Final Rule Offers New Option to Fund Student Employee Health Coverage

A final rule, released by the Departments of the Treasury, Labor, and Health and Human Services (Departments) on June 13, 2019, allows employers to reimburse employees for the cost of individual health insurance coverage purchased on or off a Health Insurance Marketplace Exchange (Exchange). The rule give colleges and universities a new option for reimbursing graduate students for part or all of the cost of their student health insurance coverage which, unlike existing rules, will satisfy the employer mandate under the Patient Protection and Affordable Care Act (ACA). This new option could be particularly helpful to institutions whose graduate students are, or could be, full-time within the meaning of the ACA, since it will be treated as an offer of coverage under the employer mandate rules.

For general information on the final rule, click here.

Student Premium Reduction Arrangements

Colleges and universities often provide students (typically graduate students) with partially or fully subsidized student health coverage as part of their compensation package. The cost of student health coverage may be reduced or covered in full by the institution through a credit, offset, reimbursement, stipend, or similar arrangement. This type of program is referred to as a "student premium reduction arrangement." Under existing enforcement relief, a student premium reduction arrangement provided to a student employee is not treated as an employer payment plan or health reimbursement arrangement (HRA) that violates certain market reforms enacted under the ACA. Student premium reduction arrangements may be provided in connection with either fully insured or self-insured student health coverage.

While the student health coverage will satisfy the student's individual mandate to have health coverage, the student premium reduction arrangement is not treated as an offer of coverage that will satisfy the institution's requirement under the employer mandate to offer minimum essential coverage (MEC) to its full-time employees through a group health plan. As a result, a graduate student who is a full-time employee of an institution may trigger an employer shared responsibility penalty to the institution if that student declines student health coverage and receives a premium tax credit in connection with coverage purchased on an Exchange.

Individual Coverage HRAs

The final rule permits employers to offer individual coverage health reimbursement arrangements (referred to as "individual coverage HRAs") beginning as early as January 1, 2020, in order to reimburse employees for the cost of individual health insurance. This is a significant change from existing rules, which only permit integration with employer provided group health plan coverage.

Because student health insurance coverage is a type of individual health insurance coverage, an individual coverage HRA can be integrated with student health insurance coverage if it satisfies the requirements of the final rule. Accordingly, colleges and universities now have a new option available to subsidize the cost of student health insurance coverage for student employees. The individual coverage HRA can be designed to reimburse the premiums for the individual coverage only, or it can be designed to also reimburse qualified medical expenses.

Importantly, colleges and universities will be able to satisfy their offer of coverage to full-time student employees with an individual coverage HRA. In other words, the individual coverage HRA will qualify as MEC that is offered through an employer group health plan. Moreover, if the individual coverage HRA is "affordable," a student employee who receives the offer of coverage will not be eligible for a premium tax credit even if the employee declines the coverage. This will allow the institution to avoid application of penalties related to the employer mandate. The Treasury Department and the Internal Revenue Service intend to issue guidance that will provide safe harbors for purposes of determining affordability for individual coverage HRAs, including student health insurance coverage. Colleges and universities that exclude student employees from their traditional group health insurance coverage are now able to avoid an employer shared responsibility penalty with respect to those employees.

In the commentary to the final rule, the Departments reiterated that the existing enforcement relief for student premium reduction arrangements remains in effect, pending any further guidance. The final rule also provides that offering a student premium reduction arrangement to student employees will not generally affect the compliance of an individual coverage HRA that an institution may offer to other employees. Because individual coverage HRAs cannot be integrated with self-insured coverage, colleges and universities that self-insure student health coverage can continue to offer student premium reduction arrangements.

For more information about how the final rule on HRAs might apply to your employee benefit plans, please contact Shalina Schaefer, Tara Sciscoe, Chris Sears, or the Ice Miller LLP Employee Benefits attorney with whom you work.

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader’s specific circumstances.