 
forfeited or the participant is permitted to permanently opt out of and 
waive future reimbursements from the HRA.
    (5) Reasonable procedures for verification and substantiation--(i) 
General rule for verification of individual health insurance coverage 
for the plan year. The HRA must implement, and comply with, reasonable 
procedures to verify that participants and dependents are, or will be, 
enrolled in individual health insurance coverage for the plan year. The 
reasonable procedures may include a requirement that a participant 
substantiate enrollment by providing either:
    (A) A document from a third party (for example, the issuer) showing 
that the participant and any dependents covered by the HRA are, or will 
be, enrolled in individual health insurance coverage (for example, an 
insurance card or an explanation of benefits document pertaining to the 
relevant time period); or

[[Page 54462]]

    (B) An attestation by the participant stating that the participant 
and dependent(s) covered by the HRA are or will be enrolled in 
individual health insurance coverage, the date coverage began or will 
begin, and the name of the provider of the coverage.
    (ii) Coverage substantiation with each request for reimbursement of 
medical care expenses. Following the initial verification of coverage, 
with each new request for reimbursement of an incurred medical care 
expense for the same plan year, the HRA may not reimburse participants 
for any medical care expenses unless, prior to each reimbursement, the 
participant provides substantiation (which may be in the form of a 
written attestation) that the participant and if applicable, the 
dependent whose medical care expenses are requested to be reimbursed 
continue to be enrolled in individual health insurance coverage for the 
month during which the medical care expenses were incurred. The 
attestation may be part of the form used for requesting reimbursement.
    (iii) Reliance on substantiation. For purposes of this paragraph 
(c)(5), an HRA may rely on the participant's documentation or 
attestation unless the HRA has actual knowledge that any individual 
covered by the HRA is not, or will not be, enrolled in individual 
health insurance coverage for the plan year or the month, as 
applicable.
    (6) Notice requirement--(i) Timing. The HRA must provide a written 
notice to each participant at least 90 days before the beginning of 
each plan year or, for a participant who is not eligible to participate 
at the beginning of the plan year (or who is not eligible to 
participate at the time the notice is provided at least 90 days before 
the beginning of the plan year), no later than the date on which the 
participant is first eligible to participate in the HRA.
    (ii) Content. The notice must include all the information described 
in this paragraph (c)(6)(ii) (and may include any additional 
information as long as it does not conflict with the required 
information set forth in paragraph (c)(6)(ii)(A) through (H) of this 
section).
    (A) A description of the terms of the HRA, including the maximum 
dollar amount available for each participant (including the self-only 
HRA amount available for the plan year (or the maximum dollar amount 
available for the plan year if the HRA provides for reimbursements up 
to a single dollar amount regardless of whether a participant has self-
only or family coverage)), any rules regarding the proration of the 
maximum dollar amount applicable to any participant who is not eligible 
to participate in the HRA for the entire plan year, whether the 
participant's family members are eligible for the HRA, a statement that 
the HRA is not a qualified small employer health reimbursement 
arrangement, a statement that the HRA requires the participant and any 
dependents to be enrolled in individual health insurance coverage, a 
statement that the participant is required to substantiate the 
existence of such enrollment, a statement that the coverage enrolled in 
cannot be short-term, limited-duration insurance or excepted benefits, 
and, if the requirements under 29 CFR 2510.3-1(l) are met, a statement 
that the individual health insurance coverage enrolled in is not 
subject to the Employee Retirement Income Security Act (ERISA).
    (B) A statement of the right of the participant to opt out of and 
waive future reimbursements from the HRA, as set forth under paragraph 
(c)(4) of this section.
    (C) A description of the potential availability of the premium tax 
credit if the participant opts out of and waives future reimbursements 
from the HRA and the HRA is not affordable for one or more months under 
Sec.  1.36B-2(c)(5) of this chapter, a statement that even if the 
participant opts out of and waives future reimbursements from an HRA, 
the offer will prohibit the participant (and, potentially, the 
participant's dependents) from receiving a premium tax credit for the 
participant's coverage (or the dependent's coverage, if applicable) on 
the Exchange (as defined in 45 CFR 155.20) for any month that the HRA 
is affordable under Sec.  1.36B-2(c)(5) of this chapter, and a 
statement that, if the participant is a former employee, the offer of 
the HRA does not render the participant ineligible for the premium tax 
credit regardless of whether it is affordable under Sec.  1.36B-2(c)(5) 
of this chapter;
    (D) A statement that if the participant accepts the HRA, the 
participant may not claim a premium tax credit for the participant's 
Exchange coverage for any month the HRA may be used to reimburse 
medical care expenses of the participant and a premium tax credit may 
not be claimed for the Exchange coverage of the participant's 
dependents for any month the HRA may be used to reimburse medical care 
expenses of the dependents.
    (E) A statement that the participant must inform any Exchange to 
which the participant applies for advance payments of the premium tax 
credit of the availability of the HRA, the self-only HRA amount 
available for the plan year (or the maximum dollar amount available for 
the plan year if the HRA provides for reimbursements up to a single 
dollar amount regardless of whether a participant has self-only or 
family coverage) as set forth in the written notice in accordance with 
paragraph (c)(6)(ii)(A) of this section, the number of months in the 
plan year the HRA is available to the participant, whether the HRA is 
also available to the participant's dependents, and whether the 
participant is a current employee or former employee.
    (F) A statement that the participant should retain the written 
notice because it may be needed to determine whether the participant is 
allowed a premium tax credit on the participant's individual income tax 
return and, if so, the months the participant is allowed the premium 
tax credit.
    (G) A statement that the HRA may not reimburse any medical care 
expense unless the substantiation requirement set forth in paragraph 
(c)(5) of this section is satisfied.
    (H) A statement that it is the responsibility of the participant to 
inform the HRA if the participant or any dependent whose medical care 
expenses are reimbursable by the HRA is no longer enrolled in 
individual health insurance coverage.
    (d) Classes of employees--(1) List of classes. Participants may be 
treated as belonging to a class of employees based on whether they are, 
or are not, included in the classes described in this paragraph (d)(1). 
If the HRA is offered to former employees, former employees are 
considered to be in the same class in which they were in immediately 
before separation from service. (See paragraph (d)(2) of this section 
for additional rules regarding the definition of ``full-time 
employees,'' ``part-time employees,'' and ``seasonal employees.'')
    (i) Full-time employees, defined to mean either full-time employees 
under section 4980H and the regulations thereunder (Sec.  54.4980H-
1(a)(21) of this part) or employees who are not part-time employees (as 
described in Sec.  1.105-11(c)(2)(iii)(C) of this chapter);
    (ii) Part-time employees, defined to mean either employees who are 
not full-time employees under section 4980H and Sec.  54.4980H-1 and -3 
of this part or part-time employees as described in Sec.  1.105-
11(c)(2)(iii)(C) of this chapter;
    (iii) Seasonal employees, defined to mean seasonal employees as 
described in either Sec.  54.4980H-1(a)(38) of this part or Sec.  
1.105-11(c)(2)(iii)(C) of this chapter;
    (iv) Employees included in a unit of employees covered by a 
collective bargaining agreement in which the plan

[[Page 54463]]

sponsor participates (as described in Sec.  1.105-11(c)(2)(iii)(D) of 
this chapter);
    (v) Employees who have not satisfied a waiting period for coverage 
(if the waiting period complies with Sec.  54.9815-2708 of this part);
    (vi) Employees who have not attained age 25 prior to the beginning 
of the plan year (as described in Sec.  1.105-11(c)(2)(iii)(B) of this 
chapter);
    (vii) Non-resident aliens with no U.S.-based income (as described 
in Sec.  1.105-11(c)(2)(iii)(E) of this chapter);
    (viii) Employees whose primary site of employment is in the same 
rating area as defined in 45 CFR 147.102(b); or
    (ix) A group of participants described as a combination of two or 
more of the classes of employees set forth in paragraphs (d)(1)(i) 
through (viii) of this section. (For example, part-time employees 
included in a unit of employees covered by a collective bargaining 
agreement could be one class of employees and full-time employees 
included in a unit of employees covered by the same collective 
bargaining agreement could be another class of employees.)
    (2) Consistency requirement. For any plan year, a plan sponsor may 
define ``full-time employee,'' ``part-time employee,'' and ``seasonal 
employee'' in accordance with the relevant provisions of section 105(h) 
and Sec.  1.105-11 of this chapter or of section 4980H and Sec.  
54.4980H-1 and -3 of this part if:
    (i) To the extent applicable under the HRA for the plan year, each 
of the three classes of employees are defined in accordance with either 
section 105(h) or section 4980H for the plan year; and
    (ii) The HRA plan document sets forth the applicable definitions 
prior to the beginning of the plan year in which the definitions will 
apply.
    (e) Examples. The following examples illustrate the provisions of 
paragraphs (c)(2) and (3) of this section. In each example, the HRA may 
reimburse any medical care expenses, including premiums for individual 
health insurance coverage.

     (1) Example 1.  (i) Facts. For 2020, Plan Sponsor X offers the 
following to its employees. Full-time employees in rating area A are 
offered $2,000 each in an HRA. Part-time employees in rating area A 
are offered $500 each in an HRA. All employees in rating area B are 
offered a traditional group health plan.
    (ii) Conclusion. The requirements of paragraphs (c)(2) and (3) 
of this section are satisfied in this Example 1.
     (2) Example 2.  (i) Facts. For 2020, Plan Sponsor Y offers the 
following to its employees. Employees covered by a collective 
bargaining agreement in which Plan Sponsor Y participates are 
offered a traditional group health plan (as required by the 
collective bargaining agreement). All other employees (non-
collectively bargained employees) are offered the following amounts 
in an HRA: $1,000 each for employees age 25 to 35; $2,000 each for 
employees age 36 to 45; $2,500 each for employees age 46 to 55; and 
$4,000 each for employees over age 55. Non-collectively bargained 
employees who have not attained age 25 by January 1, 2020 are not 
offered an HRA or a traditional group health plan.
    (ii) Conclusion. The requirements of paragraphs (c)(2) and (3) 
of this section are satisfied in this Example 2.
     (3) Example 3.  (i) Facts. For 2020, Plan Sponsor Z offers the 
following amounts in an HRA to its employees who have completed the 
plan's waiting period, which complies with the requirements for 
waiting periods in Sec.  54.9815-2708 of this part: $1,500, if the 
employee is the only individual covered by the HRA; $3,500, if the 
employee and one additional family member are covered by the HRA; 
and $5,000, if the employee and more than one additional family 
member are covered by the HRA.
    (ii) Conclusion. The requirements of paragraphs (c)(2) and (3) 
of this section are satisfied in this Example 3.

    (f) Applicability date. This section applies to plan years 
beginning on or after January 1, 2020.
0
 Par. 6. Section[thinsp]54.9815-2711 is amended by revising paragraphs 
(c), (d), and (e) to read as follows:


Sec.  54.9815-2711  No lifetime or annual limits.

* * * * *
    (c) Definition of essential health benefits. The term ``essential 
health benefits'' means essential health benefits under section 1302(b) 
of the Patient Protection and Affordable Care Act. For this purpose, a 
group health plan or a health insurance issuer that is not required to 
provide essential health benefits under section 1302(b) must define 
``essential health benefits'' in a manner that is consistent with the 
following paragraphs (c)(1) or (2):
    (1) For plan years beginning before January 1, 2020, one of the 
EHB-benchmark plans applicable in a State under 45 CFR 156.110, and 
including coverage of any additional required benefits that are 
considered essential health benefits consistent with 45 CFR 
155.170(a)(2), or one of the three Federal Employee Health Benefits 
Program (FEHBP) plan options as defined by 45 CFR 156.100(a)(3), and 
including coverage of additional required benefits under 45 CFR 
156.110; or
    (2) For plan years beginning on or after January 1, 2020, an EHB-
benchmark plan selected by a State in accordance with the available 
options and requirements for EHB-benchmark plan selection at 45 CFR 
156.111, including an EHB-benchmark plan in a State that takes no 
action to change its EHB-benchmark plan and thus retains the EHB-
benchmark plan applicable in that State for the prior year in 
accordance with 45 CFR 156.111(d)(1), and including coverage of any 
additional required benefits that are considered essential health 
benefits consistent with 45 CFR 155.170(a)(2).
    (d) Health reimbursement arrangements (HRAs) and other account-
based group health plans--(1) In general. If an HRA or other account-
based group health plan is integrated with another group health plan or 
individual health insurance coverage and the other group health plan or 
individual health insurance coverage, as applicable, separately is 
subject to and satisfies the requirements in PHS Act section 2711 and 
paragraph (a)(2) of this section, the fact that the benefits under the 
HRA or other account-based group health plan are limited does not cause 
the HRA or other account-based group health plan to fail to meet the 
requirements of PHS Act section 2711 and paragraph (a)(2) of this 
section. Similarly, if an HRA or other account-based group health plan 
is integrated with another group health plan or individual health 
insurance coverage and the other group health plan or individual health 
insurance coverage, as applicable, separately is subject to and 
satisfies the requirements in PHS Act section 2713 and Sec.  54.9815-
2713(a)(1) of this part, the fact that the benefits under the HRA or 
other account-based group health plan are limited does not cause the 
HRA or other account-based group health plan to fail to meet the 
requirements of PHS Act section 2713 and Sec.  54.9815-2713(a)(1) of 
this part. For this purpose, all individual health insurance coverage, 
except for coverage that consists solely of excepted benefits, is 
treated as being subject to and complying with PHS Act sections 2711 
and 2713.
    (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 meets 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

[[Page 54464]]

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.
    (i) Method for integration with a group health plan: Minimum value 
not required. An HRA or other account-based group health plan is 
integrated with another group health plan for purposes of this 
paragraph 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 does not 
consist solely of excepted benefits;
    (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 does not consist 
solely of excepted benefits, regardless of whether the plan is offered 
by the same plan sponsor (referred to as non-HRA group coverage);
    (C) The HRA or other account-based group health plan is available 
only to employees who are enrolled in non-HRA group coverage, 
regardless of whether the non-HRA 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 group 
coverage, such as a group health plan maintained by the employer of the 
employee's spouse);
    (D) The benefits under the HRA or other account-based group health 
plan are limited to reimbursement of one or more of the following--co-
payments, co-insurance, deductibles, and premiums under the non-HRA 
group coverage, as well as medical care expenses that do not constitute 
essential health benefits as defined in paragraph (c) of this section; 
and
    (E) 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).
    (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 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 section 36B(c)(2)(C)(ii) and Sec.  1.36B-6 of 
this chapter;
    (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 section 36B(c)(2)(C)(ii) and Sec.  1.36B-6 of this 
chapter 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).
    (3) Forfeiture. For purposes of integration under paragraphs 
(d)(2)(i)(E) and (d)(2)(ii)(D) of this section, forfeiture or waiver 
occurs even if the forfeited or waived amounts may be reinstated upon a 
fixed date, a participant's death, or the earlier of the two events 
(the reinstatement event). For this purpose, coverage under an HRA or 
other account-based group health plan is considered forfeited or waived 
prior to a reinstatement event only if the participant's election to 
forfeit or waive is irrevocable, meaning that, beginning on the 
effective date of the election and through the date of the 
reinstatement event, the participant and the participant's 
beneficiaries have no access to amounts credited to the HRA or other 
account-based group health plan. This means that upon and after 
reinstatement, the reinstated amounts under the HRA or other account-
based group health plan may not be used to reimburse or pay medical 
care expenses incurred during the period after forfeiture and prior to 
reinstatement.
    (4) Requirements for an HRA or other account-based group health 
plan to be integrated with individual health insurance coverage. An HRA 
or other account-based group health plan is integrated with individual 
health insurance coverage (and treated as complying with PHS Act 
sections 2711 and 2713) if the HRA or other account-based group health 
plan meets the requirements of Sec.  54.9802-4(c) of this part.
    (5) Integration with Medicare parts B and D. For employers that are 
not required to offer their non-HRA group health plan coverage to 
employees who are Medicare beneficiaries, an HRA or other account-based 
group health plan that may be used to reimburse premiums under Medicare 
part B or D may be integrated with Medicare (and deemed to comply with 
PHS Act sections 2711 and 2713) if the requirements of this paragraph 
(d)(5) are satisfied with respect to employees who would be eligible 
for the employer's non-HRA group health plan but for their eligibility 
for Medicare (and the integration rules under paragraphs (d)(2)(i) and 
(ii) of this section continue to apply to employees who are not 
eligible for Medicare):
    (i) The plan sponsor offers a group health plan (other than the HRA 
or other account-based group health plan and that does not consist 
solely of excepted benefits) to employees who are not eligible for 
Medicare;
    (ii) The employee receiving the HRA or other account-based group 
health plan is actually enrolled in Medicare part B or D;
    (iii) The HRA or other account-based group health plan is available 
only to employees who are enrolled in Medicare part B or D; and
    (iv) The HRA or other account-based group health plan complies with 
paragraphs (d)(2)(i)(E) and (d)(2)(ii)(D) of this section.

[[Page 54465]]

    (6) Definitions. The following definitions apply for purposes of 
this section.
    (i) Account-based group health plan. An account-based group health 
plan is an employer-provided group health plan that provides 
reimbursements of medical care expenses with the reimbursement subject 
to a maximum fixed dollar amount for a period. An HRA is a type of 
account-based group health plan. An account-based group health plan 
does not include a qualified small employer health reimbursement 
arrangement, as defined in section 9831(d)(2).
    (ii) Medical care expenses. Medical care expenses means expenses 
for medical care as defined under section 213(d).
    (e) Applicability date. The provisions of this section are 
applicable to group health plans and health insurance issuers for plan 
years beginning on or after January 1, 2020. Until [APPLICABILITY DATE 
OF FINAL RULE], plans and issuers are required to continue to comply 
with the corresponding sections of 26 CFR part 54, contained in the 26 
CFR subchapter D, revised as of April 1, 2018.
0
 Par 7. Section 54.9831-1 is amended by revising paragraph (c)(3)(i) 
and adding paragraph (c)(3)(viii) to read as follows:


Sec.  54.9831-1  Special rules relating to group health plans.

* * * * *
    (c) * * *
    (3) * * *
    (i) In general. Limited-scope dental benefits, limited-scope vision 
benefits, or long-term care benefits are excepted if they are provided 
under a separate policy, certificate, or contract of insurance, or are 
otherwise not an integral part of a group health plan as described in 
paragraph (c)(3)(ii) of this section. In addition, benefits provided 
under a health flexible spending arrangement (health FSA) are excepted 
benefits if they satisfy the requirements of paragraph (c)(3)(v) of 
this section; benefits provided under an employee assistance program 
are excepted benefits if they satisfy the requirements of paragraph 
(c)(3)(vi) of this section; benefits provided under limited wraparound 
coverage are excepted benefits if they satisfy the requirements of 
paragraph (c)(3)(vii) of this section; and benefits provided under a 
health reimbursement arrangement or other account-based group health 
plan, other than a health FSA, are excepted benefits if they satisfy 
the requirements of paragraph (c)(3)(viii) of this section.
* * * * *
    (viii) Health reimbursement arrangements (HRAs) and other account-
based group health plans. Benefits provided under an HRA or other 
account-based group health plan, other than a health FSA, are excepted 
if they satisfy all of the requirements of this paragraph (c)(3)(viii). 
See paragraph (c)(3)(v) of this section of these regulations for the 
circumstances in which benefits provided under a health FSA are 
excepted benefits. For purposes of this paragraph, the term ``HRA or 
other account-based group health plan'' has the same meaning as 
``account based group health plan'' set forth in Sec.  54.9815-
2711(d)(6)(i) of this part, except that the term does not include 
health FSAs.
    (A) Otherwise not an integral part of the plan. Other group health 
plan coverage that is not limited to excepted benefits and that is not 
an HRA or other account-based group health plan must be made available 
by the same plan sponsor for the plan year to the participant.
    (B) Benefits are limited in amount--(1) Limit on annual amounts 
made available. The amounts newly made available for each plan year 
under the HRA or other account-based group health plan do not exceed 
$1,800. In the case of any plan year beginning after December 31, 2020, 
the dollar amount in the preceding sentence shall be increased by an 
amount equal to such dollar amount multiplied by the cost-of-living 
adjustment. The cost of living adjustment is the percentage (if any) by 
which the C-CPI-U for the preceding calendar year exceeds the C-CPI-U 
for calendar year 2019. The term ``C-CPI-U'' means the Chained Consumer 
Price Index for All Urban Consumers as published by the Bureau of Labor 
Statistics of the Department of Labor. The C-CPI-U for any calendar 
year is the average of the C-CPI-U as of the close of the 12-month 
period ending on August 31 of such calendar year. The values of the C-
CPI-U used for any calendar year shall be the latest values so 
published as of the date on which the Bureau publishes the initial 
value of the C-CPI-U for the month of August for the preceding calendar 
year. Any such increase that is not a multiple of $50 shall be rounded 
to the next lowest multiple of $50.
    (2) Carryover amounts. If the terms of the HRA or other account-
based group health plan allow unused amounts to be made available to 
participants and dependents in later plan years, such carryover amounts 
are disregarded for purposes of determining whether benefits are 
limited in amount.
    (3) Multiple HRAs or other account-based group health plans. If the 
plan sponsor provides more than one HRA or other account-based group 
health plan to the participant for the same time period, the amounts 
made available under all such plans are aggregated to determine whether 
the benefits are limited in amount.
    (C) Prohibition on reimbursement of certain health insurance 
premiums. The HRA or other account-based group health plan must not 
reimburse premiums for individual health insurance coverage, group 
health plan coverage (other than COBRA continuation coverage or other 
continuation coverage), or Medicare parts B or D, except that the HRA 
or other account-based group health plan may reimburse premiums for 
such coverage that consists solely of excepted benefits.
    (D) Uniform availability. The HRA or other account-based group 
health plan is made available under the same terms to all similarly 
situated individuals, as defined in Sec.  54.9802-1(d) of this part, 
regardless of any health factor (as described in Sec.  54.9802-1(a)).
* * * * *

DEPARTMENT OF LABOR

Employee Benefits Security Administration

29 CFR Chapter XXV

    For the reasons stated in the preamble, the Department of Labor 
proposes to amend 29 CFR parts 2510 and 2590 as set forth below:

PART 2510--DEFINITION OF TERMS USED IN SUBCHAPTERS C, D, E, F, G, 
AND L OF THIS CHAPTER

0
8. The authority citation for part 2510 is revised to read as follows:

    Authority:  29 U.S.C. 1002(1), 1002(3), 1002(2), 1002(5), 
1002(16), 1002(21), 1002(37), 1002(38), 1002(40), 1002(42), 1031, 
and 1135; Secretary of Labor's Order No. 1-2011, 77 FR 1088 (Jan. 9, 
2012); Secs. 2510.3-21, 2510.3-101 and 2510.3-102 also issued under 
sec. 102 of Reorganization Plan No. 4 of 1978, 5 U.S.C. App. at 237 
(2012), E.O. 12108, 44 FR 1065 (Jan. 3, 1979) and 29 U.S.C. 1135 
note. Sec. 2510.3-38 is also issued under sec. 1, Pub. L. 105-72, 
111 Stat. 1457 (1997).

0
 9. In Sec.  2510.3-1, add paragraph (l) to read as follows:


Sec.  2510.3-1  Employee welfare benefit plan.

* * * * *
    (l) Health reimbursement arrangements (HRAs) and other account-
based group health plans that reimburse individual health insurance 
coverage. For purposes of title I of the

[[Page 54466]]

Act and this chapter, the terms ``employee welfare benefit plan'' and 
``welfare plan'' shall not include individual health insurance coverage 
the premiums of which are reimbursed by a health reimbursement 
arrangement (HRA) (or other account-based group health plan), including 
an HRA or other account-based group health plan integrated with 
individual health insurance coverage (as described in Sec.  2590.702-2 
of this chapter), an HRA that covers less than two current employees 
(as described in Sec.  2590.732(b) of this chapter) and that reimburses 
premiums for individual health insurance coverage, a qualified small 
employer health reimbursement arrangement (QSEHRA), as defined in 
section 9831(d)(2) of the Code, or an arrangement under which an 
employer allows employees to pay the portion of the premium for 
individual health insurance coverage that is not covered by an HRA or 
other account-based group health plan with which the coverage is 
integrated or that is not covered by a QSEHRA by using a salary 
reduction arrangement in a cafeteria plan under section 125 of the Code 
(supplemental salary reduction arrangement), if all the conditions of 
this paragraph (l) are satisfied.
    (1) The purchase of any individual health insurance coverage is 
completely voluntary for participants and beneficiaries. The fact that 
a plan sponsor requires such coverage to be purchased as a condition 
for participation in an HRA or supplemental salary reduction 
arrangement does not make the purchase involuntary.
    (2) The employer, employee organization, or other plan sponsor does 
not select or endorse any particular issuer or insurance coverage. In 
contrast, providing general contact information regarding availability 
of health insurance in a state (such as providing information regarding 
www.HealthCare.gov or contact information for a state insurance 
commissioner's office) or providing general health insurance 
educational information (such as the uniform glossary of health 
coverage and medical terms available at: https://www.dol.gov/sites/default/files/ebsa/laws-and-regulations/laws/affordable-care-act/for-employers-and-advisers/sbc-uniform-glossary-of-coverage-and-medical-terms-final.pdf) is permitted.
    (3) Reimbursement for nongroup health insurance premiums is limited 
solely to individual health insurance coverage, as defined in Sec.  
2590.701-2 of this chapter.
    (4) The employer, employee organization, or other plan sponsor 
receives no consideration in the form of cash or otherwise in 
connection with the employee's selection or renewal of any individual 
health insurance coverage.
    (5) Each plan participant is notified annually that the individual 
health insurance coverage is not subject to title I of ERISA. For an 
HRA that is integrated with individual health insurance coverage, the 
notice must meet the notice requirement set forth in Sec.  2590.702-
2(c)(6) of this chapter. A QSEHRA or an HRA not subject to the notice 
requirement set forth in Sec.  2590.702-2(c)(6) of this chapter may use 
the following language to satisfy this condition: ``The individual 
health insurance coverage that is paid for by this plan, if any, is not 
subject to the rules and consumer protections of the Employee 
Retirement Income Security Act. You should contact your state insurance 
department for more information regarding your rights and 
responsibilities if you purchase individual health insurance 
coverage.'' A supplemental salary reduction arrangement is not required 
to provide this notice as the notice will be provided by the HRA or the 
QSEHRA that such an arrangement supplements.

PART 2590--RULES AND REGULATIONS FOR GROUP HEALTH PLANS

0
10. The authority citation for part 2590 continues to read as follows:

     Authority: 29 U.S.C. 1027, 1059, 1135, 1161-1168, 1169, 1181-
1183, 1181 note, 1185, 1185a, 1185b, 1191, 1191a, 1191b, and 1191c; 
sec. 101(g), Pub. L. 104-191, 110 Stat. 1936; sec. 401(b), Pub. L. 
105-200, 112 Stat. 645 (42 U.S.C. 651 note); sec. 512(d), Pub. L. 
110-343, 122 Stat. 3881; sec. 1001, 1201, and 1562(e), Pub. L. 111-
148, 124 Stat. 119, as amended by Pub. L. 111-152, 124 Stat. 1029; 
Division M, Pub. L. 113-235, 128 Stat. 2130; Secretary of Labor's 
Order 1-2011, 77 FR 1088 (Jan. 9, 2012).

0
11. Section Sec.  [thinsp]2590.701-2 is amended by revising the 
definition of ``group health insurance coverage'' to read as follows:


Sec.  2590.701-2  Definitions.

* * * * *
    Group health insurance coverage means health insurance coverage 
offered in connection with a group health plan. Individual health 
insurance coverage reimbursed by the arrangements described in 29 CFR 
2510.3-1(l) is not offered in connection with a group health plan, and 
is not group health insurance coverage, provided all the conditions in 
29 CFR 2510.3-1(l) are satisfied.
* * * * *
0
12. Add Sec.  [thinsp]2590.702-2 to read as follows:


Sec.  2590.702-2  Special rule allowing integration of health 
reimbursement arrangements (HRAs) and other account-based group health 
plans with individual health insurance coverage and prohibiting 
discrimination in HRAs and other account-based group health plans.

    (a) Scope. This section applies to health reimbursement 
arrangements (HRAs) and other account-based group health plans, as 
defined in Sec.  2590.715-2711(d)(6)(i) of this part. For ease of 
reference, the term ``HRA'' is used in this section to include other 
account-based group health plans.
    (b) Purpose. This section provides the conditions that an HRA must 
satisfy in order to be integrated with individual health insurance 
coverage for purposes of Public Health Service Act (PHS Act) sections 
2711 and 2713 and Sec.  2590.715-2711(d)(4) of this part. Some of the 
conditions set forth in this section specifically relate to compliance 
with PHS Act sections 2711 and 2713 and some relate to the effect of 
having or being offered an HRA on eligibility for the premium tax 
credit under section 36B of the Internal Revenue Code (Code). In 
addition, this section provides conditions that an HRA integrated with 
individual health insurance coverage must satisfy in order to comply 
with the nondiscrimination provisions in section 702 of ERISA and 
section 2705 of the PHS Act (which is incorporated in ERISA section 
715) and that are consistent with the provisions of the Patient 
Protection and Affordable Care Act, Public Law 111-148 (124 Stat. 119 
(2010)), and the Health Care and Education Reconciliation Act of 2010, 
Public Law 111-152 (124 Stat. 1029 (2010)), each as amended, that are 
designed to create a competitive individual market. These conditions 
are intended to prevent an HRA plan sponsor from intentionally or 
unintentionally, directly or indirectly, steering any participants or 
dependents with adverse health factors away from its traditional group 
health plan, if any, and toward individual health insurance coverage.
    (c) General rule. An HRA will be considered to be integrated with 
individual health insurance coverage for purposes of PHS Act sections 
2711 and 2713 and Sec.  2590.715-2711(d)(4) of this part and will not 
be considered to discriminate in violation of ERISA section 702 and PHS 
Act section 2705 solely because it offers an HRA

[[Page 54467]]

integrated with individual health insurance coverage, provided that the 
conditions of this paragraph (c) are satisfied.
    (1) Enrollment in individual health insurance coverage. The HRA 
must require that the participant and any dependent(s) are enrolled in 
individual health insurance coverage that is subject to and complies 
with the requirements in PHS Act sections 2711 and 2713 for each month 
that the individual(s) are covered by the HRA. For this purpose, all 
individual health insurance coverage, except for individual health 
insurance coverage that consists solely of excepted benefits, is 
treated as being subject to and complying with PHS Act sections 2711 
and 2713. References to individual health insurance coverage in this 
paragraph (c) do not include individual health insurance coverage that 
consists solely of excepted benefits. The HRA must also provide that, 
subject to applicable COBRA or other continuation of coverage 
requirements, if any individual covered by the HRA ceases to be covered 
by such individual health insurance coverage, the individual may not 
seek reimbursement under the HRA for claims that are incurred after the 
individual health insurance coverage ceases. In addition, subject to 
applicable COBRA or other continuation of coverage requirements, if the 
participant and all of the dependents covered by the participant's HRA 
cease to be covered by such individual health insurance coverage, the 
participant must forfeit the HRA.
    (2) No traditional group health plan may be offered to same 
participants. To the extent a plan sponsor offers any class of 
employees (as defined in paragraph (d) of this section) an HRA 
integrated with individual health insurance coverage, the plan sponsor 
may not also offer a traditional group health plan to the same class of 
employees. For this purpose, a traditional group health plan is any 
group health plan other than either an account-based group health plan 
or a group health plan that consists solely of excepted benefits. 
Therefore, a plan sponsor may not offer a choice between an HRA 
integrated with individual health insurance coverage or a traditional 
group health plan to any participant.
    (3) Same terms requirement. To the extent a plan sponsor offers an 
HRA integrated with individual health insurance coverage to a class of 
employees described in paragraph (d) of this section, the HRA must be 
offered on the same terms to all participants within the class, except 
as provided in paragraphs (c)(3)(i) and (ii) of this section and except 
that the HRA will not fail to be treated as provided on the same terms 
even if the plan sponsor offers the HRA to some, but not all, former 
employees within a class of employees. However, if a plan sponsor 
offers the HRA to one or more former employees within a class of 
employees, the HRA must be offered to the former employee(s) on the 
same terms as to all other employees within the class. Also, amounts 
that are not used to reimburse medical care expenses (as defined in 
Sec.  2590.715-2711(d)(6)(ii) of this part) for any plan year that are 
made available to participants in later plan years are disregarded for 
purposes of determining whether an HRA is offered on the same terms, 
provided that the method for determining whether participants have 
access to unused amounts in future years, and the methodology and 
formula for determining the amounts of unused funds which they may 
access in future years, is the same for all participants in a class of 
employees. In addition, the ability to pay the portion of the premium 
for individual health insurance coverage that is not covered by the 
HRA, if any, by using a salary reduction arrangement under section 125 
of the Code is considered to be a term of the HRA for purposes of this 
paragraph; therefore, an HRA shall fail to be treated as provided on 
the same terms unless such a salary reduction arrangement, if made 
available to any participant in a class of employees, is made available 
on the same terms to all participants (other than former employees) in 
the class of employees. Further, the HRA shall not fail to be treated 
as provided on the same terms because the maximum dollar amount made 
available to participants in a class of employees to reimburse medical 
care expenses for any plan year increases:
    (i) As the age of the participant increases, so long as the same 
maximum dollar amount attributable to the increase in age is made 
available to all participants in that class of employees who are the 
same age; or
    (ii) As the number of the participant's dependents who are covered 
under the HRA increases, so long as the same maximum dollar amount 
attributable to the increase in family size is made available to all 
participants in that class of employees with the same number of 
dependents covered by the HRA.
    (4) Opt out. Under the terms of the HRA, a participant who is 
otherwise eligible for coverage must be permitted to opt out of and 
waive future reimbursements from the HRA at least annually, and, upon 
termination of employment, either the remaining amounts in the HRA are 
forfeited or the participant is permitted to permanently opt out of and 
waive future reimbursements from the HRA.
    (5) Reasonable procedures for verification and substantiation--(i) 
General rule for verification of individual health insurance coverage 
for the plan year. The HRA must implement, and comply with, reasonable 
procedures to verify that participants and dependents are, or will be, 
enrolled in individual health insurance coverage for the plan year. The 
reasonable procedures may include a requirement that a participant 
substantiate enrollment by providing either:
    (A) A document from a third party (for example, the issuer) showing 
that the participant and any dependents covered by the HRA are, or will 
be, enrolled in individual health insurance coverage (for example, an 
insurance card or an explanation of benefits document pertaining to the 
relevant time period); or
    (B) An attestation by the participant stating that the participant 
and dependent(s) covered by the HRA are or will be enrolled in 
individual health insurance coverage, the date coverage began or will 
begin, and the name of the provider of the coverage.
    (ii) Coverage substantiation with each request for reimbursement of 
medical care expenses. Following the initial verification of coverage, 
with each new request for reimbursement of an incurred medical care 
expense for the same plan year, the HRA may not reimburse participants 
for any medical care expenses unless, prior to each reimbursement, the 
participant provides substantiation (which may be in the form of a 
written attestation) that the participant and if applicable, the 
dependent whose medical care expenses are requested to be reimbursed 
continue to be enrolled in individual health insurance coverage for the 
month during which the medical care expenses were incurred. The 
attestation may be part of the form used for requesting reimbursement.
    (iii) Reliance on substantiation. For purposes of this paragraph 
(c)(5), an HRA may rely on the participant's documentation or 
attestation unless the HRA has actual knowledge that any individual 
covered by the HRA is not, or will not be, enrolled in individual 
health insurance coverage for the plan year or the month, as 
applicable.
    (6) Notice requirement--(i) Timing. The HRA must provide a written 
notice to each participant at least 90 days before the beginning of 
each plan year or, for a participant who is not eligible to participate 
at the beginning of the

[[Page 54468]]

plan year (or who is not eligible to participate at the time the notice 
is provided at least 90 days before the beginning of the plan year), no 
later than the date on which the participant is first eligible to 
participate in the HRA.
    (ii) Content. The notice must include all the information described 
in this paragraph (c)(6)(ii) (and may include any additional 
information as long as it does not conflict with the required 
information set forth in paragraph (c)(6)(ii)(A) through (H) of this 
section).
    (A) A description of the terms of the HRA, including the maximum 
dollar amount available for each participant (including the self-only 
HRA amount available for the plan year (or the maximum dollar amount 
available for the plan year if the HRA provides for reimbursements up 
to a single dollar amount regardless of whether a participant has self-
only or family coverage)), any rules regarding the proration of the 
maximum dollar amount applicable to any participant who is not eligible 
to participate in the HRA for the entire plan year, whether the 
participant's family members are eligible for the HRA, a statement that 
the HRA is not a qualified small employer health reimbursement 
arrangement, a statement that the HRA requires the participant and any 
dependents to be enrolled in individual health insurance coverage, a 
statement that the participant is required to substantiate the 
existence of such enrollment, a statement that the coverage enrolled in 
cannot be short-term, limited-duration insurance or excepted benefits, 
and, if the requirements under Sec.  2510.3-1(l) of this chapter are 
met, a statement that the individual health insurance coverage enrolled 
in is not subject to the Employee Retirement Income Security Act 
(ERISA).
    (B) A statement of the right of the participant to opt out of and 
waive future reimbursements from the HRA, as set forth under paragraph 
(c)(4) of this section.
    (C) A description of the potential availability of the premium tax 
credit if the participant opts out of and waives future reimbursements 
from the HRA and the HRA is not affordable for one or more months under 
26 CFR 1.36B-2(c)(5), a statement that even if the participant opts out 
of and waives future reimbursements from an HRA, the offer will 
prohibit the participant (and, potentially, the participant's 
dependents) from receiving a premium tax credit for the participant's 
coverage (or the dependent's coverage, if applicable) on the Exchange 
(as defined in 45 CFR 155.20) for any month that the HRA is affordable 
under 26 CFR 1.36B-2(c)(5), and a statement that, if the participant is 
a former employee, the offer of the HRA does not render the participant 
ineligible for the premium tax credit regardless of whether it is 
affordable under 26 CFR 1.36B-2(c)(5).
    (D) A statement that if the participant accepts the HRA, the 
participant may not claim a premium tax credit for the participant's 
Exchange coverage for any month the HRA may be used to reimburse 
medical care expenses of the participant and a premium tax credit may 
not be claimed for the Exchange coverage of the participant's 
dependents for any month the HRA may be used to reimburse medical care 
expenses of the dependents.
    (E) A statement that the participant must inform any Exchange to 
which the participant applies for advance payments of the premium tax 
credit of the availability of the HRA, the self-only HRA amount 
available for the plan year (or the maximum dollar amount available for 
the plan year if the HRA provides for reimbursements up to a single 
dollar amount regardless of whether a participant has self-only or 
family coverage) as set forth in the written notice in accordance with 
paragraph (c)(6)(ii)(A) of this section, the number of months in the 
plan year the HRA is available to the participant, whether the HRA is 
also available to the participant's dependents, and whether the 
participant is a current employee or former employee.
    (F) A statement that the participant should retain the written 
notice because it may be needed to determine whether the participant is 
allowed a premium tax credit on the participant's individual income tax 
return and, if so, the months the participant is allowed the premium 
tax credit.
    (G) A statement that the HRA may not reimburse any medical care 
expense unless the substantiation requirement set forth in paragraph 
(c)(5) of this section is satisfied.
    (H) A statement that it is the responsibility of the participant to 
inform the HRA if the participant or any dependent whose medical care 
expenses are reimbursable by the HRA is no longer enrolled in 
individual health insurance coverage.
    (d) Classes of employees--(1) List of classes. Participants may be 
treated as belonging to a class of employees based on whether they are, 
or are not, included in the classes described in this paragraph (d)(1). 
If the HRA is offered to former employees, former employees are 
considered to be in the same class in which they were in immediately 
before separation from service. (See paragraph (d)(2) of this section 
for additional rules regarding the definition of ``full-time 
employees,'' ``part-time employees,'' and ``seasonal employees.'')
    (i) Full-time employees, defined to mean either full-time employees 
under section 4980H of the Code and the regulations thereunder (26 CFR 
54.4980H-1(a)(21)) or employees who are not part-time employees (as 
described in 26 CFR 1.105-11(c)(2)(iii)(C));
    (ii) Part-time employees, defined to mean either employees who are 
not full-time employees under section 4980H of the Code and 26 CFR 
54.4980H-1 and -3 or part-time employees as described in 26 CFR 1.105-
11(c)(2)(iii)(C);
    (iii) Seasonal employees, defined to mean seasonal employees as 
described in either 26 CFR 54.4980H-1(a)(38) or 26 CFR 1.105-
11(c)(2)(iii)(C);
    (iv) Employees included in a unit of employees covered by a 
collective bargaining agreement in which the plan sponsor participates 
(as described in 26 CFR 1.105-11(c)(2)(iii)(D));
    (v) Employees who have not satisfied a waiting period for coverage 
(if the waiting period complies with Sec.  2590.715-2708 of this part);
    (vi) Employees who have not attained age 25 prior to the beginning 
of the plan year (as described in 26 CFR 1.105-11(c)(2)(iii)(B));
    (vii) Non-resident aliens with no U.S.-based income (as described 
in 26 CFR 1.105-11(c)(2)(iii)(E));
    (viii) Employees whose primary site of employment is in the same 
rating area as defined in 45 CFR 147.102(b); or
    (ix) A group of participants described as a combination of two or 
more of the classes of employees set forth in paragraphs (d)(1)(i) 
through (viii) of this section. (For example, part-time employees 
included in a unit of employees covered by a collective bargaining 
agreement could be one class of employees and full-time employees 
included in a unit of employees covered by the same collective 
bargaining agreement could be another class of employees.)
    (2) Consistency requirement. For any plan year, a plan sponsor may 
define ``full-time employee,'' ``part-time employee,'' and ``seasonal 
employee'' in accordance with the relevant provisions of section 105(h) 
of the Code and 26 CFR 1.105-11 or of section 4980H of the Code and 26 
CFR 54.4980H-1 and -3 if:
    (i) To the extent applicable under the HRA for the plan year, each 
of the three classes of employees are defined in accordance with either 
section 105(h) of the Code or section 4980H of the Code for the plan 
year; and

[[Page 54469]]

    (ii) The HRA plan document sets forth the applicable definitions 
prior to the beginning of the plan year in which the definitions will 
apply.
    (e) Examples. The following examples illustrate the provisions of 
paragraphs (c)(2) and (3) of this section. In each example, the HRA may 
reimburse any medical care expenses, including premiums for individual 
health insurance coverage.

    (1) Example 1.  (i) Facts. For 2020, Plan Sponsor X offers the 
following to its employees. Full-time employees in rating area A are 
offered $2,000 each in an HRA. Part-time employees in rating area A 
are offered $500 each in an HRA. All employees in rating area B are 
offered a traditional group health plan.
    (ii) Conclusion. The requirements of paragraphs (c)(2) and (3) 
of this section are satisfied in this Example 1.
    (2) Example 2. (i) Facts. For 2020, Plan Sponsor Y offers the 
following to its employees. Employees covered by a collective 
bargaining agreement in which Plan Sponsor Y participates are 
offered a traditional group health plan (as required by the 
collective bargaining agreement). All other employees (non-
collectively bargained employees) are offered the following amounts 
in an HRA: $1,000 each for employees age 25 to 35; $2,000 each for 
employees age 36 to 45; $2,500 each for employees age 46 to 55; and 
$4,000 each for employees over age 55. Non-collectively bargained 
employees who have not attained age 25 by January 1, 2020 are not 
offered an HRA or a traditional group health plan.
    (ii) Conclusion. The requirements of paragraphs (c)(2) and (3) 
of this section are satisfied in this Example 2.
    (3) Example 3. (i) Facts. For 2020, Plan Sponsor Z offers the 
following amounts in an HRA to its employees who have completed the 
plan's waiting period, which complies with the requirements for 
waiting periods in Sec.  2590.715-2708 of this part: $1,500, if the 
employee is the only individual covered by the HRA; $3,500, if the 
employee and one additional family member are covered by the HRA; 
and $5,000, if the employee and more than one additional family 
member are covered by the HRA.
    (ii) Conclusion. The requirements of paragraphs (c)(2) and (3) 
of this section are satisfied in this Example 3.

    (f) Applicability date. This section applies to plan years 
beginning on or after January 1, 2020.
0
13. Section[thinsp]2590.715-2711 is amended by revising paragraphs (c), 
(d), and (e) to read as follows:


Sec.  2590.715-2711  No lifetime or annual limits.

* * * * *
    (c) Definition of essential health benefits. The term ``essential 
health benefits'' means essential health benefits under section 1302(b) 
of the Patient Protection and Affordable Care Act. For this purpose, a 
group health plan or a health insurance issuer that is not required to 
provide essential health benefits under section 1302(b) must define 
``essential health benefits'' in a manner that is consistent with the 
following paragraphs (c)(1) or (2):
    (1) For plan years beginning before January 1, 2020, one of the 
EHB-benchmark plans applicable in a State under 45 CFR 156.110, and 
including coverage of any additional required benefits that are 
considered essential health benefits consistent with 45 CFR 
155.170(a)(2), or one of the three Federal Employee Health Benefits 
Program (FEHBP) plan options as defined by 45 CFR 156.100(a)(3), and 
including coverage of additional required benefits under 45 CFR 
156.110; or
    (2) For plan years beginning on or after January 1, 2020, an EHB-
benchmark plan selected by a State in accordance with the available 
options and requirements for EHB-benchmark plan selection at 45 CFR 
156.111, including an EHB-benchmark plan in a State that takes no 
action to change its EHB-benchmark plan and thus retains the EHB-
benchmark plan applicable in that State for the prior year in 
accordance with 45 CFR 156.111(d)(1), and including coverage of any 
additional required benefits that are considered essential health 
benefits consistent with 45 CFR 155.170(a)(2).
    (d) Health reimbursement arrangements (HRAs) and other account-
based group health plans--(1) In general. If an HRA or other account-
based group health plan is integrated with another group health plan or 
individual health insurance coverage and the other group health plan or 
individual health insurance coverage, as applicable, separately is 
subject to and satisfies the requirements in PHS Act section 2711 and 
paragraph (a)(2) of this section, the fact that the benefits under the 
HRA or other account-based group health plan are limited does not cause 
the HRA or other account-based group health plan to fail to meet the 
requirements of PHS Act section 2711 and paragraph (a)(2) of this 
section. Similarly, if an HRA or other account-based group health plan 
is integrated with another group health plan or individual health 
insurance coverage and the other group health plan or individual health 
insurance coverage, as applicable, separately is subject to and 
satisfies the requirements in PHS Act section 2713 and Sec.  2590.715-
2713(a)(1) of this part, the fact that the benefits under the HRA or 
other account-based group health plan are limited does not cause the 
HRA or other account-based group health plan to fail to meet the 
requirements of PHS Act section 2713 and Sec.  2590.715-2713(a)(1) of 
this part. For this purpose, all individual health insurance coverage, 
except for coverage that consists solely of excepted benefits, is 
treated as being subject to and complying with PHS Act sections 2711 
and 2713.
    (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 meets 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.
    (i) Method for integration with a group health plan: Minimum value 
not required. An HRA or other account-based group health plan is 
integrated with another group health plan for purposes of this 
paragraph 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 does not 
consist solely of excepted benefits;
    (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 does not consist 
solely of excepted benefits, regardless of whether the plan is offered 
by the same plan sponsor (referred to as non-HRA group coverage);
    (C) The HRA or other account-based group health plan is available 
only to employees who are enrolled in non-HRA group coverage, 
regardless of whether the non-HRA 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

[[Page 54470]]

plan but are enrolled in other non-HRA group coverage, such as a group 
health plan maintained by the employer of the employee's spouse);
    (D) The benefits under the HRA or other account-based group health 
plan are limited to reimbursement of one or more of the following--co-
payments, co-insurance, deductibles, and premiums under the non-HRA 
group coverage, as well as medical care expenses that do not constitute 
essential health benefits as defined in paragraph (c) of this section; 
and
    (E) 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).
    (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 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 26 CFR 
1.36B-6;
    (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 26 CFR 1.36B-6, 
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).
    (3) Forfeiture. For purposes of integration under paragraphs 
(d)(2)(i)(E) and (d)(2)(ii)(D) of this section, forfeiture or waiver 
occurs even if the forfeited or waived amounts may be reinstated upon a 
fixed date, a participant's death, or the earlier of the two events 
(the reinstatement event). For this purpose, coverage under an HRA or 
other account-based group health plan is considered forfeited or waived 
prior to a reinstatement event only if the participant's election to 
forfeit or waive is irrevocable, meaning that, beginning on the 
effective date of the election and through the date of the 
reinstatement event, the participant and the participant's 
beneficiaries have no access to amounts credited to the HRA or other 
account-based group health plan. This means that upon and after 
reinstatement, the reinstated amounts under the HRA or other account-
based group health plan may not be used to reimburse or pay medical 
care expenses incurred during the period after forfeiture and prior to 
reinstatement.
    (4) Requirements for an HRA or other account-based group health 
plan to be integrated with individual health insurance coverage. An HRA 
or other account-based group health plan is integrated with individual 
health insurance coverage (and treated as complying with PHS Act 
sections 2711 and 2713) if the HRA or other account-based group health 
plan meets the requirements of Sec.  2590.702-2(c) of this part.
    (5) Integration with Medicare parts B and D. For employers that are 
not required to offer their non-HRA group health plan coverage to 
employees who are Medicare beneficiaries, an HRA or other account-based 
group health plan that may be used to reimburse premiums under Medicare 
part B or D may be integrated with Medicare (and deemed to comply with 
PHS Act sections 2711 and 2713) if the requirements of this paragraph 
(d)(5) are satisfied with respect to employees who would be eligible 
for the employer's non-HRA group health plan but for their eligibility 
for Medicare (and the integration rules under paragraphs (d)(2)(i) and 
(ii) of this section continue to apply to employees who are not 
eligible for Medicare):
    (i) The plan sponsor offers a group health plan (other than the HRA 
or other account-based group health plan and that does not consist 
solely of excepted benefits) to employees who are not eligible for 
Medicare;
    (ii) The employee receiving the HRA or other account-based group 
health plan is actually enrolled in Medicare part B or D;
    (iii) The HRA or other account-based group health plan is available 
only to employees who are enrolled in Medicare part B or D; and
    (iv) The HRA or other account-based group health plan complies with 
paragraphs (d)(2)(i)(E) and (d)(2)(ii)(D) of this section.
    (6) Definitions. The following definitions apply for purposes of 
this section.
    (i) Account-based group health plan. An account-based group health 
plan is an employer-provided group health plan that provides 
reimbursements of medical care expenses with the reimbursement subject 
to a maximum fixed dollar amount for a period. An HRA is a type of 
account-based group health plan. An account-based group health plan 
does not include a qualified small employer health reimbursement 
arrangement, as defined in Code section 9831(d)(2).
    (ii) Medical care expenses. Medical care expenses means expenses 
for medical care as defined under Code section 213(d).
    (e) Applicability date. The provisions of this section are 
applicable to group health plans and health insurance issuers for plan 
years beginning on or after January 1, 2020. Until [APPLICABILITY DATE 
OF FINAL RULE], plans and issuers are required to continue to comply 
with the corresponding sections of this part, contained in the 29 CFR 
parts 1927 to end edition, revised as of July 1, 2018.
0
14. Section 2590.732 is amended by revising paragraph (c)(3)(i) and 
adding paragraph (c)(3)(viii) to read as follows:


Sec.  2590.732   Special rules relating to group health plans.

* * * * *
    (c) * * *
    (3) * * *
    (i) In general. Limited-scope dental benefits, limited-scope vision 
benefits,

[[Page 54471]]

or long-term care benefits are excepted if they are provided under a 
separate policy, certificate, or contract of insurance, or are 
otherwise not an integral part of a group health plan as described in 
paragraph (c)(3)(ii) of this section. In addition, benefits provided 
under a health flexible spending arrangement (health FSA) are excepted 
benefits if they satisfy the requirements of paragraph (c)(3)(v) of 
this section; benefits provided under an employee assistance program 
are excepted benefits if they satisfy the requirements of paragraph 
(c)(3)(vi) of this section; benefits provided under limited wraparound 
coverage are excepted benefits if they satisfy the requirements of 
paragraph (c)(3)(vii) of this section; and benefits provided under a 
health reimbursement arrangement or other account-based group health 
plan, other than a health FSA, are excepted benefits if they satisfy 
the requirements of paragraph (c)(3)(viii) of this section.
* * * * *
    (viii) Health reimbursement arrangements (HRAs) and other account-
based group health plans. Benefits provided under an HRA or other 
account-based group health plan, other than a health FSA, are excepted 
if they satisfy all of the requirements of this paragraph (c)(3)(viii). 
See paragraph (c)(3)(v) of this section of these regulations for the 
circumstances in which benefits provided under a health FSA are 
excepted benefits. For purposes of this paragraph, the term ``HRA or 
other account-based group health plan'' has the same meaning as 
``account-based group health plan'' set forth in Sec.  2590.715-
2711(d)(6)(i) of this part, except that the term does not include 
health FSAs.
    (A) Otherwise not an integral part of the plan. Other group health 
plan coverage that is not limited to excepted benefits and that is not 
an HRA or other account-based group health plan must be made available 
by the same plan sponsor for the plan year to the participant.
    (B) Benefits are limited in amount--(1) Limit on annual amounts 
made available. The amounts newly made available for each plan year 
under the HRA or other account-based group health plan do not exceed 
$1,800. In the case of any plan year beginning after December 31, 2020, 
the dollar amount in the preceding sentence shall be increased by an 
amount equal to such dollar amount multiplied by the cost-of-living 
adjustment. The cost of living adjustment is the percentage (if any) by 
which the C-CPI-U for the preceding calendar year exceeds the C-CPI-U 
for calendar year 2019. The term ``C-CPI-U'' means the Chained Consumer 
Price Index for All Urban Consumers as published by the Bureau of Labor 
Statistics of the Department of Labor. The C-CPI-U for any calendar 
year is the average of the C-CPI-U as of the close of the 12-month 
period ending on August 31 of such calendar year. The values of the C-
CPI-U used for any calendar year shall be the latest values so 
published as of the date on which the Bureau publishes the initial 
value of the C-CPI-U for the month of August for the preceding calendar 
year. Any such increase that is not a multiple of $50 shall be rounded 
to the next lowest multiple of $50.
    (2) Carryover amounts. If the terms of the HRA or other account-
based group health plan allow unused amounts to be made available to 
participants and dependents in later plan years, such carryover amounts 
are disregarded for purposes of determining whether benefits are 
limited in amount.
    (3) Multiple HRAs or other account-based group health plans. If the 
plan sponsor provides more than one HRA or other account-based group 
health plan to the participant for the same time period, the amounts 
made available under all such plans are aggregated to determine whether 
the benefits are limited in amount.
    (C) Prohibition on reimbursement of certain health insurance 
premiums. The HRA or other account-based group health plan must not 
reimburse premiums for individual health insurance coverage, group 
health plan coverage (other than COBRA continuation coverage or other 
continuation coverage), or Medicare parts B or D, except that the HRA 
or other account-based group health plan may reimburse premiums for 
such coverage that consists solely of excepted benefits.
    (D) Uniform availability. The HRA or other account-based group 
health plan is made available under the same terms to all similarly 
situated individuals, as defined in Sec.  2590.702(d) of this part, 
regardless of any health factor (as described in Sec.  2590.702(a)).
* * * * *

Department of Health and Human Services

45 CFR Chapter 1

    For the reasons stated in the preamble, the Department of Health 
and Human Services proposes to amend 45 CFR parts 144, 146, 147, and 
155 as set forth below:

PART 144--REQUIREMENTS RELATING TO HEALTH INSURANCE COVERAGE

0
 15. The authority citation for part 144 is revised to read as follows:

    Authority:  42 U.S.C. 300gg through 300gg-63, 300gg-91, and 
300gg-92.

0
 16. Section 144.103 is amended by revising the definition of ``Group 
health insurance coverage'' to read as follows:


Sec.  144.103  Definitions.

* * * * *
    Group health insurance coverage means health insurance coverage 
offered in connection with a group health plan. Individual health 
insurance coverage reimbursed by the arrangements described in 29 CFR 
2510.3-1(l) is not offered in connection with a group health plan, and 
is not group health insurance coverage, provided all the conditions in 
29 CFR 2510.3-1(l) are satisfied.
* * * * *

PART 146--REQUIREMENTS FOR THE GROUP HEALTH INSURANCE MARKET

0
 17. The authority citation for part 146 continues to read as follows:

    Authority: 42 U.S.C. 300gg-1 through 300gg-5, 300gg-11 through 
300gg-23, 300gg-91, and 300gg-92.

0
 18. Add Sec.  146.123 to read as follows:


 Sec.  146.123   Special rule allowing integration of health 
reimbursement arrangements (HRAs) and other account-based group health 
plans with individual health insurance coverage and prohibiting 
discrimination in HRAs and other account-based group health plans.

    (a) Scope. This section applies to health reimbursement 
arrangements (HRAs) and other account-based group health plans, as 
defined in Sec.  147.126(d)(6)(i) of this subchapter. For ease of 
reference, the term ``HRA'' is used in this section to include other 
account-based group health plans.
    (b) Purpose. This section provides the conditions that an HRA must 
satisfy in order to be integrated with individual health insurance 
coverage for purposes of Public Health Service Act (PHS Act) sections 
2711 and 2713 and Sec.  147.126(d)(4) of this subchapter. Some of the 
conditions set forth in this section specifically relate to compliance 
with PHS Act sections 2711 and 2713 and some relate to the effect of 
having or being offered an HRA on eligibility for the premium tax 
credit under section 36B of the Internal Revenue Code (Code). In 
addition, this section provides conditions that an HRA

[[Page 54472]]

integrated with individual health insurance coverage must satisfy in 
order to comply with the nondiscrimination provisions in section 2705 
of the PHS Act) and that are consistent with the provisions of the 
Patient Protection and Affordable Care Act, Public Law 111-148 (124 
Stat. 119 (2010)), and the Health Care and Education Reconciliation Act 
of 2010, Public Law 111-152 (124 Stat. 1029 (2010)), each as amended, 
that are designed to create a competitive individual market. These 
conditions are intended to prevent an HRA plan sponsor from 
intentionally or unintentionally, directly or indirectly, steering any 
participants or dependents with adverse health factors away from its 
traditional group health plan, if any, and toward individual health 
insurance coverage.
    (c) General rule. An HRA will be considered to be integrated with 
individual health insurance coverage for purposes of PHS Act sections 
2711 and 2713 and Sec.  147.126(d)(4) of this subchapter and will not 
be considered to discriminate in violation of PHS Act section 2705 
solely because it offers an HRA integrated with individual health 
insurance coverage, provided that the conditions of this paragraph (c) 
are satisfied.
    (1) Enrollment in individual health insurance coverage. The HRA 
must require that the participant and any dependent(s) are enrolled in 
individual health insurance coverage that is subject to and complies 
with the requirements in PHS Act sections 2711 and 2713 for each month 
that the individual(s) are covered by the HRA. For this purpose, all 
individual health insurance coverage, except for individual health 
insurance coverage that consists solely of excepted benefits, is 
treated as being subject to and complying with PHS Act sections 2711 
and 2713. References to individual health insurance coverage in this 
paragraph (c) do not include individual health insurance coverage that 
consists solely of excepted benefits. The HRA must also provide that, 
subject to applicable COBRA or other continuation of coverage 
requirements, if any individual covered by the HRA ceases to be covered 
by such individual health insurance coverage, the individual may not 
seek reimbursement under the HRA for claims that are incurred after the 
individual health insurance coverage ceases. In addition, subject to 
applicable COBRA or other continuation of coverage requirements, if the 
participant and all of the dependents covered by the participant's HRA 
cease to be covered by such individual health insurance coverage, the 
participant must forfeit the HRA.
    (2) No traditional group health plan may be offered to same 
participants. To the extent a plan sponsor offers any class of 
employees (as defined in paragraph (d) of this section) an HRA 
integrated with individual health insurance coverage, the plan sponsor 
may not also offer a traditional group health plan to the same class of 
employees. For this purpose, a traditional group health plan is any 
group health plan other than either an account-based group health plan 
or a group health plan that consists solely of excepted benefits. 
Therefore, a plan sponsor may not offer a choice between an HRA 
integrated with individual health insurance coverage or a traditional 
group health plan to any participant.
    (3) Same terms requirement. To the extent a plan sponsor offers an 
HRA integrated with individual health insurance coverage to a class of 
employees described in paragraph (d) of this section, the HRA must be 
offered on the same terms to all participants within the class, except 
as provided in paragraphs (c)(3)(i) and (ii) of this section and except 
that the HRA will not fail to be treated as provided on the same terms 
even if the plan sponsor offers the HRA to some, but not all, former 
employees within a class of employees. However, if a plan sponsor 
offers the HRA to one or more former employees within a class of 
employees, the HRA must be offered to the former employee(s) on the 
same terms as to all other employees within the class. Also, amounts 
that are not used to reimburse medical care expenses (as defined in 
Sec.  147.126(d)(6)(ii) of this subchapter) for any plan year that are 
made available to participants in later plan years are disregarded for 
purposes of determining whether an HRA is offered on the same terms, 
provided that the method for determining whether participants have 
access to unused amounts in future years, and the methodology and 
formula for determining the amounts of unused funds which they may 
access in future years, is the same for all participants in a class of 
employees. In addition, the ability to pay the portion of the premium 
for individual health insurance coverage that is not covered by the 
HRA, if any, by using a salary reduction arrangement under section 125 
of the Code is considered to be a term of the HRA for purposes of this 
paragraph; therefore, an HRA shall fail to be treated as provided on 
the same terms unless such a salary reduction arrangement, if made 
available to any participant in a class of employees, is made available 
on the same terms to all participants (other than former employees) in 
the class of employees. Further, the HRA shall not fail to be treated 
as provided on the same terms because the maximum dollar amount made 
available to participants in a class of employees to reimburse medical 
care expenses for any plan year increases:
    (i) As the age of the participant increases, so long as the same 
maximum dollar amount attributable to the increase in age is made 
available to all participants in that class of employees who are the 
same age; or
    (ii) As the number of the participant's dependents who are covered 
under the HRA increases, so long as the same maximum dollar amount 
attributable to the increase in family size is made available to all 
participants in that class of employees with the same number of 
dependents covered by the HRA.
    (4) Opt out. Under the terms of the HRA, a participant who is 
otherwise eligible for coverage must be permitted to opt out of and 
waive future reimbursements from the HRA at least annually, and, upon 
termination of employment, either the remaining amounts in the HRA are 
forfeited or the participant is permitted to permanently opt out of and 
waive future reimbursements from the HRA.
    (5) Reasonable procedures for verification and substantiation--(i) 
General rule for verification of individual health insurance coverage 
for the plan year. The HRA must implement, and comply with, reasonable 
procedures to verify that participants and dependents are, or will be, 
enrolled in individual health insurance coverage for the plan year. The 
reasonable procedures may include a requirement that a participant 
substantiate enrollment by providing either:
    (A) A document from a third party (for example, the issuer) showing 
that the participant and any dependents covered by the HRA are, or will 
be, enrolled in individual health insurance coverage (for example, an 
insurance card or an explanation of benefits document pertaining to the 
relevant time period); or
    (B) An attestation by the participant stating that the participant 
and dependent(s) covered by the HRA are or will be enrolled in 
individual health insurance coverage, the date coverage began or will 
begin, and the name of the provider of the coverage.
    (ii) Coverage substantiation with each request for reimbursement of 
medical care expenses. Following the initial verification of coverage, 
with each new request for reimbursement of an incurred medical care 
expense for the

[[Page 54473]]

same plan year, the HRA may not reimburse participants for any medical 
care expenses unless, prior to each reimbursement, the participant 
provides substantiation (which may be in the form of a written 
attestation) that the participant and if applicable, the dependent 
whose medical care expenses are requested to be reimbursed continue to 
be enrolled in individual health insurance coverage for the month 
during which the medical care expenses were incurred. The attestation 
may be part of the form used for requesting reimbursement.
    (iii) Reliance on substantiation. For purposes of this paragraph 
(c)(5), an HRA may rely on the participant's documentation or 
attestation unless the HRA has actual knowledge that any individual 
covered by the HRA is not, or will not be, enrolled in individual 
health insurance coverage for the plan year or the month, as 
applicable.
    (6) Notice requirement--(i) Timing. The HRA must provide a written 
notice to each participant at least 90 days before the beginning of 
each plan year or, for a participant who is not eligible to participate 
at the beginning of the plan year (or who is not eligible to 
participate at the time the notice is provided at least 90 days before 
the beginning of the plan year), no later than the date on which the 
participant is first eligible to participate in the HRA.
    (ii) Content. The notice must include all the information described 
in this paragraph (c)(6)(ii) (and may include any additional 
information as long as it does not conflict with the required 
information set forth in paragraph (c)(6)(ii)(A) through (H) of this 
section).
    (A) A description of the terms of the HRA, including the maximum 
dollar amount available for each participant (including the self-only 
HRA amount available for the plan year (or the maximum dollar amount 
available for the plan year if the HRA provides for reimbursements up 
to a single dollar amount regardless of whether a participant has self-
only or family coverage)), any rules regarding the proration of the 
maximum dollar amount applicable to any participant who is not eligible 
to participate in the HRA for the entire plan year, whether the 
participant's family members are eligible for the HRA, a statement that 
the HRA is not a qualified small employer health reimbursement 
arrangement, a statement that the HRA requires the participant and any 
dependents to be enrolled in individual health insurance coverage, a 
statement that the participant is required to substantiate the 
existence of such enrollment, a statement that the coverage enrolled in 
cannot be short-term, limited-duration insurance or excepted benefits, 
and, if the requirements under 29 CFR 2510.3-1(l) are met, a statement 
that the individual health insurance coverage enrolled in is not 
subject to the Employee Retirement Income Security Act (ERISA).
    (B) A statement of the right of the participant to opt out of and 
waive future reimbursements from the HRA, as set forth under paragraph 
(c)(4) of this section.
    (C) A description of the potential availability of the premium tax 
credit if the participant opts out of and waives future reimbursements 
from the HRA and the HRA is not affordable for one or more months under 
26 CFR 1.36B-2(c)(5), a statement that even if the participant opts out 
of and waives future reimbursements from an HRA, the offer will 
prohibit the participant (and, potentially, the participant's 
dependents) from receiving a premium tax credit for the participant's 
coverage (or the dependent's coverage, if applicable) on the Exchange 
(as defined in 45 CFR 155.20) for any month that the HRA is affordable 
under 26 CFR 1.36B-2(c)(5), and a statement that, if the participant is 
a former employee, the offer of the HRA does not render the participant 
ineligible for the premium tax credit regardless of whether it is 
affordable under 26 CFR 1.36B-2(c)(5);
    (D) A statement that if the participant accepts the HRA, the 
participant may not claim a premium tax credit for the participant's 
Exchange coverage for any month the HRA may be used to reimburse 
medical care expenses of the participant and a premium tax credit may 
not be claimed for the Exchange coverage of the participant's 
dependents for any month the HRA may be used to reimburse medical care 
expenses of the dependents.
    (E) A statement that the participant must inform any Exchange to 
which the participant applies for advance payments of the premium tax 
credit of the availability of the HRA, the self-only HRA amount 
available for the plan year (or the maximum dollar amount available for 
the plan year if the HRA provides for reimbursements up to a single 
dollar amount regardless of whether a participant has self-only or 
family coverage) as set forth in the written notice in accordance with 
paragraph (c)(6)(ii)(A) of this section, the number of months in the 
plan year the HRA is available to the participant, whether the HRA is 
also available to the participant's dependents, and whether the 
participant is a current employee or former employee.
    (F) A statement that the participant should retain the written 
notice because it may be needed to determine whether the participant is 
allowed a premium tax credit on the participant's individual income tax 
return and, if so, the months the participant is allowed the premium 
tax credit.
    (G) A statement that the HRA may not reimburse any medical care 
expense unless the substantiation requirement set forth in paragraph 
(c)(5) of this section is satisfied.
    (H) A statement that it is the responsibility of the participant to 
inform the HRA if the participant or any dependent whose medical care 
expenses are reimbursable by the HRA is no longer enrolled in 
individual health insurance coverage.
    (d) Classes of employees--(1) List of classes. Participants may be 
treated as belonging to a class of employees based on whether they are, 
or are not, included in the classes described in this paragraph (d)(1). 
If the HRA is offered to former employees, former employees are 
considered to be in the same class in which they were in immediately 
before separation from service. (See paragraph (d)(2) of this section 
for additional rules regarding the definition of ``full-time 
employees,'' ``part-time employees,'' and ``seasonal employees.'')
    (i) Full-time employees, defined to mean either full-time employees 
under section 4980H of the Code and the regulations thereunder (26 CFR 
54.4980H-1(a)(21)) or employees who are not part-time employees (as 
described in 26 CFR 1.105-11(c)(2)(iii)(C));
    (ii) Part-time employees, defined to mean either employees who are 
not full-time employees under section 4980H of the Code and 26 CFR 
54.4980H-1 and -3 or part-time employees as described in 26 CFR 1.105-
11(c)(2)(iii)(C);
    (iii) Seasonal employees, defined to mean seasonal employees as 
described in either 26 CFR 54.4980H-1(a)(38) or 26 CFR 1.105-
11(c)(2)(iii)(C);
    (iv) Employees included in a unit of employees covered by a 
collective bargaining agreement in which the plan sponsor participates 
(as described in 26 CFR 1.105-11(c)(2)(iii)(D));
    (v) Employees who have not satisfied a waiting period for coverage 
(if the waiting period complies with Sec.  147.116 of this subchapter);
    (vi) Employees who have not attained age 25 prior to the beginning 
of the plan year (as described in 26 CFR 1.105-11(c)(2)(iii)(B));
    (vii) Non-resident aliens with no U.S.-based income (as described 
in 26 CFR 1.105-11(c)(2)(iii)(E));

[[Page 54474]]

    (viii) Employees whose primary site of employment is in the same 
rating area as defined in Sec.  147.102(b) of this subchapter; or
    (ix) A group of participants described as a combination of two or 
more of the classes of employees set forth in paragraphs (d)(1)(i) 
through (viii) of this section. (For example, part-time employees 
included in a unit of employees covered by a collective bargaining 
agreement could be one class of employees and full-time employees 
included in a unit of employees covered by the same collective 
bargaining agreement could be another class of employees.)
    (2) Consistency requirement. For any plan year, a plan sponsor may 
define ``full-time employee,'' ``part-time employee,'' and ``seasonal 
employee'' in accordance with the relevant provisions of sections 
105(h) of the Code and 26 CFR 1.105-11 or of section 4980H of the Code 
and 26 CFR 54.4980H-1 and -3 if:
    (i) To the extent applicable under the HRA for the plan year, each 
of the three classes of employees are defined in accordance with either 
section 105(h) of the Code or section 4980H of the Code for the plan 
year; and
    (ii) The HRA plan document sets forth the applicable definitions 
prior to the beginning of the plan year in which the definitions will 
apply.
    (e) Examples. The following examples illustrate the provisions of 
paragraphs (c)(2) and (3) of this section. In each example, the HRA may 
reimburse any medical care expenses, including premiums for individual 
health insurance coverage.

    (1) Example 1. (i) Facts. For 2020, Plan Sponsor X offers the 
following to its employees. Full-time employees in rating area A are 
offered $2,000 each in an HRA. Part-time employees in rating area A 
are offered $500 each in an HRA. All employees in rating area B are 
offered a traditional group health plan.
    (ii) Conclusion. The requirements of paragraphs (c)(2) and (3) 
of this section are satisfied in this Example 1.
    (2) Example 2. (i) Facts. For 2020, Plan Sponsor Y offers the 
following to its employees. Employees covered by a collective 
bargaining agreement in which Plan Sponsor Y participates are 
offered a traditional group health plan (as required by the 
collective bargaining agreement). All other employees (non-
collectively bargained employees) are offered the following amounts 
in an HRA: $1,000 each for employees age 25 to 35; $2,000 each for 
employees age 36 to 45; $2,500 each for employees age 46 to 55; and 
$4,000 each for employees over age 55. Non-collectively bargained 
employees who have not attained age 25 by January 1, 2020 are not 
offered an HRA or a traditional group health plan.
    (ii) Conclusion. The requirements of paragraphs (c)(2) and (3) 
of this section are satisfied in this Example 2.
    (3) Example 3.  (i) Facts. For 2020, Plan Sponsor Z offers the 
following amounts in an HRA to its employees who have completed the 
plan's waiting period, which complies with the requirements for 
waiting periods in Sec.  147.116 of this subchapter: $1,500, if the 
employee is the only individual covered by the HRA; $3,500, if the 
employee and one additional family member are covered by the HRA; 
and $5,000, if the employee and more than one additional family 
member are covered by the HRA.
    (ii) Conclusion. The requirements of paragraphs (c)(2) and (3) 
of this section are satisfied in this Example 3.

    (f) Applicability date. This section applies to plan years 
beginning on or after January 1, 2020.
0
19. Section 146.145 is amended by revising paragraph (b)(3)(i) and 
adding paragraph (b)(3)(viii) to read as follows:


Sec.  146.145   Special rules relating to group health plans.

* * * * *
    (b) * * *
    (3) * * *
    (i) In general. Limited-scope dental benefits, limited-scope vision 
benefits, or long-term care benefits are excepted if they are provided 
under a separate policy, certificate, or contract of insurance, or are 
otherwise not an integral part of a group health plan as described in 
paragraph (b)(3)(ii) of this section. In addition, benefits provided 
under a health flexible spending arrangement (health FSA) are excepted 
benefits if they satisfy the requirements of paragraph (b)(3)(v) of 
this section; benefits provided under an employee assistance program 
are excepted benefits if they satisfy the requirements of paragraph 
(b)(3)(vi) of this section; benefits provided under limited wraparound 
coverage are excepted benefits if they satisfy the requirements of 
paragraph (b)(3)(vii) of this section; and benefits provided under a 
health reimbursement arrangement or other account-based group health 
plan, other than a health FSA, are excepted benefits if they satisfy 
the requirements of paragraph (b)(3)(viii) of this section.
* * * * *
    (viii) Health reimbursement arrangements (HRAs) and other account-
based group health plans. Benefits provided under an HRA or other 
account-based group health plan, other than a health FSA, are excepted 
if they satisfy all of the requirements of this paragraph (b)(3)(viii). 
See paragraph (b)(3)(v) of this section for the circumstances in which 
benefits provided under a health FSA are excepted benefits. For 
purposes of this paragraph, the term ``HRA or other account-based group 
health plan'' has the same meaning as ``account-based group health 
plan'' set forth in Sec.  147.126(d)(6)(i) of this subchapter, except 
that the term does not include health FSAs.
    (A) Otherwise not an integral part of the plan. Other group health 
plan coverage that is not limited to excepted benefits and that is not 
an HRA or other account-based group health plan must be made available 
by the same plan sponsor for the plan year to the participant.
    (B) Benefits are limited in amount--(1) Limit on annual amounts 
made available. The amounts newly made available for each plan year 
under the HRA or other account-based group health plan do not exceed 
$1,800. In the case of any plan year beginning after December 31, 2020, 
the dollar amount in the preceding sentence shall be increased by an 
amount equal to such dollar amount multiplied by the cost-of-living 
adjustment. The cost of living adjustment is the percentage (if any) by 
which the C-CPI-U for the preceding calendar year exceeds the C-CPI-U 
for calendar year 2019. The term ``C-CPI-U'' means the Chained Consumer 
Price Index for All Urban Consumers as published by the Bureau of Labor 
Statistics of the Department of Labor. The C-CPI-U for any calendar 
year is the average of the C-CPI-U as of the close of the 12-month 
period ending on August 31 of such calendar year. The values of the C-
CPI-U used for any calendar year shall be the latest values so 
published as of the date on which the Bureau publishes the initial 
value of the C-CPI-U for the month of August for the preceding calendar 
year. Any such increase that is not a multiple of $50 shall be rounded 
to the next lowest multiple of $50.
    (2) Carryover amounts. If the terms of the HRA or other account-
based group health plan allow unused amounts to be made available to 
participants and dependents in later plan years, such carryover amounts 
are disregarded for purposes of determining whether benefits are 
limited in amount.
    (3) Multiple HRAs or other account-based group health plans. If the 
plan sponsor provides more than one HRA or other account-based group 
health plan to the participant for the same time period, the amounts 
made available under all such plans are aggregated to determine whether 
the benefits are limited in amount.
    (C) Prohibition on reimbursement of certain health insurance 
premiums. The HRA or other account-based group health plan must not 
reimburse

[[Page 54475]]

premiums for individual health insurance coverage, group health plan 
coverage (other than COBRA continuation coverage or other continuation 
coverage), or Medicare parts B or D, except that the HRA or other 
account-based group health plan may reimburse premiums for such 
coverage that consists solely of excepted benefits.
    (D) Uniform availability. The HRA or other account-based group 
health plan is made available under the same terms to all similarly-
situated individuals, as defined in Sec.  146.121(d) of this part, 
regardless of any health factor (as described in Sec.  146.121(a)).
* * * * *

PART 147--HEALTH INSURANCE REFORM REQUIREMENTS FOR THE GROUP AND 
INDIVIDUAL HEALTH INSURANCE MARKETS

0
20. The authority citation for part 147 is revised to read as follows:

    Authority:  42 U.S.C. 300gg through 300gg-63, 300gg-91, and 
300gg-92, as amended.

0
21. Section 147.126 is amended by revising paragraphs (c), (d), and (e) 
to read as follows:


Sec.  147.126   No lifetime or annual limits.

* * * * *
    (c) Definition of essential health benefits. The term ``essential 
health benefits'' means essential health benefits under section 1302(b) 
of the Patient Protection and Affordable Care Act. For this purpose, a 
group health plan or a health insurance issuer that is not required to 
provide essential health benefits under section 1302(b) must define 
``essential health benefits'' in a manner that is consistent with the 
following paragraphs (c)(1) or (2):
    (1) For plan years beginning before January 1, 2020, one of the 
EHB-benchmark plans applicable in a State under 45 CFR 156.110, and 
including coverage of any additional required benefits that are 
considered essential health benefits consistent with 45 CFR 
155.170(a)(2), or one of the three Federal Employee Health Benefits 
Program (FEHBP) plan options as defined by 45 CFR 156.100(a)(3), and 
including coverage of additional required benefits under 45 CFR 
156.110; or
    (2) For plan years beginning on or after January 1, 2020, an EHB-
benchmark plan selected by a State in accordance with the available 
options and requirements for EHB-benchmark plan selection at 45 CFR 
156.111, including an EHB-benchmark plan in a State that takes no 
action to change its EHB-benchmark plan and thus retains the EHB-
benchmark plan applicable in that State for the prior year in 
accordance with 45 CFR 156.111(d)(1), and including coverage of any 
additional required benefits that are considered essential health 
benefits consistent with 45 CFR 155.170(a)(2).
    (d) Health reimbursement arrangements (HRAs) and other account-
based group health plans--(1) In general. If an HRA or other account-
based group health plan is integrated with another group health plan or 
individual health insurance coverage and the other group health plan or 
individual health insurance coverage, as applicable, separately is 
subject to and satisfies the requirements in PHS Act section 2711 and 
paragraph (a)(2) of this section, the fact that the benefits under the 
HRA or other account-based group health plan are limited does not cause 
the HRA or other account-based group health plan to fail to meet the 
requirements of PHS Act section 2711 and paragraph (a)(2) of this 
section. Similarly, if an HRA or other account-based group health plan 
is integrated with another group health plan or individual health 
insurance coverage and the other group health plan or individual health 
insurance coverage, as applicable, separately is subject to and 
satisfies the requirements in PHS Act section 2713 and Sec.  
147.130(a)(1) of this subchapter, the fact that the benefits under the 
HRA or other account-based group health plan are limited does not cause 
the HRA or other account-based group health plan to fail to meet the 
requirements of PHS Act section 2713 and Sec.  147.130(a)(1) of this 
subchapter. For this purpose, all individual health insurance coverage, 
except for coverage that consists solely of excepted benefits, is 
treated as being subject to and complying with PHS Act sections 2711 
and 2713.
    (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 meets 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 Sec.  148.220 of this subchapter.
    (i) Method for integration with a group health plan: Minimum value 
not required. An HRA or other account-based group health plan is 
integrated with another group health plan for purposes of this 
paragraph 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 does not 
consist solely of excepted benefits;
    (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 does not consist 
solely of excepted benefits, regardless of whether the plan is offered 
by the same plan sponsor (referred to as non-HRA group coverage);
    (C) The HRA or other account-based group health plan is available 
only to employees who are enrolled in non-HRA group coverage, 
regardless of whether the non-HRA 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 group 
coverage, such as a group health plan maintained by the employer of the 
employee's spouse);
    (D) The benefits under the HRA or other account-based group health 
plan are limited to reimbursement of one or more of the following--co-
payments, co-insurance, deductibles, and premiums under the non-HRA 
group coverage, as well as medical care expenses that do not constitute 
essential health benefits as defined in paragraph (c) of this section; 
and
    (E) 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

[[Page 54476]]

additional rules regarding forfeiture and waiver).
    (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 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 26 CFR 
1.36B-6;
    (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 26 CFR 1.36B-6, 
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).
    (3) Forfeiture. For purposes of integration under paragraphs 
(d)(2)(i)(E) and (d)(2)(ii)(D) of this section, forfeiture or waiver 
occurs even if the forfeited or waived amounts may be reinstated upon a 
fixed date, a participant's death, or the earlier of the two events 
(the reinstatement event). For this purpose, coverage under an HRA or 
other account-based group health plan is considered forfeited or waived 
prior to a reinstatement event only if the participant's election to 
forfeit or waive is irrevocable, meaning that, beginning on the 
effective date of the election and through the date of the 
reinstatement event, the participant and the participant's 
beneficiaries have no access to amounts credited to the HRA or other 
account-based group health plan. This means that upon and after 
reinstatement, the reinstated amounts under the HRA or other account-
based group health plan may not be used to reimburse or pay medical 
care expenses incurred during the period after forfeiture and prior to 
reinstatement.
    (4) Requirements for an HRA or other account-based group health 
plan to be integrated with individual health insurance coverage. An HRA 
or other account-based group health plan is integrated with individual 
health insurance coverage (and treated as complying with PHS Act 
sections 2711 and 2713) if the HRA or other account-based group health 
plan meets the requirements of 45 CFR 146.123(c).
    (5) Integration with Medicare parts B and D. For employers that are 
not required to offer their non-HRA group health plan coverage to 
employees who are Medicare beneficiaries, an HRA or other account-based 
group health plan that may be used to reimburse premiums under Medicare 
part B or D may be integrated with Medicare (and deemed to comply with 
PHS Act sections 2711 and 2713) if the requirements of this paragraph 
(d)(5) are satisfied with respect to employees who would be eligible 
for the employer's non-HRA group health plan but for their eligibility 
for Medicare (and the integration rules under paragraphs (d)(2)(i) and 
(ii) of this section continue to apply to employees who are not 
eligible for Medicare):
    (i) The plan sponsor offers a group health plan (other than the HRA 
or other account-based group health plan and that does not consist 
solely of excepted benefits) to employees who are not eligible for 
Medicare;
    (ii) The employee receiving the HRA or other account-based group 
health plan is actually enrolled in Medicare part B or D;
    (iii) The HRA or other account-based group health plan is available 
only to employees who are enrolled in Medicare part B or D; and
    (iv) The HRA or other account-based group health plan complies with 
paragraphs (d)(2)(i)(E) and (d)(2)(ii)(D) of this section.
    (6) Definitions. The following definitions apply for purposes of 
this section.
    (i) Account-based group health plan. An account-based group health 
plan is an employer-provided group health plan that provides 
reimbursements of medical care expenses with the reimbursement subject 
to a maximum fixed dollar amount for a period. An HRA is a type of 
account-based group health plan. An account-based group health plan 
does not include a qualified small employer health reimbursement 
arrangement, as defined in Code section 9831(d)(2).
    (ii) Medical care expenses. Medical care expenses means expenses 
for medical care as defined under Code section 213(d).
    (e) Applicability date. The provisions of this section are 
applicable to group health plans and health insurance issuers for plan 
years beginning on or after January 1, 2020. Until [APPLICABILITY DATE 
OF FINAL RULE] plans and issuers are required to continue to comply 
with the corresponding sections of this subchapter B, contained in the 
45 CFR, subtitle A, parts 1-199, revised as of July 1, 2018.

PART 155--EXCHANGE ESTABLISHMENT STANDARDS AND OTHER RELATED 
STANDARDS UNDER THE AFFORDABLE CARE ACT

0
 22. The authority citation for part 155 is revised to read as follows:

    Authority:  42 U.S.C. 18021-18024, 18031-18033, 18041-18042, 
18051, 18054, 18071, and 18081-18083.

0
23. Section 155.420 is amended
0
a. By revising paragraph (a)(4)(iii) introductory text;
0
b. By adding paragraph (b)(2)(vi);
0
c. By revising paragraph (c)(2);
0
d. In paragraph (d)(12) by removing ``;or'' and adding ``;'' in its 
place;
0
e. In paragraph (d)(13) by removing the period at the end of the 
paragraph and adding ``; or'' in its place; and
0
f. By adding paragraph (d)(14).
    The revisions and additions read as follows:


Sec.  155.420  Special enrollment periods.

* * * * *
    (a) * * *
    (4) * * *
    (iii) For the other triggering events specified in paragraph (d) of 
this section, except for paragraphs (d)(2)(i), (d)(4), and (d)(6)(i) 
and (ii) of this section for becoming newly eligible for cost sharing 
reductions, and paragraphs (d)(8), (9), (10), (12), and (14) of this 
section:
* * * * *
    (b) * * *
    (2) * * *

[[Page 54477]]

    (vi) If a qualified individual, enrollee, or dependent gains access 
to a health reimbursement arrangement or other account-based group 
health plan integrated with individual health insurance coverage or is 
provided a qualified small employer health reimbursement arrangement, 
each as described in paragraph (d)(14) of this section, and if the plan 
selection is made before the day of the triggering event, the Exchange 
must ensure that coverage is effective on the first day of the month 
following the date of the triggering event or, if the triggering event 
is on the first day of a month, on the date of the triggering event. If 
the plan selection is made on or after the day of the triggering event, 
the Exchange must ensure that the coverage effective date is on the 
first day of the following month.
* * * * *
    (c) * * *
    (2) Advanced availability. A qualified individual or his or her 
dependent who is described in paragraph (d)(1), (d)(6)(iii), or (d)(14) 
of this section has 60 days before or after the triggering event to 
select a QHP. At the option of the Exchange, a qualified individual or 
his or her dependent who is described in paragraph (d)(7) of this 
section; who is described in paragraph (d)(6)(iv) of this section and 
becomes newly eligible for advance payments of the premium tax credit 
as a result of a permanent move to a new State; or who is described in 
paragraph (d)(3) of this section and becomes newly eligible for 
enrollment in a QHP through the Exchange because he or she newly 
satisfies the requirements under Sec.  155.305(a)(2), has 60 days 
before or after the triggering event to select a QHP.
* * * * *
    (d) * * *
    (14) The qualified individual, enrollee, or dependent gains access 
to and enrolls in a health reimbursement arrangement or other account-
based group health plan (as defined in 45 CFR 147.126(d)(6)(i)) that 
will be integrated with individual health insurance coverage, in 
accordance with 45 CFR 146.123(c), or is provided a qualified small 
employer health reimbursement arrangement, as defined in section 
9831(d)(2) of the Internal Revenue Code.

[FR Doc. 2018-23183 Filed 10-23-18; 8:45 am]
 BILLING CODE 4830-01-P; 4510-29-P; 4120-01-P

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