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On September 13, 2013, the IRS and DOL issued new Q&A guidance1 on the application of PPACA’s annual limit and preventive services requirements to Health Reimbursement Arrangements (“HRAs”), Health Flexible Spending Arrangements (“Health FSAs”), and employer payment plans.2  The guidance addresses the circumstances under which an HRA will be treated as “integrated” with an employer’s other group health coverage, as well as a number of other related issues. This bulletin discusses the key provisions of the new guidance.

HRAs and employer payment plans are group health plans subject to PPACA’s various benefit mandates, including the prohibition on annual limits and preventive care requirements.3  Moreover, standing alone, an HRA or employer payment plan would not satisfy these requirements. However, HRAs that are “integrated” with a PPACA-compliant group health plan need not independently satisfy these particular mandates.4  The new guidance provides two alternative methods under which an HRA is considered to be “integrated” with a group health plan5 for purposes of PPACA’s prohibition on annual limits and preventive services requirements. Which of the two methods applies in a particular case depends on whether or not the group health plan with which the HRA is being integrated provides minimum value.

Both methods require the following: (a) the employer offering the HRA also offer a non-HRA group health plan,6 (b) the employees covered by the HRA actually be enrolled in non-HRA group health coverage,7 and (c) employees have an annual opportunity to opt out of the HRA, and at termination of employment, the HRA provides for mandatory forfeiture of any remaining HRA balance or the right to opt out of further HRA coverage.8  The difference between the two methods is that under the first method, where the HRA is being integrated with a group health plan that does not provide minimum value, the HRA must be limited to reimbursement of cost-sharing and premiums under the non-HRA group health plan, and/or expenses for Code § 213(d) “medical care” that does not constitute “essential health benefits.” The second method does not require a similar restriction on HRA reimbursements, but does require that the group health plan with which the HRA is integrated satisfy PPACA’s minimum value requirements.

The guidance includes an example demonstrating each of these integration methods, and clarifies that neither method requires that the HRA and the other coverage share the same plan sponsor, the same plan document or governing instruments, or file a single Form 5500.

The new guidance also clarifies a number of other related issues. For example:

  • Spend-down of unused HRA amounts. Unused amounts credited to an HRA while it was integrated can be used to reimburse expenses in accordance with the HRA’s terms even after an employee ceases to be covered by the other integrated group health plan coverage, without violating the annual limit or preventive services requirements;
  • Treatment of HRA contributions for purposes of Code § 36B. If an employer offers a primary group health plan and an HRA that would be integrated with it if an employee enrolled in the primary plan, amounts newly made available under the HRA for the current plan year may be considered in determining whether the arrangement satisfies either the affordability or minimum value requirement, but not both. New HRA contributions that an employee may use only to reduce cost-sharing for covered expenses under employer’s primary plan count only toward the minimum value requirement, while new HRA amounts that can be used to pay premiums or to pay both premiums and cost-sharing under the employer’s primary plan count only toward the affordability requirement.9
  • Guidance on Code § 125 and exchange coverage. Effective for tax years beginning on or after January 1, 2014, Code § 125(f)(3) prohibits employers from permitting an employee to pay for a qualified health plan (“QHP”) offered through an exchange with the employer’s Code § 125 plan.10  For employers whose cafeteria plans operated other than on a calendar year basis as of September 13, 2013, Code § 125(f)(3) is effective for the first cafeteria plan year beginning on or after January 1, 2014.

Not Intended As Legal Advice.


  1. IRS Notice 2013-54 and DOL Technical Release 2013-03. HHS has also published a memorandum stating that it concurs in the application of the laws under its jurisdiction as set forth in the IRS and DOL guidance.
  2.  “Employer payment plans” refers to arrangements under which an employer reimburses an employee for premium expenses incurred for an individual insurance policy, such as a reimbursement arrangement described in Revenue Ruling 61-146, or arrangements under which an employer uses its funds to directly pay the premium for an individual insurance policy covering the employee.
  3. Retiree-only HRAs, however, remain exempt from PPACA’s benefit mandates, and can still be offered on a stand-alone basis. However, this guidance clarifies that a retiree-only HRA is still considered “minimum essential coverage,” and would therefore deprive any covered retiree of the Code § 36B premium tax credit.
  4. A discussion of some of the prior guidance on integrated HRAs is available in our October 2011 Bulletin.
  5. Consistent with prior guidance, the new guidance confirms that an HRA can never be integrated with individual market coverage. An HRA that can be used to purchase individual coverage through an exchange is treated as a stand-alone plan, and violates both the prohibition on annual limits and the preventive service requirements. With this rule, along with existing Prop. Treas. Reg. § 1.125-5(k)(4) (which prohibits Health FSAs from reimbursing employees for premiums for other health coverage, which would include premiums for individual Exchange coverage), and Code § 125(f)(3) (see footnote 12, infra), the government has effectively shut down any attempt by employers to offer individual PPACA Exchange coverage on a pre-tax or employer-funded, tax-advantaged basis.
  6. Plans consisting solely of excepted benefits are disregarded for purposes of the integration requirements.
  7. The employee must be enrolled in any non-HRA group health plan (such as a plan sponsored by a spouse’s employer), not necessarily the employer’s own plan.
  8. Under Code § 5000A and applicable regulations, coverage provided through HRAs, other than coverage consisting solely of excepted benefits, is an eligible employer-sponsored plan, and thus is minimum essential coverage. Therefore, without this opt-out feature, the HRA benefits would preclude an individual from claiming a Code § 36B premium tax credit.
  9. See Minimum Value of Eligible Employer-Sponsored Plans and Other Rules Regarding the Health Insurance Premium Tax Credit, 78 Fed. Reg. 25909, 25914-16 (May 3, 2013). The guidance further clarifies that although an HRA may be integrated with a group health plan offered by another employer, the employer’s HRA does not count towards the affordability or minimum value requirements of the plan offered by the other employer.
  10. Code § 125(f)(3) generally provides that the term “qualified benefit” does not include any qualified health plan (“QHP”) offered through an exchange.