HRAs Under the Affordable Care Act

The Issue:  Can an employer offer employees a health reimbursement account (HRA) under the Affordable Care Act?

The Solution:  Maybe.  As a general rule, employers may only offer an HRA if it is integrated with a group health plan (not individual insurance).

Analysis:  HRAs are employer-funded accounts designed to reimburse employees for out-of-pocket medical expenses.  Employees are not permitted to contribute their own funds, so they are unlike flexible spending accounts or health savings accounts, in which an employee defers a portion of his or her wages into the plan to be used to reimburse co-pays or the employee’s portion of insurance premiums.  Because they are employer-funded, HRAs are considered to be group health plans.

As a group health plan, an HRA is generally subject to the Affordable Care Act (ACA).  Among other things, the ACA contains certain market reforms that create federal minimum requirements with respect to access to coverage, premiums, benefits, cost-sharing, and consumer protections, including a prohibition on annual benefit limits.   

By definition, an HRA imposes an annual benefit limit and thus raises the issue of whether an HRA can be offered under ACA.  (The annual benefit limit reform does not apply to a plan that covers fewer than two current employees.  This also means that an employer could maintain a retiree-only HRA without violating the market reform requirements, since it would not cover any current employees.)

Assuming the employer’s health plan does cover its current workforce, it could provide an HRA if this feature is "integrated" with a group health plan because, viewed together, there would be no annual limit.  In other words, the group health plan generally would not be permitted to impose an annual limit.  Even though one element of the health plan, the HRA, itself has a limit, this does not cause the plan to violate the requirement.  (Note, however, that the HRA may not be integrated with individual insurance.)

“Integration” – that is, combining an HRA with general group health plan coverage – requires that covered employees have other non-HRA group health plan benefits.  This can be done either through the plan of the employer that maintains the HRA or the plan maintained by the employer of the employee’s spouse.  The employee must also be given the opportunity to opt out and waive HRA coverage annually.  Additional rules may apply as well.

Employers that currently maintain standalone HRAs should talk to their advisers regarding what changes must be made in order to comply with the ACA.