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DEPARTMENT OF THE TREASURY insurance coverage for which premiums SUPPLEMENTARY INFORMATION: are reimbursed by an individual I. Background Internal Revenue Service coverage HRA or a qualified small employer health reimbursement A. Executive Order 26 CFR Parts 1 and 54 arrangement (QSEHRA) does not On 12, 2017, President [TD 9867] become part of an ERISA plan, provided Trump issued Executive Order 13813,1 certain safe harbor conditions are ‘‘Promoting Healthcare Choice and RIN 1545–BO46 satisfied. Finally, the Department of Competition Across the United States,’’ Health and Human Services (HHS) is DEPARTMENT OF LABOR stating, in part, that the ‘‘Administration finalizing provisions to provide a will prioritize three areas for special enrollment period (SEP) in the improvement in the near term: Employee Benefits Security individual market for individuals who Administration association health plans (AHPs), short- newly gain access to an individual term, limited-duration insurance coverage HRA or who are newly 29 CFR Parts 2510 and 2590 (STLDI), and health reimbursement provided a QSEHRA. The goal of the arrangements (HRAs).’’ With regard to RIN 1210–AB87 final rules is to expand the flexibility HRAs, the Executive Order directs the and use of HRAs and other account- Secretaries of the Treasury, Labor, and DEPARTMENT OF HEALTH AND based group health plans to provide HHS to ‘‘consider proposing regulations HUMAN SERVICES more Americans with additional options or revising guidance, to the extent to obtain quality, affordable healthcare. permitted by law and supported by 45 CFR Parts 144, 146, 147, and 155 The final rules affect employees and sound policy, to increase the usability of [CMS–9918–F] their family members; employers, HRAs, to expand employers’ ability to employee organizations, and other plan offer HRAs to their employees, and to RIN 0938–AT90 sponsors; group health plans; health allow HRAs to be used in conjunction insurance issuers; and purchasers of with nongroup coverage.’’ The Health Reimbursement Arrangements individual health insurance coverage. Executive Order further provides that and Other Account-Based Group DATES: expanding ‘‘the flexibility and use of Health Plans Effective date: These final rules are HRAs would provide many Americans, AGENCY: Internal Revenue Service, effective on 19, 2019. including employees who work at small Department of the Treasury; Employee Applicability dates: The final rules businesses, with more options for Benefits Security Administration, generally apply for plan years beginning financing their healthcare.’’ Department of Labor; Centers for on or after 1, 2020. However, the final rules under Code section 36B B. HRAs and Other Account-Based Medicare & Medicaid Services, Group Health Plans Department of Health and Human apply for taxable years beginning on or Services. after , 2020, and the final rules 1. In General providing a new special enrollment ACTION: Final rule. An account-based group health plan period in the individual market apply is an employer-provided group health SUMMARY: This document sets forth final January 1, 2020. See Section VI of the plan that provides for reimbursement of rules to expand opportunities for SUPPLEMENTARY INFORMATION section for expenses for medical care (as defined working men and women and their more information on the applicability under Code section 213(d)) (medical families to access affordable, quality dates. care expenses), subject to a maximum healthcare through changes to rules FOR FURTHER INFORMATION CONTACT: fixed-dollar amount of reimbursements under various provisions of the Public Christopher Dellana, Internal Revenue for a period (for example, a Health Service Act (PHS Act), the Service, Department of the Treasury, at year). An HRA is a type of account- Employee Retirement Income Security (202) 317–5500; Matthew Litton or based group health plan funded solely Act (ERISA), and the Internal Revenue David Sydlik, Employee Benefits by employer contributions (with no Code (Code) regarding health Security Administration, Department of salary reduction contributions or other reimbursement arrangements (HRAs) Labor, at (202) 693–8335; David contributions by employees) that and other account-based group health Mlawsky, Centers for Medicare & reimburses an employee solely for plans. Specifically, the final rules allow Medicaid Services, Department of medical care expenses incurred by the integrating HRAs and other account- Health and Human Services, at (410) employee, or the employee’s spouse, based group health plans with 786–1565. dependents, and children who, as of the individual health insurance coverage or Customer Service Information: end of the taxable year, have not Medicare, if certain conditions are Individuals interested in obtaining attained age 27, up to a maximum dollar satisfied (an individual coverage HRA). information from the DOL concerning amount for a coverage period.2 The The final rules also set forth conditions employment-based health coverage laws reimbursements under these types of under which certain HRAs and other call the EBSA Toll-Free Hotline at arrangements are excludable from the account-based group health plans will 1–866–444–EBSA (3272) or visit the employee’s income and wages for be recognized as limited excepted DOL’s website (www.dol.gov/ebsa). In federal income tax and employment tax benefits. Also, the Department of the addition, information from HHS on purposes. Amounts that remain in the Treasury (Treasury Department) and the private health insurance coverage and HRA at the end of the year often may Internal Revenue Service (IRS) are coverage provided by non-federal finalizing rules regarding premium tax governmental group health plans can be 1 82 FR 48385 (Oct. 17, 2017). The executive credit (PTC) eligibility for individuals found on the Centers for Medicare & order was issued on , 2017 and was offered an individual coverage HRA. In Medicaid Services (CMS) website published in the Federal Register on , 2017. addition, the Department of Labor (DOL) (www.cms.gov/cciio), and information 2 See IRS Notice 2002–45, 2002–2 CB 93; Revenue is finalizing a clarification to provide on healthcare reform can be found at Ruling 2002–41, 2002–2 CB 75; and IRS Notice assurance that the individual health www.HealthCare.gov. 2013–54, 2013–40 IRB 287.

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be used to reimburse medical care reorganized, amended, and added to the establishing for any individual any expenses incurred in later years, provisions of part A of title XXVII of the lifetime or annual limits on the dollar depending on the terms of the HRA. PHS Act relating to health coverage value of essential health benefits HRAs are not the only type of requirements for group health plans and (EHBs), as defined in PPACA section account-based group health plan. For health insurance issuers in the group 1302(b). PHS Act section 2711, example, an employer payment plan is and individual markets. The term however, does not prevent a group also an account-based group health ‘‘group health plan’’ includes both health plan, or a health insurance issuer plan. An employer payment plan is an insured and self-insured group health offering group or individual health arrangement under which an employer plans. insurance coverage, from placing an reimburses an employee for some or all PPACA also added section 715 to annual or lifetime dollar limit for any of the premium expenses incurred for ERISA and section 9815 to the Code to individual on specific covered benefits individual health insurance coverage, or incorporate the provisions of part A of that are not EHBs, to the extent these other non-employer sponsored hospital title XXVII of the PHS Act, PHS Act limits are otherwise permitted under or medical insurance. This includes a sections 2701 through 2728 (the market applicable law.8 reimbursement arrangement described requirements), into ERISA and the Code, HRAs are subject to PHS Act section in Revenue Ruling 61–146, 1961–2 CB making them applicable to group health 2711. An HRA generally will fail to 25, or an arrangement under which the plans and health insurance issuers comply with PHS Act section 2711 employer uses its funds directly to pay providing health insurance coverage in because the arrangement is a group the premium for individual health connection with group health plans. In health plan that imposes an annual insurance coverage or other non- accordance with Code section 9831(b) dollar limit on EHBs that the HRA will employer sponsored hospital or medical and (c), ERISA section 732(b) and (c), reimburse for an individual.9 insurance covering the employee.3 and PHS Act sections 2722(b) and (c) Other examples of account-based group and 2763, the market requirements do 8 For information regarding EHBs, see HHS’s health plans include health flexible not apply to a group health plan or a 25, 2013 final rules addressing EHBs under PPACA section 1302 (78 FR 12834 (Feb. 25, spending arrangements (health FSAs) health insurance issuer in the group or 2013)); see also HHS Notice of Benefit and Payment and certain other employer-provided individual market in relation to the Parameters for 2016 (80 FR 10871 (Feb. 27, 2015)). medical reimbursement plans that are provision of excepted benefits described In addition, HHS issued final rules providing states not HRAs.4 in Code section 9832(c), ERISA section with additional flexibility to define EHBs, starting 733(c), and PHS Act section 2791(c).5 with plan years beginning on or after January 1, 2. Application of the Patient Protection 2020. See 45 CFR 156.111 (83 FR 16930 ( 17, See the discussion later in this preamble and Affordable Care Act to HRAs and 2018)). The current rules under PHS Act section for additional background on excepted 2711 include a definition of EHBs that applies for Other Account-Based Group Health benefits. In addition, in accordance with plans that are not required to cover EHBs. See 26 Plans CFR 54.9815–2711(c), 29 CFR 2590.715–2711(c), Code section 9831(a)(2) and ERISA and 45 CFR 147.126(c). As explained later in this The Patient Protection and Affordable section 732(a), the market requirements preamble, the rules set forth in this document Care Act, Public Law 111–148, was do not apply to a group health plan that include amendments to the definition of EHBs enacted on 23, 2010 and the has fewer than two participants who are under the PHS Act section 2711 rules to reflect the Health Care and Education current employees on the first day of the updated final EHB rules. 9 As explained in prior guidance, the Departments 6 Reconciliation Act of 2010, Public Law plan year. of Labor, the Treasury and HHS (the Departments) 111–152, was enacted on , PHS Act section 2711, as added by have determined that the annual dollar limit 2010 (collectively, PPACA). PPACA PPACA, generally prohibits group prohibition is not applicable to certain account- health plans and health insurance based group health plans that are subject to other 3 For more information about employer payment statutory provisions limiting the benefits available issuers offering group or individual under those plans. See 80 FR 72192, 72201 (Nov. plans, see IRS Notice 2013–54, Q&A–1 and Q&A– health insurance coverage 7 from 3, and IRS Notice 2015–17, Q&A–4 and Q&A–5, 18, 2015). Specifically, the Departments have 2015–14 IRB 845. explained that the annual dollar limit prohibition 4 For simplicity, the preamble generally refers 5 While the PPACA amendments to PHS Act does not apply to health FSAs that are offered only to HRAs, but references to HRAs should also section 2722(b) and (c) (formerly PHS Act section through a cafeteria plan under Code section 125 be considered to include other account-based group 2721(c) and (d)) could be read as restricting the (cafeteria plan) because PPACA section 9005 health plans as defined in the final rules, unless exemption for excepted benefits so it applies only specifically limits salary reduction contributions to otherwise specified. This term does not include with respect to subpart 2 of part A of title XXVII health FSAs to $2,500 (indexed for inflation) per QSEHRAs, under Code section 9831(d); medical of the PHS Act, HHS does not intend to use its year. Notwithstanding this exclusion for certain savings accounts (MSAs), under Code section 220; resources to enforce the market requirements with health FSAs from the application of the annual or health savings accounts (HSAs), under Code respect to excepted benefits offered by non-federal dollar limit prohibition, rules under Code section section 223. In addition, for purposes of the final governmental plan sponsors and encourages states 125 provide that health FSAs are not permitted to rules, the term ‘‘HRA or other account-based group to adopt a similar approach with respect to issuers reimburse employees for premiums for health health plan’’ does not include an employer of excepted benefits. See 75 FR 34537, 34539–34540 insurance coverage. See Code section 125(d)(2)(A) arrangement that reimburses the cost of individual (, 2010). and proposed 26 CFR 1.125–5(k)(4) (72 FR 43938, health insurance coverage through a cafeteria plan 6 While the PPACA amendments to title XXVII of 43959 (Aug. 6, 2007)). Similarly, although MSAs under Code section 125 (cafeteria plan premium the PHS Act removed the parallel provision at and HSAs generally are not treated as group health arrangements); however see later in this preamble section 2722(a) (formerly PHS Act section 2721(a)), plans subject to the market requirements, the for a clarification that plan sponsors may offer such HHS follows a similar approach for retiree-only Departments have concluded that the annual dollar an arrangement in addition to an individual non-federal governmental plans and encourages limit prohibition would not apply to an MSA or coverage HRA. A QSEHRA is not a group health states to adopt a similar approach with respect to HSA even if a particular arrangement did satisfy the plan for purposes of the market requirements of the health insurance issuers of retiree-only plans. See criteria to be a group health plan because both types Code (except as provided in Code section 75 FR 34537, 34539–34540 (June 17, 2010). of arrangements are subject to specific statutory 4980I(f)(4)), parts 6 and 7 of ERISA, and titles XXII 7 PHS Act section 2711 applies to grandfathered provisions that limit the contributions. See 75 FR and XXVII of the PHS Act, and is not included in health plans, except that the annual dollar limit 37188, 37190 (, 2010); see also IRS Notice the definition of HRAs and other account-based prohibition does not apply to grandfathered 2004–2, Q&A–1 and Q&A–3, 2004–2 IRB 269, group health plans for purposes of the final rules individual health insurance coverage. which defines an HSA as a tax-exempt trust or or this preamble. A QSEHRA is, however, Grandfathered health plans are health plans that custodial account and a high-deductible health plan considered a group health plan under the PHS Act were in existence as of , 2010, and that as a health plan; see also DOL Field Assistance for purposes of part C of title XI of the Social are only subject to certain provisions of PPACA, as Bulletin No. 2004–01, available at https:// Security Act (42 U.S.C. 1320d et seq.). See PHS Act long as they maintain status as grandfathered health www.dol.gov/agencies/ebsa/employers-and- section 2791(a)(1), as amended by the 21st Century plans under the applicable rules. See 26 CFR advisers/guidance/field-assistance-bulletins/2004- Cures Act (Cures Act), Public Law 114–255, section 54.9815–1251, 29 CFR 2590.715–1251, and 45 CFR 01 and DOL Field Assistance Bulletin No. 2006–02, 18001(c). 147.140. Continued

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PHS Act section 2713, as added by rules and guidance generally provide integrated with individual health PPACA, generally requires non- that, if an HRA is ‘‘integrated’’ with insurance coverage for purposes of PHS grandfathered group health plans, and other group health plan coverage that Act sections 2711 and 2713, but health insurance issuers offering non- complies with PHS Act sections 2711 described methods for integrating an grandfathered group or individual and 2713, the HRA is considered to be HRA with another group health plan.16 health insurance coverage, to provide in compliance with those sections The Departments later incorporated the coverage for certain preventive services because the combined arrangement provisions of this guidance into the final without imposing any cost-sharing complies with them. The rules and rules issued in 2015 under PHS Act requirements for these services.10 Non- guidance also provide that HRAs may be section 2711 17, which are summarized grandfathered HRAs are subject to and integrated with Medicare and TRICARE later in this section of the preamble. fail to comply with PHS Act section coverage if certain conditions are On 6, 2014, the 2713 because, while HRAs may be used satisfied, but may not be integrated with Departments issued FAQs about to reimburse the costs of preventive individual health insurance coverage for Affordable Care Act Implementation services, HRAs do not reimburse such purposes of complying with PHS Act (Part XXII).18 Q&A–1 reiterated and costs after the HRAs have reimbursed sections 2711 and 2713.13 clarified prior subregulatory guidance the maximum dollar amount for a More specifically, in the preamble to by explaining that if an employer offers coverage period, and therefore HRAs fail the 2010 interim final rules under PHS its employees cash to reimburse the to provide the required coverage, and Act section 2711, the Departments purchase of individual health insurance violate the prohibition on imposing cost provided that HRAs may be integrated coverage, the payment arrangement is a sharing for preventive services.11 with ‘‘other coverage as part of a group group health plan, without regard to health plan’’ that complies with PHS whether the employer treats the money 3. Prior Rules and Guidance on Act section 2711 in order for the HRAs as a pre-tax or post-tax benefit to the Integration of HRAs and Other Account- to be considered to satisfy PHS Act employee, and it may not be integrated Based Group Health Plans section 2711.14 The interim final rules with individual health insurance The Departments previously issued did not, however, set forth rules for coverage, and, therefore, will fail to rules and subregulatory guidance implementing integration; the comply with PHS Act sections 2711 and regarding the application of PHS Act integration methods were set forth in 2713.19 sections 2711 and 2713 to HRAs.12 The later subregulatory guidance and On , 2015, the Treasury subsequently included in the final rules Department and the IRS issued Notice available at https://www.dol.gov/agencies/ebsa/ under PHS Act section 2711 issued in 2015–17. Q&A–3 provided that an employers-and-advisers/guidance/field-assistance- 2015. arrangement under which an employer bulletins/2006-02, which provide guidance regarding HSAs not constituting ‘‘employee welfare On 13, 2013, the Treasury reimburses (or pays directly) some or all benefit plans’’ covered by ERISA Title I where Department and the IRS issued Notice of the medical care expenses for employer involvement with the HSA is limited. 2013–54, the DOL issued Technical employees covered by TRICARE Therefore, the final rules do not apply to MSAs, Release 2013–03, and HHS issued constitutes an HRA and may not be HSAs, or, in certain circumstances, health FSAs. contemporaneous guidance explaining integrated with TRICARE to comply 10 See also 26 CFR 54.9815–2713, 29 CFR 2590.715–2713, and 45 CFR 147.130. that HHS concurred with the DOL and with PHS Act sections 2711 and 2713 15 11 Because MSAs and HSAs generally are not Treasury Department guidance. This because TRICARE is not a group health treated as group health plans, these arrangements guidance stated that an HRA may not be are not subject to PHS Act section 2713. Health 16 In addition to describing the integration FSAs are group health plans and, unless they are Resources/Fact-Sheets-and-FAQs/Downloads/ methods, IRS Notice 2013–54 and DOL Technical excepted benefits, will fail to satisfy the FAQs-Part-XXII-FINAL.pdf; (6) IRS Notice 2015–17, Release No. 2013–03, in Q&A–5, provided that, requirements of PHS Act section 2713 unless they issued on February 18, 2015; (7) 80 FR 72192 (Nov. whether or not an HRA is integrated with other are integrated with other coverage that satisfies 18, 2015); (8) IRS Notice 2015–87, 2015–52 IRB 889, group health plan coverage, unused amounts that these requirements. For more information about the issued on 16, 2015; (9) IRS Notice 2016– are credited to the HRA while the HRA is integrated application of PHS Act section 2713 to health FSAs, 17, 2016–9 IRB 358, issued on , 2015; with other group health plan coverage may be used see IRS Notice 2013–54, Q&A–7; DOL Technical DOL Technical Release No. 2016–01, issued on to reimburse medical care expenses in accordance Release No. 2013–03, Q&A–7, issued on September February 5, 2016, available at https://www.dol.gov/ with the terms of the HRA after an employee ceases 13, 2013, available at https://www.dol.gov/agencies/ agencies/ebsa/employers-and-advisers/guidance/ to be covered by the integrated group health plan ebsa/employers-and-advisers/guidance/technical- technical-releases/16-01; and CMS Insurance coverage without causing the HRA to fail to comply releases/13-03; and CMS Insurance Standards Standards Bulletin, Application of the Market with PHS Act sections 2711 and 2713. In IRS Notice Bulletin, Application of Affordable Care Act Reforms and Other Provisions of the Affordable 2015–87, Q&A–2, however, the Departments Provisions to Certain Healthcare Arrangements, Care Act to Student Health Coverage, issued on clarified that an HRA that includes terms permitting , 2013, available at https:// February 5, 2016, available at https://www.cms.gov/ the purchase of individual health insurance www.cms.gov/CCIIO/Resources/Regulations-and- CCIIO/Resources/Regulations-and-Guidance/ coverage, even if reimbursement is only allowed Guidance/Downloads/cms-hra-notice-9-16- Downloads/student-health-bulletin.pdf; (10) FAQs after the employee ceases to be covered by other 2013.pdf. about Affordable Care Act Implementation Part 33, integrated group health plan coverage, fails to be 12 Rules and subregulatory guidance issued on available at https://www.dol.gov/sites/default/files/ integrated with other group health plan coverage this topic include: (1) 75 FR 37188 (June 28, 2010); ebsa/about-ebsa/our-activities/resource-center/faqs/ and therefore fails to comply with PHS Act sections (2) FAQs about Affordable Care Act Implementation aca-part-33.pdf or https://www.cms.gov/CCIIO/ 2711 and 2713. (Part XI), available at https://www.dol.gov/sites/ Resources/Fact-Sheets-and-FAQs/Downloads/ACA– 17 See 80 FR 72192 (Nov. 18, 2015). default/files/ebsa/about-ebsa/our-activities/ FAQ-Set-33-Final.pdf; (11) FAQs about Affordable 18 See FAQs about Affordable Care Act resource-center/faqs/aca-part-xi.pdf or http:// Care Act Implementation Part 37, available at Implementation (Part XXII), available at https:// www.cms.gov/CCIIO/Resources/Fact-Sheets-and- https://www.dol.gov/sites/default/files/ebsa/about- www.dol.gov/sites/default/files/ebsa/about-ebsa/ FAQs/aca_implementation_faqs11.html; (3) IRS ebsa/our-activities/resource-center/faqs/aca-part- our-activities/resource-center/faqs/aca-part-xxii.pdf Notice 2013–54 and DOL Technical Release No. 37.pdf or https://www.cms.gov/CCIIO/Resources/ or https://www.cms.gov/CCIIO/Resources/Fact- 2013–03 and CMS Insurance Standards Bulletin, Fact-Sheets-and-FAQs/Downloads/FAQs-Part- Sheets-and-FAQs/Downloads/FAQs-Part-XXII- Application of Affordable Care Act Provisions to 37.pdf; (12) 83 FR 54420 (Oct. 29, 2018); and (13) FINAL.pdf. Certain Healthcare Arrangements; (4) IRS FAQ on IRS Notice 2018–88, 2018–49 IRB 817, issued on 19 The Treasury Department and the IRS note that Employer Healthcare Arrangements, available at , 2018. the information included in this preamble is not https://www.irs.gov/affordable-care-act/employer- 13 26 CFR 54.9815–2711(d)(4), 29 CFR 2590.715– intended to be guidance regarding the proper health-care-arrangements; (5) FAQs about 2711(d)(4), and 45 CFR 147.126(d)(4). federal tax treatment or consequences of any Affordable Care Act Implementation (Part XXII), 14 See 75 FR 37187, 37190–37191 (June 28, 2010). particular arrangement, except to the extent the available at https://www.dol.gov/sites/default/files/ 15 See CMS Insurance Standards Bulletin, preamble addresses the application of Code sections ebsa/about-ebsa/our-activities/resource-center/faqs/ Application of Affordable Care Act Provisions to 36B, 9801, 9802, 9815, 9831, and 9832 and PHS Act aca-part-xxii.pdf or https://www.cms.gov/CCIIO/ Certain Healthcare Arrangements. sections 2711 and 2713.

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plan for integration purposes. However, interim final rules under PHS Act Integration Method, the non-HRA group Q&A–3 stated that an HRA that pays for section 2711, incorporating certain coverage offered by the employer and in or reimburses medical care expenses for subregulatory guidance regarding HRA which the employee enrolls must employees covered by TRICARE may be integration, and making various provide MV. integrated with another group health additional clarifications (the 2015 In addition, both the MV Integration plan offered by the employer for rules).21 The 2015 rules incorporate Method and the Non-MV Integration purposes of PHS Act sections 2711 and prior subregulatory guidance that HRAs Method require that, under the terms of 2713 if: (1) The employer offers a group may not be integrated with individual the HRA, an employee (or former health plan (other than the HRA) to the health insurance coverage for purposes employee) be permitted to permanently employee that does not consist solely of of complying with PHS Act sections opt out of and waive future excepted benefits and that provides 2711 and 2713. Consistent with the reimbursements at least annually from minimum value (MV); (2) the employee initial subregulatory guidance, the 2015 the HRA. Both integration methods also participating in the HRA is enrolled in rules provide two methods for require that, upon termination of TRICARE; (3) the HRA is available only integration of HRAs with other group employment, either the funds remaining to employees who are enrolled in health plan coverage.22 The first method in the HRA are forfeited or the employee TRICARE; and (4) the HRA is limited to applies to HRAs integrated with other is permitted to permanently opt out of reimbursement of cost sharing and group health plan coverage that and waive future reimbursements under excepted benefits, including TRICARE provides MV (the MV Integration the HRA. For this purpose, forfeiture of supplemental premiums. Method).23 The second method applies the funds remaining in the HRA, or Q&A–3 of Notice 2015–17 also to HRAs integrated with other group waiver of future reimbursements under provided that an employer payment health plan coverage that does not the HRA, occurs even if the forfeited or plan through which an employer provide MV (the Non-MV Integration waived amounts may be reinstated upon reimburses (or pays directly) all or a Method).24 a fixed date, the participant’s death, or portion of Medicare Part B or D Both the MV Integration Method and the earlier of the two events. premiums for employees may not be the Non-MV Integration Method require The two methods differ with respect integrated with Medicare coverage to that: (1) The HRA plan sponsor offer the to the expenses that the HRA may comply with PHS Act sections 2711 and employee a group health plan other than reimburse. Under the MV Integration 2713 because Medicare coverage is not the HRA (non-HRA group coverage); (2) Method, the HRA may reimburse any a group health plan. However, under the the employee receiving the HRA be medical care expenses, but under the notice, this type of employer payment enrolled in non-HRA group coverage, Non-MV Integration Method, the HRA plan may be integrated with another even if the non-HRA group coverage is may reimburse only co-payments, co- group health plan offered by the not offered by the HRA plan sponsor, insurance, deductibles, and premiums employer for purposes of PHS Act such as a group health plan maintained under the non-HRA group coverage, as sections 2711 and 2713 if: (1) The by an employer of the employee’s 25 well as medical care that does not employer offers a group health plan spouse; and (3) the HRA be made constitute EHBs.26 (other than the employer payment plan) available only to employees who are The 2015 rules also include a special to the employee that does not consist enrolled in non-HRA group coverage, integration method for certain solely of excepted benefits and that regardless of whether such coverage is arrangements offered by employers that provides MV; (2) the employee provided by the HRA plan sponsor. For are not required to offer, and do not both integration methods, the non-HRA participating in the employer payment offer, non-HRA group coverage to group coverage may not consist solely of plan is actually enrolled in Medicare employees who are eligible for Medicare excepted benefits and, for the MV Part A and B; (3) the employer payment coverage (generally, employers with plan is available only to employees who fewer than 20 employees), but that offer are enrolled in Medicare Part A and Part 21 See 80 FR 72192 (Nov. 18, 2015). To the extent the 2015 rules did not incorporate or modify the non-HRA group coverage that does not B or D; and (4) the employer payment prior subregulatory guidance, that guidance remains consist solely of excepted benefits to plan is limited to reimbursement of in effect. employees who are not eligible for Medicare Part B or D premiums and 22 These two methods of integration were Medicare.27 For these employers, an excepted benefits, including Medigap originally discussed in IRS Notice 2013–54, Q&A– 4, and DOL Technical Release No. 2013–03. 26 premiums. Notice 2015–17 also 23 See 26 CFR 54.9815–2711(d)(2)(ii), 29 CFR Although, in general, an HRA integrated with includes a general reminder that, to the 2590.715–2711(d)(2)(ii), and 45 CFR non-HRA group coverage fails to comply with PHS extent such an arrangement is available 147.126(d)(2)(ii). Act section 2711 if the non-HRA group coverage 24 See 26 CFR 54.9815–2711(d)(2)(i), 29 CFR with which the HRA is integrated does not cover to active employees, it may be subject to a category of EHB and the HRA is available to cover restrictions under other laws, such as 2590.715–2711(d)(2)(i), and 45 CFR 147.126(d)(2)(i). 25 In IRS Notice 2015–87, Q&A–4, the that category of EHB and limits the coverage to the the Medicare secondary payer (MSP) Departments clarified that an HRA that may be used HRA’s maximum benefit, the Departments have provisions.20 See later in this preamble to reimburse the medical care expenses of an provided that if the non-HRA group coverage for a discussion of the rules provided in employee’s spouse or dependents (a family HRA) satisfies the MV Integration Method, an HRA will may not be integrated with self-only coverage of the not be treated as failing to comply with PHS Act the 2015 rules under PHS Act section employee under the employer’s non-HRA group section 2711, even if the non-HRA group coverage 2711 allowing Medicare Part B and D health plan. On , 2017, the Departments with which the HRA is integrated does not cover reimbursement arrangements to be issued guidance to clarify that a family HRA is a category of EHB and the HRA is available to cover integrated with Medicare in certain permitted to be integrated with a combination of that category of EHB and limits the coverage to the coverage under qualifying non-HRA group health HRA’s maximum benefit. See IRS Notice 2013–54, limited circumstances (that is, generally, plan coverage for purposes of complying with PHS Q&A–6. for HRAs sponsored by employers with Act sections 2711 and 2713, provided that all of the 27 See 26 CFR 54.9815–2711(d)(5), 29 CFR fewer than 20 employees). individuals who are covered under the family HRA 2590.715–2711(d)(5), and 45 CFR 147.126(d)(5). On , 2015, the are also covered under qualifying non-HRA group The 2015 rules did not address the Medicare coverage. See FAQs about Affordable Care Act integration rules that apply to employers who are Departments finalized the proposed and Implementation Part 37, available at https:// required to offer non-HRA group coverage to www.dol.gov/sites/default/files/ebsa/about-ebsa/ employees who are eligible for Medicare (generally, 20 See later in this preamble for a clarification of our-activities/resource-center/faqs/aca-part-37.pdf employers with 20 or more employees). For a the meaning of this statement included in IRS or https://www.cms.gov/CCIIO/Resources/Fact- discussion of those rules, see IRS Notice 2015–17 Notice 2015–17, regarding the MSP provisions. Sheets-and-FAQs/Downloads/FAQs-Part-37.pdf. and the discussion in this preamble.

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HRA that may be used to reimburse Q&A–2 of FAQs about Affordable Departments previously exercised the premiums under Medicare Part B or D Care Act Implementation (Part XXII) 31 authority to specify additional types of may be integrated with Medicare (and provided that, if an employer offers only limited excepted benefits with respect deemed to comply with PHS Act employees with high claims risk a to certain health FSAs, certain employee sections 2711 and 2713) if the choice between enrollment in a assistance programs, and certain limited employees who are offered the HRA are traditional group health plan or cash, wraparound coverage.34 enrolled in Medicare Part B or D, the the arrangement would not comply with Coverage that consists of excepted HRA is available only to employees who the market requirements, citing PHS Act benefits is not minimum essential 35 are enrolled in Medicare Part B or D, section 2705 (which is incorporated by coverage (MEC). Therefore, an and the HRA complies with the opt-out reference into Code section 9815 and individual offered or covered by an excepted benefit is not deemed and forfeiture rules under the MV ERISA section 715), as well as the ineligible for the PTC by virtue of the Integration Method and Non-MV HIPAA nondiscrimination provisions of Code section 9802 and ERISA section excepted benefit offer or coverage.36 Integration Method. These employers 702. The Q&A explained that these Further, the offer of an excepted benefit may use either of the non-Medicare- arrangements violate the by an employer is not considered to be specific integration methods, as nondiscrimination provisions regardless an offer of MEC under an eligible applicable, for HRAs offered to of whether: (1) The cash payment is employer-sponsored plan for purposes employees who are ineligible for treated by the employer as pre-tax or of Code section 4980H, the employer Medicare. post-tax to the employee, (2) the shared responsibility provisions. Thus, C. HIPAA Nondiscrimination Provisions employer is involved in the selection or an employer does not avoid a payment purchase of any individual market under Code section 4980H by virtue of Prior to the enactment of PPACA, product, or (3) the employee obtains any an offer of an excepted benefit.37 titles I and IV of the Health Insurance individual health insurance coverage. E. Premium Tax Credit Portability and Accountability Act of The Departments explained that offering 1996 (HIPAA), Public Law 104–191, cash as an alternative to health coverage 1. In General added Code section 9802, ERISA section for individuals with adverse health Code section 36B allows for the PTC 702, and PHS Act section 2702 (HIPAA factors is an eligibility rule that to be available to applicable taxpayers to nondiscrimination provisions). The discourages participation in the help with the cost of individual health Departments published final rules traditional group health plan, in insurance coverage obtained through an implementing the HIPAA contravention of the HIPAA Exchange.38 Under Code section 36B(a) nondiscrimination provisions on nondiscrimination provisions. and (b)(1) and 26 CFR 1.36B–3(d), a , 2006 (the 2006 rules).28 D. Excepted Benefits taxpayer’s PTC is the sum of the PPACA section 1201 reorganized and premium assistance amounts for all Code section 9831, ERISA section coverage months during the taxable year amended the HIPAA nondiscrimination 732, and PHS Act sections 2722 and provisions of the PHS Act. Although for individuals in the taxpayer’s family. 2763 provide that the requirements of Under Code section 36B(c)(2), a Code section 9802 and ERISA section chapter 100 of the Code, part 7 of 702 were not amended, the month is not a coverage month for an ERISA, and title XXVII of the PHS Act individual if either: (1) The individual requirements of PHS Act section 2705 do not apply to excepted benefits. is eligible for coverage under an eligible were incorporated by reference into Excepted benefits are described in Code employer-sponsored plan and the Code section 9815 and ERISA section section 9832, ERISA section 733, and 29 coverage is affordable and provides MV; 715. As amended by PPACA, the PHS Act section 2791. or (2) the individual is enrolled in an nondiscrimination provisions of PHS There are four statutory categories of eligible employer-sponsored plan, even Act section 2705 largely reflect the 2006 excepted benefits, including limited if the coverage is not affordable or does rules and extend the HIPAA excepted benefits. Under the statutory not provide MV.39 An eligible nondiscrimination protections (but not provisions, limited excepted benefits employer-sponsored plan includes the wellness program exception) to the may include limited scope vision or coverage under a self-insured (as well as individual market. These provisions dental benefits, benefits for long-term an insured) group health plan 40 and is generally prohibit group health plans care, nursing home care, home MEC unless it consists solely of and health insurance issuers in the healthcare, or community-based care, or excepted benefits.41 group and individual markets from any combination thereof, and ‘‘such other similar, limited benefits as are discriminating against individual 2763(b). See also 79 FR 59130, 59131–59134 (Oct. specified in regulations’’ by the 1, 2014) discussing the application of these participants and beneficiaries in 32 eligibility, benefits, or premiums based Departments. To be excepted benefits requirements to benefits such as limited-scope under this category, the benefits must dental and vision benefits and employee assistance on a health factor.30 programs. either: (1) Be insured and provided 34 See 26 CFR 54.9831–1(c)(3)(v), (vi), and (vii); under a separate policy, certificate, or 29 CFR 2590.732(c)(3)(v), (vi), and (vii); and 45 CFR 28 71 FR 75013 (Feb. 12, 2007). contract of insurance; or (2) otherwise 146.145(b)(3)(v), (vi), and (vii). 29 PPACA section 1201 moved the HIPAA 33 35 See Code section 5000A(f)(3). nondiscrimination provisions from PHS Act section not be an integral part of the plan. The 36 2702 to PHS Act section 2705, with some See Code section 36B(c)(2)(B). 37 modifications. 31 See FAQs about Affordable Care Act See Code section 4980H(a)(1) and (b)(1). See 30 The HIPAA nondiscrimination provisions set Implementation (Part XXII), available at https:// also 26 CFR 54.4980H–1(a)(14). forth eight health status related factors. The eight www.dol.gov/sites/default/files/ebsa/about-ebsa/ 38 Exchanges are entities established under health factors are health status, medical condition our-activities/resource-center/faqs/aca-part-xxii.pdf PPACA section 1311 through which qualified (including both physical and mental illnesses), or https://www.cms.gov/CCIIO/Resources/Fact- individuals and qualified employers can purchase claims experience, receipt of healthcare, medical Sheets-and-FAQs/Downloads/FAQs-Part-XXII- health insurance coverage. history, genetic information, evidence of FINAL.pdf. 39 See Code section 36B(c)(2)(C)(iii) and 26 CFR insurability, and disability. These terms are largely 32 See Code section 9832(c)(2), ERISA section 1.36B–2(c)(3)(vii)(A) and 1.36B–3(c). overlapping and, in combination, include any factor 733(c)(2), and PHS Act section 2791(c)(2). 40 See 26 CFR 1.5000A–2(c). related to an individual’s health. 66 FR 1377, 1379 33 See Code section 9831(c)(1), ERISA section 41 See Code section 5000A(f)(3) and 26 CFR (Jan. 8, 2001). 732(c)(1), and PHS Act section 2722(c)(1) and 1.5000A–2(g).

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An HRA is a self-insured group health coverage of inpatient hospital services requirements for providing a QSEHRA. plan and, therefore, is an eligible and physician services.43 If an eligible employer complies with the guidance provided in Code section employer-sponsored plan. Accordingly, F. QSEHRAs under existing rules, an individual is 9831(d) and Notice 2017–67, it may ineligible for the PTC for the 1. In General provide a QSEHRA to its eligible individual’s Exchange coverage for a The 21st Century Cures Act (Cures employees and the QSEHRA is not month if the individual is covered by an Act) Public Law 114–255 was enacted required to comply with PHS Act HRA or is eligible for an HRA that is on December 13, 2016. Cures Act sections 2711 and 2713 because it is not affordable and provides MV for the section 18001 amended the Code, subject to those requirements. month. ERISA, and the PHS Act to permit an 2. QSEHRAs and the PTC eligible employer to provide a QSEHRA 2. Affordability and Minimum Value The Cures Act also added provisions to its eligible employees. The Cures Act to Code section 36B relating to how Under Code section 36B(c)(2)(C) and provides that a QSEHRA is not a group participation in a QSEHRA affects a 26 CFR 1.36B–2(c)(3)(v)(A)(1) and (2), health plan for purposes of the market taxpayer’s eligibility for the PTC and an eligible employer-sponsored plan is requirements, and, as a result, how participation in a QSEHRA affects affordable for an employee, or for an QSEHRAs are not subject to PHS Act 44 a taxpayer’s computation of the PTC. individual who may enroll in the sections 2711 and 2713. For purposes Under Code section 36B(c)(4)(A), if an coverage because of a relationship to the of these rules, the term ‘‘HRA or other employee is provided a QSEHRA that employee, if the amount the employee account-based group health plans’’ does constitutes affordable coverage for a must pay for self-only coverage whether not include QSEHRAs, unless otherwise month, the month is not a coverage specified. by salary reduction or otherwise (the month for the employee or the Pursuant to Code section 9831(d), a employee’s spouse or dependents, employee’s required contribution) does QSEHRA is an arrangement that meaning that the PTC is not allowed for not exceed a specified percentage of the generally must be provided on the same that month. Code section 36B(c)(4)(C) employee’s household income. The terms, subject to certain exceptions, and provides that a QSEHRA constitutes percentage is adjusted annually. cannot exceed a prescribed maximum affordable coverage for a month if the However, 26 CFR 1.36B–2(c)(3)(v)(A)(3) amount.45 For the purpose of identifying excess of the monthly premium for the provides an employee safe harbor under who can provide a QSEHRA, the statute self-only second lowest cost silver plan which an eligible employer-sponsored provides that an eligible employer is an in the employee’s individual market plan is not considered affordable for the employer that is not an applicable large over 1⁄12 of the employee’s permitted entire plan year of the eligible employer (ALE), as defined in Code benefit, as defined in Code section employer-sponsored plan if, at the time section 4980H(c)(2), and that does not 9831(d)(3)(C), does not exceed 1⁄12 of a an individual enrolls in a qualified offer a group health plan to any of its specified percentage of the employee’s health plan (QHP) offered through an employees. The statute also requires household income. Exchange, the Exchange determines that that an employer providing a QSEHRA the eligible employer-sponsored plan is Code section 36B(c)(4)(B) provides satisfies certain notice requirements that if an employee is provided a not affordable.42 Thus, the employee including a statement that the employee QSEHRA that does not constitute safe harbor locks in the Exchange’s should provide the information about affordable coverage for a coverage determination of unaffordability, which the permitted benefit to the applicable month, the PTC otherwise allowable for is based on estimated household Exchange if the employee applies for the month is reduced by 1⁄12 of the income, even if the eligible employer- advance payments of the premium tax employee’s annual permitted benefit sponsored plan ultimately proves to be credit (APTC). under the QSEHRA. affordable based on actual household On , 2017, the Treasury income for the tax year. Department and the IRS issued Notice G. Individual Market Special Enrollment 46 Under Code section 36B(c)(2)(C)(ii), 2017–67 to provide guidance on the Periods an eligible employer-sponsored plan Generally, individuals may enroll in 43 See 45 CFR 156.145. See also 80 FR 52678 or change to different individual health provides MV if the plan’s share of the (Sept. 1, 2015). total allowed costs of benefits provided 44 See Code section 9831(d)(1), ERISA section insurance coverage only during the under the plan is at least 60 percent of 733(a)(1), and PHS Act section 2791(a)(1). However, annual open enrollment period the costs. PPACA section 1302(d)(2)(C) QSEHRAs are group health plans under the PHS described in 45 CFR 155.410. An Act definition for purposes of part C of title XI of individual may qualify for an SEP to provides that, in determining the the Social Security Act (42 U.S.C. 1320d et seq.). percentage of the total allowed costs of See PHS Act section 2791(a)(1), as amended by enroll in or change to a different benefits provided under a group health Cures Act section 18001(c). In addition, QSEHRAs Exchange plan outside of the annual plan, the rules promulgated by HHS were not excluded from ERISA’s definition of open enrollment period under a variety employee welfare benefit plan under ERISA section of circumstances prescribed by PPACA under that paragraph of PPACA apply. 3(1) and, therefore, remain subject to the In general, HHS rules provide that an requirements for employee welfare benefit plans section 1311(c)(6)(C) and (D) and as eligible employer-sponsored plan under ERISA. See H. Rept. 114–634—Small described in 45 CFR 155.420. These provides MV only if the percentage of Business Health Care Relief Act of 2016 (the SEPs are under the jurisdiction of HHS, relevant provisions of this bill were passed into law and apply to persons seeking individual the total allowed costs of benefits by the Cures Act). Moreover, because QSEHRAs are provided under the plan is greater than employee welfare benefit plans, individual health health insurance coverage through a or equal to 60 percent, and the benefits insurance coverage that is reimbursed by a State Exchange or Federally-facilitated QSEHRA would not become part of an ERISA plan under the plan include substantial if the conditions of the DOL safe harbor described employees regarding a QSEHRA, and see FAQs later in this preamble are satisfied. About Affordable Care Act Implementation Part 35, 42 This employee safe harbor does not apply if the 45 See Code section 9831(d) and IRS Notice 2017– Q&A–3, available at https://www.dol.gov/sites/ individual does not respond to a redetermination 67, 2017–47 IRB 517, for additional detail. default/files/ebsa/about-ebsa/our-activities/ notice or, with reckless disregard for the facts, 46 See IRS Notice 2017–20, 2017–11 IRB 1010, resource-center/faqs/aca-part-35.pdf and https:// provides incorrect information to the Exchange. See which extended the period for an employer to www.cms.gov/CCIIO/Resources/Fact-Sheets-and- 26 CFR 1.36B–2(c)(3)(v)(A)(3). furnish an initial written notice to its eligible FAQs/Downloads/FAQ-Part-35_12-20-16.pdf.

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Exchange (FFE) and, in most cases, to H. Proposed Rules HRA 50 (the proposed PTC rules). DOL individuals seeking individual health In response to Executive Order 13813, proposed a clarification to provide HRA insurance coverage outside an and QSEHRA plan sponsors with 47 the Departments published a notice of Exchange. proposed rulemaking entitled ‘‘Health assurance that the individual health Paragraph (d) of 45 CFR 155.420 Reimbursement Arrangements and insurance coverage the premiums of describes the triggering events that Other Account-Based Group Health which are reimbursed by the HRA or QSEHRA does not become part of an qualify individuals, enrollees, and in Plans’’ on , 2018 (83 FR ERISA plan when certain conditions are some cases, their dependents for SEPs 54420) (the proposed rules), which satisfied. Finally, HHS proposed on the Exchanges through which they would expand the flexibility and use of changes to rules regarding SEPs in the can enroll in a QHP or change from one HRAs. individual market that would provide QHP to another. Paragraph (b) of 45 CFR The proposed rules would expand the an SEP for individuals who gain access 155.420 describes the coverage effective use of HRAs in several ways. First, the to individual coverage HRAs or who are dates available in connection with each proposed rules included a proposal to SEP. Paragraph (c) describes the provided QSEHRAs (the proposed SEP remove the current prohibition against 51 availability of each SEP relative to its rules). integrating an HRA with individual The Departments requested comments triggering event—that is, whether health insurance coverage 49 under the applicants may select a plan after the on all aspects of the proposed rules, as PHS Act section 2711 rules (the well as requesting comments on a event or also before the event. That proposed integration rules). The paragraph also describes the length of number of specific issues. The proposed integration rules included a Departments received over 500 time applicants have to select a plan proposal to permit an HRA to be comments in response to the proposed based on their SEP. Paragraph (a)(4) of integrated with individual health rules from a range of stakeholders, 45 CFR 155.420 describes the plan insurance coverage and, therefore, to including employers, health insurance changes that current Exchange enrollees satisfy PHS Act sections 2711 and 2713, issuers, State Exchanges, state and their dependents may make upon if the provisions of the proposed rules regulators, unions, and individuals. No qualifying for an SEP. Generally, current under 26 CFR 54.9802–4, 29 CFR requests for a public hearing were Exchange enrollees who qualify for most 2590.702–2, and 45 CFR 146.123 were received. After careful consideration of SEPs may change to another QHP satisfied. These final rules refer to this all of the comments, the Departments within the same metal level, or ‘‘plan type of HRA as an individual coverage are finalizing the proposed rules with category,’’ as their current QHP. Current HRA. certain modifications made in response enrollees whose dependent(s) qualify Second, the proposed rules provided to comments. These modifications are for most SEPs may add their an expanded definition of limited discussed later in this preamble. dependent(s) to their current QHP, or excepted benefits, under Code section enroll them in a separate QHP.48 In 9832(c)(2), ERISA section 733(c)(2), and II. Overview of the Final Rules on combination, the rules at 45 CFR PHS Act section 2791(c)(2)(C), to Individual Coverage HRAs and 155.420(a)(4) are generally referred to as include certain HRAs that are limited in Excepted Benefit HRAs—the ‘‘plan category limitations.’’ amount and with regard to the types of Departments of the Treasury, Labor, With regard to individual health coverage for which premiums may be and Health and Human Services insurance coverage sold outside of an reimbursed, if certain other conditions A. Integration Rules Exchange, 45 CFR 147.104(b)(2) are satisfied (an excepted benefit HRA) provides that health insurance issuers (the proposed excepted benefit HRA 1. Integration—In General must provide SEPs (referred to in the rules). Consistent with the objectives in regulation as limited open enrollment The Treasury Department and the IRS Executive Order 13813 to consider periods) for the triggering events also proposed rules under Code section proposing rules to expand and facilitate described in 45 CFR 155.420(d), except 36B for PTC eligibility for individuals access to HRAs, the proposed rules for certain triggering events listed under who are offered an individual coverage included a proposal to remove the 45 CFR 147.104(b)(2). Additionally, 45 prohibition on integration of an HRA CFR 147.104(b)(4)(ii) and (b)(5) apply 49 For purposes of this preamble and the final with individual health insurance the SEP availability and coverage rules, ‘‘individual health insurance coverage’’ coverage, if certain conditions were means health insurance coverage offered to satisfied. More specifically, in order to effective dates at 45 CFR 155.420 to individuals in the individual market, but does not SEPs available off-Exchange. However, include STLDI. See PHS Act section 2791(b)(5). See ensure compliance with PHS Act the plan category limitations do not also 26 CFR 54.9801–2, 29 CFR 2590.701–2, and 45 sections 2711 and 2713, the proposed apply outside the Exchanges. CFR 144.103. Individual health insurance coverage rules provided that to be integrated with can include dependent coverage and therefore can individual health insurance coverage, be self-only coverage or other-than-self-only 52 47 Group health plans and group health insurance coverage. ‘‘Individual market’’ means the market for the HRA must require participants issuers must provide SEPs under certain health insurance coverage offered to individuals circumstances and the Departments have other than in connection with a group health plan. 50 References in the preamble to ‘‘an offer of an jurisdiction over those provisions. See Code section See PHS Act section 2791(e)(1). See also 26 CFR individual coverage HRA’’ or to similar phrases 9801(f), ERISA section 701(f), and PHS Act section 54.9801–2, 29 CFR 2590.701–2, and 45 CFR mean an offer of an HRA designed to be integrated 2704(f); see also 26 CFR 54.9801–6, 29 CFR 144.103. As discussed later in this preamble, with individual health insurance coverage under 2590.701–6, and 45 CFR 146.117. The final rules do ‘‘group health insurance coverage’’ means health the final rules that will be considered integrated not affect the group health plan and group health insurance coverage offered in connection with a with that individual health insurance coverage for insurance issuer SEPs, which continue to apply to group health plan. Individual health insurance an individual who enrolls in that coverage. group health plans, including HRAs, and group coverage reimbursed by the arrangements described 51 On November 19, 2018, the Treasury health insurance issuers. in 29 CFR 2510.3–1(l) (which is finalized in this Department and the IRS issued Notice 2018–88. IRS 48 If an enrollee wants to add their dependent(s) rule) is not offered in connection with a group Notice 2018–88 described a number of proposals to their current QHP, but the plan’s business rules health plan, and is not group health insurance related to the application of Code sections 4980H do not allow the dependent(s) to enroll, then the coverage, provided all the conditions in 29 CFR and 105(h) to individual coverage HRAs. For Exchange must allow the enrollee and his or her 2510.3–1(l) are satisfied. See ERISA section additional discussion of IRS Notice 2018–88, see dependent(s) to change to another QHP within the 733(b)(4) and PHS Act section 2791(b)(4). See also elsewhere in this preamble. same level of coverage, or one metal level higher or 26 CFR 54.9801–2, 29 CFR 2590.701–2, and 45 CFR 52 For this purpose, the definition of participant lower, if no such QHP is available. 144.103. under 26 CFR 54.9801–2, 29 CFR 2590.701–2, and

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and any dependents 53 covered by the Each of these conditions, and the in the proposed rules were insufficient HRA 54 to be enrolled in individual related comments received, are to prevent market segmentation and health insurance coverage and to discussed in the following sections of destabilization of the individual market. substantiate compliance with this this preamble. This section of the Several of these commenters argued that requirement. preamble addresses the more general market segmentation could occur if Further, in order to prevent a plan comments on allowing HRAs to be employers that choose to offer an sponsor from intentionally or integrated with individual health individual coverage HRA have higher- unintentionally, directly or indirectly, insurance coverage. risk employees than those employers steering any participants or dependents Many commenters supported the that choose not to offer an individual with adverse health factors away from proposed rules. Some of these coverage HRA and that employers may the plan sponsor’s traditional group commenters expressed general support still be able to segment risk based on the health plan and into the individual for the Departments’ efforts to expand proposed classes of employees. Some of market, the proposed rules prohibited a the availability and use of HRAs and the these commenters asked that the rules plan sponsor from offering employees priority the Departments have placed on be withdrawn, or at least delayed, until within a class of employees a choice HRAs. Some commenters stated that the the potential effects on the individual between a traditional group health plan proposed rules would enable employers and group markets could be better and an individual coverage HRA. The to offer more affordable health coverage understood. proposed rules also required that an alternatives to employees and could More generally, commenters individual coverage HRA be offered on expand health insurance coverage, expressed a number of concerns the same terms to all employees within including for lower-wage and part-time regarding adverse selection and risk- a class of employees, subject to certain and other particular groups of pool effects of the proposed rules, exceptions, and the proposed rules employees. Some commenters focused including that the proposed rules would included proposed classes of employees on the potential benefits for small change the composition of the risk pools that employers could use for this employers, commenting that the for the individual and small group purpose. proposed HRA expansion would create markets, making coverage more The proposed rules also required new options for small employers that expensive and less accessible overall. individual coverage HRAs to allow have otherwise been unable to offer Some commenters were concerned that employees to opt out of and waive health insurance coverage due to the proposed rules would be future reimbursements under the HRA PPACA-related requirements. These particularly harmful to self-employed commenters asserted that the proposed at certain times, and to provide a notice individuals and small business HRA expansion would help small to eligible participants regarding how employees because those individuals employers provide meaningful benefits, the offer of the HRA, or enrollment in generally rely on coverage in the attract talent, and keep their workforce the HRA, affects the ability to claim the individual market and, according to the healthy. Some commenters expressed PTC. This was proposed because an commenters, the proposed rules would general support for allowing employers offer of an HRA may affect an increase premiums in the individual to move to a defined contribution individual’s eligibility for the PTC, and market. Some commenters were also approach for health insurance coverage, enrollment in an HRA does affect an concerned that employers may including because this likely permits individual’s eligibility for the PTC. substantially alter traditional group greater employee choice. Some commenters noted that allowing health plans to the detriment of all 45 CFR 144.103 applies, which is defined as a individual coverage HRAs could expand employees who rely on that coverage participant within the meaning of ERISA section and that there could be negative 3(7). Under ERISA section 3(7), ‘‘the term and stabilize the individual health ‘participant’ means any employee or former insurance market while providing implications in the small group market employee of an employer, or any member or former greater administrative simplicity and for states that have merged their member of an employee organization, who is or reducing administrative costs for individual and small group market risk may become eligible to receive a benefit of any type pools. One commenter stated that the from an employee benefit plan which covers employers. In particular, some employees of such employer or members of such commenters expressed the view that the negative effects of the proposed rules, organization, or whose beneficiaries may be eligible proposed rules would strengthen the particularly the increase in individual to receive any such benefit.’’ market premiums and the attendant 53 individual market due to an increased For this purpose, the definition of dependent number of individuals in the individual fiscal cost that the commenter expects to under 26 CFR 54.9801–2, 29 CFR 2590.701–2, and occur, are likely to outweigh the 45 CFR 144.103 applies, which is defined as ‘‘any market and because working individuals individual who is or may become eligible for who would be added to the individual benefits to employers and their coverage under the terms of a group health plan market tend to be of lower health risk employees. Another commenter asserted because of a relationship to a participant.’’ than those currently comprising the that the proposed rules would increase 54 The final rules use several terms premiums due to both adverse selection interchangeably regarding an individual’s individual market risk pool. Some individual coverage HRA status. These terms commenters also stated that employers and issuers’ increased uncertainty generally parallel those used when referring to may not necessarily be incentivized to regarding the effect of individual group or individual health insurance coverage. segment their risk and, therefore, coverage HRAs on the individual Specifically, ‘‘enrolled in’’ and ‘‘covered by,’’ both market. refer to the status of an individual who is concerns about adverse selection may be participating in an individual coverage HRA and overstated. The Departments agree with the can request reimbursements for medical care Some commenters who generally commenters who asserted that allowing expenses reimbursable under the HRA. The date on supported the proposed rules individual coverage HRAs will expand which an individual coverage HRA ‘‘takes effect’’ or flexibility and use of HRAs to provide ‘‘begins’’ refers to the first date on which emphasized that their support was reimbursable medical care expenses may be contingent on any final rules retaining additional options for employers and incurred. For example, an employee whose the conditions intended to prevent employees to offer and obtain quality, individual coverage HRA takes effect on may adverse selection. And some affordable healthcare. The Departments request reimbursements for medical care expenses also agree that individual coverage incurred on or after that date, if the individual is commenters opposed allowing enrolled in individual health insurance coverage or individual coverage HRAs. These HRAs would expand coverage and may Medicare on or before June 1. commenters stated that the safeguards provide greater administrative

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simplicity and reduce administrative plans and higher-risk employees are A number of commenters expressed costs for employers. generally more sensitive to the make-up concern about the impact on employees The Departments acknowledge the of the provider network than lower-risk shifting from traditional group health concerns expressed by commenters that employees. In addition, lower-risk plans to the individual market. Some allowing individual coverage HRAs employees might prefer an individual commenters emphasized that in order to could cause adverse selection in the coverage HRA because it could allow achieve the goals of expanding coverage individual market. As explained in the them to spend less on premiums— and increasing choice and flexibility for preamble to the proposed rules, reducing or potentially eliminating out- employers, it is vital that the individual allowing individual coverage HRAs of-pocket premiums and potentially market be stable and well-functioning; could theoretically result in leaving more funds to cover cost otherwise, employers will be unwilling opportunities for employers to sharing. Further, employers might be to utilize the expanded flexibility. Some encourage higher-risk employees (that discouraged by the legal risk involved commenters recommended that the is, employees with high expected with attempting to steer higher-risk Departments delay issuing the final medical claims or employees with employees away from the traditional integration rules until insurance in the family members with high expected group health plan. individual market is more affordable or medical claims) to obtain coverage in However, employers also would face until clearer information is available the individual market, external to the strong countervailing incentives to regarding the long-term stability of the traditional group health plan sponsored maintain (or improve) the average individual market, including the by the employer, in order to reduce the health risk of participants in their impacts of other recent changes such as cost of traditional group health plan traditional group health plans. the expansion of STLDI and changes to coverage provided by the employer to Therefore, the Departments have the PPACA section 1332 waiver lower-risk employees. This could determined that there is a risk of some program. Some commenters asked the happen in a number of ways. For market segmentation and health factor Departments to withdraw the proposed example, if employees were permitted discrimination that could result from integration rules and, instead, take other to choose between participating in an allowing individual coverage HRAs, but actions to stabilize the individual employer’s traditional group health plan the Departments also have determined market. One commenter requested that or an individual coverage HRA, some that the risk can be sufficiently HRA integration with individual health higher-risk employees might have an mitigated with conditions of the type insurance coverage be allowed only if incentive to select the HRA and enroll provided in the proposed rules (and in each employee is provided at least three in individual health insurance coverage, the final rules) designed to limit adverse choices for coverage in the individual depending on the relative generosity of selection. Moreover, as discussed in market. the individual coverage HRA and the more detail later in this preamble, the individual health insurance coverage as The Departments acknowledge that Departments considered the comments compared to the traditional group health the extent to which the goals of requesting that the Departments plan. There could be significant expanding coverage and options strengthen the conditions intended to differences between these coverage through individual coverage HRAs will limit adverse selection, and the options because individual health be achieved depends on the existence of Departments are finalizing those insurance coverage generally is required a stable individual market. Accordingly, proposed conditions with some changes to cover all categories of EHBs, and large the Departments are finalizing the group market and self-insured group in response to comments, including proposed rules with conditions on health plans are not required to do so. adding a minimum class size individual coverage HRAs intended to An employer could also deliberately requirement that will apply to certain prevent a negative impact on the attempt to steer employees with certain classes of employees in certain individual market. The Departments medical conditions away from the instances. Regarding the concern raised expect individual coverage HRAs, with employer’s traditional group health by commenters that the proposed the safeguards in the final rules, will plan. In either case, if conditions would not prevent adverse substantially increase the size of the disproportionately higher-risk selection if employers with higher-risk individual market and will not result in employees enrolled in individual employees chose to offer individual significant changes in the average health coverage HRAs, this adverse selection coverage HRAs, the Departments took risk of the individual market risk pool. could raise premiums in the individual that possibility into account in the The Departments also understand that market. regulatory impact analysis. currently the stability of the individual Both in promulgating the proposed Therefore, taking all of these market varies a great deal across the rules and again in response to considerations into account, the country, and that in some places comments provided on the proposed Departments have determined that improvement will likely be needed rules, the Departments considered the allowing individual coverage HRAs will before employers elect to offer possibility that the individual market produce significant benefits, including individual coverage HRAs. The could instead be positively impacted. increased options and coverage, and is Departments considered these issues in Lower-risk employees might choose not likely to create a material risk of developing the proposed and final rules individual coverage HRAs, while adverse selection in the individual and incorporated significant flexibility, higher-risk employees might elect to market due to the sufficiency of, and including geographic flexibility, to remain in their employer’s traditional changes to strengthen, the integration address these issues so that each group health plan. Such an outcome conditions intended to mitigate that risk employer may choose what is best for its could result for a host of reasons, that are finalized in this rulemaking. workforce. However, the final rules do including because higher-risk Accordingly, the Departments are not require that a minimum number of employees may be more risk averse to finalizing the proposed rules, including individual health insurance plans be changing health benefits. Additionally, each of the conditions included in the available to employees in order for the individual health insurance coverage proposed rules, but with various employer to offer an individual coverage might have more restrictive provider changes and clarifications, as explained HRA. There is no compelling networks than traditional group health later in this preamble. justification for such a requirement, and

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it is not necessary to ensure compliance for a substantial share of their other coverage that satisfies those with PHS Act sections 2711 and 2713. employees than a traditional group statutory requirements. The Employees often have limited choices health plan or no offer of employer- Departments have determined that it is with respect to the traditional group sponsored coverage. Further, as reasonable, and consistent with the health plans they are offered, if any, and described later in this preamble, DOL is statutory scheme, to apply PHS Act adopting this type of requirement would also clarifying the extent to which sections 2711 and 2713 to the integrated unnecessarily prevent certain employers employers may assist employees with arrangement rather than to each of its from offering an individual coverage regard to enrollment in individual component parts. HRA. Further, suggestions regarding health insurance coverage without As explained earlier in this preamble, changes to the other rules that affect the resulting in the individual health the Departments previously determined individual market, in order to improve insurance coverage becoming part of an that it was reasonable to consider an the individual market, are outside the ERISA plan. In addition, the HRA to be compliant with PHS Act scope of this rulemaking. Departments are continuing to consider sections 2711 and 2713 as long as Some commenters stated that the ways to assist employees offered an individuals covered by the HRA had proposed rules failed to adequately take individual coverage HRA, including other employer-provided group health into account the differences between through clear instructions in the plan coverage (including coverage traditional group health plans and Exchange application process and other offered by a different employer, such as individual health insurance coverage, possible methods of outreach and a spouse’s employer) that satisfied the the increased burden on employees in assistance. As to the more general conditions in PHS Act sections 2711 choosing and enrolling in a plan in the comments asserting that traditional and 2713, subject to certain other individual market relative to the burden group health plans have advantages as conditions.55 In that case, under the on employees under a traditional group compared to individual health combined arrangement, individuals health plan, and the significance of the insurance coverage, the Departments have the protections intended by change, from the employee’s acknowledge that there are differences. PPACA, in addition to the HRA that perspective. Other commenters stated The Departments intend with the final they generally may use to pay for that individuals in the individual rules to expand the choices available to premiums or other medical care market could face more expensive employers and employees and to make expenses not covered by the group plans, lower employer contributions, an additional option available for health plan. The Departments now narrower networks, and higher cost employers, including those that have extend this same approach to sharing. Some commenters stated that not previously offered traditional group integration with individual health these individuals could also face more health plan coverage. insurance coverage, which the confusion and be provided less Some commenters questioned the Departments have determined is assistance, in part due to decreased Departments’ legal authority with regard similarly justified and appropriate, as federal funding for outreach and to certain aspects of the proposed rules. individual health insurance coverage is assistance in the individual market. A few commenters questioned whether generally subject to and compliant with Some of these commenters asserted the Departments have the authority to PHS Act sections 2711 and 2713.56 what they believed to be the allow HRAs to satisfy PHS Act sections In developing the proposed and final comparative advantages of traditional 2711 and 2713 by virtue of integration rules, the Departments considered that group health plans, including that those with other coverage, and a few stated the Cures Act provided for QSEHRAs. plans are more robust, cost-effective, that the Departments failed to justify the However, in creating QSEHRAs, and consumer-friendly. One commenter removal of the regulatory prohibition on Congress did not enact a general expressed general concern about the integration of an HRA with individual prohibition on integrating an HRA with shifting of employees from a defined health insurance coverage. Further, a individual health insurance coverage. benefit health plan system to a defined few commenters asserted that the Instead, Congress allowed a limited contribution health plan system, Departments do not have the authority HRA that certain small employers may because, according to the commenter, it to allow individual coverage HRAs provide that is not a group health plan may result in less comprehensive because Congress enacted the Cures Act, subject to the market requirements and, coverage. which provided a limited exception to thus, need not be integrated with any The Departments considered, and are the prohibition on HRAs provided in aware, that an employee’s experience conjunction with individual health 55 The Departments note that under IRS Notice enrolling in and having coverage under insurance coverage in the form of 2015–17, HRAs that reimburse certain Medicare an individual coverage HRA may be QSEHRAs, and the commenters believe premiums and TRICARE expenses may be different than the experience of this indicates that Congress did not considered integrated with the group health plan coverage offered to the employee by the employer enrolling in and having coverage under intend to allow the Departments to although the employee is not enrolled in that group a traditional group health plan. The otherwise remove the regulatory coverage and is instead enrolled in Medicare or Departments took this into account in prohibition on integration of an HRA TRICARE, subject to certain conditions. Further, developing the proposed and final rules, with individual health insurance under 26 CFR 54.9815–2711(d)(5), 29 CFR including by requiring the individual 2590.715–2711(d)(5), and 45 CFR 147.126(d)(5), an coverage. employer payment plan for Medicare premiums coverage HRA to provide a notice to The Departments disagree with these offered by certain employers may be considered eligible participants explaining the commenters and, instead, have integrated with Medicare (and considered to be individual coverage HRA and the determined that the final rules are compliant with PHS Act sections 2711 and 2713), possible consequences of the HRA being justified and within the Departments’ subject to certain conditions. 56 Further, for the reasons discussed later in this offered and accepted. The Departments authority. While HRAs are group health preamble, the Departments have determined that understand that employers tend to act in plans subject to PHS Act sections 2711 permitting integration of individual coverage HRAs the best interest of their workers in and 2713 and would fail to comply with with Medicare is also justified and appropriate, order to recruit and retain talent. those provisions if they were offered on subject to certain conditions. References in this preamble to an individual coverage HRA integrated Therefore, an employer offering an their own, PHS Act sections 2711 and with Medicare refer to an individual coverage HRA individual coverage HRA generally will 2713 do not speak directly to situations integrated with Medicare Part A and B or Medicare do so because it is a better alternative in which an HRA is integrated with Part C.

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other health coverage to satisfy PHS Act the Departments have had additional the final rules to mitigate against sections 2711 and 2713. The fact that time to consider whether, and what type adverse selection and health factor Congress provided some flexibility for of, conditions would be sufficient to discrimination, and the anticipated certain employers by creating QSEHRAs mitigate the risk of adverse selection effect of the final rules to increase does not preclude the Departments from and health factor discrimination that choice and competition and decrease providing additional flexibility through might otherwise result from allowing the number of uninsured individuals. rulemaking to allow individual coverage HRAs to be integrated with individual One commenter stated that allowing HRAs.57 The final rules do not change health insurance coverage. individual coverage HRAs is contrary to the ability of eligible employers to The Departments have determined PPACA’s intent to create a stable provide QSEHRAs. Rather, the final that the advantages to employers and individual market. The Departments rules provide an opportunity for all employees of individual coverage HRAs acknowledge that allowing individual employers, including those who may or warrant allowing them to be offered,60 coverage HRAs in a way that could lead may not qualify to sponsor a QSEHRA, notwithstanding the concerns regarding to large-scale destabilization of the to sponsor an individual coverage potential adverse selection risk to the individual market could undermine one HRA.58 Moreover, by virtue of providing individual market. This is because the purpose of PPACA. However, the for QSEHRAs, Congress acknowledged Departments expect that the conditions Departments have carefully designed and left intact the Departments’ adopted in the final rules will the final rules to be consistent with regulations allowing for integration of significantly mitigate the risk of adverse Congress’s intent in enacting both HRAs with other group health plan selection. As to the benefits, the final PPACA and HIPAA.61 In developing the coverage. In so doing, Congress rules will increase flexibility and proposed and final rules, the recognized the Departments’ authority choices of health coverage options for Departments considered how to avoid to allow HRAs to be integrated with employers and employees. The permitting discrimination based on other group health plan coverage, which increased use of individual coverage health status or similar practices with is the same authority the Departments HRAs could potentially reduce respect to offering individual coverage now extend to allow integration of healthcare spending, particularly less HRAs to employees that might have HRAs with individual health insurance efficient spending, and ultimately result destabilizing effects on the individual coverage. in increased taxable wages for workers market or lead to higher premiums in The Departments acknowledge that in firms that currently offer traditional that market. The Departments have the final rules, in allowing individual group health plans. The final rules are determined that the risk of market coverage HRAs, remove the prohibition also expected to increase the number of segmentation and health factor on an HRA being integrated with low- and moderate-wage workers (and discrimination is sufficiently significant individual health insurance coverage their family members) with health to justify including conditions in the that the Departments had previously insurance coverage. final rules intended to mitigate those imposed. As noted earlier in this section Accordingly, the Departments risks, including strengthening certain of the preamble, in the 2015 rules and disagree with commenters who asserted conditions provided for in the proposed the guidance that preceded those rules, that the Departments are precluded from rules. Additionally, the Departments the Departments determined that HRAs allowing individual coverage HRAs have determined that the strengthened should not be allowed to be integrated because those arrangements were not conditions in the final rules, which are with individual health insurance previously allowed and that such a described at length later in this coverage, even though that insurance change is not sufficiently justified. The preamble, are both sufficient to mitigate coverage is generally subject to and Departments have considered whether those risks and consistent with HIPAA compliant with PHS Act sections 2711 to allow HRAs to be integrated with and PPACA. and 2713. The Departments at that time individual health insurance coverage, One commenter stated that it would declined to allow integration with and have determined that a change make little sense to expect individual individual health insurance coverage allowing that integration is warranted, coverage HRAs to comply with PHS Act because of concerns about adverse subject to a number of significant sections 2711 and 2713 because HRAs selection in the individual market. conditions intended to protect against function more like bank accounts than Since that time, the Departments have the risk of adverse selection and health health insurance policies. The observed that many employers, factor discrimination. This change Departments recognize that HRAs and especially small employers, continue to comes after the Departments’ health insurance policies can function struggle to offer health insurance consideration of various factors, coverage to their employees.59 Further, including the need to provide 61 In 1996, Congress enacted the HIPAA employers and employees additional nondiscrimination provisions, which now generally prohibit group health plans and health insurance 57 choices with respect to healthcare Congress has granted the Departments the issuers in the group and individual markets from authority to promulgate regulations as may be coverage, the ability of the conditions in discriminating against individual participants and necessary or appropriate to carry out the provisions beneficiaries in eligibility, benefits, or premiums of the Code, ERISA, and the PHS Act that were attachment/Report-Employer-Health-Benefits- based on a health factor. In 2010, Congress enacted added as a result of HIPAA and PPACA. See Code Annual-Survey-2018. PPACA, in part, because individual health section 9833, ERISA section 734, and PHS Act 60 HRA expansion is an Administration priority. insurance coverage was not a viable option for section 2792. In October 2017, the President issued Executive many individuals who lacked access to group 58 The Departments note that an employer may Order 13813, directing the Departments ‘‘to health plan coverage, given that individual market not both offer an individual coverage HRA and consider proposing regulations or revising issuers in many states could deny coverage, charge provide a QSEHRA, as a result of the QSEHRA rules guidance, to the extent permitted by law and higher premiums based on an individual’s health under Code section 9831(d) and as a result of the supported by sound policy, to increase the usability risk, or impose preexisting condition exclusions conditions that apply to individual coverage HRAs. of HRAs, to expand employers’ ability to offer HRAs based on an individual’s health risk. To address 59 In 2018, 57 percent of firms offered health to their employees, and to allow HRAs to be used these issues, PPACA included numerous provisions benefits to at least some of their workers; 47 percent in conjunction with nongroup coverage.’’ The that were intended to create a competitive of employers with three to nine workers offered Executive Order further provides that expanding individual market that would make affordable coverage, while virtually all firms with 1,000 or ‘‘the flexibility and use of HRAs would provide coverage available to individuals who do not have more workers offered coverage. See Kaiser Family many Americans, including employees who work at access to other health coverage, as set forth in detail Foundation, ‘‘Employer Health Benefits 2018 small businesses, with more options for financing in the preamble to the proposed rules. See 83 FR Annual Survey’’, Figure 2.2 at http://files.kff.org/ their healthcare.’’ 54420, 54428–54429 (Oct. 29, 2018).

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differently. However, HRAs are group clarifications as explained later in this health and substance use disorder health plans and, therefore, generally section of the preamble.63 services.65 are subject to the market requirements One commenter suggested that the Commenters also requested that the under the PHS Act, except to the extent final rules should allow an individual final rules clarify whether an individual that they are excepted benefits or are coverage HRA to provide benefits to coverage HRA may be integrated with retiree-only HRAs. The Departments dependents who are not enrolled in individual health insurance coverage lack the statutory authority to exempt individual health insurance coverage so sold in a state that has a waiver under HRAs that are otherwise subject to the long as the employee-participant is PPACA section 1332.66 Some market requirements from the category enrolled in individual health insurance commenters stated that integration with of group health plans subject to the coverage. The Departments decline to that coverage should be permitted so market requirements. The final rules adopt this suggestion because the long as the waiver does not allow allow individual coverage HRAs to requirements of PHS Act sections 2711 coverage to impose annual or lifetime comply with the requirements of PHS and 2713 apply to group health plans dollar limits or exclude benefits for Act sections 2711 and 2713 in a manner with respect to both participants and preventive services. Other commenters that preserves the protections of those dependents.64 argued that integration with that coverage should not be permitted sections. b. Individual Health Insurance Coverage because it might not satisfy all of the 2. Requirement That All Individuals With Which an Individual Coverage PPACA requirements. Covered by an Individual Coverage HRA HRA May Be Integrated The Departments note that although Be Enrolled in Individual Health Commenters generally supported the PPACA section 1332 allows states to Insurance Coverage rule that individual coverage HRAs waive certain provisions of PPACA, it a. In General must be integrated with individual does not allow states to waive PHS Act health insurance coverage as defined in sections 2711 and 2713. Therefore, the The proposed rules provided that an the PHS Act. As discussed in this final rules do not prohibit integration of HRA may be integrated with individual section of the preamble, several an HRA with individual health health insurance coverage, and would commenters requested clarification insurance coverage obtained in a state be considered compliant with PHS Act regarding whether integration with with a PPACA section 1332 waiver sections 2711 and 2713, if the HRA various types of individual health because individual health insurance requires the participant and any insurance coverage would be allowed coverage obtained in that state will be dependent(s) to be enrolled in under the proposed rules. subject to PHS Act sections 2711 and individual health insurance coverage Some commenters requested that the 2713.67 Other issues with regard to (other than coverage that consists solely final rules only permit integration with PPACA section 1332 are beyond the of excepted benefits) 62 for each month individual health insurance coverage scope of this rulemaking. each individual is covered by the HRA. that covers all EHBs or that provides One commenter requested Under the proposed rules, if the comprehensive mental health and confirmation that HRAs may be participants and dependents merely substance use disorder benefits. The integrated with catastrophic plans in the have the ability to obtain individual Departments decline to make revisions individual market. Another commenter health insurance coverage, but do not in response to these comments because requested that the final rules not allow actually have that coverage, the HRA under PPACA, individual health integration of HRAs with catastrophic would fail to comply with PHS Act insurance coverage generally is required plans because of the limited nature of sections 2711 and 2713. to cover all EHBs, including mental those plans. The Departments note that catastrophic plans, as set forth in Many commenters supported this 63 PPACA section 1302(e), are a type of condition and strongly recommended it The Departments note that when an individual enrolls in individual health insurance coverage, the individual health insurance coverage be included in the final rules. coverage generally will have an effective date that available to only certain individuals and Commenters that supported the is the first day of a calendar month. Other than for that provide only limited benefits until condition stated that it would reduce or mid-month enrollment of a new child, individual health insurance plans generally are not made the individual has incurred expenses prevent the risk of adverse selection and available for coverage to start mid-month. would ensure that employees directed Therefore, individual coverage HRA plan sponsors 65 See PPACA section 1302 and PHS Act section out of the group market have access to will need to take this into account in designing plan 2707(a). However, the Departments note that a stable individual market. The terms for eligibility for individual coverage HRAs, grandfathered individual health insurance coverage Departments agree that the requirement both with respect to employees offered the HRA for and ‘‘grandmothered’’ individual health insurance the full plan year and for those who become coverage subject to the HHS non-enforcement to have individual health insurance covered by the HRA subsequent to the first day of policy might not cover all EHBs. See later in this coverage in order to be covered by an the plan year, to ensure compliance with the preamble for a discussion of ‘‘grandmothered’’ individual coverage HRA is essential enrollment requirement under the final rules. individual health insurance coverage. and, in order to ensure compliance with 64 In addition, the commenter expressed 66 Under PPACA section 1332, a state can apply confusion as to how this integration requirement for a state innovation waiver from HHS and the PHS Act sections 2711 and 2713, the applies to a dependent who is not covered by the Treasury Department, which allows the state, if final rules adopt this requirement, individual coverage HRA, including a dependent approved, to implement innovative programs to generally as set forth in the proposed covered by another type of coverage or a dependent provide access to quality healthcare. States seeking integration rules, but with some the employee does not want to identify to the approval for a state innovation waiver must employer. While under the final rules an individual demonstrate that the waiver will provide access to coverage HRA must require that each individual health insurance coverage that is at least as 62 Throughout this preamble, references to covered by the HRA be enrolled in individual comprehensive and affordable as would be individual health insurance coverage in the context health insurance coverage, the final rules do not provided under PPACA without the waiver, will of the integration rules do not include coverage that include a requirement that the HRA cover any provide coverage to at least a comparable number consists solely of excepted benefits unless particular dependent(s), provided the HRA of residents of the state as would be provided otherwise specified. Also, see later in this preamble complies with PHS Act section 2714 and 26 CFR without a waiver, and will not increase the federal for a discussion of the conditions that apply if an 54.9815–2714, 29 CFR 2590.715–2714, and 45 CFR deficit. individual coverage HRA is integrated with 147.120 (relating to dependent coverage of children 67 HHS and the Treasury Department evaluate Medicare, in which case references to individual to age 26), nor is there a prohibition on allowing state PPACA section 1332 waiver applications on a health insurance coverage generally are considered the participant to exclude certain dependents from case-by-case basis and will include a determination to also refer to Medicare. coverage under the HRA. of the interaction with the final rules (if any).

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sufficient to reach the maximum out-of- stakeholders when individual health each individual health insurance policy pocket limit under PPACA.68 However, insurance coverage obtained by a in which a participant or dependent is catastrophic plans are subject to the participant in an individual coverage enrolled would be impracticable. An market requirements, including PHS Act HRA would not be part of an employee independent assessment of compliance sections 2711 and 2713. Therefore, the welfare benefit plan under ERISA, could require the participant or the HRA final rules do not prohibit integration of which would avoid the individual to identify for each individual health an individual coverage HRA with health insurance coverage effectively insurance policy in which a participant catastrophic plans. becoming group coverage. See later in or dependent is enrolled: (1) Which One commenter asked that the this preamble for discussion of how this benefits are considered EHBs for Departments prohibit integration with safe harbor would apply with respect to purposes of PHS Act section 2711, and ‘‘grandmothered’’ individual health individual health insurance coverage (2) whether all recommended insurance coverage, as it is not offered through web-based platforms, preventive services are covered without compliant with PPACA. Grandmothered such as private exchanges. cost sharing as required under PHS Act individual health insurance coverage One commenter supported the section 2713. refers to certain non-grandfathered proposal to prohibit integration with The Departments also noted that only health insurance coverage with respect individual health insurance coverage a small number of individuals currently to which CMS has announced it will not that consists solely of excepted benefits, are enrolled in grandfathered individual take enforcement action even though the noting that this aspect of the rule is health insurance coverage, and that coverage is out of compliance with consistent with the limited nature of grandfathered individual health certain specified market requirements. excepted benefits. The Departments insurance coverage may not be sold to To date, the CMS non-enforcement agree. Because coverage consisting new enrollees and may be renewed by policy has been extended to apply to solely of excepted benefits is not subject current enrollees only so long as the renewals of such coverage through to or generally compliant with PHS Act coverage satisfies strict conditions. policy years beginning on or before sections 2711 and 2713, the final rules Additionally, the Departments noted , 2020, provided that all such provide that individual coverage HRAs that the number of individuals with coverage comes into compliance with may not be integrated with individual grandfathered individual health the specified requirements by January 1, health insurance coverage that consists insurance coverage has declined each 2021.69 The Departments note that solely of excepted benefits. However, as year since PPACA was enacted, and the although grandmothered individual discussed later in this preamble, an already small number of individuals health insurance coverage is subject to HRA that reimburses only excepted who have retained grandfathered a non-enforcement policy for some benefits is not subject to the market coverage is expected to continue to market requirements, the non- requirements or the final rules. decline each year. Further, the enforcement policy does not extend to See later in this preamble for a Departments stated that because there compliance with PHS Act sections 2711 discussion of comments received are few individuals covered by and 2713. Accordingly, grandmothered regarding integration of HRAs with grandfathered individual health plans are subject to PHS Act sections student health insurance coverage, as insurance coverage, the Departments 2711 and 2713, and under the final well as types of coverage other than anticipate that there will only be rules, an individual coverage HRA may individual health insurance coverage. extremely limited instances in which be integrated with grandmothered Also, see later in this preamble for a these individuals will be offered and individual health insurance coverage. discussion of the conditions under accept an individual coverage HRA. One commenter requested which an individual coverage HRA may Moreover, because new enrollees cannot clarification as to whether individual be integrated with Medicare. enroll in grandfathered individual health insurance coverage sold through health insurance coverage, employers c. Proxy Approach To Verify a private exchange model qualifies as offering traditional group health plans Compliance coverage that may be integrated with an would not be able to shift workers into HRA. To the extent coverage sold Under the proposed rules, all this coverage. The Departments also through a private exchange model is individual health insurance coverage explained that although plans are individual health insurance coverage, (except for coverage that consists solely required to disclose grandfathered status within the meaning of the PHS Act,70 an of excepted benefits) would be treated in any summary of benefits provided HRA may be integrated with that as being subject to and compliant with under the plan, the Departments were coverage. However, the Departments PHS Act sections 2711 and 2713. The concerned that the frequency of this note that as part of the final rules DOL Departments explained that requiring a disclosure to participants may be is issuing a safe harbor to clarify to participant or an individual coverage insufficient to substantiate compliance HRA to substantiate compliance with if integration with these policies were 68 To be eligible for a catastrophic plan, an PHS Act sections 2711 and 2713 prohibited. individual must either be under the age of 30 or separately for each individual health For these reasons, the Departments qualify for a hardship or affordability exemption insurance policy in which a participant preliminarily determined that deeming under Code section 5000A. See PPACA section 1302(e) and 45 CFR 156.155. One commenter or dependent is enrolled would be an a policy to be compliant with PHS Act suggested that the Departments change the unwieldy and overly burdensome task. sections 2711 and 2713 for purposes of definition of catastrophic plan so that it is available The Departments acknowledged that the proposed rules if it is sold in the to individuals other than those who are eligible this approach would allow integration individual market, referred to as the under PPACA section 1302(e). That change is outside the scope of this rulemaking. with grandfathered individual health proxy approach, strikes an appropriate 69 See CMS Insurance Standards Bulletin Series— insurance coverage, which is not subject balance. The Departments also solicited INFORMATION—Extension of Limited Non- to, and might not be compliant with, comments on methods by which an Enforcement Policy through 2020 (, 2019), PHS Act sections 2711 and 2713. HRA could substantiate whether available at https://www.cms.gov/CCIIO/Resources/ However, the Departments reasoned that individual health insurance coverage is Regulations-and-Guidance/Downloads/Limited- Non-Enforcement-Policy-Extension-Through- requiring participants or HRAs to subject to and complies with PHS Act CY2020.pdf. substantiate compliance with PHS Act sections 2711 and 2713, including how 70 See PHS Act section 2791(b)(5). sections 2711 and 2713 separately for an HRA might identify which benefits

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under the individual health insurance employers and employees would be coverage may not be sold to new coverage are considered EHBs for unable to determine if the individual enrollees.74 purposes of PHS Act section 2711 and health insurance coverage was d. Forfeiture whether all recommended preventive compliant with PHS Act sections 2711 services are covered without cost and 2713. Another commenter noted The proposed rules provided that the sharing. The Departments solicited that if only a small number of requirement that each individual comments on whether an alternative individuals currently are enrolled in covered by an individual coverage HRA approach, such as a requirement that an grandfathered individual health must be enrolled in individual health insurance coverage would apply for issuer make a representation about insurance coverage, prohibiting each month that the individual is compliance and/or grandfathered status integration with that coverage should upon request, would be practical, or covered by the HRA. The proposed rules impact very few individuals. One further provided that if an individual whether any other methods might be commenter suggested, as an alternative appropriate as an alternative to the covered by the HRA fails to have to the proxy approach, that issuers proposed proxy approach. individual health insurance coverage for Some commenters expressed support could be required to provide a list of any month, the HRA would fail to for the proxy approach, stating that it enrolled individuals to the individual comply with PHS Act sections 2711 and would be unreasonable to require coverage HRA. 2713 for that month. Accordingly, the employers or participants to The Departments considered these proposed rules required that an substantiate that individual health comments and have determined that individual coverage HRA provide that if insurance coverage is compliant with requiring a participant or an HRA to any individual covered by the HRA PHS Act sections 2711 and 2713. They substantiate each individual health ceases to be covered by individual stated that the proxy approach is insurance policy’s compliance with PHS health insurance coverage, the reasonable with respect to grandfathered Act sections 2711 and 2713 would be an individual may not seek reimbursement individual health insurance coverage unwieldy and burdensome task. under the HRA for claims that are because the number of individuals with Further, state and federal regulators incurred after the individual health that coverage is declining and review policy forms of issuers in the insurance coverage ceases, subject to consumers may not newly purchase individual market for compliance with any applicable continuation-of-coverage grandfathered individual health the federal requirements before the requirements. Further, under the insurance coverage.71 products can be offered for sale in the proposed rules, if all individuals in a However, some commenters given family who are covered by the states and undertake market conduct encouraged the Departments to prohibit individual coverage HRA cease to be examinations to ensure compliance with integration with grandfathered coverage covered by individual health insurance federal requirements. Thus, it is because it is not required to comply coverage, the participant must forfeit the reasonable to assume, as a general with the annual dollar limit prohibition HRA, in accordance with applicable matter, that a policy sold in the or the preventive services laws (including COBRA and other requirement.72 Some of these individual market complies with PHS continuation-of-coverage requirements). commenters questioned whether the Act sections 2711 and 2713 for purposes One commenter requested that the 73 Departments had the legal authority to of the final rules. Departments clarify how the COBRA deem such coverage to be in compliance With respect to grandfathered rules apply when an individual loses with PHS Act sections 2711 and 2713. individual health insurance coverage, access to an individual coverage HRA One commenter disagreed with the the Departments have concluded that it due to failing to maintain individual Departments’ assumption that is appropriate to adopt the proxy health insurance coverage. Other approach as proposed because the commenters generally requested 71 A few commenters expressed concern with number of individuals with guidance on the interaction between what they understood to be a proposed requirement that the employer verify that each individual health grandfathered individual health COBRA and individual coverage HRAs. insurance policy in which an employee enrolls insurance coverage is low and expected Generally, HRAs are group health complies with PHS Act sections 2711 and 2713. to decrease; individual coverage HRAs plans subject to COBRA continuation Due to this concern, they suggested safe harbors to and participants may have difficulty coverage requirements under Code avoid imposing this burden on employers, such as section 4980B and ERISA sections 601 only allowing integration with QHPs or plans of a confirming which benefits under the certain metal level, and one commenter suggested grandfathered plan are considered EHBs through 608 (COBRA continuation implementing a plan compliance certification for purposes of PHS Act section 2711, coverage), unless an exception system. However, the proposed rules did not applies.75 Under the COBRA impose a requirement on the employer to verify the whether all recommended preventive compliance of each individual health insurance services are covered without cost continuation coverage rules, certain policy in which an employee enrolls with PHS Act sharing, and whether a particular policy individuals who lose employer- sections 2711 and 2713. Furthermore, the is grandfathered; and grandfathered sponsored coverage may elect to Departments are not imposing such a requirement continue the coverage by paying a in the final rules, and are finalizing the proxy premium.76 In order to qualify for approach. 73 With respect to the suggested alternative 72 One commenter objected to the Departments’ approach to the proxy approach that the assertion in the preamble to the proposed rules that Departments could require issuers to provide 74 See later in this preamble for a discussion of only a small number of individuals are currently employers who sponsor individual coverage HRAs the conditions that apply to an individual coverage enrolled in grandfathered individual health with a list of individuals covered by individual HRA integrated with Medicare, including that the insurance coverage. However, the study the health insurance coverage, that alternative approach combined arrangement is considered to comply commenter cited to support the assertion that there appears to also include an assumption that the with PHS Act sections 2711 and 2713. is a substantial amount of grandfathered individual policies sold are in compliance with PHS Act 75 Plans sponsored by certain small employers, health insurance coverage remaining relates to sections 2711 and 2713 (to avoid requiring churches, or governments are not subject to Code grandfathered group coverage (not grandfathered confirmation of the compliance of each policy section 4980B. See Code section 4980B(d). individual health insurance coverage). See Kaiser enrolled in), while adding burdens on the issuers 76 See Code section 4980B and ERISA sections Family Foundation, ‘‘Employer Health Benefits to track and communicate with employers with 601–608. See also 26 CFR 54.4980B–1 et seq. and 2018 Annual Survey’’, http://files.kff.org/ whom they would not otherwise interact. For these 29 CFR 2590.606–1, 2590.606–2, 2590.606–3, and attachment/Report-Employer-Health-Benefits- reasons, the final rules do not adopt this alternative 2590.606–4. Non-federal governmental group health Annual-Survey-2018. approach. Continued

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COBRA continuation coverage, the loss may limit the time to submit expenses reimbursement, and date of termination of coverage must be the result of a to a reasonable specified period. The of coverage would apply.81 ‘‘qualifying event.’’ The Departments final rules include some modifications One commenter requested that, clarify that failure by an individual to to clarify these rules. The final rules following separation from service, satisfy the integration requirement of also clarify that the prohibition on amounts should remain in a former maintaining individual health insurance reimbursing amounts for expenses employee’s individual coverage HRA for coverage is not a qualifying event for incurred after an individual’s individual out-of-pocket costs and should remain purposes of COBRA or other health insurance coverage ceases available after the individual has access continuation of coverage rules. Thus, applies to the individual coverage HRA, to other coverage. Under the final rules, the loss of eligibility to participate in an rather than to the individual seeking a plan sponsor may permit a former individual coverage HRA due to the reimbursement. employee to have continued access to failure of the individual to maintain One commenter requested an individual coverage HRA, and in individual health insurance coverage clarification regarding whether an some circumstances a former employee does not create a right to COBRA or individual with individual health may be able to elect to continue the other group continuation coverage in insurance coverage who is in an HRA under the applicable continuation the individual coverage HRA. Exchange grace period 79 is considered of coverage requirements. However, the However, a loss of coverage due to a to be enrolled in individual health final rules do not include an exception termination of employment or a insurance coverage for purposes of this for former employees to the requirement reduction in the number of hours of integration requirement. Under the final that individuals covered by an employment generally is a loss of rules, in the event an individual individual coverage HRA must be coverage due to a qualifying event. initially enrolled in individual health enrolled in individual health insurance Thus, for example, an employee covered insurance coverage fails to pay coverage. This is because PHS Act by an individual coverage HRA who, premiums for the individual health sections 2711 and 2713 apply with due to a reduction in hours, is moved insurance coverage timely and is, respect to each individual covered by a to a class of employees who are not therefore, in a grace period, the group health plan, including any former offered any group health coverage individual is considered to be enrolled employee. Therefore, a former employee would have a right to COBRA or other in individual health insurance coverage with an individual coverage HRA is group continuation coverage in the for purposes of the enrollment required to be enrolled in individual HRA, as would an individual who loses requirement, and the HRA must health insurance coverage to ensure that coverage under the HRA due to reimburse the individual for expenses the former employee has a combined termination of employment. That HRA incurred during that time period arrangement that is in compliance with COBRA or other group continuation according to the terms of the HRA. If the PHS Act sections 2711 and 2713.82 coverage would be conditioned on a individual fails to pay the applicable 3. Prohibition Against Offering a Choice timely election of COBRA or other premium(s) by the end of the grace Between an Individual Coverage HRA group continuation coverage and period and individual health insurance and a Traditional Group Health Plan to payment of COBRA or other group coverage is cancelled or terminated, the Same Class of Employees continuation coverage premiums, as including retroactively, the HRA must well as maintaining (or enrolling in) require the individual to notify the HRA a. In General individual health insurance coverage.77 that the individual health insurance To address the previously described Alternatively, an employee who loses coverage has been cancelled or concerns about potential adverse coverage under an individual coverage terminated and the date on which the selection and health factor HRA for these reasons may qualify for cancellation or termination is effective. discrimination, the proposed rules an SEP to change his or her individual After the individual coverage HRA has provided that a plan sponsor may offer coverage either on- or off-Exchange.78 received the notice of cancellation or an individual coverage HRA to a class One commenter requested termination, the HRA may not of employees only if the plan sponsor clarification regarding whether a failure reimburse expenses incurred on and to maintain individual health insurance after the date of cancellation or 81 The Departments note that in considering coverage causes retroactive forfeiture of termination of the individual health whether to attempt to recoup reimbursements paid the individual coverage HRA. Under the insurance coverage, which is considered for medical care expenses under an individual coverage HRA, including expenses incurred during final rules, the required forfeiture to be the date of termination of coverage a period in which an individual did not have applies prospectively. The individual under the HRA. Although the individual health insurance coverage due to a coverage HRA must allow an employee commenter specifically asked about retroactive cancellation or termination of coverage, who loses coverage under the HRA due grace periods, the final rules have also the individual coverage HRA must consider PHS Act section 2712, which limits a plan’s ability to to failure to maintain individual health been revised to address other situations rescind coverage to instances in which an insurance coverage to seek in which coverage is cancelled or individual has committed fraud or intentionally reimbursement for substantiated terminated retroactively, including misrepresented a material fact. See 26 CFR medical care expenses that were rescissions,80 and in those cases, the 54.9815–2712, 29 CFR 2590.715–2712, and 45 CFR 147.128. See also DOL Advisory Opinion 77–08A incurred during the coverage period same rules regarding notification, (advising a health plan that depending on the facts prior to the failure to maintain and circumstances, the hardship to the participant individual health insurance coverage. 79 The Departments note that while 45 CFR or beneficiary resulting from such recovery or the However, the individual coverage HRA 156.270 provides a specific grace period for cost to the fund of collection efforts may be such individuals enrolled in the Exchange who are that it would be prudent, within the meaning of receiving APTC, this grace period would not be ERISA section 404(a)(1)(B), for the fund not to seek plans offered by state or local governments to their applicable for an individual covered by an recovery from the participant or beneficiary). respective employees are subject to parallel individual coverage HRA because the individual 82 However, as explained earlier in this preamble, continuation of coverage requirements under the will be ineligible for the PTC and APTC. Outside a retiree-only HRA is not subject to the market PHS Act. See 42 U.S.C. 300bb–1 et seq. of the context of Exchange coverage for which requirements. Therefore, a retiree-only HRA need 77 See IRS Notice 2002–45 for more information APTC is being provided, grace periods are not comply with the final integration rules, on providing COBRA continuation coverage under determined by state law. including the requirement that individuals an HRA. 80 See 45 CFR 147.128 for rules regarding receiving the HRA enroll in individual health 78 See 45 CFR 147.104(b)(2) and 155.420(d)(1)(i). rescissions of individual health insurance coverage. insurance coverage.

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does not also offer a traditional group have an incentive to send their higher- coverage or self-insured plans. However, health plan to the same class of risk employees to the individual market the Departments would not expect many employees. Therefore, a plan sponsor because insured traditional group health small employers to offer this choice would not be permitted to offer any plans in the small group market are part because the coverage in the small group employee a choice between a traditional of a community rated single risk pool. market and individual market is quite group health plan and an individual A few commenters also noted that similar and because, as the commenters coverage HRA. allowing small employers to offer note, small employers that purchase Many commenters expressed support employees a choice would be consistent health insurance would not have an for the prohibition against allowing a with Executive Order 13813, which one incentive to segment their risk pool. plan sponsor to offer a class of commenter noted specifically referred to Although allowing small employers to employees a choice between an small employers. One commenter offer a choice would not provide small individual coverage HRA and a indicated that the prohibition on choice employers much benefit, it would traditional group health plan. These might dissuade employers from offering increase the complexity of the final commenters generally stated that this individual coverage HRAs to their rules for entities involved in prohibition is essential to prevent employees. The commenter also noted implementation, such as the Exchanges. market segmentation and health status that if given the choice, lower-risk Additionally, it could cause some discrimination. They noted that, while employees, rather than higher-risk uncertainty for issuers, and, therefore, on its face allowing a choice between employees, may leave the employer’s increased premiums, in both the the two types of coverage may seem traditional group health plan and individual and small group markets. appealing, in practice it would lead purchase individual health insurance Accordingly, in the final rules, the employers to encourage higher-risk coverage.83 Departments decline to provide an employees to go into the individual The Departments generally agree with exception for small employers to the market, by making plan design changes commenters that stated that permitting condition that a plan sponsor may not to traditional group health plans to employers to offer an employee a choice offer an employee a choice between a make them less attractive to higher-risk between an individual coverage HRA traditional group health plan and an employees. This, in turn, could have and a traditional group health plan individual coverage HRA. While the significant detrimental effects on the could lead to market segmentation.84 Departments are finalizing the proposal individual market due to the small size Although some lower-risk employees to prohibit choice between an of the individual market compared to may choose to enroll in individual individual coverage HRA and a the size of the group market. One health insurance coverage if offered a traditional group health plan, the commenter noted that the prohibition choice, many employers would have Departments are generally supportive of against offering employees a choice strong economic incentives to encourage maximizing employee choice and between a traditional group health plan lower-risk employees to retain employer flexibility and so may revisit and an individual coverage HRA would traditional group health plan coverage this issue in future rulemaking once the protect employers from baseless claims and higher-risk employees to enroll in Departments have had the opportunity of discrimination. Another commenter individual health insurance coverage. to gauge the results of the initial stated that permitting employers to offer With respect to the suggestion that the implementation of individual coverage a choice between an individual coverage Departments allow employers in the HRAs. HRA and a traditional group health plan small group market to offer a choice to could raise practical and administrative employees, the Departments b. Definition of Traditional Group issues for employers and issuers, acknowledge that the incentives for Health Plan including in estimating participation in these employers to segment risk are For purposes of the condition that a the traditional group health plan. substantially lower than for other plan sponsor may not offer any A few commenters opposed the employers offering experience-rated employee a choice between an prohibition on offering employees a individual coverage HRA and a choice between a traditional group 83 One commenter requested that the prohibition traditional group health plan, under the health plan and an individual coverage against choice not apply to spouses and proposed rules, the term ‘‘traditional HRA, asserting that such a rule would dependents, noting that many employers do not group health plan’’ was defined as any restrict choice for employees and contribute to family premiums under group health plans. Although the Departments anticipate that group health plan other than: (1) An flexibility for employers. Some of these employers will generally not offer dependents an account-based group health plan, or (2) commenters asserted that the other independent benefit package, for the sake of clarity, a group health plan that consists solely conditions in the proposed rules, such and in response to this comment, the Departments of excepted benefits. as the same terms requirement and the note that the prohibition is intended to apply to both participants and dependents, and the final Several commenters supported the prohibition on integration with STLDI, rules are revised to clarify this intent. proposed definition, which provided each described later in this preamble, 84 Although this condition generally is finalized that a ‘‘traditional group health plan’’ were sufficient to prevent adverse as proposed, the text of the final rules is updated excludes a group health plan that to include a reference to the special rule for new selection. consists solely of excepted benefits, so A few commenters acknowledged the hires, explained later in this preamble. In general, that a plan sponsor may offer an risk of market segmentation by under the special rule for new hires, a plan sponsor may continue to offer some employees in a class of employee both an individual coverage employers in the large group market or employees a traditional group health plan (that is, HRA and a group health plan that that offer self-insured plans, but current employees), while offering new employees consists solely of excepted benefits.85 requested that small employers in that class an individual coverage HRA, and, therefore, in that limited case, a plan sponsor may generally, or small employers offering offer a traditional group health plan to some 85 One commenter asked that the Departments plans in the fully insured small group employees in a class of employees and an confirm that a traditional group health plan means market, be allowed to offer their individual coverage HRA to other employees in the a major medical plan and not a group health plan employees a choice between an same class of employees. However, the special rule that consists solely of excepted benefits. The for new hires does not provide an exception to the Departments confirm the definition of traditional individual coverage HRA and a rule that no participant may be given a choice group health plan does not include a group health traditional group health plan. They between a traditional group health plan and an plan that consists solely of excepted benefits. The noted that small employers would not individual coverage HRA. Continued

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After considering these comments, the coverage that is not purchased on an any issues arising under Code section Departments finalize the definition of Exchange. Therefore, for an employee 125, and any guidance requested by ‘‘traditional group health plan’’ in the covered by an individual coverage HRA commenters to address those issues, are proposed rules without change. who purchases individual health beyond the scope of this rulemaking. Notwithstanding different QSEHRA insurance coverage outside of an The Treasury Department and the IRS, rules,86 under the final rules, a Exchange, the employer may permit the however, appreciate the comments and traditional group health plan does not employee to pay the balance of the will consider whether to address some include a group health plan that premium for the coverage through its of these issues in future guidance. consists solely of excepted benefits and, cafeteria plan, subject to all applicable 4. Same Terms Requirement therefore, a plan sponsor generally may cafeteria plan guidance. Such an offer an employee both an individual arrangement would not be considered to a. In General coverage HRA and a group health plan be a traditional group health plan for To address concerns about health that consists solely of excepted purposes of the final rules. status discrimination leading to adverse benefits.87 Some commenters supported allowing selection in the individual market, the One commenter requested that the a salary reduction arrangement under a proposed rules generally required that a Departments clarify that the final rules cafeteria plan alongside an individual plan sponsor that offers an individual would not preclude an employer that coverage HRA, with one commenter coverage HRA to a class of employees offers an individual coverage HRA from noting that this flexibility is essential to must offer the HRA on the same terms offering a separate HRA under which ensuring successful take-up of (that is, both in the same amount and only premiums for excepted benefits individual coverage HRAs. One otherwise on the same terms and may be reimbursed. The Departments commenter recommended against conditions) to all employees within the agree that such an arrangement is not allowing a salary reduction arrangement class of employees.90 As part of this precluded by these final rules. An HRA alongside an individual coverage HRA proposed condition, the Departments under which only excepted benefit unless further guidance is issued on made clear that offering a more generous premiums may be reimbursed is an cafeteria plans addressing HRA to individuals based on an adverse account-based group health plan (and, nondiscrimination rules and penalties. health factor would violate the therefore, not considered a traditional One commenter requested that the integration rules. group health plan). Further, the HRA Departments work with Congress to Commenters generally supported the under which only excepted benefit eliminate the prohibition, under Code same terms requirement as a condition premiums may be reimbursed is a group section 125(f)(3), against purchasing essential to protecting against market health plan that provides only excepted Exchange coverage under a cafeteria segmentation and recommended that it benefits (and, therefore, not considered plan. be retained in the final rules. Some a traditional group health plan). See Under the final rules, as under the commenters specifically supported the later in this preamble for a discussion of proposed rules, an employer may permit ability under the proposed rules to vary the interaction of an excepted benefit an employee covered by an individual the HRA terms and amounts between HRA and an individual coverage HRA, coverage HRA who purchases different classes of employees. Because and the difference between an excepted individual health insurance coverage the Departments have concluded that benefit HRA and an HRA that only outside of an Exchange to pay the the same terms requirement is critical to provides excepted benefits. balance of the premium for the coverage protecting against adverse selection in through its cafeteria plan, subject to all the individual market, the final rules c. Salary Reduction Arrangements applicable cafeteria plan guidance. This retain this requirement, but with some The preamble to the proposed rules arrangement would not be considered to revisions and clarifications in response noted that the Departments were aware be a traditional group health plan for to comments as explained later in this that some employers may want to allow purposes of the final rules. Changes to section of the preamble. employees to pay the portion of the the statutory prohibition regarding the One commenter stated that the same premium for individual health use of cafeteria plans to purchase terms requirement prohibits insurance coverage that is not covered Exchange coverage are outside of the discrimination that could occur either by an individual coverage HRA, if any, scope of this rulemaking. by offering less generous benefits to through a salary reduction arrangement Commenters also raised various other only certain employees in a class of under a cafeteria plan. Pursuant to Code issues related to the interaction between employees or by offering more generous section 125(f)(3), an employer generally individual coverage HRAs and cafeteria benefits to only certain employees in a may not provide a QHP offered through plans under Code section 125. A few class of employees. The commenter an Exchange as a benefit under its commenters expressed support for the stated that it is critical that this cafeteria plan.88 Therefore, an employer ability to integrate a stand-alone prohibition against ‘‘benign’’ generally may not permit employees to cafeteria plan with individual health discrimination be retained in the final 89 make salary reduction contributions to a insurance coverage. And some rules. The Departments agree, and this cafeteria plan to purchase a QHP offered commenters requested that the aspect of the rule is being adopted as through an Exchange. Departments provide answers to proposed. hypothetical scenarios involving the However, Code section 125(f)(3) does b. Exceptions to the Same Terms not apply to individual health insurance intersection of cafeteria plans, HSAs, and HRAs. Neither the proposed rules Requirement commenter also noted that an employer may not nor the final rules make any changes to The Departments recognize that provide both a QSEHRA and a group health plan the rules under Code section 125. Thus, premiums for individual health that consists solely of excepted benefits. 86 See Code section 9831(d)(3)(B)(ii) and IRS 89 As noted earlier in this preamble, for purposes 90 The Departments note that if an employer Notice 2017–67. of the final rules, the term ‘‘HRA or other account- chooses not to distinguish its employees based on 87 But see later in this preamble for a discussion based group health plan’’ does not include an the classes of employees permitted under the final of the interaction between excepted benefit HRAs employer arrangement that reimburses the cost of rules and offers an individual coverage HRA to all and individual coverage HRAs. individual health insurance coverage through a of its employees, the same terms requirement would 88 But see Code section 125(f)(3)(B). cafeteria plan under Code section 125. apply to all of the employer’s employees.

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insurance coverage obtained by final rules retain the rule that the same such as those that protect against age individual coverage HRA participants maximum dollar amount attributable to discrimination. and their dependents may vary and, the increase in age must be made One commenter requested that the thus, some variation in amounts made available to all participants in a class of Departments clarify the date as of which available under an individual coverage employees who are the same age. the age of the participant may be HRA, even within a class of employees, The Departments considered a determined for this purpose and may be appropriate. Therefore, the number of different ways to design the suggested the first day of the HRA plan proposed rules provided that it would limitation on age variation, including by year. The final rules clarify that a be permissible to increase the maximum incorporating the federal and state age participant’s age, for purposes of the dollar amount made available under an curves, tying the variation to a specific same terms requirement, may be individual coverage HRA for premium for a specific policy that a determined by the plan sponsor using participants within a class of employees participant in the class of employees any reasonable method for a plan year, as the age of the participant increases, could purchase, and basing the so long as the plan sponsor determines so long as the same maximum dollar maximum dollar amount made available each participant’s age for this purpose amount attributable to that increase in by the individual coverage HRA on the using the same method for all age was made available to all degree of age variation in individual participants in the class of employees participants of the same age within the market premiums in the rating area for the plan year and the method is same class of employees. where each employee resides. However, determined prior to the plan year. For Commenters generally supported the the Departments determined that these example, as the commenter suggests, the provision allowing increases in options would be unduly complex and plan sponsor may determine each individual coverage HRA amounts that imposing the 3:1 limit, which is participant’s age based on their age on based on the participant’s age, as generally based on the degree of age the first day of the individual coverage premiums in the individual market variation allowed in individual market HRA plan year. generally increase based on age. premiums under PHS Act section 2701, Additionally, the proposed rules However, some commenters expressed sufficiently limits the potential for included a proposal to permit the concern that an unlimited ability to abuse.92 maximum dollar amount made available increase amounts made available under One commenter expressed concern under an individual coverage HRA an individual coverage HRA based on that permitting, rather than requiring, within a class of employees to increase age could be used to shift older, higher increases in the maximum amount as the number of the participant’s cost workers to the individual market. available under an individual coverage dependents covered under the HRA Therefore, these commenters HRA based on age could invite age increased, so long as the same recommended that, to avoid adverse discrimination. Thus, the commenter maximum dollar amount attributable to selection, the ability to increase argued that the final rules should that increase in the number of amounts by age be tied to actual require employers to vary individual dependents is made available to all variance in premiums for individual coverage HRA amounts based on age to participants in that class of employees health insurance coverage, such as the account for increases in costs for older with the same number of dependents 3:1 age rating rule in PPACA 91 or workers. The Departments note that covered by the HRA. Commenters through some other reasonable other federal laws and rules address age generally supported this provision, as relationship to the cost of individual discrimination and are the more the cost of individual health insurance coverage. appropriate area of regulation in which coverage generally increases with an The Departments agree that imposing to address these concerns. Accordingly, increase in the number of dependents an outer bound on the ability of a plan the Departments decline to require, but covered. Some commenters asked for sponsor to vary the maximum amounts will permit, employers to increase clarification on the extent to which made available under an individual individual coverage HRA amounts employers may increase amounts made coverage HRA based on a participant’s based on participants’ ages under the available under an individual coverage age could further protect against adverse final rules. However, individual HRA based on an increase in the selection in the individual market, coverage HRAs may be subject to number of the participant’s dependents. while not hampering the ability of a restrictions imposed under other laws, One commenter recommended that any plan sponsor to provide benefits that permitted increase be tied to individual account for increased costs for older 92 Relatedly, on November 19, 2018, the Treasury market premium variance in order to workers in the individual market. Department and the IRS issued Notice 2018–88, prevent employers from varying HRA which addressed the application of the rules under Therefore, in response to these Code section 105(h) to individual coverage HRAs. amounts to encourage higher-risk comments, the same terms requirement HRAs generally are subject to the rules under Code employees to shift to the individual is revised under the final rules to section 105(h) and its related rules because they are market. Another commenter provide that an individual coverage self-insured medical reimbursement plans. recommended that employers be However, HRAs that reimburse employees only for HRA does not fail to be provided on the premiums paid to purchase health insurance required to vary individual coverage same terms to a class of employees policies, including individual health insurance HRA amounts based on the number of solely because the maximum dollar policies, are not subject to the rules under Code dependents covered by the HRA in amount made available under the terms section 105(h) and its related rules. See 26 CFR order to put employees on equal footing 1.105–11(b)(2). Notice 2018–88 described an of the HRA increases as the age of the anticipated safe harbor that would apply to with other individuals and allow them participant increases, so long as the individual coverage HRAs that are subject to Code to purchase insurance based on their maximum dollar amount made available section 105(h) to address the fact that under the relevant circumstances. under the terms of the HRA to the oldest Code section 105(h) rules, variation in employer The Departments considered these contributions based on age is not allowed. The participant(s) is not more than three Treasury Department and the IRS intend to propose comments, but have determined that times the maximum dollar amount rules under Code section 105(h) in the near term providing employers flexibility as to if made available under the terms of the that set forth an age variation standard that is and how they vary HRA amounts based consistent with the rule included in these final on family size does not raise a HRA to the youngest participant(s). The integration rules, and the proposed rules under Code section 105(h) will be subject to notice and significant risk of adverse selection or 91 See PHS Act section 2701(a)(1)(A)(iii). comment. health factor discrimination and,

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instead, avoids unnecessary complexity. individual coverage HRA and an the same terms requirement and Therefore, under the final rules, it individual coverage HRA that is not requested confirmation that contributing remains permissible to vary HRA HSA compatible to the same class of different amounts to former employees amounts based on the number of a employees and for a discussion of how based on years of service would satisfy participant’s dependents covered by the the same terms requirement applies if the same terms requirement. The final individual coverage HRA as proposed. an individual coverage HRA makes rules provide that former employees Moreover, there is no specific limit on amounts available based on amounts within a class of employees offered an an employer’s ability to increase HRA remaining in another HRA by which the individual coverage HRA need not be amounts based on the number of a participant was previously covered. offered an individual coverage HRA, but participant’s dependents covered by the if they are, the HRA must be provided c. Former Employees HRA, so long as the same maximum to them on the same terms as other dollar amount attributable to that The proposed rules generally would employees in that class of employees increase in the number of dependents is apply to an individual coverage HRA (based on the class in which the former made available to all participants in that that includes participants who are employee was included immediately class of employees with the same former employees in the same way that prior to separation from service). number of dependents covered by the they would apply if the HRA only Therefore, a plan sponsor would not HRA. provided benefits to current employees. comply with the same terms Commenters also suggested additional However, the Departments recognized requirement if it provided some factors for which employers should be that eligibility for post-employment employees in a class of employees larger allowed to vary amounts provided group health plan coverage, if any, or smaller HRA amounts based on years under an individual coverage HRA varies widely and may be subject to age, of service or status as a former within a class of employees, including service, or other conditions. To avoid employee.94 earnings or salary, role/title, and undue disruption of employers’ The Departments received a number geographic region. The Departments practices relating to the provision of of comments on retiree-only HRAs in note that the suggestions that individual post-employment health coverage, the response to the proposed rules. coverage HRA amounts be allowed to proposed rules provided that an Although the final rules do not modify vary within a class of employees based individual coverage HRA may be treated the rules for retiree-only HRAs, the on earnings, salary, or role/title raise as provided on the same terms even if Departments note that the market adverse selection and health factor the plan sponsor offers the individual requirements do not apply to a group discrimination concerns, as these coverage HRA to some, but not all, health plan that has fewer than two classes are more susceptible to former employees within a class of participants who are current employees manipulation by an employer. employees (for example, to all former on the first day of the plan year.95 Accordingly, the Departments decline to employees with a minimum tenure of Therefore, a retiree-only HRA need not adopt any of these suggestions. employment). But, under the proposed satisfy the requirements of any Regarding geographic region, the rules, if a plan sponsor offers the integration test, including the same Departments acknowledge that individual coverage HRA to one or more terms requirement. individual health insurance costs vary former employee(s) within a class of d. New Employees or New Dependents based on geography, but the employees, the HRA must be offered to Departments decline to adopt this those former employee(s) on the same One commenter asked for clarification suggestion because the issue is already terms as all other employees within the regarding the application of the same addressed under the final rules through class. terms requirement in the case of the ability to classify employees based One commenter expressed concern coverage changes during the plan year, on the rating area of their primary site that allowing employers to offer some including in cases in which an of employment. retirees an individual coverage HRA, employee gains a dependent. In A few commenters recommended that but not all retirees, creates the potential response to this comment, in the final the Departments consider an employer for health status discrimination. The rules, the Departments clarify the that contributes the same percentage of Departments note, however, that many application of the same terms an employee’s individual health nondiscriminatory reasons may requirement both for new employees insurance premium (for example, 80 influence an employer’s decisions and new dependents. Therefore, in the percent) to an individual coverage HRA whether to offer retiree health coverage. final rules, the Departments clarify that, to be considered to be providing the For example, it is not uncommon for under the same terms requirement, in individual coverage HRA on the same employers to offer retiree health the case of a participant who becomes terms to the employees in the class. The coverage only to workers that have been covered by an individual coverage HRA Departments decline to adopt this with the company at least 5 years prior after the first day of the plan year, the suggestion because this type of rule to retirement.93 Moreover, the HIPAA individual coverage HRA may make the would add significant complexity to the nondiscrimination rules (as well as full annual amount available or adopt a same terms requirement, particularly other applicable federal and state laws) reasonable proration methodology. The with respect to determining how to address discrimination based on a Departments also clarify in the final coordinate the ability to vary based on health factor. rules how the same terms requirement age and family size, and would also One commenter supported treating raise adverse selection concerns, as well former employees under the same terms 94 Also, eligibility conditions that are based solely as more general concerns about the as all members of the class of on the lapse of a time period are permissible for no more than 90 days under PHS Act section 2708. See inherent incentives of a percentage- employees. Another commenter 26 CFR 54.9815–2708, 29 CFR 2590.715–2708, and based standard and its effect on requested confirmation that employers 45 CFR 147.116. healthcare spending. providing retirees and current 95 See Code section 9831(a)(2) and ERISA section See later in this preamble for a employees with different amounts in 732(a). HHS follows a similar approach for non- federal governmental retiree-only plans and discussion of the same terms individual coverage HRAs would satisfy encourages states to adopt a similar approach with requirement as applied to an employer respect to issuers of retiree-only plans. See 75 FR that offers both an HSA-compatible 93 See e.g., 5 U.S.C. 8905(b). 34537, 34539 (June 17, 2010).

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applies if the individual coverage HRA HRA to different classes of employees. integration rules on a class-by-class varies the maximum amount available These commenters applauded the basis, as was allowed under the based on the number of a participant’s flexibility provided by this aspect of the proposed rules. However, as explained dependents covered by the HRA and the proposed rules, emphasizing that such later in this section of the preamble, the number of the participant’s dependents flexibility is critical for plan sponsors final rules make a number of changes, covered by the HRA either increases or that want to offer individual coverage including revisions to the list of decreases during the plan year. In that HRAs. permissible classes of employees, the case, the individual coverage HRA may However, some commenters objected addition of a minimum class size make available the same amount made to this aspect of the proposed rules, requirement that applies in certain available to participants in the class expressing concerns about the ability of instances, and clarifications of a number who had the same number of plan sponsors to use the classes of of other related issues in response to dependents covered by the HRA on the employees to segment risk. These comments. commenters suggested that a plan first day of the plan year or may adopt b. Proposed and Final Classes a reasonable proration methodology of sponsor that wants to offer an that amount for the remainder of the individual coverage HRA should not be The proposed rules included the plan year. The method the individual allowed to offer a traditional group following proposed classes of coverage HRA uses to determine health plan to any of its employees and, employees: (1) Full-time employees amounts made available for participants instead, should be required to offer the (using either the definition that applies who enroll during the plan year or who HRA, on the same terms, to all of its for purposes of Code section 105(h) or have changes in the number of employees and, therefore, fully replace 4980H, as determined by the plan dependents covered by the HRA during the traditional group health plan(s) it sponsor); (2) part-time employees (using a plan year must be the same for all may have offered. One commenter either the definition that applies for participants in the class of employees, requested that the Departments disallow purposes of Code section 105(h) or and the method must be determined the use of different classes of employees 4980H, as determined by the plan prior to the beginning of the plan year. in applying the final rules as a sponsor); (3) seasonal employees (using transitional measure, so that plan either the definition that applies for 5. Classes of Employees sponsors would not be allowed to offer purposes of Code section 105(h) or a. In General some classes of employees a traditional 4980H, as determined by the plan group health plan and other classes of sponsor); (4) employees who are The proposed and final rules require employees an individual coverage HRA included in a unit of employees covered a plan sponsor that offers an individual for some transitional period of time. A by a collective bargaining agreement coverage HRA to a class of employees to number of commenters, including some (CBA) in which the plan sponsor offer the individual coverage HRA on of those who generally supported the participates (as described in 26 CFR the same terms to each participant ability to vary benefits on a class-by- 1.105–11(c)(2)(iii)(D)) (the CBA class of within the class of employees, subject to class basis, expressed concerns about employees); (5) employees who have not certain exceptions. Also, the proposed the possibility of adverse selection and, satisfied a waiting period for coverage and final rules provide that a plan therefore, recommended that additional (if the waiting period complies with the sponsor may offer individual coverage safeguards be provided, or, at a waiting period rules in PHS Act section HRAs on different terms to different minimum, no further flexibility be 2708 and its implementing rules) (the classes of employees, and may offer provided. waiting period class); (6) employees either an individual coverage HRA or a The Departments considered these who have not attained age 25 prior to traditional group health plan to different comments and have determined that the beginning of the plan year (as classes of employees. However, within a permitting plan sponsors to offer described in 26 CFR 1.105– class of employees, a plan sponsor different benefits to certain classes of 11(c)(2)(iii)(B)) (the under-age-25 class); generally may not offer some employees employees is essential to providing the (7) employees who are non-resident a traditional group health plan and flexibility needed to achieve increased aliens with no U.S.-based income (as others an individual coverage HRA 96 HRA usability and to maximize described in 26 CFR 1.105– (or offer any employee a choice between employee welfare. The Departments 11(c)(2)(iii)(E)) (generally, foreign a traditional group health plan or an understand that employers commonly employees who work abroad) (the non- individual coverage HRA). The use certain job-based classifications for resident alien class); and (8) employees proposed rules enumerated the classes employee benefits and other purposes whose primary site of employment is in of employees that would apply for these and that failing to provide flexibility to the same rating area, as defined in 45 purposes. As discussed in more detail in offer different benefits to different CFR 147.102(b) (the rating area class). In this section of the preamble, the final classes of employees, even for a addition, the proposed rules permitted, rules make a number of changes to the transitional period of time, could reduce as additional classes of employees, list of permissible classes of employees the use and availability of individual groups of employees described as a in response to comments. coverage HRAs. However, the combination of two or more of the Many commenters supported the Departments acknowledge the concerns enumerated classes. general ability of a plan sponsor to offer regarding the potential for adverse As explained in the preamble to the individual coverage HRAs on different selection and health factor proposed rules, the Departments took a terms to different classes of employees discrimination and, therefore, have number of considerations into account and to offer either a traditional group concluded that additional parameters in in determining the proposed classes of health plan or an individual coverage certain circumstances are needed for employees. First, the proposed classes employers to offer different benefits to were ones that, based on the 96 The one exception to this general rule, different classes of employees in order Departments’ experience, employers described later in this preamble, is the special rule to address the potential for adverse historically have used for employee for new hires. However, even under the special rule for new hires, no employee may be offered a choice selection and health factor benefit purposes other than inducing between an individual coverage HRA and a discrimination. Accordingly, the final higher-risk employees to leave the plan traditional group health plan. rules permit employers to apply the sponsor’s traditional group health plan.

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Second, the proposed classes of fact that employers do not typically flexibility, increasing HRA usability, employees were not ones that could be structure benefits based on this and maximizing employee welfare. easily manipulated in order to transfer classification and, therefore, do not Further, the Departments have higher-risk individuals (and perceived need the flexibility the proposed rules concluded that the requirements of the higher costs) from the employer’s provided.97 Therefore, the final rules do final rules, including these employee traditional group health plan to the not include the under-age-25 class of classifications, are sufficiently robust to individual market, as it would be employees as a permitted class of mitigate market segmentation. burdensome for employers to shift employees. Therefore, the final rules include full- employees from one of these classes of With regard to the proposed part-time time employees and part-time employees to another merely for the employee class, several commenters employees as separate permitted classes purpose of offering different types of supported including the class because of for individual coverage HRAs. However, health benefits to employees based on a the additional flexibility it would see the discussion later in this preamble health factor. Therefore, the provide to employers when determining regarding the definitions of these terms Departments determined that these whether to offer any benefits to part- and the application of a minimum class proposed classes of employees would time employees. One commenter size requirement to these classes in balance employers’ reasonable need to highlighted that some large employers certain circumstances. make distinctions among employees (who would not be able to provide a With regard to a class of employees with respect to offering health benefits QSEHRA) may want to offer their part- based on a geographic area, some with the need to protect against adverse time employees some level of tax- commenters expressed concern that selection and health factor preferred health benefits but have no basing the class on the rating area of the discrimination. The Departments options today other than offering a work site could be too granular risking requested comments on the proposed traditional group health plan. Some increased adverse selection. Thus, the classes of employees, including whether commenters also argued that providing commenters asserted that a class based additional classes of employees should additional flexibility for employers to on geography should instead be be provided and whether the proposed offer individual coverage HRAs to part- determined at the state level. While the classes of employees and any potential time employees who might otherwise Departments understand and considered additional classes are sufficient to not have been offered any benefits could the concern raised by commenters, the mitigate adverse selection concerns. lead to increased enrollment in Departments have determined, based on Several commenters supported the individual health insurance coverage, information regarding the significant proposed classes of employees, with thereby stabilizing the individual differences in individual market some insisting that no additional classes market risk pool and reducing premiums between rating areas within be added because of the increased premiums. One commenter suggested some states and significant differences likelihood of risk pool manipulation. that the Departments should allow in the number of individual health Several commenters expressed support multiple gradations of part-time insurance plans available between for the proposed list of specific employees (for example, employees who rating areas within some states, that it enumerated classes, as opposed to an work 10 to 20 hours per week, would be an unreasonable limitation on open-ended standard, as a way to employees who work 20 to 30 hours per employer flexibility to prohibit mitigate adverse selection. week, etc.). However, one commenter employers from offering different Some commenters objected to the expressed concern that a part-time benefits based on different work-site proposed classes, expressing general employee class could be a proxy for rating areas. The Departments concern that the rules would provide higher-risk employees, and could, concluded that a rule that would employers too much flexibility, which therefore, lead to adverse selection, as prohibit employers from differentiating would lead to manipulation of classes the commenter asserted that many between these particular classes of and risk segmentation. Some employees who work part-time do so employees for purposes of offering commenters requested that specific due to health issues. individual coverage HRAs would pose classes be eliminated or modified. In The Departments agree with those significant costs that might undermine particular, several commenters commenters who asserted that a part- the willingness of employers to offer an expressed concern that the under-age-25 time employee class should be included individual coverage HRA. Therefore, the class of employees would lead to in the final rules, as it could provide final rules allow a class of employees to adverse selection. These commenters necessary flexibility to allow some be based on the rating area of the stated that this class is not justified employers to offer an individual employees’ primary work site. However, based on a bona fide relationship to coverage HRA to part-time employees in response to concerns raised by employment or the need to provide who might otherwise not be offered any commenters regarding the potential for employers flexibility because employers group health plan benefits. While the adverse selection and health factor do not typically structure benefits based Departments do not dispute that some discrimination with this class of on whether an employee has attained employees may change from full-time employees in particular, see the age 25. Some commenters raised employee status to part-time employee discussion later in this preamble administrative complexity concerns in status due to health issues, the regarding the application of a minimum their objections to this proposed class Departments have determined that class size requirement to this class in because employees under age 25 may be allowing full-time employees and part- certain circumstances. eligible for coverage under their parents’ time employees as separate classes of With regard to the waiting period group health plans. One commenter, employees is essential for employer class of employees, one commenter however, supported this class, stating recommended that this class of that it may lead to healthier risk 97 The Departments note that the under-age-25 employees be limited to a 30-day entering the individual market. The class of employees was included in the proposed waiting period maximum to provide an Departments agree with the commenters rules because it is a class of employees that may be additional market segmentation excluded for certain purposes under Code section who raised concerns about the under- 105(h) and under the QSEHRA rules. See earlier in safeguard. Another commenter age-25 class of employees, both as to the this preamble for a discussion of the application of specifically supported this class. The potential for adverse selection and the Code section 105(h) to individual coverage HRAs. final rules include the waiting period

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class of employees, which aligns with With regard to the proposed ability to status discrimination and be easily the waiting periods allowed under PHS combine classes of employees more manipulated. Act section 2708 and its implementing generally to create subclasses, some However, several commenters rules, because this avoids unneeded commenters supported the flexibility, requested that salaried and hourly complexity and burden and the but others expressed concern with the employees be added as separate classes Departments do not consider this class potential for risk segmentation. Some of employees. These commenters of employees to raise significant adverse commenters recommended that the final disagreed with the Departments’ selection concerns. rules not permit combinations of classes assertion that employers might be able to easily change employee status from Several commenters requested of employees or that, if permitted, the salaried to hourly and vice versa. The clarification regarding the CBA class of final rules apply certain additional commenters noted that changing status employees, which under the proposed safeguards, including a minimum class from salaried to hourly in particular has rules was defined as ‘‘employees size requirement. Several commenters substantial economic and other included in a unit of employees covered recommended not allowing consequences for both employers and by a collective bargaining agreement in combinations of classes of employees employees and that doing so on the which the plan sponsor participates (as for small employers but permitting basis of the health of an employee could described in 26 CFR 1.105– combinations of classes of employees for large employers, as long as the violate ERISA section 510. One 11(c)(2)(iii)(D)).’’ Commenters sought number of employees in a combined commenter noted that employers clarification as to whether employers class satisfies a minimum. The historically have provided different may establish separate classes for Departments determined that it is benefits to hourly and salaried workers employees subject to different CBAs or important to provide employers with and that adding these as permitted whether all employees subject to the flexibility to combine classes of classes of employees could facilitate various CBAs entered into by the employees but, as discussed later in this increased use of individual coverage employer would be aggregated and preamble, it is also appropriate to apply HRAs for employers that might considered one class of employees for a minimum class size requirement in otherwise decline to offer an individual purposes of offering individual coverage certain circumstances to mitigate coverage HRA. The Departments HRAs. One commenter requested that adverse selection and health factor considered the issues raised in these the Departments clarify whether a class discrimination concerns. Therefore, the comments. The Departments have of employees based on a CBA would final rules continue to allow for the concluded that the benefits of employer include all the employees subject to that combination of classes of employees as flexibility, increased utilization of CBA or could be based on distinctions proposed but, in certain circumstances, individual coverage HRAs, and within the CBA. Under the final rules, apply a minimum class size maximizing employee welfare outweigh employers may establish separate requirement. The final rules also the potential risk of adverse selection classes of employees for employees include additional examples to illustrate and health factor discrimination, due to covered by separate CBAs. However, the ability of plan sponsors to combine a reconsideration of the extent to which under the final rules, an employer is not classes of employees. these categories could be manipulated specifically permitted to create its own and because of the application of a classes of employees based on any c. Additional Classes minimum class size requirement, as distinctions relating to employees Some commenters recommended described later in this preamble. within one CBA. However, an employer against adding any classes to the list of Therefore, the final rules include is permitted to combine a CBA proposed permitted classes of salaried and non-salaried employees as classification with other permitted employees, stating that the proposed permitted classes of employees. classes of employees (for example, classes of employees were sufficient and One commenter requested that combining the CBA class with the full- that additional classes of employees employees employed by a staffing firm time employee and part-time employee could lead to an increased risk of for temporary placement at entities classes to create full-time and part-time adverse selection. However, as unrelated to the staffing firm (temporary CBA subclasses), thereby allowing the discussed in this section of the workers) be treated as a separate class. employer to make certain further preamble, several other commenters The commenter stated that this rule distinctions within the group of requested that certain additional classes would facilitate offering of individual employees subject to the CBA. The of employees be added to the final rules. coverage HRAs by staffing firms to full- Departments have revised the definition In the proposed rules, the time temporary workers (while it is of this class of employees in the text of Departments acknowledged that likely that regular full-time employees the rules and added an example to the permitting plan sponsors to treat of the staffing firm would continue to text to clarify its meaning in response to salaried and hourly employees as receive an offer of a traditional group comments. Further, to account for, and different classes of employees was health plan). The commenter further to avoid disruption of, the way in which considered, but not proposed. The stated that staffing firms historically multiemployer plan coverage is Departments noted that employers have offered temporary workers sometimes offered, the final rules also might easily be able to change an different benefits than regular full-time clarify that the CBA class may include employee’s status from salaried to employees for reasons other than to employees covered by a CBA and hourly (and in certain circumstances, segment risk. The commenter further employees covered by an appropriate from hourly to salaried) with seemingly stated that it would be burdensome for related participation agreement.98 minimal economic or other staffing firms to shift workers between consequences for either the employer or the temporary worker and regular 98 A participation agreement allows non- the employees. Some commenters employee classes merely to shift risk. collectively bargained employees to participate in a agreed and strongly opposed adding The Departments agree that adding this multiemployer plan. Non-collectively bargained hourly and salaried employees as class could increase the usability of employees can only participate in a multiemployer plan if the plan specifically allows it, and a classes of employees, expressing HRAs for staffing firms and benefit their participation agreement will set forth who is concern that classes of employees based employees, that this class would be eligible and the benefits for which they are eligible. on pay status could facilitate health difficult to manipulate, and, that,

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therefore, this class does not raise a 1862(b)(1)(A)(i)(II) provides that a group the prohibition on waiting periods that substantial risk of adverse selection or health plan must provide to any exceed 90 days under PHS Act section health factor discrimination. Therefore, employee or spouse age 65 or older the 2708, in addition to raising concerns the final rules include as a permitted same benefits, under the same regarding ease of manipulation and class of employees individuals who, conditions, that it provides to potential for adverse selection and under all the facts and circumstances, employees and spouses under age 65, health factor discrimination. Therefore, are the employees of an entity that hired regardless of whether the individual or the Departments have determined that, the employees for temporary placement spouse age 65 or older is entitled to on balance, for these suggested at an unrelated entity (that is, another Medicare. Because Medicare is also additional classes, the potential risks entity that is not the common law generally available to people with end- posed outweigh the potential benefits, employer of the employees and that is stage renal disease (ESRD) regardless of and the Departments decline to add not treated as a single employer under their age, SSA section 1862(b)(1)(C) these suggested classes of employees to Code section 414(b), (c), (m), or (o) with further provides that a group health the final rules. However, see the the entity that hired the employees for plan may not differentiate in the discussion later in this preamble temporary placement). benefits it provides between individuals regarding the special rule for new hires, One commenter requested that having ESRD and other individuals on which is related in part to the comments independent contractors be permitted as the basis of the existence of ESRD, the suggesting a new class based on a separate class of employees, and one need for dialysis, or in any other employee tenure. commenter requested that the manner (except during a 30-month Departments allow self-employed coordination period). Because these d. Additional Safeguards business owners to participate in an SSA provisions generally prohibit an In the preamble to the proposed rules, individual coverage HRA. HRAs were employer that is subject to them from the Departments stated that to minimize established 99 as a means for employers discriminating on the basis of an burden and complexity, the to provide tax-favored benefits to employee’s (or the employee’s spouse’s) Departments had not proposed a employees, but the exclusion from Medicare eligibility and treating minimum employer size or employee federal income tax for reimbursements Medicare employees (other than class size. The Departments identified a of medical expenses by HRAs is set retirees) differently for benefits under concern that very small employers forth in Code sections 105 and 106, both the plan, the Departments decline to could manipulate the classes of of which generally are restricted to establish separate classes of employees employees, but noted that other employer-provided coverage to for employees who are eligible for or economic incentives related to attracting employees. Moreover, Code section enrolled in Medicare. However, see later and retaining talented workers would 105(g) specifically provides that the in this preamble for a discussion of the discourage employers from doing so. exclusion under Code section 105(b) is conditions under which an individual Accordingly, the Departments invited not available to an individual who is an coverage HRA may be integrated with comments on whether employer size or employee within the meaning of Code Medicare. employee class size should be Commenters also requested a number section 401(c)(1) (relating to self- considered in determining permissible of other classes of employees, with employed individuals). For these classes of employees. different commenters suggesting reasons, businesses that utilize the With regard to employer size, some services of independent contractors different classes of employees, such as classes based on status as a field worker commenters stated that the risk of cannot provide those self-employed health factor discrimination is higher individuals with a tax-favored (such as craft workers and laborers), role or job title, employee tenure, being with small employers and that the final individual coverage HRA nor may a self- rules should prohibit small employers employed business owner be provided a subject to the Davis Bacon Act and Related Acts or the Service Contract from using, or combining, classes of tax-favored individual coverage HRA. employees to make health coverage Therefore, the final rules do not adopt Act, exempt or non-exempt status under the Fair Labor Standards Act, and distinctions. However, other the suggestion to add independent commenters asserted that the concern contractors, or self-employed religion or status as a minister. The Departments considered each of these that small employers may discriminate individuals more generally, as a based on health status is invalid, permitted class of employees because suggestions and have determined that these suggested classes of employees arguing that small employers are less these individuals cannot be provided likely to discriminate because of both tax-favored HRAs. raise various issues including ease of manipulation and potential for adverse the complexity required to design One commenter requested that discriminatory programs and the employees eligible for Medicare and selection and health factor discrimination, industry-specificity, and minimal incentives that small employees enrolled in Medicare be employers have to remove risk from treated as two separate classes. The administrability and definitional challenges. The Departments also took their small group market traditional Departments decline to adopt this group health plans that are part of a suggestion. Sections 1862(b)(1)(A), (B), into account that, in general, the more classes that are permitted, the greater community rated single risk pool. For and (C) of the Social Security Act (SSA) these reasons, one commenter requested generally provide that an employer that the risk of adverse selection and health factor discrimination. With respect to that the final rules include less is subject to its provisions may not take the requested class based on employee restrictive guardrails for small into account an employee’s (or tenure, the Departments determined that employers. The commenter also employee spouse’s) eligibility for such a class could be inconsistent with requested that large employers offering Medicare in the design or offering of its only an individual coverage HRA be group health plan.100 Section working aged beneficiaries, the rules apply to permitted additional flexibility to employers with 20 or more employees. For disabled structure their classes of employees 99 See IRS Notice 2002–45. beneficiaries, the rules apply to employers with at because the risk of discrimination 100 The applicability of the Medicare least 100 employees. For ESRD beneficiaries, they nondiscrimination rules depends on the size of the rules apply to employers of any size. See 42 CFR would be mitigated as the employer is employer and the type of Medicare beneficiary. For 411.100 et seq. not offering a traditional group health

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plan and, therefore, would not have size minimum. The final rules also non-resident aliens with no U.S.-based incentives to remove risk from its plan. provide a number of examples to income, and the class of employees for With regard to minimum class size, a illustrate each aspect of the minimum temporary workers employed by a number of commenters requested that class size requirement. staffing firm) are unlikely to be individual coverage HRAs only be As to the circumstances in which the manipulated by employers in a way that available to classes of employees that minimum class size requirement would lead to health factor include a minimum number of applies, it applies only if the plan discrimination or adverse selection. employees or are a minimum percentage sponsor offers a traditional group health Under the final rules, the minimum of an employer’s workforce. A few plan to at least one other class of class size requirement applies to a class commenters noted that although a employees and offers an individual of employees created by combining any minimum class size requirement would coverage HRA to at least one class of of the applicable classes with any other be restrictive, and perhaps inhibit the employees. To the extent the minimum class of employees, except that the use of individual coverage HRAs, it class size requirement applies, it applies minimum class size requirement does would be necessary to prevent risk only to certain classes that are offered not apply to a class that is the result of segmentation. Some commenters an individual coverage HRA. The any combination of an applicable class supported applying a minimum class minimum class size requirement does and the waiting period class. Waiting size requirement in all cases and some not apply to a class of employees offered periods are most typically applied to supported applying such a requirement a traditional group health plan or to a new hires, and it is not uncommon for only when separate classes of class of employees that is not offered employers to hire new employees in employees are combined to make any group health plan. small numbers, to respond to attrition smaller subclasses of employees. Some Under the final rules, the minimum and as workflow increases. Further, the commenters made general requests for a class size requirement generally applies Departments are of the view that minimum class size requirement (for to the following classes of employees combinations of classes that include the example, requests for a meaningful offered an individual coverage HRA: (1) waiting period class do not raise a threshold) and others included specific Salaried employees, (2) non-salaried significant risk of manipulation that suggestions, such as requiring a employees, (3) full-time employees, (4) could lead to adverse selection or health minimum class size of 10 percent of part-time employees, and (5) employees factor discrimination. Therefore, taking employees, at least 10 percent of the whose primary site of employment is in these factors into account, the employer’s workforce or 100 workers, at the same rating area (although the Departments have determined that least 20 employees, or prohibiting minimum class size requirement does applying the minimum class size employers with fewer than 10 not apply if the geographic area defining requirement to a class comprised of an employees from being able to create the class is a state or a combination of applicable class and a waiting period classes. One commenter requested that two or more entire states) (these classes class is not warranted. there be no minimum class size are referred to collectively as the Consistent with the comments requirement, in particular to provide applicable classes). However, in the case received on this topic, the minimum flexibility to small employers. of full-time employees and part-time number of employees that must be In response to these comments, the employees, the minimum class size included in a class of employees subject Departments have concluded that it is requirement applies only to those to the minimum class size requirement appropriate to apply a minimum class classes if the employees in either the (the applicable class size minimum) size requirement under the final rules in part-time or full-time class are offered a depends on the number of employees certain circumstances. The Departments traditional group health plan while the employed by the employer. The plan sought to develop a rule that is narrowly employees in the other class are offered sponsor must determine the applicable tailored both to mitigate the risk of an individual coverage HRA. The class size minimum for each plan year adverse selection and health factor Departments considered each of the of the individual coverage HRA. The discrimination while also avoiding classes of employees permitted under applicable class size minimum is: (a) 10, overly burdening employers or the final rules to determine which for an employer with fewer than 100 unnecessarily hampering the use and classes, if any, present a risk of adverse employees; (b) a number, rounded down flexibility of HRAs to maximize selection sufficiently significant to to a whole number, equal to 10 percent employee welfare. justify the imposition of the minimum of the total number of employees, for an In order to balance these various class size requirement. The Departments employer with 100 to 200 employees; considerations, the final rules include a determined that classes composed of and (c) 20, for an employer that has minimum class size requirement that salaried employees, non-salaried more than 200 employees. In selecting varies based on employer size and that employees, full-time employees, part- these thresholds, the Departments applies only to certain classes of time employees, and employees whose considered the suggestions made by employees in certain circumstances in primary site of employment is in the commenters and sought to strike a which the potential for adverse same rating area (except if the balance between providing employers selection is greatest. If a class of geographic area defining the class is a with flexibility to offer different employees is subject to the minimum state or a combination of two or more healthcare packages as part of their class size requirement, the class must entire states) present a substantial risk compensation framework and design, include a minimum number of that employers could apply each of and limiting employers’ ability to use employees for the individual coverage these classes in a way that targets the classes in ways that would create HRA to be offered to that class. The final certain higher-risk employees and, adverse selection in the individual rules explain the circumstances in therefore, could lead to health factor market. The Departments agree with which the minimum class size discrimination and adverse selection. commenters that small employers may requirement applies, how to determine However, the Departments determined not have significant incentives to the applicable class size minimum, and that the other permitted classes of establish classes in a way that would how an individual coverage HRA employees (that is, the seasonal result in adverse selection or health determines if a particular class of employee class, the CBA class, the discrimination, but also are of the view employees satisfies the applicable class waiting period class, the class based on that it could be easier for smaller

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employers to manipulate the classes of an individual coverage HRA) may not independent decision made by the employees. Further, the Departments discriminate in eligibility for benefits, or employee. Commenters further selected thresholds for larger employers in premiums or contributions, based on suggested that if a class of employees taking into account that, despite their one or more health factors.102 In were created for former employees, the total size, the classes of employees addition, for ERISA-covered plans, it is final rules should also permit subclasses could also be manipulated by larger unlawful for any person to discriminate within the class of former employees employers in ways that could lead to against a participant or beneficiary for based on years of service. adverse selection and health factor the purpose of interfering with the Some commenters supported the discrimination. Therefore, the minimum attainment of any right to which the proposed treatment of former employees class size requirement applies to small participant may become entitled under and commented that former employees employers and large employers, but at a health plan or ERISA.103 Further, should not be permitted as a separate lower thresholds for smaller employers under the SSA, an employer generally class of employees under the final rules than for large employers. For the may not take into account that an because the general age and health purpose of applying the minimum class individual is entitled to Medicare on the status of former employees would size requirement, an employer must basis of age or disability, or eligible for, present adverse selection concerns. One determine the number of its employees or entitled to Medicare on the basis of commenter included a number of based on its reasonable expectation of ESRD, and may not differentiate in the requests regarding retiree-only HRAs in the number of employees it expects to benefits it provides between individuals the context of rehired employees. employ on the first day of the plan year who have ESRD and other individuals Notwithstanding that employers may of the individual coverage HRA. covered under the plan.104 In addition, continue to offer retiree-only HRAs that The annual determination of whether other nondiscrimination laws (such as are not subject to the market a class of employees satisfies the the Americans with Disabilities Act) requirements (and, therefore, are not applicable class size minimum is based may also apply, and the Departments subject to any integration requirements), on the number of employees in the class note that compliance with the final the Departments understand the who are offered the individual coverage rules is not determinative of compliance commenters’ concern regarding adverse HRA as of the first day of the plan with any other applicable law. A new selection and are not aware of a year.101 Therefore, the determination of facts and circumstances test would add compelling need to treat former whether a class of employees satisfies significant uncertainty for employers employees as a separate class of the minimum class size requirement is while adding little additional protection employees under the final rules in light not based on the number of employees mitigating adverse selection and health of the continued allowance of retiree- who enroll in the individual coverage factor discrimination. only HRAs that are not subject to any HRA and is not affected by changes that integration requirements. All of the occur during the plan year. e. Former Employees rules and eligibility criteria related to Some commenters requested that, in Under the proposed rules, if an retiree-only HRAs continue to apply addition to, or instead of, a minimum individual coverage HRA were offered without change.105 Therefore, the final class size requirement, the Departments to former employees, former employees rules provide that a former employee is should add an anti-abuse rule that would be considered to be in the same considered to be a member of the same would give the Departments the class of employees in which they were class of employees the former employee discretion to determine whether an included immediately before separation was in immediately before separation individual coverage HRA is offered in a from service. While the plan sponsor from service, as proposed. manner that is intended to segment would not be required to offer the Several commenters raised other sicker workers based on all the facts and individual coverage HRA to all former classification and administration issues circumstances. Therefore, even if an employees (or to all former employees related to retirees. One commenter employer followed the other rules set in the applicable class of employees), if requested clarification that the final forth in the final rules, this additional it did offer the HRA to a former rules would not affect the status of rule would nevertheless permit the employee, it would have to do so on the former employees who participate in Departments to address instances of same terms as for the other employees their employer’s traditional group discrimination based on a health factor. in that class. health plan through COBRA. The The Departments decline to add a facts A few commenters requested that Departments note that the impact of the and circumstances test to the final rules employers be permitted to treat former final rules on any former employee because the Departments have employees as a separate class of participating in an employer’s concluded that the minimum class size employees, stating that the rule under traditional group health plan through requirement, as set forth in the final the proposed rules treating former COBRA continuation coverage depends rules, adequately balances the need to employees as part of the class of on the facts and circumstances. For prevent health factor discrimination employees in which they would have example, COBRA continuation coverage with the need to provide employers been included immediately prior to ends on the date the employer ceases to with certainty in order to encourage separation from service will impose a provide any group health plan expansion and use of individual barrier to offering individual coverage (including successor plans). If a former coverage HRAs. Moreover, other HRAs. These commenters stated that employee is participating in a applicable nondiscrimination laws such a new class of employees would continue to apply. Under the HIPAA not raise manipulation concerns 105 See Code section 9831(a)(2) and ERISA section nondiscrimination provisions, for because whether to terminate 732(a). While title XXVII of the PHS Act, as employment generally is an amended by PPACA, no longer contains a parallel example, a group health plan (including provision at PHS Act section 2721(a), HHS has explained that it will not enforce the requirements 101 The Departments reiterate that under the same 102 Code section 9802, ERISA section 702, and of title XXVII of the PHS Act with respect to non- terms requirement, an employer offering an PHS Act section 2705. See also 26 CFR 54.9802– federal governmental retiree-only plans and individual coverage HRA to any employee in a class 1, 29 CFR 2590.702, and 45 CFR 146.121. encourages states to adopt a similar approach with of employees must offer the HRA, generally on the 103 ERISA section 510. respect to retiree-only plans offered by health same terms and conditions, to all employees in the 104 SSA section 1862(b)(1)(A), (B), and (C) and 42 insurance issuers. See 75 FR 34537, 34540 (June 17, class. CFR 411.102, 411.161, and 411.170. 2010).

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traditional group health plan that is preamble, the Departments note that as amounts remaining in another HRA replaced by an individual coverage group health plans, HRAs generally are under which the participant was HRA, the former employee would have subject to the COBRA or other group previously covered are disregarded for a right to elect to participate in the continuation of coverage rules. purposes of determining whether the successor plan, the individual coverage However, if the change in the individual coverage HRA is offered on HRA (conditioned on the payment of employee’s classification is not the the same terms, provided that if the premiums and enrollment in individual result of termination of employment or HRA takes these amounts into account, health insurance coverage), but would reduction in hours, there generally is it does so on the same terms for all generally not have a right to continue not a qualifying event resulting in a participants in the class of coverage in the traditional group health COBRA or other group continuation of employees.106 plan. One commenter requested that the coverage right. Further, with regard to amounts final rules define ‘‘former employee.’’ Even if an employee who ceases remaining in an individual coverage The final rules provide that for purposes enrollment in an individual coverage HRA after the individual is no longer of this rule a former employee is an HRA does not have a right to covered by the HRA, the HRA must employee who is no longer performing continuation of coverage, the HRA must allow a participant (and the participant services for the employer. allow the individual to submit for on behalf of dependents) to submit reimbursement substantiated medical claims to the HRA for reimbursement of f. Controlled Group care expenses that were incurred during substantiated expenses that were Commenters requested clarification as the coverage period prior to the incurred during the coverage period to whether the classes of employees are termination date of the individual prior to the termination of the identified based on the employees of the coverage HRA. In this case, the individual’s coverage under the common law employer or, rather, individual coverage HRA may limit the individual coverage HRA, even if the whether the determination is made at period of time to submit expenses to a claim is submitted after the individual the controlled group level (generally reasonable specified time period after is no longer covered by the individual referring to a group of employers treated termination of coverage under the coverage HRA. However, the HRA may as a single employer with the common individual coverage HRA during which limit the period to submit expenses to law employer under Code section the participant may submit those a reasonable specified time period. 414(b), (c), (m), or (o)), such that all claims. Additionally, an employee who One commenter requested guidance employees of a controlled group of loses coverage under an individual on situations in which employees are employers would be combined to create coverage HRA may qualify for an SEP currently receiving treatment for health the classes of employees. Some for loss of MEC to change his or her conditions when an employer switches commenters recommended that the individual health insurance coverage from a traditional group health plan to Departments confirm that the controlled either on or off an Exchange. an individual coverage HRA. The group rules do not apply for this One commenter asked whether an Departments note that a similar issue purpose, and some recommended that employee who changes classes of arises under existing rules when an the controlled group rules be used to employees and loses coverage under an employer switches from one group determine the classes of employees as a individual coverage HRA may convert health plan to another group health plan way to reduce the number of small unused amounts to another type of with a different network of providers, so classes and prevent adverse selection. HRA. The Departments note that under that providers participating under the After consideration of these existing rules, employers generally may first plan are no longer in network. The comments, the Departments have provide employees enrolled in a final rules do not address this issue concluded that determining the classes traditional group health plan an HRA because it is not specific to this of employees at the common law that is integrated with that traditional rulemaking. To the extent an employee employer level will avoid complexity group health plan and in some or dependent is switching from an for employers and that applying the circumstances may provide an HRA that insured traditional group health plan to minimum class size requirement (to the can be integrated with TRICARE or individual health insurance coverage extent applicable), as described earlier Medicare. Nothing in the final rules or purchased with an individual coverage in this preamble, at the common law current guidance would prevent HRA, state ‘‘succeeding carrier’’ or employer level, is a more employers from basing the amount in ‘‘extension of benefit’’ laws may straightforward way of addressing the these types of HRAs on unused amounts regulate the obligations of the prior or adverse selection concerns raised by in an individual coverage HRA in which succeeding issuer to cover an some commenters. Accordingly, the the individual was previously enrolled, individual’s ongoing health conditions final rules clarify that the classes of nor are employers precluded from at the time of the coverage switch. employees are determined based on the basing the amount of an individual employees of a common law employer, coverage HRA on unused amounts in 106 However, employers may not permit unused rather than the employees of a these types of HRAs in which the amounts in an individual coverage HRA, or any controlled group of employers. individual was previously enrolled. other type of HRA, to be considered transferred to Also, if an employee moves from a class an excepted benefit HRA because amounts made g. Movement Among Classes available under an excepted benefit HRA are of employees offered an individual necessarily limited in order for the HRA to A few commenters requested coverage HRA to a class of employees constitute an excepted benefit. Allowing amounts clarification regarding the application of offered a different individual coverage remaining in other types of HRAs to be transferred the final rules in the situation in which HRA, nothing in the final rules would to an excepted benefit HRA could lead to significant circumvention of that limit. Also, note that under an employee moves out of a class of prevent the employer from permitting the final excepted benefit HRA rules, if the plan employees that is offered an individual the unused amounts in the first sponsor offers more than one HRA to the coverage HRA and into a different class individual coverage HRA to be participant for the same time period, the amounts of employees that is offered either a considered transferred to the second. made available under all such plans are aggregated to determine whether the benefits are limited in traditional group health plan, a different Therefore, the final rules are revised to amount, except that HRAs that reimburse only individual coverage HRA, or no clarify that amounts made available in excepted benefits are not included in determining coverage. As discussed earlier in this an individual coverage HRA based on whether the benefits are limited in amount.

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h. Definition of Full-Time Employee, under Code section 4980H to their perspective. The Departments are aware Part-Time Employee, and Seasonal workforces and using those same that the transition from coverage under Employee definitions for purposes of applying the a traditional group health plan to For purposes of identifying classes of integration rules may reduce burden for coverage under an individual coverage employees, the proposed rules provided those employers. Therefore, the final HRA could represent a substantial that a plan sponsor may define full-time rules include flexibility for each change from an employee perspective, employees, part-time employees, and employer to determine which set of and, as a result, employers may want to seasonal employees in accordance with definitions is appropriate for its phase in individual coverage HRAs. By either the applicable definitions under workforce, provided the employer uses allowing plan sponsors to offer Code section 105(h) or those under Code the same set of definitions for traditional group health plans to some section 4980H to avoid overlapping classifying its full-time, part-time, and classes of employees while offering classes of employees. The proposed seasonal employees to the extent it uses other classes of employees an individual one or more of these classes of coverage HRA, the final rules provide rules included a proposal that a plan employees. plan sponsors with some flexibility to sponsor’s choice of which statutory The proposed rules further provided manage the transition to individual definitions to apply must be consistent that the HRA plan document must set coverage HRAs. However, in response to across these three classes of employees, forth the applicable definitions of full- comments, including those expressing to the extent the plan sponsor time employee, part-time employee, and concern about the transition from differentiates based on these classes. seasonal employee prior to the A few commenters requested that traditional group health plans to beginning of the plan year in which the individual coverage HRAs and those only one definition for each term be definitions will apply and that nothing expressing interest in being able to permitted and requested that the final would prevent an employer from provide different benefits based on rules adopt the definitions in Code changing the definitions for a employee tenure, the Departments have section 4980H. One commenter subsequent plan year. Some determined that it is appropriate to recommended that only the definition of commenters supported that provision, provide additional flexibility to plan full-time employee under Code section asserting that it minimizes the potential sponsors, in particular for employers 4980H (which is based on 30 hours per for adverse selection, with one that offer traditional group health plans week) should be permitted. This requesting clarification whether it is that would like to continue to offer that commenter asserted that use of the permissible to change the definitions of type of coverage to current employees definition under Code section 105(h) the classes of employees during the plan who are accustomed to that coverage, (which is based on 35 hours per week) year. One commenter stated that plan but offer individual coverage HRAs to could lead to adverse selection, because sponsors should not be allowed to newly hired employees. many plans currently offer traditional change the definitions each plan year, Therefore, notwithstanding the group health plan coverage to asserting that this flexibility could allow general rule that a plan sponsor may employees based on the Code section small employers in particular to only offer either a traditional group 4980H definition, and use of another segment risk. health plan or an individual coverage definition could lead to subdivision of The Departments have determined HRA to a class of employees, the final full-time employees. A few commenters that in order to mitigate the risk of rules provide that a plan sponsor that supported the proposed ability to market segmentation and minimize offers a traditional group health plan to choose either set of definitions, disruption to employees with respect to a class of employees may prospectively including the requirement to use either a coverage period, it is important for offer employees in that class hired on or the definitions under Code section plan sponsors to determine prior to the after a certain date in the future (the 4980H or those under Code section plan year which definitions will apply new hire date) an individual coverage 105(h) consistently across these classes and to apply them consistently HRA (the new hire subclass), while of employees. throughout the plan year. The continuing to offer employees in the The Departments considered these Departments also have concluded that class hired before the new hire date a comments and have determined that the limiting an employer’s ability to revise traditional group health plan (the final rules should adopt the definitions the definitions it applies from one plan special rule for new hires). A plan provided in the proposed rules. This year to the next would be unnecessarily sponsor may set the new hire date approach provides employers with restrictive. Accordingly, the final rules prospectively for a class of employees as flexibility, while limiting opportunities generally retain the rules in the any date on or after January 1, 2020. A for risk segmentation. The Departments proposed rules. However, the final rules plan sponsor may set different new hire understand that, to avoid the inclusion clarify that adjustments during the plan dates prospectively for separate classes of amounts in income, plan sponsors of year to the definitions used to identify of employees. self-insured plans subject to Code the classes of employees are not Although this special rule provides section 105(h) (in particular small permitted. additional flexibility, it is still the case employers not subject to Code section that for the new hire subclass, the 4980H) may want to design their health 6. Special Rule for New Hires individual coverage HRA must be plans to offer a traditional group health As explained earlier in this preamble, offered on the same terms to all plan and individual coverage HRAs (or some commenters expressed concerns participants within the new hire individual coverage HRAs in different about the challenges employees may subclass, in accordance with the amounts or under different terms and experience in transitioning from a generally applicable rules under the conditions) to different classes of traditional group health plan to same terms requirement. Further, a plan employees that are identified in a individual health insurance coverage, sponsor may not offer a choice between manner that complies with the with some stating that the proposed an individual coverage HRA or a requirements of Code section 105(h). rules failed to adequately take into traditional group health plan to any The Departments also acknowledge that account the differences between the participant, whether a current employee certain larger employers have already coverage types and the significance of or a newly hired employee in the new determined how to apply the definitions the change from the employee’s hire subclass.

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A plan sponsor may discontinue the text of the final rules includes examples whether or not they should opt out of special rule for new hires at any time for to illustrate these rules. an individual coverage HRA. Similarly, a class of employees. In that case, the some commenters expressed concern 7. Opt-Out Provision new hire subclass would no longer be that some low- and moderate-income treated as a separate subclass of If an individual is covered by an HRA, employees may opt into the individual employees, and each employee that was including an individual coverage HRA, coverage HRA although they may have previously treated as part of the new for a month, regardless of the amount of been better off opting out of the HRA hire subclass would then be treated as reimbursement available under the and receiving the PTC, while others an employee in the class of which he or HRA, the individual is not eligible for expressed concern that some employees she would have otherwise belonged for the PTC for that month. Because in may opt out of the HRA based on the purposes of the final rules. In that case, some circumstances an individual may misimpression that they will receive the if the plan sponsor wanted to offer an benefit more from claiming the PTC PTC, when actually they are ineligible individual coverage HRA, it would need than from having funds in an HRA for the PTC. to do so for all the employees in the available for reimbursement, the The Departments appreciate the class and generally on the same terms, Departments’ existing rules regarding concerns expressed regarding the as explained earlier in this preamble. It integration with non-HRA group burden on employees to properly could also choose instead to offer a coverage and with Medicare require a determine whether the individual traditional group health plan to some or plan sponsor that offers an HRA to coverage HRA they have been offered is all of the employees 107 in the class or allow participants to opt out of and affordable and provides MV and to to offer no coverage. waive future reimbursements from the determine whether they will be better In the event a plan sponsor applies HRA at least annually.108 The proposed off with the HRA or, if otherwise the special rule for new hires to a class rules also included this requirement eligible, the PTC. These concerns are the of employees and later discontinues with respect to the individual coverage primary reason that the Departments using the rule for the class of HRA, so that employees would be proposed and are finalizing the employees, the plan sponsor may apply allowed the PTC, if they are otherwise requirement for individual coverage the special rule for new hires to the eligible, if they opt out of and waive HRAs to provide a written notice to class of employees again, at a later time, future reimbursements from the HRA each participant. Further, the under the same rules as the initial and the HRA is either unaffordable or Departments will work with the FFEs application of the rule. For example, as does not provide MV.109 The and State Exchanges to ensure that their under the basic requirements for the Departments have concluded that this applications and other relevant application of the special rule for new condition is important as a result of the materials are updated to accommodate hires, the plan sponsor would only be PTC consequences of HRA coverage, individuals who are offered an allowed to apply the rule to a class to and, therefore, the final rules retain this individual coverage HRA and are which it is offering a traditional group condition, with some clarifications. applying for individual health insurance health plan. If a plan sponsor applies Furthermore, consistent with the coverage with APTC. the special rule for new hires again, in current rules for integration with a Some commenters requested accordance with the general rules under group health plan and with Medicare, clarification regarding the timing of the the special rule for new hires, the plan the proposed rules required that upon annual opt-out condition. One sponsor would choose a prospective termination of employment, either the commenter asked the Departments to new hire date. In no circumstances may remaining amounts in the HRA must be clarify how the annual opt-out the special rule for new hires be applied forfeited or the participant must be condition applies in the case of an HRA to a class of employees (including a new allowed to permanently opt out of and with a non-calendar year plan year. In hire subclass) already being offered an waive future reimbursements from the response, the final rules clarify that an individual coverage HRA, in an attempt HRA. This requirement ensures that the HRA may establish timeframes for to offer different HRA amounts or other HRA participant may choose whether to enrollment in (and opting out of) the different terms within a class of claim the PTC, if otherwise eligible, or HRA, but participants generally 111 must employees based on different hire dates. to continue to participate in the HRA be provided an opportunity to opt out The minimum class size requirement after the participant’s separation from of the individual coverage HRA once for described earlier in this preamble does service.110 each plan year, which must occur in not apply to a new hire subclass. This Commenters generally supported advance of, and with respect to, the plan is because the Departments recognize these opt-out requirements as necessary year. That is, individual coverage HRAs that many employers hire only a few to protect PTC eligibility for employees. must provide participants with one employees, or even only one employee, Some commenters expressed concern advance opportunity to accept, or opt at a time and a subclass based on a new that due to the complexity of the PTC out of, the individual coverage HRA for hire date does not present a high risk of affordability rules, employees are likely each plan year, but the individual manipulation that could lead to adverse to have difficulty understanding coverage HRA may not provide selection. However, if a plan sponsor participants with multiple opportunities subdivides the new hire subclass based 108 See 26 CFR 54.9815–2711(d)(2)(i)(E), on a permissible class of employees (d)(2)(ii)(D), and (d)(5)(iv); 29 CFR 2590.715– 111 The final rules also clarify that for participants subsequent to creating the new hire 2711(d)(2)(i)(E), (d)(2)(ii)(D), and (d)(5)(iv); and 45 or dependents who become eligible for the CFR 147.126(d)(2)(i)(E), (d)(2)(ii)(D), and (d)(5)(iv). individual coverage HRA on a date other than the subclass, the minimum class size 109 See later in this preamble for a discussion of first day of the plan year (or participants who are requirement applies to any class of the final rules regarding the circumstances in which not required to be provided the HRA notice at least employees created by subdividing the an offer of an individual coverage HRA is affordable 90 days in advance of the plan year (that is, new hire subclass, if the minimum class and provides MV for purposes of Code section 36B. employees who become eligible less than 90 days 110 Note that a former employee is only rendered prior to the plan year and employees of newly size requirement otherwise applies. The ineligible for the PTC if the former employee enrolls established employers)), the option to opt out must in employer-sponsored coverage; an offer of be provided during the HRA enrollment period 107 To the extent such an arrangement is available coverage (even if it is affordable and provides MV) established by the HRA for these individuals and to active employees it may be subject to restrictions does not preclude a former employee from claiming then subsequently on an annual basis in advance under other laws, such as the MSP provisions. the PTC. See 26 CFR 1.36B–2(c)(3)(iv). of the plan year.

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to opt into, or out of, the individual HRA may be suspended for a period of covered by an individual coverage HRA coverage HRA over the course of the time, allowing the individual to receive must be enrolled in individual health plan year, except that the final rules the PTC during that period of time if insurance coverage. The Departments require HRAs to provide an opt out otherwise eligible, and then have the agree; therefore, the final rules adopt the opportunity upon termination of HRA amounts reinstated in the annual coverage substantiation employment. This is generally individual coverage HRA years in the requirement, with minor clarifications consistent with employees’ ability to future. Although the current rules for described in this section of the decline traditional group health plan integration of an HRA with other group preamble.115 coverage that is not affordable or does coverage allow certain HRA amounts Some commenters asked the not provide MV in order to claim the that would otherwise be permanently Departments to clarify the timeframe PTC, if otherwise eligible. See later in forfeited to be reinstated in the future within which the substantiation must be this preamble for a discussion of upon a fixed date, a participant’s death, provided, including requests for comments received on the proposed or the earlier of the two events, the final clarification as to whether it would be PTC rules and an explanation of the rules do not include a similar provision acceptable for the substantiation to final PTC rules, including for additional for individual coverage HRAs. The final occur during the individual coverage discussion of the application of the PTC rules do not include such a provision HRA enrollment period or prior to the rules to an employee opting out of, or due to the Departments’ concerns about first request for reimbursement under accepting, an individual coverage HRA complexity and burden on employers in the individual coverage HRA, which with a non-calendar year plan year. needing to establish procedures for commenters stated would be consistent One commenter requested substantiation of enrollment in with typical administrative procedures clarification as to whether a former individual health insurance coverage for HRAs. For individuals who seek employee offered an individual upon reinstatement, and on an ongoing enrollment in an individual coverage coverage HRA must be provided the basis, possibly many years in the future; HRA for the entire HRA plan year, the annual opportunity to opt out of the the lack of demand for such a rule from Departments intend for the annual individual coverage HRA. The employers; and potential complexities coverage substantiation requirement to Departments clarify that the annual opt- related to the interaction with the provide verification of an individual’s out condition applies for all participants PTC.113 However, as explained earlier in enrollment in individual health eligible to enroll in an individual this section of the preamble, the final insurance coverage for the entire HRA coverage HRA, including former rules require an individual coverage plan year (and, therefore, that coverage employees. Another commenter HRA to provide an annual opportunity is in effect as of the first day of the HRA requested clarification whether an for participants to opt out of the HRA, plan year). Accordingly, the final rules employee’s choice to opt out of an which may, depending on the clarify that the HRA may establish the individual coverage HRA also applies to individual coverage HRA offered, allow date by which the annual coverage the employee’s dependents who are the participant, if otherwise eligible, to substantiation requirement must be otherwise eligible for the individual claim the PTC. satisfied, but, in general, the date may coverage HRA. The Departments intend be no later than the first day of the HRA 8. Substantiation of Coverage Under for the opt-out opportunity to extend to plan year. Nothing in the final rules Individual Health Insurance Coverage dependents, but expect that an prevents an HRA from setting employer would provide an individual a. In General reasonable parameters for when the coverage HRA to an employee’s substantiation must be provided to the dependent only if the employee The proposed rules required that HRA (for example, by the end of the participates in the individual coverage individuals whose medical care individual coverage HRA open HRA. Therefore, the final rules clarify expenses may be reimbursed under an enrollment period).116 that if an employee opts out of an individual coverage HRA must be individual coverage HRA, the enrolled in individual health insurance coverage. To facilitate the 115 One commenter asserted that the individual coverage HRA is considered substantiation requirements in the proposed rules waived for the employee’s eligible administration of this requirement, are not sufficient but the commenter appears to dependents as well.112 See later in this under the proposed rules, an individual have understood that the annual coverage preamble for a discussion of the coverage HRA would be required to substantiation requirement is the sole implement, and comply with, substantiation requirement. The Departments note circumstance in which the offer of an that the final rules, like the proposed rules, also individual coverage HRA to an reasonable procedures to verify that require that the HRA satisfy the ongoing employee’s dependents will render the individuals whose medical care substantiation requirement. The Departments expenses are reimbursable by the determined that both the annual coverage dependents ineligible for the PTC. substantiation requirement and the ongoing One commenter requested individual coverage HRA are, or will 114 substantiation requirement are necessary to ensure clarification as to whether, instead of be, enrolled in individual health that individuals covered by an individual coverage permanently forfeiting an individual insurance coverage during the plan year HRA have individual health insurance coverage. coverage HRA upon termination of (annual coverage substantiation Also, this commenter asserted that in the proposed requirement). rules the Departments acknowledged that employment, an individual coverage employees may fail to obtain coverage, and cited to Commenters generally supported the 83 FR 54445 (Oct. 29, 2018), where, in the 112 The Departments note that this provision annual coverage substantiation regulatory impact analysis the Departments stated addresses the right of participants to opt out of the requirement, asserting that it is that loss of coverage could occur as a result of the HRA generally, including for their dependents, and necessary to ensure the effectiveness of integration rules ‘‘if some previously covered is not intended to preclude an HRA from allowing the requirement that individuals employees do not accept the HRA and fail to obtain a participant who enrolls in the HRA from enrolling their own coverage.’’ The Departments clarify that some, but not all, dependents (including new this statement related to individuals who opt out of dependents added during the year). The 113 See 26 CFR 54.9815–2711(d)(3), 29 CFR the HRA and did not address the circumstance in Departments also clarify that in the event a 2590.715–2711(d)(3), and 45 CFR 147.126(d)(3). which an individual with an individual coverage participant gains a dependent during the year, the 114 The Departments clarify that the reference to HRA does not have individual health insurance HRA must provide the participant the right to ‘‘will be’’ applies for participants who provide the coverage. decline to enroll that dependent, if the participant substantiation in advance of when their individual 116 The Departments note that in establishing the had enrolled for the plan year. coverage HRA coverage begins. enrollment period for an individual coverage HRA,

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However, for individuals who become individual health insurance coverage. retain the ongoing substantiation eligible for the HRA during the HRA Several commenters, however, were requirement.120 plan year, including dependents, or who concerned about what they Commenters requested that the otherwise are not required to be characterized as the complexity, Departments confirm the entity to provided the HRA notice described later burdens, and liabilities associated with which the substantiation requirements in this preamble 90 days prior to the the ongoing substantiation requirement, apply. Under the final rules, the plan year (that is, employees who in particular for smaller employers, and substantiation requirements (both the become eligible fewer than 90 days prior noted that those burdens could deter annual coverage substantiation to the plan year or employees of newly employers from adopting individual requirement and the ongoing established employers), the HRA may coverage HRAs. Some commenters substantiation requirement) apply to the establish the date by which the asserted that the annual coverage individual coverage HRA, rather than to substantiation must be provided, but the substantiation requirement would be any other entity or individual, such as date may be no later than the date the sufficient to verify enrollment in an issuer or employee, because the HRA coverage begins. These individuals individual health insurance coverage requirements relate to compliance of the may not have sufficient time to enroll in and, therefore, ongoing substantiation individual coverage HRA with PHS Act individual health insurance coverage would be unnecessary. sections 2711 and 2713. The that is effective on or before the first day The Departments note that currently, substantiation requirements do not of the HRA plan year. Thus, the final separate from the market requirements impose any new requirements on rules provide a timing requirement that or integration rules, HRAs are subject to issuers, although individual coverage is consistent with the annual coverage substantiation requirements with HRAs may accept certain substantiation requirement to provide respect to each request for documentation provided by issuers in verification of an individual’s reimbursement. This is because in order the normal course of business to verify enrollment in individual health to provide a benefit excludable from individual health insurance coverage insurance coverage for the portion of the income for federal tax purposes, enrollment. HRA plan year during which the employer-provided accident or health individual is covered by the HRA. The plans, including HRAs, may only b. Methods of Substantiation final rules also clarify that, for these reimburse medical care expenses that The proposed rules included a individuals, whether the individual is a have been substantiated as an expense proposal that the reasonable procedures participant or a dependent, the annual for medical care.117 Consequently, each an individual coverage HRA may use to coverage substantiation requirement reimbursement for medical care verify enrollment in individual health requires substantiation that the expenses by an HRA may only be paid insurance coverage for purposes of the individual will have individual health after the expense has been substantiated annual coverage substantiation insurance coverage for the portion of the as being for medical care.118 Each claim requirement include the individual HRA plan year during which the for reimbursement also generally must coverage HRA requiring the participant individual is covered by the HRA include the employee’s certification that to provide either: (1) A document from (rather than requiring substantiation of the expense has not otherwise been a third party (for example, the issuer or coverage for the entire plan year). The reimbursed and that the employee will Exchange) showing that the participant final rules also clarify that to the extent not seek reimbursement for the expense and any dependent(s) covered by the a new dependent’s coverage is effective from any other plan.119 individual coverage HRA are, or will be, retroactively, the HRA may establish The Departments have determined enrolled in individual health insurance any reasonable timeframe for the annual that requiring ongoing substantiation of coverage during the plan year (for coverage substantiation but must require an individual’s continued enrollment in example, an insurance card or an it be provided before the HRA will individual health insurance coverage for explanation of benefits pertaining to the reimburse medical care expenses for the the month in which the expense was plan year or relevant month, as newly added dependent. incurred is not unduly burdensome applicable); 121 or (2) an attestation by In addition to the annual coverage because of these existing substantiation the participant stating that the substantiation requirement, the requirements. Further, the Departments participant and any dependent(s) are, or proposed rules provided that an have determined that the ongoing will be, enrolled in individual health individual coverage HRA may not substantiation requirement is essential insurance coverage, the date coverage reimburse a participant for any medical to ensure compliance with the began or will begin, and the name of the care expenses unless, prior to each requirement that an individual covered provider of the coverage. For the reimbursement, the participant provides by an individual coverage HRA be ongoing substantiation requirement, the substantiation that the participant and, enrolled in individual health insurance if applicable, any dependent(s) whose coverage and, as explained later in this 120 The Departments note that the final rules medical care expenses are requested to section of the preamble, will impose clarify that the ongoing substantiation requirement be reimbursed, continues to be enrolled minimal burden because it can be applies with respect to the individual on whose in individual health insurance coverage behalf reimbursement is being sought. satisfied by collecting a written 121 The Departments are aware that in the case of for the month during which the medical attestation from the participant on the an individual coverage HRA with a non-calendar care expenses were incurred (ongoing same form used for requesting year plan year, the individual may not have substantiation requirement). reimbursement. Thus, the final rules documentation showing an individual health Several commenters expressed insurance policy that spans the entire plan year as individual health insurance policy years are based support for the ongoing substantiation 117 See Code section 105(b), 26 CFR 1.105–2, and on the calendar year. However, such an HRA may requirement, as necessary to ensure the IRS Notice 2002–45. establish reasonable procedures to implement the effectiveness of the requirement that 118 See Prop. Treas. Reg. 1.125–6(d) for rules annual coverage substantiation requirement, individuals covered by an individual regarding reimbursement of medical care expenses including documentation showing coverage for the through electronic methods, including some debit first part of the plan year combined with an coverage HRA must be enrolled in cards that satisfy certain requirements. attestation that the participant intends to obtain 119 See IRS Notice 2006–69, 2006–31 IRB 107; individual health insurance coverage for the second plan sponsors should consider the timeframes for Revenue Ruling 2003–43, 2003–1 CB 935; and Prop. part of the plan year or an attestation with respect the relevant individual market enrollment periods. Treas. Reg. 1.125–6(b)(3)(ii), (d)(i). to the full plan year.

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proposed rules permitted that substantiation requirements strikes the preamble for a discussion of SEPs, substantiation could be in the form of a appropriate balance between ensuring including a new SEP for individuals written attestation by the participant, individuals with individual coverage who newly gain access to an individual which could be part of the form used for HRAs are enrolled in individual health coverage HRA. requesting reimbursement. insurance coverage and minimizing One commenter requested that the Commenters generally supported that burdens on employers and employees. final rules adopt a requirement for the proposed rules provided that Accordingly, the final rules retain this issuers similar to the creditable coverage attestation by a participant would be provision and permit substantiation by certification requirement created by sufficient to satisfy both the annual participant attestation. HIPAA, under which, as suggested by coverage substantiation requirement and Some commenters requested that the the commenter, issuers would be the ongoing substantiation requirement. final rules provide a model attestation. required to generate a letter for all However, one commenter stated that In response, to reduce burden on individuals covered by individual allowing attestation to be used to satisfy individual coverage HRAs and their health insurance coverage for each the annual coverage substantiation participants, the Departments are month showing payment was made and requirement is not sufficient to ensure providing model attestation language that the individual had the coverage for that individuals covered by an contemporaneously with, but separate the month.124 The Departments decline individual coverage HRA have from, the final rules. However, the to impose such a requirement because it individual health insurance coverage. Departments note that individual would increase burden and other The Departments acknowledge the coverage HRAs will not be required to reasonable substantiation methods are importance of the requirement under use the model attestation. available. One commenter suggested the final rules that individuals with an Some commenters requested that the ongoing substantiation individual coverage HRA be enrolled in clarification as to whether other requirement should be considered individual health insurance coverage substantiation methods, in addition to satisfied so long as the employer sends and, therefore, the need for related collection of an attestation, would a notice to employees advising them to substantiation requirements that ensure satisfy the substantiation requirements. contact the employer if they no longer that requirement is satisfied. The One commenter suggested that a list of are enrolled in individual health Departments note that attestation is covered individuals provided by the insurance coverage. The Departments permitted to be used to satisfy similar insurance carrier should be sufficient. decline to adopt this suggestion because requirements in related contexts and The Departments agree that this would this method of substantiation would be that the Departments generally are not generally be a type of third-party insufficient to ensure with reasonable aware of issues with regard to the document that could be used to verify accuracy that a participant had accuracy of attestations used to satisfy enrollment, assuming the individual continued enrollment in individual those rules.122 Further, in setting out coverage HRA timely receives the health insurance coverage. one type of attestation that is sufficient substantiation. However, the Several commenters requested that to satisfy the annual coverage Departments note that the final rules do individual coverage HRAs be permitted substantiation requirement, the final not require issuers to provide individual to comply with the substantiation rules state that, in addition to providing requirements electronically, such as coverage HRAs with lists of covered 125 that the individual is (or will be) individuals nor are individual coverage through debit card technology. Some enrolled in individual health insurance HRAs required to contact issuers to commenters noted this would provide coverage, the attestation would also substantiate an individual’s enrollment consistency with current rules that provide the date coverage began or will in individual health insurance coverage. allow HRAs to satisfy the current begin and the name of the provider of In addition, the final rules clarify that a requirement to substantiate that an the coverage. Moreover, HRAs can use expense is for medical care using debit document from an Exchange showing 126 other reasonable methods to satisfy the that the individual has completed the cards and other electronic means. substantiation requirements and, in fact, application and plan selection would be Nothing in the final rules would the Departments generally expect that sufficient to satisfy the annual coverage prohibit an individual coverage HRA employees will use individual coverage substantiation requirement. This from establishing procedures to comply HRAs to reimburse premiums for the clarification is intended to address the with the substantiation requirements individual health insurance coverage in situation in which, due to the SEP through electronic means, so long as the which they are enrolled and, therefore, procedures are reasonable to verify verification process, an individual is not 127 employers will be able to confirm yet enrolled in individual health enrollment. See also the discussion enrollment in individual health insurance coverage but will be enrolled the individual was covered by the HRA during that insurance coverage by virtue of with a retroactive start date upon reimbursing the premiums for such time). successful completion of the SEP 124 Code section 9801(e), ERISA section 701(e), coverage (or paying the premiums for verification.123 See later in this and PHS Act section 2704(e). such coverage directly). Taking these 125 A couple of commenters requested factors into consideration, the 123 The Departments note that a document from clarification that funds in an individual coverage Departments have determined that an Exchange showing that the individual has HRA could be accessed via debit cards. The final allowing participant attestation, among completed the application and plan selection would rules do not change the methods currently allowed not be sufficient to satisfy the ongoing for facilitating reimbursements of HRA amounts, other options, to satisfy the substantiation requirement; to satisfy that electronic or otherwise. requirement the individual on whose behalf 126 See IRS Notice 2006–69 and Revenue Ruling 122 See IRS Notice 2013–54, Q&A–4 (providing reimbursement is sought must be enrolled in 2003–43, 2003–1 CB 935. that attestation is sufficient to show that an individual health insurance coverage. Therefore, 127 For purposes of the Code provisions affected individual is enrolled in group coverage, as individual health insurance coverage must become by the final rules, the otherwise generally required by the rules allowing HRA integration with effective, including retroactively in the case of applicable substantiation and recordkeeping a traditional group health plan) and IRS Notice delayed SEP verification, in which case requirements under Code section 6001 apply, 2017–67, Q&A–41 (providing that attestation is reimbursement can then be sought for expenses including the requirements specified in Revenue sufficient to satisfy the QSEHRA requirement that incurred during the coverage period (including Procedure 98–25, 1998–1 CB 689, for records individuals provide proof that they are covered by during the period to which the individual health maintained within an Automated Data Processing MEC). insurance coverage applies retroactively, assuming system.

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later in this preamble regarding the by the HRA. The individual coverage employees. The Departments note that interaction of these rules with the safe HRA will be considered to have actual the substantiation requirements set forth harbor that DOL is finalizing, to clarify knowledge that a participant or in the final rules apply to all individual that individual health insurance dependent is not, or will not be, coverage HRAs, including different coverage will not be treated as part of enrolled in individual health insurance individual coverage HRAs offered to an ERISA-covered group health plan so coverage for the plan year or the month, different classes of employees. The long as certain conditions (including the as applicable, if the HRA, its plan Departments generally expect plan prohibition on endorsement) are sponsor, or any other entity acting in an sponsors to establish similar procedures satisfied. official capacity on behalf of the HRA to satisfy the substantiation requirements for different individual c. Reliance on Documentation or has such actual knowledge. One commenter suggested that the coverage HRAs they may offer. Attestation final rules apply penalties to individual However, the Departments decline to The proposed rules provided that, for participants for an inaccurate adopt the commenter’s specific both the annual coverage substantiation attestation. The final rules do not recommendation in order to allow plan requirement and the ongoing impose penalties on participants. sponsors the flexibility to establish substantiation requirement, an Instead, the final rules, like the reasonable procedures to satisfy the individual coverage HRA may rely on proposed rules, provide conditions substantiation requirements, which the documentation or attestation under which an HRA will be considered presumably could differ across the provided by the participant unless the integrated with individual health employer’s workforce, depending on the individual coverage HRA has actual insurance coverage and, therefore, in characteristics of the workforce or for knowledge that any participant or compliance with PHS Act sections 2711 other legitimate business reasons. dependent covered by the individual and 2713. Failing to properly integrate One commenter requested that coverage HRA is not, or will not be, will cause an HRA to run afoul of PHS employers offering an individual enrolled in individual health insurance Act sections 2711 and 2713. Therefore, coverage HRA to employees or former coverage for the plan year or the month, the responsibility to have reasonable employees who are either eligible for or as applicable. procedures in place to ensure coverage enrolled in Medicare should be exempt Despite this provision in the proposed is integrated falls on the HRA, not the from the substantiation requirement. rules, some commenters expressed participants. However, as discussed in more detail concern, and requested clarification, One commenter asked that individual later in this preamble, the final rules regarding liability of an individual coverage HRA amounts made available permit integration of an individual coverage HRA if it relies on a for a month be treated as taxable income coverage HRA with Medicare, and the participant’s misrepresentation for individuals who do not have substantiation requirements apply to regarding enrollment in individual individual health insurance coverage for enrollment in Medicare in the same health insurance coverage. In response the month and that the attestation manner as they apply to enrollment in to these comments, the final rules requirement and required notice include individual health insurance coverage. provide that an individual coverage a related warning. The Departments Therefore, the final rules do not adopt HRA may rely on the documentation or decline to adopt this suggestion. this suggestion. attestation provided by the participant Whether an individual is enrolled in 9. Notice Requirement unless the HRA has actual knowledge individual health insurance coverage for that any participant or dependent a month relates to whether the Because HRAs are different from covered by the individual coverage HRA individual coverage HRA satisfies the traditional group health plans in many is not, or will not be, enrolled in respects, in the preamble to the conditions for integration for the month individual health insurance coverage for proposed rules, the Departments and does not affect the tax treatment of the plan year (or the applicable portion expressed a concern that individuals reimbursements provided to a of the plan year) or the month, as eligible for individual coverage HRAs participant under the individual applicable. Therefore, the final rules might not recognize that the offer or coverage HRA.128 provide that an inaccurate attestation or One commenter suggested that the acceptance of the individual coverage document will not cause an individual final rules address substantiation HRA may have consequences for APTC and PTC eligibility, as described coverage HRA to fail to be considered requirements relative to a private elsewhere in this preamble. In order to integrated with individual health exchange. The Departments note that ensure that employees who are eligible insurance coverage unless the HRA has the substantiation requirements set forth to participate in an individual coverage actual knowledge that the attestation or in the final rules apply to all individual HRA understand the potential effect that document is inaccurate. The coverage HRAs, regardless of the the offer of and enrollment in the HRA Departments clarify that in the event an manner in which the individual health might have on their ability to receive the individual coverage HRA subsequently insurance coverage is purchased. See benefit of APTC and claim the PTC, the gains actual knowledge that the later in this preamble for a discussion of proposed rules included a requirement attestation or document was inaccurate, private exchanges and the DOL that an individual coverage HRA the HRA may not provide further clarification regarding the application of provide written notice to eligible reimbursement on behalf of the ERISA to individual health insurance participants. individual for expenses incurred during coverage purchased through an Commenters generally supported the the period to which the inaccurate individual coverage HRA. notice requirement, sharing the attestation relates. To mitigate discrimination concerns, Departments’ determination that many One commenter requested that the one commenter requested that the individuals will need the information to final rules clarify whose knowledge can substantiation requirements be understand the PTC consequences of the be imputed to the individual coverage consistent across all classes of HRA for purposes of liability and one individual coverage HRA. However, a commenter requested clarification that 128 However, see Code section 106(g) regarding number of commenters expressed vendors contracted by the HRA could the taxation of QSEHRA reimbursements if an concerns about the potential for rely on coverage information provided individual fails to have MEC. consumer confusion, notwithstanding

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the notice requirement, and some Commenters generally supported the individual or a group of individuals suggested ways to strengthen the notice. notice content elements, and the final who participants may contact with Other commenters expressed concern rules include each of the proposed questions regarding their individual that the notice requirement could notice content elements, some with coverage HRA. For purposes of this new burden employers, with one noting in clarifications. Some commenters requirement, the plan sponsor may particular the burden of providing requested that the notice be required to determine which individual or group of notices to former employees. include additional content, as explained individuals is in the best position to The Departments have considered in this section of the preamble, and answer these questions. The final rules these comments and agree with the some commenters requested that the provide that the contact information commenters that assert that the notice is notice be as simple as possible. Some provided in the notice must, at least, necessary and appropriate for commenters requested that the notice include a telephone number. individuals offered an individual explain the differences between an The final rules also newly require that coverage HRA to understand the employer’s traditional group health plan the notice include a statement of consequences of the offer. Although the and alternative health insurance availability of an SEP for employees and Departments also considered the burden products. And one commenter dependents who newly gain access to on employers identified by commenters, requested that the specific dollar the HRA. This is in part in response to the Departments have determined that amount made available be included in a commenter who suggested that the the notice requirement is essential to the notice. The Departments note that notice could be used to improve implementation of the final rules. Along under the final rules, the notice is Exchange program integrity by making it with updates to Exchanges’ application required to provide the amount(s) made easier for Exchanges that require pre- processes, the notice, which will available under the individual coverage enrollment verification to use the notice include information that individuals HRA. As to the suggestion that the to confirm enrollees’ SEP eligibility. will be instructed to provide to notice explain common differences Separate from, but contemporaneously Exchanges during the application between traditional group health plans with the final rules, HHS is providing model language that will be relevant to process, is key to ensuring that APTC and individual coverage HRAs and employees purchasing coverage through and PTC are properly allowed and that other insurance products, the or outside an Exchange, including a improper APTC payments are Departments decline to adopt the State Exchange, which HRAs may use to prevented. The notice will also aid suggestion due to concerns that it would satisfy this requirement. The final rules implementation of the new individual cause confusion for participants, as also clarify that, to facilitate market SEP, as explained later in this participants are prohibited from being participants’ timely enrollment in preamble. Therefore, the final rules offered both a traditional group health individual health insurance coverage retain this requirement, with a number plan and an individual coverage HRA using the new SEP described later in of revisions made in response to under the final rules. The intent of the notice is to explain the individual this preamble, the notice must also comments, including that the indicate the date as of which coverage Departments are providing model notice coverage HRA that the employee is being offered to avoid consumer under the HRA may first become language, separate from, but effective and the date on which the HRA contemporaneously with the final rules, confusion. Adding information about other types of coverage would plan year begins and ends. The notice in order to address commenters’ must also include information on when concerns about burden on employers. undermine that goal. Further, traditional group health plans differ in cost-sharing amounts will be made available (for The comments received and changes example, monthly or annually). made in the final rules are described in structures, network rules, and benefits covered, and any standardized language Commenters also requested that the the remainder of this section of the notice explain the extent to which preamble. in the notice would have to be general and would not capture these elements, individuals enrolled in Medicare may a. Notice Content as standardized language about use an individual coverage HRA. In response to these comments, and to As proposed, the notice was required traditional group health plans would not be describing any particular plan. reflect the content of the final rules, the to include certain relevant information, notice content requirements have been including a description of the terms of Moreover, the individual coverage HRA must provide a summary of benefits and updated to reflect that individual the individual coverage HRA (including coverage HRAs may be integrated with the self-only maximum dollar amount coverage (SBC), which will include a description of the coverage, including Medicare and to require inclusion of a made available, which is used in the statement in that notice that Medicare affordability determination under the cost sharing; the exceptions, reductions and limitations on coverage; and other beneficiaries are ineligible for the PTC, proposed PTC rules); a statement of the without regard to whether the information.129 right of the participant to opt out of and individual coverage HRA the individual waive future reimbursement under the One commenter requested that the notice be required to contain contact is offered is affordable or provides MV HRA; a description of the potential or whether the individual accepts the availability of the PTC if the participant information for a specific person that participants can contact with questions. HRA. opts out of and waives the HRA and the Further, the Departments note that, as The Departments agree that this could HRA is not affordable under the under the proposed rules, while the be useful information for participants, proposed PTC rules; a description of the written notice must include the without imposing significant additional PTC eligibility consequences for a information required by the final rules, burden on employers, and therefore the participant who accepts the HRA; a it may include other information, as final rules add a requirement that the statement that the participant must long as the additional content does not notice include contact information of an inform any Exchange to which they conflict with the required information. apply for APTC of certain relevant 129 See PHS Act section 2715(b)(3) (incorporated b. Notice Individualization information; and a statement that the in Code section 9815 and ERISA section 715). See individual coverage HRA is not a also 26 CFR 54.9815–2715, 29 CFR 2590.715–2715, The proposed rules did not include a QSEHRA. and 45 CFR 147.200. requirement that the notice be

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individualized for each participant. individual coverage HRA is affordable rules, the Departments are providing Although the notice would have been for purposes of the employer shared model language contemporaneously on required to include a description of the responsibility provisions under Code certain aspects of the notice that are not potential availability of the PTC for a section 4980H, smaller employers are employer-specific, including model participant who opts out of and waives not subject to Code section 4980H. language describing the PTC an unaffordable individual coverage Moreover, the Treasury Department and consequences of being offered and HRA, and the individual coverage HRA the IRS intend to issue guidance in the accepting an individual coverage HRA. amount that is relevant for determining near term providing safe harbors or In addition, HHS is providing, affordability, the proposed rules did not other methods intended to reduce contemporaneously, model language require that the HRA include in the burdens and provide more predictability that relates to all Exchanges that can be notice a determination of whether the regarding the application of Code used to satisfy the SEP-related notice HRA is considered affordable for the section 4980H to these arrangements.130 content requirement and model specific participant. The Departments acknowledge that it language that can be used to satisfy the Some commenters agreed that the is critical that participants have the requirement that the notice include a notice should not be required to be information that they need to determine statement describing how the tailored to each participant. However, the affordability of their individual participant may find assistance with others stated that the notice would be coverage HRA under the PTC rules, and, determining affordability. While the insufficient if not individualized and accordingly, the final rules add a Departments hope it will be useful, plan requested that the final rules require requirement that the notice include a sponsors are not required to use the that the notice provide information statement about how the participant model language. specific to each participant, including may find assistance for determining For individual coverage HRAs, the premium for the relevant lowest cost their individual coverage HRA including ERISA-covered plans, other silver plan, or, at a minimum, detailed affordability. The model language that disclosure requirements may require instructions for where to find the Departments are providing participants to be provided with a information on the lowest cost silver contemporaneously with the final rules reasonable opportunity to become plan, while others requested that the includes language that can be used to informed as to their rights and notice include a completed affordability satisfy this requirement. obligations under the individual and MV calculation specific to each One commenter requested that the coverage HRA.131 Those requirements participant. notice be required to be tailored for each are of general applicability, and the While the Departments understand class of employees offered the Departments decline to adopt a special the concerns about consumer confusion, individual coverage HRA, in cases in requirement, or model non-English under the final rules, the notice is not which different classes are provided translation, here.132 required to include a determination of different HRA amounts, rather than d. Notice Timing and Delivery whether the offer of an individual allowing an employer to provide one coverage HRA is affordable for a notice for several or all classes. The Under the proposed rules, the particular participant. Plan sponsors are final rules do not adopt this suggestion individual coverage HRA generally not in a position to make this because the Departments have would be required to provide a written determination for, or provide it to, each concluded any marginal advantages notice to each participant at least 90 participant because it would require would be outweighed by the additional days before the beginning of each plan information that plan sponsors do not employer burdens of creating and year. The proposed rules also provided possess (for example, the participant’s distributing multiple versions of the that for participants not eligible to household income). In addition, notice. However, the Departments note participate at the beginning of the plan requiring a plan sponsor to determine that the final rules do not prohibit an year (or not eligible when the notice is the cost of the lowest cost silver plan employer from providing more otherwise provided to plan that will apply for a specific participant individualized notices, such as different participants), the individual coverage to determine affordability under the notices for different classes of HRA would be required to provide the PTC rules would be burdensome, and employees, if the employer so chooses. notice no later than the date on which the information is available to the the participant is first eligible to participant through other means. c. Model Notice participate in the HRA. Specifically, by , 2019, HHS Many commenters requested that the Some commenters supported the will provide resources to assist Departments provide a model notice or notice timing as proposed and others individuals offered an individual model language for certain parts of the indicated that small employers will not coverage HRA and using the Federal notice, such as model language to be able to provide notices 90 days prior HealthCare.gov platform with describe the consequences of opting into to the plan year because they do not determining their PTC eligibility based or out of the individual coverage HRA make benefit decisions that far in on whether the individual coverage and language describing the related PTC 131 HRA is considered affordable, and with consequences. One commenter See, e.g., ERISA sections 102, 104(b), and 503 understanding when they must enroll in and PHS Act sections 2715 and 2719 (incorporated suggested that the Departments provide in Code section 9815 and ERISA section 715). See individual health insurance coverage translations of the model notice into also 26 CFR 54.9815–2715 and 54.9815–2719; 29 based on their individual coverage HRA languages other than English. CFR 2520.102–3, 2520.104b–1, 2560.503–1, effective date, including whether they In response to these requests, and 2590.715–2715, and 2590.715–2719; and 45 CFR may qualify for an SEP. HHS will also 147.136 and 147.200. published separately from the final 132 But see 29 CFR 2520.102–2(c) (requiring that begin working with State Exchanges plans where either 500 participants or at least 10 immediately to assist with the 130 See IRS Notice 2018–88. Further, lowest cost percent of all participants (or for plans with fewer development of resources for silver plan data will be made available by HHS for than 100 participants, 25 percent of participants) individuals using State Exchanges’ employers in all states that use the Federal are literate in the same non-English language HealthCare.gov platform to determine whether the provide those literate only in a non-English applications for coverage. Further, individual coverage HRA offer is affordable for language a reasonable opportunity to become although some plan sponsors will need purposes of the employer shared responsibility informed as to their rights and obligations under the to determine whether the offer of the provisions under Code section 4980H. plan).

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advance. Several commenters requested proposed, but clarify the language to Several commenters requested that the that the notice delivery coincide with provide that the date by which the final rules clarify the notice delivery the annual Exchange open enrollment notice must be provided is the date on procedures and requirements, including period, others requested it coincide with which the HRA may first take effect for allowing for electronic delivery (through each employer’s annual open the participant. Further, the email delivery, internet/intranet enrollment period, and others requested Departments have determined that posting, or any other electronic means) that plan sponsors have the flexibility to individual coverage HRAs sponsored by if participants are provided the provide the required notice at any time employers that are first established appropriate opportunity to opt out of prior to the plan year, including upon within a short period of time prior to the electronic delivery. One commenter initial enrollment in an individual first plan year of the HRA may not have asked specifically if the notice delivery coverage HRA. One commenter an adequate amount of time to provide would be subject to ERISA’s delivery requested the notice be required to be a notice to participants at least 90 days rules. provided within 60 days, instead of 90 prior to beginning of the first plan year. Under the final rules, individual days, prior to the start of the plan year. Therefore, the final rules provide that in coverage HRAs that are subject to One commenter requested that the the case of an individual coverage HRA ERISA, and individual coverage HRAs Departments apply the distribution sponsored by an employer that is sponsored by nonfederal governmental requirements that apply for purposes of established less than 120 days prior to plan sponsors, must provide the notice SBCs and the uniform glossary. One the beginning of the first plan year of in a manner reasonably calculated to commenter also asked the Departments the HRA, the notice may be provided no ensure actual receipt of the material by to clarify the notice timing requirement later than the date on which the HRA plan participants covered by the HRA. as applied to individual coverage HRAs may first take effect for the participant, Additionally, individual coverage HRAs that do not have a calendar year plan for that first plan year of the HRA. that are subject to ERISA must provide year. Moreover, although the final rules the notice in a manner that complies The Departments considered these provide that for participants not eligible with the DOL’s rules.133 For ERISA comments, but have determined that, to participate in the individual coverage plans using electronic disclosure, the with the addition of a rule for newly HRA at the beginning of the plan year DOL has provided a safe harbor at 29 established employers and certain other (or not eligible when the notice is CFR 2520.104b–1(c). This safe harbor is clarifications, the final rules should otherwise provided) and for participants not intended to represent the exclusive adopt the notice timing requirement as of newly established employers, the means by which the requirements of 29 proposed, because, for a calendar year HRA is not required to provide the CFR 2520.104b–1 may be satisfied using plan year, it ensures that participants notice until the date on which the HRA electronic media.134 As to individual who are current employees will receive may first take effect for the participant, coverage HRAs sponsored by nonfederal the notice prior to the individual market the Departments encourage HRAs to governmental plan sponsors, HHS is annual open enrollment period, and for provide the notice as soon as revising the final rule to provide that the employers offering an individual practicable. As explained later in this notice must be provided in a manner coverage HRA on a non-calendar year preamble, individuals who newly gain reasonably calculated to ensure actual plan year, it ensures participants who access to an individual coverage HRA receipt of the material by plan are current employees will receive the will have an individual market SEP that participants covered by the HRA, which notice prior to the applicable individual provides the chance to select an HHS has determined is sufficient to market SEP. The Departments also individual health insurance plan in ensure that participants receive the clarify that the notice timing advance of the date when the HRA may required notice. requirement applies in the same way to first take effect, so that individual health Commenters also requested that the an individual coverage HRA with a insurance coverage can be effective on Departments confirm that the notice calendar year plan year or with a non- the first date the individual is eligible to may be delivered along with other plan calendar year plan year. The notice’s be covered by the HRA. If the notice is materials, including, but not limited to, primary purpose is to provide necessary not provided until the day the HRA may annual enrollment materials or new hire information to participants that first take effect for the participant, benefit packages. The Departments Exchanges will need in order to individuals may not be aware of the confirm that the individual coverage accurately determine eligibility for HRA offer and will not be able to enroll HRA notice may be delivered with other APTC. With that purpose in mind, the in individual health insurance coverage plan materials, so long as it satisfies the Departments have determined that a that has an effective date on the earliest content and timing requirements shorter timing requirement, including effective date of their HRA coverage. specific to the individual coverage HRA one mirroring the requirement for the However, the Departments are aware notice. SBC, or a timing requirement tied to the that in some circumstances it would not employer’s open enrollment period, be reasonable to require HRAs to e. Other Notice Requirements and would not be sufficient. provide the notice well in advance of Consumer Assistance As previously noted, the proposed the date the HRA may first take effect Some commenters suggested that all rules provided an exception to the 90 for new employees. Therefore, the final types of HRAs (including excepted day notice requirement for participants rules continue to require that the notice benefit HRAs and HRAs integrated with who are not eligible to participate either be provided in these circumstances no traditional group health plans) should at the beginning of the plan year or at later than the date on which the HRA include notice requirements so that the time the notice is provided at least may first take effect, but if possible, individuals understand which type of 90 days prior to the plan year. For those HRAs should provide the notice sooner. arrangement they have and the participants, the proposed rules would This will allow new employees to begin consequences of the arrangement. The allow the individual coverage HRA to coverage in the HRA as soon as possible. Departments acknowledge the potential provide the notice no later than the date With regard to delivery methods, the for consumer confusion as a result of the on which the participants are first proposed rules provided that the notice eligible to participate in the HRA. The must be a written notice but did not 133 29 CFR 2520.104b–1. final rules adopt this rule generally as further address delivery or format. 134 67 FR 17263, 17264 (, 2002).

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existence of various types of health One commenter requested that the 10. Student Health Insurance Coverage coverage, including various types of Departments clarify the interaction Federal rules under PPACA define HRAs. However, the Departments between the notice requirements student health insurance coverage as a generally decline the suggestion to associated with the Fair Labor type of individual health insurance impose new notice requirements under Standards Act (FLSA) and the notice coverage.139 Although those rules the final rules across all types of HRAs. requirement for individual coverage exempt student health insurance The Departments note that this type of HRAs. The Departments note that under coverage from certain provisions of consumer information notice FLSA section 18B, an applicable PPACA and HIPAA,140 they do not requirement is typically only imposed employer is required to provide notice exempt this coverage from PHS Act in situations in which there is a specific to inform employees of coverage sections 2711 and 2713. Therefore, justification for it. For example, options, including the existence of an given that student health insurance individual coverage HRAs are unique in Exchange, and the availability of the coverage is a type of individual health that specific PTC rules apply, and for PTC if the employer’s plan does not insurance coverage, and is subject to QSEHRAs, which also have specific provide MV. This notice is provided at PHS Act sections 2711 and 2713, in the PTC rules, notices are already required 135 the time of hiring. The FLSA section preamble to the proposed rules, the under the law. 18B requirement to provide a notice to Further, the Departments note that the Departments clarified that an HRA may proposed rules would have required the employees of coverage options applies be integrated with student health notice to include a statement that the to employers to which the FLSA insurance coverage that satisfies the individual coverage HRA is not a applies. An employer sponsoring an requirements in 45 CFR 147.145. QSEHRA, and the final rules revise the individual coverage HRA that provides One commenter expressed support for statement in response to comments to the required notice under the final rules allowing integration of HRAs with clarify further that there are multiple must also provide a notice that satisfies student health insurance coverage. types of HRAs and the type the the FLSA notice requirement if the Another commenter requested that participant is being offered is an FLSA applies to the employer. However, integration with student health individual coverage HRA (rather than a nothing in the final rules prohibits an insurance coverage not be permitted due QSEHRA or any other type). employer from combining the notices to concerns that HRA plan sponsors Moreover, HRAs that are ERISA- for employees eligible for the individual would be required to confirm that the covered plans must provide a summary coverage HRA, provided that both student health insurance coverage plan description (SPD), summaries of notice requirements are satisfied. complies with the market requirements. material modifications, and summaries Commenters also urged the The final rules permit HRA integration of material reductions in covered Departments more generally to create with student health insurance coverage 136 services or benefits. The SPD must be tools and resources for employees and because student health insurance coverage is individual health insurance sufficiently comprehensive to apprise employers that are easily accessible to coverage that is subject to PHS Act the plan’s participants and beneficiaries help determine PTC eligibility and to sections 2711 and 2713. In response to of their rights and obligations under the dedicate additional funding to the State concerns about the difficulty of plan. It must also include, for example, Exchanges for increased administration determining the compliance of the conditions pertaining to eligibility to and assistance to individuals trying to individual health insurance coverage receive benefits, and a description or determine APTC eligibility. A few policies with the market requirements summary of the benefits, the commenters suggested that more circumstances that may result in generally for all individual health education for consumers, enrollment disqualification, ineligibility, or denial, insurance coverage, under the final assisters, and agents and brokers would loss, forfeiture, suspension, offset, rules, all individual health insurance be necessary. The Departments reduction, or recovery (for example, by coverage is treated as compliant with acknowledge the crucial role that the exercise of subrogation or PHS Act sections 2711 and 2713. Exchanges have in implementation and reimbursement rights) of any benefits Therefore, plan sponsors are not and the procedures governing claims for operationalization of individual required to confirm that any particular benefits under the plan. HRAs that are coverage HRAs, and the Departments student health insurance policy (or any ERISA-covered plans are also required will work closely with the Exchanges on other individual health insurance to provide the instruments under which the implementation of the final rules. policy) complies with PHS Act sections the plan is established or operated and The Departments note that language will 2711 and 2713. information relevant to a participant’s be added to the HealthCare.gov Further, in the preamble to the adverse benefit determination upon application to help consumers proposed rules, the Departments noted request.137 This information should be understand that if they are eligible for that self-insured student health plans adequate to enable individuals to an individual coverage HRA, this offer understand which type of arrangement may affect their APTC eligibility. As 139 Under this definition, student health they have and the consequences of the discussed elsewhere in this preamble, insurance coverage must be provided pursuant to a arrangement.138 HHS also intends to provide technical written agreement between an institution of higher assistance materials for consumers in education (as defined in the Higher Education Act of 1965) and a health insurance issuer, and 135 Code section 9831(d)(4) and IRS Notice 2017– HealthCare.gov states, as well as for provided to students enrolled in that institution and 67. enrollment assisters and agents and their dependents, and does not make health 136 See 29 CFR 2520.104b–2 and 29 CFR brokers participating in Exchanges that insurance coverage available other than in 2520.104b–3(a), (d)(3). use HealthCare.gov, so they may help connection with enrollment as a student (or as a 137 See, e.g., ERISA sections 104(b), 502(c), and dependent of a student) in the institution, does not 503. See also 29 CFR 2520.104b–1 and 29 CFR consumers understand the implications condition eligibility for the health insurance 2560.503–1. of their individual coverage HRA offer. coverage on any health status-related factor (as 138 The final excepted benefit HRA rules The Departments are also continuing to defined in 45 CFR 146.121(a)) relating to a student specifically note the ERISA disclosure obligations, consider other ways to provide outreach (or a dependent of a student), and satisfies any and HHS intends to propose similar disclosure additional requirements that may be imposed under requirements for non-federal governmental plan and assistance to stakeholders regarding state law. See 45 CFR 147.145(a). excepted benefit HRAs. individual coverage HRAs. 140 See 45 CFR 147.145(b).

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are not a form of individual health that are institutions of higher education. asserted that prohibiting integration insurance coverage.141 Therefore, the For this purpose, a student premium with STLDI is necessary to ensure the proposed rules did not provide for HRA reduction arrangement is defined as any integrity and sustainability of the integration with self-insured student program offered by an institution of individual market and that to allow health plans. One commenter expressed higher education where the cost of integration with STLDI would run concern that it may be difficult for insured or self-insured student health counter to, and negate, the various other employers to verify whether an coverage is reduced for certain students provisions in the proposed rules individual with student health plan through a credit, offset, reimbursement, intended to prevent adverse selection. coverage has insured or self-insured stipend or similar arrangement.143 Some commenters expressed concern coverage. The Departments appreciate Therefore, the offer of that type of that STLDI provides insufficient the comment and recognize that arrangement to student employees will coverage and consumer protections, that employers and employees may not not affect the compliance of an individuals would unknowingly enroll, know whether a student health plan is individual coverage HRA that the and that brokers would have incentives insured or self-insured, but expect that institution of higher education may offer to encourage STLDI enrollment. Some employers will take reasonable steps to to other employees. The final rules also commenters raised legal concerns with ensure compliance with the final rules. clarify that a student employee offered allowing integration of HRAs with This includes making reasonable efforts a student premium reduction STLDI, noting that STLDI is not subject to ensure that, when employees arrangement is not counted for purposes to, or generally compliant with, PHS Act substantiate enrollment in student of determining whether the minimum sections 2711 and 2713 and, therefore, health coverage, they are correctly class size requirement is satisfied. The would not be sufficient to ensure that an substantiating enrollment in a student text of the final rules includes examples. individual with an HRA integrated with health plan provided through insurance However, if a student employee is not STLDI had coverage that was compliant by a licensed issuer. If a student offered a student premium reduction with these market requirements. One enrolled in an institution of higher arrangement (including if, instead, the commenter asserted that an HRA education has questions about the type student employee is offered an integrated with STLDI would fail to of student health coverage that is offered individual coverage HRA), the student comply with the health by the institution, this information employee is considered to be part of the nondiscrimination rules under HIPAA should be available in the governing class of employees to which he or she because STLDI is allowed to plan document or by contacting the plan otherwise belongs, and the student discriminate based on health status. employee is counted in determining administrator for the student health A few commenters supported whether the minimum class size plan. allowing integration of an individual The Departments also confirmed in requirement is satisfied. Further, if an coverage HRA with STLDI, noting that the preamble to the proposed rules that individual coverage HRA is offered to STLDI is an option that could provide prior guidance,142 which provided student employees, the final integration relief to individuals unable to afford enforcement relief to institutions of rules apply to such an arrangement as individual health insurance coverage higher education for certain healthcare they would any other individual and, for some lower-income individuals, premium reduction arrangements coverage HRA. such as those in states that did not offered to student employees in 11. Integration With Certain Other expand Medicaid under PPACA, may be connection with insured or self-insured Types of Coverage the only affordable alternative. One student health coverage (student commenter supported integration with premium reduction arrangements) a. Short-Term, Limited-Duration STLDI as long as additional guardrails remains in effect, pending any further Insurance were established and another requested guidance. One commenter expressed The Departments considered whether additional notice requirements if support for keeping the current to propose a rule to permit individual integration of individual coverage HRAs enforcement relief in effect. coverage HRAs to be integrated with were to be permitted with STLDI. The Departments reiterate that the types of non-group coverage other than The Departments note that STLDI can previously provided enforcement relief individual health insurance coverage, be a useful option for certain remains in effect for institutions of such as STLDI.144 The Departments individuals otherwise unable to afford higher education, pending any future declined to do so in the proposed rules or obtain PPACA-compliant health guidance, and the final rules clarify that because STLDI is not subject to PHS Act insurance. The final rules, however, do a student employee who is offered a sections 2711 and 2713 and, therefore, student premium reduction arrangement might not be compliant with these not allow integration with STLDI is not considered part of the class of market requirements. However, the because of the concerns raised by employees of which the employee Departments requested comments on commenters, including that the would otherwise be a part for purposes whether integration with STLDI should combined arrangement would not of the final integration rules. This be permitted and, if so, what potential necessarily satisfy PHS Act sections provision applies only for plan sponsors advantages and problems might arise. 2711 and 2713 and that adverse Most commenters strongly opposed selection could result. The Departments 141 See 77 FR 16453, 16455 (, 2012). allowing integration with STLDI, note that the new excepted benefit HRA 142 See FAQs About Affordable Care Act expressing concerns that it would cause finalized elsewhere in the final rules, Implementation Part 33, available at https:// significant adverse selection in the which is not subject to PHS Act sections www.dol.gov/sites/default/files/ebsa/about-ebsa/ individual market, which would lead to 2711 and 2713, generally may be used our-activities/resource-center/faqs/aca-part-33.pdf to reimburse premiums for STLDI. See or https://www.cms.gov/CCIIO/Resources/Fact- increased premiums and increased Sheets-and-FAQs/Downloads/ACA-FAQ-Set-33- federal spending (through increased later in this preamble for a discussion of Final.pdf. See also IRS Notice 2016–17; DOL PTCs). Some of these commenters the excepted benefit HRA, including a Technical Release 2016–1; and CMS Insurance discussion of the limited circumstance Standards Bulletin, Application of the Market Reforms and Other Provisions of the Affordable 143 Id. in which an excepted benefit HRA may Care Act to Student Health Coverage, February 5, 144 See 26 CFR 54.9801–2, 29 CFR 2590.701–2, not be used to reimburse STLDI 2016. and 45 CFR 144.103 for the definition of STLDI. premiums.

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b. Spousal Coverage noting that the arrangement would add individual coverage HRA with these In developing the proposed rules, the little value. In light of the Departments’ arrangements would not result in a Departments considered whether to continued concern with the added combined arrangement sufficient to allow individual coverage HRAs to be complexity that would be required and satisfy PHS Act sections 2711 and 2713, integrated with group health plan the response from commenters, the final which means that such a combined coverage, such as a group health plan rules do not allow an individual arrangement would not provide the maintained by the employer of the coverage HRA to also be integrated with protections afforded by those participant’s spouse, in addition to other group health plan coverage, such provisions. individual health insurance coverage. as spousal coverage. This is an area that One commenter asserted that the Like individual health insurance the Departments may explore in future proposed rules would impermissibly coverage, group health plan coverage rulemaking. The Departments reiterate burden the exercise of religion for that the current rules under PHS Act purposes of the Religious Freedom generally is subject to and compliant 149 with PHS Act sections 2711 and 2713. section 2711 allow HRAs to be Restoration Act of 1993 (RFRA) The Departments indicated they did not integrated with other non-HRA group because they would not allow propose such a rule because to do so health plan coverage, including spousal individual coverage HRAs to be would add significant complexity to the coverage, subject to certain integrated with health care sharing individual health insurance coverage conditions.146 However, amounts made ministries and thus would make integration test.145 However, the available under such an HRA may not participation in health care sharing Departments requested comments, be used to purchase individual health ministries more expensive relative to including on the demand for such a insurance coverage.147 individual coverage HRAs. Specifically, rule, and any problems such a rule may Commenters also requested the commenter asserted that the raise. clarification as to whether two spouses, proposed rules would impermissibly Several commenters requested that each offered an individual coverage burden the free exercise of religion integration with spousal coverage be HRA from their respective employers, because, by not allowing HRAs to be permitted under the individual health may use the separate individual integrated with health care sharing insurance coverage integration test, with coverage HRAs to buy a single ministries, the rules would extend one stating that most group coverage is individual health insurance policy that certain tax advantages to individual likely to cover all EHBs and therefore covers both spouses (and any coverage HRAs that are not extended to the issue of an HRA that covers all EHBs dependents). Nothing in the final rules participants in health care sharing being integrated with coverage that does would prohibit this, if the separate ministries. However, although the RFRA not cover all EHBs is unlikely to arise. individual coverage HRAs are each in provides a claim to persons whose One commenter suggested that the compliance with the final rules. religious exercise is substantially Departments allow an employee to be However, under the generally applicable burdened by government, the Supreme covered by a group health plan and also rules for HRAs under the Code, each Court has held that ‘‘a generally have access to an HRA that can be used individual may only seek applicable tax [that] merely decreases to purchase individual health insurance reimbursement for the portion of a the amount of money [an individual or coverage for a spouse. Other medical care expense that has not entity] has to spend on its religious commenters requested that integration already been reimbursed by some other activities’’ does not impose a substantial 150 of an individual coverage HRA with means, including from one of the burden on the exercise of religion. spousal coverage be prohibited, individual coverage HRAs. Consequently, the final rules do not expressing skepticism that employers allow individual coverage HRAs to be would take advantage of this option and c. Health Care Sharing Ministries integrated with health care sharing Several commenters requested that ministries. 145 PHS Act section 2711 applies with respect to integration of HRAs with health care d. Multiple Employer Welfare the coverage of EHBs. Because large group market sharing ministries be permitted, in part Arrangements (Including Association and self-insured group health plans are not required to provide an alternative option that to cover EHBs, unlike individual health insurance Health Plans) alleviates conscience issues faced by coverage which generally is required to cover all One commenter requested that EHBs, in the group health plan integration context, employers and employees with respect situations may arise where non-HRA group to individual health insurance coverage, integration of HRAs be permitted with coverage with which the HRA is integrated does not association health plans (AHPs) 151 and and in part due to the success of health cover every category of EHBs that the HRA covers. another commenter opposed allowing care sharing ministries in providing In that case, the HRA applies an annual dollar limit integration with AHPs, because to a category of EHBs and the non-HRA group affordable, flexible choices. coverage with which it is integrated does not cure The Departments are of the view that coverage offered by an AHP is not that limit by providing unlimited coverage of that required to cover all EHBs, to the extent category of EHBs. In the 2015 rules under PHS Act HRAs cannot be integrated with health section 2711, and in subregulatory guidance that care sharing ministries, consistent with 149 42 U.S.C. 2000bb(b). preceded the 2015 rules, the Departments addressed PHS Act sections 2711 and 2713. Under 150 Jimmy Swaggart Ministries v. Bd. of this issue by providing two tests. Specifically, if the current law, health care sharing non-HRA group coverage with which an HRA is Equalization of California, 493 U.S. 378, 391 (1990). integrated provides MV, the HRA will not be ministries are not subject to those 151 On , 2018, DOL published a final rule considered to fail to comply with PHS Act section provisions, nor are they required to establishing a new test as an alternative to that 2711, even though the HRA might provide comply with other market requirements described in prior DOL sub-regulatory guidance for reimbursement of an EHB that the plan with which that apply to individual health determining who can sponsor an ERISA-covered the HRA is integrated does not. If an HRA is AHP as an ‘‘employer.’’ See 83 FR 28912 (June 21, integrated with non-HRA group coverage that does insurance coverage. Health care sharing 2018). The AHP rule was intended to expand access not provide MV, the 2015 rules limit the types of ministry arrangements are also not to affordable, high-quality healthcare options, expenses that an HRA may reimburse to MEC.148 Therefore, the integration of an particularly for employees of small employers and reimbursement of co-payments, co-insurance, some self-employed individuals. On , deductibles, and premiums under the non-HRA 2019, in State of New York v. United States 146 group coverage, as well as medical care that does 26 CFR 54.9815–2711(d)(2), 29 CFR 2590.715– Department of Labor, the United States District not constitute an EHB. For additional discussion of 2711(d)(2), and 45 CFR 147.126(d)(2). Court for the District of Columbia vacated most of the current rules under PHS Act section 2711, see 147 IRS Notice 2015–87, Q&A–2. the DOL rule. On , 2019, the Department the discussion earlier in this preamble. 148 See Code section 5000A(d)(2)(B) and 5000A(f). of Justice filed a notice of appeal.

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the coverage is offered through a large insurance coverage as well as any excepted benefits, including standalone group market or self-insured group medical care expenses related to dental coverage, hospital indemnity or health plan. AHPs are a type of Multiple TRICARE, subject to the terms of the other fixed indemnity coverage, and Employer Welfare Arrangement HRA. coverage for a specific disease or illness, provide medical care within the (MEWA) that are group health plans. 12. Expenses Eligible for meaning of Code section 213(d) and, The Departments current, final Reimbursement by an Individual therefore, that expenses for these types regulations at 26 CFR 54.9815– Coverage HRA 2711(d)(2), 29 CFR 2590.715–2711(d)(2), of coverage are reimbursable by an and 45 CFR 147.126(d)(2) set forth A number of commenters requested individual coverage HRA. Some criteria for HRAs to be integrated with clarification of the expenses that may be commenters requested that expenses other group health plan coverage reimbursed under an individual paid with regard to direct primary care (including MEWAs). coverage HRA, such as whether arrangements be recognized as expenses expenses for premiums for excepted for medical care under Code section e. TRICARE benefit coverage, cost sharing under 213(d). In addition, one commenter The Departments note that, under the excepted benefit coverage, and cost requested clarification of whether final rules, individual coverage HRAs sharing under individual health payments for participation in health may not be integrated with TRICARE.152 insurance coverage may be reimbursed. care sharing ministries qualify as However, for the sake of clarity, the One commenter recommended that the medical care expenses under Code Departments note that nothing in the final rules require individual coverage section 213(d). final rules prevents an employer from HRAs to provide reimbursement for cost An HRA, including an individual offering an individual coverage HRA to sharing in addition to premiums, and coverage HRA, generally may reimburse an individual covered by TRICARE, another asked for clarification that an expenses for medical care, as defined subject to the provisions of the final individual coverage HRA is not required under Code section 213(d), of an rules, including that if an individual to be used to reimburse premiums for employee and certain members of the coverage HRA is offered to an employee individual health insurance coverage, so employee’s family. Under Code section in a class of employees, the HRA must long as the individual coverage HRA 213(d), medical care expenses generally generally be offered on the same terms otherwise satisfies the requirements include amounts paid (1) for the to all the employees in the class. under the final rules. diagnosis, cure, mitigation, treatment, or Further, nothing in the final rules An HRA may provide for prevention of disease, or for the purpose prevents an individual covered by reimbursement of expenses for medical of affecting any structure of function of TRICARE from enrolling in an care, as defined under Code section the body; (2) for transportation individual coverage HRA, if offered, 213(d). Consistent with the current rules primarily for and essential to medical that apply to HRAs generally, under the subject to the conditions in the final care; (3) for certain qualified long-term final rules, a plan sponsor has discretion rules, including that all individuals care services; and (4) for insurance to specify which medical care expenses covered by an individual coverage HRA covering medical care. Neither the are eligible for reimbursement from an must be enrolled in either individual proposed rules nor the final rules make individual coverage HRA it establishes. health insurance coverage or any changes to the rules under Code A plan sponsor may allow an HRA to Medicare.153 Consequently, an section 213. Thus, any issues arising reimburse all medical care expenses, individual covered by TRICARE who is under Code section 213, and any may limit an HRA to allow offered an individual coverage HRA will guidance requested by commenters to reimbursements only for premiums, be enrolled in TRICARE and must also address those issues, are beyond the may limit an HRA to allow scope of this rulemaking. The Treasury be enrolled in an individual health reimbursements only for non-premium insurance policy (or Medicare, if Department and the IRS, however, medical care expenses (such as cost appreciate the comments and plan to applicable) in order to be enrolled in the sharing), or may decide which individual coverage HRA. The address some of these issues in future particular medical care expenses will be rulemaking or guidance. individual may not enroll in the reimbursable and which will not be individual coverage HRA and only reimbursable. However, in the latter 13. Interaction of Individual Coverage TRICARE without enrolling in an case, the designation of the HRAs and HSAs individual health insurance policy (or reimbursable expenses must not violate Commenters raised various issues Medicare). Further, as explained later in other rules applicable to group health related to the interaction between this preamble, HRAs may reimburse plans, such as the HIPAA individual coverage HRAs and HSAs. medical care expenses and the HRA nondiscrimination rules or the MSP Section 1201 of the Medicare plan sponsor determines which medical provisions. The final rules do not Prescription Drug, Improvement, and care expenses a particular HRA may require that an individual coverage HRA Modernization Act of 2003, Public Law reimburse, consistent with the be used (or be allowed to be used) for 108–173, added section 223 to the Code discussion later in this preamble. It may reimbursement of premiums for to allow eligible individuals to establish be the case that an HRA will be individual health insurance coverage (or HSAs. Among the requirements for an available to pay both the premiums and Medicare). However, as detailed earlier individual to qualify as an eligible cost-sharing for individual health in this preamble, the final rules require individual under Code section 223(c)(1) that individuals covered by an is that the individual must be covered 152 See chapter 55 of title 10, United States Code. individual coverage HRA be enrolled in under a high deductible health plan 153 IRS Notice 2015–17, Q&A–3, provides that an arrangement under which an employer reimburses individual health insurance coverage (or (HDHP) and have no disqualifying certain medical care expenses for employees Medicare). Thus, the Departments health coverage. If an individual fails to covered by TRICARE may be considered integrated generally anticipate that employers will satisfy the requirements to be an eligible with a traditional group health plan offered by the allow individual coverage HRAs to individual, contributions to an HSA are employer (even though the employee is not enrolled in the traditional group health plan), subject to reimburse premiums for such coverage. disallowed. certain conditions. The final rules do not affect this Some commenters requested that the Several commenters asked that the guidance provided under Notice 2015–17. Departments confirm that certain Treasury Department and the IRS clarify

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whether an individual covered by an offer both an HSA-compatible than premiums or expenses allowed as individual coverage HRA may individual coverage HRA and an limited purpose) incurred prior to the contribute to an HSA. Some individual coverage HRA that is not satisfaction of the minimum commenters specifically asked the HSA compatible to a class of employees. deductible.159 Treasury Department and the IRS to The Departments recognize that some The commenter further requested address the application of prior employees offered an individual clarification as to whether unused guidance under the Code, which coverage HRA may choose individual amounts in an individual coverage HRA provides that certain types of HRAs do health insurance coverage that is an at the end of the plan year may be not render an individual ineligible to HDHP and other employees may choose transferred to the employee’s HSA. The contribute to an HSA. Several non-HDHP individual health insurance Treasury Department and the IRS note commenters expressed support for coverage that is not HSA compatible. that amounts available under an HRA, HSAs and emphasized the importance While some employers may offer all whether an individual coverage HRA or of allowing individuals who have employees in a class of employees an another type of HRA, may not be funded individual coverage HRAs to contribute HSA-compatible individual coverage by salary reduction amounts. Moreover, to HSAs. HRA, some employers may want to offer the amounts are available only to In Revenue Ruling 2004–45,154 the employees in a class of employees a reimburse Code section 213(d) medical Treasury Department and the IRS choice between an HSA-compatible care expenses and may not be cashed clarified that an otherwise eligible individual coverage HRA and an out.160 However, amounts in an HSA individual (that is, an individual with individual coverage HRA that is not may be withdrawn for non-medical coverage under an HDHP and no other HSA compatible. In response to this purposes, subject to inclusion in income disqualifying coverage) remains an comment, the final rules clarify that an and an additional tax.161 In addition, eligible individual for purposes of employer that offers employees in a Congress previously provided for one- making contributions to an HSA for class of employees a choice between an time distributions from HRAs to HSAs, periods during which the individual is HSA-compatible individual coverage in certain circumstances, subject to the covered by, among other things, a HRA and an individual coverage HRA annual HSA contribution limits, but this limited-purpose HRA, a post-deductible that is not HSA compatible does not fail special rule was only made available on HRA, or combinations of these to satisfy the same terms requirement a temporary basis, and the rule sunset arrangements.155 Subsequently, Q&A–1 provided both types of individual at the end of 2011.162 Therefore, of IRS Notice 2008–59 156 stated that a coverage HRAs are offered to all allowing unused amounts in an limited-purpose HRA that is also employees in the class on the same individual coverage HRA to be 157 available to pay premiums for health terms. The final rules have been transferred to an HSA would be coverage does not disqualify an revised to reflect this rule. inconsistent with the relevant otherwise eligible individual from With respect to the post-deductible provisions of the Code and is not contributing to an HSA, provided the feature of certain HSA-compatible permitted. individual does not use the HRA to, or HRAs, one commenter suggested that Finally, some commenters requested otherwise, obtain coverage that is not the final rules provide that employees that direct primary care arrangements HSA-compatible. This prior guidance may self-administer the post-deductible not be treated as a health plan or applies to all HRAs, including restriction by tracking medical expenses coverage under Code section 223, so individual coverage HRAs. Therefore, incurred during the year and refraining that an individual may have a direct for example, an individual coverage from submitting medical expenses to the primary care arrangement without HRA that solely makes available post-deductible HRA until the becoming ineligible for HSA reimbursements of individual health minimum deductible is satisfied. The contributions. Similar to the discussion insurance coverage premiums does not Treasury Department and the IRS of Code section 213 in the preceding disqualify an otherwise eligible decline to adopt this approach because section of this preamble, neither the individual covered under an HDHP and it would be inconsistent with the rules proposed rules nor the final rules make no other disqualifying coverage from for the administration of HDHPs.158 If a any changes to the rules under Code making contributions to an HSA. plan sponsor chooses to offer an HSA- section 223. Thus, any issues arising However, an individual coverage HRA compatible individual coverage HRA under Code section 223, and any that is not limited in accordance with that reimburses medical care expenses guidance requested by commenters to the relevant guidance under the Code after the minimum deductible under address those issues, are beyond the would not be HSA-compatible (for Code section 223(c)(2)(A)(i) is satisfied, scope of this rulemaking. example, an HRA that can reimburse it is the employer’s responsibility to first dollar cost sharing). track medical care expenses incurred One commenter asked whether during the year and ensure that the 159 Another commenter inquired about the interaction of individual coverage HRAs and HSAs employers are allowed, or required, to individual coverage HRA does not and the rules for cafeteria plans under Code section reimburse medical care expenses (other 125. These issues are outside the scope of this 154 Revenue Ruling 2004–45, 2004–1 IRB 971. rulemaking, and the Treasury Department and the 155 See Revenue Ruling 2004–45, which defines a 157 The Departments note that under the opt out IRS are continuing to consider whether future limited-purpose HRA as an HRA that pays or requirement, described later in this preamble, each guidance is needed. reimburses benefits for ‘‘permitted insurance’’ (for participant must be given the chance to opt out of 160 See IRS Notice 2002–45. a specific disease or illness or that provides a fixed (or into) an individual coverage HRA once, and 161 See Code section 223(f). Notwithstanding that amount per day (or other period) of hospitalization) only once, with respect to a plan year and to the HSA amounts may be withdrawn for non-medical or ‘‘permitted coverage’’ (for example, vision or extent a participant is offered a choice between an purposes, subject to inclusion in income and dental coverage), but not for long-term care services. HSA-compatible HRA and a non-HSA-compatible additional tax, Code section 106(d) provides that in In addition, the limited-purpose HRA may pay or HRA, the participant will opt into either one or the the case of amounts contributed by an employer to reimburse preventive care benefits. The ruling also other, for the plan year (or for the portion of the the HSA of an eligible individual, those amounts defines a post-deductible HRA as an HRA that does plan year during which the participant is covered are treated as employer-provided coverage for not pay or reimburse any medical expense incurred by the HRA). (Note that participants are also medical care expenses under an accident or health before the minimum annual deductible under Code generally given the chance to waive the HRA upon plan to the extent the amounts do not exceed the section 223(c)(2)(A)(i) is satisfied. termination of employment). annual limits on contributions to an HSA. 156 IRS Notice 2008–59, 2008–29 IRB 123. 158 See Revenue Ruling 2004–45. 162 See Code section 106(e).

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14. Interaction of Individual Coverage coverage, including group health plans. (b)(1)(A)(i)(II) and (b)(1)(C)(ii)) are HRAs and Medicare These provisions protect the Medicare collectively referred to as the Medicare Commenters raised various issues trust funds by ensuring that Medicare nondiscrimination provisions. Examples related to the interaction between does not pay for items and services that of actions that constitute taking into individual coverage HRAs and certain health insurance or coverage is account Medicare entitlement are listed Medicare. The comments focused on the primarily responsible for paying. In in 42 CFR 411.108. interaction with the Medicare anti- general, the MSP provisions describe SSA section 1862(b)(1)(A)(i)(II) and duplication provision under SSA when Medicare is secondary in relation (ii) provides that group health plans of section 1882(d)(3)(A)(i)(I) and the MSP to other health plans or coverage and employers of 20 or more employees provisions under SSA section 1862(b). prohibit Medicare from making payment must provide to any employee or spouse In response to these comments, the final for an item or service if payment has age 65 or older the same benefits, under rules have been revised to provide that been made, or can reasonably be the same conditions, that the plan an individual coverage HRA may be expected to be made, by a primary plan provides to those individuals under age 166 integrated with either individual health when certain conditions are satisfied. 65 (equal benefit rule). For example, a insurance coverage or Medicare Part A SSA section 1862(b) and 42 CFR group health plan of an employer with and B or Part C. Also, the Departments 411.20 et seq. provide, in part, that 20 or more employees may not provide clarify that an individual coverage HRA Medicare is the secondary payer, under lesser benefits to individuals age 65 or may be used to reimburse premiums for specified conditions, for services over, or charge higher premiums for Medicare and Medicare supplemental covered under any of the following: individuals age 65 or over, because • Group health plans of employers health insurance (Medigap), as well as these actions would take into account that employ at least 20 employees and other medical care expenses, as employees’ entitlement to Medicare on that cover Medicare beneficiaries age 65 discussed in more detail in this section the basis of age and would provide or older who are covered under the plan of the preamble. different benefits based on whether an by virtue of the individual’s current employee is under or over age 65. This a. Background employment status 167 with an employer requirement applies regardless of Comments regarding the interaction or the current employment status of a whether the individual or spouse age 65 spouse of any age.168 or older is entitled to Medicare. between individual coverage HRAs and • Medicare addressed a number of federal Group health plans (without regard SSA section 1862(b)(1)(C)(ii) provides laws and rules governing the to the number of individuals employed that group health plans may not relationship between group health plans and irrespective of current employment differentiate in the benefits they provide and the Medicare program. This section status) that cover individuals who have between individuals who have ESRD of the preamble briefly summarizes ESRD. Except as provided in 42 CFR and other individuals covered under the these laws to provide context for 411.163, group health plans are always plan on the basis of the existence of comments received on the proposed primary payers throughout the first 30 ESRD, the need for renal dialysis, or in rules and the provisions of the final months of ESRD-based Medicare any other manner. Actions that 169 rules related to integration of an eligibility or entitlement. constitute ‘‘differentiating’’ are listed in • Large group health plans, as defined individual coverage HRA with 42 CFR 411.161(b). by Code section 5000(b)(2) without Medicare. SSA section 1862(b)(3)(C) and 42 CFR Under SSA section 1882(d)(3)(A)(i)(I), regard to Code section 5000(d) (that is, 411.103 provide that it is unlawful for it is unlawful for any person to issue or plans of employers that employ at least an employer or other entity (for sell to an individual entitled to benefits 100 employees), that cover Medicare example, an issuer) to offer any under Medicare Part A or enrolled in beneficiaries who are under age 65, financial or other benefits as incentives Medicare Part B (including an entitled to Medicare on the basis of for an individual entitled to Medicare individual electing a Medicare Part C disability, and covered under the plan not to enroll in, or to terminate plan) an individual health insurance by virtue of the individual’s or a family enrollment in, a group health plan that member’s current employment status is, or would be, primary to Medicare. policy with the knowledge that the 170 policy duplicates 163 health benefits to with an employer. For example, employers may not offer Generally, under SSA section which the individual is otherwise benefits to Medicare beneficiaries that 1862(b)(1)(A), (B), and (C), a group entitled under Medicare or Medicaid.164 are available only as alternatives to the health plan may not take into account Persons who violate SSA section employer’s primary group health plan that individuals are entitled to Medicare 1882(d)(3)(A)(i)(I) are subject to criminal (for example, prescription drug benefits) on the basis of age or disability, or that fines and imprisonment, as well as civil unless the beneficiary has primary individuals are eligible for or entitled to monetary penalties.165 coverage other than Medicare (for The MSP provisions in SSA section Medicare on the basis of ESRD, in the example, primary plan coverage through 1862(b) make Medicare the secondary design or offering of the plan. The his or her spouse’s employer). payer to certain other health plans and provisions at SSA section 1862(b)(1)(A), (B), and (C) (including subsections b. Integration of Individual Coverage HRAs With Medicare 163 If benefits under an individual health insurance policy are payable without regard to 166 See CMS Publication #100–05, Medicare Several commenters requested other health benefit coverage of such individual, the Secondary Payer Manual, available at https:// clarification generally about how policy is not considered to ‘‘duplicate’’ any health www.cms.gov/Regulations-and-Guidance/ employees who are enrolled in benefits to which the individual is otherwise Guidance/Manuals/internet-Only-Manuals-IOMs- entitled under Medicare or Medicaid, and therefore, Items/CMS019017.html?DLPage=1&DLEntries=10& Medicare may use amounts in an the statutory prohibition on the sale of such DLSort=0&DLSortDir=ascending. individual coverage HRA. Some coverage does not apply. See SSA section 167 An individual has current employment status commenters explained that because of 1882(d)(3)(A)(iv). if the individual is actively working as an employee the Medicare anti-duplication provision 164 or is otherwise described in 42 CFR 411.104. Group health plans, including HRAs, are applicable to individual health generally exempt from this Medicare anti- 168 SSA section 1862(b)(1)(A), 42 CFR duplication provision. See SSA section 411.20(a)(1)(ii), and 42 CFR 411.100(a)(1)(i). insurance coverage, employees who are 1882(d)(3)(C). 169 SSA section 1862(b)(1)(C). Medicare beneficiaries may not be able 165 SSA section 1882(d)(3)(A)(ii). 170 SSA section 1862(b)(1)(B). to purchase individual health insurance

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coverage and, therefore, would be SSA section 1862(b)(1) that generally supplements, the Medicare benefit unable to enroll in an individual provide that group health plans may not package established by Congress will coverage HRA. One commenter take into account entitlement to not be considered by the Departments to suggested that issuers should have to Medicare and must provide to any fail to satisfy PHS Act sections 2711 and make their individual health insurance employee or spouse age 65 or older the 2713. Further, the Departments policies available to employees eligible same benefits, under the same determined in the 2015 rules under PHS for or enrolled in Medicare, if they are conditions, that the group health plan Act 2711 that allowing Medicare Part B offered an individual coverage HRA. provides to individuals under age 65. If and D reimbursement arrangements to Some commenters sought clarification an employer offers an individual be integrated with Medicare was about the relationship between the coverage HRA, some employees who are sufficient to constitute compliance with Medicare anti-duplication provision and Medicare beneficiaries may not be able PHS Act sections 2711 and 2713 in the the Medicare nondiscrimination to obtain individual health insurance circumstances described in that provisions as they relate to individual coverage due to the anti-duplication guidance, as discussed earlier in this coverage HRAs. Specifically, some provision at SSA section preamble. commenters asked HHS to clarify that 1882(d)(3)(A)(i)(I). This might cause The final integration rules generally the inability of employees who are such employees to be unable to enroll apply in the same manner to Medicare Medicare beneficiaries to obtain in the individual coverage HRA, coverage as they apply to individual individual health insurance coverage effectively treating them differently in health insurance coverage. Thus, under due to the Medicare anti-duplication violation of the SSA’s equal benefit rule. the final rules, an individual coverage provision will not cause the individual To address these comments, the final HRA must require individuals whose coverage HRA or its plan sponsor to rules permit an individual coverage medical care expenses may be violate rules prohibiting discrimination HRA to be integrated with either reimbursed under the HRA to be based on Medicare status, age, individual health insurance coverage or enrolled in either individual health disability, or other factors. One Medicare for a participant or dependent insurance coverage or Medicare Part A commenter suggested that employers who is enrolled in Medicare Part A and and B or Part C for each month such that otherwise comply with the B or Part C (and the HRA will be individuals are covered by the HRA. proposed rules should not be precluded deemed to comply with PHS Act The individual coverage HRA also must from offering an individual coverage sections 2711 and 2713), if certain implement, and comply with, HRA because a class of employees conditions are satisfied. Under the final reasonable procedures to substantiate includes a Medicare beneficiary who rules, an individual coverage HRA may enrollment in either individual health cannot obtain individual health be integrated with Medicare regardless insurance coverage or Medicare Part A insurance coverage. Another commenter of whether the HRA is subject to the and B or Part C for the HRA plan year asked whether employers would be MSP provisions, because the Medicare (or for the portion of the plan year the required to offer Medicare-eligible anti-duplication provision applies individual is covered by the individual employees the same HRA contribution without regard to whether the HRA plan coverage HRA) and with each new as non-Medicare-eligible employees in sponsor is subject to the MSP request for reimbursement of an the same class even though Medicare provisions.171 incurred medical care expense. The beneficiaries may not be able to The Departments are adopting this Departments clarify that the final rules purchase individual health insurance approach due to the challenges do not require that a participant and his coverage. or her dependents all have the same presented by the intersection of the In response to these comments, HHS type of coverage (that is, either requirements that apply to individual notes that there is no exception to the individual health insurance coverage or coverage HRAs, the MSP requirements Medicare anti-duplication provision Medicare). Therefore, an individual applicable to group health plans, and under SSA section 1882(d)(3)(A)(i)(I) for coverage HRA may be integrated with the Medicare anti-duplication provision individual health insurance coverage Medicare for some individuals in a applicable to individual health purchased with an HRA. Therefore, family or household and with insurance coverage. The Departments neither the proposed rules nor the final individual health insurance coverage for have determined that it is appropriate to rules make any changes related to the others in the same family or household. application of the Medicare anti- permit an individual coverage HRA to In addition, under the final rules, an duplication provision. Thus, the integrate with Medicare coverage, and individual coverage HRA must be statutory prohibition against selling an therefore, be considered compliant with offered on the same terms to all individual health insurance policy to a PHS Act sections 2711 and 2713, employees within a class of employees, Medicare beneficiary with knowledge because individuals enrolled in regardless of Medicare eligibility or that the policy duplicates benefits under Medicare Part A and B or Part C have entitlement, including that the Medicare continues to apply, regardless the comprehensive benefit packages individual coverage HRA must make the of whether the individual is offered an established by Congress, generally with same amount available to all employees individual coverage HRA. However, the no annual dollar limits and with in the class, subject to the exceptions Departments have considered coverage of preventive services without provided in the final rules under the 172 commenters’ concerns about individual cost sharing. An individual coverage same terms requirement.173 Moreover, coverage HRAs and the potential effects HRA that helps pay premiums for, or of the Medicare anti-duplication 173 The Departments note that although there is 171 provision, as well as those related to the For group health plans not subject to the MSP an exception to the same terms requirement that provisions, the existing integration rules permit allows a plan sponsor to offer both an HSA- interaction of the MSP provisions, and integration with Medicare Part B and D if certain compatible individual coverage HRA and an have determined that revisions to the conditions are satisfied, including that the individual coverage HRA that is not HSA final rules are warranted. employer offer traditional group health plan compatible, Code section 223(b)(7) provides that an HHS recognizes that, for an individual coverage to its non-Medicare employees. See 26 individual ceases to be an eligible individual for CFR 54.9815–2711(d)(5), 29 CFR 2590.715– HSA purposes starting with the month he or she is coverage HRA, it is necessary to address 2711(d)(5), and 45 CFR 147.126(d)(5). entitled to benefits under Medicare. IRS Notice how the Medicare anti-duplication 172 See, e.g., SSA sections 1861 and 1833, as 2004–50, 2004–33 IRB 196, Q&A–2, clarifies that provision interacts with the rules under added by PPACA sections 4103 and 4104. Continued

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no employee may be offered a choice group health plan coverage. Rather, the may also reimburse other medical care between an individual coverage HRA individual coverage HRA would be the expenses as defined under Code section and a traditional group health plan, group health plan coverage offered to a 213(d) (subject to the exception including an employee enrolled in or class of employees that includes discussed later in this section of the eligible for Medicare. The individual Medicare beneficiaries. Under these preamble regarding taking Medicare coverage HRA must also allow circumstances, unless the employer entitlement into account). Thus, an participants, whether or not covered by could offer an individual coverage HRA individual coverage HRA will not be Medicare, to opt-out of and waive future that may be integrated with Medicare, considered to provide unequal benefits reimbursements from the individual the employer would risk running afoul to participants who are eligible for coverage HRA annually and upon of the equal benefit rule under SSA Medicare because those participants termination of employment. Finally, the section 1862(b)(1)(A)(i). This is because will be able to receive the same benefits individual coverage HRA must provide employees who are Medicare under the HRA regardless of whether the notice required by the final rules to beneficiaries who are unable to they are able to purchase individual all individuals eligible for the HRA, purchase individual health insurance health insurance coverage.177 However, including those for whom the HRA coverage would be ineligible for the as explained earlier in this preamble, would be integrated with Medicare. employer’s group health plan (that is, the plan sponsor generally has Relatedly, in the final rules, the the individual coverage HRA) as a result discretion to specify which medical care Departments clarify the notice content of the Medicare anti-duplication expenses (premiums, cost sharing, or requirements to reflect that an provision. otherwise) are eligible for individual coverage HRA may be HHS recognizes that in other reimbursement under the terms of an integrated with Medicare and to include circumstances, offering an HRA to individual coverage HRA, as long as the a statement regarding PTC eligibility for reimburse Medicare premiums might be HRA offers the same benefits, on the Medicare beneficiaries.174 The final viewed as impermissible because it same terms and conditions, to a class of rules also clarify that some of the notice would have the effect of making employees, subject to the exceptions content elements relate only to Medicare the primary payer in relation under the same terms requirement in individual health insurance coverage to a group health plan.175 Nevertheless, the final rules. In addition, as discussed and not to Medicare. for purposes of the final rules, HHS has earlier in this preamble, the designation c. Reimbursement of Expenses Under concluded that employers need the of the reimbursable expenses must not Individual Coverage HRAs for Medicare flexibility to offer individual coverage violate other rules applicable to group Beneficiaries HRAs that may be integrated with health plans, such as the HIPAA Medicare, and that may provide for nondiscrimination rules or the MSP One commenter requested reimbursement of Medicare premiums. provisions. clarification that offering an individual This flexibility does not violate the To ensure that an individual coverage coverage HRA to Medicare-eligible prohibition against financial incentives HRA that is subject to the MSP employees will not be considered an under SSA section 1862(b)(3)(C). Where provisions does not violate those rules, improper financial incentive for those a group health plan is an individual an individual coverage HRA may not, individuals to select Medicare as their coverage HRA that can be used to pay under its terms, limit reimbursement primary payer. The commenter also Medicare premiums or other medical only to expenses not covered by suggested that employees be able to use 176 Medicare, as HHS has determined this amounts in an individual coverage HRA care expenses, there is no incentive for a Medicare beneficiary to decline or could amount to a group health plan to pay for medical care expenses not taking into account entitlement to covered by Medicare, such as dental, terminate enrollment under the group health plan (that is, the individual Medicare in violation of the MSP vision, and other out-of-pocket provisions. However, an individual expenses, including Medicare Part D coverage HRA). Thus, there is no violation of the SSA’s financial coverage HRA may limit reimbursement premiums, as well as premiums for to only premiums or non-premium Medigap, without it being viewed as incentive prohibition. Therefore, under the final rules, an medical care expenses (such as cost offering an improper incentive. sharing), or may decide which For group health plans subject to the individual coverage HRA that is particular medical care expenses will be MSP provisions, offering an HRA to integrated with Medicare may reimburse reimbursable and which will not be reimburse Medicare premiums is premiums for Medicare Part A, B, C, or reimbursable under the terms of the impermissible if it provides a financial D, as well as premiums for Medigap HRA. incentive for Medicare beneficiaries to policies. The individual coverage HRA decline enrollment in the employer’s d. Other Medicare Issues 175 Under IRS Notice 2015–17, an arrangement group health plan and make Medicare under which an employer reimburses (or pays Some commenters sought assurance the primary payer. Under the final rules, directly) Medicare Part B or D premiums may be that a health insurance issuer providing the employer would not be offering considered integrated with the group health plan individual health insurance coverage Medicare beneficiaries a financial coverage offered to the employee by the employer although the employee is not enrolled in that group purchased with an individual coverage incentive as an inducement to decline coverage and is instead enrolled in Medicare, HRA would not be required to comply subject to certain conditions. IRS Notice 2015–17 with MSP reporting requirements or pay mere eligibility for Medicare does not make an also states that to the extent such an arrangement for benefits primary to Medicare where individual ineligible to contribute to an HSA. is available to active employees, it may be subject Rather, the term ‘‘entitled to benefits under to restrictions under other laws, such as the MSP provisions might apply to the Medicare,’’ for purposes of an HSA, means both Medicare secondary payer provisions. For clarity, eligibility for, and enrollment in, Medicare. the Departments confirm that reimbursement of 177 The fact that a participant or dependent in a 174 Although individuals enrolled in Medicare Medicare Part B and D premiums under IRS Notice class of employees may not be able to enroll in may not be able to purchase individual health 2015–17 is permitted only for such arrangements individual health insurance coverage or Medicare insurance coverage for themselves through the not subject to the MSP provisions. due to the operation of federal law does not mean Exchange, individuals who do so are not eligible for 176 However, as discussed later in this section of the individual coverage HRA that is offered to that the PTC for their Exchange coverage in any event. the preamble, an individual coverage HRA may not, class of employees violates the same terms See Code section 36B(c)(2)(B) and 26 CFR 1.36B– under its terms, limit reimbursement only to requirement under the final rules or the equal 2(a)(2). expenses not covered by Medicare. benefit rule under the SSA.

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individual’s HRA. These commenters future guidance regarding MMSEA One commenter requested that the recommended clarifying that an HRA section 111 reporting requirements and Departments only permit individual plan sponsor’s failure to satisfy the individual coverage HRAs. HHS notes coverage HRAs to be offered by small conditions of the ERISA safe harbor that entities that currently do not offer employers, because, the commenter described later in this preamble will a group health plan and therefore do not asserted, small employers have less have no effect on the MSP status of the have reporting obligations may be incentive to segment risk and are less individual health insurance coverage. required to report if they elect to offer likely to create classes of employees HHS notes that individual health individual coverage HRAs, similar to if leading to adverse selection. One insurance coverage is not subject to the they elected to offer other group health commenter asked that the Departments MSP provisions, including the plan coverage. only permit large employers to offer an reporting, nondiscrimination, and individual coverage HRA, asserting that 15. Other Integration Issues ‘‘primary plan’’ requirements described small employers would be able to earlier in this section of the Some comments were received manipulate the rules to create small preamble.178 Nothing in the final rules regarding dollar limits on individual classes and segment risk. Another changes the application of the MSP coverage HRAs. One commenter commenter requested that only provisions. This is true even where supported that the proposed rules did employers that do not currently offer individual health insurance coverage is not impose any specific dollar limit on coverage be allowed to offer an integrated with an HRA as allowed the amount that an employer may individual coverage HRA. under the final rules.179 However, an contribute to an individual coverage The Departments considered these individual coverage HRA will generally HRA. The commenter noted that this is suggestions and determined that pay primary to Medicare, consistent a welcome difference from QSEHRAs, to limiting the ability of one or more with the MSP provisions applicable to which a statutory dollar limit applies, categories of employers to offer an group health plans. HHS intends to and stated that this flexibility will help individual coverage HRA in these ways issue further guidance clarifying the encourage employers to offer individual would unnecessarily restrict the rules primary versus secondary payer coverage HRAs. One commenter and could decrease the usability of responsibility of individual coverage requested that the Departments place a individual coverage HRAs and harm HRAs for plan sponsors subject to the limit on contributions to an individual employee welfare without a compelling MSP provisions. coverage HRA to prevent adverse reason for these limitations. Therefore, One commenter requested guidance selection. A few commenters asked that under the final rules, any employer may about the MSP reporting requirements the Departments require employers to offer an individual coverage HRA, that apply to individual coverage HRAs. make certain minimum amounts subject to compliance with the Section 111 of the Medicare, Medicaid, available under an individual coverage conditions in the final rules. However, and SCHIP Extension Act of 2007 HRA to approximate the amount the the Departments note that the final rules (MMSEA), Public Law 110–173, employer generally would contribute to include a minimum class size established mandatory reporting a traditional group health plan as a way requirement which applies in certain requirements with respect to Medicare to maintain availability and generosity instances, to address the issue identified beneficiaries who have coverage under of coverage. regarding the ability to create small group health plan arrangements, as well In previous guidance on HRAs, classes and segment risk. as for Medicare beneficiaries who including on integration of HRAs with One commenter urged HHS to allow receive settlements, judgments, awards, other coverage, the Departments for wellness program demonstration or other payment from liability provided no minimum or maximum projects in the individual market under insurance (including self-insurance), no- contribution amount. Similarly, the PHS Act section 2705(l) because the fault insurance, or workers’ Departments decline to impose a commenter asserted wellness programs compensation.180 The purpose of this minimum or maximum contribution are a popular aspect of traditional reporting is to ensure that Medicare amount on individual coverage HRAs employer coverage. Because this correctly pays for covered services under the final rules, in order to provide comment is outside the scope of this provided to Medicare beneficiaries employers with flexibility and because rulemaking, it is not addressed in the consistent with Medicare payment the Departments have imposed other final rules. However, HHS appreciates rules. HRAs (including individual conditions to address the potential for the comment and may consider coverage HRAs) are group health plans adverse selection. However, the addressing this issue in future guidance. and, therefore, generally trigger the Treasury Department and the IRS note Several commenters emphasized the MMSEA section 111 reporting that employers subject to the employer importance of strong enforcement of the requirements.181 HHS will provide shared responsibility provisions under conditions in the final rules and Code section 4980H may want to make requested that the Departments issue 178 See SSA section 1862(b)(1) and (2) (MSP rules sufficient amounts available to guidance detailing how the Departments apply only to certain group health plans). employees in order to avoid a potential would enforce the final rules. DOL has 179 The term ‘‘group health plan’’ for purposes of employer shared responsibility enforcement jurisdiction over private the MSP provisions is not defined by reference to ERISA; therefore, this section of the preamble does payment. The Treasury Department and sector employer-sponsored group health not address the application of the ERISA safe harbor the IRS intend to propose separate rules plans, and HHS has enforcement described later in this preamble. regarding the interaction of individual jurisdiction over public sector group 180 See also SSA section 1862(b)(7) and (8). coverage HRAs and Code section 4980H health plans, such as those sponsored 181 For information about mandatory MMSEA that will be available for public by state and local governments. section 111 reporting for group health plans, see https://www.cms.gov/Medicare/Coordination-of- comment. Individual coverage HRAs are group Benefits-and-Recovery/Mandatory-Insurer- Some commenters addressed which health plans, and DOL and HHS will Reporting-For-Group-Health-Plans/Overview.html employers should be permitted to offer monitor individual coverage HRAs’ and https://www.cms.gov/Medicare/Coordination- an individual coverage HRA. One compliance with applicable of-Benefits-and-Recovery/Mandatory-Insurer- Reporting-For-Group-Health-Plans/GHP-Training- commenter applauded the proposed requirements, consistent with the Material/Downloads/Health-Reimbursement- rules for allowing employers of all sizes general approach to enforcement with Arrangement-HRA.pdf. to offer an individual coverage HRA. respect to other group health plans. The

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Departments believe that it is Various commenters requested calculation, including whether issuers unnecessary to include specific additional reporting requirements or are allowed to include individuals who enforcement guidance for individual other types of mandatory data collection have other coverage within the total coverage HRAs in the final rules. The regarding individual coverage HRAs. number of eligible individuals and Departments may provide additional The Departments have not identified a which types of coverage may be counted guidance if the Departments become compelling need for this information as other coverage.187 Neither the aware of arrangements that are that would justify the significant proposed rules nor the final rules make inconsistent with the final rules. additional burden this would place on changes to these existing, separate One commenter requested that each employer offering this type of requirements. employers be permitted to pay issuers coverage. Accordingly, the final rules do One commenter requested that the directly for individual health insurance not adopt these suggestions. However, Departments provide information about coverage in which individual coverage to the extent an individual coverage how an employer would transition from HRA participants are enrolled. The HRA is otherwise subject to reporting offering a QSEHRA to offering an Departments note that existing guidance requirements under other rules, individual coverage HRA. The for health plans generally allows including PPACA, the Code, the SSA, or Departments note that IRS Notice 2017– employers to pay health insurance ERISA, the final rules do not affect the 67 provides guidance on the premiums to issuers directly,182 so this application of those reporting requirements for providing a QSEHRA. is already permitted. Also, see the requirements.185 The guidance in Notice 2017–67 discussion later in this preamble One commenter requested additional remains unaffected by the final rules. regarding a safe harbor for determining time to comment on the proposal. The Additional QSEHRA guidance generally whether an individual health insurance Administrative Procedure Act grants is outside of the scope of these final policy purchased with funds from an Executive Agencies discretion to set the rules, and to the extent an employer wants to transition from offering a individual coverage HRA will be treated timeframe during which public QSEHRA to offering an individual as part of an ERISA-covered employee comments will be received and coverage HRA, the individual coverage welfare benefit plan. considered. Interested stakeholders were given 60 days from the publication HRA must comply with the One commenter requested that the of the proposed rules to submit requirements set forth in the final rules. Departments clarify that a plan sponsor comments for consideration. Many One commenter asked the may make amounts in an individual comments were received and Departments to clarify that individual coverage HRA available either monthly considered by the Departments. This coverage HRA participants may or annually at the beginning of the plan solicitation for public comments contribute to a health FSA even if their year. The Departments clarify that the allowed the Departments to gather employer does not offer traditional final rules do not change existing rules sufficient information from interested group health plan coverage. The for HRAs, which do not require the stakeholders. The Departments, Departments note that employers entire annual amount to be available at therefore, declined to extend the generally may provide excepted benefits the beginning of the year and would 188 timeframe to comment on the proposed (other than an excepted benefit HRA ) allow the HRA to only make amounts rules. to employees in a class offered an available pro rata over the 12 months of individual coverage HRA. In addition, 183 One commenter requested that the the year. However, the Departments final rules consider enrollment in an the Departments clarify that the note that the amounts made available individual coverage HRA as other group individual coverage HRA would qualify under an individual coverage HRA, coverage for purposes of determining as ‘‘other group health plan coverage not including when they will be made whether employers satisfy minimum limited to excepted benefits’’ under the available, must be described in the participation thresholds for guaranteed requirements for the health FSA to notice that is required under the final qualify as an excepted benefit.189 Thus, 184 availability. In the large group market, rules. The Departments also note that issuers may not apply minimum nothing in the final rules prohibits within a class of employees, the terms participation rules to deny guaranteed employees in a class of employees and conditions of an individual availability of coverage. In the small offered an individual coverage HRA coverage HRA generally must be the group market, issuers may apply from participating in a health FSA same, including the timing of how minimum participation rules, as through salary reduction in a cafeteria amounts are made available. allowed under applicable state law. plan. One commenter requested that the However, failure to satisfy an issuer’s Other comments not responsive to the Departments interpret ‘‘employer’’ to minimum participation rules may not be provisions and topics addressed by the include non-employer plan sponsors used to deny guaranteed availability of proposed rules, or otherwise beyond the such as boards of trustees for coverage between and multiemployer plans. The final rules of each year. The 187 See Health Care Financing Administration allow plan sponsors to offer an Insurance Standards Bulletin 00–05, Guaranteed Departments clarify that in both the Availability Under Title XXVII of the Public Health individual coverage HRA, and plan large and small group markets, issuers Service Act—Applicability of Group Participation sponsors include, but are not limited to, may apply minimum participation Rules (Nov. 2000), available at https:// employers and could include a board of rules, pursuant to applicable state law, www.cms.gov/CCIIO/Resources/Files/Downloads/ trustees for a multiemployer plan. hipaa_00_05_508.pdf. However, for purposes of as an exception to guaranteed participation in a Federally-facilitated Small renewability of coverage Business Health Options Program (FF–SHOP), see 182 See Revenue Ruling 61–146, 1961–2 CB 25. requirements.186 State law may the methodology for calculating a minimum 183 See IRS Notice 2002–45. determine which individuals to include participation rate specified in 45 CFR 184 155.706(b)(10)(i). Also see the discussion later in the preamble in the minimum participation regarding the final PTC rules, under which amounts 188 See later in this preamble for a discussion of newly made available for an HRA plan year must the interaction of individual coverage HRAs and be determinable within a reasonable time before the 185 See e.g., ERISA sections 101, 103, and 104 and excepted benefit HRAs. beginning of the plan year in order to be considered PHS Act section 2715 (incorporated in Code section 189 26 CFR 54.9831–1(c)(3)(v)(A), 29 CFR in determining affordability of the offer of the 9815 and ERISA section 715). 2590.732(c)(3)(v)(A), and 45 CFR individual coverage HRA. 186 See 78 FR 13406, 13416 (Feb. 27, 2013). 146.145(b)(3)(v)(A).

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scope of the proposed and final rules, benchmark plan will continue to apply in the statutes and that either are are not summarized or addressed. for any year for which a state does not insured under a separate policy, select a new EHB-benchmark plan from certificate, or contract of insurance, or 16. Revisions to Current PHS Act the available EHB-benchmark plan are otherwise not an integral part of a Section 2711 Rules Regarding selection options finalized in the 2019 plan. The proposed rules included a Integration With Other Group Health Payment Notice.192 The Departments are proposal for an excepted benefit HRA Plan Coverage and Medicare finalizing as proposed the update to the that is consistent with both this The 2015 rules under PHS Act section definition of EHB under the PHS Act statutory framework and the 2711 provide methods for integrating section 2711 rules. Departments’ objective of expanding the HRAs with coverage under another One commenter expressed concern availability and usability of HRAs to group health plan, and, in certain with the change made by HHS to the maximize employee welfare. circumstances, with Medicare Part B definition of EHB in the 2019 Payment Specifically, the proposed rules and D. The proposed rules did not Notice and requested that the provided that, to be recognized as an include a proposal to substantively Departments decline to update the rules excepted benefit, the HRA: (1) Must not change the current group health plan or under PHS Act section 2711 to reflect be an integral part of the plan, (2) must Medicare integration tests under the the revised EHB definition. The provide benefits that are limited in existing PHS Act section 2711 rules. Departments clarify that PHS Act amount, (3) cannot provide However, the proposed rules included section 2711 defines EHB by reference reimbursement for premiums for certain minor proposed revisions to those rules, to PPACA section 1302(b), under which health insurance coverage, and (4) must including changing the term ‘‘account- HHS has the authority to define EHB. be made available under the same terms based plan’’ to ‘‘account-based group The update to the definition of EHB in to all similarly situated individuals. health plan’’ and moving defined terms the PHS Act section 2711 rules is a A number of commenters generally to a definitions section. The proposed technical update made to avoid expressed support for the proposed rules also proposed to amend the rules applying an out-of-date definition and is excepted benefit HRA rule as a way to under PHS Act section 2711 to reflect the result of the change HHS finalized expand the availability and use of that HRAs may be integrated with in the 2019 Payment Notice. Issues HRAs. Some of the commenters who individual health insurance coverage regarding EHBs more generally, as well supported the proposed excepted subject to the requirements of 26 CFR as the specific changes made in the 2019 benefit HRA rule opposed allowing the 54.9802–4, 29 CFR 2590.702–2, and 45 Payment Notice, are outside of the scope purchase of STLDI. Also, a number of CFR 146.123. The final rules adopt these of this rulemaking. commenters opposed the proposed excepted benefit HRA rule, expressing changes as proposed, except that the B. Excepted Benefit HRAs final rules have been updated to reflect concerns that the excepted benefit HRA that individual coverage HRAs may be 1. In General could incentivize individuals to obtain integrated with Medicare, for purposes As the Departments noted in the STLDI, cause adverse selection in the of compliance with PHS Act sections preamble to the proposed rules, there small group and individual market risk 2711 and 2713, if certain conditions are may be scenarios in which an employer pools, and increase complexity and the satisfied.190 wants to offer an HRA that might not be potential for confusion. In addition, the proposed rules integrated with individual health The Departments considered these included a proposal to update the insurance coverage, non-HRA group comments and agree that the excepted definition of EHBs set forth in paragraph coverage, Medicare, or TRICARE. For benefit HRA is a way to expand the (c) of the rules under PHS Act section example, some employers may want to availability and use of HRAs, thereby 2711, which applies for a group health offer an HRA without regard to whether providing increased options for plan or health insurance issuer not their employees have other coverage at healthcare coverage to employers and required to cover EHBs. The update in all, or without regard to whether their employees. Therefore, the final rules the proposed rules reflected the revision employees have coverage that is subject recognize certain HRAs as limited to the EHB-benchmark plan selection to and satisfies the market requirements. excepted benefits, with some changes process that was promulgated in the Therefore, the proposed rules utilized from the proposed rule, which are HHS Notice of Benefit and Payment the Departments’ discretion under Code intended to address concerns raised by Parameters for 2019 Final Rule (2019 section 9832(c)(2)(C), ERISA section commenters regarding the potential for Payment Notice) and that applies for 733(c)(2)(C), and PHS Act section adverse selection and confusion. A few commenters questioned the plan years beginning on or after January 2791(c)(2)(C), and included an Departments’ legal authority for 1, 2020.191 The 2019 Payment Notice amendment to the prior rules that establishing the excepted benefit HRA, revisions provide states with additional would recognize certain limited HRAs with one requesting that the proposed choices with respect to the selection of as excepted benefits (excepted benefit excepted benefit HRA rules be benefits and promote affordable HRAs), if specific conditions were withdrawn. These commenters stated coverage through offering states satisfied.193 that the excepted benefit HRA is not additional flexibility in their selection As explained earlier in this preamble, similar to the other limited excepted of an EHB-benchmark plan for plan the Departments have the authority and discretion to specify in rules additional benefits because it does not provide years beginning on or after January 1, insurance that is limited in scope for a 2020. The state’s existing EHB- limited excepted benefits that are similar to the limited benefits specified particular medical condition. The Departments disagree. As stated earlier 190 The Departments further note that, unless the final rules conflict with the subregulatory guidance 192 For more information on the revised EHB in this section of the preamble, Code that has been issued under PHS Act section 2711, standard, refer to the preamble to the 2019 Payment section 9832(c)(2)(C), ERISA section that guidance remains in effect. Notice (83 FR 16930, 17007 (, 2018)). 733(c)(2)(C), and PHS Act section 191 See 83 FR 16930 (April 17, 2018). The 193 The proposed rules, and the final rules, do not 2791(c)(2)(C) authorize the Secretaries definition of EHB that applies under the PHS Act apply to health FSAs. For a health FSA to qualify section 2711 rules for plan years beginning before as an excepted benefit, the rules at 26 CFR 54.9831– of the Treasury, Labor, and HHS to issue January 1, 2020 is not substantively changed by the 1(c)(3)(v), 29 CFR 2590.732(c)(3)(v), and 45 CFR rules establishing other, similar limited final rules. 146.145(b)(3)(v) continue to apply. benefits as excepted benefits. Similar to

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the exercise of authority with respect to conditions that apply to an excepted health plan would be eligible to certain health FSAs, limited benefit HRA, the proposed rules would participate in the excepted benefit HRA. wraparound coverage,194 and employee inadvertently reduce employers’ ability However, while the plan sponsor would assistance programs, the Departments to fund excepted benefits. be required to make an offer of a utilized this authority to propose rules The final rules establish a new traditional group health plan, HRA to permit HRAs as limited excepted excepted benefit HRA under Code participants (and their dependents) benefits, if certain conditions are section 9832(c)(2)(C), ERISA section would not be required to enroll in the satisfied. The Departments have 733(c)(2)(C), and PHS Act section traditional group health plan for the determined that the conditions that 2791(c)(2)(C), which can be used to HRA to be an excepted benefit HRA. In apply to excepted benefit HRAs under reimburse certain medical care expenses the preamble to the proposed rules, the the final rules result in such an incurred with respect to coverage that is Departments noted that this provision is arrangement being sufficiently limited not limited to other types of excepted similar to the requirement that applies and sufficiently similar to other limited benefits. If a plan sponsor offers an HRA under the limited excepted benefits excepted benefits. The Departments are that only provides reimbursement for rules for health FSAs at 26 CFR now adopting these final rules on other types of excepted benefits (for 54.9831–1(c)(3)(v), 29 CFR excepted benefit HRAs, subject to example, limited-scope vision and 2590.732(c)(3)(v), and 45 CFR clarifications, described later in this limited-scope dental benefits), that 146.145(b)(3)(v). section of the preamble. arrangement is, itself, already an Commenters generally supported this As a general matter, some commenters excepted benefit and need not satisfy requirement and suggested that it be expressed confusion and asked for the criteria of the final excepted benefit retained in the final rules. Some clarification regarding the difference, if HRA rules. Instead, the final rules commenters suggested that the any, between the proposed excepted provide that an additional type of HRA, Departments should go further and benefit HRA and an HRA that only specifically, one that reimburses permit employers to offer an excepted reimburses expenses for excepted benefits not limited to other types of benefit HRA only to individuals who are benefits. In IRS Notice 2015–87, Q&A– excepted benefits, can also qualify as an actually enrolled in a traditional group 5, the Treasury Department and the IRS excepted benefit.195 Excepted benefit health plan.197 These commenters explained that an HRA or employer HRAs may reimburse medical care argued that without such a requirement, payment plan that, by its terms, expenses, such as cost sharing for healthy employees would decline their reimburses (including paying directly individual health insurance coverage or employer’s traditional group health plan for) premiums for individual health group health plan coverage that would and only participate in the excepted insurance coverage solely to the extent not otherwise qualify as excepted benefit HRA. These commenters that the individual health insurance benefits, if the conditions of the final speculated this might lead to a less coverage covers excepted benefits rules are satisfied. stable small group market risk pool and would not fail to satisfy the market higher premiums for employees who 2. Otherwise Not an Integral Part of the requirements because those remain in the traditional group health Plan requirements do not apply to a group plan. One commenter was concerned health plan that is designed to provide Among other things, to be a limited that if some employers offer traditional only excepted benefits, either through excepted benefit under Code section group health plans that are exorbitantly reimbursement of premiums or cost 9831(c)(1), ERISA section 732(c)(1), and expensive, many employees would sharing (referred to in this preamble as PHS Act section 2722(c)(1), benefits decline to enroll and rely on their an HRA that provides only excepted must: (1) Be provided under a separate excepted benefit HRA as their only benefits). Excepted benefit HRAs, on the policy, certificate, or contract of source of coverage. One commenter other hand, can provide reimbursement insurance; or (2) otherwise not be an disagreed with the Departments’ for costs incurred related to coverage integral part of the plan.196 HRAs are assertion that the requirement to offer a that is not limited to excepted benefits self-insured group health plans and, traditional group health plan satisfies (for example, cost sharing for individual therefore, are not insurance coverage the requirement that limited excepted health insurance coverage). Several that can be provided under a separate benefits not be an integral part of the commenters asked the Departments to policy, certificate, or contract of plan. Another commenter stated that confirm that an HRA that provides only insurance. Accordingly, to satisfy the individuals could be without excepted benefits is not subject to the statutory requirement to be a limited comprehensive coverage if they do not conditions that apply to an excepted excepted benefit, among other things, an enroll in the employer’s traditional benefit HRA. One commenter was HRA must not be an integral part of the concerned that if an HRA that provides plan. 197 One commenter opposed the requirement that only excepted benefits must satisfy the To satisfy this condition, the traditional group health plan coverage be made proposed rules specified that other available to the participants offered the excepted benefit HRA, but the comment was based on the 194 The Departments note that limited group health plan coverage (other than misunderstanding that the proposed conditions that wraparound coverage was permitted as an excepted an account-based group health plan or apply to the excepted benefit HRA apply to an HRA benefit under a temporary pilot program. coverage consisting solely of excepted that provides only excepted benefits. The Specifically, limited wraparound coverage could be benefits) must be made available by the commenter was concerned that an employer that offered as excepted benefits if it was first offered no did not previously offer a traditional group health earlier than January 1, 2016, and no later than same plan sponsor for the plan year to plan, but did previously offer an HRA that provides , 2018, and would end no later than the participants offered the excepted only excepted benefits, might discontinue offering on the later of: (1) The date that is 3 years after the benefit HRA. Only individuals eligible that HRA if the final rules were to apply to the HRA date limited wraparound coverage is first offered, or to participate in the traditional group that provides only excepted benefits. As explained (2) the date on which the last collective bargaining earlier in this preamble, the final rules do not apply agreement relating to the plan terminates after the to HRAs that provide only excepted benefits. date limited wraparound coverage is first offered 195 That is, the excepted benefit HRA may Therefore, if an employer offers an HRA that (determined without regard to any extension agreed reimburse expenses for excepted benefits, as well as provides only excepted benefits, such an to after the date limited wraparound coverage is other types of medical expenses that do not qualify arrangement would not be subject to the first offered). See 26 CFR 54.9831–1(c)(3)(vii)(F), 29 as excepted benefits. requirements of the final rules, including the CFR 2590.732(c)(3)(vii)(F), and 45 CFR 196 Code section 9831(c)(1), ERISA section requirement that the plan sponsor must offer a 146.145(b)(3)(vii)(F). 732(c)(1), and PHS Act section 2722(c)(1). traditional group health plan.

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group health plan and rely instead on an notice of the dollar limits and other statutes within the meaning of a excepted benefit HRA, or a combination limitations on coverage under the plan. ‘‘similar, limited benefit’’ under Code of the excepted benefit HRA and other Finally, as to the concern that section 9832(c)(2), ERISA section excepted benefits, without employers will offer traditional group 733(c)(2), and PHS Act section understanding the limited nature of health plans that are very expensive, 2791(c)(2).203 excepted benefits. The commenter also thereby encouraging employees to enroll Accordingly, the Departments represented that there is a long history only in the excepted benefit HRA, the proposed that amounts newly made of unscrupulous promoters cobbling employer shared responsibility available for a plan year in an excepted together different types of excepted provisions of Code section 4980H (for benefit HRA may not exceed $1,800, benefits and fraudulently marketing ALEs), and employers’ desire to offer indexed for inflation for plan years them as major medical insurance, affordable health coverage as a means to beginning after December 31, 2020. For leaving thousands of participants and attract and retain talented workers, are this purpose, inflation was defined in beneficiaries with unpaid claims. One strong incentives for employers to offer the proposed rules by reference to the commenter urged the Departments to affordable, quality health coverage. Chained Consumer Price Index for All add a requirement that employers Urban Consumers, unadjusted (C–CPI– 3. Limited in Amount offering an excepted benefit HRA must U), published by DOL. Also, the maintain their traditional group health Under the Code, ERISA and the PHS Departments stated that the adjusted plan at an equivalent level of coverage, Act, limited excepted benefits may limit for plan years beginning in a actuarial value, and premium include limited scope vision or dental particular calendar year would be affordability relative to the coverage benefits, benefits for long-term care, published early in the fall of the prior offered prior to offering the excepted nursing home care, home healthcare, or calendar year. community-based care, or any benefit HRA. a. Dollar Limit on the Amount That May The final rules do not adopt a combination thereof and may include Be Made Newly Available During a Plan requirement that excepted benefit HRAs ‘‘such other similar, limited benefits as Year be limited to employees who are are specified in regulations’’ by the enrolled in the employer’s traditional Departments.200 Thus, in creating the Many commenters supported the group health plan or impose a excepted benefit HRA, the Departments proposed dollar limit as a reasonable maintenance of effort requirement. First, had to determine what type of HRA mid-point of the different limits that the condition that employees must be would be sufficiently limited to qualify would result in applying various offered (but not necessarily enrolled) in as a limited excepted benefit. methodologies. Several noted it was the employer’s traditional group health The Departments have applied sufficient because excepted benefits are plan is similar to that for excepted limiting principles consistently in prior meant to provide ancillary coverage, benefits health FSAs, pursuant to the rulemakings under which discretion and the proposed amount is comparable same statutory authority.198 Second, was exercised to establish additional to the cost of other excepted benefits, limiting eligibility to employees types of limited excepted benefits.201 such as stand-alone dental and vision enrolled in their employer’s traditional For example, a health FSA is an plans. One commenter noted that $1,800 group health plan would make excepted benefit only if the arrangement would be a generous level of employees covered under other primary is structured so that the maximum reimbursement for excepted benefits, coverage, such as a spouse’s plan, benefit payable to any participant in the but only a modest support to ineligible for the excepted benefit HRA. class for a year does not exceed two participants and beneficiaries seeking Applying such a restrictive requirement times the participant’s salary reduction reimbursement for COBRA premiums. would unduly limit some employees’ election under the arrangement for the Another commenter asserted that it was access to excepted benefit HRAs and year (or, if greater, $500 plus the amount a reasonable middle ground relative to reduce their welfare if they choose a of the participant’s salary reduction the various alternatives that the different primary health coverage option election).202 Additionally, limited Departments considered and discussed to best meet their needs.199 Third, other wraparound coverage is a limited in the preamble to the proposed factors will likely prevent most excepted benefit only if it is limited in rules.204 A few commenters supported employees from relying on an excepted amount, such that the cost of coverage the proposed dollar limit due to their benefit HRA as their primary form of per employee (and any covered opposition to allowing excepted benefit coverage. For example, the dollar limit dependents) under the limited HRAs to provide reimbursement for imposed on excepted benefit HRAs wraparound coverage does not exceed STLDI premiums, arguing that if the (discussed later in this preamble) will the greater of the maximum permitted limit were any higher some participants likely make it apparent that an excepted annual salary reduction contribution could be more likely to rely on STLDI benefit HRA does not provide adequate toward a health FSA or 15 percent of the financial protection against unexpected cost of coverage under the primary plan. 203 See also 80 FR 13995, 13997 (, 2015). health costs, even for the healthiest The Departments recognize that 204 The Departments stated in the preamble to the individuals. Moreover, as discussed limited excepted benefits that are not proposed rules that a range of options were later in this preamble, in general, limited in scope by benefit type (such as considered, such as a limit that would mirror the cap on employer contributions for excepted benefit excepted benefit HRAs must provide limited-scope dental or limited-scope health FSAs, a fixed percentage of the cost of vision benefits) must be limited in coverage under the plan sponsor’s primary group 198 See 26 CFR 54.9831–1(c)(3)(v), 29 CFR amount to constitute the type of health plan, and the cost of coverage under the 2590.732(c)(3)(v), and 45 CFR 146.145(b)(3)(v). See ancillary benefit contemplated by the second lowest cost silver plan in various markets. also 62 FR 67688 (Dec. 29, 1997). However, consistent with the principle of 199 promoting HRA usability and availability, rather In the context of other HRA integration rules, 200 the Departments have recognized and supported Code section 9832(c)(2)(C), ERISA section than proposing a complex test for the limit on employee choice to enroll in primary coverage other 733(c)(2)(C), and PHS Act section 2791(c)(2)(C). amounts newly made available in the excepted than the employer’s group health plan (such as a 201 See the discussion in the preamble to the benefit HRA, the Departments proposed a spouse’s plan or Medicare), without these types of proposed rules at 83 FR 54420, 54437 (Oct. 29, maximum of $1,800 because it approximated the limitations. See, e.g., 26 CFR 54.9815–2711(d)(2) 2018). midpoint amount yielded by the various and (d)(5), 29 CFR 2590.715–2711(d)(2) and (d)(5), 202 26 CFR 54.9831–1(c)(3)(v), 29 CFR methodologies considered. 83 FR 54420, 54437 and 45 CFR 147.126(d)(2) and (d)(5). 2590.732(c)(3)(v), and 45 CFR 146.145(b)(3)(v). (Oct. 29, 2018).

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as their primary form of coverage. In One commenter stated that a dollar reasonable and rational, especially expressing their support for the limit is not sufficient to cause the considering the relatively low cost of proposed dollar limit, a number of excepted benefit HRA to be a limited excepted benefits coverage, such as commenters stated that the limit should excepted benefit and also stated that the dental or vision coverage. While limited not be any higher, due to adverse proposed dollar limit was too high, with wraparound coverage and similar selection concerns and concerns about the result that the excepted benefit HRA supplemental coverage may have higher disincentivizing comprehensive is not a limited excepted benefit because overall dollar limits, they are also coverage. the dollar limit is significantly more limited in additional ways. Limited Other commenters requested that than the premium value of the other wraparound coverage must provide excepted benefit HRAs not be subject to limited excepted benefits; therefore, meaningful benefits beyond coverage of any dollar limit because a limit would according to the commenter, the cost sharing (such as coverage for restrict participants’ ability to choose excepted benefit HRA is not similar to expanded in-network medical clinics or the types of treatment or coverage that other limited excepted benefits. providers, or provide benefits that are is best suited to their needs. Some The final rules do not remove or not EHBs and that are not covered by commenters argued that the proposed change the dollar limit for the excepted the eligible health insurance) and, in dollar limit should be higher. Some of benefit HRA. The Departments agree general, may only be offered to part-time these commenters favored a higher limit that significantly increasing the dollar employees and retirees (and their for excepted benefit HRAs based on age limit could encourage certain dependents), and only if the employer and number of dependents to reflect participants to rely solely on benefits makes certain offers of coverage to full- that participants who are older or have reimbursed through the excepted benefit time employees.208 Further, similar dependents are likely to have higher HRA and could lead to adverse supplemental coverage is restricted to healthcare costs. Some commenters selection. Also, as stated earlier in this coverage ‘‘specifically designed to fill suggested specific higher limits that, in preamble, if a benefit that is generally gaps in the primary coverage.’’ 209 On their view, would be appropriate, such not otherwise limited in scope is too the other hand, employee salary as the maximum annual permitted large, it would not constitute a ‘‘similar, reduction contributions to health FSAs, benefit for QSEHRAs, the maximum limited benefit’’ under Code section which will vary by employee and out-of-pocket limit for HDHPs, the 9832(c)(2), ERISA section 733(c)(2), and cannot exceed $2,700 (adjusted for annual salary reduction contribution PHS Act section 2791(c)(2). These inflation), cannot be used to pay limit for health FSAs, the greater of 15 governing statutes require that these premiums, and generally may not be percent of the cost of coverage under the benefits be limited, which the rolled over from year to year, except for employer’s primary group health plan or Departments interpret to require a strict a limited runout period or limited the health FSA salary reduction dollar limit because the excepted benefit amount.210 Excepted benefit HRAs are contribution limit (which is the HRA is not restricted to reimbursing not subject to all the limitations that specific, limited types of medical apply to these other limited excepted threshold for limited wraparound 207 coverage), 205 or 15 percent of the cost expenses. Further, the Departments benefits; thus, a lower dollar amount is of coverage under the employer’s are cognizant that an excepted benefit appropriate for excepted benefit HRAs. primary group health plan (which is the HRA, like all excepted benefits, does not Additionally, although the threshold for certain supplemental render an individual ineligible for the Departments recognize that healthcare PTC and, therefore, a higher dollar limit excepted benefits). 206 The commenters expenses may be higher for participants on the excepted benefit HRA could asserted that the limit should be who are older or have dependents, result in individuals being eligible for increased for various reasons, including adopting a higher limit to account for a both subsidized coverage through the to enable employees to pay for combination of factors like age and Exchanges and a higher employer premiums and cost sharing for excepted family size could allow an excepted provided HRA benefit, which would benefit policies, to approximate the benefit HRA to be too large and to increase the cost to the federal limits allowed for limited wraparound resemble major medical coverage. government. To the extent commenters coverage, to reduce administrative Moreover, these factors were already advocated for a higher dollar limit in complexity for plan sponsors by considered and accounted for in order to allow HRAs to be used to aligning the limit with a limit that developing the $1,800 limit. purchase excepted benefits, HRAs that already exists, to help employees bypass Accordingly, the final rules adopt, provide only excepted benefits may be without change, the proposed maximum insurance and pay directly for medical an alternative option because those care, and to enable employees to pay for that can be newly made available for a HRAs are not subject to the excepted plan year of $1,800. more expensive STLDI plans that may, benefit HRA rules, including the dollar in some cases, provide comprehensive, limit. b. Indexing for Inflation high-quality coverage. Some In determining the appropriate dollar Many commenters supported the commenters noted that setting the limit limit for excepted benefit HRAs, the proposed rule’s approach to indexing as a percentage of the cost of the Departments considered other, similar for inflation the amount that may be employer’s primary group health plan limited excepted benefits. The made newly available to participants could partially account for regional Departments agree with commenters’ during a plan year, though some differences for healthcare services. assertions that the proposed limit was suggested alternative methods of

205 indexing may be more appropriate. See 26 CFR 54.9831–1(c)(3)(vii)(B), 29 CFR 207 The Departments note, however, that an 2590.732(c)(3)(vii)(B), and 45 CFR excepted benefit HRA is also limited, to some 208 146.145(b)(3)(vii)(B). extent, in scope of reimbursable expenses in that it See 26 CFR 54.9831–1(c)(3)(vii)(A) and (D), 29 206 See EBSA Field Assistance Bulletin No. 2007– may not reimburse premiums for individual health CFR 2590.732(c)(3)(vii)(A) and (D), and 45 CFR 04 (available at https://www.dol.gov/agencies/ebsa/ insurance coverage (other than excepted benefits); 146.145(b)(3)(vii)(A) and (D). See also 80 FR 13995, employers-and-advisers/guidance/field-assistance- group health coverage (other than COBRA or other 13997 (March 18, 2015). bulletins/2007–04); CMS Insurance Standards continuation coverage or excepted benefits); 209 See 26 CFR 54.9831–1(c)(5)(i)(C), 29 CFR Bulletin 08–01 (available at http://www.cms.gov/ Medicare Part A, B, C, or D; and under certain 2590.732(c)(5)(i)(C), and 45 CFR 146.145(b)(5)(i)(C). CCIIO/Resources/Files/Downloads/hipaa_08_01_ circumstances, it cannot reimburse STLDI 210 IRS Notice 2005–42, 2005–1 CB 1204 and IRS 508.pdf); and IRS Notice 2008–23. premiums. Notice 2013–71, 2013–47 IRB 532.

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Several commenters suggested that the adjustment be made available 4. Prohibition on Reimbursement of chained CPI–U does not accurately sufficiently in advance of the upcoming Premiums for Certain Types of Coverage reflect the increases in the cost of plan year to allow plan sponsors to a. In General medical care over time because make benefit determinations. Therefore, To be an excepted benefit HRA, the healthcare prices consistently increase the Departments are revising the final proposed rules provided that the HRA at a greater rate than prices in the rules to provide that the C–CPI–U for could not reimburse premiums for economy as a whole. Several any calendar year is the average of the commenters suggested that the Medicare Part B or D, individual health C–CPI–U as of the close of the 12 month insurance coverage, or coverage under a appropriate measure of inflation would period ending on of that be the Consumer Price Index overall group health plan (other than COBRA or calendar year and that the Treasury medical care component because it other group continuation coverage), Department and the IRS will publish the focuses on consumers’ out-of-pocket except that the HRA could reimburse medical expenses, while another adjusted amount for plan years premiums for individual health suggested unchained CPI–U. Another beginning in any calendar year no later insurance coverage or group health plan commenter, however, suggested that the than June 1 of the preceding calendar coverage that consists solely of excepted measure selected in the proposed rules year, which is the same timing rule that benefits. An excepted benefit HRA would be the most appropriate measure, applies for HSAs and HSA-eligible would be permitted to reimburse any as other types of excepted benefits, such HDHPs. other medical care expenses, including STLDI premiums. as limited-scope dental, limited-scope c. Roll-Overs and Aggregation Rules vision, and fixed indemnity plans, do Commenters generally supported the proposed requirement that an excepted not typically have cost trends (that is, The proposed rules provided that if a benefit HRA would not be permitted to inflation) similar to products that participant or beneficiary in an excepted reimburse premiums for individual provide comprehensive medical care. benefit HRA does not use all of the One commenter expressed support for health insurance coverage (other than amounts made available for a plan year, for such coverage consisting solely of the proposed adjustment because it is and the excepted benefit HRA allows for consistent with the adjustment of excepted benefits). These commenters these amounts to be carried over to later contended that to allow reimbursement various other amounts under the Code. plan years, then these carryover The final excepted benefit HRA rules of individual health insurance coverage index the annual dollar limit of $1,800 amounts would be disregarded for premiums would undermine the basis to inflation for plan years beginning purposes of determining whether the for recognizing the HRAs as limited 212 after December 31, 2020, and define $1,800 limit is exceeded. One excepted benefits, and would enhance inflation by reference to the C–CPI–U, as commenter specifically expressed employers’ ability to move their higher- was proposed. This index strikes a support for this aspect of the proposed risk employees into the individual reasonable balance among a number of rules, and this feature is retained in the market. The Departments agree that factors, including balancing the final rules. maintaining the prohibition on the use of the excepted benefit HRA for decreasing real value of a static In addition, the proposed rules individual health insurance coverage excepted benefit HRA annual maximum provided that if the plan sponsor premiums is one way in which the HRA contribution amount and the ability of provides more than one HRA to a an employer to maintain a meaningful, is limited, in order to qualify as a participant for the same time period, the limited excepted benefit, and that the yet limited, excepted benefit HRA that amounts made available under all such can carry over unused amounts and prohibition mitigates the risk that plans would be aggregated to determine accumulate to higher account balances excepted benefit HRAs could cause whether the $1,800 limit has been over time. Also, C–CPI–U is used to adverse selection in the individual index most other amounts under the exceeded. One commenter opposed this market. Code with which employers are aspect of the rule. However, the In addition, the Departments have familiar, such as the annual limit on Departments retain this provision in the concluded that the prohibition on the employee salary reduction contributions final rules in order to avoid reimbursement of premiums for group to health FSAs, annual HSA circumvention of the $1,800 limit, health plan coverage (other than COBRA contributions amounts, and annual which provides the statutory basis for or other continuation coverage and HDHP minimum deductible amounts recognizing this type of HRA as a excepted benefits) and individual health and maximum HDHP out-of-pocket limited excepted benefit. However, the insurance coverage (other than excepted amounts.211 Therefore, this inflation final rules clarify that the aggregation benefits), is appropriate because other adjustment should be familiar to plan rules do not take into account amounts final rules that are part of this sponsors. Using the same indexing made available under HRAs that rulemaking permit individual coverage method is less likely to result in reimburse only excepted benefits HRAs and other rules allow HRAs to be confusion and will make (including premiums for individual integrated with non-HRA group health implementation and compliance easier. health insurance coverage that consists plan. Further, current guidance allows One commenter urged that the annual solely of excepted benefits). An HRA HRAs to reimburse premiums for Medicare Part B and D in certain amount should be announced at the that reimburses only excepted benefits circumstances and under the final rules, same time that other account-based plan is exempt from the provisions of the limits, such as the limits for HSAs and individual coverage HRAs that are final rules, including those provisions HSA-eligible HDHPs, are announced, as integrated with Medicare may be that apply to individual coverage HRAs employers and plan administrators need allowed to reimburse premiums for to know these amounts in advance to set and excepted benefit HRAs. Medicare Part A, B, C, or D. Therefore, their benefit levels and communicate an employer that wants to provide an them to employees. The Departments HRA that reimburses premiums for agree that it is essential that the annual 212 Transfers, however, from other HRAs are not individual health insurance coverage, permitted. See the discussion earlier in this Medicare Part A, B, C or D, or group 211 See Code sections 125(i) and 223(g). preamble. health plan coverage, may do so under

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the applicable integration rules. may allow for reimbursement of cost appreciate the comments and anticipate Accordingly, the final rules retain the sharing under individual health addressing some of these issues in proposed prohibition on reimbursing insurance coverage or group health future rulemaking or guidance. premiums for individual health insurance coverage, although the One commenter stated that excepted insurance coverage (other than for such excepted benefit HRA may not benefit HRAs should not be permitted to coverage consisting solely of excepted reimburse the premiums for that reimburse COBRA premiums because benefits) and group health insurance coverage. Further, a plan sponsor COBRA generally is more expensive coverage (other than for such coverage generally may, but need not, allow than other coverage options and the consisting solely of excepted benefits reimbursement of STLDI premiums or Departments should not incentivize and COBRA or other continuation cost sharing under the excepted benefit individuals to elect COBRA when more coverage). Moreover, because the HRA. Also, see later in this section of affordable coverage options may be excepted benefit HRA generally is not the preamble for a discussion of the available. Another commenter opposed intended to reimburse premiums that special circumstance in which excepted allowing reimbursement for COBRA may be reimbursed under the individual benefit HRAs may not be used to premiums because COBRA generally coverage HRA, the final rules also reimburse STLDI premiums. provides comprehensive coverage and, provide that the excepted benefit HRA Several commenters inquired whether to the extent an HRA can be used to may not reimburse premiums for an excepted benefit HRA could reimburse such coverage, it should not Medicare Part A or C, in addition to reimburse expenses related to be considered to be providing limited Medicare Part B and D, as provided for participation in a health care sharing benefits within the meaning of the in the proposed rules. This approach ministry or a direct primary care statutes. ensures that, similar to other limited arrangement. One commenter asked The Departments decline to prohibit excepted benefits, excepted benefit whether reimbursement could be reimbursement for COBRA premiums HRAs provide limited benefits different provided for categories of excepted under excepted benefit HRAs in the from those typically provided by a benefits other than ‘‘limited excepted final rules. Excepted benefit HRA traditional group health plan. benefits,’’ such as those in which participants or beneficiaries may choose Some commenters requested benefits for medical care are secondary to elect COBRA or other group clarification regarding the medical care or incidental (for example, travel continuation coverage, even if other expenses an excepted benefit HRA may insurance). This commenter expressed more affordable coverage options are reimburse. In particular, a few concern that there could be potential available. For example, they may want commenters requested that the conflicts under rules regarding taxable to ensure they are still able to see their Departments clarify that an excepted fringe benefits under the Code. Some preferred doctors or maintain coverage benefit HRA can reimburse individuals commenters requested clarification for certain prescription drugs. for cost sharing under individual health more generally regarding whether an Furthermore, nothing in the final rules insurance coverage or group health excepted benefit HRA may only requires an employer to make an plans, although excepted benefit HRAs reimburse excepted benefits that pay excepted benefit HRA available for the may not be used to reimburse premiums health benefits or all excepted benefits, reimbursement of COBRA (or other for that coverage. Some commenters with some advocating that excepted group continuation coverage) premiums. inquired whether an employer could benefit HRAs be allowed to reimburse The Departments also do not agree that place limits on the medical care all expenses for all excepted benefits an HRA that provides reimbursement expenses it allows to be reimbursed by and some advocating that the excepted for COBRA (or other group continuation the excepted benefit HRA, in addition to benefit HRA only be allowed to coverage) premiums would not be those limits imposed by the excepted reimburse expenses for excepted providing limited benefits, consistent benefit HRA rules. In particular, a few benefits that are medical care. The with Code section 9832(c)(2)(C), ERISA commenters asked whether an employer Departments clarify that an HRA, section 733(c)(2)(C), and PHS Act could choose not to provide any including an excepted benefit HRA, section 2791(c)(2)(C). As explained reimbursement of certain premiums or generally may reimburse medical care earlier in this preamble, the restriction medical care expenses otherwise expenses of an employee and certain of on annual contributions to the excepted allowed under Code section 213(d). the employee’s family members (subject benefit HRA ensures this HRA is In general, an HRA may provide for to the prohibition on the reimbursement limited. reimbursement for medical care of certain premiums that apply for b. Reimbursement of STLDI Premiums expenses. Consistent with the current excepted benefit HRAs).213 Neither the rules that apply to HRAs generally, a proposed nor the final rules make any Many commenters requested that plan sponsor has discretion to specify changes to the rules under Code section excepted benefit HRAs not be permitted which medical care expenses are 213. Thus, any issues arising under to provide reimbursement of STLDI eligible for reimbursement from an Code section 213, and any guidance premiums. These commenters expressed excepted benefit HRA it establishes, in requested by commenters to address concern that some participants may use addition to the limits under the those issues, are beyond the scope of excepted benefit HRA funds to purchase excepted benefit HRA rules. For this rulemaking. The Treasury STLDI policies without understanding example, a plan sponsor may permit an Department and the IRS, however, that STLDI might not provide excepted benefit HRA to reimburse all comprehensive coverage and is not medical care expenses not otherwise 213 See Notice 2002–45 which states ‘‘[a]n HRA subject to the same federal consumer disallowed by the excepted benefit HRA does not qualify for the exclusion under [Code protections that apply to PPACA- rules, it may permit reimbursements for section] 105(b) if any person has the right to receive compliant coverage. Some commenters cash or any other taxable or non-taxable benefit non-premium medical care expenses under the arrangement other than the expressed concerns that individuals only (such as cost sharing), or it may reimbursement of medical care expenses. If any with STLDI could be exposed to serious otherwise decide which particular person has such a right under an arrangement financial risk and others expressed medical care expenses will be currently or for any future year, all distributions to concerns about specific benefits or all persons made from the arrangement in the reimbursable and which will not be current tax year are included in gross income, even conditions not generally covered by reimbursable. An excepted benefit HRA amounts paid to reimburse medical care expenses.’’ STLDI. One commenter represented that

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in some states, individuals with an consumers, citing choice and flexibility, be reimbursed by an excepted benefit excepted benefit HRA and STLDI as well as affordability. HRA. Therefore, adverse selection in the coverage would not satisfy state law The final rules generally do not individual market is mitigated. requirements to maintain prohibit reimbursement of STLDI STLDI may not be suitable coverage comprehensive coverage and would, premiums by excepted benefit HRAs. for all individuals in all circumstances therefore, incur state income tax Employees at small firms are and in many instances it might not penalties. A few commenters stated that increasingly turning down an offer of provide coverage that is as they believed that permitting health coverage.215 Low-wage workers comprehensive as individual health reimbursement for STLDI premiums at small firms are especially likely to insurance coverage. However, STLDI would mean that the excepted benefit turn down such coverage when offered, can be a viable health insurance option HRA would not be providing a limited particularly as a given premium is a for many people in many circumstances. larger share of income for a low-wage Also, no individual is required to enroll benefit because STLDI policies typically 216 cover at least some of the same benefits employee. Thus, low-wage workers at in STLDI; rather, it is simply an smaller firms who are turning down the additional (and in some circumstances, as individual health insurance coverage employer offer of coverage are more affordable), option that may be and because Congress exempted STLDI potentially likely to benefit from available to them. With respect to from the market requirements by permitting the excepted benefit HRA to concerns that some excepted benefit distinguishing it from individual health reimburse STLDI premiums. To the HRA participants may not understand insurance coverage rather than making extent that people who would use the the limited nature of STLDI, a notice is it an excepted benefit. Other excepted benefit HRA to purchase required to be prominently displayed in commenters were concerned that this STLDI would otherwise have been STLDI contracts and enrollment rule would incentivize small employers uninsured and, therefore, would not application materials advising to offer an excepted benefit HRA to have been part of the small group single consumers of the differences between purchase STLDI, instead of a QSEHRA risk pool, the small group market is STLDI and other health insurance to purchase individual health insurance unaffected by the introduction of an coverage. Among other things, the coverage. excepted benefit HRA that may be used notice must state that the coverage: (1) Several commenters also claimed that to purchase STLDI. Moreover, the Is not required to comply with certain permitting excepted benefit HRAs to impact of any adverse selection is likely federal market requirements for health reimburse STLDI premiums would lead to be small because the small group insurance; (2) may exclude or limit to market segmentation, potentially market is much larger than the STLDI coverage for preexisting conditions; (3) negatively affecting the small group market. Thus, any potential expansion may not include coverage for market. These commenters argued that of the number of healthier-than-average hospitalization, emergency services, healthier, lower-cost individuals who STLDI enrollees will have a smaller maternity care, preventive care, do not have preexisting conditions and proportional impact on expected claims prescription drugs, and mental health who believe they do not need in the small group market. and substance use disorder services; and comprehensive benefits would enroll in While the final rules do not prohibit (4) may have lifetime or annual dollar 218 STLDI, rather than in more reimbursement of STLDI premiums by limits on health benefits. The Departments disagree with comprehensive group or individual excepted benefit HRAs, the final rules commenters’ assertions that permitting coverage. In the opinion of these include a special rule in response to excepted benefit HRAs to reimburse commenters, this scenario is more likely commenters’ concerns about the STLDI would not be providing limited to occur in the fully-insured small group potential for adverse selection in the excepted benefits because STLDI is not market, where premiums do not vary small group markets, as discussed later in this preamble.217 Further, because an excepted benefit and often covers based on an individual employer’s individuals offered an excepted benefit some of the same benefits as individual claims experience.214 In contrast, large HRA must be offered a traditional group health insurance coverage. Nothing in employers whose plans are experience- health plan, individuals with an these final rules would designate STLDI rated, or employers that offer self- excepted benefit HRA who are as a limited excepted benefit. Rather, it insured plans, likely would not offer an considering STLDI will likely be is the HRAs that must satisfy certain excepted benefit HRA that could be deciding between STLDI and the conditions to be recognized as limited used to reimburse STLDI premiums traditional group health plan, rather excepted benefits, and the HRAs must because, according to these commenters, than individual health insurance be limited as to amount and are healthy employees foregoing coverage coverage, premiums for which may not substantially limited as to the types of under the employer’s traditional group premiums they may reimburse. Further, health plan could result in direct 215 In 1999, 17 percent of workers eligible for STLDI coverage often provides much negative financial consequences on the employer coverage at small firms (those with 3 to more limited benefits than coverage that cost of maintaining that plan; thus, the 199 workers) turned down the offer of employer is subject to the market requirements. employer would have strong incentives coverage. By 2011, this share had climbed to 22 percent, and in 2018 it was 27 percent. See Kaiser Taking all of this into account, the not to offer an excepted benefit HRA Family Foundation, ‘‘Employer Health Benefits Departments have determined that that could be used to purchase STLDI. 2018 Annual Survey,’’ Figure 3.1, available at excepted benefit HRAs are sufficiently One commenter noted that the benefit of http://files.kff.org/attachment/Report-Employer- limited to constitute a limited excepted allowing HRAs to be used for STLDI is Health-Benefits-Annual-Survey-2018. 216 Id. benefit, notwithstanding that employers outweighed by the risks to the 217 To the extent an excepted benefit HRA may generally elect to permit HRA individual and small group markets. reimburses premiums for STLDI, the insurance, reimbursement of STLDI premiums. Other commenters supported making which is not individual health insurance coverage, One commenter noted that the STLDI more available generally to will not be eligible for the safe harbor under 29 CFR excepted benefit HRA rules do not 2510.3–1(l). Accordingly, to the extent offered in connection with a group health plan, the benefits preempt state regulation of STLDI and 214 See PHS Act section 2701 and PPACA section could be subject to those provisions of ERISA that 1312(c). See also 45 CFR 147.102 and 45 CFR apply to excepted benefits (for example, ERISA 218 See 26 CFR 54.9801–2, 29 CFR 2590.701–2, 156.80. parts 1, 4, and 5). and 45 CFR 144.103.

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so do not inhibit a state from prohibiting under the traditional group health plan subject to an anti-abuse provision for the sale of STLDI. The Departments is inconsistent with the uniform discrimination directed at individuals, agree with the commenter that nothing availability requirement and with the treat groups of participants as distinct in the final rules affects state regulation basic premise that an excepted benefit groups if the distinction is based on a of STLDI. HRA must be ancillary to the employer’s bona fide employment-based 5. Uniform Availability traditional group health plan. HHS classification consistent with the further notes that structuring the employer’s usual business practice. To prevent an excepted benefit HRA offering or design of a group health plan Whether an employment-based from intentionally or unintentionally, based on pre-Medicare status would classification is bona fide is determined directly or indirectly, steering generally run afoul of the Medicare based on all the relevant facts and participants or dependents with adverse nondiscrimination provisions described circumstances, including whether the health factors away from the sponsor’s earlier in this preamble.221 Therefore, an employer uses the classification for traditional group health plan, the employer may not condition enrollment purposes independent of qualification proposed rules provided that an in an excepted benefit HRA on for health coverage (such as, excepted benefit HRA must be made declining to enroll in the traditional determining eligibility for other available under the same terms to all group health plan. employee benefits or determining other similarly situated individuals, As noted earlier in this preamble, terms of employment). Examples in the 219 regardless of any health factor. The Code section 9831(a) and ERISA section HIPAA nondiscrimination rules of Departments proposed and are 732(a) generally provide that chapter classifications that may be bona fide, finalizing this condition to prevent 100 of the Code and part 7 of ERISA, based on all the relevant facts and discrimination based on health status respectively, do not apply to plans, circumstances, include full-time versus and to preclude opportunities for an including HRAs, with fewer than two part-time status, different geographic employer to offer a more generous participants who are current employees location, membership in a collective excepted benefit HRA to individuals on the first day of the plan year bargaining unit, date of hire, current with an adverse health factor, such as an (including retiree-only plans that cover employee versus former employee illness or a disability, as an incentive fewer than two participants who are status, and different occupations. Under not to enroll in the plan sponsor’s current employees).222 Therefore, a 220 the anti-abuse provision, however, a traditional group health plan. retiree-only HRA is not subject to the distinction between groups of Consistent with the approach outlined market requirements and would not individuals is not permitted if the in the proposed rules, under the final need to qualify as an excepted benefit in creation or modification of an rules, an excepted benefit HRA may not, order to avoid the application of PHS employment or coverage classification is for example, be offered only to Act sections 2711 and 2713. However, a directed at individual participants or employees who have cancer or fail a retiree-only HRA that does not qualify beneficiaries based on any health factor physical examination, just as the as an excepted benefit would qualify as of the participants or beneficiaries. In excepted benefit HRA may not be MEC,223 and, therefore, a retiree who addition, a plan may, subject to certain offered only to employees who are accepted such an HRA could not claim anti-abuse provisions for discrimination cancer-free or who pass a physical the PTC.224 directed at individuals, treat examination. Similarly, an employer One commenter suggested that the beneficiaries as distinct groups based on may not make greater amounts available Departments should issue additional the bona fide employment-based in an excepted benefit HRA for guidance and resources about the employees who have cancer or who fail classification of the participant through definition of similarly situated whom the beneficiary is receiving a physical examination, just as an individuals to ensure that this employer may not make greater amounts coverage; the relationship to the requirement is properly implemented. participant; marital status; with respect available in an excepted benefit HRA for In response to these comments, the final employees who are cancer-free or who to children of a participant, age or rules define similarly situated pass a physical examination. student status; and other factors if the individuals by reference to the Commenters generally supported this factor is not a health factor. Finally, the requirement and asserted that it is definition found in the HIPAA HIPAA nondiscrimination rules nondiscrimination rules, as was generally allow group health plans to necessary to prevent discrimination 225 based on health status. Two commenters proposed. Those rules generally treat participants and beneficiaries as sought confirmation that an excepted provide that group health plans may, distinct groups. Additional guidance on benefit HRA would not violate the similarly situated individuals is 221 uniform availability requirement if it SSA sections 1862(b)(1)(A)(i)(I), (b)(1)(B)(i), available on DOL’s website.226 The final and (b)(1)(C)(i). rules define similarly situated were made available to only certain 222 While title XXVII of the PHS Act, as amended individuals, such as pre-Medicare by PPACA, no longer contains a parallel provision individuals by reference to the eligible retirees who decline coverage at PHS Act section 2721(a), HHS has explained that definition in the HIPAA under the former employer’s traditional it will not enforce the requirements of title XXVII of the PHS Act with respect to nonfederal 226 See Compliance Assistance Guide—Health group health plan and purchase governmental retiree-only plans and generally coverage through the individual market, Benefits Coverage Under Federal Law, available at encourages states to adopt a similar approach with https://www.dol.gov/sites/default/files/ebsa/about- so long as those eligibility conditions respect to retiree-only plans offered by issuers. See ebsa/our-activities/resource-center/publications/ are not based on a health factor. In the 75 FR 34538, 34540 (June 17, 2010). compliance-assistance-guide.pdf; Self-Compliance Departments’ view, a plan design that 223 26 CFR 1.5000A–2(c). Tool for Part 7 of ERISA: Health Care-Related 224 permits enrollment in an excepted 26 CFR 1.36B–2(c)(3). Note that a former Provisions, available at https://www.dol.gov/sites/ employee is only rendered ineligible for the PTC if default/files/ebsa/about-ebsa/our-activities/ benefit HRA only if coverage is declined the former employee enrolls in employer-sponsored resource-center/publications/compliance- coverage; an offer of coverage (even if it is assistance-guide-appendix-a.pdf; and FAQs on 219 See Code section 9802(a)(1), ERISA section affordable and provides MV) does not preclude a HIPAA Portability and Nondiscrimination 702(a)(1) and PHS Act 2705(a)(1). See also 26 CFR former employee from claiming the PTC. See 26 Requirements for Employers and Advisers, 54.9802–1(a)(1) and (d), 29 CFR 2590.702(a)(1) and CFR 1.36B–2(c)(3)(iv). available at https://www.dol.gov/sites/default/files/ (d), and 45 CFR 146.121(a)(1) and (d). 225 See 26 CFR 54.9802–1(d), 29 CFR 2590.702(d), ebsa/about-ebsa/our-activities/resource-center/faqs/ 220 See 83 FR 54420, 54438 (Oct. 29, 2018). and 45 CFR 146.121(d). hipaa-compliance.pdf.

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nondiscrimination rules, which are also individual covered by an excepted participant’s adverse benefit designed to prevent discrimination in benefit HRA that is available to pay determination upon request.230 group health plans based on health premiums for STLDI is an eligible Under these disclosure provisions, status. These standards are already individual for purposes of making excepted benefit HRAs that are ERISA- familiar to stakeholders and therefore contributions to an HSA, assuming the covered plans should generally provide use of the existing definition will reduce HRA is used to purchase STLDI that information on eligibility to receive complexity and the potential burden of qualifies as an HDHP (and so, for benefits, annual or lifetime caps or other having to use a different definition. example, the STLDI does not pay limits on benefits under the plan, and a benefits prior to satisfying the minimum description or summary of the benefits. 6. Coordination With HSAs required deductible),228 and the Accordingly, for excepted benefit HRAs Commenters asked for clarification individual has no disqualifying that are subject to ERISA, the final rules regarding the circumstances in which coverage. include a cross reference to existing participation in an excepted benefit 7. Notice Requirements ERISA notice provisions in order to HRA might preclude an individual from ensure that excepted benefit HRA plan being eligible for an HSA. These Several commenters suggested that sponsors are aware of their obligations commenters expressed concern that, the Departments impose certain notice under those provisions. However, the because HSA eligibility is restricted if requirements for excepted benefit HRAs final rules do not include any additional an individual has certain other types of in the final rules. Commenters stated notice requirements for ERISA-covered health coverage, a loss of HSA eligibility that the required notice should be plans. could occur for some individuals similar to the notice required for In response to commenters’ concerns, enrolled in excepted benefit HRAs. individual coverage HRAs, or should, at HHS intends to propose in future As explained earlier in this preamble, a minimum, inform participants and rulemaking a notice requirement with among the requirements for an beneficiaries of the annual dollar limit respect to non-federal governmental individual to qualify as an eligible for benefits under the excepted benefit plan excepted benefit HRAs. HHS individual under Code section 223(c)(1) HRA, other terms and conditions of the anticipates proposing that a non-federal for purposes of HSA eligibility is that excepted benefit HRA, and participants’ governmental plan excepted benefit the individual must be covered under and beneficiaries’ rights under the HRA would be required to provide a an HDHP and have no disqualifying excepted benefit HRA. notice that states conditions pertaining health coverage. If an individual fails to However, the Departments note that to eligibility to receive benefits, annual satisfy the requirements to be an eligible for private-sector, employment-based or lifetime caps or other limits on individual, then contributions to an plans, other long-standing notice benefits under the excepted benefit HSA are disallowed. The Treasury requirements under Part 1 of ERISA HRA, and a description of, or summary Department and the IRS have provided already apply. ERISA-covered plans, of, the benefits consistent with the some guidance on the interaction including excepted benefit HRAs, must requirements of 29 CFR 2520.102–3(j)(2) between HRAs and the requirements of provide an SPD, summaries of material and (3). HHS anticipates that, under the modifications, and summaries of Code section 223 in Revenue Ruling proposal, this notice would be required material reductions in covered services 2004–45 and IRS Notice 2008–59. More to be provided in a time and manner or benefits.229 Under ERISA sections specifically, as explained earlier in this consistent with the requirements of 29 102 and 104 and their implementing preamble, in Revenue Ruling 2004–45, CFR 2520.104b–2(a). the Treasury Department and the IRS regulations, an excepted benefit HRA’s clarified that an otherwise eligible SPD must include, for example, the 8. Special Rule To Address the Potential individual (that is, an individual with conditions pertaining to eligibility to Impact on the Small Group Market of coverage under an HDHP and no receive benefits; a description or the Reimbursement of STLDI Premiums disqualifying coverage) remains an summary of the benefits; the Through Excepted Benefit HRAs eligible individual for purposes of circumstances that may result in As discussed earlier in this preamble, making contributions to an HSA for disqualification, ineligibility, or denial, the final rules include a special rule in loss, forfeiture, suspension, offset, periods during which the individual is response to comments regarding the reduction, or recovery (for example, by covered by a limited-purpose HRA, a potential for adverse selection in the exercise of subrogation or post-deductible HRA, or combinations small group market if small, insured reimbursement rights) of any benefits; of these arrangements. Subsequently, employers also sponsor excepted benefit and the procedures governing claims for Q&A–1 of IRS Notice 2008–59 stated HRAs that reimburse STLDI premiums. benefits under the excepted benefit that a limited-purpose HRA that is also Specifically, the final rules provide that HRA. Excepted benefit HRAs that are available to pay premiums for health the Departments may restrict excepted ERISA-covered plans are subject to coverage does not disqualify an eligible benefit HRAs from reimbursing STLDI additional disclosure requirements to individual from contributing to an HSA, premiums, for certain employers in a provide instruments under which the provided the individual does not use state, if five criteria are satisfied. excepted benefit HRA is established or the HRA to, or otherwise, obtain First, the restriction applies only to operated and information relevant to a coverage that is not HSA-compatible. excepted benefit HRAs offered by small This prior guidance applies to all employers, as defined in PHS Act benefit HRA must be HSA-compatible under the HRAs, including excepted benefit relevant Code section 223 guidance in order to section 2791(e)(4), to respond to HRAs.227 Therefore, for example, an allow an otherwise eligible individual to remain an concerns by commenters about adverse eligible individual under Code section 223. selection in the small group market. 227 To be an eligible individual under Code 228 See Code section 223(c)(2). See also Notice Second, the restriction applies only in section 223(c)(1), an individual may not be covered 2008–59, Q&A–14, which provides that to be an situations in which the other group by a health plan that is not an HDHP, except for HDHP a plan must provide significant benefits, and certain coverage which is disregarded, as if a plan only provides benefits for hospitalization health plan coverage offered by the enumerated in Code section 223(c)(1)(B). Code or in-patient care, the plan would not qualify as an section 223(c)(1)(B) does not disregard all excepted HDHP. 230 See, e.g., ERISA sections 104(b), 502(c), and benefits, and an excepted benefit HRA is not 229 See ERISA sections 102 and 104. See also 29 503. See also 29 CFR 2520.104b–1 and 2560.503– disregarded coverage. Therefore, an excepted CFR 2520.104b–2 and 2520.104b–3(a) and (d)(3). 1.

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small employer is either fully-insured or example, several commenters requested purposes of Code section 4980H. partially-insured. This focus on insured that the Departments extend the pilot Although an employer will not avoid coverage again is designed to narrowly program for limited wraparound potential liability for a payment under address the potential for adverse coverage.231 One commenter requested Code section 4980H by virtue of an offer selection by small, insured employers that the Departments amend the criteria of an excepted benefit, including an that was identified by commenters. for health FSAs to incorporate the excepted benefit HRA, the traditional Third, the restriction applies only if the excepted benefit HRA, instead of adding group health plan that is required to be Secretary of HHS makes a finding, in a new excepted benefit HRA, to avoid offered in order to offer the excepted consultation with the Secretaries of the appearance of too many limited benefit HRA would constitute an offer of Labor and the Treasury, that the excepted benefits. Other commenters MEC under an eligible employer- reimbursement of premiums for STLDI requested that the Departments address sponsored plan.233 by excepted benefit HRAs in a state has questions regarding fixed indemnity and One commenter inquired whether an caused significant harm to the small hospital indemnity insurance. However, individual enrolled in an excepted group market in the state that is the the proposed excepted benefit rules benefit HRA would have a special principal place of business of the small were limited to establishing criteria for enrollment right in the employer’s employer. certain HRAs to qualify as excepted traditional group health plan if the Fourth, this finding may be made only benefits and, therefore, those comments individual had enrolled in STLDI and after submission of a written are outside the scope of this rulemaking. then coverage under the STLDI was recommendation by the applicable state Notwithstanding that fact, the rescinded because the individual regulatory authority of such state, in the Departments do not intend to extend the became sick. The Departments clarify form and manner specified by HHS. The pilot program for limited wraparound that under the special enrollment rules written recommendation must include coverage, due to minimal take up and for group health plans, in general, an evidence that the reimbursement of overlap with various other benefit employee or dependent is eligible for STLDI premiums by excepted benefit options, including the new excepted special enrollment if they are otherwise HRAs established by insured or benefit HRA, which, like the limited eligible for the benefit package; when partially-insured small employers in the wraparound coverage excepted benefit, coverage under the plan was previously state has caused significant harm to the can be used for cost sharing under and offered, the employee had group health state’s small group market, including on expenses for services not covered by plan or health insurance coverage; and small group market premiums. The individual health insurance coverage, then the employee loses eligibility for evidence may include the State while not causing covered individuals other coverage.234 STLDI is health Insurance Commissioner’s documented to be ineligible for the PTC. insurance coverage and, therefore, loss overall assessment of the small group One commenter suggested that the of eligibility for STLDI will create a market in the state. It may also include excepted benefit HRA should only be special enrollment opportunity to enroll representations made by small group allowed to be offered by an employer in a group health plan, if the employee market issuers that an increase in the that has not previously offered health otherwise satisfies the special purchase of STLDI coverage by coverage, which the commenter appears enrollment opportunity requirements. employees of small employers has to have suggested due to a concern However, under the special enrollment caused issuers to increase premiums for about employers offering an excepted rules for individual market coverage, small group market insurance, due to benefit HRA instead of comprehensive loss of eligibility for STLDI will not the issuers’ reasonable belief about coverage. The Departments decline to trigger an SEP in the individual adverse selection. HHS will evaluate limit excepted benefit HRAs in this way market.235 each recommendation on a case-by-case as the excepted benefit HRA is intended Other comments not responsive to the basis. Factors that HHS may consider in to provide flexibility and additional provisions and topics addressed by the determining whether significant harm healthcare options to all employers and proposed rules, or otherwise beyond the had occurred include, but are not their employees. However, to the extent scope of the proposed and final rules, limited to, the impact on issuers’ the commenter is concerned about plan are not addressed. presence in the small group market, sponsors no longer offering traditional C. Interaction Between Individual whether there has been more than a de group health plans, the Departments Coverage HRAs and Excepted Benefit minimis increase in premiums in the reiterate that in order to offer the HRAs small group market, enrollment declines excepted benefit HRA, a plan sponsor in the small group market related to must also offer those eligible for the Under the final rules, as under the individuals purchasing STLDI, and HRA a traditional group health plan. proposed rules, a plan sponsor is changes to the health of the small group Some commenters expressed permitted to offer an individual market risk pool. confusion regarding the interaction of coverage HRA to a class of employees so Finally, the restriction (or the excepted benefit HRA and the long as it does not also offer a discontinuance of the restriction) must employer shared responsibility traditional group health plan to the be imposed by publication of a notice by provisions under Code section 4980H. same class of employees, subject to the Secretary of HHS in the Federal The Departments note for the sake of Register and will be effective clarity, as explained earlier in this 233 See Code section 4980H(a)(1) and (b)(1). See prospectively only, and with a preamble, that coverage that consists also 26 CFR 54.4980H–1(a)(14). reasonable time for plan sponsors to 234 See Code section 9801(f), ERISA section solely of excepted benefits is not 701(f), and PHS Act section 2704(f). See also 26 comply. MEC.232 Therefore, the offer of an CFR 54.9801–6(a)(2)(i) and (3)(i), 29 CFR 2590.701– 9. Other Comments on Excepted Benefit excepted benefit by an employer is not 6(a)(2)(i) and (3)(i), and 45 CFR 146.117(a)(2)(i) and (3)(i). HRAs and Comments Outside the Scope considered to be an offer of MEC under an eligible employer-sponsored plan for 235 See 45 CFR 155.420(d)(1)(i), which provides of This Rulemaking an SEP in the individual market only for loss of coverage that constitutes MEC. See also 45 CFR Some commenters raised issues that 231 See 26 CFR 54.9831–1(c)(3)(vii), 29 CFR 147.104(b)(2) and 83 FR 38212, 38225 (Aug. 3, relate to types of excepted benefits other 2590.732(c)(3)(vii), and 45 CFR 146.145(b)(3)(vii). 2018) (stating that STLDI ‘‘. . . is not individual than excepted benefit HRAs. For 232 See Code section 5000A(f)(3). health insurance coverage, nor is it MEC.’’).

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additional applicable conditions Code section 36B and the existing rules opt out of the arrangement. The discussed elsewhere in this preamble. thereunder, the proposed rules provided Departments note that this concern, However, a plan sponsor may only offer that an employee and a related however, is mitigated by the fact that an excepted benefit HRA if traditional individual offered an individual employers seek to maximize overall group health plan coverage is also made coverage HRA (a related HRA employee welfare in order to recruit and available to the employees who are individual) would not be eligible for a retain talented workers. eligible to participate in the excepted PTC for any month the individual To address these concerns, some benefit HRA. Thus, a plan sponsor coverage HRA is affordable. Relatedly, commenters suggested that employees cannot offer both an individual coverage the proposed rules provided that an who are otherwise eligible for the PTC HRA and an excepted benefit HRA to affordable individual coverage HRA should be allowed both the PTC and the any employee.236 would be deemed to provide MV. individual coverage HRA offered to Therefore, under the proposed rules, if them by their employers. Other III. Overview of Final Rules Regarding an employee and a related HRA commenters suggested a rule to allow the Premium Tax Credit—Department individual are offered an individual employees to choose between an of the Treasury and the IRS coverage HRA that is affordable, the individual coverage HRA and the PTC. A. In General employee and related HRA individual Under this suggested rule, an employee are ineligible for a PTC even if the would be able to opt out of the Consistent with the objectives in individual coverage HRA and receive Executive Order 13813 to expand the employee opts out of the individual coverage HRA. However, an employee the PTC in situations in which the PTC use of HRAs, the proposed rules would provide a more generous subsidy included an amendment to the rules and a related HRA individual offered an individual coverage HRA that is not than the individual coverage HRA. under Code section 36B to provide Employees would have this choice guidance for individuals who are affordable will be eligible for the PTC (assuming they are otherwise eligible) if regardless of whether the individual offered or covered by an individual coverage HRA was affordable or coverage HRA and who otherwise may the employee opts out of the individual coverage HRA. provided MV. be eligible for the PTC. As explained The final rules retain the rule as earlier in this preamble, an employee Commenters generally acknowledged proposed that an employee and a related who is offered coverage under an that guidance was needed, and some HRA individual are not eligible for a eligible employer-sponsored plan, and commenters agreed with the proposed PTC for any month the employee is an individual who may enroll in the rules relating to the effect of an offered an individual coverage HRA that coverage because of a relationship to the individual coverage HRA offer on an is affordable, even if the employee opts employee (a related individual), are not individual’s PTC eligibility. However, a out of the arrangement. An individual eligible for a PTC for any month the number of commenters expressed coverage HRA is an eligible employer- eligible employer-sponsored plan is concern that the proposed rules would sponsored plan for purposes of Code affordable and provides MV.237 Further, adversely affect lower-paid employees section 36B. Code section 36B(c)(2)(B) an employee or related individual who and their ability to obtain adequate and 26 CFR 1.36B–2(a)(2) provide that enrolls in an eligible employer- subsidies for their healthcare coverage. an employee and a related individual sponsored plan for a month is ineligible The commenters pointed out that the who are offered coverage under an for a PTC for that month regardless of PTC generally is more valuable than the eligible employer-sponsored plan are whether the coverage is affordable or individual coverage HRA would be for not eligible for a PTC for any month that provides MV.238 lower-paid employees. These the eligible employer-sponsored Because an HRA is a self-insured commenters suggested that the coverage is affordable and provides MV. group health plan, under existing rules, individual coverage HRA would Under these provisions, an individual an individual who is covered by an subsidize the cost of coverage for higher generally is ineligible for a PTC for a individual coverage HRA is ineligible paid employees while making coverage month in which the individual had an for the PTC.239 However, guidance was more expensive, and likely out of reach, opportunity to enroll in affordable, MV needed regarding the PTC eligibility of for the lower-paid employees who employer-sponsored coverage, an individual who is offered, but opts would have been eligible for a PTC but regardless of whether the individual out of, an individual coverage HRA, for the offer of an individual coverage actually chose to enroll. Therefore, Code and, therefore, the Treasury Department HRA. Some commenters expressed a section 36B and the applicable rules do and the IRS issued the proposed PTC concern that the complexity of the rules not allow individuals to choose between rules. would make it difficult for employees to an offer of employer-sponsored coverage Consistent with the rule for make optimal decisions about their that is affordable and that provides MV traditional group health plans under coverage and whether to opt out of the or Exchange coverage with a PTC. individual coverage HRA, with some Furthermore, many of the concerns 236 The Departments note that an employer may noting a concern that employees may raised by commenters also apply to not provide a QSEHRA to any employee if it offers mistakenly opt out of an affordable any employee a group health plan. Accordingly, an traditional group health plans; for employer may not provide a QSEHRA to any individual coverage HRA because they example, lower-income individuals may employee if it offers any employee an individual believe that the opt-out preserves their be better off with the PTC than a coverage HRA (which is a group health plan) or an PTC eligibility, only to find out that traditional group health plan. Thus, excepted benefit HRA (which is a group health plan they have lost both PTC eligibility and consistent with the rules for traditional and which requires an offer of a traditional group health plan). See Code section 9831(d)(3)(B)(ii). the right to reimbursements under the group health plans, the final rules retain 237 Code section 36B and 26 CFR 1.36B–2(c)(3)(i). individual coverage HRA. Some the rule that a PTC is not allowed for 238 26 CFR 1.36B–2(c)(3)(vii)(A). commenters expressed concern that any month in which the individual 239 See the discussion earlier in this preamble of employers might inadvertently offer an coverage HRA is affordable. the related requirement under the final integration individual coverage HRA that leaves As to the suggestion by commenters rules that plan sponsors provide participants with an annual opportunity to opt-out of and waive employees worse off than they would that individuals should be allowed to future reimbursements under an individual have been had the employer not offered both enroll in the individual coverage coverage HRA. the HRA, whether or not the employees HRA and claim the PTC if otherwise

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eligible, this is precluded by Code contemporaneous with, the final rules. resides; over (2) the monthly self-only section 36B(c)(2)(C)(iii). Under that Further, the Departments will work HRA amount provided by the Code section, and as noted earlier in closely with the State Exchanges to employee’s employer.242 The monthly this preamble, an individual who is ensure that Exchanges’ applications and self-only HRA amount was proposed to covered for one or more months by a other relevant materials are updated to be the self-only HRA amount newly group health plan, including an assist individuals with an individual made available to the employee under individual coverage HRA, is ineligible coverage HRA offer who are applying the individual coverage HRA for the for the PTC for his or her Exchange for, or considering applying for, plan year, divided by the number of coverage for those months. Therefore, individual health insurance coverage, in months in the plan year the individual the final PTC rules do not adopt this determining whether they are eligible coverage HRA is available to the suggestion. for APTC. employee. The Treasury Department and the IRS Lastly, the Treasury Department and In the preamble to the proposed rules, agree with commenters that some lower- the IRS note that under the final rules, the Treasury Department and the IRS paid employees may be adversely an individual coverage HRA may be explained that the lowest cost silver affected by an employer’s offer of an integrated with Medicare, if certain plan was chosen because, in the individual coverage HRA because the conditions are satisfied. Individuals individual market, the lowest cost silver PTC, if available, could provide a larger who are enrolled in Medicare for one or plan is the lowest cost Exchange plan subsidy for the employee’s Exchange more months during the calendar year for which the plan’s share of the total coverage as compared to the individual are not eligible for the PTC for their allowed costs of benefits provided coverage HRA. However, this dynamic Exchange coverage for those months.240 under the plan is certain to be at least already exists under current rules, as an Therefore, the final PTC rules regarding 60 percent of such costs, as required by individual may be required to pay a when an offer of an individual coverage Code section 36B(c)(2)(C)(ii) for a plan greater portion of his or her household HRA is considered affordable are not to provide MV. In selecting the lowest income for a traditional group health relevant for individuals enrolled in cost plan for which it is certain that the plan than the individual would, in the Medicare. Those individuals are plan’s share of the total allowed costs of absence of an offer of employer- ineligible for the PTC without regard to benefits provided under the plan will be sponsored coverage, have to pay for whether they are offered or covered by at least 60 percent of such costs, the Exchange coverage with a PTC. Under an individual coverage HRA.241 proposed rules sought to most closely Code section 36B(b)(3)(A) and current B. Use of Lowest Cost Silver Plan To approximate the PTC eligibility rules PTC rules, an individual’s contribution that apply to offers of eligible-employer amount for 2019 Exchange coverage Determine Affordability of an Individual Coverage HRA sponsored coverage that is not an may be as little as 2.08 percent of HRA.243 The proposed rules also household income for an individual The proposed rules provided that an provided that an individual coverage who claims the PTC whereas the same individual coverage HRA is affordable HRA that is affordable is treated as individual may have to pay up to 9.86 for an employee and a related HRA providing MV, because the plan used to percent of household income for individual for a month if the employee’s determine affordability will always coverage offered by the individual’s required HRA contribution does not provide MV and so an employee who is employer and still be considered to have exceed 1⁄12 of the product of the offered an affordable individual an affordable offer and therefore employee’s household income and the coverage HRA has the ability to ineligible for the PTC. Nevertheless, an required contribution percentage purchase affordable coverage that employee in this situation is not (defined in 26 CFR 1.36B–2(c)(3)(v)(C)). provides MV. In the preamble to the permitted to forego the employer The proposed rules defined an proposed rules, the Treasury coverage and choose the Exchange employee’s required HRA contribution Department and the IRS requested coverage with a PTC to take advantage as the excess of: (1) The monthly comments on whether the lowest cost of the smaller contribution amount. premium for the lowest cost silver plan silver plan is the appropriate metal-level Under the final rules, the same for self-only coverage available to the plan to use to determine affordability of treatment applies to offers of an employee through the Exchange for the an individual coverage HRA for PTC individual coverage HRA: That is, rating area in which the employee eligibility purposes. individuals are not allowed to forego an A number of commenters advocated individual coverage HRA that is 240 See Code section 36B(c)(2)(B) and 26 CFR for retaining the proposed rule’s use of affordable (and thus deemed to provide 1.36B–2(a)(2). An individual generally is eligible for MV) and instead choose the Exchange Medicare if the individual meets the criteria for the lowest cost silver plan as the coverage with a PTC. coverage under the program as of the first day of the first full month the individual may receive 242 If the employer offers an HRA that provides The Departments also appreciate the benefits under the program. See 26 CFR 1.36B– for a single dollar amount regardless of whether an concerns expressed by commenters 2(c)(2)(i). However, an individual who meets the employee has self-only or other-than-self-only regarding the burden on employees to criteria for eligibility for Medicare must complete coverage, the monthly maximum amount available properly determine whether the HRA the requirements necessary to receive benefits. See to the employee is used to determine affordability. they have been offered is affordable and 26 CFR 1.36B–2(c)(2)(ii). An individual who fails by The monthly maximum amount was proposed to be the last day of the third full calendar month the maximum amount available to the employee provides MV and whether they should following the event that establishes eligibility for divided by the number of months in the plan year opt out of the individual coverage HRA. Medicare to complete the requirements to obtain the individual coverage HRA is available to the These concerns are the primary reason that coverage is treated as eligible for Medicare as employee. that the Departments proposed to of the first day of the fourth calendar month 243 With regard to an offer of eligible employer- following the event that establishes eligibility. Id. sponsored coverage that is not an HRA, an require employers that offer individual 241 The Treasury Department and the IRS are individual is eligible for the PTC for his or her coverage HRAs to provide a written considering whether clarification is needed Exchange coverage only if the employee’s required notice to each participant. The final regarding how to determine whether an offer of an contribution, which is the portion of the annual rules strengthen the notice requirement individual coverage HRA to an employee enrolled premium that would be paid for the lowest cost in Medicare is considered affordable and to provide self-only MV coverage offered by the employer to and the Departments are providing MV for purposes of Code section 4980H. The the employee, exceeds a certain percentage of the model notice language regarding the Treasury Department and the IRS anticipate employee’s household income. See Code section PTC, separate from, but addressing that issue in guidance in the near term. 36B(c)(2)(C).

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appropriate plan to determine information concerning the premiums Department and the IRS are also affordability and MV of an individual for a taxpayer’s applicable SLCSP is adopting as proposed the rule that an coverage HRA for PTC eligibility. These already readily available to taxpayers individual coverage HRA that is commenters stated that although the and providing this information to affordable is treated as providing MV. lowest cost silver plan generally would taxpayers for their individual coverage The final rules result in consistent have an actuarial value that is higher HRA affordability determinations would treatment for purposes of Code section than is required to provide MV under a not require additional Exchange 36B for employees offered an individual traditional group health plan, a bronze- resources. In addition, in light of the coverage HRA and employees offered a level plan would not always be fact that the SLCSP is already used for traditional group health plan. In both sufficient to provide MV.244 Therefore, certain PTC purposes, the commenters instances, the employees may be the commenters found the use of the expressed concern that using premiums allowed the PTC if they decline the offer lowest cost silver plan to be a for the lowest cost silver plan instead of and the coverage is either unaffordable reasonable approximation of the PTC the SLCSP could lead to confusion and or does not provide MV. Further, in eligibility rules that apply to offers of miscalculations. Commenters also noted both instances, the employee’s required traditional group health plans. that the premiums for the SLCSP are contribution is based on the amount the Some commenters suggested using a used to determine affordability for employee must pay for self-only gold-level plan to determine QSEHRAs. Some commenters expressed coverage that provides MV because affordability, contending that the concern that using the lowest cost silver under the final rules affordability is coverage benefits provided by a gold- plan for affordability would result in determined based on the lowest cost level plan more closely resemble the three different affordability calculations silver plan offered in the Exchange for coverage benefits under a traditional depending on whether an employee was the rating area in which the employee group health plan. According to these offered a traditional group health plan, resides (which, by definition, will commenters, using a gold-level plan for a QSEHRA, or an individual coverage always provide MV). If the amount the the affordability determination would HRA. However, some commenters employee must pay is more than the ensure that an employee who is offered opposed the use of the SLCSP, product of the required contribution an individual coverage HRA would not contending that the higher premiums for percentage and the employee’s pay more for health coverage that a SLCSP, which may not always provide household income, the employee may provides fewer benefits than the greater benefits than the lowest cost be allowed the PTC. As such, the final employee would have paid for under silver plan, do not warrant modifying rules are consistent with the either a traditional group health plan or the proposed rule’s use of the lowest affordability and MV rules that apply to Exchange coverage with a PTC. cost silver plan to determine offers of traditional group health plans. Although commenters suggested Other commenters suggested that a affordability of an individual coverage bronze-level plan should be used for using a bronze-level or gold-level plan HRA. determining affordability of an for the affordability determination, the individual coverage HRA, arguing that a After consideration of the comments, final rules do not adopt either of those bronze-level plan is comparable to the final rules adopt as proposed the use suggestions. Using a bronze-level plan coverage under a traditional group of the lowest cost silver plan for self- could result in individuals being health plan which provides MV because only coverage available through the determined ineligible for the PTC based a bronze-level plan generally has an Exchange in the rating area in which the on the cost of a plan that does not actuarial value of 60 percent. According employee resides to determine whether provide MV under Code section to these commenters, using a silver-level an individual coverage HRA is 36B(c)(2)(C)(ii) (because a bronze plan plan to determine affordability and MV affordable. As explained in the may have an actuarial value as low as for PTC eligibility would provide preamble to the proposed rules, using 56 percent). While use of a gold-level employees (and related HRA the lowest cost silver plan to determine plan (which generally has an actuarial individuals) with greater coverage the affordability of an individual value no lower than 76 percent) would benefits than required under traditional coverage HRA is consistent with, and ensure that the plan used to determine group health plans. most closely approximates, the rules affordability provides MV, it would be A plurality of the commenters on the that apply to an offer of a traditional inconsistent with, and require the use issue of the appropriate affordability group health plan, under which an offer of, a plan with a higher actuarial value plan suggested that the second lowest is affordable if the employee’s required than in the rules that apply for a cost silver plan (SLCSP) should be used contribution for the lowest cost, self- traditional group health plan. to determine the affordability of an only MV coverage offered by the The final rules do not adopt the individual coverage HRA. These employer to the employee does not suggestion that the SLCSP plan be used commenters generally pointed to exceed a specified percentage of the for the affordability determination. The administrative ease and the affordability employee’s household income. Further, Treasury Department and the IRS rules for QSEHRAs as the reasons for using the lowest cost silver plan, which acknowledge that the SLCSP applies for modifying the proposed rule. Under will not have an actuarial value lower other PTC purposes, including Code section 36B, a taxpayer who is than 66 percent, to determine calculation of the PTC amount and the eligible for the PTC computes his or her affordability of an individual coverage determination of affordability of a PTC amount using the premiums for the HRA ensures that the plan used to QSEHRA. However, affordability for a SLCSP available to the taxpayer. determine affordability will always traditional group health plan is based on Therefore, the commenters asserted that provide MV. As a result, a the amount an employee would pay for determination that an individual a plan for which the share of the total 244 In the individual market, a bronze plan may coverage HRA is affordable, using this allowed costs of benefits provided have an actuarial value of 56 percent, which would standard, is sufficient to ensure that an under the plan is at least 60 percent of not ensure the plan’s share of the total allowed employee who is offered an affordable such costs and the lowest cost silver costs of benefits provided under the plan is at least individual coverage HRA has the ability plan, not the SLCSP, is the plan that 60 percent of such costs, as required by Code section 36B(c)(2)(C)(ii) for a plan to provide MV. to purchase affordable coverage that most closely approximates that rule and See 45 CFR 156.140. provides MV. Therefore, the Treasury provides consistency with these same

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rules as applied to traditional group limitation for taxpayers with household eligibility requirements that affect health plans under Code section 36B. income less than 400 percent of the Exchange enrollees’ APTC eligibility Consequently, the final rules provide a applicable federal poverty line for the with electronic data sources, rule that is comparable to the taxpayer’s family size. The Treasury commenters stated that electronic data affordability and MV rules that apply for Department and the IRS do not have the sources are not available to allow State traditional group health plans. authority to suspend this statutory rule. Exchanges to verify APTC eligibility As to the concerns expressed by Thus, the final rules do not adopt this based on an offer of an individual commenters regarding the potential for suggestion. The Departments coverage HRA. Commenters urged the confusion for individuals due to the understand, however, that there is Departments to dedicate additional different health coverage arrangements potential for taxpayer confusion about funding to the State Exchanges for that exist and the different PTC individual coverage HRAs and have electronic verification of information eligibility rules that apply, see earlier in taken measures to ensure that taxpayers about individual coverage HRA offers this preamble for a discussion of the are aware of the PTC implications of that consumers will be required to steps the Departments are taking to accepting or opting out of an individual provide to Exchanges. In response to address those concerns, including coverage HRA. In particular, as these comments, the Departments note providing a model notice that will described earlier in this preamble, the that Congress generally appropriates explain the PTC consequences of an final integration rules require that an funding for the federal government. The individual coverage HRA. individual coverage HRA provide Departments do not generally have the C. Other Issues Under the PTC Rules eligible participants with a written authority to determine additional uses notice setting forth certain information of funds beyond those established by The proposed rules provided that the about the individual coverage HRA, Congress, including with respect to affordability of an individual coverage including the potential availability of additional funding for State Exchanges. HRA for a related HRA individual PTC if they opt out of the HRA and the One commenter asked that the would be based on the cost of self-only, PTC eligibility consequences if they Treasury Department and the IRS not family, coverage available to the accept the HRA. Individuals applying confirm which premium applies in employee through the Exchange for the for Exchange coverage will provide determining the affordability of an rating area in which the employee information about the individual individual coverage HRA if more than resides. One commenter stated that coverage HRA they have been offered to one premium is available for the lowest affordability of an individual coverage the Exchange during the application cost silver plan, for example, because HRA should be based on the cost of process, which will help prevent the there is one rate for tobacco users and Exchange coverage for all members of improper payment of APTC. one rate for non-tobacco users. Existing the employee’s family offered the A few commenters raised issues rules at 26 CFR 1.36B–3(e) provide that, individual coverage HRA, not just the regarding the application of the PTC in determining a taxpayer’s SLCSP self-only cost. The final rules do not rules to individual coverage HRAs that premium, a monthly premium may not adopt this suggestion. Under 26 CFR are negotiated pursuant to a CBA, with include any adjustments for tobacco 1.36B–2(c)(3)(v)(A)(2), an eligible the commenters asking for special rules use. Consequently, in response to the employer-sponsored plan is affordable to account for the fact that CBAs are commenter, the final rules provide that for a related individual if the portion of often negotiated over multiple years, if there is a silver-level plan that has one the annual premium the employee must including that the affordability status rate for tobacco users and one rate for pay for self-only coverage does not that is determined as of the effective non-tobacco users, the rate for non- exceed a percentage of the employee’s date of a CBA should apply for all years tobacco users will apply to determine household income. Similarly, under covered by the CBA. The final rules do affordability of the individual coverage Code section 36B(c)(4), the affordability not adopt the suggestion that special HRA. of a QSEHRA for a spouse or dependent rules should apply to employees In addition, in the context of a of an employee is based on the cost of covered by CBAs. The existing rules traditional group health plan, existing self-only Exchange coverage to the under Code section 36B do not include rules at 26 CFR 1.36B–2(c)(3)(v)(A)(4) employee. Consequently, the final rules special rules for determining the provide that nondiscriminatory are consistent with the existing rules for affordability of traditional group health wellness program incentives 245 that other types of employer coverage in plans for employees covered by CBAs. affect premiums are treated as earned in providing that affordability of an In addition, such special rules would determining an employee’s required individual coverage HRA for employees likely result in undue complexities for contribution for purposes of and related HRA individuals is based on Exchanges and others. Thus, employees affordability to the extent the incentives the cost of self-only coverage. covered by CBAs must determine relate exclusively to tobacco use. The One commenter stated that because of affordability consistent with the rules rules further provide that wellness the likelihood of confusion in the early that apply to individuals not covered by program incentives that do not relate to years on the part of taxpayers whose such agreements. tobacco use or that include a component employers offer individual coverage A number of comments were received unrelated to tobacco use are treated as HRAs, the IRS should waive the expressing concerns about the effective not earned for this purpose. requirement that taxpayers increase date for the final rules generally, but Consequently, the Treasury Department their tax liability for excess APTC (the many with a specific focus on issues and the IRS are clarifying in these final excess of a taxpayer’s APTC over his or related to implementing the final PTC rules that similar rules apply for her allowed PTC) resulting from an offer rules by 2020. These comments are purposes of determining the of an affordable individual coverage addressed later in this preamble. affordability of an individual coverage HRA. Under Code section 36B(f)(2), a Also, commenters expressed concern HRA. Thus, if a wellness program taxpayer must increase his or her tax about the availability of resources for incentive is allowed in the individual liability for a taxable year by the excess verifying eligibility for APTC for of the APTC paid on the taxpayer’s individuals who are offered an 245 For this purpose, the term ‘‘wellness program behalf over the PTC the taxpayer is individual coverage HRA. While incentive’’ has the same meaning as the term allowed for the year, subject to a Exchanges are required to verify certain ‘‘reward’’ in 26 CFR 54.9802–1(f)(1)(i).

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market, the lowest cost silver plan earlier in this preamble, the final Treasury Department and the IRS are premium will be determined without integration rules clarify that individual considering how Code section 4980H regard to any premium discount or coverage HRAs must provide applies to an employer offering an rebate under that program unless the participants with one advance individual coverage HRA. wellness program incentive relates opportunity to opt into, or out of, the Only ALEs are subject to Code section exclusively to tobacco use. individual coverage HRA for each plan 4980H.248 For an employer that is an The final rules also address a year, but generally may not provide situation in which the silver-level QHP participants multiple opportunities to ALE, the employer may owe a payment used to determine a taxpayer’s lowest opt into, or out of, the individual for a month under Code section cost silver plan at enrollment later coverage HRA over the course of the 4980H(a) or Code section 4980H(b) or terminates or closes to enrollment plan year. In addition, the final PTC neither. In general, an ALE will owe a during the plan year. Specifically, the rules provide specific rules to determine payment under Code section 4980H(a) if final rules provide that, in such a case, affordability of an individual coverage it fails to offer an eligible employer- the silver-level QHP that is used to HRA for each employment period that is sponsored plan to at least 95 percent of determine a taxpayer’s lowest cost silver less than a full calendar year or for the its full-time employees and their plan will not cease to be the taxpayer’s portions of the plan year of an dependents and at least one full-time lowest cost silver plan solely because individual coverage HRA that fall in employee is allowed the PTC for the the plan later terminates or closes to different taxable years of a taxpayer. month.249 An ALE that offers an eligible enrollment. However, a taxpayer’s Although affordability of an individual employer-sponsored plan to at least 95 lowest cost silver plan used to coverage HRA and thus eligibility for percent of its full-time employees and determine affordability could change PTC generally are determined on a their dependents (and therefore is not during the tax year under other monthly basis, the opt-out rules and the liable for a payment under Code section circumstances, such as if the taxpayer part-year affordability rules work in 4980H(a)) may be liable for a payment moves into a different rating area. conjunction with the employee safe under Code section 4980H(b) if at least With respect to which HRA amounts harbor to provide a taxpayer with an one full-time employee is allowed the are taken into account in determining affordability determination that PTC, which may occur if the eligible affordability, the proposed rules generally will apply for the entire plan employer-sponsored plan offered is not provided that only amounts that are year of the individual coverage HRA, affordable or does not provide MV, or if newly made available and that are barring any change in circumstance of the employee was not offered coverage. determinable within a reasonable period the taxpayer. For example, if a taxpayer of time before the beginning of the plan opts out of an individual coverage HRA On November 19, 2018, the Treasury year of the HRA are considered. The that begins on 1, 2020, and an Department and the IRS released Notice proposed rules further provided that Exchange determines that the HRA is 2018–88 which addressed the amounts made available from a prior unaffordable and the taxpayer is eligible application of Code section 4980H to plan year that carry over to the current for APTC, the employee safe harbor in ALEs offering individual coverage plan year are not taken into account. the final rules provides that the HRA HRAs. In order to provide clarity to The final rules retain these provisions generally will be treated as unaffordable stakeholders, Notice 2018–88 explained and also provide that, similarly, for the entire plan year of the HRA (from how Code section 4980H would apply amounts made available under an HRA , 2020–, 2021). If the to an ALE that offers an individual to account for amounts remaining in a taxpayer decides to forego both APTC coverage HRA, described potential different HRA the employer previously and the individual coverage HRA and additional affordability safe harbors, provided to the employee and under pay the enrollment premium out-of- requested comments, and provided which the employee is no longer pocket, the taxpayer still may claim PTC examples. covered are not taken into account for on a tax return for the months the The Treasury Department and the IRS purposes of determining affordability. individual coverage HRA was This clarification is generally intended unaffordable if the taxpayer otherwise is intend to propose rules under Code to address the situation in which an eligible for PTC.247 section 4980H on the issues addressed employee moves between classes of in Notice 2018–88, taking into account employees and, as a result, moves D. Employer Shared Responsibility the comments received. To the extent between different HRAs, as discussed Provisions Under Code Section 4980H comments were received on the earlier in this preamble. As part of implementing the proposed integration rules specific to One commenter asked the Treasury objectives of Executive Order 13813, the the application of Code section 4980H Department and the IRS to clarify the to employers offering individual application of the PTC rules to an who is enrolled in Exchange coverage and opts out coverage HRAs, those comments will be employee opting out of, or accepting, an of an HRA when permitted to do so may apply to the Exchange for a redetermination of APTC addressed in the preamble to the individual coverage HRA with a non- eligibility. proposed rules under Code section 246 calendar year plan year. As noted 247 The proposed rules also clarified how the 4980H. generally applicable employer-sponsored coverage 246 An employee who opts out of a non-calendar PTC eligibility rules apply to individual coverage 248 year individual coverage HRA, like an employee HRAs. The Treasury Department and the IRS are The explanation of Code section 4980H who opts out of a non-calendar year traditional finalizing those rules as proposed. Further, existing provided here is a summary. For a complete group health plan, may qualify for an individual guidance addresses when amounts newly made explanation of the rules, including for definitions market SEP based on the employee’s enrollment in available under an HRA count toward the of terms used in this summary, see 26 CFR a non-calendar year plan that is ending, regardless affordability or MV of another group health plan 54.4980H–1, et seq. (79 FR 8544 (Feb. 12, 2014)). of whether he or she has the option to renew, per offered by the same employer. See 26 CFR 1.36B– 249 Note that if an ALE offered coverage to all but 45 CFR 155.420(d)(1)(ii). The employee may, 2(c)(3)(v)(A)(5) and 26 CFR 1.36B–6(c)(4). See also five of its full-time employees (and their therefore, choose to change his or her individual IRS Notice 2015–87, Q&A–7. As under the proposed dependents), and five is greater than 5 percent of health insurance plan, though his or her plan rules, the final rules do not make substantive the employer’s full-time employees, the employer options may be restricted based on 45 CFR revisions to those rules but do make clarifying will not owe an employer shared responsibility 155.420(a)(4)(iii). Regardless of whether an updates to 26 CFR 1.36B–2(c)(3)(v)(A)(5), mainly to payment under Code section 4980H(a). See 26 CFR employee changes his or her plan, an employee incorporate a reference to more recent guidance. 54.4980H–4(a).

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IV. Overview of the Final Rules Exchange individual health insurance coverage should be clarified. Under the Regarding Individual Health Insurance coverage that is not covered by the HRA proposed rules, the individual health Coverage and ERISA Plan Status with which the coverage is integrated by insurance coverage that is paid for by using a salary reduction arrangement the HRA 256 is not covered by ERISA A. In General under a cafeteria plan (supplemental Title I if all of the conditions of the safe The proposed rules included an salary reduction arrangement).252 harbor are satisfied. The conditions in amendment to DOL rules defining the ERISA section 3(1) broadly defines the safe harbor incorporate criteria well- ERISA terms ‘‘employee welfare benefit ERISA-covered welfare plans to include recognized under similar ERISA safe plan,’’ ‘‘welfare plan,’’ and, derivatively ‘‘any plan, fund, or program’’ that is harbor rules and under case law, where ‘‘group health plan,’’ so that these terms ‘‘established or maintained by an similar arrangements are considered to would not include individual health employer or employee organization’’ for be exempt from ERISA Title I. insurance coverage, the premiums of the provision of health benefits Under the proposed rules, the status which are reimbursed by an HRA and ‘‘through the purchase of insurance or under ERISA of an HRA, QSEHRA, or certain other arrangements, under otherwise.’’ At the same time, however, supplemental salary reduction certain conditions. As explained in the provisions in the PHS Act generally arrangement would remain unaffected. preamble to the proposed rules, the treat individual health insurance and Rather, the proposed rules clarified that objective in proposing this clarification group health insurance as mutually individual health insurance coverage was to provide clarity and assurance to exclusive categories.253 If individual selected by the employee in the employees; employers, employee health insurance coverage were individual market and reimbursed by organizations, and other plan sponsors; considered to be a group health plan or such a plan is not part of a group health health insurance issuers; state insurance part of a group health plan, the plan, is not health insurance coverage regulators; and other stakeholders. individual health insurance coverage offered in connection with a group Specifically, the objective was to typically would violate some of the health plan, and is not a part of any provide assurance that the insurance group market requirements (for employee welfare benefit plan for policies sold as individual health example, the single risk pool purposes of ERISA Title I, provided all insurance coverage (that is, policies requirement for the small group market; the following conditions are satisfied: generally subject to comprehensive the rating rules for the small group 1. The purchase of any individual federal and state individual market rules market; or the separate medical loss health insurance coverage is completely for minimum and uniform coverage, ratio requirements for large group voluntary for employees.257 standardized rating requirements, insurance coverage, which is lower than 2. The employer, employee guaranteed availability, and guaranteed that for individual or small group organization, or other plan sponsor does renewability) would not be treated as insurance).254 As explained in the not select or endorse any particular part of an HRA or certain other preamble to the proposed rules, issuer or insurance coverage. arrangements for purposes of ERISA if treatment of such individual health 3. Reimbursement for non-group certain conditions were satisfied.250 insurance coverage as subject to both health insurance premiums is limited Specifically, DOL proposed an individual market and group market solely to individual health insurance amendment to 29 CFR 2510.3–1 on the requirements thus would likely result in coverage. definition of ‘‘employee welfare benefit conflicting requirements, uncertainty 4. The employer, employee plan’’ in ERISA section 3(1).251 This and confusion which could inhibit or, organization, or other plan sponsor proposed amendment would apply to receives no consideration in the form of individual health insurance coverage in some instances, even preclude, the ability to integrate HRAs with cash or otherwise in connection with purchased through individual coverage the employee’s selection or renewal of HRAs. It would also apply to individual individual health insurance coverage as contemplated by other provisions in the any individual health insurance health insurance coverage purchased 258 255 coverage. through certain other arrangements that proposed rules. Accordingly, DOL concluded that the ERISA status of this reimburse participants for the purchase 256 type of individual health insurance For simplicity and readability, the discussion of individual health insurance coverage in this section IV of the preamble generally refers that are not subject to the market simply to HRAs, although it is intended to also 252 requirements (including QSEHRAs and While the proposed rule under 29 CFR capture other account-based group health plans, 2510.3–1(l) included in the term ‘‘supplemental QSEHRAs and supplemental salary reduction HRAs that have fewer than two salary reduction arrangement’’ cafeteria plan salary arrangements. If the term HRA is intended to refer participants who are current employees reduction arrangements paying premium amounts only to HRAs in this section IV, it will be clear from on the first day of the plan year). not covered by a QSEHRA, these final rules do not. context. Moreover, the title of paragraph (l) of the Further, this proposed amendment See Code section 9831(d)(3)(B)(ii) and IRS Notice DOL final rule is amended to refer to a ‘‘Safe harbor 2017–67, Q&A–55 (employer may allow employee for health reimbursement arrangements (HRAs) and would apply to an arrangement under to pay the excess of a health insurance premium certain other arrangements that reimburse which an employer allows employees to over the amount paid by the QSEHRA with an after- individual health insurance coverage,’’ to better pay the portion of the premium for off- tax payroll deduction (in contrast to a pre-tax salary reflect the regulatory text that follows. reduction)). 257 The fact that a plan sponsor requires the 253 See ERISA section 733(b)(4) and PHS Act 250 83 FR 54420, 54440 (Oct. 29, 2018). For coverage to be purchased as a condition for sections 2791(b)(4), (5), and (e)(1). See also 26 CFR examples of other circumstances under which DOL participation in an HRA or supplemental salary has determined an arrangement is not a plan within 54.9801–2, 29 CFR 2590.701–2, and 45 CFR reduction arrangement does not make the purchase the meaning of ERISA, see 29 CFR 2510.3–1(j), 29 144.103. involuntary. This issue should not arise in the CFR 2510.3–2(f), and 29 CFR 2509.99–1. See also 254 See PPACA section 1312 (which defines each context of a QSEHRA because in that case, although DOL Field Assistance Bulletins No. 2004–01 and issuer’s enrollees in the individual market to be individuals must be enrolled in MEC, employers No. 2006–02. members of a single risk pool, and each issuer’s may not require employees to enroll in individual 251 In light of the fact that ‘‘group health plan’’ is enrollees in the small group market to be members health insurance coverage. defined derivatively in ERISA section 733(a)(1), in of a separate single risk pool, unless a state has 258 The limitation on employers, employee relevant part, as an ‘‘employee welfare benefit plan opted to merge the risk pools), PHS Act section organizations, and other plan sponsors receiving to the extent that the plan provides medical care 2701 (which sets forth maximum age rating ratios consideration from an issuer or person affiliated . . . directly or through insurance, reimbursement, in the individual and small group markets), and with an issuer in connection with any participant’s or otherwise[,]’’ DOL has concluded that a separate PHS Act section 2718 (which sets forth medical loss purchase or renewal of individual health insurance rule relating to the definition of group health plan ratio requirements that differ based on market). coverage was not intended to change any ERISA is not required. 255 83 FR 54420, 54441 (Oct. 29, 2018). requirements governing the circumstances under

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5. Each plan participant is notified Domenici Mental Health Parity and particular conditions of the safe harbor annually that the individual health Addiction Equity Act of 2008, and provided here are not directly relevant insurance coverage is not subject to PPACA would apply to the coverage to other types of plan arrangements, ERISA. (including the single risk pool such as retirement plans, life insurance Current rules issued by the requirement, the rating rules for the plans, or disability plans. In particular, Departments define ‘‘group health small group market, or the medical loss the employer’s funding of a benefit insurance coverage’’ as health insurance ratio requirements, as well as the arrangement, in most circumstances, is coverage offered in connection with a PPACA section 9010 health insurance sufficient to preclude the grant of a safe group health plan.259 The proposed fee), whether health insurance issuers harbor. In the particular context of the rules included an amendment to clarify could be considered plan fiduciaries, individual health insurance policies at that—subject to certain conditions— and whether participants could bring issue here, however, DOL has individual health insurance coverage is legal actions against health insurance concluded that employer funding is not not group health insurance coverage (or issuers under ERISA’s private right of disqualifying based on its conclusion ‘‘health insurance offered in connection action provisions. They also stated that that Congress generally intended that with a group health plan’’). This factors outside of a plan sponsor’s individual and group health insurance amendment was intended to ensure control could result in the employer not coverage be regulated as mutually consistency and avoid any potential satisfying the conditions of the rules. As exclusive categories. In this unique conflicting interpretations regarding one example, a commenter suggested context, DOL has concluded that individual health insurance coverage. that an insurance broker could endorse employer funding, by itself, is an Accordingly, if the conditions in 29 CFR an insurance product in the context of insufficient basis for treating the 2510.3–1(1) were satisfied, the a private exchange without the individual health insurance policy, as individual health insurance coverage employer’s knowledge, possibly opposed to the HRA, as part of an would not be ‘‘health insurance resulting in a failure to satisfy the ERISA-covered plan. coverage offered in connection with a condition that the plan sponsor not C. An Employer, Employee group health plan’’ for purposes of select or endorse any particular issuer or Organization, or Other Plan Sponsor ERISA, the PHS Act, the Code, and insurance coverage.261 These May Not Select or Endorse Any PPACA, even though the premiums are commenters suggested that flexibility Particular Issuer or Insurance Coverage reimbursed by an HRA.260 would be appropriate to account for After consideration of the comments, plan sponsors that make reasonable, Paragraph (l)(2) of the proposed the conditions set forth in the proposed good faith efforts to comply with the amendment required that the employer, amendment to 29 CFR 2510.3–1, and the conditions in the proposed amendment employee organization, or other plan proposed amendment to the but make de minimis errors. sponsor may not select or endorse any Departments’ rules defining ‘‘group As noted earlier in this section of the particular issuer or insurance coverage. health insurance coverage,’’ are being preamble, DOL has set forth several safe The proposed rules clarified that an finalized without significant change, but harbors in other rules and guidance HRA plan sponsor would not be with minor clarifications in response to under which DOL has determined an considered to have endorsed a comments. arrangement is not a plan within the particular issuer or insurance coverage 262 if, for example, the plan sponsor offered B. Safe Harbor meaning of ERISA. These safe harbors are intended to clearly define general contact information regarding The preamble to the proposed rules circumstances in which a workplace availability of health insurance in a state referred to the proposed amendment as arrangement falls outside of the scope of (such as providing information a clarification. Some commenters asked a plan under ERISA without necessarily regarding HealthCare.gov or contact DOL to clarify whether the conditions specifying all the circumstances under information for a state insurance established in the proposed amendment which a workplace arrangement could commissioner’s office) or providing would be considered a safe harbor, or avoid ERISA plan status. Here, too, DOL general health insurance educational absolute requirements for plan sponsors. intended the proposed rules to information (such as the uniform These commenters asserted that it was constitute a safe harbor, as reflected in glossary of health coverage and medical unclear and expressed concern about language in the proposed amendment terms available at: https://www.dol.gov/ the potential unintended consequences providing that an ERISA plan ‘‘shall not sites/default/files/ebsa/laws-and- of non-compliance and confusion if all include’’ individual health insurance regulations/laws/affordable-care-act/ individual health insurance coverage coverage. The final rules make clear that for-employers-and-advisers/sbc- reimbursed under an arrangement that the rule is a safe harbor. uniform-glossary-of-coverage-and- did not satisfy the proposed criteria of The conditions of the various medical-terms-final.pdf). the rule was treated as being subject to regulatory safe harbors noted earlier in Some commenters asked DOL to ERISA. Examples highlighted by this preamble are highly sensitive to the provide additional guidance on what commenters include how requirements particular type of plan at issue, and the types of activities would or would not under other federal laws such as particular legal and factual context constitute endorsement. These HIPAA, the Paul Wellstone and Pete associated with that type of plan. commenters stated that it would be Accordingly, DOL cautions that the important to provide HRA plan which plans, including HRAs, may reimburse sponsors with flexibility to permit them employers, employee organizations and other plan 261 DOL notes that ‘‘private exchange’’ is a term to help employees shop for coverage, sponsors for certain expenses associated with that was not specifically defined in any public especially because many might be administration of the plan. comments and is similarly undefined in this 259 26 CFR 54.9801–2, 29 CFR 2590.701–2, and 45 preamble. It is generally meant to refer to a tool or unfamiliar with the processes associated CFR 144.103. web-based platform that facilitates individuals’ with obtaining health insurance in the 260 Note that the clarification with respect to the enrollment in the coverage of their choice. The term individual market. Several commenters meaning of group health insurance coverage is not does not include any entity that meets the asked whether there would be relevant for QSEHRAs because QSEHRAs generally definition of an ‘‘Exchange’’ in 45 CFR 155.20. circumstances in which a plan sponsor are not group health plans. See Code section 262 See 29 CFR 2510.3–1(j), 29 CFR 2510.3–2(f), 9831(d)(1), ERISA section 733(a)(1), and PHS Act and 29 CFR 2509.99–1. See also DOL Field could connect participants or section 2791(a)(1). Assistance Bulletins No. 2004–01 and No. 2006–02. beneficiaries with an insurance agent or

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broker without running afoul of the which case individual health insurance condition in order to limit the prohibition on endorsement. A few coverage purchased through the private application of the proposed safe harbor commenters asked whether, or under exchange would not be considered to determining whether insurance what circumstances, an HRA could be group health plan coverage. policies sold as individual health offered in connection with a private Alternatively, a private exchange could insurance coverage would be treated as exchange where participants could be designed in a way that limits part of an employee welfare benefit plan make a selection from a set of coverage employees’ choice of issuer, or promotes subject to ERISA. options. One commenter stated that certain issuers or coverage options over Several commenters asked DOL to without an ability to use a private others. In that case, coverage offered clarify whether arrangements that exchange model, most employers will through the private exchange would not provide reimbursement for individual be reluctant to offer an individual satisfy the prohibition on endorsement health insurance coverage that consists coverage HRA over a traditional group in the safe harbor. The final rules solely of excepted benefits (for example, health plan, thereby undermining the provide a new option for employers to standalone limited-scope dental purpose of the proposed rules to expand offer individual coverage HRAs together benefits) could be considered to satisfy use and availability of HRAs. One with private exchanges that work with the proposed safe harbor. For the commenter stated that DOL should all individual market insurance issuers reasons explained earlier in this section incentivize the use of private exchanges in a neutral and unbiased fashion, and of the preamble, in DOL’s view, the that would provide price and quality maintain the individual insurance proposed safe harbor was a necessary transparency as well as navigational nature of the individual health clarification for the types of individual support for plan participants shopping insurance coverage. health insurance coverage that might be for individual health insurance reimbursed by an individual coverage For example, under the final rules, an coverage, and possibly even require that HRA or QSEHRA. However, coverage employer could maintain (or contract private exchanges offer QHPs. Another that is sold in the individual market that with) a tool or web-based platform that commenter urged DOL to ensure that provides only excepted benefits is not displays information about all coverage private exchanges could not be used in subject to the market requirements and options in a state and facilitates a manner that harms the risk pools or does not present the same concerns that is anti-competitive and promotes enrollment. However, to be eligible for about incompatible individual and one issuer over another. This the safe harbor, the platform would be group market regulatory regimes. Thus, commenter suggested that the final rules required to present all available the proposed safe harbor was not specify that an employer cannot use an coverage options in a way that is intended to address excepted benefit individual coverage HRA in conjunction entirely neutral. The platform could not policies sold in the individual market. with a plan purchased through a private be designed or operated in a way that The final rules include additional exchange unless the private exchange is limits users’ ability to select a coverage language to make this clearer. designed in such a way as not to option that would otherwise be In the preamble to the proposed rules, constitute selection or endorsement by available to them or that promotes one DOL also invited comments regarding the employer. option over another (for example, with which forms of payment are A plan sponsor may provide ‘‘recommended’’ or ‘‘starred’’ listings), appropriately treated as assistance to participants and or the prohibition on endorsement ‘‘reimbursement’’ to participants for this beneficiaries in shopping for individual would not be satisfied. However, an purpose. DOL asked whether, for health insurance coverage without being otherwise neutral platform that allows example, ‘‘reimbursement’’ should be considered to endorse any particular users to select certain criteria (such as interpreted to include direct payments, coverage if that assistance is unbiased, a platform that allows participants to individual or aggregate, by the neutral, uniformly available, and does search for an HDHP or plans that employer, employee organization, or not steer participants and beneficiaries contained specific providers in their other plan sponsor to the insurance towards a particular health insurance network) and search for coverage company. issuer or coverage. For example, an HRA options that fulfilled these criteria Commenters generally favored an plan sponsor could accommodate would not be considered to be an expansive interpretation of the types of requests from insurance brokers to endorsement by the employer of any payments that should be treated as speak with employees or distribute particular coverage, and would not reimbursements. These commenters informational materials at their violate this requirement of the final rule. argued that permitting employers to pay worksite, so long as such D. Reimbursement for Non-Group health insurance issuers directly would accommodations are granted on an Health Insurance Premiums Must Be promote administrative simplicity, and equal basis and also without any Limited Solely to Individual Health would enable plan sponsors to preference for brokers that represent a Insurance Coverage substantiate that participants and particular firm or have a relationship beneficiaries are enrolled in individual with a certain health insurance issuer. Paragraph (l)(3) of the proposed health insurance coverage, as the final DOL agrees with commenters that the amendment would require that integration rules require. Some use of private exchanges may be a reimbursement for non-group health commenters asserted that helpful tool in shopping for coverage. insurance premiums must be limited ‘‘reimbursement’’ should be interpreted However, DOL declines to adopt solely to individual health insurance in a manner consistent with current suggestions regarding adding incentives coverage, as defined in 29 industry practices for account-based or requirements with respect to CFR 2590.701–2.263 DOL included this plans, which permit the transfer of transparency standards, navigational employer funds to debit cards that can support, or offering QHPs because any 263 While the HRA’s reimbursement of non-group be used to pay for certain qualified such rules are beyond the scope of this health insurance premiums is limited solely to medical expenses. One commenter also rulemaking. individual health insurance coverage that does not consist solely of excepted benefits, the HRA may stated that it should not matter whether Moreover, a private exchange may be reimburse Medicare premiums for Medicare designed in a way that satisfies the beneficiaries as permitted under 29 CFR 2590.702– health insurance coverage premiums for other conditions of 29 CFR 2510.3–1(l), in 2 without causing the reimbursement of individual individuals to fall outside the safe harbor.

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employer funds paid from an HRA go receiving consideration, including from provision of such services does not, in directly to a participant or a health an issuer or person affiliated with an and of itself, constitute an act described insurance issuer because the economic issuer in connection with any in section 406(b) of the Act.’’ ERISA substance of the transaction is the participant’s purchase or renewal of section 408(c) and 29 CFR 2550.408c–2 same—that is, the funds are being used individual health insurance coverage. place additional restrictions on to discharge an employee’s premium The preamble to the proposed rules also compensation for services in the case of payment obligations. explained that the provision was not a fiduciary who is already receiving full- DOL agrees with these commenters intended to change any ERISA time pay from an employer or employee and, under the final rules, requirements governing the organization sponsoring the plan. ‘‘reimbursement’’ may include circumstances under which ERISA However, in the case of an unfunded employee-initiated payments made plans, including HRAs, may reimburse HRA, with payments from the HRA through use of financial instruments, employers, employee organizations and made solely out of an employer’s such as pre-paid debit cards, as well as other plan sponsors for certain expenses general assets, there would not be any direct payments, individual or associated with administration of the plan assets; thus, there could be no aggregate, by the employer, employee plan.265 payments to the employer from plan organization, or other plan sponsor to The requirement in the DOL final rule assets. Moreover, in the case of such an the health insurance issuer.264 However, is different from the ‘‘no compensation’’ unfunded HRA, it seems extremely DOL cautions that plan sponsors should criteria established in the safe harbor unlikely that an employer would apply take care to ensure that payment rules regarding certain group or group- debits to the notional employee practices do not violate the prohibition type insurance programs established at accounts that are part of the HRA to on endorsements by effectively limiting 29 CFR 2510.3–1(j)(4) and individual ‘‘reimburse’’ itself from the HRA for participants’ and beneficiaries’ ability to retirement accounts (IRAs) established expenses associated with sponsoring the select certain coverage options or at 29 CFR 2510.3–2(d)(iv). In the case of HRA. Finally, in DOL’s view, receipt of favoring certain issuers or coverage those rules, there is no ERISA plan, and compensation from third parties to options. For example, if a plan sponsor the rules limit permissible cover the cost of operating the HRA were to establish procedures for sending compensation that an employer can would be prohibited payments in direct payments to health insurance receive, including from third parties, to connection with the employee’s issuers, but those procedures excluded reasonable compensation, excluding any selection or renewal of any individual certain health insurance issuers, or profit, for administrative services health insurance coverage, and, placed additional burdens on HRA actually rendered in connection with therefore, not permissible under participants if they chose health forwarding employee contributions to paragraph (l)(4) of the final rules. insurance coverage offered by some the insurer or IRA provider through Accordingly, such receipt of health insurance issuers, rather than payroll deductions or dues checkoffs. compensation would not be permissible others, the procedure would be In the context of the DOL final rule, under paragraph (l)(4) of the final rules. considered an endorsement, and the the HRA is generally an ERISA-covered criteria of the safe harbor would not be plan and the issue is the extent to which F. Each Plan Participant Must Be satisfied. the plan sponsor of the HRA could Notified Annually That the Individual receive payments from the HRA or third Health Insurance Coverage Is Not E. The Employer, Employee parties. As noted above, the preamble to Subject to ERISA Organization, or Other Plan Sponsor the proposed rules explained that the Paragraph (l)(5) of the proposed Receives No Consideration in rule was not intended to change any amendment included a requirement that Connection With the Employee’s ERISA requirements governing the plans provide an annual notice to Selection or Renewal of Any Individual circumstances under which ERISA participants stating that individual Health Insurance Coverage plans, including HRAs, may reimburse health insurance coverage funded Paragraph (l)(4) of the proposed employers, employee organizations and through an HRA is not subject to the amendment would require that an other plan sponsors for expenses requirements of ERISA. For an employer, employee organization, or associated with administration of a individual coverage HRA, the notice other plan sponsor receive no plan. Thus, in the case of plan assets must satisfy the requirements set forth consideration in the form of cash or being used for HRA related payments, in the final integration rules at 29 CFR otherwise in connection with the reimbursement could not be made for 2590.702–2(c)(6), discussed earlier in employee’s selection or renewal of any expenses associated with settlor this preamble. For a QSEHRA or an individual health insurance coverage. functions and activities.266 The HRA that is not subject to 29 CFR Commenters requested more specific fiduciary prohibitions in ERISA section 2590.702–2(c)(6) (such as a retiree-only guidance on how a plan may comply 406(a) and 406(b) also would apply in HRA), the proposal set forth model with this condition. such cases, so that any reimbursements language to satisfy the condition.267 The As stated in the preamble to the would need to be permissible under preamble to the proposed rules also proposed rules, this limitation in the ERISA section 408(b)(2) and 29 CFR explained that a supplemental salary DOL safe harbor rule for HRAs was 2550.408b–2(e). Subparagraph (e)(3) of reduction arrangement need not provide focused on employers, employee those rules states: ‘‘If a fiduciary the required notice; instead, the notice organizations, and other plan sponsors provides services to a plan without the receipt of compensation or other 267 As stated in the preamble to the proposed 264 Any direct payment should include an consideration (other than rules, in DOL’s view, the SPD for the HRA, affirmative act by the employee requesting that the QSEHRA, or other ERISA plan would fail to satisfy employer or plan administrator make the payment, reimbursement of direct expenses the style, format, and content requirements in 29 as part of the enrollment process or otherwise. For properly and actually incurred in the CFR 2520.102–3 unless it contained a discussion of example, as part of the insurance enrollment performance of such services within the the status of the HRA or QSEHRA and the process, the employee might direct the employer or meaning of 2550.408c–2(b)(3)), the individual health insurance coverage under ERISA plan administrator to begin making monthly sufficient to apprise the HRA or QSEHRA plan premium payments for so long as the employee participants and beneficiaries of their rights and remains enrolled in the individual health insurance 265 83 FR 54420, 54442 (Oct. 29, 2018). obligations under the plan and ERISA Title I. 83 FR coverage and remains eligible for HRA benefits. 266 See DOL Advisory Opinion 2001–01A. 54420 at 54441 (Oct. 29, 2018).

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could be provided by the HRA that the the requirements under applicable DOL coverage in order to maximize the use salary reduction arrangement rules, HRAs and their administrators of their individual coverage HRA. supplements.268 DOL invited comment remain eligible for this relief. Therefore, HHS proposed a new SEP to on whether it would be helpful to issue allow employees and their dependents G. Comments Outside the Scope additional rules or guidance addressing to enroll in individual health insurance the application of ERISA reporting and Some commenters raised issues coverage, or to change from one disclosure requirements to HRAs relating to the separate safe harbor for individual health insurance plan to integrated with such non-ERISA certain group or group-type insurance another, outside of the individual individual health insurance coverage programs at 29 CFR 2510.3–1(j).273 market annual open enrollment period (for example, SPD content and Form Several commenters asked DOL to if they gain access to an individual 5500 annual reporting requirements). clarify whether other types of coverage, coverage HRA. Commenters requested that DOL such as health care sharing ministries, In addition, because employees and confirm that HRAs are subject to the might be considered part of an dependents with a QSEHRA generally reporting and disclosure requirements employee welfare benefit plan subject to must be enrolled in MEC,275 and one ERISA if they were paid for through an of ERISA, such as the SBC or (for plans category of MEC is individual health HRA, QSEHRA, or supplemental salary of applicable size) the Form 5500 insurance coverage, the proposed rules reduction arrangement. The safe harbor Annual Report. These commenters said also applied the new SEP to individuals is intended to provide assurance to that reporting and disclosure should be who are provided QSEHRAs.276 Because stakeholders that insurance policies revised to allow state regulators and the proposed rules allowed for HRAs to sold as individual health insurance Exchanges to gather necessary be integrated with individual health coverage, and that are generally subject information about the use of HRAs. One insurance coverage both on- and off- to comprehensive federal (and state) commenter also urged DOL to ensure Exchange (and because individuals with individual market rules, would not be that these requirements did not QSEHRAs may enroll in individual treated as part of an employee welfare health insurance coverage on- or off- discourage employers from offering benefit plan subject to ERISA so long as Exchange), the proposed rules included individual coverage HRAs to their the conditions of the safe harbor are this new SEP in the limited open employees by preserving, for example, satisfied. DOL has concluded that the enrollment periods available off- any exemptions from filing reports for safe harbor is appropriate because of the Exchange, in accordance with current small businesses, or allowing the filing significant differences in legal rules at 45 CFR 147.104(b)(2).277 of simpler reports, such as the Form requirements that would apply to health 5500–SF. Another commenter urged insurance coverage based on whether it After considering the comments, HHS DOL to review the current required is considered individual health is adopting the proposed SEP information, notices and disclosures insurance or group coverage. However, parameters in these final rules, with that plan sponsors must convey to plan the safe harbor was not intended to some changes and clarifications in participants and beneficiaries and to address all circumstances in which response to comments, as explained in simplify, combine or eliminate health insurance coverage may be more detail later in this section of the unnecessary or redundant material. treated as part of an employee welfare preamble. After considering the comments and benefit plan subject to ERISA. DOL . SEP Triggering Event and Availability feedback received from stakeholders, provide additional clarification in the DOL has determined that adding future regarding other types of The proposed rules included a new additional new, potentially coverage.274 paragraph 45 CFR 155.420(d)(14) that redundant 269 disclosure requirements would establish an SEP for when an beyond the scope of the proposed rules V. Overview of Final Rules Regarding employee or his or her dependent(s) is not necessary. For example, Individual Market Special Enrollment gains access to and enrolls in an individual coverage HRAs are group Periods—Department of Health and individual coverage HRA or is provided health plans and must, therefore, Human Services a QSEHRA, so that he or she may enroll provide participants with an SBC.270 A. In General in or change his or her enrollment in ERISA also contains comprehensive individual health insurance coverage. With the ability to integrate HRAs The proposed rules also offered the reporting requirements that apply to with individual health insurance 271 existing option for advanced availability group health plans, such as HRAs, coverage, many employees may need and DOL has determined that adding or to those enrolling through the new SEP. access to individual health insurance That is, per 45 CFR 155.420(c)(2), changing those reporting requirements coverage, or may want to change to qualifying individuals would have the with respect to HRAs is not necessary at other individual health insurance this time. In certain situations, DOL has option to apply for coverage and select provided for exemptions or reporting and 2590.715–2715(a)(1)(iii); and 45 CFR exemptions and simplified disclosure 147.200(a)(1)(iii). 275 Generally, payments from a QSEHRA to requirements.272 Provided they satisfy 273 This safe harbor does not relate to HRAs, reimburse an eligible employee’s medical care QSEHRAs, or other arrangements that constitute an expenses are not includible in the employee’s gross employee welfare plan that provides reimbursement income if the employee has coverage that provides 268 83 FR 54420, 54441 (Oct. 29, 2018). for premiums for individual health insurance MEC as defined in Code section 5000A(f), which 269 See e.g., 29 CFR 2520.104b–2 and 2520.104b– coverage because it is limited to arrangements includes individual health insurance coverage. 3(a) and (d)(3). without employer contributions. 276 This preamble refers to a QSEHRA being 270 See PHS Act section 2715. See also 26 CFR 274 As noted earlier in this preamble, an HRA ‘‘provided’’ as opposed to being ‘‘offered’’ because 54.9815–2715, 29 CFR 2590.715–2715, and 45 CFR generally may reimburse expenses for medical care, employees and dependents cannot opt out of a 147.200. as defined under Code section 213(d), of an QSEHRA. 271 See e.g., ERISA sections 101, 103, and 104; employee and certain of the employee’s family 277 The Departments note that the new SEP would and PHS Act section 2715A (incorporated in Code members. Neither the proposed rules nor the final not apply to individuals who gain access to an section 9815 and ERISA section 715). rules make any changes to the rules under Code excepted benefit HRA, as those individuals are not 272 See ERISA sections 104(a)(3) and PHS Act section 213. Thus, any issues arising under Code required to be enrolled in individual health section 2715 (incorporated in Code section 9815 section 213, and any guidance requested by insurance coverage, and those HRAs are generally and ERISA section 715). See also 26 CFR 54.9815– commenters to address those issues, are beyond the prohibited from reimbursing premiums for 2715(a)(1)(iii); 29 CFR 2520.104–20, 2520.104–44, scope of this rulemaking. individual health insurance coverage.

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a plan within 60 days before or after previously chose to enroll in coverage who are newly hired or who otherwise their SEP triggering event. that was not MEC, such as STLDI. The newly gain access to an individual Many commenters supported final rules, therefore, provide that the coverage HRA during the plan year, the providing an SEP to allow individuals SEP at 45 CFR 155.420(d)(14) is triggering event is the first day on which who newly gain access to an individual available when a qualified individual, the individual coverage HRA can take coverage HRA or who are newly enrollee, or dependent newly gains effect for those who enroll in individual provided a QSEHRA to enroll in or access to an individual coverage HRA or health insurance coverage that itself change their health insurance coverage. is newly provided a QSEHRA, takes effect no later than that date.279 One commenter asked for clarification regardless of whether they were This is the case even for the individuals that individuals who are already previously offered or enrolled in an or dependents who do not actually enrolled in individual health insurance individual coverage HRA or previously enroll in the individual coverage HRA coverage would be eligible for the SEP provided a QSEHRA, so long as the until a later date. if they newly gain access to an individual is not covered by the HRA or For example, assume an employer individual coverage HRA. The final QSEHRA on the day immediately prior hires a new employee on and rules clarify that employees and to the triggering event (that is, for an offers an individual coverage HRA to dependents may qualify for the new SEP individual coverage HRA, the first day the employee that may take effect on regardless of whether they are currently on which coverage under the individual either (1) July 1, if the employee is enrolled in individual health insurance coverage HRA can become effective or enrolled in individual health insurance coverage, in order to allow all for a QSEHRA, the first day on which coverage that takes effect no later than individuals who newly gain access to an coverage under the QSEHRA is that date; or (2) , if the individual coverage HRA or who are effective). In other words, the new SEP employee enrolls in individual health newly provided a QSEHRA the will be available to individuals who insurance coverage that will take effect flexibility to take this into account when have not previously been offered an no later than that date. In this case, the choosing an individual health insurance individual coverage HRA or provided a employee’s triggering event is July 1 plan for themselves, and, if applicable, QSEHRA, as well as those who had because that is the first day on which for their families. access to the individual coverage HRA coverage under the individual coverage Additionally, the final rules include or were provided a QSEHRA during a HRA can take effect. changes to the SEP triggering event at 45 prior plan year(s) or earlier during the Several commenters supported CFR 155.420(d)(14) to reflect that current plan year, but are not currently applying the advanced availability rules employees and their dependents who covered by the individual coverage HRA at 45 CFR 155.420(c)(2) to the proposed had access to, but who were not or the QSEHRA. new SEP in order to allow qualified enrolled in, an employer’s individual In order to clarify the specific date on individuals, enrollees, and dependents coverage HRA during all or at the end which the coverage effective date and to enroll in or change to a different of the preceding plan year may use the availability are based, as discussed later individual health insurance plan in new SEP if they may newly enroll in an in this preamble, the final rules specify advance of when their individual individual coverage HRA at the that the SEP triggering event at 45 CFR coverage HRA or QSEHRA would begin. beginning of the subsequent HRA plan 155.420(d)(14) is the first day on which As discussed earlier in this preamble in year. Similarly, employees and their coverage for the individual under the response to comments on the final dependents who at one time had an individual coverage HRA can take effect integration rules, many commenters individual coverage HRA or a QSEHRA, or the first day on which coverage for supported the requirement that but then had another type of health the individual under the QSEHRA takes individuals covered by an individual coverage (including but not limited to a effect, as applicable. The Departments coverage HRA must be enrolled in different individual coverage HRA or a anticipate that the first day on which an individual health insurance coverage different QSEHRA), and are again newly individual coverage HRA can become and that the HRA must implement offered an individual coverage HRA or effective or the date on which a reasonable procedures to substantiate newly provided a QSEHRA from the QSEHRA is effective will generally be that participants and dependents will be same employer (for example, because the first day of the plan year. In either enrolled in individual health insurance they moved from one class of employees case, the triggering event is the first day coverage for the plan year, or for the to another, or because they were re- of the plan year. However, an individual portion of the plan year during which hired by a former employer), may coverage HRA may offer more than one the individual is covered by the HRA, qualify for this SEP, as they may need effective date option to accommodate an as applicable. Several commenters an opportunity to enroll in individual individual who, under the final noted the importance that individuals health insurance coverage, regardless of integration rules, is not required to be be enrolled in individual health whether they were previously offered or sent the notice setting forth the terms of insurance coverage by the time that enrolled in an individual coverage HRA the HRA at least 90 days before the their individual coverage HRA takes or previously provided a QSEHRA by beginning of the individual coverage effect to ensure that they have health the same employer. HRA plan year, as required by 26 CFR In many cases like these, employees 54.9802–4(c)(6), 29 CFR 2590.702– 90 days prior to the start of the HRA plan year with also will be eligible for an SEP due to 2(c)(6), and 45 CFR 146.123(c)(6) (for flexibility regarding the start date of their a loss of MEC in accordance with 45 example, an individual who is newly individual coverage HRA, so that the employees CFR 155.420(d)(1)—for example, due to hired and therefore newly offered the have sufficient time to enroll in individual health a loss of coverage sponsored by a insurance coverage after receiving the notice. individual coverage HRA in the middle 279 278 For individuals who are newly hired or who previous employer or other coverage of the plan year). For individuals otherwise become newly eligible for a QSEHRA, the that they may have had during that triggering event is the first day on which coverage time, such as coverage from a spouse’s 278 Because employees may not enroll in an under the QSEHRA is effective. However, a employer. However, some employees individual coverage HRA if they are not enrolled in QSEHRA may not reimburse any incurred medical and dependents may not be eligible for individual health insurance coverage, the care expense until the participant substantiates that Departments anticipate that some employers may he or she (and the individuals whose expenses are another SEP, such as those who did not want to provide employees who are not eligible to being reimbursed) has MEC for the month during previously have other coverage, or who participate in the individual coverage HRA at least which the expense was incurred.

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insurance coverage that complies with effect or their QSEHRA takes effect, in event to enroll in individual health PHS Act sections 2711 and 2713 at all which case the qualified individual, insurance coverage. Under this rule times during which they are covered by enrollee, or his or her dependent(s) has combined with the coverage effective the individual coverage HRA. In order 60 days before or after the triggering date rules discussed in the next section to avoid effectively forfeiting their HRA event to select a QHP. of this preamble, newly hired because they are not enrolled in In other words, qualified individuals employees and their dependents may individual health insurance coverage on and enrollees to whom employers must enroll in individual health insurance the day that their individual coverage send a notice setting forth the terms of coverage that does not take effect until HRA can take effect, employees and the individual coverage HRA at least 90 up to 3 months after the earliest date dependents generally will need to make days before the first day of the that their individual coverage HRA may an individual health insurance plan individual coverage HRA plan year, take effect, or up to 3 months after the selection before that date. and, if applicable, their dependents, date coverage begins under their The final SEP rules include several must enroll in individual health QSEHRA.280 For example, an employee changes in response to these comments. insurance coverage within 60 days who starts work on , and whose First, the proposed rules stated that the before the date the individual coverage individual coverage HRA may take SEP applies to an individual who ‘‘gains HRA may take effect, which would be effect on August 1 (or whose QSEHRA access to and enrolls in’’ an individual the first day of the individual coverage does take effect on August 1), will have coverage HRA or QSEHRA. The final plan year. Similarly, employees, and, if until —60 days following SEP rules remove the phrase ‘‘and applicable, their dependents, who will the triggering event date—to enroll in an enrolls in’’ to clarify that currently being be provided a QSEHRA, and whose individual health insurance plan. If the covered by the individual coverage HRA employer is required to send them a employee enrolls on September 30, then or QSEHRA is not necessary to trigger written notice at least 90 days before the his or her individual health insurance the SEP. This change is intended to beginning of the plan year, have 60 days coverage will take effect on October better align with the requirement that prior to the first day of the QSEHRA 1.281 The Departments encourage participants and any dependents must plan year to enroll in individual health employers to work with employees who be enrolled in individual health insurance coverage. This change will do not receive substantial advance insurance coverage that will take effect help ensure that the individual coverage notice of their individual coverage HRA no later than the date their individual HRA can comply with the annual to help them understand the latest date coverage HRA takes effect, by ensuring coverage substantiation requirement by by which they must enroll themselves, that individuals will be able to enroll in the time that an individual’s or family and, if applicable, their dependents, in individual health insurance coverage member’s individual coverage HRA individual health insurance coverage to using the new SEP prior to the first day takes effect, or that the QSEHRA avoid effectively forfeiting their that their individual coverage HRA may satisfies the requirement that individual coverage HRA. take effect. individuals who are provided the The final SEP rules also include QSEHRA and who intend to satisfy their 2. Coverage Effective Dates changes to the advanced availability requirement to have MEC by enrolling The proposed rules added a new rules to ensure that, whenever possible, in individual health insurance coverage paragraph at 45 CFR 155.420(b)(2)(vi) to employees and their dependents are have MEC. It will also reduce gaps in enrolled in individual health insurance coverage by helping ensure that 280 The Departments note that nothing in the final coverage (which is generally a individuals and dependents who will be SEP rules eliminates the requirement that requirement for those with an individual coverage HRAs comply with the final eligible for an individual coverage HRA integration rules. Individual coverage HRAs must individual coverage HRA and an option and are notified at least 90 days before be designed in accordance with all the applicable for satisfying the requirement to enroll the beginning of the individual coverage rules, including the final integration rules and the in MEC for those with a QSEHRA) by HRA plan year are covered by final SEP rules. the time coverage under their individual individual health insurance coverage for 281 Additionally, partial year individual coverage HRA or QSEHRA coverage may occur due to coverage HRA may take effect or that the full HRA plan year and do not employees gaining new dependents during the plan their QSEHRA takes effect. Specifically, inadvertently forfeit their HRA. year. 45 CFR 155.420(c)(1) provides qualified the final rules include a new paragraph In contrast, because individual individuals who gain a new dependent due to the at 45 CFR 155.420(c)(3) to provide that coverage HRAs and QSEHRAs must birth or adoption of a child, or due to a child a qualified individual, enrollee, or his or only provide notice by the day that an support or other court order, and therefore qualify for the SEP at 45 CFR 155.420(d)(2)(i), with 60 days her dependent who is described in individual coverage HRA may take to enroll their new dependent in individual health paragraph (d)(14) has 60 days before the effect or that a QSEHRA takes effect for insurance coverage. As provided at 45 CFR triggering event to select a QHP, unless employees who newly become eligible 155.420(b)(2)(i), this coverage takes effect the HRA or QSEHRA was not required for an individual coverage HRA or are retroactively to the child’s date of birth or adoption, or the date of the child support or other court order, to provide the notice setting forth its newly provided a QSEHRA less than 90 or, at the option of the Exchange, the qualified terms to such qualified individual or days prior to the beginning of the individual may request that it take effect enrollee at least 90 days before the first individual coverage HRA or QSEHRA prospectively. To the extent the HIPAA special day of the plan year, as specified in 26 plan year (or during the plan year), enrollment rules or other rules require group health plans to make such coverage available under such CFR 54.9802–4(c)(6), 29 CFR 2590.702– these employees are unlikely to receive circumstances, either retroactively or prospectively, 2(c)(6) and 45 CFR 146.123(c)(6) or Code this notice as far in advance of their SEP employers should ensure that employees section 9831(d)(4), as applicable, and triggering event. Therefore, these understand how much time they have to enroll therefore the qualified individual, employees may need time after their their new dependent in their individual coverage HRA, especially if they will have less than the 60 enrollee, or his or her dependent(s) may triggering event to select an individual days post-SEP triggering event that they have to not have received sufficient advance health insurance plan for themselves, enroll their new dependent in individual health notice of eligibility for the individual and, if applicable, for their insurance coverage. See Code section 9801(f) and 26 coverage HRA or QSEHRA to enroll in dependent(s). To accommodate these CFR 54.9801–6; ERISA section 701(f) and 29 CFR 2590.701–6; and PHS Act section 2704(f) and 45 individual health insurance coverage employees and their dependents, the CFR 146.117. The Departments note that QSEHRAs that takes effect by the time their final SEP rules provide them with up to are not subject to the HIPAA special enrollment individual coverage HRA may take 60 days before or after their triggering rules. See Code section 9831(d)(1).

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provide that if plan selection is made 3. Special Enrollment Period to a new plan in response to updated before the day of the triggering event, Verification information about their individual then the coverage effective date is either Several commenters expressed coverage HRA or QSEHRA each plan the first day of the first month following support for verifying SEP eligibility for year. Several commenters emphasized the SEP triggering event, or, if the employees newly enrolling in the importance of providing employees triggering event is on the first day of a individual health insurance coverage and their dependents with the month, the date of the triggering event. based on the new SEP, and one opportunity to re-evaluate their Under the proposed rules, if plan commenter requested additional individual health insurance coverage selection is made on or after the day of guidance on how the verification would options at the same time that their individual coverage HRA or QSEHRA is the triggering event, coverage would be administered. HHS confirms that likely to change, with one commenter take effect the first day of the month Exchanges that use the Federal suggesting that employers should not be following the date of plan selection. For HealthCare.gov platform will require permitted to make changes to their example, under the proposed rules, if an these individuals to submit individual coverage HRA unless individual newly gains access to an documentation to confirm their SEP employees may also make changes to individual coverage HRA or is provided eligibility prior to effectuating their their individual health insurance a QSEHRA for a plan year starting April enrollment in individual health coverage during the calendar year. 1 and enters in their application insurance coverage through the Another commenter suggested that for individual health insurance coverage Exchange. More information on the providing the new SEP annually would as their HRA or QSEHRA effective date, process for submitting documents to then so long as the individual selects an offer convenience for employees and verify SEP eligibility is available on employers who choose to begin their individual health insurance plan before HealthCare.gov, and HHS will provide April 1, the effective date of their new individual coverage HRA plan year on additional guidance on how the FFEs a date other than January 1. individual health insurance coverage and State Exchanges on the Federal will be April 1. However, some commenters opposed platform will confirm eligibility for the providing the new SEP on an annual Several commenters supported new SEP. providing a coverage effective date of basis due to concerns that allowing the first day of the first month following B. Individuals Re-Enrolling in consumers to regularly change plans the individual’s plan selection and SEP Individual Coverage HRA or Being during the calendar year would harm triggering event. One commenter agreed Provided a QSEHRA From the Prior the individual market risk pool. One that a first-of-the-month effective date Plan Year commenter generally opposed providing was appropriate, but also stated that this the new SEP annually, but specified that The proposed rules requested if HHS chooses to do so, it should only may require issuers to allow an comments on whether an employee who additional premium payment during an be available to employees and is enrolled in an individual coverage dependents whose employer changes employee’s first month of HRA or provided a QSEHRA should be their individual coverage HRA employment.282 eligible for the SEP at 45 CFR contribution in excess of a certain The final rules include coverage 155.420(d)(14) annually, at the amount, such as $100, and that this effective dates for this SEP as proposed, beginning of each new plan year of the change be verified to prevent employees with some edits to incorporate the individual coverage HRA or QSEHRA, who do not qualify for the SEP from changes at 45 CFR 155.420(d)(14) and particularly if the new plan year is not accessing it for reasons related to a for clarity. Additionally, with regard to aligned with the calendar year. The health condition. To ensure that the SEP timing of premium payments for proposed rules noted that such annual would not be available on an annual individual health insurance coverage, availability would allow employees to basis, one commenter suggested offering HHS notes that in other contexts change to new individual health the SEP only after an employee becomes individual market plans on- and off- insurance coverage in response to eligible for an individual coverage HRA Exchange regularly receive enrollment updated information about their following a period of at least 60 days information within the same timeframe individual coverage HRA or QSEHRA during which they were not eligible for that will apply for the new SEP’s for each of their plan years, even if their an HRA from the same employer. coverage effective date rules. For individual coverage HRA or QSEHRA Other commenters opposed offering example, under current rules, if a plan year is not based on a calendar year the new SEP annually based on qualified individual or dependent is cycle. HHS notes that employees and concerns that employees who changed going to lose MEC on March 31 and dependents enrolled in an individual individual health insurance coverage enrolls in coverage during March, his or coverage HRA or provided a QSEHRA during the calendar year would be her coverage effective date is April 1. that has a calendar year plan year would harmed because their deductibles and Therefore, issuers that already have this option; that is, they would be other accumulators would reset twice participate in the individual health able to change their individual health per year: Once after the calendar year insurance market will be accustomed to insurance plan in response to updated individual coverage open enrollment setting premium payment deadlines for information about their individual period, and then again after their SEP. enrollees in this situation. coverage HRA or QSEHRA during the One commenter suggested that this individual market open enrollment could negate the potential advantage to 282 Under 45 CFR 155.400(e)(1)(ii), if an period. the employee of changing plans to take individual has a coverage effective date of April 1, Some commenters supported advantage of an update to their for example, then the issuer could set a premium payment deadline as early as April 1, but may, providing the new SEP annually for individual coverage HRA or QSEHRA. instead, adopt a policy setting a later due date employees and dependents enrolled in Several commenters suggested that to (either 30 days after the enrollment transaction was an individual coverage HRA or provided mitigate this challenge, employers received, or 30 days after the policy start date, a QSEHRA and whose individual should provide individual coverage whichever is later). Therefore, the new enrollee might have a similar deadline for his or her initial coverage HRA or QSEHRA has a non- HRAs on a calendar-year basis to align payment that he or she has for his or her subsequent calendar year plan year, in order to updates that they make to their payment. allow employees to enroll in or change individual coverage HRA with the

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individual market open enrollment limited purpose of the non-calendar proposed rules, individuals eligible for period, with one commenter year plan year SEP, and intends to the new SEP who are currently enrolled recommending that the Departments codify this interpretation in future in individual health insurance coverage require employers to do so. One rulemaking. For the non-calendar year on an Exchange would be able to select commenter suggested that the final rules plan year SEP, the triggering event is the any available Exchange plan without should permit employers to begin last day of the plan year. regard to the metal level of their current offering individual coverage HRAs at HHS has determined that the coverage. any time during the calendar year, and availability of the non-calendar year Several commenters expressed the Departments could then require plan year SEP achieves an appropriate support for the proposal to exempt the these employers to transition to offering balance between providing employers new SEP from plan category limitations, individual coverage HRAs based on a with flexibility to offer an individual noting the importance of providing calendar plan year within a reasonable coverage HRA or provide a QSEHRA on access to individual health insurance period of time, such as 5 years. a 12-month cycle that meets their needs coverage or flexibility to change their HHS determined that employees who and allowing employees and their current individual health insurance are enrolled in an individual coverage dependents the flexibility to re-assess plan to employees and dependents who HRA or who are provided a QSEHRA their individual health insurance qualify for this new SEP. should have the option to re-evaluate coverage options at the same time that HHS agrees with commenters about their individual health insurance the terms of their individual coverage the importance of providing access to coverage options for each new HRA or QSEHRA may change. individual health insurance coverage or individual coverage HRA or QSEHRA Additionally, per 45 CFR 155.420(a)(4), flexibility to change their current plan year, regardless of whether the the non-calendar year plan year SEP is individual health insurance plan to HRA or QSEHRA is offered or provided subject to plan category limitations for employees and dependents who qualify (as applicable) on a calendar plan year Exchange enrollees, which HHS has for the new SEP, and is, therefore, basis. However, the final rules provide determined will mitigate commenters’ finalizing the amendment to 45 CFR that the new SEP will not be available concerns about the potential risks to 155.420(a)(4)(iii) to exempt individuals on an annual basis at the beginning of individual market stability that eligible for the new SEP from plan a new individual coverage HRA or providing employees with the flexibility category limitations. However, see the QSEHRA plan year to individuals who to choose a different plan annually, discussion earlier in this section of the are already enrolled in an individual outside of the annual individual market preamble regarding the application of coverage HRA or who are already open enrollment period, could pose. plan category limitations to individuals provided a QSEHRA. This is because Employers that want to ensure their to whom the non-calendar year plan employees offered an individual employees have the ability to change to year SEP applies. coverage HRA or provided a QSEHRA a different individual health insurance VI. Applicability Dates with a calendar year plan year may re- policy each individual coverage HRA or evaluate their individual health QSEHRA plan year without being The proposed integration rules and insurance coverage options and change subject to plan category limitations, and proposed excepted benefit HRA rules, as their individual health insurance plan, consider potential changes to their well as the proposed DOL clarification if they wish to do so, during the annual individual coverage HRA or to their and the proposed clarification by the individual market open enrollment QSEHRA at the same time that their Departments regarding the meaning of period. Further, individuals with an costs for individual health insurance ‘‘group health insurance coverage,’’ individual coverage HRA or QSEHRA coverage may also change, can align were proposed to apply to group health with a non-calendar year plan year will their individual coverage HRA or plans and health insurance issuers for have an opportunity through an existing QSEHRA plan year with the calendar plan years beginning on or after January SEP to re-evaluate their coverage year. HHS will incorporate messaging 1, 2020. The proposed PTC rules were options. into the HealthCare.gov application for proposed to apply for taxable years More specifically, because HRAs are Exchange individual health insurance beginning on or after January 1, 2020, group health plans, employees enrolled coverage and other technical assistance and the proposed SEP rules were in an individual coverage HRA with a materials to help employees understand proposed to apply January 1, 2020. The non-calendar year plan year may qualify that changing individual health proposed rules also provided that for an SEP on an annual basis pursuant insurance coverage during the calendar taxpayers and others could not rely on to existing rules at 45 CFR year will reset their deductibles and the proposed rules. The Departments 155.420(d)(1)(ii) (the non-calendar year other accumulators. HHS encourages solicited comments on the proposed plan year SEP). This SEP applies to State Exchanges to adopt similar applicability date. qualified individuals and dependents messaging. Some commenters requested that the enrolled in a group health plan or an Departments either provide an earlier C. Plan Category Limitations individual health insurance plan with a applicability date or maintain the non-calendar year plan year, even if the To allow employees and their proposed general applicability date of qualified individual or his or her dependents the flexibility to adequately January 2020. Some urged finalization dependent has the option to renew the respond to newly gaining access to an by the end of the first quarter of 2019 coverage. In addition, while Cures Act individual coverage HRA or newly to account for the 2020 rate setting section 18001(c) provides that the term being provided a QSEHRA, the schedule and to allow for ‘‘group health plan’’ generally does not proposed rules included an amendment implementation by 2020. Many commenters expressed concern include a QSEHRA,283 HHS will treat a to 45 CFR 155.420(a)(4)(iii) to exclude that issuers, state insurance regulators, QSEHRA with a non-calendar year plan Exchange enrollees who would qualify the Exchanges, and employers would year as a group health plan for the for the new SEP from plan category limitations.284 Therefore, under the not be prepared for implementation of 283 A QSEHRA continues to be treated as a group the final rules by 2020 and requested health plan under the PHS Act for purpose of Part 284 45 CFR 155.420(a)(4) does not apply to SEPs various applicability date delays, C Title XI of the Social Security Act. in the individual market off-Exchange. including a 2021 applicability date, an

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applicability date of 12 or 18 months discussed with State Exchanges what choose if and when to offer an following finalization of the rule, and an changes would likely be necessary if the individual coverage HRA (or an indefinite delay to allow further time to rule were finalized as proposed to assist excepted benefit HRA) and may do so study the market. These commenters with planning, as well as what kind of any time on or after the applicability focused on the significance of the assistance would be most helpful during date. The Departments intend to provide changes made by the proposed rules and implementation. Specific assistance the guidance necessary for plan the anticipated complexity of could include sharing technical and sponsors to offer individual coverage implementation. Several State educational documentation from FFE HRAs and excepted benefit HRAs for Exchanges submitted comments urging implementation that can be leveraged to the 2020 plan year, but the Departments support State Exchange efforts. In the Departments to delay the also expect that plan sponsors will take addition, the Departments will provide applicability date for several plan years the time they need to evaluate the final assistance to Exchanges in developing or until further support for states is rules and to take advantage of these new available. These commenters stated that information and tools that could be coverage options if and when is best for it would be very difficult, and in some provided to employers and employees their workforce. instances impossible, to implement the to help ensure smooth implementation system changes required by the before the full system changes are The Departments have also proposed integration, PTC, and SEP complete. This could include State considered that Executive Order 13813, rules for the 2020 plan year. One Exchanges providing employees with issued in October 2017, set forth HRA commenter suggested that individual information on how they can calculate expansion as an Administration priority coverage HRAs be implemented on a HRA affordability and the impact on ‘‘in the near term,’’ in order to provide small scale for only certain employers APTC in the absence of system changes Americans with more options for and employees or only for a very limited that can make those calculations for the financing their healthcare. Taking all of time period, such as 2 years. Another employee. these considerations into account, the The Departments have also commenter requested that the Departments have determined that it is considered that many individuals Departments postpone finalization of appropriate to finalize the applicability covered by an individual coverage HRA the integration rules until the date, as proposed. Departments develop a federally-hosted will prefer to select off-Exchange electronic data source to verify individual health insurance plans Relatedly, one commenter requested individual coverage HRA offer because salary reductions through a that a ‘‘no inference’’ standard be the information required to determine cafeteria plan may be used to pay benchmark for reliance prior to 2020 APTC eligibility. premiums for off-Exchange coverage, if with regard to individual coverage the employer so allows, and may not be HRAs, which the Departments The Departments considered the used to pay premiums for Exchange comments and the concerns raised by understand to be a request that the coverage. To the extent a significant Departments not take enforcement various State Exchanges, issuers, proportion of employees with employers and other stakeholders against HRAs that failed to comply with individual coverage HRAs purchase the market requirements prior to 2020, related to the ability of the Exchanges to individual health insurance coverage off fully implement changes related to the under the rules and guidance in effect the Exchange, concerns about burden on prior to 2020. The Departments see no final rules in time for open enrollment the Exchanges, and concerns regarding basis to provide such a rule and, for the 2020 plan year. In particular, the the effects of timely operationalization therefore, the final rules do not include Departments acknowledge the crucial of the PTC rules, are mitigated. role that the Exchanges have in The Departments have also worked to a ‘‘no inference’’ standard for reliance implementation and operationalization release the final rules as early in 2019 prior to the applicability date. of the final rules, and the Departments as possible, in recognition of the Finally, HHS clarifies that, while the will work closely with the Exchanges on implementation timing issues raised. new SEP generally provides advanced implementation. The Departments With regard to the concerns expressed availability to allow eligible individuals recognize that Exchanges may be unable about the interaction of the release of to enroll in individual health insurance to fully implement changes related to the final rules with rate filing for 2020, coverage up to 60 days prior to the first the final rules in time for open the Departments note that the proposed day of coverage under their HRA, enrollment for the 2020 plan year. rules were published in October 2018, employees who are offered an However, prior to full implementation, to provide sufficient notice of the individual coverage HRA with a plan the Departments will work with the Departments’ proposals in advance of year that begins early in 2020 will not Exchanges on their strategies to provide the 2020 plan year. While these final have the full 60 day advanced information to consumers about rules adopt some changes in response to availability period to select individual affordability of individual coverage comments, they are substantially similar HRAs and eligibility for APTC, to the proposed rules. Even though the health insurance coverage using an SEP including how employees can access proposed rules provided that taxpayers because the new SEP rules take effect on individual health insurance coverage and others may not rely on the proposed January 1, 2020. Therefore, plan through the Exchanges and determine rules, the Departments understand that sponsors offering an individual coverage whether they should use APTC. issuers began considering the potential HRA with a plan year that begins on Ongoing technical assistance will be impact of the rules on rates well in January 1, 2020 should help eligible provided related to the development of advance of the final rules. Further, employees understand that they must Exchanges’ tools and functionality to issuers generally will have an enroll in individual health insurance support employers and employees with opportunity to make changes in coverage during the open enrollment understanding HRA affordability response to the final rules before the period, November 1, 2019 through determinations and their impact on rate filing deadlines for the 2020 plan December 15, 2019, for individual APTC eligibility, as well as the SEP for year. health insurance coverage that takes those with an offer of an individual The Departments also note, and effect on January 1, 2020. coverage HRA. HHS has already considered, that plan sponsors may

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VII. Economic Impact and Paperwork as an action that is likely to result in a decline in the percentage of workers at Burden rule: (1) Having an annual effect on the small firms receiving health insurance economy of $100 million or more in any 286 A. Summary coverage from their employer. one year, or adversely and materially Moreover, 80 percent of firms that offer The final rules remove the current affecting a sector of the economy, coverage only provide a single prohibition on integrating HRAs with productivity, competition, jobs, the option,287 and economic research individual health insurance coverage, if environment, public health or safety, or demonstrates that there is a significant certain conditions are satisfied. The state, local or tribal governments or benefit of additional choice for final rules also set forth conditions communities (also referred to as employees.288 Further, this regulatory under which certain HRAs will be ‘‘economically significant’’); (2) creating action is being taken at this time recognized as limited excepted benefits. a serious inconsistency or otherwise because the Departments have had In addition, the Treasury Department interfering with an action taken or additional time to consider whether, and the IRS are finalizing rules planned by another agency; (3) and what type of, conditions would be regarding PTC eligibility for individuals materially altering the budgetary sufficient to mitigate the risk of adverse offered an individual coverage HRA. impacts of entitlement grants, user fees, selection and health factor Further, DOL is finalizing a safe-harbor or loan programs or the rights and discrimination that might otherwise clarification to provide assurance that obligations of recipients thereof; or (4) result from allowing HRAs to be the individual health insurance raising novel legal or policy issues integrated with individual health coverage the premiums of which are arising out of legal mandates, the insurance coverage, and the reimbursed by an HRA, a QSEHRA or a President’s priorities, or the principles Departments expect that the conditions supplemental salary reduction set forth in the Executive Order. adopted in the final rules will arrangement does not become part of an A regulatory impact analysis must be ERISA plan, if certain safe harbor significantly mitigate the risk of adverse prepared for major rules with selection. The final rules are intended to conditions are satisfied, and the economically significant effects (for Departments are finalizing a related increase the usability of HRAs to example, $100 million or more in any provide more Americans, including clarification to the definition of group one year), and a ‘‘significant’’ regulatory health insurance coverage. Finally, HHS employees who work at small action is subject to review by the Office businesses, with more healthcare is finalizing rules to provide an SEP in of Management and Budget (OMB). The the individual market for individuals options and to increase overall coverage. Departments anticipate that this These changes will facilitate the who newly gain access to an individual regulatory action is likely to have coverage HRA or who are newly development and operation of a economic impacts of $100 million or healthcare system that provides high- provided a QSEHRA. more in at least one year, and thus The Departments have examined the quality care at affordable prices for the meets the definition of a ‘‘significant effects of the final rules as required by American people by increasing rule’’ under Executive Order 12866. Executive Order 13563 (76 FR 3821, consumer choice for employees and Therefore, the Departments have , 2011, Improving Regulation promoting competition in healthcare provided an assessment of the potential and Regulatory Review); Executive markets by providing additional options costs, benefits, and transfers associated Order 12866 (58 FR 51735, , for employers and employees. with the final rules. In accordance with 1993, Regulatory Planning and Review); The Departments are of the view that the provisions of Executive Order the Regulatory Flexibility Act the benefits of the final rules will 12866, the final rules were reviewed by (, 1980, Pub. L. 96–354); substantially outweigh the costs of the OMB. section 1102(b) of the Social Security rules. The final rules will increase Act (42 U.S.C. 1102(b)); section 202 of 1. Need for Regulatory Action flexibility and choices of health the Unfunded Mandates Reform Act of This regulatory action is taken, in coverage options for employers and 1995 (, 1995, Pub. L. 104–4); part, in light of Executive Order 13813 employees. The use of individual Executive Order 13132 (64 FR 43255, directing the Departments to consider coverage HRAs could potentially reduce , 1999, Federalism); the proposing regulations or revising healthcare spending, particularly less 289 Congressional Review Act (5 U.S.C. guidance to expand the flexibility and efficient spending, and ultimately 804(2)); and Executive Order 13771 (82 use of HRAs. In addition, this regulatory FR 9339, , 2017, Reducing Annual Survey’’, Figure 2.2, at http://files.kff.org/ action is taken because, since the time attachment/Report-Employer-Health-Benefits- Regulation and Controlling Regulatory that the Departments previously Costs). Annual-Survey-2018. prohibited integration with individual 286 Between 2010 and 2018, there has been a B. Executive Orders 12866 and 13563 health insurance coverage by regulation, significant decline in the number of workers the Departments have observed that covered by their firm’s health benefits. For firms Executive Order 12866 directs with 3 to 24 workers, the decline has been from 44 agencies to assess all costs and benefits many employers, especially small percent to 30 percent and for firms with 25 to 49 of available regulatory alternatives and, employers, continue to struggle to offer workers, the decline has been from 59 percent to 44 percent. Id., Figure 3.9. if regulation is necessary, to select health insurance coverage to their employees. There has been a continued 287 Id., Figure 4.1 regulatory approaches that maximize 288 decline in the percentage of small firms An analysis of choices made in the large group net benefits (including potential market found that offering multiple plan choices (at 285 economic, environmental, public health offering health coverage as well as a large group prices) was as valuable to the median and safety effects, distributive impacts, consumer as a 13 percent premium reduction. See 285 Between 2010 and 2018, there has been a Dafny, Leemore, Kate Ho and Mauricio Varela, ‘‘Let and equity). Executive Order 13563 is significant decline in the number of small firms Them Have Choice: Gains from Shifting Away from supplemental to and reaffirms the offering coverage. For firms with 3 to 9 workers, the Employer-Sponsored Health Insurance and Toward principles, structures, and definitions decline has been from 59 percent to 47 percent, for an Individual Exchange,’’ American Economic governing regulatory review as firms with 10 to 24 workers, the decline has been Journal: Economic Policy, 2013, 5(1):32–58. from 76 percent to 64 percent, and for firms with 289 By less efficient healthcare spending, the established in Executive Order 12866. 25 to 49 workers, the decline has been from 92 Departments generally mean spending that is of low Section 3(f) of Executive Order 12866 percent to 71 percent. See Kaiser Family value from the consumer’s perspective, relative to defines a ‘‘significant regulatory action’’ Foundation, ‘‘Employer Health Benefits 2018 the cost. The cost includes out-of-pocket spending

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result in increased taxable wages for workers (and their family members) summarized in Table 1 and discussed in workers currently in firms that offer with health insurance coverage. detail later in this section of the traditional group health plans. The final 2. Summary of Impacts of Individual preamble. rules are also expected to increase the Coverage HRAs number of low- and moderate-wage The expected benefits, costs and transfers of the final rules are

TABLE 1—ACCOUNTING TABLE

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.

Costs:

Qualitative: • Loss of health insurance and potentially poorer financial or health outcomes for some individuals who experience premium increases. • Less comprehensive coverage and fewer health benefits for some individuals with individual health insurance coverage as compared to traditional group health plan coverage. • Increased administrative costs for employers, employees, and government agencies to learn about and/or use a new health benefits op- tion.

Transfers Estimate Year Discount rate Period (billion) dollar (percent) covered

Annualized Monetized ($/year) ...... $4.5 2020 7 2020–2029 (Net tax revenue loss) ...... 4.9 2020 3 2020–2029

Quantitative: 290 • Reduced tax revenue as a result of new individual coverage HRAs offered by employers previously offering no health benefits, less re- duced PTC from employees in such firms.. • Increase in average individual market premiums of about 1 percent and resulting increase in PTC.. • Small decrease in per capita Medicare premiums and increase in net Medicare outlays..

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 are newly offered and accept individual Some commenters agreed that the baseline for analysis is current law. That coverage HRAs. As explained in greater allowance of individual coverage HRAs is, the analysis assumes as the baseline detail in the Transfers section later in creates new options for small employers statutes enacted and regulations that are this section of the preamble, the who have otherwise been unable to offer final as of date of issuance of the final Departments estimate that, on net, the health insurance coverage. Some rules. number of insured persons will increase commenters mentioned that some Benefits by about 800,000 by 2029, due to the segments of their workforce might final rules. Most of these newly insured particularly benefit. One commenter Gain of health insurance coverage. individuals are expected to be low- and suggested that large employers might Some individuals could experience a moderate-income workers in firms that newly provide individual coverage gain in health insurance coverage, currently do not offer a traditional group HRAs to part-time or seasonal/ greater financial security and potentially health plan. temporary workers while maintaining improved health outcomes, if employees

such as copayments and deductibles plus amounts receive individual coverage HRAs and would increase if the adoption of individual coverage paid by the health plan. otherwise receive PTC, and increased PTC due to HRAs leads to reduced healthcare spending and 290 The monetized estimates are of the net tax the increase in Exchange premiums; plus the higher taxable wages. Or the rule could result in revenue loss, including reduced income and payroll increased Medicare outlays net of increased total larger premium increases in the individual market, premiums paid. As noted in the text later in this tax revenue from employees who would receive or in premium decreases, if the rule results in more individual coverage HRAs and would not otherwise section of the preamble, the quantitative estimates substantial changes in the health of the individual have a tax exclusion for a traditional group health are subject to considerable uncertainty. For plan, reduced PTC from individuals who would example, the rule could cause tax revenue to market risk pool.

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traditional benefits for their full-time premiums low relative to the SLCSP, their own. Small employers that are not employees. which is used to determine the PTC. ALEs can also forego offering health Increased choice and flexibility for Hence, insurers are more likely to have benefits and allow their employees to employees and employers. As a result of a narrower choice of providers in order obtain individual health insurance the final rules, employees will be able to negotiate lower prices. coverage, often with PTC subsidization, to purchase insurance with a tax By expanding the ability of consumers without liability under Code section subsidy by use of an individual to choose coverage that fits their 4980H. Qualified small employers can coverage HRA, without being locked preferences, the final rules will reduce also pursue establishment of QSEHRAs. into a specific plan or selection of plans these inefficiencies in labor markets and Thus, small employers whose chosen by their employer. As explained healthcare spending. Some employees employees have particularly high later in this section of the preamble, a who will be offered individual coverage healthcare costs or small employers that relatively small number of employees HRAs under the final rules might have little skill or interest in could have fewer choices of plans in the choose plans with lower premiums and administering health benefits might use individual market than the number of higher deductibles and copayments (all these other options to control costs even group health plan choices previously of which could potentially be paid out in the absence of the final rules. If so, provided by their employer, and some of the HRA) and narrower provider the increased efficiency gain from might be unable to find a new networks than they would choose if providing an additional incentive for individual health insurance plan that offered a traditional group health plan. small employers to drop traditional covers their preferred healthcare Employees facing higher cost sharing group health plans in favor of providers. However, small firms are could become more cost-conscious individual coverage HRAs could be more likely to offer individual coverage consumers of healthcare. Narrower modest. HRAs than large firms and small firms provider networks could strengthen the Some commenters agreed that the that offer a traditional group health plan ability of purchasers (through their proposed rules would enable employers typically offer a single option. insurers) to negotiate lower provider to offer more affordable health coverage Therefore, employees at the vast prices. Both effects could lead to alternatives to employees. Some majority of firms are likely to have more reduced healthcare spending, which commenters expressed general support options through an individual coverage could in turn lead to reductions in for allowing employers to move to a HRA than through a traditional group amounts made available under defined contribution approach for plan. The expansion of enrollment in individual coverage HRAs and health insurance coverage. The the individual market due to the final corresponding increases in taxable Departments agree that a defined rules could also induce additional wages. However, these benefits are contribution approach is more flexible insurers to provide individual market uncertain and would take some time to for employers because it is easier for 291 coverage. The Departments are of the occur. Moreover, the provision of a employers to plan for the future. view that on net, the final rules will new health benefit that can be used to Furthermore a defined contribution significantly increase choice and pay cost-sharing as well as premiums approach reduces the risk that an flexibility for employees. Employers and that is available to employees who employer’s healthcare costs increase also will benefit from having another were previously uninsured or enrolled due to factors outside an employer’s choice of a tax-preferred health benefit in unsubsidized coverage would be control. to offer their employees, giving them expected to increase, rather than Reduced administrative costs for another tool to attract and retain decrease, healthcare utilization by some some employers. Employers that offer an workers. consumers. individual coverage HRA rather than a Current compensation arrangements Individual coverage HRAs provide traditional group health plan could can result in less efficient labor markets flexibility for small employers in experience reduced administrative and inefficient healthcare spending. particular that might have little costs. For example, such employers will Employees within a firm (or employees expertise or skill in choosing traditional no longer need to choose health within certain classes of employees group health plans or in administering insurance plans or self-insured health within a firm) are generally offered the coverage effectively for employees. benefits for their employees and manage same set of health benefits. As a result, However, some small employers can those plans. Some of these costs will be some employees receive a greater share already obtain lower-cost coverage in borne by HRA recipients. However, of compensation in the form of benefits the small group market or through AHPs overall costs may be lower, particularly than they would prefer, while others than they could otherwise provide on for small employers and their receive less. An individual coverage employees, as loading fees (that is, HRA will allow employees to choose 291 The individual coverage HRA provides an coverage that better suits their income and payroll tax exclusion that is available premiums in excess of expected only to workers and, unlike the PTC, benefits insurance claims) appear to be quite preferences, allowing those who want a workers at all income levels, including workers less comprehensive plan to select one high for small firms that provide with incomes in excess of 400 percent of the federal traditional group coverage.292 and pay less, while allowing those who poverty level. Thus, it is possible that the final rules want a more comprehensive plan to pay could encourage individuals to join the labor force or to work more hours or seek higher-paying 292 One study using data for 1997 through 2001 more. In addition, some employers offer employment, generating further economic benefits. finds that firms with 50 or fewer employees face plans with a wide choice of providers, In addition, the final rules could increase labor loading fees of 42 percent of premiums, whereas reflecting the diverse preferences and force mobility (i.e., encourage workers to move firms with more than 10,000 employees pay loading healthcare needs of their employees. more freely to employers where their productivity fees of just 4 percent. The authors note that these is highest), because workers enrolled in individual estimates are roughly consistent with the findings While a broader network contains health insurance coverage could find it easier to of earlier research. The authors caution that the certain benefits, it also weakens the retain their coverage when they change jobs. introduction of Exchanges and medical loss ratio ability of employers and issuers to However, these effects are highly uncertain, are requirements provided for under PPACA should negotiate lower provider prices or likely to be relatively small, and might take some reduce loading fees for small firms, but conclude time to occur. Labor supply changes are not that loading factors for small firms might still be otherwise manage employee care. In reflected in the revenue estimates provided in the quite high. See Karaca-Mandic, Pinar, Jean M. contrast, in the individual market transfers section later in this section of the Abraham and Charles E. Phelps, ‘‘How Do Health insurers have an incentive to keep preamble. Insurance Fees Vary by Group Size? Implications

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Some commenters stated that the As a result, a relatively small number of expected to become uninsured. In proposed rules would be simpler to employees could have fewer choices of addition, the final rules require administer than traditional group health plans in the individual market than the employers to notify employees of the plans, thereby reducing administrative number of group health plan choices effect of individual coverage HRA offers cost for employers. One commenter previously provided by their employer, and enrollment on PTC eligibility and noted that while the costs of and some might be unable to find new require employees to substantiate administering an individual coverage individual health insurance coverage enrollment in individual health HRA could be lower than the cost of that covers their preferred healthcare insurance coverage in order to receive administering a traditional group health providers. The Departments requested reimbursement from an individual plan, the difference is not likely to be comments on this finding and the extent coverage HRA, reducing the likelihood large. The Departments are of the view to which the proposed rules could that confusion will lead to loss of that it is possible that there will be reduce employee choice or cause some insurance coverage. modest reductions in administrative individuals to become uninsured. Less comprehensive coverage, fewer costs for employers who offer an Some commenters stated that the benefits. Some commenters suggested individual coverage HRA rather than a proposed rules would lead to adverse that some individuals with individual traditional group health plan. selection, increased premiums and coverage HRAs, and, therefore, overall destabilization of the individual individual health insurance coverage, Costs market, causing some to become could experience a reduction in the Loss of health insurance coverage. uninsured. (Adverse selection and comprehensiveness or affordability of The Departments recognize that some resulting premium increases are healthcare benefits. For example, individuals could experience a loss in discussed in greater detail in the commenters noted that an employee health insurance coverage and that some Transfers section of this preamble.) might not be able to afford a policy with of these people might experience worse Several commenters expressed concern as high an actuarial value as their financial or health outcomes as a result that the offer of an individual coverage current traditional group health plan, or of the final rules.293 Loss of coverage HRA could eliminate consumers’ might be limited to narrower networks could occur if employers drop eligibility for the PTC, increasing the of providers in the individual market. traditional group health plans and if cost of coverage. Some commenters Another commenter noted that patients some previously covered employees do suggested that some of these consumers may newly have limited choices, not accept the individual coverage HRA would become uninsured. One particularly among physician specialty and fail to obtain their own coverage. commenter noted that this problem care providers. Another commenter said Loss of coverage also could occur if the would be magnified for families, since that some employees could have fewer addition of new enrollees to the affordability is determined by choices of plans in the individual individual market causes premiums to comparing the HRA employer market than the number of group health rise, resulting in dropping of coverage contribution amount to the cost of a self- plan choices previously provided by by current individual market enrollees. only plan, rather than to a family plan. their employer, or might be unable to Finally, loss of coverage could occur if Several commenters suggested that find new individual health insurance employees who are currently increased administrative costs and coverage that covers their preferred purchasing coverage in the Exchange confusion would cause some employees healthcare providers. Another with the PTC become ineligible for the who are offered an individual coverage commenter stated that the proposed PTC by an offer of (or coverage under) HRA to fail to enroll and become rules would result in poorer financial an individual coverage HRA and uninsured. and health outcomes. The Departments recognize that some experience increases in out-of-pocket The Departments acknowledge these individuals who choose health plans premiums. concerns, but, as discussed later in this with less comprehensive benefits or In addition, while most employers section of the preamble, estimate that higher out-of-pocket payments could that currently offer traditional group the number of individuals with experience adverse health or financial health plans offer only one type of plan, insurance coverage will be increased, rather than decreased, by adoption of outcomes. However, this is unlikely some employers offer more choices.294 the final rules. One reason for this is because an individual coverage HRA must be integrated with individual for Healthcare Reform,’’ International Journal of that the individual coverage HRA Health Care Finance and Economics (2011) 11: contribution that is offered will render health insurance coverage, which 181–207. an individual ineligible for the PTC only generally is required to provide 293 The Departments note however that increased if it is of a sufficient size to make the coverage of all essential health benefits insurance coverage does not necessarily result in offer affordable for the employee (and, and at least 60 percent actuarial value better physical health. For example, Baicker et al. found that increased Medicaid coverage in Oregon in the case of ALEs, employers must (subject to a de minimis variation). ‘‘generated no significant improvements in make amounts available under an Moreover, to the extent that measured physical health outcomes in the first two individual coverage HRA sufficient for commenters’ assertions about narrower years, but it did increase use of health care services, the offer to be considered affordable in networks and higher cost sharing in the raise rates of diabetes detection and management, individual market are accurate, the lower rates of depression, and reduce financial order to avoid liability under Code strain.’’ See Baicker, K., S. Taubman, H. Allen, M. section 4980H). Thus, even if employees Departments note that higher cost Bernstein, J. Gruber, J. Newhouse, E. Schneider, B. do transition from receiving PTC to sharing and narrower networks could Wright, A. Zaslavsky, and A. Finkelstein. 2013. receiving an offer of an individual also be beneficial in that they encourage ‘‘The Oregon Experiment: Effects of Medicaid on consumers to be more cost-conscious, Clinical Outcomes.’’ New England Journal of coverage HRA, they are not necessarily Medicine 368: 1713–22. http://www.nejm.org/doi/ reducing unnecessary and potentially full/10.1056/NEJMsa1212321; and survey of the to 199 employees offer only one type of plan, counterproductive health care literature in Chapter 6 of Economic Report of the whereas 42 percent larger firms offer one plan, 45 utilization, and thereby reducing President, February 2018, https:// percent offer two and 13 percent offer three or more premiums. Such premium decreases www.whitehouse.gov/wp-content/uploads/2018/02/ plans. See Kaiser Family Foundation Employer ERP_2018_Final-FINAL.pdf. Health Benefits 2018 Annual Survey, Figure 4.1, at could, in turn, lead to increased wages 294 Among firms that offer traditional group http://files.kff.org/attachment/Report-Employer- across employees in a firm. For coverage, an estimated 81 percent of firms with 3 Health-Benefits-Annual-Survey-2018. example, an employee might currently

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have access to only one 80 percent who previously enrolled in a traditional self-only lowest cost silver plan actuarial value traditional group health group health plan and who now receive available to an employee in the plan with a relatively broad network, an individual coverage HRA will need Exchange for the rating area in which but under an individual coverage HRA to shop for and choose their own they reside solely for purposes of will have access to a choice of plans, insurance and learn new procedures for determining their individual coverage with actuarial values generally ranging accessing their HRA benefits. In HRA affordability and the resulting from 60 to 80 percent or higher. If he or addition, employees who receive an impact on PTC eligibility. Therefore, she chooses a 60 or 70 percent actuarial individual coverage HRA will need to Exchange enrollees may need to value plan, he or she will have a greater substantiate enrollment in individual understand which silver level plan incentive to be cost-conscious and will health insurance coverage once per plan premium applies to them for APTC likely spend less on healthcare, leaving year and in connection with each eligibility purposes and which silver more resources for other forms of request for reimbursement. level plan premium applies to their PTC consumption or saving. Further, Exchange enrollees might calculation. Increased administrative costs. In the experience increased compliance Similarly, the FFEs and State impact analysis of the proposed rules, burdens, to the extent that they must Exchanges will incur one-time costs to the Departments noted that the become familiar with the circumstances incorporate the SEP and the PTC proposed rules could increase some in which an offer of an individual eligibility rules for individuals with an administrative costs for employers, coverage HRA precludes them from individual coverage HRA offer into their employees, and government entities. claiming the PTC. For employees who instructions for enrollees and Exchange Under the final rules, all employers previously did not receive an offer of a employees, as well as in application will have a new health benefits option traditional group health plan, this may system logic and automated about which to learn. Employers who require learning some of the PTC calculations. HHS estimates that one- offer individual coverage HRAs but did eligibility rules, and for employees who time costs to account for individual not offer employer-sponsored health previously received an offer of a coverage HRAs for the FFEs will be benefits before will face increased costs traditional group health plan, this may approximately $3.9 million. HHS of administering a health benefit. In require learning new or different rules further estimates that the FFE call addition, all employers that offer for PTC eligibility. Specifically, an center, eligibility support contractors individual coverage HRAs will be employee who is offered a traditional verifying SEP and application data, and required to establish reasonable group health plan is not eligible to claim other customer support functions will procedures to substantiate that the PTC for his or her Exchange incur additional annual costs of individuals covered by the HRA are coverage unless the premium of the approximately $56 million in 2020 to enrolled in individual health insurance lowest cost employer plan providing $243 million by 2022 to serve the coverage or Medicare; to provide a MV for self-only coverage less the expanded Exchange population. notice to all employees who are eligible employer contribution for self-only Assuming that State Exchanges will for the HRA explaining the PTC coverage exceeds 9.5 percent (indexed incur costs similar to the FFEs, total eligibility consequences of the HRA for inflation after 2014) of the one-time costs incurred by the 12 State offer and acceptance and other employee’s household income Exchanges will be approximately $46.8 information; and to comply with various (assuming the employee meets various million. Total additional ongoing costs other generally applicable group health other PTC eligibility requirements). In incurred by the call centers, eligibility plan requirements, such as maintaining contrast, under the final PTC rules, an support contractors verifying SEP and a plan document and complying with employee who is offered an individual application data, and other customer various reporting requirements. coverage HRA will not be eligible to support functions for the 12 State Employers offering individual coverage claim the PTC for his or her Exchange Exchanges will be approximately $20 HRAs will need to establish systems to coverage unless the premium of the million in 2020 to $85 million by 2022. reimburse premiums and employee out- lowest cost silver plan for self-only Under the final rules, the IRS also will of-pocket medical care expenses, or hire coverage offered by the Exchange for the need to add information regarding third-party administrators to do so. In rating area in which the employee employees offered individual coverage addition, to the extent an employer is resides less the individual coverage HRAs to instructions for IRS forms for subject to Code section 4980H, the HRA contribution amount exceeds 9.5 taxpayers, employee training materials, employer will need to learn about the percent (indexed for inflation after and calculation programs. final PTC regulations and any other 2014) of the employee’s household In response to the Departments’ related guidance under Code section income (assuming the employee meets request for comments on the extent to 4980H that the Treasury Department various other PTC eligibility which employer administrative costs and the IRS may issue. As noted earlier requirements). However, the would be increased or decreased by the in this preamble, administrative costs Departments note that the final rules rule, some commenters stated that associated with individual coverage will require HRA plan sponsors to complying with the individual coverage HRAs could be lower than costs for furnish a notice to participants HRA rules would be burdensome. traditional group health plans for some providing some of the information Several commenters expressed employers. The Departments expect that necessary for an individual to determine particular concern about the ongoing third-party administrators and other if the offer of the HRA could render substantiation requirement. benefit experts will work to minimize them ineligible for the PTC. Some commenters noted that the these costs for employers. Because In addition, if an enrollee in Exchange proposed rules would create consumer offering an individual coverage HRA is coverage is eligible for the PTC, the confusion. Another commenter noted voluntary, ultimately, employers that amount of the PTC is based, in part, on that recent cutbacks in funding for offer this benefit will do so only because the premium for the SLCSP for the outreach and assistance in the they experience a net benefit from doing coverage unit offered in the Exchange individual market could exacerbate the so. for the rating area in which the confusion. One commenter stated that As to increased administrative burden employee resides. As noted earlier, the most Americans need a large amount of and costs for employees, employees final PTC rules use the premium for the professional support when making

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sound health insurance purchasing support State Exchange efforts. This (including actuarial value).296 The tax decisions and they also need a degree of assistance could help State Exchanges preference for the individual coverage help to manage their medical claims and implement changes related to the HRA is the same as that for a traditional coverage during the plan year, individual coverage HRA more quickly group health plan, and this estimate particularly in the face of any complex and with less overall cost. The assumes that employers will contribute medical issue. Departments will also provide the same amount towards an individual The Departments requested comments assistance to Exchanges in developing coverage HRA as they would contribute on the implementation and ongoing information and tools that could be for a traditional group health plan.297 costs to State Exchanges of individual provided to employers and employees Therefore, an employee will prefer an coverage HRAs, and several to help ensure smooth implementation individual coverage HRA to a traditional stakeholders expressed concerns about before the full system changes are group health plan if the price of these increased administrative costs. complete. This could include State individual health insurance coverage is Although commenters did not quantify Exchanges providing employees with lower than the price of traditional group the costs, one State Exchange said it information on how they can calculate health plan coverage, as long as the estimates a significant expense given the HRA affordability and the impact on value of the higher quality of the scope and complexity of the proposal. APTC in the absence of system changes traditional group health plan coverage Costs identified include administering a that can make those calculations for the (if any) does not outweigh the lower new SEP; making IT changes involving employee. cost of individual health insurance new definitions and explanation texts; coverage. The cost of individual health Transfers user testing; adding a table for the insurance coverage for an employee lowest cost silver plan; delaying The Treasury Department performed could be lower than the cost of the implementation of other functions; microsimulation modeling to evaluate firm’s traditional group health plan if administering appeals; and adding the coverage changes and transfers that the individual health insurance additional staffing for administration, are likely to be induced by the final coverage is less generous, if the training and oversight such as for rules. The Treasury Department’s model individual health insurance coverage increased call center activity and of health insurance coverage assumes risk pool is healthier than the firm’s risk increased complexity. Another that workers are paid the marginal pool, or if the cost of individual health Exchange noted the need to update product of their labor. Employers are insurance coverage to a particular Exchange eligibility software to account assumed to be indifferent between employee is lower than the cost of the for new forms for HRAs, new rules paying wages and paying compensation firm’s coverage (because, for example, affecting PTC eligibility and new SEPs. in the form of benefits (as both expenses the employee is younger than the Several states requested that the are deductible in computing employers’ average-age worker in the firm).298 effective date of the final rules be taxable incomes). The model therefore delayed until State Exchanges have had assumes that total compensation paid by 296 Expected healthcare expenses by type of sufficient time to implement the new a given firm is fixed, and the employer coverage, age, family size and other characteristics requirements. allocates this compensation between are estimated using the Medical Expenditure Panel Survey—Household Component (MEPS–HC). These As noted earlier in this preamble, the wages and benefits based on the predictions are then statistically matched to the Departments have included in the final aggregated preferences of their Treasury Department tax data. The MEPS–HC is rules some provisions to mitigate these employees. As a result, employees bear conducted by the United States Census Bureau for concerns and associated costs. For the full cost of employer-sponsored the Agency for Healthcare Research and Quality (AHRQ), Department of Health and Human example, to ensure that employees who health coverage (net of the value of any Services. are eligible to receive an individual tax exclusion), in the form of reduced 297 It is possible that employers that switch from coverage HRA understand the potential wages and the employee share of offering traditional group health plans to offering effect on PTC eligibility, employers premiums.295 individual coverage HRAs will contribute less to must provide a written notice to eligible The Treasury Department’s model individual coverage HRAs than they pay for group coverage, and increase taxable wages by a participants. To mitigate burden on assumes that employees’ preferences corresponding amount. This could happen because employers, the Departments are regarding the type of health coverage (or there is greater transparency around health care providing model language no coverage) are determined by their costs with an individual coverage HRA than with contemporaneously on certain aspects expected healthcare expenses and the a traditional group health plan, and greater after-tax cost of employer-sponsored awareness of the cost will likely lower worker of the notice, including model language demand for health insurance benefits relative to describing the PTC consequences. In insurance, Exchange coverage with the wages. On the other hand, it is not clear why an addition, ongoing technical assistance PTC, or Exchange or other individual employer that (based on the incomes and will be provided to State Exchanges health insurance coverage integrated preferences of its workforce) wants to substitute with an individual coverage HRA, and contributions to health benefits for wages would not related to system development activities do so today, in the absence of the availability of that will support employers and the quality of different types of coverage individual coverage HRAs, particularly because the employees with HRA affordability final rules generally require that individual determinations and the impact on APTC 295 Note that the wage reduction for an employee coverage HRAs be offered on the same terms to all eligibility, as well as the SEP for those who is offered a health benefit may be greater or employees in a class of employees, as described less than the expected cost of coverage for that earlier in this preamble. with an offer of an individual coverage particular employee. Because employees are 298 The Treasury Department model assumes that HRA. HHS has already discussed with generally paid the same regardless of age, health both the employee and employer shares of State Exchanges what changes would status, family size or acceptance of benefits, the premiums for traditional group health plan likely be necessary if the rule were model assumes that each employee bears the same coverage are fully tax exempt. In modeling the share of the cost of the firm’s coverage. The model choice between an individual coverage HRA and finalized as proposed to assist with allows for some limited variation of the wage traditional group health plan coverage, the Treasury planning, as well as what kind of reduction by wage class and educational status. All Department assumes that the total amount currently assistance would be most helpful during costs and benefits of coverage are taken into paid for traditional group health plan coverage will implementation. Specific assistance account and assumed to accrue to employees, continue to be tax preferred. If this amount exceeds including all income and employer and employee the individual health insurance coverage premium, could include sharing technical and payroll tax exclusions and the avoidance of the the excess is assumed to be used for copayments educational documentation from FFE employer shared responsibility payment under and deductibles. However, the Treasury Department implementation that can be leveraged to Code section 4980H by firms that offer coverage. Continued

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When evaluating the choice between health insurance coverage. The Treasury Transitions from no employer- an individual coverage HRA and the Department’s model, thus, predicts sponsored health benefit to individual PTC for Exchange coverage, the enrollment and premiums in each type coverage HRAs. The Departments expect available coverage is assumed to be the of coverage. some employees to be offered individual same but the tax preferences are Transitions from traditional group coverage HRAs when they previously different. Hence, an employee will health plans to individual coverage received no offer of an employer- prefer the individual coverage HRA if HRAs. Based on microsimulation sponsored health plan. As a result, the value of the income and payroll tax modeling, the Departments expect that taxable wages will fall and non-taxable exclusion (including both the employee the final rules will cause some wages will rise, reducing income tax and employer portion of payroll tax) is participants (and their dependents) to and payroll tax revenues. Under this greater than the value of the PTC. In move from traditional group health circumstance, some Exchange enrollees modeling this decision, the Departments plans to individual coverage HRAs. As who previously claimed the PTC will be assume that premiums paid by the previously noted, the estimates assume precluded from claiming the PTC as a employee are tax preferred through the that for this group of firms and result of the offer or acceptance of the reimbursement of premiums from the employees, employer contributions to HRA, reducing PTC transfers. As individual coverage HRA, with any individual coverage HRAs are the same explained further below, the additional premiums (up to the amount as contributions to traditional group Departments assume that PTC spending that would have been paid under a health plans would have been, and the is reduced only among Exchange traditional group health plan) paid estimates assume that tax-preferred enrollees with incomes greater than 200 through a salary reduction salary reductions for individual health percent of the federal poverty level. arrangement.299 insurance coverage are the same as Transitions from traditional group In the Treasury Department’s model, salary reductions for traditional group health plans to individual coverage employees are aggregated into firms, health plan coverage. Thus, by modeling HRAs integrated with Medicare. based on tax data.300 The expected construction there is no change in Currently, there are about 2.5 million health expenses of employees in the income or payroll tax revenues for this people for whom employer coverage is firm determine the cost of employer- group of firms and employees (other the primary payer and Medicare is sponsored insurance for the firm.301 than the changes in the PTC discussed secondary. Earlier in this preamble, the Employees effectively vote for their later in this preamble). The Departments Departments clarify that plan sponsors preferred coverage, and each employer’s solicited comments on these may allow amounts made available offered benefit is determined by the assumptions, and comments received under an individual coverage HRA to be preferences of the majority of are summarized further below. used to pay for Medicare and Medigap employees. Employees then decide While the tax preference is assumed premiums, as well as other medical care whether to accept any offered coverage, to be unchanged for this group, after-tax expenses.304 Once premiums (and and the resulting enrollment in out-of-pocket costs could increase for deductibles for medical care expenses) traditional or individual health some employees (whose premiums or are paid by the individual coverage insurance coverage determines the risk cost sharing are higher in the individual HRA, there would be few funds pools and therefore premiums for both market than in a traditional group available to pay for medical care employer coverage and individual health plan) and decrease for others. expenses. Hence, Medicare would A small number of employees who are effectively become the primary payer in does not increase the amount that is tax preferred currently offered a traditional group the vast majority of cases. in the case where the individual health insurance health plan nonetheless obtain The total costs to the Medicare Part A coverage premium exceeds the traditional group individual health insurance coverage health plan premium. program will increase because Medicare 299 The assumption that coverage subsidized by and the PTC, because the traditional Part A will effectively become the the PTC is the same as coverage subsidized by an group health plan is unaffordable to primary payer. Because enrollment in individual coverage HRA may be incorrect to the them or does not provide MV. Some of Medicare Part A and B or Part C 305 is extent that coverage on an Exchange differs from these employees would no longer be a requirement to be covered by an off-Exchange individual health insurance coverage. In addition, the assumption that the full premium eligible for the PTC for their Exchange individual coverage HRA that is for an employee with or without an individual coverage when the employer switches integrated with Medicare and because coverage HRA is tax preferred may be incorrect if from a traditional group health plan to employees offered an individual the employer does not offer a salary reduction an individual coverage HRA because the coverage HRA will not have access to a arrangement, if the employee does not elect the salary reduction, or if the employee chooses on- HRA is determined to be affordable traditional group health plan through Exchange rather than off-Exchange coverage. Salary under the final PTC rules.302 In their employer, the vast majority of reduction arrangements may not be used to pay addition, some employees who are employees are expected to enroll in premiums for Exchange coverage. offered individual coverage HRAs Medicare Part B (and many in Part D). 300 A crucial component of the model is the use of Form W–2, Wage and Tax Statement, filed by would not accept them, and would be employers to report wages and other benefits of newly able to obtain the PTC because assumption that employers contribute the same employees. Forms W–2 with the same employer the offer of the HRA would be amount towards an individual coverage HRA as they would for traditional group health plan identification number are grouped together to considered to be unaffordable under the represent the employees of the firm. coverage, employees would become newly eligible 301 Some small firms—generally those with sicker final PTC rules, even though the for the PTC (if otherwise eligible) only if the lowest than average employees—are able to purchase traditional group health plan they were cost silver plan premium for self-only individual community rated coverage in the small group previously offered is affordable under health insurance coverage is greater than the total cost of the lowest cost MV plan offered by the market at lower cost than they could obtain by self- current rules.303 insuring or would pay if they had to purchase employer (including the employee and employer coverage in the underwritten large-group market. share of premiums). Firm coverage costs are over-estimated in the 302 As noted later in this section of the preamble, 304 Note, however, that an individual coverage Treasury Department’s model for these firms. As a however, the Departments’ estimates assume that HRA may not, under its terms, limit reimbursement result, the Treasury Department model likely over- individuals with incomes below 200 percent of the only to expenses not covered by Medicare. estimates the extent to which small firms will adopt federal poverty level are not newly ineligible for the 305 Currently, very few working aged Medicare individual coverage HRAs instead of traditional PTC by individual coverage HRA offers. enrollees have enrolled in Medicare Part C and group health plan coverage and the premium 303 The number of persons newly eligible for the these estimates are based on the assumption that increase from this rule. PTC is expected to be very small. Under the this is not likely to change.

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Per enrollee premiums for Medicare Part 2029. The number of uninsured persons Income and payroll tax revenue is B and D will be slightly lower due to the will fall by an estimated 0.1 million (0.1 expected to fall by about $500 million improved health of the Medicare risk percent) in 2020 and 0.8 million (1.4 in fiscal year 2020 and $15.5 billion in pool; however, net costs to the Medicare percent) in 2029.307 See Table 2 for 2029, as firms newly offer tax-preferred program will increase due to increased details. health benefits in the form of individual enrollment and because premiums for The modeling suggests that employees coverage HRAs. At the same time, total Medicare Part B will not fully offset the PTC (including the refundable and non- 306 in firms that would switch from offering costs of the program. traditional group health plan coverage refundable portion of the credit) is Summary of estimated transfers and to offering an individual coverage HRA expected to fall by about $300 million coverage changes. The Departments in 2020 and by about $6.2 billion in estimate that once employers fully would have, on average, slightly higher expected healthcare expenses than 2029. In total, the final rules are adjust to the final rules, roughly 800,000 estimated to reduce tax revenue by firms will offer individual coverage employees in other firms and current individual market enrollees. As a result, about $200 million in fiscal year 2020, HRAs. The Departments further estimate $9.3 billion in fiscal year 2029, and that it will take employers and premiums in the individual market would be expected to increase by about $51.2 billion over the 10-year period employees about five years to fully through fiscal year 2029.308 adjust to the final rules, with about 10 1 percent as a result of the final rules, percent of take-up occurring in 2020 throughout the 2020–2029 period The Departments assume that about 1 and the full effect realized in 2024 and examined. The Treasury Department percent of the 2.5 million individuals beyond. model is nationally representative and for whom employer coverage is the This would result in an estimated 1.1 does not necessarily reflect the expected primary payer and Medicare is the million individuals receiving an experience for every market. The secondary payer will enroll in an individual coverage HRA in 2020, premium increase could be larger in individual coverage HRA integrated growing to 11.4 million in 2029. some markets if some adverse selection with Medicare by the end of the Conversely, the number of individuals results, and premiums could fall in projection period. As a result, the final in traditional group health plan other markets. Furthermore, some integration rules are estimated to coverage will fall by an estimated 0.6 employers might take longer to adopt increase costs to the Medicare trust million (0.4 percent) in 2020 and 6.9 the individual coverage HRA, preferring funds by less than $50 million in 2020, million (4.5 percent) in 2029. Similarly, to wait to see how premiums change; $0.3 billion in 2029, and $1.9 billion the number of individuals in individual and, this delay in adoption might be over the ten-year period through fiscal health insurance coverage without an more likely in markets that are currently year 2029. The impacts for Medicare individual coverage HRA will fall by an in worse condition. Such differing Part B and D reflect the net impact to estimated 0.4 million (2.4 percent) in behavior adds uncertainty to the the federal government after the 2020 and 3.8 million (24.8 percent) in estimates. payment of premiums.

TABLE 2—ESTIMATED EFFECTS OF INDIVIDUAL COVERAGE HRASONINSURANCE COVERAGE AND TAX REVENUES, 2020–2029

Calendar year 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029

Change in Coverage [Millions]: a Individual health insurance coverage with HRA ...... 1.1 2.7 5.3 8.1 10.9 11.0 11.2 11.4 11.4 11.4 Traditional group health plan ...... ¥0.6 ¥1.7 ¥3.3 ¥5.0 ¥6.7 ¥6.8 ¥6.8 ¥6.8 ¥6.9 ¥6.9 Individual health insurance coverage with- out HRA ...... ¥0.4 ¥0.9 ¥1.8 ¥2.7 ¥3.6 ¥3.6 ¥3.7 ¥3.8 ¥3.8 ¥3.8 Uninsured ...... ¥0.1 ¥0.2 ¥0.3 ¥0.5 ¥0.6 ¥0.7 ¥0.7 ¥0.7 ¥0.7 ¥0.8

Fiscal year 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029

Change in Revenue [Billions]: Premium Tax Credit Reduction...... 0.3 0.8 1.8 3.0 4.4 4.7 5.4 5.7 6.0 6.2 Other Income and Payroll Tax Reduction 0.5 1.7 3.8 6.4 9.4 10.9 12.6 13.9 14.7 15.5 Net Revenue Reduction...... 0.2 1.0 1.9 3.4 5.0 6.2 7.2 8.3 8.8 9.3 Medicare Part A b ...... 0.0 0.0 0.0 0.1 0.1 0.1 0.1 0.1 0.1 0.1 Medicare Part B...... 0.0 0.0 0.0 0.1 0.1 0.1 0.1 0.1 0.1 0.1 Medicare Part D...... 0.0 0.0 0.0 0.0 0.0 0.1 0.1 0.1 0.1 0.1

Total Medicare Outlay Cost c ...... 0.0 0.0 0.1 0.2 0.2 0.2 0.3 0.3 0.3 0.3 Total Cost d ...... 0.2 1.0 2.0 3.6 5.2 6.4 7.5 8.5 9.1 9.6 Notes: a. Millions of covered lives, annualized. b. 0 = less than $50 million. c. Note that the sum of estimated impacts for Medicare Part A, B and D may not equal net Medicare Outlay Cost due to rounding. d. May not add to sum, due to rounding.

306 Employees who are entitled to Medicare on as one covered person), and reflect only coverage Treasury%27s-Baseline-Estimates-of-Health- the basis of age generally tend to have lower for persons under age 65. For more information Coverage-FY-2019.pdf. healthcare costs than the average Medicare about the Treasury Department’s baseline estimates, 308 These revenue estimates do not account for beneficiary, improving the overall health of the see ‘‘Treasury’s Baseline Estimates of Health the possibility that the final rules could lead to Medicare risk pool. Coverage, Fiscal Year 2019 Budget Exercise’’ June increased taxable wages. 307 These estimates are annualized counts (e.g., 2018, available at https://www.treasury.gov/ two persons with six months of coverage each count resource-center/tax-policy/tax-analysis/Documents/

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At least one commenter stated that the premiums in the two markets are Department constructed firms using negative effects of the proposed rules, positively correlated, and that the Form W–2 and other tax data. The particularly the increase in the correlation is statistically significant. In Treasury Department then matched the individual market premiums and the other words, where premiums for MEPS–HC health expenses of families to attendant fiscal costs, are likely to individual health insurance coverage families in the tax data (and thereby to outweigh the benefits to employers and are higher, premiums in the traditional employees within firms), by income, their employees. As noted earlier in the employer market also tend to be higher. family size and type, age, gender and preamble, the increase in individual The Departments also do not find any other variables common to the MEPS– market premiums is a modest 1 percent. evidence that, to date, employers have HC and tax data sets. The model should While the net fiscal cost in 2025 is $6.2 substantially dropped coverage or reflect the clustering of sicker or billion, this includes the cost of new disproportionately dropped coverage healthier workers within firms if such coverage for 0.7 million individuals. In and sent less healthy employees to clustering is correlated with the addition, as discussed earlier, the individual markets with healthier risk characteristics used in the health integrated coverage HRA provides pools. Even if the difference between expense imputation and matching of employers and employees with an individual market health risk and group MEPS–HC and tax data. In addition to additional option for providing health market health risk currently varies conducting a survey of households’ benefits, a benefit that the Departments across location, there is no clear reason health expenditures (the MEPS–HC), the have not quantified. Therefore, the why that variation would not persist U.S. Census Bureau conducts a survey Departments have concluded that the when the individual coverage HRA is of employers regarding their health benefits of allowing integration of available. As a result of these insurance costs (the Medical individual coverage with HRAs observations, the Departments conclude Expenditure Panel Survey—Insurance substantially outweigh the costs. that there is little indication that the Component, or MEPS–IC.) To evaluate The Departments acknowledge that individual coverage HRA will be whether the distribution of imputed the extent to which firms will offer disproportionately used in areas with healthcare costs within and across firms individual coverage HRAs and the healthier individual market risk pools. in the Treasury Department model is in results on individual market risk pools Moreover, it is not evident that adverse fact reasonable, the Departments and premiums, federal tax revenues, selection into the individual market obtained MEPS–IC premiums for single and private costs and benefits are highly would be much more likely in these and family plans at each percentile of uncertain. The Departments invited lower cost areas, or that those risk pools the premium distribution, and comments on the modeling assumptions would not be able to absorb additional compared these to premiums in the and proposed estimates of the proposed enrollees from the group market. Treasury Department model. The rules and assumptions. One commenter suggested that the Departments found that the Several commenters stated that the Treasury Department model does not distributions looked very similar. That Departments’ analysis failed to take adequately account for variation in is, the imputed premiums appear account of variation in individual expected claims risk across employers, similar to those reported in the MEPS– market risk across geographic areas. The because it does not explicitly account IC, for both lower and higher cost firms. Departments’ acknowledge that the for the tendency of sicker workers to Therefore, the Departments conclude quantitative estimates are derived from work alongside otherwise sicker that there is no evidence to suggest that a nationally representative model, workers, and for healthy workers to the Treasury Department model does largely because the MEPS–HC is a work alongside other healthy workers. not reflect clustering by health status or nationally representative survey. The The Treasury Department model any other important determinants of Departments do not know of any readily imputes the expected health care health risk and premiums. available data on the distribution of expenses of families from MEPS–HC health claims at the firm level for data, controlling for type of coverage, As explained earlier in this section of specific rating areas or states. If the age, gender, family size and type, the preamble, the Departments health risk in the individual market employment status, education, race, explicitly assume that persons with relative to that of employer risk pools health status, geographic characteristics incomes below 200 percent of the varies across geographic areas, a and other characteristics. The Treasury federal poverty level who are enrolled nationally based model will understate in subsidized individual health the extent to which employees might Treasury%27s-Baseline-Estimates-of-Health- insurance coverage in the baseline do transition to individual markets with Coverage-FY-2019.pdf for a description of this not move to an individual coverage estimation process. The Departments then HRA or to uninsured status as a result healthier risk pools and overstate compared this to SLCSP premiums. The movement into less healthy individual Departments specifically compared single plan of the final rules. The Departments also markets. This would understate premiums for firms including any 30-year old assume that employees with incomes potential premium increases in some covered employee to SLCSP premiums for a 30 year above 400 percent of the federal poverty old, and did the same for firms including any 50- level who are currently enrolled in a markets and overstate them or year old covered employee and SLCSP premiums understate premium decreases in others. for a 50 year old in the same rating area. In both traditional group health plan do not To examine this possibility, the cases the Departments estimated that traditional become uninsured as a result of his or Departments estimated the correlation group coverage premiums increase by about 20 her employer switching to an individual cents for every dollar increase in individual market between individual market premiums premiums (p<01). The commenter provided some coverage HRA, even if individual health and traditional group coverage evidence of geographic variation in health claims in insurance coverage premiums are premiums in all rating areas across the the individual market relative to claims in the small substantially higher than the cost of 309 group insured market. This analysis is of limited their traditional group health plan country. The Departments found that use, because most employees who are expected to be offered an individual coverage HRA are in the coverage. These assumptions are 309 Specifically, the Departments extracted large group market. The Treasury Department data consistent with allowing the individual premiums reported on the population of Forms W– for this sensitivity analysis includes premiums in coverage HRA offer to vary across 2, and estimated per person annual premiums from firms of all sizes, but is heavily weighted to firms employees in certain cases, and are this information using coverage data from Forms filing more than 250 Forms W–2, as these 1095–B and C. See https://www.treasury.gov/ employers are required to report premium intended to provide estimates that resource-center/tax-policy/tax-analysis/Documents/ information. reasonably reflect expected employer

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and employee behavior. The coverage is less than the expected cost no higher income persons become Departments acknowledge that of healthcare. About 0.4 million families uninsured as a result of moving from imposition of these assumptions with incomes over 400 percent of the traditional group health plan coverage reduces both the amount of estimated poverty level pay nearly $1.1 billion less to being offered an individual coverage PTC savings and the amount of in taxes, with an average tax cut of HRA.) In this alternative simulation, estimated individual coverage HRA nearly $2,900. Note that these estimates about 1 percent of persons in families revenue costs. In addition, by imposing include only the effects on families with with incomes above 400 percent of the this restriction, the analysis does not individuals currently enrolled in federal poverty level with traditional reflect the extent to which lower-income individual health insurance coverage in group health plan coverage under the employees would face higher insurance the Exchange, and do not reflect the tax baseline become uninsured (or nearly costs if an individual coverage HRA decreases experienced by newly insured 900,000 individuals). However, as noted offer renders them ineligible for the persons, or by persons currently earlier in this section of the preamble, PTC. enrolled in individual health insurance the Departments do not expect such One commenter suggested that the coverage outside of the Exchange. In transitions to occur. Under this Departments explicitly model coverage addition, the estimates for families with alternative simulation, older individuals choices for individuals with incomes incomes below 400 percent of the are more likely to become uninsured, in below 200 percent or above 400 percent federal poverty level are net changes, large part because the Treasury of the federal poverty level. Other and include gains for families for whom Department’s model fails to account for commenters expressed concern that the tax exclusion value of the individual the variation in individual coverage low-income workers likely would face coverage HRA exceeds the PTC offset by HRA contributions by age as permitted higher coverage costs (and perhaps take- losses for families for whom the PTC under the final rules. Under the final up less coverage and face worse exceeds the value of tax exclusion rules, we expect that employers will financial or health outcomes) because gained. vary individual coverage HRA offers so they will lose eligibility for PTC. One Under an alternative assumption as not to completely unwind the cross- commenter suggested that the where persons with incomes below 200 subsidies of older employees by younger individual coverage HRA rules could percent of the federal poverty level also employees and avoid markedly only benefit families with incomes in lose PTC if their employer offers an increasing older employees’ coverage excess of 400 percent of the federal affordable individual coverage HRA, costs. In the event that coverage costs poverty level. However this commenter about 0.9 million additional families for particular employees substantially did not take into account the decline in would pay an additional $3.5 billion in increase, those employees are expected PTC as income rises as well as the tax taxes (in the form of lost PTC that is not to seek employment at firms that benefit of employer-provided individual offset by the value of income and continue to offer traditional group coverage HRAs. In order to consider payroll taxes received for individual health plan coverage. these concerns more fully, the coverage HRA), with an average tax Several commenters stated that Departments performed additional increase of nearly $4,000. These families employers would likely provide the analysis to evaluate the potential effect are not projected to become uninsured. same amount of individual coverage of the individual coverage HRA on The 10-year cost of the final rules would HRA contributions to all employees in receipt of PTC and changes in tax fall from an estimated $51.2 billion to a class of employees, without age liability across income classes, under $23.7 billion. However, as noted earlier, variation. As a result, older workers the Departments’ preferred assumption the Departments do not expect such could face higher coverage costs and that persons with low incomes do not large tax increases among lower-income younger workers could face lower costs lose PTC and an alternative scenario families to occur. Rather, the when they move from traditional group where the Departments do not impose Departments expect employees who health plan coverage to an age-rated this assumption. currently receive substantial amounts of individual health insurance plan. Under the Departments’ preferred set PTC but are in firms where employees However, varying HRA amounts based of assumptions, the individual coverage overall are better off with an individual on age is allowed under the final rules, HRA reduces tax revenues by a total of coverage HRA will seek out employers subject to certain limits, and other $6.2 billion in calendar year 2025, that do not offer an individual coverage commenters suggested that employers consisting of $10.9 billion in reduced HRA or traditional group health plan, or would utilize this option, thereby income and payroll taxes partly offset that employers will reduce individual maintaining existing cross-subsidies of by $4.7 billion in reduced PTC coverage HRA offers or decide not to older workers, which clearly has (including both the refundable and non- offer an individual coverage HRA, so as economic utility to firms, to some refundable portions of the credit). In not to render all or certain classes of extent. comparison, the individual coverage employees ineligible for the PTC. This Several commenters suggested that HRA increases tax revenues $1.1 billion may be particularly true for firms that the Departments’ estimates of individual among taxpayers who are enrolled in do not offer a traditional group health coverage HRA take-up are overstated, individual health insurance coverage in plan in the baseline. because the estimates do not account for the Exchange in the baseline. Over 0.9 In addition, the Departments increased hassle costs of enrolling in million families with incomes between performed an alternative analysis of the individual health insurance coverage, 200 and 400 percent of the federal number of persons with incomes in compared to the cost of enrolling in a poverty level pay $2.1 billion more in excess of 400 percent of the federal traditional group health plan. The taxes (that is, on net the loss in PTC poverty level who are predicted to Departments acknowledge earlier in this exceeds the value of income and payroll become uninsured if employers do not section of the preamble that some tax exclusions received for the vary contributions to individual individuals will face higher individual coverage HRA), or an average coverage HRAs by age and employees administrative costs associated with of nearly $2,300. However, they are not do not switch employers to avoid an choosing individual health insurance expected to become uninsured, because increase in health insurance costs. (In plans and enrolling in coverage. This while the tax preference for the HRA is other words, in this scenario the could result in fewer employers offering less than the PTC, the after-tax cost of Departments relax their assumption that individual coverage HRAs and fewer

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employees enrolling in individual is important to take into account the premiums have the potential to increase health insurance coverage integrated relative sizes of the employer market 3 percent to 83 percent. In an example with an HRA. However, commenters did and the individual health insurance presented by another commenter, if as not attempt to quantify such costs. market and the relative health risk of few as 5 percent of the persistent top Because the magnitude of these costs (in individuals that are likely to transition spenders in the large group market total and relative to the cost of enrolling from group to individual market move to individual market coverage, the in a traditional group health plan) is coverage. Because the number of average individual market claim would uncertain, the Departments are unable individuals in traditional group health increase by 15 percent. Under a third to quantify the likely effect on plans is large relative to the number of example discussed by a third individual coverage HRA take-up. individuals in individual health commenter, if 10 percent of employers The Departments particularly insurance coverage, relatively small designed individual coverage HRAs to emphasize that these estimates assume changes in employer offers of coverage shift the sickest individuals into the that every employee in a firm would be can result in large changes in individual individual market, premiums would offered either an individual coverage market premiums.311 increase by 17.3 percent. If however 100 HRA or a traditional group health plan The Departments invited comments percent of employers engage in shifting (but not both and not a choice between on the extent to which firms with their sickest employees, premiums the two), or no employer health benefit. healthy or less healthy risk pools would would increase by 93.1 percent in the The estimates further assume that a firm utilize individual coverage HRAs. The individual market. The Departments offering an individual coverage HRA Departments specifically sought note that these scenarios do not take would offer the same benefit to each comments on the extent to which into account the conditions in the employee in the firm, and would not employers would offer different benefits proposed or final rules intended to vary the contribution by location, age, or to different classes of employees, prevent adverse selection. As such they other permitted factors other than self- including the rating area class and help to illustrate why the Departments only versus non-self-only benefits.310 In combinations of the classes, and the proposed, and are finalizing, conditions other words, the estimates assume that resulting effect on individual market designed to prevent adverse selection. the final rules will be effective in premiums. Many commenters These examples are not inconsistent preventing firms from dividing their responded, generally emphasizing the with the illustrative scenario presented employees by health status or other importance of a stable individual health by the Departments in the preamble to factors in a way that would allow firms insurance market and the need to the proposed rules. to capture greater tax subsidies or maintain and, if possible, strengthen Many commenters said it was increase individual market premiums or conditions to prevent adverse selection important that the final rules not give the PTC. as a result of the individual coverage employees a choice between a In estimating the impact of the final HRA. traditional group health plan and an rules on individual coverage HRA Many commenters noted that, because individual coverage HRA in order to participation and transfers, including the employer group market is very large prevent adverse selection in the individual market premium increases, it relative to the individual market, even individual market, as was prohibited a relatively minor shift of higher-cost under the proposed rules. One 310 The Departments imposed two constraints on individuals from traditional group commenter gave specifics noting that it the microsimulation that could be consistent with health plans to the individual market is the employer that is empowered with allowing the individual coverage HRA offer to vary across classes of employees within a firm. First, the would markedly increase individual deciding which health benefits to offer. Departments assume that persons with incomes market premiums. In a similar vein, one Thus, according to the commenter, it is below 200 percent of the federal poverty level who commenter noted that the individual not likely that employers would offer are enrolled in subsidized individual health market in their state is too small to insurance coverage in the baseline do not move to both an individual coverage HRA and a an individual coverage HRA or to uninsured status absorb the high health costs from the traditional group health plan if the as a result of the final rules. This is consistent with few employers who have high enough employer anticipated that such a choice assuming that employers with low-wage workers health costs to make the individual would increase claims cost in its currently receiving Medicaid or the PTC do not coverage HRA strategy economically begin to offer individual coverage HRAs large traditional group health plan. The enough to render such employees ineligible for the attractive. Commenters also noted that commenter noted that without the PTC or from receiving public coverage. This healthcare costs are distributed very condition in the proposed and final constraint is also consistent with the assumption unevenly, and that, as a result, moving rules prohibiting plan sponsors from that employees who would experience a substantial a small number of the highest-cost subsidy loss will move to other jobs that allow them offering employees a choice between a to retain their current coverage. This assumption employees to the individual market can traditional group health plan and an reduces the amount of PTC savings generated by the have a large impact on premiums. individual coverage HRA, there would final rules, and also reduces the tax revenue cost Several commenters provided their own be market segmentation caused by of providing individual coverage HRAs to such scenarios showing that if employers are employees. Second, the Departments assume that incenting high-cost individuals to enroll employees with incomes above 400 percent of the able to send a relatively small number in individual market coverage as well as federal poverty level who are enrolled in a of high-cost individuals to the potential adverse selection based on traditional group health plan do not become individual market it could result in a difference in benefits, cost-sharing uninsured as a result of the final rules, even if very large increase in premiums in the individual health insurance plan premiums are levels, and networks. substantially higher than the cost of their traditional individual market. Under one example, Many commenters said that it is group health plan coverage. This is consistent with if 1 percent to 4 percent of the employer important that the final rules retain the assuming that employers will provide larger market with various above-average- condition that individuals be required individual coverage HRAs to older employees or to fractions of higher-cost employees to obtain individual health insurance employees in higher-cost markets than they will provide to other employees in their firms, in order migrates to the individual market, coverage in order to be covered by an to ensure affordable coverage. It is also consistent individual coverage HRA. One with assuming that employees will move to other 311 The Treasury Department projects that over commenter suggested that, otherwise, firms, if they face large premium or cost-sharing 150 million persons under age 65 will be enrolled healthy individuals might opt out of the increases when their employers switch from in employer-sponsored group health plans in 2020, traditional group health plan coverage to individual compared to about 15 million in the individual individual market (comprehensive coverage HRAs. market. coverage) and use the individual

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coverage HRA to cover out-of-pocket with re-insurance programs will over private sector employer-sponsored spending or for noncompliant coverage, unintentionally subsidize employer group health plans, and HHS has potentially increasing adverse selection health plans due to the influx of people enforcement jurisdiction over public in the individual market. Relatedly, with high claims. sector group health plans, such as those many commenters supported the After consideration of these sponsored by state and local prohibition on integration of an HRA comments and related economic governments. Individual coverage HRAs with STLDI. If enrollees were given a literature,312 the Departments are group health plans, and DOL and choice of individual health insurance concluded that the conditions contained HHS will monitor individual coverage coverage or STLDI, in conjunction with in the proposed rules intended to HRAs’ compliance with applicable an individual coverage HRA, mitigate the risk of adverse selection requirements, consistent with the commenters explained that healthy (including the prohibition on offering an general approach to enforcement with employees would be more likely to employee a choice between an respect to other group health plans. The purchase the less expensive STLDI individual coverage HRA or a Departments are of the view that it is plans, creating adverse selection for the traditional plan, the same terms unnecessary to include specific individual market. requirement, the requirement that enforcement guidance for individual Commenters generally supported the individuals with individual coverage coverage HRAs in the final rules. condition that individual coverage HRAs be enrolled in individual health However the Departments may provide HRAs be offered on the same terms to insurance coverage, and the prohibition additional guidance if the Departments an entire class of employees and that the on integration with STLDI) are become aware of arrangements that are classes to which a plan sponsor may necessary and, as retained in the final inconsistent with the conditions of the offer HRAs on different terms be limited rules, support the Departments’ finding final rules. to the classes enumerated in the that the effect of the rule on individual One commenter noted that the lack of proposed rules and any combinations of market premiums will be modest. a limit on the maximum individual those classes. One commenter noted Several commenters suggested that coverage HRA amount could result in that the same terms requirement and the additional rules should be adopted to more employers with older or sicker enumerated classes reduce the ability of prevent adverse selection. For example, employee populations providing very employers to target high-cost workers by one commenter stated that employers large individual coverage HRAs and targeting particular worker classes. The should be forbidden from using health sending those high-cost individuals to commenter explained that allowing status of any individual or class of the individual market. This commenter employers to define classes more employees as a factor when suggested limiting individual coverage narrowly would increase the differentiating between classes of HRA contributions to a maximum opportunity for employers to target employees. Another encouraged strong amount. Another commenter pointed high-cost workers, thereby increasing federal oversight to ensure employer out that an employer could provide an the adverse selection risk in the compliance with the conditions. Yet individual coverage HRA that covered individual market. Some commenters another commenter recommended the both the premiums and cost-sharing recommended that the number of Departments use a facts and expenses up to the maximum out-of- permitted classes not be expanded in circumstances test to determine whether pocket limit ($7,900 in 2019) for an general to avoid increasing the risk of individual coverage HRAs are targeted expensive employee and still reduce adverse selection in the individual to high cost employees, in addition to health costs. This commenter supported market. requiring compliance with the the same terms requirement and other One commenter noted that the conditions in the final rules. rules preventing benign discrimination proposed permitted classes of The Departments decline to add a to shield against market segmentation. employees could be combined to offer facts and circumstances test to the final In previous guidance on HRAs, employers opportunities to segment rules. DOL has enforcement jurisdiction including on integration of HRAs with highly specific subsets of employees, other coverage, the Departments including the more costly populations, 312 Although adverse selection has been observed provided no minimum or maximum resulting in higher premiums in the in many instances, relatively recent empirical contribution amount. Similarly, the individual market. Several other research suggests that any harm from adverse Departments decline to impose a commenters expressed concerns that the selection could, in some circumstances, be modest. minimum or maximum contribution proposed integration conditions would Most of the literature is related to choices between plans within a firm or other contexts that are not amount on individual coverage HRAs not be adequate to protect against directly analogous to an employer’s choice between under the final rules, in order to provide additional risk segmentation. Another offering a traditional group plan or an individual employers with flexibility and because commenter suggested that premiums in coverage HRA, and as a result the applicability of the Departments have imposed other the individual market could rise the research is somewhat unclear. Therefore the Departments are including in the final rule conditions to address the potential for because the proposed rules create provisions specifically intended to mitigate against adverse selection. uncertainty, causing insurers to include adverse selection while at the same time giving Commenters also recommended that an additional risk factor when setting employers an important new way to provide health the conditions to prevent adverse premiums. Further, the commenter benefits. See e.g., Einav, Liran, Amy Finkelstein, selection in the proposed rules be and Jonathan Levin, ‘‘Beyond Testing: Empirical urged that the proposed rules be Models of Insurance Markets,’’ Annual Review of strengthened by applying the integration withdrawn as they would be Economics, 2010, 2: 311–326; Einav, Liran, Amy conditions to the aggregated controlled detrimental to consumers and health Finkelstein, and Mark Cullen, ‘‘Estimating Welfare group of employers rather than to the insurance markets in that particular in Insurance Markets Using Variation in Prices,’’ common-law employer. The Quarterly Journal of Economics, 2010, 125 (3): 877– state. One state with an approved 921; Bundorf, M. Kate, Jonathan Levin, and Neale Departments have concluded that PPACA section 1332 state innovation Mahoney, ‘‘Pricing and Welfare in Health Plan applying the classes of employees at the waiver authorizing a re-insurance Choice,’’ American Economic Review, 2012, 102 (7): common law employer level will avoid program asserted that the proposed 3214–3248; and Cardon, James H. and Igal Hendel, complexity for employers and that ‘‘Asymmetric Information in Health Insurance: rules could dismantle the market Evidence from the National Medical Expenditure applying a minimum class size stability that has been achieved through Survey.’’ RAND Journal of Economics, 2001, 32 (3): requirement in certain circumstances, at state based mechanisms and that states 408–427. the common law employer level, is a

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more straightforward way of addressing need for this class of employees as employers may have a higher-risk group the adverse selection concerns raised by employers do not typically vary current of employees, in general, working some commenters. Therefore, the coverage offering for employees over employees are lower-risk than Departments are not adopting the and under age 25. After consideration of individuals in the individual market. suggestion. these comments, the Departments are Other commenters stated that employers One commenter suggested the final omitting this class in the final rules. may not necessarily be incentivized to rules should not allow using rating area Several commenters suggested a segment their risk, that is, they may be as a separate class of employees because minimum class size requirement so that interested in offering individual it presents risk for health factor employers cannot combine classes in a coverage HRAs for reasons unrelated to discrimination, allowing employers to way that less healthy employees can be risk. Another commenter argued that isolate an employee or a few employees isolated into separate classes from commonly purchased stop-loss coverage with costly medical expenses who healthy employees. According to these mitigates the incentive to move happen to work at the same primary commenters, each classification should individuals to the individual market; site. While the Departments appreciate be required to include a certain that HIPAA generally prohibits group and considered the concern raised by minimum number and/or percentage of health plans and health insurance commenters, the Departments have employees. The Departments agree and issuers in the group market from determined, based on information sought to develop a rule that is narrowly discriminating against individuals based regarding the significant differences in tailored to mitigate the risk of adverse on health factors; that the requirement individual market premiums between selection, especially when combining that to provide MV employer plans rating areas within some states and classes, and to avoid overly burdening provide ‘‘substantial coverage’’ of significant differences in the number of employers or unnecessarily hampering inpatient hospital services and individual health insurance plans the increased use and flexibility of physician services makes it hard for available between rating areas within individual coverage HRAs. In order to employers to incentivize high cost some states, that it would be an balance these considerations, the final individuals to move to the individual unreasonable limitation on employer rules include a minimum class size market by providing limited benefits; flexibility, and, thus, employee welfare, requirement that varies based on and that the proposed rules’ same terms to prohibit employers from offering employer size and that applies only to requirement and the restriction on different benefits based on different certain classes of employees in certain integration of individual coverage HRAs work site rating areas. circumstances in which the potential for with STLDI all work together to One commenter argued that the health factor discrimination is greatest. eliminate the opportunities for allowable variation in individual In general, the minimum is equal to 10 employers to encourage higher-risk coverage HRA contributions by employees for an employer with fewer employees to obtain coverage in the employee age and number of than 100 employees; equal to 10 percent individual market. One commenter dependents would need to be parallel to of the total number of employees noted that the Departments struck an the variation in premiums by age and (rounded down to a whole number), for important balance between providing family size in the individual market to an employer with 100 to 200 employees; additional alternatives for employers avoid the risk that employers target and equal to 20 employees for an while curtailing the opportunity for large contributions to high-cost employer that has more than 200 some employers to selectively segment employees. Another commenter pointed employees. See earlier in this preamble risk and shift their highest-cost out that employers’ ability to vary and the final rules for more detail. employees to the already fragile individual coverage HRA amounts by Multiple commenters noted that large individual market. The Departments age should not be limitless, but should employers and self-insured employers be subject to sound actuarial guardrails, with a greater share of less-healthy agree that the final rules, with the such as the 3 to 1 PPACA age band employees could be more likely to offer integration conditions, strike the right between the youngest and oldest individual coverage HRAs than balance and have the potential to employees. The Departments agree. In employers with healthier employees. strengthen the individual market. the final rules, employers are permitted The resulting adverse selection could Several commenters further to vary contributions based on the age worsen the individual market risk pool recommended that the Departments add of the participant as long as the and increase premiums. The as a permitted class to the final rules, contribution for the oldest participant is Departments acknowledge that the salaried and hourly employees, so that within a 3 to 1 ratio of the contribution integration conditions generally do not employers may be permitted to make for the youngest participant. Further, address this potential problem. This different offers of coverage, to salaried the same maximum dollar amount effect has been included in the and non-salaried workers. Commenters attributable to the increase in age must modeling and hence is reflected in the in support of allowing salaried and be made available to all participants of overall results. As discussed earlier in hourly workers as permitted classes of the same age in the same class of this preamble, this effect along with employees explained that this would employees. other effects of the final rules result in provide additional flexibility for Some commenters recommended a premium increase of only about 1 employers without increasing the risk of removing as a permitted class of percent, indicating a very small effect adverse selection. Reasons for this employees the class based on employees on the individual market risk pool. conclusion included: The classification who have not yet attained 25 years of Other commenters thought individual is used for a variety of purposes and age because this would enable coverage HRAs could reduce adverse reclassifying employees may violate the employers to offer individual coverage selection in the individual market. FLSA, ERISA and other laws that HRAs to older employees while keeping Some commenters noted that the prohibit employers from reclassifying young, generally healthier employees in proposed rules would result in many workers solely for the purposes of a traditional group health plan, employees moving to the individual interfering with health benefits. One increasing adverse selection risk for the market, thereby expanding the market commenter stated that under such a rule individual market. In addition, and stabilizing premiums. One employers would have more potential commenters noted that there is no clear commenter argued that although some for risk selection than in the permitted

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classes under the proposed rules. After employees who would be offered these factors result in variations in consideration of these comments, the individual coverage HRAs under the premiums for individual health Departments are allowing employees proposed rules would choose plans with insurance coverage. The Departments who are paid on a salaried basis and lower premiums and higher deductibles are not adopting this suggestion. The non-salaried employees (such as hourly and copayments and narrower provider Departments recognize that the cost of employees) as permitted classes of networks than they would choose if individual health insurance coverage employees in the final rule, subject to offered a traditional group health plan. will vary across employees, and because the minimum class size requirement. However, some workers would probably the intent of the rule is to expand rather The Departments also recognized that choose more expansive coverage than than restrict employer choices regarding transition from coverage under a what they were offered in a traditional how to provide coverage, the final rules traditional group health plan to group health plan, and a key benefit of allow (but do not require) employers to coverage under an individual coverage this rule is that it expands workers’ take these factors into account in certain HRA could represent a substantial ability to choose coverage that best suits circumstances and subject to certain change from an employee perspective, their preferences. Those workers who conditions. After consideration of these and as a result employers may find it choose plans with higher cost sharing comments, the Departments difficult to transition to individual and narrower provider networks and acknowledge that introduction of the coverage HRAs. Because new hires are become more cost-conscious consumers individual coverage HRA could lead unlikely to increase adverse selection in of healthcare will likely reduce employers to provide lower health the individual market and, if added to healthcare costs and insurance benefits and higher taxable wages than the individual market, would likely premiums, eventually reducing average they would if they provided a lower average risk, the Departments HRA amounts and salary reductions. traditional group plan. However, have added flexibility for employers by The Departments requested comments because the extent to which employers allowing employers to continue to offer on the assumption that employer and will do so is uncertain, this effect is not traditional group health plans to current employee tax-preferred spending on accounted for in the Departments’ employees while offering individual healthcare would be the same for quantitative estimates of transfers (that coverage HRAs to newly hired individual coverage HRAs as for is, the fiscal cost) arising from the rules. employees. Recognizing that the new traditional group health plans. Moreover, the Departments are of the hire subclass will start small as One commenter questioned the view that employers will design employees are hired after the employer- employee compensation packages to the specified hiring date for a class of Departments’ basis for this assumption. Based on conversations with employers benefit of employees since employers individuals, the new hire subclass is not aim to attract and maintain talent. subject to the minimum class size of all sizes and industries, the requirement. However, if an employer commenter concluded that it appears In addition, the estimates assume that later chooses to further subdivide a new likely that a good portion of employers the entire individual coverage HRA hire subclass, each subdivision would would contribute substantially less to balance is spent on healthcare be subject to any minimum class size individual coverage HRAs than what premiums and cost sharing each year. requirements that otherwise would they are currently contributing to However, the Departments are of the apply. traditional group health plans. The view that many employers would allow Several commenters suggested that commenter suggested that this would be employees to carry unspent individual the Departments delay implementation particularly true for certain classes of coverage HRA balances over from year of the final rules until further analysis, employees, and that this may result in to year, and that some employers would particularly regarding risk segmentation, some employees and dependents allow employees to continue to spend could be conducted. However, becoming uninsured. Several accumulated individual coverage HRA commenters offered few concrete commenters expressed concern that funds even after separating from their suggestions to inform additional employers would contribute less to employer. Moreover, individual analysis. While the Departments individual coverage HRAs than they coverage HRA benefits are generally acknowledge that the exact effects of the currently contribute to their traditional subject to COBRA protections, such final rules are subject to uncertainty, the group health plans, with the result that that, for example, some employees Departments conclude that the benefits coverage would be less affordable for could elect to use accumulated funds for of the rules will outweigh any costs, and employees. One commenter suggested up to 18 months after separation from that the benefits of promulgating the that employers offering an individual service. The ability to carry over rules without further delay will coverage HRA be required to provide a benefits from year to year could further outweigh the benefits of additional minimum amount to ensure that the encourage employees to curtail analysis. As recommended by a number HRAs are adequate for the purchase of healthcare spending, particularly less of comments, the Departments will individual health insurance coverage. efficient spending. This effect could be continue to closely monitor premiums As discussed above, the Departments modest for several reasons. First, unlike and the stability of the individual decline to adopt this suggestion. In HSA balances, which can be withdrawn market. general, workers bear the cost of for non-health purposes subject to tax The Departments also emphasize that employer contributions to health but without penalty after age 65 and these estimates assume that employers benefits in the form of reductions in with a 20 percent penalty before age 65, would contribute the same amount to wages and non-health benefits. The individual coverage HRAs may only be individual coverage HRAs as they current tax system subsidizes health used to reimburse expenses for medical would to traditional group health plans benefits, and it is not clear that care. In addition, unlike HSAs, and that employees would elect the minimum employer contributions individual coverage HRAs are not the same amount of salary reduction to pay would improve employee welfare. Other property of the employee and employers for individual health plans and cost commenters suggested that employers may limit the amount that can be sharing as they would if they were should be required to vary the amount carried over from year-to-year or enrolled in a traditional group health of the individual coverage HRA by age, accessed by the employee after plan. But, as noted above, some geographic region, and/or family size, as separation, subject to applicable COBRA

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or other continuation of coverage as a permitted class of employees the group health plan coverage (other than requirements. class of employees under age 25, which COBRA or other continuation coverage), These estimates further assume that had the potential to increase adverse or Medicare Part B or D. The excepted all individual health insurance coverage selection. The addition of the special benefit HRA could be used to pay integrated with an HRA would be rule for new hires could also improve premiums for coverage that consists treated as subject to and compliant with the health of the overall individual solely of excepted benefits and for other PHS Act sections 2711 and 2713. The market risk pool. While the Departments premiums, such as premiums for STLDI proposed rules prohibit an individual have also made changes in the final (subject to the exception described later coverage HRA from being integrated rules in order to provide employers with in this section of the preamble). with STLDI and excepted benefits, additional flexibility, such as adding as Due to the availability of other tax which are not subject to or generally new permitted classes of employees preferences for health benefits, compliant with PHS Act sections 2711 non-salaried and salaried employees as including the tax exclusion for and 2713. Grandfathered coverage in the well as staffing firm temporary employer-sponsored benefits, salary individual market is not subject to the employees (as well as adopting the reductions for group and off-Exchange annual dollar prohibition in PHS Act special rule for new hires), the individual health insurance coverage section 2711 or to the preventive Departments have done so in a way that premiums when integrated with an services requirements in PHS Act is narrowly tailored to avoid creating individual coverage HRA, health FSAs, section 2713. However, the proposed the risk of adverse selection. Therefore, and non-excepted benefit HRAs, the rules provided that employees nor after consideration of these changes and Departments are of the view that this employers were required to confirm that public comments, the Departments are new excepted benefit would be adopted individual health insurance coverage finalizing the economic modeling of the by a small number of firms. However, it integrated with an HRA is not individual coverage HRA without could provide flexibility for firms that grandfathered coverage, as requiring changing the key assumptions. want to provide a tax preference to such confirmation would be In light of the Departments’ employees that choose STLDI instead of administratively burdensome and the quantitative estimates and qualitative the employer’s traditional group health Departments expected that the number analysis, the Departments conclude that plan. of employees who might use an the benefits of the individual coverage Several commenters noted that the individual coverage HRA to buy such HRA outweigh the costs. In particular, excepted benefit HRA could adversely coverage would be extremely small, the Departments estimate that the final impact the small employer group market because individuals can only renew and rules will increase the number of as employers in the small group market cannot newly enroll in grandfathered individuals with health insurance and would be more likely to offer an individual health insurance coverage. have only a small effect on individual excepted benefit HRA that reimburses Commenters generally agreed that the market premiums. The final rules will STLDI premiums (because these vast majority of individual health significantly increase flexibility and employers are less likely to be directly insurance coverage is compliant with choices of health coverage for employers affected by the risk shifting due to the PHS Act sections 2711 and 2713. As and employees. As a result, employers fact that the small group market is noted earlier in the preamble, many will benefit from having another choice community rated) and healthier commenters emphasized the importance of a tax-preferred health benefit to offer employees would be more likely to opt of requiring individual coverage HRAs their employees, potentially enabling out of the traditional small employer to be integrated with individual health them to attract and retain workers. In group plan and use the excepted benefit insurance coverage, and not with addition, the increased use of HRAs to pay for health coverage out of pocket STLDI, in order to ensure the health and could potentially reduce healthcare or purchase STLDI. Several commenters stability of the individual market risk spending and ultimately result in also expressed concern about the pool. The Departments considered these increased taxable wages. negative impact on the individual comments and are finalizing the market, as the excepted benefit HRA requirement that individuals covered by 3. Impact of Excepted Benefit HRA could draw some enrollees away to an individual coverage HRA must be The final rules also provide for STLDI plans. One commenter expressed enrolled in individual health insurance recognition of a new limited excepted concern that sicker employees within a coverage, as proposed. Further, under benefit HRA under which amounts firm, who could not obtain STLDI, the final rules, an individual coverage newly made available for each plan year would bear greater costs. As explained HRA may not be integrated with STLDI. are limited to $1,800 (indexed for earlier in this preamble, the In summary, the Departments inflation for plan years beginning after Departments do not believe that recognize that allowing HRAs to be December 31, 2020). Among other allowing the excepted benefit HRA to be integrated with individual health conditions, to offer the excepted benefit used to purchase STLDI creates a insurance coverage creates the potential HRA, the employer must offer the significant risk pooling concern. for some adverse selection and employee a group health plan that is not However, to mitigate potential adverse increased premiums in the individual limited to excepted benefits and that is selection affecting the small group health insurance market. To prevent not an HRA or other account-based market, the final rules provide that the that occurrence, the Departments are group health plan, but the employee Departments may restrict excepted retaining in the final rules the key would not need to enroll in this group benefit HRAs from being able to conditions intended to prevent adverse health plan. The benefit would be reimburse STLDI premiums for certain selection and health factor funded by the employer, and in the employers in a state, if certain criteria discrimination. In addition, the Treasury Department’s modeling, this are satisfied. Departments are strengthening the means that it would be paid for by all Several commenters opposed the new conditions intended to prevent of employees in the firm through an excepted benefit HRA because it would adverse selection, including by adding a overall reduction in wages. The benefit allow employers to provide a smaller minimum class size requirement that could be used to pay for any medical health benefit. One commenter applies to certain classes of employees expense, other than premiums for expressed particular concern that low- in certain circumstances and removing individual health insurance coverage, wage employers would be particularly

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attracted to this option, to the detriment C. Regulatory Alternatives commenters generally agreed. The of employees. The Departments In developing the final rules, the Departments did consider that the conclude that this is not an important Departments considered various incentives for employers in the small risk or concern. First, employees must alternative approaches. group market to segment risk are lower have the option to receive a traditional Retaining prohibition on integration than for other employers offering group health plan instead of the of HRAs with individual health experience-rated coverage or self- excepted benefit HRA, and ERISA- insurance coverage. The Departments insured plans. However, the covered employers must provide a considered retaining the existing Departments would not expect many notice of the dollar limits and other prohibition on integration of HRAs with small employers to offer this choice limitations of the excepted benefit HRA. individual health insurance coverage, in because the coverage in the small group In addition, the costs of coverage are particular in light of commenters who market and individual market is quite borne all or in part by employees, in the raised concerns that allowing HRAs to similar and because small employers form of reduced wages, and any be integrated with individual health that purchase health insurance would reduction in costly health benefits is insurance coverage could lead to not have an incentive to segment their expected to be offset by increased adverse selection and health factor risk pool. Although allowing small employers to offer a choice would not wages. Third, employees who decline discrimination in the individual market. provide small employers much benefit, an employer’s offer of a traditional However, the Departments determined it would increase the complexity of the group health plan may obtain coverage that the adverse selection concerns that gave rise to the prohibition, and which final rules for entities involved in through a spouse or the individual implementation, such as the Exchanges, market, and this coverage may also be some commenters raised, can be adequately addressed by including and could cause uncertainty for issuers. subsidized through a tax exclusion or Accordingly, the Departments decline to PTC. Therefore, the availability of this appropriate mitigating conditions in the final rules. Moreover, the alternative provide an exception for small new tax-preferred benefit is expected to employers to the condition that a plan benefit employees, not harm them. approach of continuing to prohibit the integration of HRAs with individual sponsor may not offer an employee a Several commenters expressed health insurance coverage would choice between a traditional group concern that adding another type of foreclose the benefits that the health plan and an individual coverage excepted benefit and another type of Departments expect to result from HRA. However, the Departments are HRA would create confusion among allowing individual coverage HRAs, generally supportive of maximizing employers and employees, potentially including increased flexibility and employee choice and employer resulting in costly mistakes. Some choices of health coverage options for flexibility and so may revisit this issue commenters expressed concern that the employers and employees; possibly in future rulemaking once the excepted benefit HRA would increase reduced healthcare spending and Departments have had the opportunity uninsurance among employees who increased taxable wages for workers to gauge the results of the initial forego coverage or use the benefit to currently in firms that offer traditional implementation of individual coverage purchase STLDI (which need not group health plans; and increased HRAs. provide comprehensive benefits), thus numbers of low- and moderate-wage With respect to the proposed putting employees at risk or poor workers (and their family members) condition that an employer must offer financial or health outcomes. with health insurance coverage. an individual coverage HRA on the Integration conditions to prevent same terms to all employees within a Other commenters supported the against adverse selection. The proposed class of employees, the Departments provision of the excepted benefit HRA rules contained a number of conditions considered whether to allow individual as proposed, including one who intended to mitigate the risk of adverse coverage HRAs to increase amounts expressed support for providing selection, including that an employer based on age, without any related employers with the greatest possible may not offer any employee a choice parameters, as proposed, or, as an flexibility to provide health benefits on between a traditional group health plan alternative, whether to place an outer a tax preferred basis. The Departments and an individual coverage HRA and limit on the ability to age vary, as some agree that the excepted benefit HRA will that, if an employer offers an individual commenters suggested the Departments provide additional flexibility for coverage HRA, it must do so on the should do to protect against adverse employers, and for employees who want same terms and conditions for all the selection. Upon consideration of these to pay for their health care costs in ways employees in the class of employees comments, the Departments determined other than enrolling in their employer- subject to certain exceptions. The that imposing a limit on the ability to offered traditional group health plan. Departments considered a number of increase HRA amounts based on age is The Departments continue to expect alternatives related to these conditions justified in order to protect against that due to the availability of other tax in developing the final rules. As to the adverse selection. In designing that preferences for health benefits, prohibition on choice between an limitation on age variation, the including larger tax preferences for individual coverage HRA and a Departments considered a number of employer-provided benefits and the PTC traditional group health plan, the alternatives, including incorporating the for individual health insurance Departments considered the alternative federal and state age curves and tying coverage, that adoption of the excepted of allowing all employers, or, employers the variation to a specific premium for benefit HRA is likely to be modest, such that would qualify to participate in the a specific policy that a participant in the that the risk of introducing adverse small group market, to offer employees class of employees could purchase. selection into other markets is low. The a choice between an individual coverage However, the Departments determined Departments conclude that the benefits HRA and a traditional group health that these options would be unduly of this additional choice and flexibility plan. However, the Departments complex and that imposing the 3 to 1 provided by this new tax preferred determined that retaining this condition limit on the variation of HRA amounts excepted benefit outweigh the likely as proposed is important to prevent within a class based on age, which is costs. against adverse selection and generally based on the degree of age

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variation allowed in individual market proposed rules contained, as a Accordingly, the Departments add premiums under PHS Act section 2701, permitted class of employees, temporary workers employed by staffing sufficiently limits the potential for employees who had not attained age 25. firms to the classes of employees abuse. The Departments considered whether to permitted under the final rules. The proposed rules provided that retain this class in the final rules or The Departments also considered plan sponsors may apply the integration whether to remove this from the list of whether or not to add other classes to conditions on a class-by-class basis such permitted classes, in response to the list of permitted classes, as that an employer may offer an commenters who asserted that this class suggested by commenters, including individual coverage HRA to a class of could lead to adverse selection and does classes based on status as a field worker employees while offering a traditional not reflect the categories employers (such as craft workers and laborers), role group health plan to another class of typically use to offer benefits. In or job title, employee tenure, being employees or may offer different response to these comments, the subject to the Davis Bacon Act and individual coverage HRAs, with Departments determined that the final Related Acts or the Service Contract different terms, to different classes of rules should not include the under-age- Act, exempt or non-exempt status under employees. The Departments considered 25 class of employees in the list of the Fair Labor Standards Act, and whether to retain the ability of permitted classes. religion or status as a minister. The employers to offer or vary individual Further, under the proposed rules, the Departments considered each of these coverage HRAs for different classes of Departments did not include salaried suggestions and determined that these employees or whether employers should employees and hourly employees as suggested classes of employees should be required to offer all employees an permitted classes of employees. In not be permitted as they raise various individual coverage HRA if any finalizing the rules, the Departments issues, including ease of manipulation employee is offered an individual considered whether to add hourly and and potential for adverse selection and coverage HRA. Although some salaried employees as permitted classes health factor discrimination, industry- commenters raised concerns that the or whether to finalize the rule as specificity, and administrability and classes of employees could be proposed. In proposing the rules, the definitional challenges. manipulated leading to health factor Departments had noted that they did not Additional integration safeguards. discrimination and adverse selection, include these classes in the list of The Departments considered a number the Departments decided to finalize the permitted classes due to a concern that of alternative regulatory approaches to ability to offer and vary individual employers might easily be able to address the concern, acknowledged by coverage HRAs on a class-by-class basis change an employee’s status from the Departments and expressed by a because this aspect of the rule provides salaried to hourly (and in certain number of commenters, that there is a employers with the flexibility needed to circumstances, from hourly to salaried), potential for certain of the permitted achieve increased HRA usability and to which could lead to adverse selection. classes of employees to be manipulated maximize employee welfare, which is a Commenters asserted that contrary to in way that could lead to adverse sentiment expressed by a number of the Departments’ concerns these classes selection and health factor commenters. However, the Departments are not easy to manipulate and that discrimination. The Departments acknowledge the concern regarding the hourly and salaried employees should considered not adopting additional potential for adverse selection and be added as permitted classes, in order safeguards, in order to minimize burden health factor discrimination and, to increase the use of individual and complexity and based on the therefore, have concluded that coverage HRAs. The Departments have possibility that other economic additional safeguards are needed in concluded that the benefits of employer incentives related to attracting and certain circumstances, as described later flexibility, increased utilization of retaining talented workers would in this section of the preamble. individual coverage HRAs, and discourage employers from using the Under the proposed rules, the maximizing employee welfare outweigh classes to segment risk. However, the Departments enumerated eight the potential risk of adverse selection Departments have concluded that it is permitted classes of employees and also and health factor discrimination, due to appropriate to apply a minimum class allowed employers to combine the a reconsideration of the extent to which size requirement under the final rules in classes of employees. In the process of these categories could be manipulated certain circumstances. The Departments finalizing the rules, the Departments and because of the application of a sought to develop a rule that is narrowly considered, as an alternative, whether to minimum class size requirement, tailored both to mitigate the risk of provide classes of employees based on discussed later in this section of the adverse selection and health factor a more general standard (like the one preamble. Therefore, the Departments discrimination while also avoiding that applies under the HIPAA add employees paid on a salary basis overly burdening employers or nondiscrimination rules, with a broader and non-salaried employees (such as unnecessarily hampering the use and employment-based classification hourly employees) to the list of flexibility of HRAs to maximize standard) or whether to finalize permitted classes in the final rules. employee welfare. generally as proposed, such that the The Departments also considered, in The Departments considered a final rules would list the specific response to comments, whether to add number of alternatives in designing the permitted classes. The Departments as a class of employees temporary minimum class size requirement. The determined that a broad and open- workers employed by staffing firms. The Departments considered whether to ended standard would not be sufficient Departments determined that adding apply the minimum class size to mitigate the risk of adverse selection this class could increase the usability of requirement to all permitted classes of and therefore under the final rules, the HRAs for staffing firms and benefit their employees or only to the classes of Departments enumerate the permitted employees. The Departments also employees that raise more significant classes. determined that this class would be concerns about manipulation. The The Departments considered a difficult to manipulate, and that, Departments determined that the number of alternatives with regard to therefore, this class does not raise a minimum class size requirement should which classes of employees should be substantial risk of adverse selection or apply to only certain of the classes, permitted under the final rules. The health factor discrimination. referred to as the applicable classes (that

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is, full-time employees, part-time rule would nevertheless permit the prohibit the reimbursement of STLDI employees, salaried employees, non- Departments to address instances of premiums under all excepted benefit salaried employees, and, in general, discrimination based on a health factor. HRAs. The Departments also considered employees whose primary site of The Departments decline to add a facts whether to prohibit the reimbursement employment is in a rating area). The and circumstances test to the final rules, of STLDI premiums for only certain Departments also determined that the because the Departments have excepted benefit HRAs, more minimum class size requirement should concluded that the minimum class size specifically, those sponsored by apply if any of these applicable classes requirement adequately balances the employers that offer traditional group are combined with any other class, need to prevent health factor health plans in the small group market, except if the combined class is the result discrimination with the need to provide where commenters asserted this aspect of one of the applicable classes and the employers with certainty in order to of the rule would have particularly class of employees in a waiting period, encourage expansion and use of damaging effects because employers because the Departments determined individual coverage HRAs. Moreover, would not have a direct negative that that combined classis not easily other applicable nondiscrimination laws financial consequence from offering the manipulable. Similarly, although a class continue to apply. A new facts and excepted benefit for STLDI in addition of employees based on worksites in a circumstances test would add to a traditional small group market plan rating area is an applicable class for significant uncertainty for employers in which case lower-risk employees purposes of the minimum class size while adding little additional protection would likely choose the STLDI and requirement, a class of employees based mitigating adverse selection and health higher-risk employees would choose the on an entire state or a combination of factor discrimination. traditional small group market health two or more entire states is not subject Additional flexibility for the transition plan. The Departments determined that to the minimum class size requirement, to individual coverage HRAs from excepted benefit HRAs generally should because in that case, weighing concerns traditional group health plans. The be allowed to reimburse premiums for about manipulability against the intent Departments also considered regulatory STLDI because it can be a viable health to provide employers with flexibility alternatives that would allow employers insurance option for many people in and choice, the Departments determined to phase in offering individual coverage many circumstances, no individual is the application of the minimum class HRAs, in response to comments noting required to enroll in STLDI, and STLDI size requirement was not warranted. that the transition from traditional disclosure requirements are sufficient to If a class of employees is subject to group health plans to individual apprise consumers of its limits. As the minimum class size requirement, coverage HRAs could be a substantial explained earlier in this preamble, the the class must include a minimum change from an employee perspective. Departments do not expect that allowing number of employees for the individual The Departments considered whether the excepted benefit HRA to reimburse coverage HRA to be offered to that class. additional flexibility was needed, in STLDI premiums will produce adverse As to the number of employees a class particular because the permitted classes selection in the small group market. In must contain to satisfy the minimum of employees that apply under the final particular, the Departments note that class size requirement, the Departments rules provide employers some flexibility individuals who choose to use the considered a number of alternatives to manage the transition to individual excepted benefit HRA to purchase including whether to provide one coverage HRAs. However, the STLDI are likely to be uninsured number for all employers or base the Departments also considered that otherwise, including lower-wage threshold on employer size. The certain additional flexibility could workers who are increasingly declining Departments also considered providing benefit employers and employees, employer offers of traditional group a set number or a number calculated as without adding significant complexity coverage.313 The purchase of STLDI a percentage of the employer’s or increasing the risk of adverse coverage by these individuals will have employees. The Departments selection. Accordingly, the final rules no effect on the small group or determined that this safeguard should provide that, notwithstanding the individual market. be narrowly tailored, so as to prevent general rule that a plan sponsor may However, in response to concerns against adverse selection without only offer either a traditional group raised by commenters, the final rules unduly restricting employer flexibility. health plan or an individual coverage also contain a special rule to address Therefore, under the final rules, the HRA to a class of employees, a plan commenters’ concerns about the applicable minimum class size varies sponsor that offers a traditional group potential for adverse selection in the based on the size of the employer for health plan to a class of employees may small group markets. Under the special smaller employers (that is, those with prospectively offer employees in that rule, the Departments may restrict under 200 employees) and for class hired on or after a certain date in excepted benefit HRAs from being able employers with 200 or more employees, the future an individual coverage HRA, to reimburse STLDI premiums, for the applicable class size minimum is set while continuing to offer employees in employers offering fully-insured or at 20. the class hired before the new hire date partially-insured traditional group In response to comments, the a traditional group health plan. Departments also considered whether, Alternatives considered regarding health plans in the small group market in addition to, or instead of, a minimum excepted benefit HRAs. As proposed, in a state, if certain criteria are satisfied, class size requirement, the final rules the excepted benefit HRA would allow including that HHS makes a finding, in should contain an anti-abuse rule that for the reimbursement of premiums for consultation with DOL and the Treasury would give the Departments the STLDI. In response to commenters 313 In 1999, 17 percent of workers eligible for discretion to determine whether an requesting that the excepted benefit employer coverage at small firms (those with 3 to individual coverage HRA is offered in a HRA not be permitted to reimburse 199 workers) turned down the offer of employer manner that is intended to segment STLDI premiums due to adverse coverage. By 2011, this share had climbed to 22 sicker workers based on all the facts and selection concerns and concerns about percent, and in 2018 it was 27 percent. See Kaiser Family Foundation, ‘‘Employer Health Benefits circumstances. Therefore, even if an the comprehensiveness of STLDI, the 2018 Survey,’’ Figure 3.1, available at http:// employer followed the other rules set Departments considered whether to files.kff.org/attachment/Report-Employer-Health- forth in the final rules, this additional finalize as proposed or whether to Benefits-Annual-Survey-2018.

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Department, that the reimbursement of suggested by commenters, including the stakeholders related to the ability of the premiums for STLDI by excepted benefit annual salary reduction contribution Exchanges to fully implement changes HRAs has caused significant harm to the limit for health FSAs or 15 percent of related to the final rules in time for open small group market in the state that is the cost of coverage under the enrollment for the 2020 plan year. The the principal place of business of the employer’s primary plan. The final rules Departments recognize that Exchanges small employer and this finding must be do not remove or increase the dollar may be unable to fully implement made after submission of a written limit for the excepted benefit HRA. The changes related to the final rules in time recommendation by the applicable state Departments agree that increasing the for open enrollment for the 2020 plan regulatory authority of such state. dollar limit would encourage certain year. However, prior to full The proposed excepted benefit HRA participants to rely solely on benefits implementation, the Departments will rules did not contain a specific notice reimbursed through the excepted benefit work with the Exchanges on their requirement. However, several HRA and could lead to adverse strategies to provide information to commenters suggested that the final selection. Also, in order to constitute a consumers about affordability of rules impose certain notice limited excepted benefit, as explained individual coverage HRAs and requirements for excepted benefit HRAs, earlier in this preamble, because the eligibility for APTC, including how including to inform participants and benefit is not otherwise limited in employees can access individual health beneficiaries of the annual dollar limit scope, the HRA must have a strict dollar insurance coverage through the for benefits under the excepted benefit limit. Exchanges and determine whether they HRA, other terms and conditions of the In determining the appropriate dollar should use APTC. In fact, multiple excepted benefit HRA, and participants’ limit for excepted benefit HRAs, the conversations have already occurred and beneficiaries’ rights under the Departments considered other, similar between program and operational excepted benefit HRA. In response, the limited excepted benefits. The experts at HHS and officials from State Departments considered whether to Departments agree with commenters’ Exchanges regarding implementation in impose a notice requirement, whether to assertions that the proposed limit was the event the rule was finalized as finalize as proposed with no notice reasonable and rational, especially proposed (including with an requirement, or whether to explain the considering the relatively low cost of applicability date as proposed). Ongoing disclosure requirements otherwise excepted benefits coverage, such as technical assistance will be provided applicable to excepted benefit HRAs. In dental or vision coverage. Additionally, related to the development of tools and the final rules, the Departments do not although the Departments recognize that functionality by Exchanges to support impose a notice requirement on private- healthcare expenses may be higher for employers and employees with sector, employment-based plans covered participants who are older or have understanding HRA affordability by ERISA but, instead, explain that dependents, adopting a higher limit to determinations and their impact on excepted benefit HRAs that are subject account for a combination of factors like APTC eligibility, as well as the SEP for to ERISA are already subject to a age and family size could allow an those with an offer of an individual number of disclosure provisions, under excepted benefit HRA to be too large coverage HRA. Specific assistance could which excepted benefit HRAs should and to resemble major medical coverage include sharing technical and generally provide information on and would add significant complexity to educational documentation from FFE eligibility to receive benefits, annual or the rule. implementation that can be leveraged to Applicability date. The proposed lifetime caps or other limits on benefits support State Exchange efforts. In under the plan, and a description or rules were generally proposed to be addition, the Departments will provide summary of the benefits. However, for applicable for plan years beginning on assistance to Exchanges in developing non-federal governmental plans, which or after January 1, 2020. In response to information and tools that could be are not subject to ERISA, the final rules comments expressing concern that provided to employers and employees announce HHS’ intent to propose a issuers, state insurance regulators, the to help ensure smooth implementation notice requirement, similar to the Exchanges, and employers would not be before the full system changes are disclosures required under ERISA. prepared for implementation of the final Under the proposed excepted benefit rules by 2020, the Departments complete. This could include State HRA rules, the Departments proposed considered whether to finalize the Exchanges providing employees with that annual amounts newly made applicability date as proposed or information on how they can calculate available under the HRA would be whether to delay the applicability date HRA affordability and determine the limited to $1,800, indexed for inflation. until 2021. The Departments have impact on APTC in the absence of Many commenters supported the determined that, in consideration that system changes that can make those proposed dollar limit as a reasonable Executive Order 13813, issued in calculations for the employee. mid-point of the different limits that October 2017, set forth HRA expansion The Departments also considered that would result in applying various as an Administration priority ‘‘in the many individuals covered by an methodologies, however some requested near term,’’ and in order to provide individual coverage HRA will prefer to that the limit be increased, including to Americans with more options for select off-Exchange individual health allow for the additional purchase of financing their healthcare, the insurance plans because salary excepted benefit policies or for more regulations should be applicable, as reductions through a cafeteria plan may expensive STLDI policies and others proposed, for 2020. However, the be used to pay premiums for off- requested it not be subject to any dollar Departments acknowledge and also Exchange coverage, if the employer so limit. Some of these commenters considered the crucial role that the allows, and may not be used to pay favored a higher limit for excepted Exchanges have in implementation and premiums for Exchange coverage. To the benefit HRAs based on age and number operationalization of the final rules, and extent a significant proportion of of dependents to reflect that participants the Departments will work closely with employees with individual coverage who are older or have dependents are the Exchanges on implementation. The HRAs purchase individual health likely to have higher healthcare costs. Departments considered the comments insurance coverage off the Exchange, The Departments considered as and the concerns raised by various State concerns about burden on the regulatory alternatives the various limits Exchanges, issuers, employers and other Exchanges, and concerns regarding the

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effects of timely operationalization of D. Paperwork Reduction Act— 1. Wage Estimates the PTC rules, are mitigated. Department of Health and Human Services To derive wage estimates, the Further, the Departments have Departments generally used data from worked to release the final rules as early Under the Paperwork Reduction Act the Bureau of Labor Statistics to derive in 2019 as possible, in recognition of the of 1995 (PRA), HHS is required to average labor costs (including a 100 implementation timing issues raised provide 30-day notice in the Federal percent increase for fringe benefits and and the Departments note, and Register and solicit public comment overhead) for estimating the burden considered, that plan sponsors may before a collection of information associated with the information choose if and when to offer an requirement is submitted to OMB for collection requirements (ICRs).314 Table individual coverage HRA (or an review and approval. To fairly evaluate 3 below presents the mean hourly wage, whether an information collection excepted benefit HRA) and may do so the cost of fringe benefits and overhead, should be approved by OMB, section any time on or after the applicability and the adjusted hourly wage. 3506(c)(2)(A) of the PRA requires that date. The Departments intend to provide HHS solicit comment on the following As indicated, employee hourly wage the guidance necessary for plan issues: estimates have been adjusted by a factor sponsors to offer individual coverage • The need for the information of 100 percent. This is necessarily a HRAs and excepted benefit HRAs for collection and its usefulness in carrying rough adjustment, both because fringe the 2020 plan year, but the Departments out the proper functions of our agency. benefits and overhead costs vary also expect that plan sponsors will take • The accuracy of HHS’ estimate of significantly across employers, and the time they need to evaluate the final the information collection burden. because methods of estimating these rules and to take advantage of these new • The quality, utility, and clarity of costs vary widely across studies. coverage options if and when it is best the information to be collected. Nonetheless, there is no practical • for their workforce. Recommendations to minimize the alternative, and the Departments are of information collection burden on the the view that doubling the hourly wage affected public, including automated to estimate total cost is a reasonably collection techniques. accurate estimation method.

TABLE 3—ADJUSTED HOURLY WAGES USED IN BURDEN ESTIMATES

Fringe Occupational Mean benefits and Adjusted Occupation title code hourly wage overhead hourly wage ($/hour) ($/hour) ($/hour)

Compensation and Benefits Manager ...... 11–3111 $62.50 $62.50 $125.00 Lawyer ...... 23–1011 68.22 68.22 136.44 All Occupations ...... 00–0000 24.34 24.34 48.68

2. ICRs Regarding Substantiation of substantiation that the individual on establishing procedures to comply with Individual Health Insurance Coverage whose behalf reimbursement of medical the substantiation requirements through (45 CFR 146.123(c)(5)) care expenses are requested to be electronic means, so long as the reimbursed were enrolled in individual procedures are reasonable to verify Under the final rules, an HRA must health insurance coverage or Medicare enrollment. The ongoing substantiation implement reasonable procedures to for the month during which the medical may be in the form of a written annually verify that participants or care expenses were incurred. The attestation by the participant, which dependents, whose medical care attestation may be part of the form used may be part of the form used for expenses are reimbursable by the HRA for requesting reimbursement. requesting reimbursement and which are, or will be, enrolled in individual To satisfy these substantiation will minimize the burden on plan health insurance coverage or Medicare requirements, the HRA may require that sponsors and participants. The ongoing for the entire plan year on or before the the participant submit a document substantiation requirement may also be first day of the plan year, or, for an provided by a third party (for example, satisfied by a document from a third individual who is not eligible to an explanation of benefits or insurance party. The associated cost of participate in the individual coverage card) showing that the participant and substantiation will be minimal and is, HRA on the first day of the plan year, any dependent(s) covered by the therefore, not estimated. by the date HRA coverage begins individual coverage HRA are, or will be, The Departments are releasing (annual coverage substantiation enrolled in individual health insurance guidance providing model attestation requirement). coverage or Medicare during the plan language, separate from the final rules. In addition to the annual year or an attestation by the participant However, the Departments note that substantiation of coverage, with each stating that the participant and any individual coverage HRAs will not be new request for reimbursement of an dependent(s) are, or will be, enrolled in required to use the model attestation. incurred medical care expense for the individual health insurance coverage or For those HRAs that elect to use the same plan year, the final rules provide Medicare, the date coverage began or model attestation language provided by that the HRA may not reimburse a will begin, and the name of the provider the Departments, it will further reduce participant for any medical care of the coverage. Additionally, nothing in burden for HRAs and participants. expenses unless, prior to each the final rules would prohibit an The burden related to these ICRs will reimbursement, the participant provides individual coverage HRA from be reviewed under emergency review

314 See May 2017 Bureau of Labor Statistics, Occupational Employment and Wage Estimates, available at https://www.bls.gov/oes/current/oes_ Occupational Employment Statistics, National nat.htm.

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and approval. They have been an individual or a group of individuals sponsor provides an individual coverage submitted to OMB in conjunction with who participants may contact with HRA. In subsequent years, the burden to this final rule and are pending approval. questions regarding the individual update the notice is expected to be coverage HRA; a statement that the 3. ICRs Regarding Notice Requirement minimal and therefore is not estimated. participant should retain the written for Individual Coverage HRA (45 CFR If the HRA plan sponsor elects to use notice because it may be needed to 146.123(c)(6)) the model notice, the burden may be determine whether the participant is reduced. These final rules include a allowed the PTC; a statement that the HHS estimates that in 2020, an requirement that an HRA provide HRA may not reimburse any medical estimated 1,203 state and local written notice to eligible participants. In care expense unless the substantiation general, the HRA will be required to government entities will offer requirements are satisfied; a statement 315 provide a written notice to each of availability of an SEP for employees individual coverage HRAs. The total participant at least 90 days before the and dependents who newly gain access burden to prepare notices will be beginning of each plan year. For to the HRA; the date as of which approximately 3,610 hours with an participants who are not yet eligible to coverage under the HRA may first equivalent cost of approximately participate at the beginning of the plan become effective and the date on which $464,984. In 2021 approximately 1,805 year (or who are not eligible when the the HRA plan year ends; and a additional state and local government notice is provided at least 90 days prior statement to clarify further that there are entities will offer individual coverage to the beginning of the plan year), the multiple types of HRAs and the type the HRAs for the first time and will incur HRA must provide the notice no later participant is being offered is an a burden of approximately 5,415 hours than the date on which the HRA may individual coverage HRA. with an equivalent cost of first take effect for the participant. The written notice may include other approximately $697,476. In 2022, However, the Departments encourage information, as long as the additional approximately 3,008 additional state the HRA to provide the notice as soon content does not conflict with the and local government entities will offer as practicable prior to the date the HRA required information. The written notice individual coverage HRAs for the first may first take effect. The final rules will not need to include information time and will incur a burden of provide that if the HRA is sponsored by specific to a participant. approximately 9,024 hours with an an employer that is established less than The Departments are providing model equivalent cost of approximately $1.16 120 days prior to the beginning of the language contemporaneously on certain million. first plan year of the HRA, the notice aspects of the notice that are not HRA plan sponsors will provide the may be provided no later than the date employer-specific, including model notice to eligible participants every on which the HRA may first take effect language describing the PTC year. HHS estimates that HRA plan for the participant. consequences of being offered and sponsors will provide printed notices to The written notice will be required to accepting an individual coverage HRA, approximately 99,178 eligible include certain relevant information, how the participant may find participants 316 in 2020, 243,438 eligible including a description of the terms of information to determine whether the the HRA, including the maximum dollar individual coverage HRA offered is participants in 2021 and 477,859 amount made available that is used in affordable, and language to meet the eligible participants in 2022. The the affordability determination under requirement to include a statement Departments anticipate that the notices the Code section 36B rules including regarding the availability of an SEP in will be approximately 6 pages long and information on when the amounts will the individual market for individuals for the cost of materials and printing will be be made available (for example, whom an individual coverage HRA is $0.05 per page, with a total cost of $0.30 monthly or annually at the beginning of newly made available. While the per notice. It is assumed that these the plan year); a statement of the right Departments hope it will be useful to notices will be provided along with of the participant to opt-out of and employers, plan sponsors will not be other benefits information with no waive future reimbursement under the required to use the model language and additional mailing cost. The HRA; a description of the potential the final rules do not prohibit an Departments assume that approximately availability of the PTC for a participant employer from providing more 54 percent of notices will be provided who opts out of and waives an HRA if individualized notices, such as different electronically and approximately 46 the HRA is not affordable under the PTC notices for different classes of percent will be provided in print along rules; a description of the PTC eligibility employees, if the employer so chooses. with other benefits information. consequences for a participant who The Departments estimate that for Therefore, in 2020, state and local accepts the HRA; a statement on how each HRA plan sponsor, a compensation government entities providing the participant may find assistance for and benefits manager will need 2 hours individual coverage HRAs will print determining their individual coverage (at $125 per hour) and a lawyer will approximately 45,622 notices at a cost HRA affordability; a statement that the need 1 hour (at $136.44 per hour) to of approximately $13,687. In 2021, participant must inform any Exchange prepare the notices. The total burden for approximately 111,981 notices will be to which they apply for advance an HRA plan sponsor will be 3 hours printed at a cost of approximately payments of the PTC of certain relevant with an equivalent cost of $33,594 and in 2022, approximately information; contact information approximately $386. This burden will 219,815 notices will be printed at a cost (including at least a phone number) of be incurred the first time the plan of approximately $65,945.

315 U.S. Department of the Treasury, Office of Tax individuals in 2022. The Departments estimate that the number of participants and dependents offered Analysis simulation model suggests that in 2020, there is, on average, 1 dependent for every an individual coverage HRA. Number of eligible approximately 80,000 employers will offer policyholder. The Departments also estimate that participants is estimated based on the assumption individual coverage HRAs, with 1.1 million approximately 2 percent of employers are state and that 75 percent of eligible participants will enroll individuals receiving an offer of an individual local government entities, accounting for in their employers’ plans. See Kaiser Family coverage HRA. These numbers will increase to approximately 14 percent of participants. Foundation, ‘‘2017 Employer Health Benefits 200,000 employers and 2.7 million individuals in 316 U.S. Department of the Treasury, Office of Tax Survey’’, Section 3, https://www.kff.org/health- 2021 and to 400,000 employers and 5.3 million Analysis simulation model provides estimates of costs/report/2017-employer-health-benefits-survey/.

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TABLE 4—ANNUAL BURDEN AND COSTS

Estimated number of Estimated Total employers number of Total annual Total estimated Year newly notices to burden estimated printing and offering all eligible (hours) labor cost materials cost HRAs participants

2020 ...... 1,203 99,178 3,610 $464,984 $13,687 2021 ...... 1,805 243,438 5,415 697,476 33,594 2022 ...... 3,008 477,859 9,024 1,162,461 65,945

3 year average ...... 2,005 273,492 6,016 774,974 37,742

The burden related to these ICRs will 6. ICRs Regarding Special Rule for well. Consistent with other SEPs subject be reviewed under emergency review Excepted Benefit HRAs (45 CFR to pre-enrollment verification, and approval. They have been 146.145(b)(3)(viii)(F)) individuals will be required to provide submitted to OMB in conjunction with Under the final rules, an excepted supporting documentation, such as the this final rule and are pending approval. benefit HRA offered by certain small HRA notice required under the final rules, within 30 days of plan selection. 4. ICRs Regarding Notice Requirement employers must not reimburse for Excepted Benefit HRAs premiums for STLDI in a state, if the HHS estimates that an additional Secretary of HHS makes a finding (in 330,000 consumers will submit In response to commenters’ concerns, consultation with the Secretaries of documents in 2020 to verify their the final rules announce HHS’ intent to Labor and the Treasury) that the eligibility to enroll through the SEP in propose a notice requirement with reimbursement of premiums for STLDI the Exchanges, and that a consumer respect to excepted benefit HRAs by excepted benefit HRAs has caused will, on average, spend approximately 1 sponsored by nonfederal governmental significant harm to the small group hour gathering and submitting required plan sponsors in future notice and market in the state that is the principal documentation. Using the average comment rulemaking. It is anticipated place of business of the small employer. hourly wage for all occupations (at an that the proposed excepted benefit HRA The finding by the Secretary of HHS hourly rate of $48.68), the opportunity notice would describe conditions may be made only after submission of cost to a consumer completing this task pertaining to eligibility to receive a written recommendation by the is estimated to be approximately $48.68. benefits, annual or lifetime caps or other applicable state authority of such state, The total annual burden on those limits on benefits under the plan, and a in a form and manner as specified in consumers submitting documentation description or summary of the benefits guidance published by HHS. The will be approximately 330,000 hours consistent with the requirements of 29 written recommendation must include with an equivalent cost of CFR 2520.102–3(j)(2), (3). At that time, evidence that the reimbursement of approximately $16,064,400. As new HHS will estimate the burden associated premiums for STLDI by excepted benefit individual coverage HRA enrollments with this requirement, solicit public HRAs established by fully-insured or increase, these costs also increase in comment, and request OMB approval in partially-insured small employers in the subsequent years. In 2021, an additional accordance with the PRA, as may be state has caused significant harm to the 480,000 consumers will submit necessary. state’s small group market, including documents and incur burden of 480,000 5. ICRs Regarding Notification of with respect to premiums. HHS hours with an equivalent cost of Termination of Coverage (45 CFR anticipates fewer than 10 states will approximately $23,366,400 and in 2022 146.123(c)(1)(iii)) submit recommendations annually. an additional 780,000 consumers will Under 5 CFR 1320.3(c)(4), this ICR submit documents and incur burden of Under the final rules, if an will not be subject to the PRA as we individual’s health insurance coverage 780,000 hours with an equivalent cost of anticipate it will affect fewer than 10 approximately $37,970,400. The three- is cancelled or terminated, including entities in a 12-month period. retroactively, for failure to pay year average is 530,000 additional premiums or any other reason (for 7. ICRs Regarding SEPs (45 CFR consumers submitting documents, with example, a rescission), the individual 155.420(d)(14)) a total burden of 530,000 hours and an coverage HRA must require that the The final SEP rules include a new equivalent cost of $25,800,400 per year. individual notify the HRA that coverage SEP at 45 CFR 155.420(d)(14), to allow HHS will amend the information has been cancelled or terminated and individuals who newly gain access to an collection currently approved under the date on which the cancellation or individual coverage HRA or are newly OMB control number 0938–1207 termination is effective. The associated provided a QSEHRA to enroll in or (Medicaid and Children’s Health cost of this notification will be minimal change their individual health Insurance Programs: Essential Health and is, therefore, not estimated. insurance coverage. As stated earlier in Benefits in Alternative Benefit Plans, The burden related to these ICRs will the preamble, the FFEs will require Eligibility Notices, Fair Hearing and be reviewed under emergency review individuals to submit documentation to Appeal Processes, and Premiums and and approval. They have been confirm their SEP eligibility prior to Cost Sharing; Exchanges: Eligibility and submitted to OMB in conjunction with effectuating their enrollment, and Enrollment (CMS–10468)) to account for this final rule and are pending approval. encourages State Exchanges to do so, as this additional burden.

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TABLE 5—ANNUAL RECORDKEEPING AND REPORTING REQUIREMENTS

Burden per Total annual Hourly labor Total labor Printing and Regulation section OMB Respondents Responses response burden cost of cost of materials Total cost control No. (hours) (hours) reporting reporting cost

§ 146.123(c)(6) (Notice for Indi- 0938–NEW ...... 2,005 273,492 3 6,016 $128.81 $774,974 $37,742 $812,716 vidual Coverage HRAs). 45 CFR 155.420(d)(14) (SEP) ..... 0938–1207 ...... 530,000 530,000 1 530,000 48.68 25,800,400 0 25,800,400

Total ...... 532,005 803,492 ...... 536,016 ...... 26,575,374 37,742 26,613,116

8. Submission of PRA-Related with the PRA. This helps to ensure that contained in these regulations is Comments the public understands the reflected in the burden for OMB Control HHS has submitted a copy of the final Departments’ collection instructions, Number 1545–0123 for the U. S. rules to OMB for its review of the rule’s respondents can provide the requested Business Income Tax Return, 1545–0074 information collection and data in the desired format, reporting for U.S. Individual Income Tax Return, recordkeeping requirements. The burden (time and financial resources) is and 1545–0047 Return of Organizations Exempt From Income Tax. The requirements are not effective until they minimized, collection instruments are estimated annual burden per have been approved by OMB. clearly understood, and the respondent, estimated annual burden To obtain copies of the supporting Departments can properly assess the per recordkeeper, or estimated number statement and any related forms for the impact of collection requirements on respondents. of respondents is updated annually. collections discussed in this rule, please The Departments submitted an visit CMS’ website at www.cms.hhs.gov/ Under the PRA, an agency may not conduct or sponsor, and an individual information collection request (ICR) to PaperworkReductionActof1995, or call OMB in accordance with 44 U.S.C. the Reports Clearance Office at 410– is not required to respond to, a collection of information unless it 3507(d) contemporaneously with the 786–1326. HHS invites public publication of the proposed rules for comments on these information displays a valid OMB control number. In accordance with the requirements of OMB’s review. A copy of the ICR may collection requirements. If you wish to be obtained by contacting the PRA comment, please identify the rule the PRA, DOL published notice on October 29, 2018 (83 FR 54420, 54454) addressee identified or at http:// (CMS–9918–F), the ICR’s CFR citation, www.RegInfo.gov. PRA Addressee: G. CMS ID number, and OMB control requesting an OMB control number for three new information collections (ICs) Christopher Cosby, Office of Policy and number. Comments and Research, U.S. Department of Labor, recommendations must be received by contained in the proposed rules. Two ICs are sponsored jointly by DOL and Employee Benefits Security the OMB desk officer via one of the Administration, 200 Constitution following transmissions: the Treasury Department: (1) Verification of Enrollment in Individual Avenue NW, Room N– 5718, OMB, Office of Information and Washington, DC 20210. Telephone (202) Regulatory Affairs, Attention: CMS Desk Health Insurance Coverage (26 CFR 54.9802–4(c)(5), 29 CFR 2590.702– 693–8410; Fax: (202) 219–5333. These Officer, Fax: (202) 395–5806 OR, Email: are not toll-free numbers. ICRs _ 2(c)(5) and 45 CFR 146.123(c)(5)); and OIRA [email protected]. submitted to OMB also are available at (2) HRA Notice to Participants (26 CFR To obtain copies of a supporting http://www.RegInfo.gov. 54.9802–4(c)(6), 29 CFR 2590.702– statement and any related forms for the In connection with the final rules, the collection(s) summarized in this rule, 2(c)(6) and 45 CFR 146.123(c)(6)). A Departments are submitting an ICR to you may make your request using one third IC is sponsored solely by DOL (29 OMB requesting approval of a new of following: CFR 2510.3–1): (3) Notice to collection of information under OMB 1. Access CMS’ website address at Participants that Individual Health Control Number 1210–0160. Below is a https://www.cms.gov/Regulations-and- Insurance Coverage Policy is Not description of the information Guidance/Legislation/ Subject to Title I of ERISA. In response collections contained in the final rules PaperworkReductionActof1995/PRA- to comments received on the proposal, and their burden. Listing.html. the Departments have added two 2. Email your request, including your additional information collections 1. Verification of Enrollment in address, phone number, OMB number, entitled Participant Notify Individual Individual Health Insurance Coverage and CMS document identifier, to Coverage HRA of Cancelled or In order for an HRA to be integrated [email protected]. Terminated Coverage (26 CFR 54.9802– with individual health insurance 3. Call the Reports Clearance Office at 4(c)(1)(iii), 29 CFR 2590.702–2(c)(1)(iii) coverage (or Medicare, if applicable), (410) 786–1326. and 45 CFR 146.123(c)(1)(iii)) and among other requirements, in general, ICR-related comments are due , Notice for Excepted Benefit HRAs (26 the HRA must implement, and comply 2019. CFR 54.9831–1(c)(3)(viii)(E), 29 CFR with, reasonable procedures to 2590.732(c)(3)(viii)(E) and 45 CFR substantiate that participants and E. Paperwork Reduction Act— 146.145(c)(3)(viii)(E)). dependents covered by the HRA are, or Department of Labor and Department of With regard to the Treasury will be, enrolled in individual health the Treasury Department, the collection of insurance coverage (or Medicare, if As part of the continuing effort to information contained in these applicable) for the plan year (or for the reduce paperwork and respondent regulations is submitted to OMB for portion of the plan year the individual burden, the Departments conduct a review in accordance with the PRA as is covered by the HRA, if applicable). preclearance consultation program to follows. The collection of information in This requirement may be satisfied by provide the general public and federal these regulations is in 26 CFR 54.9815– providing a document from a third agencies with an opportunity to 2711(d)(4) and 26 CFR 54.9802– party, like an issuer, verifying coverage. comment on proposed and continuing 4(c)(1)(iii), (c)(5) and (c)(6). The burden As an alternative procedure, this collections of information in accordance for the collection of information requirement may also be satisfied if the

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HRA requires participants to provide an note that individual coverage HRAs will not yet eligible to participate at the attestation of coverage, including the not be required to use the model beginning of the plan year (or who are date coverage begins and the provider of attestation. For those HRAs that elect to not eligible when the notice is provided the coverage. use the model attestation language at least 90 days prior to the beginning In addition, following the initial provided by the Departments, it will of the plan year), the HRA must provide substantiation of coverage, with each further reduce burden for the HRAs and the notice no later than the date on new request for reimbursement of an participants. which the HRA may first take effect for incurred medical care expense for the Section II.A.8 of this preamble the participant. Also, for any participant same plan year, the HRA may not discusses comments received on the who is employed by an employer that is reimburse participants for any medical requirement to verify enrollment first established less than 120 days care expenses unless, prior to each including II.A.8.a In General, II.A.8.b before the beginning of the first plan reimbursement, the participant provides Methods of Substantiation, and II.A.8.c year of the HRA, the notice must be substantiation that the individual whose Reliance on Documentation or provided no later than the date on medical care expenses are requested to Attestation. which the HRA may first take effect for be reimbursed continues to be enrolled 2. HRA Notice to Participants the participant. in individual health insurance coverage Section II.A.9 of the preamble (or Medicare, if applicable) for the The final rules (29 CFR 2590.702– discusses comments received on the month during which the medical care 2(c)(6)(ii)) require an HRA to provide notice, the Departments’ responses and expenses were incurred. The HRA must written notice to eligible participants changes made to the notice requirement implement, and comply with, including, among other things, the including II.A.9.a Notice Content, reasonable procedures to satisfy this following information: (1) A description II.A.9.b Notice Individualization, requirement. This substantiation may be of the terms of the HRA, including the II.A.9.c Model Notice, II.A.9.d Notice in the form of a written attestation by amounts newly made available as used Timing and Delivery. the participant, which may be part of in the affordability determination under The Departments estimate that a the form used for requesting the Code section 36B final rules; (2) a compensation and benefits manager reimbursement, or a document from a statement of the right of the participant would require two hours (at $125 per third party (for example, a health to opt-out of and waive future hour) and a lawyer would require one insurance issuer). reimbursement under the HRA; (3) a hour (at $136.44 per hour) to prepare Documentation, including proof that description of the potential availability the notice for each HRA. Thus, the total expenditure of funds is for a medical of the PTC for a participant who opts hour burden for each HRA would be 3 care expense, is currently universal out of and waives an HRA if the HRA hours with an equivalent cost of when seeking reimbursement from an is not affordable under the final PTC approximately $386. The Departments HRA. For the new requirements rules; and (4) a description of the PTC estimate that each notice would be six contained in the final rules regarding eligibility consequences for a pages, with total materials and printing verification of enrollment in individual participant who accepts the HRA. The cost of $0.30 per notice ($0.05 per page). health insurance coverage (or Medicare, written notice may include other The Departments estimate that 78,797 if applicable), the HRA can require information, as long as the additional private employers would 317 newly offer proof of coverage or attestations of information does not conflict with the individual coverage HRAs in 2020 318 as coverage as part of the processes that required information. The written notice a result of the final rules in the first already exist for when participants seek does not need to include information year. Therefore, the Departments reimbursement from HRAs for specific to a participant. In response to estimate the total hour burden for these premiums or other medical care public comments, the Departments are HRAs to prepare the notices would be expenses. The additional burden is de separately publishing a model notice 236,390 hours with an equivalent cost of minimis, because the attestation can be that can be used to satisfy these $30,450,216. a part of the information already requirements, although the HRA will be All individual coverage HRAs are required when seeking reimbursement. required to add certain information required to annually send the notice to To the extent an HRA develops specific to the particular HRA. The all eligible participants (those eligible to additional processes for the requirement Departments note that individual enroll). The Departments estimate that that individuals verify enrollment in coverage HRAs will not be required to there would be 634,155 eligible individual health insurance coverage (or use the model notice. For those HRAs participants at private employers in Medicare) for the plan year, the that elect to use the model notice 2020 that would need to receive the additional burden is also expected to be language provided by the Departments, notice.319 The Departments assume that de minimis because it involves either it will further reduce burden for the approximately 54 percent of notices attestation or providing documents that HRAs. would be provided electronically and already exist. In general, the HRA must provide the approximately 46 percent would be The Departments are providing model written notice to each participant at provided in print along with other attestation language, separate from the least 90 days before the beginning of benefits information. Therefore, a total final rules. However, the Departments each plan year. For participants who are of 291,711 notices will be printed at a

317 U.S. Department of the Treasury, Office of Tax and Economic Supplement of the Current 3,055,474 eligible participants in all individual Analysis used a simulation model to obtain these Population Survey, July 25, 2017. https:// coverage HRAs will receive notices. estimates. For 2020, the model estimated that www.dol.gov/sites/default/files/ebsa/researchers/ 319 Number of eligible participants is estimated 80,000 employers will offer individual coverage data/health-and-welfare/health-insurance- based on Treasury estimates of the number of HRAs and 1.1 million individuals will be offered coverage-bulletin-2016.pdf. individuals enrolled in individual coverage HRAs, those HRAs. Based on DOL estimates about 98 the assumption that there are two enrollees per 318 Comparable numbers for 2021 are 118,195 percent of these will be in the private market, and employee participant, and the assumption that 75 the rest will be through public employers like state private employers will newly offer individual percent of eligible participants would enroll in their and local governments. There are on average one coverage HRAs and 1,556,562 eligible participants employers’ plans. See Kaiser Family Foundation, dependent for every policy holder. ‘‘Health in all individual coverage HRAs will receive ‘‘2017 Employer Health Benefits Survey’’, Section 3, Insurance Coverage Bulletin’’, Abstract of the notices, and for 2022 196,992 private employers https://www.kff.org/health-costs/report/2017- Auxiliary Data for the March 2016 Annual Social will newly offer individual coverage HRAs and employer-health-benefits-survey/.

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cost of $87,513. Tables 6 and 7 provide estimates for years 2020, 2021 and 2022. TABLE 6—BURDEN TO PREPARE HRA NOTICE FOR THE FIRST TIME-PRIVATE SECTOR EMPLOYERS

Number of employers Number Benefit Number Total Year newly Legal cost of hours manager cost of hours for Total hour equivalent offering per hour for legal per hour benefit burden cost HRAs 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 7—BURDEN TO PROVIDE NOTICE TO ALL ELIGIBLE PRIVATE SECTOR PARTICIPANTS

Total Number Year number of notices Cost per Total cost of notices sent by mail notice burden

(a) (b) (c) (d) (e) = (c) * (d)

2020 ...... 634,155 291,711 $0.30 $87,513 2021 ...... 1,556,562 716,019 0.30 214,806 2022 ...... 3,055,474 1,405,518 0.30 421,655

3. Notice to Participants That Individual required text is provided in the rule and respect to excepted benefit HRAs Health Insurance Coverage Policy Is Not can be included with other notices. sponsored by non-federal governmental Subject to Title I of ERISA Section II.A.9 of the preamble plan sponsors in future notice and discusses comments received on the comment rulemaking. It is anticipated In the final rules, DOL clarifies that notice required to be provided to that the proposed excepted benefit HRA individual health insurance coverage, participants eligible for an individual notice would be required to state the premiums of which are reimbursed coverage HRA. conditions pertaining to eligibility to by an HRA, QSEHRA, or supplemental receive benefits, annual or lifetime caps salary reduction arrangement is not 4. Participant Notifies Individual or other limits on benefits under the considered an ‘‘employee welfare Coverage HRA of Cancelled or excepted benefit HRA, and a description benefit plan’’ with the consumer Terminated Coverage of or summary of the benefits consistent protections provided under ERISA, if The final rules require that if a with the content and timing of DOL’s certain safe harbor conditions are covered individual fails to pay the SPD requirements. satisfied. HRA plan sponsors are applicable premium(s) by the end of a For private-sector, employment-based required to notify participants of this grace period and the coverage is plans, other notice requirements under fact (29 CFR 2510.3–1(l)(5)). For an cancelled or terminated, including Part 1 of ERISA already apply. For HRA, this notice requirement is satisfied retroactively, or if individual health example, excepted benefit HRAs that are if annually the notice requirement in 26 insurance coverage is cancelled or ERISA-covered plans must provide a CFR 54.9802–4(c)(6) and 29 CFR terminated retroactively for some other SPD, SMM, and summaries of material 2590.702–2(c)(6) is satisfied, which is reason (for example, a rescission), the reductions in covered services or part of the HRA Notice to Participants individual coverage HRA must require benefits.320 The excepted benefit HRA’s discussed earlier in this preamble. that the individual notify the HRA that SPD must include, for example, the Therefore, this notice requirement coverage has been cancelled or conditions pertaining to eligibility to imposes no additional burden. For terminated and the date on which the receive benefits; a description or QSEHRAs and for HRAs not subject to coverage cancellation or termination is summary of the benefits; the 26 CFR 54.9802–4(c)(6) and 29 CFR effective (26 CFR 54.9802–4(c)(1)(iii), 29 circumstances that may result in 2590.702–2(c)(6), but that reimburse CFR 2590.702–254.9801–4(c)(1)(iii) and disqualification, ineligibility, or denial, premiums for individual health 45 CFR 146.123(c)(1)(iii)). The loss, forfeiture, suspension, offset, insurance coverage, the plan sponsor Departments have concluded that the reduction, or recovery (for example, by may use the following language to burden associated with this notification exercise of subrogation or satisfy this condition: ‘‘The individual requirement is de minimis for reimbursement rights) of any benefits; health insurance coverage that is paid participants that cancel coverage, and the procedures governing claims for for by this plan, if any, is not subject to because they can satisfy the requirement benefits under the excepted benefit the rules and consumer protections of by making a phone call or sending an HRA. Accordingly, for excepted benefit the Employee Retirement Income email. HRAs that are subject to ERISA, the Security Act. You should contact your Other related comments are discussed burden for providing information state insurance department for more in section II.A.2.d of this preamble. regarding excepted benefit HRAs is information regarding your rights and 5. Notice for Excepted Benefit HRAs captured under DOL’s SPD information responsibilities if you purchase collection (OMB Control Number 1210– individual health insurance coverage.’’ In response to commenters’ concerns, The Departments estimate that this the final rules announce HHS’ intent to 320 See 29 CFR 2520.104b–2, 2520.104b–3(a), and burden will be de minimis, because the propose a notice requirement with (d)(3).

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0039), which includes a growth factor in excess of 3 to 5 percent of revenues annually for inflation. In 2019, that for new SPDs and SMMs provided to for small entities. Entities that choose to threshold is approximately $154 participants to notify them regarding offer an individual coverage HRA million. These final rules do not include coverage under new plans and plan instead of a traditional group health any Federal mandate that may result in amendments. plan are likely to experience a modest expenditures by state, local, or tribal Additional comments are discussed in increase or decrease in administrative governments, or by the private sector in section II.B.7 of this preamble. burden associated with health benefits. excess of that threshold. The information collections are Entities that newly offer health benefits I. Federalism summarized as follows: in the form of an individual coverage Type of Review: New Collection. HRA would bear modest administrative Executive Order 13132 outlines Agency: DOL–EBSA, Treasury—IRS. costs. However, offering an individual fundamental principles of federalism. It Title: Notice for Health coverage HRA is entirely voluntary on requires adherence to specific criteria by Reimbursement Arrangements the part of employers, and no employer Federal agencies in formulating and integrated with Individual Health that would experience substantial costs implementing policies that have Insurance Coverage. would be expected to offer an ‘‘substantial direct effects’’ on the states, OMB Numbers: 1210–0160 (DOL), individual coverage HRA. In addition, the relationship between the national 1545–0123, 1545–0074, and 1545–0047 the final rules would provide large and government and states, or on the (Treasury). small employers with an additional distribution of power and Affected Public: Private Sector. responsibilities among the various Total Respondents: 1,442,876 three- choice of a tax-preferred health benefit to offer their employees, potentially levels of government. Federal agencies year average. promulgating regulations that have Total Responses: 18,798,855 three- enabling them to attract and retain these federalism implications must year average. workers and maintain a healthier consult with state and local officials, Frequency of Response: Annually. workforce. Estimated Total Annual Burden In addition, section 1102(b) of the and describe the extent of their Hours: 196,992 for each agency Social Security Act requires agencies to consultation and the nature of the (combined total is 393,984 hours). Three prepare a regulatory impact analysis if concerns of state and local officials in year average. a rule may have a significant economic the preamble to the final rules. Federal Estimated Total Annual Burden Cost: impact on the operations of a substantial officials have discussed the issues $120,662 for each agency (combined number of small rural hospitals. This related to implementation of the total is $241,325). Three year average. analysis must conform to the provisions policies in the proposed rules with state of section 604 of the RFA. The final regulatory officials. Over multiple F. Regulatory Flexibility Act rules will not have a direct effect on individual and group conversations, The Regulatory Flexibility Act (5 small rural hospitals though there may federal and state officials shared U.S.C. 601 et seq.) (RFA) imposes be an indirect effect. By reducing the information about how and when certain requirements with respect to number of uninsured persons, the final Exchange systems and processes could federal rules that are subject to the rules could reduce administrative costs, be updated to support implementation notice and comment requirements of such as billing costs and the costs of of individual coverage HRAs while section 553(b) of the Administrative helping patients obtain public health minimizing burden and confusion for Procedure Act (5 U.S.C. 551 et seq.) and benefits. The final rules could also both employers and consumers. State which are likely to have a significant reduce the cost of uncompensated care Exchanges expressed interest in how the economic impact on a substantial borne by small rural hospitals and other FFEs would update information and number of small entities. Unless an healthcare providers (and shift such systems to support employers and agency certifies that a final rule is not costs to insured persons). However, the employees with HRA affordability likely to have a significant economic Departments have determined that the determinations and the impact on APTC impact on a substantial number of small final rules will not have a significant eligibility. The FFEs explained possible entities, section 604 of the RFA requires impact on the operations of a substantial ways in which the federal platform that the agency prepare a final number of small rural hospitals. would approach these issues and regulatory flexibility analysis describing operations if the rules were finalized as the impact of the rule on small entities. G. Impact of Regulations on Small proposed and agreed to share related Small entities include small businesses, Business—Department of the Treasury documentation once implementation organizations, and governmental Pursuant to section 7805(f) of the begins, to support state efforts. Some jurisdictions. Code, the proposed rule that preceded State Exchanges expressed concerns in The RFA generally defines a ‘‘small this final rule was submitted to the these conversations that fully entity’’ as (1) a proprietary firm meeting Chief Counsel for Advocacy of the Small implementing these changes would take the size standards of the Small Business Business Administration for comment several months and likely would not be Administration (SBA) (13 CFR 121.201), on its impact on small business, and no finished before individual coverage (2) a nonprofit organization that is not comments were received. HRAs become available starting on dominant in its field, or (3) a small January 1, 2020. The FFEs offered H. Unfunded Mandates Reform Act government jurisdiction with a suggestions for information that could population of less than 50,000. (States Section 202 of the Unfunded be provided to employers and and individuals are not included in the Mandates Reform Act of 1995 (UMRA) consumers to address these concerns definition of ‘‘small entity.’’) The requires that agencies assess anticipated and ensure smooth implementation Departments use as their measure of costs and benefits and take certain other before system changes are complete. significant economic impact on a actions before issuing a final rule that substantial number of small entities a includes any Federal mandate that may J. Congressional Review Act change in revenues of more than 3 to 5 result in expenditures in any 1 year by This final rule is subject to the percent. state, local, or Tribal governments, in Congressional Review Act provisions of The Departments do not expect the the aggregate, or by the private sector, of the Small Business Regulatory final rules to produce costs or benefits $100 million in 1995 dollars, updated Enforcement Fairness Act of 1996 (5

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U.S.C. 801 et seq.) and will be requirements, and State regulation of described in paragraph (c)(3)(i)(B) of transmitted to the Congress and to the health insurance. this section. Comptroller General for review in (B) HRAs and other account-based 45 CFR Part 155 accordance with such provisions. group health plans integrated with Exchange establishment standards individual health insurance coverage. K. Reducing Regulation and Controlling and other related standards under the Regulatory Cost * * * * * Affordable Care Act. (5) Affordable HRA or other account- Executive Order 13771, titled Kirsten Wielobob, based group health plan. Reducing Regulation and Controlling Deputy Commissioner for Services and (i) In general. Regulatory Costs, was issued on January Enforcement, Internal Revenue Service. (ii) Required HRA contribution. 30, 2017 and requires that the costs Approved: , 2019. (iii) Monthly amounts. associated with significant new (A) Monthly lowest cost silver plan David J. Kautter, regulations ‘‘shall, to the extent premium. permitted by law, be offset by the Assistant Secretary of the Treasury (Tax (B) Monthly HRA amount. Policy). elimination of existing costs associated (iv) Employee safe harbor. with at least two prior regulations.’’ Signed at Washington, DC, this 10th day of (v) Amounts used for affordability June, 2019. This final rule is an Executive Order determination. 13771 deregulatory action. Preston Rutledge, (vi) Affordability for part-year period. Assistant Secretary, Employee Benefits Statutory Authority (vii) Related individual not allowed as Security Administration, Department of a personal exemption deduction. Labor. The Department of the Treasury (viii) Post-employment coverage. regulations are adopted pursuant to the Dated: , 2019. (ix) Examples. Seema Verma, authority contained in sections 7805 * * * * * and 9833 of the Code. Administrator, Centers for Medicare & ■ The Department of Labor regulations Medicaid Services. Par. 3. Section 1.36B–2 is amended are adopted pursuant to the authority Dated: June 7, 2019. by: ■ a. Redesignating the text of paragraph contained in 29 U.S.C. 1002, 1135, 1182, Alex M. Azar II, 1185d, 1191a, 1191b, and 1191c; (c)(3)(i) as paragraph (c)(3)(i)(A). Secretary, Department of Health and Human ■ b. Revising the subject heading to Secretary of Labor’s Order 1–2011, 77 Services. FR 1088 (Jan. 9, 2012). newly designated paragraph (c)(3)(i)(A). DEPARTMENT OF THE TREASURY ■ c. Adding paragraph (c)(3)(i)(B). The Department of Health and Human ■ d. Adding a sentence at the end of Services regulations are adopted Internal Revenue Service paragraphs (c)(3)(ii) and (c)(3)(v)(A)(1) pursuant to the authority contained in Amendments to the Regulations and (2). sections 2701 through 2763, 2791, 2792, ■ e. Revising paragraphs (c)(3)(v)(A)(3) and 2794 of the PHS Act (42 U.S.C. Accordingly, 26 CFR parts 1 and 54 and (5). 300gg–300gg–63, 300gg–91, 300gg–92 are amended as follows: ■ f. Adding a sentence at the end of and 300gg–94), as amended; sections PART 1—INCOME TAXES paragraph (c)(3)(vi). 1311 and 1321 of PPACA (42 U.S.C. ■ g. Adding paragraph (c)(5). 13031 and 18041). ■ Paragraph 1. The authority citation ■ h. Revising paragraph (e)(1). List of Subjects for part 1 continues to read in part as ■ i. Adding paragraph (e)(3). follows: The revisions and additions read as 26 CFR Part 1 Authority: 26 U.S.C. 7805. follows: Income taxes, Reporting and * * * * * recordkeeping requirements. § 1.36B–2 Eligibility for premium tax ■ Par 2. Section 1.36B–0 is amended credit. 26 CFR Part 54 by— * * * * * ■ a. Adding entries for §§ 1.36B– Excise taxes, Health care, Health (c) * * * 2(c)(3)(i)(A) and (B). (3) * * * insurance, Pensions, Reporting and ■ b. Revising the entry for § 1.36B– recordkeeping requirements. (i) * * * 2(c)(5). (A) Plans other than health ■ 29 CFR Part 2510 c. Adding entries for §§ 1.36B– reimbursement arrangements (HRAs) or 2(c)(5)(i) and (ii), 1.36B–2(c)(5)(iii), Employee benefit plans, Pensions. other account-based group health plans 1.36B–2(c)(5)(iii)(A) and (B), and 1.36B– described in paragraph (c)(3)(i)(B) of 29 CFR Part 2590 2(c)(5)(iv) through (ix). this section. *** The additions and revision read as Continuation coverage, Disclosure, (B) HRAs and other account-based follows: Employee benefit plans, Group health group health plans integrated with plans, Health care, Health insurance, § 1.36B–0 Table of contents. individual health insurance coverage. Medical child support, Reporting and * * * * * An employee who is offered an HRA or recordkeeping requirements. other account-based group health plan § 1.36B–2 Eligibility for premium tax that would be integrated with 45 CFR Parts 144 and 146 credit. individual health insurance coverage (or Health care, Health insurance, * * * * * Medicare Part A and B or Medicare Part Reporting and recordkeeping (c) * * * C), within the meaning of §§ 54.9802–4 requirements. (3) * * * and 54.9815–2711(d)(4) of this chapter, (i) In general. if the employee enrolls in individual 45 CFR Part 147 (A) Plans other than health health insurance coverage (or Medicare Health care, Health insurance, reimbursement arrangements (HRAs) or Part A and B or Medicare Part C), and Reporting and recordkeeping other account-based group health plans an individual who is offered the HRA or

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other account-based group health plan incorrect information to an Exchange contribution (as defined in paragraph because of a relationship to the concerning the portion of the annual (c)(5)(ii) of this section) for the month employee (a related HRA individual), premium for coverage for the employee does not exceed 1/12 of the product of are eligible for minimum essential or related individual under the plan. A the employee’s household income for coverage under an eligible employer- reckless disregard of the facts occurs if the taxable year and the required sponsored plan for any month for which the taxpayer makes little or no effort to contribution percentage (as defined in the HRA or other account-based group determine whether the information paragraph (c)(3)(v)(C) of this section). health plan is offered if the HRA or provided to the Exchange is accurate (ii) Required HRA contribution. An other account-based group health plan under circumstances that demonstrate a employee’s required HRA contribution is affordable for the month under substantial deviation from the standard is the excess of— paragraph (c)(5) of this section or if the of conduct a reasonable person would (A) The monthly premium for the employee does not opt out of and waive observe. A disregard of the facts is lowest cost silver plan for self-only future reimbursements from the HRA or intentional if the taxpayer knows that coverage of the employee offered in the other account-based group health plan. the information provided to the Exchange for the rating area in which An HRA or other account-based group Exchange is inaccurate. See paragraph the employee resides, over health plan described in this paragraph (c)(5) of this section for an employee (B) The monthly self-only HRA or (c)(3)(i)(B) that is affordable for a month safe harbor that applies when an other account-based group health plan under paragraph (c)(5) of this section is Exchange determines that an HRA or amount (or the monthly maximum treated as providing minimum value for other account-based group health plan amount available to the employee under the month. For purposes of paragraphs described in paragraph (c)(3)(i)(B) of the HRA or other account-based group (c)(3) and (5) of this section, the this section is not affordable for an health plan if the HRA or other account- definitions under § 54.9815–2711(d)(6) employee or a related HRA individual based group health plan provides for of this chapter apply. for the period of enrollment in a reimbursements up to a single dollar amount regardless of whether an (ii) * * * The plan year for an HRA qualified health plan. employee has self-only or other-than- or other account-based group health * * * * * self-only coverage). (5) Employer contributions to HRAs plan described in paragraph (c)(3)(i)(B) (iii) Monthly amounts—(A) Monthly of this section is the plan’s 12-month integrated with eligible employer- lowest cost silver plan premium. For coverage period (or the remainder of the sponsored plans. Amounts newly made purposes of paragraph (c)(5)(ii)(A) of 12-month coverage period for a newly available for the current plan year under this section, the premium for the lowest eligible individual or an individual who an HRA that an employee may use to cost silver plan is determined without enrolls during a special enrollment pay premiums, or may use to pay cost- regard to any wellness program period). sharing or benefits not covered by the incentive that affects premiums unless * * * * * primary plan in addition to premiums, the wellness program incentive relates (v) * * * reduce the employee’s required exclusively to tobacco use, in which (A) * * * contribution if the HRA would be case the incentive is treated as earned. (1) * * * See paragraph (c)(5) of this integrated, within the meaning of If the premium differs for tobacco users section for rules for when an HRA or § 54.9815–2711(d)(2) of this chapter, and non-tobacco users, the premium for other account-based group health plan with an eligible employer-sponsored the lowest cost silver plan is the described in paragraph (c)(3)(i)(B) of plan for an employee enrolled in the premium that applies to non-tobacco this section is affordable for an plan. The eligible employer-sponsored users. For the purpose of this paragraph employee for a month. plan and the HRA must be offered by (c)(5)(iii)(A), the term wellness program (2) * * * See paragraph (c)(5) of this the same employer. Employer incentive has the same meaning as the section for rules for when an HRA or contributions to an HRA described in term reward in 26 CFR 54.9802– other account-based group health plan this paragraph (c)(3)(v)(A)(5) reduce an 1(f)(1)(i). A silver-level qualified health described in paragraph (c)(3)(i)(B) of employee’s required contribution only plan that is used for purposes of this section is affordable for a related to the extent the amount of the annual determining a taxpayer’s lowest cost HRA individual for a month. contribution is required under the terms silver plan for self-only coverage under (3) Employee safe harbor. An eligible of the plan or otherwise determinable paragraph (c)(5)(ii)(A) of this section employer-sponsored plan is not within a reasonable time before the does not cease to be the taxpayer’s affordable for an employee or a related employee must decide whether to enroll lowest cost silver plan for self-only individual for a plan year if, when the in the eligible employer-sponsored plan. coverage solely because the plan employee or a related individual enrolls * * * * * terminates or closes to enrollment in a qualified health plan for a period (vi) * * * An HRA or other account- during the taxable year. coinciding with the plan year (in whole based group health plan described in (B) Monthly HRA amount. For or in part), an Exchange determines that paragraph (c)(3)(i)(B) of this section that purposes of paragraph (c)(5)(ii)(B) of the eligible employer-sponsored plan is is affordable for a month under this section, the monthly self-only HRA not affordable for that plan year. This paragraph (c)(5) of this section is treated or other account-based group health paragraph (c)(3)(v)(A)(3) does not apply as providing minimum value for the plan amount is the self-only HRA or to a determination made as part of the month. other account-based group health plan redetermination process described in 45 * * * * * amount newly made available under the CFR 155.335 unless the individual (5) Affordable HRA or other account- HRA for the plan year, divided by the receiving an Exchange redetermination based group health plan—(i) In general. number of months in the plan year the notification affirmatively responds and Except as otherwise provided in this HRA or other account-based group provides current information about paragraph (c)(5), an HRA or other health plan is available to the employee. affordability. This paragraph account-based group health plan The monthly maximum amount (c)(3)(v)(A)(3) does not apply for an described in paragraph (c)(3)(i)(B) of available to the employee under the individual who, with intentional or this section is affordable for a month if HRA or other account-based group reckless disregard for the facts, provides the employee’s required HRA health plan is the maximum amount

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newly made available for the plan year employer previously provided to the paragraph (c)(3)(v)(C) of this section and to the employee under the plan, divided employee and under which the is updated annually. Because the by the number of months in the plan employee is no longer covered are not required contribution percentage for year the HRA or other account-based taken into account for purposes of this 2020 has not yet been determined, the group health plan is available to the paragraph (c)(5). examples assume a required employee. (vi) Affordability for part-year period. contribution percentage for 2020 of 9.78 (iv) Employee safe harbor. An HRA or Affordability under this paragraph (c)(5) percent. other account-based group health plan is determined separately for each (A) Example 1: Determination of described in paragraph (c)(3)(i)(B) of employment period that is less than a affordability—(1) Facts. In 2020 Taxpayer A this section is not affordable for a month full calendar year or for the portions of is single, has no dependents, and has for an employee or a related HRA the plan year of an employer’s HRA or household income of $28,000. A is an individual if, when the employee or other account-based group health plan employee of Employer X for all of 2020. X related HRA individual enrolls in a that fall in different taxable years of an offers its employees an HRA described in qualified health plan for a period applicable taxpayer. An HRA or other paragraph (c)(3)(i)(B) of this section that coinciding with the period the HRA or account-based group health plan reimburses $2,400 of medical care expenses other account-based group health plan described in paragraph (c)(3)(i)(B) of for single employees with no children (the self-only HRA amount) and $4,000 for is available to the employee or related this section is affordable for a part-year employees with a spouse or children for the HRA individual (in whole or in part), an period if the employee’s annualized medical expenses of the employees and their Exchange determines that the HRA or required HRA contribution for the part- family members. A enrolls in a qualified other account-based group health plan year period does not exceed the health plan through the Exchange in the is not affordable for the period of required contribution percentage of the rating area in which A resides and remains enrollment in the qualified health plan. applicable taxpayer’s household income enrolled for all of 2020. The monthly This paragraph (c)(5)(iv) does not apply for the taxable year. The employee’s premium for the lowest cost silver plan for to a determination made as part of the annualized required HRA contribution self-only coverage of A that is offered in the redetermination process described in 45 is the employee’s required HRA Exchange for the rating area in which A resides is $500. CFR 155.335 unless the individual contribution for the part-year period (2) Conclusion. A’s required HRA receiving an Exchange redetermination times a fraction, the numerator of which contribution, as defined in paragraph notification affirmatively responds and is 12 and the denominator of which is (c)(5)(ii) of this section, is $300, the excess provides current information about the number of months in the part-year of $500 (the monthly premium for the lowest affordability. This paragraph (c)(5)(iv) period during the applicable taxpayer’s cost silver plan for self-only coverage of A) does not apply for an individual who, taxable year. Only full calendar months over $200 (1/12 of the self-only HRA amount with intentional or reckless disregard are included in the computation under provided by Employer X to its employees). In for the facts, provides incorrect this paragraph (c)(5)(vi). addition, 1/12 of the product of 9.78 percent and A’s household income is $228 ($28,000 information to an Exchange concerning (vii) Related individual not allowed as × a personal exemption deduction. A .0978 = $2,738; $2,738/12 = $228). Because the relevant HRA or other account-based A’s required HRA contribution of $300 group health plan amount offered by the related HRA individual is treated as exceeds $228 (1/12 of the product of 9.78 employee’s employer. A reckless ineligible for minimum essential percent and A’s household income), the HRA disregard of the facts occurs if the coverage under an HRA or other is unaffordable for A for each month of 2020 taxpayer makes little or no effort to account-based group health plan under paragraph (c)(5) of this section. If A determine whether the information described in paragraph (c)(3)(i)(B) of opts out of and waives future provided to the Exchange is accurate this section for months that the reimbursements from the HRA, A is not under circumstances that demonstrate a employee opted out of and waived eligible for minimum essential coverage substantial deviation from the standard future reimbursements from the HRA or under the HRA for each month of 2020 under other account-based group health plan paragraph (c)(3)(i)(B) of this section. of conduct a reasonable person would (B) Example 2: Determination of observe. A disregard of the facts is and the employee is not allowed a affordability for a related HRA individual— intentional if the taxpayer knows that personal exemption deduction under (1) Facts. In 2020 Taxpayer B is married and the information provided to the section 151 for the related HRA has one child who is a dependent of B for Exchange is inaccurate. individual. 2020. B has household income of $28,000. B (v) Amounts used for affordability (viii) Post-employment coverage. An is an employee of Employer X for all of 2020. determination. Only amounts that are individual who is offered an HRA or X offers its employees an HRA described in newly made available for the plan year other account-based group health plan paragraph (c)(3)(i)(B) of this section that of the HRA or other account-based described in paragraph (c)(3)(i)(B) of reimburses $3,600 of medical care expenses group health plan described in this section, for months after an for single employees with no children (the paragraph (c)(3)(i)(B) of this section and employee terminates employment with self-only HRA amount) and $5,000 for employees with a spouse or children for the determinable within a reasonable time the employer offering the HRA or other medical expenses of the employees and their before the beginning of the plan year of account-based group health plan, is family members. B, B’s spouse, and B’s child the HRA or other account-based health eligible for minimum essential coverage enroll in a qualified health plan through the plan are considered in determining under the HRA or other account-based Exchange in the rating area in which B whether an HRA or other account-based group health plan for months after resides and they remain enrolled for all of group health plan described in termination of employment only if the 2020. No advance credit payments are made paragraph (c)(3)(i)(B) of this section is employee does not forfeit or opt out of for their coverage. The monthly premium for affordable. Amounts made available for and waive future reimbursements from the lowest cost silver plan for self-only a prior plan year that carry over to the the HRA or other account-based group coverage of B that is offered in the Exchange current plan year are not taken into for the rating area in which B resides is $500. health plan for months after termination (2) Conclusion. B’s required HRA account for purposes of this paragraph of employment. contribution, as defined in paragraph (c)(5). Similarly, amounts made (ix) Examples. The following (c)(5)(ii) of this section, is $200, the excess available to account for amounts examples illustrate the provisions of of $500 (the monthly premium for the lowest remaining in a different HRA or other this paragraph (c)(5). The required cost silver plan for self-only coverage for B) account-based group health plan the contribution percentage is defined in over $300 (1/12 of the self-only HRA amount

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provided by Employer X to its employees). In each month in the period health plan, and is not group health addition, 1/12 of the product of 9.78 percent through December 31, 2020, under paragraph insurance coverage, provided all the and B’s household income for 2020 is $228 (c)(5) of this section. Affordability for the × conditions in 29 CFR 2510.3–1(l) are ($28,000 .0978 = $2,738; $2,738/12 = $228). period January 1 through , 2021, is satisfied. Because B’s required HRA contribution of determined using C’s 2021 household income $200 does not exceed $228 (1/12 of the and required HRA contribution. * * * * * product of 9.78 percent and B’s household (E) Example 5: Carryover amounts ignored ■ Par. 6. Section 54.9802–4 is added to income for 2020), the HRA is affordable for in determining affordability—(1) Facts. read as follows: B under paragraph (c)(5) of this section, and Taxpayer D is an employee of Employer X for B is eligible for minimum essential coverage all of 2020 and 2021. D is single. For each § 54.9802–4 Special Rule Allowing under an eligible employer-sponsored plan of 2020 and 2021, X offers its employees an Integration of Health Reimbursement for each month of 2020 under paragraph HRA described in paragraph (c)(3)(i)(B) of Arrangements (HRAs) and Other Account- (c)(3)(i)(B) of this section. In addition, B’s this section that provides reimbursement for Based Group Health Plans with Individual spouse and child are also eligible for medical care expenses of $2,400 to single Health Insurance Coverage and Medicare minimum essential coverage under an employees with no children (the self-only and Prohibiting Discrimination In HRAs and eligible employer-sponsored plan for each HRA amount) and $4,000 to employees with Other Account-Based Group Health Plans. month of 2020 under paragraph (c)(3)(i)(B) of a spouse or children for the medical expenses (a) Scope. This section applies to this section. of the employees and their family members. health reimbursement arrangements (C) Example 3: Exchange determines that Under the terms of the HRA, amounts that an (HRAs) and other account-based group HRA is unaffordable—(1) Facts. The facts are employee does not use in a calendar year the same as in paragraph (c)(5)(ix)(B) of this health plans, as defined in § 54.9815– may be carried over and used in the next 2711(d)(6)(i) of this chapter. For ease of section (Example 2), except that B, when calendar year. In 2020, D used only $1,500 enrolling in Exchange coverage for B’s of her $2,400 maximum reimbursement and reference, the term ‘‘HRA’’ is used in family, received a determination by the the unused $900 is carried over and may be this section to include other account- Exchange that the HRA was unaffordable, used by D in 2021. based group health plans. For related because B believed B’s household income (2) Conclusion. Under paragraph (c)(5)(v) regulations, see 26 CFR 1.36B–2(c)(3)(i) would be lower than it turned out to be. of this section, only the $2,400 self-only HRA and (c)(5), 29 CFR 2510.3–1(l), and 45 Consequently, advance credit payments were amount offered to D for 2021 is considered CFR 155.420. made for their 2020 coverage. in determining whether D’s HRA is (b) Purpose. This section provides the (2) Conclusion. Under paragraph (c)(5)(iv) affordable for D. The $900 carryover amount conditions that an HRA must satisfy in of this section, the HRA is considered is not considered in determining the order to be integrated with individual unaffordable for B, B’s spouse, and B’s child affordability of the HRA. for each month of 2020 provided that B did health insurance coverage for purposes not, with intentional or reckless disregard for * * * * * of Public Health Service Act (PHS Act) the facts, provide incorrect information to the (e) * * * sections 2711 and 2713 and § 54.9815– Exchange concerning the HRA. (1) Except as provided in paragraphs 2711(d)(4) of this chapter (referred to as (D) Example 4: Affordability determined (e)(2) and (3) of this section, this section an individual coverage HRA). This for part of a taxable year (part-year period)— applies to taxable years ending after section also allows an individual (1) Facts. Taxpayer C is an employee of December 31, 2013. coverage HRA to be integrated with Employer X. C’s household income for 2020 Medicare for purposes of PHS Act is $28,000. X offers its employees an HRA * * * * * described in paragraph (c)(3)(i)(B) of this (3) Paragraphs (c)(3)(i)(B) and (c)(5) of sections 2711 and 2713 and § 54.9815– section that reimburses medical care this section, and the last sentences of 2711(d)(4), subject to the conditions expenses of $3,600 for single employees paragraphs (c)(3)(ii), (c)(3)(v)(A)(1) provided in this section (see paragraph without children (the self-only HRA amount) through (3), and (c)(3)(vi) of this section (e) of this section). Some of the and $5,000 to employees with a spouse or apply to taxable years beginning on or conditions set forth in this section children for the medical expenses of the after January 1, 2020. specifically relate to compliance with employees and their family members. X’s PHS Act sections 2711 and 2713 and HRA plan year is September 1 to August 31 PART 54—PENSION EXCISE TAXES some relate to the effect of having or and C is first eligible to participate in the being offered an individual coverage HRA for the period beginning September 1, Par. 4. The authority citation for part HRA on eligibility for the premium tax 2020. C enrolls in a qualified health plan 54 is amended by adding an entry for credit under section 36B. In addition, through the Exchange in the rating area in § 54.9802–4 in numerical order to read this section provides conditions that an which C resides for all of 2020. The monthly in part as follows: premium for the lowest cost silver plan for individual coverage HRA must satisfy in self-only coverage of C that is offered in the Authority: 26 U.S.C. 7805. order to comply with the Exchange for the rating area in which C * * * * * nondiscrimination provisions in section resides for 2020 is $500. Section 54.9802–4 is also issued under 26 9802 and PHS Act section 2705 (which (2) Conclusion. Under paragraph (c)(3)(vi) U.S.C. 9833. is incorporated in section 9815) and that of this section, the affordability of the HRA * * * * * are consistent with the provisions of the is determined separately for the period September 1 through December 31, 2020, and ■ Par. 5. Section 54.9801–2 is amended Patient Protection and Affordable Care for the period January 1 through August 31, by revising the definition of ‘‘Group Act, Public Law 111–148 (124 Stat. 119 2021. C’s required HRA contribution, as health insurance coverage’’ to read as (2010)), and the Health Care and defined in paragraph (c)(5)(ii) of this section, follows: Education Reconciliation Act of 2010, for the period September 1 through December Public Law 111–152 (124 Stat. 1029 31, 2020, is $200, the excess of $500 (the § 54.9801–2 Definitions. (2010)), each as amended, that are monthly premium for the lowest cost silver * * * * * designed to create a competitive plan for self-only coverage for C) over $300 Group health insurance coverage individual market. These conditions are (1/12 of the self-only HRA amount provided means health insurance coverage offered intended to prevent an HRA plan by X to its employees). In addition, 1/12 of the product of 9.78 percent and C’s in connection with a group health plan. sponsor from intentionally or household income is $228 ($28,000 × .0978 Individual health insurance coverage unintentionally, directly or indirectly, = $2,738; $2,738/12 = $228). Because C’s reimbursed by the arrangements steering any participants or dependents required HRA contribution of $200 does not described in 29 CFR 2510.3–1(l) is not with adverse health factors away from exceed $228, the HRA is affordable for C for offered in connection with a group its traditional group health plan, if any,

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and toward individual health insurance individual health insurance coverage, paragraphs (c)(3)(ii) through (vi) and coverage. COBRA and other continuation coverage (d)(5) of this section. (c) General rule. An HRA will be requirements may apply. (ii) Carryover amounts, salary considered to be integrated with (iii) Grace periods and retroactive reduction arrangements, and transfer individual health insurance coverage for termination of individual health amounts. Amounts that are not used to purposes of PHS Act sections 2711 and insurance coverage. In the event an reimburse medical care expenses for any 2713 and § 54.9815–2711(d)(4) of this individual is initially enrolled in plan year that are made available to chapter and will not be considered to individual health insurance coverage participants in later plan years are discriminate in violation of section 9802 and subsequently timely fails to pay disregarded for purposes of determining and PHS Act section 2705 solely premiums for the coverage, with the whether an HRA is offered on the same because it is integrated with individual result that the individual is in a grace terms, provided that the method for health insurance coverage, provided period, the individual is considered to determining whether participants have that the conditions of this paragraph (c) be enrolled in individual health access to unused amounts in future are satisfied. See paragraph (e) of this insurance coverage for purposes of this years, and the methodology and formula section for how these conditions apply paragraph (c)(1) and the individual for determining the amounts of unused to an individual coverage HRA coverage HRA must reimburse medical funds which they may access in future integrated with Medicare. For purposes care expenses incurred by the years, is the same for all participants in of this section, medical care expenses individual during that time period to a class of employees. In addition, the means medical care expenses as defined the extent the medical care expenses are ability to pay the portion of the in § 54.9815–2711(d)(6)(ii) of this otherwise covered by the HRA. If the premium for individual health chapter and Exchange means Exchange individual fails to pay the applicable insurance coverage that is not covered as defined in 45 CFR 155.20. premium(s) by the end of the grace by the HRA, if any, by using a salary (1) Enrollment in individual health period and the coverage is cancelled or reduction arrangement under section insurance coverage—(i) In general. The terminated, including retroactively, or if 125 is considered to be a term of the HRA must require that the participant the individual health insurance HRA for purposes of this paragraph and any dependent(s) are enrolled in coverage is cancelled or terminated (c)(3). Therefore, an HRA is not individual health insurance coverage retroactively for some other reason (for provided on the same terms unless the that is subject to and complies with the example, a rescission), an individual salary reduction arrangement, if made requirements in PHS Act section 2711 coverage HRA must require that a available to any participant in a class of (and § 54.9815–2711(a)(2) of this participant notify the HRA that coverage employees, is made available on the chapter) and PHS Act section 2713 (and has been cancelled or terminated and same terms to all participants (other § 54.9815–2713(a)(1) of this chapter), for than former employees, as defined in the date on which the cancellation or each month that the individual(s) are paragraph (c)(3)(iv) of this section) in termination is effective. After the covered by the HRA. For purposes of the class of employees. Further, to the individual coverage HRA has received this paragraph (c), all individual health extent that a participant in an the notice of cancellation or insurance coverage, except for individual coverage HRA was termination, the HRA may not individual health insurance coverage previously covered by another HRA and reimburse medical care expenses that consists solely of excepted benefits, the current individual coverage HRA incurred on and after the date the is treated as being subject to and makes available amounts that were not individual health insurance coverage complying with PHS Act sections 2711 used to reimburse medical care was cancelled or terminated, which is and 2713. References to individual expenses under the prior HRA health insurance coverage in this considered to be the date of termination (transferred amounts), the transferred paragraph (c) do not include individual of coverage under the HRA. amounts are disregarded for purposes of health insurance coverage that consists (2) No traditional group health plan determining whether the HRA is offered solely of excepted benefits. may be offered to same participants. To on the same terms, provided that if the (ii) Forfeiture. The HRA must provide the extent a plan sponsor offers any HRA makes available transferred that if any individual covered by the class of employees (as defined in amounts, it does so on the same terms HRA ceases to be covered by individual paragraph (d) of this section) an for all participants in the class of health insurance coverage, the HRA will individual coverage HRA, the plan employees. not reimburse medical care expenses sponsor may not also offer a traditional (iii) Permitted variation. An HRA does that are incurred by that individual after group health plan to the same class of not fail to be provided on the same the individual health insurance employees, except as provided in terms solely because the maximum coverage ceases. In addition, if the paragraph (d)(5) of this section. For dollar amount made available to participant and all dependents covered purposes of this section, a traditional participants in a class of employees to by the participant’s HRA cease to be group health plan is any group health reimburse medical care expenses for any covered by individual health insurance plan other than either an account-based plan year increases in accordance with coverage, the participant must forfeit the group health plan or a group health plan paragraph (c)(3)(iii)(A) or (B) of this HRA. In either case, the HRA must that consists solely of excepted benefits. section. reimburse medical care expenses Therefore, a plan sponsor may not offer (A) Variation due to number of incurred by the individual prior to the a choice between an individual coverage dependents. An HRA does not fail to be cessation of individual health insurance HRA or a traditional group health plan provided on the same terms to coverage to the extent the medical care to any participant or dependent. participants in a class of employees expenses are otherwise covered by the (3) Same terms requirement—(i) In solely because the maximum dollar HRA, but the HRA may limit the period general. If a plan sponsor offers an amount made available to those to submit medical care expenses for individual coverage HRA to a class of participants to reimburse medical care reimbursement to a reasonable specified employees described in paragraph (d) of expenses for any plan year increases as time period. If a participant or this section, the HRA must be offered on the number of the participant’s dependent loses coverage under the the same terms to all participants within dependents who are covered under the HRA for a reason other than cessation of the class, except as provided in HRA increases, so long as the same

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maximum dollar amount attributable to Similarly, if the HRA provides for otherwise specified in the example and the increase in family size is made variation in the maximum amount made that no participants or dependents are available to all participants in that class available to participants in a class of Medicare beneficiaries. of employees with the same number of employees based on the number of a (A) Example 1: Carryover amounts dependents covered by the HRA. participant’s dependents covered by the permitted—(1) Facts. For 2020 and again for (B) Variation due to age. An HRA HRA, and the number of a participant’s 2021, Plan Sponsor A offers all employees does not fail to be provided on the same dependents covered by the HRA $7,000 each in an HRA, and the HRA terms to participants in a class of changes during a plan year (either provides that amounts that are unused at the employees solely because the maximum increasing or decreasing), the HRA does end of a plan year may be carried over to the dollar amount made available under the not fail to be treated as being provided next plan year, with no restrictions on the terms of the HRA to those participants on the same terms to the participant if use of the carryover amounts compared to the to reimburse medical care expenses for the maximum dollar amount made use of newly available amounts. At the end any plan year increases as the age of the of 2020, some employees have used all of the available to the participant either is the funds in their HRAs, while other employees participant increases, so long as the same as the maximum dollar amount have balances remaining that range from requirements in paragraphs made available to participants in the $500 to $1,750 that are carried over to 2021 (c)(3)(iii)(B)(1) and (2) of this section are participant’s class of employees who for those employees. satisfied. For the purpose of this had the same number of dependents (2) Conclusion. The same terms paragraph (c)(3)(iii)(B), the plan sponsor covered by the HRA on the first day of requirement of this paragraph (c)(3) is may determine the age of the participant the plan year or is pro-rated for the satisfied in this paragraph (c)(3)(vii)(A) using any reasonable method for a plan remainder of the plan year after the (Example 1) for 2020 because Plan Sponsor year, so long as the plan sponsor change in the number of the A offers all employees the same amount, determines each participant’s age for the participant’s dependents covered by the $7,000, in an HRA for that year. The same purpose of this paragraph (c)(3)(iii)(B) terms requirement is also satisfied for 2021 HRA consistent with the portion of the because Plan Sponsor A again offers all using the same method for all plan year in which that number of employees the same amount for that year, participants in the class of employees dependents are covered by the HRA. and the carryover amounts that some for the plan year and the method is The method the HRA uses to determine employees have are disregarded in applying determined prior to the plan year. amounts made available for participants the same terms requirement because the (1) The same maximum dollar amount whose coverage under the HRA is amount of the carryover for each employee attributable to the increase in age is effective later than the first day of the (that employee’s balance) and each made available to all participants who plan year or who have changes in the employee’s access to the carryover amounts are the same age. number of dependents covered by the is based on the same terms. (2) The maximum dollar amount HRA during a plan year must be the (B) Example 2: Employees hired after the made available to the oldest first day of the plan year—(1) Facts. For same for all participants in the class of 2020, Plan Sponsor B offers all employees participant(s) is not more than three employees and the method must be times the maximum dollar amount employed on January 1, 2020, $7,000 each in determined prior to the beginning of the an HRA for the plan year. Employees hired made available to the youngest plan year. after January 1, 2020, are eligible to enroll in participant(s). (vi) HSA-compatible HRAs. An HRA the HRA with an effective date of the first (iv) Former employees. An HRA does does not fail to be treated as provided day of the month following their date of hire, not fail to be treated as provided on the on the same terms if the plan sponsor as long as they have enrolled in individual same terms if the plan sponsor offers the offers participants in a class of health insurance coverage effective on or HRA to some, but not all, former employees a choice between an HSA- before that date, and the amount offered to employees within a class of employees. compatible individual coverage HRA these employees is pro-rated based on the However, if a plan sponsor offers the and an individual coverage HRA that is number of months remaining in the plan year, including the month which includes HRA to one or more former employees not HSA compatible, provided both within a class of employees, the HRA their coverage effective date. types of HRAs are offered to all (2) Conclusion. The same terms must be offered to the former participants in the class of employees requirement of this paragraph (c)(3) is employee(s) on the same terms as to all on the same terms. For the purpose of satisfied in this paragraph (c)(3)(vii)(B) other employees within the class, except this paragraph (c)(3)(vi), an HSA- (Example 2) for 2020 because Plan Sponsor as provided in paragraph (c)(3)(ii) of this compatible individual coverage HRA is B offers all employees employed on the first section. For purposes of this section, a an individual coverage HRA that is day of the plan year the same amount, former employee is an employee who is limited in accordance with applicable $7,000, in an HRA for that plan year and all no longer performing services for the guidance under section 223 such that an employees hired after January 1, 2020, a pro- employer. individual covered by such an HRA is rata amount based on the portion of the plan year during which they are enrolled in the (v) New employees or new not disqualified from being an eligible dependents. For a participant whose HRA. individual under section 223. (C) Example 3: HRA amounts offered vary coverage under the HRA becomes (vii) Examples. The following based on number of dependents—(1) Facts. effective later than the first day of the examples illustrate the provisions of For 2020, Plan Sponsor C offers its plan year, the HRA does not fail to be this paragraph (c)(3), without taking into employees the following amounts in an HRA: treated as being provided on the same account the provisions of paragraph (d) $1,500, if the employee is the only individual terms to the participant if the maximum of this section. In each example, the covered by the HRA; $3,500, if the employee dollar amount made available to the HRA is an individual coverage HRA that and one dependent are covered by the HRA; participant either is the same as the has a calendar year plan year and may and $5,000, if the employee and more than maximum dollar amount made available reimburse any medical care expenses, one dependent are covered by the HRA. to participants in the participant’s class including premiums for individual (2) Conclusion. The same terms requirement of this paragraph (c)(3) is of employees whose coverage became health insurance coverage (except as satisfied in this paragraph (c)(3)(vii)(C) effective as of the first day of the plan provided in paragraph (c)(3)(vii)(E) of (Example 3) because paragraph (c)(3)(iii)(A) year, or is pro-rated consistent with the this section (Example 5)). Further, in of this section allows the maximum dollar portion of the plan year in which the each example, assume the HRA is amount made available in an HRA to increase participant is covered by the HRA. offered on the same terms, except as as the number of the participant’s

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dependents covered by the HRA increases participant who is covered by the HRA, (B) An attestation by the participant and Plan Sponsor C makes the same amount either the remaining amounts in the stating that the participant and available to each employee with the same HRA must be forfeited or the participant dependent(s) covered by the HRA are, or number of dependents covered by the HRA. must be permitted to permanently opt will be, enrolled in individual health (D) Example 4: HRA amounts offered vary based on increases in employees’ ages—(1) out of and waive future reimbursements insurance coverage, the date coverage Facts. For 2020, Plan Sponsor D offers its from the HRA on behalf of the began or will begin, and the name of the employees the following amounts in an HRA: participant and all dependents covered provider of the coverage. $1,000 each for employees age 25 to 35; by the HRA. (ii) Coverage substantiation with each $2,000 each for employees age 36 to 45; (5) Reasonable procedures for request for reimbursement of medical $2,500 each for employees age 46 to 55; and coverage substantiation—(i) care expenses. Following the initial $4,000 each for employees over age 55. Substantiation of individual health substantiation of coverage, with each (2) Conclusion. The same terms insurance coverage for the plan year. new request for reimbursement of an requirement of this paragraph (c)(3) is not The HRA must implement, and comply incurred medical care expense for the satisfied in this paragraph (c)(3)(vii)(D) with, reasonable procedures to same plan year, the HRA may not (Example 4) because the terms of the HRA provide the oldest participants (those over substantiate that participants and each reimburse a participant for any medical age 55) with more than three times the dependent covered by the HRA are, or care expenses unless, prior to each amount made available to the youngest will be, enrolled in individual health reimbursement, the participant participants (those ages 25 to 35), in violation insurance coverage for the plan year (or substantiates that the individual on of paragraph (c)(3)(iii)(B)(2) of this section. for the portion of the plan year the whose behalf medical care expenses are (E) Example 5: Application of same terms individual is covered by the HRA, if requested to be reimbursed continues to requirement to premium only HRA—(1) applicable). The HRA may establish the be enrolled in individual health Facts. For 2020, Plan Sponsor E offers its date by which this substantiation must insurance coverage for the month during employees an HRA that reimburses only be provided, but, in general, the date which the medical care expenses were premiums for individual health insurance coverage, up to $10,000 for the year. may be no later than the first day of the incurred. The HRA must implement, Employee A enrolls in individual health plan year. However, for a participant and comply with, reasonable procedures insurance coverage with a $5,000 premium who is not eligible to participate in the to satisfy this requirement. This for the year and is reimbursed $5,000 from HRA on the first day of the plan year (or substantiation may be in the form of a the HRA. Employee B enrolls in individual who becomes eligible fewer than 90 written attestation by the participant, health insurance coverage with an $8,000 days prior to the plan year or for whom which may be part of the form used to premium for the year and is reimbursed the notice under paragraph (c)(6) of this request reimbursement, or a document $8,000 from the HRA. section is required to be provided as set from a third party (for example, a health (2) Conclusion. The same terms forth in paragraph (c)(6)(i)(C) of this insurance issuer) showing that the requirement of this paragraph (c)(3) is satisfied in this paragraph (c)(3)(vii)(E) section), the HRA may establish the date participant or the dependent, if (Example 5) because Plan Sponsor E offers by which this substantiation must be applicable, are or were enrolled in the HRA on the same terms to all employees, provided, but that date may be no later individual health insurance coverage for notwithstanding that some employees receive than the date the HRA coverage begins. the applicable month. a greater amount of reimbursement than Similarly, for a participant who adds a (iii) Reliance on substantiation. For others based on the cost of the individual new dependent during the plan year, purposes of this paragraph (c)(5), an health insurance coverage selected by the the HRA may establish the date by HRA may rely on the participant’s employee. which this substantiation must be documentation or attestation unless the (4) Opt out. Under the terms of the provided, but the date may be no later HRA, its plan sponsor, or any other HRA, a participant who is otherwise than the date the HRA coverage for the entity acting in an official capacity on eligible for coverage must be permitted new dependent begins; however, to the behalf of the HRA has actual knowledge to opt out of and waive future extent the dependent’s coverage under that any individual covered by the HRA reimbursements on behalf of the the HRA is effective retroactively, the is not, or will not be, enrolled in participant and all dependents eligible HRA may establish a reasonable time by individual health insurance coverage for for the HRA from the HRA once, and which this substantiation is required, the plan year (or applicable portion of only once, with respect to each plan but must require it be provided before the plan year) or the month, as year. The HRA may establish the HRA will reimburse any medical applicable. timeframes for enrollment in (and care expense for the newly added (6) Notice requirement—(i) Timing. opting out of) the HRA but, in general, dependent. The reasonable procedures The HRA must provide a written notice the opportunity to opt out must be an HRA may use to implement the to each participant: provided in advance of the first day of substantiation requirement set forth in (A) At least 90 calendar days before the plan year. For participants who this paragraph (c)(5)(i) may include a the beginning of each plan year for any become eligible to participate in the requirement that a participant participant who is not described in HRA on a date other than the first day substantiate enrollment by providing either paragraph (c)(6)(i)(B) or (C) of this of the plan year (or who become eligible either: section; fewer than 90 days prior to the plan year (A) A document from a third party (B) No later than the date on which or for whom the notice under paragraph (for example, the issuer or an Exchange) the HRA may first take effect for the (c)(6) of this section is required to be showing that the participant and any participant, for any participant who is provided as set forth in paragraph dependents covered by the HRA are, or not eligible to participate at the (c)(6)(i)(C) of this section), or for a will be, enrolled in individual health beginning of the plan year (or is not dependent who newly becomes eligible insurance coverage (for example, an eligible to participate at the time the during the plan year, this opportunity insurance card or an explanation of notice is provided at least 90 calendar must be provided during the applicable benefits document pertaining to the days before the beginning of the plan HRA enrollment period(s) established relevant time period or documentation year pursuant to paragraph (c)(6)(i)(A) of by the HRA for these individuals. from the Exchange showing that the this section); or Further, under the terms of the HRA, individual has completed the (C) No later than the date on which upon termination of employment, for a application and plan selection); or the HRA may first take effect for the

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participant, for any participant who is (B) A statement of the right of the which it ends; and whether the employed by an employer that is first participant to opt out of and waive participant is a current employee or established less than 120 days before the future reimbursements from the HRA, as former employee. beginning of the first plan year of the set forth under paragraph (c)(4) of this (F) A statement that the participant HRA; this paragraph (c)(6)(i)(C) applies section. should retain the written notice because only with respect to the first plan year (C) A description of the potential it may be needed to determine whether of the HRA. availability of the premium tax credit if the participant is allowed a premium (ii) Content. The notice must include the participant opts out of and waives tax credit on the participant’s individual all the information described in this future reimbursements from the HRA income tax return. paragraph (c)(6)(ii) (and may include and the HRA is not affordable for one (G) A statement that the HRA may not any additional information that does not or more months under § 1.36B–2(c)(5) of reimburse any medical care expense conflict with that information). To the this chapter, a statement that even if the unless the substantiation requirement extent that the Departments of the participant opts out of and waives set forth in paragraph (c)(5)(ii) of this Treasury, Labor and Health and Human future reimbursements from an HRA, section is satisfied and a statement that Services provide model notice language the offer will prohibit the participant the participant must also provide the for certain elements of this required (and, potentially, the participant’s substantiation required by paragraph notice, HRAs are permitted, but not dependents) from receiving a premium (c)(5)(i) of this section. required, to use the model language. tax credit for the participant’s coverage (H) A statement that if the individual (A) A description of the terms of the (or the dependent’s coverage, if health insurance coverage (or coverage HRA, including the maximum dollar applicable) on an Exchange for any under Medicare Part A and B or amount available for each participant month that the HRA is affordable under Medicare Part C) of a participant or (including the self-only HRA amount § 1.36B–2(c)(5) of this chapter, a dependent ceases, the HRA will not available for the plan year (or the statement describing how the reimburse any medical care expenses maximum dollar amount available for participant may find assistance with that are incurred by the participant or the plan year if the HRA provides for determining affordability, a statement dependent, as applicable, after the reimbursements up to a single dollar that, if the participant is a former coverage ceases, and a statement that amount regardless of whether a employee, the offer of the HRA does not the participant must inform the HRA if participant has self-only or other than render the participant (or the the participant’s or dependent’s self-only coverage)), any rules regarding participant’s dependents, if applicable) individual health insurance coverage (or the proration of the maximum dollar ineligible for the premium tax credit coverage under Medicare Part A and B amount applicable to any participant (or regardless of whether it is affordable or Medicare Part C) is cancelled or dependent, if applicable) who is not under § 1.36B–2(c)(5) of this chapter, terminated retroactively and the date on eligible to participate in the HRA for the and a statement that if the participant or which the cancellation or termination is entire plan year, whether (and which of) dependent is enrolled in Medicare, he effective. the participant’s dependents are eligible or she is ineligible for the premium tax (I) The contact information (including for the HRA, a statement that there are credit without regard to the offer or a phone number) for an individual or a different kinds of HRAs (including a acceptance of the HRA; group of individuals who participants qualified small employer health (D) A statement that if the participant may contact in order to receive reimbursement arrangement) and the accepts the HRA, the participant may additional information regarding the HRA being offered is an individual not claim a premium tax credit for the HRA. The plan sponsor may determine coverage HRA, a statement that the HRA participant’s Exchange coverage for any which individual or group of requires the participant and any covered month the HRA may be used to individuals is best suited to be the dependents to be enrolled in individual reimburse medical care expenses of the specified contact. health insurance coverage (or Medicare participant, and a premium tax credit (J) A statement of availability of a Part A and B or Medicare Part C, if may not be claimed for the Exchange special enrollment period to enroll in or applicable), a statement that the coverage of the participant’s dependents change individual health insurance coverage in which the participant and for any month the HRA may be used to coverage, through or outside of an any covered dependents must be reimburse medical care expenses of the Exchange, for the participant and any enrolled cannot be short-term, limited- dependents. dependents who newly gain access to duration insurance or consist solely of (E) A statement that the participant the HRA and are not already covered by excepted benefits, if the HRA is subject must inform any Exchange to which the the HRA. to the Employee Retirement Income participant applies for advance (d) Classes of employees—(1) In Security Act (ERISA), a statement that payments of the premium tax credit of general. This paragraph (d) sets forth the individual health insurance coverage in the availability of the HRA; the self-only rules for determining classes of which the participant and any covered HRA amount available for the HRA plan employees. Paragraph (d)(2) of this dependents are enrolled is not subject to year (or the maximum dollar amount section sets forth the specific classes of ERISA, if the conditions under 29 CFR available for the plan year if the HRA employees; paragraph (d)(3) of this 2510.3–1(l) are satisfied, the date as of provides for reimbursements up to a section sets forth a minimum class size which coverage under the HRA may single dollar amount regardless of requirement that applies in certain first become effective (both for whether a participant has self-only or circumstances; paragraph (d)(4) of this participants whose coverage will other than self-only coverage) as set section sets forth rules regarding the become effective on the first day of the forth in the written notice in accordance definition of ‘‘full-time employees,’’ plan year and for participants whose with paragraph (c)(6)(ii)(A) of this ‘‘part-time employees,’’ and ‘‘seasonal HRA coverage may become effective at section; whether the HRA is also employees’’; paragraph (d)(5) of this a later date), the dates on which the available to the participant’s dependents section sets forth a special rule for new HRA plan year begins and ends, and the and if so, which ones; the date as of hires; and paragraph (d)(6) of this dates on which the amounts newly which coverage under the HRA may section addresses student premium made available under the HRA will be first become effective; the date on which reduction arrangements. For purposes of made available. the plan year begins and the date on this section, including determining

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classes under this paragraph (d), the (ix) Non-resident aliens with no U.S.- employment is in the same rating area employer is the common law employer based income (as described in § 1.105– (as described in paragraph (d)(2)(v) of and is determined without regard to the 11(c)(2)(iii)(E) of this chapter); this section), the minimum class size rules under sections 414(b), (c), (m), and (x) Employees who, under all the facts requirement does not apply if the (o) that would treat the common law and circumstances, are employees of an geographic area defining the class is a employer as a single employer with entity that hired the employees for State or a combination of two or more certain other entities. temporary placement at an entity that is entire States; and (2) List of classes. Participants may be not the common law employer of the (2) In the case of the classes of treated as belonging to a class of employees and that is not treated as a employees that are full-time employees employees based on whether they are, single employer with the entity that and part-time employees (as described or are not, included in the classes hired the employees for temporary in paragraphs (d)(2)(i) and (ii) of this described in this paragraph (d)(2). If the placement under section 414(b), (c), (m), section, respectively), the minimum individual coverage HRA is offered to or (o); or class size requirement applies only to former employees, former employees are (xi) A group of participants described those classes (and the classes are only considered to be in the same class in as a combination of two or more of the applicable classes) if the employees in which they were included immediately classes of employees set forth in one such class are offered a traditional before separation from service. Before paragraphs (d)(2)(i) through (x) of this group health plan while the employees each plan year, a plan sponsor must section. in the other such class are offered an determine for the plan year which (3) Minimum class size requirement— individual coverage HRA. In such a classes of employees it intends to treat (i) In general. If a class of employees is case, the minimum class size separately and the definition of the subject to the minimum class size requirement applies only to the class requirement as set forth in this relevant class(es) it will apply, to the offered an individual coverage HRA. paragraph (d)(3), the class must consist extent these regulations permit a choice. (D) A class of employees offered an of at least a minimum number of After the classes and the definitions of individual coverage HRA is also subject employees (as described in paragraphs the classes are established for a plan to the minimum class size requirement (d)(3)(iii) and (iv) of this section), year, a plan sponsor may not make if the class is a class of employees otherwise, the plan sponsor may not changes to the classes of employees or created by combining at least one of the treat that class as a separate class of the definitions of those relevant classes applicable classes (as defined in employees. Paragraph (d)(3)(ii) of this with respect to that plan year. paragraph (d)(3)(ii)(C) of this section) section sets forth the circumstances in (i) Full-time employees, defined at the with any other class, except that the which the minimum class size election of the plan sponsor to mean minimum class size requirement shall requirement applies to a class of either full-time employees under section not apply to a class that is the result of employees, paragraph (d)(3)(iii) of this 4980H (and § 54.4980H–1(a)(21) of this a combination of one of the applicable section sets forth the rules for chapter) or employees who are not part- classes and a class of employees who determining the applicable class size time employees (as described in have not satisfied a waiting period (as minimum, and paragraph (d)(3)(iv) of § 1.105–11(c)(2)(iii)(C) of this chapter); described in paragraph (d)(2)(viii) of this section sets forth the rules for a (ii) Part-time employees, defined at this section). plan sponsor to determine if it satisfies (iii) Determination of the applicable the election of the plan sponsor to mean the minimum class size requirement class size minimum—(A) In general. either employees who are not full-time with respect to a class of employees. The minimum number of employees employees under section 4980H (and (ii) Circumstances in which minimum that must be in a class of employees that under § 54.4980H–1(a)(21) of this class size requirement applies—(A) The is subject to the minimum class size chapter (which defines full-time minimum class size requirement applies requirement (the applicable class size employee)) or employees who are part- only if a plan sponsor offers a minimum) is determined prior to the time employees as described in § 1.105– traditional group health plan to one or beginning of the plan year for each plan 11(c)(2)(iii)(C) of this chapter; more classes of employees and offers an year of the individual coverage HRA (iii) Employees who are paid on a individual coverage HRA to one or more and is: salary basis; other classes of employees. (1) 10, for an employer with fewer (iv) Non-salaried employees (such as, (B) The minimum class size than 100 employees; for example, hourly employees); requirement does not apply to a class of (2) A number, rounded down to a (v) Employees whose primary site of employees offered a traditional group whole number, equal to 10 percent of employment is in the same rating area health plan or a class of employees the total number of employees, for an as defined in 45 CFR 147.102(b); offered no coverage. employer with 100 to 200 employees; (vi) Seasonal employees, defined at (C) The minimum class size and the election of the plan sponsor to mean requirement applies to a class of (3) 20, for an employer with more seasonal employees as described in employees offered an individual than 200 employees. either § 54.4980H–1(a)(38) or § 1.105– coverage HRA if the class is full-time (B) Determining employer size. For 11(c)(2)(iii)(C) of this chapter; employees, part-time employees, purposes of this paragraph (d)(3), the (vii) Employees included in a unit of salaried employees, non-salaried number of employees of an employer is employees covered by a particular employees, or employees whose determined in advance of the plan year collective bargaining agreement (or an primary site of employment is in the of the HRA based on the number of appropriate related participation same rating area (described in paragraph employees that the employer reasonably agreement) in which the plan sponsor (d)(2)(i), (ii), (iii), (iv), or (v) of this expects to employ on the first day of the participates (as described in § 1.105– section, respectively, and referred to plan year. 11(c)(2)(iii)(D) of this chapter); collectively as the applicable classes or (iv) Determining if a class satisfies the (viii) Employees who have not individually as an applicable class), applicable class size minimum. For satisfied a waiting period for coverage except that: purposes of this paragraph (d)(3), (if the waiting period complies with (1) In the case of the class of whether a class of employees satisfies § 54.9815–2708 of this chapter); employees whose primary site of the applicable class size minimum for a

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plan year of the individual coverage hires. A plan sponsor may discontinue class size minimum under paragraph HRA is based on the number of use of the special rule for new hires at (d)(3)(iii) of this section. employees in the class offered the any time for any class of employees. In (e) Integration of Individual Coverage individual coverage HRA as of the first that case, the new hire subclass is no HRAs with Medicare—(1) General rule. day of the plan year. Therefore, this longer treated as a separate subclass of An individual coverage HRA will be determination is not based on the employees. In the event a plan sponsor considered to be integrated with number of employees that actually applies the special rule for new hires to Medicare (and deemed to comply with enroll in the individual coverage HRA, a class of employees and later PHS Act sections 2711 and 2713 and and this determination is not affected by discontinues use of the rule to the class § 54.9815–2711(d)(4) of this chapter), changes in the number of employees in of employees, the plan sponsor may provided that the conditions of the class during the plan year. later apply the rule if the application of paragraph (c) of this section are (4) Consistency requirement. For any the rule would be permitted under the satisfied, subject to paragraph (e)(2) of plan year, a plan sponsor may define rules for initial application of the this section. Nothing in this section ‘‘full-time employee,’’ ‘‘part-time special rule for new hires. If a plan requires that a participant and his or her employee,’’ and ‘‘seasonal employee’’ in sponsor, in accordance with the dependents all have the same type of accordance with the relevant provisions requirements for the special rule for coverage; therefore, an individual of sections 105(h) or 4980H, as set forth new hires, applies the rule to a class of coverage HRA may be integrated with in paragraphs (d)(2)(i), (ii), and (vi) of employees subsequent to any prior Medicare for some individuals and with this section, if: application and discontinuance of the individual health insurance coverage for (i) To the extent applicable under the rule to that class, the new hire date must others, including, for example, a HRA for the plan year, each of the three be prospective. participant enrolled in Medicare Part A classes of employees are defined in (iv) Application of the minimum class and B or Part C and his or her accordance with section 105(h) or each size requirement under the special rule dependents enrolled in individual of the three classes of employees are for new hires. The minimum class size health insurance coverage. defined in accordance with section requirement set forth in paragraph (d)(3) (2) Application of conditions in 4980H for the plan year; and of this section does not apply to the new paragraph (c) of this section—(i) In (ii) The HRA plan document sets forth hire subclass. However, if a plan general. Except as provided in the applicable definitions prior to the sponsor subdivides the new hire paragraph (e)(2)(ii) of this section, in beginning of the plan year to which the subclass subsequent to creating the new applying the conditions of paragraph (c) definitions will apply. hire subclass, the minimum class size (5) Special rule for new hires—(i) In of this section with respect to requirement set forth in paragraph (d)(3) integration with Medicare, a reference to general. Notwithstanding paragraphs of this section applies to any class of (c)(2) and (3) of this section, a plan ‘‘individual health insurance coverage’’ employees created by subdividing the is deemed to refer to coverage under sponsor that offers a traditional group new hire subclass, if the minimum class health plan to a class of employees may Medicare Part A and B or Part C. size requirement otherwise applies. References in this section to integration prospectively offer the employees in (6) Student employees offered student of an HRA with Medicare refer to that class of employees who are hired premium reduction arrangements. For integration of an individual coverage on or after a certain future date (the new purposes of this section, if an institution HRA with Medicare Part A and B or Part hire date) an individual coverage HRA of higher education (as defined in the C. (with this group of employees referred Higher Education Act of 1965) offers a (ii) Exceptions. For purposes of the to as the new hire subclass), while student employee a student premium statement regarding ERISA under the continuing to offer employees in that reduction arrangement, the employee is class of employees who are hired before not considered to be part of the class of notice content element under paragraph the new hire date a traditional group employees to which the employee (c)(6)(ii)(A) of this section and the health plan (with the rule set forth in would otherwise belong. For the statement regarding the availability of a this sentence referred to as the special purpose of this paragraph (d)(6) and special enrollment period under the rule for new hires). For the new hire paragraph (f)(1) of this section, a student notice content element under paragraph subclass, the individual coverage HRA premium reduction arrangement is (c)(6)(ii)(J) of this section, the term must be offered on the same terms to all defined as any program offered by an individual health insurance coverage participants within the subclass, in institution of higher education under means only individual health insurance accordance with paragraph (c)(3) of this which the cost of insured or self-insured coverage and does not also mean section. In accordance with paragraph student health coverage is reduced for coverage under Medicare Part A and B (c)(2) of this section, a plan sponsor may certain students through a credit, offset, or Part C. not offer a choice between an individual reimbursement, stipend or similar (f) Examples—(1) Examples regarding coverage HRA or a traditional group arrangement. A student employee classes and the minimum class size health plan to any employee in the new offered a student premium reduction requirement. The following examples hire subclass or to any employee in the arrangement is also not counted for illustrate the provisions of paragraph class who is not a member of the new purposes of determining the applicable (c)(3) of this section, taking into account hire subclass. class size minimum under paragraph the provisions of paragraphs (d)(1) (ii) New hire date. A plan sponsor (d)(3)(iii) of this section. If a student through (4) and (d)(6) of this section. In may set the new hire date for a class of employee is not offered a student each example, the HRA is an individual employees prospectively as any date on premium reduction arrangement coverage HRA that may reimburse any or after January 1, 2020. A plan sponsor (including if the student employee is medical care expenses, including may set different new hire dates offered an individual coverage HRA premiums for individual health prospectively for separate classes of instead), the student employee is insurance coverage and it is assumed employees. considered to be part of the class of that no participants or dependents are (iii) Discontinuation of use of special employees to which the employee Medicare beneficiaries. rule for new hires and multiple otherwise belongs and is counted for (i) Example 1: Collectively bargained applications of the special rule for new purposes of determining the applicable employees offered traditional group health

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plan; non-collectively bargained employees Sponsor C offers the HRA on the same terms (f)(1)(v) (Example 5) even though Plan offered HRA—(A) Facts. For 2020, Plan to all participants who have completed the Sponsor E offers one class a traditional group Sponsor A offers its employees covered by a waiting period. The minimum class size health plan and one class the HRA because collective bargaining agreement a traditional requirement does not apply to this paragraph the class of employees hired for temporary group health plan (as required by the (f)(1)(iii) (Example 3) because Plan Sponsor placement is not an applicable class that is collective bargaining agreement) and all other C does not offer at least one class of subject to the minimum class size employees (non-collectively bargained employees a traditional group health plan requirement (nor is the class made up of non- employees) each an HRA on the same terms. and because the class of employees who have temporary employees). (B) Conclusion. The same terms not completed a waiting period and the class (vi) Example 6: Staffing firm employees requirement of paragraph (c)(3) of this of employees who have completed a waiting temporarily placed with customers in rating section is satisfied in this paragraph (f)(1)(i) period are not applicable classes that are area 1 offered an HRA; other employees (Example 1) because collectively bargained subject to the minimum class size offered a traditional group health plan—(A) and non-collectively bargained employees requirement. Facts. The facts are the same as in paragraph may be treated as different classes of (iv) Example 4: Employees in a waiting (f)(1)(v) of this section (Example 5), except employees, one of which may be offered a period offered an HRA; other employees that Plan Sponsor E has work sites in rating traditional group health plan and the other of offered a traditional group health plan—(A) area 1 and rating area 2, and it offers its 10 which may be offered an individual coverage Facts. For 2020, Plan Sponsor D offers its employees on temporary assignments with a HRA, and Plan Sponsor A offers the HRA on employees who have completed a waiting work site in rating area 1 an HRA on the the same terms to all participants who are period that complies with the requirements same terms. Plan Sponsor E has 200 other non-collectively bargained employees. The for waiting periods in § 54.9815–2708 of this employees in rating areas 1 and 2, including minimum class size requirement does not chapter a traditional group health plan and its non-temporary employees in rating areas apply to this paragraph (f)(1)(i) (Example 1) offers its employees who have not completed 1 and 2 and its employees on temporary even though Plan Sponsor A offers one class the waiting period each an HRA on the same assignments with a work site in rating area a traditional group health plan and one class terms. 2, all of whom are offered a traditional group the HRA because collectively bargained and (B) Conclusion. The same terms health plan. non-collectively bargained employees are not requirement of paragraph (c)(3) of this (B) Conclusion. The same terms applicable classes that are subject to the section is satisfied in this paragraph (f)(1)(iv) requirement of paragraph (c)(3) of this minimum class size requirement. (Example 4) because employees who have section is not satisfied in this paragraph (ii) Example 2: Collectively bargained completed a waiting period and employees (f)(1)(vi) (Example 6) because, even though employees in one unit offered traditional who have not completed a waiting period the employees who are temporarily placed group health plan and in another unit offered may be treated as different classes and Plan with customers generally may be treated as HRA—(A) Facts. For 2020, Plan Sponsor B Sponsor D offers an HRA on the same terms employees of a different class, because Plan offers its employees covered by a collective to all participants who have not completed Sponsor E is also using a rating area to bargaining agreement with Local 100 a the waiting period. The minimum class size identify the class offered the HRA (which is traditional group health plan (as required by requirement does not apply to this paragraph an applicable class for the minimum class the collective bargaining agreement), and its (f)(1)(iv) (Example 4) even though Plan size requirement) and is offering one class employees covered by a collective bargaining Sponsor D offers employees who have the HRA and another class the traditional agreement with Local 200 each an HRA on completed a waiting period a traditional group health plan, the minimum class size the same terms (as required by the collective group health plan and employees who have requirement applies to the class offered the bargaining agreement). not completed a waiting period an HRA HRA, and the class offered the HRA fails to (B) Conclusion. The same terms because the class of employees who have not satisfy the minimum class size requirement. requirement of paragraph (c)(3) of this completed a waiting period is not an Because Plan Sponsor E employs 210 section is satisfied in this paragraph (f)(1)(ii) applicable class that is subject to the employees, the applicable class size (Example 2) because the employees covered minimum class size requirement (nor is the minimum is 20, and the HRA is offered to by the collective bargaining agreements with class made up of employees who have only 10 employees. the two separate bargaining units (Local 100 completed the waiting period). (vii) Example 7: Employees in State 1 and Local 200) may be treated as two (v) Example 5: Staffing firm employees offered traditional group health plan; different classes of employees and Plan temporarily placed with customers offered an employees in State 2 offered HRA—(A) Facts. Sponsor B offers an HRA on the same terms HRA; other employees offered a traditional Plan Sponsor F employs 45 employees whose to the participants covered by the agreement group health plan—(A) Facts. Plan Sponsor work site is in State 1 and 7 employees with Local 200. The minimum class size E is a staffing firm that places certain of its whose primary site of employment is in State requirement does not apply to this paragraph employees on temporary assignments with 2. For 2020, Plan Sponsor F offers its 45 (f)(1)(ii) (Example 2) even though Plan customers that are not the common law employees in State 1 a traditional group Sponsor B offers the Local 100 employees a employers of Plan Sponsor E’s employees or health plan, and each of its 7 employees in traditional group health plan and the Local treated as a single employer with Plan State 2 an HRA on the same terms. 200 employees an HRA because collectively Sponsor E under section 414(b), (c), (m), or (B) Conclusion. The same terms bargained employees are not applicable (o) (unrelated entities); other employees work requirement of paragraph (c)(3) of this classes that are subject to the minimum class in Plan Sponsor E’s office managing the section is satisfied in this paragraph (f)(1)(vii) size requirement. staffing business (non-temporary employees). (Example 7) because Plan Sponsor F offers (iii) Example 3: Employees in a waiting For 2020, Plan Sponsor E offers its employees the HRA on the same terms to all employees period offered no coverage; other employees who are on temporary assignments with with a work site in State 2 and that class is offered an HRA—(A) Facts. For 2020, Plan customers each an HRA on the same terms. a permissible class under paragraph (d) of Sponsor C offers its employees who have All other employees are offered a traditional this section. This is because employees completed a waiting period that complies group health plan. whose work sites are in different rating areas with the requirements for waiting periods in (B) Conclusion. The same terms may be considered different classes and a § 54.9815–2708 of this chapter each an HRA requirement of paragraph (c)(3) of this plan sponsor may create a class of employees on the same terms and does not offer section is satisfied in this paragraph (f)(1)(v) by combining classes of employees, coverage to its employees who have not (Example 5) because the employees who are including by combining employees whose completed the waiting period. hired for temporary placement at an work site is in one rating area with (B) Conclusion. The same terms unrelated entity and non-temporary employees whose work site is in a different requirement of paragraph (c)(3) of this employees of Plan Sponsor E may be treated rating area, or by combining all employees section is satisfied in this paragraph (f)(1)(iii) as different classes of employees and Plan whose work site is in a state. The minimum (Example 3) because employees who have Sponsor E offers an HRA on the same terms class size requirement does not apply to this completed a waiting period and employees to all participants temporarily placed with paragraph (f)(1)(vii) (Example 7) because the who have not completed a waiting period customers. The minimum class size minimum class size requirement does not may be treated as different classes and Plan requirement does not apply to this paragraph apply if the geographic area defining a class

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of employees is a state or a combination of offered traditional group health plan—(A) traditional group health plan and each of its two or more entire states. Facts. The facts are the same as in paragraph 14 hourly employees an HRA on the same (viii) Example 8: Full-time seasonal (f)(1)(ix) of this section (Example 9) except terms. Plan Sponsor J reasonably expects to employees offered HRA; all other full-time that Plan Sponsor H offers its 17 full-time employ 177 employees on the first day of the employees offered traditional group health employees in rating area 1 the HRA and HRA plan year. plan; part-time employees offered no offers its 552 full-time employees in rating (B) Conclusion. The same terms coverage—(A) Facts. Plan Sponsor G employs area 2 the traditional group health plan. requirement of paragraph (c)(3) of this 6 full-time seasonal employees, 75 full-time (B) Conclusion. The same terms section is not satisfied in this paragraph employees who are not seasonal employees, requirement of paragraph (c)(3) of this (f)(1)(xii) (Example 12) because, even though and 5 part-time employees. For 2020, Plan section is not satisfied in this paragraph salaried and hourly employees generally may Sponsor G offers each of its 6 full-time (f)(1)(x) (Example 10) because, even though be considered different classes and Plan seasonal employees an HRA on the same employees whose work sites are in different Sponsor J offers the HRA on the same terms terms, its 75 full-time employees who are not rating areas generally may be considered to all hourly employees, the HRA fails to seasonal employees a traditional group different classes and Plan Sponsor H offers satisfy the minimum class size requirement. health plan, and offers no coverage to its 5 the HRA on the same terms to all participants Specifically, the minimum class size part-time employees. in rating area 1, the HRA fails to satisfy the requirement applies in this paragraph (B) Conclusion. The same terms minimum class size requirement. (f)(1)(xii) (Example 12) because employees requirement of paragraph (c)(3) of this Specifically, the minimum class size who are paid on a salaried basis and section is satisfied in this paragraph requirement applies to this paragraph (f)(1)(x) employees who are not paid on a salaried (f)(1)(viii) (Example 8) because full-time (Example 10) because the minimum class basis are applicable classes subject to the seasonal employees and full-time employees size requirement applies to a class based on minimum class size requirement. Because who are not seasonal employees may be a geographic area unless the geographic area Plan Sponsor J reasonably expects to employ considered different classes and Plan is a state or a combination of two or more between 100 and 200 employees on the first Sponsor G offers the HRA on the same terms entire states. Further, the applicable class day of the plan year, the applicable class size to all full-time seasonal employees. The size minimum for Plan Sponsor H is 20 minimum is 10 percent, rounded down to a minimum class size requirement does not employees, and the HRA is only offered to whole number. Ten percent of 177 total apply to the class offered the HRA in this the 17 full-time employees in rating area 1 on employees, rounded down to a whole paragraph (f)(1)(viii) (Example 8) because the first day of the HRA plan year. number is 17, and the HRA is offered to only part-time employees are not offered coverage (xi) Example 11: Employees in State 1 and 14 hourly employees. and full-time employees are not an rating area 1 of State 2 offered HRA; (xiii) Example 13: Part-time employees and full-time employees offered different HRAs; applicable class subject to the minimum class employees in all other rating areas of State no traditional group health plan offered—(A) size requirement if part-time employees are 2 offered traditional group health plan—(A) Facts. Plan Sponsor K has 50 full-time not offered coverage. Facts. For 2020, Plan Sponsor I offers an employees and 7 part-time employees. For (ix) Example 9: Full-time employees in HRA on the same terms to a total of 200 2020, Plan Sponsor K offers its 50 full-time rating area 1 offered traditional group health employees it employs with work sites in employees $2,000 each in an HRA otherwise plan; full-time employees in rating area 2 State 1 and in rating area 1 of State 2. Plan provided on the same terms and each of its offered HRA; part-time employees offered no Sponsor I offers a traditional group health 7 part-time employees $500 in an HRA coverage—(A) Facts. Plan Sponsor H plan to its 150 employees with work sites in otherwise provided on the same terms. Plan employs 17 full-time employees and 10 part- other rating areas in State 2. Plan Sponsor I Sponsor K reasonably expects to employ 57 time employees whose work site is in rating reasonably expects to employ 350 employees employees on the first day of the HRA plan area 1 and 552 full-time employees whose on the first day of the HRA plan year. year. work site is in rating area 2. For 2020, Plan (B) Conclusion. The same terms (B) Conclusion. The same terms Sponsor H offers its 17 full-time employees requirement of paragraph (c)(3) of this requirement of paragraph (c)(3) of this in rating area 1 a traditional group health section is satisfied in this paragraph (f)(1)(xi) section is satisfied in this paragraph plan and each of its 552 full-time employees (Example 11). Plan Sponsor I may treat all of (f)(1)(xiii) (Example 13) because full-time in rating area 2 an HRA on the same terms. the employees with a work site in State 1 and employees and part-time employees may be Plan Sponsor H offers no coverage to its 10 rating area 1 of State 2 as a class of treated as different classes and Plan Sponsor part-time employees in rating area 1. Plan employees because employees whose work K offers an HRA on the same terms to all the Sponsor H reasonably expects to employ 569 sites are in different rating areas may be participants in each class. The minimum employees on the first day of the HRA plan considered different classes and a plan class size requirement does not apply to year. sponsor may create a class of employees by either the full-time class or the part-time (B) Conclusion. The same terms combining classes of employees, including class because (although in certain requirement of paragraph (c)(3) of this by combining employees whose work site is circumstances the minimum class size section is satisfied in this paragraph (f)(1)(ix) in one rating area with a class of employees requirement applies to a class of full-time (Example 9) because employees whose work whose work site is in a different rating area. employees and a class of part-time sites are in different rating areas may be The minimum class size requirement applies employees) Plan Sponsor K does not offer considered different classes and Plan to the class of employees offered the HRA any class of employees a traditional group Sponsor H offers the HRA on the same terms (made up of employees in State 1 and in health plan, and the minimum class size to all full-time employees in rating area 2. rating area 1 of State 2) because the minimum requirement applies only when, among other The minimum class size requirement applies class size requirement applies to a class things, at least one class of employees is to the class offered the HRA in this paragraph based on a geographic area unless the offered a traditional group health plan while (f)(1)(ix) (Example 9) because the minimum geographic area is a state or a combination of another class is offered an HRA. class size requirement applies to a class two or more entire states. In this case, the (xiv) Example 14: No employees offered an based on a geographic area unless the class is made up of a state plus a rating area HRA—(A) Facts. The facts are the same facts geographic area is a state or a combination of which is not the entire state. However, this as in paragraph (f)(1)(xiii) of this section two or more entire states. However, the class satisfies the minimum class size (Example 13), except that Plan Sponsor K minimum class size requirement applies only requirement because the applicable class size offers its full-time employees a traditional to the class offered the HRA, and Plan minimum for Plan Sponsor I is 20, and Plan group health plan and does not offer any Sponsor H offers the HRA to the 552 full-time Sponsor I offered the HRA to 200 employees group health plan (either a traditional group employees in rating area 2 on the first day on the first day of the plan year. health plan or an HRA) to its part-time of the plan year, satisfying the minimum (xii) Example 12: Salaried employees employees. class size requirement (because the offered a traditional group health plan; (B) Conclusion. The regulations set forth applicable class size minimum for Plan hourly employees offered an HRA—(A) Facts. under this section do not apply to Plan Sponsor H is 20). Plan Sponsor J has 163 salaried employees Sponsor K because Plan Sponsor K does not (x) Example 10: Employees in rating area and 14 hourly employees. For 2020, Plan offer an individual coverage HRA to any 1 offered HRA; employees in rating area 2 Sponsor J offers its 163 salaried employees a employee.

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(xv) Example 15: Full-time employees provides different amounts to different part- after January 1, 2022, an HRA on the same offered traditional group health plan; part- time student employees. terms and continues to offer the traditional time employees offered HRA—(A) Facts. The (B) Conclusion. The same terms group health plan to employees hired before facts are the same as in paragraph (f)(1)(xiii) requirement of paragraph (c)(3) of this that date. On the first day of the 2022 plan of this section (Example 13), except that Plan section is satisfied in this paragraph year, Plan Sponsor A has 2 new hires who Sponsor K offers its full-time employees a (f)(1)(xvii) (Example 17) because Plan are offered the HRA. traditional group health plan and offers each Sponsor M offers the HRA on the same terms (B) Conclusion. The same terms of its part-time employees $500 in an HRA to its part-time employees who are not requirement of paragraph (c)(3) of this and otherwise on the same terms. students and because the part-time student section is satisfied in this paragraph (f)(2)(i) (B) Conclusion. The same terms employees offered a student premium (Example 1) because, under the special rule requirement of paragraph (c)(3) of this reduction arrangement (and their varying for new hires in paragraph (d)(5) of this section is not satisfied in this paragraph HRAs) are not taken into account as part-time section, the employees newly hired on and (f)(1)(xv) (Example 15) because, even though employees for purposes of determining after January 1, 2022, may be treated as a new the full-time employees and the part-time whether a class of employees is offered an hire subclass, Plan Sponsor A offers the HRA employees generally may be treated as HRA on the same terms. on the same terms to all participants in the different classes, in this paragraph (f)(1)(xv) (xiii) Example 18: Student employees new hire subclass, and the minimum class (Example 15), the minimum class size offered student premium reduction size requirement does not apply to the new requirement applies to the part-time arrangements and minimum class size hire subclass. employees, and it is not satisfied. requirement—(A) Facts. Plan Sponsor N is an (ii) Example 2: Application of special rule Specifically, the minimum class size institution of higher education with 25 for new hires to full-time employees—(A) requirement applies to the part-time hourly employees. Plan Sponsor N offers 15 Facts. For 2021, Plan Sponsor B offers a employees because that requirement applies of its hourly employees, who are student traditional group health plan to its full-time to an applicable class offered an HRA when employees, a student premium reduction employees and does not offer any coverage to one class is offered a traditional group health arrangement and it wants to offer its other 10 its part-time employees. For 2022, Plan plan while another class is offered an HRA, hourly employees an HRA for 2022. Plan Sponsor B offers full-time employees hired and to the part-time and full-time employee Sponsor N offers its salaried employees a on or after January 1, 2022, an HRA on the classes when one of those classes is offered traditional group health plan. Plan Sponsor same terms, continues to offer its full-time a traditional group health plan while the N reasonably expects to have 250 employees employees hired before that date a traditional other is offered an HRA. Because Plan on the first day of the 2022 HRA plan year, group health plan, and continues to offer no Sponsor K reasonably expects to employ 15 of which will have offers of student coverage to its part-time employees. On the fewer than 100 employees on the first day of premium reduction arrangements. first day of the 2022 plan year, Plan Sponsor the HRA plan year, the applicable class size (B) Conclusion. The same terms B has 2 new hire, full-time employees who minimum for Plan Sponsor K is 10 requirement of paragraph (c)(3) of this are offered the HRA. employees, but Plan Sponsor K offered the section is not satisfied in this paragraph (B) Conclusion. The same terms HRA only to its 7 part-time employees. (f)(1)(xviii) (Example 18). The minimum requirement of paragraph (c)(3) of this (xvi) Example 16: Satisfying minimum class size requirement will apply to the class section is satisfied in this paragraph (f)(2)(ii) class size requirement based on employees of hourly employees to which Plan Sponsor (Example 2) because, under the special rule offered HRA—(A) Facts. Plan Sponsor L N wants to offer the HRA because Plan for new hires in paragraph (d)(5) of this employs 78 full-time employees and 12 part- Sponsor N offers a class of employees a section, the full-time employees newly hired time employees. For 2020, Plan Sponsor L traditional group health plan and another on and after January 1, 2022, may be treated offers its 78 full-time employees a traditional class the HRA, and the minimum class size as a new hire subclass and Plan Sponsor B group health plan and each of its 12 part- requirement generally applies to a class of offers the HRA on the same terms to all times employees an HRA on the same terms. hourly employees offered an HRA. Plan participants in the new hire subclass. The Only 6 part-time employees enroll in the Sponsor N’s applicable class size minimum minimum class size requirement does not HRA. Plan Sponsor L reasonably expects to is 20 because Plan Sponsor N reasonably apply to the new hire subclass. employ fewer than 100 employees on the first expects to employ 235 employees on the first (iii) Example 3: Special rule for new hires day of the HRA plan year. day of the plan year (250 employees minus impermissibly applied retroactively—(A) (B) Conclusion. The same terms 15 employees receiving a student premium Facts. For 2025, Plan Sponsor C offers a requirement of paragraph (c)(3) of this reduction arrangement). Plan Sponsor N may traditional group health plan to its full-time section is satisfied in this paragraph not offer the HRA to its hourly employees employees. For 2026, Plan Sponsor C wants (f)(1)(xvi) (Example 16) because full-time because the 10 employees offered the HRA as to offer an HRA to its full-time employees employees and part-time employees may be of the first day of the plan year does not hired on and after January 1, 2023, while treated as different classes, Plan Sponsor L satisfy the applicable class size minimum. continuing to offer a traditional group health offers an HRA on the same terms to all the (2) Examples regarding special rule plan to its full-time employees hired before participants in the part-time class, and the for new hires. The following examples January 1, 2023. minimum class size requirement is satisfied. illustrate the provisions of paragraph (B) Conclusion. The special rule for new Specifically, whether a class of employees (c)(3) of this section, taking into account hires under paragraph (d)(5) of this section satisfies the applicable class size minimum is the provisions of paragraph (d) of this does not apply in this paragraph (f)(2)(iii) determined as of the first day of the plan year section, in particular the special rule for (Example 3) because the rule must be applied based on the number of employees in a class prospectively. That is, Plan Sponsor C may that is offered an HRA, not on the number new hires under paragraph (d)(5) of this not, in 2026, choose to apply the special rule of employees who enroll in the HRA. The section. In each example, the HRA is an for new hires retroactive to 2023. If Plan applicable class size minimum for Plan individual coverage HRA that has a Sponsor C were to offer an HRA in this way, Sponsor L is 10 employees, and Plan Sponsor calendar year plan year and may it would fail to satisfy the conditions under L offered the HRA to its 12 part-time reimburse any medical care expenses, paragraphs (c)(2) and (3) of this section employees. including premiums for individual because the new hire subclass would not be (xvii) Example 17: Student employees health insurance coverage. The treated as a subclass for purposes of applying offered student premium reduction examples also assume that no those rules and, therefore, all full-time arrangements and same terms requirement— participants or dependents are Medicare employees would be treated as one class to (A) Facts. Plan Sponsor M is an institution which either a traditional group health plan of higher education that offers each of its beneficiaries. or an HRA could be offered, but not both. part-time employees an HRA on the same (i) Example 1: Application of special rule (iv) Example 4: Permissible second terms, except that it offers its part-time for new hires to all employees—(A) Facts. For application of the special rule for new hires employees who are student employees a 2021, Plan Sponsor A offers all employees a to the same class of employees—(A) Facts. student premium reduction arrangement, and traditional group health plan. For 2022, Plan For 2021, Plan Sponsor D offers all of its full- the student premium reduction arrangement Sponsor A offers all employees hired on or time employees a traditional group health

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plan. For 2022, Plan Sponsor D applies the offers the HRA on the same terms to all time employees a traditional group health special rule for new hires and offers an HRA participants in the new hire subclasses. plan and does not offer coverage to its part- on the same terms to all employees hired on Further, the minimum class size requirement time employees. For the 2022 plan year, Plan and after January 1, 2022, and continues to does not apply to the new hire subclasses. Sponsor G offers its full-time employees offer a traditional group health plan to full- (vii) Example 7: New full-time employee hired on or after January 1, 2022, and all of time employees hired before that date. For class subdivided based on rating area—(A) its part-time employees, including those 2025, Plan Sponsor D discontinues use of the Facts. Plan Sponsor F offers its full-time hired before January 1, 2022, and those hired special rule for new hires, and again offers employees hired on or after January 1, 2022, on and after January 1, 2022, an HRA on the all full-time employees a traditional group an HRA on the same terms and it continues same terms, and it continues to offer its full- health plan. In 2030, Plan Sponsor D decides to offer its full-time employees hired before time employees hired before January 1, 2022, to apply the special rule for new hires to the that date a traditional group health plan. Plan a traditional group health plan. full-time employee class again, offering an Sponsor F offers no coverage to its part-time (B) Conclusion. The minimum class size HRA to all full-time employees hired on and employees. For the 2025 plan year, Plan requirement applies to the part-time after January 1, 2030, on the same terms, Sponsor F wants to subdivide the full-time employees offered the HRA in 2022 because while continuing to offer employees hired new hire subclass so that those whose work the class is being offered an HRA; the special before that date a traditional group health site is in rating area 1 will be offered the rule for new hires does not apply (because plan. traditional group health plan and those this class was not previously offered a (B) Conclusion. Plan Sponsor D has whose work site is in rating area 2 will traditional group health plan) and so it is not permissibly applied the special rule for new continue to receive the HRA. Plan Sponsor F a new hire subclass exempt from the hires and is in compliance with the reasonably expects to employ 219 employees minimum class size requirement; another requirements of paragraphs (c)(2) and (3) of on January 1, 2025. As of January 1, 2025, class of employees (that is, full-time hired this section. Plan Sponsor F has 15 full-time employees before January 1, 2022) are being offered a (v) Example 5: Impermissible second whose work site in in rating area 2 and who traditional group health plan; and the part- application of the special rule for new hires were hired between January 1, 2022, and time employee class is generally an to the same class of employees—(A) Facts. January 1, 2025. applicable classes that is subject to the The facts are the same as in paragraph (B) Conclusion. The same terms minimum class size requirement. However, (f)(2)(iv) of this section (Example 4), except requirement of paragraph (c)(3) of this because the full-time, new hire subclass is that for 2025, Plan Sponsor D discontinues section is not satisfied in this paragraph based on the special rule for new hires, the use of the special rule for new hires by (f)(2)(vii) (Example 7) because the new hire minimum class size requirement does not offering all full-time employees an HRA on subclass has been subdivided in a manner apply to full-time new hires offered an HRA the same terms. Further, for 2030, Plan that is subject to the minimum class size in 2022. Sponsor D wants to continue to offer an HRA requirement, and the class offered the HRA (g) Applicability date. This section on the same terms to all full-time employees fails to satisfy the minimum class size applies to plan years beginning on or hired before January 1, 2030, and to offer all requirement. Specifically, once the new hire after January 1, 2020. subclass is subdivided the general rules for full-time employees hired on or after January ■ Par. 7. Section 54.9815–2711 is 1, 2030, an HRA in a different amount. applying the minimum class size (B) Conclusion. Plan Sponsor D may not requirement apply to the employees offered amended by revising paragraphs (c), (d), apply the special rule for new hires for 2030 the HRA in the new hire subclass. In this and (e) to read as follows: to the class of full-time employees being case, because the subdivision of the new hire § 54.9815–2711 No lifetime or annual offered an HRA because the special rule for full-time subclass is based on rating areas; a limits. new hires may only be applied to a class that class based on rating areas is an applicable is being offered a traditional group health class subject to the minimum class size * * * * * plan. requirement; and the employees in one rating (c) Definition of essential health (vi) Example 6: New full-time employees area are to be offered the HRA, while the benefits. The term ‘‘essential health offered different HRAs in different rating employees in the other rating area are offered benefits’’ means essential health areas—(A) Facts. Plan Sponsor E has work the traditional group health plan, the benefits under section 1302(b) of the sites in rating area 1, rating area 2, and rating minimum class size requirement would Patient Protection and Affordable Care area 3. For 2021, Plan Sponsor E offers its apply on and after the date of the Act and applicable regulations. For the subdivision. Further, the minimum class size full-time employees a traditional group purpose of this section, a group health health plan. For 2022, Plan Sponsor E offers requirement would not be satisfied, because its full-time employees hired on or after the applicable class size minimum for Plan plan or a health insurance issuer that is January 1, 2022, in rating area 1 an HRA of Sponsor F would be 20, and only 15 not required to provide essential health $3,000, its full-time employees hired on or employees in rating area 2 would be offered benefits under section 1302(b) must after January 1, 2022, in rating area 2 an HRA the HRA. define ‘‘essential health benefits’’ in a of $5,000, and its full-time employees hired (viii) Example 8: New full-time employee manner that is consistent with the on or after January 1, 2022, in rating area 3 class subdivided based on state—(A) Facts. following: an HRA of $7,000. Within each class offered The facts are the same as in paragraph (1) For plan years beginning before an HRA, Plan Sponsor E offers the HRA on (f)(2)(vii) of this section (Example 7), except January 1, 2020, one of the EHB- the same terms. Plan Sponsor E offers its full- that for the 2025 plan year, Plan Sponsor F benchmark plans applicable in a State time employees hired prior to January 1, intends to subdivide the new hire, full-time 2022, in each of those classes a traditional class so that those in State 1 will be offered under 45 CFR 156.110, and including group health plan. On the first day of the the traditional group health plan and those coverage of any additional required 2022 plan year, there is one new hire, full- in State 2 will each be offered an HRA on the benefits that are considered essential time employee in rating area 1, three new same terms. health benefits consistent with 45 CFR hire, full-time employees in rating area 2, and (B) Conclusion. The same terms 155.170(a)(2), or one of the three Federal 10 new hire-full-time employees in rating requirement of paragraph (c)(3) of this Employees Health Benefits Program area 3. section is satisfied in this paragraph (FEHBP) plan options as defined by 45 (B) Conclusion. The same terms (f)(2)(viii) (Example 8) because even though CFR 156.100(a)(3), supplemented as requirement of paragraph (c)(3) of this the new hire subclass has been subdivided, necessary, to satisfy the standards in 45 section is satisfied in this paragraph (f)(2)(vi) it has been subdivided in a manner that is (Example 6) because, under the special rule not subject to the minimum class size CFR 156.110; or for new hires in paragraph (d)(5) of this requirement as the subdivision is based on (2) For plan years beginning on or section, the full-time employees in each of the entire state. after January 1, 2020, an EHB- the three rating areas newly hired on and (ix) Example 9: New full-time employees benchmark plan selected by a State in after January 1, 2022, may be treated as three and part-time employees offered HRA—(A) accordance with the available options new hire subclasses and Plan Sponsor E Facts. In 2021, Plan Sponsor G offers its full- and requirements for EHB-benchmark

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plan selection at 45 CFR 156.111, health plan and the other group health forfeited or the employee is permitted to including an EHB-benchmark plan in a plan with which it is integrated share permanently opt out of and waive future State that takes no action to change its the same plan sponsor, the same plan reimbursements from the HRA or other EHB-benchmark plan and thus retains document or governing instruments, or account-based group health plan (see the EHB-benchmark plan applicable in file a single Form 5500, if applicable. paragraph (d)(3) of this section for that State for the prior year in An HRA or other account-based group additional rules regarding forfeiture and accordance with 45 CFR 156.111(d)(1), health plan integrated with another waiver). and including coverage of any group health plan for purposes of PHS (ii) Method for integration with additional required benefits that are Act section 2711 and paragraph (a)(2) of another group health plan: Minimum considered essential health benefits this section may not be used to purchase value required. An HRA or other consistent with 45 CFR 155.170(a)(2). individual health insurance coverage account-based group health plan is (d) Health reimbursement unless that coverage consists solely of integrated with another group health arrangements (HRAs) and other excepted benefits, as defined in 45 CFR plan for purposes of this paragraph (d) account-based group health plans—(1) 148.220. if: In general. If an HRA or other account- (i) Method for integration with a (A) The plan sponsor offers a group based group health plan is integrated group health plan: Minimum value not health plan (other than the HRA or other with another group health plan or required. An HRA or other account- account-based group health plan) to the individual health insurance coverage based group health plan is integrated employee that provides minimum value and the other group health plan or with another group health plan for pursuant to section 36B(c)(2)(C)(ii) (and individual health insurance coverage, as purposes of this paragraph (d) if: its implementing regulations and applicable, separately is subject to and (A) The plan sponsor offers a group applicable guidance); satisfies the requirements in PHS Act health plan (other than the HRA or other (B) The employee receiving the HRA section 2711 and paragraph (a)(2) of this account-based group health plan) to the or other account-based group health section, the fact that the benefits under employee that does not consist solely of plan is actually enrolled in a group the HRA or other account-based group excepted benefits; health plan (other than the HRA or other health plan are limited does not cause (B) The employee receiving the HRA account-based group health plan) that the HRA or other account-based group or other account-based group health provides minimum value pursuant to health plan to fail to satisfy the plan is actually enrolled in a group section 36B(c)(2)(C)(ii) (and applicable requirements of PHS Act section 2711 health plan (other than the HRA or other guidance), regardless of whether the and paragraph (a)(2) of this section. account-based group health plan) that plan is offered by the plan sponsor of Similarly, if an HRA or other account- does not consist solely of excepted the HRA or other account-based group based group health plan is integrated benefits, regardless of whether the plan health plan (referred to as non-HRA MV with another group health plan or is offered by the same plan sponsor group coverage); individual health insurance coverage (referred to as non-HRA group (C) The HRA or other account-based and the other group health plan or coverage); group health plan is available only to individual health insurance coverage, as (C) The HRA or other account-based employees who are actually enrolled in applicable, separately is subject to and group health plan is available only to non-HRA MV group coverage, regardless satisfies the requirements in PHS Act employees who are enrolled in non- of whether the non-HRA MV group section 2713 and § 54.9815–2713(a)(1) HRA group coverage, regardless of coverage is offered by the plan sponsor of this chapter, the fact that the benefits whether the non-HRA group coverage is of the HRA or other account-based under the HRA or other account-based offered by the plan sponsor of the HRA group health plan (for example, the group health plan are limited does not or other account-based group health HRA may be offered only to employees cause the HRA or other account-based plan (for example, the HRA may be who do not enroll in an employer’s group health plan to fail to satisfy the offered only to employees who do not group health plan but are enrolled in requirements of PHS Act section 2713 enroll in an employer’s group health other non-HRA MV group coverage, and § 54.9815–2713(a)(1) of this chapter. plan but are enrolled in other non-HRA such as a group health plan maintained For the purpose of this paragraph (d), all group coverage, such as a group health by an employer of the employee’s individual health insurance coverage, plan maintained by the employer of the spouse); and except for coverage that consists solely employee’s spouse); (D) Under the terms of the HRA or of excepted benefits, is treated as being (D) The benefits under the HRA or other account-based group health plan, subject to and complying with PHS Act other account-based group health plan an employee (or former employee) is sections 2711 and 2713. are limited to reimbursement of one or permitted to permanently opt out of and (2) Requirements for an HRA or other more of the following—co-payments, co- waive future reimbursements from the account-based group health plan to be insurance, deductibles, and premiums HRA or other account-based group integrated with another group health under the non-HRA group coverage, as health plan at least annually, and, upon plan. An HRA or other account-based well as medical care expenses that do termination of employment, either the group health plan is integrated with not constitute essential health benefits remaining amounts in the HRA or other another group health plan for purposes as defined in paragraph (c) of this account-based group health plan are of PHS Act section 2711 and paragraph section; and forfeited or the employee is permitted to (a)(2) of this section if it satisfies the (E) Under the terms of the HRA or permanently opt out of and waive future requirements under one of the other account-based group health plan, reimbursements from the HRA or other integration methods set forth in an employee (or former employee) is account-based group health plan (see paragraph (d)(2)(i) or (ii) of this section. permitted to permanently opt out of and paragraph (d)(3) of this section for For purposes of the integration methods waive future reimbursements from the additional rules regarding forfeiture and under which an HRA or other account- HRA or other account-based group waiver). based group health plan is integrated health plan at least annually and, upon (3) Forfeiture. For purposes of with another group health plan, termination of employment, either the integration under paragraphs (d)(2)(i)(E) integration does not require that the remaining amounts in the HRA or other and (d)(2)(ii)(D) of this section, HRA or other account-based group account-based group health plan are forfeiture or waiver occurs even if the

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forfeited or waived amounts may be plan is actually enrolled in Medicare wraparound coverage are excepted reinstated upon a fixed date, a Part B or D; benefits if they satisfy the requirements participant’s death, or the earlier of the (iii) The HRA or other account-based of paragraph (c)(3)(vii) of this section; two events (the reinstatement event). group health plan is available only to and benefits provided under a health For the purpose of this paragraph (d)(3), employees who are enrolled in reimbursement arrangement or other coverage under an HRA or other Medicare Part B or D; and account-based group health plan, other account-based group health plan is (iv) The HRA or other account-based than a health FSA, are excepted benefits considered forfeited or waived prior to group health plan complies with if they satisfy the requirements of a reinstatement event only if the paragraphs (d)(2)(i)(E) and (d)(2)(ii)(D) paragraph (c)(3)(viii) of this section. participant’s election to forfeit or waive of this section. * * * * * is irrevocable, meaning that, beginning (6) Definitions. The following (viii) Health reimbursement on the effective date of the election and definitions apply for purposes of this arrangements (HRAs) and other through the date of the reinstatement section. account-based group health plans. (i) Account-based group health plan. event, the participant and the Benefits provided under an HRA or An account-based group health plan is participant’s beneficiaries have no other account-based group health plan, an employer-provided group health plan access to amounts credited to the HRA other than a health FSA, are excepted if that provides reimbursements of or other account-based group health they satisfy all of the requirements of medical care expenses with the plan. This means that upon and after this paragraph (c)(3)(viii). See paragraph reimbursement subject to a maximum reinstatement, the reinstated amounts (c)(3)(v) of this section for the fixed dollar amount for a period. An under the HRA or other account-based circumstances in which benefits HRA is a type of account-based group group health plan may not be used to provided under a health FSA are health plan. An account-based group reimburse or pay medical care expenses excepted benefits. For purposes of this health plan does not include a qualified incurred during the period after paragraph (c)(3)(viii), the term ‘‘HRA or small employer health reimbursement forfeiture and prior to reinstatement. other account-based group health plan’’ (4) Requirements for an HRA or other arrangement, as defined in section has the same meaning as ‘‘account- account-based group health plan to be 9831(d)(2). based group health plan’’ set forth in integrated with individual health (ii) Medical care expenses. Medical § 54.9815–2711(d)(6)(i) of this part, insurance coverage or Medicare Part A care expenses means expenses for except that the term does not include and B or Medicare Part C. An HRA or medical care as defined under section other account-based group health plan 213(d). health FSAs. For ease of reference, an is integrated with individual health (e) Applicability date. The provisions HRA or other account-based group insurance coverage or Medicare Part A of this section are applicable to group health plan that satisfies the and B or Medicare Part C (and treated health plans and health insurance requirements of this paragraph as complying with PHS Act sections issuers for plan years beginning on or (c)(3)(viii) is referred to as an excepted 2711 and 2713) if the HRA or other after January 1, 2020. Until the benefit HRA. account-based group health plan applicability date for this section, plans (A) Otherwise not an integral part of satisfies the requirements of § 54.9802– and issuers are required to continue to the plan. Other group health plan 4(c) of this chapter (as modified by comply with the corresponding sections coverage that is not limited to excepted § 54.9802–4(e), for HRAs or other of 26 CFR part 54, contained in the 26 benefits and that is not an HRA or other account-based group health plans CFR, subchapter D, revised as of April account-based group health plan must integrated with Medicare Part A and B 1, 2018. be made available by the same plan sponsor for the plan year to the or Medicare Part C). ■ Par. 8. Section 54.9831–1 is amended participant. (5) Integration with Medicare Part B by revising paragraph (c)(3)(i) and (B) Benefits are limited in amount— and D. For employers that are not adding paragraph (c)(3)(viii) to read as (1) Limit on annual amounts made required to offer their non-HRA group follows: health plan coverage to employees who available. The amounts newly made are Medicare beneficiaries, an HRA or § 54.9831–1 Special rules relating to group available for each plan year under the other account-based group health plan health plans. HRA or other account-based group that may be used to reimburse * * * * * health plan do not exceed $1,800. In the premiums under Medicare Part B or D (c) * * * case of any plan year beginning after may be integrated with Medicare (and (3) * * * December 31, 2020, the dollar amount deemed to comply with PHS Act (i) In general. Limited-scope dental in the preceding sentence shall be sections 2711 and 2713) if the following benefits, limited-scope vision benefits, increased by an amount equal to such requirements are satisfied with respect or long-term care benefits are excepted dollar amount multiplied by the cost-of- to employees who would be eligible for if they are provided under a separate living adjustment. The cost of living the employer’s non-HRA group health policy, certificate, or contract of adjustment is the percentage (if any) by plan but for their eligibility for Medicare insurance, or are otherwise not an which the C–CPI–U for the preceding (and the integration rules under integral part of a group health plan as calendar year exceeds the C–CPI–U for paragraphs (d)(2)(i) and (ii) of this described in paragraph (c)(3)(ii) of this calendar year 2019. The term ‘‘C–CPI– section continue to apply to employees section. In addition, benefits provided U’’ means the Chained Consumer Price who are not eligible for Medicare): under a health flexible spending Index for All Urban Consumers as (i) The plan sponsor offers a group arrangement (health FSA) are excepted published by the Bureau of Labor health plan (other than the HRA or other benefits if they satisfy the requirements Statistics of the Department of Labor. account-based group health plan and of paragraph (c)(3)(v) of this section; The C–CPI–U for any calendar year is that does not consist solely of excepted benefits provided under an employee the average of the C–CPI–U as of the benefits) to employees who are not assistance program are excepted benefits close of the 12-month period ending on eligible for Medicare; if they satisfy the requirements of March 31 of such calendar year. The (ii) The employee receiving the HRA paragraph (c)(3)(vi) of this section; values of the C–CPI–U used for any or other account-based group health benefits provided under limited calendar year shall be the latest values

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so published as of the date on which the Retirement Income Security Act of 1974, 1002(37), 1002(38), 1002(40), 1002(42), 1031, Bureau publishes the initial value of the as amended. and 1135; Secretary of Labor’s Order No. 1– C–CPI–U for the month of March for the (F) Special rule. The HRA or other 2011, 77 FR 1088 (Jan. 9, 2012); Secs. 2510.3– preceding calendar year. Any such account-based group health plan must 21, 2510.3–101 and 2510.3–102 also issued not reimburse premiums for short-term, under sec. 102 of Reorganization Plan No. 4 increase that is not a multiple of $50 of 1978, 5 U.S.C. App. at 237 (2012), E.O. shall be rounded down to the next limited-duration insurance (as defined 12108, 44 FR 1065 (Jan. 3, 1979) and 29 lowest multiple of $50. The Department in § 54.9801–2 of this part) if the U.S.C. 1135 note. Sec. 2510.3–38 is also of the Treasury and the Internal conditions of this paragraph issued under sec. 1, Pub. L. 105–72, 111 Stat. Revenue Service will publish the (c)(3)(viii)(F) are satisfied. 1457 (1997). (1) The HRA or other account-based adjusted amount for plan years ■ 10. Section 2510.3–1 is amended by group health plan is offered by a small beginning in any calendar year no later adding paragraph (l) to read as follows: than June 1 of the preceding calendar employer (as defined in PHS Act section year. 2791(e)(4)). § 2510.3–1 Employee welfare benefit plan. (2) Carryover amounts. If the terms of (2) The other group health plan * * * * * the HRA or other account-based group coverage offered by the employer (l) Safe harbor for health health plan allow unused amounts to be pursuant to paragraph (c)(3)(viii)(A) of reimbursement arrangements (HRAs) made available to participants and this section is either fully-insured or and certain other arrangements that dependents in later plan years, such partially-insured. reimburse individual health insurance (3) The Secretary of Health and carryover amounts are disregarded for coverage. For purposes of title I of the Human Services (HHS) makes a finding, purposes of determining whether Act and this chapter, the terms in consultation with the Secretaries of benefits are limited in amount. ‘‘employee welfare benefit plan’’ and Labor and the Treasury, that the (3) Multiple HRAs or other account- ‘‘welfare plan’’ shall not include reimbursement of premiums for short- based group health plans. If the plan individual health insurance coverage term, limited-duration insurance by sponsor provides more than one HRA or the premiums of which are reimbursed excepted benefit HRAs has caused other account-based group health plan by a health reimbursement arrangement significant harm to the small group to the participant for the same time (HRA) (or other account-based group market in the state that is the principal period, the amounts made available health plan), including an HRA or other place of business of the small employer. under all such plans are aggregated to account-based group health plan (4) The finding by the Secretary of determine whether the benefits are integrated with individual health HHS is made after submission of a limited in amount, except that HRAs or insurance coverage (as described in written recommendation by the other account-based group health plans § 2590.702–2 of this chapter), an HRA applicable state authority of such state, that reimburse only excepted benefits that covers fewer than two current in a form and manner specified by HHS. are not included in determining employees (as described in The written recommendation must whether the benefits are limited in § 2590.732(b) of this chapter) and that include evidence that the amount. reimburses premiums for individual reimbursement of premiums for short- (C) Prohibition on reimbursement of health insurance coverage, a qualified term, limited-duration insurance by certain health insurance premiums. The small employer health reimbursement excepted benefit HRAs established by HRA or other account-based group arrangement (QSEHRA), as defined in insured or partially-insured small health plan must not reimburse section 9831(d)(2) of the Code, or an employers in the state has caused premiums for individual health arrangement under which an employer significant harm to the state’s small insurance coverage, group health plan allows employees to pay the portion of group market, including with respect to coverage (other than COBRA the premium for individual health continuation coverage or other premiums. (5) The restriction shall be imposed or insurance coverage that is not covered continuation coverage), or Medicare Part discontinued by publication by the by an HRA or other account-based group A, B, C, or D, except that the HRA or Secretary of HHS of a notice in the health plan with which the coverage is other account-based group health plan Federal Register and shall apply only integrated by using a salary reduction may reimburse premiums for such prospectively and with a reasonable arrangement in a cafeteria plan under coverage that consists solely of excepted time for plan sponsors to comply. section 125 of the Code (supplemental benefits. See also, paragraph salary reduction arrangement), if all the (c)(3)(viii)(F) of this section. * * * * * conditions of this paragraph (l) are (D) Uniform availability. The HRA or DEPARTMENT OF LABOR satisfied. other account-based group health plan (1) The purchase of any individual Employee Benefits Security is made available under the same terms health insurance coverage is completely Administration to all similarly situated individuals, as voluntary for participants and defined in § 54.9802–1(d) of this part, 29 CFR Chapter XXV beneficiaries. The fact that a plan regardless of any health factor (as For the reasons stated in the sponsor requires such coverage to be described in § 54.9802–1(a)). preamble, the Department of Labor purchased as a condition for (E) Notice requirement. See 29 CFR amends 29 CFR parts 2510 and 2590 as participation in an HRA or 2520.102–3(j)(2) and (3) and 29 CFR set forth below: supplemental salary reduction 2520.104b–2(a) for rules regarding the arrangement does not make the time, manner, and content for summary PART 2510—DEFINITION OF TERMS purchase involuntary. plan descriptions (including a USED IN SUBCHAPTERS C, D, E, F, G, (2) The employer, employee description of conditions pertaining to AND L OF THIS CHAPTER organization, or other plan sponsor does eligibility to receive benefits; annual or not select or endorse any particular lifetime caps or other limits on benefits ■ 9. The authority citation for part 2510 issuer or insurance coverage. In under the plan; and a description or is revised to read as follows: contrast, providing general contact summary of the benefits) applicable to Authority: 29 U.S.C. 1002(1), 1002(3), information regarding availability of plans subject to Tile I of the Employee 1002(2), 1002(5), 1002(16), 1002(21), health insurance in a state (such as

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providing information regarding amended by Pub. L. 111–152, 124 Stat. 1029; PHS Act section 2705 (which is www.HealthCare.gov or contact Division M, Pub. L. 113–235, 128 Stat. 2130; incorporated in ERISA section 715) and information for a state insurance Secretary of Labor’s Order 1–2011, 77 FR that are consistent with the provisions commissioner’s office) or providing 1088 (Jan. 9, 2012). of the Patient Protection and Affordable general health insurance educational ■ 12. Section 2590.701–2 is amended by Care Act, Public Law 111–148 (124 Stat. information (such as the uniform revising the definition of ‘‘group health 119 (2010)), and the Health Care and glossary of health coverage and medical insurance coverage’’ to read as follows: Education Reconciliation Act of 2010, terms available at: https://www.dol.gov/ Public Law 111–152 (124 Stat. 1029 § 2590.701–2 Definitions. sites/default/files/ebsa/laws-and- (2010)), each as amended, that are regulations/laws/affordable-care-act/ * * * * * designed to create a competitive for-employers-and-advisers/sbc- Group health insurance coverage individual market. These conditions are uniform-glossary-of-coverage-and- means health insurance coverage offered intended to prevent an HRA plan medical-terms-final.pdf) is permitted. in connection with a group health plan. sponsor from intentionally or (3) Reimbursement for non-group Individual health insurance coverage unintentionally, directly or indirectly, health insurance premiums is limited reimbursed by the arrangements steering any participants or dependents solely to individual health insurance described in 29 CFR 2510.3–1(l) is not with adverse health factors away from coverage (as defined in § 2590.701–2 of offered in connection with a group its traditional group health plan, if any, this chapter) that does not consist solely health plan, and is not group health and toward individual health insurance of excepted benefits (as defined in insurance coverage, provided all the coverage. § 2590.732(c) of this chapter). conditions in 29 CFR 2510.3–1(l) are (c) General rule. An HRA will be (4) The employer, employee satisfied. considered to be integrated with organization, or other plan sponsor * * * * * individual health insurance coverage for receives no consideration in the form of ■ 13. Section 2590.702–2 is added to purposes of PHS Act sections 2711 and cash or otherwise in connection with read as follows: 2713 and § 2590.715–2711(d)(4) of this the employee’s selection or renewal of part and will not be considered to any individual health insurance § 2590.702–2 Special Rule Allowing discriminate in violation of ERISA coverage. Integration of Health Reimbursement section 702 and PHS Act section 2705 Arrangements (HRAs) and Other Account- solely because it is integrated with (5) Each plan participant is notified Based Group Health Plans with Individual annually that the individual health individual health insurance coverage, Health Insurance Coverage and Medicare provided that the conditions of this insurance coverage is not subject to title and Prohibiting Discrimination In HRAs and I of ERISA. For an HRA that is Other Account-Based Group Health Plans. paragraph (c) are satisfied. See paragraph (e) of this section for how integrated with individual health (a) Scope. This section applies to insurance coverage, the notice must these conditions apply to an individual health reimbursement arrangements coverage HRA integrated with Medicare. satisfy the notice requirement set forth (HRAs) and other account-based group in § 2590.702–2(c)(6) of this chapter. A For purposes of this section, medical health plans, as defined in § 2590.715– care expenses means medical care QSEHRA or an HRA not subject to the 2711(d)(6)(i) of this part. For ease of notice requirement set forth in expenses as defined in § 2590.715– reference, the term ‘‘HRA’’ is used in 2711(d)(6)(ii) of this part and Exchange § 2590.702–2(c)(6) of this chapter may this section to include other account- use the following language to satisfy this means Exchange as defined in 45 CFR based group health plans. For related 155.20. condition: ‘‘The individual health regulations, see 26 CFR 1.36B–2(c)(3)(i) (1) Enrollment in individual health insurance coverage that is paid for by and (c)(5), 29 CFR 2510.3–1(l), and 45 insurance coverage—(i) In general. The this plan, if any, is not subject to the CFR 155.420. HRA must require that the participant rules and consumer protections of the (b) Purpose. This section provides the and any dependent(s) are enrolled in Employee Retirement Income Security conditions that an HRA must satisfy in individual health insurance coverage Act. You should contact your state order to be integrated with individual that is subject to and complies with the insurance department for more health insurance coverage for purposes requirements in PHS Act sections 2711 information regarding your rights and of Public Health Service Act (PHS Act) (and § 2590.715–2711(a)(2) of this part) responsibilities if you purchase sections 2711 and 2713 and § 2590.715– and PHS Act section 2713 (and individual health insurance coverage.’’ 2711(d)(4) of this part (referred to as an § 2590.715–2713(a)(1) of this part), for A supplemental salary reduction individual coverage HRA). This section each month that the individual(s) are arrangement is not required to provide also allows an individual coverage HRA covered by the HRA. For purposes of this notice as the notice will be to be integrated with Medicare for this paragraph (c), all individual health provided by the HRA that such an purposes of PHS Act sections 2711 and insurance coverage, except for arrangement supplements. 2713 and § 2590.715–2711(d)(4), subject individual health insurance coverage to the conditions provided in this PART 2590—RULES AND that consists solely of excepted benefits, section (see paragraph (e) of this is treated as being subject to and REGULATIONS FOR GROUP HEALTH section). Some of the conditions set complying with PHS Act sections 2711 PLANS. forth in this section specifically relate to and 2713. References to individual ■ 11. The authority citation for part compliance with PHS Act sections 2711 health insurance coverage in this 2590 continues to read as follows: and 2713 and some relate to the effect paragraph (c) do not include individual of having or being offered an individual health insurance coverage that consists Authority: 29 U.S.C. 1027, 1059, 1135, coverage HRA on eligibility for the solely of excepted benefits. 1161–1168, 1169, 1181–1183, 1181 note, premium tax credit under section 36B of (ii) Forfeiture. The HRA must provide 1185, 1185a, 1185b, 1191, 1191a, 1191b, and 1191c; sec. 101(g), Pub. L. 104–191, 110 Stat. the Code. In addition, this section that if any individual covered by the 1936; sec. 401(b), Pub. L. 105–200, 112 Stat. provides conditions that an individual HRA ceases to be covered by individual 645 (42 U.S.C. 651 note); sec. 512(d), Pub. L. coverage HRA must satisfy in order to health insurance coverage, the HRA will 110–343, 122 Stat. 3881; sec. 1001, 1201, and comply with the nondiscrimination not reimburse medical care expenses 1562(e), Pub. L. 111–148, 124 Stat. 119, as provisions in ERISA section 702 and that are incurred by that individual after

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the individual health insurance paragraph (d)(5) of this section. For dollar amount made available to coverage ceases. In addition, if the purposes of this section, a traditional participants in a class of employees to participant and all dependents covered group health plan is any group health reimburse medical care expenses for any by the participant’s HRA cease to be plan other than either an account-based plan year increases in accordance with covered by individual health insurance group health plan or a group health plan paragraph (c)(3)(iii)(A) or (B) of this coverage, the participant must forfeit the that consists solely of excepted benefits. section. HRA. In either case, the HRA must Therefore, a plan sponsor may not offer (A) Variation due to number of reimburse medical care expenses a choice between an individual coverage dependents. An HRA does not fail to be incurred by the individual prior to the HRA or a traditional group health plan provided on the same terms to cessation of individual health insurance to any participant or dependent. participants in a class of employees coverage to the extent the medical care (3) Same terms requirement—(i) In solely because the maximum dollar expenses are otherwise covered by the general. If a plan sponsor offers an amount made available to those HRA, but the HRA may limit the period individual coverage HRA to a class of participants to reimburse medical care to submit medical care expenses for employees described in paragraph (d) of expenses for any plan year increases as reimbursement to a reasonable specified this section, the HRA must be offered on the number of the participant’s time period. If a participant or the same terms to all participants within dependents who are covered under the dependent loses coverage under the the class, except as provided in HRA increases, so long as the same HRA for a reason other than cessation of paragraphs (c)(3)(ii) through (vi) and maximum dollar amount attributable to individual health insurance coverage, (d)(5) of this section. the increase in family size is made COBRA and other continuation coverage (ii) Carryover amounts, salary available to all participants in that class requirements may apply. reduction arrangements, and transfer of employees with the same number of (iii) Grace periods and retroactive amounts. Amounts that are not used to dependents covered by the HRA. termination of individual health reimburse medical care expenses for any (B) Variation due to age. An HRA insurance coverage. In the event an plan year that are made available to does not fail to be provided on the same participants in later plan years are individual is initially enrolled in terms to participants in a class of disregarded for purposes of determining individual health insurance coverage employees solely because the maximum whether an HRA is offered on the same and subsequently timely fails to pay dollar amount made available under the terms, provided that the method for premiums for the coverage, with the terms of the HRA to those participants determining whether participants have result that the individual is in a grace to reimburse medical care expenses for access to unused amounts in future period, the individual is considered to any plan year increases as the age of the years, and the methodology and formula be enrolled in individual health participant increases, so long as the insurance coverage for purposes of this for determining the amounts of unused requirements in paragraphs paragraph (c)(1) and the individual funds which they may access in future (c)(3)(iii)(B)(1) and (2) of this section are coverage HRA must reimburse medical years, is the same for all participants in satisfied. For the purpose of this care expenses incurred by the a class of employees. In addition, the paragraph (c)(3)(iii)(B), the plan sponsor individual during that time period to ability to pay the portion of the may determine the age of the participant the extent the medical care expenses are premium for individual health using any reasonable method for a plan otherwise covered by the HRA. If the insurance coverage that is not covered year, so long as the plan sponsor individual fails to pay the applicable by the HRA, if any, by using a salary determines each participant’s age for the premium(s) by the end of the grace reduction arrangement under section purpose of this paragraph (c)(3)(iii)(B) period and the coverage is cancelled or 125 of the Code is considered to be a terminated, including retroactively, or if term of the HRA for purposes of this using the same method for all the individual health insurance paragraph (c)(3). Therefore, an HRA is participants in the class of employees coverage is cancelled or terminated not provided on the same terms unless for the plan year and the method is retroactively for some other reason (for the salary reduction arrangement, if determined prior to the plan year. example, a rescission), an individual made available to any participant in a (1) The same maximum dollar amount coverage HRA must require that a class of employees, is made available on attributable to the increase in age is participant notify the HRA that coverage the same terms to all participants (other made available to all participants who has been cancelled or terminated and than former employees, as defined in are the same age. the date on which the cancellation or paragraph (c)(3)(iv) of this section) in (2) The maximum dollar amount termination is effective. After the the class of employees. Further, to the made available to the oldest individual coverage HRA has received extent that a participant in an participant(s) is not more than three the notice of cancellation or individual coverage HRA was times the maximum dollar amount termination, the HRA may not previously covered by another HRA and made available to the youngest reimburse medical care expenses the current individual coverage HRA participant(s). incurred on and after the date the makes available amounts that were not (iv) Former employees. An HRA does individual health insurance coverage used to reimburse medical care not fail to be treated as provided on the was cancelled or terminated, which is expenses under the prior HRA same terms if the plan sponsor offers the considered to be the date of termination (transferred amounts), the transferred HRA to some, but not all, former of coverage under the HRA. amounts are disregarded for purposes of employees within a class of employees. (2) No traditional group health plan determining whether the HRA is offered However, if a plan sponsor offers the may be offered to same participants. To on the same terms, provided that if the HRA to one or more former employees the extent a plan sponsor offers any HRA makes available transferred within a class of employees, the HRA class of employees (as defined in amounts, it does so on the same terms must be offered to the former paragraph (d) of this section) an for all participants in the class of employee(s) on the same terms as to all individual coverage HRA, the plan employees. other employees within the class, except sponsor may not also offer a traditional (iii) Permitted variation. An HRA does as provided in paragraph (c)(3)(ii) of this group health plan to the same class of not fail to be provided on the same section. For purposes of this section, a employees, except as provided in terms solely because the maximum former employee is an employee who is

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no longer performing services for the guidance under section 223 of the Code day of the plan year the same amount, employer. such that an individual covered by such $7,000, in an HRA for that plan year and all (v) New employees or new an HRA is not disqualified from being employees hired after January 1, 2020, a pro- dependents. For a participant whose an eligible individual under section 223 rata amount based on the portion of the plan coverage under the HRA becomes year during which they are enrolled in the of the Code. HRA. effective later than the first day of the (vii) Examples. The following (C) Example 3: HRA amounts offered vary plan year, the HRA does not fail to be examples illustrate the provisions of based on number of dependents—(1) Facts. treated as being provided on the same this paragraph (c)(3), without taking into For 2020, Plan Sponsor C offers its terms to the participant if the maximum account the provisions of paragraph (d) employees the following amounts in an HRA: dollar amount made available to the of this section. In each example, the $1,500, if the employee is the only individual participant either is the same as the HRA is an individual coverage HRA that covered by the HRA; $3,500, if the employee maximum dollar amount made available has a calendar year plan year and may and one dependent are covered by the HRA; to participants in the participant’s class reimburse any medical care expenses, and $5,000, if the employee and more than of employees whose coverage became one dependent are covered by the HRA. including premiums for individual (2) Conclusion. The same terms effective as of the first day of the plan health insurance coverage (except as requirement of this paragraph (c)(3) is year, or is pro-rated consistent with the provided in paragraph (c)(3)(vii)(E) of satisfied in this paragraph (c)(3)(vii)(C) portion of the plan year in which the this section (Example 5)). Further, in (Example 3) because paragraph (c)(3)(iii)(A) participant is covered by the HRA. each example, assume the HRA is of this section allows the maximum dollar Similarly, if the HRA provides for offered on the same terms, except as amount made available in an HRA to increase variation in the maximum amount made otherwise specified in the example and as the number of the participant’s available to participants in a class of that no participants or dependents are dependents covered by the HRA increases and Plan Sponsor C makes the same amount employees based on the number of a Medicare beneficiaries. participant’s dependents covered by the available to each employee with the same (A) Example 1: Carryover amounts number of dependents covered by the HRA. HRA, and the number of a participant’s permitted—(1) Facts. For 2020 and again for (D) Example 4: HRA amounts offered vary dependents covered by the HRA 2021, Plan Sponsor A offers all employees based on increases in employees’ ages—(1) changes during a plan year (either $7,000 each in an HRA, and the HRA Facts. For 2020, Plan Sponsor D offers its increasing or decreasing), the HRA does provides that amounts that are unused at the employees the following amounts in an HRA: not fail to be treated as being provided end of a plan year may be carried over to the $1,000 each for employees age 25 to 35; on the same terms to the participant if next plan year, with no restrictions on the $2,000 each for employees age 36 to 45; the maximum dollar amount made use of the carryover amounts compared to the $2,500 each for employees age 46 to 55; and available to the participant either is the use of newly available amounts. At the end $4,000 each for employees over age 55. of 2020, some employees have used all of the (2) Conclusion. The same terms same as the maximum dollar amount requirement of this paragraph (c)(3) is not made available to participants in the funds in their HRAs, while other employees have balances remaining that range from satisfied in this paragraph (c)(3)(vii)(D) participant’s class of employees who $500 to $1,750 that are carried over to 2021 (Example 4) because the terms of the HRA had the same number of dependents for those employees. provide the oldest participants (those over covered by the HRA on the first day of (2) Conclusion. The same terms age 55) with more than three times the the plan year or is pro-rated for the requirement of this paragraph (c)(3) is amount made available to the youngest remainder of the plan year after the satisfied in this paragraph (c)(3)(vii)(A) participants (those ages 25 to 35), in violation change in the number of the (Example 1) for 2020 because Plan Sponsor of paragraph (c)(3)(iii)(B)(2) of this section. participant’s dependents covered by the A offers all employees the same amount, (E) Example 5: Application of same terms requirement to premium only HRA—(1) HRA consistent with the portion of the $7,000, in an HRA for that year. The same terms requirement is also satisfied for 2021 Facts. For 2020, Plan Sponsor E offers its plan year in which that number of employees an HRA that reimburses only dependents are covered by the HRA. because Plan Sponsor A again offers all employees the same amount for that year, premiums for individual health insurance The method the HRA uses to determine and the carryover amounts that some coverage, up to $10,000 for the year. amounts made available for participants employees have are disregarded in applying Employee A enrolls in individual health whose coverage under the HRA is the same terms requirement because the insurance coverage with a $5,000 premium effective later than the first day of the amount of the carryover for each employee for the year and is reimbursed $5,000 from plan year or who have changes in the (that employee’s balance) and each the HRA. Employee B enrolls in individual number of dependents covered by the employee’s access to the carryover amounts health insurance coverage with an $8,000 is based on the same terms. premium for the year and is reimbursed HRA during a plan year must be the $8,000 from the HRA. same for all participants in the class of (B) Example 2: Employees hired after the first day of the plan year—(1) (2) Conclusion. The same terms employees and the method must be requirement of this paragraph (c)(3) is determined prior to the beginning of the Facts. For 2020, Plan Sponsor B offers all employees employed on January 1, 2020, satisfied in this paragraph (c)(3)(vii)(E) plan year. $7,000 each in an HRA for the plan year. (Example 5) because Plan Sponsor E offers (vi) HSA-compatible HRAs. An HRA Employees hired after January 1, 2020, are the HRA on the same terms to all employees, does not fail to be treated as provided eligible to enroll in the HRA with an effective notwithstanding that some employees receive on the same terms if the plan sponsor date of the first day of the month following a greater amount of reimbursement than offers participants in a class of their date of hire, as long as they have others based on the cost of the individual employees a choice between an HSA- enrolled in individual health insurance health insurance coverage selected by the compatible individual coverage HRA coverage effective on or before that date, and employee. and an individual coverage HRA that is the amount offered to these employees is pro- (4) Opt out. Under the terms of the not HSA compatible, provided both rated based on the number of months HRA, a participant who is otherwise types of HRAs are offered to all remaining in the plan year, including the eligible for coverage must be permitted participants in the class of employees month which includes their coverage to opt out of and waive future effective date. on the same terms. For the purpose of (2) Conclusion. The same terms reimbursements on behalf of the this paragraph (c)(3)(vi), an HSA- requirement of this paragraph (c)(3) is participant and all dependents eligible compatible individual coverage HRA is satisfied in this paragraph (c)(3)(vii)(B) for the HRA from the HRA once, and an individual coverage HRA that is (Example 2) for 2020 because Plan Sponsor only once, with respect to each plan limited in accordance with applicable B offers all employees employed on the first year. The HRA may establish

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timeframes for enrollment in (and the HRA will reimburse any medical the plan year) or the month, as opting out of) the HRA but, in general, care expense for the newly added applicable. the opportunity to opt out must be dependent. The reasonable procedures (6) Notice requirement—(i) Timing. provided in advance of the first day of an HRA may use to implement the The HRA must provide a written notice the plan year. For participants who substantiation requirement set forth in to each participant: become eligible to participate in the this paragraph (c)(5)(i) may include a (A) At least 90 calendar days before HRA on a date other than the first day requirement that a participant the beginning of each plan year for any of the plan year (or who become eligible substantiate enrollment by providing participant who is not described in fewer than 90 days prior to the plan year either: either paragraph (c)(6)(i)(B) or (C) of this or for whom the notice under paragraph (A) A document from a third party section; (c)(6) of this section is required to be (for example, the issuer or an Exchange) (B) No later than the date on which provided as set forth in paragraph showing that the participant and any the HRA may first take effect for the (c)(6)(i)(C) of this section), or for a dependents covered by the HRA are, or participant, for any participant who is dependent who newly becomes eligible will be, enrolled in individual health not eligible to participate at the during the plan year, this opportunity insurance coverage (for example, an beginning of the plan year (or is not must be provided during the applicable insurance card or an explanation of eligible to participate at the time the HRA enrollment period(s) established benefits document pertaining to the notice is provided at least 90 calendar by the HRA for these individuals. relevant time period or documentation days before the beginning of the plan Further, under the terms of the HRA, from the Exchange showing that the year pursuant to paragraph (c)(6)(i)(A) of this section); or upon termination of employment, for a individual has completed the (C) No later than the date on which participant who is covered by the HRA, application and plan selection); or the HRA may first take effect for the either the remaining amounts in the (B) An attestation by the participant participant, for any participant who is HRA must be forfeited or the participant stating that the participant and employed by an employer that is first must be permitted to permanently opt dependent(s) covered by the HRA are, or established less than 120 days before the out of and waive future reimbursements will be, enrolled in individual health beginning of the first plan year of the from the HRA on behalf of the insurance coverage, the date coverage HRA; this paragraph (c)(6)(i)(C) applies participant and all dependents covered began or will begin, and the name of the only with respect to the first plan year by the HRA. provider of the coverage. of the HRA. (5) Reasonable procedures for (ii) Coverage substantiation with each (ii) Content. The notice must include coverage substantiation—(i) request for reimbursement of medical all the information described in this Substantiation of individual health care expenses. Following the initial paragraph (c)(6)(ii) (and may include insurance coverage for the plan year. substantiation of coverage, with each any additional information that does not The HRA must implement, and comply new request for reimbursement of an conflict with that information). To the with, reasonable procedures to incurred medical care expense for the extent that the Departments of the substantiate that participants and each same plan year, the HRA may not Treasury, Labor and Health and Human dependent covered by the HRA are, or reimburse a participant for any medical Services provide model notice language will be, enrolled in individual health care expenses unless, prior to each for certain elements of this required insurance coverage for the plan year (or reimbursement, the participant notice, HRAs are permitted, but not for the portion of the plan year the substantiates that the individual on required, to use the model language. individual is covered by the HRA, if whose behalf medical care expenses are (A) A description of the terms of the applicable). The HRA may establish the requested to be reimbursed continues to HRA, including the maximum dollar date by which this substantiation must be enrolled in individual health amount available for each participant be provided, but, in general, the date insurance coverage for the month during (including the self-only HRA amount may be no later than the first day of the which the medical care expenses were available for the plan year (or the plan year. However, for a participant incurred. The HRA must implement, maximum dollar amount available for who is not eligible to participate in the and comply with, reasonable procedures the plan year if the HRA provides for HRA on the first day of the plan year (or to satisfy this requirement. This reimbursements up to a single dollar who becomes eligible fewer than 90 substantiation may be in the form of a amount regardless of whether a days prior to the plan year or for whom written attestation by the participant, participant has self-only or other than the notice under paragraph (c)(6) of this which may be part of the form used to self-only coverage)), any rules regarding section is required to be provided as set request reimbursement, or a document the proration of the maximum dollar forth in paragraph (c)(6)(i)(C) of this from a third party (for example, a health amount applicable to any participant (or section), the HRA may establish the date insurance issuer) showing that the dependent, if applicable) who is not by which this substantiation must be participant or the dependent, if eligible to participate in the HRA for the provided, but that date may be no later applicable, are or were enrolled in entire plan year, whether (and which of) than the date the HRA coverage begins. individual health insurance coverage for the participant’s dependents are eligible Similarly, for a participant who adds a the applicable month. for the HRA, a statement that there are new dependent during the plan year, (iii) Reliance on substantiation. For different kinds of HRAs (including a the HRA may establish the date by purposes of this paragraph (c)(5), an qualified small employer health which this substantiation must be HRA may rely on the participant’s reimbursement arrangement) and the provided, but the date may be no later documentation or attestation unless the HRA being offered is an individual than the date the HRA coverage for the HRA, its plan sponsor, or any other coverage HRA, a statement that the HRA new dependent begins; however, to the entity acting in an official capacity on requires the participant and any covered extent the dependent’s coverage under behalf of the HRA has actual knowledge dependents to be enrolled in individual the HRA is effective retroactively, the that any individual covered by the HRA health insurance coverage (or Medicare HRA may establish a reasonable time by is not, or will not be, enrolled in Part A and B or Medicare Part C, if which this substantiation is required, individual health insurance coverage for applicable), a statement that the but must require it be provided before the plan year (or applicable portion of coverage in which the participant and

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any covered dependents must be (E) A statement that the participant the HRA and are not already covered by enrolled cannot be short-term, limited- must inform any Exchange to which the the HRA. duration insurance or consist solely of participant applies for advance (d) Classes of employees—(1) In excepted benefits, a statement that payments of the premium tax credit of general. This paragraph (d) sets forth the individual health insurance coverage in the availability of the HRA; the self-only rules for determining classes of which the participant and any covered HRA amount available for the HRA plan employees. Paragraph (d)(2) of this dependents are enrolled is not subject to year (or the maximum dollar amount section sets forth the specific classes of the Employee Retirement Income available for the plan year if the HRA employees; paragraph (d)(3) of this Security Act if the conditions under provides for reimbursements up to a section sets forth a minimum class size § 2510.3–1(l) of this chapter are single dollar amount regardless of requirement that applies in certain satisfied, the date as of which coverage whether a participant has self-only or circumstances; paragraph (d)(4) of this under the HRA may first become other than self-only coverage) as set section sets forth rules regarding the effective (both for participants whose forth in the written notice in accordance definition of ‘‘full-time employees,’’ coverage will become effective on the with paragraph (c)(6)(ii)(A) of this ‘‘part-time employees,’’ and ‘‘seasonal first day of the plan year and for section; whether the HRA is also employees’’; paragraph (d)(5) of this participants whose HRA coverage may available to the participant’s dependents section sets forth a special rule for new become effective at a later date), the and if so, which ones; the date as of hires; and paragraph (d)(6) of this dates on which the HRA plan year which coverage under the HRA may section addresses student premium begins and ends, and the dates on which first become effective; the date on which reduction arrangements. For purposes of the amounts newly made available the plan year begins and the date on this section, including determining under the HRA will be made available. which it ends; and whether the classes under this paragraph (d), the (B) A statement of the right of the participant is a current employee or employer is the common law employer participant to opt out of and waive former employee. and is determined without regard to the future reimbursements from the HRA, as (F) A statement that the participant rules under sections 414(b), (c), (m), and set forth under paragraph (c)(4) of this should retain the written notice because (o) of the Code that would treat the section. it may be needed to determine whether common law employer as a single (C) A description of the potential the participant is allowed a premium employer with certain other entities. availability of the premium tax credit if tax credit on the participant’s individual (2) List of classes. Participants may be the participant opts out of and waives income tax return. treated as belonging to a class of future reimbursements from the HRA (G) A statement that the HRA may not employees based on whether they are, and the HRA is not affordable for one reimburse any medical care expense or are not, included in the classes or more months under 26 CFR 1.36B– unless the substantiation requirement described in this paragraph (d)(2). If the 2(c)(5), a statement that even if the set forth in paragraph (c)(5)(ii) of this individual coverage HRA is offered to participant opts out of and waives section is satisfied and a statement that future reimbursements from an HRA, the participant must also provide the former employees, former employees are the offer will prohibit the participant substantiation required by paragraph considered to be in the same class in (and, potentially, the participant’s (c)(5)(i) of this section. which they were included immediately dependents) from receiving a premium (H) A statement that if the individual before separation from service. Before tax credit for the participant’s coverage health insurance coverage (or coverage each plan year, a plan sponsor must (or the dependent’s coverage, if under Medicare Part A and B or determine for the plan year which applicable) on an Exchange for any Medicare Part C) of a participant or classes of employees it intends to treat month that the HRA is affordable under dependent ceases, the HRA will not separately and the definition of the 26 CFR 1.36B–2(c)(5), a statement reimburse any medical care expenses relevant class(es) it will apply, to the describing how the participant may find that are incurred by the participant or extent these regulations permit a choice. assistance with determining dependent, as applicable, after the After the classes and the definitions of affordability, a statement that, if the coverage ceases, and a statement that the classes are established for a plan participant is a former employee, the the participant must inform the HRA if year, a plan sponsor may not make offer of the HRA does not render the the participant’s or dependent’s changes to the classes of employees or participant (or the participant’s individual health insurance coverage (or the definitions of those relevant classes dependents, if applicable) ineligible for coverage under Medicare Part A and B with respect to that plan year. the premium tax credit regardless of or Medicare Part C) is cancelled or (i) Full-time employees, defined at the whether it is affordable under 26 CFR terminated retroactively and the date on election of the plan sponsor to mean 1.36B–2(c)(5), and a statement that if the which the cancellation or termination is either full-time employees under section participant or dependent is enrolled in effective. 4980H of the Code (and 26 CFR Medicare, he or she is ineligible for the (I) The contact information (including 54.4980H–1(a)(21)) or employees who premium tax credit without regard to a phone number) for an individual or a are not part-time employees (as the offer or acceptance of the HRA; group of individuals who participants described in 26 CFR 1.105– (D) A statement that if the participant may contact in order to receive 11(c)(2)(iii)(C)); accepts the HRA, the participant may additional information regarding the (ii) Part-time employees, defined at not claim a premium tax credit for the HRA. The plan sponsor may determine the election of the plan sponsor to mean participant’s Exchange coverage for any which individual or group of either employees who are not full-time month the HRA may be used to individuals is best suited to be the employees under section 4980H of the reimburse medical care expenses of the specified contact. Code (and under 26 CFR 54.4980H– participant, and a premium tax credit (J) A statement of availability of a 1(a)(21) (which defines full-time may not be claimed for the Exchange special enrollment period to enroll in or employee)) or employees who are part- coverage of the participant’s dependents change individual health insurance time employees as described in 26 CFR for any month the HRA may be used to coverage, through or outside of an 1.105–11(c)(2)(iii)(C); reimburse medical care expenses of the Exchange, for the participant and any (iii) Employees who are paid on a dependents. dependents who newly gain access to salary basis;

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(iv) Non-salaried employees (such as, (B) The minimum class size (1) 10, for an employer with fewer for example, hourly employees); requirement does not apply to a class of than 100 employees; (v) Employees whose primary site of employees offered a traditional group (2) A number, rounded down to a employment is in the same rating area health plan or a class of employees whole number, equal to 10 percent of as defined in 45 CFR 147.102(b); offered no coverage. the total number of employees, for an (vi) Seasonal employees, defined at (C) The minimum class size employer with 100 to 200 employees; the election of the plan sponsor to mean requirement applies to a class of and seasonal employees as described in employees offered an individual (3) 20, for an employer with more either 26 CFR 54.4980H–1(a)(38) or 26 coverage HRA if the class is full-time than 200 employees. CFR 1.105–11(c)(2)(iii)(C); employees, part-time employees, (B) Determining employer size. For (vii) Employees included in a unit of salaried employees, non-salaried purposes of this paragraph (d)(3), the employees covered by a particular employees, or employees whose number of employees of an employer is collective bargaining agreement (or an primary site of employment is in the determined in advance of the plan year appropriate related participation same rating area (described in paragraph of the HRA based on the number of agreement) in which the plan sponsor (d)(2)(i), (ii), (iii), (iv), or (v) of this employees that the employer reasonably participates (as described in 26 CFR section, respectively, and referred to expects to employ on the first day of the 1.105–11(c)(2)(iii)(D)); collectively as the applicable classes or plan year. (iv) Determining if a class satisfies the (viii) Employees who have not individually as an applicable class), applicable class size minimum. For satisfied a waiting period for coverage except that: (if the waiting period complies with purposes of this paragraph (d)(3), (1) In the case of the class of § 2590.715–2708 of this part); whether a class of employees satisfies (ix) Non-resident aliens with no U.S.- employees whose primary site of the applicable class size minimum for a based income (as described in 26 CFR employment is in the same rating area plan year of the individual coverage 1.105–11(c)(2)(iii)(E)); (as described in paragraph (d)(2)(v) of HRA is based on the number of (x) Employees who, under all the facts this section), the minimum class size employees in the class offered the and circumstances, are employees of an requirement does not apply if the individual coverage HRA as of the first entity that hired the employees for geographic area defining the class is a day of the plan year. Therefore, this temporary placement at an entity that is State or a combination of two or more determination is not based on the not the common law employer of the entire States; and number of employees that actually employees and that is not treated as a (2) In the case of the classes of enroll in the individual coverage HRA, single employer with the entity that employees that are full-time employees and this determination is not affected by hired the employees for temporary and part-time employees (as described changes in the number of employees in placement under section 414(b), (c), (m), in paragraphs (d)(2)(i) and (ii) of this the class during the plan year. or (o) of the Code; or section, respectively), the minimum (4) Consistency requirement. For any (xi) A group of participants described class size requirement applies only to plan year, a plan sponsor may define as a combination of two or more of the those classes (and the classes are only ‘‘full-time employee,’’ ‘‘part-time classes of employees set forth in applicable classes) if the employees in employee,’’ and ‘‘seasonal employee’’ in paragraphs (d)(2)(i) through (x) of this one such class are offered a traditional accordance with the relevant provisions section. group health plan while the employees of sections 105(h) or 4980H of the Code, (3) Minimum class size requirement— in the other such class are offered an as set forth in paragraphs (d)(2)(i), (ii), (i) In general. If a class of employees is individual coverage HRA. In such a and (vi) of this section, if: subject to the minimum class size case, the minimum class size (i) To the extent applicable under the requirement as set forth in this requirement applies only to the class HRA for the plan year, each of the three paragraph (d)(3), the class must consist offered an individual coverage HRA. classes of employees are defined in of at least a minimum number of (D) A class of employees offered an accordance with section 105(h) of the employees (as described in paragraphs individual coverage HRA is also subject Code or each of the three classes of (d)(3)(iii) and (iv) of this section), to the minimum class size requirement employees are defined in accordance otherwise, the plan sponsor may not if the class is a class of employees with section 4980H of the Code for the treat that class as a separate class of created by combining at least one of the plan year; and employees. Paragraph (d)(3)(ii) of this applicable classes (as defined in (ii) The HRA plan document sets forth section sets forth the circumstances in paragraph (d)(3)(ii)(C) of this section) the applicable definitions prior to the which the minimum class size with any other class, except that the beginning of the plan year to which the requirement applies to a class of minimum class size requirement shall definitions will apply. employees, paragraph (d)(3)(iii) of this not apply to a class that is the result of (5) Special rule for new hires—(i) In section sets forth the rules for a combination of one of the applicable general. Notwithstanding paragraphs determining the applicable class size classes and a class of employees who (c)(2) and (3) of this section, a plan minimum, and paragraph (d)(3)(iv) of have not satisfied a waiting period (as sponsor that offers a traditional group this section sets forth the rules for a described in paragraph (d)(2)(viii) of health plan to a class of employees may plan sponsor to determine if it satisfies this section). prospectively offer the employees in the minimum class size requirement (iii) Determination of the applicable that class of employees who are hired with respect to a class of employees. class size minimum—(A) In general. on or after a certain future date (the new (ii) Circumstances in which minimum The minimum number of employees hire date) an individual coverage HRA class size requirement applies—(A) The that must be in a class of employees that (with this group of employees referred minimum class size requirement applies is subject to the minimum class size to as the new hire subclass), while only if a plan sponsor offers a requirement (the applicable class size continuing to offer employees in that traditional group health plan to one or minimum) is determined prior to the class of employees who are hired before more classes of employees and offers an beginning of the plan year for each plan the new hire date a traditional group individual coverage HRA to one or more year of the individual coverage HRA health plan (with the rule set forth in other classes of employees. and is: this sentence referred to as the special

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rule for new hires). For the new hire paragraph (f)(1) of this section, a student (c)(6)(ii)(J) of this section, the term subclass, the individual coverage HRA premium reduction arrangement is individual health insurance coverage must be offered on the same terms to all defined as any program offered by an means only individual health insurance participants within the subclass, in institution of higher education under coverage and does not also mean accordance with paragraph (c)(3) of this which the cost of insured or self-insured coverage under Medicare Part A and B section. In accordance with paragraph student health coverage is reduced for or Part C. (c)(2) of this section, a plan sponsor may certain students through a credit, offset, (f) Examples—(1) Examples regarding not offer a choice between an individual reimbursement, stipend or similar classes and the minimum class size coverage HRA or a traditional group arrangement. A student employee requirement. The following examples health plan to any employee in the new offered a student premium reduction illustrate the provisions of paragraph hire subclass or to any employee in the arrangement is also not counted for (c)(3) of this section, taking into account class who is not a member of the new purposes of determining the applicable the provisions of paragraphs (d)(1) hire subclass. class size minimum under paragraph through (4) and (d)(6) of this section. In (ii) New hire date. A plan sponsor (d)(3)(iii) of this section. If a student each example, the HRA is an individual may set the new hire date for a class of employee is not offered a student coverage HRA that may reimburse any employees prospectively as any date on premium reduction arrangement medical care expenses, including or after January 1, 2020. A plan sponsor (including if the student employee is premiums for individual health may set different new hire dates offered an individual coverage HRA insurance coverage and it is assumed prospectively for separate classes of instead), the student employee is that no participants or dependents are employees. considered to be part of the class of Medicare beneficiaries. (iii) Discontinuation of use of special employees to which the employee (i) Example 1: Collectively bargained rule for new hires and multiple otherwise belongs and is counted for employees offered traditional group health applications of the special rule for new purposes of determining the applicable plan; non-collectively bargained employees hires. A plan sponsor may discontinue class size minimum under paragraph offered HRA—(A) Facts. For 2020, Plan use of the special rule for new hires at (d)(3)(iii) of this section. Sponsor A offers its employees covered by a any time for any class of employees. In (e) Integration of Individual Coverage collective bargaining agreement a traditional that case, the new hire subclass is no group health plan (as required by the HRAs with Medicare—(1) General rule. collective bargaining agreement) and all other longer treated as a separate subclass of An individual coverage HRA will be employees (non-collectively bargained employees. In the event a plan sponsor considered to be integrated with employees) each an HRA on the same terms. applies the special rule for new hires to Medicare (and deemed to comply with (B) Conclusion. The same terms a class of employees and later PHS Act sections 2711 and 2713 and requirement of paragraph (c)(3) of this discontinues use of the rule to the class § 2590.715–2711(d)(4) of this part), section is satisfied in this paragraph (f)(1)(i) of employees, the plan sponsor may provided that the conditions of (Example 1) because collectively bargained later apply the rule if the application of paragraph (c) of this section are and non-collectively bargained employees the rule would be permitted under the satisfied, subject to paragraph (e)(2) of may be treated as different classes of employees, one of which may be offered a rules for initial application of the this section. Nothing in this section traditional group health plan and the other of special rule for new hires. If a plan requires that a participant and his or her which may be offered an individual coverage sponsor, in accordance with the dependents all have the same type of HRA, and Plan Sponsor A offers the HRA on requirements for the special rule for coverage; therefore, an individual the same terms to all participants who are new hires, applies the rule to a class of coverage HRA may be integrated with non-collectively bargained employees. The employees subsequent to any prior Medicare for some individuals and with minimum class size requirement does not application and discontinuance of the individual health insurance coverage for apply to this paragraph (f)(1)(i) (Example 1) rule to that class, the new hire date must others, including, for example, a even though Plan Sponsor A offers one class be prospective. participant enrolled in Medicare Part A a traditional group health plan and one class (iv) Application of the minimum class the HRA because collectively bargained and and B or Part C and his or her non-collectively bargained employees are not size requirement under the special rule dependents enrolled in individual applicable classes that are subject to the for new hires. The minimum class size health insurance coverage. minimum class size requirement. requirement set forth in paragraph (d)(3) (2) Application of conditions in (ii) Example 2: Collectively bargained of this section does not apply to the new paragraph (c) of this section—(i) In employees in one unit offered traditional hire subclass. However, if a plan general. Except as provided in group health plan and in another unit offered sponsor subdivides the new hire paragraph (e)(2)(ii) of this section, in HRA—(A) subclass subsequent to creating the new applying the conditions of paragraph (c) Facts. For 2020, Plan Sponsor B offers its hire subclass, the minimum class size of this section with respect to employees covered by a collective bargaining requirement set forth in paragraph (d)(3) integration with Medicare, a reference to agreement with Local 100 a traditional group health plan (as required by the collective of this section applies to any class of ‘‘individual health insurance coverage’’ bargaining agreement), and its employees employees created by subdividing the is deemed to refer to coverage under covered by a collective bargaining agreement new hire subclass, if the minimum class Medicare Part A and B or Part C. with Local 200 each an HRA on the same size requirement otherwise applies. References in this section to integration terms (as required by the collective (6) Student employees offered student of an HRA with Medicare refer to bargaining agreement). premium reduction arrangements. For integration of an individual coverage (B) Conclusion. The same terms purposes of this section, if an institution HRA with Medicare Part A and B or Part requirement of paragraph (c)(3) of this of higher education (as defined in the C. section is satisfied in this paragraph (f)(1)(ii) Higher Education Act of 1965) offers a (ii) Exceptions. For purposes of the (Example 2) because the employees covered student employee a student premium statement regarding ERISA under the by the collective bargaining agreements with the two separate bargaining units (Local 100 reduction arrangement, the employee is notice content element under paragraph and Local 200) may be treated as two not considered to be part of the class of (c)(6)(ii)(A) of this section and the different classes of employees and Plan employees to which the employee statement regarding the availability of a Sponsor B offers an HRA on the same terms would otherwise belong. For the special enrollment period under the to the participants covered by the agreement purpose of this paragraph (d)(6) and notice content element under paragraph with Local 200. The minimum class size

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requirement does not apply to this paragraph employees on temporary assignments with whose primary site of employment is in State (f)(1)(ii) (Example 2) even though Plan customers that are not the common law 2. For 2020, Plan Sponsor F offers its 45 Sponsor B offers the Local 100 employees a employers of Plan Sponsor E’s employees or employees in State 1 a traditional group traditional group health plan and the Local treated as a single employer with Plan health plan, and each of its 7 employees in 200 employees an HRA because collectively Sponsor E under section 414(b), (c), (m), or State 2 an HRA on the same terms. bargained employees are not applicable (o) of the Code (unrelated entities); other (B) Conclusion. The same terms classes that are subject to the minimum class employees work in Plan Sponsor E’s office requirement of paragraph (c)(3) of this size requirement. managing the staffing business (non- section is satisfied in this paragraph (f)(1)(vii) (iii) Example 3: Employees in a waiting temporary employees). For 2020, Plan (Example 7) because Plan Sponsor F offers period offered no coverage; other employees Sponsor E offers its employees who are on the HRA on the same terms to all employees offered an HRA—(A) Facts. For 2020, Plan temporary assignments with customers each with a work site in State 2 and that class is Sponsor C offers its employees who have an HRA on the same terms. All other a permissible class under paragraph (d) of completed a waiting period that complies employees are offered a traditional group this section. This is because employees with the requirements for waiting periods in health plan. whose work sites are in different rating areas § 2590.715–2708 of this part each an HRA on (B) Conclusion. The same terms may be considered different classes and a the same terms and does not offer coverage requirement of paragraph (c)(3) of this plan sponsor may create a class of employees to its employees who have not completed the section is satisfied in this paragraph (f)(1)(v) by combining classes of employees, waiting period. (Example 5) because the employees who are including by combining employees whose (B) Conclusion. The same terms hired for temporary placement at an work site is in one rating area with requirement of paragraph (c)(3) of this unrelated entity and non-temporary employees whose work site is in a different section is satisfied in this paragraph (f)(1)(iii) employees of Plan Sponsor E may be treated rating area, or by combining all employees (Example 3) because employees who have as different classes of employees and Plan whose work site is in a state. The minimum completed a waiting period and employees Sponsor E offers an HRA on the same terms class size requirement does not apply to this who have not completed a waiting period to all participants temporarily placed with paragraph (f)(1)(vii) (Example 7) because the may be treated as different classes and Plan customers. The minimum class size minimum class size requirement does not Sponsor C offers the HRA on the same terms requirement does not apply to this paragraph apply if the geographic area defining a class to all participants who have completed the (f)(1)(v) (Example 5) even though Plan of employees is a state or a combination of waiting period. The minimum class size Sponsor E offers one class a traditional group two or more entire states. requirement does not apply to this paragraph health plan and one class the HRA because (viii) Example 8: Full-time seasonal (f)(1)(iii) (Example 3) because Plan Sponsor the class of employees hired for temporary employees offered HRA; all other full-time employees offered traditional group health C does not offer at least one class of placement is not an applicable class that is plan; part-time employees offered no employees a traditional group health plan subject to the minimum class size coverage—(A) Facts. Plan Sponsor G employs and because the class of employees who have requirement (nor is the class made up of non- 6 full-time seasonal employees, 75 full-time not completed a waiting period and the class temporary employees). employees who are not seasonal employees, of employees who have completed a waiting (vi) Example 6: Staffing firm employees and 5 part-time employees. For 2020, Plan period are not applicable classes that are temporarily placed with customers in rating Sponsor G offers each of its 6 full-time subject to the minimum class size area 1 offered an HRA; other employees seasonal employees an HRA on the same requirement. offered a traditional group health plan—(A) terms, its 75 full-time employees who are not (iv) Example 4: Employees in a waiting Facts. The facts are the same as in paragraph seasonal employees a traditional group period offered an HRA; other employees (f)(1)(v) of this section (Example 5), except health plan, and offers no coverage to its 5 offered a traditional group health plan—(A) that Plan Sponsor E has work sites in rating part-time employees. Facts. For 2020, Plan Sponsor D offers its area 1 and rating area 2, and it offers its 10 (B) Conclusion. The same terms employees who have completed a waiting employees on temporary assignments with a requirement of paragraph (c)(3) of this period that complies with the requirements work site in rating area 1 an HRA on the section is satisfied in this paragraph for waiting periods in § 2590.715–2708 of same terms. Plan Sponsor E has 200 other (f)(1)(viii) (Example 8) because full-time this part a traditional group health plan and employees in rating areas 1 and 2, including seasonal employees and full-time employees offers its employees who have not completed its non-temporary employees in rating areas who are not seasonal employees may be the waiting period each an HRA on the same 1 and 2 and its employees on temporary considered different classes and Plan terms. assignments with a work site in rating area Sponsor G offers the HRA on the same terms (B) Conclusion. The same terms 2, all of whom are offered a traditional group to all full-time seasonal employees. The requirement of paragraph (c)(3) of this health plan. minimum class size requirement does not section is satisfied in this paragraph (f)(1)(iv) (B) Conclusion. The same terms apply to the class offered the HRA in this (Example 4) because employees who have requirement of paragraph (c)(3) of this paragraph (f)(1)(viii) (Example 8) because completed a waiting period and employees section is not satisfied in this paragraph part-time employees are not offered coverage who have not completed a waiting period (f)(1)(vi) (Example 6) because, even though and full-time employees are not an may be treated as different classes and Plan the employees who are temporarily placed applicable class subject to the minimum class Sponsor D offers an HRA on the same terms with customers generally may be treated as size requirement if part-time employees are to all participants who have not completed employees of a different class, because Plan not offered coverage. the waiting period. The minimum class size Sponsor E is also using a rating area to (ix) Example 9: Full-time employees in requirement does not apply to this paragraph identify the class offered the HRA (which is rating area 1 offered traditional group health (f)(1)(iv) (Example 4) even though Plan an applicable class for the minimum class plan; full-time employees in rating area 2 Sponsor D offers employees who have size requirement) and is offering one class offered HRA; part-time employees offered no completed a waiting period a traditional the HRA and another class the traditional coverage—(A) Facts. Plan Sponsor H group health plan and employees who have group health plan, the minimum class size employs 17 full-time employees and 10 part- not completed a waiting period an HRA requirement applies to the class offered the time employees whose work site is in rating because the class of employees who have not HRA, and the class offered the HRA fails to area 1 and 552 full-time employees whose completed a waiting period is not an satisfy the minimum class size requirement. work site is in rating area 2. For 2020, Plan applicable class that is subject to the Because Plan Sponsor E employs 210 Sponsor H offers its 17 full-time employees minimum class size requirement (nor is the employees, the applicable class size in rating area 1 a traditional group health class made up of employees who have minimum is 20, and the HRA is offered to plan and each of its 552 full-time employees completed the waiting period). only 10 employees. in rating area 2 an HRA on the same terms. (v) Example 5: Staffing firm employees (vii) Example 7: Employees in State 1 Plan Sponsor H offers no coverage to its 10 temporarily placed with customers offered an offered traditional group health plan; part-time employees in rating area 1. Plan HRA; other employees offered a traditional employees in State 2 offered HRA—(A) Facts. Sponsor H reasonably expects to employ 569 group health plan—(A) Facts. Plan Sponsor Plan Sponsor F employs 45 employees whose employees on the first day of the HRA plan E is a staffing firm that places certain of its work site is in State 1 and 7 employees year.

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(B) Conclusion. The same terms combining classes of employees, including either the full-time class or the part-time requirement of paragraph (c)(3) of this by combining employees whose work site is class because (although in certain section is satisfied in this paragraph (f)(1)(ix) in one rating area with a class of employees circumstances the minimum class size (Example 9) because employees whose work whose work site is in a different rating area. requirement applies to a class of full-time sites are in different rating areas may be The minimum class size requirement applies employees and a class of part-time considered different classes and Plan to the class of employees offered the HRA employees) Plan Sponsor K does not offer Sponsor H offers the HRA on the same terms (made up of employees in State 1 and in any class of employees a traditional group to all full-time employees in rating area 2. rating area 1 of State 2) because the minimum health plan, and the minimum class size The minimum class size requirement applies class size requirement applies to a class requirement applies only when, among other to the class offered the HRA in this paragraph based on a geographic area unless the things, at least one class of employees is (f)(1)(ix) (Example 9) because the minimum geographic area is a state or a combination of offered a traditional group health plan while class size requirement applies to a class two or more entire states. In this case, the another class is offered an HRA. based on a geographic area unless the class is made up of a state plus a rating area (xiv) Example 14: No employees offered an geographic area is a state or a combination of which is not the entire state. However, this HRA—(A) Facts. The facts are the same facts two or more entire states. However, the class satisfies the minimum class size as in paragraph (f)(1)(xiii) of this section minimum class size requirement applies only requirement because the applicable class size (Example 13), except that Plan Sponsor K to the class offered the HRA, and Plan minimum for Plan Sponsor I is 20, and Plan offers its full-time employees a traditional Sponsor H offers the HRA to the 552 full-time Sponsor I offered the HRA to 200 employees group health plan and does not offer any employees in rating area 2 on the first day on the first day of the plan year. group health plan (either a traditional group of the plan year, satisfying the minimum (xii) Example 12: Salaried employees health plan or an HRA) to its part-time class size requirement (because the offered a traditional group health plan; employees. applicable class size minimum for Plan hourly employees offered an HRA—(A) Facts. (B) Conclusion. The regulations set forth Sponsor H is 20). Plan Sponsor J has 163 salaried employees under this section do not apply to Plan (x) Example 10: Employees in rating area and 14 hourly employees. For 2020, Plan Sponsor K because Plan Sponsor K does not 1 offered HRA; employees in rating area 2 Sponsor J offers its 163 salaried employees a offer an individual coverage HRA to any offered traditional group health plan—(A) traditional group health plan and each of its employee. Facts. The facts are the same as in paragraph 14 hourly employees an HRA on the same (xv) Example 15: Full-time employees (f)(1)(ix) of this section (Example 9) except terms. Plan Sponsor J reasonably expects to offered traditional group health plan; part- that Plan Sponsor H offers its 17 full-time employ 177 employees on the first day of the time employees offered HRA—(A) Facts. The employees in rating area 1 the HRA and HRA plan year. facts are the same as in paragraph (f)(1)(xiii) offers its 552 full-time employees in rating (B) Conclusion. The same terms of this section (Example 13), except that Plan area 2 the traditional group health plan. requirement of paragraph (c)(3) of this Sponsor K offers its full-time employees a (B) Conclusion. The same terms section is not satisfied in this paragraph traditional group health plan and offers each requirement of paragraph (c)(3) of this (f)(1)(xii) (Example 12) because, even though of its part-time employees $500 in an HRA section is not satisfied in this paragraph salaried and hourly employees generally may and otherwise on the same terms. (f)(1)(x) (Example 10) because, even though be considered different classes and Plan (B) Conclusion. The same terms employees whose work sites are in different Sponsor J offers the HRA on the same terms requirement of paragraph (c)(3) of this rating areas generally may be considered to all hourly employees, the HRA fails to section is not satisfied in this paragraph different classes and Plan Sponsor H offers satisfy the minimum class size requirement. (f)(1)(xv) (Example 15) because, even though the HRA on the same terms to all participants Specifically, the minimum class size the full-time employees and the part-time in rating area 1, the HRA fails to satisfy the requirement applies in this paragraph employees generally may be treated as minimum class size requirement. (f)(1)(xii) (Example 12) because employees different classes, in this paragraph (f)(1)(xv) Specifically, the minimum class size who are paid on a salaried basis and (Example 15), the minimum class size requirement applies to this paragraph (f)(1)(x) employees who are not paid on a salaried requirement applies to the part-time (Example 10) because the minimum class basis are applicable classes subject to the employees, and it is not satisfied. size requirement applies to a class based on minimum class size requirement. Because Specifically, the minimum class size a geographic area unless the geographic area Plan Sponsor J reasonably expects to employ requirement applies to the part-time is a state or a combination of two or more between 100 and 200 employees on the first employees because that requirement applies entire states. Further, the applicable class day of the plan year, the applicable class size to an applicable class offered an HRA when size minimum for Plan Sponsor H is 20 minimum is 10 percent, rounded down to a one class is offered a traditional group health employees, and the HRA is only offered to whole number. Ten percent of 177 total plan while another class is offered an HRA, the 17 full-time employees in rating area 1 on employees, rounded down to a whole and to the part-time and full-time employee the first day of the HRA plan year. number is 17, and the HRA is offered to only classes when one of those classes is offered (xi) Example 11: Employees in State 1 and 14 hourly employees. a traditional group health plan while the rating area 1 of State 2 offered HRA; (xiii) Example 13: Part-time employees and other is offered an HRA. Because Plan employees in all other rating areas of State full-time employees offered different HRAs; Sponsor K reasonably expects to employ 2 offered traditional group health plan—(A) no traditional group health plan offered—(A) fewer than 100 employees on the first day of Facts. For 2020, Plan Sponsor I offers an Facts. Plan Sponsor K has 50 full-time the HRA plan year, the applicable class size HRA on the same terms to a total of 200 employees and 7 part-time employees. For minimum for Plan Sponsor K is 10 employees it employs with work sites in 2020, Plan Sponsor K offers its 50 full-time employees, but Plan Sponsor K offered the State 1 and in rating area 1 of State 2. Plan employees $2,000 each in an HRA otherwise HRA only to its 7 part-time employees. Sponsor I offers a traditional group health provided on the same terms and each of its (xvi) Example 16: Satisfying minimum plan to its 150 employees with work sites in 7 part-time employees $500 in an HRA class size requirement based on employees other rating areas in State 2. Plan Sponsor I otherwise provided on the same terms. Plan offered HRA—(A) Facts. Plan Sponsor L reasonably expects to employ 350 employees Sponsor K reasonably expects to employ 57 employs 78 full-time employees and 12 part- on the first day of the HRA plan year. employees on the first day of the HRA plan time employees. For 2020, Plan Sponsor L (B) Conclusion. The same terms year. offers its 78 full-time employees a traditional requirement of paragraph (c)(3) of this (B) Conclusion. The same terms group health plan and each of its 12 part- section is satisfied in this paragraph (f)(1)(xi) requirement of paragraph (c)(3) of this times employees an HRA on the same terms. (Example 11). Plan Sponsor I may treat all of section is satisfied in this paragraph Only 6 part-time employees enroll in the the employees with a work site in State 1 and (f)(1)(xiii) (Example 13) because full-time HRA. Plan Sponsor L reasonably expects to rating area 1 of State 2 as a class of employees and part-time employees may be employ fewer than 100 employees on the first employees because employees whose work treated as different classes and Plan Sponsor day of the HRA plan year. sites are in different rating areas may be K offers an HRA on the same terms to all the (B) Conclusion. The same terms considered different classes and a plan participants in each class. The minimum requirement of paragraph (c)(3) of this sponsor may create a class of employees by class size requirement does not apply to section is satisfied in this paragraph

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(f)(1)(xvi) (Example 16) because full-time because the 10 employees offered the HRA as to offer an HRA to its full-time employees employees and part-time employees may be of the first day of the plan year does not hired on and after January 1, 2023, while treated as different classes, Plan Sponsor L satisfy the applicable class size minimum. continuing to offer a traditional group health offers an HRA on the same terms to all the (2) Examples regarding special rule plan to its full-time employees hired before participants in the part-time class, and the January 1, 2023. minimum class size requirement is satisfied. for new hires. The following examples (B) Conclusion. The special rule for new Specifically, whether a class of employees illustrate the provisions of paragraph hires under paragraph (d)(5) of this section satisfies the applicable class size minimum is (c)(3) of this section, taking into account does not apply in this paragraph (f)(2)(iii) determined as of the first day of the plan year the provisions of paragraph (d) of this (Example 3) because the rule must be applied based on the number of employees in a class section, in particular the special rule for prospectively. That is, Plan Sponsor C may that is offered an HRA, not on the number new hires under paragraph (d)(5) of this not, in 2026, choose to apply the special rule of employees who enroll in the HRA. The section. In each example, the HRA is an for new hires retroactive to 2023. If Plan applicable class size minimum for Plan individual coverage HRA that has a Sponsor C were to offer an HRA in this way, Sponsor L is 10 employees, and Plan Sponsor it would fail to satisfy the conditions under L offered the HRA to its 12 part-time calendar year plan year and may paragraphs (c)(2) and (3) of this section employees. reimburse any medical care expenses, because the new hire subclass would not be (xvii) Example 17: Student employees including premiums for individual treated as a subclass for purposes of applying offered student premium reduction health insurance coverage. The those rules and, therefore, all full-time arrangements and same terms requirement— examples also assume that no employees would be treated as one class to (A) Facts. Plan Sponsor M is an institution participants or dependents are Medicare which either a traditional group health plan of higher education that offers each of its beneficiaries. or an HRA could be offered, but not both. part-time employees an HRA on the same (iv) Example 4: Permissible second terms, except that it offers its part-time (i) Example 1: Application of special rule application of the special rule for new hires employees who are student employees a for new hires to all employees—(A) Facts. For to the same class of employees—(A) Facts. student premium reduction arrangement, and 2021, Plan Sponsor A offers all employees a For 2021, Plan Sponsor D offers all of its full- the student premium reduction arrangement traditional group health plan. For 2022, Plan time employees a traditional group health provides different amounts to different part- Sponsor A offers all employees hired on or plan. For 2022, Plan Sponsor D applies the time student employees. after January 1, 2022, an HRA on the same special rule for new hires and offers an HRA (B) Conclusion. The same terms terms and continues to offer the traditional on the same terms to all employees hired on requirement of paragraph (c)(3) of this group health plan to employees hired before and after January 1, 2022, and continues to section is satisfied in this paragraph that date. On the first day of the 2022 plan offer a traditional group health plan to full- year, Plan Sponsor A has 2 new hires who (f)(1)(xvii) (Example 17) because Plan time employees hired before that date. For are offered the HRA. Sponsor M offers the HRA on the same terms 2025, Plan Sponsor D discontinues use of the (B) Conclusion. The same terms to its part-time employees who are not special rule for new hires, and again offers requirement of paragraph (c)(3) of this students and because the part-time student all full-time employees a traditional group section is satisfied in this paragraph (f)(2)(i) employees offered a student premium health plan. In 2030, Plan Sponsor D decides (Example 1) because, under the special rule to apply the special rule for new hires to the reduction arrangement (and their varying for new hires in paragraph (d)(5) of this full-time employee class again, offering an HRAs) are not taken into account as part-time section, the employees newly hired on and employees for purposes of determining after January 1, 2022, may be treated as a new HRA to all full-time employees hired on and whether a class of employees is offered an hire subclass, Plan Sponsor A offers the HRA after January 1, 2030, on the same terms, HRA on the same terms. on the same terms to all participants in the while continuing to offer employees hired (xiii) Example 18: Student employees new hire subclass, and the minimum class before that date a traditional group health offered student premium reduction size requirement does not apply to the new plan. arrangements and minimum class size hire subclass. (B) Conclusion. Plan Sponsor D has requirement—(A) Facts. Plan Sponsor N is an (ii) Example 2: Application of special rule permissibly applied the special rule for new institution of higher education with 25 for new hires to full-time employees—(A) hires and is in compliance with the hourly employees. Plan Sponsor N offers 15 Facts. For 2021, Plan Sponsor B offers a requirements of paragraphs (c)(2) and (3) of of its hourly employees, who are student traditional group health plan to its full-time this section. employees, a student premium reduction employees and does not offer any coverage to (v) Example 5: Impermissible second arrangement and it wants to offer its other 10 its part-time employees. For 2022, Plan application of the special rule for new hires hourly employees an HRA for 2022. Plan Sponsor B offers full-time employees hired to the same class of employees—(A) Facts. Sponsor N offers its salaried employees a on or after January 1, 2022, an HRA on the The facts are the same as in paragraph traditional group health plan. Plan Sponsor same terms, continues to offer its full-time (f)(2)(iv) of this section (Example 4), except N reasonably expects to have 250 employees employees hired before that date a traditional that for 2025, Plan Sponsor D discontinues on the first day of the 2022 HRA plan year, group health plan, and continues to offer no use of the special rule for new hires by 15 of which will have offers of student coverage to its part-time employees. On the offering all full-time employees an HRA on premium reduction arrangements. first day of the 2022 plan year, Plan Sponsor the same terms. Further, for 2030, Plan (B) Conclusion. The same terms B has 2 new hire, full-time employees who Sponsor D wants to continue to offer an HRA requirement of paragraph (c)(3) of this are offered the HRA. on the same terms to all full-time employees section is not satisfied in this paragraph (B) Conclusion. The same terms hired before January 1, 2030, and to offer all (f)(1)(xviii) (Example 18). The minimum requirement of paragraph (c)(3) of this full-time employees hired on or after January class size requirement will apply to the class section is satisfied in this paragraph (f)(2)(ii) 1, 2030, an HRA in a different amount. of hourly employees to which Plan Sponsor (Example 2) because, under the special rule (B) Conclusion. Plan Sponsor D may not N wants to offer the HRA because Plan for new hires in paragraph (d)(5) of this apply the special rule for new hires for 2030 Sponsor N offers a class of employees a section, the full-time employees newly hired to the class of full-time employees being traditional group health plan and another on and after January 1, 2022, may be treated offered an HRA because the special rule for class the HRA, and the minimum class size as a new hire subclass and Plan Sponsor B new hires may only be applied to a class that requirement generally applies to a class of offers the HRA on the same terms to all is being offered a traditional group health hourly employees offered an HRA. Plan participants in the new hire subclass. The plan. Sponsor N’s applicable class size minimum minimum class size requirement does not (vi) Example 6: New full-time employees is 20 because Plan Sponsor N reasonably apply to the new hire subclass. offered different HRAs in different rating expects to employ 235 employees on the first (iii) Example 3: Special rule for new hires areas—(A) Facts. Plan Sponsor E has work day of the plan year (250 employees minus impermissibly applied retroactively—(A) sites in rating area 1, rating area 2, and rating 15 employees receiving a student premium Facts. For 2025, Plan Sponsor C offers a area 3. For 2021, Plan Sponsor E offers its reduction arrangement). Plan Sponsor N may traditional group health plan to its full-time full-time employees a traditional group not offer the HRA to its hourly employees employees. For 2026, Plan Sponsor C wants health plan. For 2022, Plan Sponsor E offers

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its full-time employees hired on or after the applicable class size minimum for Plan plan or a health insurance issuer that is January 1, 2022, in rating area 1 an HRA of Sponsor F would be 20, and only 15 not required to provide essential health $3,000, its full-time employees hired on or employees in rating area 2 would be offered benefits under section 1302(b) must after January 1, 2022, in rating area 2 an HRA the HRA. define ‘‘essential health benefits’’ in a of $5,000, and its full-time employees hired (viii) Example 8: New full-time employee on or after January 1, 2022, in rating area 3 class subdivided based on state—(A) Facts. manner that is consistent with the an HRA of $7,000. Within each class offered The facts are the same as in paragraph following: an HRA, Plan Sponsor E offers the HRA on (f)(2)(vii) of this section (Example 7), except (1) For plan years beginning before the same terms. Plan Sponsor E offers its full- that for the 2025 plan year, Plan Sponsor F January 1, 2020, one of the EHB- time employees hired prior to January 1, intends to subdivide the new hire, full-time benchmark plans applicable in a State 2022, in each of those classes a traditional class so that those in State 1 will be offered under 45 CFR 156.110, and including group health plan. On the first day of the the traditional group health plan and those coverage of any additional required 2022 plan year, there is one new hire, full- in State 2 will each be offered an HRA on the benefits that are considered essential time employee in rating area 1, three new same terms. health benefits consistent with 45 CFR hire, full-time employees in rating area 2, and (B) Conclusion. The same terms 155.170(a)(2), or one of the three Federal 10 new hire-full-time employees in rating requirement of paragraph (c)(3) of this area 3. section is satisfied in this paragraph Employees Health Benefits Program (B) Conclusion. The same terms (f)(2)(viii) (Example 8) because even though (FEHBP) plan options as defined by 45 requirement of paragraph (c)(3) of this the new hire subclass has been subdivided, CFR 156.100(a)(3), supplemented as section is satisfied in this paragraph (f)(2)(vi) it has been subdivided in a manner that is necessary, to satisfy the standards in 45 (Example 6) because, under the special rule not subject to the minimum class size CFR 156.110; or for new hires in paragraph (d)(5) of this requirement as the subdivision is based on (2) For plan years beginning on or section, the full-time employees in each of the entire state. after January 1, 2020, an EHB- the three rating areas newly hired on and (ix) Example 9: New full-time employees benchmark plan selected by a State in after January 1, 2022, may be treated as three and part-time employees offered HRA—(A) accordance with the available options new hire subclasses and Plan Sponsor E Facts. In 2021, Plan Sponsor G offers its full- and requirements for EHB-benchmark offers the HRA on the same terms to all time employees a traditional group health participants in the new hire subclasses. plan and does not offer coverage to its part- plan selection at 45 CFR 156.111, Further, the minimum class size requirement time employees. For the 2022 plan year, Plan including an EHB-benchmark plan in a does not apply to the new hire subclasses. Sponsor G offers its full-time employees State that takes no action to change its (vii) Example 7: New full-time employee hired on or after January 1, 2022, and all of EHB-benchmark plan and thus retains class subdivided based on rating area—(A) its part-time employees, including those the EHB-benchmark plan applicable in Facts. Plan Sponsor F offers its full-time hired before January 1, 2022, and those hired that State for the prior year in employees hired on or after January 1, 2022, on and after January 1, 2022, an HRA on the accordance with 45 CFR 156.111(d)(1), an HRA on the same terms and it continues same terms, and it continues to offer its full- and including coverage of any to offer its full-time employees hired before time employees hired before January 1, 2022, additional required benefits that are that date a traditional group health plan. Plan a traditional group health plan. considered essential health benefits Sponsor F offers no coverage to its part-time (B) Conclusion. The minimum class size employees. For the 2025 plan year, Plan requirement applies to the part-time consistent with 45 CFR 155.170(a)(2). Sponsor F wants to subdivide the full-time employees offered the HRA in 2022 because (d) Health reimbursement new hire subclass so that those whose work the class is being offered an HRA; the special arrangements (HRAs) and other site is in rating area 1 will be offered the rule for new hires does not apply (because account-based group health plans—(1) traditional group health plan and those this class was not previously offered a In general. If an HRA or other account- whose work site is in rating area 2 will traditional group health plan) and so it is not based group health plan is integrated continue to receive the HRA. Plan Sponsor F a new hire subclass exempt from the with another group health plan or reasonably expects to employ 219 employees minimum class size requirement; another individual health insurance coverage on January 1, 2025. As of January 1, 2025, class of employees (that is, full-time hired and the other group health plan or Plan Sponsor F has 15 full-time employees before January 1, 2022) are being offered a individual health insurance coverage, as whose work site in in rating area 2 and who traditional group health plan; and the part- applicable, separately is subject to and were hired between January 1, 2022, and time employee class is generally an January 1, 2025. applicable classes that is subject to the satisfies the requirements in PHS Act (B) Conclusion. The same terms minimum class size requirement. However, section 2711 and paragraph (a)(2) of this requirement of paragraph (c)(3) of this because the full-time, new hire subclass is section, the fact that the benefits under section is not satisfied in this paragraph based on the special rule for new hires, the the HRA or other account-based group (f)(2)(vii) (Example 7) because the new hire minimum class size requirement does not health plan are limited does not cause subclass has been subdivided in a manner apply to full-time new hires offered an HRA the HRA or other account-based group that is subject to the minimum class size in 2022. health plan to fail to satisfy the requirement, and the class offered the HRA (g) Applicability date. This section requirements of PHS Act section 2711 fails to satisfy the minimum class size applies to plan years beginning on or and paragraph (a)(2) of this section. requirement. Specifically, once the new hire Similarly, if an HRA or other account- subclass is subdivided the general rules for after January 1, 2020. applying the minimum class size ■ 14. Section 2590.715–2711 is based group health plan is integrated requirement apply to the employees offered amended by revising paragraphs (c), (d), with another group health plan or the HRA in the new hire subclass. In this and (e) to read as follows: individual health insurance coverage case, because the subdivision of the new hire and the other group health plan or full-time subclass is based on rating areas; a § 2590.715–2711 No lifetime or annual individual health insurance coverage, as class based on rating areas is an applicable limits. applicable, separately is subject to and class subject to the minimum class size * * * * * satisfies the requirements in PHS Act requirement; and the employees in one rating (c) Definition of essential health section 2713 and § 2590.715–2713(a)(1) area are to be offered the HRA, while the benefits. The term ‘‘essential health of this part, the fact that the benefits employees in the other rating area are offered the traditional group health plan, the benefits’’ means essential health under the HRA or other account-based minimum class size requirement would benefits under section 1302(b) of the group health plan are limited does not apply on and after the date of the Patient Protection and Affordable Care cause the HRA or other account-based subdivision. Further, the minimum class size Act and applicable regulations. For the group health plan to fail to satisfy the requirement would not be satisfied, because purpose of this section, a group health requirements of PHS Act section 2713

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and § 2590.715–2713(a)(1) of this part. plan but are enrolled in other non-HRA such as a group health plan maintained For the purpose of this paragraph (d), all group coverage, such as a group health by an employer of the employee’s individual health insurance coverage, plan maintained by the employer of the spouse); and except for coverage that consists solely employee’s spouse); (D) Under the terms of the HRA or of excepted benefits, is treated as being (D) The benefits under the HRA or other account-based group health plan, subject to and complying with PHS Act other account-based group health plan an employee (or former employee) is sections 2711 and 2713. are limited to reimbursement of one or permitted to permanently opt out of and (2) Requirements for an HRA or other more of the following—co-payments, co- waive future reimbursements from the account-based group health plan to be insurance, deductibles, and premiums HRA or other account-based group integrated with another group health under the non-HRA group coverage, as health plan at least annually, and, upon plan. An HRA or other account-based well as medical care expenses that do termination of employment, either the group health plan is integrated with not constitute essential health benefits remaining amounts in the HRA or other another group health plan for purposes as defined in paragraph (c) of this account-based group health plan are of PHS Act section 2711 and paragraph section; and forfeited or the employee is permitted to (a)(2) of this section if it satisfies the (E) Under the terms of the HRA or permanently opt out of and waive future requirements under one of the other account-based group health plan, reimbursements from the HRA or other integration methods set forth in an employee (or former employee) is account-based group health plan (see paragraph (d)(2)(i) or (ii) of this section. permitted to permanently opt out of and paragraph (d)(3) of this section for For purposes of the integration methods waive future reimbursements from the additional rules regarding forfeiture and under which an HRA or other account- HRA or other account-based group waiver). based group health plan is integrated health plan at least annually and, upon (3) Forfeiture. For purposes of with another group health plan, termination of employment, either the integration under paragraphs (d)(2)(i)(E) integration does not require that the remaining amounts in the HRA or other and (d)(2)(ii)(D) of this section, HRA or other account-based group account-based group health plan are forfeiture or waiver occurs even if the health plan and the other group health forfeited or the employee is permitted to forfeited or waived amounts may be plan with which it is integrated share permanently opt out of and waive future reinstated upon a fixed date, a the same plan sponsor, the same plan reimbursements from the HRA or other participant’s death, or the earlier of the document or governing instruments, or account-based group health plan (see two events (the reinstatement event). file a single Form 5500, if applicable. paragraph (d)(3) of this section for For the purpose of this paragraph (d)(3), An HRA or other account-based group additional rules regarding forfeiture and coverage under an HRA or other health plan integrated with another waiver). account-based group health plan is group health plan for purposes of PHS (ii) Method for integration with considered forfeited or waived prior to Act section 2711 and paragraph (a)(2) of another group health plan: Minimum a reinstatement event only if the this section may not be used to purchase value required. An HRA or other participant’s election to forfeit or waive individual health insurance coverage account-based group health plan is is irrevocable, meaning that, beginning unless that coverage consists solely of integrated with another group health on the effective date of the election and excepted benefits, as defined in 45 CFR plan for purposes of this paragraph (d) through the date of the reinstatement 148.220. if: event, the participant and the (i) Method for integration with a (A) The plan sponsor offers a group participant’s beneficiaries have no group health plan: Minimum value not health plan (other than the HRA or other access to amounts credited to the HRA required. An HRA or other account- account-based group health plan) to the or other account-based group health based group health plan is integrated employee that provides minimum value plan. This means that upon and after with another group health plan for pursuant to Code section 36B(c)(2)(C)(ii) reinstatement, the reinstated amounts purposes of this paragraph (d) if: (and its implementing regulations and under the HRA or other account-based (A) The plan sponsor offers a group applicable guidance); group health plan may not be used to health plan (other than the HRA or other (B) The employee receiving the HRA reimburse or pay medical care expenses account-based group health plan) to the or other account-based group health incurred during the period after employee that does not consist solely of plan is actually enrolled in a group forfeiture and prior to reinstatement. excepted benefits; health plan (other than the HRA or other (4) Requirements for an HRA or other (B) The employee receiving the HRA account-based group health plan) that account-based group health plan to be or other account-based group health provides minimum value pursuant to integrated with individual health plan is actually enrolled in a group Code section 36B(c)(2)(C)(ii) (and insurance coverage or Medicare Part A health plan (other than the HRA or other applicable guidance), regardless of and B or Medicare Part C. An HRA or account-based group health plan) that whether the plan is offered by the plan other account-based group health plan does not consist solely of excepted sponsor of the HRA or other account- is integrated with individual health benefits, regardless of whether the plan based group health plan (referred to as insurance coverage or Medicare Part A is offered by the same plan sponsor non-HRA MV group coverage); and B or Medicare Part C (and treated (referred to as non-HRA group (C) The HRA or other account-based as complying with PHS Act sections coverage); group health plan is available only to 2711 and 2713) if the HRA or other (C) The HRA or other account-based employees who are actually enrolled in account-based group health plan group health plan is available only to non-HRA MV group coverage, regardless satisfies the requirements of § 2590.702– employees who are enrolled in non- of whether the non-HRA MV group 2(c) of this part (as modified by HRA group coverage, regardless of coverage is offered by the plan sponsor § 2590.702–2(e), for HRAs or other whether the non-HRA group coverage is of the HRA or other account-based account-based group health plans offered by the plan sponsor of the HRA group health plan (for example, the integrated with Medicare Part A and B or other account-based group health HRA may be offered only to employees or Medicare Part C). plan (for example, the HRA may be who do not enroll in an employer’s (5) Integration with Medicare Part B offered only to employees who do not group health plan but are enrolled in and D. For employers that are not enroll in an employer’s group health other non-HRA MV group coverage, required to offer their non-HRA group

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health plan coverage to employees who § 2590.732 Special rules relating to group available for each plan year under the are Medicare beneficiaries, an HRA or health plans. HRA or other account-based group other account-based group health plan * * * * * health plan do not exceed $1,800. In the that may be used to reimburse (c) * * * case of any plan year beginning after premiums under Medicare Part B or D (3) * * * December 31, 2020, the dollar amount may be integrated with Medicare (and (i) In general. Limited-scope dental in the preceding sentence shall be deemed to comply with PHS Act benefits, limited-scope vision benefits, increased by an amount equal to such sections 2711 and 2713) if the following or long-term care benefits are excepted dollar amount multiplied by the cost-of- requirements are satisfied with respect if they are provided under a separate living adjustment. The cost of living to employees who would be eligible for policy, certificate, or contract of adjustment is the percentage (if any) by the employer’s non-HRA group health insurance, or are otherwise not an which the C–CPI–U for the preceding plan but for their eligibility for Medicare integral part of a group health plan as calendar year exceeds the C–CPI–U for (and the integration rules under described in paragraph (c)(3)(ii) of this calendar year 2019. The term ‘‘C–CPI– paragraphs (d)(2)(i) and (ii) of this section. In addition, benefits provided U’’ means the Chained Consumer Price section continue to apply to employees under a health flexible spending Index for All Urban Consumers as who are not eligible for Medicare): arrangement (health FSA) are excepted published by the Bureau of Labor (i) The plan sponsor offers a group benefits if they satisfy the requirements Statistics of the Department of Labor. health plan (other than the HRA or other of paragraph (c)(3)(v) of this section; The C–CPI–U for any calendar year is account-based group health plan and benefits provided under an employee the average of the C–CPI–U as of the that does not consist solely of excepted assistance program are excepted benefits close of the 12-month period ending on benefits) to employees who are not if they satisfy the requirements of March 31 of such calendar year. The eligible for Medicare; paragraph (c)(3)(vi) of this section; values of the C–CPI–U used for any (ii) The employee receiving the HRA benefits provided under limited calendar year shall be the latest values or other account-based group health wraparound coverage are excepted so published as of the date on which the plan is actually enrolled in Medicare benefits if they satisfy the requirements Bureau publishes the initial value of the Part B or D; of paragraph (c)(3)(vii) of this section; C–CPI–U for the month of March for the (iii) The HRA or other account-based and benefits provided under a health preceding calendar year. Any such group health plan is available only to reimbursement arrangement or other increase that is not a multiple of $50 employees who are enrolled in account-based group health plan, other shall be rounded down to the next Medicare Part B or D; and than a health FSA, are excepted benefits lowest multiple of $50. The Department (iv) The HRA or other account-based if they satisfy the requirements of of the Treasury and the Internal group health plan complies with paragraph (c)(3)(viii) of this section. Revenue Service will publish the adjusted amount for plan years paragraphs (d)(2)(i)(E) and (d)(2)(ii)(D) * * * * * beginning in any calendar year no later of this section. (viii) Health reimbursement than June 1 of the preceding calendar (6) Definitions. The following arrangements (HRAs) and other definitions apply for purposes of this year. account-based group health plans. (2) Carryover amounts. If the terms of section. Benefits provided under an HRA or (i) Account-based group health plan. the HRA or other account-based group other account-based group health plan, health plan allow unused amounts to be An account-based group health plan is other than a health FSA, are excepted if made available to participants and an employer-provided group health plan they satisfy all of the requirements of dependents in later plan years, such that provides reimbursements of this paragraph (c)(3)(viii). See paragraph carryover amounts are disregarded for medical care expenses with the (c)(3)(v) of this section for the purposes of determining whether reimbursement subject to a maximum circumstances in which benefits benefits are limited in amount. fixed dollar amount for a period. An provided under a health FSA are (3) Multiple HRAs or other account- HRA is a type of account-based group excepted benefits. For purposes of this based group health plans. If the plan health plan. An account-based group paragraph (c)(3)(viii), the term ‘‘HRA or sponsor provides more than one HRA or health plan does not include a qualified other account-based group health plan’’ other account-based group health plan small employer health reimbursement has the same meaning as ‘‘account- to the participant for the same time arrangement, as defined in Code section based group health plan’’ set forth in period, the amounts made available 9831(d)(2). § 2590.715–2711(d)(6)(i) of this part, under all such plans are aggregated to (ii) Medical care expenses. Medical except that the term does not include determine whether the benefits are care expenses means expenses for health FSAs. For ease of reference, an limited in amount, except that HRAs or medical care as defined under Code HRA or other account-based group other account-based group health plans section 213(d). health plan that satisfies the that reimburse only excepted benefits (e) Applicability date. The provisions requirements of this paragraph are not included in determining of this section are applicable to group (c)(3)(viii) is referred to as an excepted whether the benefits are limited in health plans and health insurance benefit HRA. amount. issuers for plan years beginning on or (A) Otherwise not an integral part of (C) Prohibition on reimbursement of after January 1, 2020. Until the the plan. Other group health plan certain health insurance premiums. The applicability date for this section, plans coverage that is not limited to excepted HRA or other account-based group and issuers are required to continue to benefits and that is not an HRA or other health plan must not reimburse comply with the corresponding sections account-based group health plan must premiums for individual health of this part, contained in the 29 CFR be made available by the same plan insurance coverage, group health plan parts 1927 to end edition, revised as of sponsor for the plan year to the coverage (other than COBRA July 1, 2018. participant. continuation coverage or other ■ 15. Section 2590.732 is amended by (B) Benefits are limited in amount— continuation coverage), or Medicare Part revising paragraph (c)(3)(i) and adding (1) Limit on annual amounts made A, B, C, or D, except that the HRA or paragraph (c)(3)(viii) to read as follows: available. The amounts newly made other account-based group health plan

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may reimburse premiums for such DEPARTMENT OF HEALTH AND health insurance coverage for purposes coverage that consists solely of excepted HUMAN SERVICES of Public Health Service Act (PHS Act) benefits. See also, paragraph 45 CFR Chapter 1 sections 2711 and 2713 and (c)(3)(viii)(F) of this section. § 147.126(d)(4) of this subchapter (D) Uniform availability. The HRA or For the reasons stated in the (referred to as an individual coverage other account-based group health plan preamble, the Department of Health and HRA). This section also allows an is made available under the same terms Human Services amends 45 CFR parts individual coverage HRA to be to all similarly situated individuals, as 144, 146, 147, and 155 as set forth integrated with Medicare for purposes defined in § 2590.702(d) of this part, below: of PHS Act sections 2711 and 2713 and regardless of any health factor (as § 147.126(d)(4) of this subchapter, PART 144—REQUIREMENTS described in § 2590.702(a)). subject to the conditions provided in RELATING TO HEALTH INSURANCE (E) Notice requirement. See sections this section (see paragraph (e) of this COVERAGE 2520.102–3(j)(2) and (3) and 2520.104b– section). Some of the conditions set 2(a) of this chapter regarding the time, ■ 16. The authority for part 144 is forth in this section specifically relate to manner, and content for summary plan revised to read as follows: compliance with PHS Act sections 2711 descriptions (including a description of and 2713 and some relate to the effect conditions pertaining to eligibility to Authority: 42 U.S.C. 300gg through 300gg– of having or being offered an individual 63, 300gg–91, and 300gg–92. receive benefits; annual or lifetime caps coverage HRA on eligibility for the or other limits on benefits under the ■ 17. Section 144.103 is amended by premium tax credit under section 36B of plan; and a description or summary of revising the definition of ‘‘Group health the Internal Revenue Code (Code). In the benefits). insurance coverage’’ to read as follows: addition, this section provides (F) Special rule. The HRA or other § 144.103 Definitions. conditions that an individual coverage account-based group health plan must HRA must satisfy in order to comply not reimburse premiums for short-term, * * * * * with the nondiscrimination provisions limited-duration insurance (as defined Group health insurance coverage in PHS Act section 2705 and that are in § 2590.701–2 of this part) if the means health insurance coverage offered consistent with the provisions of the conditions of this paragraph in connection with a group health plan. Patient Protection and Affordable Care (c)(3)(viii)(F) are satisfied. Individual health insurance coverage Act, Public Law 111–148 (124 Stat. 119 (1) The HRA or other account-based reimbursed by the arrangements (2010)), and the Health Care and group health plan is offered by a small described in 29 CFR 2510.3–1(l) is not Education Reconciliation Act of 2010, employer (as defined in PHS Act section offered in connection with a group Public Law 111–152 (124 Stat. 1029 2791(e)(4)). health plan, and is not group health (2010)), each as amended, that are (2) The other group health plan insurance coverage, provided all the designed to create a competitive coverage offered by the employer conditions in 29 CFR 2510.3–1(l) are individual market. These conditions are pursuant to paragraph (c)(3)(viii)(A) of satisfied. intended to prevent an HRA plan this section is either fully-insured or * * * * * sponsor from intentionally or partially-insured. unintentionally, directly or indirectly, (3) The Secretary of Health and PART 146—REQUIREMENTS FOR THE steering any participants or dependents Human Services (HHS) makes a finding, GROUP HEALTH INSURANCE with adverse health factors away from in consultation with the Secretaries of MARKET its traditional group health plan, if any, Labor and the Treasury, that the and toward individual health insurance reimbursement of premiums for short- 18. The authority citation for part 146 continues to read as follows: coverage. term, limited-duration insurance by (c) General rule. An HRA will be excepted benefit HRAs has caused Authority: 42 U.S.C. 300gg–1 through considered to be integrated with significant harm to the small group 300gg–5, 300gg–11 through 300gg–23, 300gg– 91, and 300gg–92. individual health insurance coverage for market in the state that is the principal purposes of PHS Act sections 2711 and place of business of the small employer. ■ 19. Section 146.123 is added to read 2713 and § 147.126(d)(4) of this (4) The finding by the Secretary of as follows: subchapter and will not be considered HHS is made after submission of a § 146.123 Special rule allowing integration to discriminate in violation of PHS Act written recommendation by the section 2705 solely because it is applicable state authority of such state, of Health Reimbursement Arrangements (HRAs) and other account-based group integrated with individual health in a form and manner specified by HHS. health plans with individual health insurance coverage, provided that the The written recommendation must insurance coverage and medicare and conditions of this paragraph (c) are include evidence that the prohibiting discrimination in HRAs and satisfied. See paragraph (e) of this reimbursement of premiums for short- other account-based group health plans. section for how these conditions apply term, limited-duration insurance by (a) Scope. This section applies to to an individual coverage HRA excepted benefit HRAs established by health reimbursement arrangements integrated with Medicare. For purposes insured or partially-insured small (HRAs) and other account-based group of this section, medical care expenses employers in the state has caused health plans, as defined in means medical care expenses as defined significant harm to the state’s small § 147.126(d)(6)(i) of this subchapter. For in § 147.126(d)(6)(ii) of this subchapter group market, including with respect to ease of reference, the term ‘‘HRA’’ is and Exchange means Exchange as premiums. used in this section to include other defined in § 155.20 of this subchapter. (5) The restriction shall be imposed or account-based group health plans. For (1) Enrollment in individual health discontinued by publication by the related regulations, see 26 CFR 1.36B– insurance coverage—(i) In general. The Secretary of HHS of a notice in the 2(c)(3)(i) and (c)(5), 29 CFR 2510.3–1(l), HRA must require that the participant Federal Register and shall apply only and 45 CFR 155.420. and any dependent(s) are enrolled in prospectively and with a reasonable (b) Purpose. This section provides the individual health insurance coverage time for plan sponsors to comply. conditions that an HRA must satisfy in that is subject to and complies with the * * * * * order to be integrated with individual requirements in PHS Act sections 2711

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(and § 147.126(a)(2) of this subchapter) participant notify the HRA that coverage the same terms to all participants (other and PHS Act section 2713 (and has been cancelled or terminated and than former employees, as defined in § 147.130(a)(1) of this subchapter), for the date on which the cancellation or paragraph (c)(3)(iv) of this section) in each month that the individual(s) are termination is effective. After the the class of employees. Further, to the covered by the HRA. For purposes of individual coverage HRA has received extent that a participant in an this paragraph (c), all individual health the notice of cancellation or individual coverage HRA was insurance coverage, except for termination, the HRA may not previously covered by another HRA and individual health insurance coverage reimburse medical care expenses the current individual coverage HRA that consists solely of excepted benefits, incurred on and after the date the makes available amounts that were not is treated as being subject to and individual health insurance coverage used to reimburse medical care complying with PHS Act sections 2711 was cancelled or terminated, which is expenses under the prior HRA and 2713. References to individual considered to be the date of termination (transferred amounts), the transferred health insurance coverage in this of coverage under the HRA. amounts are disregarded for purposes of paragraph (c) do not include individual (2) No traditional group health plan determining whether the HRA is offered health insurance coverage that consists may be offered to same participants. To on the same terms, provided that if the solely of excepted benefits. the extent a plan sponsor offers any HRA makes available transferred (ii) Forfeiture. The HRA must provide class of employees (as defined in amounts, it does so on the same terms that if any individual covered by the paragraph (d) of this section) an for all participants in the class of HRA ceases to be covered by individual individual coverage HRA, the plan employees. health insurance coverage, the HRA will sponsor may not also offer a traditional (iii) Permitted variation. An HRA does not reimburse medical care expenses group health plan to the same class of not fail to be provided on the same that are incurred by that individual after employees, except as provided in terms solely because the maximum the individual health insurance paragraph (d)(5) of this section. For dollar amount made available to coverage ceases. In addition, if the purposes of this section, a traditional participants in a class of employees to participant and all dependents covered group health plan is any group health reimburse medical care expenses for any by the participant’s HRA cease to be plan other than either an account-based plan year increases in accordance with covered by individual health insurance group health plan or a group health plan paragraph (c)(3)(iii)(A) or (B) of this coverage, the participant must forfeit the that consists solely of excepted benefits. section. HRA. In either case, the HRA must Therefore, a plan sponsor may not offer (A) Variation due to number of reimburse medical care expenses a choice between an individual coverage dependents. An HRA does not fail to be incurred by the individual prior to the HRA or a traditional group health plan provided on the same terms to cessation of individual health insurance to any participant or dependent. participants in a class of employees coverage to the extent the medical care (3) Same terms requirement—(i) In solely because the maximum dollar expenses are otherwise covered by the general. If a plan sponsor offers an amount made available to those HRA, but the HRA may limit the period individual coverage HRA to a class of participants to reimburse medical care to submit medical care expenses for employees described in paragraph (d) of expenses for any plan year increases as reimbursement to a reasonable specified this section, the HRA must be offered on the number of the participant’s time period. If a participant or the same terms to all participants within dependents who are covered under the dependent loses coverage under the the class, except as provided in HRA for a reason other than cessation of paragraphs (c)(3)(ii) through (vi) and HRA increases, so long as the same individual health insurance coverage, (d)(5) of this section. maximum dollar amount attributable to COBRA and other continuation coverage (ii) Carryover amounts, salary the increase in family size is made requirements may apply. reduction arrangements, and transfer available to all participants in that class (iii) Grace periods and retroactive amounts. Amounts that are not used to of employees with the same number of termination of individual health reimburse medical care expenses for any dependents covered by the HRA. insurance coverage. In the event an plan year that are made available to (B) Variation due to age. An HRA individual is initially enrolled in participants in later plan years are does not fail to be provided on the same individual health insurance coverage disregarded for purposes of determining terms to participants in a class of and subsequently timely fails to pay whether an HRA is offered on the same employees solely because the maximum premiums for the coverage, with the terms, provided that the method for dollar amount made available under the result that the individual is in a grace determining whether participants have terms of the HRA to those participants period, the individual is considered to access to unused amounts in future to reimburse medical care expenses for be enrolled in individual health years, and the methodology and formula any plan year increases as the age of the insurance coverage for purposes of this for determining the amounts of unused participant increases, so long as the paragraph (c)(1) and the individual funds which they may access in future requirements in paragraphs coverage HRA must reimburse medical years, is the same for all participants in (c)(3)(iii)(B)(1) and (2) of this section are care expenses incurred by the a class of employees. In addition, the satisfied. For the purpose of this individual during that time period to ability to pay the portion of the paragraph (c)(3)(iii)(B), the plan sponsor the extent the medical care expenses are premium for individual health may determine the age of the participant otherwise covered by the HRA. If the insurance coverage that is not covered using any reasonable method for a plan individual fails to pay the applicable by the HRA, if any, by using a salary year, so long as the plan sponsor premium(s) by the end of the grace reduction arrangement under section determines each participant’s age for the period and the coverage is cancelled or 125 of the Code is considered to be a purpose of this paragraph (c)(3)(iii)(B) terminated, including retroactively, or if term of the HRA for purposes of this using the same method for all the individual health insurance paragraph (c)(3). Therefore, an HRA is participants in the class of employees coverage is cancelled or terminated not provided on the same terms unless for the plan year and the method is retroactively for some other reason (for the salary reduction arrangement, if determined prior to the plan year. example, a rescission), an individual made available to any participant in a (1) The same maximum dollar amount coverage HRA must require that a class of employees, is made available on attributable to the increase in age is

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made available to all participants who plan year or who have changes in the (that employee’s balance) and each are the same age. number of dependents covered by the employee’s access to the carryover amounts (2) The maximum dollar amount HRA during a plan year must be the is based on the same terms. made available to the oldest same for all participants in the class of (B) Example 2: Employees hired after the participant(s) is not more than three first day of the plan year—(1) Facts. For employees and the method must be 2020, Plan Sponsor B offers all employees times the maximum dollar amount determined prior to the beginning of the employed on January 1, 2020, $7,000 each in made available to the youngest plan year. an HRA for the plan year. Employees hired participant(s). (vi) HSA-compatible HRAs. An HRA after January 1, 2020, are eligible to enroll in (iv) Former employees. An HRA does does not fail to be treated as provided the HRA with an effective date of the first not fail to be treated as provided on the on the same terms if the plan sponsor day of the month following their date of hire, same terms if the plan sponsor offers the offers participants in a class of as long as they have enrolled in individual HRA to some, but not all, former employees a choice between an HSA- health insurance coverage effective on or employees within a class of employees. compatible individual coverage HRA before that date, and the amount offered to However, if a plan sponsor offers the these employees is pro-rated based on the and an individual coverage HRA that is number of months remaining in the plan HRA to one or more former employees not HSA compatible, provided both year, including the month which includes within a class of employees, the HRA types of HRAs are offered to all their coverage effective date. must be offered to the former participants in the class of employees (2) Conclusion. The same terms employee(s) on the same terms as to all on the same terms. For the purpose of requirement of this paragraph (c)(3) is other employees within the class, except this paragraph (c)(3)(vi), an HSA- satisfied in this paragraph (c)(3)(vii)(B) as provided in paragraph (c)(3)(ii) of this compatible individual coverage HRA is (Example 2) for 2020 because Plan Sponsor section. For purposes of this section, a an individual coverage HRA that is B offers all employees employed on the first day of the plan year the same amount, former employee is an employee who is limited in accordance with applicable no longer performing services for the $7,000, in an HRA for that plan year and all guidance under section 223 of the Code employees hired after January 1, 2020, a pro- employer. such that an individual covered by such (v) New employees or new rata amount based on the portion of the plan an HRA is not disqualified from being year during which they are enrolled in the dependents. For a participant whose an eligible individual under section 223 HRA. coverage under the HRA becomes of the Code. (C) Example 3: HRA amounts offered vary effective later than the first day of the (vii) Examples. The following based on number of dependents—(1) Facts. plan year, the HRA does not fail to be examples illustrate the provisions of For 2020, Plan Sponsor C offers its treated as being provided on the same this paragraph (c)(3), without taking into employees the following amounts in an HRA: terms to the participant if the maximum account the provisions of paragraph (d) $1,500, if the employee is the only individual covered by the HRA; $3,500, if the employee dollar amount made available to the of this section. In each example, the participant either is the same as the and one dependent are covered by the HRA; HRA is an individual coverage HRA that and $5,000, if the employee and more than maximum dollar amount made available has a calendar year plan year and may to participants in the participant’s class one dependent are covered by the HRA. reimburse any medical care expenses, (2) Conclusion. The same terms of employees whose coverage became including premiums for individual requirement of this paragraph (c)(3) is effective as of the first day of the plan health insurance coverage (except as satisfied in this paragraph (c)(3)(vii)(C) year, or is pro-rated consistent with the provided in paragraph (c)(3)(vii)(E) of (Example 3) because paragraph (c)(3)(iii)(A) portion of the plan year in which the this section (Example 5)). Further, in of this section allows the maximum dollar participant is covered by the HRA. each example, assume the HRA is amount made available in an HRA to increase as the number of the participant’s Similarly, if the HRA provides for offered on the same terms, except as variation in the maximum amount made dependents covered by the HRA increases otherwise specified in the example and available to participants in a class of and Plan Sponsor C makes the same amount that no participants or dependents are employees based on the number of a available to each employee with the same Medicare beneficiaries. participant’s dependents covered by the number of dependents covered by the HRA. (D) Example 4: HRA amounts offered vary HRA, and the number of a participant’s (A) Example 1: Carryover amounts permitted—(1) Facts. For 2020 and again for based on increases in employees’ ages—(1) dependents covered by the HRA Facts. For 2020, Plan Sponsor D offers its changes during a plan year (either 2021, Plan Sponsor A offers all employees $7,000 each in an HRA, and the HRA employees the following amounts in an HRA: increasing or decreasing), the HRA does provides that amounts that are unused at the $1,000 each for employees age 25 to 35; not fail to be treated as being provided end of a plan year may be carried over to the $2,000 each for employees age 36 to 45; on the same terms to the participant if next plan year, with no restrictions on the $2,500 each for employees age 46 to 55; and the maximum dollar amount made use of the carryover amounts compared to the $4,000 each for employees over age 55. available to the participant either is the use of newly available amounts. At the end (2) Conclusion. The same terms same as the maximum dollar amount of 2020, some employees have used all of the requirement of this paragraph (c)(3) is not made available to participants in the funds in their HRAs, while other employees satisfied in this paragraph (c)(3)(vii)(D) (Example 4) because the terms of the HRA participant’s class of employees who have balances remaining that range from $500 to $1,750 that are carried over to 2021 provide the oldest participants (those over had the same number of dependents for those employees. age 55) with more than three times the covered by the HRA on the first day of (2) Conclusion. The same terms amount made available to the youngest the plan year or is pro-rated for the requirement of this paragraph (c)(3) is participants (those ages 25 to 35), in violation remainder of the plan year after the satisfied in this paragraph (c)(3)(vii)(A) of paragraph (c)(3)(iii)(B)(2) of this section. change in the number of the (Example 1) for 2020 because Plan Sponsor (E) Example 5: Application of same terms participant’s dependents covered by the A offers all employees the same amount, requirement to premium only HRA—(1) HRA consistent with the portion of the $7,000, in an HRA for that year. The same Facts. For 2020, Plan Sponsor E offers its plan year in which that number of terms requirement is also satisfied for 2021 employees an HRA that reimburses only premiums for individual health insurance dependents are covered by the HRA. because Plan Sponsor A again offers all employees the same amount for that year, coverage, up to $10,000 for the year. The method the HRA uses to determine and the carryover amounts that some Employee A enrolls in individual health amounts made available for participants employees have are disregarded in applying insurance coverage with a $5,000 premium whose coverage under the HRA is the same terms requirement because the for the year and is reimbursed $5,000 from effective later than the first day of the amount of the carryover for each employee the HRA. Employee B enrolls in individual

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health insurance coverage with an $8,000 days prior to the plan year or for whom which may be part of the form used to premium for the year and is reimbursed the notice under paragraph (c)(6) of this request reimbursement, or a document $8,000 from the HRA. section is required to be provided as set from a third party (for example, a health Conclusion. The same terms requirement of forth in paragraph (c)(6)(i)(C) of this insurance issuer) showing that the this paragraph (c)(3) is satisfied in this section), the HRA may establish the date participant or the dependent, if paragraph (c)(3)(vii)(E) (Example 5) because Plan Sponsor E offers the HRA on the same by which this substantiation must be applicable, are or were enrolled in terms to all employees, notwithstanding that provided, but that date may be no later individual health insurance coverage for some employees receive a greater amount of than the date the HRA coverage begins. the applicable month. reimbursement than others based on the cost Similarly, for a participant who adds a (iii) Reliance on substantiation. For of the individual health insurance coverage new dependent during the plan year, purposes of this paragraph (c)(5), an selected by the employee. the HRA may establish the date by HRA may rely on the participant’s (4) Opt out. Under the terms of the which this substantiation must be documentation or attestation unless the HRA, a participant who is otherwise provided, but the date may be no later HRA, its plan sponsor, or any other eligible for coverage must be permitted than the date the HRA coverage for the entity acting in an official capacity on to opt out of and waive future new dependent begins; however, to the behalf of the HRA has actual knowledge reimbursements on behalf of the extent the dependent’s coverage under that any individual covered by the HRA participant and all dependents eligible the HRA is effective retroactively, the is not, or will not be, enrolled in for the HRA from the HRA once, and HRA may establish a reasonable time by individual health insurance coverage for the plan year (or applicable portion of only once, with respect to each plan which this substantiation is required, the plan year) or the month, as year. The HRA may establish but must require it be provided before applicable. timeframes for enrollment in (and the HRA will reimburse any medical care expense for the newly added (6) Notice requirement—(i) Timing. opting out of) the HRA but, in general, The HRA must provide a written notice the opportunity to opt out must be dependent. The reasonable procedures an HRA may use to implement the to each participant: provided in advance of the first day of (A) At least 90 calendar days before the plan year. For participants who substantiation requirement set forth in this paragraph (c)(5)(i) may include a the beginning of each plan year for any become eligible to participate in the requirement that a participant participant who is not described in HRA on a date other than the first day substantiate enrollment by providing either paragraph (c)(6)(i)(B) or (C) of this of the plan year (or who become eligible either: section; fewer than 90 days prior to the plan year (A) A document from a third party (B) No later than the date on which or for whom the notice under paragraph (for example, the issuer or an Exchange) the HRA may first take effect for the (c)(6) of this section is required to be showing that the participant and any participant, for any participant who is provided as set forth in paragraph dependents covered by the HRA are, or not eligible to participate at the (c)(6)(i)(C) of this section), or for a will be, enrolled in individual health beginning of the plan year (or is not dependent who newly becomes eligible insurance coverage (for example, an eligible to participate at the time the during the plan year, this opportunity insurance card or an explanation of notice is provided at least 90 calendar must be provided during the applicable benefits document pertaining to the days before the beginning of the plan HRA enrollment period(s) established relevant time period or documentation year pursuant to paragraph (c)(6)(i)(A) of by the HRA for these individuals. from the Exchange showing that the this section); or Further, under the terms of the HRA, individual has completed the (C) No later than the date on which upon termination of employment, for a application and plan selection); or the HRA may first take effect for the participant who is covered by the HRA, (B) An attestation by the participant participant, for any participant who is either the remaining amounts in the stating that the participant and employed by an employer that is first HRA must be forfeited or the participant dependent(s) covered by the HRA are, or established less than 120 days before the must be permitted to permanently opt will be, enrolled in individual health beginning of the first plan year of the out of and waive future reimbursements insurance coverage, the date coverage HRA; this paragraph (c)(6)(i)(C) applies from the HRA on behalf of the began or will begin, and the name of the only with respect to the first plan year participant and all dependents covered provider of the coverage. of the HRA. by the HRA. (ii) Coverage substantiation with each (ii) Content. The notice must include (5) Reasonable procedures for request for reimbursement of medical all the information described in this coverage substantiation—(i) care expenses. Following the initial paragraph (c)(6)(ii) (and may include Substantiation of individual health substantiation of coverage, with each any additional information that does not insurance coverage for the plan year. new request for reimbursement of an conflict with that information). To the The HRA must implement, and comply incurred medical care expense for the extent that the Departments of the with, reasonable procedures to same plan year, the HRA may not Treasury, Labor and Health and Human substantiate that participants and each reimburse a participant for any medical Services provide model notice language dependent covered by the HRA are, or care expenses unless, prior to each for certain elements of this required will be, enrolled in individual health reimbursement, the participant notice, HRAs are permitted, but not insurance coverage for the plan year (or substantiates that the individual on required, to use the model language. for the portion of the plan year the whose behalf medical care expenses are (A) A description of the terms of the individual is covered by the HRA, if requested to be reimbursed continues to HRA, including the maximum dollar applicable). The HRA may establish the be enrolled in individual health amount available for each participant date by which this substantiation must insurance coverage for the month during (including the self-only HRA amount be provided, but, in general, the date which the medical care expenses were available for the plan year (or the may be no later than the first day of the incurred. The HRA must implement, maximum dollar amount available for plan year. However, for a participant and comply with, reasonable procedures the plan year if the HRA provides for who is not eligible to participate in the to satisfy this requirement. This reimbursements up to a single dollar HRA on the first day of the plan year (or substantiation may be in the form of a amount regardless of whether a who becomes eligible fewer than 90 written attestation by the participant, participant has self-only or other than

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self-only coverage)), any rules regarding dependents, if applicable) ineligible for coverage under Medicare Part A and B the proration of the maximum dollar the premium tax credit regardless of or Medicare Part C) is cancelled or amount applicable to any participant (or whether it is affordable under 26 CFR terminated retroactively and the date on dependent, if applicable) who is not 1.36B–2(c)(5), and a statement that if the which the cancellation or termination is eligible to participate in the HRA for the participant or dependent is enrolled in effective. entire plan year, whether (and which of) Medicare, he or she is ineligible for the (I) The contact information (including the participant’s dependents are eligible premium tax credit without regard to a phone number) for an individual or a for the HRA, a statement that there are the offer or acceptance of the HRA; group of individuals who participants different kinds of HRAs (including a (D) A statement that if the participant may contact in order to receive qualified small employer health accepts the HRA, the participant may additional information regarding the reimbursement arrangement) and the not claim a premium tax credit for the HRA. The plan sponsor may determine HRA being offered is an individual participant’s Exchange coverage for any which individual or group of coverage HRA, a statement that the HRA month the HRA may be used to individuals is best suited to be the requires the participant and any covered reimburse medical care expenses of the specified contact. dependents to be enrolled in individual participant, and a premium tax credit (J) A statement of availability of a health insurance coverage (or Medicare may not be claimed for the Exchange special enrollment period to enroll in or Part A and B or Medicare Part C, if coverage of the participant’s dependents change individual health insurance applicable), a statement that the for any month the HRA may be used to coverage, through or outside of an coverage in which the participant and reimburse medical care expenses of the Exchange, for the participant and any any covered dependents must be dependents. dependents who newly gain access to enrolled cannot be short-term, limited- (E) A statement that the participant the HRA and are not already covered by duration insurance or consist solely of must inform any Exchange to which the the HRA. excepted benefits, if the HRA is subject participant applies for advance (d) Classes of employees—(1) In to the Employee Retirement Income payments of the premium tax credit of general. This paragraph (d) sets forth the Security Act (ERISA), a statement that the availability of the HRA; the self-only rules for determining classes of individual health insurance coverage in HRA amount available for the HRA plan employees. Paragraph (d)(2) of this which the participant and any covered year (or the maximum dollar amount section sets forth the specific classes of dependents are enrolled is not subject to available for the plan year if the HRA employees; paragraph (d)(3) of this ERISA, if the conditions under 29 CFR provides for reimbursements up to a section sets forth a minimum class size 2510.3–1(l) are satisfied, the date as of single dollar amount regardless of requirement that applies in certain which coverage under the HRA may whether a participant has self-only or circumstances; paragraph (d)(4) of this first become effective (both for other than self-only coverage) as set section sets forth rules regarding the participants whose coverage will forth in the written notice in accordance definition of ‘‘full-time employees,’’ become effective on the first day of the with paragraph (c)(6)(ii)(A) of this ‘‘part-time employees,’’ and ‘‘seasonal plan year and for participants whose section; whether the HRA is also employees’’; paragraph (d)(5) of this HRA coverage may become effective at available to the participant’s dependents section sets forth a special rule for new a later date), the dates on which the and if so, which ones; the date as of hires; and paragraph (d)(6) of this HRA plan year begins and ends, and the which coverage under the HRA may section addresses student premium dates on which the amounts newly first become effective; the date on which reduction arrangements. For purposes of made available under the HRA will be the plan year begins and the date on this section, including determining made available. which it ends; and whether the classes under this paragraph (d), the (B) A statement of the right of the participant is a current employee or employer is the common law employer participant to opt out of and waive former employee. and is determined without regard to the future reimbursements from the HRA, as (F) A statement that the participant rules under sections 414(b), (c), (m), and set forth under paragraph (c)(4) of this should retain the written notice because (o) of the Code that would treat the section. it may be needed to determine whether common law employer as a single (C) A description of the potential the participant is allowed a premium employer with certain other entities. availability of the premium tax credit if tax credit on the participant’s individual (2) List of classes. Participants may be the participant opts out of and waives income tax return. treated as belonging to a class of future reimbursements from the HRA (G) A statement that the HRA may not employees based on whether they are, and the HRA is not affordable for one reimburse any medical care expense or are not, included in the classes or more months under 26 CFR 1.36B– unless the substantiation requirement described in this paragraph (d)(2). If the 2(c)(5), a statement that even if the set forth in paragraph (c)(5)(ii) of this individual coverage HRA is offered to participant opts out of and waives section is satisfied and a statement that former employees, former employees are future reimbursements from an HRA, the participant must also provide the considered to be in the same class in the offer will prohibit the participant substantiation required by paragraph which they were included immediately (and, potentially, the participant’s (c)(5)(i) of this section. before separation from service. Before dependents) from receiving a premium (H) A statement that if the individual each plan year, a plan sponsor must tax credit for the participant’s coverage health insurance coverage (or coverage determine for the plan year which (or the dependent’s coverage, if under Medicare Part A and B or classes of employees it intends to treat applicable) on an Exchange for any Medicare Part C) of a participant or separately and the definition of the month that the HRA is affordable under dependent ceases, the HRA will not relevant class(es) it will apply, to the 26 CFR 1.36B–2(c)(5), a statement reimburse any medical care expenses extent these regulations permit a choice. describing how the participant may find that are incurred by the participant or After the classes and the definitions of assistance with determining dependent, as applicable, after the the classes are established for a plan affordability, a statement that, if the coverage ceases, and a statement that year, a plan sponsor may not make participant is a former employee, the the participant must inform the HRA if changes to the classes of employees or offer of the HRA does not render the the participant’s or dependent’s the definitions of those relevant classes participant (or the participant’s individual health insurance coverage (or with respect to that plan year.

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(i) Full-time employees, defined at the employees. Paragraph (d)(3)(ii) of this paragraph (d)(3)(ii)(C) of this section) election of the plan sponsor to mean section sets forth the circumstances in with any other class, except that the either full-time employees under section which the minimum class size minimum class size requirement shall 4980H of the Code (and 26 CFR requirement applies to a class of not apply to a class that is the result of 54.4980H–1(a)(21)) or employees who employees, paragraph (d)(3)(iii) of this a combination of one of the applicable are not part-time employees (as section sets forth the rules for classes and a class of employees who described in 26 CFR 1.105– determining the applicable class size have not satisfied a waiting period (as 11(c)(2)(iii)(C)); minimum, and paragraph (d)(3)(iv) of described in paragraph (d)(2)(viii) of (ii) Part-time employees, defined at this section sets forth the rules for a this section). the election of the plan sponsor to mean plan sponsor to determine if it satisfies (iii) Determination of the applicable either employees who are not full-time the minimum class size requirement class size minimum—(A) In general. employees under section 4980H of the with respect to a class of employees. The minimum number of employees Code (and under 26 CFR 54.4980H– (ii) Circumstances in which minimum that must be in a class of employees that 1(a)(21) (which defines full-time class size requirement applies—(A) The is subject to the minimum class size employee)) or employees who are part- minimum class size requirement applies requirement (the applicable class size time employees as described in 26 CFR only if a plan sponsor offers a minimum) is determined prior to the 1.105–11(c)(2)(iii)(C); traditional group health plan to one or beginning of the plan year for each plan (iii) Employees who are paid on a more classes of employees and offers an year of the individual coverage HRA salary basis; individual coverage HRA to one or more and is: (iv) Non-salaried employees (such as, other classes of employees. (1) 10, for an employer with fewer for example, hourly employees); (B) The minimum class size than 100 employees; (v) Employees whose primary site of requirement does not apply to a class of (2) A number, rounded down to a employment is in the same rating area employees offered a traditional group whole number, equal to 10 percent of health plan or a class of employees as defined in § 147.102(b) of this the total number of employees, for an offered no coverage. subchapter; employer with 100 to 200 employees; (vi) Seasonal employees, defined at (C) The minimum class size and the election of the plan sponsor to mean requirement applies to a class of (3) 20, for an employer with more seasonal employees as described in employees offered an individual than 200 employees. either 26 CFR 54.4980H–1(a)(38) or 26 coverage HRA if the class is full-time (B) Determining employer size. For CFR 1.105–11(c)(2)(iii)(C); employees, part-time employees, (vii) Employees included in a unit of salaried employees, non-salaried purposes of this paragraph (d)(3), the employees covered by a particular employees, or employees whose number of employees of an employer is collective bargaining agreement (or an primary site of employment is in the determined in advance of the plan year appropriate related participation same rating area (described in paragraph of the HRA based on the number of agreement) in which the plan sponsor (d)(2)(i), (ii), (iii), (iv), or (v) of this employees that the employer reasonably participates (as described in 26 CFR section, respectively, and referred to expects to employ on the first day of the 1.105–11(c)(2)(iii)(D)); collectively as the applicable classes or plan year. (viii) Employees who have not individually as an applicable class), (iv) Determining if a class satisfies the satisfied a waiting period for coverage except that: applicable class size minimum. For (if the waiting period complies with (1) In the case of the class of purposes of this paragraph (d)(3), § 147.116 of this subchapter); employees whose primary site of whether a class of employees satisfies (ix) Non-resident aliens with no U.S.- employment is in the same rating area the applicable class size minimum for a based income (as described in 26 CFR (as described in paragraph (d)(2)(v) of plan year of the individual coverage 1.105–11(c)(2)(iii)(E)); this section), the minimum class size HRA is based on the number of (x) Employees who, under all the facts requirement does not apply if the employees in the class offered the and circumstances, are employees of an geographic area defining the class is a individual coverage HRA as of the first entity that hired the employees for State or a combination of two or more day of the plan year. Therefore, this temporary placement at an entity that is entire States; and determination is not based on the not the common law employer of the (2) In the case of the classes of number of employees that actually employees and that is not treated as a employees that are full-time employees enroll in the individual coverage HRA, single employer with the entity that and part-time employees (as described and this determination is not affected by hired the employees for temporary in paragraphs (d)(2)(i) and (ii) of this changes in the number of employees in placement under section 414(b), (c), (m), section, respectively), the minimum the class during the plan year. or (o) of the Code; or class size requirement applies only to (4) Consistency requirement. For any (xi) A group of participants described those classes (and the classes are only plan year, a plan sponsor may define as a combination of two or more of the applicable classes) if the employees in ‘‘full-time employee,’’ ‘‘part-time classes of employees set forth in one such class are offered a traditional employee,’’ and ‘‘seasonal employee’’ in paragraphs (d)(2)(i) through (x) of this group health plan while the employees accordance with the relevant provisions section. in the other such class are offered an of sections 105(h) or 4980H of the Code, (3) Minimum class size requirement— individual coverage HRA. In such a as set forth in paragraphs (d)(2)(i), (ii), (i) In general. If a class of employees is case, the minimum class size and (vi) of this section, if: subject to the minimum class size requirement applies only to the class (i) To the extent applicable under the requirement as set forth in this offered an individual coverage HRA. HRA for the plan year, each of the three paragraph (d)(3), the class must consist (D) A class of employees offered an classes of employees are defined in of at least a minimum number of individual coverage HRA is also subject accordance with section 105(h) of the employees (as described in paragraphs to the minimum class size requirement Code or each of the three classes of (d)(3)(iii) and (iv) of this section), if the class is a class of employees employees are defined in accordance otherwise, the plan sponsor may not created by combining at least one of the with section 4980H of the Code for the treat that class as a separate class of applicable classes (as defined in plan year; and

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(ii) The HRA plan document sets forth hire subclass. However, if a plan general. Except as provided in the applicable definitions prior to the sponsor subdivides the new hire paragraph (e)(2)(ii) of this section, in beginning of the plan year to which the subclass subsequent to creating the new applying the conditions of paragraph (c) definitions will apply. hire subclass, the minimum class size of this section with respect to (5) Special rule for new hires—(i) In requirement set forth in paragraph (d)(3) integration with Medicare, a reference to general. Notwithstanding paragraphs of this section applies to any class of ‘‘individual health insurance coverage’’ (c)(2) and (3) of this section, a plan employees created by subdividing the is deemed to refer to coverage under sponsor that offers a traditional group new hire subclass, if the minimum class Medicare Part A and B or Part C. health plan to a class of employees may size requirement otherwise applies. References in this section to integration prospectively offer the employees in (6) Student employees offered student of an HRA with Medicare refer to that class of employees who are hired premium reduction arrangements. For integration of an individual coverage on or after a certain future date (the new purposes of this section, if an institution HRA with Medicare Part A and B or Part hire date) an individual coverage HRA of higher education (as defined in the C. (with this group of employees referred Higher Education Act of 1965) offers a (ii) Exceptions. For purposes of the to as the new hire subclass), while student employee a student premium statement regarding ERISA under the continuing to offer employees in that reduction arrangement, the employee is notice content element under paragraph class of employees who are hired before not considered to be part of the class of (c)(6)(ii)(A) of this section and the the new hire date a traditional group employees to which the employee statement regarding the availability of a health plan (with the rule set forth in would otherwise belong. For the special enrollment period under the this sentence referred to as the special purpose of this paragraph (d)(6) and notice content element under paragraph rule for new hires). For the new hire paragraph (f)(1) of this section, a student (c)(6)(ii)(J) of this section, the term subclass, the individual coverage HRA premium reduction arrangement is individual health insurance coverage must be offered on the same terms to all defined as any program offered by an means only individual health insurance participants within the subclass, in institution of higher education under coverage and does not also mean accordance with paragraph (c)(3) of this which the cost of insured or self-insured coverage under Medicare Part A and B section. In accordance with paragraph student health coverage is reduced for or Part C. (c)(2) of this section, a plan sponsor may certain students through a credit, offset, (f) Examples—(1) Examples regarding not offer a choice between an individual reimbursement, stipend or similar classes and the minimum class size coverage HRA or a traditional group arrangement. A student employee requirement. The following examples health plan to any employee in the new offered a student premium reduction illustrate the provisions of paragraph hire subclass or to any employee in the arrangement is also not counted for (c)(3) of this section, taking into account class who is not a member of the new purposes of determining the applicable the provisions of paragraphs (d)(1) hire subclass. class size minimum under paragraph through (4) and (d)(6) of this section. In (ii) New hire date. A plan sponsor (d)(3)(iii) of this section. If a student each example, the HRA is an individual may set the new hire date for a class of employee is not offered a student coverage HRA that may reimburse any employees prospectively as any date on premium reduction arrangement medical care expenses, including or after January 1, 2020. A plan sponsor (including if the student employee is premiums for individual health may set different new hire dates offered an individual coverage HRA insurance coverage and it is assumed prospectively for separate classes of instead), the student employee is that no participants or dependents are employees. considered to be part of the class of Medicare beneficiaries. (iii) Discontinuation of use of special employees to which the employee (i) Example 1: Collectively bargained rule for new hires and multiple otherwise belongs and is counted for employees offered traditional group health applications of the special rule for new purposes of determining the applicable plan; non-collectively bargained employees hires. A plan sponsor may discontinue class size minimum under paragraph offered HRA—(A) Facts. For 2020, Plan use of the special rule for new hires at (d)(3)(iii) of this section. Sponsor A offers its employees covered by a any time for any class of employees. In (e) Integration of Individual Coverage collective bargaining agreement a traditional that case, the new hire subclass is no HRAs with Medicare—(1) General rule. group health plan (as required by the longer treated as a separate subclass of An individual coverage HRA will be collective bargaining agreement) and all other employees. In the event a plan sponsor considered to be integrated with employees (non-collectively bargained employees) each an HRA on the same terms. applies the special rule for new hires to Medicare (and deemed to comply with (B) Conclusion. The same terms a class of employees and later PHS Act sections 2711 and 2713 and requirement of paragraph (c)(3) of this discontinues use of the rule to the class § 147.126(d)(4) of this subchapter), section is satisfied in this paragraph (f)(1)(i) of employees, the plan sponsor may provided that the conditions of (Example 1) because collectively bargained later apply the rule if the application of paragraph (c) of this section are and non-collectively bargained employees the rule would be permitted under the satisfied, subject to paragraph (e)(2) of may be treated as different classes of rules for initial application of the this section. Nothing in this section employees, one of which may be offered a special rule for new hires. If a plan requires that a participant and his or her traditional group health plan and the other of which may be offered an individual coverage sponsor, in accordance with the dependents all have the same type of HRA, and Plan Sponsor A offers the HRA on requirements for the special rule for coverage; therefore, an individual the same terms to all participants who are new hires, applies the rule to a class of coverage HRA may be integrated with non-collectively bargained employees. The employees subsequent to any prior Medicare for some individuals and with minimum class size requirement does not application and discontinuance of the individual health insurance coverage for apply to this paragraph (f)(1)(i) (Example 1) rule to that class, the new hire date must others, including, for example, a even though Plan Sponsor A offers one class be prospective. participant enrolled in Medicare Part A a traditional group health plan and one class (iv) Application of the minimum class the HRA because collectively bargained and and B or Part C and his or her non-collectively bargained employees are not size requirement under the special rule dependents enrolled in individual applicable classes that are subject to the for new hires. The minimum class size health insurance coverage. minimum class size requirement. requirement set forth in paragraph (d)(3) (2) Application of conditions in (ii) Example 2: Collectively bargained of this section does not apply to the new paragraph (c) of this section—(i) In employees in one unit offered traditional

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group health plan and in another unit offered may be treated as different classes and Plan the employees who are temporarily placed HRA—(A) Facts. For 2020, Plan Sponsor B Sponsor D offers an HRA on the same terms with customers generally may be treated as offers its employees covered by a collective to all participants who have not completed employees of a different class, because Plan bargaining agreement with Local 100 a the waiting period. The minimum class size Sponsor E is also using a rating area to traditional group health plan (as required by requirement does not apply to this paragraph identify the class offered the HRA (which is the collective bargaining agreement), and its (f)(1)(iv) (Example 4) even though Plan an applicable class for the minimum class employees covered by a collective bargaining Sponsor D offers employees who have size requirement) and is offering one class agreement with Local 200 each an HRA on completed a waiting period a traditional the HRA and another class the traditional the same terms (as required by the collective group health plan and employees who have group health plan, the minimum class size bargaining agreement). not completed a waiting period an HRA requirement applies to the class offered the (B) Conclusion. The same terms because the class of employees who have not HRA, and the class offered the HRA fails to requirement of paragraph (c)(3) of this completed a waiting period is not an satisfy the minimum class size requirement. section is satisfied in this paragraph (f)(1)(ii) applicable class that is subject to the Because Plan Sponsor E employs 210 (Example 2) because the employees covered minimum class size requirement (nor is the employees, the applicable class size by the collective bargaining agreements with class made up of employees who have minimum is 20, and the HRA is offered to the two separate bargaining units (Local 100 completed the waiting period). only 10 employees. and Local 200) may be treated as two (v) Example 5: Staffing firm employees (vii) Example 7: Employees in State 1 different classes of employees and Plan temporarily placed with customers offered an offered traditional group health plan; Sponsor B offers an HRA on the same terms HRA; other employees offered a traditional employees in State 2 offered HRA—(A) Facts. to the participants covered by the agreement group health plan—(A) Facts. Plan Sponsor Plan Sponsor F employs 45 employees whose with Local 200. The minimum class size E is a staffing firm that places certain of its work site is in State 1 and 7 employees requirement does not apply to this paragraph employees on temporary assignments with whose primary site of employment is in State (f)(1)(ii) (Example 2) even though Plan customers that are not the common law 2. For 2020, Plan Sponsor F offers its 45 Sponsor B offers the Local 100 employees a employers of Plan Sponsor E’s employees or employees in State 1 a traditional group traditional group health plan and the Local treated as a single employer with Plan health plan, and each of its 7 employees in 200 employees an HRA because collectively Sponsor E under section 414(b), (c), (m), or State 2 an HRA on the same terms. bargained employees are not applicable (o) of the Code (unrelated entities); other (B) Conclusion. The same terms classes that are subject to the minimum class employees work in Plan Sponsor E’s office requirement of paragraph (c)(3) of this size requirement. managing the staffing business (non- section is satisfied in this paragraph (f)(1)(vii) (iii) Example 3: Employees in a waiting temporary employees). For 2020, Plan (Example 7) because Plan Sponsor F offers period offered no coverage; other employees Sponsor E offers its employees who are on the HRA on the same terms to all employees offered an HRA—(A) Facts. For 2020, Plan temporary assignments with customers each with a work site in State 2 and that class is Sponsor C offers its employees who have an HRA on the same terms. All other a permissible class under paragraph (d) of completed a waiting period that complies employees are offered a traditional group this section. This is because employees with the requirements for waiting periods in health plan. whose work sites are in different rating areas § 147.116 of this subchapter each an HRA on (B) Conclusion. The same terms may be considered different classes and a the same terms and does not offer coverage requirement of paragraph (c)(3) of this plan sponsor may create a class of employees to its employees who have not completed the section is satisfied in this paragraph (f)(1)(v) by combining classes of employees, waiting period. (Example 5) because the employees who are including by combining employees whose (B) Conclusion. The same terms hired for temporary placement at an work site is in one rating area with requirement of paragraph (c)(3) of this unrelated entity and non-temporary employees whose work site is in a different section is satisfied in this paragraph (f)(1)(iii) employees of Plan Sponsor E may be treated rating area, or by combining all employees (Example 3) because employees who have as different classes of employees and Plan whose work site is in a state. The minimum completed a waiting period and employees Sponsor E offers an HRA on the same terms class size requirement does not apply to this who have not completed a waiting period to all participants temporarily placed with paragraph (f)(1)(vii) (Example 7) because the may be treated as different classes and Plan customers. The minimum class size minimum class size requirement does not Sponsor C offers the HRA on the same terms requirement does not apply to this paragraph apply if the geographic area defining a class to all participants who have completed the (f)(1)(v) (Example 5) even though Plan of employees is a state or a combination of waiting period. The minimum class size Sponsor E offers one class a traditional group two or more entire states. requirement does not apply to this paragraph health plan and one class the HRA because (viii) Example 8: Full-time seasonal (f)(1)(iii) (Example 3) because Plan Sponsor the class of employees hired for temporary employees offered HRA; all other full-time C does not offer at least one class of placement is not an applicable class that is employees offered traditional group health employees a traditional group health plan subject to the minimum class size plan; part-time employees offered no and because the class of employees who have requirement (nor is the class made up of non- coverage—(A) Facts. Plan Sponsor G employs not completed a waiting period and the class temporary employees). 6 full-time seasonal employees, 75 full-time of employees who have completed a waiting (vi) Example 6: Staffing firm employees employees who are not seasonal employees, period are not applicable classes that are temporarily placed with customers in rating and 5 part-time employees. For 2020, Plan subject to the minimum class size area 1 offered an HRA; other employees Sponsor G offers each of its 6 full-time requirement. offered a traditional group health plan—(A) seasonal employees an HRA on the same (iv) Example 4: Employees in a waiting Facts. The facts are the same as in paragraph terms, its 75 full-time employees who are not period offered an HRA; other employees (f)(1)(v) of this section (Example 5), except seasonal employees a traditional group offered a traditional group health plan—(A) that Plan Sponsor E has work sites in rating health plan, and offers no coverage to its 5 Facts. For 2020, Plan Sponsor D offers its area 1 and rating area 2, and it offers its 10 part-time employees. employees who have completed a waiting employees on temporary assignments with a (B) Conclusion. The same terms period that complies with the requirements work site in rating area 1 an HRA on the requirement of paragraph (c)(3) of this for waiting periods in § 147.116 of this same terms. Plan Sponsor E has 200 other section is satisfied in this paragraph subchapter a traditional group health plan employees in rating areas 1 and 2, including (f)(1)(viii) (Example 8) because full-time and offers its employees who have not its non-temporary employees in rating areas seasonal employees and full-time employees completed the waiting period each an HRA 1 and 2 and its employees on temporary who are not seasonal employees may be on the same terms. assignments with a work site in rating area considered different classes and Plan (B) Conclusion. The same terms 2, all of whom are offered a traditional group Sponsor G offers the HRA on the same terms requirement of paragraph (c)(3) of this health plan. to all full-time seasonal employees. The section is satisfied in this paragraph (f)(1)(iv) (B) Conclusion. The same terms minimum class size requirement does not (Example 4) because employees who have requirement of paragraph (c)(3) of this apply to the class offered the HRA in this completed a waiting period and employees section is not satisfied in this paragraph paragraph (f)(1)(viii) (Example 8) because who have not completed a waiting period (f)(1)(vi) (Example 6) because, even though part-time employees are not offered coverage

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and full-time employees are not an employees in all other rating areas of State no traditional group health plan offered—(A) applicable class subject to the minimum class 2 offered traditional group health plan—(A) Facts. Plan Sponsor K has 50 full-time size requirement if part-time employees are Facts. For 2020, Plan Sponsor I offers an employees and 7 part-time employees. For not offered coverage. HRA on the same terms to a total of 200 2020, Plan Sponsor K offers its 50 full-time (ix) Example 9: Full-time employees in employees it employs with work sites in employees $2,000 each in an HRA otherwise rating area 1 offered traditional group health State 1 and in rating area 1 of State 2. Plan provided on the same terms and each of its plan; full-time employees in rating area 2 Sponsor I offers a traditional group health 7 part-time employees $500 in an HRA offered HRA; part-time employees offered no plan to its 150 employees with work sites in otherwise provided on the same terms. Plan coverage—(A) Facts. Plan Sponsor H other rating areas in State 2. Plan Sponsor I Sponsor K reasonably expects to employ 57 employs 17 full-time employees and 10 part- reasonably expects to employ 350 employees employees on the first day of the HRA plan time employees whose work site is in rating on the first day of the HRA plan year. year. area 1 and 552 full-time employees whose (B) Conclusion. The same terms (B) Conclusion. The same terms work site is in rating area 2. For 2020, Plan requirement of paragraph (c)(3) of this requirement of paragraph (c)(3) of this Sponsor H offers its 17 full-time employees section is satisfied in this paragraph (f)(1)(xi) section is satisfied in this paragraph in rating area 1 a traditional group health (Example 11). Plan Sponsor I may treat all of (f)(1)(xiii) (Example 13) because full-time plan and each of its 552 full-time employees the employees with a work site in State 1 and employees and part-time employees may be in rating area 2 an HRA on the same terms. rating area 1 of State 2 as a class of treated as different classes and Plan Sponsor Plan Sponsor H offers no coverage to its 10 employees because employees whose work K offers an HRA on the same terms to all the part-time employees in rating area 1. Plan sites are in different rating areas may be participants in each class. The minimum Sponsor H reasonably expects to employ 569 considered different classes and a plan class size requirement does not apply to employees on the first day of the HRA plan sponsor may create a class of employees by either the full-time class or the part-time year. combining classes of employees, including class because (although in certain (B) Conclusion. The same terms by combining employees whose work site is circumstances the minimum class size requirement of paragraph (c)(3) of this in one rating area with a class of employees requirement applies to a class of full-time section is satisfied in this paragraph (f)(1)(ix) whose work site is in a different rating area. employees and a class of part-time (Example 9) because employees whose work The minimum class size requirement applies employees) Plan Sponsor K does not offer sites are in different rating areas may be to the class of employees offered the HRA any class of employees a traditional group considered different classes and Plan (made up of employees in State 1 and in health plan, and the minimum class size Sponsor H offers the HRA on the same terms rating area 1 of State 2) because the minimum requirement applies only when, among other to all full-time employees in rating area 2. class size requirement applies to a class things, at least one class of employees is The minimum class size requirement applies based on a geographic area unless the offered a traditional group health plan while to the class offered the HRA in this paragraph geographic area is a state or a combination of another class is offered an HRA. two or more entire states. In this case, the (f)(1)(ix) (Example 9) because the minimum (xiv) Example 14: No employees offered an class size requirement applies to a class class is made up of a state plus a rating area HRA—(A) Facts. The facts are the same facts based on a geographic area unless the which is not the entire state. However, this as in paragraph (f)(1)(xiii) of this section geographic area is a state or a combination of class satisfies the minimum class size (Example 13), except that Plan Sponsor K two or more entire states. However, the requirement because the applicable class size offers its full-time employees a traditional minimum class size requirement applies only minimum for Plan Sponsor I is 20, and Plan group health plan and does not offer any to the class offered the HRA, and Plan Sponsor I offered the HRA to 200 employees group health plan (either a traditional group Sponsor H offers the HRA to the 552 full-time on the first day of the plan year. employees in rating area 2 on the first day (xii) Example 12: Salaried employees health plan or an HRA) to its part-time of the plan year, satisfying the minimum offered a traditional group health plan; employees. class size requirement (because the hourly employees offered an HRA—(A) Facts. (B) Conclusion. The regulations set forth applicable class size minimum for Plan Plan Sponsor J has 163 salaried employees under this section do not apply to Plan Sponsor H is 20). and 14 hourly employees. For 2020, Plan Sponsor K because Plan Sponsor K does not (x) Example 10: Employees in rating area Sponsor J offers its 163 salaried employees a offer an individual coverage HRA to any 1 offered HRA; employees in rating area 2 traditional group health plan and each of its employee. offered traditional group health plan—(A) 14 hourly employees an HRA on the same (xv) Example 15: Full-time employees Facts. The facts are the same as in paragraph terms. Plan Sponsor J reasonably expects to offered traditional group health plan; part- (f)(1)(ix) of this section (Example 9) except employ 177 employees on the first day of the time employees offered HRA—(A) Facts. The that Plan Sponsor H offers its 17 full-time HRA plan year. facts are the same as in paragraph (f)(1)(xiii) employees in rating area 1 the HRA and (B) Conclusion. The same terms of this section (Example 13), except that Plan offers its 552 full-time employees in rating requirement of paragraph (c)(3) of this Sponsor K offers its full-time employees a area 2 the traditional group health plan. section is not satisfied in this paragraph traditional group health plan and offers each (B) Conclusion. The same terms (f)(1)(xii) (Example 12) because, even though of its part-time employees $500 in an HRA requirement of paragraph (c)(3) of this salaried and hourly employees generally may and otherwise on the same terms. section is not satisfied in this paragraph be considered different classes and Plan (B) Conclusion. The same terms (f)(1)(x) (Example 10) because, even though Sponsor J offers the HRA on the same terms requirement of paragraph (c)(3) of this employees whose work sites are in different to all hourly employees, the HRA fails to section is not satisfied in this paragraph rating areas generally may be considered satisfy the minimum class size requirement. (f)(1)(xv) (Example 15) because, even though different classes and Plan Sponsor H offers Specifically, the minimum class size the full-time employees and the part-time the HRA on the same terms to all participants requirement applies in this paragraph employees generally may be treated as in rating area 1, the HRA fails to satisfy the (f)(1)(xii) (Example 12) because employees different classes, in this paragraph (f)(1)(xv) minimum class size requirement. who are paid on a salaried basis and (Example 15), the minimum class size Specifically, the minimum class size employees who are not paid on a salaried requirement applies to the part-time requirement applies to this paragraph (f)(1)(x) basis are applicable classes subject to the employees, and it is not satisfied. (Example 10) because the minimum class minimum class size requirement. Because Specifically, the minimum class size size requirement applies to a class based on Plan Sponsor J reasonably expects to employ requirement applies to the part-time a geographic area unless the geographic area between 100 and 200 employees on the first employees because that requirement applies is a state or a combination of two or more day of the plan year, the applicable class size to an applicable class offered an HRA when entire states. Further, the applicable class minimum is 10 percent, rounded down to a one class is offered a traditional group health size minimum for Plan Sponsor H is 20 whole number. Ten percent of 177 total plan while another class is offered an HRA, employees, and the HRA is only offered to employees, rounded down to a whole and to the part-time and full-time employee the 17 full-time employees in rating area 1 on number is 17, and the HRA is offered to only classes when one of those classes is offered the first day of the HRA plan year. 14 hourly employees. a traditional group health plan while the (xi) Example 11: Employees in State 1 and (xiii) Example 13: Part-time employees and other is offered an HRA. Because Plan rating area 1 of State 2 offered HRA; full-time employees offered different HRAs; Sponsor K reasonably expects to employ

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fewer than 100 employees on the first day of (B) Conclusion. The same terms B has 2 new hire, full-time employees who the HRA plan year, the applicable class size requirement of paragraph (c)(3) of this are offered the HRA. minimum for Plan Sponsor K is 10 section is not satisfied in this paragraph (B) Conclusion. The same terms employees, but Plan Sponsor K offered the (f)(1)(xviii) (Example 18). The minimum requirement of paragraph (c)(3) of this HRA only to its 7 part-time employees. class size requirement will apply to the class section is satisfied in this paragraph (f)(2)(ii) (xvi) Example 16: Satisfying minimum of hourly employees to which Plan Sponsor (Example 2) because, under the special rule class size requirement based on employees N wants to offer the HRA because Plan for new hires in paragraph (d)(5) of this offered HRA—(A) Facts. Plan Sponsor L Sponsor N offers a class of employees a section, the full-time employees newly hired employs 78 full-time employees and 12 part- traditional group health plan and another on and after January 1, 2022, may be treated time employees. For 2020, Plan Sponsor L class the HRA, and the minimum class size as a new hire subclass and Plan Sponsor B offers its 78 full-time employees a traditional requirement generally applies to a class of offers the HRA on the same terms to all group health plan and each of its 12 part- hourly employees offered an HRA. Plan participants in the new hire subclass. The times employees an HRA on the same terms. Sponsor N’s applicable class size minimum minimum class size requirement does not Only 6 part-time employees enroll in the is 20 because Plan Sponsor N reasonably apply to the new hire subclass. HRA. Plan Sponsor L reasonably expects to expects to employ 235 employees on the first (iii) Example 3: Special rule for new hires employ fewer than 100 employees on the first day of the plan year (250 employees minus impermissibly applied retroactively—(A) day of the HRA plan year. 15 employees receiving a student premium Facts. For 2025, Plan Sponsor C offers a (B) Conclusion. The same terms reduction arrangement). Plan Sponsor N may traditional group health plan to its full-time requirement of paragraph (c)(3) of this not offer the HRA to its hourly employees employees. For 2026, Plan Sponsor C wants section is satisfied in this paragraph because the 10 employees offered the HRA as to offer an HRA to its full-time employees (f)(1)(xvi) (Example 16) because full-time of the first day of the plan year does not hired on and after January 1, 2023, while employees and part-time employees may be satisfy the applicable class size minimum. continuing to offer a traditional group health treated as different classes, Plan Sponsor L plan to its full-time employees hired before offers an HRA on the same terms to all the (2) Examples regarding special rule for new hires. The following examples January 1, 2023. participants in the part-time class, and the (B) Conclusion. The special rule for new minimum class size requirement is satisfied. illustrate the provisions of paragraph hires under paragraph (d)(5) of this section Specifically, whether a class of employees (c)(3) of this section, taking into account does not apply in this paragraph (f)(2)(iii) satisfies the applicable class size minimum is the provisions of paragraph (d) of this (Example 3) because the rule must be applied determined as of the first day of the plan year section, in particular the special rule for prospectively. That is, Plan Sponsor C may based on the number of employees in a class new hires under paragraph (d)(5) of this not, in 2026, choose to apply the special rule that is offered an HRA, not on the number section. In each example, the HRA is an for new hires retroactive to 2023. If Plan of employees who enroll in the HRA. The Sponsor C were to offer an HRA in this way, applicable class size minimum for Plan individual coverage HRA that has a it would fail to satisfy the conditions under Sponsor L is 10 employees, and Plan Sponsor calendar year plan year and may paragraphs (c)(2) and (3) of this section L offered the HRA to its 12 part-time reimburse any medical care expenses, because the new hire subclass would not be employees. including premiums for individual treated as a subclass for purposes of applying (xvii) Example 17: Student employees health insurance coverage. The those rules and, therefore, all full-time offered student premium reduction examples also assume that no employees would be treated as one class to arrangements and same terms requirement— participants or dependents are Medicare (A) Facts. Plan Sponsor M is an institution which either a traditional group health plan of higher education that offers each of its beneficiaries. or an HRA could be offered, but not both. part-time employees an HRA on the same (i) Example 1: Application of special rule (iv) Example 4: Permissible second terms, except that it offers its part-time for new hires to all employees—(A) Facts. For application of the special rule for new hires employees who are student employees a 2021, Plan Sponsor A offers all employees a to the same class of employees—(A) Facts. student premium reduction arrangement, and traditional group health plan. For 2022, Plan For 2021, Plan Sponsor D offers all of its full- the student premium reduction arrangement Sponsor A offers all employees hired on or time employees a traditional group health provides different amounts to different part- after January 1, 2022, an HRA on the same plan. For 2022, Plan Sponsor D applies the time student employees. terms and continues to offer the traditional special rule for new hires and offers an HRA (B) Conclusion. The same terms group health plan to employees hired before on the same terms to all employees hired on requirement of paragraph (c)(3) of this that date. On the first day of the 2022 plan and after January 1, 2022, and continues to section is satisfied in this paragraph year, Plan Sponsor A has 2 new hires who offer a traditional group health plan to full- (f)(1)(xvii) (Example 17) because Plan are offered the HRA. time employees hired before that date. For Sponsor M offers the HRA on the same terms (B) Conclusion. The same terms 2025, Plan Sponsor D discontinues use of the to its part-time employees who are not requirement of paragraph (c)(3) of this special rule for new hires, and again offers students and because the part-time student section is satisfied in this paragraph (f)(2)(i) all full-time employees a traditional group employees offered a student premium (Example 1) because, under the special rule health plan. In 2030, Plan Sponsor D decides reduction arrangement (and their varying for new hires in paragraph (d)(5) of this to apply the special rule for new hires to the HRAs) are not taken into account as part-time section, the employees newly hired on and full-time employee class again, offering an employees for purposes of determining after January 1, 2022, may be treated as a new HRA to all full-time employees hired on and whether a class of employees is offered an hire subclass, Plan Sponsor A offers the HRA after January 1, 2030, on the same terms, HRA on the same terms. on the same terms to all participants in the while continuing to offer employees hired (xiii) Example 18: Student employees new hire subclass, and the minimum class before that date a traditional group health offered student premium reduction size requirement does not apply to the new plan. arrangements and minimum class size hire subclass. (B) Conclusion. Plan Sponsor D has requirement—(A) Facts. Plan Sponsor N is an (ii) Example 2: Application of special rule permissibly applied the special rule for new institution of higher education with 25 for new hires to full-time employees—(A) hires and is in compliance with the hourly employees. Plan Sponsor N offers 15 Facts. For 2021, Plan Sponsor B offers a requirements of paragraphs (c)(2) and (3) of of its hourly employees, who are student traditional group health plan to its full-time this section. employees, a student premium reduction employees and does not offer any coverage to (v) Example 5: Impermissible second arrangement and it wants to offer its other 10 its part-time employees. For 2022, Plan application of the special rule for new hires hourly employees an HRA for 2022. Plan Sponsor B offers full-time employees hired to the same class of employees—(A) Facts. Sponsor N offers its salaried employees a on or after January 1, 2022, an HRA on the The facts are the same as in paragraph traditional group health plan. Plan Sponsor same terms, continues to offer its full-time (f)(2)(iv) of this section (Example 4), except N reasonably expects to have 250 employees employees hired before that date a traditional that for 2025, Plan Sponsor D discontinues on the first day of the 2022 HRA plan year, group health plan, and continues to offer no use of the special rule for new hires by 15 of which will have offers of student coverage to its part-time employees. On the offering all full-time employees an HRA on premium reduction arrangements. first day of the 2022 plan year, Plan Sponsor the same terms. Further, for 2030, Plan

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Sponsor D wants to continue to offer an HRA requirement, and the class offered the HRA (g) Applicability date. This section on the same terms to all full-time employees fails to satisfy the minimum class size applies to plan years beginning on or hired before January 1, 2030, and to offer all requirement. Specifically, once the new hire after January 1, 2020. full-time employees hired on or after January subclass is subdivided the general rules for ■ 1, 2030, an HRA in a different amount. applying the minimum class size 20. Section 146.145 is amended by (B) Conclusion. Plan Sponsor D may not requirement apply to the employees offered revising paragraph (b)(3)(i) and adding apply the special rule for new hires for 2030 the HRA in the new hire subclass. In this paragraph (b)(3)(viii) to read as follows: to the class of full-time employees being case, because the subdivision of the new hire offered an HRA because the special rule for full-time subclass is based on rating areas; a § 146.145 Special rules relating to group new hires may only be applied to a class that class based on rating areas is an applicable health plans. is being offered a traditional group health class subject to the minimum class size * * * * * plan. requirement; and the employees in one rating (b) * * * (vi) Example 6: New full-time employees area are to be offered the HRA, while the (3) * * * offered different HRAs in different rating employees in the other rating area are offered (i) In general. Limited-scope dental areas—(A) Facts. Plan Sponsor E has work the traditional group health plan, the benefits, limited-scope vision benefits, sites in rating area 1, rating area 2, and rating minimum class size requirement would or long-term care benefits are excepted area 3. For 2021, Plan Sponsor E offers its apply on and after the date of the if they are provided under a separate full-time employees a traditional group subdivision. Further, the minimum class size policy, certificate, or contract of health plan. For 2022, Plan Sponsor E offers requirement would not be satisfied, because its full-time employees hired on or after the applicable class size minimum for Plan insurance, or are otherwise not an January 1, 2022, in rating area 1 an HRA of Sponsor F would be 20, and only 15 integral part of a group health plan as $3,000, its full-time employees hired on or employees in rating area 2 would be offered described in paragraph (b)(3)(ii) of this after January 1, 2022, in rating area 2 an HRA the HRA. section. In addition, benefits provided of $5,000, and its full-time employees hired (viii) Example 8: New full-time employee under a health flexible spending on or after January 1, 2022, in rating area 3 class subdivided based on state—(A) Facts. arrangement (health FSA) are excepted an HRA of $7,000. Within each class offered The facts are the same as in paragraph benefits if they satisfy the requirements an HRA, Plan Sponsor E offers the HRA on (f)(2)(vii) of this section (Example 7), except of paragraph (b)(3)(v) of this section; the same terms. Plan Sponsor E offers its full- that for the 2025 plan year, Plan Sponsor F benefits provided under an employee time employees hired prior to January 1, intends to subdivide the new hire, full-time assistance program are excepted benefits 2022, in each of those classes a traditional class so that those in State 1 will be offered group health plan. On the first day of the the traditional group health plan and those if they satisfy the requirements of 2022 plan year, there is one new hire, full- in State 2 will each be offered an HRA on the paragraph (b)(3)(vi) of this section; time employee in rating area 1, three new same terms. benefits provided under limited hire, full-time employees in rating area 2, and (B) Conclusion. The same terms wraparound coverage are excepted 10 new hire-full-time employees in rating requirement of paragraph (c)(3) of this benefits if they satisfy the requirements area 3. section is satisfied in this paragraph of paragraph (b)(3)(vii) of this section; (B) Conclusion. The same terms (f)(2)(viii) (Example 8) because even though and benefits provided under a health requirement of paragraph (c)(3) of this the new hire subclass has been subdivided, reimbursement arrangement or other section is satisfied in this paragraph (f)(2)(vi) it has been subdivided in a manner that is account-based group health plan, other (Example 6) because, under the special rule not subject to the minimum class size than a health FSA, are excepted benefits for new hires in paragraph (d)(5) of this requirement as the subdivision is based on section, the full-time employees in each of the entire state. if they satisfy the requirements of the three rating areas newly hired on and (ix) Example 9: New full-time employees paragraph (b)(3)(viii) of this section. after January 1, 2022, may be treated as three and part-time employees offered HRA—(A) * * * * * new hire subclasses and Plan Sponsor E Facts. In 2021, Plan Sponsor G offers its full- (viii) Health reimbursement offers the HRA on the same terms to all time employees a traditional group health arrangements (HRAs) and other participants in the new hire subclasses. plan and does not offer coverage to its part- account-based group health plans. Further, the minimum class size requirement time employees. For the 2022 plan year, Plan Benefits provided under an HRA or does not apply to the new hire subclasses. Sponsor G offers its full-time employees other account-based group health plan, (vii) Example 7: New full-time employee hired on or after January 1, 2022, and all of class subdivided based on rating area—(A) its part-time employees, including those other than a health FSA, are excepted if Facts. Plan Sponsor F offers its full-time hired before January 1, 2022, and those hired they satisfy all of the requirements of employees hired on or after January 1, 2022, on and after January 1, 2022, an HRA on the this paragraph (b)(3)(viii). See paragraph an HRA on the same terms and it continues same terms, and it continues to offer its full- (b)(3)(v) of this section for the to offer its full-time employees hired before time employees hired before January 1, 2022, circumstances in which benefits that date a traditional group health plan. Plan a traditional group health plan. provided under a health FSA are Sponsor F offers no coverage to its part-time (B) Conclusion. The minimum class size excepted benefits. For purposes of this employees. For the 2025 plan year, Plan requirement applies to the part-time paragraph (b)(3)(viii), the term ‘‘HRA or Sponsor F wants to subdivide the full-time employees offered the HRA in 2022 because other account-based group health plan’’ new hire subclass so that those whose work the class is being offered an HRA; the special site is in rating area 1 will be offered the rule for new hires does not apply (because has the same meaning as ‘‘account- traditional group health plan and those this class was not previously offered a based group health plan’’ set forth in whose work site is in rating area 2 will traditional group health plan) and so it is not § 147.126(d)(6)(i) of this subchapter, continue to receive the HRA. Plan Sponsor F a new hire subclass exempt from the except that the term does not include reasonably expects to employ 219 employees minimum class size requirement; another health FSAs. For ease of reference, an on January 1, 2025. As of January 1, 2025, class of employees (that is, full-time hired HRA or other account-based group Plan Sponsor F has 15 full-time employees before January 1, 2022) are being offered a health plan that satisfies the whose work site in in rating area 2 and who traditional group health plan; and the part- requirements of this paragraph were hired between January 1, 2022, and time employee class is generally an (b)(3)(viii) is referred to as an excepted January 1, 2025. applicable classes that is subject to the (B) Conclusion. The same terms minimum class size requirement. However, benefit HRA. requirement of paragraph (c)(3) of this because the full-time, new hire subclass is (A) Otherwise not an integral part of section is not satisfied in this paragraph based on the special rule for new hires, the the plan. Other group health plan (f)(2)(vii) (Example 7) because the new hire minimum class size requirement does not coverage that is not limited to excepted subclass has been subdivided in a manner apply to full-time new hires offered an HRA benefits and that is not an HRA or other that is subject to the minimum class size in 2022. account-based group health plan must

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be made available by the same plan insurance coverage, group health plan PART 147—HEALTH INSURANCE sponsor for the plan year to the coverage (other than COBRA REFORM REQUIREMENTS FOR THE participant. continuation coverage or other GROUP AND INDIVIDUAL HEALTH (B) Benefits are limited in amount— continuation coverage), or Medicare Part INSURANCE MARKETS (1) Limit on annual amounts made A, B, C, or D, except that the HRA or available. The amounts newly made other account-based group health plan ■ 21. The authority citation for part 147 available for each plan year under the may reimburse premiums for such is revised to read as follows: HRA or other account-based group coverage that consists solely of excepted Authority: 42 U.S.C. 300gg through 300gg– health plan do not exceed $1,800. In the benefits. See also, paragraph 63, 300gg–91, and 300gg–92, as amended. case of any plan year beginning after (b)(3)(viii)(F) of this section. ■ December 31, 2020, the dollar amount 22. Section 147.126 is amended by in the preceding sentence shall be (D) Uniform availability. The HRA or revising paragraphs (c), (d), and (e) to increased by an amount equal to such other account-based group health plan read as follows: dollar amount multiplied by the cost-of- is made available under the same terms § 147.126 No Lifetime or annual limits. living adjustment. The cost of living to all similarly situated individuals, as * * * * * adjustment is the percentage (if any) by defined in § 146.121(d), regardless of (c) Definition of essential health which the C–CPI–U for the preceding any health factor (as described in benefits. The term ‘‘essential health calendar year exceeds the C–CPI–U for § 146.121(a)). benefits’’ means essential health calendar year 2019. The term ‘‘C–CPI– (E) [Reserved] benefits under section 1302(b) of the U’’ means the Chained Consumer Price Patient Protection and Affordable Care Index for All Urban Consumers as (F) Special rule. The HRA or other Act and applicable regulations. For the published by the Bureau of Labor account-based group health plan must purpose of this section, a group health Statistics of the Department of Labor. not reimburse premiums for short-term, plan or a health insurance issuer that is The C–CPI–U for any calendar year is limited-duration insurance (as defined not required to provide essential health the average of the C–CPI–U as of the in § 144.103 of this subchapter) if the close of the 12-month period ending on conditions of this paragraph benefits under section 1302(b) must March 31 of such calendar year. The (b)(3)(viii)(F) are satisfied. define ‘‘essential health benefits’’ in a values of the C–CPI–U used for any manner that is consistent with the (1) The HRA or other account-based following: calendar year shall be the latest values group health plan is offered by a small so published as of the date on which the (1) For plan years beginning before employer (as defined in PHS Act section January 1, 2020, one of the EHB- Bureau publishes the initial value of the 2791(e)(4)). C–CPI–U for the month of March for the benchmark plans applicable in a State preceding calendar year. Any such (2) The other group health plan under § 156.110 of this subchapter, and increase that is not a multiple of $50 coverage offered by the employer including coverage of any additional shall be rounded down to the next pursuant to paragraph (b)(3)(viii)(A) of required benefits that are considered lowest multiple of $50. The Department this section is either fully-insured or essential health benefits consistent with of the Treasury and the Internal partially-insured. § 155.170(a)(2) of this subchapter, or one of the three Federal Employees Health Revenue Service will publish the (3) The Secretary makes a finding, in Benefits Program (FEHBP) plan options adjusted amount for plan years consultation with the Secretaries of as defined by § 156.100(a)(3) of this beginning in any calendar year no later Labor and the Treasury, that the than June 1 of the preceding calendar subchapter, supplemented as necessary, reimbursement of premiums for short- to satisfy the standards in § 156.110 of year. term, limited-duration insurance by (2) Carryover amounts. If the terms of this subchapter; or excepted benefit HRAs has caused (2) For plan years beginning on or the HRA or other account-based group significant harm to the small group health plan allow unused amounts to be after January 1, 2020, an EHB- market in the state that is the principal made available to participants and benchmark plan selected by a State in place of business of the small employer. dependents in later plan years, such accordance with the available options carryover amounts are disregarded for (4) The finding by the Secretary is and requirements for EHB-benchmark purposes of determining whether made after submission of a written plan selection at § 156.111 of this benefits are limited in amount. recommendation by the applicable state subchapter, including an EHB- (3) Multiple HRAs or other account- authority of such state, in a form and benchmark plan in a State that takes no based group health plans. If the plan manner specified by HHS. The written action to change its EHB-benchmark sponsor provides more than one HRA or recommendation must include evidence plan and thus retains the EHB- other account-based group health plan that the reimbursement of premiums for benchmark plan applicable in that State to the participant for the same time short-term, limited-duration insurance for the prior year in accordance with period, the amounts made available by excepted benefit HRAs established § 156.111(d)(1) of this subchapter, and under all such plans are aggregated to by insured or partially-insured small including coverage of any additional determine whether the benefits are employers in the state has caused required benefits that are considered limited in amount, except that HRAs or significant harm to the state’s small essential health benefits consistent with other account-based group health plans group market, including with respect to § 155.170(a)(2) of this subchapter. that reimburse only excepted benefits premiums. (d) Health reimbursement are not included in determining arrangements (HRAs) and other (5) The restriction shall be imposed or whether the benefits are limited in account-based group health plans—(1) discontinued by publication by the amount. In general. If an HRA or other account- (C) Prohibition on reimbursement of Secretary of a notice in the Federal based group health plan is integrated certain health insurance premiums. The Register and shall apply only with another group health plan or HRA or other account-based group prospectively and with a reasonable individual health insurance coverage health plan must not reimburse time for plan sponsors to comply. and the other group health plan or premiums for individual health * * * * * individual health insurance coverage, as

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applicable, separately is subject to and (A) The plan sponsor offers a group the Code (and its implementing satisfies the requirements in PHS Act health plan (other than the HRA or other regulations and applicable guidance); section 2711 and paragraph (a)(2) of this account-based group health plan) to the (B) The employee receiving the HRA section, the fact that the benefits under employee that does not consist solely of or other account-based group health the HRA or other account-based group excepted benefits; plan is actually enrolled in a group health plan are limited does not cause (B) The employee receiving the HRA health plan (other than the HRA or other the HRA or other account-based group or other account-based group health account-based group health plan) that health plan to fail to satisfy the plan is actually enrolled in a group provides minimum value pursuant to requirements of PHS Act section 2711 health plan (other than the HRA or other section 36B(c)(2)(C)(ii) of the Code (and and paragraph (a)(2) of this section. account-based group health plan) that applicable guidance), regardless of Similarly, if an HRA or other account- does not consist solely of excepted whether the plan is offered by the plan based group health plan is integrated benefits, regardless of whether the plan sponsor of the HRA or other account- with another group health plan or is offered by the same plan sponsor based group health plan (referred to as individual health insurance coverage (referred to as non-HRA group non-HRA MV group coverage); and the other group health plan or coverage); (C) The HRA or other account-based individual health insurance coverage, as (C) The HRA or other account-based group health plan is available only to applicable, separately is subject to and group health plan is available only to employees who are actually enrolled in satisfies the requirements in PHS Act employees who are enrolled in non- non-HRA MV group coverage, regardless section 2713 and § 147.130(a)(1) of this HRA group coverage, regardless of of whether the non-HRA MV group subchapter, the fact that the benefits whether the non-HRA group coverage is coverage is offered by the plan sponsor under the HRA or other account-based offered by the plan sponsor of the HRA of the HRA or other account-based group health plan are limited does not or other account-based group health group health plan (for example, the cause the HRA or other account-based plan (for example, the HRA may be HRA may be offered only to employees who do not enroll in an employer’s group health plan to fail to satisfy the offered only to employees who do not group health plan but are enrolled in requirements of PHS Act section 2713 enroll in an employer’s group health other non-HRA MV group coverage, and § 147.130(a)(1) of this subchapter. plan but are enrolled in other non-HRA such as a group health plan maintained For the purpose of this paragraph (d), all group coverage, such as a group health by an employer of the employee’s individual health insurance coverage, plan maintained by the employer of the except for coverage that consists solely spouse); and employee’s spouse); (D) Under the terms of the HRA or of excepted benefits, is treated as being (D) The benefits under the HRA or subject to and complying with PHS Act other account-based group health plan, other account-based group health plan an employee (or former employee) is sections 2711 and 2713. are limited to reimbursement of one or (2) Requirements for an HRA or other permitted to permanently opt out of and more of the following—co-payments, co- account-based group health plan to be waive future reimbursements from the insurance, deductibles, and premiums integrated with another group health HRA or other account-based group under the non-HRA group coverage, as plan. An HRA or other account-based health plan at least annually, and, upon well as medical care expenses that do group health plan is integrated with termination of employment, either the not constitute essential health benefits another group health plan for purposes remaining amounts in the HRA or other of PHS Act section 2711 and paragraph as defined in paragraph (c) of this account-based group health plan are (a)(2) of this section if it satisfies the section; and forfeited or the employee is permitted to requirements under one of the (E) Under the terms of the HRA or permanently opt out of and waive future integration methods set forth in other account-based group health plan, reimbursements from the HRA or other paragraph (d)(2)(i) or (ii) of this section. an employee (or former employee) is account-based group health plan (see For purposes of the integration methods permitted to permanently opt out of and paragraph (d)(3) of this section for under which an HRA or other account- waive future reimbursements from the additional rules regarding forfeiture and based group health plan is integrated HRA or other account-based group waiver). with another group health plan, health plan at least annually and, upon (3) Forfeiture. For purposes of integration does not require that the termination of employment, either the integration under paragraphs (d)(2)(i)(E) HRA or other account-based group remaining amounts in the HRA or other and (d)(2)(ii)(D) of this section, health plan and the other group health account-based group health plan are forfeiture or waiver occurs even if the plan with which it is integrated share forfeited or the employee is permitted to forfeited or waived amounts may be the same plan sponsor, the same plan permanently opt out of and waive future reinstated upon a fixed date, a document or governing instruments, or reimbursements from the HRA or other participant’s death, or the earlier of the file a single Form 5500, if applicable. account-based group health plan (see two events (the reinstatement event). An HRA or other account-based group paragraph (d)(3) of this section for For the purpose of this paragraph (d)(3), health plan integrated with another additional rules regarding forfeiture and coverage under an HRA or other group health plan for purposes of PHS waiver). account-based group health plan is Act section 2711 and paragraph (a)(2) of (ii) Method for integration with considered forfeited or waived prior to this section may not be used to purchase another group health plan: Minimum a reinstatement event only if the individual health insurance coverage value required. An HRA or other participant’s election to forfeit or waive unless that coverage consists solely of account-based group health plan is is irrevocable, meaning that, beginning excepted benefits, as defined in integrated with another group health on the effective date of the election and § 148.220 of this subchapter. plan for purposes of this paragraph (d) through the date of the reinstatement (i) Method for integration with a if: event, the participant and the group health plan: Minimum value not (A) The plan sponsor offers a group participant’s beneficiaries have no required. An HRA or other account- health plan (other than the HRA or other access to amounts credited to the HRA based group health plan is integrated account-based group health plan) to the or other account-based group health with another group health plan for employee that provides minimum value plan. This means that upon and after purposes of this paragraph (d) if: pursuant to section 36B(c)(2)(C)(ii) of reinstatement, the reinstated amounts

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under the HRA or other account-based fixed dollar amount for a period. An if the plan selection is made before the group health plan may not be used to HRA is a type of account-based group day of the triggering event, the Exchange reimburse or pay medical care expenses health plan. An account-based group must ensure that coverage is effective on incurred during the period after health plan does not include a qualified the first day of the month following the forfeiture and prior to reinstatement. small employer health reimbursement date of the triggering event or, if the (4) Requirements for an HRA or other arrangement, as defined in section triggering event is on the first day of a account-based group health plan to be 9831(d)(2) of the Code. month, on the date of the triggering integrated with individual health (ii) Medical care expenses. Medical event. If the plan selection is made on insurance coverage or Medicare Part A care expenses means expenses for or after the day of the triggering event, and B or Medicare Part C. An HRA or medical care as defined under section the Exchange must ensure that coverage other account-based group health plan 213(d) of the Code. is effective on the first day of the month is integrated with individual health (e) Applicability date. The provisions following plan selection. insurance coverage or Medicare Part A of this section are applicable to group and B or Medicare Part C (and treated health plans and health insurance * * * * * as complying with PHS Act sections issuers for plan years beginning on or (c) * * * 2711 and 2713) if the HRA or other after January 1, 2020. Until the (3) Advanced availability for account-based group health plan applicability date for this section, plans individuals with an individual coverage satisfies the requirements of § 146.123(c) and issuers are required to continue to HRA or QSEHRA. A qualified of this subchapter (as modified by comply with the corresponding sections individual, enrollee, or his or her § 146.123(e), for HRAs or other account- of this subchapter B, contained in the 45 dependent who is described in based group health plans integrated CFR, subtitle A, parts 1–199, revised as paragraph (d)(14) of this section has 60 with Medicare Part A and B or Medicare of October 1, 2018. days before the triggering event to select Part C). (5) Integration with Medicare Part B PART 155—EXCHANGE a QHP, unless the HRA or QSEHRA was and D. For employers that are not ESTABLISHMENT STANDARDS AND not required to provide the notice required to offer their non-HRA group OTHER RELATED STANDARDS setting forth its terms to such individual health plan coverage to employees who UNDER THE AFFORDABLE CARE ACT or enrollee at least 90 days before the are Medicare beneficiaries, an HRA or beginning of the plan year, as specified other account-based group health plan ■ 23. The authority citation for part 155 in 45 CFR 146.123(c)(6), 26 CFR that may be used to reimburse is revised to read as follows: 54.9802–4(c)(6), and 29 CFR 2590.702– premiums under Medicare Part B or D Authority: 42 U.S.C. 18021–18024, 18031– 2(c)(6) or section 9831(d)(4) of the may be integrated with Medicare (and 18033, 18041–18042, 18051, 18054, 18071, Internal Revenue Code, as applicable, in deemed to comply with PHS Act and 18081–18083. which case the qualified individual, sections 2711 and 2713) if the following ■ 24. Section 155.420 is amended enrollee, or his or her dependent has 60 requirements are satisfied with respect ■ a. By revising paragraph (a)(4)(iii) days before or after the triggering event to employees who would be eligible for introductory text; to select a QHP. the employer’s non-HRA group health ■ b. By adding paragraph (b)(2)(vi); * * * * * ■ c. By redesignating paragraph (c)(3) as plan but for their eligibility for Medicare (d) * * * (and the integration rules under paragraph (c)(4); By adding a new paragraphs (d)(2)(i) and (ii) of this paragraph (c)(3); (14) The qualified individual, section continue to apply to employees ■ d. In paragraph (d)(12) by removing ‘‘; enrollee, or dependent newly gains who are not eligible for Medicare): or’’ and adding ‘‘;’’ in its place; access to an individual coverage HRA (i) The plan sponsor offers a group ■ e. In paragraph (d)(13) by removing (as defined in 45 CFR 146.123(b)) or is health plan (other than the HRA or other the period at the end of the paragraph newly provided a qualified small account-based group health plan and and adding ‘‘; or’’ in its place; and employer health reimbursement that does not consist solely of excepted ■ f. By adding paragraph (d)(14). arrangement (QSEHRA) (as defined in benefits) to employees who are not The revisions and additions read as section 9831(d)(2) of the Internal eligible for Medicare; follows: Revenue Code). The triggering event is (ii) The employee receiving the HRA § 155.420 Special enrollment periods. the first day on which coverage for the or other account-based group health qualified individual, enrollee, or plan is actually enrolled in Medicare * * * * * dependent under the individual (a) * * * Part B or D; coverage HRA can take effect, or the first (iii) The HRA or other account-based (4) * * * (iii) For the other triggering events day on which coverage under the group health plan is available only to QSEHRA takes effect. An individual, employees who are enrolled in specified in paragraph (d) of this section, except for paragraphs (d)(2)(i), enrollee, or dependent will qualify for Medicare Part B or D; and this special enrollment period (iv) The HRA or other account-based (d)(4), and (d)(6)(i) and (ii) of this section for becoming newly eligible for regardless of whether they were group health plan complies with previously offered or enrolled in an paragraphs (d)(2)(i)(E) and (d)(2)(ii)(D) cost-sharing reductions, and paragraphs (d)(8), (9), (10), (12), and (14) of this individual coverage HRA or previously of this section. provided a QSEHRA, so long as the (6) Definitions. The following section: individual, enrollee, or dependent is not definitions apply for purposes of this * * * * * enrolled in the individual coverage HRA section. (b) * * * (i) Account-based group health plan. (2) * * * or covered by the QSEHRA on the day An account-based group health plan is (vi) If a qualified individual, enrollee, immediately prior to the triggering an employer-provided group health plan or dependent newly gains access to an event. that provides reimbursements of individual coverage HRA or is newly * * * * * medical care expenses with the provided a QSEHRA, each as described [FR Doc. 2019–12571 Filed 6–13–19; 4:15 pm] reimbursement subject to a maximum in paragraph (d)(14) of this section, and BILLING CODE 4120–01;4510–29;4830–01–P

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