Editor’s note: This post was augmented on January 26, 2013, by a concluding section on Paperwork Reduction Act listings dealing with information collection and application forms.
The months of November and December of 2012 and January of 2013 have been a very busy season in the implementation of the Affordable Care Act. The Departments of Health and Human Services, Treasury, and Labor have released a series of proposed rules dealing with the market reforms, essential health benefits, actuarial value, employer responsibility, Medicaid eligibility, the exchanges, and other topics. Another proposed rule on the individual mandate requirement is under review at the Office of Management and Budget and should be released momentarily.
But federal implementation efforts have not been limited to formal rulemaking. The agencies continue to release informal guidance as well, which also plays an important role in ACA implementation. On January 24, 2013, the three implementing agencies jointly issued their eleventh series of frequently asked questions addressing some seemingly small but important questions that have arisen concerning the ACA. Perhaps the most important, to my mind, involve the status post-2013 of stand-alone health reimbursement arrangements.
How The Affordable Care Act Will Affect HRAs
The HRA was created by the IRS in 2002 to permit employers (and employee organizations) to provide pre-tax dollars to employees to pay for medical care and services. Revenue Notice 2002-45, which recognized the HRA, described it as follows:
An HRA is an arrangement that: (1) is paid for solely by the employer and not provided pursuant to salary reduction election or otherwise under a § 125 cafeteria plan; 2) reimburses the employee for medical care expenses . . . incurred by the employee and the employee’s spouse and dependents . . .; and (3) provides reimbursements up to a maximum dollar amount for a coverage period and any unused portion of the maximum dollar amount at the end of a coverage period is carried forward to increase the maximum reimbursement amount in subsequent coverage periods.
HRAs have become quite common over the past decade. They are often coupled with high deductible health plans to provide employees with both catastrophic conventional coverage above the deductible range and assistance in meeting expenses incurred before the deductible is satisfied.
The problem is that section 2711 of the Public Health Services Act, added by the ACA, prohibits annual dollar limits on health plan coverage, and HRAs are by definition limited in the dollar amount they offer for coverage. In the rules implementing 2711, the agencies clarified that where an HRA was integrated with a conventional group health plan, the HRA would not violate 2711 because the group health plan would not be able to impose annual dollar limits.
That conclusion, however, left open the question of “stand-alone” HRAs. In some instances HRAs are not integrated into a group health plan, but rather simply offered to employees to allow the employee to purchase conventional insurance in the individual, non-group, market with pre-tax dollars. Some employers had hoped that with the advent of the exchanges in 2014, they would be able to offer their employees a fixed dollar contribution through an HRA, which would permit the employee to take advantage of the tax subsidies currently available through HRA coverage but get the employer out of the health insurance business.
Further, some consumer advocates had hoped that employees would be able to couple funds offered by employers through HRAs with advance premium tax credits available through the exchanges to make individual health policies truly affordable. Large employers, who must offer adequate and affordable health care coverage to their full time employees (and dependents) or pay a penalty if an employee ends up receiving premium tax credits, would probably not have been able to use this strategy, as it is hard to see how a stand-alone HRA could meet the “adequate and affordable test,” but it could be an attractive strategy for small employers who wish to move to a defined contribution approach to health benefits.
The FAQ clarifies that this approach is not possible under section 2711. The agencies intend to issue further guidance on the issue, but have concluded that stand-alone HRAs used to purchase individual coverage will not be considered to be integrated coverage that complies with the annual dollar limit requirement. Indeed, if employees are offered an HRA and group coverage, but decline the group coverage, the stand-alone HRA coverage will violate section 2711. The FAQ does permit amounts accumulated in a stand-alone HRA prior to January 1, 2014 to be drawn on after that point if certain conditions are met.
How The Affordable Care Act Will Affect Fixed-Dollar Indemnity Coverage
Another issue settled by the FAQ is the status of fixed-dollar indemnity coverage. The private insurance regulatory requirements of the ACA are built on the framework of the pre-existing Health Insurance Portability and Accountability Act (HIPAA). HIPAA did not apply to “excepted benefits,” and neither, therefore, does the ACA. Most excepted benefit plans may include some medical benefits, but are clearly not comprehensive health insurance of the sort that the ACA was meant to reform. These include, for example, long-term care insurance, worker’s compensation, automobile medical payment insurance, or credit insurance.
One category, however, “hospital indemnity or other fixed indemnity insurance,” sounds a lot like conventional health insurance coverage. Before managed care became common in the 1980s, most commercial health insurance was what was then known as indemnity insurance. Enrollees paid for medical services and were then indemnified, often based on a fixed fee schedule, by their insurers. Advertisements for this kind of coverage have begun to appear again. Some insurers have been pushing indemnity coverage as a replacement for the soon-to-be illegal “mini-med” policies. They clearly impose dollar limits on coverage, which are otherwise prohibited by section 2711 discussed above.
Consumer advocates have been concerned about these policies. Not only do they evade all of the consumer protections afforded by the ACA, they also do not meet the minimum essential coverage (individual mandate) requirements. A consumer could purchase such a policy, believing that it offered health insurance coverage, and not only be inadequately insured but also end up having to pay the penalty at the end of the year for having been effectively uninsured.
The FAQ clarifies that such policies are not legal under the ACA. Under regulations implementing HIPAA, fixed dollar indemnity policies must offer a fixed dollar amount per day of hospitalization or illness. They are meant to supplement, not replace, conventional health insurance, by covering income loss or other non-insured expenses. Policies that pay on a per-service rather than a per-time period basis are not fixed dollar indemnity policies under the ACA and thus must meet all ACA requirements, including the prohibition on annual and lifetime dollar limits. This FAQ shuts down what could have been a major loophole in the protection offered by the ACA, as well as a source of consumer confusion.
The FAQ notes that, on the other hand, non-Medicare supplemental drug benefits provided to retirees by employers through employer group waiver plans do qualify as excepted benefits and are not subject to the ACA insurance reforms. They are subject to other regulations promulgated by the Centers for Medicare and Medicaid Services, and further guidance on these plans will be forthcoming from CMS.
Other Issues In The FAQ
Additionally, the FAQ addresses a number of other topical issues. First, it clarifies that the provisions of the ACA that prohibit insurers and the government from collecting information on the lawful ownership, possession, use, or storage of guns and ammunition does not prohibit physicians from discussing firearms with their patients. It recognizes that physicians can play an important role in promoting gun safety. Second, it postpones the effective date for a requirement that employers provide their employees with a notice disclosing 1) that the employee may be eligible for exchange coverage (although the employee can receive no employer contributions towards the cost of premiums if the employee goes to the exchange) and 2) whether or not employer coverage meets ACA adequacy requirements (60 percent actuarial value). This requirement was supposed to go into effect on March 1, 2013, but it is delayed until more information is available on the exchanges later in the year. The government also intends to make available a downloadable template to assist employers with complying with this requirement.
Finally, the FAQ clarifies that a joint board of trustees of a multiemployer plan or the plan sponsor of a retiree-only VEBA may, under certain circumstances, use plan assets to pay the fee imposed on self-insured (as well as insured) plans to finance the Patient Centered Outcomes Research program without violating ERISA. This is not true of all plan sponsors, as will be clarified through further guidance.
Information Collection And Application Forms
On January 25, 2013, HHS also published four Paperwork Reduction Act (PRA) listings. The first concerns information that CMS intends to collect from states that operate their own reinsurance or risk-adjustment programs and from insurers that participate in the reinsurance, risk-adjustment, and risk-corridor programs.
The second includes proposed paper and online uniform application forms to be used for insurance affordability programs and enrollment through exchanges and Medicaid and Children’s Health Insurance Program agencies This listing includes not only the forms and online questions but also links to two videos at the CMS YouTube site demonstrating the application process. The listing estimates that it will take half an hour to complete the online application form for an applicant seeking assistance and fifteen minutes for online enrollment for an individual seeking only to enroll in a plan without assistance. It will take an estimated 45 minutes for an applicant to fill out the paper application form if the applicant is seeking assistance.
Finally, HHS also published PRA listings for the online application questions and paper application forms for employers and employees enrolling in coverage through the SHOP exchanges. HHS estimates that it will take about 7 minutes to enroll an employer and about 5 minutes to enroll each employee online.