Can HRAs Survive Healthcare Reform?

Health Reimbursement Arrangements (HRAs) are used to help employees pay for medical expenses incurred by the employee, his or her spouse, dependents, and any children who, at the end of the taxable year, have not attained age 27.  An HRA must be funded solely by the employer; employees cannot contribute to an HRA account.  HRA reimbursements are not included in the employee’s taxable income. Unused amounts can be rolled over for use in other plan years if the plan so provides. HRAs can also be offered only to those employees who enroll in group medical coverage sponsored by another employer.

HRAs are group health plans that are subject to Health Care Reform under the Affordable Care Act (ACA). Under the ACA, group health plans are barred from establishing an annual limit on the dollar amount of benefits for any individual (the Annual Dollar Limit Prohibition). In order to comply with this requirement, an HRA must be integrated with other group health coverage that itself complies with the Annual Dollar Limit Prohibition.  In other words, an HRA can be offered only if employer offers compliant primary group health coverage and the employee is actually covered under a group health plan that does not have an annual limit on the dollar amount of benefits.  Two important points to keep in mind:

• the employer-sponsored HRA cannot be integrated with individual market coverage or with individual policies, even if the employer pays the premium; and
  
• the primary group coverage in which the employee is actually enrolled does not have to be provided by the same employer that offers the HRA; for example, the linked coverage could be sponsored by the employer of the employee’s spouse. 

The ACA also requires that non-grandfathered group health plans must provide certain preventative services without imposing any cost sharing requirements for the service (the Preventive Services Requirements).  An HRA can satisfy this part of the ACA if the group health plan coverage with which it is integrated complies with the Preventive Service Requirements.

If the primary group health coverage that is linked to the HRA does not provide minimum value to the employee (that is, if the plan’s share of the total allowed costs of benefits provided under the plan is less than 60% of the costs), the HRA can only be used to reimburse co-payments, co-insurance, deductibles, and premiums under the non-HRA group coverage, as well as for medical care expenses that do not constitute essential health benefits.

Finally, the ACA requires that at least annually, an HRA must permit participating employees (or former employees if they are allowed to participate in the HRA) to permanently opt out of and waive future reimbursements from the HRA. Upon termination of employment, either the remaining amounts in the HRA must be forfeited or the employee must be permitted to permanently opt out of and waive future reimbursements from the HRA.

These new HRA rules take effect for plan years that begin on or after January 1, 2014.  However, they do not apply to funds credited to the HRA before January 1, 2013, or to amounts credited in 2013 under the terms of an HRA in effect on January 1, 2013. These funds can be used after December 31, 2013, to reimburse medical expenses pursuant to the terms of that HRA.

At-Will Employment Clauses and the NLRB

The National Labor Relations Board (“NLRB”) has made headlines in the last few years with its close scrutiny of workplace social media policies.  However, making something of a quieter splash, the NLRB has also been scrutinizing another practice that, in its view, has the potential to “chill” employee rights in violation of the National Labor Relations Act (“NLRA”):  at-will employment clauses in employee handbooks.

The issue of at-will employment clauses came to the fore in 2012, when an administrative law judge found that the following language in an at-will provision in an employee handbook violated the NLRA:  “I further agree that the at-will employment relationship cannot be amended, modified or altered in any way.”  In the judge’s opinion, this acknowledgement, which followed a standard description of the at-will employment relationship, violated the NLRA because it required the employee to agree that the relationship could not be changed and amounted to a waiver of the employee’s right to advocate for a change in status.

More recently, however, in a case called Windsor Care Centers, the NLRB’s Office of General Counsel (“Office”) found that an at-will clause was not unlawful where it provided the following language at the end of the clause:

Only the Company President is authorized to modify the Company’s at-will employment policy or enter into any agreement contrary to this policy.  Any such modification must be in writing and signed by the employee and the President.

In Windsor, the Office explained that the NLRB applies a two-step inquiry to determine whether a work rule would reasonably tend to chill employees in exercising their rights.  First, a rule is unlawful if it explicitly prohibits employees from exercising their rights under the NLRA.  Second, a rule is unlawful even if it does not explicitly restrict protected activities if: (1) employees would reasonably construe the rule to prohibit protected activity; (2) the rule was created in response to union activity; or (3) the rule has been applied so as to restrict protected activity.

Applying this two-step inquiry, the Office found that the at-will clause in Windsor did not explicitly restrict protected activities and that the company had neither created the rule in response to union activity nor applied it in a discriminatory manner.  The Office therefore concluded that the clause would be unlawful only if employees would reasonably construe it to prohibit protected activity.  According to the Office, the clause could not reasonably be construed as restrictive, because the language “simply describes the method by which employees can, at present, create an enforceable employment contract with the employer modifying their at-will status.”  Because the language did not require employees to agree that their status could not be changed, the Office concluded the at-will clause was lawful and distinguishable from the clause at issue in the 2012 case, American Red Cross Arizona Blood Services.

In light of the NLRB’s recent activity, businesses should revisit the language in their employee handbooks and consider revising at-will provisions that do not allow for any modification of an employee’s at-will status.