FAQ: Can HRAs Reimburse Long Term Care Premiums in 2014?

Editor's note: Since the introduction of the QSEHRA in 2016 and the ICHRA in 2019, these types of HRAs can reimburse long-term care premiums.

Due to the Affordable Care Act (ACA), some types of Health Reimbursement Arrangement (HRA) plans will no longer be allowed to reimburse long term care premiums in 2014. Whether or not long term care premiums will be reimbursable through the employer's HRA depends on their plan design. This article outlines which types of HRA plans will be required to exclude long term care in 2014, and why this change is occurring.

Types of HRAs Impacted

HRAs considered to be a "Flexible Spending Arrangement" HRA under Section 106(c)(2) will no longer be allowed to reimburse long term care premiums. This change starts January 1, 2014.

Generally, standalone HRA plans that allow reimbursement of individual health insurance premiums, and other types of medical expenses, will meet the definition of a "Flexible Spending Arrangement" HRA.

To be considered a "Flexible Spending Arrangement" HRA under Section 106(c)(2), the HRA plan design must:

• Cap annual rollover so that the maximum amount of available reimbursement is always less than 5 times the annual value of the HRA, and 

• Exclude qualified long term care premiums as defined in IRC Section 7702B(c).

Most standalone HRAs will fall under the definition of a "Flexible Spending Arrangement" HRA to be compliant in 2014 (more on this below). And to meet this definition, they will need to exclude long term care premium reimbursement.

Why The Change in HRAs and Long Term Care?

The change in HRAs and long term care premium reimbursement stems from the ACA prohibition of annual limits.

Section 2711 of the Public Health Service Act, as added by the ACA, generally prohibits group health plans from placing lifetime and annual limits on the dollar value of "essential health benefits." By its definition, an HRA imposes annual limits because reimbursements an employee may receive during the year are limited to the balance of his or her notional HRA account.

However, the ACA outlines five types of HRAs that are exempt from the annual limit provisions. So, for an HRA to be ACA-compliant it needs to meet the definition of an HRA that is exempt from the PHS Section 2711 annual limit provisions:

1. "Integrated" HRA
2. "Flexible Spending Arrangement" HRA
3. "Excluded" HRA
4. "Excepted" HRA
5. "Retiree" HRA

How Can Employers Prepare for this Change with HRAs and Long Term Care?

If an employer currently offers a standalone HRA (not linked with a group health insurance plan), then they may be required to change their HRA plan design for 2014 to exclude long term care premiums (and also cap annual rollover as described above). Employers can contact their HRA Administrator to see if plan document modifications are required.