Stand-alone HRAs Can Still Reimburse Health Insurance Premiums

Rick over at Zane Benefits answered the question that has been puzzling me about the status of HRAs.

How Section 2711 Affects Stand-alone HRAs

The vast majority of stand-alone HRAs are not subject to the new health care law’s prohibition on annual benefit limits.

Under a special exception (see bold text above), HRAs that meet the requirements for IRC Section 106(c)(2) are not subject to Section 2711’s prohibition on annual limits. Here is the actual definition:

“Section 106(c)(2) Flexible spending arrangement – For purposes of this subsection, a flexible spending arrangement is a benefit program which provides employees with coverage under which””

(A) specified incurred expenses may be reimbursed (subject to reimbursement maximums and other reasonable conditions), and

(B) the maximum amount of reimbursement which is reasonably available to a participant for such coverage is less than 500 percent of the value of such coverage.”

Under this exception, sometimes referred to as “the five times rule,” the HRA will be treated as a section 106(c)(2) flexible spending arrangement, and the Section 2711 prohibition on annual benefit limits does not apply.

Also, if an HRA is a Section 106(c)(2) flexible spending arrangement, reimbursable medical care expenses may not include expenses for qualified long-term care services.

How To Ensure Your Stand-alone HRA Is Exempted From 2711

To ensure your stand-alone HRA is exempted from the Section 2711 rules, you can take the following steps:

  1. Set a cap on annual rollover so that the maximum amount of available reimbursement is always less than 5 times the annual value of the HRA, and
  2. Modify the HRA plan to exclude qualified long term care premiums as defined in IRC Section 7702B(c).

Stand-alone HRAs Can Still Reimburse Health Insurance Premiums