Employers Reimbursing Premiums Under HRAs

By Larry Grudzien, J.D.

December 2012

Can an employer reimburse individual medical insurance premiums under a Health Reimbursement Arrangement (HRA)?

Although employers may permit their HRAs to reimburse health insurance premiums under the IRS Notice 2002-45, they should be cautious in reimbursing individual health insurance premiums. By including individual health insurance policies in an HRA, these policies may be treated as group health insurance coverage. If they are, the following compliance issues might arise. They could be subject to: (a)  the HIPAA portability, privacy & security requirements (b)  ERISA requirements for disclosure, claims and fiduciary liability, (c) other federal mandates, including FMLA, Mental Health Parity, Reconstructive Surgery After Mastectomy, Newborns’ and Mothers’ Health Protection Act  and other federal mandates, and( d)  state insurance mandates  for group insurance policies.

At the current time, there is no guidance in the area. Employers should be warned and cautioned before establishing such an HRA. This uncertainty has arisen because since HRAs provide medical care, they are considered “group health plans” and must comply with additional ERISA requirements such as HIPAA and COBRA.

Larry Grudzien is an attorney practicing exclusively in the field of employee benefits. He has experience in dealing with qualified plans, health and welfare, fringe benefits and executive compensation areas. He has more than 35 years of experience in employee benefit law and is an adjunct faculty member of John Marshall Law School’s LL.M. program in employee benefits and at the Valparaiso University School of Law, where he teaches a number of courses.