By: HUB’s EB Compliance Team
The Centers for Medicare and Medicaid Services (CMS) recently issued a final rule excluding account-based plans, including Health Reimbursement Arrangements (HRAs), from the Medicare Part D creditable coverage disclosure requirement. This is a welcome development that should reduce confusion for individuals with HRAs and ease a compliance burden for many employers.
Health Reimbursement Arrangements
HRAs are employer-funded accounts that reimburse employees for out-of-pocket medical expenses. They come in several forms, including traditional HRAs that integrate with group health plans, Individual Coverage HRAs (ICHRAs), Qualified Small Employer HRAs (QSEHRAs) and Excepted Benefit HRAs (EBHRAs). Each type is subject to its own set of rules and limitations governing eligible expenses, contribution limits and coordination with other coverage.
Creditable coverage and the Part D disclosure obligation
Under Medicare Part D rules, individuals eligible for Part D coverage need to maintain what is known as "creditable coverage" — prescription drug coverage that is actuarially equal to or greater than the standard Medicare Part D benefit. Creditable coverage can come from a variety of sources, including an employer-sponsored plan, a retiree plan or a standalone Part D policy. Individuals who go without creditable coverage for more than 63 days after their initial enrollment period face a late enrollment penalty for each month that they delay enrollment.
Employers are not required to offer creditable coverage, but they are required to provide Part D-eligible individuals with a notice indicating whether any of the employer’s plan options qualify as creditable coverage. The purpose of this disclosure is to help employees and their spouses make informed decisions about Medicare enrollment and avoid incurring the late enrollment penalty.
More disclosures, more confusion
The creditable coverage disclosure rules require "entities that offer prescription drug coverage" to provide the notice. In practice, this meant that individuals with both an account-based plan (such as an HRA) and major medical coverage could receive separate creditable coverage notices from each arrangement. This created confusion — particularly when an individual's major medical plan was creditable, but the HRA standing alone was not.
In the preamble to this new final rule, CMS explained its reasoning:
"Account-based plans (for example, HRAs, FSAs, HSAs, etc.) do not actually offer prescription drug coverage; rather, they are arrangements created by employers and designed to provide individuals savings on healthcare costs through pre-tax contributions and reimbursements, that are often provided to supplement other coverage, such as another group health plan or individual market coverage."
CMS further noted:
"Comparing a reimbursement arrangement, such as an HRA, against the intricacies of a prescription drug plan, including whether the reimbursement provided equates to coverage that would be considered creditable (that is, offers coverage at least as good as the Medicare standard drug benefit), is not an 'apples to apples' comparison because account-based plans are fundamentally different from prescription drug plans."
In short, CMS views account-based plans as inherently distinct from prescription drug plans. It views account-based plans as designed to supplement prescription drug coverage rather than function as prescription drug coverage themselves.
What this means for employers
This clarification removes a compliance obligation for employers that sponsor HRAs as they prepare for the annual Oct. 15 deadline to distribute Part D creditable coverage notices. Due to this new final rule, employers will no longer need to separately evaluate and disclose the creditable coverage status of their account-based plans.
For individuals, the change is equally practical: those with both major medical coverage and an account-based plan will no longer need to reconcile potentially conflicting notices to determine whether they truly have creditable coverage. The creditable coverage notice from the major medical plan will stand on its own.
If you have any questions, please contact your HUB advisor. View more compliance articles in our Compliance Directory.
NOTICE OF DISCLAIMER
Neither Hub International Limited nor any of its affiliated companies is a law or accounting firm, and therefore they cannot provide legal or tax advice. The information herein is provided for general information only and is not intended to constitute legal or tax advice as to an organization’s or individual's specific circumstances. It is based on HUB International's understanding of the law as it exists on the date of this publication. Subsequent developments may result in this information becoming outdated or incorrect, and HUB International does not have an obligation to update this information. You should consult an attorney, accountant or other legal or tax professional regarding the application of the general information provided here to your organization’s specific situation in light of your or your organization’s particular needs.