Some Real-World Fixes

Put aside the IRS’s misguided Notice 2013-54 and Notice 2015-17 (really at the behest of the U.S. Department of Health & Human Services, according to Washington insiders) prohibiting employers from reimbursing employees for individual health coverage purchased either at the exchange or in the open market.

With the trend for the past 15 years or so of people living longer and continuing in the workplace, at least Notice 2015-17 provided employers with an older workforce the ability to offer reimbursements for the deemed “individual” coverage premiums from Medicare Parts B and D. But according to that notice, the employers’ ability to do so, through a Medicare Health Reimbursement Arrangement under IRC Section 105(h), was predicated on four conditions:

The employer offers a group health plan (otherthan the Medicare HRA) to the employee that does not consist solely of excepted benefits and offers coverage providing minimum value.

The employee participating in the Medicare HRA is actually enrolled in Medicare Parts A and B (author’s note: and/or presumably in a Medicare Advantage plan [Medicare Part C]).

The Medicare HRA is available only to employees who are enrolled in Medicare Part A and Part B or Part D (and/or presumably Part C).

The Medicare HRA is limited to reimbursement of Medicare Part B or Part D (and presumably Part C) premiums and excepted benefits, including Medigap premiums.

Excepted benefits here refer to plans such as stand-alone dental and vision programs.

Of course, in addition to these four requirements, the applicability of these carve-outs from the otherwise-prohibited HRAs is really limited to employers with fewer than 20 employees because of the Medicare Secondary Payer rules. But it should be noted that the majority of U.S. employees work for such smaller organizations.

Some advocates of smaller businesses cheered this carve-out. Others cursed the notice’s overall rationale that reimbursement of individual coverage had to meet two of the Affordable Care Act’s requirements, 100 percent coverage of preventive benefits and no annual or lifetime limits (two items that almost never exist in small employer reimbursement programs). A hue and cry arose over the first of the four requirements for a Medicare premium reimbursement HRA.

Many insurers in the small employer marketplace choose not to offer coverage to active employees who are eligible for Medicare. Ignoring why this should even be allowed under the ACA, that meant that there was now a theoretical mechanism to reimburse active, older employees for their Medicare and Medigap premiums. However, in realitytheir plans would fail since those employees very often were not being offered the employer’s group health plan that it provided to all (except older, active) employees.

The easy fix to the problem would require insurers to offer all active employees the same coverage within the ACA-mandated three-times age bands. At least the final regulations recognized this real-world problem of small employers not being unable to take advantage of the partial relief provided in Notice 2015-17. Those final regulations state that if the insurer of the group health plan did not offer coverage to Medicare-eligible active employees (the first condition of Notice 2015-17’s requirements), employers could still reimburse employees for the Medicare and Medigap premiums within a written Medicare HRA plan document and process.

This is not inconsequential in the small employer world. Stymied by Notice 2013-54’s prohibition on reimbursement of individual coverage, which might have allowed an employer the ability to provide all eligible employees with a set reimbursement amount each month that the employeecould use toward purchasing coverage on the open marketplace or at the exchange, at least the later notice and now the final regulations enable an employer with older, active employees the ability to reimburse premiums for Medicare and Medigap policies (and if so designed potentially other excepted benefits).

It would be nice if Congress, now apparently more in the mood not just to offer yet-another repeal of the ACA but rather fixes for real-world issues in implementing the act, would pass an ACA amendment authorizing small employers to reimburse all employees for individual coverage, not just Medicare and Medigap premiums.

But that fantasy will probably have to wait for another day.