By now you’ve probably heard about the newest HRA that’s dropping in 2020. The Individual Coverage Health Reimbursement Arrangement (ICHRA) is a game-changer, for sure, but how does it affect employees on Medicare? If you (or your clients) have employees over the age of 65, it’s best to sort this out now, before you sign up for an HRA in a few months.
The final regulatory rules announced last month that expand upon the flexibility of HRAs had a few things to say on this matter. Our team has been hard at work celebrating these new HRAs at the White House and pouring over the details of the 500 page document so we can answer all of your questions.
The topic of ICHRA and Medicare is especially complex, since there are existing laws guarding Medicare that needed extra clarity with the new HRAs rolling in. Specifically, the anti-duplication provision, the SSA's equal benefits rule, and the Medicare Secondary Payer rule (MSP) were three hurdles that had to be sorted out.
Integration of Individual Coverage HRAs with Medicare
To understand how ICHRAs and Medicare will work together, it's helpful to take a step back and think about what the HRA is "integrating" with in terms of the Medicare parts.
Here's a helpful reminder.
Part A: "Hospital insurance" covers costs from hospital for free and acts as "classic Medicare." It's considered a major medical insurance plan that everyone is required to have.
Part B: "Medical insurance" that covers 80% of approved doctor visits and outpatient procedures after annual deductible is met. Also considered major medical and a requirement.
Part C: This is considered supplemental insurance or hospital and doctor coinsurance. Cost depends on the plan you select.
Part D: "Prescription insurance" helps you pay for your prescriptions. Pricing depends on the plan you select and your income. This is not considered a major medical plan or sufficient to meet minimum essential coverage requirements.
When you're signing up for Medicare, there are two routes you can go. The first is "Medicare Advantage" - these are the newer arrangements that have all of the parts mushed together. You buy one Medicare Advantage plan and you're covered. They usually have a $0 premium but are tied to a single system (sort of like a hospital HMO network).
The second route is Medicare Supplements. That's where you choose your own Part C and Part D plans. You still have to have A & B.
Clear as mud?
Let's keep going.
Which Medicare Parts are reimbursable by ICHRA?
According to the massive legal document that we went to the trouble of perusing for you, (you’re welcome!) here's what to know about the ins and outs of ICHRA and Medicare:
- To qualify for an ICHRA, the employee eligible for Medicare must have coverage of Part A and Part B together or Part C - Part B by itself doesn't qualify as Minimum Essential Coverage.
- ICHRA may be used to reimburse premiums for Medicare and Medicare supplemental health insurance (Medigap), as well as other medical care expenses. (Premiums for Parts A,B, C, D, and Medigap policies are all eligible for reimbursement).
ICHRA design and Medicare
The employer generally has discretion to choose which medical expenses (premiums, cost sharing, or qualified medical expenses) are eligible for reimbursement under the terms of an ICHRA, as long as the employer offers the same benefits, on the same terms and conditions, to groups of employees in specified ICHRA classes, subject to the exceptions under the same terms requirement in the final rules.
Here's another thing to remember when designing an ICHRA plan. ICHRA can pay for medical expenses for Medicare participants (if allowed by the plan) but medical expenses cannot be designed around what Medicare pays or does not pay. Very important!
ICHRA and MSP
The issue of MSP - specifically which party is paying for an individual's health expenses when they are eligible for Medicare - is an important thing to note. As background, laws are in place to encourage group health plans to serve as the primary payer for Medicare recipients to shift the financial burden on the Medicare system. For example, Medicare is the secondary payer to certain other health plans and coverage, including group plans. That includes group plans of employers that employ at least 20 people, group plans that cover individuals who have ESRD Medicare (End-stage Renal Disease), and large group health plans (100+ employees). The same holds true for HRAs.
What about the Medicare anti-duplication provision?
If an employer offers an individual coverage HRA, some employees who are Medicare beneficiaries may not be able to obtain individual health insurance coverage due to the anti-duplication provision. This might cause such employees to be unable to enroll in the individual coverage HRA, effectively treating them differently in violation of the SSA’s equal benefit rule.
To enforce this, it remains unlawful for any person to issue or sell to an individual entitled to benefits under Medicare Part A or enrolled in Medicare Part B (including an individual electing a Medicare Part C plan) an individual health insurance policy with the knowledge that the policy duplicates health benefits to which the individual is otherwise entitled under Medicare or Medicaid.
To help with the adoption of HRAs with those entitled to Medicare, the final rules permit an individual coverage HRA to be integrated with either individual health insurance coverage or Medicare for a participant or dependent who is enrolled in Medicare Part A and B or Part C, if certain conditions are satisfied. The final rules state that an individual coverage HRA may be integrated with Medicare regardless of whether the HRA is subject to the MSP provisions, because the Medicare anti-duplication provision applies without regard to whether the HRA plan sponsor is subject to the MSP provisions.
In other words, we don't have to worry about the anti-duplication provision or MSP provisions getting in the way of employees benefitting from the individual coverage HRA. Phew!
Substantiating coverage with ICHRA and Medicare
For an individual coverage HRA to remain compliant, the employee must substantiate that he or she (along with their family members, if applicable) are enrolled in individual health insurance coverage or Medicare for the period they will be covered by the HRA. The dependents of the Medicare recipient can enroll in individual health plans and do not all have to be on Medicare.
Also, each time you seek reimbursement of a healthcare expense from the HRA, the employee must substantiate that they (or their family member) had individual health insurance coverage or Medicare for the month during which the expense was incurred.
Are you considering an Individual Coverage HRA for your business (or your client's business) in the coming months? We certainly hope so!
If HRAs are new territory for you or if you need our team to help onboard your clients, we are here for you. We have a lot of exciting tools in the pipeline that will make this process as simple as possible.