FAQS ABOUT AFFORDABLE CARE ACT IMPLEMENTATION PART

FAQS ABOUT AFFORDABLE CARE ACT

IMPLEMENTATION PART 37

U.S. Department of Labor

Employee Benefits Security Administration

January 12, 2017

Set out below are additional Frequently Asked Questions (FAQs) regarding implementation of the

Affordable Care Act. These FAQs have been prepared jointly by the Departments of Labor (DOL),

Health and Human Services (HHS), and the Treasury (collectively, the Departments). Like previously

issued FAQs (available at and www.dol.gov/ebsa/healthreform/index.html

), these FAQs answer questions from

www.cms.gov/cciio/resources/fact-sheets-and-faqs/index.html

stakeholders to help people understand the law and benefit from it, as intended.

HEALTH REIMBURSEMENT ARRANGEMENTS

On September 13, 2013, DOL published Technical Release 2013-03

addressing the application of the

Affordable Care Act market reforms to health reimbursement arrangements (HRAs) and employer

payment plans (EPPs).

The Treasury Department and the Internal Revenue Service (IRS)

contemporaneously published parallel guidance in Notice 2013-54,

and HHS issued guidance stating

that it concurred in the application of the laws under its jurisdiction as set forth in the guidance

issued by DOL, Treasury, and IRS.

Subsequent guidance reiterated and clarified the application of

the market reforms to HRAs and EPPs.

EPPs and HRAs typically consist of an arrangement under which an employer reimburses medical

expenses (whether in the form of direct payments or reimbursements for premiums or other medical

costs) up to a certain dollar amount. As explained in Technical Release 2013-03 and Notice 2013-54,

Technical Release 2013-03 is available at . http://www.dol.gov/ebsa/newsroom/tr13-03.html

Section 1001 of the Affordable Care Act added new Public Health Service Act (PHS Act) sections 2711-2719. Section

1563 of the Affordable Care Act (as amended by Affordable Care Act section 10107(b)) added Internal Revenue Code

(Code) section 9815(a) and Employee Retirement Income Security Act (ERISA) section 715(a) to incorporate the

provisions of part A of title XXVII of the PHS Act into the Code and ERISA, and to make them applicable to group health

plans and health insurance issuers providing health insurance coverage in connection with group health plans. The PHS

Act sections incorporated by these references are sections 2701 through 2728. Accordingly, these referenced PHS Act

sections (i.e., the market reforms) are subject to shared interpretive jurisdiction by the Departments.

2013-40 IRB 287. Notice 2013-54 is available at . http://www.irs.gov/pub/irs-drop/n-13-54.pdf

See Insurance Standards Bulletin, Application of Affordable Care Act Provisions to Certain Healthcare Arrangements,

September 16, 2013, available at https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/cms-hra-

. notice-9-16-2013.pdf

There have been several issuances on the topics addressed in the 2013 guidance: (1) FAQs About Affordable Care Act

Implementation (Part XI), issued on January 24, 2013 by DOL ( ) and HHS http://www.dol.gov/ebsa/faqs/faq-aca11.html

( ); (2) IRS Notice 2013-54 http://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/aca_implementation_faqs11.html

and DOL Technical Release 2013-03, issued on September 13, 2013; (3) IRS FAQ on Employer Healthcare Arrangements

( ); (4) FAQs About Affordable Care Act http://www.irs.gov/Affordable-Care-Act/Employer-Health-Care-Arrangements

Implementation (Part XXII), issued on November 6, 2014 by DOL ( ) and HHS http://www.dol.gov/ebsa/faqs/faq-aca22.html

( ); (5) Notice 2015-17, http://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/Downloads/FAQs-Part-XXII-FINAL.pdf

2015-14 IRB 845, issued by Treasury and IRS on February 18, 2015; and (6) Notice 2015-87, 2015-52 IRB 889, Q&A-1 to

Q&A-6, issued by Treasury and IRS on December 16, 2015. See also 26 CFR 54.9815-2711(d), 29 CFR 2590.715-2711(d),

and 45 CFR 147.126(d) (80 FR 72192, Nov. 18, 2015).

and except as provided in the 21st Century Cures Act with respect to Qualified Small Employer Health

Reimbursement Arrangements (QSEHRAs),

EPPs and HRAs are group health plans that are subject to

the group market reform provisions of the Affordable Care Act, including the prohibition on annual

dollar limits under PHS Act section 2711 and the requirement to provide coverage of certain

preventive services without cost sharing under PHS Act section 2713. The 2013 guidance generally

provides that EPPs and HRAs will fail to comply with these group market reform requirements

because these arrangements, by definition, reimburse or pay medical expenses on the employee’s

behalf only up to a certain dollar amount each year; those rules do not apply to QSEHRAs.

INTEGRATION OF HRAS WITH GROUP HEALTH PLANS SPONSORED BY THE EMPLOYER

OF A SPOUSE OF AN EMPLOYEE

The 2013 guidance provided that an HRA will not fail to meet the group market reform provisions of

the Affordable Care Act when “integrated” with a group health plan that otherwise complies with

those provisions under the integration methods described in that guidance. On November 18, 2015,

the Departments issued final regulations implementing PHS Act section 2711, which incorporate the

general rule set forth in the 2013 guidance clarifying that an HRA or EPP cannot be integrated with

individual market policies to satisfy the market reforms.

Specifically, Q&A-4 of Notice 2013-54 and Technical Release 2013-03 provides requirements for

integrating an HRA with a group health plan. Under Q&A-4, integration does not require that the HRA

and the coverage with which it is integrated share the same plan sponsor. An example in Q&A-4

illustrates that an HRA for an employee may be integrated with a non-HRA group health plan

sponsored by the employer of the employee’s spouse.

Subsequently, the Treasury Department and the IRS issued Notice 2015-87. Q&A-4 of Notice 2015-87

clarifies that an HRA available to reimburse the medical expenses of an employee’s spouse and/or

dependents (a family HRA) may not be integrated with self-only coverage under the employer’s other

group health plan. Questions have arisen regarding the application of Q&A-4 of Notice 2015-87 to a

family HRA in cases in which the employee is enrolled in self-only coverage and the employee’s

spouse and dependents are enrolled in a non-HRA group health plan sponsored by the spouse’s

employer.

Q1: MAY A FAMILY HRA BE INTEGRATED WITH A NON-HRA GROUP HEALTH PLAN

SPONSORED BY THE EMPLOYER OF THE EMPLOYEE’S SPOUSE THAT COVERS ALL

OF THE INDIVIDUALS COVERED BY THE FAMILY HRA IF THAT NON-HRA GROUP

HEALTH PLAN OTHERWISE MEETS THE APPLICABLE INTEGRATION REQUIREMENTS?

Yes. For purposes of determining whether a family HRA is “integrated” with a non-HRA group health

plan, an employer may rely on the reasonable representation of an employee that the employee and

other individuals covered by the family HRA are also covered by another non-HRA group health plan

See FAQs About Affordable Care Act Implementation (Part 35), Q&A-3, available at

and https://www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-35.pdf

. https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/Downloads/FAQ-Part-35_12-20-16.pdf

26 CFR 54.9815-2711(d), 29 CFR 2590.715-2711(d), and 45 CFR 147.126(d); see also 80 FR 72192, Nov. 18, 2015.

This rule is repeated in 26 CFR 54.9815-2711(d)(2), 29 CFR 2590.715-2711(d)(2), and 45 CFR 147.126(d)(2).

that otherwise meets the applicable integration requirements (a qualifying non-HRA group health

plan).

Q2: MAY A FAMILY HRA BE INTEGRATED WITH A COMBINATION OF (1) SELF-ONLY

COVERAGE OF THE EMPLOYEE BY A QUALIFYING NON-HRA GROUP HEALTH PLAN

SPONSORED BY THE EMPLOYER AND (2) QUALIFYING NON-HRA GROUP HEALTH

PLAN COVERAGE SPONSORED BY THE EMPLOYER OF THE EMPLOYEE’S SPOUSE

THAT COVERS ALL MEMBERS OF THE FAMILY COVERED BY THE FAMILY HRA

(OTHER THAN THE EMPLOYEE)?

Yes. A family HRA is permitted to be integrated with a combination of coverage under other

qualifying non-HRA group health plans for purposes of the group market reforms, provided that all of

the individuals who are covered under the family HRA are also covered under other qualifying non-

HRA group health plan coverage. The integration rules do not require that the HRA and the non-HRA

group health plan with which it is integrated share the same plan sponsor, or that all of the

individuals are covered under the same non-HRA group health plan, provided that all of the

individuals covered by the HRA are also enrolled in other qualifying non-HRA group health plan

coverage. For example, a family HRA covering an employee, spouse, and one dependent child may be

integrated with the combination of (1) the employee’s self-only coverage under the non-HRA group

health plan of the employee’s employer, and (2) the spouse and dependent child’s coverage under the

non-HRA group health plan of the spouse’s employer, provided that both non-HRA group health plans

are qualifying non-HRA group health plans.

CODE SECTION 162(M)(6)

Code section 162(m)(6)(A), as added by the Affordable Care Act, generally imposes an annual $500,000

limitation on an employer’s federal income tax deduction for applicable individual remuneration for

any disqualified taxable year. Code section 162(m)(6)(B) defines a “disqualified taxable year,” with

respect to any employer, as any taxable year for which the employer is a covered health insurance

provider. Code section 162(m)(6)(C)(1) provides that the term “covered health insurance provider”

means, with respect to taxable years beginning after December 31, 2012, any employer which is a

health insurance issuer (as defined in Code section 9832(b)(2)) and with respect to which not less than

25 percent of the gross premiums received from providing health insurance coverage (as defined in

Code section 9832(b)(1)) is from minimum essential coverage (as defined in Code section 5000A(f)).

As discussed in further detail below, questions have arisen whether certain clinical risk-bearing

entities are covered health insurance providers for purposes of Code section 162(m)(6) (and thus

subject to the deduction limitations for payments of certain remuneration), which requires

determining whether these entities are health insurance issuers that receive premiums from providing

health insurance coverage that is minimum essential coverage.

Code section 9832(b)(2) (the definition of “health insurance issuer”) and Code section 9832(b)(1) (the

definition of “health insurance coverage”) were added to the Code by the Health Insurance Portability

and Accountability Act of 1996 (HIPAA), which simultaneously added parallel provisions at ERISA

Code section 162(m)(6)(C)(ii) further provides for aggregation rules, stating that two or more persons who are treated as

a single employer under Code section 414(b), (c), (m), or (o) shall be treated as a single employer, except that in applying

Code section 414(b) and (c), Code section 1563(a)(2) and (3) are disregarded.

section 733(b) and PHS Act section 2791(b). Under Code section 9832(b)(2), ERISA section 733(b)(2),

and PHS Act section 2791(b)(2), the term “health insurance issuer” means an insurance company,

insurance service, or insurance organization (including a health maintenance organization, as defined

in Code section 9832(b)(3), ERISA section 733(b)(3), and PHS Act section 2791(b)(3)), which is licensed

to engage in the business of insurance in a State and which is subject to State law which regulates

insurance (within the meaning of ERISA section 514(b)(2), as in effect on August 21, 1996), but the

definition explicitly excludes a group health plan. In relevant part, Code section 9832(b)(1)(A), ERISA

section 733(b)(1), and PHS Act section 2791(b)(1) provide that the term “health insurance

coverage” means benefits consisting of medical care (provided directly, through insurance or

reimbursement, or otherwise) under any hospital or medical service policy or certificate, hospital or

medical service plan contract, or health maintenance organization contract offered by a health

insurance issuer.

APPLICATION OF CODE SECTION 162(M)(6) TO CERTAIN CLINICAL RISK-BEARING

ENTITIES

Since the regulations under Code section 162(m)(6) were issued, questions have arisen with respect to

the application of Code section 162(m)(6) to entities that contract with the Centers for Medicare &

Medicaid Services (CMS) to provide coverage as a clinical risk-bearing entity that is a licensed health

insurer under State law in one or more of the following capacities: (1) as a Medicaid Managed Care

Organization (MCO), within the meaning of Social Security Act (SSA) section 1903(m);

(2) as a

Medicare Advantage organization governed by SSA sections 1851-1859

and approved by CMS under

the rules set forth at 42 CFR 422.503; or (3) as a Medicare Part D prescription drug plan.

These

entities have asked for further clarification regarding whether they are providing health insurance

coverage for purposes of Code section 162(m)(6) (and thus may be subject to the deduction

limitations).

The final regulations do not address whether, for purposes of Code section 162(m)(6), a covered

health insurance provider includes a clinical risk-bearing entity that is a licensed health insurer under

State law providing services under certain types of arrangements as part of the Medicare and

Medicaid programs. Section II.B of the preamble to the final regulations acknowledges that a person

cannot be a covered health insurance provider unless it is a health insurance issuer that receives

premiums from providing health insurance coverage, but the preamble explains that the definitions of

the terms “health insurance issuer” and “health insurance coverage” have significant importance in

many sections of the Code, ERISA, and the PHS Act, and that it would be inappropriate to provide

broad guidance interpreting those terms in the regulations under Code section 162(m)(6), because

that would require full consideration of the possible effects of that guidance on other statutory

provisions.

The preamble notes that future guidance may be provided on the meaning of those

terms, including for purposes of the application of Code section 162(m)(6).

42 U.S.C. 1396b(m).

42 U.S.C. 1395w-21 - 1395w-28.

See section II.B. of the preamble to the section 162(m)(6) regulations, 79 FR 56892, 56895 (September 23, 2014).

79 FR 56892, 56895.

MLR GUIDANCE PROVIDED IN CCIIO TECHNICAL GUIDANCE 2012-002

In 2012, CMS issued CCIIO Technical Guidance 2012-002 addressing whether insurance coverage

provided under the Medicaid and Medicare programs is subject to the medical loss ratio (MLR) rules,

added to Title XXVII of the PHS Act at section 2718, which require a health insurance issuer to issue a

rebate to enrollees if the issuer’s MLR is less than the applicable percentage.

Q&A-24 addresses

application of the MLR rules to benefits provided through an MCO contract with a State Medicaid

agency. In the answer to Q&A-24, CMS concludes that because such coverage is governed by Title

XIX of the SSA and underlying regulations and not by otherwise applicable State insurance law,

issuers of the Medicaid coverage are offering neither group nor individual health insurance coverage

and therefore are not subject to the MLR rules with respect to that coverage. CMS further notes that

Congress recognized that PHS Act Title XXVII does not apply to MCO contracts when it enacted SSA

section 1932(b)(8), which makes some, but not all, Title XXVII requirements applicable to MCO

contracts.

Similarly, Q&A-25 of CCIIO Technical Guidance 2012-002 addresses the application of the MLR rules

to Medicare benefits provided by contract with CMS, such as Medicare Advantage plans (Medicare

Part C) and Medicare prescription drug plans (Medicare Part D). CMS concludes that this coverage

also is not group health insurance coverage as defined under PHS Act section 2791(b)(4) (because the

coverage is primarily provided under a contract with the Medicare program) or individual health

insurance coverage as defined under PHS Act section 2791(b)(5) (because the coverage is not offered

to individuals in the individual market); rather, this coverage is subject to a comprehensive regulatory

scheme under Parts C and D of Title XVIII of the SSA and regulations at 42 CFR Parts 422 and 423. In

addition, CMS again notes that Congress recognized the inapplicability of PHS Act section 2718 to

Medicare Advantage plans by adding separate and distinct MLR requirements to the Part C statute.

COORDINATED AND CONSISTENT INTERPRETATION OF “HEALTH INSURANCE

COVERAGE”

Section 104 of HIPAA requires the Departments to interpret consistently the provisions shared by the

Departments, including the definitions of “health insurance coverage” as used in the Code, ERISA, and

the PHS Act. These FAQs have been prepared jointly by the Departments and are intended to provide

a consistent interpretation and application of the term “health insurance coverage” to the specific

arrangements identified in the following questions.

CCIIO Technical Guidance (CCIIO 2012-002): Questions and Answers Regarding the Medical Loss Ratio Regulation (April

20, 2012), available at . https://www.cms.gov/CCIIO/Resources/Files/Downloads/mlr-qna-04202012.pdf

SSA section 1932(b)(8) reflects an amendment made by the Budget Act of 1997. The amendment applied certain

maternity and mental health parity requirements to MCOs. On November 13, 2013, the Departments finalized rules

implementing the Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008 (MHPAEA),

which imposes mental health and substance use disorder parity rules on health insurance issuers providing health

insurance coverage and group health plans. 78 FR 68240. MHPAEA is codified in section 712 of ERISA, section 2726 of

the PHS Act, and Code section 9812. In the preamble to the final MHPAEA rules, the Departments note that the final

rule does not apply to MCOs although those entities are separately subject to mental health and substance use disorder

parity requirements that “are incorporated by reference into statutory provisions that do apply to those entities.” 78 FR

68240, 68252. On March 30, 2016, CMS separately finalized a rule implementing the mental health and substance use

disorder parity provisions applicable to MCOs under SSA section 1932(b)(8). 81 FR 18390.

Q3: DOES A CLINICAL RISK-BEARING ENTITY THAT IS A LICENSED HEALTH INSURER

UNDER STATE LAW PROVIDE HEALTH INSURANCE COVERAGE WITHIN THE MEANING

OF CODE SECTION 9832(B)(1), ERISA SECTION 733(B)(1), AND PHS ACT

SECTION 2791(B)(1) WITH RESPECT TO ITS PROVISION OF MEDICAID COVERAGE

TO MEDICAID RECIPIENTS AS AN MCO UNDER CONTRACT WITH A STATE AGENCY?

No. Notwithstanding that a clinical risk-bearing entity is a licensed health insurer under State law, the

provision of Medicaid coverage to Medicaid recipients as an MCO is not the provision of health

insurance coverage within the meaning of Code section 9832(b)(1), ERISA section 733(b)(1), and PHS

Act section 2791(b)(1), because the coverage is governed by SSA Title XIX and underlying regulations

and not by otherwise applicable State insurance law.

Q4: DOES A CLINICAL RISK-BEARING ENTITY THAT IS A LICENSED HEALTH INSURER

UNDER STATE LAW PROVIDE HEALTH INSURANCE COVERAGE WITHIN THE MEANING

OF CODE SECTION 9832(B)(1), ERISA SECTION 733(B)(1), AND PHS ACT

SECTION 2791(B)(1) WITH RESPECT TO ITS PROVISION OF COVERAGE UNDER A

MEDICARE ADVANTAGE ORGANIZATION OR PLAN OR A MEDICARE PRESCRIPTION

DRUG PLAN?

No. Notwithstanding that a clinical risk-bearing entity is a licensed health insurer under State law, the

provision of coverage under a Medicare Advantage organization or plan or a Medicare prescription

drug plan is not the provision of health insurance coverage within the meaning of Code section

9832(b)(1), ERISA section 733(b)(1), and PHS Act section 2791(b)(1), because the coverage provided by

such an entity is governed by Parts C and D of SSA Title XVIII and regulations at 42 CFR Parts 422 and

423, rather than otherwise applicable State insurance law. This FAQ does not address the ERISA

status of, or any obligations under ERISA with respect to, any such arrangement.

The same conclusion regarding treatment under Code section 9832(b)(1), ERISA section 733(b)(1), and PHS Act section

2791(b)(1) applies to Prepaid Ambulatory Health Plans and Prepaid Inpatient Health Plans provided to Medicaid and

Children’s Health Insurance Program enrollees governed by 42 CFR Part 438.