Note: This should not be taken as tax or legal advice HRAs, POPs and Tax-free Individual Health Insurance premiums are 100% allowed in Colorado if administered the correct way.
This blog post will address the concerns raised by the infamous
2009 Colorado Department of Insurance (DOI) Bulletin No. B-4.32.
Since the issuance of this bulletin, the Colorado DOI has confirmed that HRAs are allowed in Colorado. Specifically:
- HRAs are legal for employers of all sizes and the DOI does not regulate employers (or HRAs).
- An individual employee who has an HRA can buy individual health insurance and receive reimbursement from an HRA for the premium. However, depending on how the HRA is administered, the individual policy may be subject to small group law as explained in Bulletin No. B-4.32.
- As long as insurance agents explain items 1-3 (above) to their clients, they will comply with Colorado insurance regulations with respect to HRAs and individual health policy reimbursement.
According to the Bulletin No. B-4.32:
"Existing law requires that the provisions of Article 16, including the requirements of §10-16-105.2, C.R.S., apply if any of the following circumstances exist:
- Any portion of the premium or benefit is paid by or on behalf of a small employer;
- An eligible employee or dependent is reimbursed, whether through wage adjustment or otherwise, by or on behalf of a small employer for any portion of the premium;
- The health benefit plan is treated by the employer or any of the eligible employees or dependents as part of a plan or program for the purposes of section 106 [employer contribution to accident and health plans], 125 [cafeteria plans], or 162 [trade or business expenses] of the federal “Internal Revenue Code of 1986,” as amended, except if no contribution is made by the employer to the section 125 plan or program, the employer does not have in place an employer-sponsored health benefit plan or program, and the employer does not pay for any portion of the premium or benefit paid; or
- The plan is marketed to individual employees through an employer or at a place of business, except as otherwise allowed by rule."
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Individual policies reimbursed by
ZanePOP can
not be made subject to the requirements of $10-16-105.2 because, with ZanePOP:
- The employer does not pay a portion of the premium or benefits for the individual health insurance policy;
- The employer does not reimburse the employee for any portion of the premium.
- The employer/employees do not treat the individual health insurance plan as a part of a plan or program for purposes of Section 106, 125, or 162; and
- The agent markets individual policies with the permission of the employer (which is allowed by rule)
The non-applicability of Bulletin B-4.32 to individual policies reimbursed by ZanePOP should be straightforward. Please post questions in the comment section.
Similarly, individual policies reimbursed by
ZaneHRA can
not be made subject to this regulation because, with ZaneHRA:
- The employer does not pay a portion of the premium or benefits for the individual health insurance policy;
- The employer does not limit reimbursement to specific individual health insurance premiums and never knowingly reimburses individual health insurance premiums;
- The employer/employees do not treat the individual health insurance plan as a part of a plan or program for purposes of Section 106, 125, or 162; and
- The agent markets individual policies with the permission of the employer (which is allowed by rule).
The ZaneHRA itself is the "Plan", not the health care items reimbursed by the "Plan". In other words, ZaneHRAs are qualified ERISA- and HIPAA-compliant employee welfare benefit plans. However the medical items (e.g. pharmacy, insurance policy costs, doctor visits, etc.) for which each employee chooses to seek reimbursement from their ZaneHRA, are not part of an employee welfare benefit plan.
The federal government has guidelines for employers who want to allow insurers or their representatives access to their employees without triggering ERISA plan status and the associated liabilities. ZaneHRA is designed to comply with these guidelines.
Compliance includes the following restrictions on the actions of employers:
- Employers must not be involved in employees' decision to purchase individual health insurance, or their decision on which insurer or plan to use. They must not get involved in any negotiations with an insurance carrier over price or benefits of individual health insurance plans, and must not provide employees with claim forms or other materials related to their individual health insurance policies.
- Employers may not directly pay premiums on individual health insurance policies. They must not receive any compensation from an insurance carrier in connection with an employee's individual health insurance policy. Employers must not become involved in any claim dispute between an employee and an insurance carrier; all inquiries must be directed to the insurer.
To comply with point (1) above, while still making contributions to an HRA that can reimburse for individual health insurance premiums, employers must follow these additional guidelines:
- Employers must not pressure employees to use the money in their HRA to pay for individual insurance coverage. Employers may require HRA participants to have health insurance coverage to participate in their HRA provided this requirement is waived for participants medically unqualified to obtain health insurance (e.g. rejected, uprated, excluded).
- In addition to reimbursing for health insurance premiums, employers should also allow the use of HRA funds for qualified medical expenses.
- Employers must limit their role to simply reimbursing qualified medical expenses as directed by the ZaneHRA plan.
Professor Paul Zane Pilzer is scheduled to speak with Mike Rosen of 850 KOA Radio today.
Topics of discussion will likely include:
- Individual Health Insurance in Colorado
- ZaneHRA
- Colorado and Health Care Reform
Michael "Mike" Rosen (born December 5, 1944) is an American radio personality and political commentator. He is the host of The Mike Rosen Show on talk radio station 850 KOA in Denver, Colorado, as well as a weekly opinion columnist for The Denver Post and previously a weekly opinion columnist for the Rocky Mountain News.
The Foundation for Health Coverage Education (FHCE) provides several excellent resources for Health Insurance on the
coverageforall.org website.
For your convenience, I have linked directly to each state's matrix guide below. Let me know what you think.
Alabama
Note: None of this should be taken as legal or tax advice. Introduction
Through the release of numerous bulletins, notices and other documents, the Colorado Department of Insurance (DOI) has attempted to slow the adoption of Health Reimbursement Arrangements (HRAs) by its citizens in the following ways:
- Incorrectly suggesting that HRAs are illegal in Colorado for companies with less than 50 employees.
- Misrepresenting Colorado insurance regulations with regard to the use of HRAs by employees of small companies.
- Creating confusion around the use of HRAs.
- Using scare tactics (e.g. threats of fines and license revocation) to keep insurance agents from marketing HRAs.
The purpose of this post is to clarify these bulletins and to provide background information for Colorado agents, employers, and citizens.
Background
When health insurance began at the beginning of the 20th century, personal policies in most states were "guaranteed issue". This meant that insurance carriers had to issue coverage to all applicants regardless of their health status. Over the years, 45 states (including Colorado) amended their laws to allow personal policies to be medically underwritten in order to reduce the cost of health insurance to consumers. This meant that carriers could reject applicants based on health status or exclude specific items from coverage. In return, carriers agreed that, once issued, a personal policy could be renewed until age 65 with no increases in premium for new medical issues, and that personal policies in Colorado would meet certain mandates for coverage specified by the State of Colorado.
Between 2002 and 2009 the U.S. federal government issued new regulations that allow employers to give tax-free funds to employees to purchase their own personal policies. These new federal regulations have effectively halved the cost of personal policies on an after-tax basis. This has greatly accelerated the switch in the U.S. from group employer policies to personal (individual and family) policies. Personal health policies in the U.S. increased from 12 million in 2002 to 27 million in 2007 and are approximately 35 million today.
In Colorado, certain officials of the Colorado DOI are not pleased that their own state legislature has allowed personal health insurance policies to be medically underwritten, and these officials are also not pleased with the new federal regulations because they accelerate the trend of employers to switch from group to personal health policies. However, rather than take their displeasure to the Colorado state legislature and ask their elected state representatives to return to guaranteed-issue personal policies, these officials have implemented their own personal vendetta against health insurance agents offering personal (individual and family) health insurance policies to employees under the new federal regulations. Specifically, while a Health Reimbursement Arrangement (HRA) offers employees funds for more than 5,013 different medical purposes under IRS regulations, these Colorado officials are attempting to claim that HRA funds are "employer paid personal health insurance premiums." This is a completely false claim. Suggesting HRA money constitutes an "employer paying for insurance premiums" is similar to claiming that if (unknown to the employer) an employee uses their wages to purchase personal health insurance, then the employer has directly paid for their personal health insurance.
HRAs are legal in Colorado
HRAs are legal in all 50 states (including Colorado) for employers of all sizes. HRAs are self-funded ERISA health and welfare benefit plans and are not subject to Colorado state insurance law. In recent months, the Department of Insurance has been quoted saying that HRAs are illegal for small businesses in Colorado. After bringing this to the attention of the Colorado Attorney Generals Office, the department of insurance has clarified that HRAs are absolutely legal in Colorado.
Employees can purchase individual health plans and use their HRA money to reimburse themselves
Employees (including employees of small companies in Colorado) are absolutely allowed to use an HRA to reimburse themselves tax-free for individual health insurance premiums and thousands of other medical expenses. This has been clarified with the release of numerous U.S. Treasury and State publications (see IRS Publication 502 and IRS Publication 969). In a recent notice to Colorado insurance producers (i.e. agents), state officials in the department of insurance suggest that, under Colorado Insurance law, "use of an HRA to reimburse health benefit plan premiums generally prohibits the sale of medically underwritten individual benefit plans". This is incorrect. Colorado insurance regulations merely state that if a small employer pays for an employee's individual policy (i.e. benefit plan), then the carrier (not the employer) may be obligated to make the policy comply with Colorado small group requirements. This regulation should not apply to HRAs due to the following:
- Employees (themselves) choose how to utilize their HRA funds (e.g. whether to use their HRA for insurance premiums or dental expense reimbursement).
- The insurance carrier (and also the employer) has no way of knowing the source of the funds an employee uses to pay for their personal health insurance premium, or if months later the employee chooses to seek tax-free reimbursement from their HRA.
- Despite similar regulations existing in some states since 1990, there has never been a single instance of a carrier being forced to issue a personal policy under "small group laws" because an employer paid the premium on another employee's personal health insurance policy.
There is no need for confusion HRAs are very simple. Yet, the Colorado Department of Insurance continues to release lengthy, misleading notices and bulletins (including B-4.32) in efforts to confuse agents and employers. This has resulted in state-wide confusion with regard to the legality of HRAs in Colorado. See below for a brief summary of HRAs and related Colorado insurance regulations. The following summary is based on the information provided in B-4.32, B-4.68 a DOI notice (8/27) to insurance agents, and numerous conversations and meetings with the Department of Insurance and their counsel.
Currently, the Colorado DOI's stance is:
- HRAs are legal for employers of all sizes in Colorado.
- The DOI does not regulate employers (or HRAs). Rather, they regulate carriers and producers (i.e. agents).
- The DOI does not want insurance agents to "encourage" a small employer to drop their group health plan
- An individual employee who has an HRA can absolutely buy individual health insurance and it is an individual insurance agent's responsibility to correctly represent the individual health insurance policy to the employee.
- If the employee chooses to receive reimbursement from an HRA for the premium, and if the employee works for a company with less than 50 employees, small group requirements may be applied to the employee's individual policy.
Insurance agents who correctly represent Colorado insurance regulations have nothing to fear It is the responsibility of an insurance agent to correctly represent Colorado law to consumers. Over the past few months, the Department of Insurance has issued notices to insurance agents and producers in Colorado threatening license revocation and fines for educating Colorado small business about HRAs. It should be noted that the majority of small businesses (>50%) do not provide health insurance to their employees. Because HRAs are a viable (and affordable) health benefit solution for employers in Colorado, insurance agents should know how to correctly represent HRAs and related Colorado insurance regulations. The following summary is based on the information provided in B-4.32, B-4.68, a DOI notice (sent 08/27) to insurance agents, and numerous conversations and meetings with the Department of Insurance and their counsel.
In order to comply with Colorado health insurance regulations, the agents should fully represent the following to employees of small companies:
- HRAs are legal in Colorado for all employers of any size.
- An employee who has an HRA can buy personal health insurance.
- After the employee purchases health insurance, they have a federal right to use their HRA to reimburse their premium. However, if the personal health insurance policy they choose has a restriction against using an HRA, the employee should be advised to obey this restriction by the carrier or purchase a different personal health insurance policy.
- If the employee chooses to take reimbursement from their HRA for individual insurance premium, the employee should be advised that small group requirements may be applied to their individual policy including:
- Mandated Benefits under 10-16-104, C.R.S.
- adjusted community rating
- the prohibition of the use of case characteristics other than age, geographic area, and family composition under 10-16-105(8) and Colorado Insurance Regulation 4-6-8.
Note: None of this should be taken as legal or tax advice. At Zane Benefits, we receive numerous emails and phone calls regarding the legality of HRAs. HRAs are absolutely legal in all 50 states, including Colorado.
If you call the Colorado DOI, they too will tell you that HRAs are legal in Colorado for employers of all sizes.
Specifically, the Colorado DOI's stance appears to be:
- HRAs are legal for employers of all sizes.
- The DOI does not regulate employers (or HRAs). Rather, they regulate carriers and producers (i.e. agents).
- An individual employee who has an HRA can buy individual health insurance and receive reimbursement from an HRA for the premium. If the employee works for a company with less than 50 employees, the carrier may be required to offer that same policy to all employees of the company subject to Colorado small group regulations.
According to meetings with the DOI: As long as insurance agents explain items 1-3 (above) to their clients, they will comply with Colorado insurance regulations with respect to HRAs and individual health policy reimbursement.
This is great news for all Colorado citizens.
