Internal Revenue Bulletin 2019-28 (PDF rendition): IRS Revenue Rulings

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Bulletin No. 2019–28
July 8, 2019
HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.
EMPLOYEE PLANS
TD 9867, page 98.
This document contains final regulations concerning Public
Health Services Act (PHS Act) sections which are incorporat-
ed into section 9815 of the Internal Revenue Code. The final
regulations allow integrating HRAs with individual health insur-
ance coverage to satisfy PHS Act sections 2711 and 2713,
and include conditions under which certain HRAs limited in
dollar amount satisfy the conditions to be excepted benefits
under section 9831(c)(1). In addition, the final regulations
include a rule regarding when individuals offered an HRA inte-
grated with individual coverage remain eligible for a premium
tax credit. The final rule was published jointly with the Depart-
ments of Labor and of Health and Human Services.
INCOME TAX
NOTICE 2019-41, page 256.
Credit for Renewable Electricity Production and Refined Coal
Production, and Publication of Inflation Adjustment Factor
and Reference Prices for Calendar Year 2019: The notice
reports for 2019 the inflation adjustment factor and refer-
ence prices used to determine the availability of the section
45 credit for electricity produced from qualified energy re-
sources and refined coal and includes the credit amounts for
renewable electricity production and refined coal production.
This notice also corrects the credit amount for refined coal
production for calendar year 2018.
REG-106282-18, page 259.
This document contains proposed regulations cross refer-
encing Final Temporary regulations relating to the addition of
section 245A to the Internal Revenue Code by the Tax Cuts
and Jobs Act, which was enacted on December 22, 2017.
The proposed regulations affect United States persons that
have undertaken certain transactions with regards to a con-
trolled foreign corporation or own a controlled foreign corpo-
ration that has undertaken certain transactions.
REV RUL 2019-16, page 96.
Federal rates; adjusted federal rates; adjusted federal long-
term rate, the long-term exempt rate, and the blended annual
rate. For purposes of sections 382, 1274, 1288, 7872 and
other sections of the Code, tables set forth the rates for July
2019.
TD 9868, page 252.
This document contains final regulations regarding the stat-
utory expansion of the class of permissible potential cur-
rent beneficiaries (PCBs) of an electing small business trust
(ESBT) to include nonresident aliens (NRAs). In particular, the
final regulations ensure that the income of an S corporation
will continue to be subject to U.S. Federal income tax when
an NRA is a deemed owner of a grantor trust that elects to
be an ESBT.
Finding Lists begin on page ii.

The IRS Mission
Provide America’s taxpayers top-quality service by helping
them understand and meet their tax responsibilities and en-
force the law with integrity and fairness to all.
Introduction
The Internal Revenue Bulletin is the authoritative instrument
of the Commissioner of Internal Revenue for announcing of-
ficial rulings and procedures of the Internal Revenue Service
and for publishing Treasury Decisions, Executive Orders, Tax
Conventions, legislation, court decisions, and other items of
general interest. It is published weekly.
It is the policy of the Service to publish in the Bulletin all sub-
stantive rulings necessary to promote a uniform application
of the tax laws, including all rulings that supersede, revoke,
modify, or amend any of those previously published in the
Bulletin. All published rulings apply retroactively unless other-
wise indicated. Procedures relating solely to matters of inter-
nal management are not published; however, statements of
internal practices and procedures that affect the rights and
duties of taxpayers are published.
Revenue rulings represent the conclusions of the Service
on the application of the law to the pivotal facts stated in
the revenue ruling. In those based on positions taken in rul-
ings to taxpayers or technical advice to Service field offices,
identifying details and information of a confidential nature are
deleted to prevent unwarranted invasions of privacy and to
comply with statutory requirements.
Rulings and procedures reported in the Bulletin do not have the
force and effect of Treasury Department Regulations, but they
may be used as precedents. Unpublished rulings will not be
relied on, used, or cited as precedents by Service personnel in
the disposition of other cases. In applying published rulings and
procedures, the effect of subsequent legislation, regulations,
court decisions, rulings, and procedures must be considered,
and Service personnel and others concerned are cautioned
against reaching the same conclusions in other cases unless
the facts and circumstances are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—1986 Code.
This part includes rulings and decisions based on provisions
of the Internal Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A,
Tax Conventions and Other Related Items, and Subpart B,
Legislation and Related Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to these
subjects are contained in the other Parts and Subparts. Also
included in this part are Bank Secrecy Act Administrative
Rulings. Bank Secrecy Act Administrative Rulings are issued
by the Department of the Treasury’s Office of the Assistant
Secretary (Enforcement).
Part IV.—Items of General Interest.
This part includes notices of proposed rulemakings, disbar-
ment and suspension lists, and announcements.
The last Bulletin for each month includes a cumulative index
for the matters published during the preceding months. These
monthly indexes are cumulated on a semiannual basis, and are
published in the last Bulletin of each semiannual period.
The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
July 8, 2019 Bulletin No. 2019–28

Part I.
Section 1274.—Determi-
nation of Issue Price in the
Case of Certain Debt In-
struments Issued for Prop-
erty
(Also Sections 42, 280G, 382, 467, 468, 482, 483,
1288, 7520, 7872.)
Rev. Rul. 2019-16
This revenue ruling provides vari-
ous prescribed rates for federal income
tax purposes for July 2019 (the current
month). Table 1 contains the short-term,
mid-term, and long-term applicable feder-
al rates (AFR) for the current month for
purposes of section 1274(d) of the Inter-
nal Revenue Code. Table 2 contains the
short-term, mid-term, and long-term ad-
justed applicable federal rates (adjusted
AFR) for the current month for purposes
of section 1288(b). Table 3 sets forth the
adjusted federal long-term rate and the
long-term tax-exempt rate described in
section 382(f). Table 4 contains the ap-
propriate percentages for determining the
low-income housing credit described in
section 42(b)(1) for buildings placed in
service during the current month. Howev-
er, under section 42(b)(2), the applicable
percentage for non-federally subsidized
new buildings placed in service after July
30, 2008, shall not be less than 9%. Table
5 contains the federal rate for determining
the present value of an annuity, an interest
for life or for a term of years, or a remain-
der or a reversionary interest for purposes
of section 7520. Finally, Table 6 contains
the blended annual rate for 2019 for pur-
poses of section 7872.
REV. RUL. 2019-16 TABLE 1
Applicable Federal Rates (AFR) for July 2019
Period for Compounding
AnnualSemiannualQuarterlyMonthly
Short-term
AFR2.13%2.12%2.11% 2.11%
110% AFR2.34%2.33%2.32%2.32%
120% AFR2.56%2.54%2.53%2.53%
130% AFR2.78%2.76%2.75%2.74%
Mid-term
AFR2.08%2.07%2.06%2.06%
110% AFR2.29%2.28%2.27%2.27%
120% AFR2.50%2.48%2.47%2.47%
130% AFR2.71%2.69%2.68%2.68%
150% AFR3.13%3.11%3.10%3.09%
175% AFR3.65%3.62%3.60%3.59%
Long-term
AFR2.50% 2.48%2.47%2.47%
110% AFR2.75%2.73%2.72%2.71%
120% AFR3.00%2.98%2.97%2.96%
130% AFR3.25%3.22%3.21%3.20%
REV. RUL. 2019-16 TABLE 2
Adjusted AFR for July 2019
Period for Compounding
AnnualSemiannualQuarterlyMonthly
Short-term adjusted AFR1.62%1.61%1.61%1.60%
Mid-term adjusted AFR1.58%1.57%1.57%1.56%
Long-term adjusted AFR1.89%1.88%1.88%1.87%
July 8, 2019 96 Bulletin No. 2019–28

REV. RUL. 2019-16 TABLE 3
Rates Under Section 382 for July 2019
Adjusted federal long-term rate for the current month1.89%
Long-term tax-exempt rate for ownership changes during the current month (the highest of
the adjusted federal long-term rates for the current month and the prior two months.)
2.09%
REV. RUL. 2019-16 TABLE 4
Appropriate Percentages Under Section 42(b)(1) for July 2019
Note: Under section 42(b)(2), the applicable percentage for non-federally subsidized new buildings placed in service after July
30, 2008, shall not be less than 9%.
Appropriate percentage for the 70% present value low-income housing credit7.53%
Appropriate percentage for the 30% present value low-income housing credit 3.23%
REV. RUL. 2019-16 TABLE 5
Rate Under Section 7520 for July 2019
Applicable federal rate for determining the present value of an annuity, an interest for life or
a term of years, or a remainder or reversionary interest
2.6%
REV. RUL. 2019-16 TABLE 6
Blended Annual Rate for 2019
Section 7872(e)(2) blended annual rate for 20192.42%

Section 42.—Low-Income
Housing Credit
The applicable federal short-term, mid-term,
and long-term rates are set forth for the month of
July 2019. See Rev. Rul. 2019-16, page 96.

Section 280G.—Golden
Parachute Payments
The applicable federal short-term, mid-term,
and long-term rates are set forth for the month of
July 2019. See Rev. Rul. 2019-16, page 96.

Section 382.—Limitation
on Net Operating Loss
Carryforwards and
Certain Built-In Losses
Following Ownership
Change
The adjusted applicable federal long-term rate
is set forth for the month of July 2019. See Rev.
Rul. 2019-16, page 96.

Section 467.—Certain
Payments for the Use of
Property or Services
The applicable federal short-term, mid-term,
and long-term rates are set forth for the month of
July 2019. See Rev. Rul. 2019-16, page 96.

Section 468.—Special
Rules for Mining and Solid
Waste Reclamation and
Closing Costs
The applicable federal short-term, mid-term,
and long-term rates are set forth for the month of
July 2019. See Rev. Rul. 2019-16, page 96.

Section 482.—Allocation
of Income and Deductions
Among Taxpayers
The applicable federal short-term, mid-term,
and long-term rates are set forth for the month of
July 2019. See Rev. Rul. 2019-16, page 96.

Section 483.—Interest on
Certain Deferred Payments
The applicable federal short-term, mid-term,
and long-term rates are set forth for the month of
July 2019. See Rev. Rul. 2019-16, page 96.

Section 1288.—Treatment
of Original Issue Discount
on Tax-Exempt Obligations
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of July 2019. See Rev. Rul. 2019-16, page 96.

Section 7520.—Valuation
Tables
The applicable federal short-term, mid-term,
and long-term rates are set forth for the month of
July 2019. See Rev. Rul. 2019-16, page 96.

Section 7872.—Treatment
of Loans With Below-
Market Interest Rates
The applicable federal short-term, mid-term,
and long-term rates are set forth for the month of
July 2019. See Rev. Rul. 2019-16, page 96.

Bulletin No. 2019–28 97 July 8, 2019

July 8, 2019 98 Bulletin No. 2019–28
T.D. 9867
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Parts 1 and 54
DEPARTMENT OF LABOR
Employee Benefits Security
Administration
29 CFR Parts 2510 and 2590
DEPARTMENT OF HEALTH
AND HUMAN SERVICES
45 CFR Parts 144, 146, 147,
and 155
Health Reimbursement
Arrangements and Other
Account-Based Group Health
Plans
AGENCY: Internal Revenue Service, De-
partment of the Treasury; Employee Ben-
efits Security Administration, Department
of Labor; Centers for Medicare & Med-
icaid Services, Department of Health and
Human Services.
ACTION: Final rules.
SUMMARY: This document sets forth fi-
nal rules to expand opportunities for work-
ing men and women and their families
to access affordable, quality healthcare
through changes to rules under various
provisions of the Public Health Service
Act (PHS Act), the Employee Retirement
Income Security Act (ERISA), and the
Internal Revenue Code (Code) regard-
ing health reimbursement arrangements
(HRAs) and other account-based group
health plans. Specifically, the final rules
allow integrating HRAs and other ac-
count-based group health plans with indi-
vidual health insurance coverage or Medi-
care, if certain conditions are satisfied (an
individual coverage HRA). The final rules
also set forth conditions under which cer-
tain HRAs and other account-based group
health plans will be recognized as limited
excepted benefits. Also, the Department of
the Treasury (Treasury Department) and
the Internal Revenue Service (IRS) are fi-
nalizing rules regarding premium tax cred-
it (PTC) eligibility for individuals offered
an individual coverage HRA. In addition,
the Department of Labor (DOL) is final-
izing a clarification to provide assurance
that the individual health insurance cov-
erage for which premiums are reimbursed
by an individual coverage HRA or a quali-
fied small employer health reimbursement
arrangement (QSEHRA) does not become
part of an ERISA plan, provided certain
safe harbor conditions are satisfied. Final-
ly, the Department of Health and Human
Services (HHS) is finalizing provisions to
provide a special enrollment period (SEP)
in the individual market for individuals
who newly gain access to an individual
coverage HRA or who are newly pro-
vided a QSEHRA. The goal of the final
rules is to expand the flexibility and use
of HRAs and other account-based group
health plans to provide more Americans
with additional options to obtain quality,
affordable healthcare. The final rules af-
fect employees and their family members;
employers, employee organizations, and
other plan sponsors; group health plans;
health insurance issuers; and purchasers
of individual health insurance coverage.
DATES: Effective date: These final rules
are effective on August 19, 2019.
Applicability dates: The final rules gener-
ally apply for plan years beginning on or
after January 1, 2020. However, the final
rules under Code section 36B apply for
taxable years beginning on or after Janu-
ary 1, 2020, and the final rules providing a
new special enrollment period in the indi-
vidual market apply January 1, 2020. See
Section VI of the SUPPLEMENTARY
INFORMATION section for more infor-
mation on the applicability dates.
FOR FURTHER INFORMATION
CONTACT: Christopher Dellana, Inter-
nal Revenue Service, Department of the
Treasury, at (202) 317-5500; Matthew
Litton or David Sydlik, Employee Ben-
efits Security Administration, Depart-
ment of Labor, at (202) 693-8335; David
Mlawsky, Centers for Medicare & Med-
icaid Services, Department of Health and
Human Services, at (410) 786-1565 (not
toll-free numbers).
Customer Service Information: Individuals
interested in obtaining information from the
DOL concerning employment-based health
coverage laws may call the EBSA Toll-
Free Hotline at 1-866-444-EBSA (3272)
or visit the DOL’s website (www.dol.gov/
ebsa). In addition, information from HHS
on private health insurance coverage and
coverage provided by non-federal govern-
mental group health plans can be found on
the Centers for Medicare & Medicaid Ser-
vices (CMS) website (www.cms.gov/cci-
io), and information on healthcare reform
can be found at www.HealthCare.gov.
SUPPLEMENTARY INFORMATION:
I. Background
A. Executive Order
On October 12, 2017, President Trump
issued Executive Order 13813,
1
“Promot-
ing Healthcare Choice and Competition
Across the United States,” stating, in part,
that the “Administration will prioritize
three areas for improvement in the near
term: association health plans (AHPs),
short-term, limited-duration insurance
(STLDI), and health reimbursement ar-
rangements (HRAs).” With regard to
HRAs, the Executive Order directs the
Secretaries of the Treasury, Labor, and
HHS to “consider proposing regulations
or revising guidance, to the extent permit-
ted by law and supported by sound policy,
to increase the usability of HRAs, to ex-
pand employers’ ability to offer HRAs to
their employees, and to allow HRAs to be
used in conjunction with nongroup cov-
erage.” The Executive Order further pro-
vides that expanding “the flexibility and
use of HRAs would provide many Amer-
icans, including employees who work at
small businesses, with more options for
financing their healthcare.”
1
82 FR 48385 (Oct. 17, 2017). The executive order was issued on October 12, 2017 and was published in the Federal Register on October 17, 2017.

Bulletin No. 2019–28 99 July 8, 2019
B. HRAs and Other Account-Based
Group Health Plans
1. In General
An account-based group health plan
is an employer-provided group health
plan that provides for reimbursement of
expenses for medical care (as defined
under Code section 213(d)) (medical
care expenses), subject to a maximum
fixed-dollar amount of reimbursements
for a period (for example, a calendar
year). An HRA is a type of account-based
group health plan funded solely by em-
ployer contributions (with no salary
reduction contributions or other contri-
butions by employees) that reimburs-
es an employee solely for medical care
expenses incurred by the employee, or
the employee’s spouse, dependents, and
children who, as of the end of the taxable
year, have not attained age 27, up to a
maximum dollar amount for a coverage
period.
2
The reimbursements under these
types of arrangements are excludable
from the employee’s income and wages
for federal income tax and employment
tax purposes. Amounts that remain in the
HRA at the end of the year often may be
used to reimburse medical care expenses
incurred in later years, depending on the
terms of the HRA.
HRAs are not the only type of ac-
count-based group health plan. For ex-
ample, an employer payment plan is also
an account-based group health plan. An
employer payment plan is an arrangement
under which an employer reimburses an
employee for some or all of the premium
expenses incurred for individual health in-
surance coverage, or other non-employer
sponsored hospital or medical insurance.
This includes a reimbursement arrange-
ment described in Revenue Ruling 61-146,
1961-2 CB 25, or an arrangement under
which the employer uses its funds directly
to pay the premium for individual health
insurance coverage or other non-employer
sponsored hospital or medical insurance
covering the employee.
3
Other examples
of account-based group health plans in-
clude health flexible spending arrange-
ments (health FSAs) and certain other em-
ployer-provided medical reimbursement
plans that are not HRAs.
4

2. Application of the Patient Protection
and Affordable Care Act to HRAs and
Other Account-Based Group Health
Plans
The Patient Protection and Affordable
Care Act, Pub. L. 111–148, was enact-
ed on March 23, 2010 and the Health
Care and Education Reconciliation Act
of 2010, Pub. L. 111–152, was enact-
ed on March 30, 2010 (collectively,
PPACA). PPACA reorganized, amended,
and added to the provisions of part A of
title XXVII of the PHS Act relating to
health coverage requirements for group
health plans and health insurance issuers
in the group and individual markets. The
term “group health plan” includes both
insured and self-insured group health
plans.
PPACA also added section 715 to ER-
ISA and section 9815 to the Code to in-
corporate the provisions of part A of title
XXVII of the PHS Act, PHS Act sections
2701 through 2728 (the market require-
ments), into ERISA and the Code, mak-
ing them applicable to group health plans
and health insurance issuers providing
health insurance coverage in connection
with group health plans. In accordance
with Code section 9831(b) and (c), ERISA
section 732(b) and (c), and PHS Act sec-
tions 2722(b) and (c) and 2763, the mar-
ket requirements do not apply to a group
health plan or a health insurance issuer
in the group or individual market in rela-
tion to the provision of excepted benefits
described in Code section 9832(c), ERI-
SA section 733(c), and PHS Act section
2791(c).
5
See the discussion later in this
preamble for additional background on
excepted benefits. In addition, in accor-
dance with Code section 9831(a)(2) and
ERISA section 732(a), the market require-
ments do not apply to a group health plan
that has fewer than two participants who
are current employees on the first day of
the plan year.
6
PHS Act section 2711, as added by
PPACA, generally prohibits group health
plans and health insurance issuers offer-
ing group or individual health insurance
coverage
7
from establishing for any in-
dividual any lifetime or annual limits on
the dollar value of essential health bene-
fits (EHBs), as defined in PPACA section
1302(b). PHS Act section 2711, however,
does not prevent a group health plan, or
a health insurance issuer offering group
or individual health insurance coverage,
from placing an annual or lifetime dollar
limit for any individual on specific cov-
ered benefits that are not EHBs, to the
2
See IRS Notice 2002-45, 2002-2 CB 93; Revenue Ruling 2002-41, 2002-2 CB 75; and IRS Notice 2013-54, 2013-40 IRB 287.
3
For more information about employer payment plans, see IRS Notice 2013-54, Q&A-1 and Q&A-3, and IRS Notice 2015-17, Q&A-4 and Q&A-5, 2015-14 IRB 845.
4
For simplicity, the preamble generally refers only to HRAs, but references to HRAs should also be considered to include other account-based group health plans as defined in the final rules,
unless otherwise specified. This term does not include QSEHRAs, under Code section 9831(d); medical savings accounts (MSAs), under Code section 220; or health savings accounts (HSAs),
under Code section 223. In addition, for purposes of the final rules, the term “HRA or other account-based group health plan” does not include an employer arrangement that reimburses the
cost of individual health insurance coverage through a cafeteria plan under Code section 125 (cafeteria plan premium arrangements); however see later in this preamble for a clarification that
plan sponsors may offer such an arrangement in addition to an individual coverage HRA. A QSEHRA is not a group health plan for purposes of the market requirements of the Code (except
as provided in Code section 4980I(f)(4)), parts 6 and 7 of ERISA, and titles XXII and XXVII of the PHS Act, and is not included in the definition of HRAs and other account-based group
health plans for purposes of the final rules or this preamble. A QSEHRA is, however, considered a group health plan under the PHS Act for purposes of part C of title XI of the Social Security
Act (42 USC 1320d et seq.). See PHS Act section 2791(a)(1), as amended by the 21st Century Cures Act (Cures Act), Pub. L. 114-255, section 18001(c).
5
While the PPACA amendments to PHS Act section 2722(b) and (c) (formerly PHS Act section 2721(c) and (d)) could be read as restricting the exemption for excepted benefits so it applies
only with respect to subpart 2 of part A of title XXVII of the PHS Act, HHS does not intend to use its resources to enforce the market requirements with respect to excepted benefits offered
by non-federal governmental plan sponsors and encourages states to adopt a similar approach with respect to issuers of excepted benefits. See 75 FR 34537, 34539-34540 (June 17, 2010).
6
While the PPACA amendments to title XXVII of the PHS Act removed the parallel provision at section 2722(a) (formerly PHS Act section 2721(a)), HHS follows a similar approach for
retiree-only non-federal governmental plans and encourages states to adopt a similar approach with respect to health insurance issuers of retiree-only plans. See 75 FR 34537, 34539-34540
(June 17, 2010).
7
PHS Act section 2711 applies to grandfathered health plans, except that the annual dollar limit prohibition does not apply to grandfathered individual health insurance coverage. Grandfa-
thered health plans are health plans that were in existence as of March 23, 2010, and that are only subject to certain provisions of PPACA, as long as they maintain status as grandfathered
health plans under the applicable rules. See 26 CFR 54.9815-1251, 29 CFR 2590.715-1251, and 45 CFR 147.140.

July 8, 2019 100 Bulletin No. 2019–28
extent these limits are otherwise permitted
under applicable law.
8

HRAs are subject to PHS Act section
2711. An HRA generally will fail to com-
ply with PHS Act section 2711 because
the arrangement is a group health plan that
imposes an annual dollar limit on EHBs
that the HRA will reimburse for an indi-
vidual.
9

PHS Act section 2713, as added by
PPACA, generally requires non-grand-
fathered group health plans, and health
insurance issuers offering non-grand-
fathered group or individual health in-
surance coverage, to provide coverage
for certain preventive services without
imposing any cost-sharing requirements
for these services.
10
Non-grandfathered
HRAs are subject to and fail to comply
with PHS Act section 2713 because,
while HRAs may be used to reimburse
the costs of preventive services, HRAs do
not reimburse such costs after the HRAs
have reimbursed the maximum dollar
amount for a coverage period, and there-
fore HRAs fail to provide the required
coverage, and violate the prohibition on
imposing cost sharing for preventive ser-
vices.
11
3. Prior Rules and Guidance on
Integration of HRAs and Other
Account-Based Group Health Plans
The Departments previously issued
rules and subregulatory guidance regard-
ing the application of PHS Act sections
2711 and 2713 to HRAs.
12
The rules and
guidance generally provide that, if an
HRA is “integrated” with other group
health plan coverage that complies with
PHS Act sections 2711 and 2713, the HRA
is considered to be in compliance with
those sections because the combined ar-
rangement complies with them. The rules
and guidance also provide that HRAs may
be integrated with Medicare and TRI-
CARE coverage if certain conditions are
satisfied, but may not be integrated with
individual health insurance coverage for
purposes of complying with PHS Act sec-
tions 2711 and 2713.
13
More specifically, in the preamble to
the 2010 interim final rules under PHS Act
section 2711, the Departments provided
that HRAs may be integrated with “other
coverage as part of a group health plan”
that complies with PHS Act section 2711
in order for the HRAs to be considered to
satisfy PHS Act section 2711.
14
The inter-
im final rules did not, however, set forth
rules for implementing integration; the in-
tegration methods were set forth in later
subregulatory guidance and subsequently
included in the final rules under PHS Act
section 2711 issued in 2015.
On September 13, 2013, the Treasury
Department and the IRS issued Notice
2013-54, the DOL issued Technical Re-
lease 2013-03, and HHS issued contem-
poraneous guidance explaining that HHS
concurred with the DOL and Treasury De-
partment guidance.
15
This guidance stated
that an HRA may not be integrated with
individual health insurance coverage for
8
For information regarding EHBs, see HHS’s February 25, 2013 final rules addressing EHBs under PPACA section 1302 (78 FR 12834 (Feb. 25, 2013)); see also HHS Notice of Benefit and
Payment Parameters for 2016 (80 FR 10871 (Feb. 27, 2015)). In addition, HHS issued final rules providing states with additional flexibility to define EHBs, starting with plan years beginning
on or after January 1, 2020. See 45 CFR 156.111 (83 FR 16930 (April 17, 2018)). The current rules under PHS Act section 2711 include a definition of EHBs that applies for plans that are
not required to cover EHBs. See 26 CFR 54.9815-2711(c), 29 CFR 2590.715-2711(c), and 45 CFR 147.126(c). As explained later in this preamble, the rules set forth in this document include
amendments to the definition of EHBs under the PHS Act section 2711 rules to reflect the updated final EHB rules.
9
As explained in prior guidance, the Departments of Labor, the Treasury and HHS (the Departments) have determined that the annual dollar limit prohibition is not applicable to certain
account-based group health plans that are subject to other statutory provisions limiting the benefits available under those plans. See 80 FR 72192, 72201 (Nov. 18, 2015). Specifically, the
Departments have explained that the annual dollar limit prohibition does not apply to health FSAs that are offered through a cafeteria plan under Code section 125 (cafeteria plan) because
PPACA section 9005 specifically limits salary reduction contributions to health FSAs to $2,500 (indexed for inflation) per year. Notwithstanding this exclusion for certain health FSAs from
the application of the annual dollar limit prohibition, rules under Code section 125 provide that health FSAs are not permitted to reimburse employees for premiums for health insurance
coverage. See Code section 125(d)(2)(A) and proposed 26 CFR 1.125-5(k)(4) (72 FR 43938, 43959 (Aug. 6, 2007)). Similarly, although MSAs and HSAs generally are not treated as group
health plans subject to the market requirements, the Departments have concluded that the annual dollar limit prohibition would not apply to an MSA or HSA even if a particular arrangement
did satisfy the criteria to be a group health plan because both types of arrangements are subject to specific statutory provisions that limit the contributions. See 75 FR 37188, 37190 (June 28,
2010); see also IRS Notice 2004-2, Q&A-1 and Q&A-3, 2004-2 IRB 269, which defines an HSA as a tax-exempt trust or custodial account and a high-deductible health plan as a health plan;
see also DOL Field Assistance Bulletin No. 2004-01, available at https://www.dol.gov/agencies/ebsa/employers-and-advisers/guidance/field-assistance-bulletins/2004-01 and DOL Field
Assistance Bulletin No. 2006-02, available at https://www.dol.gov/agencies/ebsa/employers-and-advisers/guidance/field-assistance-bulletins/2006-02, which provide guidance regarding
HSAs not constituting “employee welfare benefit plans” covered by ERISA Title I where employer involvement with the HSA is limited. Therefore, the final rules do not apply to MSAs,
HSAs, or, in certain circumstances, health FSAs.
10
See also 26 CFR 54.9815-2713, 29 CFR 2590.715-2713, and 45 CFR 147.130.
11
Because MSAs and HSAs generally are not treated as group health plans, these arrangements are not subject to PHS Act section 2713. Health FSAs are group health plans and, unless they
are excepted benefits, will fail to satisfy the requirements of PHS Act section 2713 unless they are integrated with other coverage that satisfies these requirements. For more information about
the application of PHS Act section 2713 to health FSAs, see IRS Notice 2013-54, Q&A-7; DOL Technical Release No. 2013-03, Q&A-7, issued on September 13, 2013, available at https://
www.dol.gov/agencies/ebsa/employers-and-advisers/guidance/technical-releases/13-03; and CMS Insurance Standards Bulletin, Application of Affordable Care Act Provisions to Certain
Healthcare Arrangements, September 16, 2013, available at https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/cms-hra-notice-9-16-2013.pdf.
12
Rules and subregulatory guidance issued on this topic include: (1) 75 FR 37188 (June 28, 2010); (2) FAQs about Affordable Care Act Implementation (Part XI), available at https://www.dol.
gov/sites/default/files/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-xi.pdf or http://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/aca_implementation_faqs11.html;
(3) IRS Notice 2013-54 and DOL Technical Release No. 2013-03 and CMS Insurance Standards Bulletin, Application of Affordable Care Act Provisions to Certain Healthcare Arrangements;
(4) IRS FAQ on Employer Healthcare Arrangements, available at https://www.irs.gov/affordable-care-act/employer-health-care-arrangements; (5) FAQs about Affordable Care Act Imple-
mentation (Part XXII), available at https://www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-xxii.pdf or https://www.cms.gov/CCIIO/Resources/
Fact-Sheets-and-FAQs/Downloads/FAQs-Part-XXII-FINAL.pdf; (6) IRS Notice 2015-17, issued on February 18, 2015; (7) 80 FR 72192 (Nov. 18, 2015); (8) IRS Notice 2015-87, 2015-52
IRB 889, issued on December 16, 2015; (9) IRS Notice 2016-17, 2016-9 IRB 358, issued on February 5, 2015; DOL Technical Release No. 2016-01, issued on February 5, 2016, available
at https://www.dol.gov/agencies/ebsa/employers-and-advisers/guidance/technical-releases/16-01; and CMS Insurance Standards Bulletin, Application of the Market Reforms and Other
Provisions of the Affordable Care Act to Student Health Coverage, issued on February 5, 2016, available at https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/
student-health-bulletin.pdf; (10) FAQs about Affordable Care Act Implementation Part 33, available at https://www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/resource-center/
faqs/aca-part-33.pdf or https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/Downloads/ACA-FAQ-Set-33-Final.pdf; (11) FAQs about Affordable Care Act Implementation Part
37, available at https://www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-37.pdf or https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/
Downloads/FAQs-Part-37.pdf; (12) 83 FR 54420 (Oct. 29, 2018); and (13) IRS Notice 2018-88, 2018-49 IRB 817, issued on November 19, 2018.
13
26 CFR 54.9815-2711(d)(4), 29 CFR 2590.715-2711(d)(4), and 45 CFR 147.126(d)(4).
14
See 75 FR 37187, 37190-37191 (June 28, 2010).
15
See CMS Insurance Standards Bulletin, Application of Affordable Care Act Provisions to Certain Healthcare Arrangements.

Bulletin No. 2019–28 101 July 8, 2019
purposes of PHS Act sections 2711 and
2713, but described methods for integrat-
ing an HRA with another group health
plan.
16
The Departments later incorporat-
ed the provisions of this guidance into the
final rules issued in 2015 under PHS Act
section 2711
17
, which are summarized lat-
er in this section of the preamble.
On November 6, 2014, the Depart-
ments issued FAQs about Affordable Care
Act Implementation (Part XXII).
18
Q&A-1
reiterated and clarified prior subregulatory
guidance by explaining that if an employ-
er offers its employees cash to reimburse
the purchase of individual health insur-
ance coverage, the payment arrangement
is a group health plan, without regard to
whether the employer treats the money
as a pre-tax or post-tax benefit to the em-
ployee, and it may not be integrated with
individual health insurance coverage, and,
therefore, will fail to comply with PHS
Act sections 2711 and 2713.
19

On February 18, 2015, the Treasury De-
partment and the IRS issued Notice 2015-
17. Q&A-3 provided that an arrangement
under which an employer reimburses (or
pays directly) some or all of the medical
care expenses for employees covered by
TRICARE constitutes an HRA and may
not be integrated with TRICARE to com-
ply with PHS Act sections 2711 and 2713
because TRICARE is not a group health
plan for integration purposes. However,
Q&A-3 stated that an HRA that pays for
or reimburses medical care expenses for
employees covered by TRICARE may be
integrated with another group health plan
offered by the employer for purposes of
PHS Act sections 2711 and 2713 if: (1) the
employer offers a group health plan (other
than the HRA) to the employee that does
not consist solely of excepted benefits and
that provides minimum value (MV); (2)
the employee participating in the HRA
is enrolled in TRICARE; (3) the HRA is
available only to employees who are en-
rolled in TRICARE; and (4) the HRA is
limited to reimbursement of cost sharing
and excepted benefits, including TRI-
CARE supplemental premiums.
Q&A-3 of Notice 2015-17 also pro-
vided that an employer payment plan
through which an employer reimburs-
es (or pays directly) all or a portion of
Medicare Part B or D premiums for em-
ployees may not be integrated with Medi-
care coverage to comply with PHS Act
sections 2711 and 2713 because Medi-
care coverage is not a group health plan.
However, under the notice, this type of
employer payment plan may be integrat-
ed with another group health plan offered
by the employer for purposes of PHS Act
sections 2711 and 2713 if: (1) the em-
ployer offers a group health plan (other
than the employer payment plan) to the
employee that does not consist solely of
excepted benefits and that provides MV;
(2) the employee participating in the em-
ployer payment plan is actually enrolled
in Medicare Part A and B; (3) the em-
ployer payment plan is available only to
employees who are enrolled in Medicare
Part A and Part B or D; and (4) the em-
ployer payment plan is limited to reim-
bursement of Medicare Part B or D pre-
miums and excepted benefits, including
Medigap premiums. Notice 2015-17 also
includes a general reminder that, to the
extent such an arrangement is available
to active employees, it may be subject to
restrictions under other laws, such as the
Medicare secondary payer (MSP) pro-
visions.
20
See later in this preamble for
a discussion of the rules provided in the
2015 rules under PHS Act section 2711
allowing Medicare Part B and D reim-
bursement arrangements to be integrat-
ed with Medicare in certain limited cir-
cumstances (that is, generally, for HRAs
sponsored by employers with fewer than
20 employees).
On November 18, 2015, the Depart-
ments finalized the proposed and interim
final rules under PHS Act section 2711,
incorporating certain subregulatory guid-
ance regarding HRA integration, and
making various additional clarifications
(the 2015 rules).
21
The 2015 rules incor-
porate prior subregulatory guidance that
HRAs may not be integrated with indi-
vidual health insurance coverage for pur-
poses of complying with PHS Act sec-
tions 2711 and 2713. Consistent with the
initial subregulatory guidance, the 2015
rules provide two methods for integration
of HRAs with other group health plan
coverage.
22
The first method applies to
HRAs integrated with other group health
plan coverage that provides MV (the MV
Integration Method).
23
The second meth-
od applies to HRAs integrated with other
group health plan coverage that does not
provide MV (the Non-MV Integration
Method).
24
Both the MV Integration Method and
the Non-MV Integration Method require
that: (1) the HRA plan sponsor offer the
employee a group health plan other than
the HRA (non-HRA group coverage); (2)
the employee receiving the HRA be en-
rolled in non-HRA group coverage, even
if the non-HRA group coverage is not
offered by the HRA plan sponsor, such
as a group health plan maintained by an
16
In addition to describing the integration methods, IRS Notice 2013-54 and DOL Technical Release No. 2013-03, in Q&A-5, provided that, whether or not an HRA is integrated with other
group health plan coverage, unused amounts that are credited to the HRA while the HRA is integrated with other group health plan coverage may be used to reimburse medical care expenses
in accordance with the terms of the HRA after an employee ceases to be covered by the integrated group health plan coverage without causing the HRA to fail to comply with PHS Act sections
2711 and 2713. In IRS Notice 2015-87, Q&A-2, however, the Departments clarified that an HRA that includes terms permitting the purchase of individual health insurance coverage, even
if reimbursement is only allowed after the employee ceases to be covered by other integrated group health plan coverage, fails to be integrated with other group health plan coverage and
therefore fails to comply with PHS Act sections 2711 and 2713.
17
See 80 FR 72192 (Nov. 18, 2015).
18
See FAQs about Affordable Care Act Implementation (Part XXII), available at https://www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-xxii.pdf
or https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/Downloads/FAQs-Part-XXII-FINAL.pdf.
19
The Treasury Department and the IRS note that the information included in this preamble is not intended to be guidance regarding the proper federal tax treatment or consequences of any
particular arrangement, except to the extent the preamble addresses the application of Code sections 36B, 9801, 9802, 9815, 9831, and 9832 and PHS Act sections 2711 and 2713.
20
See later in this preamble for a clarification of the meaning of this statement included in IRS Notice 2015-17, regarding the MSP provisions.
21
See 80 FR 72192 (Nov. 18, 2015). To the extent the 2015 rules did not incorporate or modify the prior subregulatory guidance, that guidance remains in effect.
22
These two methods of integration were originally discussed in IRS Notice 2013-54, Q&A-4, and DOL Technical Release No. 2013-03.
23
See 26 CFR 54.9815-2711(d)(2)(ii), 29 CFR 2590.715-2711(d)(2)(ii), and 45 CFR 147.126(d)(2)(ii).
24
See 26 CFR 54.9815-2711(d)(2)(i), 29 CFR 2590.715-2711(d)(2)(i), and 45 CFR 147.126(d)(2)(i).

July 8, 2019 102 Bulletin No. 2019–28
employer of the employee’s spouse;
25
and
(3) the HRA be made available only to
employees who are enrolled in non-HRA
group coverage, regardless of whether
such coverage is provided by the HRA
plan sponsor. For both integration meth-
ods, the non-HRA group coverage may
not consist solely of excepted benefits
and, for the MV Integration Method, the
non-HRA group coverage offered by the
employer and in which the employee en-
rolls must provide MV.
In addition, both the MV Integration
Method and the Non-MV Integration
Method require that, under the terms of
the HRA, an employee (or former employ-
ee) be permitted to permanently opt out of
and waive future reimbursements at least
annually from the HRA. Both integration
methods also require that, upon termina-
tion of employment, either the funds re-
maining in the HRA are forfeited or the
employee is permitted to permanently opt
out of and waive future reimbursements
under the HRA. For this purpose, forfei-
ture of the funds remaining in the HRA,
or waiver of future reimbursements under
the HRA, occurs even if the forfeited or
waived amounts may be reinstated upon
a fixed date, the participant’s death, or the
earlier of the two events.
The two methods differ with respect
to the expenses that the HRA may reim-
burse. Under the MV Integration Method,
the HRA may reimburse any medical care
expenses, but under the Non-MV Inte-
gration Method, the HRA may reimburse
only co-payments, co-insurance, deduct-
ibles, and premiums under the non-HRA
group coverage, as well as medical care
that does not constitute EHBs.
26
The 2015 rules also include a special
integration method for certain arrange-
ments offered by employers that are not
required to offer, and do not offer, non-
HRA group coverage to employees who
are eligible for Medicare coverage (gen-
erally, employers with fewer than 20 em-
ployees), but that offer non-HRA group
coverage that does not consist solely of
excepted benefits to employees who are
not eligible for Medicare.
27
For these em-
ployers, an HRA that may be used to reim-
burse premiums under Medicare Part B or
D may be integrated with Medicare (and
deemed to comply with PHS Act sections
2711 and 2713) if the employees who are
offered the HRA are enrolled in Medicare
Part B or D, the HRA is available only to
employees who are enrolled in Medicare
Part B or D, and the HRA complies with
the opt-out and forfeiture rules under the
MV Integration Method and Non-MV In-
tegration Method. These employers may
use either of the non-Medicare-specific
integration methods, as applicable, for
HRAs offered to employees who are inel-
igible for Medicare.
C. HIPAA Nondiscrimination Provisions
Prior to the enactment of PPACA, titles
I and IV of the Health Insurance Portabil-
ity and Accountability Act of 1996 (HI-
PAA), Pub. L. 104–191, added Code sec-
tion 9802, ERISA section 702, and PHS
Act section 2702 (HIPAA nondiscrimina-
tion provisions). The Departments pub-
lished final rules implementing the HIPAA
nondiscrimination provisions on Decem-
ber 13, 2006 (the 2006 rules).
28
PPACA
section 1201 reorganized and amended
the HIPAA nondiscrimination provisions
of the PHS Act. Although Code section
9802 and ERISA section 702 were not
amended, the requirements of PHS Act
section 2705 were incorporated by refer-
ence into Code section 9815 and ERISA
section 715.
29
As amended by PPACA, the
nondiscrimination provisions of PHS Act
section 2705 largely reflect the 2006 rules
and extend the HIPAA nondiscrimination
protections (but not the wellness program
exception) to the individual market. These
provisions generally prohibit group health
plans and health insurance issuers in the
group and individual markets from dis-
criminating against individual participants
and beneficiaries in eligibility, benefits, or
premiums based on a health factor.
30

Q&A-2 of FAQs about Affordable
Care Act Implementation (Part XXII)
31

provided that, if an employer offers only
employees with high claims risk a choice
between enrollment in a traditional group
health plan or cash, the arrangement would
not comply with the market requirements,
citing PHS Act section 2705 (which is
incorporated by reference into Code sec-
tion 9815 and ERISA section 715), as well
as the HIPAA nondiscrimination provi-
sions of Code section 9802 and ERISA
section 702. The Q&A explained that these
arrangements violate the nondiscrimina-
tion provisions regardless of whether: (1)
the cash payment is treated by the employ-
er as pre-tax or post-tax to the employee,
25
In IRS Notice 2015-87, Q&A-4, the Departments clarified that an HRA that may be used to reimburse the medical care expenses of an employee’s spouse or dependents (a family HRA) may
not be integrated with self-only coverage of the employee under the employer’s non-HRA group health plan. On January 12, 2017, the Departments issued guidance to clarify that a family
HRA is permitted to be integrated with a combination of coverage under qualifying non-HRA group health plan coverage for purposes of complying with PHS Act sections 2711 and 2713,
provided that all of the individuals who are covered under the family HRA are also covered under qualifying non-HRA group coverage. See FAQs about Affordable Care Act Implementation
Part 37, available at https://www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-37.pdf or https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-
FAQs/Downloads/FAQs-Part-37.pdf.
26
Although, in general, an HRA integrated with non-HRA group coverage fails to comply with PHS Act section 2711 if the non-HRA group coverage with which the HRA is integrated does
not cover a category of EHB and the HRA is available to cover that category of EHB and limits the coverage to the HRA’s maximum benefit, the Departments have provided that if the non-
HRA group coverage satisfies the MV Integration Method, an HRA will not be treated as failing to comply with PHS Act section 2711, even if the non-HRA group coverage with which the
HRA is integrated does not cover a category of EHB and the HRA is available to cover that category of EHB and limits the coverage to the HRA’s maximum benefit. See IRS Notice 2013-54,
Q&A-6.
27
See 26 CFR 54.9815-2711(d)(5), 29 CFR 2590.715-2711(d)(5), and 45 CFR 147.126(d)(5). The 2015 rules did not address the Medicare integration rules that apply to employers who are
required to offer non-HRA group coverage to employees who are eligible for Medicare (generally, employers with 20 or more employees). For a discussion of those rules, see IRS Notice
2015-17 and the discussion in this preamble.
28
71 FR 75013 (Feb. 12, 2007).
29
PPACA section 1201 moved the HIPAA nondiscrimination provisions from PHS Act section 2702 to PHS Act section 2705, with some modifications.
30
The HIPAA nondiscrimination provisions set forth eight health status related factors. The eight health factors are health status, medical condition (including both physical and mental illness-
es), claims experience, receipt of healthcare, medical history, genetic information, evidence of insurability, and disability. These terms are largely overlapping and, in combination, include
any factor related to an individual’s health. 66 FR 1377, 1379 (Jan. 8, 2001).
31
See FAQs about Affordable Care Act Implementation (Part XXII), available at https://www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-xxii.pdf
or https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/Downloads/FAQs-Part-XXII-FINAL.pdf.

Bulletin No. 2019–28 103 July 8, 2019
(2) the employer is involved in the selec-
tion or purchase of any individual market
product, or (3) the employee obtains any
individual health insurance coverage. The
Departments explained that offering cash
as an alternative to health coverage for in-
dividuals with adverse health factors is an
eligibility rule that discourages participa-
tion in the traditional group health plan, in
contravention of the HIPAA nondiscrimi-
nation provisions.
D. Excepted Benefits
Code section 9831, ERISA section
732, and PHS Act sections 2722 and 2763
provide that the requirements of chapter
100 of the Code, part 7 of ERISA, and ti-
tle XXVII of the PHS Act do not apply to
excepted benefits. Excepted benefits are
described in Code section 9832, ERISA
section 733, and PHS Act section 2791.
There are four statutory categories of
excepted benefits, including limited ex-
cepted benefits. Under the statutory pro-
visions, limited excepted benefits may
include limited scope vision or dental
benefits, benefits for long-term care, nurs-
ing home care, home healthcare, or com-
munity-based care, or any combination
thereof, and “such other similar, limited
benefits as are specified in regulations” by
the Departments.
32
To be excepted bene-
fits under this category, the benefits must
either: (1) be insured and provided under
a separate policy, certificate, or contract
of insurance; or (2) otherwise not be an
integral part of the plan.
33
The Depart-
ments previously exercised the author-
ity to specify additional types of limited
excepted benefits with respect to certain
health FSAs, certain employee assistance
programs, and certain limited wraparound
coverage.
34
Coverage that consists of excepted
benefits is not minimum essential cov-
erage (MEC).
35
Therefore, an individual
offered or covered by an excepted benefit
is not deemed ineligible for the PTC by
virtue of the excepted benefit offer or cov-
erage.
36
Further, the offer of an excepted
benefit by an employer is not considered
to be an offer of MEC under an eligible
employer-sponsored plan for purposes of
Code section 4980H, the employer shared
responsibility provisions. Thus, an em-
ployer does not avoid a payment under
Code section 4980H by virtue of an offer
of an excepted benefit.
37
E. Premium Tax Credit
1. In General
Code section 36B allows for the PTC
to be available to applicable taxpayers
to help with the cost of individual health
insurance coverage obtained through an
Exchange.
38
Under Code section 36B(a)
and (b)(1) and 26 CFR 1.36B-3(d), a tax-
payer’s PTC is the sum of the premium as-
sistance amounts for all coverage months
during the taxable year for individuals in
the taxpayer’s family.
Under Code section 36B(c)(2), a
month is not a coverage month for an in-
dividual if either: (1) the individual is el-
igible for coverage under an eligible em-
ployer-sponsored plan and the coverage is
affordable and provides MV; or (2) the in-
dividual is enrolled in an eligible employ-
er-sponsored plan, even if the coverage is
not affordable or does not provide MV.
39

An eligible employer-sponsored plan in-
cludes coverage under a self-insured (as
well as an insured) group health plan
40
and
is MEC unless it consists solely of except-
ed benefits.
41
An HRA is a self-insured group health
plan and, therefore, is an eligible employ-
er-sponsored plan. Accordingly, under
existing rules, an individual is ineligible
for the PTC for the individual’s Exchange
coverage for a month if the individual is
covered by an HRA or is eligible for an
HRA that is affordable and provides MV
for the month.
2. Affordability and Minimum Value
Under Code section 36B(c)(2)(C) and
26 CFR 1.36B-2(c)(3)(v)(A)(1) and (2),
an eligible employer-sponsored plan is
affordable for an employee, or for an in-
dividual who may enroll in the coverage
because of a relationship to the employ-
ee, if the amount the employee must pay
for self-only coverage whether by salary
reduction or otherwise (the employee’s
required contribution) does not exceed
a specified percentage of the employ-
ee’s household income. The percentage
is adjusted annually. However, 26 CFR
1.36B-2(c)(3)(v)(A)(3) provides an em-
ployee safe harbor under which an eligi-
ble employer-sponsored plan is not con-
sidered affordable for the entire plan year
of the eligible employer-sponsored plan if,
at the time an individual enrolls in a quali-
fied health plan (QHP) offered through an
Exchange, the Exchange determines that
the eligible employer-sponsored plan is
not affordable.
42
Thus, the employee safe
harbor locks in the Exchange’s determi-
nation of unaffordability, which is based
on estimated household income, even if
the eligible employer-sponsored plan ulti-
mately proves to be affordable based on
actual household income for the tax year.
Under Code section 36B(c)(2)(C)(ii),
an eligible employer-sponsored plan pro-
vides MV if the plan’s share of the total
32
See Code section 9832(c)(2), ERISA section 733(c)(2), and PHS Act section 2791(c)(2).
33
See Code section 9831(c)(1), ERISA section 732(c)(1), and PHS Act section 2722(c)(1) and 2763(b). See also 79 FR 59130, 59131-59134 (Oct. 1, 2014) discussing the application of these
requirements to benefits such as limited-scope dental and vision benefits and employee assistance programs.
34
See 26 CFR 54.9831-1(c)(3)(v), (vi), and (vii); 29 CFR 2590.732(c)(3)(v), (vi), and (vii); and 45 CFR 146.145(b)(3)(v), (vi), and (vii).
35
See Code section 5000A(f)(3).
36
See Code section 36B(c)(2)(B).
37
See Code section 4980H(a)(1) and (b)(1). See also 26 CFR 54.4980H-1(a)(14).
38
Exchanges are entities established under PPACA section 1311 through which qualified individuals and qualified employers can purchase health insurance coverage.
39
See Code section 36B(c)(2)(C)(iii) and 26 CFR 1.36B-2(c)(3)(vii)(A) and 1.36B-3(c).
40
See 26 CFR 1.5000A-2(c).
41
See Code section 5000A(f)(3) and 26 CFR 1.5000A-2(g).
42
This employee safe harbor does not apply if the individual does not respond to a redetermination notice or, with reckless disregard for the facts, provides incorrect information to the Ex-
change. See 26 CFR 1.36B-2(c)(3)(v)(A)(3).

July 8, 2019 104 Bulletin No. 2019–28
allowed costs of benefits provided under
the plan is at least 60 percent of the costs.
PPACA section 1302(d)(2)(C) provides
that, in determining the percentage of the
total allowed costs of benefits provided
under a group health plan, the rules pro-
mulgated by HHS under that paragraph of
PPACA apply. In general, HHS rules pro-
vide that an eligible employer-sponsored
plan provides MV only if the percentage
of the total allowed costs of benefits pro-
vided under the plan is greater than or
equal to 60 percent, and the benefits under
the plan include substantial coverage of
inpatient hospital services and physician
services.
43

F. QSEHRAs
1. In General
The 21
st
Century Cures Act (Cures Act)
Pub. L. 114-255 was enacted on Decem-
ber 13, 2016. Cures Act section 18001
amended the Code, ERISA, and the PHS
Act to permit an eligible employer to pro-
vide a QSEHRA to its eligible employees.
The Cures Act provides that a QSEHRA
is not a group health plan for purposes of
the market requirements, and, as a result,
QSEHRAs are not subject to PHS Act
sections 2711 and 2713.
44
For purposes
of these rules, the term “HRA or other
account-based group health plans” does
not include QSEHRAs, unless otherwise
specified.
Pursuant to Code section 9831(d), a
QSEHRA is an arrangement that generally
must be provided on the same terms, sub-
ject to certain exceptions, and cannot ex-
ceed a prescribed maximum amount.
45
For
the purpose of identifying who can pro-
vide a QSEHRA, the statute provides that
an eligible employer is an employer that is
not an applicable large employer (ALE),
as defined in Code section 4980H(c)(2),
and that does not offer a group health
plan to any of its employees. The statute
also requires that an employer providing
a QSEHRA satisfies certain notice re-
quirements including a statement that the
employee should provide the information
about the permitted benefit to the appli-
cable Exchange if the employee applies
for advance payments of the premium tax
credit (APTC).
On October 31, 2017, the Treasury
Department and the IRS issued Notice
2017-67
46
to provide guidance on the re-
quirements for providing a QSEHRA.
If an eligible employer complies with
the guidance provided in Code section
9831(d) and Notice 2017-67, it may pro-
vide a QSEHRA to its eligible employees
and the QSEHRA is not required to com-
ply with PHS Act sections 2711 and 2713
because it is not subject to those require-
ments.
2. QSEHRAs and the PTC
The Cures Act also added provisions to
Code section 36B relating to how partici-
pation in a QSEHRA affects a taxpayer’s
eligibility for the PTC and how partici-
pation in a QSEHRA affects a taxpayer’s
computation of the PTC. Under Code
section 36B(c)(4)(A), if an employee is
provided a QSEHRA that constitutes af-
fordable coverage for a month, the month
is not a coverage month for the employee
or the employee’s spouse or dependents,
meaning that the PTC is not allowed for
that month. Code section 36B(c)(4)(C)
provides that a QSEHRA constitutes af-
fordable coverage for a month if the excess
of the monthly premium for the self-only
second lowest cost silver plan in the em-
ployee’s individual market over 1/12 of
the employee’s permitted benefit, as de-
fined in Code section 9831(d)(3)(C), does
not exceed 1/12 of a specified percentage
of the employee’s household income.
Code section 36B(c)(4)(B) provides
that if an employee is provided a QSEH-
RA that does not constitute affordable
coverage for a coverage month, the PTC
otherwise allowable for the month is re-
duced by 1/12 of the employee’s annual
permitted benefit under the QSEHRA.
G. Individual Market Special Enrollment
Periods
Generally, individuals may enroll in or
change to different individual health in-
surance coverage only during the annual
open enrollment period described in 45
CFR 155.410. An individual may qualify
for an SEP to enroll in or change to a dif-
ferent Exchange plan outside of the annu-
al open enrollment period under a variety
of circumstances prescribed by PPACA
section 1311(c)(6)(C) and (D) and as de-
scribed in 45 CFR 155.420. These SEPs
are under the jurisdiction of HHS, and
apply to persons seeking individual health
insurance coverage through a State Ex-
change or Federally-facilitated Exchange
(FFE) and, in most cases, to individuals
seeking individual health insurance cover-
age outside an Exchange.
47

Paragraph (d) of 45 CFR 155.420 de-
scribes the triggering events that qualify
individuals, enrollees, and in some cas-
es, their dependents for SEPs on the Ex-
changes through which they can enroll in
a QHP or change from one QHP to an-
other. Paragraph (b) of 45 CFR 155.420
describes the coverage effective dates
available in connection with each SEP.
Paragraph (c) describes the availability of
each SEP relative to its triggering event
– that is, whether applicants may select
a plan after the event or also before the
43
See 45 CFR 156.145. See also 80 FR 52678 (Sept. 1, 2015).
44
See Code section 9831(d)(1), ERISA section 733(a)(1), and PHS Act section 2791(a)(1). However, QSEHRAs are group health plans under the PHS Act definition for purposes of part C
of title XI of the Social Security Act (42 USC 1320d et seq.). See PHS Act section 2791(a)(1), as amended by Cures Act section 18001(c). In addition, QSEHRAs were not excluded from
ERISA’s definition of employee welfare benefit plan under ERISA section 3(1) and, therefore, remain subject to the requirements for employee welfare benefit plans under ERISA. See H.
Rept. 114-634 – Small Business Health Care Relief Act of 2016 (the relevant provisions of this bill were passed into law by the Cures Act). Moreover, because QSEHRAs are employee
welfare benefit plans, individual health insurance coverage that is reimbursed by a QSEHRA would not become part of an ERISA plan if the conditions of the DOL safe harbor described
later in this preamble are satisfied.
45
See Code section 9831(d) and IRS Notice 2017-67, 2017-47 IRB 517, for additional detail.
46
See IRS Notice 2017-20, 2017-11 IRB 1010, which extended the period for an employer to furnish an initial written notice to its eligible employees regarding a QSEHRA, and see
FAQs About Affordable Care Act Implementation Part 35, Q&A-3, available at https://www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-35.pdf and
https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/Downloads/FAQ-Part-35_12-20-16.pdf.
47
Group health plans and group health insurance issuers must provide SEPs under certain circumstances and the Departments have jurisdiction over those provisions. See Code section
9801(f), ERISA section 701(f), and PHS Act section 2704(f); see also 26 CFR 54.9801-6, 29 CFR 2590.701-6, and 45 CFR 146.117. The final rules do not affect the group health plan and
group health insurance issuer SEPs, which continue to apply to group health plans, including HRAs, and group health insurance issuers.

Bulletin No. 2019–28 105 July 8, 2019
event. That paragraph also describes the
length of time applicants have to select
a plan based on their SEP. Paragraph (a)
(4) of 45 CFR 155.420 describes the plan
changes that current Exchange enrollees
and their dependents may make upon
qualifying for an SEP. Generally, current
Exchange enrollees who qualify for most
SEPs may change to another QHP with-
in the same metal level, or “plan catego-
ry,” as their current QHP. Current enroll-
ees whose dependent(s) qualify for most
SEPs may add their dependent(s) to their
current QHP, or enroll them in a separate
QHP.
48
In combination, the rules at 45
CFR 155.420(a)(4) are generally referred
to as “plan category limitations.”
With regard to individual health insur-
ance coverage sold outside of an Exchange,
45 CFR 147.104(b)(2) provides that health
insurance issuers must provide SEPs (re-
ferred to in the regulation as limited open
enrollment periods) for the triggering
events described in 45 CFR 155.420(d),
except for certain triggering events listed
under 45 CFR 147.104(b)(2). Addition-
ally, 45 CFR 147.104(b)(4)(ii) and (b)
(5) apply the SEP availability and cover-
age effective dates at 45 CFR 155.420 to
SEPs available off-Exchange. However,
the plan category limitations do not apply
outside the Exchanges.
H. Proposed Rules
In response to Executive Order 13813,
the Departments published a notice of
proposed rulemaking entitled “Health
Reimbursement Arrangements and Oth-
er Account-Based Group Health Plans”
on October 29, 2018 (83 FR 54420) (the
proposed rules), which would expand the
flexibility and use of HRAs.
The proposed rules would expand the
use of HRAs in several ways. First, the
proposed rules included a proposal to re-
move the current prohibition against in-
tegrating an HRA with individual health
insurance coverage
49
under the PHS Act
section 2711 rules (the proposed integra-
tion rules). The proposed integration rules
included a proposal to permit an HRA to
be integrated with individual health insur-
ance coverage and, therefore, to satisfy
PHS Act sections 2711 and 2713, if the
provisions of the proposed rules under 26
CFR 54.9802-4, 29 CFR 2590.702-2, and
45 CFR 146.123 were satisfied. These fi-
nal rules refer to this type of HRA as an
individual coverage HRA.
Second, the proposed rules provided an
expanded definition of limited excepted
benefits, under Code section 9832(c)(2),
ERISA section 733(c)(2), and PHS Act
section 2791(c)(2)(C), to include certain
HRAs that are limited in amount and with
regard to the types of coverage for which
premiums may be reimbursed, if certain
other conditions are satisfied (an excepted
benefit HRA) (the proposed excepted ben-
efit HRA rules).
The Treasury Department and the IRS
also proposed rules under Code section
36B for PTC eligibility for individuals
who are offered an individual coverage
HRA
50
(the proposed PTC rules). DOL
proposed a clarification to provide HRA
and QSEHRA plan sponsors with assur-
ance that the individual health insurance
coverage the premiums of which are re-
imbursed by the HRA or QSEHRA does
not become part of an ERISA plan when
certain conditions are satisfied. Finally,
HHS proposed changes to rules regarding
SEPs in the individual market that would
provide an SEP for individuals who gain
access to individual coverage HRAs or
who are provided QSEHRAs (the pro-
posed SEP rules).
51

The Departments requested comments
on all aspects of the proposed rules, as well
as requesting comments on a number of
specific issues. The Departments received
over 500 comments in response to the pro-
posed rules from a range of stakeholders,
including employers, health insurance is-
suers, State Exchanges, state regulators,
unions, and individuals. No requests for a
public hearing were received. After careful
consideration of all of the comments, the
Departments are finalizing the proposed
rules with certain modifications made in re-
sponse to comments. These modifications
are discussed later in this preamble.
II. Overview of the Final Rules on
Individual Coverage HRAs and
Excepted Benefit HRAs - the
Departments of the Treasury,
Labor, and Health and Human
Services
A. Integration Rules
1. Integration – In General
Consistent with the objectives in Ex-
ecutive Order 13813 to consider propos-
ing rules to expand and facilitate access
to HRAs, the proposed rules included a
proposal to remove the prohibition on
integration of an HRA with individual
health insurance coverage, if certain con-
ditions were satisfied. More specifically,
in order to ensure compliance with PHS
Act sections 2711 and 2713, the proposed
rules provided that to be integrated with
individual health insurance coverage, the
HRA must require participants
52
and any
48
If an enrollee wants to add their dependent(s) to their current QHP, but the plan’s business rules do not allow the dependent(s) to enroll, then the Exchange must allow the enrollee and his
or her dependent(s) to change to another QHP within the same level of coverage, or one metal level higher or lower, if no such QHP is available.
49
For purposes of this preamble and the final rules, “individual health insurance coverage” means health insurance coverage offered to individuals in the individual market, but does not in-
clude STLDI. See PHS Act section 2791(b)(5). See also 26 CFR 54.9801-2, 29 CFR 2590.701-2, and 45 CFR 144.103. Individual health insurance coverage can include dependent coverage
and therefore can be self-only coverage or other-than-self-only coverage. “Individual market” means the market for health insurance coverage offered to individuals other than in connection
with a group health plan. See PHS Act section 2791(e)(1). See also 26 CFR 54.9801-2, 29 CFR 2590.701-2, and 45 CFR 144.103. As discussed later in this preamble, “group health insurance
coverage” means health insurance coverage offered in connection with a group health plan. Individual health insurance coverage reimbursed by the arrangements described in 29 CFR 2510.3-
1(l) (which is finalized in this rule) is not offered in connection with a group health plan, and is not group health insurance coverage, provided all the conditions in 29 CFR 2510.3-1(l) are
satisfied. See ERISA section 733(b)(4) and PHS Act section 2791(b)(4). See also 26 CFR 54.9801-2, 29 CFR 2590.701-2, and 45 CFR 144.103.
50
References in the preamble to “an offer of an individual coverage HRA” or to similar phrases mean an offer of an HRA designed to be integrated with individual health insurance coverage
under the final rules that will be considered integrated with that individual health insurance coverage for an individual who enrolls in that coverage.
51
On November 19, 2018, the Treasury Department and the IRS issued Notice 2018-88. IRS Notice 2018-88 described a number of proposals related to the application of Code sections 4980H
and 105(h) to individual coverage HRAs. For additional discussion of IRS Notice 2018-88, see elsewhere in this preamble.
52
For this purpose, the definition of participant under 26 CFR 54.9801-2, 29 CFR 2590.701-2, and 45 CFR 144.103 applies, which is defined as a participant within the meaning of ERISA
section 3(7). Under ERISA section 3(7), “the term ‘participant’ means any employee or former employee of an employer, or any member or former member of an employee organization, who
is or may become eligible to receive a benefit of any type from an employee benefit plan which covers employees of such employer or members of such organization, or whose beneficiaries
may be eligible to receive any such benefit.”

July 8, 2019 106 Bulletin No. 2019–28
dependents
53
covered by the HRA
54
to be
enrolled in individual health insurance
coverage and to substantiate compliance
with this requirement.
Further, in order to prevent a plan
sponsor from intentionally or unintention-
ally, directly or indirectly, steering any
participants or dependents with adverse
health factors away from the plan spon-
sor’s traditional group health plan and into
the individual market, the proposed rules
prohibited a plan sponsor from offering
employees within a class of employees a
choice between a traditional group health
plan and an individual coverage HRA.
The proposed rules also required that an
individual coverage HRA be offered on
the same terms to all employees within a
class of employees, subject to certain ex-
ceptions, and the proposed rules included
proposed classes of employees that em-
ployers could use for this purpose.
The proposed rules also required in-
dividual coverage HRAs to allow em-
ployees to opt out of and waive future
reimbursements under the HRA at certain
times, and to provide a notice to eligible
participants regarding how the offer of the
HRA, or enrollment in the HRA, affects
the ability to claim the PTC. This was pro-
posed because an offer of an HRA may af-
fect an individual’s eligibility for the PTC,
and enrollment in an HRA does affect an
individual’s eligibility for the PTC.
Each of these conditions, and the re-
lated comments received, are discussed
in the following sections of this preamble.
This section of the preamble addresses
the more general comments on allowing
HRAs to be integrated with individual
health insurance coverage.
Many commenters supported the pro-
posed rules. Some of these commenters
expressed general support for the Depart-
ments’ efforts to expand the availabili-
ty and use of HRAs and the priority the
Departments have placed on HRAs. Some
commenters stated that the proposed rules
would enable employers to offer more af-
fordable health coverage alternatives to
employees and could expand health insur-
ance coverage, including for lower-wage
and part-time and other particular groups
of employees. Some commenters focused
on the potential benefits for small employ-
ers, commenting that the proposed HRA
expansion would create new options for
small employers that have otherwise been
unable to offer health insurance cover-
age due to PPACA-related requirements.
These commenters asserted that the pro-
posed HRA expansion would help small
employers provide meaningful benefits,
attract talent, and keep their workforce
healthy. Some commenters expressed
general support for allowing employers to
move to a defined contribution approach
for health insurance coverage, including
because this likely permits greater em-
ployee choice.
Some commenters noted that allow-
ing individual coverage HRAs could ex-
pand and stabilize the individual health
insurance market while providing greater
administrative simplicity and reducing
administrative costs for employers. In
particular, some commenters expressed
the view that the proposed rules would
strengthen the individual market due to
an increased number of individuals in the
individual market and because working
individuals who would be added to the in-
dividual market tend to be of lower health
risk than those currently comprising the
individual market risk pool. Some com-
menters also stated that employers may
not necessarily be incentivized to segment
their risk and, therefore, concerns about
adverse selection may be overstated.
Some commenters who generally sup-
ported the proposed rules emphasized that
their support was contingent on any final
rules retaining the conditions intended
to prevent adverse selection. And some
commenters opposed allowing individ-
ual coverage HRAs. These commenters
stated that the safeguards in the proposed
rules were insufficient to prevent market
segmentation and destabilization of the
individual market. Several of these com-
menters argued that market segmentation
could occur if employers that choose to
offer an individual coverage HRA have
higher-risk employees than those employ-
ers that choose not to offer an individual
coverage HRA and that employers may
still be able to segment risk based on the
proposed classes of employees. Some of
these commenters asked that the rules be
withdrawn, or at least delayed, until the
potential effects on the individual and
group markets could be better understood.
More generally, commenters expressed
a number of concerns regarding adverse
selection and risk-pool effects of the pro-
posed rules, including that the proposed
rules would change the composition of
the risk pools for the individual and small
group markets, making coverage more ex-
pensive and less accessible overall. Some
commenters were concerned that the pro-
posed rules would be particularly harmful
to self-employed individuals and small
business employees because those indi-
viduals generally rely on coverage in the
individual market and, according to the
commenters, the proposed rules would in-
crease premiums in the individual market.
Some commenters were also concerned
that employers may substantially alter
traditional group health plans to the det-
riment of all employees who rely on that
coverage and that there could be negative
implications in the small group market for
states that have merged their individual
and small group market risk pools. One
commenter stated that the negative effects
of the proposed rules, particularly the in-
crease in individual market premiums and
the attendant fiscal cost that the comment-
er expects to occur, are likely to outweigh
the benefits to employers and their em-
ployees. Another commenter asserted that
the proposed rules would increase premi-
ums due to both adverse selection and is-
suers’ increased uncertainty regarding the
effect of individual coverage HRAs on the
individual market.
The Departments agree with the com-
menters who asserted that allowing in-
53
For this purpose, the definition of dependent under 26 CFR 54.9801-2, 29 CFR 2590.701-2, and 45 CFR 144.103 applies, which is defined as “any individual who is or may become eligible
for coverage under the terms of a group health plan because of a relationship to a participant.”
54
The final rules use several terms interchangeably regarding an individual’s individual coverage HRA status. These terms generally parallel those used when referring to group or individual
health insurance coverage. Specifically, “enrolled in” and “covered by,” both refer to the status of an individual who is participating in an individual coverage HRA and can request reim-
bursements for medical care expenses reimbursable under the HRA. The date on which an individual coverage HRA “takes effect” or “begins” refers to the first date on which reimbursable
medical care expenses may be incurred. For example, an employee whose individual coverage HRA takes effect on June 1 may request reimbursements for medical care expenses incurred
on or after that date, if the individual is enrolled in individual health insurance coverage or Medicare on or before June 1.

Bulletin No. 2019–28 107 July 8, 2019
dividual coverage HRAs will expand
flexibility and use of HRAs to provide
additional options for employers and
employees to offer and obtain quality,
affordable healthcare. The Departments
also agree that individual coverage HRAs
would expand coverage and may provide
greater administrative simplicity and re-
duce administrative costs for employers.
The Departments acknowledge the
concerns expressed by commenters that
allowing individual coverage HRAs could
cause adverse selection in the individual
market. As explained in the preamble to
the proposed rules, allowing individual
coverage HRAs could theoretically re-
sult in opportunities for employers to en-
courage higher-risk employees (that is,
employees with high expected medical
claims or employees with family members
with high expected medical claims) to ob-
tain coverage in the individual market, ex-
ternal to the traditional group health plan
sponsored by the employer, in order to re-
duce the cost of traditional group health
plan coverage provided by the employer to
lower-risk employees. This could happen
in a number of ways. For example, if em-
ployees were permitted to choose between
participating in an employer’s traditional
group health plan or an individual cov-
erage HRA, some higher-risk employees
might have an incentive to select the HRA
and enroll in individual health insurance
coverage, depending on the relative gen-
erosity of the individual coverage HRA
and the individual health insurance cover-
age as compared to the traditional group
health plan. There could be significant
differences between these coverage op-
tions because individual health insurance
coverage generally is required to cover all
categories of EHBs, and large group mar-
ket and self-insured group health plans are
not required to do so. An employer could
also deliberately attempt to steer employ-
ees with certain medical conditions away
from the employer’s traditional group
health plan. In either case, if dispropor-
tionately higher-risk employees enrolled
in individual coverage HRAs, this adverse
selection could raise premiums in the indi-
vidual market.
Both in promulgating the proposed
rules and again in response to comments
provided on the proposed rules, the De-
partments considered the possibility that
the individual market could instead be
positively impacted. Lower-risk employ-
ees might choose individual coverage
HRAs, while higher-risk employees might
elect to remain in their employer’s tradi-
tional group health plan. Such an outcome
could result for a host of reasons, includ-
ing because higher-risk employees may
be more risk averse to changing health
benefits. Additionally, individual health
insurance coverage might have more re-
strictive provider networks than tradi-
tional group health plans and higher-risk
employees are generally more sensitive
to the make-up of the provider network
than lower-risk employees. In addition,
lower-risk employees might prefer an in-
dividual coverage HRA because it could
allow them to spend less on premiums—
reducing or potentially eliminating out-of-
pocket premiums and potentially leaving
more funds to cover cost sharing. Further,
employers might be discouraged by the le-
gal risk involved with attempting to steer
higher-risk employees away from the tra-
ditional group health plan.
However, employers also would face
strong countervailing incentives to main-
tain (or improve) the average health risk
of participants in their traditional group
health plans. Therefore, the Departments
have determined that there is a risk of
some market segmentation and health fac-
tor discrimination that could result from
allowing individual coverage HRAs, but
the Departments also have determined
that the risk can be sufficiently mitigated
with conditions of the type provided in
the proposed rules (and in the final rules)
designed to limit adverse selection. More-
over, as discussed in more detail later in
this preamble, the Departments considered
the comments requesting that the Depart-
ments strengthen the conditions intended
to limit adverse selection, and the Depart-
ments are finalizing those proposed con-
ditions with some changes in response to
comments, including adding a minimum
class size requirement that will apply to
certain classes of employees in certain
instances. Regarding the concern raised
by commenters that the proposed condi-
tions would not prevent adverse selection
if employers with higher-risk employees
chose to offer individual coverage HRAs,
the Departments took that possibility into
account in the regulatory impact analysis.
Therefore, taking all of these consid-
erations into account, the Departments
have determined that allowing individual
coverage HRAs will produce significant
benefits, including increased options and
coverage, and is not likely to create a ma-
terial risk of adverse selection in the in-
dividual market due to the sufficiency of,
and changes to strengthen, the integration
conditions intended to mitigate that risk
that are finalized in this rulemaking. Ac-
cordingly, the Departments are finalizing
the proposed rules, including each of the
conditions included in the proposed rules,
but with various changes and clarifica-
tions, as explained later in this preamble.
A number of commenters expressed
concern about the impact on employees
shifting from traditional group health
plans to the individual market. Some
commenters emphasized that in order to
achieve the goals of expanding coverage
and increasing choice and flexibility for
employers, it is vital that the individual
market be stable and well-functioning;
otherwise, employers will be unwilling
to utilize the expanded flexibility. Some
commenters recommended that the De-
partments delay issuing the final integra-
tion rules until insurance in the individual
market is more affordable or until clear-
er information is available regarding the
long-term stability of the individual mar-
ket, including the impacts of other recent
changes such as the expansion of STLDI
and changes to the PPACA section 1332
waiver program. Some commenters asked
the Departments to withdraw the proposed
integration rules and, instead, take other
actions to stabilize the individual market.
One commenter requested that HRA inte-
gration with individual health insurance
coverage be allowed only if each employ-
ee is provided at least three choices for
coverage in the individual market.
The Departments acknowledge that the
extent to which the goals of expanding
coverage and options through individual
coverage HRAs will be achieved depends
on the existence of a stable individual
market. Accordingly, the Departments are
finalizing the proposed rules with condi-
tions on individual coverage HRAs intend-
ed to prevent a negative impact on the in-

July 8, 2019 108 Bulletin No. 2019–28
dividual market. The Departments expect
individual coverage HRAs, with the safe-
guards in the final rules, will substantially
increase the size of the individual market
and will not result in significant changes
in the average health risk of the individu-
al market risk pool. The Departments also
understand that currently the stability of
the individual market varies a great deal
across the country, and that in some places
improvement will likely be needed before
employers elect to offer individual cover-
age HRAs. The Departments considered
these issues in developing the proposed
and final rules and incorporated signifi-
cant flexibility, including geographic flex-
ibility, to address these issues so that each
employer may choose what is best for its
workforce. However, the final rules do not
require that a minimum number of indi-
vidual health insurance plans be available
to employees in order for the employer to
offer an individual coverage HRA. There
is no compelling justification for such
a requirement, and it is not necessary to
ensure compliance with PHS Act sections
2711 and 2713. Employees often have lim-
ited choices with respect to the tradition-
al group health plans they are offered, if
any, and adopting this type of requirement
would unnecessarily prevent certain em-
ployers from offering an individual cover-
age HRA. Further, suggestions regarding
changes to the other rules that affect the
individual market, in order to improve the
individual market, are outside the scope of
this rulemaking.
Some commenters stated that the pro-
posed rules failed to adequately take into
account the differences between tradition-
al group health plans and individual health
insurance coverage, the increased burden
on employees in choosing and enrolling
in a plan in the individual market relative
to the burden on employees under a tradi-
tional group health plan, and the signifi-
cance of the change, from the employee’s
perspective. Other commenters stated that
individuals in the individual market could
face more expensive plans, lower employ-
er contributions, narrower networks, and
higher cost sharing. Some commenters
stated that these individuals could also
face more confusion and be provided less
assistance, in part due to decreased federal
funding for outreach and assistance in the
individual market. Some of these com-
menters asserted what they believed to be
the comparative advantages of traditional
group health plans, including that those
plans are more robust, cost-effective, and
consumer-friendly. One commenter ex-
pressed general concern about the shift-
ing of employees from a defined benefit
health plan system to a defined contribu-
tion health plan system, because, accord-
ing to the commenter, it may result in less
comprehensive coverage.
The Departments considered, and are
aware, that an employee’s experience en-
rolling in and having coverage under an
individual coverage HRA may be differ-
ent than the experience of enrolling in and
having coverage under a traditional group
health plan. The Departments took this
into account in developing the proposed
and final rules, including by requiring
the individual coverage HRA to provide
a notice to eligible participants explain-
ing the individual coverage HRA and the
possible consequences of the HRA being
offered and accepted. The Departments
understand that employers tend to act in
the best interest of their workers in order
to recruit and retain talent. Therefore, an
employer offering an individual coverage
HRA generally will do so because it is a
better alternative for a substantial share of
their employees than a traditional group
health plan or no offer of employer-spon-
sored coverage. Further, as described later
in this preamble, DOL is also clarifying
the extent to which employers may as-
sist employees with regard to enrollment
in individual health insurance coverage
without resulting in the individual health
insurance coverage becoming part of an
ERISA plan. In addition, the Departments
are continuing to consider ways to assist
employees offered an individual coverage
HRA, including through clear instructions
in the Exchange application process and
other possible methods of outreach and
assistance. As to the more general com-
ments asserting that traditional group
health plans have advantages as compared
to individual health insurance coverage,
the Departments acknowledge that there
are differences. The Departments intend
with the final rules to expand the choices
available to employers and employees and
to make an additional option available for
employers, including those that have not
previously offered traditional group health
plan coverage.
Some commenters questioned the De-
partments’ legal authority with regard to
certain aspects of the proposed rules. A
few commenters questioned whether the
Departments have the authority to allow
HRAs to satisfy PHS Act sections 2711
and 2713 by virtue of integration with
other coverage, and a few stated that the
Departments failed to justify the remov-
al of the regulatory prohibition on inte-
gration of an HRA with individual health
insurance coverage. Further, a few com-
menters asserted that the Departments do
not have the authority to allow individual
coverage HRAs because Congress enact-
ed the Cures Act, which provided a limit-
ed exception to the prohibition on HRAs
provided in conjunction with individual
health insurance coverage in the form of
QSEHRAs, and the commenters believe
this indicates that Congress did not intend
to allow the Departments to otherwise re-
move the regulatory prohibition on inte-
gration of an HRA with individual health
insurance coverage.
The Departments disagree with these
commenters and, instead, have determined
that the final rules are justified and within
the Departments’ authority. While HRAs
are group health plans subject to PHS Act
sections 2711 and 2713 and would fail to
comply with those provisions if they were
offered on their own, PHS Act sections
2711 and 2713 do not speak directly to
situations in which an HRA is integrated
with other coverage that satisfies those
statutory requirements. The Departments
have determined that it is reasonable, and
consistent with the statutory scheme, to
apply PHS Act sections 2711 and 2713 to
the integrated arrangement rather than to
each of its component parts.
As explained earlier in this preamble,
the Departments previously determined
that it was reasonable to consider an HRA
to be compliant with PHS Act sections
2711 and 2713 as long as individuals
covered by the HRA had other employ-
er-provided group health plan coverage
(including coverage offered by a different
employer, such as a spouse’s employer)
that satisfied the conditions in PHS Act
sections 2711 and 2713, subject to certain

Bulletin No. 2019–28 109 July 8, 2019
other conditions.
55
In that case, under the
combined arrangement, individuals have
the protections intended by PPACA, in ad-
dition to the HRA that they generally may
use to pay for premiums or other medical
care expenses not covered by the group
health plan. The Departments now extend
this same approach to integration with in-
dividual health insurance coverage, which
the Departments have determined is simi-
larly justified and appropriate, as individ-
ual health insurance coverage is generally
subject to and compliant with PHS Act
sections 2711 and 2713.
56

In developing the proposed and final
rules, the Departments considered that the
Cures Act provided for QSEHRAs. How-
ever, in creating QSEHRAs, Congress did
not enact a general prohibition on integrat-
ing an HRA with individual health insur-
ance coverage. Instead, Congress allowed
a limited HRA that certain small employ-
ers may provide that is not a group health
plan subject to the market requirements
and, thus, need not be integrated with
any other health coverage to satisfy PHS
Act sections 2711 and 2713. The fact that
Congress provided some flexibility for
certain employers by creating QSEHRAs
does not preclude the Departments from
providing additional flexibility through
rulemaking to allow individual coverage
HRAs.
57
The final rules do not change the
ability of eligible employers to provide
QSEHRAs. Rather, the final rules provide
an opportunity for all employers, includ-
ing those who may or may not qualify to
sponsor a QSEHRA, to sponsor an indi-
vidual coverage HRA.
58
Moreover, by vir-
tue of providing for QSEHRAs, Congress
acknowledged and left intact the Depart-
ments’ regulations allowing for integra-
tion of HRAs with other group health plan
coverage. In so doing, Congress recog-
nized the Departments’ authority to allow
HRAs to be integrated with other group
health plan coverage, which is the same
authority the Departments now extend to
allow integration of HRAs with individual
health insurance coverage.
The Departments acknowledge that the
final rules, in allowing individual cover-
age HRAs, remove the prohibition on an
HRA being integrated with individual
health insurance coverage that the Depart-
ments had previously imposed. As noted
earlier in this section of the preamble, in
the 2015 rules and the guidance that pre-
ceded those rules, the Departments deter-
mined that HRAs should not be allowed
to be integrated with individual health in-
surance coverage, even though that insur-
ance coverage is generally subject to and
compliant with PHS Act sections 2711
and 2713. The Departments at that time
declined to allow integration with indi-
vidual health insurance coverage because
of concerns about adverse selection in the
individual market. Since that time, the De-
partments have observed that many em-
ployers, especially small employers, con-
tinue to struggle to offer health insurance
coverage to their employees.
59
Further, the
Departments have had additional time to
consider whether, and what type of, con-
ditions would be sufficient to mitigate the
risk of adverse selection and health factor
discrimination that might otherwise result
from allowing HRAs to be integrated with
individual health insurance coverage.
The Departments have determined that
the advantages to employers and employ-
ees of individual coverage HRAs warrant
allowing them to be offered,
60
notwith-
standing the concerns regarding potential
adverse selection risk to the individual
market. This is because the Departments
expect that the conditions adopted in the
final rules will significantly mitigate the
risk of adverse selection. As to the bene-
fits, the final rules will increase flexibility
and choices of health coverage options for
employers and employees. The increased
use of individual coverage HRAs could
potentially reduce healthcare spending,
particularly less efficient spending, and
ultimately result in increased taxable
wages for workers in firms that currently
offer traditional group health plans. The
final rules are also expected to increase
the number of low- and moderate-wage
workers (and their family members) with
health insurance coverage.
Accordingly, the Departments disagree
with commenters who asserted that the
Departments are precluded from allow-
ing individual coverage HRAs because
those arrangements were not previously
allowed and that such a change is not suf-
ficiently justified. The Departments have
considered whether to allow HRAs to be
integrated with individual health insur-
ance coverage, and have determined that
a change allowing that integration is war-
ranted, subject to a number of significant
conditions intended to protect against the
risk of adverse selection and health factor
discrimination. This change comes after
the Departments’ consideration of various
factors, including the need to provide em-
ployers and employees additional choices
with respect to healthcare coverage, the
ability of the conditions in the final rules
to mitigate against adverse selection and
health factor discrimination, and the antic-
ipated effect of the final rules to increase
55
The Departments note that under IRS Notice 2015-17, HRAs that reimburse certain Medicare premiums and TRICARE expenses may be considered integrated with the group health plan
coverage offered to the employee by the employer although the employee is not enrolled in that group coverage and is instead enrolled in Medicare or TRICARE, subject to certain conditions.
Further, under 26 CFR 54.9815-2711(d)(5), 29 CFR 2590.715-2711(d)(5), and 45 CFR 147.126(d)(5), an employer payment plan for Medicare premiums offered by certain employers may
be considered integrated with Medicare (and considered to be compliant with PHS Act sections 2711 and 2713), subject to certain conditions.
56
Further, for the reasons discussed later in this preamble, the Departments have determined that permitting integration of individual coverage HRAs with Medicare is also justified and
appropriate, subject to certain conditions. References in this preamble to an individual coverage HRA integrated with Medicare refer to an individual coverage HRA integrated with Medicare
Part A and B or Medicare Part C.
57
Congress has granted the Departments the authority to promulgate regulations as may be necessary or appropriate to carry out the provisions of the Code, ERISA, and the PHS Act that were
added as a result of HIPAA and PPACA. See Code section 9833, ERISA section 734, and PHS Act section 2792.
58
The Departments note that an employer may not both offer an individual coverage HRA and provide a QSEHRA, as a result of the QSEHRA rules under Code section 9831(d) and as a result
of the conditions that apply to individual coverage HRAs.
59
In 2018, 57 percent of firms offered health benefits to at least some of their workers; 47 percent of employers with three to nine workers offered coverage, while virtually all firms with
1,000 or more workers offered coverage. See Kaiser Family Foundation, “Employer Health Benefits 2018 Annual Survey”, Figure 2.2 at http://files.kff.org/attachment/Report-Employ-
er-Health-Benefits-Annual-Survey-2018.
60
HRA expansion is an Administration priority. In October 2017, the President issued Executive Order 13813, directing the Departments “to consider proposing regulations or revising guid-
ance, to the extent permitted by law and supported by sound policy, to increase the usability of HRAs, to expand employers’ ability to offer HRAs to their employees, and to allow HRAs to
be used in conjunction with nongroup coverage.” The Executive Order further provides that expanding “the flexibility and use of HRAs would provide many Americans, including employees
who work at small businesses, with more options for financing their healthcare.”

July 8, 2019 110 Bulletin No. 2019–28
choice and competition and decrease the
number of uninsured individuals.
One commenter stated that allowing
individual coverage HRAs is contrary to
PPACA’s intent to create a stable individu-
al market. The Departments acknowledge
that allowing individual coverage HRAs
in a way that could lead to large-scale
destabilization of the individual market
could undermine one purpose of PPACA.
However, the Departments have carefully
designed the final rules to be consistent
with Congress’s intent in enacting both
PPACA and HIPAA.
61
In developing the
proposed and final rules, the Departments
considered how to avoid permitting dis-
crimination based on health status or sim-
ilar practices with respect to offering indi-
vidual coverage HRAs to employees that
might have destabilizing effects on the
individual market or lead to higher pre-
miums in that market. The Departments
have determined that the risk of market
segmentation and health factor discrimi-
nation is sufficiently significant to justify
including conditions in the final rules in-
tended to mitigate those risks, including
strengthening certain conditions provided
for in the proposed rules. Additionally,
the Departments have determined that the
strengthened conditions in the final rules,
which are described at length later in this
preamble, are both sufficient to mitigate
those risks and consistent with HIPAA and
PPACA.
One commenter stated that it would
make little sense to expect individual
coverage HRAs to comply with PHS Act
sections 2711 and 2713 because HRAs
function more like bank accounts than
health insurance policies. The Depart-
ments recognize that HRAs and health in-
surance policies can function differently.
However, HRAs are group health plans
and, therefore, generally are subject to the
market requirements under the PHS Act,
except to the extent that they are except-
ed benefits or are retiree-only HRAs. The
Departments lack the statutory authority
to exempt HRAs that are otherwise sub-
ject to the market requirements from the
category of group health plans subject to
the market requirements. The final rules
allow individual coverage HRAs to com-
ply with the requirements of PHS Act sec-
tions 2711 and 2713 in a manner that pre-
serves the protections of those sections.
2. Requirement that All Individuals
Covered by an Individual Coverage
HRA be Enrolled in Individual Health
Insurance Coverage
a. In General
The proposed rules provided that an
HRA may be integrated with individual
health insurance coverage, and would be
considered compliant with PHS Act sec-
tions 2711 and 2713, if the HRA requires
the participant and any dependent(s) to
be enrolled in individual health insur-
ance coverage (other than coverage that
consists solely of excepted benefits)
62
for
each month each individual is covered by
the HRA. Under the proposed rules, if the
participants and dependents merely have
the ability to obtain individual health in-
surance coverage, but do not actually have
that coverage, the HRA would fail to com-
ply with PHS Act sections 2711 and 2713.
Many commenters supported this con-
dition and strongly recommended it be
included in the final rules. Commenters
that supported the condition stated that
it would reduce or prevent the risk of ad-
verse selection and would ensure that em-
ployees directed out of the group market
have access to a stable individual market.
The Departments agree that the require-
ment to have individual health insurance
coverage in order to be covered by an in-
dividual coverage HRA is essential and,
in order to ensure compliance with PHS
Act sections 2711 and 2713, the final rules
adopt this requirement, generally as set
forth in the proposed integration rules, but
with some clarifications as explained later
in this section of the preamble.
63

One commenter suggested that the final
rules should allow an individual coverage
HRA to provide benefits to dependents who
are not enrolled in individual health insur-
ance coverage so long as the employee-par-
ticipant is enrolled in individual health
insurance coverage. The Departments de-
cline to adopt this suggestion because the
requirements of PHS Act sections 2711 and
2713 apply to group health plans with re-
spect to both participants and dependents.
64

b. Individual Health Insurance Coverage
with Which an Individual Coverage
HRA May be Integrated
Commenters generally supported the
rule that individual coverage HRAs must
61
In 1996, Congress enacted the HIPAA nondiscrimination provisions, which now generally prohibit group health plans and health insurance issuers in the group and individual markets from
discriminating against individual participants and beneficiaries in eligibility, benefits, or premiums based on a health factor. In 2010, Congress enacted PPACA, in part, because individual
health insurance coverage was not a viable option for many individuals who lacked access to group health plan coverage, given that individual market issuers in many states could deny
coverage, charge higher premiums based on an individual’s health risk, or impose preexisting condition exclusions based on an individual’s health risk. To address these issues, PPACA in-
cluded numerous provisions that were intended to create a competitive individual market that would make affordable coverage available to individuals who do not have access to other health
coverage, as set forth in detail in the preamble to the proposed rules. See 83 FR 54420, 54428-54429 (Oct. 29, 2018).
62
Throughout this preamble, references to individual health insurance coverage in the context of the integration rules do not include coverage that consists solely of excepted benefits unless
otherwise specified. Also, see later in this preamble for a discussion of the conditions that apply if an individual coverage HRA is integrated with Medicare, in which case references to indi-
vidual health insurance coverage generally are considered to also refer to Medicare.
63
The Departments note that when an individual enrolls in individual health insurance coverage, the coverage generally will have an effective date that is the first day of a calendar month.
Other than for mid-month enrollment of a new child, individual health insurance plans generally are not made available for coverage to start mid-month. Therefore, individual coverage HRA
plan sponsors will need to take this into account in designing plan terms for eligibility for individual coverage HRAs, both with respect to employees offered the HRA for the full plan year
and for those who become covered by the HRA subsequent to the first day of the plan year, to ensure compliance with the enrollment requirement under the final rules.
64
In addition, the commenter expressed confusion as to how this integration requirement applies to a dependent who is not covered by the individual coverage HRA, including a dependent
covered by another type of coverage or a dependent the employee does not want to identify to the employer. While under the final rules an individual coverage HRA must require that each
individual covered by the HRA be enrolled in individual health insurance coverage, the final rules do not include a requirement that the HRA cover any particular dependent(s), provided the
HRA complies with PHS Act section 2714 and 26 CFR 54.9815-2714, 29 CFR 2590.715-2714, and 45 CFR 147.120 (relating to dependent coverage of children to age 26), nor is there a
prohibition on allowing the participant to exclude certain dependents from coverage under the HRA.

Bulletin No. 2019–28 111 July 8, 2019
be integrated with individual health in-
surance coverage as defined in the PHS
Act. As discussed in this section of the
preamble, several commenters requested
clarification regarding whether integration
with various types of individual health in-
surance coverage would be allowed under
the proposed rules.
Some commenters requested that the
final rules only permit integration with
individual health insurance coverage that
covers all EHBs or that provides com-
prehensive mental health and substance
use disorder benefits. The Departments
decline to make revisions in response to
these comments because under PPACA,
individual health insurance coverage gen-
erally is required to cover all EHBs, in-
cluding mental health and substance use
disorder services.
65

Commenters also requested that the
final rules clarify whether an individual
coverage HRA may be integrated with
individual health insurance coverage sold
in a state that has a waiver under PPACA
section 1332.
66
Some commenters stated
that integration with that coverage should
be permitted so long as the waiver does
not allow coverage to impose annual or
lifetime dollar limits or exclude benefits
for preventive services. Other commenters
argued that integration with that coverage
should not be permitted because it might
not satisfy all of the PPACA requirements.
The Departments note that although
PPACA section 1332 allows states to
waive certain provisions of PPACA, it
does not allow states to waive PHS Act
sections 2711 and 2713. Therefore, the
final rules do not prohibit integration of
an HRA with individual health insurance
coverage obtained in a state with a PPACA
section 1332 waiver because individual
health insurance coverage obtained in that
state will be subject to PHS Act sections
2711 and 2713.
67
Other issues with regard
to PPACA section 1332 are beyond the
scope of this rulemaking.
One commenter requested confirma-
tion that HRAs may be integrated with
catastrophic plans in the individual mar-
ket. Another commenter requested that
the final rules not allow integration of
HRAs with catastrophic plans because
of the limited nature of those plans. The
Departments note that catastrophic plans,
as set forth in PPACA section 1302(e), are
a type of individual health insurance cov-
erage available to only certain individuals
and that provide only limited benefits until
the individual has incurred expenses suffi-
cient to reach the maximum out-of-pock-
et limit under PPACA.
68
However, cat-
astrophic plans are subject to the market
requirements, including PHS Act sections
2711 and 2713. Therefore, the final rules
do not prohibit integration of an individu-
al coverage HRA with catastrophic plans.
One commenter asked that the De-
partments prohibit integration with
“grandmothered” individual health in-
surance coverage, as it is not compliant
with PPACA. Grandmothered individual
health insurance coverage refers to cer-
tain non-grandfathered health insurance
coverage with respect to which CMS
has announced it will not take enforce-
ment action even though the coverage is
out of compliance with certain specified
market requirements. To date, the CMS
non-enforcement policy has been ex-
tended to apply to renewals of such cov-
erage through policy years beginning on
or before October 1, 2020, provided that
all such coverage comes into compli-
ance with the specified requirements by
January 1, 2021.
69
The Departments note
that although grandmothered individual
health insurance coverage is subject to a
non-enforcement policy for some market
requirements, the non-enforcement policy
does not extend to compliance with PHS
Act sections 2711 and 2713. Accordingly,
grandmothered plans are subject to PHS
Act sections 2711 and 2713, and under the
final rules, an individual coverage HRA
may be integrated with grandmothered in-
dividual health insurance coverage.
One commenter requested clarification
as to whether individual health insurance
coverage sold through a private exchange
model qualifies as coverage that may be
integrated with an HRA. To the extent
coverage sold through a private exchange
model is individual health insurance cov-
erage, within the meaning of the PHS
Act,
70
an HRA may be integrated with that
coverage. However, the Departments note
that as part of the final rules DOL is issu-
ing a safe harbor to clarify to stakeholders
when individual health insurance cover-
age obtained by a participant in an indi-
vidual coverage HRA would not be part
of an employee welfare benefit plan under
ERISA, which would avoid the individual
health insurance coverage effectively be-
coming group coverage. See later in this
preamble for discussion of how this safe
harbor would apply with respect to indi-
vidual health insurance coverage offered
through web-based platforms, such as pri-
vate exchanges.
One commenter supported the propos-
al to prohibit integration with individual
health insurance coverage that consists
solely of excepted benefits, noting that
this aspect of the rule is consistent with
the limited nature of excepted benefits.
The Departments agree. Because coverage
consisting solely of excepted benefits is
not subject to or generally compliant with
PHS Act sections 2711 and 2713, the fi-
65
See PPACA section 1302 and PHS Act section 2707(a). However, the Departments note that grandfathered individual health insurance coverage and “grandmothered” individual health
insurance coverage subject to the HHS non-enforcement policy might not cover all EHBs. See later in this preamble for a discussion of “grandmothered” individual health insurance coverage.
66
Under PPACA section 1332, a state can apply for a state innovation waiver from HHS and the Treasury Department, which allows the state, if approved, to implement innovative programs
to provide access to quality healthcare. States seeking approval for a state innovation waiver must demonstrate that the waiver will provide access to health insurance coverage that is at least
as comprehensive and affordable as would be provided under PPACA without the waiver, will provide coverage to at least a comparable number of residents of the state as would be provided
without a waiver, and will not increase the federal deficit.
67
HHS and the Treasury Department evaluate state PPACA section 1332 waiver applications on a case-by-case basis and will include a determination of the interaction with the final rules
(if any).
68
To be eligible for a catastrophic plan, an individual must either be under the age of 30 or qualify for a hardship or affordability exemption under Code section 5000A. See PPACA section
1302(e) and 45 CFR 156.155. One commenter suggested that the Departments change the definition of catastrophic plan so that it is available to individuals other than those who are eligible
under PPACA section 1302(e). That change is outside the scope of this rulemaking.
69
See CMS Insurance Standards Bulletin Series – INFORMATION – Extension of Limited Non-Enforcement Policy through 2020 (March 25, 2019), available at https://www.cms.gov/
CCIIO/Resources/Regulations-and-Guidance/Downloads/Limited-Non-Enforcement-Policy-Extension-Through-CY2020.pdf.
70
See PHS Act section 2791(b)(5).

July 8, 2019 112 Bulletin No. 2019–28
nal rules provide that individual coverage
HRAs may not be integrated with individ-
ual health insurance coverage that consists
solely of excepted benefits. However, as
discussed later in this preamble, an HRA
that reimburses only excepted benefits is
not subject to the market requirements or
the final rules.
See later in this preamble for a dis-
cussion of comments received regarding
integration of HRAs with student health
insurance coverage, as well as types of
coverage other than individual health in-
surance coverage. Also, see later in this
preamble for a discussion of the condi-
tions under which an individual coverage
HRA may be integrated with Medicare.
c. Proxy Approach to Verify Compliance
Under the proposed rules, all individ-
ual health insurance coverage (except for
coverage that consists solely of excepted
benefits) would be treated as being subject
to and compliant with PHS Act sections
2711 and 2713. The Departments ex-
plained that requiring a participant or an
individual coverage HRA to substantiate
compliance with PHS Act sections 2711
and 2713 separately for each individual
health insurance policy in which a partici-
pant or dependent is enrolled would be an
unwieldy and overly burdensome task.
The Departments acknowledged that
this approach would allow integration
with grandfathered individual health in-
surance coverage, which is not subject
to, and might not be compliant with, PHS
Act sections 2711 and 2713. However,
the Departments reasoned that requiring
participants or HRAs to substantiate com-
pliance with PHS Act sections 2711 and
2713 separately for each individual health
insurance policy in which a participant or
dependent is enrolled would be imprac-
ticable. An independent assessment of
compliance could require the participant
or the HRA to identify for each individual
health insurance policy in which a partic-
ipant or dependent is enrolled: (1) which
benefits are considered EHBs for purposes
of PHS Act section 2711, and (2) whether
all recommended preventive services are
covered without cost sharing as required
under PHS Act section 2713.
The Departments also noted that only
a small number of individuals currently
are enrolled in grandfathered individual
health insurance coverage, and that grand-
fathered individual health insurance cov-
erage may not be sold to new enrollees
and may be renewed by current enrollees
only so long as the coverage satisfies strict
conditions. Additionally, the Departments
noted that the number of individuals with
grandfathered individual health insurance
coverage has declined each year since
PPACA was enacted, and the already
small number of individuals who have re-
tained grandfathered coverage is expected
to continue to decline each year. Further,
the Departments stated that because there
are few individuals covered by grandfa-
thered individual health insurance cover-
age, the Departments anticipate that there
will only be extremely limited instances
in which these individuals will be offered
and accept an individual coverage HRA.
Moreover, because new enrollees cannot
enroll in grandfathered individual health
insurance coverage, employers offering
traditional group health plans would not
be able to shift workers into this cover-
age. The Departments also explained that
although plans are required to disclose
grandfathered status in any summary of
benefits provided under the plan, the De-
partments were concerned that the fre-
quency of this disclosure to participants
may be insufficient to substantiate com-
pliance if integration with these policies
were prohibited.
For these reasons, the Departments
preliminarily determined that deeming
a policy to be compliant with PHS Act
sections 2711 and 2713 for purposes of
the proposed rules if it is sold in the in-
dividual market, referred to as the proxy
approach, strikes an appropriate balance.
The Departments also solicited comments
on methods by which an HRA could sub-
stantiate whether individual health insur-
ance coverage is subject to and complies
with PHS Act sections 2711 and 2713,
including how an HRA might identify
which benefits under the individual health
insurance coverage are considered EHBs
for purposes of PHS Act section 2711 and
whether all recommended preventive ser-
vices are covered without cost sharing.
The Departments solicited comments on
whether an alternative approach, such as
a requirement that an issuer make a repre-
sentation about compliance and/or grand-
fathered status upon request, would be
practical, or whether any other methods
might be appropriate as an alternative to
the proposed proxy approach.
Some commenters expressed support
for the proxy approach, stating that it
would be unreasonable to require employ-
ers or participants to substantiate that indi-
vidual health insurance coverage is com-
pliant with PHS Act sections 2711 and
2713. They stated that the proxy approach
is reasonable with respect to grandfathered
individual health insurance coverage be-
cause the number of individuals with that
coverage is declining and consumers may
not newly purchase grandfathered individ-
ual health insurance coverage.
71

However, some commenters encour-
aged the Departments to prohibit inte-
gration with grandfathered coverage be-
cause it is not required to comply with
the annual dollar limit prohibition or the
preventive services requirement.
72
Some
of these commenters questioned whether
the Departments had the legal authority
to deem such coverage to be in compli-
ance with PHS Act sections 2711 and
2713. One commenter disagreed with the
Departments’ assumption that employers
and employees would be unable to deter-
mine if the individual health insurance
coverage was compliant with PHS Act
sections 2711 and 2713. Another com-
71
A few commenters expressed concern with what they understood to be a proposed requirement that the employer verify that each individual health insurance policy in which an employee
enrolls complies with PHS Act sections 2711 and 2713. Due to this concern, they suggested safe harbors to avoid imposing this burden on employers, such as only allowing integration with
QHPs or plans of a certain metal level, and one commenter suggested implementing a plan compliance certification system. However, the proposed rules did not impose a requirement on
the employer to verify the compliance of each individual health insurance policy in which an employee enrolls with PHS Act sections 2711 and 2713. Furthermore, the Departments are not
imposing such a requirement in the final rules, and are finalizing the proxy approach.
72
One commenter objected to the Departments’ assertion in the preamble to the proposed rules that only a small number of individuals are currently enrolled in grandfathered individual health
insurance coverage. However, the study the commenter cited to support the assertion that there is a substantial amount of grandfathered individual health insurance coverage remaining relates
to grandfathered group coverage (not grandfathered individual health insurance coverage). See Kaiser Family Foundation, “Employer Health Benefits 2018 Annual Survey”, http://files.kff.
org/attachment/Report-Employer-Health-Benefits-Annual-Survey-2018.

Bulletin No. 2019–28 113 July 8, 2019
menter noted that if only a small number
of individuals currently are enrolled in
grandfathered individual health insur-
ance coverage, prohibiting integration
with that coverage should impact very
few individuals. One commenter sug-
gested, as an alternative to the proxy ap-
proach, that issuers could be required to
provide a list of enrolled individuals to
the individual coverage HRA.
The Departments considered these
comments and have determined that re-
quiring a participant or an HRA to sub-
stantiate each individual health insur-
ance policy’s compliance with PHS Act
sections 2711 and 2713 would be an
unwieldy and burdensome task. Further,
state and federal regulators review policy
forms of issuers in the individual market
for compliance with the federal require-
ments before the products can be offered
for sale in the states and undertake market
conduct examinations to ensure compli-
ance with federal requirements. Thus, it is
reasonable to assume, as a general matter,
that a policy sold in the individual market
complies with PHS Act sections 2711 and
2713 for purposes of the final rules.
73

With respect to grandfathered indi-
vidual health insurance coverage, the
Departments have concluded that it is ap-
propriate to adopt the proxy approach as
proposed because the number of individ-
uals with grandfathered individual health
insurance coverage is low and expected
to decrease; individual coverage HRAs
and participants may have difficulty con-
firming which benefits under the grandfa-
thered plan are considered EHBs for pur-
poses of PHS Act section 2711, whether
all recommended preventive services are
covered without cost sharing, and whether
a particular policy is grandfathered; and
grandfathered coverage may not be sold
to new enrollees.
74

d. Forfeiture
The proposed rules provided that the
requirement that each individual covered
by an individual coverage HRA must be
enrolled in individual health insurance
coverage would apply for each month
that the individual is covered by the
HRA. The proposed rules further pro-
vided that if an individual covered by
the HRA fails to have individual health
insurance coverage for any month, the
HRA would fail to comply with PHS Act
sections 2711 and 2713 for that month.
Accordingly, the proposed rules required
that an individual coverage HRA pro-
vide that if any individual covered by the
HRA ceases to be covered by individual
health insurance coverage, the individual
may not seek reimbursement under the
HRA for claims that are incurred after
the individual health insurance coverage
ceases, subject to any applicable continu-
ation-of-coverage requirements. Further,
under the proposed rules, if all individu-
als in a given family who are covered by
the individual coverage HRA cease to be
covered by individual health insurance
coverage, the participant must forfeit the
HRA, in accordance with applicable laws
(including COBRA and other continua-
tion-of-coverage requirements).
One commenter requested that the De-
partments clarify how the COBRA rules
apply when an individual loses access to
an individual coverage HRA due to failing
to maintain individual health insurance
coverage. Other commenters generally
requested guidance on the interaction be-
tween COBRA and individual coverage
HRAs.
Generally, HRAs are group health plans
subject to COBRA continuation coverage
requirements under Code section 4980B
and ERISA sections 601 through 608
(COBRA continuation coverage), unless
an exception applies.
75
Under the COBRA
continuation coverage rules, certain in-
dividuals who lose employer-sponsored
coverage may elect to continue the cov-
erage by paying a premium.
76
In order to
qualify for COBRA continuation cover-
age, the loss of coverage must be the re-
sult of a “qualifying event.” The Depart-
ments clarify that failure by an individual
to satisfy the integration requirement of
maintaining individual health insurance
coverage is not a qualifying event for pur-
poses of COBRA or other continuation of
coverage rules. Thus, the loss of eligibili-
ty to participate in an individual coverage
HRA due to the failure of the individual to
maintain individual health insurance cov-
erage does not create a right to COBRA or
other group continuation coverage in the
individual coverage HRA.
However, a loss of coverage due to a
termination of employment or a reduc-
tion in the number of hours of employ-
ment generally is a loss of coverage due
to a qualifying event. Thus, for example,
an employee covered by an individual
coverage HRA who, due to a reduction
in hours, is moved to a class of employ-
ees who are not offered any group health
coverage would have a right to COBRA or
other group continuation coverage in the
HRA, as would an individual who loses
coverage under the HRA due to termina-
tion of employment. That HRA COBRA
or other group continuation coverage
would be conditioned on a timely elec-
tion of COBRA or other group continua-
tion coverage and payment of COBRA or
other group continuation coverage premi-
ums, as well as maintaining (or enrolling
in) individual health insurance coverage.
77

Alternatively, an employee who loses cov-
erage under an individual coverage HRA
for these reasons may qualify for an SEP
73
With respect to the suggested alternative approach to the proxy approach that the Departments could require issuers to provide employers who sponsor individual coverage HRAs with a list
of individuals covered by individual health insurance coverage, that alternative approach appears to also include an assumption that the policies sold are in compliance with PHS Act sections
2711 and 2713 (to avoid requiring confirmation of the compliance of each policy enrolled in), while adding burdens on the issuers to track and communicate with employers with whom they
would not otherwise interact. For these reasons, the final rules do not adopt this alternative approach.
74
See later in this preamble for a discussion of the conditions that apply to an individual coverage HRA integrated with Medicare, including that the combined arrangement is considered to
comply with PHS Act sections 2711 and 2713.
75
Plans sponsored by certain small employers, churches, or governments are not subject to Code section 4980B. See Code section 4980B(d).
76
See Code section 4980B and ERISA sections 601-608. See also 26 CFR 54.4980B-1 et seq. and 29 CFR 2590.606-1, 2590.606-2, 2590.606-3, and 2590.606-4. Non-federal governmental
group health plans offered by state or local governments to their respective employees are subject to parallel continuation of coverage requirements under the PHS Act. See 42 USC 300bb-1
et seq.
77
See IRS Notice 2002-45 for more information on providing COBRA continuation coverage under an HRA.

July 8, 2019 114 Bulletin No. 2019–28
to change his or her individual coverage
either on-or off-Exchange.
78

One commenter requested clarification
regarding whether a failure to maintain in-
dividual health insurance coverage caus-
es retroactive forfeiture of the individual
coverage HRA. Under the final rules, the
required forfeiture applies prospectively.
The individual coverage HRA must allow
an employee who loses coverage under
the HRA due to failure to maintain indi-
vidual health insurance coverage to seek
reimbursement for substantiated medical
care expenses that were incurred during
the coverage period prior to the failure
to maintain individual health insurance
coverage. However, the individual cov-
erage HRA may limit the time to submit
expenses to a reasonable specified period.
The final rules include some modifications
to clarify these rules. The final rules also
clarify that the prohibition on reimbursing
amounts for expenses incurred after an
individual’s individual health insurance
coverage ceases applies to the individual
coverage HRA, rather than to the individ-
ual seeking reimbursement.
One commenter requested clarification
regarding whether an individual with indi-
vidual health insurance coverage who is in
an Exchange grace period
79
is considered
to be enrolled in individual health insur-
ance coverage for purposes of this integra-
tion requirement. Under the final rules, in
the event an individual initially enrolled
in individual health insurance coverage
fails to pay premiums for the individual
health insurance coverage timely and is,
therefore, in a grace period, the individual
is considered to be enrolled in individual
health insurance coverage for purposes of
the enrollment requirement, and the HRA
must reimburse the individual for expens-
es incurred during that time period accord-
ing to the terms of the HRA. If the individ-
ual fails to pay the applicable premium(s)
by the end of the grace period and individ-
ual health insurance coverage is cancelled
or terminated, including retroactively, the
HRA must require the individual to noti-
fy the HRA that the individual health in-
surance coverage has been cancelled or
terminated and the date on which the can-
cellation or termination is effective. After
the individual coverage HRA has received
the notice of cancellation or termination,
the HRA may not reimburse expenses in-
curred on and after the date of cancellation
or termination of the individual health in-
surance coverage, which is considered
to be the date of termination of coverage
under the HRA. Although the commenter
specifically asked about grace periods, the
final rules have also been revised to ad-
dress other situations in which coverage
is cancelled or terminated retroactively,
including rescissions,
80
and in those cas-
es, the same rules regarding notification,
reimbursement, and date of termination of
coverage would apply.
81

One commenter requested that, fol-
lowing separation from service, amounts
should remain in a former employee’s in-
dividual coverage HRA for out-of-pocket
costs and should remain available after the
individual has access to other coverage.
Under the final rules, a plan sponsor may
permit a former employee to have con-
tinued access to an individual coverage
HRA, and in some circumstances a former
employee may be able to elect to continue
the HRA under the applicable continua-
tion of coverage requirements. However,
the final rules do not include an exception
for former employees to the requirement
that individuals covered by an individual
coverage HRA must be enrolled in indi-
vidual health insurance coverage. This is
because PHS Act sections 2711 and 2713
apply with respect to each individual cov-
ered by a group health plan, including any
former employee. Therefore, a former em-
ployee with an individual coverage HRA
is required to be enrolled in individual
health insurance coverage to ensure that
the former employee has a combined ar-
rangement that is in compliance with PHS
Act sections 2711 and 2713.
82

3. Prohibition Against Offering a Choice
Between an Individual Coverage HRA
and a Traditional Group Health Plan
to the Same Class of Employees
a. In General
To address the previously described
concerns about potential adverse selection
and health factor discrimination, the pro-
posed rules provided that a plan sponsor
may offer an individual coverage HRA
to a class of employees only if the plan
sponsor does not also offer a traditional
group health plan to the same class of em-
ployees. Therefore, a plan sponsor would
not be permitted to offer any employee a
choice between a traditional group health
plan and an individual coverage HRA.
Many commenters expressed support
for the prohibition against allowing a
plan sponsor to offer a class of employ-
ees a choice between an individual cov-
erage HRA and a traditional group health
plan. These commenters generally stated
that this prohibition is essential to prevent
market segmentation and health status dis-
crimination. They noted that, while on its
face allowing a choice between the two
types of coverage may seem appealing,
in practice it would lead employers to en-
courage higher-risk employees to go into
the individual market, by making plan de-
sign changes to traditional group health
plans to make them less attractive to high-
er-risk employees. This, in turn, could
78
See 45 CFR 147.104(b)(2) and 155.420(d)(1)(i).
79
The Departments note that while 45 CFR 156.270 provides a specific grace period for individuals enrolled in the Exchange who are receiving APTC, this grace period would not be applica-
ble for an individual covered by an individual coverage HRA because the individual will be ineligible for the PTC and APTC. Outside of the context of Exchange coverage for which APTC
is being provided, grace periods are determined by state law.
80
See 45 CFR 147.128 for rules regarding rescissions of individual health insurance coverage.
81
The Departments note that in considering whether to attempt to recoup reimbursements paid for medical care expenses under an individual coverage HRA, including expenses incurred
during a period in which an individual did not have individual health insurance coverage due to a retroactive cancellation or termination of coverage, the individual coverage HRA must
consider PHS Act section 2712, which limits a plan’s ability to rescind coverage to instances in which an individual has committed fraud or intentionally misrepresented a material fact. See
26 CFR 54.9815-2712, 29 CFR 2590.715-2712, and 45 CFR 147.128. See also DOL Advisory Opinion 77-08A (advising a health plan that depending on the facts and circumstances, the
hardship to the participant or beneficiary resulting from such recovery or the cost to the fund of collection efforts may be such that it would be prudent, within the meaning of ERISA section
404(a)(1)(B), for the fund not to seek recovery from the participant or beneficiary).
82
However, as explained earlier in this preamble, a retiree-only HRA is not subject to the market requirements. Therefore, a retiree-only HRA need not comply with the final integration rules,
including the requirement that individuals receiving the HRA enroll in individual health insurance coverage.

Bulletin No. 2019–28 115 July 8, 2019
have significant detrimental effects on the
individual market due to the small size
of the individual market compared to the
size of the group market. One commenter
noted that the prohibition against offering
employees a choice between a tradition-
al group health plan and an individual
coverage HRA would protect employers
from baseless claims of discrimination.
Another commenter stated that permitting
employers to offer a choice between an in-
dividual coverage HRA and a traditional
group health plan could raise practical and
administrative issues for employers and
issuers, including in estimating participa-
tion in the traditional group health plan.
A few commenters opposed the prohi-
bition on offering employees a choice be-
tween a traditional group health plan and
an individual coverage HRA, asserting
that such a rule would restrict choice for
employees and flexibility for employers.
Some of these commenters asserted that
the other conditions in the proposed rules,
such as the same terms requirement and
the prohibition on integration with STL-
DI, each described later in this preamble,
were sufficient to prevent adverse selec-
tion.
A few commenters acknowledged the
risk of market segmentation by employ-
ers in the large group market or that of-
fer self-insured plans, but requested that
small employers generally, or small em-
ployers offering plans in the fully insured
small group market, be allowed to offer
their employees a choice between an in-
dividual coverage HRA and a traditional
group health plan. They noted that small
employers would not have an incentive to
send their higher-risk employees to the in-
dividual market because insured tradition-
al group health plans in the small group
market are part of a community rated sin-
gle risk pool. A few commenters also not-
ed that allowing small employers to offer
employees a choice would be consistent
with Executive Order 13813, which one
commenter noted specifically referred to
small employers. One commenter indi-
cated that the prohibition on choice might
dissuade employers from offering individ-
ual coverage HRAs to their employees.
The commenter also noted that if given
the choice, lower-risk employees, rather
than higher-risk employees, may leave the
employer’s traditional group health plan
and purchase individual health insurance
coverage.
83

The Departments generally agree with
commenters that stated that permitting
employers to offer an employee a choice
between an individual coverage HRA and
a traditional group health plan could lead
to market segmentation.
84
Although some
lower-risk employees may choose to en-
roll in individual health insurance cover-
age if offered a choice, many employers
would have strong economic incentives to
encourage lower-risk employees to retain
traditional group health plan coverage and
higher-risk employees to enroll in individ-
ual health insurance coverage.
With respect to the suggestion that the
Departments allow employers in the small
group market to offer a choice to employ-
ees, the Departments acknowledge that the
incentives for these employers to segment
risk are substantially lower than for other
employers offering experience-rated cov-
erage or self-insured plans. However, the
Departments would not expect many small
employers to offer this choice because the
coverage in the small group market and
individual market is quite similar and
because, as the commenters note, small
employers that purchase health insurance
would not have an incentive to segment
their risk pool. Although allowing small
employers to offer a choice would not
provide small employers much benefit, it
would increase the complexity of the final
rules for entities involved in implementa-
tion, such as the Exchanges. Additionally,
it could cause some uncertainty for issu-
ers, and, therefore, increased premiums,
in both the individual and small group
markets. Accordingly, in the final rules,
the Departments decline to provide an ex-
ception for small employers to the condi-
tion that a plan sponsor may not offer an
employee a choice between a traditional
group health plan and an individual cov-
erage HRA. While the Departments are
finalizing the proposal to prohibit choice
between an individual coverage HRA and
a traditional group health plan, the Depart-
ments are generally supportive of max-
imizing employee choice and employer
flexibility and so may revisit this issue in
future rulemaking once the Departments
have had the opportunity to gauge the re-
sults of the initial implementation of indi-
vidual coverage HRAs.
b. Definition of Traditional Group Health
Plan
For purposes of the condition that a
plan sponsor may not offer any employee
a choice between an individual coverage
HRA and a traditional group health plan,
under the proposed rules, the term “tradi-
tional group health plan” was defined as
any group health plan other than: (1) an
account-based group health plan, or (2) a
group health plan that consists solely of
excepted benefits.
Several commenters supported the pro-
posed definition, which provided that a
“traditional group health plan” excludes
a group health plan that consists solely
of excepted benefits, so that a plan spon-
sor may offer an employee both an indi-
vidual coverage HRA and a group health
plan that consists solely of excepted ben-
efits.
85
After considering these comments,
the Departments finalize the definition
of “traditional group health plan” in the
proposed rules without change. Notwith-
standing different QSEHRA rules,
86
under
83
One commenter requested that the prohibition against choice not apply to spouses and dependents, noting that many employers do not contribute to family premiums under group health
plans. Although the Departments anticipate that employers will generally not offer dependents an independent benefit package, for the sake of clarity, and in response to this comment, the
Departments note that the prohibition is intended to apply to both participants and dependents, and the final rules are revised to clarify this intent.
84
Although this condition generally is finalized as proposed, the text of the final rules is updated to include a reference to the special rule for new hires, explained later in this preamble. In
general, under the special rule for new hires, a plan sponsor may continue to offer some employees in a class of employees a traditional group health plan (that is, current employees), while
offering new employees in that class an individual coverage HRA, and, therefore, in that limited case, a plan sponsor may offer a traditional group health plan to some employees in a class
of employees and an individual coverage HRA to other employees in the same class of employees. However, the special rule for new hires does not provide an exception to the rule that no
participant may be given a choice between a traditional group health plan and an individual coverage HRA.
85
One commenter asked that the Departments confirm that a traditional group health plan means a major medical plan and not a group health plan that consists solely of excepted benefits. The
Departments confirm the definition of traditional group health plan does not include a group health plan that consists solely of excepted benefits. The commenter also noted that an employer
may not provide both a QSEHRA and a group health plan that consists solely of excepted benefits.
86
See Code section 9831(d)(3)(B)(ii) and IRS Notice 2017-67.

July 8, 2019 116 Bulletin No. 2019–28
the final rules, a traditional group health
plan does not include a group health plan
that consists solely of excepted benefits
and, therefore, a plan sponsor generally
may offer an employee both an individu-
al coverage HRA and a group health plan
that consists solely of excepted benefits.
87

One commenter requested that the De-
partments clarify that the final rules would
not preclude an employer that offers an
individual coverage HRA from offering
a separate HRA under which only premi-
ums for excepted benefits may be reim-
bursed. The Departments agree that such
an arrangement is not precluded by these
final rules. An HRA under which only
excepted benefit premiums may be reim-
bursed is an account-based group health
plan (and, therefore, not considered a tra-
ditional group health plan). Further, the
HRA under which only excepted benefit
premiums may be reimbursed is a group
health plan that provides only excepted
benefits (and, therefore, not considered a
traditional group health plan). See later in
this preamble for a discussion of the in-
teraction of an excepted benefit HRA and
an individual coverage HRA, and the dif-
ference between an excepted benefit HRA
and an HRA that only provides excepted
benefits.
c. Salary Reduction Arrangements
The preamble to the proposed rules
noted that the Departments were aware
that some employers may want to allow
employees to pay the portion of the pre-
mium for individual health insurance
coverage that is not covered by an indi-
vidual coverage HRA, if any, through
a salary reduction arrangement under a
cafeteria plan. Pursuant to Code section
125(f)(3), an employer generally may
not provide a QHP offered through an
Exchange as a benefit under its cafeteria
plan.
88
Therefore, an employer generally
may not permit employees to make salary
reduction contributions to a cafeteria plan
to purchase a QHP offered through an Ex-
change.
However, Code section 125(f)(3) does
not apply to individual health insurance
coverage that is not purchased on an Ex-
change. Therefore, for an employee cov-
ered by an individual coverage HRA who
purchases individual health insurance
coverage outside of an Exchange, the em-
ployer may permit the employee to pay
the balance of the premium for the cov-
erage through its cafeteria plan, subject
to all applicable cafeteria plan guidance.
Such an arrangement would not be con-
sidered to be a traditional group health
plan for purposes of the final rules.
Some commenters supported allow-
ing a salary reduction arrangement under
a cafeteria plan alongside an individu-
al coverage HRA, with one commenter
noting that this flexibility is essential to
ensuring successful take-up of individual
coverage HRAs. One commenter recom-
mended against allowing a salary reduc-
tion arrangement alongside an individual
coverage HRA unless further guidance is
issued on cafeteria plans addressing non-
discrimination rules and penalties. One
commenter requested that the Depart-
ments work with Congress to eliminate
the prohibition, under Code section 125(f)
(3), against purchasing Exchange cover-
age under a cafeteria plan.
Under the final rules, as under the pro-
posed rules, an employer may permit an
employee covered by an individual cov-
erage HRA who purchases individual
health insurance coverage outside of an
Exchange to pay the balance of the pre-
mium for the coverage through its cafete-
ria plan, subject to all applicable cafeteria
plan guidance. This arrangement would
not be considered to be a traditional group
health plan for purposes of the final rules.
Changes to the statutory prohibition re-
garding the use of cafeteria plans to pur-
chase Exchange coverage are outside of
the scope of this rulemaking.
Commenters also raised various other
issues related to the interaction between
individual coverage HRAs and cafeteria
plans under Code section 125. A few com-
menters expressed support for the ability
to integrate a stand-alone cafeteria plan
with individual health insurance cover-
age.
89
And some commenters requested
that the Departments provide answers to
hypothetical scenarios involving the in-
tersection of cafeteria plans, HSAs, and
HRAs. Neither the proposed rules nor the
final rules make any changes to the rules
under Code section 125. Thus, any issues
arising under Code section 125, and any
guidance requested by commenters to ad-
dress those issues, are beyond the scope
of this rulemaking. The Treasury Depart-
ment and the IRS, however, appreciate
the comments and will consider whether
to address some of these issues in future
guidance.
4. Same Terms Requirement
a. In General
To address concerns about health sta-
tus discrimination leading to adverse se-
lection in the individual market, the pro-
posed rules generally required that a plan
sponsor that offers an individual coverage
HRA to a class of employees must offer
the HRA on the same terms (that is, both
in the same amount and otherwise on the
same terms and conditions) to all employ-
ees within the class of employees.
90
As
part of this proposed condition, the De-
partments made clear that offering a more
generous HRA to individuals based on an
adverse health factor would violate the in-
tegration rules.
Commenters generally supported the
same terms requirement as a condition
essential to protecting against market seg-
mentation and recommended that it be
retained in the final rules. Some comment-
ers specifically supported the ability under
the proposed rules to vary the HRA terms
and amounts between different classes
of employees. Because the Departments
have concluded that the same terms re-
quirement is critical to protecting against
adverse selection in the individual market,
the final rules retain this requirement, but
with some revisions and clarifications in
87
But see later in this preamble for a discussion of the interaction between excepted benefit HRAs and individual coverage HRAs.
88
But see Code section 125(f)(3)(B).
89
As noted earlier in this preamble, for purposes of the final rules, the term “HRA or other account-based group health plan” does not include an employer arrangement that reimburses the
cost of individual health insurance coverage through a cafeteria plan under Code section 125.
90
The Departments note that if an employer chooses not to distinguish its employees based on the classes of employees permitted under the final rules and offers an individual coverage HRA
to all of its employees, the same terms requirement would apply to all of the employer’s employees.

Bulletin No. 2019–28 117 July 8, 2019
response to comments as explained later
in this section of the preamble.
One commenter stated that the same
terms requirement prohibits discrimina-
tion that could occur either by offering
less generous benefits to only certain
employees in a class of employees or by
offering more generous benefits to only
certain employees in a class of employees.
The commenter stated that it is critical that
this prohibition against “benign” discrim-
ination be retained in the final rules. The
Departments agree, and this aspect of the
rule is being adopted as proposed.
b. Exceptions to the Same Terms
Requirement
The Departments recognize that premi-
ums for individual health insurance cover-
age obtained by individual coverage HRA
participants and their dependents may
vary and, thus, some variation in amounts
made available under an individual cov-
erage HRA, even within a class of em-
ployees, may be appropriate. Therefore,
the proposed rules provided that it would
be permissible to increase the maximum
dollar amount made available under an
individual coverage HRA for participants
within a class of employees as the age of
the participant increases, so long as the
same maximum dollar amount attributable
to that increase in age was made available
to all participants of the same age within
the same class of employees.
Commenters generally supported the
provision allowing increases in individ-
ual coverage HRA amounts based on the
participant’s age, as premiums in the in-
dividual market generally increase based
on age. However, some commenters ex-
pressed concern that an unlimited ability
to increase amounts made available under
an individual coverage HRA based on age
could be used to shift older, higher cost
workers to the individual market. There-
fore, these commenters recommended
that, to avoid adverse selection, the abil-
ity to increase amounts by age be tied to
actual variance in premiums for individ-
ual health insurance coverage, such as the
3:1 age rating rule in PPACA
91
or through
some other reasonable relationship to the
cost of individual coverage.
The Departments agree that imposing
an outer bound on the ability of a plan
sponsor to vary the maximum amounts
made available under an individual cov-
erage HRA based on a participant’s age
could further protect against adverse se-
lection in the individual market, while not
hampering the ability of a plan sponsor to
provide benefits that account for increased
costs for older workers in the individual
market. Therefore, in response to these
comments, the same terms requirement
is revised under the final rules to provide
that an individual coverage HRA does not
fail to be provided on the same terms to
a class of employees solely because the
maximum dollar amount made available
under the terms of the HRA increases as
the age of the participant increases, so
long as the maximum dollar amount made
available under the terms of the HRA to
the oldest participant(s) is not more than
three times the maximum dollar amount
made available under the terms of the
HRA to the youngest participant(s). The
final rules retain the rule that the same
maximum dollar amount attributable to
the increase in age must be made available
to all participants in a class of employees
who are the same age.
The Departments considered a number
of different ways to design the limitation
on age variation, including by incorporat-
ing the federal and state age curves, tying
the variation to a specific premium for a
specific policy that a participant in the
class of employees could purchase, and
basing the maximum dollar amount made
available by the individual coverage HRA
on the degree of age variation in individ-
ual market premiums in the rating area
where each employee resides. However,
the Departments determined that these op-
tions would be unduly complex and that
imposing the 3:1 limit, which is gener-
ally based on the degree of age variation
allowed in individual market premiums
under PHS Act section 2701, sufficiently
limits the potential for abuse.
92

One commenter expressed concern that
permitting, rather than requiring, increas-
es in the maximum amount available un-
der an individual coverage HRA based on
age could invite age discrimination. Thus,
the commenter argued that the final rules
should require employers to vary indi-
vidual coverage HRA amounts based on
age to account for increases in costs for
older workers. The Departments note that
other federal laws and rules address age
discrimination and are the more appropri-
ate area of regulation in which to address
these concerns. Accordingly, the Depart-
ments decline to require, but will permit,
employers to increase individual coverage
HRA amounts based on participants’ ages
under the final rules. However, individual
coverage HRAs may be subject to restric-
tions imposed under other laws, such as
those that protect against age discrimina-
tion.
One commenter requested that the De-
partments clarify the date as of which the
age of the participant may be determined
for this purpose and suggested the first
day of the HRA plan year. The final rules
clarify that a participant’s age, for purpos-
es of the same terms requirement, may
be determined by the plan sponsor using
any reasonable method for a plan year, so
long as the plan sponsor determines each
participant’s age for this purpose using
the same method for all participants in
the class of employees for the plan year
and the method is determined prior to the
plan year. For example, as the commenter
suggests, the plan sponsor may determine
each participant’s age based on their age
on the first day of the individual coverage
HRA plan year.
Additionally, the proposed rules in-
cluded a proposal to permit the maximum
91
See PHS Act section 2701(a)(1)(A)(iii).
92
Relatedly, on November 19, 2018, the Treasury Department and the IRS issued Notice 2018-88, which addressed the application of the rules under Code section 105(h) to individual
coverage HRAs. HRAs generally are subject to the rules under Code section 105(h) and its related rules because they are self-insured medical reimbursement plans. However, HRAs that
reimburse employees only for premiums paid to purchase health insurance policies, including individual health insurance policies, are not subject to the rules under Code section 105(h)
and its related rules. See 26 CFR 1.105-11(b)(2). Notice 2018-88 described an anticipated safe harbor that would apply to individual coverage HRAs that are subject to Code section 105(h)
to address the fact that under the Code section 105(h) rules, variation in employer contributions based on age is not allowed. The Treasury Department and the IRS intend to propose rules
under Code section 105(h) in the near term that set forth an age variation standard that is consistent with the rule included in these final integration rules, and the proposed rules under Code
section 105(h) will be subject to notice and comment.

July 8, 2019 118 Bulletin No. 2019–28
dollar amount made available under an
individual coverage HRA within a class
of employees to increase as the number of
the participant’s dependents covered under
the HRA increased, so long as the same
maximum dollar amount attributable to
that increase in the number of dependents
is made available to all participants in that
class of employees with the same num-
ber of dependents covered by the HRA.
Commenters generally supported this pro-
vision, as the cost of individual health in-
surance coverage generally increases with
an increase in the number of dependents
covered. Some commenters asked for
clarification on the extent to which em-
ployers may increase amounts made avail-
able under an individual coverage HRA
based on an increase in the number of the
participant’s dependents. One commenter
recommended that any permitted increase
be tied to individual market premium vari-
ance in order to prevent employers from
varying HRA amounts to encourage high-
er-risk employees to shift to the individual
market. Another commenter recommend-
ed that employers be required to vary in-
dividual coverage HRA amounts based on
the number of dependents covered by the
HRA in order to put employees on equal
footing with other individuals and allow
them to purchase insurance based on their
relevant circumstances.
The Departments considered these
comments, but have determined that pro-
viding employers flexibility as to if and
how they vary HRA amounts based on
family size does not raise a significant
risk of adverse selection or health factor
discrimination and, instead, avoids un-
necessary complexity. Therefore, under
the final rules, it remains permissible to
vary HRA amounts based on the num-
ber of a participant’s dependents cov-
ered by the individual coverage HRA as
proposed. Moreover, there is no specific
limit on an employer’s ability to increase
HRA amounts based on the number of a
participant’s dependents covered by the
HRA, so long as the same maximum dol-
lar amount attributable to that increase
in the number of dependents is made
available to all participants in that class
of employees with the same number of
dependents covered by the HRA.
Commenters also suggested additional
factors for which employers should be al-
lowed to vary amounts provided under an
individual coverage HRA within a class
of employees, including earnings or sal-
ary, role/title, and geographic region. The
Departments note that the suggestions that
individual coverage HRA amounts be al-
lowed to vary within a class of employees
based on earnings, salary, or role/title raise
adverse selection and health factor dis-
crimination concerns, as these classes are
more susceptible to manipulation by an
employer. Accordingly, the Departments
decline to adopt any of these suggestions.
Regarding geographic region, the Depart-
ments acknowledge that individual health
insurance costs vary based on geography,
but the Departments decline to adopt this
suggestion because the issue is already ad-
dressed under the final rules through the
ability to classify employees based on the
rating area of their primary site of employ-
ment.
A few commenters recommended that
the Departments consider an employer
that contributes the same percentage of
an employee’s individual health insurance
premium (for example, 80 percent) to an
individual coverage HRA to be considered
to be providing the individual coverage
HRA on the same terms to the employees
in the class. The Departments decline to
adopt this suggestion because this type of
rule would add significant complexity to
the same terms requirement, particularly
with respect to determining how to coor-
dinate the ability to vary based on age and
family size, and would also raise adverse
selection concerns, as well as more gener-
al concerns about the inherent incentives
of a percentage-based standard and its ef-
fect on healthcare spending.
See later in this preamble for a dis-
cussion of the same terms requirement as
applied to an employer that offers both
an HSA-compatible individual coverage
HRA and an individual coverage HRA that
is not HSA compatible to the same class
of employees and for a discussion of how
the same terms requirement applies if an
individual coverage HRA makes amounts
available based on amounts remaining in
another HRA by which the participant was
previously covered.
c. Former Employees
The proposed rules generally would
apply to an individual coverage HRA that
includes participants who are former em-
ployees in the same way that they would
apply if the HRA only provided benefits
to current employees. However, the De-
partments recognized that eligibility for
post-employment group health plan cov-
erage, if any, varies widely and may be
subject to age, service, or other condi-
tions. To avoid undue disruption of em-
ployers’ practices relating to the provision
of post-employment health coverage, the
proposed rules provided that an individual
coverage HRA may be treated as provided
on the same terms even if the plan spon-
sor offers the individual coverage HRA to
some, but not all, former employees with-
in a class of employees (for example, to all
former employees with a minimum tenure
of employment). But, under the proposed
rules, if a plan sponsor offers the individ-
ual coverage HRA to one or more former
employee(s) within a class of employees,
the HRA must be offered to those former
employee(s) on the same terms as all other
employees within the class.
One commenter expressed concern that
allowing employers to offer some retirees
an individual coverage HRA, but not all
retirees, creates the potential for health
status discrimination. The Departments
note, however, that many nondiscrimina-
tory reasons may influence an employer’s
decisions whether to offer retiree health
coverage. For example, it is not uncom-
mon for employers to offer retiree health
coverage only to workers that have been
with the company at least 5 years pri-
or to retirement.
93
Moreover, the HIPAA
nondiscrimination rules (as well as other
applicable federal and state laws) address
discrimination based on a health factor.
One commenter supported treating for-
mer employees under the same terms as
all members of the class of employees.
Another commenter requested confirma-
tion that employers providing retirees and
current employees with different amounts
in individual coverage HRAs would sat-
isfy the same terms requirement and re-
quested confirmation that contributing
different amounts to former employees
93
See e.g., 5 USC 8905(b).

Bulletin No. 2019–28 119 July 8, 2019
based on years of service would satisfy
the same terms requirement. The final
rules provide that former employees with-
in a class of employees offered an indi-
vidual coverage HRA need not be offered
an individual coverage HRA, but if they
are, the HRA must be provided to them on
the same terms as other employees in that
class of employees (based on the class in
which the former employee was includ-
ed immediately prior to separation from
service). Therefore, a plan sponsor would
not comply with the same terms require-
ment if it provided some employees in a
class of employees larger or smaller HRA
amounts based on years of service or sta-
tus as a former employee.
94

The Departments received a number
of comments on retiree-only HRAs in re-
sponse to the proposed rules. Although the
final rules do not modify the rules for retir-
ee-only HRAs, the Departments note that
the market requirements do not apply to a
group health plan that has fewer than two
participants who are current employees on
the first day of the plan year.
95
Therefore,
a retiree-only HRA need not satisfy the re-
quirements of any integration test, includ-
ing the same terms requirement.
d. New Employees or New Dependents
One commenter asked for clarifica-
tion regarding the application of the same
terms requirement in the case of coverage
changes during the plan year, including
in cases in which an employee gains a
dependent. In response to this comment,
in the final rules, the Departments clari-
fy the application of the same terms re-
quirement both for new employees and
new dependents. Therefore, in the final
rules, the Departments clarify that, under
the same terms requirement, in the case
of a participant who becomes covered
by an individual coverage HRA after the
first day of the plan year, the individual
coverage HRA may make the full annu-
al amount available or adopt a reasonable
proration methodology. The Departments
also clarify in the final rules how the same
terms requirement applies if the individ-
ual coverage HRA varies the maximum
amount available based on the number
of a participant’s dependents covered by
the HRA and the number of the partici-
pant’s dependents covered by the HRA
either increases or decreases during the
plan year. In that case, the individual cov-
erage HRA may make available the same
amount made available to participants in
the class who had the same number of
dependents covered by the HRA on the
first day of the plan year or may adopt a
reasonable proration methodology of that
amount for the remainder of the plan year.
The method the individual coverage HRA
uses to determine amounts made available
for participants who enroll during the plan
year or who have changes in the number
of dependents covered by the HRA during
a plan year must be the same for all partic-
ipants in the class of employees, and the
method must be determined prior to the
beginning of the plan year.
5. Classes of Employees
a. In General
The proposed and final rules require a
plan sponsor that offers an individual cov-
erage HRA to a class of employees to offer
the individual coverage HRA on the same
terms to each participant within the class
of employees, subject to certain excep-
tions. Also, the proposed and final rules
provide that a plan sponsor may offer indi-
vidual coverage HRAs on different terms
to different classes of employees, and may
offer either an individual coverage HRA
or a traditional group health plan to differ-
ent classes of employees. However, within
a class of employees, a plan sponsor gen-
erally may not offer some employees a
traditional group health plan and others an
individual coverage HRA
96
(or offer any
employee a choice between a traditional
group health plan or an individual cover-
age HRA). The proposed rules enumer-
ated the classes of employees that would
apply for these purposes. As discussed in
more detail in this section of the preamble,
the final rules make a number of changes
to the list of permissible classes of em-
ployees in response to comments.
Many commenters supported the gen-
eral ability of a plan sponsor to offer indi-
vidual coverage HRAs on different terms
to different classes of employees and to
offer either a traditional group health plan
or an individual coverage HRA to differ-
ent classes of employees. These comment-
ers applauded the flexibility provided by
this aspect of the proposed rules, empha-
sizing that such flexibility is critical for
plan sponsors that want to offer individual
coverage HRAs.
However, some commenters objected
to this aspect of the proposed rules, ex-
pressing concerns about the ability of plan
sponsors to use the classes of employees
to segment risk. These commenters sug-
gested that a plan sponsor that wants to
offer an individual coverage HRA should
not be allowed to offer a traditional group
health plan to any of its employees and,
instead, should be required to offer the
HRA, on the same terms, to all of its em-
ployees and, therefore, fully replace the
traditional group health plan(s) it may
have offered. One commenter requested
that the Departments disallow the use of
different classes of employees in applying
the final rules as a transitional measure, so
that plan sponsors would not be allowed
to offer some classes of employees a tra-
ditional group health plan and other class-
es of employees an individual coverage
HRA for some transitional period of time.
A number of commenters, including some
of those who generally supported the abil-
ity to vary benefits on a class-by-class
basis, expressed concerns about the possi-
bility of adverse selection and, therefore,
recommended that additional safeguards
be provided, or, at a minimum, no further
flexibility be provided.
The Departments considered these
comments and have determined that per-
mitting plan sponsors to offer different
benefits to certain classes of employees is
essential to providing the flexibility need-
94
Also, eligibility conditions that are based solely on the lapse of a time period are permissible for no more than 90 days under PHS Act section 2708. See 26 CFR 54.9815-2708, 29 CFR
2590.715-2708, and 45 CFR 147.116.
95
See Code section 9831(a)(2) and ERISA section 732(a). HHS follows a similar approach for non-federal governmental retiree-only plans and encourages states to adopt a similar approach
with respect to issuers of retiree-only plans. See 75 FR 34537, 34539 (June 17, 2010).
96
The one exception to this general rule, described later in this preamble, is the special rule for new hires. However, even under the special rule for new hires, no employee may be offered a
choice between an individual coverage HRA and a traditional group health plan.

July 8, 2019 120 Bulletin No. 2019–28
ed to achieve increased HRA usability
and to maximize employee welfare. The
Departments understand that employers
commonly use certain job-based classi-
fications for employee benefits and other
purposes and that failing to provide flex-
ibility to offer different benefits to dif-
ferent classes of employees, even for a
transitional period of time, could reduce
the use and availability of individual cov-
erage HRAs. However, the Departments
acknowledge the concerns regarding the
potential for adverse selection and health
factor discrimination and, therefore, have
concluded that additional parameters in
certain circumstances are needed for em-
ployers to offer different benefits to dif-
ferent classes of employees in order to
address the potential for adverse selection
and health factor discrimination. Accord-
ingly, the final rules permit employers
to apply the integration rules on a class-
by-class basis, as was allowed under the
proposed rules. However, as explained
later in this section of the preamble, the
final rules make a number of changes,
including revisions to the list of permis-
sible classes of employees, the addition
of a minimum class size requirement that
applies in certain instances, and clarifica-
tions of a number of other related issues in
response to comments.
b. Proposed and Final Classes
The proposed rules included the fol-
lowing proposed classes of employees:
(1) full-time employees (using either the
definition that applies for purposes of
Code section 105(h) or 4980H, as deter-
mined by the plan sponsor); (2) part-time
employees (using either the definition
that applies for purposes of Code section
105(h) or 4980H, as determined by the
plan sponsor); (3) seasonal employees
(using either the definition that applies
for purposes of Code section 105(h) or
4980H, as determined by the plan spon-
sor); (4) employees who are included in a
unit of employees covered by a collective
bargaining agreement (CBA) in which the
plan sponsor participates (as described in
26 CFR 1.105–11(c)(2)(iii)(D)) (the CBA
class of employees); (5) employees who
have not satisfied a waiting period for
coverage (if the waiting period complies
with the waiting period rules in PHS Act
section 2708 and its implementing rules)
(the waiting period class); (6) employees
who have not attained age 25 prior to the
beginning of the plan year (as described
in 26 CFR 1.105–11(c)(2)(iii)(B)) (the un-
der-age-25 class); (7) employees who are
non-resident aliens with no U.S.-based in-
come (as described in 26 CFR 1.105–11(c)
(2)(iii)(E)) (generally, foreign employees
who work abroad) (the non-resident alien
class); and (8) employees whose primary
site of employment is in the same rating
area, as defined in 45 CFR 147.102(b)
(the rating area class). In addition, the
proposed rules permitted, as additional
classes of employees, groups of employ-
ees described as a combination of two or
more of the enumerated classes.
As explained in the preamble to the
proposed rules, the Departments took a
number of considerations into account in
determining the proposed classes of em-
ployees. First, the proposed classes were
ones that, based on the Departments’ ex-
perience, employers historically have used
for employee benefit purposes other than
inducing higher-risk employees to leave
the plan sponsor’s traditional group health
plan. Second, the proposed classes of em-
ployees were not ones that could be easi-
ly manipulated in order to transfer high-
er-risk individuals (and perceived higher
costs) from the employer’s traditional
group health plan to the individual market,
as it would be burdensome for employ-
ers to shift employees from one of these
classes of employees to another merely
for the purpose of offering different types
of health benefits to employees based on a
health factor. Therefore, the Departments
determined that these proposed classes of
employees would balance employers’ rea-
sonable need to make distinctions among
employees with respect to offering health
benefits with the need to protect against
adverse selection and health factor dis-
crimination. The Departments request-
ed comments on the proposed classes of
employees, including whether additional
classes of employees should be provid-
ed and whether the proposed classes of
employees and any potential additional
classes are sufficient to mitigate adverse
selection concerns.
Several commenters supported the pro-
posed classes of employees, with some in-
sisting that no additional classes be added
because of the increased likelihood of risk
pool manipulation. Several commenters
expressed support for the proposed list of
specific enumerated classes, as opposed to
an open-ended standard, as a way to miti-
gate adverse selection.
Some commenters objected to the pro-
posed classes, expressing general concern
that the rules would provide employers
too much flexibility, which would lead to
manipulation of classes and risk segmen-
tation. Some commenters requested that
specific classes be eliminated or modi-
fied. In particular, several commenters
expressed concern that the under-age-25
class of employees would lead to adverse
selection. These commenters stated that
this class is not justified based on a bona
fide relationship to employment or the
need to provide employers flexibility be-
cause employers do not typically structure
benefits based on whether an employee
has attained age 25. Some commenters
raised administrative complexity concerns
in their objections to this proposed class
because employees under age 25 may
be eligible for coverage under their par-
ents’ group health plans. One commenter,
however, supported this class, stating that
it may lead to healthier risk entering the
individual market. The Departments agree
with the commenters who raised concerns
about the under-age-25 class of employ-
ees, both as to the potential for adverse se-
lection and the fact that employers do not
typically structure benefits based on this
classification and, therefore, do not need
the flexibility the proposed rules provid-
ed.
97
Therefore, the final rules do not in-
clude the under-age-25 class of employees
as a permitted class of employees.
With regard to the proposed part-time
employee class, several commenters sup-
ported including the class because of the
additional flexibility it would provide to
employers when determining whether to
offer any benefits to part-time employees.
One commenter highlighted that some
97
The Departments note that the under-age-25 class of employees was included in the proposed rules because it is a class of employees that may be excluded for certain purposes under Code
section 105(h) and under the QSEHRA rules. See earlier in this preamble for a discussion of the application of Code section 105(h) to individual coverage HRAs.

Bulletin No. 2019–28 121 July 8, 2019
large employers (who would not be able
to provide a QSEHRA) may want to of-
fer their part-time employees some level
of tax-preferred health benefits but have
no options today other than offering a
traditional group health plan. Some com-
menters also argued that providing addi-
tional flexibility for employers to offer
individual coverage HRAs to part-time
employees who might otherwise not have
been offered any benefits could lead to
increased enrollment in individual health
insurance coverage, thereby stabilizing
the individual market risk pool and reduc-
ing premiums. One commenter suggested
that the Departments should allow multi-
ple gradations of part-time employees (for
example, employees who work 10 to 20
hours per week, employees who work 20
to 30 hours per week, etc.). However, one
commenter expressed concern that a part-
time employee class could be a proxy for
higher-risk employees, and could, there-
fore, lead to adverse selection, as the com-
menter asserted that many employees who
work part-time do so due to health issues.
The Departments agree with those
commenters who asserted that a part-time
employee class should be included in the
final rules, as it could provide necessary
flexibility to allow some employers to of-
fer an individual coverage HRA to part-
time employees who might otherwise not
be offered any group health plan benefits.
While the Departments do not dispute
that some employees may change from
full-time employee status to part-time
employee status due to health issues, the
Departments have determined that allow-
ing full-time employees and part-time em-
ployees as separate classes of employees
is essential for employer flexibility, in-
creasing HRA usability, and maximizing
employee welfare. Further, the Depart-
ments have concluded that the require-
ments of the final rules, including these
employee classifications, are sufficiently
robust to mitigate market segmentation.
Therefore, the final rules include full-time
employees and part-time employees as
separate permitted classes for individual
coverage HRAs. However, see the discus-
sion later in this preamble regarding the
definitions of these terms and the applica-
tion of a minimum class size requirement
to these classes in certain circumstances.
With regard to a class of employees
based on a geographic area, some com-
menters expressed concern that basing the
class on the rating area of the work site
could be too granular risking increased
adverse selection. Thus, the commenters
asserted that a class based on geography
should instead be determined at the state
level. While the Departments understand
and considered the concern raised by
commenters, the Departments have deter-
mined, based on information regarding the
significant differences in individual mar-
ket premiums between rating areas within
some states and significant differences in
the number of individual health insurance
plans available between rating areas within
some states, that it would be an unreason-
able limitation on employer flexibility to
prohibit employers from offering differ-
ent benefits based on different work-site
rating areas. The Departments concluded
that a rule that would prohibit employers
from differentiating between these partic-
ular classes of employees for purposes of
offering individual coverage HRAs would
pose significant costs that might undermine
the willingness of employers to offer an
individual coverage HRA. Therefore, the
final rules allow a class of employees to be
based on the rating area of the employees’
primary work site. However, in response
to concerns raised by commenters regard-
ing the potential for adverse selection and
health factor discrimination with this class
of employees in particular, see the discus-
sion later in this preamble regarding the ap-
plication of a minimum class size require-
ment to this class in certain circumstances.
With regard to the waiting period class
of employees, one commenter recom-
mended that this class of employees be
limited to a 30-day waiting period maxi-
mum to provide an additional market seg-
mentation safeguard. Another commenter
specifically supported this class. The final
rules include the waiting period class of
employees, which aligns with the waiting
periods allowed under PHS Act section
2708 and its implementing rules, because
this avoids unneeded complexity and bur-
den and the Departments do not consider
this class of employees to raise significant
adverse selection concerns.
Several commenters requested clari-
fication regarding the CBA class of em-
ployees, which under the proposed rules
was defined as “employees included in a
unit of employees covered by a collec-
tive bargaining agreement in which the
plan sponsor participates (as described in
26 CFR 1.105–11(c)(2)(iii)(D)).” Com-
menters sought clarification as to whether
employers may establish separate classes
for employees subject to different CBAs
or whether all employees subject to var-
ious CBAs entered into by the employer
would be aggregated and considered one
class of employees for purposes of of-
fering individual coverage HRAs. One
commenter requested that the Depart-
ments clarify whether a class of employ-
ees based on a CBA would include all the
employees subject to that CBA or could
be based on distinctions within the CBA.
Under the final rules, employers may es-
tablish separate classes of employees for
employees covered by separate CBAs.
However, under the final rules, an em-
ployer is not specifically permitted to
create its own classes of employees based
on any distinctions relating to employees
within one CBA. However, an employer is
permitted to combine a CBA classification
with other permitted classes of employees
(for example, combining the CBA class
with the full-time employee and part-time
employee classes to create full-time and
part-time CBA subclasses), thereby allow-
ing the employer to make certain further
distinctions within the group of employ-
ees subject to the CBA. The Departments
have revised the definition of this class
of employees in the text of the rules and
added an example to the text to clarify its
meaning in response to comments. Fur-
ther, to account for, and to avoid disrup-
tion of, the way in which multiemployer
plan coverage is sometimes offered, the
final rules also clarify that the CBA class
may include employees covered by a CBA
and employees covered by an appropriate
related participation agreement.
98
98
A participation agreement allows non-collectively bargained employees to participate in a multiemployer plan. Non-collectively bargained employees can only participate in a multiemploy-
er plan if the plan specifically allows it, and a participation agreement will set forth who is eligible and the benefits for which they are eligible.

July 8, 2019 122 Bulletin No. 2019–28
With regard to the proposed ability to
combine classes of employees more gen-
erally to create subclasses, some com-
menters supported the flexibility, but oth-
ers expressed concern with the potential
for risk segmentation. Some commenters
recommended that the final rules not per-
mit combinations of classes of employees
or that, if permitted, the final rules apply
certain additional safeguards, including a
minimum class size requirement. Several
commenters recommended not allowing
combinations of classes of employees for
small employers but permitting combi-
nations of classes of employees for large
employers, as long as the number of em-
ployees in a combined class satisfies a
minimum. The Departments determined
that it is important to provide employers
with the flexibility to combine classes of
employees but, as discussed later in this
preamble, it is also appropriate to apply a
minimum class size requirement in certain
circumstances to mitigate adverse selec-
tion and health factor discrimination con-
cerns. Therefore, the final rules continue
to allow for the combination of classes of
employees as proposed but, in certain cir-
cumstances, apply a minimum class size
requirement. The final rules also include
additional examples to illustrate the abili-
ty of plan sponsors to combine classes of
employees.
c. Additional Classes
Some commenters recommended
against adding any classes to the list of
proposed permitted classes of employ-
ees, stating that the proposed classes of
employees were sufficient and that ad-
ditional classes of employees could lead
to an increased risk of adverse selection.
However, as discussed in this section of
the preamble, several other commenters
requested that certain additional classes of
employees be added to the final rules.
In the proposed rules, the Departments
acknowledged that permitting plan spon-
sors to treat salaried and hourly employ-
ees as different classes of employees was
considered, but not proposed. The Depart-
ments noted that employers might easily
be able to change an employee’s status
from salaried to hourly (and in certain cir-
cumstances, from hourly to salaried) with
seemingly minimal economic or other
consequences for either the employer or
the employees. Some commenters agreed
and strongly opposed adding hourly and
salaried employees as classes of employ-
ees, expressing concern that classes of
employees based on pay status could fa-
cilitate health status discrimination and be
easily manipulated.
However, several commenters request-
ed that salaried and hourly employees be
added as separate classes of employees.
These commenters disagreed with the
Departments’ assertion that employers
might be able to easily change employ-
ee status from salaried to hourly and
vice versa. The commenters noted that
changing status from salaried to hourly in
particular has substantial economic and
other consequences for both employers
and employees and that doing so on the
basis of the health of an employee could
violate ERISA section 510. One com-
menter noted that employers historically
have provided different benefits to hour-
ly and salaried workers and that adding
these as permitted classes of employees
could facilitate increased use of individual
coverage HRAs for employers that might
otherwise decline to offer an individual
coverage HRA. The Departments consid-
ered the issues raised in these comments.
The Departments have concluded that the
benefits of employer flexibility, increased
utilization of individual coverage HRAs,
and maximizing employee welfare out-
weigh the potential risk of adverse selec-
tion and health factor discrimination, due
to a reconsideration of the extent to which
these categories could be manipulated and
because of the application of a minimum
class size requirement, as described later
in this preamble. Therefore, the final rules
include salaried and non-salaried employ-
ees as permitted classes of employees.
One commenter requested that em-
ployees employed by a staffing firm for
temporary placement at entities unrelated
to the staffing firm (temporary workers)
be treated as a separate class. The com-
menter stated that this rule would facili-
tate offering of individual coverage HRAs
by staffing firms to full-time temporary
workers (while it is likely that regular full-
time employees of the staffing firm would
continue to receive an offer of a tradition-
al group health plan). The commenter fur-
ther stated that staffing firms historically
have offered temporary workers different
benefits than regular full-time employees
for reasons other than to segment risk. The
commenter further stated that it would
be burdensome for staffing firms to shift
workers between the temporary work-
er and regular employee classes merely
to shift risk. The Departments agree that
adding this class could increase the usabil-
ity of HRAs for staffing firms and benefit
their employees, that this class would be
difficult to manipulate, and, that, there-
fore, this class does not raise a substantial
risk of adverse selection or health factor
discrimination. Therefore, the final rules
include as a permitted class of employees
individuals who, under all the facts and
circumstances, are the employees of an
entity that hired the employees for tempo-
rary placement at an unrelated entity (that
is, another entity that is not the common
law employer of the employees and that
is not treated as a single employer under
Code section 414(b), (c), (m), or (o) with
the entity that hired the employees for
temporary placement).
One commenter requested that inde-
pendent contractors be permitted as a
separate class of employees, and one com-
menter requested that the Departments
allow self-employed business owners
to participate in an individual coverage
HRA. HRAs were established
99
as a means
for employers to provide tax-favored ben-
efits to employees, but the exclusion from
federal income tax for reimbursements of
medical expenses by HRAs is set forth in
Code sections 105 and 106, both of which
generally are restricted to employer-pro-
vided coverage to employees. Moreover,
Code section 105(g) specifically provides
that the exclusion under Code section
105(b) is not available to an individual
who is an employee within the meaning
of Code section 401(c)(1) (relating to
self-employed individuals). For these rea-
sons, businesses that utilize the services
of independent contractors cannot provide
those self-employed individuals with a
tax-favored individual coverage HRA nor
may a self-employed business owner be
99
See IRS Notice 2002-45.

Bulletin No. 2019–28 123 July 8, 2019
provided a tax-favored individual cover-
age HRA. Therefore, the final rules do not
adopt the suggestion to add independent
contractors, or self-employed individuals
more generally, as a permitted class of
employees because these individuals can-
not be provided tax-favored HRAs.
One commenter requested that em-
ployees eligible for Medicare and employ-
ees enrolled in Medicare be treated as two
separate classes. The Departments decline
to adopt this suggestion. Sections 1862(b)
(1)(A), (B), and (C) of the Social Security
Act (SSA) generally provide that an em-
ployer that is subject to its provisions may
not take into account an employee’s (or
employee spouse’s) eligibility for Medi-
care in the design or offering of its group
health plan.
100
Section 1862(b)(1)(A)(i)
(II) provides that a group health plan must
provide to any employee or spouse age 65
or older the same benefits, under the same
conditions, that it provides to employees
and spouses under age 65, regardless of
whether the individual or spouse age 65
or older is entitled to Medicare. Because
Medicare is also generally available
to people with end-stage renal disease
(ESRD) regardless of their age, SSA sec-
tion 1862(b)(1)(C) further provides that a
group health plan may not differentiate in
the benefits it provides between individ-
uals having ESRD and other individuals
on the basis of the existence of ESRD, the
need for dialysis, or in any other manner
(except during a 30-month coordination
period). Because these SSA provisions
generally prohibit an employer that is sub-
ject to them from discriminating on the
basis of an employee’s (or the employee’s
spouse’s) Medicare eligibility and treating
Medicare employees (other than retirees)
differently for benefits under the plan, the
Departments decline to establish separate
classes of employees for employees who
are eligible for or enrolled in Medicare.
However, see later in this preamble for a
discussion of the conditions under which
an individual coverage HRA may be inte-
grated with Medicare.
Commenters also requested a num-
ber of other classes of employees, with
different commenters suggesting differ-
ent classes of employees, such as classes
based on status as a field worker (such as
craft workers and laborers), role or job ti-
tle, employee tenure, being subject to the
Davis Bacon Act and Related Acts or the
Service Contract Act, exempt or non-ex-
empt status under the Fair Labor Standards
Act, and religion or status as a minister.
The Departments considered each of these
suggestions and have determined that
these suggested classes of employees raise
various issues including ease of manipu-
lation and potential for adverse selection
and health factor discrimination, indus-
try-specificity, and administrability and
definitional challenges. The Departments
also took into account that, in general, the
more classes that are permitted, the great-
er the risk of adverse selection and health
factor discrimination. With respect to the
requested class based on employee tenure,
the Departments determined that such a
class could be inconsistent with the pro-
hibition on waiting periods that exceed 90
days under PHS Act section 2708, in ad-
dition to raising concerns regarding ease
of manipulation and potential for adverse
selection and health factor discrimination.
Therefore, the Departments have deter-
mined that, on balance, for these suggest-
ed additional classes, the potential risks
posed outweigh the potential benefits,
and the Departments decline to add these
suggested classes of employees to the fi-
nal rules. However, see the discussion lat-
er in this preamble regarding the special
rule for new hires, which is related in part
to the comments suggesting a new class
based on employee tenure.
d. Additional Safeguards
In the preamble to the proposed rules,
the Departments stated that to minimize
burden and complexity, the Departments
had not proposed a minimum employer
size or employee class size. The Depart-
ments identified a concern that very small
employers could manipulate the classes of
employees, but noted that other economic
incentives related to attracting and retain-
ing talented workers would discourage
employers from doing so. Accordingly,
the Departments invited comments on
whether employer size or employee class
size should be considered in determining
permissible classes of employees.
With regard to employer size, some
commenters stated that the risk of health
factor discrimination is higher with small
employers and that the final rules should
prohibit small employers from using, or
combining, classes of employees to make
health coverage distinctions. However,
other commenters asserted that the con-
cern that small employers may discrimi-
nate based on health status is invalid, ar-
guing that small employers are less likely
to discriminate because of both the com-
plexity required to design discriminatory
programs and the minimal incentives that
small employers have to remove risk from
their small group market traditional group
health plans that are part of a community
rated single risk pool. For these reasons,
one commenter requested that the final
rules include less restrictive guardrails for
small employers. The commenter also re-
quested that large employers offering only
an individual coverage HRA be permit-
ted additional flexibility to structure their
classes of employees because the risk
of discrimination would be mitigated as
the employer is not offering a traditional
group health plan and, therefore, would
not have incentives to remove risk from
its plan.
With regard to minimum class size,
a number of commenters requested that
individual coverage HRAs only be avail-
able to classes of employees that include
a minimum number of employees or are
a minimum percentage of an employer’s
workforce. A few commenters noted that
although a minimum class size require-
ment would be restrictive, and perhaps
inhibit the use of individual coverage
HRAs, it would be necessary to prevent
risk segmentation. Some commenters
supported applying a minimum class size
requirement in all cases and some sup-
ported applying such a requirement only
when separate classes of employees are
combined to make smaller subclasses of
employees. Some commenters made gen-
eral requests for a minimum class size
100
The applicability of the Medicare nondiscrimination rules depends on the size of the employer and the type of Medicare beneficiary. For working aged beneficiaries, the rules apply to
employers with 20 or more employees. For disabled beneficiaries, the rules apply to employers with at least 100 employees. For ESRD beneficiaries, they rules apply to employers of any
size. See 42 CFR 411.100 et seq.

July 8, 2019 124 Bulletin No. 2019–28
requirement (for example, requests for a
meaningful threshold) and others included
specific suggestions, such as requiring a
minimum class size of 10 percent of em-
ployees, at least 10 percent of the employ-
er’s workforce or 100 workers, at least 20
employees, or prohibiting employers with
fewer than 10 employees from being able
to create classes. One commenter request-
ed that there be no minimum class size
requirement, in particular to provide flexi-
bility to small employers.
In response to these comments, the
Departments have concluded that it is ap-
propriate to apply a minimum class size
requirement under the final rules in certain
circumstances. The Departments sought
to develop a rule that is narrowly tailored
both to mitigate the risk of adverse selec-
tion and health factor discrimination while
also avoiding overly burdening employers
or unnecessarily hampering the use and
flexibility of HRAs to maximize employ-
ee welfare.
In order to balance these various con-
siderations, the final rules include a min-
imum class size requirement that varies
based on employer size and that applies
only to certain classes of employees in
certain circumstances in which the po-
tential for adverse selection is greatest.
If a class of employees is subject to the
minimum class size requirement, the class
must include a minimum number of em-
ployees for the individual coverage HRA
to be offered to that class. The final rules
explain the circumstances in which the
minimum class size requirement applies,
how to determine the applicable class size
minimum, and how an individual cover-
age HRA determines if a particular class
of employees satisfies the applicable class
size minimum. The final rules also pro-
vide a number of examples to illustrate
each aspect of the minimum class size re-
quirement.
As to the circumstances in which the
minimum class size requirement applies,
it applies only if the plan sponsor offers
a traditional group health plan to at least
one other class of employees and offers
an individual coverage HRA to at least
one class of employees. To the extent the
minimum class size requirement applies,
it applies only to certain classes that are
offered an individual coverage HRA. The
minimum class size requirement does not
apply to a class of employees offered a
traditional group health plan or to a class
of employees that is not offered any group
health plan.
Under the final rules, the minimum
class size requirement generally applies
to the following classes of employees
offered an individual coverage HRA:
(1) salaried employees, (2) non-salaried
employees, (3) full-time employees, (4)
part-time employees, and (5) employees
whose primary site of employment is in
the same rating area (although the min-
imum class size requirement does not
apply if the geographic area defining the
class is a state or a combination of two
or more entire states) (these classes are
referred to collectively as the applicable
classes). However, in the case of full-time
employees and part-time employees, the
minimum class size requirement applies
only to those classes if the employees
in either the part-time or full-time class
are offered a traditional group health
plan while the employees in the other
class are offered an individual coverage
HRA. The Departments considered each
of the classes of employees permitted
under the final rules to determine which
classes, if any, present a risk of adverse
selection sufficiently significant to justi-
fy the imposition of the minimum class
size requirement. The Departments de-
termined that classes composed of sala-
ried employees, non-salaried employees,
full-time employees, part-time employ-
ees, and employees whose primary site
of employment is in the same rating area
(except if the geographic area defining
the class is a state or a combination of
two or more entire states) present a sub-
stantial risk that employers could apply
each of these classes in a way that tar-
gets certain higher-risk employees and,
therefore, could lead to health factor dis-
crimination and adverse selection. How-
ever, the Departments determined that
the other permitted classes of employees
(that is, the seasonal employee class, the
CBA class, the waiting period class, the
class based on non-resident aliens with
no U.S.-based income, and the class of
employees for temporary workers em-
ployed by a staffing firm) are unlikely to
be manipulated by employers in a way
that would lead to health factor discrimi-
nation or adverse selection.
Under the final rules, the minimum
class size requirement applies to a class of
employees created by combining any of
the applicable classes with any other class
of employees, except that the minimum
class size requirement does not apply to a
class that is the result of any combination
of an applicable class and the waiting pe-
riod class. Waiting periods are most typ-
ically applied to new hires, and it is not
uncommon for employers to hire new em-
ployees in small numbers, to respond to
attrition and as workflow increases. Fur-
ther, the Departments are of the view that
combinations of classes that include the
waiting period class do not raise a signif-
icant risk of manipulation that could lead
to adverse selection or health factor dis-
crimination. Therefore, taking these fac-
tors into account, the Departments have
determined that applying the minimum
class size requirement to a class com-
prised of an applicable class and a waiting
period class is not warranted.
Consistent with the comments received
on this topic, the minimum number of em-
ployees that must be included in a class of
employees subject to the minimum class
size requirement (the applicable class
size minimum) depends on the number
of employees employed by the employ-
er. The plan sponsor must determine the
applicable class size minimum for each
plan year of the individual coverage HRA.
The applicable class size minimum is: (a)
10, for an employer with fewer than 100
employees; (b) a number, rounded down
to a whole number, equal to 10 percent
of the total number of employees, for an
employer with 100 to 200 employees;
and (c) 20, for an employer that has more
than 200 employees. In selecting these
thresholds, the Departments considered
the suggestions made by commenters and
sought to strike a balance between pro-
viding employers with flexibility to offer
different healthcare packages as part of
their compensation framework and de-
sign, and limiting employers’ ability to
use the classes in ways that would create
adverse selection in the individual market.
The Departments agree with commenters
that small employers may not have signif-
icant incentives to establish classes in a
way that would result in adverse selection
or health discrimination, but also are of
the view that it could be easier for small-

Bulletin No. 2019–28 125 July 8, 2019
er employers to manipulate the classes
of employees. Further, the Departments
selected thresholds for larger employers
taking into account that, despite their total
size, the classes of employees could also
be manipulated by larger employers in
ways that could lead to adverse selection
and health factor discrimination. There-
fore, the minimum class size requirement
applies to small employers and large em-
ployers, but at lower thresholds for small-
er employers than for large employers.
For the purpose of applying the minimum
class size requirement, an employer must
determine the number of its employees
based on its reasonable expectation of the
number of employees it expects to employ
on the first day of the plan year of the indi-
vidual coverage HRA.
The annual determination of whether
a class of employees satisfies the appli-
cable class size minimum is based on the
number of employees in the class who are
offered the individual coverage HRA as
of the first day of the plan year.
101
There-
fore, the determination of whether a class
of employees satisfies the minimum class
size requirement is not based on the num-
ber of employees who enroll in the indi-
vidual coverage HRA and is not affected
by changes that occur during the plan year.
Some commenters requested that, in
addition to, or instead of, a minimum class
size requirement, the Departments should
add an anti-abuse rule that would give the
Departments the discretion to determine
whether an individual coverage HRA is
offered in a manner that is intended to seg-
ment sicker workers based on all the facts
and circumstances. Therefore, even if an
employer followed the other rules set forth
in the final rules, this additional rule would
nevertheless permit the Departments to
address instances of discrimination based
on a health factor. The Departments de-
cline to add a facts and circumstances test
to the final rules because the Departments
have concluded that the minimum class
size requirement, as set forth in the final
rules, adequately balances the need to pre-
vent health factor discrimination with the
need to provide employers with certainty
in order to encourage expansion and use
of individual coverage HRAs. Moreover,
other applicable nondiscrimination laws
continue to apply. Under the HIPAA non-
discrimination provisions, for example, a
group health plan (including an individual
coverage HRA) may not discriminate in
eligibility for benefits, or in premiums or
contributions, based on one or more health
factors.
102
In addition, for ERISA-covered
plans, it is unlawful for any person to dis-
criminate against a participant or benefi-
ciary for the purpose of interfering with
the attainment of any right to which the
participant may become entitled under a
health plan or ERISA.
103
Further, under the
SSA, an employer generally may not take
into account that an individual is entitled
to Medicare on the basis of age or disabil-
ity, or eligible for, or entitled to Medicare
on the basis of ESRD, and may not differ-
entiate in the benefits it provides between
individuals who have ESRD and other
individuals covered under the plan.
104
In
addition, other nondiscrimination laws
(such as the Americans with Disabilities
Act) may also apply, and the Departments
note that compliance with the final rules is
not determinative of compliance with any
other applicable law. A new facts and cir-
cumstances test would add significant un-
certainty for employers while adding little
additional protection mitigating adverse
selection and health factor discrimination.
e. Former Employees
Under the proposed rules, if an indi-
vidual coverage HRA were offered to for-
mer employees, former employees would
be considered to be in the same class of
employees in which they were included
immediately before separation from ser-
vice. While the plan sponsor would not be
required to offer the individual coverage
HRA to all former employees (or to all
former employees in the applicable class
of employees), if it did offer the HRA to
a former employee, it would have to do so
on the same terms as for the other employ-
ees in that class.
A few commenters requested that em-
ployers be permitted to treat former em-
ployees as a separate class of employees,
stating that the rule under the proposed
rules treating former employees as part
of the class of employees in which they
would have been included immediately
prior to separation from service will im-
pose a barrier to offering individual cov-
erage HRAs. These commenters stated
that such a new class of employees would
not raise manipulation concerns because
whether to terminate employment gener-
ally is an independent decision made by
the employee. Commenters further sug-
gested that if a class of employees were
created for former employees, the final
rules should also permit subclasses with-
in the class of former employees based on
years of service.
Some commenters supported the pro-
posed treatment of former employees and
commented that former employees should
not be permitted as a separate class of em-
ployees under the final rules because the
general age and health status of former
employees would present adverse selec-
tion concerns. One commenter included a
number of requests regarding retiree-only
HRAs in the context of rehired employ-
ees.
Notwithstanding that employers may
continue to offer retiree-only HRAs that
are not subject to the market requirements
(and, therefore, are not subject to any in-
tegration requirements), the Departments
understand the commenters’ concern re-
garding adverse selection and are not
aware of a compelling need to treat for-
mer employees as a separate class of em-
ployees under the final rules in light of the
continued allowance of retiree-only HRAs
that are not subject to any integration re-
quirements. All of the rules and eligibility
criteria related to retiree-only HRAs con-
tinue to apply without change.
105
There-
fore, the final rules provide that a former
101
The Departments reiterate that under the same terms requirement, an employer offering an individual coverage HRA to any employee in a class of employees must offer the HRA, generally
on the same terms and conditions, to all employees in the class.
102
Code section 9802, ERISA section 702, and PHS Act section 2705. See also 26 CFR 54.9802-1, 29 CFR 2590.702, and 45 CFR 146.121.
103
ERISA section 510.
104
SSA section 1862(b)(1)(A), (B), and (C) and 42 CFR 411.102, 411.161, and 411.170.
105
See Code section 9831(a)(2) and ERISA section 732(a). While title XXVII of the PHS Act, as amended by PPACA, no longer contains a parallel provision at PHS Act section 2721(a),
HHS has explained that it will not enforce the requirements of title XXVII of the PHS Act with respect to non-federal governmental retiree-only plans and encourages states to adopt a similar
approach with respect to retiree-only plans offered by health insurance issuers. See 75 FR 34537, 34540 (June 17, 2010).

July 8, 2019 126 Bulletin No. 2019–28
employee is considered to be a member of
the same class of employees the former
employee was in immediately before sep-
aration from service, as proposed.
Several commenters raised other clas-
sification and administration issues relat-
ed to retirees. One commenter requested
clarification that the final rules would not
affect the status of former employees who
participate in their employer’s traditional
group health plan through COBRA. The
Departments note that the impact of the
final rules on any former employee partic-
ipating in an employer’s traditional group
health plan through COBRA continuation
coverage depends on the facts and circum-
stances. For example, COBRA continua-
tion coverage ends on the date the em-
ployer ceases to provide any group health
plan (including successor plans). If a for-
mer employee is participating in a tradi-
tional group health plan that is replaced by
an individual coverage HRA, the former
employee would have a right to elect to
participate in the successor plan, the indi-
vidual coverage HRA (conditioned on the
payment of premiums and enrollment in
individual health insurance coverage), but
would generally not have a right to contin-
ue coverage in the traditional group health
plan. One commenter requested that the
final rules define “former employee.” The
final rules provide that for purposes of this
rule a former employee is an employee
who is no longer performing services for
the employer.
f. Controlled Group
Commenters requested clarification as
to whether the classes of employees are
identified based on the employees of the
common law employer or, rather, whether
the determination is made at the controlled
group level (generally referring to a group
of employers treated as a single employ-
er with the common law employer under
Code section 414(b), (c), (m), or (o)), such
that all employees of a controlled group
of employers would be combined to create
the classes of employees. Some comment-
ers recommended that the Departments
confirm that the controlled group rules
do not apply for this purpose, and some
recommended that the controlled group
rules be used to determine the classes of
employees as a way to reduce the number
of small classes and prevent adverse se-
lection.
After consideration of these comments,
the Departments have concluded that de-
termining the classes of employees at the
common law employer level will avoid
complexity for employers and that apply-
ing the minimum class size requirement
(to the extent applicable), as described
earlier in this preamble, at the common
law employer level, is a more straightfor-
ward way of addressing the adverse selec-
tion concerns raised by some commenters.
Accordingly, the final rules clarify that
the classes of employees are determined
based on the employees of a common law
employer, rather than the employees of a
controlled group of employers.
g. Movement Among Classes
A few commenters requested clarifica-
tion regarding the application of the final
rules in the situation in which an employ-
ee moves out of a class of employees that
is offered an individual coverage HRA
and into a different class of employees
that is offered either a traditional group
health plan, a different individual cover-
age HRA, or no coverage. As discussed
earlier in this preamble, the Departments
note that as group health plans, HRAs
generally are subject to the COBRA or
other group continuation of coverage
rules. However, if the change in the em-
ployee’s classification is not the result of
termination of employment or reduction
in hours, there generally is not a qualify-
ing event resulting in a COBRA or other
group continuation of coverage right.
Even if an employee who ceases enroll-
ment in an individual coverage HRA does
not have a right to continuation of cover-
age, the HRA must allow the individual to
submit for reimbursement substantiated
medical care expenses that were incurred
during the coverage period prior to the ter-
mination date of the individual coverage
HRA. In this case, the individual cover-
age HRA may limit the period of time to
submit expenses to a reasonable specified
time period after termination of cover-
age under the individual coverage HRA
during which the participant may submit
those claims. Additionally, an employee
who loses coverage under an individual
coverage HRA may qualify for an SEP for
loss of MEC to change his or her individ-
ual health insurance coverage either on or
off an Exchange.
One commenter asked whether an
employee who changes classes of em-
ployees and loses coverage under an in-
dividual coverage HRA may convert un-
used amounts to another type of HRA.
The Departments note that under existing
rules, employers generally may provide
employees enrolled in a traditional group
health plan an HRA that is integrated with
that traditional group health plan and in
some circumstances may provide an HRA
that can be integrated with TRICARE
or Medicare. Nothing in the final rules
or current guidance would prevent em-
ployers from basing the amount in these
types of HRAs on unused amounts in an
individual coverage HRA in which the
individual was previously enrolled, nor
are employers precluded from basing the
amount of an individual coverage HRA on
unused amounts in these types of HRAs
in which the individual was previously en-
rolled. Also, if an employee moves from
a class of employees offered an individu-
al coverage HRA to a class of employees
offered a different individual coverage
HRA, nothing in the final rules would
prevent the employer from permitting
the unused amounts in the first individu-
al coverage HRA to be considered trans-
ferred to the second. Therefore, the final
rules are revised to clarify that amounts
made available in an individual coverage
HRA based on amounts remaining in an-
other HRA under which the participant
was previously covered are disregarded
for purposes of determining whether the
individual coverage HRA is offered on
the same terms, provided that if the HRA
takes these amounts into account, it does
so on the same terms for all participants in
the class of employees.
106

106
However, employers may not permit unused amounts in an individual coverage HRA, or any other type of HRA, to be considered transferred to an excepted benefit HRA because amounts
made available under an excepted benefit HRA are necessarily limited in order for the HRA to constitute an excepted benefit. Allowing amounts remaining in other types of HRAs to be
transferred to an excepted benefit HRA could lead to significant circumvention of that limit. Also, note that under the final excepted benefit HRA rules, if the plan sponsor offers more than one
HRA to the participant for the same time period, the amounts made available under all such plans are aggregated to determine whether the benefits are limited in amount, except that HRAs
that reimburse only excepted benefits are not included in determining whether the benefits are limited in amount.

Bulletin No. 2019–28 127 July 8, 2019
Further, with regard to amounts re-
maining in an individual coverage HRA
after the individual is no longer covered
by the HRA, the HRA must allow a par-
ticipant (and the participant on behalf of
dependents) to submit claims to the HRA
for reimbursement of substantiated ex-
penses that were incurred during the cov-
erage period prior to the termination of the
individual’s coverage under the individual
coverage HRA, even if the claim is sub-
mitted after the individual is no longer
covered by the individual coverage HRA.
However, the HRA may limit the period to
submit expenses to a reasonable specified
time period.
One commenter requested guidance
on situations in which employees are cur-
rently receiving treatment for health con-
ditions when an employer switches from
a traditional group health plan to an indi-
vidual coverage HRA. The Departments
note that a similar issue arises under ex-
isting rules when an employer switches
from one group health plan to another
group health plan with a different network
of providers, so that providers participat-
ing under the first plan are no longer in
network. The final rules do not address
this issue because it is not specific to this
rulemaking. To the extent an employee or
dependent is switching from an insured
traditional group health plan to individual
health insurance coverage purchased with
an individual coverage HRA, state “suc-
ceeding carrier” or “extension of benefit”
laws may regulate the obligations of the
prior or succeeding issuer to cover an in-
dividual’s ongoing health conditions at the
time of the coverage switch.
h. Definition of Full-time Employee,
Part-time Employee, and Seasonal
Employee
For purposes of identifying classes of
employees, the proposed rules provided
that a plan sponsor may define full-time
employees, part-time employees, and sea-
sonal employees in accordance with either
the applicable definitions under Code sec-
tion 105(h) or those under Code section
4980H to avoid overlapping classes of
employees. The proposed rules included
a proposal that a plan sponsor’s choice of
which statutory definitions to apply must
be consistent across these three classes of
employees, to the extent the plan sponsor
differentiates based on these classes.
A few commenters requested that only
one definition for each term be permitted
and requested that the final rules adopt the
definitions in Code section 4980H. One
commenter recommended that only the
definition of full-time employee under
Code section 4980H (which is based on 30
hours per week) should be permitted. This
commenter asserted that use of the defini-
tion under Code section 105(h) (which is
based on 35 hours per week) could lead
to adverse selection, because many plans
currently offer traditional group health
plan coverage to employees based on the
Code section 4980H definition, and use of
another definition could lead to subdivi-
sion of full-time employees. A few com-
menters supported the proposed ability to
choose either set of definitions, including
the requirement to use either the defini-
tions under Code section 4980H or those
under Code section 105(h) consistently
across these classes of employees.
The Departments considered these
comments and have determined that the fi-
nal rules should adopt the definitions pro-
vided in the proposed rules. This approach
provides employers with flexibility, while
limiting opportunities for risk segmenta-
tion. The Departments understand that, to
avoid the inclusion of amounts in income,
plan sponsors of self-insured plans subject
to Code section 105(h) (in particular small
employers not subject to Code section
4980H) may want to design their health
plans to offer a traditional group health
plan and individual coverage HRAs (or
individual coverage HRAs in different
amounts or under different terms and con-
ditions) to different classes of employ-
ees that are identified in a manner that
complies with the requirements of Code
section 105(h). The Departments also ac-
knowledge that certain larger employers
have already determined how to apply
the definitions under Code section 4980H
to their workforces and using those same
definitions for purposes of applying the
integration rules may reduce burden for
those employers. Therefore, the final rules
include flexibility for each employer to
determine which set of definitions is ap-
propriate for its workforce, provided the
employer uses the same set of definitions
for classifying its full-time, part-time, and
seasonal employees to the extent it uses
one or more of these classes of employees.
The proposed rules further provid-
ed that the HRA plan document must set
forth the applicable definitions of full-
time employee, part-time employee, and
seasonal employee prior to the beginning
of the plan year in which the definitions
will apply and that nothing would prevent
an employer from changing the defini-
tions for a subsequent plan year. Some
commenters supported that provision,
asserting that it minimizes the potential
for adverse selection, with one request-
ing clarification whether it is permissible
to change the definitions of the classes of
employees during the plan year. One com-
menter stated that plan sponsors should
not be allowed to change the definitions
each plan year, asserting that this flexibil-
ity could allow small employers in partic-
ular to segment risk.
The Departments have determined
that in order to mitigate the risk of mar-
ket segmentation and minimize disruption
to employees with respect to a coverage
period, it is important for plan sponsors
to determine prior to the plan year which
definitions will apply and to apply them
consistently throughout the plan year. The
Departments also have concluded that
limiting an employer’s ability to revise
the definitions it applies from one plan
year to the next would be unnecessarily
restrictive. Accordingly, the final rules
generally retain the rules in the proposed
rules. However, the final rules clarify that
adjustments during the plan year to the
definitions used to identify the classes of
employees are not permitted.
6. Special Rule for New Hires
As explained earlier in this preamble,
some commenters expressed concerns
about the challenges employees may ex-
perience in transitioning from a traditional
group health plan to individual health in-
surance coverage, with some stating that
the proposed rules failed to adequately
take into account the differences between
the coverage types and the significance of
the change from the employee’s perspec-
tive. The Departments are aware that the
transition from coverage under a tradition-
al group health plan to coverage under an
individual coverage HRA could represent

July 8, 2019 128 Bulletin No. 2019–28
a substantial change from an employee
perspective, and, as a result, employers
may want to phase in individual coverage
HRAs. By allowing plan sponsors to of-
fer traditional group health plans to some
classes of employees while offering other
classes of employees an individual cov-
erage HRA, the final rules provide plan
sponsors with some flexibility to man-
age the transition to individual coverage
HRAs. However, in response to com-
ments, including those expressing concern
about the transition from traditional group
health plans to individual coverage HRAs
and those expressing interest in being able
to provide different benefits based on em-
ployee tenure, the Departments have de-
termined that it is appropriate to provide
additional flexibility to plan sponsors, in
particular for employers that offer tradi-
tional group health plans that would like
to continue to offer that type of coverage
to current employees who are accustomed
to that coverage, but offer individual cov-
erage HRAs to newly hired employees.
Therefore, notwithstanding the gener-
al rule that a plan sponsor may only of-
fer either a traditional group health plan
or an individual coverage HRA to a class
of employees, the final rules provide that
a plan sponsor that offers a traditional
group health plan to a class of employees
may prospectively offer employees in that
class hired on or after a certain date in the
future (the new hire date) an individual
coverage HRA (the new hire subclass),
while continuing to offer employees in the
class hired before the new hire date a tra-
ditional group health plan (the special rule
for new hires). A plan sponsor may set the
new hire date prospectively for a class of
employees as any date on or after January
1, 2020. A plan sponsor may set different
new hire dates prospectively for separate
classes of employees.
Although this special rule provides ad-
ditional flexibility, it is still the case that
for the new hire subclass, the individual
coverage HRA must be offered on the
same terms to all participants within the
new hire subclass, in accordance with the
generally applicable rules under the same
terms requirement. Further, a plan sponsor
may not offer a choice between an individ-
ual coverage HRA or a traditional group
health plan to any participant, whether a
current employee or a newly hired em-
ployee in the new hire subclass.
A plan sponsor may discontinue the
special rule for new hires at any time for a
class of employees. In that case, the new
hire subclass would no longer be treated
as a separate subclass of employees, and
each employee that was previously treat-
ed as part of the new hire subclass would
then be treated as an employee in the class
of which he or she would have otherwise
belonged for purposes of the final rules. In
that case, if the plan sponsor wanted to of-
fer an individual coverage HRA, it would
need to do so for all the employees in the
class and generally on the same terms, as
explained earlier in this preamble. It could
also choose instead to offer a traditional
group health plan to some or all of the em-
ployees
107
in the class or to offer no cov-
erage.
In the event a plan sponsor applies the
special rule for new hires to a class of em-
ployees and later discontinues using the
rule for the class of employees, the plan
sponsor may apply the special rule for new
hires to the class of employees again, at a
later time, under the same rules as the ini-
tial application of the rule. For example,
as under the basic requirements for the ap-
plication of the special rule for new hires,
the plan sponsor would only be allowed
to apply the rule to a class to which it is
offering a traditional group health plan.
If a plan sponsor applies the special rule
for new hires again, in accordance with
the general rules under the special rule for
new hires, the plan sponsor would choose
a prospective new hire date. In no circum-
stances may the special rule for new hires
be applied to a class of employees (includ-
ing a new hire subclass) already being of-
fered an individual coverage HRA, in an
attempt to offer different HRA amounts
or other different terms within a class of
employees based on different hire dates.
The minimum class size requirement
described earlier in this preamble does
not apply to a new hire subclass. This is
because the Departments recognize that
many employers hire only a few employ-
ees, or even only one employee, at a time
and a subclass based on a new hire date
does not present a high risk of manipula-
tion that could lead to adverse selection.
However, if a plan sponsor subdivides the
new hire subclass based on a permissible
class of employees subsequent to creat-
ing the new hire subclass, the minimum
class size requirement applies to any class
of employees created by subdividing the
new hire subclass, if the minimum class
size requirement otherwise applies. The
text of the final rules includes examples to
illustrate these rules.
7. Opt-out Provision
If an individual is covered by an HRA,
including an individual coverage HRA,
for a month, regardless of the amount of
reimbursement available under the HRA,
the individual is not eligible for the PTC
for that month. Because in some circum-
stances an individual may benefit more
from claiming the PTC than from having
funds in an HRA available for reimburse-
ment, the Departments’ existing rules re-
garding integration with non-HRA group
coverage and with Medicare require a
plan sponsor that offers an HRA to al-
low participants to opt out of and waive
future reimbursements from the HRA at
least annually.
108
The proposed rules also
included this requirement with respect to
the individual coverage HRA, so that em-
ployees would be allowed the PTC, if they
are otherwise eligible, if they opt out of
and waive future reimbursements from the
HRA and the HRA is either unaffordable
or does not provide MV.
109
The Depart-
ments have concluded that this condition
is important as a result of the PTC conse-
quences of HRA coverage, and, therefore,
the final rules retain this condition, with
some clarifications.
Furthermore, consistent with the cur-
rent rules for integration with a group
health plan and with Medicare, the pro-
posed rules required that upon termina-
107
To the extent such an arrangement is available to active employees it may be subject to restrictions under other laws, such as the MSP provisions.
108
See 26 CFR 54.9815-2711(d)(2)(i)(E), (d)(2)(ii)(D), and (d)(5)(iv); 29 CFR 2590.715-2711(d)(2)(i)(E), (d)(2)(ii)(D), and (d)(5)(iv); and 45 CFR 147.126(d)(2)(i)(E), (d)(2)(ii)(D), and (d)
(5)(iv).
109
See later in this preamble for a discussion of the final rules regarding the circumstances in which an offer of an individual coverage HRA is affordable and provides MV for purposes of
Code section 36B.

Bulletin No. 2019–28 129 July 8, 2019
tion of employment, either the remaining
amounts in the HRA must be forfeited or
the participant must be allowed to perma-
nently opt out of and waive future reim-
bursements from the HRA. This require-
ment ensures that the HRA participant
may choose whether to claim the PTC, if
otherwise eligible, or to continue to par-
ticipate in the HRA after the participant’s
separation from service.
110

Commenters generally supported these
opt-out requirements as necessary to pro-
tect PTC eligibility for employees. Some
commenters expressed concern that due
to the complexity of the PTC affordability
rules, employees are likely to have diffi-
culty understanding whether or not they
should opt out of an individual coverage
HRA. Similarly, some commenters ex-
pressed concern that some low- and mod-
erate-income employees may opt into the
individual coverage HRA although they
may have been better off opting out of the
HRA and receiving the PTC, while others
expressed concern that some employees
may opt out of the HRA based on the mis-
impression that they will receive the PTC,
when actually they are ineligible for the
PTC.
The Departments appreciate the con-
cerns expressed regarding the burden on
employees to properly determine whether
the individual coverage HRA they have
been offered is affordable and provides
MV and to determine whether they will be
better off with the HRA or, if otherwise
eligible, the PTC. These concerns are the
primary reason that the Departments pro-
posed and are finalizing the requirement
for individual coverage HRAs to provide
a written notice to each participant. Fur-
ther, the Departments will work with the
FFEs and State Exchanges to ensure that
their applications and other relevant mate-
rials are updated to accommodate individ-
uals who are offered an individual cover-
age HRA and are applying for individual
health insurance coverage with APTC.
Some commenters requested clarifi-
cation regarding the timing of the annual
opt-out condition. One commenter asked
the Departments to clarify how the annual
opt-out condition applies in the case of an
HRA with a non-calendar year plan year.
In response, the final rules clarify that an
HRA may establish timeframes for enroll-
ment in (and opting out of) the HRA, but
participants generally
111
must be provid-
ed an opportunity to opt out of the indi-
vidual coverage HRA once for each plan
year, which must occur in advance of, and
with respect to, the plan year. That is, in-
dividual coverage HRAs must provide
participants with one advance opportuni-
ty to accept, or opt out of, the individual
coverage HRA for each plan year, but the
individual coverage HRA may not provide
participants with multiple opportunities to
opt into, or out of, the individual cover-
age HRA over the course of the plan year,
except that the final rules require HRAs
to provide an opt out opportunity upon
termination of employment. This is gen-
erally consistent with employees’ ability
to decline traditional group health plan
coverage that is not affordable or does not
provide MV in order to claim the PTC, if
otherwise eligible. See later in this pream-
ble for a discussion of comments received
on the proposed PTC rules and an expla-
nation of the final PTC rules, including for
additional discussion of the application of
the PTC rules to an employee opting out
of, or accepting, an individual coverage
HRA with a non-calendar year plan year.
One commenter requested clarification
as to whether a former employee offered
an individual coverage HRA must be pro-
vided the annual opportunity to opt out of
the individual coverage HRA. The De-
partments clarify that the annual opt-out
condition applies for all participants eli-
gible to enroll in an individual coverage
HRA, including former employees. An-
other commenter requested clarification
whether an employee’s choice to opt out
of an individual coverage HRA also ap-
plies to the employee’s dependents who
are otherwise eligible for the individual
coverage HRA. The Departments intend
for the opt-out opportunity to extend to
dependents, but expect that an employ-
er would provide an individual coverage
HRA to an employee’s dependent only if
the employee participates in the individual
coverage HRA. Therefore, the final rules
clarify that if an employee opts out of an
individual coverage HRA, the individual
coverage HRA is considered waived for
the employee’s eligible dependents as
well.
112
See later in this preamble for a dis-
cussion of the circumstance in which the
offer of an individual coverage HRA to an
employee’s dependents will render the de-
pendents ineligible for the PTC.
One commenter requested clarification
as to whether, instead of permanently for-
feiting an individual coverage HRA upon
termination of employment, an individu-
al coverage HRA may be suspended for
a period of time, allowing the individual
to receive the PTC during that period of
time if otherwise eligible, and then have
the HRA amounts reinstated in the indi-
vidual coverage HRA years in the future.
Although the current rules for integration
of an HRA with other group coverage
allow certain HRA amounts that would
otherwise be permanently forfeited to be
reinstated in the future upon a fixed date,
a participant’s death, or the earlier of the
two events, the final rules do not include
a similar provision for individual cover-
age HRAs. The final rules do not include
such a provision due to the Departments’
concerns about complexity and burden on
employers in needing to establish proce-
dures for substantiation of enrollment in
individual health insurance coverage upon
reinstatement, and on an ongoing basis,
possibly many years in the future; the lack
of demand for such a rule from employ-
ers; and potential complexities related to
the interaction with the PTC.
113
However,
110
Note that a former employee is only rendered ineligible for the PTC if the former employee enrolls in employer-sponsored coverage; an offer of coverage (even if it is affordable and
provides MV) does not preclude a former employee from claiming the PTC. See 26 CFR 1.36B-2(c)(3)(iv).
111
The final rules also clarify that for participants or dependents who become eligible for the individual coverage HRA on a date other than the first day of the plan year (or participants who
are not required to be provided the HRA notice at least 90 days in advance of the plan year (that is, employees who become eligible less than 90 days prior to the plan year and employees of
newly established employers)), the option to opt out must be provided during the HRA enrollment period established by the HRA for these individuals and then subsequently on an annual
basis in advance of the plan year.
112
The Departments note that this provision addresses the right of participants to opt out of the HRA generally, including for their dependents, and is not intended to preclude an HRA from
allowing a participant who enrolls in the HRA from enrolling some, but not all, dependents (including new dependents added during the year). The Departments also clarify that in the event
a participant gains a dependent during the year, the HRA must provide the participant the right to decline to enroll that dependent, if the participant had enrolled for the plan year.
113
See 26 CFR 54.9815-2711(d)(3), 29 CFR 2590.715-2711(d)(3), and 45 CFR 147.126(d)(3).

July 8, 2019 130 Bulletin No. 2019–28
as explained earlier in this section of the
preamble, the final rules require an indi-
vidual coverage HRA to provide an annu-
al opportunity for participants to opt out
of the HRA, which may, depending on the
individual coverage HRA offered, allow
the participant, if otherwise eligible, to
claim the PTC.
8. Substantiation of Coverage Under
Individual Health Insurance Coverage
a. In General
The proposed rules required that indi-
viduals whose medical care expenses may
be reimbursed under an individual cover-
age HRA must be enrolled in individual
health insurance coverage. To facilitate the
administration of this requirement, under
the proposed rules, an individual coverage
HRA would be required to implement,
and comply with, reasonable procedures
to verify that individuals whose medical
care expenses are reimbursable by the in-
dividual coverage HRA are, or will be,
114

enrolled in individual health insurance
coverage during the plan year (annual
coverage substantiation requirement).
Commenters generally supported the
annual coverage substantiation require-
ment, asserting that it is necessary to en-
sure the effectiveness of the requirement
that individuals covered by an individual
coverage HRA must be enrolled in indi-
vidual health insurance coverage. The De-
partments agree; therefore, the final rules
adopt the annual coverage substantiation
requirement, with minor clarifications de-
scribed in this section of the preamble.
115

Some commenters asked the Depart-
ments to clarify the timeframe within
which the substantiation must be provid-
ed, including requests for clarification as
to whether it would be acceptable for the
substantiation to occur during the indi-
vidual coverage HRA enrollment period
or prior to the first request for reimburse-
ment under the individual coverage HRA,
which commenters stated would be con-
sistent with typical administrative pro-
cedures for HRAs. For individuals who
seek enrollment in an individual coverage
HRA for the entire HRA plan year, the De-
partments intend for the annual coverage
substantiation requirement to provide ver-
ification of an individual’s enrollment in
individual health insurance coverage for
the entire HRA plan year (and, therefore,
that coverage is in effect as of the first day
of the HRA plan year). Accordingly, the
final rules clarify that the HRA may es-
tablish the date by which the annual cov-
erage substantiation requirement must be
satisfied, but, in general, the date may be
no later than the first day of the HRA plan
year. Nothing in the final rules prevents
an HRA from setting reasonable parame-
ters for when the substantiation must be
provided to the HRA (for example, by the
end of the individual coverage HRA open
enrollment period).
116

However, for individuals who become
eligible for the HRA during the HRA plan
year, including dependents, or who other-
wise are not required to be provided the
HRA notice described later in this pre-
amble 90 days prior to the plan year (that
is, employees who become eligible fewer
than 90 days prior to the plan year or em-
ployees of newly established employers),
the HRA may establish the date by which
the substantiation must be provided, but
the date may be no later than the date the
HRA coverage begins. These individuals
may not have sufficient time to enroll in
individual health insurance coverage that
is effective on or before the first day of
the HRA plan year. Thus, the final rules
provide a timing requirement that is con-
sistent with the annual coverage substan-
tiation requirement to provide verification
of an individual’s enrollment in individual
health insurance coverage for the portion
of the HRA plan year during which the
individual is covered by the HRA. The
final rules also clarify that, for these indi-
viduals, whether the individual is a partic-
ipant or a dependent, the annual coverage
substantiation requirement requires sub-
stantiation that the individual will have
individual health insurance coverage for
the portion of the HRA plan year during
which the individual is covered by the
HRA (rather than requiring substantiation
of coverage for the entire plan year). The
final rules also clarify that to the extent
a new dependent’s coverage is effective
retroactively, the HRA may establish any
reasonable timeframe for the annual cov-
erage substantiation but must require it be
provided before the HRA will reimburse
medical care expenses for the newly add-
ed dependent.
In addition to the annual coverage
substantiation requirement, the proposed
rules provided that an individual coverage
HRA may not reimburse a participant for
any medical care expenses unless, prior to
each reimbursement, the participant pro-
vides substantiation that the participant
and, if applicable, any dependent(s) whose
medical care expenses are requested to be
reimbursed, continues to be enrolled in
individual health insurance coverage for
the month during which the medical care
expenses were incurred (ongoing substan-
tiation requirement).
Several commenters expressed support
for the ongoing substantiation require-
ment, as necessary to ensure the effective-
ness of the requirement that individuals
covered by an individual coverage HRA
must be enrolled in individual health in-
surance coverage. Several commenters,
however, were concerned about what they
characterized as the complexity, burdens,
and liabilities associated with the ongo-
ing substantiation requirement, in par-
ticular for smaller employers, and noted
that those burdens could deter employers
from adopting individual coverage HRAs.
Some commenters asserted that the an-
nual coverage substantiation requirement
114
The Departments clarify that the reference to “will be” applies for participants who provide the substantiation in advance of when their individual coverage HRA coverage begins.
115
One commenter asserted that the substantiation requirements in the proposed rules are not sufficient but the commenter appears to have understood that the annual coverage substantiation
requirement is the sole substantiation requirement. The Departments note that the final rules, like the proposed rules, also require that the HRA satisfy the ongoing substantiation requirement.
The Departments determined that both the annual coverage substantiation requirement and the ongoing substantiation requirement are necessary to ensure that individuals covered by an
individual coverage HRA have individual health insurance coverage. Also, this commenter asserted that in the proposed rules the Departments acknowledged that employees may fail to obtain
coverage, and cited to 83 FR 54445 (Oct. 29, 2018), where, in the regulatory impact analysis the Departments stated that loss of coverage could occur as a result of the integration rules “if
some previously covered employees do not accept the HRA and fail to obtain their own coverage.” The Departments clarify that this statement related to individuals who opt out of the HRA
and did not address the circumstance in which an individual with an individual coverage HRA does not have individual health insurance coverage.
116
The Departments note that in establishing the enrollment period for an individual coverage HRA, plan sponsors should consider the timeframes for the relevant individual market enrollment
periods.

Bulletin No. 2019–28 131 July 8, 2019
would be sufficient to verify enrollment in
individual health insurance coverage and,
therefore, ongoing substantiation would
be unnecessary.
The Departments note that currently,
separate from the market requirements
or integration rules, HRAs are subject to
substantiation requirements with respect
to each request for reimbursement. This
is because in order to provide a benefit
excludable from income for federal tax
purposes, employer-provided accident or
health plans, including HRAs, may only
reimburse medical care expenses that
have been substantiated as an expense
for medical care.
117
Consequently, each
reimbursement for medical care expenses
by an HRA may only be paid after the ex-
pense has been substantiated as being for
medical care.
118
Each claim for reimburse-
ment also generally must include the em-
ployee’s certification that the expense has
not otherwise been reimbursed and that
the employee will not seek reimbursement
for the expense from any other plan.
119

The Departments have determined that
requiring ongoing substantiation of an
individual’s continued enrollment in in-
dividual health insurance coverage for the
month in which the expense was incurred
is not unduly burdensome because of these
existing substantiation requirements. Fur-
ther, the Departments have determined that
the ongoing substantiation requirement is
essential to ensure compliance with the
requirement that an individual covered by
an individual coverage HRA be enrolled
in individual health insurance coverage
and, as explained later in this section of
the preamble, will impose minimal burden
because it can be satisfied by collecting a
written attestation from the participant on
the same form used for requesting reim-
bursement. Thus, the final rules retain the
ongoing substantiation requirement.
120

Commenters requested that the Depart-
ments confirm the entity to which the sub-
stantiation requirements apply. Under the
final rules, the substantiation requirements
(both the annual coverage substantiation
requirement and the ongoing substantia-
tion requirement) apply to the individual
coverage HRA, rather than to any other
entity or individual, such as an issuer or
employee, because the requirements relate
to compliance of the individual coverage
HRA with PHS Act sections 2711 and
2713. The substantiation requirements do
not impose any new requirements on is-
suers, although individual coverage HRAs
may accept certain documentation provid-
ed by issuers in the normal course of busi-
ness to verify individual health insurance
coverage enrollment.
b. Methods of Substantiation
The proposed rules included a proposal
that the reasonable procedures an individual
coverage HRA may use to verify enrollment
in individual health insurance coverage for
purposes of the annual coverage substan-
tiation requirement include the individual
coverage HRA requiring the participant to
provide either: (1) a document from a third
party (for example, the issuer or Exchange)
showing that the participant and any depen-
dent(s) covered by the individual coverage
HRA are, or will be, enrolled in individual
health insurance coverage during the plan
year (for example, an insurance card or an
explanation of benefits pertaining to the plan
year or relevant month, as applicable);
121
or
(2) an attestation by the participant stating
that the participant and any dependent(s)
are, or will be, enrolled in individual health
insurance coverage, the date coverage be-
gan or will begin, and the name of the pro-
vider of the coverage. For the ongoing sub-
stantiation requirement, the proposed rules
permitted that substantiation could be in the
form of a written attestation by the partici-
pant, which could be part of the form used
for requesting reimbursement.
Commenters generally supported that
the proposed rules provided that attesta-
tion by a participant would be sufficient
to satisfy both the annual coverage sub-
stantiation requirement and the ongoing
substantiation requirement. However, one
commenter stated that allowing attestation
to be used to satisfy the annual coverage
substantiation requirement is not sufficient
to ensure that individuals covered by an
individual coverage HRA have individual
health insurance coverage. The Depart-
ments acknowledge the importance of the
requirement under the final rules that indi-
viduals with an individual coverage HRA
be enrolled in individual health insurance
coverage and, therefore, the need for relat-
ed substantiation requirements that ensure
that requirement is satisfied. The Depart-
ments note that attestation is permitted to
be used to satisfy similar requirements in
related contexts and that the Departments
generally are not aware of issues with re-
gard to the accuracy of attestations used
to satisfy those rules.
122
Further, in setting
out one type of attestation that is sufficient
to satisfy the annual coverage substantia-
tion requirement, the final rules state that,
in addition to providing that the individual
is (or will be) enrolled in individual health
insurance coverage, the attestation would
also provide the date coverage began or
will begin and the name of the provider
of the coverage. Moreover, HRAs can use
other reasonable methods to satisfy the
substantiation requirements and, in fact,
the Departments generally expect that
employees will use individual coverage
HRAs to reimburse premiums for the indi-
vidual health insurance coverage in which
they are enrolled and, therefore, employ-
ers will be able to confirm enrollment in
individual health insurance coverage by
virtue of reimbursing the premiums for
such coverage (or paying the premiums for
such coverage directly). Taking these fac-
tors into consideration, the Departments
117
See Code section 105(b), 26 CFR 1.105-2, and IRS Notice 2002-45.
118
See Prop. Treas. Reg. 1.125-6(d) for rules regarding reimbursement of medical care expenses through electronic methods, including some debit cards that satisfy certain requirements.
119
See IRS Notice 2006-69, 2006-31 IRB 107; Revenue Ruling 2003-43, 2003-1 CB 935; and Prop. Treas. Reg. 1.125-6(b)(3)(ii), (d)(i).
120
The Departments note that the final rules clarify that the ongoing substantiation requirement applies with respect to the individual on whose behalf reimbursement is being sought.
121
The Departments are aware that in the case of an individual coverage HRA with a non-calendar year plan year, the individual may not have documentation showing an individual health
insurance policy that spans the entire plan year as individual health insurance policy years are based on the calendar year. However, such an HRA may establish reasonable procedures to
implement the annual coverage substantiation requirement, including documentation showing coverage for the first part of the plan year combined with an attestation that the participant
intends to obtain individual health insurance coverage for the second part of the plan year or an attestation with respect to the full plan year.
122
See IRS Notice 2013-54, Q&A-4 (providing that attestation is sufficient to show that an individual is enrolled in group coverage, as required by the rules allowing HRA integration with
a traditional group health plan) and IRS Notice 2017-67, Q&A-41 (providing that attestation is sufficient to satisfy the QSEHRA requirement that individuals provide proof that they are
covered by MEC).

July 8, 2019 132 Bulletin No. 2019–28
have determined that allowing participant
attestation, among other options, to satisfy
the substantiation requirements strikes the
appropriate balance between ensuring in-
dividuals with individual coverage HRAs
are enrolled in individual health insurance
coverage and minimizing burdens on em-
ployers and employees. Accordingly, the
final rules retain this provision and permit
substantiation by participant attestation.
Some commenters requested that the
final rules provide a model attestation. In
response, to reduce burden on individual
coverage HRAs and their participants, the
Departments are providing model attes-
tation language contemporaneously with,
but separate from, the final rules. Howev-
er, the Departments note that individual
coverage HRAs will not be required to use
the model attestation.
Some commenters requested clarifi-
cation as to whether other substantiation
methods, in addition to collection of an at-
testation, would satisfy the substantiation
requirements. One commenter suggested
that a list of covered individuals provid-
ed by the insurance carrier should be suf-
ficient. The Departments agree that this
would generally be a type of third-party
document that could be used to verify en-
rollment, assuming the individual cover-
age HRA timely receives the substantia-
tion. However, the Departments note that
the final rules do not require issuers to pro-
vide individual coverage HRAs with lists
of covered individuals nor are individual
coverage HRAs required to contact issuers
to substantiate an individual’s enrollment
in individual health insurance coverage. In
addition, the final rules clarify that a doc-
ument from an Exchange showing that the
individual has completed the application
and plan selection would be sufficient to
satisfy the annual coverage substantiation
requirement. This clarification is intended
to address the situation in which, due to
the SEP verification process, an individual
is not yet enrolled in individual health in-
surance coverage but will be enrolled with
a retroactive start date upon successful
completion of the SEP verification.
123
See
later in this preamble for a discussion of
SEPs, including a new SEP for individu-
als who newly gain access to an individual
coverage HRA.
One commenter requested that the fi-
nal rules adopt a requirement for issuers
similar to the creditable coverage certi-
fication requirement created by HIPAA,
under which, as suggested by the com-
menter, issuers would be required to gen-
erate a letter for all individuals covered
by individual health insurance coverage
for each month showing payment was
made and that the individual had the cov-
erage for the month.
124
The Departments
decline to impose such a requirement be-
cause it would increase burden and other
reasonable substantiation methods are
available. One commenter suggested that
the ongoing substantiation requirement
should be considered satisfied so long as
the employer sends a notice to employees
advising them to contact the employer if
they no longer are enrolled in individual
health insurance coverage. The Depart-
ments decline to adopt this suggestion be-
cause this method of substantiation would
be insufficient to ensure with reasonable
accuracy that a participant had continued
enrollment in individual health insurance
coverage.
Several commenters requested that in-
dividual coverage HRAs be permitted to
comply with the substantiation require-
ments electronically, such as through deb-
it card technology.
125
Some commenters
noted this would provide consistency with
current rules that allow HRAs to satisfy
the current requirement to substantiate
that an expense is for medical care using
debit cards and other electronic means.
126

Nothing in the final rules would prohibit
an individual coverage HRA from estab-
lishing procedures to comply with the
substantiation requirements through elec-
tronic means, so long as the procedures
are reasonable to verify enrollment.
127
See
also the discussion later in this preamble
regarding the interaction of these rules
with the safe harbor that DOL is finaliz-
ing, to clarify that individual health insur-
ance coverage will not be treated as part
of an ERISA-covered group health plan so
long as certain conditions (including the
prohibition on endorsement) are satisfied.
c. Reliance on Documentation or
Attestation
The proposed rules provided that, for
both the annual coverage substantiation
requirement and the ongoing substantia-
tion requirement, an individual coverage
HRA may rely on the documentation or
attestation provided by the participant
unless the individual coverage HRA has
actual knowledge that any participant or
dependent covered by the individual cov-
erage HRA is not, or will not be, enrolled
in individual health insurance coverage
for the plan year or the month, as appli-
cable.
Despite this provision in the proposed
rules, some commenters expressed con-
cern, and requested clarification, regarding
liability of an individual coverage HRA if
it relies on a participant’s misrepresenta-
tion regarding enrollment in individual
health insurance coverage. In response to
these comments, the final rules provide
that an individual coverage HRA may rely
on the documentation or attestation pro-
vided by the participant unless the HRA
has actual knowledge that any participant
or dependent covered by the individual
coverage HRA is not, or will not be, en-
rolled in individual health insurance cov-
erage for the plan year (or the applicable
portion of the plan year) or the month, as
applicable. Therefore, the final rules pro-
vide that an inaccurate attestation or docu-
ment will not cause an individual coverage
HRA to fail to be considered integrated
123
The Departments note that a document from an Exchange showing that the individual has completed the application and plan selection would not be sufficient to satisfy the ongoing sub-
stantiation requirement; to satisfy that requirement the individual on whose behalf reimbursement is sought must be enrolled in individual health insurance coverage. Therefore, individual
health insurance coverage must become effective, including retroactively in the case of delayed SEP verification, in which case reimbursement can then be sought for expenses incurred during
the coverage period (including during the period to which the individual health insurance coverage applies retroactively, assuming the individual was covered by the HRA during that time).
124
Code section 9801(e), ERISA section 701(e), and PHS Act section 2704(e).
125
A couple of commenters requested clarification that funds in an individual coverage HRA could be accessed via debit cards. The final rules do not change the methods currently allowed
for facilitating reimbursements of HRA amounts, electronic or otherwise.
126
See IRS Notice 2006-69 and Revenue Ruling 2003-43, 2003-1 CB 935.
127
For purposes of the Code provisions affected by the final rules, the otherwise generally applicable substantiation and recordkeeping requirements under Code section 6001 apply, including
the requirements specified in Revenue Procedure 98-25, 1998-1 CB 689, for records maintained within an Automated Data Processing system.

Bulletin No. 2019–28 133 July 8, 2019
with individual health insurance coverage
unless the HRA has actual knowledge that
the attestation or document is inaccurate.
The Departments clarify that in the event
an individual coverage HRA subsequently
gains actual knowledge that the attestation
or document was inaccurate, the HRA
may not provide further reimbursement
on behalf of the individual for expenses
incurred during the period to which the
inaccurate attestation relates.
One commenter requested that the fi-
nal rules clarify whose knowledge can be
imputed to the individual coverage HRA
for purposes of liability and one com-
menter requested clarification that ven-
dors contracted by the HRA could rely
on coverage information provided by the
HRA. The individual coverage HRA will
be considered to have actual knowledge
that a participant or dependent is not, or
will not be, enrolled in individual health
insurance coverage for the plan year or the
month, as applicable, if the HRA, its plan
sponsor, or any other entity acting in an
official capacity on behalf of the HRA has
such actual knowledge.
One commenter suggested that the fi-
nal rules apply penalties to individual par-
ticipants for an inaccurate attestation. The
final rules do not impose penalties on par-
ticipants. Instead, the final rules, like the
proposed rules, provide conditions under
which an HRA will be considered integrat-
ed with individual health insurance cov-
erage and, therefore, in compliance with
PHS Act sections 2711 and 2713. Failing
to properly integrate will cause an HRA
to run afoul of PHS Act sections 2711 and
2713. Therefore, the responsibility to have
reasonable procedures in place to ensure
coverage is integrated falls on the HRA,
not the participants.
One commenter asked that individual
coverage HRA amounts made available
for a month be treated as taxable income
for individuals who do not have individual
health insurance coverage for the month
and that the attestation requirement and
required notice include a related warn-
ing. The Departments decline to adopt
this suggestion. Whether an individual
is enrolled in individual health insurance
coverage for a month relates to whether
the individual coverage HRA satisfies the
conditions for integration for the month
and does not affect the tax treatment of
reimbursements provided to a participant
under the individual coverage HRA.
128

One commenter suggested that the fi-
nal rules address substantiation require-
ments relative to a private exchange. The
Departments note that the substantiation
requirements set forth in the final rules
apply to all individual coverage HRAs,
regardless of the manner in which the
individual health insurance coverage is
purchased. See later in this preamble for
a discussion of private exchanges and the
DOL clarification regarding the applica-
tion of ERISA to individual health insur-
ance coverage purchased through an indi-
vidual coverage HRA.
To mitigate discrimination concerns,
one commenter requested that the substan-
tiation requirements be consistent across
all classes of employees. The Departments
note that the substantiation requirements
set forth in the final rules apply to all in-
dividual coverage HRAs, including differ-
ent individual coverage HRAs offered to
different classes of employees. The De-
partments generally expect plan sponsors
to establish similar procedures to satisfy
the substantiation requirements for differ-
ent individual coverage HRAs they may
offer. However, the Departments decline
to adopt the commenter’s specific recom-
mendation in order to allow plan spon-
sors the flexibility to establish reasonable
procedures to satisfy the substantiation
requirements, which presumably could
differ across the employer’s workforce,
depending on the characteristics of the
workforce or for other legitimate business
reasons.
One commenter requested that employ-
ers offering an individual coverage HRA to
employees or former employees who are
either eligible for or enrolled in Medicare
should be exempt from the substantiation
requirement. However, as discussed in
more detail later in this preamble, the fi-
nal rules permit integration of an individ-
ual coverage HRA with Medicare, and the
substantiation requirements apply to en-
rollment in Medicare in the same manner
as they apply to enrollment in individual
health insurance coverage. Therefore, the
final rules do not adopt this suggestion.
9. Notice Requirement
Because HRAs are different from tradi-
tional group health plans in many respects,
in the preamble to the proposed rules, the
Departments expressed a concern that in-
dividuals eligible for individual coverage
HRAs might not recognize that the offer
or acceptance of the individual coverage
HRA may have consequences for APTC
and PTC eligibility, as described else-
where in this preamble. In order to ensure
that employees who are eligible to partic-
ipate in an individual coverage HRA un-
derstand the potential effect that the offer
of and enrollment in the HRA might have
on their ability to receive the benefit of
APTC and claim the PTC, the proposed
rules included a requirement that an indi-
vidual coverage HRA provide written no-
tice to eligible participants.
Commenters generally supported the
notice requirement, sharing the Depart-
ments’ determination that many individu-
als will need the information to understand
the PTC consequences of the individual
coverage HRA. However, a number of
commenters expressed concerns about
the potential for consumer confusion,
notwithstanding the notice requirement,
and some suggested ways to strengthen
the notice. Other commenters expressed
concern that the notice requirement could
burden employers, with one noting in par-
ticular the burden of providing notices to
former employees.
The Departments have considered
these comments and agree with the com-
menters that assert that the notice is nec-
essary and appropriate for individuals
offered an individual coverage HRA to
understand the consequences of the offer.
Although the Departments also consid-
ered the burden on employers identified
by commenters, the Departments have
determined that the notice requirement
is essential to implementation of the final
rules. Along with updates to Exchanges’
application processes, the notice, which
will include information that individuals
will be instructed to provide to Exchanges
during the application process, is key to
ensuring that APTC and PTC are proper-
ly allowed and that improper APTC pay-
ments are prevented. The notice will also
128
However, see Code section 106(g) regarding the taxation of QSEHRA reimbursements if an individual fails to have MEC.

July 8, 2019 134 Bulletin No. 2019–28
aid implementation of the new individual
market SEP, as explained later in this pre-
amble. Therefore, the final rules retain this
requirement, with a number of revisions
made in response to comments, including
that the Departments are providing model
notice language, separate from, but con-
temporaneously with the final rules, in
order to address commenters’ concerns
about burden on employers. The com-
ments received and changes made in the
final rules are described in the remainder
of this section of the preamble.
a. Notice Content
As proposed, the notice was required
to include certain relevant information,
including a description of the terms of
the individual coverage HRA (including
the self-only maximum dollar amount
made available, which is used in the af-
fordability determination under the pro-
posed PTC rules); a statement of the right
of the participant to opt out of and waive
future reimbursement under the HRA; a
description of the potential availability
of the PTC if the participant opts out of
and waives the HRA and the HRA is not
affordable under the proposed PTC rules;
a description of the PTC eligibility con-
sequences for a participant who accepts
the HRA; a statement that the participant
must inform any Exchange to which they
apply for APTC of certain relevant infor-
mation; and a statement that the individual
coverage HRA is not a QSEHRA.
Commenters generally supported the
notice content elements, and the final rules
include each of the proposed notice con-
tent elements, some with clarifications.
Some commenters requested that the
notice be required to include additional
content, as explained in this section of the
preamble, and some commenters request-
ed that the notice be as simple as possi-
ble. Some commenters requested that the
notice explain the differences between an
employer’s traditional group health plan
and alternative health insurance products.
And one commenter requested that the
specific dollar amount made available be
included in the notice. The Departments
note that under the final rules, the notice
is required to provide the amount(s) made
available under the individual coverage
HRA. As to the suggestion that the notice
explain common differences between tra-
ditional group health plans and individual
coverage HRAs and other insurance prod-
ucts, the Departments decline to adopt the
suggestion due to concerns that it would
cause confusion for participants, as partic-
ipants are prohibited from being offered
both a traditional group health plan and an
individual coverage HRA under the final
rules. The intent of the notice is to explain
the individual coverage HRA that the em-
ployee is being offered to avoid consum-
er confusion. Adding information about
other types of coverage would undermine
that goal. Further, traditional group health
plans differ in cost-sharing structures, net-
work rules, and benefits covered, and any
standardized language in the notice would
have to be general and would not capture
these elements, as standardized language
about traditional group health plans would
not be describing any particular plan.
Moreover, the individual coverage HRA
must provide a summary of benefits and
coverage (SBC), which will include a de-
scription of the coverage, including cost
sharing; the exceptions, reductions and
limitations on coverage; and other infor-
mation.
129

One commenter requested that the
notice be required to contain contact in-
formation for a specific person that par-
ticipants can contact with questions. The
Departments agree that this could be use-
ful information for participants, without
imposing significant additional burden on
employers, and therefore the final rules
add a requirement that the notice include
contact information of an individual or a
group of individuals who participants may
contact with questions regarding their in-
dividual coverage HRA. For purposes of
this new requirement, the plan sponsor
may determine which individual or group
of individuals is in the best position to an-
swer these questions. The final rules pro-
vide that the contact information provided
in the notice must, at least, include a tele-
phone number.
The final rules also newly require that
the notice include a statement of availabil-
ity of an SEP for employees and depen-
dents who newly gain access to the HRA.
This is in part in response to a commenter
who suggested that the notice could be
used to improve Exchange program integ-
rity by making it easier for Exchanges that
require pre-enrollment verification to use
the notice to confirm enrollees’ SEP eligi-
bility. Separate from, but contemporane-
ously with the final rules, HHS is provid-
ing model language that will be relevant to
employees purchasing coverage through
or outside an Exchange, including a State
Exchange, which HRAs may use to satisfy
this requirement. The final rules also clar-
ify that, to facilitate participants’ timely
enrollment in individual health insurance
coverage using the new SEP described lat-
er in this preamble, the notice must also
indicate the date as of which coverage un-
der the HRA may first become effective
and the date on which the HRA plan year
begins and ends. The notice must also in-
clude information on when amounts will
be made available (for example, monthly
or annually).
Commenters also requested that the
notice explain the extent to which indi-
viduals enrolled in Medicare may use an
individual coverage HRA. In response to
these comments, and to reflect the con-
tent of the final rules, the notice content
requirements have been updated to reflect
that individual coverage HRAs may be
integrated with Medicare and to require
inclusion of a statement in that notice that
Medicare beneficiaries are ineligible for
the PTC, without regard to whether the
individual coverage HRA the individual
is offered is affordable or provides MV or
whether the individual accepts the HRA.
Further, the Departments note that, as
under the proposed rules, while the writ-
ten notice must include the information
required by the final rules, it may include
other information, as long as the addition-
al content does not conflict with the re-
quired information.
b. Notice Individualization
The proposed rules did not include a
requirement that the notice be individual-
ized for each participant. Although the no-
129
See PHS Act section 2715(b)(3) (incorporated in Code section 9815 and ERISA section 715). See also 26 CFR 54.9815-2715, 29 CFR 2590.715-2715, and 45 CFR 147.200.

Bulletin No. 2019–28 135 July 8, 2019
tice would have been required to include
a description of the potential availability
of the PTC for a participant who opts out
of and waives an unaffordable individual
coverage HRA, and the individual cover-
age HRA amount that is relevant for de-
termining affordability, the proposed rules
did not require that the HRA include in
the notice a determination of whether the
HRA is considered affordable for the spe-
cific participant.
Some commenters agreed that the no-
tice should not be required to be tailored
to each participant. However, others stated
that the notice would be insufficient if not
individualized and requested that the final
rules require that the notice provide infor-
mation specific to each participant, includ-
ing the premium for the relevant lowest
cost silver plan, or, at a minimum, detailed
instructions for where to find information
on the lowest cost silver plan, while others
requested that the notice include a com-
pleted affordability and MV calculation
specific to each participant.
While the Departments understand
the concerns about consumer confusion,
under the final rules, the notice is not
required to include a determination of
whether the offer of an individual cov-
erage HRA is affordable for a particular
participant. Plan sponsors are not in a po-
sition to make this determination for, or
provide it to, each participant because it
would require information that plan spon-
sors do not possess (for example, the par-
ticipant’s household income). In addition,
requiring a plan sponsor to determine the
cost of the lowest cost silver plan that will
apply for a specific participant to deter-
mine affordability under the PTC rules
would be burdensome, and the informa-
tion is available to the participant through
other means. Specifically, by November 1,
2019, HHS will provide resources to assist
individuals offered an individual coverage
HRA and using the Federal HealthCare.
gov platform with determining their PTC
eligibility based on whether the individual
coverage HRA is considered affordable,
and with understanding when they must
enroll in individual health insurance cov-
erage based on their individual coverage
HRA effective date, including whether
they may qualify for an SEP. HHS will
also begin working with State Exchanges
immediately to assist with the develop-
ment of resources for individuals using
State Exchanges’ applications for cover-
age. Further, although some plan sponsors
will need to determine whether the offer
of the individual coverage HRA is afford-
able for purposes of the employer shared
responsibility provisions under Code sec-
tion 4980H, smaller employers are not
subject to Code section 4980H. Moreover,
the Treasury Department and the IRS in-
tend to issue guidance in the near term
providing safe harbors or other methods
intended to reduce burdens and provide
more predictability regarding the appli-
cation of Code section 4980H to these ar-
rangements.
130

The Departments acknowledge that
it is critical that participants have the in-
formation that they need to determine the
affordability of their individual coverage
HRA under the PTC rules, and, according-
ly, the final rules add a requirement that
the notice include a statement about how
the participant may find assistance for de-
termining their individual coverage HRA
affordability. The model language that
the Departments are providing contem-
poraneously with the final rules includes
language that can be used to satisfy this
requirement.
One commenter requested that the no-
tice be required to be tailored for each
class of employees offered the individual
coverage HRA, in cases in which differ-
ent classes are provided different HRA
amounts, rather than allowing an employ-
er to provide one notice for several or all
classes. The final rules do not adopt this
suggestion because the Departments have
concluded any marginal advantages would
be outweighed by the additional employer
burdens of creating and distributing mul-
tiple versions of the notice. However, the
Departments note that the final rules do
not prohibit an employer from providing
more individualized notices, such as dif-
ferent notices for different classes of em-
ployees, if the employer so chooses.
c. Model Notice
Many commenters requested that the
Departments provide a model notice or
model language for certain parts of the
notice, such as model language to de-
scribe the consequences of opting into or
out of the individual coverage HRA and
language describing the related PTC con-
sequences. One commenter suggested that
the Departments provide translations of
the model notice into languages other than
English.
In response to these requests, and
published separately from the final rules,
the Departments are providing model
language contemporaneously on certain
aspects of the notice that are not employ-
er-specific, including model language de-
scribing the PTC consequences of being
offered and accepting an individual cov-
erage HRA. In addition, HHS is provid-
ing, contemporaneously, model language
that relates to all Exchanges that can be
used to satisfy the SEP-related notice con-
tent requirement and model language that
can be used to satisfy the requirement that
the notice include a statement describing
how the participant may find assistance
with determining affordability. While the
Departments hope it will be useful, plan
sponsors are not required to use the model
language.
For individual coverage HRAs, in-
cluding ERISA-covered plans, other
disclosure requirements may require par-
ticipants to be provided with a reason-
able opportunity to become informed as
to their rights and obligations under the
individual coverage HRA.
131
Those re-
quirements are of general applicability,
and the Departments decline to adopt a
special requirement, or model non-En-
glish translation, here.
132
130
See IRS Notice 2018-88. Further, lowest cost silver plan data will be made available by HHS for employers in all states that use the Federal HealthCare.gov platform to determine whether
the individual coverage HRA offer is affordable for purposes of the employer shared responsibility provisions under Code section 4980H.
131
See, e.g., ERISA sections 102, 104(b), and 503 and PHS Act sections 2715 and 2719 (incorporated in Code section 9815 and ERISA section 715). See also 26 CFR 54.9815-2715 and
54.9815-2719; 29 CFR 2520.102-3, 2520.104b-1, 2560.503-1, 2590.715-2715, and 2590.715-2719; and 45 CFR 147.136 and 147.200.
132
But see 29 CFR 2520.102-2(c) (requiring that plans where either 500 participants or at least 10 percent of all participants (or for plans with fewer than 100 participants, 25 percent of par-
ticipants) are literate in the same non-English language provide those literate only in a non-English language a reasonable opportunity to become informed as to their rights and obligations
under the plan).

July 8, 2019 136 Bulletin No. 2019–28
d. Notice Timing and Delivery
Under the proposed rules, the individ-
ual coverage HRA generally would be re-
quired to provide a written notice to each
participant at least 90 days before the be-
ginning of each plan year. The proposed
rules also provided that for participants
not eligible to participate at the beginning
of the plan year (or not eligible when the
notice is otherwise provided to plan par-
ticipants), the individual coverage HRA
would be required to provide the notice no
later than the date on which the participant
is first eligible to participate in the HRA.
Some commenters supported the notice
timing as proposed and others indicated
that small employers will not be able to
provide notices 90 days prior to the plan
year because they do not make benefit de-
cisions that far in advance. Several com-
menters requested that the notice delivery
coincide with the annual Exchange open
enrollment period, others requested it co-
incide with each employer’s annual open
enrollment period, and others requested
that plan sponsors have the flexibility to
provide the required notice at any time
prior to the plan year, including upon ini-
tial enrollment in an individual coverage
HRA. One commenter requested the no-
tice be required to be provided within 60
days, instead of 90 days, prior to the start
of the plan year. One commenter request-
ed that the Departments apply the distri-
bution requirements that apply for purpos-
es of SBCs and the uniform glossary. One
commenter also asked the Departments to
clarify the notice timing requirement as
applied to individual coverage HRAs that
do not have a calendar year plan year.
The Departments considered these com-
ments, but have determined that, with the
addition of a rule for newly established em-
ployers and certain other clarifications, the
final rules should adopt the notice timing
requirement as proposed, because, for a
calendar year plan year, it ensures that par-
ticipants who are current employees will
receive the notice prior to the individual
market annual open enrollment period, and
for employers offering an individual cover-
age HRA on a non-calendar year plan year,
it ensures participants who are current em-
ployees will receive the notice prior to the
applicable individual market SEP. The De-
partments also clarify that the notice timing
requirement applies in the same way to an
individual coverage HRA with a calendar
year plan year or with a non-calendar year
plan year. The notice’s primary purpose is
to provide necessary information to partic-
ipants that Exchanges will need in order to
accurately determine eligibility for APTC.
With that purpose in mind, the Depart-
ments have determined that a shorter tim-
ing requirement, including one mirroring
the requirement for the SBC, or a timing
requirement tied to the employer’s open
enrollment period, would not be sufficient.
As previously noted, the proposed
rules provided an exception to the 90 day
notice requirement for participants who
are not eligible to participate either at the
beginning of the plan year or at the time
the notice is provided at least 90 days pri-
or to the plan year. For those participants,
the proposed rules would allow the indi-
vidual coverage HRA to provide the no-
tice no later than the date on which the
participants are first eligible to participate
in the HRA. The final rules adopt this rule
generally as proposed, but clarify the lan-
guage to provide that the date by which
the notice must be provided is the date on
which the HRA may first take effect for
the participant. Further, the Departments
have determined that individual cover-
age HRAs sponsored by employers that
are first established within a short period
of time prior to the first plan year of the
HRA may not have an adequate amount
of time to provide a notice to participants
at least 90 days prior to beginning of the
first plan year. Therefore, the final rules
provide that in the case of an individual
coverage HRA sponsored by an employer
that is established less than 120 days prior
to the beginning of the first plan year of
the HRA, the notice may be provided no
later than the date on which the HRA may
first take effect for the participant, for that
first plan year of the HRA.
Moreover, although the final rules
provide that for participants not eligible
to participate in the individual coverage
HRA at the beginning of the plan year (or
not eligible when the notice is otherwise
provided) and for participants of newly
established employers, the HRA is not re-
quired to provide the notice until the date
on which the HRA may first take effect for
the participant, the Departments encour-
age HRAs to provide the notice as soon as
practicable. As explained later in this pre-
amble, individuals who newly gain access
to an individual coverage HRA will have
an individual market SEP that provides the
chance to select an individual health in-
surance plan in advance of the date when
the HRA may first take effect, so that in-
dividual health insurance coverage can be
effective on the first date the individual
is eligible to be covered by the HRA. If
the notice is not provided until the day the
HRA may first take effect for the partici-
pant, individuals may not be aware of the
HRA offer and will not be able to enroll in
individual health insurance coverage that
has an effective date on the earliest effec-
tive date of their HRA coverage. Howev-
er, the Departments are aware that in some
circumstances it would not be reasonable
to require HRAs to provide the notice well
in advance of the date the HRA may first
take effect for new employees. Therefore,
the final rules continue to require that the
notice be provided in these circumstances
no later than the date on which the HRA
may first take effect, but if possible, HRAs
should provide the notice sooner. This will
allow new employees to begin coverage in
the HRA as soon as possible.
With regard to delivery methods, the
proposed rules provided that the notice
must be a written notice but did not fur-
ther address delivery or format. Several
commenters requested that the final rules
clarify the notice delivery procedures and
requirements, including allowing for elec-
tronic delivery (through email delivery,
internet/intranet posting, or any other elec-
tronic means) if participants are provided
the appropriate opportunity to opt out of
electronic delivery. One commenter asked
specifically if the notice delivery would be
subject to ERISA’s delivery rules.
Under the final rules, individual cover-
age HRAs that are subject to ERISA, and
individual coverage HRAs sponsored by
nonfederal governmental plan sponsors,
must provide the notice in a manner rea-
sonably calculated to ensure actual receipt
of the material by plan participants cov-
ered by the HRA. Additionally, individual
coverage HRAs that are subject to ERI-
SA must provide the notice in a manner
that complies with the DOL’s rules.
133
For
133
29 CFR 2520.104b-1.

Bulletin No. 2019–28 137 July 8, 2019
ERISA plans using electronic disclosure,
the DOL has provided a safe harbor at 29
CFR 2520.104b-1(c). This safe harbor is
not intended to represent the exclusive
means by which the requirements of 29
CFR 2520.104b-1 may be satisfied us-
ing electronic media.
134
As to individual
coverage HRAs sponsored by nonfederal
governmental plan sponsors, HHS is re-
vising the final rule to provide that the no-
tice must be provided in a manner reason-
ably calculated to ensure actual receipt of
the material by plan participants covered
by the HRA, which HHS has determined
is sufficient to ensure that participants re-
ceive the required notice.
Commenters also requested that the
Departments confirm that the notice may
be delivered along with other plan mate-
rials, including, but not limited to, annual
enrollment materials or new hire benefit
packages. The Departments confirm that
the individual coverage HRA notice may
be delivered with other plan materials, so
long as it satisfies the content and timing
requirements specific to the individual
coverage HRA notice.
e. Other Notice Requirements and
Consumer Assistance
Some commenters suggested that all
types of HRAs (including excepted bene-
fit HRAs and HRAs integrated with tradi-
tional group health plans) should include
notice requirements so that individuals
understand which type of arrangement
they have and the consequences of the
arrangement. The Departments acknowl-
edge the potential for consumer confu-
sion as a result of the existence of various
types of health coverage, including vari-
ous types of HRAs. However, the Depart-
ments generally decline the suggestion to
impose new notice requirements under
the final rules across all types of HRAs.
The Departments note that this type of
consumer information notice requirement
is typically only imposed in situations in
which there is a specific justification for it.
For example, individual coverage HRAs
are unique in that specific PTC rules ap-
ply, and for QSEHRAs, which also have
specific PTC rules, notices are already re-
quired under the law.
135

Further, the Departments note that the
proposed rules would have required the
notice to include a statement that the indi-
vidual coverage HRA is not a QSEHRA,
and the final rules revise the statement in
response to comments to clarify further
that there are multiple types of HRAs and
the type the participant is being offered is
an individual coverage HRA (rather than a
QSEHRA or any other type).
Moreover, HRAs that are ERISA-cov-
ered plans must provide a summary plan
description (SPD), summaries of material
modifications, and summaries of material
reductions in covered services or bene-
fits.
136
The SPD must be sufficiently com-
prehensive to apprise the plan’s partici-
pants and beneficiaries of their rights and
obligations under the plan. It must also in-
clude, for example, the conditions pertain-
ing to eligibility to receive benefits, and
a description or summary of the benefits,
the circumstances that may result in dis-
qualification, ineligibility, or denial, loss,
forfeiture, suspension, offset, reduction,
or recovery (for example, by exercise of
subrogation or reimbursement rights) of
any benefits and the procedures governing
claims for benefits under the plan. HRAs
that are ERISA-covered plans are also re-
quired to provide the instruments under
which the plan is established or operated
and information relevant to a participant’s
adverse benefit determination upon re-
quest.
137
This information should be ade-
quate to enable individuals to understand
which type of arrangement they have and
the consequences of the arrangement.
138

One commenter requested that the De-
partments clarify the interaction between
the notice requirements associated with
the Fair Labor Standards Act (FLSA) and
the notice requirement for individual cov-
erage HRAs. The Departments note that
under FLSA section 18B, an applicable
employer is required to provide notice to
inform employees of coverage options,
including the existence of an Exchange,
and the availability of the PTC if the em-
ployer’s plan does not provide MV. This
notice is provided at the time of hiring.
The FLSA section 18B requirement to
provide a notice to employees of coverage
options applies to employers to which the
FLSA applies. An employer sponsoring
an individual coverage HRA that provides
the required notice under the final rules
must also provide a notice that satisfies
the FLSA notice requirement if the FLSA
applies to the employer. However, nothing
in the final rules prohibits an employer
from combining the notices for employees
eligible for the individual coverage HRA,
provided that both notice requirements are
satisfied.
Commenters also urged the Depart-
ments more generally to create tools and
resources for employees and employers
that are easily accessible to help deter-
mine PTC eligibility and to dedicate addi-
tional funding to the State Exchanges for
increased administration and assistance to
individuals trying to determine APTC eli-
gibility. A few commenters suggested that
more education for consumers, enrollment
assisters, and agents and brokers would be
necessary. The Departments acknowledge
the crucial role that the Exchanges have
in implementation and operationalization
of individual coverage HRAs, and the
Departments will work closely with the
Exchanges on the implementation of the
final rules. The Departments note that lan-
guage will be added to the HealthCare.gov
application to help consumers understand
that if they are eligible for an individual
coverage HRA, this offer may affect their
APTC eligibility. As discussed elsewhere
in this preamble, HHS also intends to
provide technical assistance materials for
consumers in HealthCare.gov states, as
well as for enrollment assisters and agents
and brokers participating in Exchanges
that use HealthCare.gov, so they may help
consumers understand the implications of
their individual coverage HRA offer. The
Departments are also continuing to con-
sider other ways to provide outreach and
134
67 FR 17263, 17264 (April 9, 2002).
135
Code section 9831(d)(4) and IRS Notice 2017-67.
136
See 29 CFR 2520.104b-2 and 29 CFR 2520.104b-3(a), (d)(3).
137
See, e.g., ERISA sections 104(b), 502(c), and 503. See also 29 CFR 2520.104b-1 and 29 CFR 2560.503-1.
138
The final excepted benefit HRA rules specifically note the ERISA disclosure obligations, and HHS intends to propose similar disclosure requirements for non-federal governmental plan
excepted benefit HRAs.

July 8, 2019 138 Bulletin No. 2019–28
assistance to stakeholders regarding indi-
vidual coverage HRAs.
10. Student Health Insurance Coverage
Federal rules under PPACA define stu-
dent health insurance coverage as a type
of individual health insurance coverage.
139

Although those rules exempt student
health insurance coverage from certain
provisions of PPACA and HIPAA,
140
they
do not exempt this coverage from PHS Act
sections 2711 and 2713. Therefore, given
that student health insurance coverage is
a type of individual health insurance cov-
erage, and is subject to PHS Act sections
2711 and 2713, in the preamble to the pro-
posed rules, the Departments clarified that
an HRA may be integrated with student
health insurance coverage that satisfies the
requirements in 45 CFR 147.145.
One commenter expressed support for
allowing integration of HRAs with stu-
dent health insurance coverage. Another
commenter requested that integration with
student health insurance coverage not be
permitted due to concerns that HRA plan
sponsors would be required to confirm
that the student health insurance coverage
complies with the market requirements.
The final rules permit HRA integration
with student health insurance coverage
because student health insurance cover-
age is individual health insurance cov-
erage that is subject to PHS Act sections
2711 and 2713. In response to concerns
about the difficulty of determining the
compliance of individual health insur-
ance coverage policies with the market
requirements generally for all individual
health insurance coverage, under the fi-
nal rules, all individual health insurance
coverage is treated as compliant with PHS
Act sections 2711 and 2713. Therefore,
plan sponsors are not required to confirm
that any particular student health insur-
ance policy (or any other individual health
insurance policy) complies with PHS Act
sections 2711 and 2713.
Further, in the preamble to the proposed
rules, the Departments noted that self-in-
sured student health plans are not a form
of individual health insurance coverage.
141

Therefore, the proposed rules did not pro-
vide for HRA integration with self-insured
student health plans. One commenter ex-
pressed concern that it may be difficult
for employers to verify whether an indi-
vidual with student health plan coverage
has insured or self-insured coverage. The
Departments appreciate the comment and
recognize that employers and employees
may not know whether a student health
plan is insured or self-insured, but expect
that employers will take reasonable steps
to ensure compliance with the final rules.
This includes making reasonable efforts
to ensure that, when employees substanti-
ate enrollment in student health coverage,
they are correctly substantiating enroll-
ment in a student health plan provided
through insurance by a licensed issuer. If a
student enrolled in an institution of higher
education has questions about the type of
student health coverage that is offered by
the institution, this information should be
available in the governing plan document
or by contacting the plan administrator for
the student health plan.
The Departments also confirmed in the
preamble to the proposed rules that prior
guidance,
142
which provided enforcement
relief to institutions of higher education for
certain healthcare premium reduction ar-
rangements offered to student employees
in connection with insured or self-insured
student health coverage (student premium
reduction arrangements) remains in effect,
pending any further guidance. One com-
menter expressed support for keeping the
current enforcement relief in effect.
The Departments reiterate that the pre-
viously provided enforcement relief re-
mains in effect for institutions of higher
education, pending any future guidance,
and the final rules clarify that a student
employee who is offered a student pre-
mium reduction arrangement is not con-
sidered part of the class of employees of
which the employee would otherwise be
a part for purposes of the final integration
rules. This provision applies only for plan
sponsors that are institutions of higher
education. For this purpose, a student pre-
mium reduction arrangement is defined as
any program offered by an institution of
higher education where the cost of insured
or self-insured student health coverage
is reduced for certain students through a
credit, offset, reimbursement, stipend or
similar arrangement.
143
Therefore, the of-
fer of that type of arrangement to student
employees will not affect the compliance
of an individual coverage HRA that the
institution of higher education may offer
to other employees. The final rules also
clarify that a student employee offered a
student premium reduction arrangement is
not counted for purposes of determining
whether the minimum class size require-
ment is satisfied. The text of the final rules
includes examples.
However, if a student employee is
not offered a student premium reduction
arrangement (including if, instead, the
student employee is offered an individual
coverage HRA), the student employee is
considered to be part of the class of em-
ployees to which he or she otherwise be-
longs, and the student employee is count-
ed in determining whether the minimum
class size requirement is satisfied. Further,
if an individual coverage HRA is offered
to student employees, the final integra-
tion rules apply to such an arrangement as
they would any other individual coverage
HRA.
11. Integration with Certain Other Types
of Coverage
a. Short-Term, Limited-Duration
Insurance
The Departments considered whether
to propose a rule to permit individual cov-
erage HRAs to be integrated with types of
139
Under this definition, student health insurance coverage must be provided pursuant to a written agreement between an institution of higher education (as defined in the Higher Education
Act of 1965) and a health insurance issuer, and provided to students enrolled in that institution and their dependents, and does not make health insurance coverage available other than in
connection with enrollment as a student (or as a dependent of a student) in the institution, does not condition eligibility for the health insurance coverage on any health status-related factor
(as defined in 45 CFR 146.121(a)) relating to a student (or a dependent of a student), and satisfies any additional requirements that may be imposed under state law. See 45 CFR 147.145(a).
140
See 45 CFR 147.145(b).
141
See 77 FR 16453, 16455 (March 21, 2012).
142
See FAQs About Affordable Care Act Implementation Part 33, available at https://www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-33.pdf or
https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/Downloads/ACA-FAQ-Set-33-Final.pdf. See also IRS Notice 2016-17; DOL Technical Release 2016–1; and CMS Insurance
Standards Bulletin, Application of the Market Reforms and Other Provisions of the Affordable Care Act to Student Health Coverage, February 5, 2016.
143
Id.

Bulletin No. 2019–28 139 July 8, 2019
non-group coverage other than individual
health insurance coverage, such as STL-
DI.
144
The Departments declined to do so
in the proposed rules because STLDI is
not subject to PHS Act sections 2711 and
2713 and, therefore, might not be compli-
ant with these market requirements. How-
ever, the Departments requested com-
ments on whether integration with STLDI
should be permitted and, if so, what poten-
tial advantages and problems might arise.
Most commenters strongly opposed al-
lowing integration with STLDI, express-
ing concerns that it would cause signifi-
cant adverse selection in the individual
market, which would lead to increased
premiums and increased federal spending
(through increased PTCs). Some of these
commenters asserted that prohibiting in-
tegration with STLDI is necessary to en-
sure the integrity and sustainability of the
individual market and that to allow inte-
gration with STLDI would run counter to,
and negate, the various other provisions
in the proposed rules intended to prevent
adverse selection. Some commenters ex-
pressed concern that STLDI provides in-
sufficient coverage and consumer protec-
tions, that individuals would unknowingly
enroll, and that brokers would have in-
centives to encourage STLDI enrollment.
Some commenters raised legal concerns
with allowing integration of HRAs with
STLDI, noting that STLDI is not subject
to, or generally compliant with, PHS Act
sections 2711 and 2713 and, therefore,
would not be sufficient to ensure that an
individual with an HRA integrated with
STLDI had coverage that was compli-
ant with these market requirements. One
commenter asserted that an HRA integrat-
ed with STLDI would fail to comply with
the health nondiscrimination rules under
HIPAA because STLDI is allowed to dis-
criminate based on health status.
A few commenters supported allow-
ing integration of an individual coverage
HRA with STLDI, noting that STLDI
is an option that could provide relief to
individuals unable to afford individual
health insurance coverage and, for some
lower-income individuals, such as those
in states that did not expand Medicaid un-
der PPACA, may be the only affordable
alternative. One commenter supported in-
tegration with STLDI as long as addition-
al guardrails were established and another
requested additional notice requirements
if integration of individual coverage
HRAs were to be permitted with STLDI.
The Departments note that STLDI can
be a useful option for certain individu-
als otherwise unable to afford or obtain
PPACA-compliant health insurance. The
final rules, however, do not allow integra-
tion with STLDI because of the concerns
raised by commenters, including that the
combined arrangement would not neces-
sarily satisfy PHS Act sections 2711 and
2713 and that adverse selection could re-
sult. The Departments note that the new
excepted benefit HRA finalized elsewhere
in the final rules, which is not subject to
PHS Act sections 2711 and 2713, gener-
ally may be used to reimburse premiums
for STLDI. See later in this preamble for
a discussion of the excepted benefit HRA,
including a discussion of the limited cir-
cumstance in which an excepted benefit
HRA may not be used to reimburse STL-
DI premiums.
b. Spousal Coverage
In developing the proposed rules, the
Departments considered whether to allow
individual coverage HRAs to be integrat-
ed with group health plan coverage, such
as a group health plan maintained by the
employer of the participant’s spouse, in
addition to individual health insurance
coverage. Like individual health insur-
ance coverage, group health plan coverage
generally is subject to and compliant with
PHS Act sections 2711 and 2713. The De-
partments indicated they did not propose
such a rule because to do so would add
significant complexity to the individu-
al health insurance coverage integration
test.
145
However, the Departments request-
ed comments, including on the demand
for such a rule, and any problems such a
rule may raise.
Several commenters requested that
integration with spousal coverage be per-
mitted under the individual health insur-
ance coverage integration test, with one
stating that most group coverage is likely
to cover all EHBs and therefore the issue
of an HRA that covers all EHBs being in-
tegrated with coverage that does not cov-
er all EHBs is unlikely to arise. One com-
menter suggested that the Departments
allow an employee to be covered by a
group health plan and also have access
to an HRA that can be used to purchase
individual health insurance coverage for
a spouse. Other commenters requested
that integration of an individual coverage
HRA with spousal coverage be prohibit-
ed, expressing skepticism that employers
would take advantage of this option and
noting that the arrangement would add
little value. In light of the Departments’
continued concern with the added com-
plexity that would be required and the re-
sponse from commenters, the final rules
do not allow an individual coverage HRA
to also be integrated with other group
health plan coverage, such as spousal
coverage. This is an area that the Depart-
ments may explore in future rulemaking.
The Departments reiterate that the cur-
rent rules under PHS Act section 2711
allow HRAs to be integrated with other
non-HRA group health plan coverage,
including spousal coverage, subject to
certain conditions.
146
However, amounts
made available under such an HRA may
not be used to purchase individual health
insurance coverage.
147
144
See 26 CFR 54.9801-2, 29 CFR 2590.701-2, and 45 CFR 144.103 for the definition of STLDI.
145
PHS Act section 2711 applies with respect to the coverage of EHBs. Because large group market and self-insured group health plans are not required to cover EHBs, unlike individual
health insurance coverage which generally is required to cover all EHBs, in the group health plan integration context, situations may arise where non-HRA group coverage with which the
HRA is integrated does not cover every category of EHBs that the HRA covers. In that case, the HRA applies an annual dollar limit to a category of EHBs and the non-HRA group coverage
with which it is integrated does not cure that limit by providing unlimited coverage of that category of EHBs. In the 2015 rules under PHS Act section 2711, and in subregulatory guidance that
preceded the 2015 rules, the Departments addressed this issue by providing two tests. Specifically, if the non-HRA group coverage with which an HRA is integrated provides MV, the HRA
will not be considered to fail to comply with PHS Act section 2711, even though the HRA might provide reimbursement of an EHB that the plan with which the HRA is integrated does not.
If an HRA is integrated with non-HRA group coverage that does not provide MV, the 2015 rules limit the types of expenses that an HRA may reimburse to reimbursement of co-payments,
co-insurance, deductibles, and premiums under the non-HRA group coverage, as well as medical care that does not constitute an EHB. For additional discussion of the current rules under
PHS Act section 2711, see the discussion earlier in this preamble.
146
26 CFR 54.9815-2711(d)(2), 29 CFR 2590.715-2711(d)(2), and 45 CFR 147.126(d)(2).
147
IRS Notice 2015-87, Q&A-2.

July 8, 2019 140 Bulletin No. 2019–28
Commenters also requested clarifica-
tion as to whether two spouses, each of-
fered an individual coverage HRA from
their respective employers, may use the
separate individual coverage HRAs to buy
a single individual health insurance policy
that covers both spouses (and any depen-
dents). Nothing in the final rules would
prohibit this, if the separate individual
coverage HRAs are each in compliance
with the final rules. However, under the
generally applicable rules for HRAs under
the Code, each individual may only seek
reimbursement for the portion of a medi-
cal care expense that has not already been
reimbursed by some other means, includ-
ing from one of the individual coverage
HRAs.
c. Health Care Sharing Ministries
Several commenters requested that
integration of HRAs with health care
sharing ministries be permitted, in part to
provide an alternative option that allevi-
ates conscience issues faced by employers
and employees with respect to individu-
al health insurance coverage, and in part
due to the success of health care sharing
ministries in providing affordable, flexible
choices.
The Departments are of the view that
HRAs cannot be integrated with health
care sharing ministries, consistent with
PHS Act sections 2711 and 2713. Under
current law, health care sharing ministries
are not subject to those provisions, nor are
they required to comply with other mar-
ket requirements that apply to individual
health insurance coverage. Health care
sharing ministry arrangements are also
not MEC.
148
Therefore, the integration of
an individual coverage HRA with these
arrangements would not result in a com-
bined arrangement sufficient to satisfy
PHS Act sections 2711 and 2713, which
means that such a combined arrangement
would not provide the protections afford-
ed by those provisions.
One commenter asserted that the pro-
posed rules would impermissibly burden
the exercise of religion for purposes of
the Religious Freedom Restoration Act of
1993 (RFRA)
149
because they would not
allow individual coverage HRAs to be
integrated with health care sharing min-
istries and thus would make participation
in health care sharing ministries more
expensive relative to individual coverage
HRAs. Specifically, the commenter as-
serted that the proposed rules would im-
permissibly burden the free exercise of
religion because, by not allowing HRAs
to be integrated with health care sharing
ministries, the rules would extend certain
tax advantages to individual coverage
HRAs that are not extended to participants
in health care sharing ministries. Howev-
er, although the RFRA provides a claim to
persons whose religious exercise is sub-
stantially burdened by government, the
Supreme Court has held that “a generally
applicable tax [that] merely decreases the
amount of money [an individual or enti-
ty] has to spend on its religious activities”
does not impose a substantial burden on
the exercise of religion.
150
Consequently,
the final rules do not allow individual cov-
erage HRAs to be integrated with health
care sharing ministries.
d. Multiple Employer Welfare
Arrangements (including Association
Health Plans)
One commenter requested that integra-
tion of HRAs be permitted with associa-
tion health plans (AHPs)
151
and another
commenter opposed allowing integration
with AHPs, because coverage offered by
an AHP is not required to cover all EHBs,
to the extent the coverage is offered
through a large group market or self-in-
sured group health plan. AHPs are a type
of Multiple Employer Welfare Arrange-
ment (MEWA) that are group health plans.
The Departments current, final regula-
tions at 26 CFR 54.9815-2711(d)(2), 29
CFR 2590.715-2711(d)(2), and 45 CFR
147.126(d)(2) set forth criteria for HRAs
to be integrated with other group health
plan coverage (including MEWAs).
e. TRICARE
The Departments note that, under the
final rules, individual coverage HRAs may
not be integrated with TRICARE.
152
How-
ever, for the sake of clarity, the Departments
note that nothing in the final rules prevents
an employer from offering an individual
coverage HRA to an individual covered by
TRICARE, subject to the provisions of the
final rules, including that if an individual
coverage HRA is offered to an employee in
a class of employees, the HRA must gen-
erally be offered on the same terms to all
the employees in the class. Further, noth-
ing in the final rules prevents an individ-
ual covered by TRICARE from enrolling
in an individual coverage HRA, if offered,
subject to the conditions in the final rules,
including that all individuals covered by
an individual coverage HRA must be en-
rolled in either individual health insurance
coverage or Medicare.
153
Consequently, an
individual covered by TRICARE who is
offered an individual coverage HRA will
be enrolled in TRICARE and must also be
enrolled in an individual health insurance
policy (or Medicare, if applicable) in or-
der to be enrolled in the individual cover-
age HRA. The individual may not enroll
in the individual coverage HRA and only
TRICARE without enrolling in an individ-
ual health insurance policy (or Medicare).
Further, as explained later in this preamble,
HRAs may reimburse medical care expens-
es and the HRA plan sponsor determines
which medical care expenses a particular
HRA may reimburse, consistent with the
148
See Code section 5000A(d)(2)(B) and 5000A(f).
149
42 USC 2000bb(b).
150
Jimmy Swaggart Ministries v. Bd. of Equalization of California, 493 U.S. 378, 391 (1990).
151
On June 21, 2018, DOL published a final rule establishing a new test as an alternative to that described in prior DOL sub-regulatory guidance for determining who can sponsor an ERI-
SA-covered AHP as an “employer.” See 83 FR 28912 (June 21, 2018). The AHP rule was intended to expand access to affordable, high-quality healthcare options, particularly for employees
of small employers and some self-employed individuals. On March 28, 2019, in State of New York v. United States Department of Labor, the United States District Court for the District of
Columbia vacated most of the DOL rule. On April 26, 2019, the Department of Justice filed a notice of appeal.
152
See chapter 55 of title 10, United States Code.
153
IRS Notice 2015-17, Q&A-3, provides that an arrangement under which an employer reimburses certain medical care expenses for employees covered by TRICARE may be considered
integrated with a traditional group health plan offered by the employer (even though the employee is not enrolled in the traditional group health plan), subject to certain conditions. The final
rules do not affect this guidance provided under Notice 2015-17.

Bulletin No. 2019–28 141 July 8, 2019
discussion later in this preamble. It may
be the case that an HRA will be available
to pay both the premiums and cost-sharing
for individual health insurance coverage as
well as any medical care expenses related
to TRICARE, subject to the terms of the
HRA.
12. Expenses Eligible for Reimbursement
by an Individual Coverage HRA
A number of commenters requested
clarification of the expenses that may be
reimbursed under an individual coverage
HRA, such as whether expenses for pre-
miums for excepted benefit coverage, cost
sharing under excepted benefit coverage,
and cost sharing under individual health
insurance coverage may be reimbursed.
One commenter recommended that the fi-
nal rules require individual coverage HRAs
to provide reimbursement for cost sharing
in addition to premiums, and another asked
for clarification that an individual coverage
HRA is not required to be used to reim-
burse premiums for individual health in-
surance coverage, so long as the individual
coverage HRA otherwise satisfies the re-
quirements under the final rules.
An HRA may provide for reimburse-
ment of expenses for medical care, as
defined under Code section 213(d). Con-
sistent with the current rules that apply
to HRAs generally, under the final rules,
a plan sponsor has discretion to specify
which medical care expenses are eligible
for reimbursement from an individual
coverage HRA it establishes. A plan spon-
sor may allow an HRA to reimburse all
medical care expenses, may limit an HRA
to allow reimbursements only for premi-
ums, may limit an HRA to allow reim-
bursements only for non-premium medi-
cal care expenses (such as cost sharing),
or may decide which particular medical
care expenses will be reimbursable and
which will not be reimbursable. Howev-
er, in the latter case, the designation of
the reimbursable expenses must not vio-
late other rules applicable to group health
plans, such as the HIPAA nondiscrimina-
tion rules or the MSP provisions. The fi-
nal rules do not require that an individual
coverage HRA be used (or be allowed to
be used) for reimbursement of premiums
for individual health insurance coverage
(or Medicare). However, as detailed earli-
er in this preamble, the final rules require
that individuals covered by an individual
coverage HRA be enrolled in individual
health insurance coverage (or Medicare).
Thus, the Departments generally antici-
pate that employers will allow individual
coverage HRAs to reimburse premiums
for such coverage.
Some commenters requested that the
Departments confirm that certain excepted
benefits, including standalone dental cov-
erage, hospital indemnity or other fixed in-
demnity coverage, and coverage for a spe-
cific disease or illness, provide medical care
within the meaning of Code section 213(d)
and, therefore, that expenses for these types
of coverage are reimbursable by an individ-
ual coverage HRA. Some commenters re-
quested that expenses paid with regard to
direct primary care arrangements be recog-
nized as expenses for medical care under
Code section 213(d). In addition, one com-
menter requested clarification of whether
payments for participation in health care
sharing ministries qualify as medical care
expenses under Code section 213(d).
An HRA, including an individual cov-
erage HRA, generally may reimburse ex-
penses for medical care, as defined under
Code section 213(d), of an employee and
certain members of the employee’s family.
Under Code section 213(d), medical care
expenses generally include amounts paid
(1) for the diagnosis, cure, mitigation,
treatment, or prevention of disease, or for
the purpose of affecting any structure of
function of the body; (2) for transporta-
tion primarily for and essential to medical
care; (3) for certain qualified long-term
care services; and (4) for insurance cov-
ering medical care. Neither the proposed
rules nor the final rules make any changes
to the rules under Code section 213. Thus,
any issues arising under Code section 213,
and any guidance requested by comment-
ers to address those issues, are beyond the
scope of this rulemaking. The Treasury
Department and the IRS, however, appre-
ciate the comments and plan to address
some of these issues in future rulemaking
or guidance.
13. Interaction of Individual Coverage
HRAs and HSAs
Commenters raised various issues re-
lated to the interaction between individ-
ual coverage HRAs and HSAs. Section
1201 of the Medicare Prescription Drug,
Improvement, and Modernization Act of
2003, Pub. L. No. 108-173, added sec-
tion 223 to the Code to allow eligible in-
dividuals to establish HSAs. Among the
requirements for an individual to qualify
as an eligible individual under Code sec-
tion 223(c)(1) is that the individual must
be covered under a high deductible health
plan (HDHP) and have no disqualifying
health coverage. If an individual fails to
satisfy the requirements to be an eligible
individual, contributions to an HSA are
disallowed.
Several commenters asked that the
Treasury Department and the IRS clarify
whether an individual covered by an in-
dividual coverage HRA may contribute to
an HSA. Some commenters specifically
asked the Treasury Department and the
IRS to address the application of prior
guidance under the Code, which provides
that certain types of HRAs do not render
an individual ineligible to contribute to an
HSA. Several commenters expressed sup-
port for HSAs and emphasized the impor-
tance of allowing individuals who have
individual coverage HRAs to contribute
to HSAs.
In Revenue Ruling 2004-45,
154
the
Treasury Department and the IRS clari-
fied that an otherwise eligible individual
(that is, an individual with coverage un-
der an HDHP and no other disqualifying
coverage) remains an eligible individu-
al for purposes of making contributions
to an HSA for periods during which the
individual is covered by, among other
things, a limited-purpose HRA, a post-de-
ductible HRA, or combinations of these
arrangements.
155
Subsequently, Q&A-1 of
154
Revenue Ruling 2004-45, 2004-1 IRB 971.
155
See Revenue Ruling 2004-45, which defines a limited-purpose HRA as an HRA that pays or reimburses benefits for “permitted insurance” (for a specific disease or illness or that provides
a fixed amount per day (or other period) of hospitalization) or “permitted coverage” (for example, vision or dental coverage), but not for long-term care services. In addition, the limited-pur-
pose HRA may pay or reimburse preventive care benefits. The ruling also defines a post-deductible HRA as an HRA that does not pay or reimburse any medical expense incurred before the
minimum annual deductible under Code section 223(c)(2)(A)(i) is satisfied.

July 8, 2019 142 Bulletin No. 2019–28
IRS Notice 2008-59
156
stated that a limit-
ed-purpose HRA that is also available to
pay premiums for health coverage does
not disqualify an otherwise eligible indi-
vidual from contributing to an HSA, pro-
vided the individual does not use the HRA
to, or otherwise, obtain coverage that is
not HSA-compatible. This prior guidance
applies to all HRAs, including individual
coverage HRAs. Therefore, for example,
an individual coverage HRA that solely
makes available reimbursements of indi-
vidual health insurance coverage premi-
ums does not disqualify an otherwise el-
igible individual covered under an HDHP
and no other disqualifying coverage from
making contributions to an HSA. Howev-
er, an individual coverage HRA that is not
limited in accordance with the relevant
guidance under the Code would not be
HSA-compatible (for example, an HRA
that can reimburse first dollar cost shar-
ing).
One commenter asked whether em-
ployers are allowed, or required, to offer
both an HSA-compatible individual cov-
erage HRA and an individual coverage
HRA that is not HSA compatible to a class
of employees. The Departments recognize
that some employees offered an individu-
al coverage HRA may choose individual
health insurance coverage that is an HDHP
and other employees may choose non-
HDHP individual health insurance cov-
erage that is not HSA compatible. While
some employers may offer all employees
in a class of employees an HSA-com-
patible individual coverage HRA, some
employers may want to offer employees
in a class of employees a choice between
an HSA-compatible individual coverage
HRA and an individual coverage HRA
that is not HSA compatible. In response
to this comment, the final rules clarify
that an employer that offers employees
in a class of employees a choice between
an HSA-compatible individual coverage
HRA and an individual coverage HRA
that is not HSA compatible does not fail
to satisfy the same terms requirement pro-
vided both types of individual coverage
HRAs are offered to all employees in the
class on the same terms.
157
The final rules
have been revised to reflect this rule.
With respect to the post-deductible fea-
ture of certain HSA-compatible HRAs,
one commenter suggested that the final
rules provide that employees may self-ad-
minister the post-deductible restriction by
tracking medical expenses incurred during
the year and refraining from submitting
medical expenses to the post-deductible
HRA until the minimum deductible is sat-
isfied. The Treasury Department and the
IRS decline to adopt this approach because
it would be inconsistent with the rules for
the administration of HDHPs.
158
If a plan
sponsor chooses to offer an HSA-com-
patible individual coverage HRA that re-
imburses medical care expenses after the
minimum deductible under Code section
223(c)(2)(A)(i) is satisfied, it is the em-
ployer’s responsibility to track medical
care expenses incurred during the year and
ensure that the individual coverage HRA
does not reimburse medical care expenses
(other than premiums or expenses allowed
as limited purpose) incurred prior to the
satisfaction of the minimum deductible.
159
The commenter further requested clar-
ification as to whether unused amounts in
an individual coverage HRA at the end
of the plan year may be transferred to
the employee’s HSA. The Treasury De-
partment and the IRS note that amounts
available under an HRA, whether an in-
dividual coverage HRA or another type of
HRA, may not be funded by salary reduc-
tion amounts. Moreover, the amounts are
available only to reimburse Code section
213(d) medical care expenses and may not
be cashed out.
160
However, amounts in an
HSA may be withdrawn for non-medical
purposes, subject to inclusion in income
and an additional tax.
161
In addition, Con-
gress previously provided for one-time
distributions from HRAs to HSAs, in cer-
tain circumstances, subject to the annual
HSA contribution limits, but this special
rule was only made available on a tempo-
rary basis, and the rule sunset at the end
of 2011.
162
Therefore, allowing unused
amounts in an individual coverage HRA
to be transferred to an HSA would be in-
consistent with the relevant provisions of
the Code and is not permitted.
Finally, some commenters requested
that direct primary care arrangements not
be treated as a health plan or coverage un-
der Code section 223, so that an individual
may have a direct primary care arrange-
ment without becoming ineligible for
HSA contributions. Similar to the discus-
sion of Code section 213 in the preceding
section of this preamble, neither the pro-
posed rules nor the final rules make any
changes to the rules under Code section
223. Thus, any issues arising under Code
section 223, and any guidance requested
by commenters to address those issues,
are beyond the scope of this rulemaking.
14. Interaction of Individual Coverage
HRAs and Medicare
Commenters raised various issues re-
lated to the interaction between individual
coverage HRAs and Medicare. The com-
ments focused on the interaction with the
Medicare anti-duplication provision un-
der SSA section 1882(d)(3)(A)(i)(I) and
the MSP provisions under SSA section
1862(b). In response to these comments,
the final rules have been revised to provide
that an individual coverage HRA may be
156
IRS Notice 2008-59, 2008-29 IRB 123.
157
The Departments note that under the opt out requirement, described later in this preamble, each participant must be given the chance to opt out of (or into) an individual coverage HRA
once, and only once, with respect to a plan year and to the extent a participant is offered a choice between an HSA-compatible HRA and a non-HSA-compatible HRA, the participant will
opt into either one or the other, for the plan year (or for the portion of the plan year during which the participant is covered by the HRA). (Note that participants are also generally given the
chance to waive the HRA upon termination of employment).
158
See Revenue Ruling 2004-45.
159
Another commenter inquired about the interaction of individual coverage HRAs and HSAs and the rules for cafeteria plans under Code section 125. These issues are outside the scope of
this rulemaking, and the Treasury Department and the IRS are continuing to consider whether future guidance is needed.
160
See IRS Notice 2002-45.
161
See Code section 223(f). Notwithstanding that HSA amounts may be withdrawn for non-medical purposes, subject to inclusion in income and additional tax, Code section 106(d) provides
that in the case of amounts contributed by an employer to the HSA of an eligible individual, those amounts are treated as employer-provided coverage for medical care expenses under an
accident or health plan to the extent the amounts do not exceed the annual limits on contributions to an HSA.
162
See Code section 106(e).

Bulletin No. 2019–28 143 July 8, 2019
integrated with either individual health in-
surance coverage or Medicare Part A and
B or Part C. Also, the Departments clarify
that an individual coverage HRA may be
used to reimburse premiums for Medicare
and Medicare supplemental health insur-
ance (Medigap), as well as other medical
care expenses, as discussed in more detail
in this section of the preamble.
a. Background
Comments regarding the interaction
between individual coverage HRAs and
Medicare addressed a number of federal
laws and rules governing the relationship
between group health plans and the Medi-
care program. This section of the pream-
ble briefly summarizes these laws to pro-
vide context for comments received on
the proposed rules and the provisions of
the final rules related to integration of an
individual coverage HRA with Medicare.
Under SSA section 1882(d)(3)(A)(i)
(I), it is unlawful for any person to issue
or sell to an individual entitled to bene-
fits under Medicare Part A or enrolled in
Medicare Part B (including an individual
electing a Medicare Part C plan) an indi-
vidual health insurance policy with the
knowledge that the policy duplicates
163

health benefits to which the individual
is otherwise entitled under Medicare or
Medicaid.
164
Persons who violate SSA
section 1882(d)(3)(A)(i)(I) are subject to
criminal fines and imprisonment, as well
as civil monetary penalties.
165

The MSP provisions in SSA section
1862(b) make Medicare the secondary
payer to certain other health plans and
coverage, including group health plans.
These provisions protect the Medicare
trust funds by ensuring that Medicare does
not pay for items and services that certain
health insurance or coverage is primari-
ly responsible for paying. In general, the
MSP provisions describe when Medicare
is secondary in relation to other health
plans or coverage and prohibit Medicare
from making payment for an item or ser-
vice if payment has been made, or can
reasonably be expected to be made, by a
primary plan when certain conditions are
satisfied.
166
SSA section 1862(b) and 42 CFR
411.20 et seq. provide, in part, that Medi-
care is the secondary payer, under speci-
fied conditions, for services covered under
any of the following:
Group health plans of employers that
employ at least 20 employees and that
cover Medicare beneficiaries age 65 or
older who are covered under the plan by
virtue of the individual’s current employ-
ment status
167
with an employer or the cur-
rent employment status of a spouse of any
age.
168
Group health plans (without regard to
the number of individuals employed and
irrespective of current employment status)
that cover individuals who have ESRD.
Except as provided in 42 CFR 411.163,
group health plans are always primary
payers throughout the first 30 months of
ESRD-based Medicare eligibility or enti-
tlement.
169
Large group health plans, as defined by
Code section 5000(b)(2) without regard to
Code section 5000(d) (that is, plans of em-
ployers that employ at least 100 employ-
ees), that cover Medicare beneficiaries
who are under age 65, entitled to Medi-
care on the basis of disability, and covered
under the plan by virtue of the individual’s
or a family member’s current employment
status with an employer.
170
Generally, under SSA section 1862(b)
(1)(A), (B), and (C), a group health plan
may not take into account that individu-
als are entitled to Medicare on the basis
of age or disability, or that individuals are
eligible for or entitled to Medicare on the
basis of ESRD, in the design or offering
of the plan. The provisions at SSA sec-
tion 1862(b)(1)(A), (B), and (C) (includ-
ing subsections (b)(1)(A)(i)(II) and (b)(1)
(C)(ii)) are collectively referred to as the
Medicare nondiscrimination provisions.
Examples of actions that constitute taking
into account Medicare entitlement are list-
ed in 42 CFR 411.108.
SSA section 1862(b)(1)(A)(i)(II) and
(ii) provides that group health plans of
employers of 20 or more employees must
provide to any employee or spouse age 65
or older the same benefits, under the same
conditions, that the plan provides to those
individuals under age 65 (equal benefit
rule). For example, a group health plan of
an employer with 20 or more employees
may not provide lesser benefits to indi-
viduals age 65 or over, or charge higher
premiums for individuals age 65 or over,
because these actions would take into
account employees’ entitlement to Medi-
care on the basis of age and would pro-
vide different benefits based on whether
an employee is under or over age 65. This
requirement applies regardless of whether
the individual or spouse age 65 or older is
entitled to Medicare.
SSA section 1862(b)(1)(C)(ii) provides
that group health plans may not differen-
tiate in the benefits they provide between
individuals who have ESRD and other
individuals covered under the plan on the
basis of the existence of ESRD, the need
for renal dialysis, or in any other manner.
Actions that constitute “differentiating”
are listed in 42 CFR 411.161(b).
SSA section 1862(b)(3)(C) and 42
CFR 411.103 provide that it is unlawful
for an employer or other entity (for ex-
ample, an issuer) to offer any financial or
other benefits as incentives for an individ-
ual entitled to Medicare not to enroll in, or
to terminate enrollment in, a group health
plan that is, or would be, primary to Medi-
care. For example, employers may not
offer benefits to Medicare beneficiaries
that are available only as alternatives to
163
If benefits under an individual health insurance policy are payable without regard to other health benefit coverage of such individual, the policy is not considered to “duplicate” any health
benefits to which the individual is otherwise entitled under Medicare or Medicaid, and therefore, the statutory prohibition on the sale of such coverage does not apply. See SSA section 1882(d)
(3)(A)(iv).
164
Group health plans, including HRAs, are generally exempt from this Medicare anti-duplication provision. See SSA section 1882(d)(3)(C).
165
SSA section 1882(d)(3)(A)(ii).
166
See CMS Publication #100-05, Medicare Secondary Payer Manual, available at https://www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/Internet-Only-Manuals-IOMs-Items/
CMS019017.html?DLPage=1&DLEntries=10&DLSort=0&DLSortDir=ascending.
167
An individual has current employment status if the individual is actively working as an employee or is otherwise described in 42 CFR 411.104.
168
SSA section 1862(b)(1)(A), 42 CFR 411.20(a)(1)(ii), and 42 CFR 411.100(a)(1)(i).
169
SSA section 1862(b)(1)(C).
170
SSA section 1862(b)(1)(B).

July 8, 2019 144 Bulletin No. 2019–28
the employer’s primary group health plan
(for example, prescription drug benefits)
unless the beneficiary has primary cov-
erage other than Medicare (for example,
primary plan coverage through his or her
spouse’s employer).
b. Integration of Individual Coverage
HRAs with Medicare
Several commenters requested clari-
fication generally about how employees
who are enrolled in Medicare may use
amounts in an individual coverage HRA.
Some commenters explained that because
of the Medicare anti-duplication provision
applicable to individual health insurance
coverage, employees who are Medicare
beneficiaries may not be able to purchase
individual health insurance coverage and,
therefore, would be unable to enroll in
an individual coverage HRA. One com-
menter suggested that issuers should have
to make their individual health insurance
policies available to employees eligible
for or enrolled in Medicare, if they are of-
fered an individual coverage HRA.
Some commenters sought clarification
about the relationship between the Medi-
care anti-duplication provision and the
Medicare nondiscrimination provisions as
they relate to individual coverage HRAs.
Specifically, some commenters asked HHS
to clarify that the inability of employees
who are Medicare beneficiaries to obtain
individual health insurance coverage due
to the Medicare anti-duplication provision
will not cause the individual coverage
HRA or its plan sponsor to violate rules
prohibiting discrimination based on Medi-
care status, age, disability, or other factors.
One commenter suggested that employers
that otherwise comply with the proposed
rules should not be precluded from offer-
ing an individual coverage HRA because
a class of employees includes a Medicare
beneficiary who cannot obtain individual
health insurance coverage. Another com-
menter asked whether employers would
be required to offer Medicare-eligible
employees the same HRA contribution as
non-Medicare-eligible employees in the
same class even though Medicare benefi-
ciaries may not be able to purchase indi-
vidual health insurance coverage.
In response to these comments, HHS
notes that there is no exception to the
Medicare anti-duplication provision un-
der SSA section 1882(d)(3)(A)(i)(I) for
individual health insurance coverage
purchased with an HRA. Therefore, nei-
ther the proposed rules nor the final rules
make any changes related to the appli-
cation of the Medicare anti-duplication
provision. Thus, the statutory prohibition
against selling an individual health in-
surance policy to a Medicare beneficiary
with knowledge that the policy duplicates
benefits under Medicare continues to ap-
ply, regardless of whether the individual
is offered an individual coverage HRA.
However, the Departments have consid-
ered commenters’ concerns about indi-
vidual coverage HRAs and the potential
effects of the Medicare anti-duplication
provision, as well as those related to the
interaction of the MSP provisions, and
have determined that revisions to the final
rules are warranted.
HHS recognizes that, for an individual
coverage HRA, it is necessary to address
how the Medicare anti-duplication pro-
vision interacts with the rules under SSA
section 1862(b)(1) that generally provide
that group health plans may not take into
account entitlement to Medicare and must
provide to any employee or spouse age 65
or older the same benefits, under the same
conditions, that the group health plan pro-
vides to individuals under age 65. If an
employer offers an individual coverage
HRA, some employees who are Medicare
beneficiaries may not be able to obtain in-
dividual health insurance coverage due to
the anti-duplication provision at SSA sec-
tion 1882(d)(3)(A)(i)(I). 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 address these comments, 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 en-
rolled in Medicare Part A and B or Part C
(and the HRA will be deemed to comply
with PHS Act sections 2711 and 2713), if
certain conditions are satisfied. Under the
final rules, an individual coverage HRA
may be integrated with Medicare regard-
less 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.
171

The Departments are adopting this ap-
proach due to the challenges presented by
the intersection of the requirements that
apply to individual coverage HRAs, the
MSP requirements applicable to group
health plans, and the Medicare anti-dupli-
cation provision applicable to individual
health insurance coverage. The Depart-
ments have determined that it is appropri-
ate to permit an individual coverage HRA
to integrate with Medicare coverage, and
therefore, be considered compliant with
PHS Act sections 2711 and 2713, because
individuals enrolled in Medicare Part A
and B or Part C have the comprehensive
benefit packages established by Congress,
generally with no annual dollar limits and
with coverage of preventive services with-
out cost sharing.
172
An individual cover-
age HRA that helps pay premiums for, or
supplements, the Medicare benefit pack-
age established by Congress will not be
considered by the Departments to fail to
satisfy PHS Act sections 2711 and 2713.
Further, the Departments determined in
the 2015 rules under PHS Act 2711 that
allowing Medicare Part B and D reim-
bursement arrangements to be integrated
with Medicare was sufficient to constitute
compliance with PHS Act sections 2711
and 2713 in the circumstances described
in that guidance, as discussed earlier in
this preamble.
The final integration rules generally ap-
ply in the same manner to Medicare cov-
erage as they apply to individual health
insurance coverage. Thus, under the final
rules, an individual coverage HRA must
require individuals whose medical care
expenses may be reimbursed under the
HRA to be enrolled in either individual
health insurance coverage or Medicare
Part A and B or Part C for each month
171
For group health plans not subject to the MSP provisions, the existing integration rules permit integration with Medicare Part B and D if certain conditions are satisfied, including that the
employer offer traditional group health plan coverage to its non-Medicare employees. See 26 CFR 54.9815-2711(d)(5), 29 CFR 2590.715-2711(d)(5), and 45 CFR 147.126(d)(5).
172
See, e.g., SSA sections 1861 and 1833, as added by PPACA sections 4103 and 4104.

Bulletin No. 2019–28 145 July 8, 2019
such individuals are covered by the HRA.
The individual coverage HRA also must
implement, and comply with, reasonable
procedures to substantiate enrollment in
either individual health insurance cover-
age or Medicare Part A and B or Part C
for the HRA plan year (or for the portion
of the plan year the individual is covered
by the individual coverage HRA) and with
each new request for reimbursement of an
incurred medical care expense. The De-
partments clarify that the final rules do not
require that a participant and his or her de-
pendents all have the same type of cover-
age (that is, either individual health insur-
ance coverage or Medicare). Therefore, an
individual coverage HRA may be integrat-
ed with Medicare for some individuals in
a family or household and with individual
health insurance coverage for others in the
same family or household.
In addition, under the final rules, an
individual coverage HRA must be offered
on the same terms to all employees within
a class of employees, regardless of Medi-
care eligibility or entitlement, including
that the individual coverage HRA must
make the same amount available to all
employees in the class, subject to the ex-
ceptions provided in the final rules under
the same terms requirement.
173
Moreover,
no employee may be offered a choice be-
tween an individual coverage HRA and a
traditional group health plan, including an
employee enrolled in or eligible for Medi-
care. The individual coverage HRA must
also allow participants, whether or not
covered by Medicare, to opt-out of and
waive future reimbursements from the
individual coverage HRA annually and
upon termination of employment. Finally,
the individual coverage HRA must pro-
vide the notice required by the final rules
to all individuals eligible for the HRA, in-
cluding those for whom the HRA would
be integrated with Medicare. Relatedly,
in the final rules, the Departments clarify
the notice content requirements to reflect
that an individual coverage HRA may be
integrated with Medicare and to include
a statement regarding PTC eligibility for
Medicare beneficiaries.
174
The final rules
also clarify that some of the notice content
elements relate only to individual health
insurance coverage and not to Medicare.
c. Reimbursement of Expenses under
Individual Coverage HRAs for
Medicare Beneficiaries
One commenter requested clarifica-
tion that offering an individual coverage
HRA to Medicare-eligible employees will
not be considered an improper financial
incentive for those individuals to select
Medicare as their primary payer. The
commenter also suggested that employees
be able to use amounts in an individual
coverage HRA to pay for medical care
expenses not covered by Medicare, such
as dental, vision, and other out-of-pocket
expenses, including Medicare Part D pre-
miums, as well as premiums for Medigap,
without it being viewed as offering an im-
proper incentive.
For group health plans subject to the
MSP provisions, offering an HRA to re-
imburse Medicare premiums is impermis-
sible if it provides a financial incentive for
Medicare beneficiaries to decline enroll-
ment in the employer’s group health plan
and make Medicare the primary payer.
Under the final rules, the employer would
not be offering Medicare beneficiaries a
financial incentive as an inducement to
decline group health plan coverage. Rath-
er, the individual coverage HRA would be
the group health plan coverage offered to
a class of employees that includes Medi-
care beneficiaries. Under these circum-
stances, unless the employer could offer
an individual coverage HRA that may be
integrated with Medicare, the employ-
er would risk running afoul of the equal
benefit rule under SSA section 1862(b)
(1)(A)(i). This is because employees who
are Medicare beneficiaries who are unable
to purchase individual health insurance
coverage would be ineligible for the em-
ployer’s group health plan (that is, the in-
dividual coverage HRA) as a result of the
Medicare anti-duplication provision.
HHS recognizes that in other circum-
stances, offering an HRA to reimburse
Medicare premiums might be viewed as
impermissible because it would have the
effect of making Medicare the primary
payer in relation to a group health plan.
175

Nevertheless, for purposes of the final
rules, HHS has concluded that employers
need the flexibility to offer individual cov-
erage HRAs that may be integrated with
Medicare, and that may provide for reim-
bursement of Medicare premiums. This
flexibility does not violate the prohibition
against financial incentives under SSA
section 1862(b)(3)(C). Where a group
health plan is an individual coverage HRA
that can be used to pay Medicare premi-
ums or other medical care expenses,
176

there is no incentive for a Medicare bene-
ficiary to decline or terminate enrollment
under the group health plan (that is, the in-
dividual coverage HRA). Thus, there is no
violation of the SSA’s financial incentive
prohibition.
Therefore, under the final rules, an in-
dividual coverage HRA that is integrated
with Medicare may reimburse premiums
for Medicare Part A, B, C, or D, as well
as premiums for Medigap policies. The
individual coverage HRA may also re-
imburse other medical care expenses as
defined under Code section 213(d) (sub-
ject to the exception discussed later in this
173
The Departments note that although there is an exception to the same terms requirement that allows a plan sponsor to offer both an HSA-compatible individual coverage HRA and an
individual coverage HRA that is not HSA compatible, Code section 223(b)(7) provides that an individual ceases to be an eligible individual for HSA purposes starting with the month he or
she is entitled to benefits under Medicare. IRS Notice 2004-50, 2004-33 IRB 196, Q&A-2, clarifies that mere eligibility for Medicare does not make an individual ineligible to contribute to
an HSA. Rather, the term “entitled to benefits under Medicare,” for purposes of an HSA, means both eligibility for, and enrollment in, Medicare.
174
Although individuals enrolled in Medicare may not be able to purchase individual health insurance coverage for themselves through the Exchange, individuals who do so are not eligible
for the PTC for their Exchange coverage in any event. See Code section 36B(c)(2)(B) and 26 CFR 1.36B-2(a)(2).
175
Under IRS Notice 2015-17, an arrangement under which an employer reimburses (or pays directly) Medicare Part B or D premiums may be considered integrated with the group health
plan coverage offered to the employee by the employer although the employee is not enrolled in that group coverage and is instead enrolled in Medicare, subject to certain conditions. IRS
Notice 2015-17 also states that to the extent such an arrangement is available to active employees, it may be subject to restrictions under other laws, such as the Medicare secondary payer
provisions. For clarity, the Departments confirm that reimbursement of Medicare Part B and D premiums under IRS Notice 2015-17 is permitted only for such arrangements not subject to
the MSP provisions.
176
However, as discussed later in this section of the preamble, an individual coverage HRA may not, under its terms, limit reimbursement only to expenses not covered by Medicare.

July 8, 2019 146 Bulletin No. 2019–28
section of the preamble regarding taking
Medicare entitlement into account). Thus,
an individual coverage HRA will not be
considered to provide unequal benefits to
participants who are eligible for Medicare
because those participants will be able to
receive the same benefits under the HRA
regardless of whether they are able to pur-
chase individual health insurance cover-
age.
177
However, as explained earlier in
this preamble, the plan sponsor generally
has discretion to specify which medical
care expenses (premiums, cost sharing, or
otherwise) are eligible for reimbursement
under the terms of an individual coverage
HRA, as long as the HRA offers the same
benefits, on the same terms and condi-
tions, to a class of employees, subject to
the exceptions under the same terms re-
quirement in the final rules. In addition,
as discussed earlier in this preamble, the
designation of the reimbursable expens-
es must not violate other rules applicable
to group health plans, such as the HIPAA
nondiscrimination rules or the MSP pro-
visions.
To ensure that an individual coverage
HRA that is subject to the MSP provisions
does not violate those rules, an individual
coverage HRA may not, under its terms,
limit reimbursement only to expenses not
covered by Medicare, as HHS has deter-
mined this could amount to a group health
plan taking into account entitlement to
Medicare in violation of the MSP provi-
sions. However, an individual coverage
HRA may limit reimbursement to only
premiums or non-premium medical care
expenses (such as cost sharing), or may
decide which particular medical care ex-
penses will be reimbursable and which
will not be reimbursable under the terms
of the HRA.
d. Other Medicare Issues
Some commenters sought assurance
that a health insurance issuer providing
individual health insurance coverage pur-
chased with an individual coverage HRA
would not be required to comply with
MSP reporting requirements or pay for
benefits primary to Medicare where MSP
provisions might apply to the individual’s
HRA. These commenters recommended
clarifying that an HRA plan sponsor’s
failure to satisfy the conditions of the
ERISA safe harbor described later in this
preamble will have no effect on the MSP
status of the individual health insurance
coverage.
HHS notes that individual health in-
surance coverage is not subject to the
MSP provisions, including the reporting,
nondiscrimination, and “primary plan”
requirements described earlier in this sec-
tion of the preamble.
178
Nothing in the
final rules changes the application of the
MSP provisions. This is true even where
individual health insurance coverage is
integrated with an HRA as allowed under
the final rules.
179
However, an individual
coverage HRA will generally pay primary
to Medicare, consistent with the MSP pro-
visions applicable to group health plans.
HHS intends to issue further guidance
clarifying the primary versus secondary
payer responsibility of individual cover-
age HRAs for plan sponsors subject to the
MSP provisions.
One commenter requested guidance
about the MSP reporting requirements that
apply to individual coverage HRAs. Sec-
tion 111 of the Medicare, Medicaid, and
SCHIP Extension Act of 2007 (MMSEA),
Pub. L. 110-173, established mandatory
reporting requirements with respect to
Medicare beneficiaries who have cover-
age under group health plan arrangements,
as well as for Medicare beneficiaries who
receive settlements, judgments, awards,
or other payment from liability insurance
(including self-insurance), no-fault insur-
ance, or workers’ compensation.
180
The
purpose of this reporting is to ensure that
Medicare correctly pays for covered ser-
vices provided to Medicare beneficiaries
consistent with Medicare payment rules.
HRAs (including individual coverage
HRAs) are group health plans and, there-
fore, generally trigger the MMSEA sec-
tion 111 reporting requirements.
181
HHS
will provide future guidance regarding
MMSEA section 111 reporting require-
ments and individual coverage HRAs.
HHS notes that entities that currently do
not offer a group health plan and therefore
do not have reporting obligations may be
required to report if they elect to offer in-
dividual coverage HRAs, similar to if they
elected to offer other group health plan
coverage.
15. Other Integration Issues
Some comments were received regard-
ing dollar limits on individual coverage
HRAs. One commenter supported that the
proposed rules did not impose any specific
dollar limit on the amount that an employ-
er may contribute to an individual cover-
age HRA. The commenter noted that this
is a welcome difference from QSEHRAs,
to which a statutory dollar limit applies,
and stated that this flexibility will help
encourage employers to offer individual
coverage HRAs. One commenter request-
ed that the Departments place a limit on
contributions to an individual coverage
HRA to prevent adverse selection. A few
commenters asked that the Departments
require employers to make certain min-
imum amounts available under an indi-
vidual coverage HRA to approximate the
amount the employer generally would
contribute to a traditional group health
plan as a way to maintain availability and
generosity of coverage.
In previous guidance on HRAs, in-
cluding on integration of HRAs with oth-
er coverage, the Departments provided
no minimum or maximum contribution
amount. Similarly, the Departments de-
cline to impose a minimum or maximum
contribution amount on individual cover-
age HRAs under the final rules, in order
to provide employers with flexibility and
177
The fact that a participant or dependent in a class of employees may not be able to enroll in individual health insurance coverage or Medicare due to the operation of federal law does not
mean the individual coverage HRA that is offered to that class of employees violates the same terms requirement under the final rules or the equal benefit rule under the SSA.
178
See SSA section 1862(b)(1) and (2) (MSP rules apply only to certain group health plans).
179
The term “group health plan” for purposes of the MSP provisions is not defined by reference to ERISA; therefore, this section of the preamble does not address the application of the
ERISA safe harbor described later in this preamble.
180
See also SSA section 1862(b)(7) and (8).
181
For information about mandatory MMSEA section 111 reporting for group health plans, see https://www.cms.gov/Medicare/Coordination-of-Benefits-and-Recovery/Mandatory-Insur-
er-Reporting-For-Group-Health-Plans/Overview.html and https://www.cms.gov/Medicare/Coordination-of-Benefits-and-Recovery/Mandatory-Insurer-Reporting-For-Group-Health-Plans/
GHP-Training-Material/Downloads/Health-Reimbursement-Arrangement-HRA.pdf.

Bulletin No. 2019–28 147 July 8, 2019
because the Departments have imposed
other conditions to address the potential
for adverse selection. However, the Trea-
sury Department and the IRS note that
employers subject to the employer shared
responsibility provisions under Code sec-
tion 4980H may want to make sufficient
amounts available to employees in order
to avoid a potential employer shared re-
sponsibility payment. The Treasury De-
partment and the IRS intend to propose
separate rules regarding the interaction of
individual coverage HRAs and Code sec-
tion 4980H that will be available for pub-
lic comment.
Some commenters addressed which
employers should be permitted to offer
an individual coverage HRA. One com-
menter applauded the proposed rules for
allowing employers of all sizes to offer
an individual coverage HRA. One com-
menter requested that the Departments
only permit individual coverage HRAs to
be offered by small employers, because,
the commenter asserted, small employers
have less incentive to segment risk and are
less likely to create classes of employees
leading to adverse selection. One com-
menter asked that the Departments only
permit large employers to offer an indi-
vidual coverage HRA, asserting that small
employers would be able to manipulate
the rules to create small classes and seg-
ment risk. Another commenter requested
that only employers that do not currently
offer coverage be allowed to offer an indi-
vidual coverage HRA.
The Departments considered these sug-
gestions and determined that limiting the
ability of one or more categories of em-
ployers to offer an individual coverage
HRA in these ways would unnecessarily
restrict the rules and could decrease the
usability of individual coverage HRAs
and harm employee welfare without a
compelling reason for these limitations.
Therefore, under the final rules, any em-
ployer may offer an individual coverage
HRA, subject to compliance with the con-
ditions in the final rules. However, the De-
partments note that the final rules include
a minimum class size requirement which
applies in certain instances, to address the
issue identified regarding the ability to
create small classes and segment risk.
One commenter urged HHS to allow for
wellness program demonstration projects
in the individual market under PHS Act
section 2705(l) because the commenter
asserted wellness programs are a popular
aspect of traditional employer coverage.
Because this comment is outside the scope
of this rulemaking, it is not addressed in
the final rules. However, HHS appreciates
the comment and may consider addressing
this issue in future guidance.
Several commenters emphasized the
importance of strong enforcement of the
conditions in the final rules and request-
ed that the Departments issue guidance
detailing how the Departments would
enforce the final rules. DOL has enforce-
ment jurisdiction over private sector em-
ployer-sponsored group health plans, and
HHS has enforcement jurisdiction over
public sector group health plans, such as
those sponsored by state and local gov-
ernments. Individual coverage HRAs are
group health plans, and DOL and HHS
will monitor individual coverage HRAs’
compliance with applicable requirements,
consistent with the general approach to
enforcement with respect to other group
health plans. The Departments believe
that it is unnecessary to include specific
enforcement guidance for individual cov-
erage HRAs in the final rules. The Depart-
ments may provide additional guidance
if the Departments become aware of ar-
rangements that are inconsistent with the
final rules.
One commenter requested that employ-
ers be permitted to pay issuers directly for
individual health insurance coverage in
which individual coverage HRA partici-
pants are enrolled. The Departments note
that existing guidance for health plans
generally allows employers to pay health
insurance premiums to issuers directly,
182

so this is already permitted. Also, see the
discussion later in this preamble regard-
ing a safe harbor for determining wheth-
er an individual health insurance policy
purchased with funds from an individual
coverage HRA will be treated as part of an
ERISA-covered employee welfare benefit
plan.
One commenter requested that the De-
partments clarify that a plan sponsor may
make amounts in an individual coverage
HRA available either monthly or annual-
ly at the beginning of the plan year. The
Departments clarify that the final rules
do not change existing rules for HRAs,
which do not require the entire annual
amount to be available at the beginning
of the year and would allow the HRA to
only make amounts available pro rata
over the 12 months of the year.
183
Howev-
er, the Departments note that the amounts
made available under an individual cov-
erage HRA, including when they will
be made available, must be described in
the notice that is required under the final
rules.
184
The Departments also note that
within a class of employees, the terms
and conditions of an individual coverage
HRA generally must be the same, includ-
ing the timing of how amounts are made
available.
One commenter requested that the
Departments interpret “employer” to in-
clude non-employer plan sponsors such
as boards of trustees for multiemployer
plans. The final rules allow plan sponsors
to offer an individual coverage HRA, and
plan sponsors include, but are not limited
to, employers and could include a board of
trustees for a multiemployer plan.
Various commenters requested addi-
tional reporting requirements or other
types of mandatory data collection regard-
ing individual coverage HRAs. The De-
partments have not identified a compel-
ling need for this information that would
justify the significant additional burden
this would place on each employer offer-
ing this type of coverage. Accordingly,
the final rules do not adopt these sugges-
tions. However, to the extent an individu-
al coverage HRA is otherwise subject to
reporting requirements under other rules,
including PPACA, the Code, the SSA, or
ERISA, the final rules do not affect the
application of those reporting require-
ments.
185

182
See Revenue Ruling 61-146, 1961-2 CB 25.
183
See IRS Notice 2002-45.
184
Also see the discussion later in the preamble regarding the final PTC rules, under which amounts newly made available for an HRA plan year must be determinable within a reasonable
time before the beginning of the plan year in order to be considered in determining affordability of the offer of the individual coverage HRA.
185
See e.g., ERISA sections 101, 103, and 104 and PHS Act section 2715 (incorporated in Code section 9815 and ERISA section 715).

July 8, 2019 148 Bulletin No. 2019–28
One commenter requested addition-
al time to comment on the proposal. The
Administrative Procedure Act grants
Executive Agencies discretion to set the
timeframe during which public comments
will be received and considered. Interest-
ed stakeholders were given 60 days from
the publication of the proposed rules to
submit comments for consideration. Many
comments were received and considered
by the Departments. This solicitation for
public comments allowed the Depart-
ments to gather sufficient information
from interested stakeholders. The Depart-
ments, therefore, declined to extend the
timeframe to comment on the proposed
rules.
One commenter requested that the final
rules consider enrollment in an individ-
ual coverage HRA as other group cover-
age for purposes of determining whether
employers satisfy minimum participation
thresholds for guaranteed availability. In
the large group market, issuers may not
apply minimum participation rules to deny
guaranteed availability of coverage. In the
small group market, issuers may apply
minimum participation rules, as allowed
under applicable state law. However, fail-
ure to satisfy an issuer’s minimum partici-
pation rules may not be used to deny guar-
anteed availability of coverage between
November 15 and December 15 of each
year. The Departments clarify that in both
the large and small group markets, issuers
may apply minimum participation rules,
pursuant to applicable state law, as an
exception to guaranteed renewability of
coverage requirements.
186
State law may
determine which individuals to include
in the minimum participation calculation,
including whether issuers are allowed to
include individuals who have other cov-
erage within the total number of eligible
individuals and which types of coverage
may be counted as other coverage.
187
Nei-
ther the proposed rules nor the final rules
make changes to these existing, separate
requirements.
One commenter requested that the De-
partments provide information about how
an employer would transition from offering
a QSEHRA to offering an individual cover-
age HRA. The Departments note that IRS
Notice 2017-67 provides guidance on the
requirements for providing a QSEHRA.
The guidance in Notice 2017-67 remains
unaffected by the final rules. Additional
QSEHRA guidance generally is outside of
the scope of these final rules, and to the ex-
tent an employer wants to transition from
offering a QSEHRA to offering an individ-
ual coverage HRA, the individual coverage
HRA must comply with the requirements
set forth in the final rules.
One commenter asked the Departments
to clarify that individual coverage HRA
participants may contribute to a health
FSA even if their employer does not of-
fer traditional group health plan coverage.
The Departments note that employers
generally may provide excepted benefits
(other than an excepted benefit HRA
188
) to
employees in a class offered an individual
coverage HRA. In addition, the Depart-
ments clarify that the individual coverage
HRA would qualify as “other group health
plan coverage not limited to excepted
benefits” under the requirements for the
health FSA to qualify as an excepted ben-
efit.
189
Thus, nothing in the final rules pro-
hibits employees in a class of employees
offered an individual coverage HRA from
participating in a health FSA through sala-
ry reduction in a cafeteria plan.
Other comments not responsive to the
provisions and topics addressed by the
proposed rules, or otherwise beyond the
scope of the proposed and final rules, are
not summarized or addressed.
16. Revisions to Current PHS Act Section
2711 Rules Regarding Integration
with Other Group Health Plan
Coverage and Medicare
The 2015 rules under PHS Act sec-
tion 2711 provide methods for integrating
HRAs with coverage under another group
health plan, and, in certain circumstances,
with Medicare Part B and D. The proposed
rules did not include a proposal to sub-
stantively change the current group health
plan or Medicare integration tests under
the existing PHS Act section 2711 rules.
However, the proposed rules included mi-
nor proposed revisions to those rules, in-
cluding changing the term “account-based
plan” to “account-based group health
plan” and moving defined terms to a defi-
nitions section. The proposed rules also
proposed to amend the rules under PHS
Act section 2711 to reflect that HRAs may
be integrated with individual health insur-
ance coverage subject to the requirements
of 26 CFR 54.9802-4, 29 CFR 2590.702-
2, and 45 CFR 146.123. The final rules
adopt these changes as proposed, except
that the final rules have been updated to
reflect that individual coverage HRAs
may be integrated with Medicare, for pur-
poses of compliance with PHS Act sec-
tions 2711 and 2713, if certain conditions
are satisfied.
190
In addition, the proposed rules includ-
ed a proposal to update the definition of
EHBs set forth in paragraph (c) of the
rules under PHS Act section 2711, which
applies for a group health plan or health
insurance issuer not required to cover
EHBs. The update in the proposed rules
reflected the revision to the EHB-bench-
mark plan selection process that was pro-
mulgated in the HHS Notice of Benefit
and Payment Parameters for 2019 Final
Rule (2019 Payment Notice) and that ap-
plies for plan years beginning on or after
January 1, 2020.
191
The 2019 Payment No-
tice revisions provide states with addition-
al choices with respect to the selection of
benefits and promote affordable coverage
through offering states additional flexibil-
ity in their selection of an EHB-bench-
mark plan for plan years beginning on or
after January 1, 2020. The state’s existing
EHB-benchmark plan will continue to ap-
ply for any year for which a state does not
186
See 78 FR 13406, 13416 (Feb. 27, 2013).
187
See Health Care Financing Administration Insurance Standards Bulletin 00-05, Guaranteed Availability Under Title XXVII of the Public Health Service Act – Applicability of Group Par-
ticipation Rules (Nov. 2000), available at https://www.cms.gov/CCIIO/Resources/Files/Downloads/hipaa_00_05_508.pdf. However, for purposes of participation in a Federally-facilitated
Small Business Health Options Program (FF-SHOP), see the methodology for calculating a minimum participation rate specified in 45 CFR 155.706(b)(10)(i).
188
See later in this preamble for a discussion of the interaction of individual coverage HRAs and excepted benefit HRAs.
189
26 CFR 54.9831-1(c)(3)(v)(A), 29 CFR 2590.732(c)(3)(v)(A), and 45 CFR 146.145(b)(3)(v)(A).
190
The Departments further note that, unless the final rules conflict with the subregulatory guidance that has been issued under PHS Act section 2711, that guidance remains in effect.
191
See 83 FR 16930 (April 17, 2018). The definition of EHB that applies under the PHS Act section 2711 rules for plan years beginning before January 1, 2020 is not substantively changed
by the final rules.

Bulletin No. 2019–28 149 July 8, 2019
select a new EHB-benchmark plan from
the available EHB-benchmark plan selec-
tion options finalized in the 2019 Payment
Notice.
192
The Departments are finalizing
as proposed the update to the definition
of EHB under the PHS Act section 2711
rules.
One commenter expressed concern
with the change made by HHS to the defi-
nition of EHB in the 2019 Payment No-
tice and requested that the Departments
decline to update the rules under PHS
Act section 2711 to reflect the revised
EHB definition. The Departments clarify
that PHS Act section 2711 defines EHB
by reference to PPACA section 1302(b),
under which HHS has the authority to de-
fine EHB. The update to the definition of
EHB in the PHS Act section 2711 rules is
a technical update made to avoid apply-
ing an out-of-date definition and is the
result of the change HHS finalized in the
2019 Payment Notice. Issues regarding
EHBs more generally, as well as the spe-
cific changes made in the 2019 Payment
Notice, are outside of the scope of this
rulemaking.
B. Excepted Benefit HRAs
1. In General
As the Departments noted in the pre-
amble to the proposed rules, there may be
scenarios in which an employer wants to
offer an HRA that might not be integrated
with individual health insurance coverage,
non-HRA group coverage, Medicare, or
TRICARE. For example, some employ-
ers may want to offer an HRA without
regard to whether their employees have
other coverage at all, or without regard to
whether their employees have coverage
that is subject to and satisfies the market
requirements. Therefore, the proposed
rules utilized the Departments’ discretion
under Code section 9832(c)(2)(C), ERISA
section 733(c)(2)(C), and PHS Act section
2791(c)(2)(C), and included an amend-
ment to the prior rules that would recog-
nize certain limited HRAs as excepted
benefits (excepted benefit HRAs), if spe-
cific conditions were satisfied.
193

As explained earlier in this preamble,
the Departments have the authority and
discretion to specify in rules additional
limited excepted benefits that are simi-
lar to the limited benefits specified in the
statutes and that either are insured under a
separate policy, certificate, or contract of
insurance, or are otherwise not an integral
part of a plan. The proposed rules includ-
ed a proposal for an excepted benefit HRA
that is consistent with both this statutory
framework and the Departments’ objective
of expanding the availability and usability
of HRAs to maximize employee welfare.
Specifically, the proposed rules provided
that, to be recognized as an excepted ben-
efit, the HRA: (1) must not be an integral
part of the plan, (2) must provide bene-
fits that are limited in amount, (3) cannot
provide reimbursement for premiums for
certain health insurance coverage, and (4)
must be made available under the same
terms to all similarly situated individuals.
A number of commenters generally
expressed support for the proposed ex-
cepted benefit HRA rule as a way to ex-
pand the availability and use of HRAs.
Some of the commenters who supported
the proposed excepted benefit HRA rule
opposed allowing the purchase of STLDI.
Also, a number of commenters opposed
the proposed excepted benefit HRA rule,
expressing concerns that the excepted
benefit HRA could incentivize individuals
to obtain STLDI, cause adverse selection
in the small group and individual market
risk pools, and increase complexity and
the potential for confusion.
The Departments considered these
comments and agree that the excepted
benefit HRA is a way to expand the avail-
ability and use of HRAs, thereby providing
increased options for healthcare coverage
to employers and employees. Therefore,
the final rules recognize certain HRAs
as limited excepted benefits, with some
changes from the proposed rule, which
are intended to address concerns raised
by commenters regarding the potential for
adverse selection and confusion.
A few commenters questioned the De-
partments’ legal authority for establish-
ing the excepted benefit HRA, with one
requesting that the proposed excepted
benefit HRA rules be withdrawn. These
commenters stated that the excepted ben-
efit HRA is not similar to the other limit-
ed excepted benefits because it does not
provide insurance that is limited in scope
for a particular medical condition. The
Departments disagree. As stated earlier in
this section of the preamble, Code section
9832(c)(2)(C), ERISA section 733(c)(2)
(C), and PHS Act section 2791(c)(2)(C)
authorize the Secretaries of the Treasury,
Labor, and HHS to issue rules establishing
other, similar limited benefits as excepted
benefits. Similar to the exercise of author-
ity with respect to certain health FSAs,
limited wraparound coverage,
194
and em-
ployee assistance programs, the Depart-
ments utilized this authority to propose
rules to permit HRAs as limited excepted
benefits, if certain conditions are satisfied.
The Departments have determined that the
conditions that apply to excepted benefit
HRAs under the final rules result in such
an arrangement being sufficiently limited
and sufficiently similar to other limited
excepted benefits. The Departments are
now adopting these final rules on except-
ed benefit HRAs, subject to clarifications,
described later in this section of the pre-
amble.
As a general matter, some commenters
expressed confusion and asked for clari-
fication regarding the difference, if any,
between the proposed excepted benefit
HRA and an HRA that only reimburses
expenses for excepted benefits. In IRS
Notice 2015-87, Q&A-5, the Treasury
Department and the IRS explained that
an HRA or employer payment plan that,
by its terms, reimburses (including pay-
192
For more information on the revised EHB standard, refer to the preamble to the 2019 Payment Notice (83 FR 16930, 17007 (April 17, 2018)).
193
The proposed rules, and the final rules, do not apply to health FSAs. For a health FSA to qualify as an excepted benefit, the rules at 26 CFR 54.9831-1(c)(3)(v), 29 CFR 2590.732(c)(3)
(v), and 45 CFR 146.145(b)(3)(v) continue to apply.
194
The Departments note that limited wraparound coverage was permitted as an excepted benefit under a temporary pilot program. Specifically, limited wraparound coverage could be offered
as excepted benefits if it was first offered no earlier than January 1, 2016, and no later than December 31, 2018, and would end no later than on the later of: (1) the date that is 3 years after the
date limited wraparound coverage is first offered, or (2) the date on which the last collective bargaining agreement relating to the plan terminates after the date limited wraparound coverage
is first offered (determined without regard to any extension agreed to after the date limited wraparound coverage is first offered). See 26 CFR 54.9831-1(c)(3)(vii)(F), 29 CFR 2590.732(c)
(3)(vii)(F), and 45 CFR 146.145(b)(3)(vii)(F).

July 8, 2019 150 Bulletin No. 2019–28
ing directly for) premiums for individual
health insurance coverage solely to the
extent that the individual health insurance
coverage covers excepted benefits would
not fail to satisfy the market requirements
because those requirements do not apply
to a group health plan that is designed
to provide only excepted benefits, either
through reimbursement of premiums or
cost sharing (referred to in this preamble
as an HRA that provides only excepted
benefits). Excepted benefit HRAs, on the
other hand, can provide reimbursement
for costs incurred related to coverage that
is not limited to excepted benefits (for ex-
ample, cost sharing for individual health
insurance coverage). Several commenters
asked the Departments to confirm that an
HRA that provides only excepted benefits
is not subject to the conditions that apply
to an excepted benefit HRA. One com-
menter was concerned that if an HRA that
provides only excepted benefits must sat-
isfy the conditions that apply to an except-
ed benefit HRA, the proposed rules would
inadvertently reduce employers’ ability to
fund excepted benefits.
The final rules establish a new excepted
benefit HRA under Code section 9832(c)
(2)(C), ERISA section 733(c)(2)(C), and
PHS Act section 2791(c)(2)(C), which can
be used to reimburse certain medical care
expenses incurred with respect to cover-
age that is not limited to other types of
excepted benefits. If a plan sponsor offers
an HRA that only provides reimbursement
for other types of excepted benefits (for
example, limited-scope vision and lim-
ited-scope dental benefits), that arrange-
ment is, itself, already an excepted benefit
and need not satisfy the criteria of the final
excepted benefit HRA rules. Instead, the
final rules provide that an additional type
of HRA, specifically, one that reimburses
benefits not limited to other types of ex-
cepted benefits, can also qualify as an ex-
cepted benefit.
195
Excepted benefit HRAs
may reimburse medical care expenses,
such as cost sharing for individual health
insurance coverage or group health plan
coverage that would not otherwise qualify
as excepted benefits, if the conditions of
the final rules are satisfied.
2. Otherwise Not an Integral Part of the
Plan
Among other things, to be a limited ex-
cepted benefit under Code section 9831(c)
(1), ERISA section 732(c)(1), and PHS
Act section 2722(c)(1), benefits must:
(1) be provided under a separate policy,
certificate, or contract of insurance; or
(2) otherwise not be an integral part of
the plan.
196
HRAs are self-insured group
health plans and, therefore, are not insur-
ance coverage that can be provided under
a separate policy, certificate, or contract of
insurance. Accordingly, to satisfy the stat-
utory requirement to be a limited excepted
benefit, among other things, an HRA must
not be an integral part of the plan.
To satisfy this condition, the proposed
rules specified that other group health plan
coverage (other than an account-based
group health plan or coverage consisting
solely of excepted benefits) must be made
available by the same plan sponsor for the
plan year to the participants offered the
excepted benefit HRA. Only individuals
eligible to participate in the traditional
group health plan would be eligible to
participate in the excepted benefit HRA.
However, while the plan sponsor would be
required to make an offer of a traditional
group health plan, HRA participants (and
their dependents) would not be required
to enroll in the traditional group health
plan for the HRA to be an excepted bene-
fit HRA. In the preamble to the proposed
rules, the Departments noted that this pro-
vision is similar to the requirement that
applies under the limited excepted benefits
rules for health FSAs at 26 CFR 54.9831-
1(c)(3)(v), 29 CFR 2590.732(c)(3)(v), and
45 CFR 146.145(b)(3)(v).
Commenters generally supported this
requirement and suggested that it be re-
tained in the final rules. Some commenters
suggested that the Departments should go
further and permit employers to offer an
excepted benefit HRA only to individuals
who are actually enrolled in a traditional
group health plan.
197
These commenters
argued that without such a requirement,
healthy employees would decline their
employer’s traditional group health plan
and only participate in the excepted ben-
efit HRA. These commenters speculated
this might lead to a less stable small group
market risk pool and higher premiums for
employees who remain in the traditional
group health plan. One commenter was
concerned that if some employers offer
traditional group health plans that are
exorbitantly expensive, many employees
would decline to enroll and rely on their
excepted benefit HRA as their only source
of coverage. One commenter disagreed
with the Departments’ assertion that the
requirement to offer a traditional group
health plan satisfies the requirement that
limited excepted benefits not be an integral
part of the plan. Another commenter stat-
ed that individuals could be without com-
prehensive coverage if they do not enroll
in the employer’s traditional group health
plan and rely instead on an excepted bene-
fit HRA, or a combination of the excepted
benefit HRA and other excepted benefits,
without understanding the limited nature
of excepted benefits. The commenter also
represented that there is a long history of
unscrupulous promoters cobbling togeth-
er different types of excepted benefits and
fraudulently marketing them as major
medical insurance, leaving thousands of
participants and beneficiaries with unpaid
claims. One commenter urged the Depart-
ments to add a requirement that employ-
ers offering an excepted benefit HRA must
maintain their traditional group health
plan at an equivalent level of coverage,
actuarial value, and premium affordabili-
195
That is, the excepted benefit HRA may reimburse expenses for excepted benefits, as well as other types of medical expenses that do not qualify as excepted benefits.
196
Code section 9831(c)(1), ERISA section 732(c)(1), and PHS Act section 2722(c)(1).
197
One commenter opposed the requirement that traditional group health plan coverage be made available to the participants offered the excepted benefit HRA, but the comment was based
on the misunderstanding that the proposed conditions that apply to the excepted benefit HRA apply to an HRA that provides only excepted benefits. The commenter was concerned that an
employer that did not previously offer a traditional group health plan, but did previously offer an HRA that provides only excepted benefits, might discontinue offering that HRA if the final
rules were to apply to the HRA that provides only excepted benefits. As explained earlier in this preamble, the final rules do not apply to HRAs that provide only excepted benefits. Therefore,
if an employer offers an HRA that provides only excepted benefits, such an arrangement would not be subject to the requirements of the final rules, including the requirement that the plan
sponsor must offer a traditional group health plan.

Bulletin No. 2019–28 151 July 8, 2019
ty relative to the coverage offered prior to
offering the excepted benefit HRA.
The final rules do not adopt a require-
ment that excepted benefit HRAs be lim-
ited to employees who are enrolled in the
employer’s traditional group health plan
or impose a maintenance of effort require-
ment. First, the condition that employees
must be offered (but not necessarily en-
rolled) in the employer’s traditional group
health plan is similar to that for except-
ed benefits health FSAs, pursuant to the
same statutory authority.
198
Second, lim-
iting eligibility to employees enrolled in
their employer’s traditional group health
plan would make employees covered
under other primary coverage, such as a
spouse’s plan, ineligible for the excepted
benefit HRA. Applying such a restrictive
requirement would unduly limit some em-
ployees’ access to excepted benefit HRAs
and reduce their welfare if they choose a
different primary health coverage option
to best meet their needs.
199
Third, other
factors will likely prevent most employ-
ees from relying on an excepted benefit
HRA as their primary form of coverage.
For example, the dollar limit imposed on
excepted benefit HRAs (discussed later
in this preamble) will likely make it ap-
parent that an excepted benefit HRA does
not provide adequate financial protection
against unexpected health costs, even for
the healthiest individuals. Moreover, as
discussed later in this preamble, in gen-
eral, excepted benefit HRAs must provide
notice of the dollar limits and other lim-
itations on coverage under the plan. Final-
ly, as to the concern that employers will
offer traditional group health plans that
are very expensive, thereby encouraging
employees to enroll only in the excepted
benefit HRA, the employer shared respon-
sibility provisions of Code section 4980H
(for ALEs), and employers’ desire to of-
fer affordable health coverage as a means
to attract and retain talented workers, are
strong incentives for employers to offer
affordable, quality health coverage.
3. Limited in Amount
Under the Code, ERISA and the PHS
Act, limited excepted benefits may in-
clude limited scope vision or dental ben-
efits, benefits for long-term care, nursing
home care, home healthcare, or commu-
nity-based care, or any combination there-
of and may include “such other similar,
limited benefits as are specified in regu-
lations” by the Departments.
200
Thus, in
creating the excepted benefit HRA, the
Departments had to determine what type
of HRA would be sufficiently limited to
qualify as a limited excepted benefit.
The Departments have applied limiting
principles consistently in prior rulemak-
ings under which discretion was exercised
to establish additional types of limited ex-
cepted benefits.
201
For example, a health
FSA is an excepted benefit only if the ar-
rangement is structured so that the maxi-
mum benefit payable to any participant in
the class for a year does not exceed two
times the participant’s salary reduction
election under the arrangement for the
year (or, if greater, $500 plus the amount
of the participant’s salary reduction elec-
tion).
202
Additionally, limited wraparound
coverage is a limited excepted benefit
only if it is limited in amount, such that
the cost of coverage per employee (and
any covered dependents) under the limit-
ed wraparound coverage does not exceed
the greater of the maximum permitted an-
nual salary reduction contribution toward
a health FSA or 15 percent of the cost of
coverage under the primary plan.
The Departments recognize that limit-
ed excepted benefits that are not limited
in scope by benefit type (such as limit-
ed-scope dental or limited-scope vision
benefits) must be limited in amount to
constitute the type of ancillary benefit
contemplated by the statutes within the
meaning of a “similar, limited benefit”
under Code section 9832(c)(2), ERISA
section 733(c)(2), and PHS Act section
2791(c)(2).
203

Accordingly, the Departments pro-
posed that amounts newly made available
for a plan year in an excepted benefit HRA
may not exceed $1,800, indexed for infla-
tion for plan years beginning after Decem-
ber 31, 2020. For this purpose, inflation
was defined in the proposed rules by ref-
erence to the Chained Consumer Price In-
dex for All Urban Consumers, unadjusted
(C-CPI-U), published by DOL. Also, the
Departments stated that the adjusted lim-
it for plan years beginning in a particular
calendar year would be published early in
the fall of the prior calendar year.
a. Dollar Limit on the Amount That May
be Made Newly Available During a
Plan Year
Many commenters supported the pro-
posed dollar limit as a reasonable mid-
point of the different limits that would
result in applying various methodologies.
Several noted it was sufficient because ex-
cepted benefits are meant to provide ancil-
lary coverage, and the proposed amount is
comparable to the cost of other excepted
benefits, such as stand-alone dental and
vision plans. One commenter noted that
$1,800 would be a generous level of re-
imbursement for excepted benefits, but
only a modest support to participants and
beneficiaries seeking reimbursement for
COBRA premiums. Another commenter
asserted that it was a reasonable middle
ground relative to the various alternatives
that the Departments considered and dis-
cussed in the preamble to the proposed
rules.
204
A few commenters supported the
198
See 26 CFR 54.9831-1(c)(3)(v), 29 CFR 2590.732(c)(3)(v), and 45 CFR 146.145(b)(3)(v). See also 62 FR 67688 (Dec. 29, 1997).
199
In the context of other HRA integration rules, the Departments have recognized and supported employee choice to enroll in primary coverage other than the employer’s group health plan
(such as a spouse’s plan or Medicare), without these types of limitations. See, e.g., 26 CFR 54.9815-2711(d)(2) and (d)(5), 29 CFR 2590.715-2711(d)(2) and (d)(5), and 45 CFR 147.126(d)
(2) and (d)(5).
200
Code section 9832(c)(2)(C), ERISA section 733(c)(2)(C), and PHS Act section 2791(c)(2)(C).
201
See the discussion in the preamble to the proposed rules at 83 FR 54420, 54437 (Oct. 29, 2018).
202
26 CFR 54.9831-1(c)(3)(v), 29 CFR 2590.732(c)(3)(v), and 45 CFR 146.145(b)(3)(v).
203
See also 80 FR 13995, 13997 (March 18, 2015).
204
The Departments stated in the preamble to the proposed rules that a range of options were considered, such as a limit that would mirror the cap on employer contributions for excepted
benefit health FSAs, a fixed percentage of the cost of coverage under the plan sponsor’s primary group health plan, and the cost of coverage under the second lowest cost silver plan in
various markets. However, consistent with the principle of promoting HRA usability and availability, rather than proposing a complex test for the limit on amounts newly made available in
the excepted benefit HRA, the Departments proposed a maximum of $1,800 because it approximated the midpoint amount yielded by the various methodologies considered. 83 FR 54420,
54437 (Oct. 29, 2018).

July 8, 2019 152 Bulletin No. 2019–28
proposed dollar limit due to their opposi-
tion to allowing excepted benefit HRAs
to provide reimbursement for STLDI pre-
miums, arguing that if the limit were any
higher some participants could be more
likely to rely on STLDI as their primary
form of coverage. In expressing their sup-
port for the proposed dollar limit, a num-
ber of commenters stated that the limit
should not be any higher, due to adverse
selection concerns and concerns about
disincentivizing comprehensive coverage.
Other commenters requested that ex-
cepted benefit HRAs not be subject to any
dollar limit because a limit would restrict
participants’ ability to choose the types of
treatment or coverage that is best suited to
their needs. Some commenters argued that
the proposed dollar limit should be high-
er. Some of these commenters favored a
higher limit for excepted benefit HRAs
based on age and number of dependents
to reflect that participants who are older or
have dependents are likely to have higher
healthcare costs. Some commenters sug-
gested specific higher limits that, in their
view, would be appropriate, such as the
maximum annual permitted benefit for
QSEHRAs, the maximum out-of-pocket
limit for HDHPs, the annual salary reduc-
tion contribution limit for health FSAs,
the greater of 15 percent of the cost of
coverage under the employer’s primary
group health plan or the health FSA salary
reduction contribution limit (which is the
threshold for limited wraparound cover-
age)
205
, or 15 percent of the cost of cov-
erage under the employer’s primary group
health plan (which is the threshold for cer-
tain supplemental excepted benefits)
206
.
The commenters asserted that the limit
should be increased for various reasons,
including to enable employees to pay for
premiums and cost sharing for excepted
benefit policies, to approximate the limits
allowed for limited wraparound coverage,
to reduce administrative complexity for
plan sponsors by aligning the limit with a
limit that already exists, to help employ-
ees bypass insurance and pay directly for
medical care, and to enable employees to
pay for more expensive STLDI plans that
may, in some cases, provide comprehen-
sive, high-quality coverage. Some com-
menters noted that setting the limit as a
percentage of the cost of the employer’s
primary group health plan could partial-
ly account for regional differences for
healthcare services.
One commenter stated that a dollar
limit is not sufficient to cause the excepted
benefit HRA to be a limited excepted ben-
efit and also stated that the proposed dollar
limit was too high, with the result that the
excepted benefit HRA is not a limited ex-
cepted benefit because the dollar limit is
significantly more than the premium val-
ue of the other limited excepted benefits;
therefore, according to the commenter,
the excepted benefit HRA is not similar to
other limited excepted benefits.
The final rules do not remove or
change the dollar limit for the excepted
benefit HRA. The Departments agree that
significantly increasing the dollar limit
could encourage certain participants to
rely solely on benefits reimbursed through
the excepted benefit HRA and could lead
to adverse selection. Also, as stated earlier
in this preamble, if a benefit that is gen-
erally not otherwise limited in scope is
too large, it would not constitute a “sim-
ilar, limited benefit” under Code section
9832(c)(2), ERISA section 733(c)(2), and
PHS Act section 2791(c)(2). These gov-
erning statutes require that these benefits
be limited, which the Departments inter-
pret to require a strict dollar limit because
the excepted benefit HRA is not restricted
to reimbursing specific, limited types of
medical expenses.
207
Further, the Depart-
ments are cognizant that an excepted ben-
efit HRA, like all excepted benefits, does
not render an individual ineligible for the
PTC and, therefore, a higher dollar limit
on the excepted benefit HRA could result
in individuals being eligible for both sub-
sidized coverage through the Exchang-
es and a higher employer provided HRA
benefit, which would increase the cost
to the federal government. To the extent
commenters advocated for a higher dollar
limit in order to allow HRAs to be used
to purchase excepted benefits, HRAs that
provide only excepted benefits may be an
alternative option because those HRAs are
not subject to the excepted benefit HRA
rules, including the dollar limit.
In determining the appropriate dollar
limit for excepted benefit HRAs, the De-
partments considered other, similar lim-
ited excepted benefits. The Departments
agree with commenters’ assertions that the
proposed limit was reasonable and ratio-
nal, especially considering the relatively
low cost of excepted benefits coverage,
such as dental or vision coverage. While
limited wraparound coverage and similar
supplemental coverage may have higher
overall dollar limits, they are also limited
in additional ways. Limited wraparound
coverage must provide meaningful bene-
fits beyond coverage of cost sharing (such
as coverage for expanded in-network
medical clinics or providers, or provide
benefits that are not EHBs and that are
not covered by the eligible health insur-
ance) and, in general, may only be offered
to part-time employees and retirees (and
their dependents), and only if the em-
ployer makes certain offers of coverage
to full-time employees.
208
Further, simi-
lar supplemental coverage is restricted to
coverage “specifically designed to fill gaps
in the primary coverage.”
209
On the other
hand, employee salary reduction contri-
butions to health FSAs, which will vary
by employee and cannot exceed $2,700
(adjusted for inflation), cannot be used to
pay premiums, and generally may not be
rolled over from year to year, except for a
limited runout period or limited amount.
210

Excepted benefit HRAs are not subject to
all the limitations that apply to these oth-
er limited excepted benefits; thus, a lower
dollar amount is appropriate for excepted
benefit HRAs.
205
See 26 CFR 54.9831-1(c)(3)(vii)(B), 29 CFR 2590.732(c)(3)(vii)(B), and 45 CFR 146.145(b)(3)(vii)(B).
206
See EBSA Field Assistance Bulletin No. 2007– 04 (available at https://www.dol.gov/agencies/ebsa/employers-and-advisers/guidance/field-assistance-bulletins/2007-04); CMS Insurance
Standards Bulletin 08–01 (available at http://www.cms.gov/CCIIO/ Resources/Files/Downloads/hipaa_08_01_508.pdf); and IRS Notice 2008–23.
207
The Departments note, however, that an excepted benefit HRA is also limited, to some extent, in scope of reimbursable expenses in that it may not reimburse premiums for individual health
insurance coverage (other than excepted benefits); group health coverage (other than COBRA or other continuation coverage or excepted benefits); Medicare Part A, B, C, or D; and under
certain circumstances, it cannot reimburse STLDI premiums.
208
See 26 CFR 54.9831-1(c)(3)(vii)(A) and (D), 29 CFR 2590.732(c)(3)(vii)(A) and (D), and 45 CFR 146.145(b)(3)(vii)(A) and (D). See also 80 FR 13995, 13997 (March 18, 2015).
209
See 26 CFR 54.9831-1(c)(5)(i)(C), 29 CFR 2590.732(c)(5)(i)(C), and 45 CFR 146.145(b)(5)(i)(C).
210
IRS Notice 2005-42, 2005-1 CB 1204 and IRS Notice 2013-71, 2013-47 IRB 532.

Bulletin No. 2019–28 153 July 8, 2019
Additionally, although the Depart-
ments recognize that healthcare expens-
es may be higher for participants who
are older or have dependents, adopting a
higher limit to account for a combination
of factors like age and family size could
allow an excepted benefit HRA to be
too large and to resemble major medical
coverage. Moreover, these factors were
already considered and accounted for in
developing the $1,800 limit. According-
ly, the final rules adopt, without change,
the proposed maximum that can be newly
made available for a plan year of $1,800.
b. Indexing for Inflation
Many commenters supported the pro-
posed rule’s approach to indexing for
inflation the amount that may be made
newly available to participants during
a plan year, though some suggested al-
ternative methods of indexing may be
more appropriate. Several commenters
suggested that the chained CPI-U does
not accurately reflect the increases in the
cost of medical care over time because
healthcare prices consistently increase at
a greater rate than prices in the economy
as a whole. Several commenters suggest-
ed that the appropriate measure of infla-
tion would be the Consumer Price Index
overall medical care component because
it focuses on consumers’ out-of-pocket
medical expenses, while another suggest-
ed unchained CPI-U. Another comment-
er, however, suggested that the measure
selected in the proposed rules would be
the most appropriate measure, as other
types of excepted benefits, such as lim-
ited-scope dental, limited-scope vision,
and fixed indemnity plans, do not typi-
cally have cost trends (that is, inflation)
similar to products that provide compre-
hensive medical care. One commenter
expressed support for the proposed ad-
justment because it is consistent with the
adjustment of various other amounts un-
der the Code.
The final excepted benefit HRA rules
index the annual dollar limit of $1,800
to inflation for plan years beginning after
December 31, 2020, and define inflation
by reference to the C-CPI-U, as was pro-
posed. This index strikes a reasonable bal-
ance among a number of factors, includ-
ing balancing the decreasing real value
of a static excepted benefit HRA annual
maximum contribution amount and the
ability of an employer to maintain a mean-
ingful, yet limited, excepted benefit HRA
that can carry over unused amounts and
accumulate to higher account balances
over time. Also, C-CPI-U is used to index
most other amounts under the Code with
which employers are familiar, such as the
annual limit on employee salary reduction
contributions to health FSAs, annual HSA
contributions amounts, and annual HDHP
minimum deductible amounts and max-
imum HDHP out-of-pocket amounts.
211

Therefore, this inflation adjustment
should be familiar to plan sponsors. Using
the same indexing method is less likely to
result in confusion and will make imple-
mentation and compliance easier.
One commenter urged that the annu-
al amount should be announced at the
same time that other account-based plan
limits, such as the limits for HSAs and
HSA-eligible HDHPs, are announced, as
employers and plan administrators need
to know these amounts in advance to set
their benefit levels and communicate them
to employees. The Departments agree that
it is essential that the annual adjustment
be made available sufficiently in advance
of the upcoming plan year to allow plan
sponsors to make benefit determinations.
Therefore, the Departments are revising
the final rules to provide that the C-CPI-U
for any calendar year is the average of the
C-CPI-U as of the close of the 12 month
period ending on March 31 of that calendar
year and that the Treasury Department and
the IRS will publish the adjusted amount
for plan years beginning in any calendar
year no later than June 1 of the preceding
calendar year, which is the same timing
rule that applies for HSAs and HSA-eli-
gible HDHPs.
c. Roll-overs and Aggregation Rules
The proposed rules provided that if a
participant or beneficiary in an except-
ed benefit HRA does not use all of the
amounts made available for a plan year,
and the excepted benefit HRA allows for
these amounts to be carried over to later
plan years, then these carryover amounts
would be disregarded for purposes of
determining whether the $1,800 limit is
exceeded.
212
One commenter specifically
expressed support for this aspect of the
proposed rules, and this feature is retained
in the final rules.
In addition, the proposed rules provid-
ed that if the plan sponsor provides more
than one HRA to a participant for the same
time period, the amounts made available
under all such plans would be aggregated
to determine whether the $1,800 limit has
been exceeded. One commenter opposed
this aspect of the rule. However, the De-
partments retain this provision in the final
rules in order to avoid circumvention of the
$1,800 limit, which provides the statutory
basis for recognizing this type of HRA as a
limited excepted benefit. However, the fi-
nal rules clarify that the aggregation rules
do not take into account amounts made
available under HRAs that reimburse only
excepted benefits (including premiums for
individual health insurance coverage that
consists solely of excepted benefits). An
HRA that reimburses only excepted ben-
efits is exempt from the provisions of the
final rules, including those provisions that
apply to individual coverage HRAs and
excepted benefit HRAs.
4. Prohibition on Reimbursement
of Premiums for Certain Types of
Coverage
a. In General
To be an excepted benefit HRA, the
proposed rules provided that the HRA
could not reimburse premiums for Medi-
care Part B or D, individual health insur-
ance coverage, or coverage under a group
health plan (other than COBRA or other
group continuation coverage), except that
the HRA could reimburse premiums for
individual health insurance coverage or
group health plan coverage that consists
solely of excepted benefits. An excepted
benefit HRA would be permitted to reim-
burse any other medical care expenses,
including STLDI premiums.
211
See Code sections 125(i) and 223(g).
212
Transfers, however, from other HRAs are not permitted. See the discussion earlier in this preamble.

July 8, 2019 154 Bulletin No. 2019–28
Commenters generally supported the
proposed requirement that an excepted
benefit HRA would not be permitted to
reimburse premiums for individual health
insurance coverage (other than for such
coverage consisting solely of excepted
benefits). These commenters contended
that to allow reimbursement of individ-
ual health insurance coverage premiums
would undermine the basis for recogniz-
ing the HRAs as limited excepted benefits,
and would enhance employers’ ability to
move their higher-risk employees into the
individual market. The Departments agree
that maintaining the prohibition on the use
of the excepted benefit HRA for individ-
ual health insurance coverage premiums
is one way in which the HRA is limited,
in order to qualify as a limited excepted
benefit, and that the prohibition mitigates
the risk that excepted benefit HRAs could
cause adverse selection in the individual
market.
In addition, the Departments have con-
cluded that the prohibition on the reim-
bursement of premiums for group health
plan coverage (other than COBRA or
other continuation coverage and excepted
benefits) and individual health insurance
coverage (other than excepted benefits),
is appropriate because other final rules
that are part of this rulemaking permit
individual coverage HRAs and other
rules allow HRAs to be integrated with
non-HRA group health plan. Further, cur-
rent guidance allows HRAs to reimburse
premiums for Medicare Part B and D in
certain circumstances and under the final
rules, individual coverage HRAs that are
integrated with Medicare may be allowed
to reimburse premiums for Medicare Part
A, B, C, or D. Therefore, an employer that
wants to provide an HRA that reimburs-
es premiums for individual health insur-
ance coverage, Medicare Part A, B, C or
D, or group health plan coverage, may
do so under the applicable integration
rules. Accordingly, the final rules retain
the proposed prohibition on reimbursing
premiums for individual health insurance
coverage (other than for such coverage
consisting solely of excepted benefits) and
group health insurance coverage (other
than for such coverage consisting solely
of excepted benefits and COBRA or oth-
er continuation coverage). Moreover, be-
cause the excepted benefit HRA generally
is not intended to reimburse premiums
that may be reimbursed under the individ-
ual coverage HRA, the final rules also pro-
vide that the excepted benefit HRA may
not reimburse premiums for Medicare
Part A or C, in addition to Medicare Part
B and D, as provided for in the proposed
rules. This approach ensures that, similar
to other limited excepted benefits, except-
ed benefit HRAs provide limited benefits
different from those typically provided by
a traditional group health plan.
Some commenters requested clarifica-
tion regarding the medical care expenses
an excepted benefit HRA may reimburse.
In particular, a few commenters requested
that the Departments clarify that an except-
ed benefit HRA can reimburse individuals
for cost sharing under individual health
insurance coverage or group health plans,
although excepted benefit HRAs may not
be used to reimburse premiums for that
coverage. Some commenters inquired
whether an employer could place limits on
the medical care expenses it allows to be
reimbursed by the excepted benefit HRA,
in addition to those limits imposed by the
excepted benefit HRA rules. In particular,
a few commenters asked whether an em-
ployer could choose not to provide any
reimbursement of certain premiums or
medical care expenses otherwise allowed
under Code section 213(d).
In general, an HRA may provide for
reimbursement for medical care expenses.
Consistent with the current rules that ap-
ply to HRAs generally, a plan sponsor has
discretion to specify which medical care
expenses are eligible for reimbursement
from an excepted benefit HRA it estab-
lishes, in addition to the limits under the
excepted benefit HRA rules. For example,
a plan sponsor may permit an except-
ed benefit HRA to reimburse all medical
care expenses not otherwise disallowed
by the excepted benefit HRA rules, it may
permit reimbursements for non-premium
medical care expenses only (such as cost
sharing), or it may otherwise decide which
particular medical care expenses will be
reimbursable and which will not be reim-
bursable. An excepted benefit HRA may
allow for reimbursement of cost sharing
under individual health insurance cover-
age or group health insurance coverage,
although the excepted benefit HRA may
not reimburse the premiums for that cov-
erage. Further, a plan sponsor generally
may, but need not, allow reimbursement
of STLDI premiums or cost sharing un-
der the excepted benefit HRA. Also, see
later in this section of the preamble for a
discussion of the special circumstance in
which excepted benefit HRAs may not be
used to reimburse STLDI premiums.
Several commenters inquired wheth-
er an excepted benefit HRA could reim-
burse expenses related to participation in
a health care sharing ministry or a direct
primary care arrangement. One comment-
er asked whether reimbursement could be
provided for categories of excepted bene-
fits other than “limited excepted benefits,”
such as those in which benefits for medical
care are secondary or incidental (for ex-
ample, travel insurance). This commenter
expressed concern that there could be po-
tential conflicts under rules regarding tax-
able fringe benefits under the Code. Some
commenters requested clarification more
generally regarding whether an excepted
benefit HRA may only reimburse except-
ed benefits that pay health benefits or all
excepted benefits, with some advocating
that excepted benefit HRAs be allowed
to reimburse all expenses for all except-
ed benefits and some advocating that the
excepted benefit HRA only be allowed to
reimburse expenses for excepted benefits
that are medical care. The Departments
clarify that an HRA, including an except-
ed benefit HRA, generally may reimburse
medical care expenses of an employee and
certain of the employee’s family members
(subject to the prohibition on the reim-
bursement of certain premiums that apply
for excepted benefit HRAs).
213
Neither
the proposed nor the final rules make any
changes to the rules under Code section
213. Thus, any issues arising under Code
section 213, and any guidance requested
by commenters to address those issues,
213
See Notice 2002-45 which states “[a]n HRA does not qualify for the exclusion under [Code section] 105(b) if any person has the right to receive cash or any other taxable or non-taxable
benefit under the arrangement other than the reimbursement of medical care expenses. If any person has such a right under an arrangement currently or for any future year, all distributions to
all persons made from the arrangement in the current tax year are included in gross income, even amounts paid to reimburse medical care expenses.”

Bulletin No. 2019–28 155 July 8, 2019
are beyond the scope of this rulemaking.
The Treasury Department and the IRS,
however, appreciate the comments and
anticipate addressing some of these issues
in future rulemaking or guidance.
One commenter stated that excepted
benefit HRAs should not be permitted to
reimburse COBRA premiums because
COBRA generally is more expensive than
other coverage options and the Depart-
ments should not incentivize individuals
to elect COBRA when more affordable
coverage options may be available. An-
other commenter opposed allowing reim-
bursement for COBRA premiums because
COBRA generally provides comprehen-
sive coverage and, to the extent an HRA
can be used to reimburse such coverage, it
should not be considered to be providing
limited benefits within the meaning of the
statutes.
The Departments decline to prohibit re-
imbursement for COBRA premiums under
excepted benefit HRAs in the final rules.
Excepted benefit HRA participants or ben-
eficiaries may choose to elect COBRA or
other group continuation coverage, even if
other more affordable coverage options are
available. For example, they may want to
ensure they are still able to see their pre-
ferred doctors or maintain coverage for cer-
tain prescription drugs. Furthermore, noth-
ing in the final rules requires an employer
to make an excepted benefit HRA available
for the reimbursement of COBRA (or other
group continuation coverage) premiums.
The Departments also do not agree that
an HRA that provides reimbursement for
COBRA (or other group continuation cov-
erage) premiums would not be providing
limited benefits, consistent with Code sec-
tion 9832(c)(2)(C), ERISA section 733(c)
(2)(C), and PHS Act section 2791(c)(2)(C).
As explained earlier in this preamble, the
restriction on annual contributions to the
excepted benefit HRA ensures this HRA is
limited.
b. Reimbursement of STLDI Premiums
Many commenters requested that ex-
cepted benefit HRAs not be permitted to
provide reimbursement of STLDI pre-
miums. These commenters expressed
concern that some participants may use
excepted benefit HRA funds to purchase
STLDI policies without understanding
that STLDI might not provide compre-
hensive coverage and is not subject to the
same federal consumer protections that
apply to PPACA-compliant coverage.
Some commenters expressed concerns
that individuals with STLDI could be ex-
posed to serious financial risk and others
expressed concerns about specific ben-
efits or conditions not generally covered
by STLDI. One commenter represented
that in some states, individuals with an ex-
cepted benefit HRA and STLDI coverage
would not satisfy state law requirements
to maintain comprehensive coverage and
would, therefore, incur state income tax
penalties. A few commenters stated that
they believed that permitting reimburse-
ment for STLDI premiums would mean
that the excepted benefit HRA would not
be providing a limited benefit because
STLDI policies typically cover at least
some of the same benefits as individual
health insurance coverage and because
Congress exempted STLDI from the mar-
ket requirements by distinguishing it from
individual health insurance coverage rath-
er than making it an excepted benefit. Oth-
er commenters were concerned that this
rule would incentivize small employers to
offer an excepted benefit HRA to purchase
STLDI, instead of a QSEHRA to purchase
individual health insurance coverage.
Several commenters also claimed that
permitting excepted benefit HRAs to re-
imburse STLDI premiums would lead to
market segmentation, potentially nega-
tively affecting the small group market.
These commenters argued that healthier,
lower-cost individuals who do not have
preexisting conditions and who believe
they do not need comprehensive benefits
would enroll in STLDI, rather than in more
comprehensive group or individual cover-
age. In the opinion of these commenters,
this scenario is more likely to occur in the
fully-insured small group market, where
premiums do not vary based on an indi-
vidual employer’s claims experience.
214

In contrast, large employers whose plans
are experience-rated, or employers that
offer self-insured plans, likely would not
offer an excepted benefit HRA that could
be used to reimburse STLDI premiums
because, according to these commenters,
healthy employees foregoing coverage
under the employer’s traditional group
health plan could result in direct nega-
tive financial consequences on the cost of
maintaining that plan; thus, the employer
would have strong incentives not to offer
an excepted benefit HRA that could be
used to purchase STLDI. One commenter
noted that the benefit of allowing HRAs
to be used for STLDI is outweighed by
the risks to the individual and small group
markets. Other commenters supported
making STLDI more available generally
to consumers, citing choice and flexibility,
as well as affordability.
The final rules generally do not pro-
hibit reimbursement of STLDI premiums
by excepted benefit HRAs. Employees at
small firms are increasingly turning down
an offer of health coverage.
215
Low-wage
workers at small firms are especially likely
to turn down such coverage when offered,
particularly as a given premium is a larger
share of income for a low-wage employ-
ee.
216
Thus, low-wage workers at smaller
firms who are turning down the employer
offer of coverage are potentially likely to
benefit from permitting the excepted ben-
efit HRA to reimburse STLDI premiums.
To the extent that people who would use
the excepted benefit HRA to purchase
STLDI would otherwise have been unin-
sured and, therefore, would not have been
part of the small group single risk pool,
the small group market is unaffected by
the introduction of an excepted benefit
HRA that may be used to purchase STL-
DI. Moreover, the impact of any adverse
selection is likely to be small because the
small group market is much larger than the
STLDI market. Thus, any potential expan-
sion of the number of healthier-than-aver-
age STLDI enrollees will have a smaller
proportional impact on expected claims in
the small group market.
214
See PHS Act section 2701 and PPACA section 1312(c). See also 45 CFR 147.102 and 45 CFR 156.80.
215
In 1999, 17 percent of workers eligible for employer coverage at small firms (those with 3 to 199 workers) turned down the offer of employer coverage. By 2011, this share had climbed to
22 percent, and in 2018 it was 27 percent. See Kaiser Family Foundation, “Employer Health Benefits 2018 Annual Survey,” Figure 3.1, available at http://files.kff.org/attachment/Report-Em-
ployer-Health-Benefits-Annual-Survey-2018.
216
Id.

July 8, 2019 156 Bulletin No. 2019–28
While the final rules do not prohibit
reimbursement of STLDI premiums by
excepted benefit HRAs, the final rules in-
clude a special rule in response to com-
menters’ concerns about the potential for
adverse selection in the small group mar-
kets, as discussed later in this preamble.
217

Further, because individuals offered an
excepted benefit HRA must be offered a
traditional group health plan, individuals
with an excepted benefit HRA who are
considering STLDI will likely be deciding
between STLDI and the traditional group
health plan, rather than individual health
insurance coverage, premiums for which
may not be reimbursed by an excepted
benefit HRA. Therefore, adverse selection
in the individual market is mitigated.
STLDI may not be suitable coverage
for all individuals in all circumstances and
in many instances it might not provide
coverage that is as comprehensive as indi-
vidual health insurance coverage. Howev-
er, STLDI can be a viable health insurance
option for many people in many circum-
stances. Also, no individual is required to
enroll in STLDI; rather, it is simply an ad-
ditional (and in some circumstances, more
affordable), option that may be available
to them. With respect to concerns that
some excepted benefit HRA participants
may not understand the limited nature of
STLDI, a notice is required to be promi-
nently displayed in STLDI contracts and
enrollment application materials advis-
ing consumers of the differences between
STLDI and other health insurance cover-
age. Among other things, the notice must
state that the coverage: (1) is not required
to comply with certain federal market re-
quirements for health insurance; (2) may
exclude or limit coverage for preexisting
conditions; (3) may not include coverage
for hospitalization, emergency services,
maternity care, preventive care, prescrip-
tion drugs, and mental health and sub-
stance use disorder services; and (4) may
have lifetime or annual dollar limits on
health benefits.
218

The Departments disagree with com-
menters’ assertions that permitting ex-
cepted benefit HRAs to reimburse STLDI
would not be providing limited excepted
benefits because STLDI is not an except-
ed benefit and often covers some of the
same benefits as individual health insur-
ance coverage. Nothing in these final rules
would designate STLDI as a limited ex-
cepted benefit. Rather, it is the HRAs that
must satisfy certain conditions to be rec-
ognized as limited excepted benefits, and
the HRAs must be limited as to amount
and are substantially limited as to the
types of premiums they may reimburse.
Further, STLDI coverage often provides
much more limited benefits than coverage
that is subject to the market requirements.
Taking all of this into account, the De-
partments have determined that excepted
benefit HRAs are sufficiently limited to
constitute a limited excepted benefit, not-
withstanding that employers may general-
ly elect to permit HRA reimbursement of
STLDI premiums.
One commenter noted that the ex-
cepted benefit HRA rules do not preempt
state regulation of STLDI and so do not
inhibit a state from prohibiting the sale of
STLDI. The Departments agree with the
commenter that nothing in the final rules
affects state regulation of STLDI.
5. Uniform Availability
To prevent an excepted benefit HRA
from intentionally or unintentionally, di-
rectly or indirectly, steering participants
or dependents with adverse health factors
away from the sponsor’s traditional group
health plan, the proposed rules provid-
ed that an excepted benefit HRA must be
made available under the same terms to all
similarly situated individuals, regardless of
any health factor.
219
The Departments pro-
posed and are finalizing this condition to
prevent discrimination based on health sta-
tus and to preclude opportunities for an em-
ployer to offer a more generous excepted
benefit HRA to individuals with an adverse
health factor, such as an illness or a disabil-
ity, as an incentive not to enroll in the plan
sponsor’s traditional group health plan.
220

Consistent with the approach outlined in
the proposed rules, under the final rules,
an excepted benefit HRA may not, for ex-
ample, be offered only to employees who
have cancer or fail a physical examination,
just as the excepted benefit HRA may not
be offered only to employees who are can-
cer-free or who pass a physical examina-
tion. Similarly, an employer may not make
greater amounts available in an excepted
benefit HRA for employees who have can-
cer or who fail a physical examination,
just as an employer may not make greater
amounts available in an excepted benefit
HRA for employees who are cancer-free or
who pass a physical examination.
Commenters generally supported this
requirement and asserted that it is neces-
sary to prevent discrimination based on
health status. Two commenters sought
confirmation that an excepted benefit
HRA would not violate the uniform avail-
ability requirement if it were made avail-
able to only certain individuals, such as
pre-Medicare eligible retirees who decline
coverage under the former employer’s tra-
ditional group health plan and purchase
coverage through the individual market,
so long as those eligibility conditions are
not based on a health factor. In the Depart-
ments’ view, a plan design that permits
enrollment in an excepted benefit HRA
only if coverage is declined under the tra-
ditional group health plan is inconsistent
with the uniform availability requirement
and with the basic premise that an except-
ed benefit HRA must be ancillary to the
employer’s traditional group health plan.
HHS further notes that structuring the
offering or design of a group health plan
based on pre-Medicare status would gen-
erally run afoul of the Medicare nondis-
crimination provisions described earlier in
this preamble.
221
Therefore, an employer
may not condition enrollment in an ex-
217
To the extent an excepted benefit HRA reimburses premiums for STLDI, the insurance, which is not individual health insurance coverage, will not be eligible for the safe harbor under 29
CFR 2510.3-1(l). Accordingly, to the extent offered in connection with a group health plan, the benefits could be subject to those provisions of ERISA that apply to excepted benefits (for
example, ERISA parts 1, 4, and 5).
218
See 26 CFR 54.9801-2, 29 CFR 2590.701-2, and 45 CFR 144.103
219
See Code section 9802(a)(1), ERISA section 702(a)(1) and PHS Act 2705(a)(1). See also 26 CFR 54.9802-1(a)(1) and (d), 29 CFR 2590.702(a)(1) and (d), and 45 CFR 146.121(a)(1) and
(d).
220
See 83 FR 54420, 54438 (Oct. 29, 2018).
221
SSA sections 1862(b)(1)(A)(i)(I), (b)(1)(B)(i), and (b)(1)(C)(i).

Bulletin No. 2019–28 157 July 8, 2019
cepted benefit HRA on declining to enroll
in the traditional group health plan.
As noted earlier in this preamble, Code
section 9831(a) and ERISA section 732(a)
generally provide that chapter 100 of the
Code and part 7 of ERISA, respectively,
do not apply to plans, including HRAs,
with fewer than two participants who are
current employees on the first day of the
plan year (including retiree-only plans that
cover fewer than two participants who are
current employees).
222
Therefore, a retir-
ee-only HRA is not subject to the market
requirements and would not need to quali-
fy as an excepted benefit in order to avoid
the application of PHS Act sections 2711
and 2713. However, a retiree-only HRA
that does not qualify as an excepted ben-
efit would qualify as MEC,
223
and, there-
fore, a retiree who accepted such an HRA
could not claim the PTC.
224

One commenter suggested that the De-
partments should issue additional guidance
and resources about the definition of sim-
ilarly situated individuals to ensure that
this requirement is properly implemented.
In response to these comments, the final
rules define similarly situated individuals
by reference to the definition found in the
HIPAA nondiscrimination rules, as was
proposed.
225
Those rules generally provide
that group health plans may, subject to an
anti-abuse provision for discrimination di-
rected at individuals, treat groups of partic-
ipants as distinct groups if the distinction
is based on a bona fide employment-based
classification consistent with the employ-
er’s usual business practice. Whether an
employment-based classification is bona
fide is determined based on all the relevant
facts and circumstances, including wheth-
er the employer uses the classification for
purposes independent of qualification for
health coverage (such as, determining el-
igibility for other employee benefits or
determining other terms of employment).
Examples in the HIPAA nondiscrimina-
tion rules of classifications that may be
bona fide, based on all the relevant facts
and circumstances, include full-time versus
part-time status, different geographic loca-
tion, membership in a collective bargaining
unit, date of hire, current employee versus
former employee status, and different oc-
cupations. Under the anti-abuse provision,
however, a distinction between groups of
individuals is not permitted if the creation
or modification of an employment or cov-
erage classification is directed at individual
participants or beneficiaries based on any
health factor of the participants or benefi-
ciaries. In addition, a plan may, subject to
certain anti-abuse provisions for discrim-
ination directed at individuals, treat ben-
eficiaries as distinct groups based on the
bona fide employment-based classification
of the participant through whom the bene-
ficiary is receiving coverage; the relation-
ship to the participant; marital status; with
respect to children of a participant, age or
student status; and other factors if the factor
is not a health factor. Finally, the HIPAA
nondiscrimination rules generally allow
group health plans to treat participants and
beneficiaries as distinct groups. Additional
guidance on similarly situated individuals
is available on DOL’s website.
226
The final
rules define similarly situated individuals
by reference to the definition in the HIPAA
nondiscrimination rules, which are also de-
signed to prevent discrimination in group
health plans based on health status. These
standards are already familiar to stakehold-
ers and therefore use of the existing defi-
nition will reduce complexity and the po-
tential burden of having to use a different
definition.
6. Coordination with HSAs
Commenters asked for clarification re-
garding the circumstances in which partic-
ipation in an excepted benefit HRA might
preclude an individual from being eligible
for an HSA. These commenters expressed
concern that, because HSA eligibility is
restricted if an individual has certain other
types of health coverage, a loss of HSA el-
igibility could occur for some individuals
enrolled in excepted benefit HRAs.
As explained earlier in this preamble,
among the requirements for an individual
to qualify as an eligible individual under
Code section 223(c)(1) for purposes of
HSA eligibility is that the individual must
be covered under an HDHP and have no
disqualifying health coverage. If an in-
dividual fails to satisfy the requirements
to be an eligible individual, then contri-
butions to an HSA are disallowed. The
Treasury Department and the IRS have
provided some guidance on the interac-
tion between HRAs and the requirements
of Code section 223 in Revenue Ruling
2004-45 and IRS Notice 2008-59. More
specifically, as explained earlier in this
preamble, in Revenue Ruling 2004-45,
the Treasury Department and the IRS clar-
ified that an otherwise eligible individual
(that is, an individual with coverage un-
der an HDHP and no disqualifying cov-
erage) remains an eligible individual for
purposes of making contributions to an
HSA for periods during which the individ-
ual is covered by a limited-purpose HRA,
a post-deductible HRA, or combinations
of these arrangements. Subsequently,
Q&A-1 of IRS Notice 2008-59 stated that
a limited-purpose HRA that is also avail-
able to pay premiums for health coverage
does not disqualify an eligible individual
from contributing to an HSA, provided
the individual does not use the HRA to,
or otherwise, obtain coverage that is not
HSA-compatible.
This prior guidance applies to all
HRAs, including excepted benefit
HRAs.
227
Therefore, for example, an in-
222
While title XXVII of the PHS Act, as amended by PPACA, no longer contains a parallel provision at PHS Act section 2721(a), HHS has explained that it will not enforce the requirements
of title XXVII of the PHS Act with respect to nonfederal governmental retiree-only plans and generally encourages states to adopt a similar approach with respect to retiree-only plans offered
by issuers. See 75 FR 34538, 34540 (June 17, 2010).
223
26 CFR 1.5000A-2(c).
224
26 CFR 1.36B-2(c)(3). Note that a former employee is only rendered ineligible for the PTC if the former employee enrolls in employer-sponsored coverage; an offer of coverage (even if
it is affordable and provides MV) does not preclude a former employee from claiming the PTC. See 26 CFR 1.36B-2(c)(3)(iv).
225
See 26 CFR 54.9802-1(d), 29 CFR 2590.702(d), and 45 CFR 146.121(d).
226
See Compliance Assistance Guide - Health Benefits Coverage Under Federal Law, available at https://www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/resource-center/pub-
lications/compliance-assistance-guide.pdf; Self-Compliance Tool for Part 7 of ERISA: Health Care-Related Provisions, available at https://www.dol.gov/sites/default/files/ebsa/about-ebsa/
our-activities/resource-center/publications/compliance-assistance-guide-appendix-a.pdf; and FAQs on HIPAA Portability and Nondiscrimination Requirements for Employers and Advisers,
available at https://www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/resource-center/faqs/hipaa-compliance.pdf.
227
To be an eligible individual under Code section 223(c)(1), an individual may not be covered by a health plan that is not an HDHP, except for certain coverage which is disregarded, as
enumerated in Code section 223(c)(1)(B). Code section 223(c)(1)(B) does not disregard all excepted benefits, and an excepted benefit HRA is not disregarded coverage. Therefore, an excepted
benefit HRA must be HSA-compatible under the relevant Code section 223 guidance in order to allow an otherwise eligible individual to remain an eligible individual under Code section 223.

July 8, 2019 158 Bulletin No. 2019–28
dividual covered by an excepted benefit
HRA that is available to pay premiums for
STLDI is an eligible individual for pur-
poses of making contributions to an HSA,
assuming the HRA is used to purchase
STLDI that qualifies as an HDHP (and
so, for example, the STLDI does not pay
benefits prior to satisfying the minimum
required deductible),
228
and the individual
has no disqualifying coverage.
7. Notice Requirements
Several commenters suggested that
the Departments impose certain notice
requirements for excepted benefit HRAs
in the final rules. Commenters stated that
the required notice should be similar to
the notice required for individual cover-
age HRAs, or should, at a minimum, in-
form participants and beneficiaries of the
annual dollar limit for benefits under the
excepted benefit HRA, other terms and
conditions of the excepted benefit HRA,
and participants’ and beneficiaries’ rights
under the excepted benefit HRA.
However, the Departments note that for
private-sector, employment-based plans,
other long-standing notice requirements
under Part 1 of ERISA already apply.
ERISA-covered plans, including except-
ed benefit HRAs, must provide an SPD,
summaries of material modifications, and
summaries of material reductions in cov-
ered services or benefits.
229
Under ERISA
sections 102 and 104 and their imple-
menting regulations, an excepted benefit
HRA’s SPD must include, for example,
the conditions pertaining to eligibility to
receive benefits; a description or summary
of the benefits; the circumstances that may
result in disqualification, ineligibility, or
denial, loss, forfeiture, suspension, offset,
reduction, or recovery (for example, by
exercise of subrogation or reimbursement
rights) of any benefits; and the procedures
governing claims for benefits under the
excepted benefit HRA. Excepted benefit
HRAs that are ERISA-covered plans are
subject to additional disclosure require-
ments to provide instruments under which
the excepted benefit HRA is established
or operated and information relevant to
a participant’s adverse benefit determina-
tion upon request.
230

Under these disclosure provisions, ex-
cepted benefit HRAs that are ERISA-cov-
ered plans should generally provide infor-
mation on eligibility to receive benefits,
annual or lifetime caps or other limits on
benefits under the plan, and a description
or summary of the benefits. Accordingly,
for excepted benefit HRAs that are subject
to ERISA, the final rules include a cross
reference to existing ERISA notice pro-
visions in order to ensure that excepted
benefit HRA plan sponsors are aware of
their obligations under those provisions.
However, the final rules do not include
any additional notice requirements for
ERISA-covered plans.
In response to commenters’ concerns,
HHS intends to propose in future rulemak-
ing a notice requirement with respect to
non-federal governmental plan excepted
benefit HRAs. HHS anticipates propos-
ing that a non-federal governmental plan
excepted benefit HRA would be required
to provide a notice that states conditions
pertaining to eligibility to receive benefits,
annual or lifetime caps or other limits on
benefits under the excepted benefit HRA,
and a description of, or summary of, the
benefits consistent with the requirements
of 29 CFR 2520.102-3(j)(2) and (3). HHS
anticipates that, under the proposal, this
notice would be required to be provided
in a time and manner consistent with the
requirements of 29 CFR 2520.104b-2(a).
8. Special Rule to Address the Potential
Impact on the Small Group Market
of the Reimbursement of STLDI
Premiums through Excepted Benefit
HRAs
As discussed earlier in this preamble,
the final rules include a special rule in
response to comments regarding the po-
tential for adverse selection in the small
group market if small, insured employers
also sponsor excepted benefit HRAs that
reimburse STLDI premiums. Specifical-
ly, the final rules provide that the Depart-
ments may restrict excepted benefit HRAs
from reimbursing STLDI premiums, for
certain employers in a state, if five criteria
are satisfied.
First, the restriction applies only to
excepted benefit HRAs offered by small
employers, as defined in PHS Act section
2791(e)(4), to respond to concerns by
commenters about adverse selection in the
small group market. Second, the restric-
tion applies only in situations in which
the other group health plan coverage of-
fered by the small employer is either ful-
ly-insured or partially-insured. This focus
on insured coverage again is designed to
narrowly address the potential for adverse
selection by small, insured employers that
was identified by commenters. Third, the
restriction applies only if the Secretary
of HHS makes a finding, in consultation
with the Secretaries of Labor and the Trea-
sury, that the reimbursement of premiums
for STLDI by excepted benefit HRAs in
a state has caused significant harm to the
small group market in the state that is the
principal place of business of the small
employer.
Fourth, this finding may be made only
after submission of a written recommen-
dation by the applicable state regulatory
authority of such state, in the form and
manner specified by HHS. The written rec-
ommendation must include evidence that
the reimbursement of STLDI premiums
by excepted benefit HRAs established by
insured or partially-insured small employ-
ers in the state has caused significant harm
to the state’s small group market, includ-
ing on small group market premiums. The
evidence may include the State Insurance
Commissioner’s documented overall as-
sessment of the small group market in the
state. It may also include representations
made by small group market issuers that
an increase in the purchase of STLDI cov-
erage by employees of small employers
has caused issuers to increase premiums
for small group market insurance, due to
the issuers’ reasonable belief about ad-
verse selection. HHS will evaluate each
recommendation on a case-by-case basis.
Factors that HHS may consider in deter-
228
See Code section 223(c)(2). See also Notice 2008-59, Q&A-14, which provides that to be an HDHP a plan must provide significant benefits, and if a plan only provides benefits for hospi-
talization or in-patient care, the plan would not qualify as an HDHP.
229
See ERISA sections 102 and 104. See also 29 CFR 2520.104b-2 and 2520.104b-3(a) and (d)(3).
230
See, e.g., ERISA sections 104(b), 502(c), and 503. See also 29 CFR 2520.104b-1 and 2560.503-1.

Bulletin No. 2019–28 159 July 8, 2019
mining whether significant harm had oc-
curred include, but are not limited to, the
impact on issuers’ presence in the small
group market, whether there has been
more than a de minimis increase in premi-
ums in the small group market, enrollment
declines in the small group market relat-
ed to individuals purchasing STLDI, and
changes to the health of the small group
market risk pool.
Finally, the restriction (or discontinu-
ance of the restriction) must be imposed
by publication of a notice by the Secretary
of HHS in the Federal Register and will
be effective prospectively only, and with a
reasonable time for plan sponsors to com-
ply.
9. Other Comments on Excepted Benefit
HRAs and Comments Outside the
Scope of this Rulemaking
Some commenters raised issues that
relate to types of excepted benefits other
than excepted benefit HRAs. For exam-
ple, several commenters requested that
the Departments extend the pilot program
for limited wraparound coverage.
231
One
commenter requested that the Depart-
ments amend the criteria for health FSAs
to incorporate the excepted benefit HRA,
instead of adding a new excepted benefit
HRA, to avoid the appearance of too many
limited excepted benefits. Other com-
menters requested that the Departments
address questions regarding fixed indem-
nity and hospital indemnity insurance.
However, the proposed excepted benefit
rules were limited to establishing criteria
for certain HRAs to qualify as excepted
benefits and, therefore, those comments
are outside the scope of this rulemaking.
Notwithstanding that fact, the Depart-
ments do not intend to extend the pilot
program for limited wraparound cover-
age, due to minimal take up and overlap
with various other benefit options, includ-
ing the new excepted benefit HRA, which,
like the limited wraparound coverage ex-
cepted benefit, can be used for cost shar-
ing under and expenses for services not
covered by individual health insurance
coverage, while not causing covered indi-
viduals to be ineligible for the PTC.
One commenter suggested that the
excepted benefit HRA should only be al-
lowed to be offered by an employer that
has not previously offered health cov-
erage, which the commenter appears to
have suggested due to a concern about
employers offering an excepted benefit
HRA instead of comprehensive coverage.
The Departments decline to limit excepted
benefit HRAs in this way as the excepted
benefit HRA is intended to provide flex-
ibility and additional healthcare options
to all employers and their employees.
However, to the extent the commenter is
concerned about plan sponsors no longer
offering traditional group health plans, the
Departments reiterate that in order to offer
the excepted benefit HRA, a plan sponsor
must also offer those eligible for the HRA
a traditional group health plan.
Some commenters expressed con-
fusion regarding the interaction of the
excepted benefit HRA and the employer
shared responsibility provisions under
Code section 4980H. The Departments
note for the sake of clarity, as explained
earlier in this preamble, that coverage that
consists solely of excepted benefits is not
MEC.
232
Therefore, the offer of an except-
ed benefit by an employer is not consid-
ered to be an offer of MEC under an eligi-
ble employer-sponsored plan for purposes
of Code section 4980H. Although an em-
ployer will not avoid potential liability for
a payment under Code section 4980H by
virtue of an offer of an excepted benefit,
including an excepted benefit HRA, the
traditional group health plan that is re-
quired to be offered in order to offer the
excepted benefit HRA would constitute an
offer of MEC under an eligible employ-
er-sponsored plan.
233
One commenter inquired whether an
individual enrolled in an excepted bene-
fit HRA would have a special enrollment
right in the employer’s traditional group
health plan if the individual had enrolled
in STLDI and then coverage under the
STLDI was rescinded because the individ-
ual became sick. The Departments clarify
that under the special enrollment rules for
group health plans, in general, an employ-
ee or dependent is eligible for special en-
rollment if they are otherwise eligible for
the benefit package; when coverage under
the plan was previously offered, the em-
ployee had group health plan or health
insurance coverage; and then the employ-
ee loses eligibility for other coverage.
234

STLDI is health insurance coverage and,
therefore, loss of eligibility for STLDI
will create a special enrollment oppor-
tunity to enroll in a group health plan, if
the employee otherwise satisfies the spe-
cial enrollment opportunity requirements.
However, under the special enrollment
rules for individual market coverage, loss
of eligibility for STLDI will not trigger an
SEP in the individual market.
235
Other comments not responsive to the
provisions and topics addressed by the
proposed rules, or otherwise beyond the
scope of the proposed and final rules, are
not addressed.
C. Interaction Between Individual
Coverage HRAs and Excepted Benefit
HRAs
Under the final rules, as under the pro-
posed rules, a plan sponsor is permitted
to offer an individual coverage HRA to a
class of employees so long as it does not
also offer a traditional group health plan
to the same class of employees, subject to
additional applicable conditions discussed
elsewhere in this preamble. However, a
plan sponsor may only offer an excepted
benefit HRA if traditional group health
plan coverage is also made available to the
employees who are eligible to participate
in the excepted benefit HRA. Thus, a plan
sponsor cannot offer both an individual
231
See 26 CFR 54.9831-1(c)(3)(vii), 29 CFR 2590.732(c)(3)(vii), and 45 CFR 146.145(b)(3)(vii).
232
See Code section 5000A(f)(3).
233
See Code section 4980H(a)(1) and (b)(1). See also 26 CFR 54.4980H-1(a)(14).
234
See Code section 9801(f), ERISA section 701(f), and PHS Act section 2704(f). See also 26 CFR 54.9801-6(a)(2)(i) and (3)(i), 29 CFR 2590.701-6(a)(2)(i) and (3)(i), and 45 CFR 146.117(a)
(2)(i) and (3)(i).
235
See 45 CFR 155.420(d)(1)(i), which provides an SEP in the individual market only for loss of coverage that constitutes MEC. See also 45 CFR 147.104(b)(2) and 83 FR 38212, 38225
(Aug. 3, 2018) (stating that STLDI “... is not individual health insurance coverage, nor is it MEC.”).

July 8, 2019 160 Bulletin No. 2019–28
coverage HRA and an excepted benefit
HRA to any employee.
236

III. Overview of Final Rules Regarding
the Premium Tax Credit –
Department of the Treasury and
the IRS
A. In General
Consistent with the objectives in Ex-
ecutive Order 13813 to expand the use
of HRAs, the proposed rules included an
amendment to the rules under Code sec-
tion 36B to provide guidance for individu-
als who are offered or covered by an indi-
vidual coverage HRA and who otherwise
may be eligible for the PTC. As explained
earlier in this preamble, an employee who
is offered coverage under an eligible em-
ployer-sponsored plan, and an individual
who may enroll in the coverage because
of a relationship to the employee (a relat-
ed individual), are not eligible for a PTC
for any month the eligible employer-spon-
sored plan is affordable and provides
M V.
237
Further, an employee or related
individual who enrolls in an eligible em-
ployer-sponsored plan for a month is inel-
igible for a PTC for that month regardless
of whether the coverage is affordable or
provides MV.
238
Because an HRA is a self-insured
group health plan, under existing rules, an
individual who is covered by an individual
coverage HRA is ineligible for the PTC.
239

However, guidance was needed regarding
the PTC eligibility of an individual who
is offered, but opts out of, an individual
coverage HRA, and, therefore, the Trea-
sury Department and the IRS issued the
proposed PTC rules.
Consistent with the rule for tradition-
al group health plans under Code section
36B and the existing rules thereunder, the
proposed rules provided that an employ-
ee and a related individual offered an in-
dividual coverage HRA (a related HRA
individual) would not be eligible for a
PTC for any month the individual cover-
age HRA is affordable. Relatedly, the pro-
posed rules provided that an affordable in-
dividual coverage HRA would be deemed
to provide MV. Therefore, under the pro-
posed rules, if an employee and a related
HRA individual are offered an individual
coverage HRA that is affordable, the em-
ployee and related HRA individual are in-
eligible for a PTC even if the employee
opts out of the individual coverage HRA.
However, an employee and a related HRA
individual offered an individual coverage
HRA that is not affordable will be eligible
for the PTC (assuming they are otherwise
eligible) if the employee opts out of the
individual coverage HRA.
Commenters generally acknowledged
that guidance was needed, and some
commenters agreed with the proposed
rules relating to the effect of an individ-
ual coverage HRA offer on an individu-
al’s PTC eligibility. However, a number
of commenters expressed concern that
the proposed rules would adversely affect
lower-paid employees and their ability to
obtain adequate subsidies for their health-
care coverage. The commenters pointed
out that the PTC generally is more valu-
able than the individual coverage HRA
would be for lower-paid employees. These
commenters suggested that the individual
coverage HRA would subsidize the cost
of coverage for higher paid employees
while making coverage more expensive,
and likely out of reach, for the lower-paid
employees who would have been eligible
for a PTC but for the offer of an individ-
ual coverage HRA. Some commenters ex-
pressed a concern that the complexity of
the rules would make it difficult for em-
ployees to make optimal decisions about
their coverage and whether to opt out of
the individual coverage HRA, with some
noting a concern that employees may mis-
takenly opt out of an affordable individual
coverage HRA because they believe that
the opt-out preserves their PTC eligibility,
only to find out that they have lost both
PTC eligibility and the right to reimburse-
ments under the individual coverage HRA.
Some commenters expressed concern that
employers might inadvertently offer an
individual coverage HRA that leaves em-
ployees worse off than they would have
been had the employer not offered the
HRA, whether or not the employees opt
out of the arrangement. The Departments
note that this concern, however, is mitigat-
ed by the fact that employers seek to max-
imize overall employee welfare in order to
recruit and retain talented workers.
To address these concerns, some com-
menters suggested that employees who
are otherwise eligible for the PTC should
be allowed both the PTC and the individu-
al coverage HRA offered to them by their
employers. Other commenters suggested
a rule to allow employees to choose be-
tween an individual coverage HRA and
the PTC. Under this suggested rule, an
employee would be able to opt out of the
individual coverage HRA and receive the
PTC in situations in which the PTC would
provide a more generous subsidy than
the individual coverage HRA. Employ-
ees would have this choice regardless of
whether the individual coverage HRA was
affordable or provided MV.
The final rules retain the rule as pro-
posed that an employee and a related HRA
individual are not eligible for a PTC for
any month the employee is offered an in-
dividual coverage HRA that is affordable,
even if the employee opts out of the ar-
rangement. An individual coverage HRA
is an eligible employer-sponsored plan for
purposes of Code section 36B. Code sec-
tion 36B(c)(2)(B) and 26 CFR 1.36B-2(a)
(2) provide that an employee and a related
individual who are offered coverage un-
der an eligible employer-sponsored plan
are not eligible for a PTC for any month
that the eligible employer-sponsored cov-
erage is affordable and provides MV. Un-
der these provisions, an individual gener-
ally is ineligible for a PTC for a month in
which the individual had an opportunity to
enroll in affordable, MV employer-spon-
sored coverage, regardless of whether the
individual actually chose to enroll. There-
236
The Departments note that an employer may not provide a QSEHRA to any employee if it offers any employee a group health plan. Accordingly, an employer may not provide a QSEHRA
to any employee if it offers any employee an individual coverage HRA (which is a group health plan) or an excepted benefit HRA (which is a group health plan and which requires an offer
of a traditional group health plan). See Code section 9831(d)(3)(B)(ii).
237
Code section 36B and 26 CFR 1.36B-2(c)(3)(i).
238
26 CFR 1.36B-2(c)(3)(vii)(A).
239
See the discussion earlier in this preamble of the related requirement under the final integration rules that plan sponsors provide participants with an annual opportunity to opt-out of and
waive future reimbursements under an individual coverage HRA.

Bulletin No. 2019–28 161 July 8, 2019
fore, Code section 36B and the applicable
rules do not allow individuals to choose
between an offer of employer-sponsored
coverage that is affordable and that pro-
vides MV or Exchange coverage with a
PTC. Furthermore, many of the concerns
raised by commenters also apply to tra-
ditional group health plans; for example,
lower-income individuals may be better
off with the PTC than a traditional group
health plan. Thus, consistent with the rules
for traditional group health plans, the final
rules retain the rule that a PTC is not al-
lowed for any month in which the individ-
ual coverage HRA is affordable.
As to the suggestion by commenters
that individuals should be allowed to both
enroll in the individual coverage HRA and
claim the PTC if otherwise eligible, this is
precluded by Code section 36B(c)(2)(C)
(iii). Under that Code section, and as not-
ed earlier in this preamble, an individual
who is covered for one or more months by
a group health plan, including an individu-
al coverage HRA, is ineligible for the PTC
for his or her Exchange coverage for those
months. Therefore, the final PTC rules do
not adopt this suggestion.
The Treasury Department and the IRS
agree with commenters that some low-
er-paid employees may be adversely af-
fected by an employer’s offer of an indi-
vidual coverage HRA because the PTC, if
available, could provide a larger subsidy
for the employee’s Exchange coverage
as compared to the individual coverage
HRA. However, this dynamic already ex-
ists under current rules, as an individual
may be required to pay a greater portion
of his or her household income for a tra-
ditional group health plan than the indi-
vidual would, in the absence of an offer
of employer-sponsored coverage, have to
pay for Exchange coverage with a PTC.
Under Code section 36B(b)(3)(A) and
current PTC rules, an individual’s contri-
bution amount for 2019 Exchange cov-
erage may be as little as 2.08 percent of
household income for an individual who
claims the PTC whereas the same individ-
ual may have to pay up to 9.86 percent of
household income for coverage offered
by the individual’s employer and still be
considered to have an affordable offer and
therefore ineligible for the PTC. Never-
theless, an employee in this situation is
not permitted to forego the employer cov-
erage and choose the Exchange coverage
with a PTC to take advantage of the small-
er contribution amount. Under the final
rules, the same treatment applies to offers
of an individual coverage HRA: that is, in-
dividuals are not allowed to forego an in-
dividual coverage HRA that is affordable
(and thus deemed to provide MV) and in-
stead choose the Exchange coverage with
a PTC.
The Departments also appreciate the
concerns expressed by commenters re-
garding the burden on employees to prop-
erly determine whether the HRA they
have been offered is affordable and pro-
vides MV and whether they should opt out
of the individual coverage HRA. These
concerns are the primary reason that the
Departments proposed to require employ-
ers that offer individual coverage HRAs
to provide a written notice to each partici-
pant. The final rules strengthen the notice
requirement and the Departments are pro-
viding model notice language regarding
the PTC, separate from, but contempo-
raneous with, the final rules. Further, the
Departments will work closely with the
State Exchanges to ensure that Exchang-
es’ applications and other relevant mate-
rials are updated to assist individuals with
an individual coverage HRA offer who are
applying for, or considering applying for,
individual health insurance coverage, in
determining whether they are eligible for
APTC.
Lastly, the Treasury Department and
the IRS note that under the final rules,
an individual coverage HRA may be in-
tegrated with Medicare, if certain condi-
tions are satisfied. Individuals who are en-
rolled in Medicare for one or more months
during the calendar year are not eligible
for the PTC for their Exchange coverage
for those months.
240
Therefore, the final
PTC rules regarding when an offer of an
individual coverage HRA is considered
affordable are not relevant for individuals
enrolled in Medicare. Those individuals
are ineligible for the PTC without regard
to whether they are offered or covered by
an individual coverage HRA.
241
B. Use of Lowest Cost Silver Plan
to Determine Affordability of an
Individual Coverage HRA
The proposed rules provided that an
individual coverage HRA is affordable
for an employee and a related HRA indi-
vidual for a month if the employee’s re-
quired HRA contribution does not exceed
1/12 of the product of the employee’s
household income and the required con-
tribution percentage (defined in 26 CFR
1.36B-2(c)(3)(v)(C)). The proposed rules
defined an employee’s required HRA
contribution as the excess of: (1) the
monthly premium for the lowest cost sil-
ver plan for self-only coverage available
to the employee through the Exchange
for the rating area in which the employ-
ee resides; over (2) the monthly self-only
HRA amount provided by the employee’s
employer.
242
The monthly self-only HRA
amount was proposed to be the self-on-
ly HRA amount newly made available to
the employee under the individual cov-
erage HRA for the plan year, divided by
the number of months in the plan year the
individual coverage HRA is available to
the employee.
240
See Code section 36B(c)(2)(B) and 26 CFR 1.36B-2(a)(2). An individual generally is eligible for Medicare if the individual meets the criteria for coverage under the program as of the
first day of the first full month the individual may receive benefits under the program. See 26 CFR 1.36B-2(c)(2)(i). However, an individual who meets the criteria for eligibility for Medicare
must complete the requirements necessary to receive benefits. See 26 CFR 1.36B-2(c)(2)(ii). An individual who fails by the last day of the third full calendar month following the event that
establishes eligibility for Medicare to complete the requirements to obtain that coverage is treated as eligible for Medicare as of the first day of the fourth calendar month following the event
that establishes eligibility. Id.
241
The Treasury Department and the IRS are considering whether clarification is needed regarding how to determine whether an offer of an individual coverage HRA to an employee enrolled
in Medicare is considered affordable and to provide MV for purposes of Code section 4980H. The Treasury Department and the IRS anticipate addressing that issue in guidance in the near
term.
242
If the employer offers an HRA that provides for a single dollar amount regardless of whether an employee has self-only or other-than-self-only coverage, the monthly maximum amount
available to the employee is used to determine affordability. The monthly maximum amount was proposed to be the maximum amount available to the employee divided by the number of
months in the plan year the individual coverage HRA is available to the employee.

July 8, 2019 162 Bulletin No. 2019–28
In the preamble to the proposed rules,
the Treasury Department and the IRS ex-
plained that the lowest cost silver plan
was chosen because, in the individual
market, the lowest cost silver plan is the
lowest cost Exchange plan for which the
plan’s share of the total allowed costs of
benefits provided under the plan is certain
to be at least 60 percent of such costs, as
required by Code section 36B(c)(2)(C)
(ii) for a plan to provide MV. In selecting
the lowest cost plan for which it is certain
that the plan’s share of the total allowed
costs of benefits provided under the plan
will be at least 60 percent of such costs,
the proposed rules sought to most closely
approximate the PTC eligibility rules that
apply to offers of eligible-employer spon-
sored coverage that is not an HRA.
243
The
proposed rules also provided that an in-
dividual coverage HRA that is affordable
is treated as providing MV, because the
plan used to determine affordability will
always provide MV and so an employee
who is offered an affordable individual
coverage HRA has the ability to purchase
affordable coverage that provides MV. In
the preamble to the proposed rules, the
Treasury Department and the IRS request-
ed comments on whether the lowest cost
silver plan is the appropriate metal-level
plan to use to determine affordability of
an individual coverage HRA for PTC eli-
gibility purposes.
A number of commenters advocated
for retaining the proposed rule’s use of
the lowest cost silver plan as the appro-
priate plan to determine affordability and
MV of an individual coverage HRA for
PTC eligibility. These commenters stated
that although the lowest cost silver plan
generally would have an actuarial value
that is higher than is required to provide
MV under a traditional group health plan,
a bronze-level plan would not always be
sufficient to provide MV.
244
Therefore, the
commenters found the use of the lowest
cost silver plan to be a reasonable approx-
imation of the PTC eligibility rules that
apply to offers of traditional group health
plans.
Some commenters suggested using a
gold-level plan to determine affordabili-
ty, contending that the coverage benefits
provided by a gold-level plan more close-
ly resemble the coverage benefits under a
traditional group health plan. According to
these commenters, using a gold-level plan
for the affordability determination would
ensure that an employee who is offered an
individual coverage HRA would not pay
more for health coverage that provides
fewer benefits than the employee would
have paid for under either a traditional
group health plan or Exchange coverage
with a PTC.
Other commenters suggested that a
bronze-level plan should be used for de-
termining affordability of an individual
coverage HRA, arguing that a bronze-lev-
el plan is comparable to coverage under
a traditional group health plan which pro-
vides MV because a bronze-level plan
generally has an actuarial value of 60
percent. According to these commenters,
using a silver-level plan to determine af-
fordability and MV for PTC eligibility
would provide employees (and related
HRA individuals) with greater coverage
benefits than required under traditional
group health plans.
A plurality of the commenters on the
issue of the appropriate affordability plan
suggested that the second lowest cost sil-
ver plan (SLCSP) should be used to de-
termine the affordability of an individual
coverage HRA. These commenters gen-
erally pointed to administrative ease and
the affordability rules for QSEHRAs as
the reasons for modifying the proposed
rule. Under Code section 36B, a taxpayer
who is eligible for the PTC computes his
or her PTC amount using the premiums
for the SLCSP available to the taxpayer.
Therefore, the commenters asserted that
information concerning the premiums for
a taxpayer’s applicable SLCSP is already
readily available to taxpayers and provid-
ing this information to taxpayers for their
individual coverage HRA affordability de-
terminations would not require additional
Exchange resources. In addition, in light
of the fact that the SLCSP is already used
for certain PTC purposes, the commenters
expressed concern that using premiums
for the lowest cost silver plan instead of
the SLCSP could lead to confusion and
miscalculations. Commenters also noted
that the premiums for the SLCSP are used
to determine affordability for QSEHRAs.
Some commenters expressed concern that
using the lowest cost silver plan for af-
fordability would result in three different
affordability calculations depending on
whether an employee was offered a tradi-
tional group health plan, a QSEHRA, or
an individual coverage HRA. However,
some commenters opposed the use of the
SLCSP, contending that the higher premi-
ums for a SLCSP, which may not always
provide greater benefits than the lowest
cost silver plan, do not warrant modifying
the proposed rule’s use of the lowest cost
silver plan to determine affordability of an
individual coverage HRA.
After consideration of the comments,
the final rules adopt as proposed the use
of the lowest cost silver plan for self-only
coverage available through the Exchange
in the rating area in which the employee
resides to determine whether an individual
coverage HRA is affordable. As explained
in the preamble to the proposed rules, us-
ing the lowest cost silver plan to determine
the affordability of an individual coverage
HRA is consistent with, and most closely
approximates, the rules that apply to an of-
fer of a traditional group health plan, under
which an offer is affordable if the employ-
ee’s required contribution for the lowest
cost, self-only MV coverage offered by
the employer to the employee does not
exceed a specified percentage of the em-
ployee’s household income. Further, us-
ing the lowest cost silver plan, which will
not have an actuarial value lower than 66
percent, to determine affordability of an
individual coverage HRA ensures that the
plan used to determine affordability will
always provide MV. As a result, a deter-
mination that an individual coverage HRA
is affordable, using this standard, is suf-
ficient to ensure that an employee who is
243
With regard to an offer of eligible employer-sponsored coverage that is not an HRA, an individual is eligible for the PTC for his or her Exchange coverage only if the employee’s required
contribution, which is the portion of the annual premium that would be paid for the lowest cost self-only MV coverage offered by the employer to the employee, exceeds a certain percentage
of the employee’s household income. See Code section 36B(c)(2)(C).
244
In the individual market, a bronze plan may have an actuarial value of 56 percent, which would not ensure the plan’s share of the total allowed costs of benefits provided under the plan is
at least 60 percent of such costs, as required by Code section 36B(c)(2)(C)(ii) for a plan to provide MV. See 45 CFR 156.140.

Bulletin No. 2019–28 163 July 8, 2019
offered an affordable individual coverage
HRA has the ability to purchase affordable
coverage that provides MV. Therefore, the
Treasury Department and the IRS are also
adopting as proposed the rule that an indi-
vidual coverage HRA that is affordable is
treated as providing MV.
The final rules result in consistent
treatment for purposes of Code section
36B for employees offered an individual
coverage HRA and employees offered a
traditional group health plan. In both in-
stances, the employees may be allowed
the PTC if they decline the offer and the
coverage is either unaffordable or does
not provide MV. Further, in both instanc-
es, the employee’s required contribution is
based on the amount the employee must
pay for self-only coverage that provides
MV because under the final rules afford-
ability is determined based on the lowest
cost silver plan offered in the Exchange
for the rating area in which the employee
resides (which, by definition, will always
provide MV). If the amount the employ-
ee must pay is more than the product of
the required contribution percentage and
the employee’s household income, the
employee may be allowed the PTC. As
such, the final rules are consistent with the
affordability and MV rules that apply to
offers of traditional group health plans.
Although commenters suggested using
a bronze-level or gold-level plan for the
affordability determination, the final rules
do not adopt either of those suggestions.
Using a bronze-level plan could result in
individuals being determined ineligible
for the PTC based on the cost of a plan
that does not provide MV under Code sec-
tion 36B(c)(2)(C)(ii) (because a bronze
plan may have an actuarial value as low
as 56 percent). While use of a gold-level
plan (which generally has an actuarial val-
ue no lower than 76 percent) would ensure
that the plan used to determine affordabil-
ity provides MV, it would be inconsistent
with, and require the use of, a plan with a
higher actuarial value than in the rules that
apply for a traditional group health plan.
The final rules do not adopt the sugges-
tion that the SLCSP plan be used for the
affordability determination. The Treasury
Department and the IRS acknowledge that
the SLCSP applies for other PTC purposes,
including calculation of the PTC amount
and the determination of affordability of
a QSEHRA. However, affordability for
a traditional group health plan is based
on the amount an employee would pay
for a plan for which the share of the to-
tal allowed costs of benefits provided un-
der the plan is at least 60 percent of such
costs and the lowest cost silver plan, not
the SLCSP, is the plan that most closely
approximates that rule and provides con-
sistency with these same rules as applied
to traditional group health plans under
Code section 36B. Consequently, the final
rules provide a rule that is comparable to
the affordability and MV rules that apply
for traditional group health plans.
As to the concerns expressed by com-
menters regarding the potential for con-
fusion for individuals due to the different
health coverage arrangements that exist
and the different PTC eligibility rules that
apply, see earlier in this preamble for a
discussion of the steps the Departments
are taking to address those concerns, in-
cluding providing a model notice that will
explain the PTC consequences of an indi-
vidual coverage HRA.
C. Other Issues Under the PTC Rules
The proposed rules provided that the
affordability of an individual coverage
HRA for a related HRA individual would
be based on the cost of self-only, not fam-
ily, coverage available to the employee
through the Exchange for the rating area
in which the employee resides. One com-
menter stated that affordability of an in-
dividual coverage HRA should be based
on the cost of Exchange coverage for all
members of the employee’s family offered
the individual coverage HRA, not just the
self-only cost. The final rules do not adopt
this suggestion. Under 26 CFR 1.36B-2(c)
(3)(v)(A)(2), an eligible employer-spon-
sored plan is affordable for a related indi-
vidual if the portion of the annual premi-
um the employee must pay for self-only
coverage does not exceed a percentage of
the employee’s household income. Simi-
larly, under Code section 36B(c)(4), the
affordability of a QSEHRA for a spouse
or dependent of an employee is based on
the cost of self-only Exchange coverage
to the employee. Consequently, the final
rules are consistent with the existing rules
for other types of employer coverage in
providing that affordability of an individ-
ual coverage HRA for employees and re-
lated HRA individuals is based on the cost
of self-only coverage.
One commenter stated that because of
the likelihood of confusion in the early
years on the part of taxpayers whose em-
ployers offer individual coverage HRAs,
the IRS should waive the requirement that
taxpayers increase their tax liability for
excess APTC (the excess of a taxpayer’s
APTC over his or her allowed PTC) re-
sulting from an offer of an affordable in-
dividual coverage HRA. Under Code sec-
tion 36B(f)(2), a taxpayer must increase
his or her tax liability for a taxable year
by the excess of the APTC paid on the
taxpayer’s behalf over the PTC the tax-
payer is allowed for the year, subject to
a limitation for taxpayers with household
income less than 400 percent of the appli-
cable federal poverty line for the taxpay-
er’s family size. The Treasury Department
and the IRS do not have the authority to
suspend this statutory rule. Thus, the final
rules do not adopt this suggestion. The De-
partments understand, however, that there
is potential for taxpayer confusion about
individual coverage HRAs and have tak-
en measures to ensure that taxpayers are
aware of the PTC implications of accept-
ing or opting out of an individual coverage
HRA. In particular, as described earlier in
this preamble, the final integration rules
require that an individual coverage HRA
provide eligible participants with a writ-
ten notice setting forth certain information
about the individual coverage HRA, in-
cluding the potential availability of PTC
if they opt out of the HRA and the PTC
eligibility consequences if they accept the
HRA. Individuals applying for Exchange
coverage will provide information about
the individual coverage HRA they have
been offered to the Exchange during the
application process, which will help pre-
vent the improper payment of APTC.
A few commenters raised issues re-
garding the application of the PTC rules
to individual coverage HRAs that are ne-
gotiated pursuant to a CBA, with the com-
menters asking for special rules to account
for the fact that CBAs are often negotiated
over multiple years, including that the af-
fordability status that is determined as of
the effective date of a CBA should apply
for all years covered by the CBA. The final
rules do not adopt the suggestion that spe-

July 8, 2019 164 Bulletin No. 2019–28
cial rules should apply to employees cov-
ered by CBAs. The existing rules under
Code section 36B do not include special
rules for determining the affordability of
traditional group health plans for employ-
ees covered by CBAs. In addition, such
special rules would likely result in undue
complexities for Exchanges and others.
Thus, employees covered by CBAs must
determine affordability consistent with the
rules that apply to individuals not covered
by such agreements.
A number of comments were received
expressing concerns about the effective
date for the final rules generally, but many
with a specific focus on issues related to
implementing the final PTC rules by 2020.
These comments are addressed later in
this preamble.
Also, commenters expressed concern
about the availability of resources for ver-
ifying eligibility for APTC for individuals
who are offered an individual coverage
HRA. While Exchanges are required to
verify certain eligibility requirements that
affect Exchange enrollees’ APTC eligibil-
ity with electronic data sources, comment-
ers stated that electronic data sources are
not available to allow State Exchanges to
verify APTC eligibility based on an offer
of an individual coverage HRA. Com-
menters urged the Departments to dedicate
additional funding to the State Exchanges
for electronic verification of information
about individual coverage HRA offers
that consumers will be required to provide
to Exchanges. In response to these com-
ments, the Departments note that Con-
gress generally appropriates funding for
the federal government. The Departments
do not generally have the authority to de-
termine additional uses of funds beyond
those established by Congress, including
with respect to additional funding for
State Exchanges.
One commenter asked that the Treasury
Department and the IRS confirm which
premium applies in determining the af-
fordability of an individual coverage HRA
if more than one premium is available for
the lowest cost silver plan, for example,
because there is one rate for tobacco users
and one rate for non-tobacco users. Exist-
ing rules at 26 CFR 1.36B-3(e) provide
that, in determining a taxpayer’s SLCSP
premium, a monthly premium may not
include any adjustments for tobacco use.
Consequently, in response to the com-
menter, the final rules provide that if there
is a silver-level plan that has one rate for
tobacco users and one rate for non-tobac-
co users, the rate for non-tobacco users
will apply to determine affordability of the
individual coverage HRA.
In addition, in the context of a tradi-
tional group health plan, existing rules at
26 CFR 1.36B-2(c)(3)(v)(A)(4) provide
that nondiscriminatory wellness program
incentives
245
that affect premiums are treat-
ed as earned in determining an employee’s
required contribution for purposes of af-
fordability to the extent the incentives re-
late exclusively to tobacco use. The rules
further provide that wellness program in-
centives that do not relate to tobacco use
or that include a component unrelated to
tobacco use are treated as not earned for
this purpose. Consequently, the Treasury
Department and the IRS are clarifying in
these final rules that similar rules apply for
purposes of determining the affordability
of an individual coverage HRA. Thus, if
a wellness program incentive is allowed
in the individual market, the lowest cost
silver plan premium will be determined
without regard to any premium discount
or rebate under that program unless the
wellness program incentive relates exclu-
sively to tobacco use.
The final rules also address a situa-
tion in which the silver-level QHP used
to determine a taxpayer’s lowest cost sil-
ver plan at enrollment later terminates or
closes to enrollment during the plan year.
Specifically, the final rules provide that,
in such a case, the silver-level QHP that
is used to determine a taxpayer’s lowest
cost silver plan will not cease to be the
taxpayer’s lowest cost silver plan solely
because the plan later terminates or clos-
es to enrollment. However, a taxpayer’s
lowest cost silver plan used to determine
affordability could change during the tax
year under other circumstances, such as if
the taxpayer moves into a different rating
area.
With respect to which HRA amounts
are taken into account in determining af-
fordability, the proposed rules provided
that only amounts that are newly made
available and that are determinable with-
in a reasonable period of time before the
beginning of the plan year of the HRA are
considered. The proposed rules further
provided that amounts made available
from a prior plan year that carry over to
the current plan year are not taken into
account. The final rules retain these pro-
visions and also provide that, similarly,
amounts made available under an HRA
to account for amounts remaining in a
different HRA the employer previous-
ly provided to the employee and under
which the employee is no longer covered
are not taken into account for purposes of
determining affordability. This clarifica-
tion is generally intended to address the
situation in which an employee moves
between classes of employees and, as a
result, moves between different HRAs, as
discussed earlier in this preamble.
One commenter asked the Treasury
Department and the IRS to clarify the ap-
plication of the PTC rules to an employee
opting out of, or accepting, an individual
coverage HRA with a non-calendar year
plan year.
246
As noted earlier in this pre-
amble, the final integration rules clarify
that individual coverage HRAs must pro-
vide participants with one advance oppor-
tunity to opt into, or out of, the individual
coverage HRA for each plan year, but gen-
erally may not provide participants multi-
ple opportunities to opt into, or out of, the
individual coverage HRA over the course
of the plan year. In addition, the final PTC
rules provide specific rules to determine
affordability of an individual coverage
HRA for each employment period that is
less than a full calendar year or for the
portions of the plan year of an individual
coverage HRA that fall in different taxable
years of a taxpayer. Although affordabil-
245
For this purpose, the term “wellness program incentive” has the same meaning as the term “reward” in 26 CFR 54.9802-1(f)(1)(i).
246
An employee who opts out of a non-calendar year individual coverage HRA, like an employee who opts out of a non-calendar year traditional group health plan, may qualify for an indi-
vidual market SEP based on the employee’s enrollment in a non-calendar year plan that is ending, regardless of whether he or she has the option to renew, per 45 CFR 155.420(d)(1)(ii). The
employee may, therefore, choose to change his or her individual health insurance plan, though his or her plan options may be restricted based on 45 CFR 155.420(a)(4)(iii). Regardless of
whether an employee changes his or her plan, an employee who is enrolled in Exchange coverage and opts out of an HRA when permitted to do so may apply to the Exchange for a redeter-
mination of APTC eligibility.

Bulletin No. 2019–28 165 July 8, 2019
ity of an individual coverage HRA and
thus eligibility for PTC generally are de-
termined on a monthly basis, the opt-out
rules and the part-year affordability rules
work in conjunction with the employee
safe harbor to provide a taxpayer with an
affordability determination that generally
will apply for the entire plan year of the
individual coverage HRA, barring any
change in circumstance of the taxpayer.
For example, if a taxpayer opts out of an
individual coverage HRA that begins on
July 1, 2020, and an Exchange determines
that the HRA is unaffordable and the tax-
payer is eligible for APTC, the employee
safe harbor in the final rules provides that
the HRA generally will be treated as un-
affordable for the entire plan year of the
HRA (from July 1, 2020 – June 30, 2021).
If the taxpayer decides to forego both
APTC and the individual coverage HRA
and pay the enrollment premium out-of-
pocket, the taxpayer still may claim PTC
on a tax return for the months the individ-
ual coverage HRA was unaffordable if the
taxpayer otherwise is eligible for PTC.
247
D. Employer Shared Responsibility
Provisions under Code Section 4980H
As part of implementing the objectives
of Executive Order 13813, the Treasury
Department and the IRS are considering
how Code section 4980H applies to an
employer offering an individual coverage
HRA.
Only ALEs are subject to Code section
4980H.
248
For an employer that is an ALE,
the employer may owe a payment for a
month under Code section 4980H(a) or
Code section 4980H(b) or neither. In gen-
eral, an ALE will owe a payment under
Code section 4980H(a) if it fails to offer
an eligible employer-sponsored plan to at
least 95 percent of its full-time employees
and their dependents and at least one full-
time employee is allowed the PTC for the
month.
249
An ALE that offers an eligible
employer-sponsored plan to at least 95
percent of its full-time employees and their
dependents (and therefore is not liable for
a payment under Code section 4980H(a))
may be liable for a payment under Code
section 4980H(b) if at least one full-time
employee is allowed the PTC, which may
occur if the eligible employer-sponsored
plan offered is not affordable or does not
provide MV, or if the employee was not
offered coverage.
On November 19, 2018, the Treasury
Department and the IRS released Notice
2018-88 which addressed the application
of Code section 4980H to ALEs offering
individual coverage HRAs. In order to
provide clarity to stakeholders, Notice
2018-88 explained how Code section
4980H would apply to an ALE that offers
an individual coverage HRA, described
potential additional affordability safe har-
bors, requested comments, and provided
examples.
The Treasury Department and the IRS
intend to propose rules under Code sec-
tion 4980H on the issues addressed in No-
tice 2018-88, taking into account the com-
ments received. To the extent comments
were received on the proposed integration
rules specific to the application of Code
section 4980H to employers offering in-
dividual coverage HRAs, those comments
will be addressed in the preamble to the
proposed rules under Code section 4980H.
IV. Overview of the Final Rules
Regarding Individual Health
Insurance Coverage and ERISA
Plan Status
A. In General
The proposed rules included an amend-
ment to DOL rules defining the ERISA
terms “employee welfare benefit plan,”
“welfare plan,” and, derivatively “group
health plan,” so that these terms would
not include individual health insurance
coverage, the premiums of which are re-
imbursed by an HRA and certain other ar-
rangements, under certain conditions. As
explained in the preamble to the proposed
rules, the objective in proposing this clar-
ification was to provide clarity and assur-
ance to employees; employers, employee
organizations, and other plan sponsors;
health insurance issuers; state insurance
regulators; and other stakeholders. Spe-
cifically, the objective was to provide as-
surance that the insurance policies sold as
individual health insurance coverage (that
is, policies generally subject to compre-
hensive federal and state individual mar-
ket rules for minimum and uniform cov-
erage, standardized rating requirements,
guaranteed availability, and guaranteed
renewability) would not be treated as
part of an HRA or certain other arrange-
ments for purposes of ERISA if certain
conditions were satisfied.
250
Specifically,
DOL proposed an amendment to 29 CFR
2510.3-1 on the definition of “employee
welfare benefit plan” in ERISA section
3(1).
251
This proposed amendment would
apply to individual health insurance cov-
erage purchased through individual cover-
age HRAs. It would also apply to individ-
ual health insurance coverage purchased
through certain other arrangements that
reimburse participants for the purchase of
individual health insurance coverage that
are not subject to the market requirements
(including QSEHRAs and HRAs that
have fewer than two participants who are
current employees on the first day of the
plan year). Further, this proposed amend-
ment would apply to an arrangement un-
der which an employer allows employees
to pay the portion of the premium for
off-Exchange individual health insurance
coverage that is not covered by the HRA
with which the coverage is integrated by
using a salary reduction arrangement un-
247
The proposed rules also clarified how the generally applicable employer-sponsored coverage PTC eligibility rules apply to individual coverage HRAs. The Treasury Department and the IRS
are finalizing those rules as proposed. Further, existing guidance addresses when amounts newly made available under an HRA count toward the affordability or MV of another group health
plan offered by the same employer. See 26 CFR 1.36B-2(c)(3)(v)(A)(5) and 26 CFR 1.36B-6(c)(4). See also IRS Notice 2015-87, Q&A-7. As under the proposed rules, the final rules do not
make substantive revisions to those rules but do make clarifying updates to 26 CFR 1.36B-2(c)(3)(v)(A)(5), mainly to incorporate a reference to more recent guidance.
248
The explanation of Code section 4980H provided here is a summary. For a complete explanation of the rules, including for definitions of terms used in this summary, see 26 CFR 54.4980H-
1, et seq. (79 FR 8544 (Feb. 12, 2014)).
249
Note that if an ALE offered coverage to all but five of its full-time employees (and their dependents), and five is greater than 5 percent of the employer’s full-time employees, the employer
will not owe an employer shared responsibility payment under Code section 4980H(a). See 26 CFR 54.4980H-4(a).
250
83 FR 54420, 54440 (Oct. 29, 2018). For examples of other circumstances under which DOL has determined an arrangement is not a plan within the meaning of ERISA, see 29 CFR
2510.3-1(j), 29 CFR 2510.3-2(f), and 29 CFR 2509.99-1. See also DOL Field Assistance Bulletins No. 2004-01 and No. 2006-02.
251
In light of the fact that “group health plan” is defined derivatively in ERISA section 733(a)(1), in relevant part, as an “employee welfare benefit plan to the extent that the plan provides
medical care . . . directly or through insurance, reimbursement, or otherwise[,]” DOL has concluded that a separate rule relating to the definition of group health plan is not required.

July 8, 2019 166 Bulletin No. 2019–28
der a cafeteria plan (supplemental salary
reduction arrangement).
252

ERISA section 3(1) broadly defines
ERISA-covered welfare plans to include
“any plan, fund, or program” that is “es-
tablished or maintained by an employer or
employee organization” for the provision
of health benefits “through the purchase of
insurance or otherwise.” At the same time,
however, provisions in the PHS Act gener-
ally treat individual health insurance and
group health insurance as mutually exclu-
sive categories.
253
If individual health in-
surance coverage were considered to be a
group health plan or part of a group health
plan, the individual health insurance cov-
erage typically would violate some of the
group market requirements (for example,
the single risk pool requirement for the
small group market; the rating rules for
the small group market; or the separate
medical loss ratio requirements for large
group insurance coverage, which is low-
er than that for individual or small group
insurance).
254
As explained in the pream-
ble to the proposed rules, treatment of
such individual health insurance coverage
as subject to both individual market and
group market requirements thus would
likely result in conflicting requirements,
uncertainty and confusion which could in-
hibit or, in some instances, even preclude,
the ability to integrate HRAs with individ-
ual health insurance coverage as contem-
plated by other provisions in the proposed
rules.
255
Accordingly, DOL concluded that
the ERISA status of this type of individ-
ual health insurance coverage should be
clarified. Under the proposed rules, the
individual health insurance coverage that
is paid for by the HRA
256
is not covered
by ERISA Title I if all of the conditions
of the safe harbor are satisfied. The condi-
tions in the safe harbor incorporate criteria
well-recognized under similar ERISA safe
harbor rules and under case law, where
similar arrangements are considered to be
exempt from ERISA Title I.
Under the proposed rules, the status
under ERISA of an HRA, QSEHRA, or
supplemental salary reduction arrange-
ment would remain unaffected. Rather,
the proposed rules clarified that individual
health insurance coverage selected by the
employee in the individual market and re-
imbursed by such a plan is not part of a
group health plan, is not health insurance
coverage offered in connection with a
group health plan, and is not a part of any
employee welfare benefit plan for purpos-
es of ERISA Title I, provided all the fol-
lowing conditions are satisfied:
The purchase of any individual health
insurance coverage is completely volun-
tary for employees.
257

The employer, employee organization,
or other plan sponsor does not select or
endorse any particular issuer or insurance
coverage.
Reimbursement for non-group health
insurance premiums is limited solely to
individual health insurance coverage.
The employer, employee organization,
or other plan sponsor receives no consid-
eration in the form of cash or otherwise in
connection with the employee’s selection
or renewal of any individual health insur-
ance coverage.
258

Each plan participant is notified annu-
ally that the individual health insurance
coverage is not subject to ERISA.
Current rules issued by the Depart-
ments define “group health insurance
coverage” as health insurance coverage
offered in connection with a group health
plan.
259
The proposed rules included an
amendment to clarify that – subject to
certain conditions – individual health in-
surance coverage is not group health in-
surance coverage (or “health insurance
offered in connection with a group health
plan”). This amendment was intended to
ensure consistency and avoid any poten-
tial conflicting interpretations regarding
individual health insurance coverage.
Accordingly, if the conditions in 29 CFR
2510.3-1(1) were satisfied, the individual
health insurance coverage would not be
“health insurance coverage offered in con-
nection with a group health plan” for pur-
poses of ERISA, the PHS Act, the Code,
and PPACA, even though the premiums
are reimbursed by an HRA.
260

After consideration of the comments,
the conditions set forth in the proposed
amendment to 29 CFR 2510.3-1, and the
proposed amendment to the Departments’
rules defining “group health insurance
coverage,” are being finalized without
significant change, but with minor clarifi-
cations in response to comments.
B. Safe Harbor
The preamble to the proposed rules
referred to the proposed amendment as
a clarification. Some commenters asked
252
While the proposed rule under 29 CFR 2510.3-1(l) included in the term “supplemental salary reduction arrangement” cafeteria plan salary reduction arrangements paying premium amounts
not covered by a QSEHRA, these final rules do not. See Code section 9831(d)(3)(B)(ii) and IRS Notice 2017-67, Q&A-55 (employer may allow employee to pay the excess of a health
insurance premium over the amount paid by the QSEHRA with an after-tax payroll deduction (in contrast to a pre-tax salary reduction)).
253
See ERISA section 733(b)(4) and PHS Act sections 2791(b)(4), (5), and (e)(1). See also 26 CFR 54.9801-2, 29 CFR 2590.701-2, and 45 CFR 144.103.
254
See PPACA section 1312 (which defines each issuer’s enrollees in the individual market to be members of a single risk pool, and each issuer’s enrollees in the small group market to be
members of a separate single risk pool, unless a state has opted to merge the risk pools), PHS Act section 2701 (which sets forth maximum age rating ratios in the individual and small group
markets), and PHS Act section 2718 (which sets forth medical loss ratio requirements that differ based on market).
255
83 FR 54420, 54441 (Oct. 29, 2018).
256
For simplicity and readability, the discussion in this section IV of the preamble generally refers simply to HRAs, although it is intended to also capture other account-based group health
plans, QSEHRAs and supplemental salary reduction arrangements. If the term HRA is intended to refer only to HRAs in this section IV, it will be clear from context. Moreover, the title of
paragraph (l) of the DOL final rule is amended to refer to a “Safe harbor for health reimbursement arrangements (HRAs) and certain other arrangements that reimburse individual health
insurance coverage,” to better reflect the regulatory text that follows.
257
The fact that a plan sponsor requires the coverage to be purchased as a condition for participation in an HRA or supplemental salary reduction arrangement does not make the purchase
involuntary. This issue should not arise in the context of a QSEHRA because in that case, although individuals must be enrolled in MEC, employers may not require employees to enroll in
individual health insurance coverage.
258
The limitation on employers, employee organizations, and other plan sponsors receiving consideration from an issuer or person affiliated with an issuer in connection with any participant’s
purchase or renewal of individual health insurance coverage was not intended to change any ERISA requirements governing the circumstances under which plans, including HRAs, may
reimburse employers, employee organizations and other plan sponsors for certain expenses associated with administration of the plan.
259
26 CFR 54.9801-2, 29 CFR 2590.701-2, and 45 CFR 144.103.
260
Note that the clarification with respect to the meaning of group health insurance coverage is not relevant for QSEHRAs because QSEHRAs generally are not group health plans. See Code
section 9831(d)(1), ERISA section 733(a)(1), and PHS Act section 2791(a)(1).

Bulletin No. 2019–28 167 July 8, 2019
DOL to clarify whether the conditions
established in the proposed amendment
would be considered a safe harbor, or
absolute requirements for plan sponsors.
These commenters asserted that it was
unclear and expressed concern about the
potential unintended consequences of
non-compliance and confusion if all in-
dividual health insurance coverage reim-
bursed under an arrangement that did not
satisfy the proposed criteria of the rule was
treated as being subject to ERISA. Exam-
ples highlighted by commenters include
how requirements under other federal
laws such as HIPAA, the Paul Wellstone
and Pete Domenici Mental Health Parity
and Addiction Equity Act of 2008, and
PPACA would apply to the coverage (in-
cluding the single risk pool requirement,
the rating rules for the small group mar-
ket, or the medical loss ratio requirements,
as well as the PPACA section 9010 health
insurance fee), whether health insurance
issuers could be considered plan fiducia-
ries, and whether participants could bring
legal actions against health insurance issu-
ers under ERISA’s private right of action
provisions. They also stated that factors
outside of a plan sponsor’s control could
result in the employer not satisfying the
conditions of the rules. As one example,
a commenter suggested that an insurance
broker could endorse an insurance product
in the context of a private exchange with-
out the employer’s knowledge, possibly
resulting in a failure to satisfy the con-
dition that the plan sponsor not select or
endorse any particular issuer or insurance
coverage.
261
These commenters suggested
that flexibility would be appropriate to ac-
count for plan sponsors that make reason-
able, good faith efforts to comply with the
conditions in the proposed amendment but
make de minimis errors.
As noted earlier in this section of the
preamble, DOL has set forth several safe
harbors in other rules and guidance under
which DOL has determined an arrange-
ment is not a plan within the meaning of
ERISA.
262
These safe harbors are intended
to clearly define circumstances in which
a workplace arrangement falls outside of
the scope of a plan under ERISA without
necessarily specifying all the circumstanc-
es under which a workplace arrangement
could avoid ERISA plan status. Here, too,
DOL intended the proposed rules to con-
stitute a safe harbor, as reflected in lan-
guage in the proposed amendment provid-
ing that an ERISA plan “shall not include”
individual health insurance coverage. The
final rules make clear that the rule is a safe
harbor.
The conditions of the various regu-
latory safe harbors noted earlier in this
preamble are highly sensitive to the par-
ticular type of plan at issue, and the par-
ticular legal and factual context associated
with that type of plan. Accordingly, DOL
cautions that the particular conditions of
the safe harbor provided here are not di-
rectly relevant to other types of plan ar-
rangements, such as retirement plans,
life insurance plans, or disability plans.
In particular, the employer’s funding of a
benefit arrangement, in most circumstanc-
es, is sufficient to preclude the grant of a
safe harbor. In the particular context of
the individual health insurance policies at
issue here, however, DOL has concluded
that employer funding is not disqualify-
ing based on its conclusion that Congress
generally intended that individual and
group health insurance coverage be regu-
lated as mutually exclusive categories. In
this unique context, DOL has concluded
that employer funding, by itself, is an in-
sufficient basis for treating the individual
health insurance policy, as opposed to the
HRA, as part of an ERISA-covered plan.
C. An Employer, Employee Organization,
or Other Plan Sponsor May Not Select
or Endorse any Particular Issuer or
Insurance Coverage
Paragraph (l)(2) of the proposed amend-
ment required that the employer, employ-
ee organization, or other plan sponsor may
not select or endorse any particular issuer
or insurance coverage. The proposed rules
clarified that an HRA plan sponsor would
not be considered to have endorsed a par-
ticular issuer or insurance coverage if, for
example, the plan sponsor offered general
contact information regarding availabili-
ty of health insurance in a state (such as
providing information regarding Health-
Care.gov or contact information for a
state insurance commissioner’s office) or
providing general health insurance edu-
cational information (such as the uniform
glossary of health coverage and medical
terms available at: https://www.dol.gov/
sites/default/files/ebsa/laws-and-regula-
tions/laws/affordable-care-act/for-em-
ployers-and-advisers/sbc-uniform-glossa-
ry-of-coverage-and-medical-terms-final.
pdf).
Some commenters asked DOL to pro-
vide additional guidance on what types of
activities would or would not constitute
endorsement. These commenters stat-
ed that it would be important to provide
HRA plan sponsors with flexibility to
permit them to help employees shop for
coverage, especially because many might
be unfamiliar with the processes associat-
ed with obtaining health insurance in the
individual market. Several commenters
asked whether there would be circum-
stances in which a plan sponsor could con-
nect participants or beneficiaries with an
insurance agent or broker without running
afoul of the prohibition on endorsement.
A few commenters asked whether, or un-
der what circumstances, an HRA could be
offered in connection with a private ex-
change where participants could make a
selection from a set of coverage options.
One commenter stated that without an
ability to use a private exchange model,
most employers will be reluctant to offer
an individual coverage HRA over a tradi-
tional group health plan, thereby under-
mining the purpose of the proposed rules
to expand use and availability of HRAs.
One commenter stated that DOL should
incentivize the use of private exchanges
that would provide price and quality trans-
parency as well as navigational support for
plan participants shopping for individual
health insurance coverage, and possibly
even require that private exchanges offer
QHPs. Another commenter urged DOL to
ensure that private exchanges could not be
used in a manner that harms the risk pools
or that is anti-competitive and promotes
one issuer over another. This commenter
261
DOL notes that “private exchange” is a term that was not specifically defined in any public comments and is similarly undefined in this preamble. It is generally meant to refer to a tool or
web-based platform that facilitates individuals’ enrollment in the coverage of their choice. The term does not include any entity that meets the definition of an “Exchange” in 45 CFR 155.20.
262
See 29 CFR 2510.3-1(j), 29 CFR 2510.3-2(f), and 29 CFR 2509.99-1. See also DOL Field Assistance Bulletins No. 2004-01 and No. 2006-02.

July 8, 2019 168 Bulletin No. 2019–28
suggested that the final rules specify that
an employer cannot use an individual cov-
erage HRA in conjunction with a plan pur-
chased through a private exchange unless
the private exchange is designed in such
a way as not to constitute selection or en-
dorsement by the employer.
A plan sponsor may provide assistance
to participants and beneficiaries in shop-
ping for individual health insurance cov-
erage without being considered to endorse
any particular coverage if that assistance
is unbiased, neutral, uniformly available,
and does not steer participants and bene-
ficiaries towards a particular health insur-
ance issuer or coverage. For example, an
HRA plan sponsor could accommodate
requests from insurance brokers to speak
with employees or distribute information-
al materials at their worksite, so long as
such accommodations are granted on an
equal basis and also without any prefer-
ence for brokers that represent a particular
firm or have a relationship with a certain
health insurance issuer.
DOL agrees with commenters that the
use of private exchanges may be a helpful
tool in shopping for coverage. However,
DOL declines to adopt suggestions re-
garding adding incentives or requirements
with respect to transparency standards,
navigational support, or offering QHPs
because any such rules are beyond the
scope of this rulemaking.
Moreover, a private exchange may be
designed in a way that satisfies the con-
ditions of 29 CFR 2510.3-1(l), in which
case individual health insurance coverage
purchased through the private exchange
would not be considered group health
plan coverage. Alternatively, a private
exchange could be designed in a way that
limits employees’ choice of issuer, or pro-
motes certain issuers or coverage options
over others. In that case, coverage offered
through the private exchange would not
satisfy the prohibition on endorsement in
the safe harbor. The final rules provide a
new option for employers to offer individ-
ual coverage HRAs together with private
exchanges that work with all individual
market insurance issuers in a neutral and
unbiased fashion, and maintain the indi-
vidual insurance nature of the individual
health insurance coverage.
For example, under the final rules,
an employer could maintain (or contract
with) a tool or web-based platform that
displays information about all coverage
options in a state and facilitates enroll-
ment. However, to be eligible for the safe
harbor, the platform would be required to
present all available coverage options in
a way that is entirely neutral. The plat-
form could not be designed or operated in
a way that limits users’ ability to select a
coverage option that would otherwise be
available to them or that promotes one
option over another (for example, with
“recommended” or “starred” listings), or
the prohibition on endorsement would not
be satisfied. However, an otherwise neu-
tral platform that allows users to select
certain criteria (such as a platform that al-
lows participants to search for an HDHP
or plans that contained specific providers
in their network) and search for coverage
options that fulfilled these criteria would
not be considered to be an endorsement by
the employer of any particular coverage,
and would not violate this requirement of
the final rule.
D. Reimbursement for Non-Group Health
Insurance Premiums Must be Limited
Solely to Individual Health Insurance
Coverage
Paragraph (l)(3) of the proposed
amendment would require that reimburse-
ment for non-group health insurance pre-
miums must be limited solely to individu-
al health insurance coverage, as defined in
29 CFR 2590.701-2.
263
DOL included this
condition in order to limit the application
of the proposed safe harbor to determin-
ing whether insurance policies sold as in-
dividual health insurance coverage would
be treated as part of an employee welfare
benefit plan subject to ERISA.
Several commenters asked DOL to
clarify whether arrangements that pro-
vide reimbursement for individual health
insurance coverage that consists solely
of excepted benefits (for example, stand-
alone limited-scope dental benefits) could
be considered to satisfy the proposed safe
harbor. For the reasons explained earlier
in this section of the preamble, in DOL’s
view, the proposed safe harbor was a nec-
essary clarification for the types of in-
dividual health insurance coverage that
might be reimbursed by an individual
coverage HRA or QSEHRA. However,
coverage that is sold in the individual mar-
ket that provides only excepted benefits is
not subject to the market requirements and
does not present the same concerns about
incompatible individual and group market
regulatory regimes. Thus, the proposed
safe harbor was not intended to address
excepted benefit policies sold in the in-
dividual market. The final rules include
additional language to make this clearer.
In the preamble to the proposed rules,
DOL also invited comments regarding
which forms of payment are appropriately
treated as “reimbursement” to participants
for this purpose. DOL asked whether, for
example, “reimbursement” should be in-
terpreted to include direct payments, indi-
vidual or aggregate, by the employer, em-
ployee organization, or other plan sponsor
to the insurance company.
Commenters generally favored an
expansive interpretation of the types of
payments that should be treated as reim-
bursements. These commenters argued
that permitting employers to pay health
insurance issuers directly would promote
administrative simplicity, and would en-
able plan sponsors to substantiate that par-
ticipants and beneficiaries are enrolled in
individual health insurance coverage, as
the final integration rules require. Some
commenters asserted that “reimburse-
ment” should be interpreted in a manner
consistent with current industry practices
for account-based plans, which permit the
transfer of employer funds to debit cards
that can be used to pay for certain qualified
medical expenses. One commenter also
stated that it should not matter whether
employer funds paid from an HRA go di-
rectly to a participant or a health insurance
issuer because the economic substance of
the transaction is the same – that is, the
funds are being used to discharge an em-
ployee’s premium payment obligations.
263
While the HRA’s reimbursement of non-group health insurance premiums is limited solely to individual health insurance coverage that does not consist solely of excepted benefits, the HRA
may reimburse Medicare premiums for Medicare beneficiaries as permitted under 29 CFR 2590.702-2 without causing the reimbursement of individual health insurance coverage premiums
for other individuals to fall outside the safe harbor.

Bulletin No. 2019–28 169 July 8, 2019
DOL agrees with these commenters
and, under the final rules, “reimburse-
ment” may include employee-initiated
payments made through use of financial
instruments, such as pre-paid debit cards,
as well as direct payments, individual or
aggregate, by the employer, employee
organization, or other plan sponsor to the
health insurance issuer.
264
However, DOL
cautions that plan sponsors should take
care to ensure that payment practices do
not violate the prohibition on endorse-
ments by effectively limiting participants’
and beneficiaries’ ability to select certain
coverage options or favoring certain issu-
ers or coverage options. For example, if a
plan sponsor were to establish procedures
for sending direct payments to health in-
surance issuers, but those procedures ex-
cluded certain health insurance issuers, or
placed additional burdens on HRA partic-
ipants if they chose health insurance cov-
erage offered by some health insurance
issuers, rather than others, the procedure
would be considered an endorsement, and
the criteria of the safe harbor would not
be satisfied.
E. The Employer, Employee
Organization, or Other Plan
Sponsor Receives no Consideration
in Connection with the Employee’s
Selection or Renewal of any Individual
Health Insurance Coverage
Paragraph (l)(4) of the proposed
amendment would require that an employ-
er, employee organization, or other plan
sponsor receive no consideration in the
form of cash or otherwise in connection
with the employee’s selection or renewal
of any individual health insurance cover-
age. Commenters requested more specific
guidance on how a plan may comply with
this condition.
As stated in the preamble to the pro-
posed rules, this limitation in the DOL
safe harbor rule for HRAs was focused
on employers, employee organizations,
and other plan sponsors receiving consid-
eration, including from an issuer or per-
son affiliated with an issuer in connection
with any participant’s purchase or renewal
of individual health insurance coverage.
The preamble to the proposed rules also
explained that the provision was not in-
tended to change any ERISA requirements
governing the circumstances under which
ERISA plans, including HRAs, may reim-
burse employers, employee organizations
and other plan sponsors for certain ex-
penses associated with administration of
the plan.
265

The requirement in the DOL final rule
is different from the “no compensation”
criteria established in the safe harbor rules
regarding certain group or group-type in-
surance programs established at 29 CFR
2510.3-1(j)(4) and individual retirement
accounts (IRAs) established at 29 CFR
2510.3-2(d)(iv). In the case of those rules,
there is no ERISA plan, and the rules lim-
it permissible compensation that an em-
ployer can receive, including from third
parties, to reasonable compensation, ex-
cluding any profit, for administrative ser-
vices actually rendered in connection with
forwarding employee contributions to the
insurer or IRA provider through payroll
deductions or dues checkoffs.
In the context of the DOL final rule, the
HRA is generally an ERISA-covered plan
and the issue is the extent to which the plan
sponsor of the HRA could receive pay-
ments from the HRA or third parties. As
noted above, the preamble to the proposed
rules explained that the rule was not in-
tended to change any ERISA requirements
governing the circumstances under which
ERISA plans, including HRAs, may reim-
burse employers, employee organizations
and other plan sponsors for expenses asso-
ciated with administration of a plan. Thus,
in the case of plan assets being used for
HRA related payments, reimbursement
could not be made for expenses associat-
ed with settlor functions and activities.
266

The fiduciary prohibitions in ERISA sec-
tion 406(a) and 406(b) also would apply
in such cases, so that any reimburse-
ments would need to be permissible un-
der ERISA section 408(b)(2) and 29 CFR
2550.408b-2(e). Subparagraph (e)(3) of
those rules states: “If a fiduciary provides
services to a plan without the receipt of
compensation or other consideration (oth-
er than reimbursement of direct expens-
es properly and actually incurred in the
performance of such services within the
meaning of 2550.408c-2(b)(3)), the provi-
sion of such services does not, in and of it-
self, constitute an act described in section
406(b) of the Act.” ERISA section 408(c)
and 29 CFR 2550.408c-2 place additional
restrictions on compensation for services
in the case of a fiduciary who is already
receiving full-time pay from an employer
or employee organization sponsoring the
plan. However, in the case of an unfunded
HRA, with payments from the HRA made
solely out of an employer’s general assets,
there would not be any plan assets; thus,
there could be no payments to the employ-
er from plan assets. Moreover, in the case
of such an unfunded HRA, it seems ex-
tremely unlikely that an employer would
apply debits to the notional employee ac-
counts that are part of the HRA to “reim-
burse” itself from the HRA for expenses
associated with sponsoring the HRA. Fi-
nally, in DOL’s view, receipt of compen-
sation from third parties to cover the cost
of operating the HRA would be prohibited
payments in connection with the employ-
ee’s selection or renewal of any individual
health insurance coverage, and, therefore,
not permissible under paragraph (l)(4) of
the final rules. Accordingly, such receipt
of compensation would not be permissible
under paragraph (l)(4) of the final rules.
F. Each Plan Participant Must be
Notified Annually that the Individual
Health Insurance Coverage is Not
Subject to ERISA
Paragraph (l)(5) of the proposed
amendment included a requirement that
plans provide an annual notice to partic-
ipants stating that individual health insur-
ance coverage funded through an HRA
is not subject to the requirements of ER-
ISA. For an individual coverage HRA,
the notice must satisfy the requirements
set forth in the final integration rules at
29 CFR 2590.702-2(c)(6), discussed ear-
264
Any direct payment should include an affirmative act by the employee requesting that the employer or plan administrator make the payment, as part of the enrollment process or otherwise.
For example, as part of the insurance enrollment process, the employee might direct the employer or plan administrator to begin making monthly premium payments for so long as the em-
ployee remains enrolled in the individual health insurance coverage and remains eligible for HRA benefits.
265
83 FR 54420, 54442 (Oct. 29, 2018).
266
See DOL Advisory Opinion 2001-01A.

July 8, 2019 170 Bulletin No. 2019–28
lier in this preamble. For a QSEHRA or
an HRA that is not subject to 29 CFR
2590.702-2(c)(6) (such as a retiree-only
HRA), the proposal set forth model lan-
guage to satisfy the condition.
267
The pre-
amble to the proposed rules also explained
that a supplemental salary reduction ar-
rangement need not provide the required
notice; instead, the notice could be provid-
ed by the HRA that the salary reduction
arrangement supplements.
268
DOL invited
comment on whether it would be helpful
to issue additional rules or guidance ad-
dressing the application of ERISA report-
ing and disclosure requirements to HRAs
integrated with such non-ERISA individ-
ual health insurance coverage (for exam-
ple, SPD content and Form 5500 annual
reporting requirements).
Commenters requested that DOL con-
firm that HRAs are subject to the reporting
and disclosure requirements of ERISA,
such as the SBC or (for plans of applica-
ble size) the Form 5500 Annual Report.
These commenters said that reporting and
disclosure should be revised to allow state
regulators and Exchanges to gather neces-
sary information about the use of HRAs.
One commenter also urged DOL to ensure
that these requirements did not discour-
age employers from offering individual
coverage HRAs to their employees by
preserving, for example, any exemptions
from filing reports for small businesses, or
allowing the filing of simpler reports, such
as the Form 5500-SF. Another commenter
urged DOL to review the current required
information, notices and disclosures that
plan sponsors must convey to plan partic-
ipants and beneficiaries and to simplify,
combine or eliminate unnecessary or re-
dundant material.
After considering the comments and
feedback received from stakeholders,
DOL has determined that adding addi-
tional new, potentially redundant
269
dis-
closure requirements beyond the scope
of the proposed rules is not necessary.
For example, individual coverage HRAs
are group health plans and must, there-
fore, provide participants with an SBC.
270

ERISA also contains comprehensive re-
porting requirements that apply to group
health plans, such as HRAs,
271
and DOL
has determined that adding or changing
those reporting requirements with respect
to HRAs is not necessary at this time. In
certain situations, DOL has provided for
exemptions or reporting exemptions and
simplified disclosure requirements.
272
Pro-
vided they satisfy the requirements under
applicable DOL rules, HRAs and their ad-
ministrators remain eligible for this relief.
G. Comments Outside the Scope
Some commenters raised issues relat-
ing to the separate safe harbor for certain
group or group-type insurance programs
at 29 CFR 2510.3-1(j).
273
Several com-
menters asked DOL to clarify whether
other types of coverage, such as health
care sharing ministries, might be consid-
ered part of an employee welfare benefit
plan subject to ERISA if they were paid
for through an HRA, QSEHRA, or sup-
plemental salary reduction arrangement.
The safe harbor is intended to provide as-
surance to stakeholders that insurance pol-
icies sold as individual health insurance
coverage, and that are generally subject to
comprehensive federal (and state) individ-
ual market rules, would not be treated as
part of an employee welfare benefit plan
subject to ERISA so long as the conditions
of the safe harbor are satisfied. DOL has
concluded that the safe harbor is appropri-
ate because of the significant differences
in legal requirements that would apply
to health insurance coverage based on
whether it is considered individual health
insurance or group coverage. However,
the safe harbor was not intended to ad-
dress all circumstances in which health in-
surance coverage may be treated as part of
an employee welfare benefit plan subject
to ERISA. DOL may provide additional
clarification in the future regarding other
types of coverage.
274
V. Overview of Final Rules Regarding
Individual Market Special
Enrollment Periods – Department of
Health and Human Services
A. In General
With the ability to integrate HRAs with
individual health insurance coverage,
many employees may need access to indi-
vidual health insurance coverage, or may
want to change to other individual health
insurance coverage in order to maximize
the use of their individual coverage HRA.
Therefore, HHS proposed a new SEP to
allow employees and their dependents to
enroll in individual health insurance cov-
erage, or to change from one individual
health insurance plan to another, outside
of the individual market annual open en-
rollment period if they gain access to an
individual coverage HRA.
In addition, because employees and
dependents with a QSEHRA generally
must be enrolled in MEC,
275
and one cat-
egory of MEC is individual health insur-
ance coverage, the proposed rules also
applied the new SEP to individuals who
are provided QSEHRAs.
276
Because the
proposed rules allowed for HRAs to be in-
tegrated with individual health insurance
coverage both on- and off-Exchange (and
because individuals with QSEHRAs may
267
As stated in the preamble to the proposed rules, in DOL’s view, the SPD for the HRA, QSEHRA, or other ERISA plan would fail to satisfy the style, format, and content requirements in 29
CFR 2520.102-3 unless it contained a discussion of the status of the HRA or QSEHRA and the individual health insurance coverage under ERISA sufficient to apprise the HRA or QSEHRA
plan participants and beneficiaries of their rights and obligations under the plan and ERISA Title I. 83 FR 54420 at 54441 (Oct. 29, 2018).
268
83 FR 54420, 54441 (Oct. 29, 2018).
269
See e.g., 29 CFR 2520.104b-2 and 2520.104b-3(a) and (d)(3).
270
See PHS Act section 2715. See also 26 CFR 54.9815-2715, 29 CFR 2590.715-2715, and 45 CFR 147.200.
271
See e.g., ERISA sections 101, 103, and 104; and PHS Act section 2715A (incorporated in Code section 9815 and ERISA section 715).
272
See ERISA sections 104(a)(3) and PHS Act section 2715 (incorporated in Code section 9815 and ERISA section 715). See also 26 CFR 54.9815-2715(a)(1)(iii); 29 CFR 2520.104-20,
2520.104-44, and 2590.715-2715(a)(1)(iii); and 45 CFR 147.200(a)(1)(iii).
273
This safe harbor does not relate to HRAs, QSEHRAs, or other arrangements that constitute an employee welfare plan that provides reimbursement for premiums for individual health
insurance coverage because it is limited to arrangements without employer contributions.
274
As noted earlier in this preamble, an HRA generally may reimburse expenses for medical care, as defined under Code section 213(d), of an employee and certain of the employee’s family
members. Neither the proposed rules nor the final rules make any changes to the rules under Code section 213. Thus, any issues arising under Code section 213, and any guidance requested
by commenters to address those issues, are beyond the scope of this rulemaking.
275
Generally, payments from a QSEHRA to reimburse an eligible employee’s medical care expenses are not includible in the employee’s gross income if the employee has coverage that
provides MEC as defined in Code section 5000A(f), which includes individual health insurance coverage.
276
This preamble refers to a QSEHRA being “provided” as opposed to being “offered” because employees and dependents cannot opt out of a QSEHRA.

Bulletin No. 2019–28 171 July 8, 2019
enroll in individual health insurance cov-
erage on- or off-Exchange), the proposed
rules included this new SEP in the limited
open enrollment periods available off-Ex-
change, in accordance with current rules
at 45 CFR 147.104(b)(2).
277

After considering the comments, HHS
is adopting the proposed SEP parameters
in these final rules, with some changes and
clarifications in response to comments, as
explained in more detail later in this sec-
tion of the preamble.
1. SEP Triggering Event and Availability
The proposed rules included a new
paragraph 45 CFR 155.420(d)(14) that
would establish an SEP for when an em-
ployee or his or her dependent(s) gains
access to and enrolls in an individual cov-
erage HRA or is provided a QSEHRA, so
that he or she may enroll in or change his
or her enrollment in individual health in-
surance coverage. The proposed rules also
offered the existing option for advanced
availability to those enrolling through the
new SEP. That is, per 45 CFR 155.420(c)
(2), qualifying individuals would have the
option to apply for coverage and select a
plan within 60 days before or after their
SEP triggering event.
Many commenters supported provid-
ing an SEP to allow individuals who new-
ly gain access to an individual coverage
HRA or who are newly provided a QSEH-
RA to enroll in or change their health in-
surance coverage. One commenter asked
for clarification that individuals who are
already enrolled in individual health in-
surance coverage would be eligible for
the SEP if they newly gain access to an
individual coverage HRA. The final rules
clarify that employees and dependents
may qualify for the new SEP regardless
of whether they are currently enrolled in
individual health insurance coverage, in
order to allow all individuals who new-
ly gain access to an individual coverage
HRA or who are newly provided a QSEH-
RA the flexibility to take this into account
when choosing an individual health insur-
ance plan for themselves, and, if applica-
ble, for their families.
Additionally, the final rules include
changes to the SEP triggering event at
45 CFR 155.420(d)(14) to reflect that
employees and their dependents who had
access to, but who were not enrolled in,
an employer’s individual coverage HRA
during all or at the end of the preceding
plan year may use the new SEP if they
may newly enroll in an individual cov-
erage HRA at the beginning of the sub-
sequent HRA plan year. Similarly, em-
ployees and their dependents who at one
time had an individual coverage HRA or
a QSEHRA, but then had another type of
health coverage (including but not limited
to a different individual coverage HRA or
a different QSEHRA), and are again new-
ly offered an individual coverage HRA
or newly provided a QSEHRA from the
same employer (for example, because
they moved from one class of employees
to another, or because they were re-hired
by a former employer), may qualify for
this SEP, as they may need an opportuni-
ty to enroll in individual health insurance
coverage, regardless of whether they were
previously offered or enrolled in an indi-
vidual coverage HRA or previously pro-
vided a QSEHRA by the same employer.
In many cases like these, employees
also will be eligible for an SEP due to a
loss of MEC in accordance with 45 CFR
155.420(d)(1) – for example, due to a loss
of coverage sponsored by a previous em-
ployer or other coverage that they may
have had during that time, such as cover-
age from a spouse’s employer. However,
some employees and dependents may not
be eligible for another SEP, such as those
who did not previously have other cov-
erage, or who previously chose to enroll
in coverage that was not MEC, such as
STLDI. The final rules, therefore, provide
that the SEP at 45 CFR 155.420(d)(14)
is available when a qualified individual,
enrollee, or dependent newly gains ac-
cess to an individual coverage HRA or is
newly provided a QSEHRA, regardless of
whether they were previously offered or
enrolled in an individual coverage HRA or
previously provided a QSEHRA, so long
as the individual is not covered by the
HRA or QSEHRA on the day immediately
prior to the triggering event (that is, for an
individual coverage HRA, the first day on
which coverage under the individual cov-
erage HRA can become effective or for a
QSEHRA, the first day on which coverage
under the QSEHRA is effective). In oth-
er words, the new SEP will be available
to individuals who have not previously
been offered an individual coverage HRA
or provided a QSEHRA, as well as those
who had access to the individual coverage
HRA or were provided a QSEHRA during
a prior plan year(s) or earlier during the
current plan year, but are not currently
covered by the individual coverage HRA
or the QSEHRA.
In order to clarify the specific date on
which the coverage effective date and
availability are based, as discussed later
in this preamble, the final rules specify
that the SEP triggering event at 45 CFR
155.420(d)(14) is the first day on which
coverage for the individual under the in-
dividual coverage HRA can take effect or
the first day on which coverage for the in-
dividual under the QSEHRA takes effect,
as applicable. The Departments anticipate
that the first day on which an individual
coverage HRA can become effective or
the date on which a QSEHRA is effective
will generally be the first day of the plan
year. In either case, the triggering event is
the first day of the plan year. However, an
individual coverage HRA may offer more
than one effective date option to accom-
modate an individual who, under the final
integration rules, is not required to be sent
the notice setting forth the terms of the
HRA at least 90 days before the beginning
of the individual coverage HRA plan year,
as required by 26 CFR 54.9802-4(c)(6),
29 CFR 2590.702-2(c)(6), and 45 CFR
146.123(c)(6) (for example, an individual
who is newly hired and therefore newly
offered the individual coverage HRA in
the middle of the plan year).
278
For indi-
viduals who are newly hired or who oth-
277
The Departments note that the new SEP would not apply to individuals who gain access to an excepted benefit HRA, as those individuals are not required to be enrolled in individual health
insurance coverage, and those HRAs are generally prohibited from reimbursing premiums for individual health insurance coverage.
278
Because employees may not enroll in an individual coverage HRA if they are not enrolled in individual health insurance coverage, the Departments anticipate that some employers may
want to provide employees who are not eligible to participate in the individual coverage HRA at least 90 days prior to the start of the HRA plan year with flexibility regarding the start date of
their individual coverage HRA, so that the employees have sufficient time to enroll in individual health insurance coverage after receiving the notice.

July 8, 2019 172 Bulletin No. 2019–28
erwise newly gain access to an individual
coverage HRA during the plan year, the
triggering event is the first day on which
the individual coverage HRA can take
effect for those who enroll in individual
health insurance coverage that itself takes
effect no later than that date.
279
This is the
case even for the individuals or depen-
dents who do not actually enroll in the in-
dividual coverage HRA until a later date.
For example, assume an employer hires
a new employee on June 15 and offers an
individual coverage HRA to the employee
that may take effect on either (1) July 1,
if the employee is enrolled in individual
health insurance coverage that takes effect
no later than that date; or (2) August 1, if
the employee enrolls in individual health
insurance coverage that will take effect no
later than that date. In this case, the em-
ployee’s triggering event is July 1 because
that is the first day on which coverage un-
der the individual coverage HRA can take
effect.
Several commenters supported ap-
plying the advanced availability rules at
45 CFR 155.420(c)(2) to the proposed new
SEP in order to allow qualified individu-
als, enrollees, and dependents to enroll in
or change to a different individual health
insurance plan in advance of when their
individual coverage HRA or QSEHRA
would begin. As discussed earlier in this
preamble in response to comments on the
final integration rules, many commenters
supported the requirement that individuals
covered by an individual coverage HRA
must be enrolled in individual health in-
surance coverage and that the HRA must
implement reasonable procedures to sub-
stantiate that participants and dependents
will be enrolled in individual health in-
surance coverage for the plan year, or for
the portion of the plan year during which
the individual is covered by the HRA, as
applicable. Several commenters noted the
importance that individuals be enrolled
in individual health insurance coverage
by the time that their individual coverage
HRA takes effect to ensure that they have
health insurance coverage that complies
with PHS Act sections 2711 and 2713 at
all times during which they are covered
by the individual coverage HRA. In order
to avoid effectively forfeiting their HRA
because they are not enrolled in individual
health insurance coverage on the day that
their individual coverage HRA can take
effect, employees and dependents gener-
ally will need to make an individual health
insurance plan selection before that date.
The final SEP rules include several
changes in response to these comments.
First, the proposed rules stated that the
SEP applies to an individual who “gains
access to and enrolls in” an individual cov-
erage HRA or QSEHRA. The final SEP
rules remove the phrase “and enrolls in”
to clarify that currently being covered by
the individual coverage HRA or QSEHRA
is not necessary to trigger the SEP. This
change is intended to better align with the
requirement that participants and any de-
pendents must be enrolled in individual
health insurance coverage that will take
effect no later than the date their individu-
al coverage HRA takes effect, by ensuring
that individuals will be able to enroll in in-
dividual health insurance coverage using
the new SEP prior to the first day that their
individual coverage HRA may take effect.
The final SEP rules also include chang-
es to the advanced availability rules to en-
sure that, whenever possible, employees
and their dependents are enrolled in indi-
vidual health insurance coverage (which
is generally a requirement for those with
an individual coverage HRA and an op-
tion for satisfying the requirement to en-
roll in MEC for those with a QSEHRA)
by the time coverage under their individ-
ual coverage HRA may take effect or that
their QSEHRA takes effect. Specifically,
the final rules include a new paragraph at
45 CFR 155.420(c)(3) to provide that a
qualified individual, enrollee, or his or her
dependent who is described in paragraph
(d)(14) has 60 days before the triggering
event to select a QHP, unless the HRA
or QSEHRA was not required to provide
the notice setting forth its terms to such
qualified individual or enrollee at least 90
days before the first day of the plan year,
as specified in 26 CFR 54.9802-4(c)(6),
29 CFR 2590.702-2(c)(6) and 45 CFR
146.123(c)(6) or Code section 9831(d)(4),
as applicable, and therefore the qualified
individual, enrollee, or his or her depen-
dent(s) may not have received sufficient
advance notice of eligibility for the in-
dividual coverage HRA or QSEHRA to
enroll in individual health insurance cov-
erage that takes effect by the time their in-
dividual coverage HRA may take effect or
their QSEHRA takes effect, in which case
the qualified individual, enrollee, or his
or her dependent(s) has 60 days before or
after the triggering event to select a QHP.
In other words, qualified individuals
and enrollees to whom employers must
send a notice setting forth the terms of the
individual coverage HRA at least 90 days
before the first day of the individual cov-
erage HRA plan year, and, if applicable,
their dependents, must enroll in individual
health insurance coverage within 60 days
before the date the individual coverage
HRA may take effect, which would be the
first day of the individual coverage plan
year. Similarly, employees, and, if appli-
cable, their dependents, who will be pro-
vided a QSEHRA, and whose employer is
required to send them a written notice at
least 90 days before the beginning of the
plan year, have 60 days prior to the first
day of the QSEHRA plan year to enroll in
individual health insurance coverage. This
change will help ensure that the individual
coverage HRA can comply with the an-
nual coverage substantiation requirement
by the time that an individual’s or fami-
ly member’s individual coverage HRA
takes effect, or that the QSEHRA satisfies
the requirement that individuals who are
provided the QSEHRA and who intend to
satisfy their requirement to have MEC by
enrolling in individual health insurance
coverage have MEC. It will also reduce
gaps in coverage by helping ensure that
individuals and dependents who will be
eligible for an individual coverage HRA
and are notified at least 90 days before the
beginning of the individual coverage HRA
plan year are covered by individual health
insurance coverage for the full HRA plan
year and do not inadvertently forfeit their
HRA.
In contrast, because individual cover-
age HRAs and QSEHRAs must only pro-
vide notice by the day that an individual
coverage HRA may take effect or that a
QSEHRA takes effect for employees who
279
For individuals who are newly hired or who otherwise become newly eligible for a QSEHRA, the triggering event is the first day on which coverage under the QSEHRA is effective.
However, a QSEHRA may not reimburse any incurred medical care expense until the participant substantiates that he or she (and the individuals whose expenses are being reimbursed) has
MEC for the month during which the expense was incurred.

Bulletin No. 2019–28 173 July 8, 2019
newly become eligible for an individu-
al coverage HRA or are newly provided
a QSEHRA less than 90 days prior to
the beginning of the individual coverage
HRA or QSEHRA plan year (or during the
plan year), these employees are unlikely
to receive this notice as far in advance
of their SEP triggering event. Therefore,
these employees may need time after their
triggering event to select an individual
health insurance plan for themselves, and,
if applicable, for their dependent(s). To
accommodate these employees and their
dependents, the final SEP rules provide
them with up to 60 days before or after
their triggering event to enroll in individ-
ual health insurance coverage. Under this
rule combined with the coverage effective
date rules discussed in the next section
of this preamble, newly hired employees
and their dependents may enroll in in-
dividual health insurance coverage that
does not take effect until up to 3 months
after the earliest date that their individual
coverage HRA may take effect, or up to
3 months after the date coverage begins
under their QSEHRA.
280
For example, an
employee who starts work on July 25, and
whose individual coverage HRA may take
effect on August 1 (or whose QSEHRA
does take effect on August 1), will have
until September 30 – 60 days following
the triggering event date – to enroll in an
individual health insurance plan. If the
employee enrolls on September 30, then
his or her individual health insurance
coverage will take effect on October 1.
281
The Departments encourage employers to
work with employees who do not receive
substantial advance notice of their indi-
vidual coverage HRA to help them under-
stand the latest date by which they must
enroll themselves, and, if applicable, their
dependents, in individual health insurance
coverage to avoid effectively forfeiting
their individual coverage HRA.
2. Coverage Effective Dates
The proposed rules added a new para-
graph at 45 CFR 155.420(b)(2)(vi) to pro-
vide that if plan selection is made before
the day of the triggering event, then the
coverage effective date is either the first
day of the first month following the SEP
triggering event, or, if the triggering event
is on the first day of a month, the date of
the triggering event. Under the proposed
rules, if plan selection is made on or af-
ter the day of the triggering event, cov-
erage would take effect the first day of
the month following the date of plan se-
lection. For example, under the proposed
rules, if an individual newly gains access
to an individual coverage HRA or is pro-
vided a QSEHRA for a plan year starting
April 1 and enters April 1 in their applica-
tion for individual health insurance cov-
erage as their HRA or QSEHRA effective
date, then so long as the individual selects
an individual health insurance plan before
April 1, the effective date of their new in-
dividual health insurance coverage will be
April 1.
Several commenters supported provid-
ing a coverage effective date of the first
day of the first month following the indi-
vidual’s plan selection and SEP triggering
event. One commenter agreed that a first-
of-the-month effective date was appropri-
ate, but also stated that this may require
issuers to allow an additional premium
payment during an employee’s first month
of employment.
282

The final rules include coverage effec-
tive dates for this SEP as proposed, with
some edits to incorporate the changes at
45 CFR 155.420(d)(14) and for clarity.
Additionally, with regard to timing of
premium payments for individual health
insurance coverage, HHS notes that in
other contexts individual market plans
on- and off-Exchange regularly receive
enrollment information within the same
timeframe that will apply for the new
SEP’s coverage effective date rules. For
example, under current rules, if a qualified
individual or dependent is going to lose
MEC on March 31 and enrolls in coverage
during March, his or her coverage effec-
tive date is April 1. Therefore, issuers that
already participate in the individual health
insurance market will be accustomed to
setting premium payment deadlines for
enrollees in this situation.
3. Special Enrollment Period Verification
Several commenters expressed support
for verifying SEP eligibility for employ-
ees newly enrolling in individual health
insurance coverage based on the new SEP,
and one commenter requested additional
guidance on how the verification would
be administered. HHS confirms that Ex-
changes that use the Federal HealthCare.
gov platform will require these individ-
uals to submit documentation to confirm
their SEP eligibility prior to effectuating
their enrollment in individual health in-
surance coverage through the Exchange.
More information on the process for sub-
mitting documents to verify SEP eligibil-
ity is available on HealthCare.gov, and
HHS will provide additional guidance on
how the FFEs and State Exchanges on the
Federal platform will confirm eligibility
for the new SEP.
B. Individuals Re-Enrolling in Individual
Coverage HRA or Being Provided a
QSEHRA from the Prior Plan Year
The proposed rules requested com-
ments on whether an employee who is
enrolled in an individual coverage HRA
or provided a QSEHRA should be eligi-
ble for the SEP at 45 CFR 155.420(d)(14)
annually, at the beginning of each new
280
The Departments note that nothing in the final SEP rules eliminates the requirement that individual coverage HRAs comply with the final integration rules. Individual coverage HRAs must
be designed in accordance with all the applicable rules, including the final integration rules and the final SEP rules.
281
Additionally, partial year individual coverage HRA or QSEHRA coverage may occur due to employees gaining new dependents during the plan year. 45 CFR 155.420(c)(1) provides
qualified individuals who gain a new dependent due to the birth or adoption of a child, or due to a child support or other court order, and therefore qualify for the SEP at 45 CFR 155.420(d)
(2)(i), with 60 days to enroll their new dependent in individual health insurance coverage. As provided at 45 CFR 155.420(b)(2)(i), this coverage takes effect retroactively to the child’s date
of birth or adoption, or the date of the child support or other court order, or, at the option of the Exchange, the qualified individual may request that it take effect prospectively. To the extent
the HIPAA special enrollment rules or other rules require group health plans to make such coverage available under such circumstances, either retroactively or prospectively, employers
should ensure that employees understand how much time they have to enroll their new dependent in their individual coverage HRA, especially if they will have less than the 60 days post-SEP
triggering event that they have to enroll their new dependent in individual health insurance coverage. See Code section 9801(f) and 26 CFR 54.9801-6; ERISA section 701(f) and 29 CFR
2590.701-6; and PHS Act section 2704(f) and 45 CFR 146.117. The Departments note that QSEHRAs are not subject to the HIPAA special enrollment rules. See Code section 9831(d)(1).
282
Under 45 CFR 155.400(e)(1)(ii), if an individual has a coverage effective date of April 1, for example, then the issuer could set a premium payment deadline as early as April 1, but may,
instead, adopt a policy setting a later due date (either 30 days after the enrollment transaction was received, or 30 days after the policy start date, whichever is later). Therefore, the new enrollee
might have a similar deadline for his or her initial payment that he or she has for his or her subsequent payment.

July 8, 2019 174 Bulletin No. 2019–28
plan year of the individual coverage HRA
or QSEHRA, particularly if the new plan
year is not aligned with the calendar year.
The proposed rules noted that such annu-
al availability would allow employees to
change to new individual health insurance
coverage in response to updated infor-
mation about their individual coverage
HRA or QSEHRA for each of their plan
years, even if their individual coverage
HRA or QSEHRA plan year is not based
on a calendar year cycle. HHS notes that
employees and dependents enrolled in an
individual coverage HRA or provided a
QSEHRA that has a calendar year plan
year would have this option; that is, they
would be able to change their individual
health insurance plan in response to up-
dated information about their individual
coverage HRA or QSEHRA during the
individual market open enrollment period.
Some commenters supported provid-
ing the new SEP annually for employees
and dependents enrolled in an individual
coverage HRA or provided a QSEHRA
and whose individual coverage HRA or
QSEHRA has a non-calendar year plan
year, in order to allow employees to enroll
in or change to a new plan in response to
updated information about their individu-
al coverage HRA or QSEHRA each plan
year. Several commenters emphasized
the importance of providing employees
and their dependents with the opportuni-
ty to re-evaluate their individual health
insurance coverage options at the same
time that their individual coverage HRA
or QSEHRA is likely to change, with one
commenter suggesting that employers
should not be permitted to make changes
to their individual coverage HRA unless
employees may also make changes to
their individual health insurance coverage
during the calendar year. Another com-
menter suggested that providing the new
SEP annually would offer convenience for
employees and employers who choose to
begin their individual coverage HRA plan
year on a date other than January 1.
However, some commenters opposed
providing the new SEP on an annual basis
due to concerns that allowing consumers
to regularly change plans during the calen-
dar year would harm the individual mar-
ket risk pool. One commenter generally
opposed providing the new SEP annually,
but specified that if HHS chooses to do so,
it should only be available to employees
and dependents whose employer changes
their individual coverage HRA contribu-
tion in excess of a certain amount, such
as $100, and that this change be verified
to prevent employees who do not qualify
for the SEP from accessing it for reasons
related to a health condition. To ensure
that the SEP would not be available on an
annual basis, one commenter suggested
offering the SEP only after an employee
becomes eligible for an individual cover-
age HRA following a period of at least 60
days during which they were not eligible
for an HRA from the same employer.
Other commenters opposed offering
the new SEP annually based on concerns
that employees who changed individu-
al health insurance coverage during the
calendar year would be harmed because
their deductibles and other accumulators
would reset twice per year: once after the
calendar year individual coverage open
enrollment period, and then again after
their SEP. One commenter suggested that
this could negate the potential advantage
to the employee of changing plans to take
advantage of an update to their individual
coverage HRA or QSEHRA.
Several commenters suggested that to
mitigate this challenge, employers should
provide individual coverage HRAs on a
calendar-year basis to align updates that
they make to their individual coverage
HRA with the individual market open
enrollment period, with one commenter
recommending that the Departments re-
quire employers to do so. One commenter
suggested that the final rules should per-
mit employers to begin offering individu-
al coverage HRAs at any time during the
calendar year, and the Departments could
then require these employers to transition
to offering individual coverage HRAs
based on a calendar plan year within a
reasonable period of time, such as 5 years.
HHS determined that employees who
are enrolled in an individual coverage
HRA or who are provided a QSEHRA
should have the option to re-evaluate their
individual health insurance coverage op-
tions for each new individual coverage
HRA or QSEHRA plan year, regardless of
whether the HRA or QSEHRA is offered
or provided (as applicable) on a calendar
plan year basis. However, the final rules
provide that the new SEP will not be
available on an annual basis at the begin-
ning of a new individual coverage HRA
or QSEHRA plan year to individuals who
are already enrolled in an individual cov-
erage HRA or who are already provided
a QSEHRA. This is because employees
offered an individual coverage HRA or
provided a QSEHRA with a calendar year
plan year may re-evaluate their individu-
al health insurance coverage options and
change their individual health insurance
plan, if they wish to do so, during the an-
nual individual market open enrollment
period. Further, individuals with an indi-
vidual coverage HRA or QSEHRA with a
non-calendar year plan year will have an
opportunity through an existing SEP to
re-evaluate their coverage options.
More specifically, because HRAs are
group health plans, employees enrolled
in an individual coverage HRA with a
non-calendar year plan year may qualify
for an SEP on an annual basis pursuant
to existing rules at 45 CFR 155.420(d)(1)
(ii) (the non-calendar year plan year SEP).
This SEP applies to qualified individuals
and dependents enrolled in a group health
plan or an individual health insurance plan
with a non-calendar year plan year, even
if the qualified individual or his or her de-
pendent has the option to renew the cover-
age. In addition, while Cures Act section
18001(c) provides that the term “group
health plan” generally does not include a
QSEHRA,
283
HHS will treat a QSEHRA
with a non-calendar year plan year as a
group health plan for the limited purpose
of the non-calendar year plan year SEP,
and intends to codify this interpretation in
future rulemaking. For the non-calendar
year plan year SEP, the triggering event is
the last day of the plan year.
HHS has determined that the availabil-
ity of the non-calendar year plan year SEP
achieves an appropriate balance between
providing employers with flexibility to
offer an individual coverage HRA or pro-
vide a QSEHRA on a 12-month cycle that
283
A QSEHRA continues to be treated as a group health plan under the PHS Act for purpose of Part C Title XI of the Social Security Act.

Bulletin No. 2019–28 175 July 8, 2019
meets their needs and allowing employ-
ees and their dependents the flexibility to
re-assess their individual health insurance
coverage options at the same time that the
terms of their individual coverage HRA or
QSEHRA may change. Additionally, per
45 CFR 155.420(a)(4), the non-calendar
year plan year SEP is subject to plan cat-
egory limitations for Exchange enrollees,
which HHS has determined will mitigate
commenters’ concerns about the potential
risks to individual market stability that
providing employees with the flexibility
to choose a different plan annually, out-
side of the annual individual market open
enrollment period, could pose. Employers
that want to ensure their employees have
the ability to change to a different individ-
ual health insurance policy each individu-
al coverage HRA or QSEHRA plan year
without being subject to plan category
limitations, and consider potential chang-
es to their individual coverage HRA or to
their QSEHRA at the same time that their
costs for individual health insurance cov-
erage may also change, can align their in-
dividual coverage HRA or QSEHRA plan
year with the calendar year. HHS will in-
corporate messaging into the HealthCare.
gov application for Exchange individual
health insurance coverage and other tech-
nical assistance materials to help employ-
ees understand that changing individual
health insurance coverage during the
calendar year will reset their deductibles
and other accumulators. HHS encourages
State Exchanges to adopt similar messag-
ing.
C. Plan Category Limitations
To allow employees and their depen-
dents the flexibility to adequately respond
to newly gaining access to an individual
coverage HRA or newly being provided
a QSEHRA, the proposed rules included
an amendment to 45 CFR 155.420(a)(4)
(iii) to exclude Exchange enrollees who
would qualify for the new SEP from plan
category limitations.
284
Therefore, under
the proposed rules, individuals eligible for
the new SEP who are currently enrolled
in individual health insurance coverage on
an Exchange would be able to select any
available Exchange plan without regard to
the metal level of their current coverage.
Several commenters expressed support
for the proposal to exempt the new SEP
from plan category limitations, noting the
importance of providing access to indi-
vidual health insurance coverage or flex-
ibility to change their current individual
health insurance plan to employees and
dependents who qualify for this new SEP.
HHS agrees with commenters about
the importance of providing access to in-
dividual health insurance coverage or flex-
ibility to change their current individual
health insurance plan to employees and
dependents who qualify for the new SEP,
and is, therefore, finalizing the amend-
ment to 45 CFR 155.420(a)(4)(iii) to ex-
empt individuals eligible for the new SEP
from plan category limitations. However,
see the discussion earlier in this section of
the preamble regarding the application of
plan category limitations to individuals
to whom the non-calendar year plan year
SEP applies.
VI. Applicability Dates
The proposed integration rules and
proposed excepted benefit HRA rules,
as well as the proposed DOL clarifica-
tion and the proposed clarification by the
Departments regarding the meaning of
“group health insurance coverage,” were
proposed to apply to group health plans
and health insurance issuers for plan years
beginning on or after January 1, 2020. The
proposed PTC rules were proposed to ap-
ply for taxable years beginning on or after
January 1, 2020, and the proposed SEP
rules were proposed to apply January 1,
2020. The proposed rules also provided
that taxpayers and others could not rely
on the proposed rules. The Departments
solicited comments on the proposed appli-
cability date.
Some commenters requested that the
Departments either provide an earlier ap-
plicability date or maintain the proposed
general applicability date of January 2020.
Some urged finalization by the end of the
first quarter of 2019 to account for the
2020 rate setting schedule and to allow for
implementation by 2020.
Many commenters expressed concern
that issuers, state insurance regulators, the
Exchanges, and employers would not be
prepared for implementation of the final
rules by 2020 and requested various ap-
plicability date delays, including a 2021
applicability date, an applicability date of
12 or 18 months following finalization of
the rule, and an indefinite delay to allow
further time to study the market. These
commenters focused on the significance
of the changes made by the proposed
rules and the anticipated complexity of
implementation. Several State Exchanges
submitted comments urging the Depart-
ments to delay the applicability date for
several plan years or until further support
for states is available. These commenters
stated that it would be very difficult, and
in some instances impossible, to imple-
ment the system changes required by the
proposed integration, PTC, and SEP rules
for the 2020 plan year. One commenter
suggested that individual coverage HRAs
be implemented on a small scale for only
certain employers and employees or only
for a very limited time period, such as 2
years. Another commenter requested that
the Departments postpone finalization of
the integration rules until the Departments
develop a federally-hosted electronic data
source to verify individual coverage HRA
offer information required to determine
APTC eligibility.
The Departments considered the com-
ments and the concerns raised by various
State Exchanges, issuers, employers and
other stakeholders related to the ability of
the Exchanges to fully implement changes
related to the final rules in time for open
enrollment for the 2020 plan year. In par-
ticular, the Departments acknowledge the
crucial role that the Exchanges have in
implementation and operationalization of
the final rules, and the Departments will
work closely with the Exchanges on im-
plementation. The Departments recognize
that Exchanges may be unable to fully
implement changes related to the final
rules in time for open enrollment for the
2020 plan year. However, prior to full im-
plementation, the Departments will work
with the Exchanges on their strategies to
provide information to consumers about
284
45 CFR 155.420(a)(4) does not apply to SEPs in the individual market off-Exchange.

July 8, 2019 176 Bulletin No. 2019–28
affordability of individual coverage HRAs
and eligibility for APTC, including how
employees can access individual health
insurance coverage through the Exchang-
es and determine whether they should use
APTC. Ongoing technical assistance will
be provided related to the development of
Exchanges’ tools and functionality to sup-
port employers and employees with un-
derstanding HRA affordability determina-
tions and their impact on APTC eligibility,
as well as the SEP for those with an offer
of an individual coverage HRA. HHS has
already discussed with State Exchanges
what changes would likely be necessary if
the rule were finalized as proposed to as-
sist with planning, as well as what kind of
assistance would be most helpful during
implementation. Specific assistance could
include sharing technical and educational
documentation from FFE implementation
that can be leveraged to support State Ex-
change efforts. In addition, the Depart-
ments will provide assistance to Exchang-
es in developing information and tools
that could be provided to employers and
employees to help ensure smooth imple-
mentation before the full system changes
are complete. This could include State
Exchanges providing employees with in-
formation on how they can calculate HRA
affordability and the impact on APTC in
the absence of system changes that can
make those calculations for the employee.
The Departments have also considered
that many individuals covered by an indi-
vidual coverage HRA will prefer to select
off-Exchange individual health insurance
plans because salary reductions through a
cafeteria plan may be used to pay premi-
ums for off-Exchange coverage, if the em-
ployer so allows, and may not be used to
pay premiums for Exchange coverage. To
the extent a significant proportion of em-
ployees with individual coverage HRAs
purchase individual health insurance cov-
erage off the Exchange, concerns about
burden on the Exchanges, and concerns
regarding the effects of timely operation-
alization of the PTC rules, are mitigated.
The Departments have also worked to
release the final rules as early in 2019 as
possible, in recognition of the implemen-
tation timing issues raised. With regard to
the concerns expressed about the interac-
tion of the release of the final rules with
rate filing for 2020, the Departments note
that the proposed rules were published in
October 2018, to provide sufficient notice
of the Departments’ proposals in advance
of the 2020 plan year. While these final
rules adopt some changes in response to
comments, they are substantially similar
to the proposed rules. Even though the
proposed rules provided that taxpayers and
others may not rely on the proposed rules,
the Departments understand that issuers
began considering the potential impact of
the rules on rates well in advance of the
final rules. Further, issuers generally will
have an opportunity to make changes in
response to the final rules before the rate
filing deadlines for the 2020 plan year.
The Departments also note, and consid-
ered, that plan sponsors may choose if and
when to offer an individual coverage HRA
(or an excepted benefit HRA) and may do
so any time on or after the applicability
date. The Departments intend to provide
the guidance necessary for plan sponsors
to offer individual coverage HRAs and
excepted benefit HRAs for the 2020 plan
year, but the Departments also expect that
plan sponsors will take the time they need
to evaluate the final rules and to take ad-
vantage of these new coverage options if
and when is best for their workforce.
The Departments have also considered
that Executive Order 13813, issued in Oc-
tober 2017, set forth HRA expansion as an
Administration priority “in the near term,”
in order to provide Americans with more
options for financing their healthcare.
Taking all of these considerations into ac-
count, the Departments have determined
that it is appropriate to finalize the appli-
cability date, as proposed.
Relatedly, one commenter request-
ed that a “no inference” standard be the
benchmark for reliance prior to 2020 with
regard to individual coverage HRAs,
which the Departments understand to be
a request that the Departments not take
enforcement against HRAs that failed to
comply with the market requirements pri-
or to 2020, under the rules and guidance
in effect prior to 2020. The Departments
see no basis to provide such a rule and,
therefore, the final rules do not include a
“no inference” standard for reliance prior
to the applicability date.
Finally, HHS clarifies that, while the
new SEP generally provides advanced
availability to allow eligible individuals to
enroll in individual health insurance cov-
erage up to 60 days prior to the first day
of coverage under their HRA, employees
who are offered an individual coverage
HRA with a plan year that begins early
in 2020 will not have the full 60 day ad-
vanced availability period to select indi-
vidual health insurance coverage using an
SEP because the new SEP rules take effect
on January 1, 2020. Therefore, plan spon-
sors offering an individual coverage HRA
with a plan year that begins on January
1, 2020 should help eligible employees
understand that they must enroll in indi-
vidual health insurance coverage during
the open enrollment period, November
1, 2019 through December 15, 2019, for
individual health insurance coverage that
takes effect on January 1, 2020.
VII. Economic Impact and Paperwork
Burden
A. Summary
The final rules remove the current
prohibition on integrating HRAs with
individual health insurance coverage, if
certain conditions are satisfied. The fi-
nal rules also set forth conditions under
which certain HRAs will be recognized
as limited excepted benefits. In addition,
the Treasury Department and the IRS are
finalizing rules regarding PTC eligibility
for individuals offered an individual cov-
erage HRA. Further, DOL is finalizing a
safe-harbor clarification to provide assur-
ance that the individual health insurance
coverage the premiums of which are reim-
bursed by an HRA, a QSEHRA or a sup-
plemental salary reduction arrangement
does not become part of an ERISA plan,
if certain safe harbor conditions are sat-
isfied, and the Departments are finalizing
a related clarification to the definition of
group health insurance coverage. Finally,
HHS is finalizing rules to provide an SEP
in the individual market for individuals
who newly gain access to an individual
coverage HRA or who are newly provided
a QSEHRA.
The Departments have examined the
effects of the final rules as required by Ex-
ecutive Order 13563 (76 FR 3821, January
21, 2011, Improving Regulation and Reg-
ulatory Review); Executive Order 12866
(58 FR 51735, October 4, 1993, Regulato-

Bulletin No. 2019–28 177 July 8, 2019
ry Planning and Review); the Regulatory
Flexibility Act (September 19, 1980, Pub.
L. 96–354); section 1102(b) of the Social
Security Act (42 U.S.C. 1102(b)); section
202 of the Unfunded Mandates Reform
Act of 1995 (March 22, 1995, Pub. L.
104–4); Executive Order 13132 (64 FR
43255, August 10, 1999, Federalism);
the Congressional Review Act (5 U.S.C.
804(2)); and Executive Order 13771 (82
FR 9339, February 3, 2017, Reducing
Regulation and Controlling Regulatory
Costs).
B. Executive Orders 12866 and 13563
Executive Order 12866 directs agen-
cies to assess all costs and benefits of
available regulatory alternatives and, if
regulation is necessary, to select regulato-
ry approaches that maximize net benefits
(including potential economic, environ-
mental, public health and safety effects,
distributive impacts, and equity). Execu-
tive Order 13563 is supplemental to and
reaffirms the principles, structures, and
definitions governing regulatory review as
established in Executive Order 12866.
Section 3(f) of Executive Order 12866
defines a “significant regulatory action” as
an action that is likely to result in a rule:
(1) having an annual effect on the econ-
omy of $100 million or more in any one
year, or adversely and materially affect-
ing a sector of the economy, productivi-
ty, competition, jobs, the environment,
public health or safety, or state, local or
tribal governments or communities (also
referred to as “economically significant”);
(2) creating a serious inconsistency or oth-
erwise interfering with an action taken or
planned by another agency; (3) materially
altering the budgetary impacts of entitle-
ment grants, user fees, or loan programs
or the rights and obligations of recipients
thereof; or (4) raising novel legal or policy
issues arising out of legal mandates, the
President’s priorities, or the principles set
forth in the Executive Order.
A regulatory impact analysis must be
prepared for major rules with economically
significant effects (for example, $100 mil-
lion or more in any one year), and a “signif-
icant” regulatory action is subject to review
by the Office of Management and Budget
(OMB). The Departments anticipate that
this regulatory action is likely to have eco-
nomic impacts of $100 million or more in
at least one year, and thus meets the defini-
tion of a “significant rule” under Executive
Order 12866. Therefore, the Departments
have provided an assessment of the poten-
tial costs, benefits, and transfers associated
with the final rules. In accordance with the
provisions of Executive Order 12866, the
final rules were reviewed by OMB.
1. Need for Regulatory Action
This regulatory action is taken, in part,
in light of Executive Order 13813 direct-
ing the Departments to consider propos-
ing regulations or revising guidance to
expand the flexibility and use of HRAs.
In addition, this regulatory action is taken
because, since the time that the Depart-
ments previously prohibited integration
with individual health insurance coverage
by regulation, the Departments have ob-
served that many employers, especially
small employers, continue to struggle to
offer health insurance coverage to their
employees. There has been a continued
decline in the percentage of small firms
offering health coverage
285
as well as a de-
cline in the percentage of workers at small
firms receiving health insurance cover-
age from their employer.
286
Moreover, 80
percent of firms that offer coverage only
provide a single option,
287
and economic
research demonstrates that there is a sig-
nificant benefit of additional choice for
employees.
288
Further, this regulatory ac-
tion is being taken at this time because the
Departments have had additional time to
consider whether, and what type of, con-
ditions would be sufficient to mitigate the
risk of adverse selection and health factor
discrimination that might otherwise result
from allowing HRAs to be integrated with
individual health insurance coverage, and
the Departments expect that the conditions
adopted in the final rules will significant-
ly mitigate the risk of adverse selection.
The final rules are intended to increase the
usability of HRAs to provide more Amer-
icans, including employees who work at
small businesses, with more healthcare
options and to increase overall coverage.
These changes will facilitate the develop-
ment and operation of a healthcare system
that provides high-quality care at afford-
able prices for the American people by in-
creasing consumer choice for employees
and promoting competition in healthcare
markets by providing additional options
for employers and employees.
The Departments are of the view that
the benefits of the final rules will substan-
tially outweigh the costs of the rules. The
final rules will increase flexibility and
choices of health coverage options for
employers and employees. The use of in-
dividual coverage HRAs could potentially
reduce healthcare spending, particularly
less efficient spending,
289
and ultimate-
ly result in increased taxable wages for
workers currently in firms that offer tra-
ditional group health plans. The final rules
are also expected to increase the number
of low- and moderate-wage workers (and
their family members) with health insur-
ance coverage.
2. Summary of Impacts of Individual
Coverage HRAs
The expected benefits, costs and trans-
fers of the final rules are summarized in
Table 1 and discussed in detail later in this
section of the preamble.
285
Between 2010 and 2018, there has been a significant decline in the number of small firms offering coverage. For firms with 3 to 9 workers, the decline has been from 59 percent to 47 per-
cent, for firms with 10 to 24 workers, the decline has been from 76 percent to 64 percent, and for firms with 25 to 49 workers, the decline has been from 92 percent to 71 percent. See Kaiser
Family Foundation, “Employer Health Benefits 2018 Annual Survey”, Figure 2.2, at http://files.kff.org/attachment/Report-Employer-Health-Benefits-Annual-Survey-2018.
286
Between 2010 and 2018, there has been a significant decline in the number of workers covered by their firm’s health benefits. For firms with 3 to 24 workers, the decline has been from 44
percent to 30 percent and for firms with 25 to 49 workers, the decline has been from 59 percent to 44 percent. Id., Figure 3.9.
287
Id., Figure 4.1
288
An analysis of choices made in the large group market found that offering multiple plan choices (at large group prices) was as valuable to the median consumer as a 13 percent premium
reduction. See Dafny, Leemore, Kate Ho and Mauricio Varela, “Let Them Have Choice: Gains from Shifting Away from Employer-Sponsored Health Insurance and Toward an Individual
Exchange,” American Economic Journal: Economic Policy, 2013, 5(1):32-58.
289
By less efficient healthcare spending, the Departments generally mean spending that is of low value from the consumer’s perspective, relative to the cost. The cost includes out-of-pocket
spending such as copayments and deductibles plus amounts paid by the health plan.

July 8, 2019 178 Bulletin No. 2019–28
Table 1: Accounting Table
Benefits:
Qualitative:
• Gain of health insurance and potentially improved financial or health outcomes for some employees who are newly offered or
newly accept benefits.
• Increased choice and flexibility for employees and employers around compensation arrangements, potentially resulting in more
efficient use of healthcare and more efficient labor markets (including higher taxable wages).
• Decreased administrative costs for some employers who no longer offer traditional group health plans for some, or all, employ-
ees.
Costs:
Qualitative:
• Loss of health insurance and potentially poorer financial or health outcomes for some individuals who experience premium
increases.
• Less comprehensive coverage and fewer health benefits for some individuals with individual health insurance coverage as com-
pared to traditional group health plan coverage.
• Increased administrative costs for employers, employees, and government agencies to learn about and/or use a new health ben-
efits option.
Transfers:EstimateYear DollarDiscount RatePeriod Covered
Annualized Monetized ($/year)
(Net tax revenue loss)
$ 4.5 billion20207 percent2020 – 2029
$ 4.9 billion20203 percent2020 – 2029
Quantitative:
290

• Reduced tax revenue as a result of new individual coverage HRAs offered by employers previously offering no health benefits,
less reduced PTC from employees in such firms.
• Increase in average individual market premiums of about 1 percent and resulting increase in PTC.
Small decrease in per capita Medicare premiums and increase in net Medicare outlays.
Qualitative:
• Increased out-of-pocket costs for some employees who move from traditional group health plans to individual health insurance
coverage and decreased costs for other employees who move from traditional group health plans to individual health insurance
coverage (i.e., transfers from reduced within-firm cross-subsidization).
• Reduced tax revenue as a result of new excepted benefit HRA.
In all cases, the counterfactual base-
line for analysis is current law. That is, the
analysis assumes as the baseline statutes
enacted and regulations that are final as of
date of issuance of the final rules.
Benefits
Gain of health insurance coverage.
Some individuals could experience a gain
in health insurance coverage, greater fi-
nancial security and potentially improved
health outcomes, if employees are newly
offered and accept individual coverage
HRAs. As explained in greater detail in
the Transfers section later in this section
of the preamble, the Departments esti-
mate that, on net, the number of insured
persons will increase by about 800,000 by
2029, due to the final rules. Most of these
newly insured individuals are expected to
be low- and moderate-income workers in
firms that currently do not offer a tradi-
tional group health plan.
Some commenters agreed that the al-
lowance of individual coverage HRAs
creates new options for small employers
who have otherwise been unable to offer
health insurance coverage. Some com-
menters mentioned that some segments of
their workforce might particularly benefit.
One commenter suggested that large em-
ployers might newly provide individual
coverage HRAs to part-time or seasonal/
temporary workers while maintaining
traditional benefits for their full-time em-
ployees.
Increased choice and flexibility for
employees and employers. As a result of
the final rules, employees will be able to
purchase insurance with a tax subsidy
by use of an individual coverage HRA,
without being locked into a specific plan
or selection of plans chosen by their em-
ployer. As explained later in this section
of the preamble, a relatively small num-
ber of employees could have fewer choic-
es of plans in the individual market than
the number of group health plan choices
previously provided by their employer,
and some might be unable to find a new
290
The monetized estimates are of the net tax revenue loss, including reduced income and payroll tax revenue from employees who would receive individual coverage HRAs and would
not otherwise have a tax exclusion for a traditional group health plan, reduced PTC from individuals who would receive individual coverage HRAs and would otherwise receive PTC, and
increased PTC due to the increase in Exchange premiums; plus the increased Medicare outlays net of increased total premiums paid. As noted in the text later in this section of the preamble,
the quantitative estimates are subject to considerable uncertainty. For example, the rule could cause tax revenue to increase if the adoption of individual coverage HRAs leads to reduced
healthcare spending and higher taxable wages. Or the rule could result in larger premium increases in the individual market, or in premium decreases, if the rule results in more substantial
changes in the health of the individual market risk pool.

Bulletin No. 2019–28 179 July 8, 2019
individual health insurance plan that cov-
ers their preferred healthcare providers.
However, small firms are more likely to
offer individual coverage HRAs than large
firms and small firms that offer a tradi-
tional group health plan typically offer a
single option. Therefore, employees at the
vast majority of firms are likely to have
more options through an individual cover-
age HRA than through a traditional group
plan. The expansion of enrollment in the
individual market due to the final rules
could also induce additional insurers to
provide individual market coverage. The
Departments are of the view that on net,
the final rules will significantly increase
choice and flexibility for employees. Em-
ployers also will benefit from having an-
other choice of a tax-preferred health ben-
efit to offer their employees, giving them
another tool to attract and retain workers.
Current compensation arrangements
can result in less efficient labor markets
and inefficient healthcare spending. Em-
ployees within a firm (or employees with-
in certain classes of employees within a
firm) are generally offered the same set
of health benefits. As a result, some em-
ployees receive a greater share of com-
pensation in the form of benefits than they
would prefer, while others receive less.
An individual coverage HRA will allow
employees to choose coverage that bet-
ter suits their preferences, allowing those
who want a less comprehensive plan to se-
lect one and pay less, while allowing those
who want a more comprehensive plan to
pay more. In addition, some employers
offer plans with a wide choice of pro-
viders, reflecting the diverse preferences
and healthcare needs of their employees.
While a broader network contains certain
benefits, it also weakens the ability of
employers and issuers to negotiate lower
provider prices or otherwise manage em-
ployee care. In contrast, in the individu-
al market insurers have an incentive to
keep premiums low relative to the SLC-
SP, which is used to determine the PTC.
Hence, insurers are more likely to have a
narrower choice of providers in order to
negotiate lower prices.
By expanding the ability of consumers
to choose coverage that fits their prefer-
ences, the final rules will reduce these
inefficiencies in labor markets and health-
care spending. Some employees who will
be offered individual coverage HRAs un-
der the final rules might choose plans with
lower premiums and higher deductibles
and copayments (all of which could po-
tentially be paid out of the HRA) and nar-
rower provider networks than they would
choose if offered a traditional group health
plan. Employees facing higher cost shar-
ing could become more cost-conscious
consumers of healthcare. Narrower pro-
vider networks could strengthen the abil-
ity of purchasers (through their insurers)
to negotiate lower provider prices. Both
effects could lead to reduced healthcare
spending, which could in turn lead to re-
ductions in amounts made available un-
der individual coverage HRAs and cor-
responding increases in taxable wages.
However, these benefits are uncertain and
would take some time to occur.
291
More-
over, the provision of a new health ben-
efit that can be used to pay cost-sharing
as well as premiums and that is available
to employees who were previously unin-
sured or enrolled in unsubsidized cover-
age would be expected to increase, rather
than decrease, healthcare utilization by
some consumers.
Individual coverage HRAs provide
flexibility for small employers in particu-
lar that might have little expertise or skill
in choosing traditional group health plans
or in administering coverage effective-
ly for employees. However, some small
employers can already obtain lower-cost
coverage in the small group market or
through AHPs than they could otherwise
provide on their own. Small employers
that are not ALEs can also forego offering
health benefits and allow their employees
to obtain individual health insurance cov-
erage, often with PTC subsidization, with-
out liability under Code section 4980H.
Qualified small employers can also pursue
establishment of QSEHRAs. Thus, small
employers whose employees have partic-
ularly high healthcare costs or small em-
ployers that have little skill or interest in
administering health benefits might use
these other options to control costs even in
the absence of the final rules. If so, the in-
creased efficiency gain from providing an
additional incentive for small employers
to drop traditional group health plans in
favor of individual coverage HRAs could
be modest.
Some commenters agreed that the pro-
posed rules would enable employers to
offer more affordable health coverage al-
ternatives to employees. Some comment-
ers expressed general support for allowing
employers to move to a defined contribu-
tion approach for health insurance cover-
age. The Departments agree that a defined
contribution approach is more flexible for
employers because it is easier for employ-
ers to plan for the future. Furthermore a
defined contribution approach reduces the
risk that an employer’s healthcare costs
increase due to factors outside an employ-
er’s control.
Reduced administrative costs for some
employers. Employers that offer an indi-
vidual coverage HRA rather than a tradi-
tional group health plan could experience
reduced administrative costs. For exam-
ple, such employers will no longer need to
choose health insurance plans or self-in-
sured health benefits for their employees
and manage those plans. Some of these
costs will be borne by HRA recipients.
However, overall costs may be lower, par-
ticularly for small employers and their em-
ployees, as loading fees (that is, premiums
in excess of expected insurance claims)
appear to be quite high for small firms that
provide traditional group coverage.
292

291
The individual coverage HRA provides an income and payroll tax exclusion that is available only to workers and, unlike the PTC, benefits workers at all income levels, including workers
with incomes in excess of 400 percent of the federal poverty level. Thus, it is possible that the final rules could encourage individuals to join the labor force or to work more hours or seek
higher-paying employment, generating further economic benefits. In addition, the final rules could increase labor force mobility (i.e., encourage workers to move more freely to employers
where their productivity is highest), because workers enrolled in individual health insurance coverage could find it easier to retain their coverage when they change jobs. However, these
effects are highly uncertain, are likely to be relatively small, and might take some time to occur. Labor supply changes are not reflected in the revenue estimates provided in the transfers
section later in this section of the preamble.
292
One study using data for 1997 through 2001 finds that firms with 50 or fewer employees face loading fees of 42 percent of premiums, whereas firms with more than 10,000 employees
pay loading fees of just 4 percent. The authors note that these estimates are roughly consistent with the findings of earlier research. The authors caution that the introduction of Exchanges
and medical loss ratio requirements provided for under PPACA should reduce loading fees for small firms, but conclude that loading factors for small firms might still be quite high. See
Karaca-Mandic, Pinar, Jean M. Abraham and Charles E. Phelps, “How Do Health Insurance Fees Vary by Group Size? Implications for Healthcare Reform,” International Journal of Health
Care Finance and Economics (2011) 11: 181-207.

July 8, 2019 180 Bulletin No. 2019–28
Some commenters stated that the pro-
posed rules would be simpler to admin-
ister than traditional group health plans,
thereby reducing administrative cost for
employers. One commenter noted that
while the costs of administering an in-
dividual coverage HRA could be lower
than the cost of administering a tradition-
al group health plan, the difference is not
likely to be large. The Departments are of
the view that it is possible that there will
be modest reductions in administrative
costs for employers who offer an individ-
ual coverage HRA rather than a traditional
group health plan.
Costs
Loss of health insurance coverage. The
Departments recognize that some individ-
uals could experience a loss in health in-
surance coverage and that some of these
people might experience worse financial
or health outcomes as a result of the final
rules.
293
Loss of coverage could occur if
employers drop traditional group health
plans and if some previously covered em-
ployees do not accept the individual cov-
erage HRA and fail to obtain their own
coverage. Loss of coverage also could
occur if the addition of new enrollees to
the individual market causes premiums
to rise, resulting in dropping of coverage
by current individual market enrollees.
Finally, loss of coverage could occur if
employees who are currently purchasing
coverage in the Exchange with the PTC
become ineligible for the PTC by an offer
of (or coverage under) an individual cov-
erage HRA and experience increases in
out-of-pocket premiums.
In addition, while most employers that
currently offer traditional group health
plans offer only one type of plan, some
employers offer more choices.
294
As a re-
sult, a relatively small number of employ-
ees could have fewer choices of plans in
the individual market than the number of
group health plan choices previously pro-
vided by their employer, and some might
be unable to find new individual health
insurance coverage that covers their pre-
ferred healthcare providers. The Depart-
ments requested comments on this finding
and the extent to which the proposed rules
could reduce employee choice or cause
some individuals to become uninsured.
Some commenters stated that the pro-
posed rules would lead to adverse se-
lection, increased premiums and overall
destabilization of the individual market,
causing some to become uninsured. (Ad-
verse selection and resulting premium in-
creases are discussed in greater detail in
the Transfers section of this preamble.)
Several commenters expressed concern
that the offer of an individual coverage
HRA could eliminate consumers’ eligi-
bility for the PTC, increasing the cost of
coverage. Some commenters suggested
that some of these consumers would be-
come uninsured. One commenter noted
that this problem would be magnified for
families, since affordability is determined
by comparing the HRA employer contri-
bution amount to the cost of a self-only
plan, rather than to a family plan. Several
commenters suggested that increased ad-
ministrative costs and confusion would
cause some employees who are offered an
individual coverage HRA to fail to enroll
and become uninsured.
The Departments acknowledge these
concerns, but, as discussed later in this
section of the preamble, estimate that
the number of individuals with insurance
coverage will be increased, rather than
decreased, by adoption of the final rules.
One reason for this is that the individual
coverage HRA contribution that is offered
will render an individual ineligible for
the PTC only if it is of a sufficient size to
make the offer affordable for the employ-
ee (and, in the case of ALEs, employers
must make amounts available under an
individual coverage HRA sufficient for
the offer to be considered affordable in or-
der to avoid liability under Code section
4980H). Thus, even if employees do tran-
sition from receiving PTC to receiving an
offer of an individual coverage HRA, they
are not necessarily expected to become
uninsured. In addition, the final rules re-
quire employers to notify employees of
the effect of individual coverage HRA
offers and enrollment on PTC eligibili-
ty and require employees to substantiate
enrollment in individual health insurance
coverage in order to receive reimburse-
ment from an individual coverage HRA,
reducing the likelihood that confusion will
lead to loss of insurance coverage.
Less comprehensive coverage, fewer
benefits. Some commenters suggested that
some individuals with individual coverage
HRAs, and, therefore, individual health
insurance coverage, could experience a
reduction in the comprehensiveness or
affordability of healthcare benefits. For
example, commenters noted that an em-
ployee might not be able to afford a poli-
cy with as high an actuarial value as their
current traditional group health plan, or
might be limited to narrower networks of
providers in the individual market. An-
other commenter noted that patients may
newly have limited choices, particularly
among physician specialty care providers.
Another commenter said that some em-
ployees could have fewer choices of plans
in the individual market than the number
of group health plan choices previously
provided by their employer, or might be
unable to find new individual health insur-
ance coverage that covers their preferred
healthcare providers. Another commenter
stated that the proposed rules would result
in poorer financial and health outcomes.
The Departments recognize that some
individuals who choose health plans with
less comprehensive benefits or higher out-
of-pocket payments could experience ad-
verse health or financial outcomes. How-
ever, this is unlikely because an individual
coverage HRA must be integrated with in-
dividual health insurance coverage, which
generally is required to provide cover-
293
The Departments note however that increased insurance coverage does not necessarily result in better physical health. For example, Baicker et al. found that increased Medicaid coverage
in Oregon “generated no significant improvements in measured physical health outcomes in the first two years, but it did increase use of health care services, raise rates of diabetes detection
and management, lower rates of depression, and reduce financial strain.” See Baicker, K., S. Taubman, H. Allen, M. Bernstein, J. Gruber, J. Newhouse, E. Schneider, B. Wright, A. Zaslavsky,
and A. Finkelstein. 2013. “The Oregon Experiment: Effects of Medicaid on Clinical Outcomes.” New England Journal of Medicine 368: 1713–22. http://www.nejm.org/doi/full/10.1056/
NEJMsa1212321; and survey of the literature in Chapter 6 of Economic Report of the President, February 2018, https://www.whitehouse.gov/wp-content/uploads/2018/02/ERP_2018_Fi-
nal-FINAL.pdf.
294
Among firms that offer traditional group coverage, an estimated 81 percent of firms with 3 to 199 employees offer only one type of plan, whereas 42 percent larger firms offer one plan,
45 percent offer two and 13 percent offer three or more plans. See Kaiser Family Foundation Employer Health Benefits 2018 Annual Survey, Figure 4.1, at http://files.kff.org/attachment/
Report-Employer-Health-Benefits-Annual-Survey-2018.

Bulletin No. 2019–28 181 July 8, 2019
age of all essential health benefits and at
least 60 percent actuarial value (subject
to a de minimis variation). Moreover, to
the extent that commenters’ assertions
about narrower networks and higher cost
sharing in the individual market are ac-
curate, the Departments note that higher
cost sharing and narrower networks could
also be beneficial in that they encourage
consumers to be more cost-conscious, re-
ducing unnecessary and potentially coun-
terproductive health care utilization, and
thereby reducing premiums. Such premi-
um decreases could, in turn, lead to in-
creased wages across employees in a firm.
For example, an employee might current-
ly have access to only one 80 percent ac-
tuarial value traditional group health plan
with a relatively broad network, but under
an individual coverage HRA will have
access to a choice of plans, with actuari-
al values generally ranging from 60 to 80
percent or higher. If he or she chooses a
60 or 70 percent actuarial value plan, he
or she will have a greater incentive to be
cost-conscious and will likely spend less
on healthcare, leaving more resources for
other forms of consumption or saving.
Increased administrative costs. In the
impact analysis of the proposed rules, the
Departments noted that the proposed rules
could increase some administrative costs
for employers, employees, and govern-
ment entities.
Under the final rules, all employers will
have a new health benefits option about
which to learn. Employers who offer in-
dividual coverage HRAs but did not offer
employer-sponsored health benefits before
will face increased costs of administering
a health benefit. In addition, all employers
that offer individual coverage HRAs will
be required to establish reasonable proce-
dures to substantiate that individuals cov-
ered by the HRA are enrolled in individual
health insurance coverage or Medicare; to
provide a notice to all employees who are
eligible for the HRA explaining the PTC
eligibility consequences of the HRA offer
and acceptance and other information; and
to comply with various other generally ap-
plicable group health plan requirements,
such as maintaining a plan document and
complying with various reporting require-
ments. Employers offering individual cov-
erage HRAs will need to establish systems
to reimburse premiums and employee out-
of-pocket medical care expenses, or hire
third-party administrators to do so. In ad-
dition, to the extent an employer is sub-
ject to Code section 4980H, the employ-
er will need to learn about the final PTC
regulations and any other related guidance
under Code section 4980H that the Trea-
sury Department and the IRS may issue.
As noted earlier in this preamble, admin-
istrative costs associated with individual
coverage HRAs could be lower than costs
for traditional group health plans for some
employers. The Departments expect that
third-party administrators and other ben-
efit experts will work to minimize these
costs for employers. Because offering an
individual coverage HRA is voluntary, ul-
timately, employers that offer this benefit
will do so only because they experience a
net benefit from doing so.
As to increased administrative burden
and costs for employees, employees who
previously enrolled in a traditional group
health plan and who now receive an indi-
vidual coverage HRA will need to shop
for and choose their own insurance and
learn new procedures for accessing their
HRA benefits. In addition, employees who
receive an individual coverage HRA will
need to substantiate enrollment in indi-
vidual health insurance coverage once per
plan year and in connection with each re-
quest for reimbursement.
Further, Exchange enrollees might ex-
perience increased compliance burdens, to
the extent that they must become familiar
with the circumstances in which an offer
of an individual coverage HRA precludes
them from claiming the PTC. For employ-
ees who previously did not receive an of-
fer of a traditional group health plan, this
may require learning some of the PTC
eligibility rules, and for employees who
previously received an offer of a tradi-
tional group health plan, this may require
learning new or different rules for PTC el-
igibility. Specifically, an employee who is
offered a traditional group health plan is
not eligible to claim the PTC for his or her
Exchange coverage unless the premium of
the lowest cost employer plan providing
MV for self-only coverage less the em-
ployer contribution for self-only coverage
exceeds 9.5 percent (indexed for inflation
after 2014) of the employee’s household
income (assuming the employee meets
various other PTC eligibility require-
ments). In contrast, under the final PTC
rules, an employee who is offered an indi-
vidual coverage HRA will not be eligible
to claim the PTC for his or her Exchange
coverage unless the premium of the low-
est cost silver plan for self-only coverage
offered by the Exchange for the rating
area in which the employee resides less
the individual coverage HRA contribution
amount exceeds 9.5 percent (indexed for
inflation after 2014) of the employee’s
household income (assuming the employ-
ee meets various other PTC eligibility re-
quirements). However, the Departments
note that the final rules will require HRA
plan sponsors to furnish a notice to partic-
ipants providing some of the information
necessary for an individual to determine
if the offer of the HRA could render them
ineligible for the PTC.
In addition, if an enrollee in Exchange
coverage is eligible for the PTC, the
amount of the PTC is based, in part, on
the premium for the SLCSP for the cov-
erage unit offered in the Exchange for the
rating area in which the employee resides.
As noted earlier, the final PTC rules use
the premium for the self-only lowest cost
silver plan available to an employee in the
Exchange for the rating area in which they
reside solely for purposes of determining
their individual coverage HRA affordabil-
ity and the resulting impact on PTC eligi-
bility. Therefore, Exchange enrollees may
need to understand which silver level plan
premium applies to them for APTC eligi-
bility purposes and which silver level plan
premium applies to their PTC calculation.
Similarly, the FFEs and State Exchang-
es will incur one-time costs to incorporate
the SEP and the PTC eligibility rules for
individuals with an individual coverage
HRA offer into their instructions for enroll-
ees and Exchange employees, as well as
in application system logic and automated
calculations. HHS estimates that one-time
costs to account for individual coverage
HRAs for the FFEs will be approximate-
ly $3.9 million. HHS further estimates
that the FFE call center, eligibility support
contractors verifying SEP and application
data, and other customer support functions
will incur additional annual costs of ap-
proximately $56 million in 2020 to $243
million by 2022 to serve the expanded
Exchange population. Assuming that State
Exchanges will incur costs similar to the

July 8, 2019 182 Bulletin No. 2019–28
FFEs, total one-time costs incurred by the
12 State Exchanges will be approximate-
ly $46.8 million. Total additional ongoing
costs incurred by the call centers, eligibility
support contractors verifying SEP and ap-
plication data, and other customer support
functions for the 12 State Exchanges will
be approximately $20 million in 2020 to
$85 million by 2022.
Under the final rules, the IRS also
will need to add information regarding
employees offered individual coverage
HRAs to instructions for IRS forms for
taxpayers, employee training materials,
and calculation programs.
In response to the Departments’ re-
quest for comments on the extent to which
employer administrative costs would be
increased or decreased by the rule, some
commenters stated that complying with
the individual coverage HRA rules would
be burdensome. Several commenters ex-
pressed particular concern about the ongo-
ing substantiation requirement.
Some commenters noted that the pro-
posed rules would create consumer con-
fusion. Another commenter noted that re-
cent cutbacks in funding for outreach and
assistance in the individual market could
exacerbate the confusion. One commenter
stated that most Americans need a large
amount of professional support when mak-
ing sound health insurance purchasing de-
cisions and they also need a degree of help
to manage their medical claims and cover-
age during the plan year, particularly in the
face of any complex medical issue.
The Departments requested comments
on the implementation and ongoing costs
to State Exchanges of individual coverage
HRAs, and several stakeholders expressed
concerns about these increased adminis-
trative costs. Although commenters did
not quantify the costs, one State Exchange
said it estimates a significant expense
given the scope and complexity of the
proposal. Costs identified include admin-
istering a new SEP; making IT changes
involving new definitions and explanation
texts; user testing; adding a table for the
lowest cost silver plan; delaying imple-
mentation of other functions; administer-
ing appeals; and adding additional staffing
for administration, training and oversight
such as for increased call center activity
and increased complexity. Another Ex-
change noted the need to update Exchange
eligibility software to account for new
forms for HRAs, new rules affecting PTC
eligibility and new SEPs. Several states
requested that the effective date of the fi-
nal rules be delayed until State Exchanges
have had sufficient time to implement the
new requirements.
As noted earlier in this preamble, the
Departments have included in the final
rules some provisions to mitigate these
concerns and associated costs. For exam-
ple, to ensure that employees who are eligi-
ble to receive an individual coverage HRA
understand the potential effect on PTC el-
igibility, employers must provide a written
notice to eligible participants. To mitigate
burden on employers, the Departments
are providing model language contempo-
raneously on certain aspects of the notice,
including model language describing the
PTC consequences. In addition, ongoing
technical assistance will be provided to
State Exchanges related to system develop-
ment activities that will support employers
and employees with HRA affordability de-
terminations and the impact on APTC eli-
gibility, as well as the SEP for those with an
offer of an individual coverage HRA. HHS
has already discussed with State Exchang-
es what changes would likely be necessary
if the rule were finalized as proposed to
assist with planning, as well as what kind
of assistance would be most helpful during
implementation. Specific assistance could
include sharing technical and educational
documentation from FFE implementation
that can be leveraged to support State Ex-
change efforts. This assistance could help
State Exchanges implement changes relat-
ed to the individual coverage HRA more
quickly and with less overall cost. The De-
partments will also provide assistance to
Exchanges in developing information and
tools that could be provided to employers
and employees to help ensure smooth im-
plementation before the full system chang-
es are complete. This could include State
Exchanges providing employees with in-
formation on how they can calculate HRA
affordability and the impact on APTC in
the absence of system changes that can
make those calculations for the employee.
Transfers
The Treasury Department performed
microsimulation modeling to evaluate the
coverage changes and transfers that are
likely to be induced by the final rules. The
Treasury Department’s model of health
insurance coverage assumes that workers
are paid the marginal product of their la-
bor. Employers are assumed to be indif-
ferent between paying wages and paying
compensation in the form of benefits (as
both expenses are deductible in computing
employers’ taxable incomes). The model
therefore assumes that total compensa-
tion paid by a given firm is fixed, and the
employer allocates this compensation be-
tween wages and benefits based on the ag-
gregated preferences of their employees.
As a result, employees bear the full cost of
employer-sponsored health coverage (net
of the value of any tax exclusion), in the
form of reduced wages and the employee
share of premiums.
295
The Treasury Department’s model
assumes that employees’ preferences re-
garding the type of health coverage (or
no coverage) are determined by their
expected healthcare expenses and the af-
ter-tax cost of employer-sponsored insur-
ance, Exchange coverage with the PTC,
or Exchange or other individual health
insurance coverage integrated with an in-
dividual coverage HRA, and the quality
of different types of coverage (including
actuarial value).
296
The tax preference for
the individual coverage HRA is the same
295
Note that the wage reduction for an employee who is offered a health benefit may be greater or less than the expected cost of coverage for that particular employee. Because employees are
generally paid the same regardless of age, health status, family size or acceptance of benefits, the model assumes that each employee bears the same share of the cost of the firm’s coverage.
The model allows for some limited variation of the wage reduction by wage class and educational status. All costs and benefits of coverage are taken into account and assumed to accrue to
employees, including all income and employer and employee payroll tax exclusions and the avoidance of the employer shared responsibility payment under Code section 4980H by firms
that offer coverage.
296
Expected healthcare expenses by type of coverage, age, family size and other characteristics are estimated using the Medical Expenditure Panel Survey – Household Component (MEPS-
HC). These predictions are then statistically matched to the Treasury Department tax data. The MEPS-HC is conducted by the United States Census Bureau for the Agency for Healthcare
Research and Quality (AHRQ), Department of Health and Human Services.

Bulletin No. 2019–28 183 July 8, 2019
as that for a traditional group health plan,
and this estimate assumes that employers
will contribute the same amount towards
an individual coverage HRA as they
would contribute for a traditional group
health plan.
297
Therefore, an employee
will prefer an individual coverage HRA to
a traditional group health plan if the price
of individual health insurance coverage is
lower than the price of traditional group
health plan coverage, as long as the val-
ue of the higher quality of the traditional
group health plan coverage (if any) does
not outweigh the lower cost of individual
health insurance coverage. The cost of in-
dividual health insurance coverage for an
employee could be lower than the cost of
the firm’s traditional group health plan if
the individual health insurance coverage
is less generous, if the individual health
insurance coverage risk pool is healthier
than the firm’s risk pool, or if the cost of
individual health insurance coverage to a
particular employee is lower than the cost
of the firm’s coverage (because, for exam-
ple, the employee is younger than the av-
erage-age worker in the firm).
298
When evaluating the choice between
an individual coverage HRA and the PTC
for Exchange coverage, the available cov-
erage is assumed to be the same but the
tax preferences are different. Hence, an
employee will prefer the individual cov-
erage HRA if the value of the income and
payroll tax exclusion (including both the
employee and employer portion of pay-
roll tax) is greater than the value of the
PTC. In modeling this decision, the De-
partments assume that premiums paid by
the employee are tax preferred through
the reimbursement of premiums from the
individual coverage HRA, with any ad-
ditional premiums (up to the amount that
would have been paid under a traditional
group health plan) paid through a salary
reduction arrangement.
299
In the Treasury Department’s mod-
el, employees are aggregated into firms,
based on tax data.
300
The expected health
expenses of employees in the firm deter-
mine the cost of employer-sponsored in-
surance for the firm.
301
Employees effec-
tively vote for their preferred coverage,
and each employer’s offered benefit is de-
termined by the preferences of the major-
ity of employees. Employees then decide
whether to accept any offered coverage,
and the resulting enrollment in tradition-
al or individual health insurance coverage
determines the risk pools and therefore
premiums for both employer coverage
and individual health insurance coverage.
The Treasury Department’s model, thus,
predicts enrollment and premiums in each
type of coverage.
Transitions from traditional group
health plans to individual coverage HRAs.
Based on microsimulation modeling, the
Departments expect that the final rules
will cause some participants (and their de-
pendents) to move from traditional group
health plans to individual coverage HRAs.
As previously noted, the estimates assume
that for this group of firms and employees,
employer contributions to individual cov-
erage HRAs are the same as contributions
to traditional group health plans would
have been, and the estimates assume that
tax-preferred salary reductions for indi-
vidual health insurance coverage are the
same as salary reductions for tradition-
al group health plan coverage. Thus, by
modeling construction there is no change
in income or payroll tax revenues for this
group of firms and employees (other than
the changes in the PTC discussed later in
this preamble). The Departments solicit-
ed comments on these assumptions, and
comments received are summarized fur-
ther below.
While the tax preference is assumed
to be unchanged for this group, after-tax
out-of-pocket costs could increase for
some employees (whose premiums or cost
sharing are higher in the individual market
than in a traditional group health plan) and
decrease for others.
A small number of employees who
are currently offered a traditional group
health plan nonetheless obtain individual
health insurance coverage and the PTC,
because the traditional group health plan
is unaffordable to them or does not pro-
vide MV. Some of these employees would
no longer be eligible for the PTC for their
Exchange coverage when the employer
switches from a traditional group health
plan to an individual coverage HRA be-
cause the HRA is determined to be af-
fordable under the final PTC rules.
302
In
addition, some employees who are offered
individual coverage HRAs would not ac-
cept them, and would be newly able to ob-
tain the PTC because the offer of the HRA
would be considered to be unaffordable
under the final PTC rules, even though
the traditional group health plan they were
297
It is possible that employers that switch from offering traditional group health plans to offering individual coverage HRAs will contribute less to individual coverage HRAs than they pay
for group coverage, and increase taxable wages by a corresponding amount. This could happen because there is greater transparency around health care costs with an individual coverage
HRA than with a traditional group health plan, and greater awareness of the cost will likely lower worker demand for health insurance benefits relative to wages. On the other hand, it is not
clear why an employer that (based on the incomes and preferences of its workforce) wants to substitute contributions to health benefits for wages would not do so today, in the absence of
the availability of individual coverage HRAs, particularly because the final rules generally require that individual coverage HRAs be offered on the same terms to all employees in a class of
employees, as described earlier in this preamble.
298
The Treasury Department model assumes that both the employee and employer shares of premiums for traditional group health plan coverage are fully tax exempt. In modeling the choice
between an individual coverage HRA and traditional group health plan coverage, the Treasury Department assumes that the total amount currently paid for traditional group health plan cover-
age will continue to be tax preferred. If this amount exceeds the individual health insurance coverage premium, the excess is assumed to be used for copayments and deductibles. However, the
Treasury Department does not increase the amount that is tax preferred in the case where the individual health insurance coverage premium exceeds the traditional group health plan premium.
299
The assumption that coverage subsidized by the PTC is the same as coverage subsidized by an individual coverage HRA may be incorrect to the extent that coverage on an Exchange differs
from off-Exchange individual health insurance coverage. In addition, the assumption that the full premium for an employee with or without an individual coverage HRA is tax preferred may
be incorrect if the employer does not offer a salary reduction arrangement, if the employee does not elect the salary reduction, or if the employee chooses on-Exchange rather than off-Ex-
change coverage. Salary reduction arrangements may not be used to pay premiums for Exchange coverage.
300
A crucial component of the model is the use of Form W-2, Wage and Tax Statement, filed by employers to report wages and other benefits of employees. Forms W-2 with the same employer
identification number are grouped together to represent the employees of the firm.
301
Some small firms—generally those with sicker than average employees—are able to purchase community rated coverage in the small group market at lower cost than they could obtain
by self-insuring or would pay if they had to purchase coverage in the underwritten large-group market. Firm coverage costs are over-estimated in the Treasury Department’s model for these
firms. As a result, the Treasury Department model likely over-estimates the extent to which small firms will adopt individual coverage HRAs instead of traditional group health plan coverage
and the premium increase from this rule.
302
As noted later in this section of the preamble, however, the Departments’ estimates assume that individuals with incomes below 200 percent of the federal poverty level are not newly
ineligible for the PTC by individual coverage HRA offers.

July 8, 2019 184 Bulletin No. 2019–28
previously offered is affordable under cur-
rent rules.
303

Transitions from no employer-spon-
sored health benefit to individual cover-
age HRAs. The Departments expect some
employees to be offered individual cover-
age HRAs when they previously received
no offer of an employer-sponsored health
plan. As a result, taxable wages will fall
and non-taxable wages will rise, reduc-
ing income tax and payroll tax revenues.
Under this circumstance, some Exchange
enrollees who previously claimed the
PTC will be precluded from claiming the
PTC as a result of the offer or acceptance
of the HRA, reducing PTC transfers. As
explained further below, the Departments
assume that PTC spending is reduced only
among Exchange enrollees with incomes
greater than 200 percent of the federal
poverty level.
Transitions from traditional group
health plans to individual coverage HRAs
integrated with Medicare. Currently, there
are about 2.5 million people for whom
employer coverage is the primary payer
and Medicare is secondary. Earlier in this
preamble, the Departments clarify that
plan sponsors may allow amounts made
available under an individual coverage
HRA to be used to pay for Medicare and
Medigap premiums, as well as other med-
ical care expenses.
304
Once premiums (and
deductibles for medical care expenses)
are paid by the individual coverage HRA,
there would be few funds available to pay
for medical care expenses. Hence, Medi-
care would effectively become the prima-
ry payer in the vast majority of cases.
The total costs to the Medicare Part
A program will increase because Medi-
care Part A will effectively become the
primary payer. Because enrollment in
Medicare Part A and B or Part C
305
is a
requirement to be covered by an individ-
ual coverage HRA that is integrated with
Medicare and because employees offered
an individual coverage HRA will not
have access to a traditional group health
plan through their employer, the vast ma-
jority of employees are expected to en-
roll in Medicare Part B (and many in Part
D). Per enrollee premiums for Medicare
Part B and D will be slightly lower due to
the improved health of the Medicare risk
pool; however, net costs to the Medicare
program will increase due to increased
enrollment and because premiums for
Medicare Part B will not fully offset the
costs of the program.
306
Summary of estimated transfers and
coverage changes. The Departments es-
timate that once employers fully adjust
to the final rules, roughly 800,000 firms
will offer individual coverage HRAs. The
Departments further estimate that it will
take employers and employees about five
years to fully adjust to the final rules, with
about 10 percent of take-up occurring in
2020 and the full effect realized in 2024
and beyond.
This would result in an estimated 1.1
million individuals receiving an individu-
al coverage HRA in 2020, growing to 11.4
million in 2029. Conversely, the number
of individuals in traditional group health
plan coverage will fall by an estimated 0.6
million (0.4 percent) in 2020 and 6.9 mil-
lion (4.5 percent) in 2029. Similarly, the
number of individuals in individual health
insurance coverage without an individual
coverage HRA will fall by an estimated
0.4 million (2.4 percent) in 2020 and 3.8
million (24.8 percent) in 2029. The num-
ber of uninsured persons will fall by an es-
timated 0.1 million (0.1 percent) in 2020
and 0.8 million (1.4 percent) in 2029.
307

See Table 2 for details.
The modeling suggests that employees
in firms that would switch from offering
traditional group health plan coverage
to offering an individual coverage HRA
would have, on average, slightly higher
expected healthcare expenses than em-
ployees in other firms and current indi-
vidual market enrollees. As a result, pre-
miums in the individual market would be
expected to increase by about 1 percent as
a result of the final rules, throughout the
2020-2029 period examined. The Trea-
sury Department model is nationally rep-
resentative and does not necessarily reflect
the expected experience for every market.
The premium increase could be larger in
some markets if some adverse selection
results, and premiums could fall in other
markets. Furthermore, some employers
might take longer to adopt the individual
coverage HRA, preferring to wait to see
how premiums change; and, this delay in
adoption might be more likely in markets
that are currently in worse condition. Such
differing behavior adds uncertainty to the
estimates.
Income and payroll tax revenue is ex-
pected to fall by about $500 million in fis-
cal year 2020 and $15.5 billion in 2029,
as firms newly offer tax-preferred health
benefits in the form of individual cover-
age HRAs. At the same time, total PTC
(including the refundable and non-refund-
able portion of the credit) is expected to
fall by about $300 million in 2020 and
by about $6.2 billion in 2029. In total,
the final rules are estimated to reduce tax
revenue by about $200 million in fiscal
year 2020, $9.3 billion in fiscal year 2029,
and $51.2 billion over the 10-year period
through fiscal year 2029.
308
The Departments assume that about 1
percent of the 2.5 million individuals for
whom employer coverage is the primary
payer and Medicare is the secondary pay-
er will enroll in an individual coverage
HRA integrated with Medicare by the end
of the projection period. As a result, the
final integration rules are estimated to in-
crease costs to the Medicare trust funds by
less than $50 million in 2020, $0.3 billion
in 2029, and $1.9 billion over the ten-year
period through fiscal year 2029. The im-
pacts for Medicare Part B and D reflect the
net impact to the federal government after
the payment of premiums.
303
The number of persons newly eligible for the PTC is expected to be very small. Under the assumption that employers contribute the same amount towards an individual coverage HRA as
they would for traditional group health plan coverage, employees would become newly eligible for the PTC (if otherwise eligible) only if the lowest cost silver plan premium for self-only
individual health insurance coverage is greater than the total cost of the lowest cost MV plan offered by the employer (including the employee and employer share of premiums).
304
Note, however, that an individual coverage HRA may not, under its terms, limit reimbursement only to expenses not covered by Medicare.
305
Currently, very few working aged Medicare enrollees have enrolled in Medicare Part C and these estimates are based on the assumption that this is not likely to change.
306
Employees who are entitled to Medicare on the basis of age generally tend to have lower healthcare costs than the average Medicare beneficiary, improving the overall health of the Medi-
care risk pool.
307
These estimates are annualized counts (e.g., two persons with six months of coverage each count as one covered person), and reflect only coverage for persons under age 65. For more
information about the Treasury Department’s baseline estimates, see “Treasury’s Baseline Estimates of Health Coverage, Fiscal Year 2019 Budget Exercise” June 2018, available at https://
www.treasury.gov/resource-center/tax-policy/tax-analysis/Documents/Treasury%27s-Baseline-Estimates-of-Health-Coverage-FY-2019.pdf.
308
These revenue estimates do not account for the possibility that the final rules could lead to increased taxable wages.

Bulletin No. 2019–28 185 July 8, 2019
Table 2: Estimated Effects of Individual Coverage HRAs on Insurance Coverage and Tax Revenues, 2020 – 2029
Calendar Year2020202120222023202420252026202720282029
Change in Coverage [Millions]a
Individual health insurance coverage with
HRA1.12.75.38.110.911.011.211.411.411.4
Traditional group health plan–0.6–1.7–3.3–5.0–6.7–6.8–6.8–6.8–6.9–6.9
Individual health insurance coverage
without HRA–0.4–0.9–1.8–2.7–3.6–3.6–3.7–3.8–3.8–3.8
Uninsured –0.1–0.2–0.3–0.5–0.6–0.7–0.7–0.7–0.7–0.8
Fiscal Year2020202120222023202420252026202720282029
Change in Revenue [Billions]
Premium Tax Credit Reduction0.30.81.83.04.44.75.45.76.06.2
Other Income and Payroll Tax Reduction0.51.73.86.49.410.912.613.914.715.5
Net Revenue Reduction0.21.01.93.45.06.27.28.38.89.3
Medicare Part A
b
0.00.00.00.10.10.10.10.10.10.1
Medicare Part B0.00.00.00.10.10.10.10.10.10.1
Medicare Part D0.00.00.00.00.00.1
0.10.10.10.1
Total Medicare Outlay Cost
c
0.00.00.10.20.20.20.30.30.30.3
Total Cost
d
0.21.02.03.65.26.47.58.59.19.6
Notes:
a. Millions of covered lives, annualized.
b. 0 = less than $50 million
c. Note that the sum of estimated impacts for Medicare Part A, B and D may not equal net Medicare Outlay Cost due to rounding.
d. May not add to sum, due to rounding.
At least one commenter stated that the
negative effects of the proposed rules,
particularly the increase in the individual
market premiums and the attendant fiscal
costs, are likely to outweigh the benefits
to employers and their employees. As not-
ed earlier in the preamble, the increase in
individual market premiums is a modest 1
percent. While the net fiscal cost in 2025
is $6.2 billion, this includes the cost of
new coverage for 0.7 million individuals.
In addition, as discussed earlier, the inte-
grated coverage HRA provides employers
and employees with an additional option
for providing health benefits, a benefit
that the Departments have not quantified.
Therefore, the Departments have conclud-
ed that the benefits of allowing integration
of individual coverage with HRAs sub-
stantially outweigh the costs.
The Departments acknowledge that the
extent to which firms will offer individual
coverage HRAs and the results on indi-
vidual market risk pools and premiums,
federal tax revenues, and private costs and
benefits are highly uncertain. The Depart-
ments invited comments on the modeling
assumptions and proposed estimates of
the proposed rules and assumptions.
Several commenters stated that the
Departments’ analysis failed to take ac-
count of variation in individual market
risk across geographic areas. The Depart-
ments’ acknowledge that the quantitative
estimates are derived from a nationally
representative model, largely because the
MEPS-HC is a nationally representative
survey. The Departments do not know
of any readily available data on the dis-
tribution of health claims at the firm level
for specific rating areas or states. If the
health risk in the individual market rel-
ative to that of employer risk pools var-
ies across geographic areas, a nationally
based model will understate the extent to
which employees might transition to indi-
vidual markets with healthier risk pools
and overstate movement into less healthy
individual markets. This would under-
state potential premium increases in some
markets and overstate them or understate
premium decreases in others. To examine
this possibility, the Departments estimated
the correlation between individual market
premiums and traditional group coverage
premiums in all rating areas across the
country.
309
The Departments found that
premiums in the two markets are posi-
tively correlated, and that the correlation
is statistically significant. In other words,
309
Specifically, the Departments extracted premiums reported on the population of Forms W-2, and estimated per person annual premiums from this information using coverage data from
Forms 1095-B and C. See https://www.treasury.gov/resource-center/tax-policy/tax-analysis/Documents/Treasury%27s-Baseline-Estimates-of-Health-Coverage-FY-2019.pdf for a description
of this estimation process. The Departments then compared this to SLCSP premiums. The Departments specifically compared single plan premiums for firms including any 30-year old cov-
ered employee to SLCSP premiums for a 30 year old, and did the same for firms including any 50-year old covered employee and SLCSP premiums for a 50 year old in the same rating area.
In both cases the Departments estimated that traditional group coverage premiums increase by about 20 cents for every dollar increase in individual market premiums (p<.01). The commenter
provided some evidence of geographic variation in health claims in the individual market relative to claims in the small group insured market. This analysis is of limited use, because most
employees who are expected to be offered an individual coverage HRA are in the large group market. The Treasury Department data for this sensitivity analysis includes premiums in firms
of all sizes, but is heavily weighted to firms filing more than 250 Forms W
-2, as these employers are required to report premium information.

July 8, 2019 186 Bulletin No. 2019–28
where premiums for individual health in-
surance coverage are higher, premiums in
the traditional employer market also tend
to be higher. The Departments also do not
find any evidence that, to date, employers
have substantially dropped coverage or
disproportionately dropped coverage and
sent less healthy employees to individual
markets with healthier risk pools. Even if
the difference between individual market
health risk and group market health risk
currently varies across location, there is
no clear reason why that variation would
not persist when the individual coverage
HRA is available. As a result of these ob-
servations, the Departments conclude that
there is little indication that the individual
coverage HRA will be disproportionate-
ly used in areas with healthier individual
market risk pools. Moreover, it is not ev-
ident that adverse selection into the indi-
vidual market would be much more likely
in these lower cost areas, or that those risk
pools would not be able to absorb addi-
tional enrollees from the group market.
One commenter suggested that the
Treasury Department model does not ad-
equately account for variation in expected
claims risk across employers, because it
does not explicitly account for the tenden-
cy of sicker workers to work alongside
otherwise sicker workers, and for healthy
workers to work alongside other healthy
workers. The Treasury Department model
imputes the expected health care expens-
es of families from MEPS-HC data, con-
trolling for type of coverage, age, gender,
family size and type, employment status,
education, race, health status, geographic
characteristics and other characteristics.
The Treasury Department constructed
firms using Form W-2 and other tax data.
The Treasury Department then matched
the MEPS-HC health expenses of families
to families in the tax data (and thereby to
employees within firms), by income, fam-
ily size and type, age, gender and other
variables common to the MEPS-HC and
tax data sets. The model should reflect the
clustering of sicker or healthier workers
within firms if such clustering is correlat-
ed with the characteristics used in the
health expense imputation and matching
of MEPS-HC and tax data. In addition
to conducting a survey of households’
health expenditures (the MEPS-HC), the
U.S. Census Bureau conducts a survey
of employers regarding their health in-
surance costs (the Medical Expenditure
Panel Survey – Insurance Component,
or MEPS-IC.) To evaluate whether the
distribution of imputed healthcare costs
within and across firms in the Treasury
Department model is in fact reasonable,
the Departments obtained MEPS-IC pre-
miums for single and family plans at each
percentile of the premium distribution,
and compared these to premiums in the
Treasury Department model. The Depart-
ments found that the distributions looked
very similar. That is, the imputed premi-
ums appear similar to those reported in
the MEPS-IC, for both lower and higher
cost firms. Therefore, the Departments
conclude that there is no evidence to sug-
gest that the Treasury Department model
does not reflect clustering by health status
or any other important determinants of
health risk and premiums.
As explained earlier in this section of
the preamble, the Departments explicitly
assume that persons with incomes below
200 percent of the federal poverty level
who are enrolled in subsidized individual
health insurance coverage in the baseline
do not move to an individual coverage
HRA or to uninsured status as a result of
the final rules. The Departments also as-
sume that employees with incomes above
400 percent of the federal poverty level
who are currently enrolled in a tradition-
al group health plan do not become un-
insured as a result of his or her employer
switching to an individual coverage HRA,
even if individual health insurance cov-
erage premiums are substantially higher
than the cost of their traditional group
health plan coverage. These assumptions
are consistent with allowing the individu-
al coverage HRA offer to vary across em-
ployees in certain cases, and are intended
to provide estimates that reasonably reflect
expected employer and employee behav-
ior. The Departments acknowledge that
imposition of these assumptions reduces
both the amount of estimated PTC savings
and the amount of estimated individual
coverage HRA revenue costs. In addition,
by imposing this restriction, the analysis
does not reflect the extent to which low
-
er-income employees would face higher
insurance costs if an individual coverage
HRA offer renders them ineligible for the
PTC.
One commenter suggested that the
Departments explicitly model coverage
choices for individuals with incomes be-
low 200 percent or above 400 percent of
the federal poverty level. Other comment-
ers expressed concern that low-income
workers likely would face higher cover-
age costs (and perhaps take-up less cover-
age and face worse financial or health out-
comes) because they will lose eligibility
for PTC. One commenter suggested that
the individual coverage HRA rules could
only benefit families with incomes in ex-
cess of 400 percent of the federal poverty
level. However this commenter did not
take into account the decline in PTC as
income rises as well as the tax benefit of
employer-provided individual coverage
HRAs. In order to consider these concerns
more fully, the Departments performed
additional analysis to evaluate the poten-
tial effect of the individual coverage HRA
on receipt of PTC and changes in tax li-
ability across income classes, under the
Departments’ preferred assumption that
persons with low incomes do not lose PTC
and an alternative scenario where the De-
partments do not impose this assumption.
Under the Departments’ preferred set
of assumptions, the individual coverage
HRA reduces tax revenues by a total of
$6.2 billion in calendar year 2025, con-
sisting of $10.9 billion in reduced income
and payroll taxes partly offset by $4.7 bil-
lion in reduced PTC (including both the
refundable and non-refundable portions of
the credit). In comparison, the individual
coverage HRA increases tax revenues $1.1
billion among taxpayers who are enrolled
in individual health insurance coverage
in the Exchange in the baseline. Over 0.9
million families with incomes between
200 and 400 percent of the federal pov-
erty level pay $2.1 billion more in taxes
(that is, on net the loss in PTC exceeds
the value of income and payroll tax exclu-
sions received for the individual coverage
HRA), or an average of nearly $2,300.
However, they are not expected to become
uninsured, because while the tax prefer-
ence for the HRA is less than the PTC,
the after-tax cost of coverage is less than
the expected cost of healthcare. About 0.4
million families with incomes over 400
percent of the poverty level pay nearly
$1.1 billion less in taxes, with an average
tax cut of nearly $2,900. Note that these

Bulletin No. 2019–28 187 July 8, 2019
estimates include only the effects on fam-
ilies with individuals currently enrolled in
individual health insurance coverage in
the Exchange, and do not reflect the tax
decreases experienced by newly insured
persons, or by persons currently enrolled
in individual health insurance coverage
outside of the Exchange. In addition, the
estimates for families with incomes below
400 percent of the federal poverty lev-
el are net changes, and include gains for
families for whom the tax exclusion value
of the individual coverage HRA exceeds
the PTC offset by losses for families for
whom the PTC exceeds the value of tax
exclusion gained.
Under an alternative assumption where
persons with incomes below 200 percent
of the federal poverty level also lose PTC
if their employer offers an affordable indi-
vidual coverage HRA, about 0.9 million
additional families would pay an addi-
tional $3.5 billion in taxes (in the form
of lost PTC that is not offset by the value
of income and payroll taxes received for
individual coverage HRA), with an aver-
age tax increase of nearly $4,000. These
families are not projected to become un-
insured. The 10-year cost of the final rules
would fall from an estimated $51.2 billion
to $23.7 billion. However, as noted ear-
lier, the Departments do not expect such
large tax increases among lower-income
families to occur. Rather, the Departments
expect employees who currently receive
substantial amounts of PTC but are in
firms where employees overall are bet-
ter off with an individual coverage HRA
will seek out employers that do not offer
an individual coverage HRA or tradition-
al group health plan, or that employers
will reduce individual coverage HRA of-
fers or decide not to offer an individual
coverage HRA, so as not to render all or
certain classes of employees ineligible for
the PTC. This may be particularly true for
firms that do not offer a traditional group
health plan in the baseline.
In addition, the Departments per-
formed an alternative analysis of the num-
ber of persons with incomes in excess of
400 percent of the federal poverty level
who are predicted to become uninsured
if employers do not vary contributions to
individual coverage HRAs by age and em-
ployees do not switch employers to avoid
an increase in health insurance costs. (In
other words, in this scenario the Depart-
ments relax their assumption that no high-
er income persons become uninsured as
a result of moving from traditional group
health plan coverage to being offered an
individual coverage HRA.) In this alterna-
tive simulation, about 1 percent of persons
in families with incomes above 400 per-
cent of the federal poverty level with tra-
ditional group health plan coverage under
the baseline become uninsured (or nearly
900,000 individuals). However, as noted
earlier in this section of the preamble, the
Departments do not expect such transi-
tions to occur. Under this alternative sim-
ulation, older individuals are more likely
to become uninsured, in large part because
the Treasury Department’s model fails to
account for the variation in individual
coverage HRA contributions by age as
permitted under the final rules. Under the
final rules, we expect that employers will
vary individual coverage HRA offers so as
not to completely unwind the cross-subsi-
dies of older employees by younger em-
ployees and avoid markedly increasing
older employees’ coverage costs. In the
event that coverage costs for particular
employees substantially increase, those
employees are expected to seek employ-
ment at firms that continue to offer tradi-
tional group health plan coverage.
Several commenters stated that employ-
ers would likely provide the same amount
of individual coverage HRA contributions
to all employees in a class of employees,
without age variation. As a result, older
workers could face higher coverage costs
and younger workers could face lower
costs when they move from traditional
group health plan coverage to an age-rated
individual health insurance plan. However,
varying HRA amounts based on age is al-
lowed under the final rules, subject to cer-
tain limits, and other commenters suggest-
ed that employers would utilize this option,
thereby maintaining existing cross-subsi-
dies of older workers, which clearly has
economic utility to firms, to some extent.
Several commenters suggested that
the Departments’ estimates of individu-
al coverage HRA take-up are overstated,
because the estimates do not account for
increased hassle costs of enrolling in in-
dividual health insurance coverage, com-
pared to the cost of enrolling in a tradi-
tional group health plan. The Departments
acknowledge earlier in this section of the
preamble that some individuals will face
higher administrative costs associated
with choosing individual health insur-
ance plans and enrolling in coverage. This
could result in fewer employers offering
individual coverage HRAs and fewer em-
ployees enrolling in individual health in-
surance coverage integrated with an HRA.
However, commenters did not attempt to
quantify such costs. Because the magni-
tude of these costs (in total and relative to
the cost of enrolling in a traditional group
health plan) is uncertain, the Departments
are unable to quantify the likely effect on
individual coverage HRA take-up.
The Departments particularly empha-
size that these estimates assume that ev-
ery employee in a firm would be offered
either an individual coverage HRA or
a traditional group health plan (but not
both and not a choice between the two),
or no employer health benefit. The esti-
mates further assume that a firm offering
an individual coverage HRA would offer
the same benefit to each employee in the
firm, and would not vary the contribution
by location, age, or other permitted factors
other than self-only versus non-self-only
benefits.
310
In other words, the estimates
310
The Departments imposed two constraints on the microsimulation that could be consistent with allowing the individual coverage HRA offer to vary across classes of employees within a
firm. First, the Departments assume that persons with incomes below 200 percent of the federal poverty level who are enrolled in subsidized individual health insurance coverage in the base-
line do not move to an individual coverage HRA or to uninsured status as a result of the final rules. This is consistent with assuming that employers with low-wage workers currently receiving
Medicaid or the PTC do not begin to offer individual coverage HRAs large enough to render such employees ineligible for the PTC or from receiving public coverage. This constraint is
also consistent with the assumption that employees who would experience a substantial subsidy loss will move to other jobs that allow them to retain their current coverage. This assumption
reduces the amount of PTC savings generated by the final rules, and also reduces the tax revenue cost of providing individual coverage HRAs to such employees. Second, the Departments
assume that employees with incomes above 400 percent of the federal poverty level who are enrolled in a traditional group health plan do not become uninsured as a result of the final rules,
even if individual health insurance plan premiums are substantially higher than the cost of their traditional group health plan coverage. This is consistent with assuming that employers will
provide larger individual coverage HRAs to older employees or to employees in higher-cost markets than they will provide to other employees in their firms, in order to ensure affordable
coverage. It is also consistent with assuming that employees will move to other firms, if they face large premium or cost-sharing increases when their employers switch from traditional group
health plan coverage to individual coverage HRAs.

July 8, 2019 188 Bulletin No. 2019–28
assume that the final rules will be effec-
tive in preventing firms from dividing
their employees by health status or other
factors in a way that would allow firms to
capture greater tax subsidies or increase
individual market premiums or the PTC.
In estimating the impact of the final
rules on individual coverage HRA partic-
ipation and transfers, including individual
market premium increases, it is important
to take into account the relative sizes of
the employer market and the individual
health insurance market and the relative
health risk of individuals that are likely to
transition from group to individual market
coverage. Because the number of individ-
uals in traditional group health plans is
large relative to the number of individuals
in individual health insurance coverage,
relatively small changes in employer of-
fers of coverage can result in large chang-
es in individual market premiums.
311

The Departments invited comments
on the extent to which firms with healthy
or less healthy risk pools would utilize
individual coverage HRAs. The Depart-
ments specifically sought comments on
the extent to which employers would of-
fer different benefits to different classes
of employees, including the rating area
class and combinations of the classes, and
the resulting effect on individual market
premiums. Many commenters responded,
generally emphasizing the importance of a
stable individual health insurance market
and the need to maintain and, if possible,
strengthen conditions to prevent adverse
selection as a result of the individual cov-
erage HRA.
Many commenters noted that, because
the employer group market is very large
relative to the individual market, even a
relatively minor shift of higher-cost indi-
viduals from traditional group health plans
to the individual market would markedly
increase individual market premiums. In
a similar vein, one commenter noted that
the individual market in their state is too
small to absorb the high health costs from
the few employers who have high enough
health costs to make the individual cover-
age HRA strategy economically attractive.
Commenters also noted that healthcare
costs are distributed very unevenly, and
that, as a result, moving a small number
of the highest-cost employees to the in-
dividual market can have a large impact
on premiums. Several commenters pro-
vided their own scenarios showing that
if employers are able to send a relative-
ly small number of high-cost individuals
to the individual market it could result in
a very large increase in premiums in the
individual market. Under one example,
if 1 percent to 4 percent of the employer
market with various above-average-frac-
tions of higher-cost employees migrates
to the individual market, premiums have
the potential to increase 3 percent to 83
percent. In an example presented by an-
other commenter, if as few as 5 percent
of the persistent top spenders in the large
group market move to individual market
coverage, the average individual market
claim would increase by 15 percent. Un-
der a third example discussed by a third
commenter, if 10 percent of employers
designed individual coverage HRAs to
shift the sickest individuals into the indi-
vidual market, premiums would increase
by 17.3 percent. If however 100 percent of
employers engage in shifting their sickest
employees, premiums would increase by
93.1 percent in the individual market. The
Departments note that these scenarios do
not take into account the conditions in the
proposed or final rules intended to prevent
adverse selection. As such they help to
illustrate why the Departments proposed,
and are finalizing, conditions designed to
prevent adverse selection. These examples
are not inconsistent with the illustrative
scenario presented by the Departments in
the preamble to the proposed rules.
Many commenters said it was import-
ant that the final rules not give employ-
ees a choice between a traditional group
health plan and an individual coverage
HRA in order to prevent adverse selection
in the individual market, as was prohibited
under the proposed rules. One commenter
gave specifics noting that it is the employ-
er that is empowered with deciding which
health benefits to offer. Thus, according
to the commenter, it is not likely that
employers would offer both an individu-
al coverage HRA and a traditional group
health plan if the employer anticipated
that such a choice would increase claims
cost in its traditional group health plan.
The commenter noted that without the
condition in the proposed and final rules
prohibiting plan sponsors from offering
employees a choice between a traditional
group health plan and an individual cov-
erage HRA, there would be market seg-
mentation caused by incenting high-cost
individuals to enroll in individual market
coverage as well as potential adverse se-
lection based on difference in benefits,
cost-sharing levels, and networks.
Many commenters said that it is im-
portant that the final rules retain the condi-
tion that individuals be required to obtain
individual health insurance coverage in
order to be covered by an individual cov-
erage HRA. One commenter suggested
that, otherwise, healthy individuals might
opt out of the individual market (compre-
hensive coverage) and use the individu-
al coverage HRA to cover out-of-pocket
spending or for noncompliant coverage,
potentially increasing adverse selection
in the individual market. Relatedly, many
commenters supported the prohibition on
integration of an HRA with STLDI. If en-
rollees were given a choice of individual
health insurance coverage or STLDI, in
conjunction with an individual coverage
HRA, commenters explained that healthy
employees would be more likely to pur-
chase the less expensive STLDI plans,
creating adverse selection for the individ-
ual market.
Commenters generally supported the
condition that individual coverage HRAs
be offered on the same terms to an entire
class of employees and that the classes to
which a plan sponsor may offer HRAs on
different terms be limited to the classes
enumerated in the proposed rules and any
combinations of those classes. One com-
menter noted that the same terms require-
ment and the enumerated classes reduce
the ability of employers to target high-
cost workers by targeting particular work-
er classes. The commenter explained that
allowing employers to define classes more
narrowly would increase the opportunity
for employers to target high-cost workers,
thereby increasing the adverse selection
risk in the individual market. Some com-
311
The Treasury Department projects that over 150 million persons under age 65 will be enrolled in employer-sponsored group health plans in 2020, compared to about 15 million in the
individual market.

Bulletin No. 2019–28 189 July 8, 2019
menters recommended that the number of
permitted classes not be expanded in gen-
eral to avoid increasing the risk of adverse
selection in the individual market.
One commenter noted that the proposed
permitted classes of employees could be
combined to offer employers opportu-
nities to segment highly specific subsets
of employees, including the more costly
populations, resulting in higher premiums
in the individual market. Several other
commenters expressed concerns that the
proposed integration conditions would not
be adequate to protect against additional
risk segmentation. Another commenter
suggested that premiums in the individu-
al market could rise because the proposed
rules create uncertainty, causing insurers
to include an additional risk factor when
setting premiums. Further, the comment-
er urged that the proposed rules be with-
drawn as they would be detrimental to
consumers and health insurance markets
in that particular state. One state with an
approved PPACA section 1332 state inno-
vation waiver authorizing a re-insurance
program asserted that the proposed rules
could dismantle the market stability that
has been achieved through state based
mechanisms and that states with re-insur-
ance programs will unintentionally subsi-
dize employer health plans due to the in-
flux of people with high claims.
After consideration of these comments
and related economic literature,
312
the De-
partments concluded that the conditions
contained in the proposed rules intended
to mitigate the risk of adverse selection
(including the prohibition on offering an
employee a choice between an individu-
al coverage HRA or a traditional plan, the
same terms requirement, the requirement
that individuals with individual coverage
HRAs be enrolled in individual health in-
surance coverage, and the prohibition on
integration with STLDI) are necessary
and, as retained in the final rules, support
the Departments’ finding that the effect of
the rule on individual market premiums
will be modest.
Several commenters suggested that ad-
ditional rules should be adopted to prevent
adverse selection. For example, one com-
menter stated that employers should be
forbidden from using health status of any
individual or class of employees as a fac-
tor when differentiating between classes
of employees. Another encouraged strong
federal oversight to ensure employer com-
pliance with the conditions. Yet another
commenter recommended the Depart-
ments use a facts and circumstances test
to determine whether individual coverage
HRAs are targeted to high cost employ-
ees, in addition to requiring compliance
with the conditions in the final rules.
The Departments decline to add a facts
and circumstances test to the final rules.
DOL has enforcement jurisdiction over
private sector employer-sponsored group
health plans, and HHS has enforcement
jurisdiction over public sector group
health plans, such as those sponsored by
state and local governments. Individual
coverage HRAs are group health plans,
and DOL and HHS will monitor indi-
vidual coverage HRAs’ compliance with
applicable requirements, consistent with
the general approach to enforcement with
respect to other group health plans. The
Departments are of the view that it is un-
necessary to include specific enforcement
guidance for individual coverage HRAs in
the final rules. However the Departments
may provide additional guidance if the
Departments become aware of arrange-
ments that are inconsistent with the condi-
tions of the final rules.
One commenter noted that the lack of
a limit on the maximum individual cov-
erage HRA amount could result in more
employers with older or sicker employee
populations providing very large individ-
ual coverage HRAs and sending those
high-cost individuals to the individual
market. This commenter suggested lim-
iting individual coverage HRA contri-
butions to a maximum amount. Another
commenter pointed out that an employ-
er could provide an individual coverage
HRA that covered both the premiums and
cost-sharing expenses up to the maximum
out-of-pocket limit ($7,900 in 2019) for
an expensive employee and still reduce
health costs. This commenter support-
ed the same terms requirement and other
rules preventing benign discrimination
to shield against market segmentation. In
previous guidance on HRAs, including on
integration of HRAs with other coverage,
the Departments provided no minimum or
maximum contribution amount. Similarly,
the Departments decline to impose a min-
imum or maximum contribution amount
on individual coverage HRAs under the
final rules, in order to provide employers
with flexibility and because the Depart-
ments have imposed other conditions to
address the potential for adverse selection.
Commenters also recommended that
the conditions to prevent adverse selection
in the proposed rules be strengthened by
applying the integration conditions to the
aggregated controlled group of employers
rather than to the common-law employ-
er. The Departments have concluded that
applying the classes of employees at the
common law employer level will avoid
complexity for employers and that apply-
ing a minimum class size requirement in
certain circumstances, at the common law
employer level, is a more straightforward
way of addressing the adverse selection
concerns raised by some commenters.
Therefore, the Departments are not adopt-
ing the suggestion.
One commenter suggested the final
rules should not allow using rating area
as a separate class of employees because
it presents risk for health factor discrim-
ination, allowing employers to isolate
an employee or a few employees with
costly medical expenses who happen to
work at the same primary site. While the
Departments appreciate and considered
the concern raised by commenters, the
Departments have determined, based on
information regarding the significant dif-
ferences in individual market premiums
between rating areas within some states
312
Although adverse selection has been observed in many instances, relatively recent empirical research suggests that any harm from adverse selection could, in some circumstances, be
modest. Most of the literature is related to choices between plans within a firm or other contexts that are not directly analogous to an employer’s choice between offering a traditional group
plan or an individual coverage HRA, and as a result the applicability of the research is somewhat unclear. Therefore the Departments are including in the final rule provisions specifically
intended to mitigate against adverse selection while at the same time giving employers an important new way to provide health benefits. See e.g., Einav, Liran, Amy Finkelstein, and Jonathan
Levin, “Beyond Testing: Empirical Models of Insurance Markets,” Annual Review of Economics, 2010, 2: 311-326; Einav, Liran, Amy Finkelstein, and Mark Cullen, “Estimating Welfare
in Insurance Markets Using Variation in Prices,” Quarterly Journal of Economics, 2010, 125 (3): 877-921; Bundorf, M. Kate, Jonathan Levin, and Neale Mahoney, “Pricing and Welfare
in Health Plan Choice,” American Economic Review, 2012, 102 (7): 3214-3248; and Cardon, James H and Igal Hendel, “Asymmetric Information in Health Insurance: Evidence from the
National Medical Expenditure Survey.” RAND Journal of Economics, 2001, 32 (3): 408 – 427.

July 8, 2019 190 Bulletin No. 2019–28
and significant differences in the number
of individual health insurance plans avail-
able between rating areas within some
states, that it would be an unreasonable
limitation on employer flexibility, and,
thus, employee welfare, to prohibit em-
ployers from offering different benefits
based on different work site rating areas.
One commenter argued that the allow-
able variation in individual coverage HRA
contributions by employee age and num-
ber of dependents would need to be par-
allel to the variation in premiums by age
and family size in the individual market to
avoid the risk that employers target large
contributions to high-cost employees. An-
other commenter pointed out that employ-
ers’ ability to vary individual coverage
HRA amounts by age should not be limit-
less, but should be subject to sound actu-
arial guardrails, such as the 3 to 1 PPACA
age band between the youngest and oldest
employees. The Departments agree. In
the final rules, employers are permitted
to vary contributions based on the age of
the participant as long as the contribution
for the oldest participant is within a 3 to 1
ratio of the contribution for the youngest
participant. Further, the same maximum
dollar amount attributable to the increase
in age must be made available to all par-
ticipants of the same age in the same class
of employees.
Some commenters recommended re-
moving as a permitted class of employees
the class based on employees who have
not yet attained 25 years of age because
this would enable employers to offer indi-
vidual coverage HRAs to older employees
while keeping young, generally healthier
employees in a traditional group health
plan, increasing adverse selection risk for
the individual market. In addition, com-
menters noted that there is no clear need
for this class of employees as employers
do not typically vary current coverage
offering for employees over and under
age 25. After consideration of these com-
ments, the Departments are omitting this
class in the final rules.
Several commenters suggested a min-
imum class size requirement so that em-
ployers cannot combine classes in a way
that less healthy employees can be isolat-
ed into separate classes from healthy em-
ployees. According to these commenters,
each classification should be required to
include a certain minimum number and/
or percentage of employees. The Depart-
ments agree and sought to develop a rule
that is narrowly tailored to mitigate the
risk of adverse selection, especially when
combining classes, and to avoid overly
burdening employers or unnecessarily
hampering the increased use and flexibili-
ty of individual coverage HRAs. In order
to balance these considerations, the final
rules include a minimum class size re-
quirement that varies based on employer
size and that applies only to certain class-
es of employees in certain circumstances
in which the potential for health factor
discrimination is greatest. In general, the
minimum is equal to 10 employees for an
employer with fewer than 100 employees;
equal to 10 percent of the total number
of employees (rounded down to a whole
number), for an employer with 100 to 200
employees; and equal to 20 employees for
an employer that has more than 200 em-
ployees. See earlier in this preamble and
the final rules for more detail.
Multiple commenters noted that large
employers and self-insured employers
with a greater share of less-healthy em-
ployees could be more likely to offer in-
dividual coverage HRAs than employers
with healthier employees. The resulting
adverse selection could worsen the indi-
vidual market risk pool and increase pre-
miums. The Departments acknowledge
that the integration conditions generally
do not address this potential problem.
This effect has been included in the mod-
eling and hence is reflected in the overall
results. As discussed earlier in this pream-
ble, this effect along with other effects of
the final rules result in a premium increase
of only about 1 percent, indicating a very
small effect on the individual market risk
pool.
Other commenters thought individu-
al coverage HRAs could reduce adverse
selection in the individual market. Some
commenters noted that the proposed rules
would result in many employees moving
to the individual market, thereby expand-
ing the market and stabilizing premiums.
One commenter argued that although
some employers may have a higher-risk
group of employees, in general, working
employees are lower-risk than individu-
als in the individual market. Other com-
menters stated that employers may not
necessarily be incentivized to segment
their risk, that is, they may be interested
in offering individual coverage HRAs for
reasons unrelated to risk. Another com-
menter argued that commonly purchased
stop-loss coverage mitigates the incentive
to move individuals to the individual mar-
ket; that HIPAA generally prohibits group
health plans and health insurance issuers
in the group market from discriminating
against individuals based on health fac-
tors; that the requirement that to provide
MV employer plans provide “substantial
coverage” of inpatient hospital services
and physician services makes it hard for
employers to incentivize high cost indi-
viduals to move to the individual market
by providing limited benefits; and that
the proposed rules’ same terms require-
ment and the restriction on integration
of individual coverage HRAs with STL-
DI all work together to eliminate the op-
portunities for employers to encourage
higher-risk employees to obtain coverage
in the individual market. One comment-
er noted that the Departments struck an
important balance between providing ad-
ditional alternatives for employers while
curtailing the opportunity for some em-
ployers to selectively segment risk and
shift their highest-cost employees to the
already fragile individual market. The De-
partments agree that the final rules, with
the integration conditions, strike the right
balance and have the potential to strength-
en the individual market.
Several commenters further recom-
mended that the Departments add as a
permitted class to the final rules, salaried
and hourly employees, so that employers
may be permitted to make different offers
of coverage, to salaried and non-salaried
workers. Commenters in support of allow-
ing salaried and hourly workers as permit-
ted classes of employees explained that
this would provide additional flexibility
for employers without increasing the risk
of adverse selection. Reasons for this con-
clusion included: the classification is used
for a variety of purposes and reclassifying
employees may violate the FLSA, ERISA
and other laws that prohibit employers
from reclassifying workers solely for the
purposes of interfering with health bene-
fits. One commenter stated that under such
a rule employers would have more poten-
tial for risk selection than in the permit-

Bulletin No. 2019–28 191 July 8, 2019
ted classes under the proposed rules. Af-
ter consideration of these comments, the
Departments are allowing employees who
are paid on a salaried basis and non-sal-
aried employees (such as hourly employ-
ees) as permitted classes of employees
in the final rule, subject to the minimum
class size requirement.
The Departments also recognized that
transition from coverage under a tradition-
al group health plan to coverage under an
individual coverage HRA could represent
a substantial change from an employee
perspective, and as a result employers
may find it difficult to transition to indi-
vidual coverage HRAs. Because new hires
are unlikely to increase adverse selection
in the individual market and, if added to
the individual market, would likely lower
average risk, the Departments have add-
ed flexibility for employers by allowing
employers to continue to offer tradition-
al group health plans to current employ-
ees while offering individual coverage
HRAs to newly hired employees. Rec-
ognizing that the new hire subclass will
start small as employees are hired after
the employer-specified hiring date for a
class of individuals, the new hire subclass
is not subject to the minimum class size
requirement. However, if an employer lat-
er chooses to further subdivide a new hire
subclass, each subdivision would be sub-
ject to any minimum class size require-
ments that otherwise would apply.
Several commenters suggested that the
Departments delay implementation of the
final rules until further analysis, particu-
larly regarding risk segmentation, could
be conducted. However, commenters of-
fered few concrete suggestions to inform
additional analysis. While the Depart-
ments acknowledge that the exact effects
of the final rules are subject to uncertainty,
the Departments conclude that the bene-
fits of the rules will outweigh any costs,
and that the benefits of promulgating the
rules without further delay will outweigh
the benefits of additional analysis. As rec-
ommended by a number of comments,
the Departments will continue to closely
monitor premiums and the stability of the
individual market.
The Departments also emphasize that
these estimates assume that employers
would contribute the same amount to in-
dividual coverage HRAs as they would
to traditional group health plans and that
employees would elect the same amount
of salary reduction to pay for individual
health plans and cost sharing as they would
if they were enrolled in a traditional group
health plan. But, as noted above, some em-
ployees who would be offered individual
coverage HRAs under the proposed rules
would choose plans with lower premiums
and higher deductibles and copayments
and narrower provider networks than
they would choose if offered a traditional
group health plan. However, some work-
ers would probably choose more expan-
sive coverage than what they were offered
in a traditional group health plan, and a
key benefit of this rule is that it expands
workers’ ability to choose coverage that
best suits their preferences. Those workers
who choose plans with higher cost shar-
ing and narrower provider networks and
become more cost-conscious consumers
of healthcare will likely reduce healthcare
costs and insurance premiums, eventually
reducing average HRA amounts and sala-
ry reductions. The Departments requested
comments on the assumption that employ-
er and employee tax-preferred spending
on healthcare would be the same for in-
dividual coverage HRAs as for traditional
group health plans.
One commenter questioned the Depart-
ments’ basis for this assumption. Based on
conversations with employers of all sizes
and industries, the commenter concluded
that it appears likely that a good portion of
employers would contribute substantially
less to individual coverage HRAs than
what they are currently contributing to tra-
ditional group health plans. The comment-
er suggested that this would be particular-
ly true for certain classes of employees,
and that this may result in some employ-
ees and dependents becoming uninsured.
Several commenters expressed concern
that employers would contribute less to
individual coverage HRAs than they cur-
rently contribute to their traditional group
health plans, with the result that coverage
would be less affordable for employees.
One commenter suggested that employers
offering an individual coverage HRA be
required to provide a minimum amount to
ensure that the HRAs are adequate for the
purchase of individual health insurance
coverage. As discussed above, the Depart-
ments decline to adopt this suggestion. In
general, workers bear the cost of employer
contributions to health benefits in the form
of reductions in wages and non-health
benefits. The current tax system subsidiz-
es health benefits, and it is not clear that
minimum employer contributions would
improve employee welfare. Other com-
menters suggested that employers should
be required to vary the amount of the indi-
vidual coverage HRA by age, geographic
region, and/or family size, as these factors
result in variations in premiums for in-
dividual health insurance coverage. The
Departments are not adopting this sug-
gestion. The Departments recognize that
the cost of individual health insurance
coverage will vary across employees, and
because the intent of the rule is to expand
rather than restrict employer choices re-
garding how to provide coverage, the final
rules allow (but do not require) employers
to take these factors into account in cer-
tain circumstances and subject to certain
conditions. After consideration of these
comments, the Departments acknowledge
that introduction of the individual cover-
age HRA could lead employers to provide
lower health benefits and higher taxable
wages than they would if they provided a
traditional group plan. However, because
the extent to which employers will do so is
uncertain, this effect is not accounted for
in the Departments’ quantitative estimates
of transfers (that is, the fiscal cost) aris-
ing from the rules. Moreover, the Depart-
ments are of the view that employers will
design employee compensation packages
to the benefit of employees since employ-
ers aim to attract and maintain talent.
In addition, the estimates assume that
the entire individual coverage HRA bal-
ance is spent on healthcare premiums and
cost sharing each year. However, the De-
partments are of the view that many em-
ployers would allow employees to carry
unspent individual coverage HRA balanc-
es over from year to year, and that some
employers would allow employees to
continue to spend accumulated individual
coverage HRA funds even after separating
from their employer. Moreover, individ-
ual coverage HRA benefits are generally
subject to COBRA protections, such that,
for example, some employees could elect
to use accumulated funds for up to 18
months after separation from service. The
ability to carry over benefits from year to

July 8, 2019 192 Bulletin No. 2019–28
year could further encourage employees
to curtail healthcare spending, particularly
less efficient spending. This effect could
be modest for several reasons. First, un-
like HSA balances, which can be with-
drawn for non-health purposes subject to
tax but without penalty after age 65 and
with a 20 percent penalty before age 65,
individual coverage HRAs may only be
used to reimburse expenses for medical
care. In addition, unlike HSAs, individu-
al coverage HRAs are not the property of
the employee and employers may limit the
amount that can be carried over from year-
to-year or accessed by the employee after
separation, subject to applicable COBRA
or other continuation of coverage require-
ments.
These estimates further assume that
all individual health insurance coverage
integrated with an HRA would be treat-
ed as subject to and compliant with PHS
Act sections 2711 and 2713. The proposed
rules prohibit an individual coverage HRA
from being integrated with STLDI and
excepted benefits, which are not subject
to or generally compliant with PHS Act
sections 2711 and 2713. Grandfathered
coverage in the individual market is not
subject to the annual dollar prohibition in
PHS Act section 2711 or to the preventive
services requirements in PHS Act sec-
tion 2713. However, the proposed rules
provided that employees nor employers
were required to confirm that individu-
al health insurance coverage integrated
with an HRA is not grandfathered cover-
age, as requiring such confirmation would
be administratively burdensome and the
Departments expected that the number
of employees who might use an individ-
ual coverage HRA to buy such coverage
would be extremely small, because indi-
viduals can only renew and cannot newly
enroll in grandfathered individual health
insurance coverage.
Commenters generally agreed that the
vast majority of individual health insur-
ance coverage is compliant with PHS Act
sections 2711 and 2713. As noted earlier
in the preamble, many commenters em-
phasized the importance of requiring in-
dividual coverage HRAs to be integrated
with individual health insurance coverage,
and not with STLDI, in order to ensure
the health and stability of the individual
market risk pool. The Departments con-
sidered these comments and are finalizing
the requirement that individuals covered
by an individual coverage HRA must be
enrolled in individual health insurance
coverage, as proposed. Further, under the
final rules, an individual coverage HRA
may not be integrated with STLDI.
In summary, the Departments recog-
nize that allowing HRAs to be integrated
with individual health insurance coverage
creates the potential for some adverse
selection and increased premiums in the
individual health insurance market. To
prevent that occurrence, the Departments
are retaining in the final rules the key con-
ditions intended to prevent adverse selec-
tion and health factor discrimination. In
addition, the Departments are strengthen-
ing the conditions intended to prevent of
adverse selection, including by adding a
minimum class size requirement that ap-
plies to certain classes of employees in
certain circumstances and removing as a
permitted class of employees the class of
employees under age 25, which had the
potential to increase adverse selection.
The addition of the special rule for new
hires could also improve the health of the
overall individual market risk pool. While
the Departments have also made changes
in the final rules in order to provide em-
ployers with additional flexibility, such
as adding as new permitted classes of
employees non-salaried and salaried em-
ployees as well as staffing firm temporary
employees (as well as adopting the special
rule for new hires), the Departments have
done so in a way that is narrowly tailored
to avoid creating the risk of adverse se-
lection. Therefore, after consideration of
these changes and public comments, the
Departments are finalizing the economic
modeling of the individual coverage HRA
without changing the key assumptions.
In light of the Departments’ quantita-
tive estimates and qualitative analysis, the
Departments conclude that the benefits of
the individual coverage HRA outweigh
the costs. In particular, the Departments
estimate that the final rules will increase
the number of individuals with health in-
surance and have only a small effect on in-
dividual market premiums. The final rules
will significantly increase flexibility and
choices of health coverage for employers
and employees. As a result, employers
will benefit from having another choice of
a tax-preferred health benefit to offer their
employees, potentially enabling them to
attract and retain workers. In addition, the
increased use of HRAs could potentially
reduce healthcare spending and ultimately
result in increased taxable wages.
3. Impact of Excepted Benefit HRA
The final rules also provide for recog-
nition of a new limited excepted benefit
HRA under which amounts newly made
available for each plan year are limit-
ed to $1,800 (indexed for inflation for
plan years beginning after December 31,
2020). Among other conditions, to offer
the excepted benefit HRA, the employer
must offer the employee a group health
plan that is not limited to excepted ben-
efits and that is not an HRA or other ac-
count-based group health plan, but the
employee would not need to enroll in this
group health plan. The benefit would be
funded by the employer, and in the Trea-
sury Department’s modeling, this means
that it would be paid for by all employees
in the firm through an overall reduction
in wages. The benefit could be used to
pay for any medical expense, other than
premiums for individual health insurance
coverage, group health plan coverage
(other than COBRA or other continuation
coverage), or Medicare Part B or D. The
excepted benefit HRA could be used to
pay premiums for coverage that consists
solely of excepted benefits and for other
premiums, such as premiums for STLDI
(subject to the exception described later in
this section of the preamble).
Due to the availability of other tax
preferences for health benefits, including
the tax exclusion for employer-sponsored
benefits, salary reductions for group and
off-Exchange individual health insur-
ance coverage premiums when integrated
with an individual coverage HRA, health
FSAs, and non-excepted benefit HRAs,
the Departments are of the view that this
new excepted benefit would be adopted by
a small number of firms. However, it could
provide flexibility for firms that want to
provide a tax preference to employees that
choose STLDI instead of the employer’s
traditional group health plan.
Several commenters noted that the
excepted benefit HRA could adversely
impact the small employer group market

Bulletin No. 2019–28 193 July 8, 2019
as employers in the small group market
would be more likely to offer an except-
ed benefit HRA that reimburses STLDI
premiums (because these employers are
less likely to be directly affected by the
risk shifting due to the fact that the small
group market is community rated) and
healthier employees would be more like-
ly to opt out of the traditional small em-
ployer group plan and use the excepted
benefit to pay for health coverage out of
pocket or purchase STLDI. Several com-
menters also expressed concern about the
negative impact on the individual market,
as the excepted benefit HRA could draw
some enrollees away to STLDI plans. One
commenter expressed concern that sicker
employees within a firm, who could not
obtain STLDI, would bear greater costs.
As explained earlier in this preamble, the
Departments do not believe that allow-
ing the excepted benefit HRA to be used
to purchase STLDI creates a significant
risk pooling concern. However, to miti-
gate potential adverse selection affecting
the small group market, the final rules
provide that the Departments may restrict
excepted benefit HRAs from being able
to reimburse STLDI premiums for certain
employers in a state, if certain criteria are
satisfied.
Several commenters opposed the new
excepted benefit HRA because it would
allow employers to provide a smaller
health benefit. One commenter expressed
particular concern that low-wage employ-
ers would be particularly attracted to this
option, to the detriment of employees. The
Departments conclude that this is not an
important risk or concern. First, employ-
ees must have the option to receive a tra-
ditional group health plan instead of the
excepted benefit HRA, and ERISA-cov-
ered employers must provide a notice of
the dollar limits and other limitations of
the excepted benefit HRA. In addition, the
costs of coverage are borne all or in part by
employees, in the form of reduced wages,
and any reduction in costly health bene-
fits is expected to be offset by increased
wages. Third, employees who decline an
employer’s offer of a traditional group
health plan may obtain coverage through
a spouse or the individual market, and this
coverage may also be subsidized through
a tax exclusion or PTC. Therefore, the
availability of this new tax-preferred ben-
efit is expected to benefit employees, not
harm them.
Several commenters expressed concern
that adding another type of excepted ben-
efit and another type of HRA would create
confusion among employers and employ-
ees, potentially resulting in costly mis-
takes. Some commenters expressed con-
cern that the excepted benefit HRA would
increase uninsurance among employees
who forego coverage or use the benefit to
purchase STLDI (which need not provide
comprehensive benefits), thus putting em-
ployees at risk or poor financial or health
outcomes.
Other commenters supported the pro-
vision of the excepted benefit HRA as
proposed, including one who expressed
support for providing employers with the
greatest possible flexibility to provide
health benefits on a tax preferred basis.
The Departments agree that the excepted
benefit HRA will provide additional flex-
ibility for employers, and for employees
who want to pay for their health care costs
in ways other than enrolling in their em-
ployer-offered traditional group health
plan. The Departments continue to expect
that due to the availability of other tax
preferences for health benefits, including
larger tax preferences for employer-pro-
vided benefits and the PTC for individual
health insurance coverage, that adoption
of the excepted benefit HRA is likely to
be modest, such that the risk of introduc-
ing adverse selection into other markets is
low. The Departments conclude that the
benefits of this additional choice and flex-
ibility provided by this new tax preferred
excepted benefit outweigh the likely costs.
C. Regulatory Alternatives
In developing the final rules, the De-
partments considered various alternative
approaches.
Retaining prohibition on integration
of HRAs with individual health insurance
coverage. The Departments considered
retaining the existing prohibition on in-
tegration of HRAs with individual health
insurance coverage, in particular in light
of commenters who raised concerns that
allowing HRAs to be integrated with in-
dividual health insurance coverage could
lead to adverse selection and health factor
discrimination in the individual market.
However, the Departments determined
that the adverse selection concerns that
gave rise to the prohibition, and which
some commenters raised, can be ade-
quately addressed by including appro-
priate mitigating conditions in the final
rules. Moreover, the alternative approach
of continuing to prohibit the integration
of HRAs with individual health insur-
ance coverage would foreclose the bene-
fits that the Departments expect to result
from allowing individual coverage HRAs,
including increased flexibility and choic-
es of health coverage options for em-
ployers and employees; possibly reduced
healthcare spending and increased taxable
wages for workers currently in firms that
offer traditional group health plans; and
increased numbers of low- and moder-
ate-wage workers (and their family mem-
bers) with health insurance coverage.
Integration conditions to prevent
against adverse selection. The proposed
rules contained a number of conditions
intended to mitigate the risk of adverse
selection, including that an employer
may not offer any employee a choice be-
tween a traditional group health plan and
an individual coverage HRA and that, if
an employer offers an individual cover-
age HRA, it must do so on the same terms
and conditions for all the employees in
the class of employees subject to certain
exceptions. The Departments considered
a number of alternatives related to these
conditions in developing the final rules.
As to the prohibition on choice between
an individual coverage HRA and a tradi-
tional group health plan, the Departments
considered the alternative of allowing
all employers, or, employers that would
qualify to participate in the small group
market, to offer employees a choice be-
tween an individual coverage HRA and
a traditional group health plan. However,
the Departments determined that retain-
ing this condition as proposed is import-
ant to prevent against adverse selection
and commenters generally agreed. The
Departments did consider that the incen-
tives for employers in the small group
market to segment risk are lower than for
other employers offering experience-rat-
ed coverage or self-insured plans. How-
ever, the Departments would not expect
many small employers to offer this choice
because the coverage in the small group

July 8, 2019 194 Bulletin No. 2019–28
market and individual market is quite
similar and because small employers
that purchase health insurance would not
have an incentive to segment their risk
pool. Although allowing small employ-
ers to offer a choice would not provide
small employers much benefit, it would
increase the complexity of the final rules
for entities involved in implementation,
such as the Exchanges, and could cause
uncertainty for issuers. Accordingly, the
Departments decline to provide an ex-
ception for small employers to the condi-
tion that a plan sponsor may not offer an
employee a choice between a traditional
group health plan and an individual cov-
erage HRA. However, the Departments
are generally supportive of maximizing
employee choice and employer flexibil-
ity and so may revisit this issue in future
rulemaking once the Departments have
had the opportunity to gauge the results
of the initial implementation of individu-
al coverage HRAs.
With respect to the proposed condition
that an employer must offer an individual
coverage HRA on the same terms to all
employees within a class of employees,
the Departments considered whether to al-
low individual coverage HRAs to increase
amounts based on age, without any related
parameters, as proposed, or, as an alter-
native, whether to place an outer limit on
the ability to age vary, as some comment-
ers suggested the Departments should
do to protect against adverse selection.
Upon consideration of these comments,
the Departments determined that impos-
ing a limit on the ability to increase HRA
amounts based on age is justified in order
to protect against adverse selection. In de-
signing that limitation on age variation,
the Departments considered a number of
alternatives, including incorporating the
federal and state age curves and tying the
variation to a specific premium for a spe-
cific policy that a participant in the class
of employees could purchase. However,
the Departments determined that these op-
tions would be unduly complex and that
imposing the 3 to 1 limit on the variation
of HRA amounts within a class based on
age, which is generally based on the de-
gree of age variation allowed in individual
market premiums under PHS Act section
2701, sufficiently limits the potential for
abuse.
The proposed rules provided that plan
sponsors may apply the integration con-
ditions on a class-by-class basis such that
an employer may offer an individual cov-
erage HRA to a class of employees while
offering a traditional group health plan to
another class of employees or may offer
different individual coverage HRAs, with
different terms, to different classes of
employees. The Departments considered
whether to retain the ability of employ-
ers to offer or vary individual coverage
HRAs for different classes of employees
or whether employers should be required
to offer all employees an individual cov-
erage HRA if any employee is offered
an individual coverage HRA. Although
some commenters raised concerns that the
classes of employees could be manipulat-
ed leading to health factor discrimination
and adverse selection, the Departments
decided to finalize the ability to offer
and vary individual coverage HRAs on a
class-by-class basis because this aspect of
the rule provides employers with the flex-
ibility needed to achieve increased HRA
usability and to maximize employee wel-
fare, which is a sentiment expressed by
a number of commenters. However, the
Departments acknowledge the concern
regarding the potential for adverse selec-
tion and health factor discrimination and,
therefore, have concluded that additional
safeguards are needed in certain circum-
stances, as described later in this section
of the preamble.
Under the proposed rules, the Depart-
ments enumerated eight permitted classes
of employees and also allowed employers
to combine the classes of employees. In
the process of finalizing the rules, the De-
partments considered, as an alternative,
whether to provide classes of employees
based on a more general standard (like the
one that applies under the HIPAA non-
discrimination rules, with a broader em-
ployment-based classification standard) or
whether to finalize generally as proposed,
such that the final rules would list the spe-
cific permitted classes. The Departments
determined that a broad and open-ended
standard would not be sufficient to mit-
igate the risk of adverse selection and
therefore under the final rules, the Depart-
ments enumerate the permitted classes.
The Departments considered a number
of alternatives with regard to which class-
es of employees should be permitted un-
der the final rules. The proposed rules con-
tained, as a permitted class of employees,
employees who had not attained age 25.
The Departments considered whether to
retain this class in the final rules or wheth-
er to remove this from the list of permit-
ted classes, in response to commenters
who asserted that this class could lead to
adverse selection and does not reflect the
categories employers typically use to offer
benefits. In response to these comments,
the Departments determined that the final
rules should not include the under-age-25
class of employees in the list of permitted
classes.
Further, under the proposed rules, the
Departments did not include salaried em-
ployees and hourly employees as permit-
ted classes of employees. In finalizing
the rules, the Departments considered
whether to add hourly and salaried em-
ployees as permitted classes or whether to
finalize the rule as proposed. In proposing
the rules, the Departments had noted that
they did not include these classes in the
list of permitted classes due to a concern
that employers might easily be able to
change an employee’s status from salaried
to hourly (and in certain circumstances,
from hourly to salaried), which could lead
to adverse selection. Commenters asserted
that contrary to the Departments’ concerns
these classes are not easy to manipulate
and that hourly and salaried employees
should be added as permitted classes, in
order to increase the use of individual
coverage HRAs. The Departments have
concluded that the benefits of employer
flexibility, increased utilization of indi-
vidual coverage HRAs, and maximizing
employee welfare outweigh the potential
risk of adverse selection and health factor
discrimination, due to a reconsideration of
the extent to which these categories could
be manipulated and because of the appli-
cation of a minimum class size require-
ment, discussed later in this section of
the preamble. Therefore, the Departments
add employees paid on a salary basis and
non-salaried employees (such as hourly
employees) to the list of permitted classes
in the final rules.
The Departments also considered, in
response to comments, whether to add as
a class of employees temporary workers
employed by staffing firms. The Depart-

Bulletin No. 2019–28 195 July 8, 2019
ments determined that adding this class
could increase the usability of HRAs for
staffing firms and benefit their employees.
The Departments also determined that this
class would be difficult to manipulate, and
that, therefore, this class does not raise
a substantial risk of adverse selection or
health factor discrimination. Accordingly,
the Departments add temporary workers
employed by staffing firms to the classes
of employees permitted under the final
rules.
The Departments also considered
whether or not to add other classes to
the list of permitted classes, as suggested
by commenters, including classes based
on status as a field worker (such as craft
workers and laborers), role or job title,
employee tenure, being subject to the Da-
vis Bacon Act and Related Acts or the Ser-
vice Contract Act, exempt or non-exempt
status under the Fair Labor Standards Act,
and religion or status as a minister. The
Departments considered each of these
suggestions and determined that these
suggested classes of employees should
not be permitted as they raise various is-
sues, including ease of manipulation and
potential for adverse selection and health
factor discrimination, industry-specificity,
and administrability and definitional chal-
lenges.
Additional integration safeguards. The
Departments considered a number of al-
ternative regulatory approaches to address
the concern, acknowledged by the De-
partments and expressed by a number of
commenters, that there is a potential for
certain of the permitted classes of em-
ployees to be manipulated in way that
could lead to adverse selection and health
factor discrimination. The Departments
considered not adopting additional safe-
guards, in order to minimize burden and
complexity and based on the possibility
that other economic incentives related to
attracting and retaining talented workers
would discourage employers from using
the classes to segment risk. However, the
Departments have concluded that it is ap-
propriate to apply a minimum class size
requirement under the final rules in certain
circumstances. The Departments sought
to develop a rule that is narrowly tailored
both to mitigate the risk of adverse selec-
tion and health factor discrimination while
also avoiding overly burdening employers
or unnecessarily hampering the use and
flexibility of HRAs to maximize employ-
ee welfare.
The Departments considered a number
of alternatives in designing the minimum
class size requirement. The Departments
considered whether to apply the minimum
class size requirement to all permitted
classes of employees or only to the classes
of employees that raise more significant
concerns about manipulation. The Depart-
ments determined that the minimum class
size requirement should apply to only cer-
tain of the classes, referred to as the appli-
cable classes (that is, full-time employees,
part-time employees, salaried employees,
non-salaried employees, and, in general,
employees whose primary site of employ-
ment is in a rating area). The Departments
also determined that the minimum class
size requirement should apply if any of
these applicable classes are combined
with any other class, except if the com-
bined class is the result of one of the appli-
cable classes and the class of employees in
a waiting period, because the Departments
determined that that combined classis not
easily manipulable. Similarly, although
a class of employees based on worksites
in a rating area is an applicable class for
purposes of the minimum class size re-
quirement, a class of employees based
on an entire state or a combination of two
or more entire states is not subject to the
minimum class size requirement, because
in that case, weighing concerns about ma-
nipulability against the intent to provide
employers with flexibility and choice, the
Departments determined the application
of the minimum class size requirement
was not warranted.
If a class of employees is subject to
the minimum class size requirement, the
class must include a minimum number
of employees for the individual coverage
HRA to be offered to that class. As to the
number of employees a class must contain
to satisfy the minimum class size require-
ment, the Departments considered a num-
ber of alternatives including whether to
provide one number for all employers or
base the threshold on employer size. The
Departments also considered providing a
set number or a number calculated as a
percentage of the employer’s employees.
The Departments determined that this
safeguard should be narrowly tailored,
so as to prevent against adverse selec-
tion without unduly restricting employ-
er flexibility. Therefore, under the final
rules, the applicable minimum class size
varies based on the size of the employer
for smaller employers (that is, those with
under 200 employees) and for employers
with 200 or more employees, the applica-
ble class size minimum is set at 20.
In response to comments, the Depart-
ments also considered whether, in addi-
tion to, or instead of, a minimum class
size requirement, the final rules should
contain an anti-abuse rule that would give
the Departments the discretion to deter-
mine whether an individual coverage
HRA is offered in a manner that is intend-
ed to segment sicker workers based on all
the facts and circumstances. Therefore,
even if an employer followed the other
rules set forth in the final rules, this ad-
ditional rule would nevertheless permit
the Departments to address instances of
discrimination based on a health factor.
The Departments decline to add a facts
and circumstances test to the final rules,
because the Departments have concluded
that the minimum class size requirement
adequately balances the need to prevent
health factor discrimination with the need
to provide employers with certainty in or-
der to encourage expansion and use of in-
dividual coverage HRAs. Moreover, other
applicable nondiscrimination laws contin-
ue to apply. A new facts and circumstanc-
es test would add significant uncertainty
for employers while adding little addition-
al protection mitigating adverse selection
and health factor discrimination.
Additional flexibility for the transi-
tion to individual coverage HRAs from
traditional group health plans. The De-
partments also considered regulatory al-
ternatives that would allow employers
to phase in offering individual coverage
HRAs, in response to comments noting
that the transition from traditional group
health plans to individual coverage HRAs
could be a substantial change from an
employee perspective. The Departments
considered whether additional flexibili-
ty was needed, in particular because the
permitted classes of employees that apply
under the final rules provide employers
some flexibility to manage the transition
to individual coverage HRAs. Howev-
er, the Departments also considered that

July 8, 2019 196 Bulletin No. 2019–28
certain additional flexibility could benefit
employers and employees, without adding
significant complexity or increasing the
risk of adverse selection. Accordingly, the
final rules provide that, notwithstanding
the general rule that a plan sponsor may
only offer either a traditional group health
plan or an individual coverage HRA to a
class of employees, a plan sponsor that
offers a traditional group health plan to
a class of employees may prospectively
offer employees in that class hired on or
after a certain date in the future an indi-
vidual coverage HRA, while continuing
to offer employees in the class hired be-
fore the new hire date a traditional group
health plan.
Alternatives considered regarding ex-
cepted benefit HRAs. As proposed, the ex-
cepted benefit HRA would allow for the
reimbursement of premiums for STLDI.
In response to commenters requesting that
the excepted benefit HRA not be permit-
ted to reimburse STLDI premiums due to
adverse selection concerns and concerns
about the comprehensiveness of STLDI,
the Departments considered whether to fi-
nalize as proposed or whether to prohibit
the reimbursement of STLDI premiums
under all excepted benefit HRAs. The
Departments also considered whether to
prohibit the reimbursement of STLDI pre-
miums for only certain excepted benefit
HRAs, more specifically, those sponsored
by employers that offer traditional group
health plans in the small group market,
where commenters asserted this aspect of
the rule would have particularly damaging
effects because employers would not have
a direct negative financial consequence
from offering the excepted benefit for
STLDI in addition to a traditional small
group market plan in which case low-
er-risk employees would likely choose the
STLDI and higher-risk employees would
choose the traditional small group market
health plan. The Departments determined
that excepted benefit HRAs generally
should be allowed to reimburse premiums
for STLDI because it can be a viable health
insurance option for many people in many
circumstances, no individual is required
to enroll in STLDI, and STLDI disclosure
requirements are sufficient to apprise con-
sumers of its limits. As explained earlier
in this preamble, the Departments do not
expect that allowing the excepted benefit
HRA to reimburse STLDI premiums will
produce adverse selection in the small
group market. In particular, the Depart-
ments note that individuals who choose to
use the excepted benefit HRA to purchase
STLDI are likely to be uninsured other-
wise, including lower-wage workers who
are increasingly declining employer offers
of traditional group coverage.
313
The pur-
chase of STLDI coverage by these indi-
viduals will have no effect on the small
group or individual market.
However, in response to concerns
raised by commenters, the final rules also
contain a special rule to address comment-
ers’ concerns about the potential for ad-
verse selection in the small group markets.
Under the special rule, the Departments
may restrict excepted benefit HRAs from
being able to reimburse STLDI premiums,
for employers offering fully-insured or
partially-insured traditional group health
plans in the small group market in a state,
if certain criteria are satisfied, including
that HHS makes a finding, in consultation
with DOL and the Treasury Department,
that the reimbursement of premiums for
STLDI by excepted benefit HRAs has
caused significant harm to the small group
market in the state that is the principal
place of business of the small employer
and this finding must be made after sub-
mission of a written recommendation by
the applicable state regulatory authority of
such state.
The proposed excepted benefit HRA
rules did not contain a specific notice re-
quirement. However, several comment-
ers suggested that the final rules impose
certain notice requirements for excepted
benefit HRAs, including to inform partic-
ipants and beneficiaries of the annual dol-
lar limit for benefits under the excepted
benefit HRA, other terms and conditions
of the excepted benefit HRA, and par-
ticipants’ and beneficiaries’ rights under
the excepted benefit HRA. In response,
the Departments considered whether to
impose a notice requirement, whether to
finalize as proposed with no notice re-
quirement, or whether to explain the dis-
closure requirements otherwise applicable
to excepted benefit HRAs. In the final
rules, the Departments do not impose a
notice requirement on private-sector, em-
ployment-based plans covered by ERISA
but, instead, explain that excepted ben-
efit HRAs that are subject to ERISA are
already subject to a number of disclosure
provisions, under which excepted benefit
HRAs should generally provide infor-
mation on eligibility to receive benefits,
annual or lifetime caps or other limits on
benefits under the plan, and a description
or summary of the benefits. However, for
non-federal governmental plans, which
are not subject to ERISA, the final rules
announce HHS’ intent to propose a notice
requirement, similar to the disclosures re-
quired under ERISA.
Under the proposed excepted benefit
HRA rules, the Departments proposed that
annual amounts newly made available un-
der the HRA would be limited to $1,800,
indexed for inflation. Many commenters
supported the proposed dollar limit as a
reasonable mid-point of the different lim-
its that would result in applying various
methodologies, however some requested
that the limit be increased, including to al-
low for the additional purchase of except-
ed benefit policies or for more expensive
STLDI policies and others requested it
not be subject to any dollar limit. Some of
these commenters favored a higher limit
for excepted benefit HRAs based on age
and number of dependents to reflect that
participants who are older or have depen-
dents are likely to have higher healthcare
costs. The Departments considered as
regulatory alternatives the various limits
suggested by commenters, including the
annual salary reduction contribution limit
for health FSAs or 15 percent of the cost
of coverage under the employer’s prima-
ry plan. The final rules do not remove or
increase the dollar limit for the excepted
benefit HRA. The Departments agree that
increasing the dollar limit would encour-
313
In 1999, 17 percent of workers eligible for employer coverage at small firms (those with 3 to 199 workers) turned down the offer of employer coverage. By 2011, this share had climbed
to 22 percent, and in 2018 it was 27 percent. See Kaiser Family Foundation, “Employer Health Benefits 2018 Survey,” Figure 3.1, available at http://files.kff.org/attachment/Report-Employ-
er-Health-Benefits-Annual-Survey-2018.

Bulletin No. 2019–28 197 July 8, 2019
age certain participants to rely solely on
benefits reimbursed through the excepted
benefit HRA and could lead to adverse se-
lection. Also, in order to constitute a lim-
ited excepted benefit, as explained earlier
in this preamble, because the benefit is not
otherwise limited in scope, the HRA must
have a strict dollar limit.
In determining the appropriate dollar
limit for excepted benefit HRAs, the De-
partments considered other, similar lim-
ited excepted benefits. The Departments
agree with commenters’ assertions that
the proposed limit was reasonable and
rational, especially considering the rela-
tively low cost of excepted benefits cov-
erage, such as dental or vision coverage.
Additionally, although the Departments
recognize that healthcare expenses may
be higher for participants who are old-
er or have dependents, adopting a higher
limit to account for a combination of fac-
tors like age and family size could allow
an excepted benefit HRA to be too large
and to resemble major medical coverage
and would add significant complexity to
the rule.
Applicability date. The proposed rules
were generally proposed to be applicable
for plan years beginning on or after Jan-
uary 1, 2020. In response to comments
expressing concern that issuers, state in-
surance regulators, the Exchanges, and
employers would not be prepared for im-
plementation of the final rules by 2020,
the Departments considered whether to
finalize the applicability date as proposed
or whether to delay the applicability date
until 2021. The Departments have deter-
mined that, in consideration that Execu-
tive Order 13813, issued in October 2017,
set forth HRA expansion as an Admin-
istration priority “in the near term,” and
in order to provide Americans with more
options for financing their healthcare, the
regulations should be applicable, as pro-
posed, for 2020. However, the Depart-
ments acknowledge and also considered
the crucial role that the Exchanges have
in implementation and operationalization
of the final rules, and the Departments
will work closely with the Exchanges on
implementation. The Departments con-
sidered the comments and the concerns
raised by various State Exchanges, issu-
ers, employers and other stakeholders
related to the ability of the Exchanges to
fully implement changes related to the
final rules in time for open enrollment
for the 2020 plan year. The Departments
recognize that Exchanges may be unable
to fully implement changes related to the
final rules in time for open enrollment for
the 2020 plan year. However, prior to full
implementation, the Departments will
work with the Exchanges on their strate-
gies to provide information to consumers
about affordability of individual coverage
HRAs and eligibility for APTC, includ-
ing how employees can access individu-
al health insurance coverage through the
Exchanges and determine whether they
should use APTC. In fact, multiple con-
versations have already occurred between
program and operational experts at HHS
and officials from State Exchanges re-
garding implementation in the event the
rule was finalized as proposed (including
with an applicability date as proposed).
Ongoing technical assistance will be
provided related to the development of
tools and functionality by Exchanges to
support employers and employees with
understanding HRA affordability determi-
nations and their impact on APTC eligi-
bility, as well as the SEP for those with
an offer of an individual coverage HRA.
Specific assistance could include sharing
technical and educational documentation
from FFE implementation that can be lev-
eraged to support State Exchange efforts.
In addition, the Departments will provide
assistance to Exchanges in developing
information and tools that could be pro-
vided to employers and employees to help
ensure smooth implementation before the
full system changes are complete. This
could include State Exchanges providing
employees with information on how they
can calculate HRA affordability and deter-
mine the impact on APTC in the absence
of system changes that can make those
calculations for the employee.
The Departments also considered that
many individuals covered by an individ-
ual coverage HRA will prefer to select
off-Exchange individual health insurance
plans because salary reductions through a
cafeteria plan may be used to pay premi-
ums for off-Exchange coverage, if the em-
ployer so allows, and may not be used to
pay premiums for Exchange coverage. To
the extent a significant proportion of em-
ployees with individual coverage HRAs
purchase individual health insurance cov-
erage off the Exchange, concerns about
burden on the Exchanges, and concerns
regarding the effects of timely operation-
alization of the PTC rules, are mitigated.
Further, the Departments have worked
to release the final rules as early in 2019
as possible, in recognition of the imple-
mentation timing issues raised and the
Departments note, and considered, that
plan sponsors may choose if and when to
offer an individual coverage HRA (or an
excepted benefit HRA) and may do so any
time on or after the applicability date. The
Departments intend to provide the guid-
ance necessary for plan sponsors to offer
individual coverage HRAs and except-
ed benefit HRAs for the 2020 plan year,
but the Departments also expect that plan
sponsors will take the time they need to
evaluate the final rules and to take advan-
tage of these new coverage options if and
when it is best for their workforce.
D. Paperwork Reduction Act—
Department of Health and Human
Services
Under the Paperwork Reduction Act of
1995 (PRA), HHS is required to provide
30-day notice in the Federal Register and
solicit public comment before a collection
of information requirement is submitted to
OMB for review and approval. To fairly
evaluate whether an information collec-
tion should be approved by OMB, section
3506(c)(2)(A) of the PRA requires that
HHS solicit comment on the following
issues:
● The need for the information collec-
tion and its usefulness in carrying out
the proper functions of our agency.
● The accuracy of HHS’ estimate of the
information collection burden.
● The quality, utility, and clarity of the
information to be collected.
● Recommendations to minimize the
information collection burden on the
affected public, including automated
collection techniques.
1. Wage Estimates
To derive wage estimates, the Depart-
ments generally used data from the Bureau
of Labor Statistics to derive average labor
costs (including a 100 percent increase for

July 8, 2019 198 Bulletin No. 2019–28
fringe benefits and overhead) for estimat-
ing the burden associated with the infor-
mation collection requirements (ICRs).
314

Table 3 below presents the mean hourly
wage, the cost of fringe benefits and over-
head, and the adjusted hourly wage.
As indicated, employee hourly wage
estimates have been adjusted by a factor
of 100 percent. This is necessarily a rough
adjustment, both because fringe bene-
fits and overhead costs vary significantly
across employers, and because methods of
estimating these costs vary widely across
studies. Nonetheless, there is no practical
alternative, and the Departments are of the
view that doubling the hourly wage to es-
timate total cost is a reasonably accurate
estimation method.
TABLE 3: Adjusted Hourly Wages Used in Burden Estimates
Occupation TitleOccupational Code
Mean Hourly Wage
($/hour)
Fringe Benefits and
Overhead ($/hour)
Adjusted Hourly
Wage ($/hour)
Compensation and Benefits Manager11-3111$62.50$62.50$125.00
Lawyer23-1011$68.22$68.22$136.44
All Occupations00-0000$24.34$24.34$48.68
2. ICRs Regarding Substantiation of
Individual Health Insurance Coverage
(45 CFR 146.123(c)(5))
Under the final rules, an HRA must
implement reasonable procedures to an-
nually verify that participants or depen-
dents, whose medical care expenses are
reimbursable by the HRA are, or will be,
enrolled in individual health insurance
coverage or Medicare for the entire plan
year on or before the first day of the plan
year, or, for an individual who is not eli-
gible to participate in the individual cov-
erage HRA on the first day of the plan
year, by the date HRA coverage begins
(annual coverage substantiation require-
ment).
In addition to the annual substantia-
tion of coverage, with each new request
for reimbursement of an incurred medi-
cal care expense for the same plan year,
the final rules provide that the HRA may
not reimburse a participant for any med-
ical care expenses unless, prior to each
reimbursement, the participant provides
substantiation that the individual on
whose behalf reimbursement of medical
care expenses are requested to be reim-
bursed were enrolled in individual health
insurance coverage or Medicare for the
month during which the medical care
expenses were incurred. The attestation
may be part of the form used for request-
ing reimbursement.
To satisfy these substantiation require-
ments, the HRA may require that the par-
ticipant submit a document provided by a
third party (for example, an explanation of
benefits or insurance card) showing that
the participant and any dependent(s) cov-
ered by the individual coverage HRA are,
or will be, enrolled in individual health
insurance coverage or Medicare during
the plan year or an attestation by the par-
ticipant stating that the participant and
any dependent(s) are, or will be, enrolled
in individual health insurance coverage
or Medicare, the date coverage began or
will begin, and the name of the provider
of the coverage. Additionally, nothing in
the final rules would prohibit an individ-
ual coverage HRA from establishing pro-
cedures to comply with the substantiation
requirements through electronic means,
so long as the procedures are reasonable
to verify enrollment. The ongoing sub-
stantiation may be in the form of a written
attestation by the participant, which may
be part of the form used for requesting re-
imbursement and which will minimize the
burden on plan sponsors and participants.
The ongoing substantiation requirement
may also be satisfied by a document from
a third party. The associated cost of sub-
stantiation will be minimal and is, there-
fore, not estimated.
The Departments are releasing guid-
ance providing model attestation lan-
guage, separate from the final rules. How-
ever, the Departments note that individual
coverage HRAs will not be required to use
the model attestation. For those HRAs that
elect to use the model attestation language
provided by the Departments, it will fur-
ther reduce burden for HRAs and partic-
ipants.
The burden related to these ICRs will
be reviewed under emergency review and
approval. They have been submitted to
OMB in conjunction with this final rule
and are pending approval.
3. ICRs Regarding Notice Requirement
for Individual Coverage HRA (45 CFR
146.123(c)(6))
These final rules include a requirement
that an HRA provide written notice to el-
igible participants. In general, the HRA
will be required to provide a written notice
to each participant at least 90 days before
the beginning of each plan year. For par-
ticipants who are not yet eligible to par-
ticipate at the beginning of the plan year
(or who are not eligible when the notice is
provided at least 90 days prior to the be-
ginning of the plan year), the HRA must
provide the notice no later than the date
on which the HRA may first take effect for
the participant. However, the Departments
encourage the HRA to provide the notice
as soon as practicable prior to the date the
HRA may first take effect. The final rules
provide that if the HRA is sponsored by
314
See May 2017 Bureau of Labor Statistics, Occupational Employment Statistics, National Occupational Employment and Wage Estimates, available at https://www.bls.gov/oes/current/
oes_nat.htm.

Bulletin No. 2019–28 199 July 8, 2019
an employer that is established less than
120 days prior to the beginning of the first
plan year of the HRA, the notice may be
provided no later than the date on which
the HRA may first take effect for the par-
ticipant.
The written notice will be required
to include certain relevant information,
including a description of the terms of
the HRA, including the maximum dol-
lar amount made available that is used
in the affordability determination under
the Code section 36B rules including in-
formation on when the amounts will be
made available (for example, monthly
or annually at the beginning of the plan
year); a statement of the right of the par-
ticipant to opt-out of and waive future re-
imbursement under the HRA; a descrip-
tion of the potential availability of the
PTC for a participant who opts out of and
waives an HRA if the HRA is not afford-
able under the PTC rules; a description
of the PTC eligibility consequences for a
participant who accepts the HRA; a state-
ment on how the participant may find as-
sistance for determining their individual
coverage HRA affordability; a statement
that the participant must inform any Ex-
change to which they apply for advance
payments of the PTC of certain relevant
information; contact information (in-
cluding at least a phone number) of an
individual or a group of individuals who
participants may contact with questions
regarding the individual coverage HRA;
a statement that the participant should re-
tain the written notice because it may be
needed to determine whether the partici-
pant is allowed the PTC; a statement that
the HRA may not reimburse any medical
care expense unless the substantiation
requirements are satisfied; a statement of
availability of an SEP for employees and
dependents who newly gain access to the
HRA; the date as of which coverage un-
der the HRA may first become effective
and the date on which the HRA plan year
ends; and a statement to clarify further
that there are multiple types of HRAs and
the type the participant is being offered is
an individual coverage HRA.
The written notice may include oth-
er information, as long as the additional
content does not conflict with the required
information. The written notice will not
need to include information specific to a
participant.
The Departments are providing model
language contemporaneously on certain
aspects of the notice that are not employ-
er-specific, including model language
describing the PTC consequences of be-
ing offered and accepting an individual
coverage HRA, how the participant may
find information to determine whether
the individual coverage HRA offered is
affordable, and language to meet the re-
quirement to include a statement regard-
ing the availability of an SEP in the indi-
vidual market for individuals for whom an
individual coverage HRA is newly made
available. While the Departments hope it
will be useful to employers, plan sponsors
will not be required to use the model lan-
guage and the final rules do not prohibit
an employer from providing more individ-
ualized notices, such as different notices
for different classes of employees, if the
employer so chooses.
The Departments estimate that for
each HRA plan sponsor, a compensation
and benefits manager will need 2 hours
(at $125 per hour) and a lawyer will need
1 hour (at $136.44 per hour) to prepare
the notices. The total burden for an HRA
plan sponsor will be 3 hours with an
equivalent cost of approximately $386.
This burden will be incurred the first time
the plan sponsor provides an individual
coverage HRA. In subsequent years, the
burden to update the notice is expected
to be minimal and therefore is not esti-
mated. If the HRA plan sponsor elects to
use the model notice, the burden may be
reduced.
HHS estimates that in 2020, an esti-
mated 1,203 state and local government
entities will offer individual coverage
HRAs.
315
The total burden to prepare no-
tices will be approximately 3,610 hours
with an equivalent cost of approximately
$464,984. In 2021 approximately 1,805
additional state and local government
entities will offer individual coverage
HRAs for the first time and will incur
a burden of approximately 5,415 hours
with an equivalent cost of approximately
$697,476. In 2022, approximately 3,008
additional state and local government
entities will offer individual coverage
HRAs for the first time and will incur
a burden of approximately 9,024 hours
with an equivalent cost of approximately
$1.16 million.
HRA plan sponsors will provide the
notice to eligible participants every year.
HHS estimates that HRA plan sponsors
will provide printed notices to approxi-
mately 99,178 eligible participants
316
in
2020, 243,438 eligible participants in
2021 and 477,859 eligible participants
in 2022. The Departments anticipate that
the notices will be approximately 6 pages
long and the cost of materials and print-
ing will be $0.05 per page, with a total
cost of $0.30 per notice. It is assumed
that these notices will be provided along
with other benefits information with no
additional mailing cost. The Departments
assume that approximately 54 percent
of notices will be provided electronical-
ly and approximately 46 percent will be
provided in print along with other bene-
fits information. Therefore, in 2020, state
and local government entities providing
individual coverage HRAs will print ap-
proximately 45,622 notices at a cost of
approximately $13,687. In 2021, approx-
imately 111,981 notices will be printed
at a cost of approximately $33,594 and
in 2022, approximately 219,815 notices
will be printed at a cost of approximately
$65,945.
315
U.S. Department of the Treasury, Office of Tax Analysis simulation model suggests that in 2020, approximately 80,000 employers will offer individual coverage HRAs, with 1.1 million
individuals receiving an offer of an individual coverage HRA. These numbers will increase to 200,000 employers and 2.7 million individuals in 2021 and to 400,000 employers and 5.3 million
individuals in 2022. The Departments estimate that there is, on average, 1 dependent for every policyholder. The Departments also estimate that approximately 2 percent of employers are
state and local government entities, accounting for approximately 14 percent of participants.
316
U.S. Department of the Treasury, Office of Tax Analysis simulation model provides estimates of the number of participants and dependents offered an individual coverage HRA. Number of
eligible participants is estimated based on the assumption that 75 percent of eligible participants will enroll in their employers’ plans. See Kaiser Family Foundation, “2017 Employer Health
Benefits Survey”, Section 3, https://www.kff.org/health-costs/report/2017-employer-health-benefits-survey/.

July 8, 2019 200 Bulletin No. 2019–28
TABLE 4. Annual Burden and Costs
Year
Estimated Number
of Employers Newly
Offering HRAs
Estimated Number of
Notices to all Eligible
Participants
Total Annual
Burden (hours)
Total Estimated
Labor Cost
Total Estimated
Printing and
Materials Cost
20201,20399,1783,610$464,984$13,687
20211,805243,4385,415$697,476$33,594
20223,008477,8599,024$1,162,461$65,945
3 year Average2,005273,4926,016$774,974$37,742
The burden related to these ICRs will
be reviewed under emergency review and
approval. They have been submitted to
OMB in conjunction with this final rule
and are pending approval.
4. ICRs Regarding Notice Requirement
for Excepted Benefit HRAs
In response to commenters’ concerns,
the final rules announce HHS’ intent to
propose a notice requirement with respect
to excepted benefit HRAs sponsored by
nonfederal governmental plan sponsors in
future notice and comment rulemaking. It
is anticipated that the proposed excepted
benefit HRA notice would describe con-
ditions pertaining to eligibility to receive
benefits, annual or lifetime caps or other
limits on benefits under the plan, and a de-
scription or summary of the benefits con-
sistent with the requirements of 29 CFR
2520.102-3(j)(2), (3). At that time, HHS
will estimate the burden associated with
this requirement, solicit public comment,
and request OMB approval in accordance
with the PRA, as may be necessary.
5. ICRs Regarding Notification of
Termination of Coverage (45 CFR
146.123(c)(1)(iii))
Under the final rules, if an individual’s
health insurance coverage is cancelled
or terminated, including retroactively,
for failure to pay premiums or any other
reason (for example, a rescission), the in-
dividual coverage HRA must require that
the individual notify the HRA that cover-
age has been cancelled or terminated and
the date on which the cancellation or ter-
mination is effective. The associated cost
of this notification will be minimal and is,
therefore, not estimated.
The burden related to these ICRs will
be reviewed under emergency review and
approval. They have been submitted to
OMB in conjunction with this final rule
and are pending approval.
6. ICRs Regarding Special Rule for
Excepted Benefit HRAs (45 CFR
146.145(b)(3)(viii)(F))
Under the final rules, an excepted bene-
fit HRA offered by certain small employers
must not reimburse premiums for STLDI
in a state, if the Secretary of HHS makes a
finding (in consultation with the Secretar-
ies of Labor and the Treasury) that the re-
imbursement of premiums for STLDI by
excepted benefit HRAs has caused signifi-
cant harm to the small group market in the
state that is the principal place of business
of the small employer. The finding by the
Secretary of HHS may be made only after
submission of a written recommendation
by the applicable state authority of such
state, in a form and manner as specified in
guidance published by HHS. The written
recommendation must include evidence
that the reimbursement of premiums for
STLDI by excepted benefit HRAs estab-
lished by fully-insured or partially-insured
small employers in the state has caused
significant harm to the state’s small group
market, including with respect to premi-
ums. HHS anticipates fewer than 10 states
will submit recommendations annually.
Under 5 CFR 1320.3(c)(4), this ICR
will not be subject to the PRA as we antic-
ipate it will affect fewer than 10 entities in
a 12-month period.
7. ICRs Regarding SEPs (45 CFR
155.420(d)(14))
The final SEP rules include a new SEP
at 45 CFR 155.420(d)(14), to allow indi-
viduals who newly gain access to an indi-
vidual coverage HRA or are newly provid-
ed a QSEHRA to enroll in or change their
individual health insurance coverage. As
stated earlier in the preamble, the FFEs
will require individuals to submit docu-
mentation to confirm their SEP eligibility
prior to effectuating their enrollment, and
encourages State Exchanges to do so, as
well. Consistent with other SEPs subject
to pre-enrollment verification, individu-
als will be required to provide supporting
documentation, such as the HRA notice
required under the final rules, within 30
days of plan selection.
HHS estimates that an additional
330,000 consumers will submit docu-
ments in 2020 to verify their eligibility to
enroll through the SEP in the Exchang-
es, and that a consumer will, on average,
spend approximately 1 hour gathering and
submitting required documentation. Us-
ing the average hourly wage for all occu-
pations (at an hourly rate of $48.68), the
opportunity cost to a consumer complet-
ing this task is estimated to be approxi-
mately $48.68. The total annual burden on
those consumers submitting documenta-
tion will be approximately 330,000 hours
with an equivalent cost of approximately
$16,064,400. As new individual cov-
erage HRA enrollments increase, these
costs also increase in subsequent years.
In 2021, an additional 480,000 consum-
ers will submit documents and incur bur-
den of 480,000 hours with an equivalent
cost of approximately $23,366,400 and
in 2022 an additional 780,000 consumers
will submit documents and incur burden
of 780,000 hours with an equivalent cost
of approximately $37,970,400. The three-
year average is 530,000 additional con-
sumers submitting documents, with a total
burden of 530,000 hours and an equiva-
lent cost of $25,800,400 per year.
HHS will amend the information col-
lection currently approved under OMB
control number 0938–1207 (Medicaid and
Children’s Health Insurance Programs:

Bulletin No. 2019–28 201 July 8, 2019
Essential Health Benefits in Alternative
Benefit Plans, Eligibility Notices, Fair
Hearing and Appeal Processes, and Pre-
miums and Cost Sharing; Exchanges: Eli-
gibility and Enrollment (CMS– 10468)) to
account for this additional burden.
TABLE 5. Annual Recordkeeping and Reporting Requirements
Regulation
Section
OMB
Control
Number
RespondentsResponses
Burden
per
Response
(hours)
Total
Annual
Burden
(hours)
Hourly
Labor
Cost of
Reporting
Total Labor
Cost of
Reporting
Printing
and
Materials
Cost
Total Cost
§146.123(c)(6)
(Notice for
Individual
Coverage
HRAs)
0938-
NEW
2,005273,49236,016$128.81$774,974$37,742$812,716
45 CFR
§155.420(d)
(14) (SEP)
0938-
1207
530,000530,0001530,000$48.68$25,800,400$0$25,800,400
Total532,005803,492536,016$26,575,374$37,742$26,613,116
8. Submission of PRA-Related Comments
HHS has submitted a copy of the final
rules to OMB for its review of the rule’s
information collection and recordkeeping
requirements. The requirements are not
effective until they have been approved
by OMB.
To obtain copies of the supporting
statement and any related forms for the
collections discussed in this rule, please
visit CMS’ website at www.cms.hhs.gov/
PaperworkReductionActof1995, or call
the Reports Clearance Office at 410-786-
1326. HHS invites public comments on
these information collection requirements.
If you wish to comment, please identify
the rule (CMS-9918-F), the ICR’s CFR ci-
tation, CMS ID number, and OMB control
number. Comments and recommendations
must be received by the OMB desk officer
via one of the following transmissions:
OMB, Office of Information and Reg-
ulatory Affairs
Attention: CMS Desk Officer
Fax: (202) 395-5806 OR
E-mail: OIRA_submission@omb.eop.
gov
To obtain copies of a supporting state-
ment and any related forms for the collec-
tion(s) summarized in this rule, you may
make your request using one of following:
1. Access CMS’ Web Site address
at https://www.cms.gov/Regula-
tions-and-Guidance/Legislation/
PaperworkReductionActof1995/
PRA-Listing.html
2. E-mail your request, including your
address, phone number, OMB num-
ber, and CMS document identifier, to
Paperwork@cms.hhs.gov.
3. Call the Reports Clearance Office at
(410) 786-1326.
ICR-related comments are due July 22,
2019.
E. Paperwork Reduction Act –
Department of Labor and Department
of the Treasury
As part of the continuing effort to re-
duce paperwork and respondent burden,
the Departments conduct a preclearance
consultation program to provide the gen-
eral public and federal agencies with an
opportunity to comment on proposed and
continuing collections of information in
accordance with the PRA. This helps to
ensure that the public understands the De-
partments’ collection instructions, respon-
dents can provide the requested data in the
desired format, reporting burden (time and
financial resources) is minimized, collec-
tion instruments are clearly understood,
and the Departments can properly assess
the impact of collection requirements on
respondents.
Under the PRA, an agency may not
conduct or sponsor, and an individual is
not required to respond to, a collection
of information unless it displays a val-
id OMB control number. In accordance
with the requirements of the PRA, DOL
published notice on October 29, 2018 (83
FR 54420, 54454) requesting an OMB
control number for three new informa-
tion collections (ICs) contained in the
proposed rules. Two ICs are sponsored
jointly by DOL and the Treasury Depart-
ment: (1) Verification of Enrollment in
Individual Health Insurance Coverage (26
CFR 54.9802-4(c)(5), 29 CFR 2590.702-
2(c)(5) and 45 CFR 146.123(c)(5)); and
(2) HRA Notice to Participants (26 CFR
54.9802-4(c)(6), 29 CFR 2590.702-2(c)
(6) and 45 CFR 146.123(c)(6)). A third
IC is sponsored solely by DOL (29 CFR
2510.3-1): (3) Notice to Participants that
Individual Health Insurance Coverage
Policy is Not Subject to Title I of ERISA.
In response to comments received on the
proposal, the Departments have added
two additional information collections en-
titled Participant Notify Individual Cov-
erage HRA of Cancelled or Terminated
Coverage (26 CFR 54.9802-4(c)(1)(iii),
29 CFR 2590.702-2(c)(1)(iii) and 45 CFR
146.123(c)(1)(iii)) and Notice for Except-
ed Benefit HRAs (26 CFR 54.9831-1(c)(3)
(viii)(E), 29 CFR 2590.732(c)(3)(viii)(E)
and 45 CFR 146.145(c)(3)(viii)(E)).
With regard to the Treasury Depart-
ment, the collection of information con-
tained in these regulations is submitted to
OMB for review in accordance with the

July 8, 2019 202 Bulletin No. 2019–28
PRA as follows. The collection of infor-
mation in these regulations is in 26 CFR
54.9815-2711(d)(4) and 26 CFR 54.9802-
4(c)(1)(iii), (c)(5) and (c)(6). The burden
for the collection of information contained
in these regulations is reflected in the bur-
den for OMB Control Number 1545-0123
for the U. S. Business Income Tax Return,
1545-0074 for U.S. Individual Income Tax
Return, and 1545-0047 Return of Organi-
zations Exempt From Income Tax. The
estimated annual burden per respondent,
estimated annual burden per recordkeep-
er, or estimated number of respondents is
updated annually.
The Departments submitted an infor-
mation collection request (ICR) to OMB
in accordance with 44 U.S.C. 3507(d)
contemporaneously with the publication
of the proposed rules for OMB’s review. A
copy of the ICR may be obtained by con-
tacting the PRA addressee identified or at
http://www.RegInfo.gov. PRA Addressee:
G. Christopher Cosby, Office of Policy
and Research, U.S. Department of Labor,
Employee Benefits Security Administra-
tion, 200 Constitution Avenue NW, Room
N– 5718, Washington, DC 20210. Tele-
phone (202) 693–8410; Fax: (202) 219–
5333. These are not toll-free numbers.
ICRs submitted to OMB also are available
at http://www.RegInfo.gov.
In connection with the final rules, the
Departments are submitting an ICR to
OMB requesting approval of a new collec-
tion of information under OMB Control
Number 1210-0160. Below is a descrip-
tion of the information collections con-
tained in the final rules and their burden.
1. Verification of Enrollment in Individual
Health Insurance Coverage
In order for an HRA to be integrated
with individual health insurance coverage
(or Medicare, if applicable), among other
requirements, in general, the HRA must
implement, and comply with, reasonable
procedures to substantiate that participants
and dependents covered by the HRA are,
or will be, enrolled in individual health in-
surance coverage (or Medicare, if applica-
ble) for the plan year (or for the portion of
the plan year the individual is covered by
the HRA, if applicable). This requirement
may be satisfied by providing a document
from a third party, like an issuer, verify-
ing coverage. As an alternative procedure,
this requirement may also be satisfied if
the HRA requires participants to provide
an attestation of coverage, including the
date coverage begins and the provider of
the coverage.
In addition, following the initial sub-
stantiation of coverage, with each new
request for reimbursement of an incurred
medical care expense for the same plan
year, the HRA may not reimburse par-
ticipants for any medical care expenses
unless, prior to each reimbursement, the
participant provides substantiation that
the individual whose medical care ex-
penses are requested to be reimbursed
continues to be enrolled in individual
health insurance coverage (or Medicare,
if applicable) for the month during which
the medical care expenses were incurred.
The HRA must implement, and comply
with, reasonable procedures to satisfy this
requirement. This substantiation may be
in the form of a written attestation by the
participant, which may be part of the form
used for requesting reimbursement, or a
document from a third party (for example,
a health insurance issuer).
Documentation, including proof that
expenditure of funds is for a medical care
expense, is currently universal when seek-
ing reimbursement from an HRA. For the
new requirements contained in the final
rules regarding verification of enrollment
in individual health insurance coverage
(or Medicare, if applicable), the HRA can
require proof of coverage or attestations
of coverage as part of the processes that
already exist for when participants seek
reimbursement from HRAs for premiums
or other medical care expenses. The addi-
tional burden is de minimis, because the
attestation can be a part of the information
already required when seeking reimburse-
ment. To the extent an HRA develops ad-
ditional processes for the requirement that
individuals verify enrollment in individual
health insurance coverage (or Medicare)
for the plan year, the additional burden is
also expected to be de minimis because
it involves either attestation or providing
documents that already exist.
The Departments are providing model
attestation language, separate from the fi-
nal rules. However, the Departments note
that individual coverage HRAs will not be
required to use the model attestation. For
those HRAs that elect to use the model
attestation language provided by the De-
partments, it will further reduce burden
for the HRAs and participants.
Section II.A.8 of this preamble discuss-
es comments received on the requirement
to verify enrollment including II.A.8.a In
General, II.A.8.b Methods of Substantia-
tion, and II.A.8.c Reliance on Documen-
tation or Attestation.
2. HRA Notice to Participants
The final rules (29 CFR 2590.702-2(c)
(6)(ii)) require an HRA to provide written
notice to eligible participants including,
among other things, the following infor-
mation: (1) a description of the terms of
the HRA, including the amounts newly
made available as used in the affordability
determination under the Code section 36B
final rules; (2) a statement of the right of
the participant to opt-out of and waive fu-
ture reimbursement under the HRA; (3) a
description of the potential availability of
the PTC for a participant who opts out of
and waives an HRA if the HRA is not af-
fordable under the final PTC rules; and (4)
a description of the PTC eligibility con-
sequences for a participant who accepts
the HRA. The written notice may include
other information, as long as the addition-
al information does not conflict with the
required information. The written notice
does not need to include information spe-
cific to a participant. In response to public
comments, the Departments are separately
publishing a model notice that can be used
to satisfy these requirements, although the
HRA will be required to add certain infor-
mation specific to the particular HRA. The
Departments note that individual coverage
HRAs will not be required to use the mod-
el notice. For those HRAs that elect to use
the model notice language provided by the
Departments, it will further reduce burden
for the HRAs.
In general, the HRA must provide the
written notice to each participant at least
90 days before the beginning of each plan
year. For participants who are not yet eli-
gible to participate at the beginning of the
plan year (or who are not eligible when the
notice is provided at least 90 days prior to
the beginning of the plan year), the HRA
must provide the notice no later than the
date on which the HRA may first take ef-

Bulletin No. 2019–28 203 July 8, 2019
fect for the participant. Also, for any par-
ticipant who is employed by an employer
that is first established less than 120 days
before the beginning of the first plan year
of the HRA, the notice must be provided
no later than the date on which the HRA
may first take effect for the participant.
Section II.A.9 of the preamble dis-
cusses comments received on the notice,
the Departments’ responses and changes
made to the notice requirement including
II.A.9.a Notice Content, II.A.9.b Notice
Individualization, II.A.9.c Model Notice,
II.A.9.d Notice Timing and Delivery.
The Departments estimate that a com-
pensation and benefits manager would re-
quire two hours (at $125 per hour) and a
lawyer would require one hour (at $136.44
per hour) to prepare the notice for each
HRA. Thus, the total hour burden for each
HRA would be 3 hours with an equivalent
cost of approximately $386. The Depart-
ments estimate that each notice would be
six pages, with total materials and printing
cost of $0.30 per notice ($0.05 per page).
The Departments estimate that 78,797
private employers would
317
newly offer
individual coverage HRAs in 2020
318
as
a result of the final rules in the first year.
Therefore, the Departments estimate the
total hour burden for these HRAs to pre-
pare the notices would be 236,390 hours
with an equivalent cost of $30,450,216.
All individual coverage HRAs are re-
quired to annually send the notice to all
eligible participants (those eligible to en-
roll). The Departments estimate that there
would be 634,155 eligible participants at
private employers in 2020 that would need
to receive the notice.
319
The Departments
assume that approximately 54 percent of
notices would be provided electronically
and approximately 46 percent would be
provided in print along with other benefits
information. Therefore, a total of 291,711
notices will be printed at a cost of $87,513.
Tables 6 and 7 provide estimates for years
2020, 2021 and 2022.
TABLE 6.— Burden to Prepare HRA Notice for the First Time- Private Sector Employers
Year
Number of
Employers Newly
Offering HRAs
Legal
Cost Per
Hour
Number of
Hours for
Legal
Benefit
Manager Cost
per Hour
Number of
Hours for Benefit
Manager
Total Hour
Burden
Total
Equivalent
Cost
(a)(b)(c)(d)=1*(b)(e)(f)=2*(b)(g)=(d)+(f)(c)*(d)+(e)*(f)
2020 78,797 $136.44 78,797 $125.00 157,593 236,390 $30,450,216
2021 118,195 $136.44 118,195 $125.00 236,390 354,585 $45,675,324
2022 196,992 $136.44 196,992 $125.00 393,984 590,976 $76,125,539
TABLE 7.—Burden to Provide Notice to All Eligible Private Sector Participants
Year
Total # of
Notices
# of Notices
Sent by
Mail
Cost Per
NoticeTotal Cost Burden
(a)(b)(c)(d)(e)=(c)*(d)
2020 634,155 291,711 $0.30$87,513
2021 1,556,562 716,019 $0.30$214,806
2022 3,055,474 1,405,518 $0.30$421,655
3. Notice to Participants that Individual
Health Insurance Coverage Policy is
not Subject to Title I of ERISA
In the final rules, DOL clarifies that
individual health insurance coverage, the
premiums of which are reimbursed by an
HRA, QSEHRA, or supplemental salary
reduction arrangement is not considered
an “employee welfare benefit plan” with
the consumer protections provided under
ERISA, if certain safe harbor conditions
are satisfied. HRA plan sponsors are re-
quired to notify participants of this fact
(29 CFR 2510.3-1(l)(5)). For an HRA,
this notice requirement is satisfied if an-
nually the notice requirement in 26 CFR
54.9802-4(c)(6) and 29 CFR 2590.702-
2(c)(6) is satisfied, which is part of the
HRA Notice to Participants discussed
earlier in this preamble. Therefore, this
notice requirement imposes no additional
burden. For QSEHRAs and for HRAs not
subject to 26 CFR 54.9802-4(c)(6) and 29
317
U.S. Department of the Treasury, Office of Tax Analysis used a simulation model to obtain these estimates. For 2020, the model estimated that 80,000 employers will offer individual
coverage HRAs and 1.1million individuals will be offered those HRAs. Based on DOL estimates about 98 percent of these will be in the private market, and the rest will be through public
employers like state and local governments. There are on average one dependent for every policy holder. "Health Insurance Coverage Bulletin", Abstract of the Auxiliary Data for the March
2016 Annual Social and Economic Supplement of the Current Population Survey, July 25, 2017. https://www.dol.gov/sites/default/files/ebsa/researchers/data/health-and-welfare/health-in-
surance-coverage-bulletin-2016.pdf
318
Comparable numbers for 2021 are 118,195 private employers will newly offer individual coverage HRAs and 1,556,562 eligible participants in all individual coverage HRAs will receive
notices, and for 2022 196,992 private employers will newly offer individual coverage HRAs and 3,055,474 eligible participants in all individual coverage HRAs will receive notices.
319
Number of eligible participants is estimated based on Treasury estimates of the number of individuals enrolled in individual coverage HRAs, the assumption that there are two enrollees
per employee participant, and the assumption that 75 percent of eligible participants would enroll in their employers’ plans. See Kaiser Family Foundation, “2017 Employer Health Benefits
Survey”, Section 3, https://www.kff.org/health-costs/report/2017-employer-health-benefits-survey/.

July 8, 2019 204 Bulletin No. 2019–28
CFR 2590.702-2(c)(6), but that reimburse
premiums for individual health insurance
coverage, the plan sponsor may use the
following language to satisfy this con-
dition: “The individual health insurance
coverage that is paid for by this plan, if
any, is not subject to the rules and consum-
er protections of the Employee Retirement
Income Security Act. You should contact
your state insurance department for more
information regarding your rights and re-
sponsibilities if you purchase individual
health insurance coverage.” The Depart-
ments estimate that this burden will be de
minimis, because the required text is pro-
vided in the rule and can be included with
other notices.
Section II.A.9 of the preamble dis-
cusses comments received on the notice
required to be provided to participants
eligible for an individual coverage HRA.
4. Participant Notifies Individual
Coverage HRA of Cancelled or
Terminated Coverage
The final rules require that if a covered
individual fails to pay the applicable pre-
mium(s) by the end of a grace period and
the coverage is cancelled or terminated,
including retroactively, or if individual
health insurance coverage is cancelled or
terminated retroactively for some other
reason (for example, a rescission), the in-
dividual coverage HRA must require that
the individual notify the HRA that cover-
age has been cancelled or terminated and
the date on which the coverage cancella-
tion or termination is effective (26 CFR
54.9802-4(c)(1)(iii), 29 CFR 2590.702-
254.9801-4(c)(1)(iii) and 45 CFR
146.123(c)(1)(iii)). The Departments have
concluded that the burden associated with
this notification requirement is de minimis
for participants that cancel coverage, be-
cause they can satisfy the requirement by
making a phone call or sending an email.
Other related comments are discussed
in section II.A.2.d of this preamble.
5. Notice for Excepted Benefit HRAs
In response to commenters’ concerns,
the final rules announce HHS’ intent to
propose a notice requirement with respect
to excepted benefit HRAs sponsored by
non-federal governmental plan sponsors
in future notice and comment rulemaking.
It is anticipated that the proposed except-
ed benefit HRA notice would be required
to state conditions pertaining to eligibili-
ty to receive benefits, annual or lifetime
caps or other limits on benefits under the
excepted benefit HRA, and a description
of or summary of the benefits consistent
with the content and timing of DOL’s SPD
requirements.
For private-sector, employment-based
plans, other notice requirements under
Part 1 of ERISA already apply. For exam-
ple, excepted benefit HRAs that are ER-
ISA-covered plans must provide a SPD,
SMM, and summaries of material reduc-
tions in covered services or benefits.
320

The excepted benefit HRA’s SPD must
include, for example, the conditions per-
taining to eligibility to receive benefits;
a description or summary of the benefits;
the circumstances that may result in dis-
qualification, ineligibility, or denial, loss,
forfeiture, suspension, offset, reduction,
or recovery (for example, by exercise of
subrogation or reimbursement rights) of
any benefits; and the procedures govern-
ing claims for benefits under the excepted
benefit HRA. Accordingly, for excepted
benefit HRAs that are subject to ERI-
SA, the burden for providing informa-
tion regarding excepted benefit HRAs is
captured under DOL’s SPD information
collection (OMB Control Number 1210-
0039), which includes a growth factor for
new SPDs and SMMs provided to partic-
ipants to notify them regarding coverage
under new plans and plan amendments.
Additional comments are discussed in
section II.B.7 of this preamble.
The information collections are sum-
marized as follows:
Type of Review: New Collection.
Agency: DOL–EBSA, Treasury - IRS
Title: Notice for Health Reimburse-
ment Arrangements integrated with Indi-
vidual Health Insurance Coverage
OMB Numbers: 1210–0160 (DOL),
1545-0123, 1545-0074, and 1545-0047
(Treasury).
Affected Public: Private Sector.
Total Respondents: 1,442,876 three-
year average.
Total Responses: 18,798,855 three-
year average.
Frequency of Response: Annually.
Estimated Total Annual Burden Hours:
196,992 for each agency (combined total
is 393,984 hours). Three year average.
Estimated Total Annual Burden Cost:
$120,662 for each agency (combined total
is $241,325). Three year average.
F. Regulatory Flexibility Act
The Regulatory Flexibility Act (5
U.S.C. 601 et seq.) (RFA) imposes cer-
tain requirements with respect to federal
rules that are subject to the notice and
comment requirements of section 553(b)
of the Administrative Procedure Act (5
U.S.C. 551 et seq.) and which are likely
to have a significant economic impact on
a substantial number of small entities. Un-
less an agency certifies that a final rule is
not likely to have a significant economic
impact on a substantial number of small
entities, section 604 of the RFA requires
that the agency prepare a final regulatory
flexibility analysis describing the impact
of the rule on small entities. Small entities
include small businesses, organizations,
and governmental jurisdictions.
The RFA generally defines a ‘‘small en-
tity’’ as (1) a proprietary firm meeting the
size standards of the Small Business Ad-
ministration (SBA) (13 CFR 121.201), (2)
a nonprofit organization that is not domi-
nant in its field, or (3) a small government
jurisdiction with a population of less than
50,000. (States and individuals are not in-
cluded in the definition of ‘‘small entity.’’)
The Departments use as their measure of
significant economic impact on a substan-
tial number of small entities a change in
revenues of more than 3 to 5 percent.
The Departments do not expect the
final rules to produce costs or benefits in
excess of 3 to 5 percent of revenues for
small entities. Entities that choose to offer
an individual coverage HRA instead of a
traditional group health plan are likely to
experience a modest increase or decrease
in administrative burden associated with
health benefits. Entities that newly offer
320
See 29 CFR 2520.104b-2, 2520.104b-3(a), and (d)(3).

Bulletin No. 2019–28 205 July 8, 2019
health benefits in the form of an individ-
ual coverage HRA would bear modest
administrative costs. However, offering
an individual coverage HRA is entirely
voluntary on the part of employers, and no
employer that would experience substan-
tial costs would be expected to offer an
individual coverage HRA. In addition, the
final rules would provide large and small
employers with an additional choice of a
tax-preferred health benefit to offer their
employees, potentially enabling them to
attract and retain workers and maintain a
healthier workforce.
In addition, section 1102(b) of the So-
cial Security Act requires agencies to pre-
pare a regulatory impact analysis if a rule
may have a significant economic impact
on the operations of a substantial num-
ber of small rural hospitals. This analysis
must conform to the provisions of section
604 of the RFA. The final rules will not
have a direct effect on small rural hospi-
tals though there may be an indirect effect.
By reducing the number of uninsured per-
sons, the final rules could reduce admin-
istrative costs, such as billing costs and
the costs of helping patients obtain public
health benefits. The final rules could also
reduce the cost of uncompensated care
borne by small rural hospitals and other
healthcare providers (and shift such costs
to insured persons). However, the De-
partments have determined that the final
rules will not have a significant impact on
the operations of a substantial number of
small rural hospitals.
G. Impact of Regulations on Small
Business—Department of the Treasury
Pursuant to section 7805(f) of the Code,
the proposed rule that preceded this final
rule was submitted to the Chief Counsel
for Advocacy of the Small Business Ad-
ministration for comment on its impact
on small business, and no comments were
received.
H. Unfunded Mandates Reform Act
Section 202 of the Unfunded Mandates
Reform Act of 1995 (UMRA) requires
that agencies assess anticipated costs and
benefits and take certain other actions be-
fore issuing a final rule that includes any
Federal mandate that may result in ex-
penditures in any 1 year by state, local,
or Tribal governments, in the aggregate,
or by the private sector, of $100 million
in 1995 dollars, updated annually for in-
flation. In 2019, that threshold is approxi-
mately $154 million. These final rules do
not include any Federal mandate that may
result in expenditures by state, local, or
tribal governments, or by the private sec-
tor in excess of that threshold.
I. Federalism
Executive Order 13132 outlines fun-
damental principles of federalism. It re-
quires adherence to specific criteria by
Federal agencies in formulating and im-
plementing policies that have “substantial
direct effects” on the states, the relation-
ship between the national government
and states, or on the distribution of pow-
er and responsibilities among the various
levels of government. Federal agencies
promulgating regulations that have these
federalism implications must consult with
state and local officials, and describe the
extent of their consultation and the nature
of the concerns of state and local officials
in the preamble to the final rules. Federal
officials have discussed the issues related
to implementation of the policies in the
proposed rules with state regulatory offi-
cials. Over multiple individual and group
conversations, federal and state officials
shared information about how and when
Exchange systems and processes could
be updated to support implementation of
individual coverage HRAs while mini-
mizing burden and confusion for both em-
ployers and consumers. State Exchanges
expressed interest in how the FFEs would
update information and systems to support
employers and employees with HRA af-
fordability determinations and the impact
on APTC eligibility. The FFEs explained
possible ways in which the federal plat-
form would approach these issues and
operations if the rules were finalized as
proposed and agreed to share related docu-
mentation once implementation begins, to
support state efforts. Some State Exchang-
es expressed concerns in these conversa-
tions that fully implementing these chang-
es would take several months and likely
would not be finished before individual
coverage HRAs become available start-
ing on January 1, 2020. The FFEs offered
suggestions for information that could be
provided to employers and consumers to
address these concerns and ensure smooth
implementation before system changes
are complete.
J. Congressional Review Act
This final rule is subject to the Con-
gressional Review Act provisions of the
Small Business Regulatory Enforcement
Fairness Act of 1996 (5 U.S.C. 801 et seq.)
and will be transmitted to the Congress
and to the Comptroller General for review
in accordance with such provisions.
K. Reducing Regulation and Controlling
Regulatory Cost
Executive Order 13771, titled Reduc-
ing Regulation and Controlling Regulato-
ry Costs, was issued on January 30, 2017
and requires that the costs associated with
significant new regulations “shall, to the
extent permitted by law, be offset by the
elimination of existing costs associated
with at least two prior regulations.” This
final rule is an Executive Order 13771 de-
regulatory action.
Statutory Authority
The Department of the Treasury regu-
lations are adopted pursuant to the author-
ity contained in sections 7805 and 9833 of
the Code.
The Department of Labor regulations
are adopted pursuant to the authority con-
tained in 29 U.S.C. 1002, 1135, 1182,
1185d, 1191a, 1191b, and 1191c; Secre-
tary of Labor’s Order 1-2011, 77 FR 1088
(Jan. 9, 2012).
The Department of Health and Human
Services regulations are adopted pursuant
to the authority contained in sections 2701
through 2763, 2791, 2792, and 2794 of
the PHS Act (42 U.S.C. 300gg–300gg-63,
300gg-91, 300gg-92 and 300gg-94), as
amended; sections 1311 and 1321 of
PPACA (42 U.S.C. 13031 and 18041).
* * * * *
Kirsten Wielobob,
Deputy Commissioner for Services
and Enforcement.
Internal Revenue Service
Approved: June 6, 2019

July 8, 2019 206 Bulletin No. 2019–28
David J Kautter,
Assistant Secretary of the Treasury
(Tax Policy).
Signed at Washington DC, this 10th day
of June, 2019

Preston Rutledge,
Assistant Secretary,
Employee Benefits Security
Administration, Department of Labor.
Dated: June 7, 2019.

Seema Verma,
Administrator, Centers for Medicare
& Medicaid Services.
Dated: June 7, 2019.

Alex M. Azar II,
Secretary, Department of Health and
Human Services.
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
Amendments to the
Regulations
Accordingly, 26 CFR parts 1 and 54 are
amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation
for part 1 continues to read in part as fol-
lows:
Authority: 26 U.S.C. 7805.
* * * * *
Par 2. Section 1.36B-0 is amended by—
a. Adding entries for §§1.36B-2(c)(3)(i)
(A) and (B).
b. Revising the entry for §1.36B-2(c)
(5).
c. Adding entries for §§1.36B-2(c)
(5)(i) and (ii), 1.36B-2(c)(5)(iii),
1.36B-2(c)(5)(iii)(A) and (B), and
1.36B-2(c)(5)(iv) through (ix).
The additions and revision read as fol-
lows:
§1.36B-0 Table of contents.
* * * * *
§1.36B-2 Eligibility for premium tax
credit.
* * * * *
(c) * * *
(3) * * *
(i) In general.
(A) Plans other than health reimburse-
ment arrangements (HRAs) or other ac-
count-based group health plans described
in paragraph (c)(3)(i)(B) of this section.
(B) HRAs and other account-based
group health plans integrated with indi-
vidual health insurance coverage.
* * * * *
(5) Affordable HRA or other ac-
count-based group health plan.
(i) In general.
(ii) Required HRA contribution.
(iii) Monthly amounts.
(A) Monthly lowest cost silver plan
premium.
(B) Monthly HRA amount.
(iv) Employee safe harbor.
(v) Amounts used for affordability de-
termination.
(vi) Affordability for part-year period.
(vii) Related individual not allowed as
a personal exemption deduction.
(viii) Post-employment coverage.
(ix) Examples.
* * * * *
Par. 3. Section 1.36B-2 is amended by:
a. Redesignating the text of paragraph
(c)(3)(i) as paragraph (c)(3)(i)(A).
b. Revising the subject heading to newly
designated paragraph (c)(3)(i)(A).
c. Adding paragraph (c)(3)(i)(B).
d. Adding a sentence at the end of para-
graphs (c)(3)(ii) and (c)(3)(v)(A)(1)
and (2).
e. Revising paragraphs (c)(3)(v)(A)(3)
and (5).
f. Adding a sentence at the end of para-
graph (c)(3)(vi).
g. Adding paragraph (c)(5).
h. Revising paragraph (e)(1).
i. Adding paragraph (e)(3).
The revisions and additions read as fol-
lows:
§1.36B-2 Eligibility for premium tax
credit.
* * * * *
(c) * * *
(3) * * *
(i) * * *
(A) Plans other than health reimburse-
ment arrangements (HRAs) or other ac-
count-based group health plans described
in paragraph (c)(3)(i)(B) of this section.
* * *
(B) HRAs and other account-based
group health plans integrated with indi-
vidual health insurance coverage. An em-
ployee who is offered an HRA or other ac-
count-based group health plan that would
be integrated with individual health insur-
ance coverage (or Medicare Part A and B
or Medicare Part C), within the meaning
of §§ 54.9802-4 and 54.9815-2711(d)(4)
of this chapter, if the employee enrolls in
individual health insurance coverage (or
Medicare Part A and B or Medicare Part
C), and an individual who is offered the
HRA or other account-based group health
plan because of a relationship to the em-
ployee (a related HRA individual), are
eligible for minimum essential coverage
under an eligible employer-sponsored
plan for any month for which the HRA or
other account-based group health plan is
offered if the HRA or other account-based
group health plan is affordable for the
month under paragraph (c)(5) of this sec-
tion or if the employee does not opt out of
and waive future reimbursements from the
HRA or other account-based group health
plan. An HRA or other account-based
group health plan described in this para-
graph (c)(3)(i)(B) that is affordable for
a month under paragraph (c)(5) of this
section is treated as providing minimum
value for the month. For purposes of para-
graphs (c)(3) and (5) of this section, the
definitions under § 54.9815-2711(d)(6) of
this chapter apply.
(ii) * * * The plan year for an HRA
or other account-based group health plan
described in paragraph (c)(3)(i)(B) of this
section is the plan’s 12-month coverage
period (or the remainder of the 12-month
coverage period for a newly eligible indi-

Bulletin No. 2019–28 207 July 8, 2019
vidual or an individual who enrolls during
a special enrollment period).
* * * * *
(v) * * *
(A) * * *
(1) * * * See paragraph (c)(5) of this
section for rules for when an HRA or other
account-based group health plan described
in paragraph (c)(3)(i)(B) of this section is
affordable for an employee for a month.
(2) * * * See paragraph (c)(5) of this
section for rules for when an HRA or other
account-based group health plan described
in paragraph (c)(3)(i)(B) of this section is
affordable for a related HRA individual
for a month.
(3) Employee safe harbor. An eli-
gible employer-sponsored plan is not
affordable for an employee or a related
individual for a plan year if, when the
employee or a related individual enrolls
in a qualified health plan for a period
coinciding with the plan year (in whole
or in part), an Exchange determines that
the eligible employer-sponsored plan is
not affordable for that plan year. This
paragraph (c)(3)(v)(A)(3) does not ap-
ply to a determination made as part of
the redetermination process described
in 45 CFR 155.335 unless the individual
receiving an Exchange redetermination
notification affirmatively responds and
provides current information about af-
fordability. This paragraph (c)(3)(v)(A)
(3) does not apply for an individual who,
with intentional or reckless disregard for
the facts, provides incorrect information
to an Exchange concerning the portion
of the annual premium for coverage for
the employee or related individual under
the plan. A reckless disregard of the facts
occurs if the taxpayer makes little or no
effort to determine whether the informa-
tion provided to the Exchange is accurate
under circumstances that demonstrate a
substantial deviation from the standard
of conduct a reasonable person would
observe. A disregard of the facts is in-
tentional if the taxpayer knows that the
information provided to the Exchange is
inaccurate. See paragraph (c)(5) of this
section for an employee safe harbor that
applies when an Exchange determines
that an HRA or other account-based
group health plan described in paragraph
(c)(3)(i)(B) of this section is not afford-
able for an employee or a related HRA
individual for the period of enrollment in
a qualified health plan.
* * * * *
(5) Employer contributions to HRAs in-
tegrated with eligible employer-sponsored
plans. Amounts newly made available for
the current plan year under an HRA that
an employee may use to pay premiums, or
may use to pay cost-sharing or benefits not
covered by the primary plan in addition to
premiums, reduce the employee’s required
contribution if the HRA would be inte-
grated, within the meaning of § 54.9815-
2711(d)(2) of this chapter, with an eligible
employer-sponsored plan for an employee
enrolled in the plan. The eligible employ-
er-sponsored plan and the HRA must be
offered by the same employer. Employ-
er contributions to an HRA described in
this paragraph (c)(3)(v)(A)(5) reduce an
employee’s required contribution only to
the extent the amount of the annual con-
tribution is required under the terms of the
plan or otherwise determinable within a
reasonable time before the employee must
decide whether to enroll in the eligible
employer-sponsored plan.
* * * * *
(vi) * * * An HRA or other ac-
count-based group health plan described
in paragraph (c)(3)(i)(B) of this section
that is affordable for a month under para-
graph (c)(5) of this section is treated as
providing minimum value for the month.
* * * * *
(5) Affordable HRA or other ac-
count-based group health plan–(i) In
general. Except as otherwise provided in
this paragraph (c)(5), an HRA or other ac-
count-based group health plan described
in paragraph (c)(3)(i)(B) of this section is
affordable for a month if the employee’s
required HRA contribution (as defined in
paragraph (c)(5)(ii) of this section) for the
month does not exceed 1/12 of the product
of the employee’s household income for
the taxable year and the required contri-
bution percentage (as defined in paragraph
(c)(3)(v)(C) of this section).
(ii) Required HRA contribution. An
employee’s required HRA contribution is
the excess of –
(A) The monthly premium for the low-
est cost silver plan for self-only coverage
of the employee offered in the Exchange
for the rating area in which the employee
resides, over
(B) The monthly self-only HRA or
other account-based group health plan
amount (or the monthly maximum amount
available to the employee under the HRA
or other account-based group health plan
if the HRA or other account-based group
health plan provides for reimbursements
up to a single dollar amount regardless of
whether an employee has self-only or oth-
er-than-self-only coverage).
(iii) Monthly amounts—(A) Monthly
lowest cost silver plan premium. For pur-
poses of paragraph (c)(5)(ii)(A) of this
section, the premium for the lowest cost
silver plan is determined without regard
to any wellness program incentive that
affects premiums unless the wellness pro-
gram incentive relates exclusively to to-
bacco use, in which case the incentive is
treated as earned. If the premium differs
for tobacco users and non-tobacco users,
the premium for the lowest cost silver plan
is the premium that applies to non-tobac-
co users. For the purpose of this paragraph
(c)(5)(iii)(A), the term wellness program
incentive has the same meaning as the
term reward in 26 CFR 54.9802-1(f)(1)
(i). A silver-level qualified health plan
that is used for purposes of determining
a taxpayer’s lowest cost silver plan for
self-only coverage under paragraph (c)(5)
(ii)(A) of this section does not cease to be
the taxpayer’s lowest cost silver plan for
self-only coverage solely because the plan
terminates or closes to enrollment during
the taxable year.
(B) Monthly HRA amount. For pur-
poses of paragraph (c)(5)(ii)(B) of this
section, the monthly self-only HRA or
other account-based group health plan
amount is the self-only HRA or other
account-based group health plan amount
newly made available under the HRA for
the plan year, divided by the number of
months in the plan year the HRA or other
account-based group health plan is avail-
able to the employee. The monthly max-
imum amount available to the employee
under the HRA or other account-based
group health plan is the maximum amount
newly made available for the plan year to
the employee under the plan, divided by
the number of months in the plan year the
HRA or other account-based group health
plan is available to the employee.
(iv) Employee safe harbor. An HRA
or other account-based group health plan

July 8, 2019 208 Bulletin No. 2019–28
described in paragraph (c)(3)(i)(B) of this
section is not affordable for a month for
an employee or a related HRA individual
if, when the employee or related HRA in-
dividual enrolls in a qualified health plan
for a period coinciding with the period the
HRA or other account-based group health
plan is available to the employee or relat-
ed HRA individual (in whole or in part),
an Exchange determines that the HRA or
other account-based group health plan is
not affordable for the period of enrollment
in the qualified health plan. This paragraph
(c)(5)(iv) does not apply to a determina-
tion made as part of the redetermination
process described in 45 CFR 155.335 un-
less the individual receiving an Exchange
redetermination notification affirmatively
responds and provides current information
about affordability. This paragraph (c)(5)
(iv) does not apply for an individual who,
with intentional or reckless disregard for
the facts, provides incorrect information
to an Exchange concerning the relevant
HRA or other account-based group health
plan amount offered by the employee’s
employer. A reckless disregard of the facts
occurs if the taxpayer makes little or no
effort to determine whether the informa-
tion provided to the Exchange is accurate
under circumstances that demonstrate a
substantial deviation from the standard
of conduct a reasonable person would
observe. A disregard of the facts is in-
tentional if the taxpayer knows that the
information provided to the Exchange is
inaccurate.
(v) Amounts used for affordability de-
termination. Only amounts that are new-
ly made available for the plan year of the
HRA or other account-based group health
plan described in paragraph (c)(3)(i)(B)
of this section and determinable within
a reasonable time before the beginning
of the plan year of the HRA or other ac-
count-based health plan are considered in
determining whether an HRA or other ac-
count-based group health plan described
in paragraph (c)(3)(i)(B) of this section is
affordable. Amounts made available for a
prior plan year that carry over to the cur-
rent plan year are not taken into account
for purposes of this paragraph (c)(5). Sim-
ilarly, amounts made available to account
for amounts remaining in a different HRA
or other account-based group health plan
the employer previously provided to the
employee and under which the employ-
ee is no longer covered are not taken into
account for purposes of this paragraph (c)
(5).
(vi) Affordability for part-year peri-
od. Affordability under this paragraph
(c)(5) is determined separately for each
employment period that is less than a full
calendar year or for the portions of the
plan year of an employer’s HRA or other
account-based group health plan that fall
in different taxable years of an applicable
taxpayer. An HRA or other account-based
group health plan described in paragraph
(c)(3)(i)(B) of this section is affordable
for a part-year period if the employee’s
annualized required HRA contribution for
the part-year period does not exceed the
required contribution percentage of the
applicable taxpayer’s household income
for the taxable year. The employee’s an-
nualized required HRA contribution is the
employee’s required HRA contribution for
the part-year period times a fraction, the
numerator of which is 12 and the denomi-
nator of which is the number of months in
the part-year period during the applicable
taxpayer’s taxable year. Only full calendar
months are included in the computation
under this paragraph (c)(5)(vi).
(vii) Related individual not allowed as
a personal exemption deduction. A relat-
ed HRA individual is treated as ineligible
for minimum essential coverage under
an HRA or other account-based group
health plan described in paragraph (c)(3)
(i)(B) of this section for months that the
employee opted out of and waived future
reimbursements from the HRA or other
account-based group health plan and the
employee is not allowed a personal ex-
emption deduction under section 151 for
the related HRA individual.
(viii) Post-employment coverage. An
individual who is offered an HRA or other
account-based group health plan described
in paragraph (c)(3)(i)(B) of this section,
for months after an employee terminates
employment with the employer offering
the HRA or other account-based group
health plan, is eligible for minimum essen-
tial coverage under the HRA or other ac-
count-based group health plan for months
after termination of employment only if
the employee does not forfeit or opt out of
and waive future reimbursements from the
HRA or other account-based group health
plan for months after termination of em-
ployment.
(ix) Examples. The following examples
illustrate the provisions of this paragraph
(c)(5). The required contribution percent-
age is defined in paragraph (c)(3)(v)(C) of
this section and is updated annually. Be-
cause the required contribution percentage
for 2020 has not yet been determined, the
examples assume a required contribution
percentage for 2020 of 9.78 percent.
(A) Example 1: Determination of af-
fordability—(1) Facts. In 2020 Taxpayer
A is single, has no dependents, and has
household income of $28,000. A is an em-
ployee of Employer X for all of 2020. X
offers its employees an HRA described
in paragraph (c)(3)(i)(B) of this section
that reimburses $2,400 of medical care
expenses for single employees with no
children (the self-only HRA amount) and
$4,000 for employees with a spouse or
children for the medical expenses of the
employees and their family members. A
enrolls in a qualified health plan through
the Exchange in the rating area in which
A resides and remains enrolled for all of
2020. The monthly premium for the low-
est cost silver plan for self-only coverage
of A that is offered in the Exchange for the
rating area in which A resides is $500.
(2) Conclusion. A’s required HRA con-
tribution, as defined in paragraph (c)(5)
(ii) of this section, is $300, the excess of
$500 (the monthly premium for the lowest
cost silver plan for self-only coverage of
A) over $200 (1/12 of the self-only HRA
amount provided by Employer X to its
employees). In addition, 1/12 of the prod-
uct of 9.78 percent and A’s household in-
come is $228 ($28,000 x .0978 = $2,738;
$2,738/12 = $228). Because A’s required
HRA contribution of $300 exceeds $228
(1/12 of the product of 9.78 percent and
A’s household income), the HRA is un-
affordable for A for each month of 2020
under paragraph (c)(5) of this section. If A
opts out of and waives future reimburse-
ments from the HRA, A is not eligible for
minimum essential coverage under the
HRA for each month of 2020 under para-
graph (c)(3)(i)(B) of this section.

(B) Example 2: Determination of af-
fordability for a related HRA individual—
(1) Facts. In 2020 Taxpayer B is married
and has one child who is a dependent of

Bulletin No. 2019–28 209 July 8, 2019
B for 2020. B has household income of
$28,000. B is an employee of Employer
X for all of 2020. X offers its employees
an HRA described in paragraph (c)(3)(i)
(B) of this section that reimburses $3,600
of medical care expenses for single em-
ployees with no children (the self-only
HRA amount) and $5,000 for employees
with a spouse or children for the medical
expenses of the employees and their fam-
ily members. B, B’s spouse, and B’s child
enroll in a qualified health plan through
the Exchange in the rating area in which
B resides and they remain enrolled for all
of 2020. No advance credit payments are
made for their coverage. The monthly pre-
mium for the lowest cost silver plan for
self-only coverage of B that is offered in
the Exchange for the rating area in which
B resides is $500.
(2) Conclusion. B’s required HRA con-
tribution, as defined in paragraph (c)(5)
(ii) of this section, is $200, the excess of
$500 (the monthly premium for the low-
est cost silver plan for self-only coverage
for B) over $300 (1/12 of the self-only
HRA amount provided by Employer X
to its employees). In addition, 1/12 of the
product of 9.78 percent and B’s household
income for 2020 is $228 ($28,000 x .0978
= $2,738; $2,738/12 = $228). Because B’s
required HRA contribution of $200 does
not exceed $228 (1/12 of the product of
9.78 percent and B’s household income
for 2020), the HRA is affordable for B
under paragraph (c)(5) of this section, and
B is eligible for minimum essential cover-
age under an eligible employer-sponsored
plan for each month of 2020 under para-
graph (c)(3)(i)(B) of this section. In addi-
tion, B’s spouse and child are also eligible
for minimum essential coverage under an
eligible employer-sponsored plan for each
month of 2020 under paragraph (c)(3)(i)
(B) of this section.
(C) Example 3: Exchange determines
that HRA is unaffordable—(1) Facts. The
facts are the same as in paragraph (c)(5)
(ix)(B) of this section (Example 2), ex-
cept that B, when enrolling in Exchange
coverage for B’s family, received a deter-
mination by the Exchange that the HRA
was unaffordable, because B believed B’s
household income would be lower than it
turned out to be. Consequently, advance
credit payments were made for their 2020
coverage.
(2) Conclusion. Under paragraph (c)
(5)(iv) of this section, the HRA is consid-
ered unaffordable for B, B’s spouse, and
B’s child for each month of 2020 provided
that B did not, with intentional or reckless
disregard for the facts, provide incorrect
information to the Exchange concerning
the HRA.
(D) Example 4: Affordability deter-
mined for part of a taxable year (part-
year period)—(1) Facts. Taxpayer C is an
employee of Employer X. C’s household
income for 2020 is $28,000. X offers its
employees an HRA described in para-
graph (c)(3)(i)(B) of this section that re-
imburses medical care expenses of $3,600
for single employees without children (the
self-only HRA amount) and $5,000 to em-
ployees with a spouse or children for the
medical expenses of the employees and
their family members. X’s HRA plan year
is September 1 to August 31 and C is first
eligible to participate in the HRA for the
period beginning September 1, 2020. C
enrolls in a qualified health plan through
the Exchange in the rating area in which C
resides for all of 2020. The monthly pre-
mium for the lowest cost silver plan for
self-only coverage of C that is offered in
the Exchange for the rating area in which
C resides for 2020 is $500.
(2) Conclusion. Under paragraph (c)
(3)(vi) of this section, the affordability
of the HRA is determined separately for
the period September 1 through Decem-
ber 31, 2020, and for the period January
1 through August 31, 2021. C’s required
HRA contribution, as defined in paragraph
(c)(5)(ii) of this section, for the period
September 1 through December 31, 2020,
is $200, the excess of $500 (the monthly
premium for the lowest cost silver plan
for self-only coverage for C) over $300
(1/12 of the self-only HRA amount pro-
vided by X to its employees). In addition,
1/12 of the product of 9.78 percent and
C’s household income is $228 ($28,000 x
.0978 = $2,738; $2,738/12 = $228). Be-
cause C’s required HRA contribution of
$200 does not exceed $228, the HRA is
affordable for C for each month in the pe-
riod September 1 through December 31,
2020, under paragraph (c)(5) of this sec-
tion. Affordability for the period January
1 through August 31, 2021, is determined
using C’s 2021 household income and re-
quired HRA contribution.
(E) Example 5: Carryover amounts
ignored in determining affordability—
(1) Facts. Taxpayer D is an employee of
Employer X for all of 2020 and 2021. D
is single. For each of 2020 and 2021, X
offers its employees an HRA described
in paragraph (c)(3)(i)(B) of this section
that provides reimbursement for medical
care expenses of $2,400 to single employ-
ees with no children (the self-only HRA
amount) and $4,000 to employees with
a spouse or children for the medical ex-
penses of the employees and their family
members. Under the terms of the HRA,
amounts that an employee does not use in
a calendar year may be carried over and
used in the next calendar year. In 2020,
D used only $1,500 of her $2,400 maxi-
mum reimbursement and the unused $900
is carried over and may be used by D in
2021.
(2) Conclusion. Under paragraph (c)(5)
(v) of this section, only the $2,400 self-on-
ly HRA amount offered to D for 2021 is
considered in determining whether D’s
HRA is affordable for D. The $900 car-
ryover amount is not considered in deter-
mining the affordability of the HRA.
* * * * *
(e) * * *
(1) Except as provided in paragraphs
(e)(2) and (3) of this section, this section
applies to taxable years ending after De-
cember 31, 2013.
* * * * *
(3) Paragraphs (c)(3)(i)(B) and (c)
(5) of this section, and the last sentences
of paragraphs (c)(3)(ii), (c)(3)(v)(A)(1)
through (3), and (c)(3)(vi) of this section
apply to taxable years beginning on or af-
ter January 1, 2020.
PART 54—PENSION EXCISE
TAXES
Par. 4. The authority citation for part
54 is amended by adding an entry for §
54.9802-4 in numerical order to read in
part as follows:
Authority: 26 U.S.C. 7805.
* * * * *
Section 54.9802-4 is also issued under
26 U.S.C. 9833.
* * * * *
Par. 5. Section 54.9801-2 is amended
by revising the definition of “Group health
insurance coverage” to read as follows:
§ 54.9801-2 Definitions.
* * * * *

July 8, 2019 210 Bulletin No. 2019–28
Group health insurance coverage
means health insurance coverage offered
in connection with a group health plan. In-
dividual health insurance coverage reim-
bursed by the arrangements described in
29 CFR 2510.3-1(l) is not offered in con-
nection with a group health plan, and is
not group health insurance coverage, pro-
vided all the conditions in 29 CFR 2510.3-
1(l) are satisfied.
* * * * *
Par. 6. Section 54.9802-4 is added to
read as follows:
§ 54.9802-4 Special Rule Allowing
Integration of Health Reimbursement
Arrangements (HRAs) and Other Ac-
count-Based Group Health Plans with
Individual Health Insurance Coverage
and Medicare and Prohibiting Dis-
crimination In HRAs and Other Ac-
count-Based Group Health Plans.
(a) Scope. This section applies to health
reimbursement arrangements (HRAs) and
other account-based group health plans,
as defined in § 54.9815-2711(d)(6)(i) of
this chapter. For ease of reference, the
term “HRA” is used in this section to in-
clude other account-based group health
plans. For related regulations, see 26
CFR 1.36B-2(c)(3)(i) and (c)(5), 29 CFR
2510.3-1(l), and 45 CFR 155.420.
(b) Purpose. This section provides
the conditions that an HRA must satisfy
in order to be integrated with individual
health insurance coverage for purposes
of Public Health Service Act (PHS Act)
sections 2711 and 2713 and § 54.9815-
2711(d)(4) of this chapter (referred to as
an individual coverage HRA). This sec-
tion also allows an individual coverage
HRA to be integrated with Medicare for
purposes of PHS Act sections 2711 and
2713 and § 54.9815-2711(d)(4), subject
to the conditions provided in this sec-
tion (see paragraph (e) of this section).
Some of the conditions set forth in this
section specifically relate to compliance
with PHS Act sections 2711 and 2713
and some relate to the effect of having
or being offered an individual coverage
HRA on eligibility for the premium tax
credit under section 36B. In addition,
this section provides conditions that an
individual coverage HRA must satisfy in
order to comply with the nondiscrimina-
tion provisions in section 9802 and PHS
Act section 2705 (which is incorporated
in section 9815) and that are consistent
with the provisions of the Patient Pro-
tection and Affordable Care Act, Public
Law 111–148 (124 Stat. 119 (2010)), and
the Health Care and Education Reconcil-
iation Act of 2010, Public Law 111–152
(124 Stat. 1029 (2010)), each as amended,
that are designed to create a competitive
individual market. These conditions are
intended to prevent an HRA plan spon-
sor from intentionally or unintentionally,
directly or indirectly, steering any partic-
ipants or dependents with adverse health
factors away from its traditional group
health plan, if any, and toward individual
health insurance coverage.
(c) General rule. An HRA will be con-
sidered to be integrated with individual
health insurance coverage for purposes
of PHS Act sections 2711 and 2713 and
§ 54.9815-2711(d)(4) of this chapter and
will not be considered to discriminate in
violation of section 9802 and PHS Act
section 2705 solely because it is integrat-
ed with individual health insurance cov-
erage, provided that the conditions of this
paragraph (c) are satisfied. See paragraph
(e) of this section for how these conditions
apply to an individual coverage HRA in-
tegrated with Medicare. For purposes
of this section, medical care expenses
means medical care expenses as defined
in § 54.9815-2711(d)(6)(ii) of this chapter
and Exchange means Exchange as defined
in 45 CFR 155.20.
(1) Enrollment in individual health
insurance coverage—(i) In general. The
HRA must require that the participant and
any dependent(s) are enrolled in individ-
ual health insurance coverage that is sub-
ject to and complies with the requirements
in PHS Act section 2711 (and § 54.9815-
2711(a)(2) of this chapter) and PHS Act
section 2713 (and § 54.9815-2713(a)(1)
of this chapter), for each month that the
individual(s) are covered by the HRA. For
purposes of this paragraph (c), all indi-
vidual health insurance coverage, except
for individual health insurance coverage
that consists solely of excepted benefits,
is treated as being subject to and com-
plying with PHS Act sections 2711 and
2713. References to individual health in-
surance coverage in this paragraph (c) do
not include individual health insurance
coverage that consists solely of excepted
benefits.
(ii) Forfeiture. The HRA must pro-
vide that if any individual covered by the
HRA ceases to be covered by individual
health insurance coverage, the HRA will
not reimburse medical care expenses that
are incurred by that individual after the in-
dividual health insurance coverage ceas-
es. In addition, if the participant and all
dependents covered by the participant’s
HRA cease to be covered by individual
health insurance coverage, the participant
must forfeit the HRA. In either case, the
HRA must reimburse medical care ex-
penses incurred by the individual prior to
the cessation of individual health insur-
ance coverage to the extent the medical
care expenses are otherwise covered by
the HRA, but the HRA may limit the pe-
riod to submit medical care expenses for
reimbursement to a reasonable specified
time period. If a participant or dependent
loses coverage under the HRA for a reason
other than cessation of individual health
insurance coverage, COBRA and other
continuation coverage requirements may
apply.
(iii) Grace periods and retroactive ter-
mination of individual health insurance
coverage. In the event an individual is
initially enrolled in individual health in-
surance coverage and subsequently timely
fails to pay premiums for the coverage,
with the result that the individual is in a
grace period, the individual is considered
to be enrolled in individual health insur-
ance coverage for purposes of this para-
graph (c)(1) and the individual coverage
HRA must reimburse medical care ex-
penses incurred by the individual during
that time period to the extent the medical
care expenses are otherwise covered by
the HRA. If the individual fails to pay the
applicable premium(s) by the end of the
grace period and the coverage is cancelled
or terminated, including retroactively, or
if the individual health insurance cover-
age is cancelled or terminated retroactive-
ly for some other reason (for example, a
rescission), an individual coverage HRA
must require that a participant notify the
HRA that coverage has been cancelled or
terminated and the date on which the can-
cellation or termination is effective. After
the individual coverage HRA has received
the notice of cancellation or termination,
the HRA may not reimburse medical care
expenses incurred on and after the date the

Bulletin No. 2019–28 211 July 8, 2019
individual health insurance coverage was
cancelled or terminated, which is consid-
ered to be the date of termination of cov-
erage under the HRA.
(2) No traditional group health plan
may be offered to same participants. To
the extent a plan sponsor offers any class
of employees (as defined in paragraph (d)
of this section) an individual coverage
HRA, the plan sponsor may not also offer
a traditional group health plan to the same
class of employees, except as provided in
paragraph (d)(5) of this section. For pur-
poses of this section, a traditional group
health plan is any group health plan other
than either an account-based group health
plan or a group health plan that consists
solely of excepted benefits. Therefore, a
plan sponsor may not offer a choice be-
tween an individual coverage HRA or a
traditional group health plan to any partic-
ipant or dependent.
(3) Same terms requirement—(i) In
general. If a plan sponsor offers an indi-
vidual coverage HRA to a class of em-
ployees described in paragraph (d) of this
section, the HRA must be offered on the
same terms to all participants within the
class, except as provided in paragraphs (c)
(3)(ii) through (vi) and (d)(5) of this sec-
tion.
(ii) Carryover amounts, salary reduc-
tion arrangements, and transfer amounts.
Amounts that are not used to reimburse
medical care expenses for any plan year
that are made available to participants in
later plan years are disregarded for pur-
poses of determining whether an HRA is
offered on the same terms, provided that
the method for determining whether par-
ticipants have access to unused amounts
in future years, and the methodology and
formula for determining the amounts of
unused funds which they may access in
future years, is the same for all partici-
pants in a class of employees. In addi-
tion, the ability to pay the portion of the
premium for individual health insurance
coverage that is not covered by the HRA,
if any, by using a salary reduction arrange-
ment under section 125 is considered
to be a term of the HRA for purposes of
this paragraph (c)(3). Therefore, an HRA
is not provided on the same terms unless
the salary reduction arrangement, if made
available to any participant in a class of
employees, is made available on the same
terms to all participants (other than former
employees, as defined in paragraph (c)(3)
(iv) of this section) in the class of employ-
ees. Further, to the extent that a participant
in an individual coverage HRA was pre-
viously covered by another HRA and the
current individual coverage HRA makes
available amounts that were not used to
reimburse medical care expenses under
the prior HRA (transferred amounts), the
transferred amounts are disregarded for
purposes of determining whether the HRA
is offered on the same terms, provided that
if the HRA makes available transferred
amounts, it does so on the same terms for
all participants in the class of employees.
(iii) Permitted variation. An HRA
does not fail to be provided on the same
terms solely because the maximum dollar
amount made available to participants in a
class of employees to reimburse medical
care expenses for any plan year increases
in accordance with paragraph (c)(3)(iii)
(A) or (B) of this section.
(A) Variation due to number of depen-
dents. An HRA does not fail to be provid-
ed on the same terms to participants in
a class of employees solely because the
maximum dollar amount made available
to those participants to reimburse medical
care expenses for any plan year increas-
es as the number of the participant’s de-
pendents who are covered under the HRA
increases, so long as the same maximum
dollar amount attributable to the increase
in family size is made available to all par-
ticipants in that class of employees with
the same number of dependents covered
by the HRA.
(B) Variation due to age. An HRA
does not fail to be provided on the same
terms to participants in a class of employ-
ees solely because the maximum dollar
amount made available under the terms
of the HRA to those participants to reim-
burse medical care expenses for any plan
year increases as the age of the participant
increases, so long as the requirements in
paragraphs (c)(3)(iii)(B)(1) and (2) of
this section are satisfied. For the purpose
of this paragraph (c)(3)(iii)(B), the plan
sponsor may determine the age of the par-
ticipant using any reasonable method for
a plan year, so long as the plan sponsor
determines each participant’s age for the
purpose of this paragraph (c)(3)(iii)(B)
using the same method for all participants
in the class of employees for the plan year
and the method is determined prior to the
plan year.
(1) The same maximum dollar amount
attributable to the increase in age is made
available to all participants who are the
same age.
(2) The maximum dollar amount made
available to the oldest participant(s) is not
more than three times the maximum dol-
lar amount made available to the youngest
participant(s).
(iv) Former employees. An HRA does
not fail to be treated as provided on the
same terms if the plan sponsor offers the
HRA to some, but not all, former employ-
ees within a class of employees. However,
if a plan sponsor offers the HRA to one
or more former employees within a class
of employees, the HRA must be offered to
the former employee(s) on the same terms
as to all other employees within the class,
except as provided in paragraph (c)(3)(ii)
of this section. For purposes of this sec-
tion, a former employee is an employee
who is no longer performing services for
the employer.
(v) New employees or new dependents.
For a participant whose coverage under
the HRA becomes effective later than the
first day of the plan year, the HRA does
not fail to be treated as being provided
on the same terms to the participant if the
maximum dollar amount made available
to the participant either is the same as the
maximum dollar amount made available
to participants in the participant’s class
of employees whose coverage became ef-
fective as of the first day of the plan year,
or is pro-rated consistent with the portion
of the plan year in which the participant
is covered by the HRA. Similarly, if the
HRA provides for variation in the maxi-
mum amount made available to partic-
ipants in a class of employees based on
the number of a participant’s dependents
covered by the HRA, and the number of
a participant’s dependents covered by the
HRA changes during a plan year (either
increasing or decreasing), the HRA does
not fail to be treated as being provided
on the same terms to the participant if the
maximum dollar amount made available
to the participant either is the same as the
maximum dollar amount made available
to participants in the participant’s class
of employees who had the same number

July 8, 2019 212 Bulletin No. 2019–28
of dependents covered by the HRA on the
first day of the plan year or is pro-rated
for the remainder of the plan year after the
change in the number of the participant’s
dependents covered by the HRA consis-
tent with the portion of the plan year in
which that number of dependents are cov-
ered by the HRA. The method the HRA
uses to determine amounts made available
for participants whose coverage under the
HRA is effective later than the first day
of the plan year or who have changes in
the number of dependents covered by the
HRA during a plan year must be the same
for all participants in the class of employ-
ees and the method must be determined
prior to the beginning of the plan year.
(vi) HSA-compatible HRAs. An HRA
does not fail to be treated as provided
on the same terms if the plan sponsor of-
fers participants in a class of employees
a choice between an HSA-compatible
individual coverage HRA and an individ-
ual coverage HRA that is not HSA com-
patible, provided both types of HRAs are
offered to all participants in the class of
employees on the same terms. For the
purpose of this paragraph (c)(3)(vi), an
HSA-compatible individual coverage
HRA is an individual coverage HRA that
is limited in accordance with applicable
guidance under section 223 such that an
individual covered by such an HRA is not
disqualified from being an eligible indi-
vidual under section 223.
(vii) Examples. The following exam-
ples illustrate the provisions of this para-
graph (c)(3), without taking into account
the provisions of paragraph (d) of this
section. In each example, the HRA is an
individual coverage HRA that has a cal-
endar year plan year and may reimburse
any medical care expenses, including
premiums for individual health insurance
coverage (except as provided in paragraph
(c)(3)(vii)(E) of this section (Example
5)). Further, in each example, assume the
HRA is offered on the same terms, except
as otherwise specified in the example and
that no participants or dependents are
Medicare beneficiaries.
(A) Example 1: Carryover amounts permitted—
(1) Facts. For 2020 and again for 2021, Plan Sponsor
A offers all employees $7,000 each in an HRA, and
the HRA provides that amounts that are unused at
the end of a plan year may be carried over to the next
plan year, with no restrictions on the use of the car-
ryover amounts compared to the use of newly avail-
able amounts. At the end of 2020, some employees
have used all of the funds in their HRAs, while other
employees have balances remaining that range from
$500 to $1,750 that are carried over to 2021 for those
employees.
(2) Conclusion. The same terms requirement of
this paragraph (c)(3) is satisfied in this paragraph (c)
(3)(vii)(A) (Example 1) for 2020 because Plan Spon-
sor A offers all employees the same amount, $7,000,
in an HRA for that year. The same terms requirement
is also satisfied for 2021 because Plan Sponsor A
again offers all employees the same amount for that
year, and the carryover amounts that some employ-
ees have are disregarded in applying the same terms
requirement because the amount of the carryover for
each employee (that employee’s balance) and each
employee’s access to the carryover amounts is based
on the same terms.
(B) Example 2: Employees hired after the first
day of the plan year—(1) Facts. For 2020, Plan
Sponsor B offers all employees employed on Janu-
ary 1, 2020, $7,000 each in an HRA for the plan year.
Employees hired after January 1, 2020, are eligible
to enroll in the HRA with an effective date of the
first day of the month following their date of hire, as
long as they have enrolled in individual health insur-
ance coverage effective on or before that date, and
the amount offered to these employees is pro-rated
based on the number of months remaining in the plan
year, including the month which includes their cov-
erage effective date.
(2) Conclusion. The same terms requirement of
this paragraph (c)(3) is satisfied in this paragraph (c)
(3)(vii)(B) (Example 2) for 2020 because Plan Spon-
sor B offers all employees employed on the first day
of the plan year the same amount, $7,000, in an HRA
for that plan year and all employees hired after Jan-
uary 1, 2020, a pro-rata amount based on the portion
of the plan year during which they are enrolled in
the HRA.
(C) Example 3: HRA amounts offered vary based
on number of dependents—(1) Facts. For 2020,
Plan Sponsor C offers its employees the following
amounts in an HRA: $1,500, if the employee is the
only individual covered by the HRA; $3,500, if the
employee and one dependent are covered by the
HRA; and $5,000, if the employee and more than
one dependent are covered by the HRA.
(2) Conclusion. The same terms requirement of
this paragraph (c)(3) is satisfied in this paragraph
(c)(3)(vii)(C) (Example 3) because paragraph (c)(3)
(iii)(A) of this section allows the maximum dollar
amount made available in an HRA to increase as the
number of the participant’s dependents covered by
the HRA increases and Plan Sponsor C makes the
same amount available to each employee with the
same number of dependents covered by the HRA.
(D) Example 4: HRA amounts offered vary based
on increases in employees’ ages—(1) Facts. For
2020, Plan Sponsor D offers its employees the fol-
lowing amounts in an HRA: $1,000 each for employ-
ees age 25 to 35; $2,000 each for employees age 36
to 45; $2,500 each for employees age 46 to 55; and
$4,000 each for employees over age 55.
(2) Conclusion. The same terms requirement of
this paragraph (c)(3) is not satisfied in this paragraph
(c)(3)(vii)(D) (Example 4) because the terms of the
HRA provide the oldest participants (those over age
55) with more than three times the amount made
available to the youngest participants (those ages 25
to 35), in violation of paragraph (c)(3)(iii)(B)(2) of
this section.
(E) Example 5: Application of same terms re-
quirement to premium only HRA—(1) Facts. For
2020, Plan Sponsor E offers its employees an HRA
that reimburses only premiums for individual health
insurance coverage, up to $10,000 for the year.
Employee A enrolls in individual health insurance
coverage with a $5,000 premium for the year and
is reimbursed $5,000 from the HRA. Employee B
enrolls in individual health insurance coverage with
an $8,000 premium for the year and is reimbursed
$8,000 from the HRA.
(2) Conclusion. The same terms requirement of
this paragraph (c)(3) is satisfied in this paragraph
(c)(3)(vii)(E) (Example 5) because Plan Sponsor E
offers the HRA on the same terms to all employ-
ees, notwithstanding that some employees receive a
greater amount of reimbursement than others based
on the cost of the individual health insurance cover-
age selected by the employee.
(4) Opt out. Under the terms of the
HRA, a participant who is otherwise eligi-
ble for coverage must be permitted to opt
out of and waive future reimbursements
on behalf of the participant and all depen-
dents eligible for the HRA from the HRA
once, and only once, with respect to each
plan year. The HRA may establish time-
frames for enrollment in (and opting out
of) the HRA but, in general, the opportuni-
ty to opt out must be provided in advance
of the first day of the plan year. For partic-
ipants who become eligible to participate
in the HRA on a date other than the first
day of the plan year (or who become eli-
gible fewer than 90 days prior to the plan
year or for whom the notice under para-
graph (c)(6) of this section is required to
be provided as set forth in paragraph (c)(6)
(i)(C) of this section), or for a dependent
who newly becomes eligible during the
plan year, this opportunity must be pro-
vided during the applicable HRA enroll-
ment period(s) established by the HRA for
these individuals. Further, under the terms
of the HRA, upon termination of employ-
ment, for a participant who is covered by
the HRA, either the remaining amounts in
the HRA must be forfeited or the partici-
pant must be permitted to permanently opt
out of and waive future reimbursements
from the HRA on behalf of the participant
and all dependents covered by the HRA.
(5) Reasonable procedures for cover-
age substantiation—(i) Substantiation of
individual health insurance coverage for
the plan year. The HRA must implement,
and comply with, reasonable procedures

Bulletin No. 2019–28 213 July 8, 2019
to substantiate that participants and each
dependent covered by the HRA are, or
will be, enrolled in individual health in-
surance coverage for the plan year (or for
the portion of the plan year the individual
is covered by the HRA, if applicable). The
HRA may establish the date by which this
substantiation must be provided, but, in
general, the date may be no later than the
first day of the plan year. However, for a
participant who is not eligible to partici-
pate in the HRA on the first day of the plan
year (or who becomes eligible fewer than
90 days prior to the plan year or for whom
the notice under paragraph (c)(6) of this
section is required to be provided as set
forth in paragraph (c)(6)(i)(C) of this sec-
tion), the HRA may establish the date by
which this substantiation must be provid-
ed, but that date may be no later than the
date the HRA coverage begins. Similarly,
for a participant who adds a new depen-
dent during the plan year, the HRA may
establish the date by which this substanti-
ation must be provided, but the date may
be no later than the date the HRA cover-
age for the new dependent begins; howev-
er, to the extent the dependent’s coverage
under the HRA is effective retroactively,
the HRA may establish a reasonable time
by which this substantiation is required,
but must require it be provided before the
HRA will reimburse any medical care ex-
pense for the newly added dependent. The
reasonable procedures an HRA may use to
implement the substantiation requirement
set forth in this paragraph (c)(5)(i) may in-
clude a requirement that a participant sub-
stantiate enrollment by providing either:
(A) A document from a third party
(for example, the issuer or an Exchange)
showing that the participant and any de-
pendents covered by the HRA are, or will
be, enrolled in individual health insurance
coverage (for example, an insurance card
or an explanation of benefits document
pertaining to the relevant time period or
documentation from the Exchange show-
ing that the individual has completed the
application and plan selection); or
(B) An attestation by the participant
stating that the participant and depen-
dent(s) covered by the HRA are, or will
be, enrolled in individual health insurance
coverage, the date coverage began or will
begin, and the name of the provider of the
coverage.
(ii) Coverage substantiation with each
request for reimbursement of medical care
expenses. Following the initial substanti-
ation of coverage, with each new request
for reimbursement of an incurred medical
care expense for the same plan year, the
HRA may not reimburse a participant for
any medical care expenses unless, prior to
each reimbursement, the participant sub-
stantiates that the individual on whose be-
half medical care expenses are requested
to be reimbursed continues to be enrolled
in individual health insurance coverage
for the month during which the medical
care expenses were incurred. The HRA
must implement, and comply with, rea-
sonable procedures to satisfy this require-
ment. This substantiation may be in the
form of a written attestation by the partic-
ipant, which may be part of the form used
to request reimbursement, or a document
from a third party (for example, a health
insurance issuer) showing that the partici-
pant or the dependent, if applicable, are or
were enrolled in individual health insur-
ance coverage for the applicable month.
(iii) Reliance on substantiation. For
purposes of this paragraph (c)(5), an HRA
may rely on the participant’s documen-
tation or attestation unless the HRA, its
plan sponsor, or any other entity acting in
an official capacity on behalf of the HRA
has actual knowledge that any individual
covered by the HRA is not, or will not be,
enrolled in individual health insurance
coverage for the plan year (or applicable
portion of the plan year) or the month, as
applicable.
(6) Notice requirement—(i) Timing.
The HRA must provide a written notice to
each participant:
(A) At least 90 calendar days before the
beginning of each plan year for any partic-
ipant who is not described in either para-
graph (c)(6)(i)(B) or (C) of this section;
(B) No later than the date on which the
HRA may first take effect for the partici-
pant, for any participant who is not eligi-
ble to participate at the beginning of the
plan year (or is not eligible to participate
at the time the notice is provided at least
90 calendar days before the beginning of
the plan year pursuant to paragraph (c)(6)
(i)(A) of this section); or
(C) No later than the date on which the
HRA may first take effect for the partici-
pant, for any participant who is employed
by an employer that is first established less
than 120 days before the beginning of the
first plan year of the HRA; this paragraph
(c)(6)(i)(C) applies only with respect to
the first plan year of the HRA.
(ii) Content. The notice must include
all the information described in this para-
graph (c)(6)(ii) (and may include any ad-
ditional information that does not conflict
with that information). To the extent that
the Departments of the Treasury, Labor
and Health and Human Services provide
model notice language for certain ele-
ments of this required notice, HRAs are
permitted, but not required, to use the
model language.
(A) A description of the terms of the
HRA, including the maximum dollar
amount available for each participant (in-
cluding the self-only HRA amount avail-
able for the plan year (or the maximum
dollar amount available for the plan year
if the HRA provides for reimbursements
up to a single dollar amount regardless
of whether a participant has self-only or
other than self-only coverage)), any rules
regarding the proration of the maximum
dollar amount applicable to any participant
(or dependent, if applicable) who is not el-
igible to participate in the HRA for the en-
tire plan year, whether (and which of) the
participant’s dependents are eligible for
the HRA, a statement that there are differ-
ent kinds of HRAs (including a qualified
small employer health reimbursement ar-
rangement) and the HRA being offered is
an individual coverage HRA, a statement
that the HRA requires the participant and
any covered dependents to be enrolled in
individual health insurance coverage (or
Medicare Part A and B or Medicare Part
C, if applicable), a statement that the cov-
erage in which the participant and any
covered dependents must be enrolled can-
not be short-term, limited-duration insur-
ance or consist solely of excepted benefits,
if the HRA is subject to the Employee Re-
tirement Income Security Act (ERISA), a
statement that individual health insurance
coverage in which the participant and any
covered dependents are enrolled is not
subject to ERISA, if the conditions under
29 CFR 2510.3-1(l) are satisfied, the date
as of which coverage under the HRA may
first become effective (both for partici-
pants whose coverage will become effec-
tive on the first day of the plan year and

July 8, 2019 214 Bulletin No. 2019–28
for participants whose HRA coverage may
become effective at a later date), the dates
on which the HRA plan year begins and
ends, and the dates on which the amounts
newly made available under the HRA will
be made available.
(B) A statement of the right of the par-
ticipant to opt out of and waive future re-
imbursements from the HRA, as set forth
under paragraph (c)(4) of this section.
(C) A description of the potential avail-
ability of the premium tax credit if the par-
ticipant opts out of and waives future reim-
bursements from the HRA and the HRA is
not affordable for one or more months un-
der § 1.36B-2(c)(5) of this chapter, a state-
ment that even if the participant opts out
of and waives future reimbursements from
an HRA, the offer will prohibit the par-
ticipant (and, potentially, the participant’s
dependents) from receiving a premium tax
credit for the participant’s coverage (or the
dependent’s coverage, if applicable) on an
Exchange for any month that the HRA is
affordable under § 1.36B-2(c)(5) of this
chapter, a statement describing how the
participant may find assistance with de-
termining affordability, a statement that, if
the participant is a former employee, the
offer of the HRA does not render the par-
ticipant (or the participant’s dependents, if
applicable) ineligible for the premium tax
credit regardless of whether it is afford-
able under § 1.36B-2(c)(5) of this chapter,
and a statement that if the participant or
dependent is enrolled in Medicare, he or
she is ineligible for the premium tax credit
without regard to the offer or acceptance
of the HRA;
(D) A statement that if the participant
accepts the HRA, the participant may not
claim a premium tax credit for the partic-
ipant’s Exchange coverage for any month
the HRA may be used to reimburse medi-
cal care expenses of the participant, and a
premium tax credit may not be claimed for
the Exchange coverage of the participant’s
dependents for any month the HRA may
be used to reimburse medical care expens-
es of the dependents.
(E) A statement that the participant
must inform any Exchange to which the
participant applies for advance payments
of the premium tax credit of the availabili-
ty of the HRA; the self-only HRA amount
available for the HRA plan year (or the
maximum dollar amount available for the
plan year if the HRA provides for reim-
bursements up to a single dollar amount
regardless of whether a participant has
self-only or other than self-only cover-
age) as set forth in the written notice in
accordance with paragraph (c)(6)(ii)(A)
of this section; whether the HRA is also
available to the participant’s dependents
and if so, which ones; the date as of which
coverage under the HRA may first become
effective; the date on which the plan year
begins and the date on which it ends; and
whether the participant is a current em-
ployee or former employee.
(F) A statement that the participant
should retain the written notice because it
may be needed to determine whether the
participant is allowed a premium tax cred-
it on the participant’s individual income
tax return.
(G) A statement that the HRA may
not reimburse any medical care expense
unless the substantiation requirement set
forth in paragraph (c)(5)(ii) of this section
is satisfied and a statement that the partic-
ipant must also provide the substantiation
required by paragraph (c)(5)(i) of this sec-
tion.
(H) A statement that if the individual
health insurance coverage (or coverage
under Medicare Part A and B or Medi-
care Part C) of a participant or dependent
ceases, the HRA will not reimburse any
medical care expenses that are incurred
by the participant or dependent, as ap-
plicable, after the coverage ceases, and
a statement that the participant must
inform the HRA if the participant’s or
dependent’s individual health insurance
coverage (or coverage under Medicare
Part A and B or Medicare Part C) is can-
celled or terminated retroactively and the
date on which the cancellation or termi-
nation is effective.
(I) The contact information (including
a phone number) for an individual or a
group of individuals who participants may
contact in order to receive additional in-
formation regarding the HRA. The plan
sponsor may determine which individual
or group of individuals is best suited to be
the specified contact.
(J) A statement of availability of a
special enrollment period to enroll in or
change individual health insurance cover-
age, through or outside of an Exchange,
for the participant and any dependents
who newly gain access to the HRA and are
not already covered by the HRA.
(d) Classes of employees—(1)
In general. This paragraph (d) sets forth
the rules for determining classes of em-
ployees. Paragraph (d)(2) of this section
sets forth the specific classes of employ-
ees; paragraph (d)(3) of this section sets
forth a minimum class size requirement
that applies in certain circumstances;
paragraph (d)(4) of this section sets forth
rules regarding the definition of “full-time
employees,” “part-time employees,” and
“seasonal employees”; paragraph (d)(5)
of this section sets forth a special rule for
new hires; and paragraph (d)(6) of this
section addresses student premium reduc-
tion arrangements. For purposes of this
section, including determining classes un-
der this paragraph (d), the employer is the
common law employer and is determined
without regard to the rules under sections
414(b), (c), (m), and (o) that would treat
the common law employer as a single em-
ployer with certain other entities.
(2) List of classes. Participants may be
treated as belonging to a class of employ-
ees based on whether they are, or are not,
included in the classes described in this
paragraph (d)(2). If the individual cov-
erage HRA is offered to former employ-
ees, former employees are considered to
be in the same class in which they were
included immediately before separation
from service. Before each plan year, a
plan sponsor must determine for the plan
year which classes of employees it intends
to treat separately and the definition of
the relevant class(es) it will apply, to the
extent these regulations permit a choice.
After the classes and the definitions of the
classes are established for a plan year, a
plan sponsor may not make changes to the
classes of employees or the definitions of
those relevant classes with respect to that
plan year.
(i) Full-time employees, defined at the
election of the plan sponsor to mean either
full-time employees under section 4980H
(and § 54.4980H-1(a)(21) of this chapter)
or employees who are not part-time em-
ployees (as described in § 1.105-11(c)(2)
(iii)(C) of this chapter);
(ii) Part-time employees, defined at
the election of the plan sponsor to mean
either employees who are not full-time
employees under section 4980H (and un-

Bulletin No. 2019–28 215 July 8, 2019
der § 54.4980H-1(a)(21) of this chapter
(which defines full-time employee)) or
employees who are part-time employees
as described in § 1.105-11(c)(2)(iii)(C) of
this chapter;
(iii) Employees who are paid on a sal-
ary basis;
(iv) Non-salaried employees (such as,
for example, hourly employees);
(v) Employees whose primary site of
employment is in the same rating area as
defined in 45 CFR 147.102(b);
(vi) Seasonal employees, defined
at the election of the plan sponsor to mean
seasonal employees as described in either
§ 54.4980H-1(a)(38) or § 1.105-11(c)(2)
(iii)(C) of this chapter;
(vii) Employees included in a unit of
employees covered by a particular collec-
tive bargaining agreement (or an appro-
priate related participation agreement) in
which the plan sponsor participates (as de-
scribed in § 1.105-11(c)(2)(iii)(D) of this
chapter);
(viii) Employees who have not satis-
fied a waiting period for coverage (if the
waiting period complies with § 54.9815-
2708 of this chapter);
(ix) Non-resident aliens with no U.S.-
based income (as described in § 1.105-
11(c)(2)(iii)(E) of this chapter);
(x) Employees who, under all the facts
and circumstances, are employees of an
entity that hired the employees for tempo-
rary placement at an entity that is not the
common law employer of the employees
and that is not treated as a single employ-
er with the entity that hired the employees
for temporary placement under section
414(b), (c), (m), or (o); or
(xi) A group of participants described
as a combination of two or more of the
classes of employees set forth in para-
graphs (d)(2)(i) through (x) of this section.
(3) Minimum class size requirement—
(i) In general. If a class of employees is
subject to the minimum class size require-
ment as set forth in this paragraph (d)(3),
the class must consist of at least a mini-
mum number of employees (as described
in paragraphs (d)(3)(iii) and (iv) of this
section), otherwise, the plan sponsor may
not treat that class as a separate class of
employees. Paragraph (d)(3)(ii) of this
section sets forth the circumstances in
which the minimum class size requirement
applies to a class of employees, paragraph
(d)(3)(iii) of this section sets forth the
rules for determining the applicable class
size minimum, and paragraph (d)(3)(iv) of
this section sets forth the rules for a plan
sponsor to determine if it satisfies the min-
imum class size requirement with respect
to a class of employees.
(ii) Circumstances in which minimum
class size requirement applies—(A) The
minimum class size requirement applies
only if a plan sponsor offers a traditional
group health plan to one or more class-
es of employees and offers an individual
coverage HRA to one or more other class-
es of employees.
(B) The minimum class size require-
ment does not apply to a class of employ-
ees offered a traditional group health plan
or a class of employees offered no cover-
age.
(C) The minimum class size require-
ment applies to a class of employees of-
fered an individual coverage HRA if the
class is full-time employees, part-time
employees, salaried employees, non-sal-
aried employees, or employees whose
primary site of employment is in the same
rating area (described in paragraph (d)(2)
(i), (ii), (iii), (iv), or (v) of this section, re-
spectively, and referred to collectively as
the applicable classes or individually as an
applicable class), except that:
(1) In the case of the class of employ-
ees whose primary site of employment is
in the same rating area (as described in
paragraph (d)(2)(v) of this section), the
minimum class size requirement does not
apply if the geographic area defining the
class is a State or a combination of two or
more entire States; and
(2) In the case of the classes of em-
ployees that are full-time employees and
part-time employees (as described in
paragraphs (d)(2)(i) and (ii) of this sec-
tion, respectively), the minimum class
size requirement applies only to those
classes (and the classes are only applica-
ble classes) if the employees in one such
class are offered a traditional group health
plan while the employees in the other such
class are offered an individual coverage
HRA. In such a case, the minimum class
size requirement applies only to the class
offered an individual coverage HRA.
(D) A class of employees offered an
individual coverage HRA is also subject
to the minimum class size requirement if
the class is a class of employees created
by combining at least one of the applica-
ble classes (as defined in paragraph (d)
(3)(ii)(C) of this section) with any other
class, except that the minimum class size
requirement shall not apply to a class that
is the result of a combination of one of the
applicable classes and a class of employ-
ees who have not satisfied a waiting peri-
od (as described in paragraph (d)(2)(viii)
of this section).
(iii) Determination of the applicable
class size minimum—(A) In general. The
minimum number of employees that must
be in a class of employees that is subject to
the minimum class size requirement (the
applicable class size minimum) is deter-
mined prior to the beginning of the plan
year for each plan year of the individual
coverage HRA and is:
(1) 10, for an employer with fewer than
100 employees;
(2) A number, rounded down to a whole
number, equal to 10 percent of the total
number of employees, for an employer
with 100 to 200 employees; and
(3) 20, for an employer with more than
200 employees.
(B) Determining employer size. For
purposes of this paragraph (d)(3), the
number of employees of an employer is
determined in advance of the plan year of
the HRA based on the number of employ-
ees that the employer reasonably expects
to employ on the first day of the plan year.
(iv) Determining if a class satisfies the
applicable class size minimum. For pur-
poses of this paragraph (d)(3), whether a
class of employees satisfies the applicable
class size minimum for a plan year of the
individual coverage HRA is based on the
number of employees in the class offered
the individual coverage HRA as of the
first day of the plan year. Therefore, this
determination is not based on the number
of employees that actually enroll in the
individual coverage HRA, and this deter-
mination is not affected by changes in the
number of employees in the class during
the plan year.
(4) Consistency requirement. For any
plan year, a plan sponsor may define “full-
time employee,” “part-time employee,”
and “seasonal employee” in accordance
with the relevant provisions of sections
105(h) or 4980H, as set forth in paragraphs
(d)(2)(i), (ii), and (vi) of this section, if:

July 8, 2019 216 Bulletin No. 2019–28
(i) To the extent applicable under the
HRA for the plan year, each of the three
classes of employees are defined in accor-
dance with section 105(h) or each of the
three classes of employees are defined in
accordance with section 4980H for the
plan year; and
(ii) The HRA plan document sets forth
the applicable definitions prior to the be-
ginning of the plan year to which the defi-
nitions will apply.
(5) Special rule for new hires—(i) In
general. Notwithstanding paragraphs (c)
(2) and (3) of this section, a plan spon-
sor that offers a traditional group health
plan to a class of employees may pro-
spectively offer the employees in that
class of employees who are hired on or
after a certain future date (the new hire
date) an individual coverage HRA (with
this group of employees referred to as the
new hire subclass), while continuing to
offer employees in that class of employ-
ees who are hired before the new hire
date a traditional group health plan (with
the rule set forth in this sentence referred
to as the special rule for new hires). For
the new hire subclass, the individual cov-
erage HRA must be offered on the same
terms to all participants within the sub-
class, in accordance with paragraph (c)
(3) of this section. In accordance with
paragraph (c)(2) of this section, a plan
sponsor may not offer a choice between
an individual coverage HRA or a tradi-
tional group health plan to any employee
in the new hire subclass or to any em-
ployee in the class who is not a member
of the new hire subclass.
(ii) New hire date. A plan sponsor may
set the new hire date for a class of employ-
ees prospectively as any date on or after
January 1, 2020. A plan sponsor may set
different new hire dates prospectively for
separate classes of employees.
(iii) Discontinuation of use of special
rule for new hires and multiple applica-
tions of the special rule for new hires. A
plan sponsor may discontinue use of the
special rule for new hires at any time for
any class of employees. In that case, the
new hire subclass is no longer treated as
a separate subclass of employees. In the
event a plan sponsor applies the special
rule for new hires to a class of employees
and later discontinues use of the rule to
the class of employees, the plan sponsor
may later apply the rule if the application
of the rule would be permitted under the
rules for initial application of the special
rule for new hires. If a plan sponsor, in
accordance with the requirements for the
special rule for new hires, applies the rule
to a class of employees subsequent to any
prior application and discontinuance of
the rule to that class, the new hire date
must be prospective.
(iv) Application of the minimum class
size requirement under the special rule
for new hires. The minimum class size re-
quirement set forth in paragraph (d)(3) of
this section does not apply to the new hire
subclass. However, if a plan sponsor sub-
divides the new hire subclass subsequent
to creating the new hire subclass, the min-
imum class size requirement set forth in
paragraph (d)(3) of this section applies to
any class of employees created by subdi-
viding the new hire subclass, if the min-
imum class size requirement otherwise
applies.
(6) Student employees offered student
premium reduction arrangements. For
purposes of this section, if an institution
of higher education (as defined in the
Higher Education Act of 1965) offers a
student employee a student premium re-
duction arrangement, the employee is
not considered to be part of the class of
employees to which the employee would
otherwise belong. For the purpose of this
paragraph (d)(6) and paragraph (f)(1) of
this section, a student premium reduction
arrangement is defined as any program of-
fered by an institution of higher education
under which the cost of insured or self-in-
sured student health coverage is reduced
for certain students through a credit, off-
set, reimbursement, stipend or similar ar-
rangement. A student employee offered a
student premium reduction arrangement
is also not counted for purposes of deter-
mining the applicable class size minimum
under paragraph (d)(3)(iii) of this section.
If a student employee is not offered a stu-
dent premium reduction arrangement (in-
cluding if the student employee is offered
an individual coverage HRA instead), the
student employee is considered to be part
of the class of employees to which the em-
ployee otherwise belongs and is counted
for purposes of determining the applicable
class size minimum under paragraph (d)
(3)(iii) of this section.
(e) Integration of Individual Coverage
HRAs with Medicare—(1) General rule.
An individual coverage HRA will be con-
sidered to be integrated with Medicare
(and deemed to comply with PHS Act
sections 2711 and 2713 and § 54.9815-
2711(d)(4) of this chapter), provided that
the conditions of paragraph (c) of this sec-
tion are satisfied, subject to paragraph (e)
(2) of this section. Nothing in this section
requires that a participant and his or her
dependents all have the same type of cov-
erage; therefore, an individual coverage
HRA may be integrated with Medicare
for some individuals and with individu-
al health insurance coverage for others,
including, for example, a participant en-
rolled in Medicare Part A and B or Part C
and his or her dependents enrolled in indi-
vidual health insurance coverage.
(2) Application of conditions in para-
graph (c) of this section—(i) In general.
Except as provided in paragraph (e)(2)
(ii) of this section, in applying the condi-
tions of paragraph (c) of this section with
respect to integration with Medicare, a
reference to “individual health insurance
coverage” is deemed to refer to coverage
under Medicare Part A and B or Part C.
References in this section to integration
of an HRA with Medicare refer to integra-
tion of an individual coverage HRA with
Medicare Part A and B or Part C.
(ii) Exceptions. For purposes of the
statement regarding ERISA under the no-
tice content element under paragraph (c)
(6)(ii)(A) of this section and the statement
regarding the availability of a special en-
rollment period under the notice content
element under paragraph (c)(6)(ii)(J) of
this section, the term individual health in-
surance coverage means only individual
health insurance coverage and does not
also mean coverage under Medicare Part
A and B or Part C.
(f) Examples—(1) Examples regard-
ing classes and the minimum class size
requirement. The following examples
illustrate the provisions of paragraph (c)
(3) of this section, taking into account the
provisions of paragraphs (d)(1) through
(4) and (d)(6) of this section. In each ex-
ample, the HRA is an individual coverage
HRA that may reimburse any medical care
expenses, including premiums for individ-
ual health insurance coverage and it is as-

Bulletin No. 2019–28 217 July 8, 2019
sumed that no participants or dependents
are Medicare beneficiaries.
(i) Example 1: Collectively bargained employ-
ees offered traditional group health plan; non-col-
lectively bargained employees offered HRA—(A)
Facts. For 2020, Plan Sponsor A offers its employ-
ees covered by a collective bargaining agreement a
traditional group health plan (as required by the col-
lective bargaining agreement) and all other employ-
ees (non-collectively bargained employees) each an
HRA on the same terms.
(B) Conclusion. The same terms requirement of
paragraph (c)(3) of this section is satisfied in this
paragraph (f)(1)(i) (Example 1) because collectively
bargained and non-collectively bargained employees
may be treated as different classes of employees, one
of which may be offered a traditional group health
plan and the other of which may be offered an in-
dividual coverage HRA, and Plan Sponsor A offers
the HRA on the same terms to all participants who
are non-collectively bargained employees. The min-
imum class size requirement does not apply to this
paragraph (f)(1)(i) (Example 1) even though Plan
Sponsor A offers one class a traditional group health
plan and one class the HRA because collectively
bargained and non-collectively bargained employees
are not applicable classes that are subject to the min-
imum class size requirement.
(ii) Example 2: Collectively bargained employ-
ees in one unit offered traditional group health plan
and in another unit offered HRA—(A) Facts. For
2020, Plan Sponsor B offers its employees covered
by a collective bargaining agreement with Local 100
a traditional group health plan (as required by the
collective bargaining agreement), and its employees
covered by a collective bargaining agreement with
Local 200 each an HRA on the same terms (as re-
quired by the collective bargaining agreement).
(B) Conclusion. The same terms requirement of
paragraph (c)(3) of this section is satisfied in this
paragraph (f)(1)(ii) (Example 2) because the employ-
ees covered by the collective bargaining agreements
with the two separate bargaining units (Local 100
and Local 200) may be treated as two different class-
es of employees and Plan Sponsor B offers an HRA
on the same terms to the participants covered by the
agreement with Local 200. The minimum class size
requirement does not apply to this paragraph (f)(1)
(ii) (Example 2) even though Plan Sponsor B offers
the Local 100 employees a traditional group health
plan and the Local 200 employees an HRA because
collectively bargained employees are not applicable
classes that are subject to the minimum class size re-
quirement.
(iii) Example 3: Employees in a waiting period
offered no coverage; other employees offered an
HRA—(A) Facts. For 2020, Plan Sponsor C offers
its employees who have completed a waiting peri-
od that complies with the requirements for waiting
periods in § 54.9815-2708 of this chapter each an
HRA on the same terms and does not offer coverage
to its employees who have not completed the waiting
period.
(B) Conclusion. The same terms requirement of
paragraph (c)(3) of this section is satisfied in this
paragraph (f)(1)(iii) (Example 3) because employ-
ees who have completed a waiting period and em-
ployees who have not completed a waiting period
may be treated as different classes and Plan Sponsor
C offers the HRA on the same terms to all partici-
pants who have completed the waiting period. The
minimum class size requirement does not apply to
this paragraph (f)(1)(iii) (Example 3) because Plan
Sponsor C does not offer at least one class of em-
ployees a traditional group health plan and because
the class of employees who have not completed
a waiting period and the class of employees who
have completed a waiting period are not applicable
classes that are subject to the minimum class size
requirement.
(iv) Example 4: Employees in a waiting period
offered an HRA; other employees offered a tradi-
tional group health plan—(A) Facts. For 2020, Plan
Sponsor D offers its employees who have completed
a waiting period that complies with the requirements
for waiting periods in § 54.9815-2708 of this chapter
a traditional group health plan and offers its employ-
ees who have not completed the waiting period each
an HRA on the same terms.
(B) Conclusion. The same terms requirement of
paragraph (c)(3) of this section is satisfied in this
paragraph (f)(1)(iv) (Example 4) because employees
who have completed a waiting period and employ-
ees who have not completed a waiting period may be
treated as different classes and Plan Sponsor D offers
an HRA on the same terms to all participants who
have not completed the waiting period. The mini-
mum class size requirement does not apply to this
paragraph (f)(1)(iv) (Example 4) even though Plan
Sponsor D offers employees who have completed
a waiting period a traditional group health plan and
employees who have not completed a waiting period
an HRA because the class of employees who have
not completed a waiting period is not an applicable
class that is subject to the minimum class size re-
quirement (nor is the class made up of employees
who have completed the waiting period).
(v) Example 5: Staffing firm employees tempo-
rarily placed with customers offered an HRA; other
employees offered a traditional group health plan—
(A) Facts. Plan Sponsor E is a staffing firm that
places certain of its employees on temporary assign-
ments with customers that are not the common law
employers of Plan Sponsor E’s employees or treated
as a single employer with Plan Sponsor E under sec-
tion 414(b), (c), (m), or (o) (unrelated entities); other
employees work in Plan Sponsor E’s office manag-
ing the staffing business (non-temporary employ-
ees). For 2020, Plan Sponsor E offers its employees
who are on temporary assignments with customers
each an HRA on the same terms. All other employees
are offered a traditional group health plan.
(B) Conclusion. The same terms requirement of
paragraph (c)(3) of this section is satisfied in this
paragraph (f)(1)(v) (Example 5) because the em-
ployees who are hired for temporary placement at
an unrelated entity and non-temporary employees of
Plan Sponsor E may be treated as different classes
of employees and Plan Sponsor E offers an HRA
on the same terms to all participants temporarily
placed with customers. The minimum class size re-
quirement does not apply to this paragraph (f)(1)(v)
(Example 5) even though Plan Sponsor E offers one
class a traditional group health plan and one class
the HRA because the class of employees hired for
temporary placement is not an applicable class that
is subject to the minimum class size requirement (nor
is the class made up of non-temporary employees).
(vi) Example 6: Staffing firm employees tempo-
rarily placed with customers in rating area 1 offered
an HRA; other employees offered a traditional group
health plan—(A) Facts.
The facts are the same as in paragraph (f)(1)(v)
of this section (Example 5), except that Plan Sponsor
E has work sites in rating area 1 and rating area 2,
and it offers its 10 employees on temporary assign-
ments with a work site in rating area 1 an HRA on the
same terms. Plan Sponsor E has 200 other employees
in rating areas 1 and 2, including its non-temporary
employees in rating areas 1 and 2 and its employees
on temporary assignments with a work site in rating
area 2, all of whom are offered a traditional group
health plan.
(B) Conclusion. The same terms requirement
of paragraph (c)(3) of this section is not satisfied in
this paragraph (f)(1)(vi) (Example 6) because, even
though the employees who are temporarily placed
with customers generally may be treated as employ-
ees of a different class, because Plan Sponsor E is
also using a rating area to identify the class offered
the HRA (which is an applicable class for the min-
imum class size requirement) and is offering one
class the HRA and another class the traditional group
health plan, the minimum class size requirement
applies to the class offered the HRA, and the class
offered the HRA fails to satisfy the minimum class
size requirement. Because Plan Sponsor E employs
210 employees, the applicable class size minimum
is 20, and the HRA is offered to only 10 employees.
(vii) Example 7: Employees in State 1 offered
traditional group health plan; employees in State 2
offered HRA—(A) Facts. Plan Sponsor F employs
45 employees whose work site is in State 1 and 7
employees whose primary site of employment is in
State 2. For 2020, Plan Sponsor F offers its 45 em-
ployees in State 1 a traditional group health plan, and
each of its 7 employees in State 2 an HRA on the
same terms.
(B) Conclusion. The same terms requirement
of paragraph (c)(3) of this section is satisfied in
this paragraph (f)(1)(vii) (Example 7) because Plan
Sponsor F offers the HRA on the same terms to all
employees with a work site in State 2 and that class
is a permissible class under paragraph (d) of this sec-
tion. This is because employees whose work sites are
in different rating areas may be considered different
classes and a plan sponsor may create a class of em-
ployees by combining classes of employees, includ-
ing by combining employees whose work site is in
one rating area with employees whose work site is in
a different rating area, or by combining all employ-
ees whose work site is in a state. The minimum class
size requirement does not apply to this paragraph (f)
(1)(vii) (Example 7) because the minimum class size
requirement does not apply if the geographic area
defining a class of employees is a state or a combina-
tion of two or more entire states.
(viii) Example 8: Full-time seasonal employees
offered HRA; all other full-time employees offered
traditional group health plan; part-time employees
offered no coverage—(A) Facts. Plan Sponsor G
employs 6 full-time seasonal employees, 75 full-
time employees who are not seasonal employees,
and 5 part-time employees. For 2020, Plan Sponsor

July 8, 2019 218 Bulletin No. 2019–28
G offers each of its 6 full-time seasonal employees
an HRA on the same terms, its 75 full-time employ-
ees who are not seasonal employees a traditional
group health plan, and offers no coverage to its 5
part-time employees.
(B) Conclusion. The same terms requirement of
paragraph (c)(3) of this section is satisfied in this
paragraph (f)(1)(viii) (Example 8) because full-time
seasonal employees and full-time employees who
are not seasonal employees may be considered dif-
ferent classes and Plan Sponsor G offers the HRA on
the same terms to all full-time seasonal employees.
The minimum class size requirement does not apply
to the class offered the HRA in this paragraph (f)(1)
(viii) (Example 8) because part-time employees are
not offered coverage and full-time employees are not
an applicable class subject to the minimum class size
requirement if part-time employees are not offered
coverage.
(ix) Example 9: Full-time employees in rating
area 1 offered traditional group health plan; full-
time employees in rating area 2 offered HRA; part-
time employees offered no coverage—(A) Facts.
Plan Sponsor H employs 17 full-time employees and
10 part-time employees whose work site is in rating
area 1 and 552 full-time employees whose work site
is in rating area 2. For 2020, Plan Sponsor H offers
its 17 full-time employees in rating area 1 a tradition-
al group health plan and each of its 552 full-time em-
ployees in rating area 2 an HRA on the same terms.
Plan Sponsor H offers no coverage to its 10 part-time
employees in rating area 1. Plan Sponsor H reason-
ably expects to employ 569 employees on the first
day of the HRA plan year.
(B) Conclusion. The same terms requirement of
paragraph (c)(3) of this section is satisfied in this
paragraph (f)(1)(ix) (Example 9) because employees
whose work sites are in different rating areas may
be considered different classes and Plan Sponsor H
offers the HRA on the same terms to all full-time
employees in rating area 2. The minimum class size
requirement applies to the class offered the HRA in
this paragraph (f)(1)(ix) (Example 9) because the
minimum class size requirement applies to a class
based on a geographic area unless the geographic
area is a state or a combination of two or more entire
states. However, the minimum class size requirement
applies only to the class offered the HRA, and Plan
Sponsor H offers the HRA to the 552 full-time em-
ployees in rating area 2 on the first day of the plan
year, satisfying the minimum class size requirement
(because the applicable class size minimum for Plan
Sponsor H is 20).
(x) Example 10: Employees in rating area 1 of-
fered HRA; employees in rating area 2 offered tradi-
tional group health plan—(A) Facts. The facts are
the same as in paragraph (f)(1)(ix) of this section
(Example 9) except that Plan Sponsor H offers its
17 full-time employees in rating area 1 the HRA and
offers its 552 full-time employees in rating area 2 the
traditional group health plan.
(B) Conclusion. The same terms require-
ment of paragraph (c)(3) of this section is not sat-
isfied in this paragraph (f)(1)(x) (Example 10) be-
cause, even though employees whose work sites are
in different rating areas generally may be considered
different classes and Plan Sponsor H offers the HRA
on the same terms to all participants in rating area
1, the HRA fails to satisfy the minimum class size
requirement. Specifically, the minimum class size re-
quirement applies to this paragraph (f)(1)(x) (Exam-
ple 10) because the minimum class size requirement
applies to a class based on a geographic area unless
the geographic area is a state or a combination of two
or more entire states. Further, the applicable class
size minimum for Plan Sponsor H is 20 employees,
and the HRA is only offered to the 17 full-time em-
ployees in rating area 1 on the first day of the HRA
plan year.
(xi) Example 11: Employees in State 1 and rating
area 1 of State 2 offered HRA; employees in all oth-
er rating areas of State 2 offered traditional group
health plan—(A) Facts. For 2020, Plan Sponsor I
offers an HRA on the same terms to a total of 200
employees it employs with work sites in State 1 and
in rating area 1 of State 2. Plan Sponsor I offers a tra-
ditional group health plan to its 150 employees with
work sites in other rating areas in State 2. Plan Spon-
sor I reasonably expects to employ 350 employees
on the first day of the HRA plan year.
(B) Conclusion. The same terms requirement of
paragraph (c)(3) of this section is satisfied in this
paragraph (f)(1)(xi) (Example 11). Plan Sponsor I
may treat all of the employees with a work site in
State 1 and rating area 1 of State 2 as a class of em-
ployees because employees whose work sites are in
different rating areas may be considered different
classes and a plan sponsor may create a class of
employees by combining classes of employees, in-
cluding by combining employees whose work site is
in one rating area with a class of employees whose
work site is in a different rating area. The minimum
class size requirement applies to the class of employ-
ees offered the HRA (made up of employees in State
1 and in rating area 1 of State 2) because the mini-
mum class size requirement applies to a class based
on a geographic area unless the geographic area is a
state or a combination of two or more entire states. In
this case, the class is made up of a state plus a rating
area which is not the entire state. However, this class
satisfies the minimum class size requirement because
the applicable class size minimum for Plan Sponsor
I is 20, and Plan Sponsor I offered the HRA to 200
employees on the first day of the plan year.
(xii) Example 12: Salaried employees offered a
traditional group health plan; hourly employees of-
fered an HRA—(A) Facts. Plan Sponsor J has 163
salaried employees and 14 hourly employees. For
2020, Plan Sponsor J offers its 163 salaried employ-
ees a traditional group health plan and each of its 14
hourly employees an HRA on the same terms. Plan
Sponsor J reasonably expects to employ 177 em-
ployees on the first day of the HRA plan year.
(B) Conclusion. The same terms requirement of
paragraph (c)(3) of this section is not satisfied in this
paragraph (f)(1)(xii) (Example 12) because, even
though salaried and hourly employees generally may
be considered different classes and Plan Sponsor J
offers the HRA on the same terms to all hourly em-
ployees, the HRA fails to satisfy the minimum class
size requirement. Specifically, the minimum class
size requirement applies in this paragraph (f)(1)
(xii) (Example 12) because employees who are paid
on a salaried basis and employees who are not paid
on a salaried basis are applicable classes subject to
the minimum class size requirement. Because Plan
Sponsor J reasonably expects to employ between
100 and 200 employees on the first day of the plan
year, the applicable class size minimum is 10 per-
cent, rounded down to a whole number. Ten percent
of 177 total employees, rounded down to a whole
number is 17, and the HRA is offered to only 14
hourly employees.
(xiii) Example 13: Part-time employees and
full-time employees offered different HRAs; no tra-
ditional group health plan offered—(A) Facts. Plan
Sponsor K has 50 full-time employees and 7 part-
time employees. For 2020, Plan Sponsor K offers
its 50 full-time employees $2,000 each in an HRA
otherwise provided on the same terms and each of
its 7 part-time employees $500 in an HRA otherwise
provided on the same terms. Plan Sponsor K reason-
ably expects to employ 57 employees on the first day
of the HRA plan year.
(B) Conclusion. The same terms requirement of
paragraph (c)(3) of this section is satisfied in this
paragraph (f)(1)(xiii) (Example 13) because full-time
employees and part-time employees may be treated
as different classes and Plan Sponsor K offers an
HRA on the same terms to all the participants in each
class. The minimum class size requirement does not
apply to either the full-time class or the part-time
class because (although in certain circumstances the
minimum class size requirement applies to a class
of full-time employees and a class of part-time em-
ployees) Plan Sponsor K does not offer any class of
employees a traditional group health plan, and the
minimum class size requirement applies only when,
among other things, at least one class of employees is
offered a traditional group health plan while another
class is offered an HRA.
(xiv) Example 14: No employees offered an
HRA—(A) Facts. The facts are the same facts as in
paragraph (f)(1)(xiii) of this section (Example 13),
except that Plan Sponsor K offers its full-time em-
ployees a traditional group health plan and does not
offer any group health plan (either a traditional group
health plan or an HRA) to its part-time employees.
(B) Conclusion. The regulations set forth under
this section do not apply to Plan Sponsor K because
Plan Sponsor K does not offer an individual cover-
age HRA to any employee.
(xv) Example 15: Full-time employees offered
traditional group health plan; part-time employees
offered HRA—(A) Facts. The facts are the same as
in paragraph (f)(1)(xiii) of this section (Example
13), except that Plan Sponsor K offers its full-time
employees a traditional group health plan and offers
each of its part-time employees $500 in an HRA and
otherwise on the same terms.
(B) Conclusion. The same terms requirement
of paragraph (c)(3) of this section is not satisfied
in this paragraph (f)(1)(xv) (Example 15) because,
even though the full-time employees and the part-
time employees generally may be treated as different
classes, in this paragraph (f)(1)(xv) (Example 15),
the minimum class size requirement applies to the
part-time employees, and it is not satisfied. Specif-
ically, the minimum class size requirement applies
to the part-time employees because that requirement
applies to an applicable class offered an HRA when
one class is offered a traditional group health plan
while another class is offered an HRA, and to the
part-time and full-time employee classes when one

Bulletin No. 2019–28 219 July 8, 2019
of those classes is offered a traditional group health
plan while the other is offered an HRA. Because Plan
Sponsor K reasonably expects to employ fewer than
100 employees on the first day of the HRA plan year,
the applicable class size minimum for Plan Sponsor
K is 10 employees, but Plan Sponsor K offered the
HRA only to its 7 part-time employees.
(xvi) Example 16: Satisfying minimum class size
requirement based on employees offered HRA—(A)
Facts. Plan Sponsor L employs 78 full-time em-
ployees and 12 part-time employees. For 2020, Plan
Sponsor L offers its 78 full-time employees a tradi-
tional group health plan and each of its 12 part-times
employees an HRA on the same terms. Only 6 part-
time employees enroll in the HRA. Plan Sponsor L
reasonably expects to employ fewer than 100 em-
ployees on the first day of the HRA plan year.
(B) Conclusion. The same terms requirement of
paragraph (c)(3) of this section is satisfied in this
paragraph (f)(1)(xvi) (Example 16) because full-time
employees and part-time employees may be treated
as different classes, Plan Sponsor L offers an HRA
on the same terms to all the participants in the part-
time class, and the minimum class size requirement
is satisfied. Specifically, whether a class of employ-
ees satisfies the applicable class size minimum is de-
termined as of the first day of the plan year based on
the number of employees in a class that is offered an
HRA, not on the number of employees who enroll
in the HRA. The applicable class size minimum for
Plan Sponsor L is 10 employees, and Plan Sponsor L
offered the HRA to its 12 part-time employees.
(xvii) Example 17: Student employees offered
student premium reduction arrangements and same
terms requirement—(A) Facts. Plan Sponsor M is
an institution of higher education that offers each of
its part-time employees an HRA on the same terms,
except that it offers its part-time employees who are
student employees a student premium reduction ar-
rangement, and the student premium reduction ar-
rangement provides different amounts to different
part-time student employees.
(B) Conclusion. The same terms requirement of
paragraph (c)(3) of this section is satisfied in this
paragraph (f)(1)(xvii) (Example 17) because Plan
Sponsor M offers the HRA on the same terms to
its part-time employees who are not students and
because the part-time student employees offered a
student premium reduction arrangement (and their
varying HRAs) are not taken into account as part-
time employees for purposes of determining whether
a class of employees is offered an HRA on the same
terms.
(xiii) Example 18: Student employees offered stu-
dent premium reduction arrangements and minimum
class size requirement—(A) Facts. Plan Sponsor N
is an institution of higher education with 25 hourly
employees. Plan Sponsor N offers 15 of its hourly
employees, who are student employees, a student
premium reduction arrangement and it wants to of-
fer its other 10 hourly employees an HRA for 2022.
Plan Sponsor N offers its salaried employees a tradi-
tional group health plan. Plan Sponsor N reasonably
expects to have 250 employees on the first day of the
2022 HRA plan year, 15 of which will have offers of
student premium reduction arrangements.
(B) Conclusion. The same terms requirement
of paragraph (c)(3) of this section is not satisfied
in this paragraph (f)(1)(xviii) (Example 18). The
minimum class size requirement will apply to the
class of hourly employees to which Plan Sponsor
N wants to offer the HRA because Plan Sponsor N
offers a class of employees a traditional group health
plan and another class the HRA, and the minimum
class size requirement generally applies to a class
of hourly employees offered an HRA. Plan Sponsor
N’s applicable class size minimum is 20 because
Plan Sponsor N reasonably expects to employ 235
employees on the first day of the plan year (250 em-
ployees minus 15 employees receiving a student pre-
mium reduction arrangement). Plan Sponsor N may
not offer the HRA to its hourly employees because
the 10 employees offered the HRA as of the first day
of the plan year does not satisfy the applicable class
size minimum.
(2) Examples regarding special rule
for new hires. The following examples
illustrate the provisions of paragraph (c)
(3) of this section, taking into account the
provisions of paragraph (d) of this section,
in particular the special rule for new hires
under paragraph (d)(5) of this section. In
each example, the HRA is an individual
coverage HRA that has a calendar year
plan year and may reimburse any medical
care expenses, including premiums for in-
dividual health insurance coverage. The
examples also assume that no participants
or dependents are Medicare beneficiaries.
(i) Example 1: Application of special rule for
new hires to all employees—(A) Facts. For 2021,
Plan Sponsor A offers all employees a traditional
group health plan. For 2022, Plan Sponsor A offers
all employees hired on or after January 1, 2022, an
HRA on the same terms and continues to offer the
traditional group health plan to employees hired be-
fore that date. On the first day of the 2022 plan year,
Plan Sponsor A has 2 new hires who are offered the
HRA.
(B) Conclusion. The same terms requirement of
paragraph (c)(3) of this section is satisfied in this
paragraph (f)(2)(i) (Example 1) because, under the
special rule for new hires in paragraph (d)(5) of this
section, the employees newly hired on and after Jan-
uary 1, 2022, may be treated as a new hire subclass,
Plan Sponsor A offers the HRA on the same terms
to all participants in the new hire subclass, and the
minimum class size requirement does not apply to
the new hire subclass.
(ii) Example 2: Application of special rule for
new hires to full-time employees—(A) Facts. For
2021, Plan Sponsor B offers a traditional group
health plan to its full-time employees and does not
offer any coverage to its part-time employees. For
2022, Plan Sponsor B offers full-time employees
hired on or after January 1, 2022, an HRA on the
same terms, continues to offer its full-time employ-
ees hired before that date a traditional group health
plan, and continues to offer no coverage to its part-
time employees. On the first day of the 2022 plan
year, Plan Sponsor B has 2 new hire, full-time em-
ployees who are offered the HRA.
(B) Conclusion. The same terms requirement of
paragraph (c)(3) of this section is satisfied in this
paragraph (f)(2)(ii) (Example 2) because, under the
special rule for new hires in paragraph (d)(5) of this
section, the full-time employees newly hired on and
after January 1, 2022, may be treated as a new hire
subclass and Plan Sponsor B offers the HRA on the
same terms to all participants in the new hire sub-
class. The minimum class size requirement does not
apply to the new hire subclass.
(iii) Example 3: Special rule for new hires imper-
missibly applied retroactively—(A) Facts. For 2025,
Plan Sponsor C offers a traditional group health plan
to its full-time employees. For 2026, Plan Sponsor
C wants to offer an HRA to its full-time employees
hired on and after January 1, 2023, while continuing
to offer a traditional group health plan to its full-time
employees hired before January 1, 2023.
(B) Conclusion. The special rule for new hires
under paragraph (d)(5) of this section does not ap-
ply in this paragraph (f)(2)(iii) (Example 3) because
the rule must be applied prospectively. That is, Plan
Sponsor C may not, in 2026, choose to apply the spe-
cial rule for new hires retroactive to 2023. If Plan
Sponsor C were to offer an HRA in this way, it would
fail to satisfy the conditions under paragraphs (c)(2)
and (3) of this section because the new hire subclass
would not be treated as a subclass for purposes of
applying those rules and, therefore, all full-time em-
ployees would be treated as one class to which either
a traditional group health plan or an HRA could be
offered, but not both.
(iv) Example 4: Permissible second application
of the special rule for new hires to the same class of
employees—(A) Facts. For 2021, Plan Sponsor D of-
fers all of its full-time employees a traditional group
health plan. For 2022, Plan Sponsor D applies the
special rule for new hires and offers an HRA on the
same terms to all employees hired on and after Janu-
ary 1, 2022, and continues to offer a traditional group
health plan to full-time employees hired before that
date. For 2025, Plan Sponsor D discontinues use of
the special rule for new hires, and again offers all
full-time employees a traditional group health plan.
In 2030, Plan Sponsor D decides to apply the special
rule for new hires to the full-time employee class
again, offering an HRA to all full-time employees
hired on and after January 1, 2030, on the same
terms, while continuing to offer employees hired be-
fore that date a traditional group health plan.
(B) Conclusion. Plan Sponsor D has permissibly
applied the special rule for new hires and is in com-
pliance with the requirements of paragraphs (c)(2)
and (3) of this section.
(v) Example 5: Impermissible second application
of the special rule for new hires to the same class of
employees—(A) Facts. The facts are the same as in
paragraph (f)(2)(iv) of this section (Example 4), ex-
cept that for 2025, Plan Sponsor D discontinues use
of the special rule for new hires by offering all full-
time employees an HRA on the same terms. Further,
for 2030, Plan Sponsor D wants to continue to offer
an HRA on the same terms to all full-time employees
hired before January 1, 2030, and to offer all full-
time employees hired on or after January 1, 2030, an
HRA in a different amount.
(B) Conclusion. Plan Sponsor D may not apply
the special rule for new hires for 2030 to the class of
full-time employees being offered an HRA because
the special rule for new hires may only be applied to

July 8, 2019 220 Bulletin No. 2019–28
a class that is being offered a traditional group health
plan.
(vi) Example 6: New full-time employees offered
different HRAs in different rating areas—(A) Facts.
Plan Sponsor E has work sites in rating area 1, rat-
ing area 2, and rating area 3. For 2021, Plan Sponsor
E offers its full-time employees a traditional group
health plan. For 2022, Plan Sponsor E offers its full-
time employees hired on or after January 1, 2022, in
rating area 1 an HRA of $3,000, its full-time employ-
ees hired on or after January 1, 2022, in rating area 2
an HRA of $5,000, and its full-time employees hired
on or after January 1, 2022, in rating area 3 an HRA
of $7,000. Within each class offered an HRA, Plan
Sponsor E offers the HRA on the same terms. Plan
Sponsor E offers its full-time employees hired prior
to January 1, 2022, in each of those classes a tradi-
tional group health plan. On the first day of the 2022
plan year, there is one new hire, full-time employee
in rating area 1, three new hire, full-time employees
in rating area 2, and 10 new hire-full-time employees
in rating area 3.
(B) Conclusion. The same terms requirement of
paragraph (c)(3) of this section is satisfied in this
paragraph (f)(2)(vi) (Example 6) because, under
the special rule for new hires in paragraph (d)(5) of
this section, the full-time employees in each of the
three rating areas newly hired on and after January
1, 2022, may be treated as three new hire subclass-
es and Plan Sponsor E offers the HRA on the same
terms to all participants in the new hire subclasses.
Further, the minimum class size requirement does
not apply to the new hire subclasses.
(vii) Example 7: New full-time employee class
subdivided based on rating area—(A) Facts. Plan
Sponsor F offers its full-time employees hired on or
after January 1, 2022, an HRA on the same terms
and it continues to offer its full-time employees
hired before that date a traditional group health plan.
Plan Sponsor F offers no coverage to its part-time
employees. For the 2025 plan year, Plan Sponsor F
wants to subdivide the full-time new hire subclass so
that those whose work site is in rating area 1 will be
offered the traditional group health plan and those
whose work site is in rating area 2 will continue to
receive the HRA. Plan Sponsor F reasonably expects
to employ 219 employees on January 1, 2025. As of
January 1, 2025, Plan Sponsor F has 15 full-time em-
ployees whose work site in in rating area 2 and who
were hired between January 1, 2022, and January 1,
2025.
(B) Conclusion. The same terms requirement of
paragraph (c)(3) of this section is not satisfied in this
paragraph (f)(2)(vii) (Example 7) because the new
hire subclass has been subdivided in a manner that is
subject to the minimum class size requirement, and
the class offered the HRA fails to satisfy the mini-
mum class size requirement. Specifically, once the
new hire subclass is subdivided the general rules for
applying the minimum class size requirement apply
to the employees offered the HRA in the new hire
subclass. In this case, because the subdivision of the
new hire full-time subclass is based on rating areas;
a class based on rating areas is an applicable class
subject to the minimum class size requirement; and
the employees in one rating area are to be offered
the HRA, while the employees in the other rating
area are offered the traditional group health plan, the
minimum class size requirement would apply on and
after the date of the subdivision. Further, the mini-
mum class size requirement would not be satisfied,
because the applicable class size minimum for Plan
Sponsor F would be 20, and only 15 employees in
rating area 2 would be offered the HRA.
(viii) Example 8: New full-time employee class
subdivided based on state—(A) Facts. The facts are
the same as in paragraph (f)(2)(vii) of this section
(Example 7), except that for the 2025 plan year, Plan
Sponsor F intends to subdivide the new hire, full-
time class so that those in State 1 will be offered the
traditional group health plan and those in State 2 will
each be offered an HRA on the same terms.
(B) Conclusion. The same terms requirement of
paragraph (c)(3) of this section is satisfied in this
paragraph (f)(2)(viii) (Example 8) because even
though the new hire subclass has been subdivided, it
has been subdivided in a manner that is not subject
to the minimum class size requirement as the subdi-
vision is based on the entire state.
(ix) Example 9: New full-time employees and
part-time employees offered HRA—(A) Facts. In
2021, Plan Sponsor G offers its full-time employees
a traditional group health plan and does not offer
coverage to its part-time employees. For the 2022
plan year, Plan Sponsor G offers its full-time em-
ployees hired on or after January 1, 2022, and all of
its part-time employees, including those hired before
January 1, 2022, and those hired on and after January
1, 2022, an HRA on the same terms, and it continues
to offer its full-time employees hired before January
1, 2022, a traditional group health plan.
(B) Conclusion. The minimum class size require-
ment applies to the part-time employees offered the
HRA in 2022 because the class is being offered an
HRA; the special rule for new hires does not apply
(because this class was not previously offered a tra-
ditional group health plan) and so it is not a new hire
subclass exempt from the minimum class size re-
quirement; another class of employees (that is, full-
time hired before January 1, 2022) are being offered
a traditional group health plan; and the part-time em-
ployee class is generally an applicable classes that
is subject to the minimum class size requirement.
However, because the full-time, new hire subclass is
based on the special rule for new hires, the minimum
class size requirement does not apply to full-time
new hires offered an HRA in 2022.
(g) Applicability date. This section ap-
plies to plan years beginning on or after
January 1, 2020.
Par. 7. Section 54.9815-2711 is amended
by revising paragraphs (c), (d), and (e) to
read as follows:
§ 54.9815-2711 No lifetime or annual
limits.
* * * * *
(c) Definition of essential health ben-
efits. The term “essential health benefits”
means essential health benefits under sec-
tion 1302(b) of the Patient Protection and
Affordable Care Act and applicable regu-
lations. For the purpose of this section, a
group health plan or a health insurance is-
suer that is not required to provide essen-
tial health benefits under section 1302(b)
must define “essential health benefits” in
a manner that is consistent with the fol-
lowing:
(1) For plan years beginning before Jan-
uary 1, 2020, one of the EHB-benchmark
plans applicable in a State under 45 CFR
156.110, and including coverage of any
additional required benefits that are con-
sidered essential health benefits consistent
with 45 CFR 155.170(a)(2), or one of the
three Federal Employees Health Benefits
Program (FEHBP) plan options as defined
by 45 CFR 156.100(a)(3), supplemented
as necessary, to satisfy the standards in 45
CFR 156.110; or
(2) For plan years beginning on or after
January 1, 2020, an EHB-benchmark plan
selected by a State in accordance with
the available options and requirements
for EHB-benchmark plan selection at 45
CFR 156.111, including an EHB-bench-
mark plan in a State that takes no action
to change its EHB-benchmark plan and
thus retains the EHB-benchmark plan ap-
plicable in that State for the prior year in
accordance with 45 CFR 156.111(d)(1),
and including coverage of any additional
required benefits that are considered es-
sential health benefits consistent with 45
CFR 155.170(a)(2).
(d) Health reimbursement arrange-
ments (HRAs) and other account-based
group health plans—(1) In general. If an
HRA or other account-based group health
plan is integrated with another group
health plan or individual health insurance
coverage and the other group health plan
or individual health insurance coverage,
as applicable, separately is subject to and
satisfies the requirements in PHS Act
section 2711 and paragraph (a)(2) of this
section, the fact that the benefits under the
HRA or other account-based group health
plan are limited does not cause the HRA
or other account-based group health plan
to fail to satisfy the requirements of PHS
Act section 2711 and paragraph (a)(2) of
this section. Similarly, if an HRA or other
account-based group health plan is inte-
grated with another group health plan or
individual health insurance coverage and
the other group health plan or individual
health insurance coverage, as applicable,

Bulletin No. 2019–28 221 July 8, 2019
separately is subject to and satisfies the
requirements in PHS Act section 2713
and § 54.9815-2713(a)(1) of this chapter,
the fact that the benefits under the HRA
or other account-based group health plan
are limited does not cause the HRA or
other account-based group health plan to
fail to satisfy the requirements of PHS Act
section 2713 and § 54.9815-2713(a)(1) of
this chapter. For the purpose of this para-
graph (d), all individual health insurance
coverage, except for coverage that con-
sists solely of excepted benefits, is treated
as being subject to and complying with
PHS Act sections 2711 and 2713.
(2) Requirements for an HRA or oth-
er account-based group health plan to
be integrated with another group health
plan. An HRA or other account-based
group health plan is integrated with anoth-
er group health plan for purposes of PHS
Act section 2711 and paragraph (a)(2) of
this section if it satisfies the requirements
under one of the integration methods set
forth in paragraph (d)(2)(i) or (ii) of this
section. For purposes of the integration
methods under which an HRA or other ac-
count-based group health plan is integrat-
ed with another group health plan, integra-
tion does not require that the HRA or other
account-based group health plan and the
other group health plan with which it is in-
tegrated share the same plan sponsor, the
same plan document or governing instru-
ments, or file a single Form 5500, if ap-
plicable. An HRA or other account-based
group health plan integrated with another
group health plan for purposes of PHS Act
section 2711 and paragraph (a)(2) of this
section may not be used to purchase in-
dividual health insurance coverage unless
that coverage consists solely of excepted
benefits, as defined in 45 CFR 148.220.
(i) Method for integration with a group
health plan: Minimum value not required.
An HRA or other account-based group
health plan is integrated with another
group health plan for purposes of this
paragraph (d) if:
(A) The plan sponsor offers a group
health plan (other than the HRA or other
account-based group health plan) to the
employee that does not consist solely of
excepted benefits;
(B) The employee receiving the HRA
or other account-based group health plan
is actually enrolled in a group health
plan (other than the HRA or other ac-
count-based group health plan) that does
not consist solely of excepted benefits,
regardless of whether the plan is offered
by the same plan sponsor (referred to as
non-HRA group coverage);
(C) The HRA or other account-based
group health plan is available only to
employees who are enrolled in non-HRA
group coverage, regardless of whether
the non-HRA group coverage is offered
by the plan sponsor of the HRA or other
account-based group health plan (for ex-
ample, the HRA may be offered only to
employees who do not enroll in an em-
ployer’s group health plan but are enrolled
in other non-HRA group coverage, such as
a group health plan maintained by the em-
ployer of the employee’s spouse);
(D) The benefits under the HRA or
other account-based group health plan are
limited to reimbursement of one or more
of the following — co-payments, co-in-
surance, deductibles, and premiums under
the non-HRA group coverage, as well as
medical care expenses that do not consti-
tute essential health benefits as defined in
paragraph (c) of this section; and
(E) Under the terms of the HRA or oth-
er account-based group health plan, an em-
ployee (or former employee) is permitted
to permanently opt out of and waive future
reimbursements from the HRA or other
account-based group health plan at least
annually and, upon termination of em-
ployment, either the remaining amounts
in the HRA or other account-based group
health plan are forfeited or the employee
is permitted to permanently opt out of and
waive future reimbursements from the
HRA or other account-based group health
plan (see paragraph (d)(3) of this section
for additional rules regarding forfeiture
and waiver).
(ii) Method for integration with an-
other group health plan: Minimum value
required. An HRA or other account-based
group health plan is integrated with anoth-
er group health plan for purposes of this
paragraph (d) if:
(A) The plan sponsor offers a group
health plan (other than the HRA or other
account-based group health plan) to the
employee that provides minimum value
pursuant to section 36B(c)(2)(C)(ii) (and
its implementing regulations and applica-
ble guidance);
(B) The employee receiving the HRA
or other account-based group health plan
is actually enrolled in a group health
plan (other than the HRA or other ac-
count-based group health plan) that pro-
vides minimum value pursuant to section
36B(c)(2)(C)(ii) (and applicable guid-
ance), regardless of whether the plan is
offered by the plan sponsor of the HRA
or other account-based group health plan
(referred to as non-HRA MV group cov-
erage);
(C) The HRA or other account-based
group health plan is available only to
employees who are actually enrolled in
non-HRA MV group coverage, regard-
less of whether the non-HRA MV group
coverage is offered by the plan sponsor
of the HRA or other account-based group
health plan (for example, the HRA may
be offered only to employees who do not
enroll in an employer’s group health plan
but are enrolled in other non-HRA MV
group coverage, such as a group health
plan maintained by an employer of the
employee’s spouse); and
(D) Under the terms of the HRA or oth-
er account-based group health plan, an em-
ployee (or former employee) is permitted
to permanently opt out of and waive future
reimbursements from the HRA or other
account-based group health plan at least
annually, and, upon termination of em-
ployment, either the remaining amounts
in the HRA or other account-based group
health plan are forfeited or the employee
is permitted to permanently opt out of and
waive future reimbursements from the
HRA or other account-based group health
plan (see paragraph (d)(3) of this section
for additional rules regarding forfeiture
and waiver).
(3) Forfeiture. For purposes of inte-
gration under paragraphs (d)(2)(i)(E) and
(d)(2)(ii)(D) of this section, forfeiture
or waiver occurs even if the forfeited or
waived amounts may be reinstated upon a
fixed date, a participant’s death, or the ear-
lier of the two events (the reinstatement
event). For the purpose of this paragraph
(d)(3), coverage under an HRA or other
account-based group health plan is con-
sidered forfeited or waived prior to a re-
instatement event only if the participant’s
election to forfeit or waive is irrevocable,
meaning that, beginning on the effective
date of the election and through the date

July 8, 2019 222 Bulletin No. 2019–28
of the reinstatement event, the participant
and the participant’s beneficiaries have no
access to amounts credited to the HRA or
other account-based group health plan.
This means that upon and after reinstate-
ment, the reinstated amounts under the
HRA or other account-based group health
plan may not be used to reimburse or pay
medical care expenses incurred during the
period after forfeiture and prior to rein-
statement.
(4) Requirements for an HRA or oth-
er account-based group health plan to be
integrated with individual health insur-
ance coverage or Medicare Part A and
B or Medicare Part C. An HRA or other
account-based group health plan is inte-
grated with individual health insurance
coverage or Medicare Part A and B or
Medicare Part C (and treated as comply-
ing with PHS Act sections 2711 and 2713)
if the HRA or other account-based group
health plan satisfies the requirements of §
54.9802-4(c) of this chapter (as modified
by § 54.9802-4(e), for HRAs or other ac-
count-based group health plans integrated
with Medicare Part A and B or Medicare
Part C).
(5) Integration with Medicare Part B
and D. For employers that are not required
to offer their non-HRA group health plan
coverage to employees who are Medi-
care beneficiaries, an HRA or other ac-
count-based group health plan that may be
used to reimburse premiums under Medi-
care Part B or D may be integrated with
Medicare (and deemed to comply with
PHS Act sections 2711 and 2713) if the
following requirements are satisfied with
respect to employees who would be eli-
gible for the employer’s non-HRA group
health plan but for their eligibility for
Medicare (and the integration rules under
paragraphs (d)(2)(i) and (ii) of this section
continue to apply to employees who are
not eligible for Medicare):
(i) The plan sponsor offers a group
health plan (other than the HRA or other
account-based group health plan and that
does not consist solely of excepted bene-
fits) to employees who are not eligible for
Medicare;
(ii) The employee receiving the HRA
or other account-based group health plan
is actually enrolled in Medicare Part B or
D;
(iii) The HRA or other account-based
group health plan is available only to em-
ployees who are enrolled in Medicare Part
B or D; and
(iv) The HRA or other account-based
group health plan complies with para-
graphs (d)(2)(i)(E) and (d)(2)(ii)(D) of
this section.
(6) Definitions. The following defini-
tions apply for purposes of this section.
(i) Account-based group health plan.
An account-based group health plan is
an employer-provided group health plan
that provides reimbursements of med-
ical care expenses with the reimburse-
ment subject to a maximum fixed dollar
amount for a period. An HRA is a type of
account-based group health plan. An ac-
count-based group health plan does not
include a qualified small employer health
reimbursement arrangement, as defined in
section 9831(d)(2).
(ii) Medical care expenses. Medical
care expenses means expenses for medical
care as defined under section 213(d).
(e) Applicability date. The provisions
of this section are applicable to group
health plans and health insurance issuers
for plan years beginning on or after Jan-
uary 1, 2020. Until the applicability date
for this section, plans and issuers are re-
quired to continue to comply with the cor-
responding sections of 26 CFR part 54,
contained in the 26 CFR, subchapter D,
revised as of April 1, 2018.
Par. 8. Section 54.9831-1 is amended
by revising paragraph (c)(3)(i) and adding
paragraph (c)(3)(viii) to read as follows:
§ 54.9831-1 Special rules relating to
group health plans.
* * * * *
(c) * * *
(3) * * *
(i) In general. Limited-scope dental
benefits, limited-scope vision benefits, or
long-term care benefits are excepted if
they are provided under a separate policy,
certificate, or contract of insurance, or are
otherwise not an integral part of a group
health plan as described in paragraph (c)
(3)(ii) of this section. In addition, benefits
provided under a health flexible spending
arrangement (health FSA) are excepted
benefits if they satisfy the requirements
of paragraph (c)(3)(v) of this section;
benefits provided under an employee as-
sistance program are excepted benefits if
they satisfy the requirements of paragraph
(c)(3)(vi) of this section; benefits provid-
ed under limited wraparound coverage
are excepted benefits if they satisfy the
requirements of paragraph (c)(3)(vii) of
this section; and benefits provided under a
health reimbursement arrangement or oth-
er account-based group health plan, other
than a health FSA, are excepted benefits if
they satisfy the requirements of paragraph
(c)(3)(viii) of this section.
* * * * *
(viii) Health reimbursement arrange-
ments (HRAs) and other account-based
group health plans. Benefits provided un-
der an HRA or other account-based group
health plan, other than a health FSA, are
excepted if they satisfy all of the require-
ments of this paragraph (c)(3)(viii). See
paragraph (c)(3)(v) of this section for the
circumstances in which benefits provided
under a health FSA are excepted benefits.
For purposes of this paragraph (c)(3)(viii),
the term “HRA or other account-based
group health plan” has the same meaning
as “account-based group health plan” set
forth in § 54.9815-2711(d)(6)(i) of this
part, except that the term does not include
health FSAs. For ease of reference, an
HRA or other account-based group health
plan that satisfies the requirements of this
paragraph (c)(3)(viii) is referred to as an
excepted benefit HRA.
(A) Otherwise not an integral part of
the plan. Other group health plan coverage
that is not limited to excepted benefits and
that is not an HRA or other account-based
group health plan must be made available
by the same plan sponsor for the plan year
to the participant.
(B) Benefits are limited in amount—(1)
Limit on annual amounts made available.
The amounts newly made available for
each plan year under the HRA or other ac-
count-based group health plan do not ex-
ceed $1,800. In the case of any plan year
beginning after December 31, 2020, the
dollar amount in the preceding sentence
shall be increased by an amount equal to
such dollar amount multiplied by the cost-
of-living adjustment. The cost of living
adjustment is the percentage (if any) by
which the C-CPI-U for the preceding cal-
endar year exceeds the C-CPI-U for calen-
dar year 2019. The term “C-CPI-U” means
the Chained Consumer Price Index for All
Urban Consumers as published by the Bu-

Bulletin No. 2019–28 223 July 8, 2019
reau of Labor Statistics of the Department
of Labor. The C-CPI-U for any calendar
year is the average of the C-CPI-U as of
the close of the 12-month period ending
on March 31 of such calendar year. The
values of the C-CPI-U used for any calen-
dar year shall be the latest values so pub-
lished as of the date on which the Bureau
publishes the initial value of the C-CPI-U
for the month of March for the preced-
ing calendar year. Any such increase that
is not a multiple of $50 shall be rounded
down to the next lowest multiple of $50.
The Department of the Treasury and the
Internal Revenue Service will publish the
adjusted amount for plan years beginning
in any calendar year no later than June 1 of
the preceding calendar year.
(2) Carryover amounts. If the terms
of the HRA or other account-based group
health plan allow unused amounts to be
made available to participants and depen-
dents in later plan years, such carryover
amounts are disregarded for purposes of
determining whether benefits are limited
in amount.
(3) Multiple HRAs or other ac-
count-based group health plans. If the
plan sponsor provides more than one HRA
or other account-based group health plan
to the participant for the same time period,
the amounts made available under all such
plans are aggregated to determine whether
the benefits are limited in amount, except
that HRAs or other account-based group
health plans that reimburse only excepted
benefits are not included in determining
whether the benefits are limited in amount.
(C) Prohibition on reimbursement of
certain health insurance premiums. The
HRA or other account-based group health
plan must not reimburse premiums for
individual health insurance coverage,
group health plan coverage (other than
COBRA continuation coverage or other
continuation coverage), or Medicare Part
A, B, C, or D, except that the HRA or oth-
er account-based group health plan may
reimburse premiums for such coverage
that consists solely of excepted benefits.
See also, paragraph (c)(3)(viii)(F) of this
section.
(D) Uniform availability. The HRA or
other account-based group health plan is
made available under the same terms to all
similarly situated individuals, as defined
in § 54.9802-1(d) of this part, regardless
of any health factor (as described in §
54.9802-1(a)).
(E) Notice requirement. See 29 CFR
2520.102-3(j)(2) and (3) and 29 CFR
2520.104b-2(a) for rules regarding the
time, manner, and content for summary
plan descriptions (including a description
of conditions pertaining to eligibility to
receive benefits; annual or lifetime caps or
other limits on benefits under the plan; and
a description or summary of the benefits)
applicable to plans subject to Tile I of the
Employee Retirement Income Security
Act of 1974, as amended.
(F) Special rule. The HRA or other ac-
count-based group health plan must not
reimburse premiums for short-term, lim-
ited-duration insurance (as defined in §
54.9801-2 of this part) if the conditions of
this paragraph (c)(3)(viii)(F) are satisfied.
(1) The HRA or other account-based
group health plan is offered by a small
employer (as defined in PHS Act section
2791(e)(4)).
(2) The other group health plan cover-
age offered by the employer pursuant to
paragraph (c)(3)(viii)(A) of this section is
either fully-insured or partially-insured.
(3) The Secretary of Health and Human
Services (HHS) makes a finding, in con-
sultation with the Secretaries of Labor and
the Treasury, that the reimbursement of
premiums for short-term, limited-duration
insurance by excepted benefit HRAs has
caused significant harm to the small group
market in the state that is the principal
place of business of the small employer.
(4) The finding by the Secretary of
HHS is made after submission of a writ-
ten recommendation by the applicable
state authority of such state, in a form and
manner specified by HHS. The written
recommendation must include evidence
that the reimbursement of premiums for
short-term, limited-duration insurance by
excepted benefit HRAs established by in-
sured or partially-insured small employers
in the state has caused significant harm to
the state’s small group market, including
with respect to premiums.
(5) The restriction shall be imposed or
discontinued by publication by the Sec-
retary of HHS of a notice in the Federal
Register and shall apply only prospec-
tively and with a reasonable time for plan
sponsors to comply.
* * * * *
DEPARTMENT OF LABOR
Employee Benefits Security
Administration
29 CFR Chapter XXV
For the reasons stated in the preamble,
the Department of Labor amends 29 CFR
parts 2510 and 2590 as set forth below:
PART 2510 — DEFINITION OF
TERMS USED IN SUBCHAPTERS
C, D, E, F, G, AND L OF THIS
CHAPTER
9. The authority citation for part 2510
is revised to read as follows:
Authority: 29 U.S.C. 1002(1),
1002(3), 1002(2), 1002(5), 1002(16),
1002(21), 1002(37), 1002(38), 1002(40),
1002(42), 1031, and 1135; Secretary of
Labor’s Order No. 1-2011, 77 FR 1088
(Jan. 9, 2012); Secs. 2510.3-21, 2510.3-
101 and 2510.3-102 also issued under sec.
102 of Reorganization Plan No. 4 of 1978,
5 U.S.C. App. at 237 (2012), E.O. 12108,
44 FR 1065 (Jan. 3, 1979) and 29 U.S.C.
1135 note. Sec. 2510.3-38 is also issued
under sec. 1, Pub. L. 105-72, 111 Stat.
1457 (1997).
10. Section 2510.3-1 is amended by
adding paragraph (l) to read as follows:
§ 2510.3-1 Employee welfare benefit
plan.
* * * * *
(l) Safe harbor for health reimburse-
ment arrangements (HRAs) and certain
other arrangements that reimburse in-
dividual health insurance coverage. For
purposes of title I of the Act and this chap-
ter, the terms “employee welfare benefit
plan” and “welfare plan” shall not include
individual health insurance coverage
the premiums of which are reimbursed
by a health reimbursement arrangement
(HRA) (or other account-based group
health plan), including an HRA or other
account-based group health plan integrat-
ed with individual health insurance cover-
age (as described in § 2590.702-2 of this
chapter), an HRA that covers fewer than
two current employees (as described in §
2590.732(b) of this chapter) and that re-
imburses premiums for individual health
insurance coverage, a qualified small em-
ployer health reimbursement arrangement
(QSEHRA), as defined in section 9831(d)

July 8, 2019 224 Bulletin No. 2019–28
(2) of the Code, or an arrangement under
which an employer allows employees to
pay the portion of the premium for in-
dividual health insurance coverage that
is not covered by an HRA or other ac-
count-based group health plan with which
the coverage is integrated by using a sal-
ary reduction arrangement in a cafeteria
plan under section 125 of the Code (sup-
plemental salary reduction arrangement),
if all the conditions of this paragraph (l)
are satisfied.
(1) The purchase of any individual
health insurance coverage is completely
voluntary for participants and beneficia-
ries. The fact that a plan sponsor requires
such coverage to be purchased as a condi-
tion for participation in an HRA or supple-
mental salary reduction arrangement does
not make the purchase involuntary.
(2) The employer, employee organiza-
tion, or other plan sponsor does not select
or endorse any particular issuer or insur-
ance coverage. In contrast, providing gen-
eral contact information regarding avail-
ability of health insurance in a state (such
as providing information regarding www.
HealthCare.gov or contact information for
a state insurance commissioner’s office)
or providing general health insurance edu-
cational information (such as the uniform
glossary of health coverage and medical
terms available at: https://www.dol.gov/
sites/default/files/ebsa/laws-and-regula-
tions/laws/affordable-care-act/for-em-
ployers-and-advisers/sbc-uniform-glossa-
ry-of-coverage-and-medical-terms-final.
pdf) is permitted.
(3) Reimbursement for non-group
health insurance premiums is limited sole-
ly to individual health insurance coverage
(as defined in § 2590.701-2 of this chap-
ter) that does not consist solely of except-
ed benefits (as defined in § 2590.732(c) of
this chapter).
(4) The employer, employee organi-
zation, or other plan sponsor receives no
consideration in the form of cash or oth-
erwise in connection with the employee’s
selection or renewal of any individual
health insurance coverage.
(5) Each plan participant is notified an-
nually that the individual health insurance
coverage is not subject to title I of ERI-
SA. For an HRA that is integrated with
individual health insurance coverage, the
notice must satisfy the notice requirement
set forth in § 2590.702-2(c)(6) of this
chapter. A QSEHRA or an HRA not sub-
ject to the notice requirement set forth in §
2590.702-2(c)(6) of this chapter may use
the following language to satisfy this con-
dition: “The individual health insurance
coverage that is paid for by this plan, if
any, is not subject to the rules and consum-
er protections of the Employee Retirement
Income Security Act. You should contact
your state insurance department for more
information regarding your rights and re-
sponsibilities if you purchase individual
health insurance coverage.” A supplemen-
tal salary reduction arrangement is not re-
quired to provide this notice as the notice
will be provided by the HRA that such an
arrangement supplements.
PART 2590—RULES AND
REGULATIONS FOR GROUP
HEALTH PLANS.
11. The authority citation for part 2590
continues to read as follows:
Authority: 29 U.S.C. 1027, 1059,
1135, 1161-1168, 1169, 1181-1183, 1181
note, 1185, 1185a, 1185b, 1191, 1191a,
1191b, and 1191c; sec. 101(g), Pub.
L.104-191, 110 Stat. 1936; sec. 401(b),
Pub. L. 105-200, 112 Stat. 645 (42 U.S.C.
651 note); sec. 512(d), Pub. L. 110-343,
122 Stat. 3881; sec. 1001, 1201, and
1562(e), Pub. L. 111-148, 124 Stat. 119,
as amended by Pub. L. 111-152, 124 Stat.
1029; Division M, Pub. L. 113-235, 128
Stat. 2130; Secretary of Labor’s Order
1-2011, 77 FR 1088 (Jan. 9, 2012).
12. Section 2590.701-2 is amended by
revising the definition of “group health in-
surance coverage” to read as follows:
§ 2590.701-2 Definitions.
* * * * *
Group health insurance coverage
means health insurance coverage offered
in connection with a group health plan. In-
dividual health insurance coverage reim-
bursed by the arrangements described in
29 CFR 2510.3-1(l) is not offered in con-
nection with a group health plan, and is
not group health insurance coverage, pro-
vided all the conditions in 29 CFR 2510.3-
1(l) are satisfied.
* * * * *
13. Section 2590.702-2 is added to read
as follows:
§ 2590.702-2 Special Rule Allowing
Integration of Health Reimbursement
Arrangements (HRAs) and Other Ac-
count-Based Group Health Plans with
Individual Health Insurance Coverage
and Medicare and Prohibiting Dis-
crimination In HRAs and Other Ac-
count-Based Group Health Plans.
(a) Scope. This section applies to health
reimbursement arrangements (HRAs)
and other account-based group health
plans, as defined in § 2590.715-2711(d)
(6)(i) of this part. For ease of reference,
the term “HRA” is used in this section to
include other account-based group health
plans. For related regulations, see 26
CFR 1.36B-2(c)(3)(i) and (c)(5), 29 CFR
2510.3-1(l), and 45 CFR 155.420.
(b) Purpose. This section provides
the conditions that an HRA must satisfy
in order to be integrated with individual
health insurance coverage for purposes
of Public Health Service Act (PHS Act)
sections 2711 and 2713 and § 2590.715-
2711(d)(4) of this part (referred to as an
individual coverage HRA). This section
also allows an individual coverage HRA
to be integrated with Medicare for pur-
poses of PHS Act sections 2711 and 2713
and § 2590.715-2711(d)(4), subject to the
conditions provided in this section (see
paragraph (e) of this section). Some of the
conditions set forth in this section specif-
ically relate to compliance with PHS Act
sections 2711 and 2713 and some relate
to the effect of having or being offered an
individual coverage HRA on eligibility for
the premium tax credit under section 36B
of the Code. In addition, this section pro-
vides conditions that an individual cover-
age HRA must satisfy in order to comply
with the nondiscrimination provisions in
ERISA section 702 and PHS Act section
2705 (which is incorporated in ERISA
section 715) and that are consistent with
the provisions of the Patient Protection
and Affordable Care Act, Public Law 111–
148 (124 Stat. 119 (2010)), and the Health
Care and Education Reconciliation Act
of 2010, Public Law 111–152 (124 Stat.
1029 (2010)), each as amended, that are
designed to create a competitive individ-
ual market. These conditions are intended
to prevent an HRA plan sponsor from in-
tentionally or unintentionally, directly or
indirectly, steering any participants or de-
pendents with adverse health factors away

Bulletin No. 2019–28 225 July 8, 2019
from its traditional group health plan, if
any, and toward individual health insur-
ance coverage.
(c) General rule. An HRA will be con-
sidered to be integrated with individual
health insurance coverage for purposes
of PHS Act sections 2711 and 2713 and §
2590.715-2711(d)(4) of this part and will
not be considered to discriminate in vio-
lation of ERISA section 702 and PHS Act
section 2705 solely because it is integrat-
ed with individual health insurance cov-
erage, provided that the conditions of this
paragraph (c) are satisfied. See paragraph
(e) of this section for how these conditions
apply to an individual coverage HRA in-
tegrated with Medicare. For purposes of
this section, medical care expenses means
medical care expenses as defined in
§ 2590.715-2711(d)(6)(ii) of this part and
Exchange means Exchange as defined in
45 CFR 155.20.
(1) Enrollment in individual health
insurance coverage—(i) In general. The
HRA must require that the participant and
any dependent(s) are enrolled in individu-
al health insurance coverage that is subject
to and complies with the requirements in
PHS Act sections 2711 (and § 2590.715-
2711(a)(2) of this part) and PHS Act sec-
tion 2713 (and § 2590.715-2713(a)(1) of
this part), for each month that the individ-
ual(s) are covered by the HRA. For pur-
poses of this paragraph (c), all individual
health insurance coverage, except for indi-
vidual health insurance coverage that con-
sists solely of excepted benefits, is treated
as being subject to and complying with
PHS Act sections 2711 and 2713. Refer-
ences to individual health insurance cov-
erage in this paragraph (c) do not include
individual health insurance coverage that
consists solely of excepted benefits.
(ii) Forfeiture. The HRA must pro-
vide that if any individual covered by the
HRA ceases to be covered by individual
health insurance coverage, the HRA will
not reimburse medical care expenses that
are incurred by that individual after the in-
dividual health insurance coverage ceas-
es. In addition, if the participant and all
dependents covered by the participant’s
HRA cease to be covered by individual
health insurance coverage, the participant
must forfeit the HRA. In either case, the
HRA must reimburse medical care ex-
penses incurred by the individual prior to
the cessation of individual health insur-
ance coverage to the extent the medical
care expenses are otherwise covered by
the HRA, but the HRA may limit the pe-
riod to submit medical care expenses for
reimbursement to a reasonable specified
time period. If a participant or dependent
loses coverage under the HRA for a reason
other than cessation of individual health
insurance coverage, COBRA and other
continuation coverage requirements may
apply.
(iii) Grace periods and retroactive ter-
mination of individual health insurance
coverage. In the event an individual is
initially enrolled in individual health in-
surance coverage and subsequently timely
fails to pay premiums for the coverage,
with the result that the individual is in a
grace period, the individual is considered
to be enrolled in individual health insur-
ance coverage for purposes of this para-
graph (c)(1) and the individual coverage
HRA must reimburse medical care ex-
penses incurred by the individual during
that time period to the extent the medical
care expenses are otherwise covered by
the HRA. If the individual fails to pay the
applicable premium(s) by the end of the
grace period and the coverage is cancelled
or terminated, including retroactively, or
if the individual health insurance cover-
age is cancelled or terminated retroactive-
ly for some other reason (for example, a
rescission), an individual coverage HRA
must require that a participant notify the
HRA that coverage has been cancelled or
terminated and the date on which the can-
cellation or termination is effective. After
the individual coverage HRA has received
the notice of cancellation or termination,
the HRA may not reimburse medical care
expenses incurred on and after the date the
individual health insurance coverage was
cancelled or terminated, which is consid-
ered to be the date of termination of cov-
erage under the HRA.
(2) No traditional group health plan
may be offered to same participants. To
the extent a plan sponsor offers any class
of employees (as defined in paragraph (d)
of this section) an individual coverage
HRA, the plan sponsor may not also offer
a traditional group health plan to the same
class of employees, except as provided in
paragraph (d)(5) of this section. For pur-
poses of this section, a traditional group
health plan is any group health plan other
than either an account-based group health
plan or a group health plan that consists
solely of excepted benefits. Therefore, a
plan sponsor may not offer a choice be-
tween an individual coverage HRA or a
traditional group health plan to any partic-
ipant or dependent.
(3) Same terms requirement—(i) In
general. If a plan sponsor offers an indi-
vidual coverage HRA to a class of em-
ployees described in paragraph (d) of this
section, the HRA must be offered on the
same terms to all participants within the
class, except as provided in paragraphs (c)
(3)(ii) through (vi) and (d)(5) of this sec-
tion.
(ii) Carryover amounts, salary reduc-
tion arrangements, and transfer amounts.
Amounts that are not used to reimburse
medical care expenses for any plan year
that are made available to participants in
later plan years are disregarded for pur-
poses of determining whether an HRA is
offered on the same terms, provided that
the method for determining whether par-
ticipants have access to unused amounts
in future years, and the methodology and
formula for determining the amounts of
unused funds which they may access in fu-
ture years, is the same for all participants
in a class of employees. In addition, the
ability to pay the portion of the premium
for individual health insurance coverage
that is not covered by the HRA, if any, by
using a salary reduction arrangement un-
der section 125 of the Code is considered
to be a term of the HRA for purposes of
this paragraph (c)(3). Therefore, an HRA
is not provided on the same terms unless
the salary reduction arrangement, if made
available to any participant in a class of
employees, is made available on the same
terms to all participants (other than former
employees, as defined in paragraph (c)(3)
(iv) of this section) in the class of employ-
ees. Further, to the extent that a participant
in an individual coverage HRA was pre-
viously covered by another HRA and the
current individual coverage HRA makes
available amounts that were not used to
reimburse medical care expenses under
the prior HRA (transferred amounts), the
transferred amounts are disregarded for
purposes of determining whether the HRA
is offered on the same terms, provided that
if the HRA makes available transferred

July 8, 2019 226 Bulletin No. 2019–28
amounts, it does so on the same terms for
all participants in the class of employees.
(iii) Permitted variation. An HRA
does not fail to be provided on the same
terms solely because the maximum dollar
amount made available to participants in a
class of employees to reimburse medical
care expenses for any plan year increases
in accordance with paragraph (c)(3)(iii)
(A) or (B) of this section.
(A) Variation due to number of depen-
dents. An HRA does not fail to be provid-
ed on the same terms to participants in
a class of employees solely because the
maximum dollar amount made available
to those participants to reimburse medical
care expenses for any plan year increas-
es as the number of the participant’s de-
pendents who are covered under the HRA
increases, so long as the same maximum
dollar amount attributable to the increase
in family size is made available to all par-
ticipants in that class of employees with
the same number of dependents covered
by the HRA.
(B) Variation due to age. An HRA
does not fail to be provided on the same
terms to participants in a class of employ-
ees solely because the maximum dollar
amount made available under the terms
of the HRA to those participants to reim-
burse medical care expenses for any plan
year increases as the age of the participant
increases, so long as the requirements in
paragraphs (c)(3)(iii)(B)(1) and (2) of
this section are satisfied. For the purpose
of this paragraph (c)(3)(iii)(B), the plan
sponsor may determine the age of the par-
ticipant using any reasonable method for
a plan year, so long as the plan sponsor
determines each participant’s age for the
purpose of this paragraph (c)(3)(iii)(B)
using the same method for all participants
in the class of employees for the plan year
and the method is determined prior to the
plan year.
(1) The same maximum dollar amount
attributable to the increase in age is made
available to all participants who are the
same age.
(2) The maximum dollar amount made
available to the oldest participant(s) is not
more than three times the maximum dol-
lar amount made available to the youngest
participant(s).
(iv) Former employees. An HRA does
not fail to be treated as provided on the
same terms if the plan sponsor offers the
HRA to some, but not all, former employ-
ees within a class of employees. However,
if a plan sponsor offers the HRA to one
or more former employees within a class
of employees, the HRA must be offered to
the former employee(s) on the same terms
as to all other employees within the class,
except as provided in paragraph (c)(3)(ii)
of this section. For purposes of this sec-
tion, a former employee is an employee
who is no longer performing services for
the employer.
(v) New employees or new dependents.
For a participant whose coverage under
the HRA becomes effective later than the
first day of the plan year, the HRA does
not fail to be treated as being provided on
the same terms to the participant if the
maximum dollar amount made available
to the participant either is the same as the
maximum dollar amount made available
to participants in the participant’s class of
employees whose coverage became ef-
fective as of the first day of the plan year,
or is pro-rated consistent with the portion
of the plan year in which the participant
is covered by the HRA. Similarly, if the
HRA provides for variation in the max-
imum amount made available to partic-
ipants in a class of employees based on
the number of a participant’s dependents
covered by the HRA, and the number of
a participant’s dependents covered by the
HRA changes during a plan year (either
increasing or decreasing), the HRA does
not fail to be treated as being provided on
the same terms to the participant if the
maximum dollar amount made available
to the participant either is the same as the
maximum dollar amount made available
to participants in the participant’s class of
employees who had the same number of
dependents covered by the HRA on the
first day of the plan year or is pro-rated
for the remainder of the plan year after
the change in the number of the partic-
ipant’s dependents covered by the HRA
consistent with the portion of the plan
year in which that number of dependents
are covered by the HRA. The method the
HRA uses to determine amounts made
available for participants whose cover-
age under the HRA is effective later than
the first day of the plan year or who have
changes in the number of dependents
covered by the HRA during a plan year
must be the same for all participants in
the class of employees and the method
must be determined prior to the begin-
ning of the plan year.
(vi) HSA-compatible HRAs. An HRA
does not fail to be treated as provided on
the same terms if the plan sponsor offers
participants in a class of employees a
choice between an HSA-compatible indi-
vidual coverage HRA and an individual
coverage HRA that is not HSA compat-
ible, provided both types of HRAs are
offered to all participants in the class of
employees on the same terms. For the
purpose of this paragraph (c)(3)(vi), an
HSA-compatible individual coverage
HRA is an individual coverage HRA that
is limited in accordance with applicable
guidance under section 223 of the Code
such that an individual covered by such
an HRA is not disqualified from being an
eligible individual under section 223 of
the Code.
(vii) Examples. The following exam-
ples illustrate the provisions of this para-
graph (c)(3), without taking into account
the provisions of paragraph (d) of this
section. In each example, the HRA is an
individual coverage HRA that has a cal-
endar year plan year and may reimburse
any medical care expenses, including
premiums for individual health insurance
coverage (except as provided in paragraph
(c)(3)(vii)(E) of this section (Example
5)). Further, in each example, assume the
HRA is offered on the same terms, except
as otherwise specified in the example and
that no participants or dependents are
Medicare beneficiaries.
(A) Example 1: Carryover amounts permitted—
(1) Facts. For 2020 and again for 2021, Plan Sponsor
A offers all employees $7,000 each in an HRA, and
the HRA provides that amounts that are unused at
the end of a plan year may be carried over to the next
plan year, with no restrictions on the use of the car-
ryover amounts compared to the use of newly avail-
able amounts. At the end of 2020, some employees
have used all of the funds in their HRAs, while other
employees have balances remaining that range from
$500 to $1,750 that are carried over to 2021 for those
employees.
(2) Conclusion. The same terms requirement of
this paragraph (c)(3) is satisfied in this paragraph (c)
(3)(vii)(A) (Example 1) for 2020 because Plan Spon-
sor A offers all employees the same amount, $7,000,
in an HRA for that year. The same terms requirement
is also satisfied for 2021 because Plan Sponsor A
again offers all employees the same amount for that
year, and the carryover amounts that some employ-
ees have are disregarded in applying the same terms
requirement because the amount of the carryover for

Bulletin No. 2019–28 227 July 8, 2019
each employee (that employee’s balance) and each
employee’s access to the carryover amounts is based
on the same terms.
(B) Example 2: Employees hired after the first
day of the plan year—(1) Facts. For 2020, Plan
Sponsor B offers all employees employed on Janu-
ary 1, 2020, $7,000 each in an HRA for the plan year.
Employees hired after January 1, 2020, are eligible
to enroll in the HRA with an effective date of the
first day of the month following their date of hire, as
long as they have enrolled in individual health insur-
ance coverage effective on or before that date, and
the amount offered to these employees is pro-rated
based on the number of months remaining in the plan
year, including the month which includes their cov-
erage effective date.
(2) Conclusion. The same terms requirement of
this paragraph (c)(3) is satisfied in this paragraph (c)
(3)(vii)(B) (Example 2) for 2020 because Plan Spon-
sor B offers all employees employed on the first day
of the plan year the same amount, $7,000, in an HRA
for that plan year and all employees hired after Jan-
uary 1, 2020, a pro-rata amount based on the portion
of the plan year during which they are enrolled in
the HRA.
(C) Example 3: HRA amounts offered vary based
on number of dependents—(1) Facts. For 2020,
Plan Sponsor C offers its employees the following
amounts in an HRA: $1,500, if the employee is the
only individual covered by the HRA; $3,500, if the
employee and one dependent are covered by the
HRA; and $5,000, if the employee and more than
one dependent are covered by the HRA.
(2) Conclusion. The same terms requirement of
this paragraph (c)(3) is satisfied in this paragraph
(c)(3)(vii)(C) (Example 3) because paragraph (c)(3)
(iii)(A) of this section allows the maximum dollar
amount made available in an HRA to increase as the
number of the participant’s dependents covered by
the HRA increases and Plan Sponsor C makes the
same amount available to each employee with the
same number of dependents covered by the HRA.
(D) Example 4: HRA amounts offered vary based
on increases in employees’ ages—(1) Facts. For
2020, Plan Sponsor D offers its employees the fol-
lowing amounts in an HRA: $1,000 each for employ-
ees age 25 to 35; $2,000 each for employees age 36
to 45; $2,500 each for employees age 46 to 55; and
$4,000 each for employees over age 55.
(2) Conclusion. The same terms requirement of
this paragraph (c)(3) is not satisfied in this paragraph
(c)(3)(vii)(D) (Example 4) because the terms of the
HRA provide the oldest participants (those over age
55) with more than three times the amount made
available to the youngest participants (those ages 25
to 35), in violation of paragraph (c)(3)(iii)(B)(2) of
this section.
(E) Example 5: Application of same terms re-
quirement to premium only HRA—(1) Facts. For
2020, Plan Sponsor E offers its employees an HRA
that reimburses only premiums for individual health
insurance coverage, up to $10,000 for the year.
Employee A enrolls in individual health insurance
coverage with a $5,000 premium for the year and
is reimbursed $5,000 from the HRA. Employee B
enrolls in individual health insurance coverage with
an $8,000 premium for the year and is reimbursed
$8,000 from the HRA.
(2) Conclusion. The same terms requirement of
this paragraph (c)(3) is satisfied in this paragraph
(c)(3)(vii)(E) (Example 5) because Plan Sponsor E
offers the HRA on the same terms to all employ-
ees, notwithstanding that some employees receive a
greater amount of reimbursement than others based
on the cost of the individual health insurance cover-
age selected by the employee.
(4) Opt out. Under the terms of the
HRA, a participant who is otherwise eligi-
ble for coverage must be permitted to opt
out of and waive future reimbursements
on behalf of the participant and all depen-
dents eligible for the HRA from the HRA
once, and only once, with respect to each
plan year. The HRA may establish time-
frames for enrollment in (and opting out
of) the HRA but, in general, the opportuni-
ty to opt out must be provided in advance
of the first day of the plan year. For partic-
ipants who become eligible to participate
in the HRA on a date other than the first
day of the plan year (or who become eli-
gible fewer than 90 days prior to the plan
year or for whom the notice under para-
graph (c)(6) of this section is required to
be provided as set forth in paragraph (c)(6)
(i)(C) of this section), or for a dependent
who newly becomes eligible during the
plan year, this opportunity must be pro-
vided during the applicable HRA enroll-
ment period(s) established by the HRA for
these individuals. Further, under the terms
of the HRA, upon termination of employ-
ment, for a participant who is covered by
the HRA, either the remaining amounts in
the HRA must be forfeited or the partici-
pant must be permitted to permanently opt
out of and waive future reimbursements
from the HRA on behalf of the participant
and all dependents covered by the HRA.
(5) Reasonable procedures for cover-
age substantiation—(i) Substantiation of
individual health insurance coverage for
the plan year. The HRA must implement,
and comply with, reasonable procedures
to substantiate that participants and each
dependent covered by the HRA are, or
will be, enrolled in individual health in-
surance coverage for the plan year (or for
the portion of the plan year the individual
is covered by the HRA, if applicable). The
HRA may establish the date by which this
substantiation must be provided, but, in
general, the date may be no later than the
first day of the plan year. However, for a
participant who is not eligible to partici-
pate in the HRA on the first day of the plan
year (or who becomes eligible fewer than
90 days prior to the plan year or for whom
the notice under paragraph (c)(6) of this
section is required to be provided as set
forth in paragraph (c)(6)(i)(C) of this sec-
tion), the HRA may establish the date by
which this substantiation must be provid-
ed, but that date may be no later than the
date the HRA coverage begins. Similarly,
for a participant who adds a new depen-
dent during the plan year, the HRA may
establish the date by which this substanti-
ation must be provided, but the date may
be no later than the date the HRA cover-
age for the new dependent begins; howev-
er, to the extent the dependent’s coverage
under the HRA is effective retroactively,
the HRA may establish a reasonable time
by which this substantiation is required,
but must require it be provided before the
HRA will reimburse any medical care ex-
pense for the newly added dependent. The
reasonable procedures an HRA may use to
implement the substantiation requirement
set forth in this paragraph (c)(5)(i) may in-
clude a requirement that a participant sub-
stantiate enrollment by providing either:
(A) A document from a third party
(for example, the issuer or an Exchange)
showing that the participant and any de-
pendents covered by the HRA are, or will
be, enrolled in individual health insurance
coverage (for example, an insurance card
or an explanation of benefits document
pertaining to the relevant time period or
documentation from the Exchange show-
ing that the individual has completed the
application and plan selection); or
(B) An attestation by the participant
stating that the participant and depen-
dent(s) covered by the HRA are, or will
be, enrolled in individual health insurance
coverage, the date coverage began or will
begin, and the name of the provider of the
coverage.
(ii) Coverage substantiation with each
request for reimbursement of medical care
expenses. Following the initial substanti-
ation of coverage, with each new request
for reimbursement of an incurred medical
care expense for the same plan year, the
HRA may not reimburse a participant for
any medical care expenses unless, prior to
each reimbursement, the participant sub-
stantiates that the individual on whose be-
half medical care expenses are requested
to be reimbursed continues to be enrolled

July 8, 2019 228 Bulletin No. 2019–28
in individual health insurance coverage
for the month during which the medical
care expenses were incurred. The HRA
must implement, and comply with, rea-
sonable procedures to satisfy this require-
ment. This substantiation may be in the
form of a written attestation by the partic-
ipant, which may be part of the form used
to request reimbursement, or a document
from a third party (for example, a health
insurance issuer) showing that the partici-
pant or the dependent, if applicable, are or
were enrolled in individual health insur-
ance coverage for the applicable month.
(iii) Reliance on substantiation. For
purposes of this paragraph (c)(5), an HRA
may rely on the participant’s documen-
tation or attestation unless the HRA, its
plan sponsor, or any other entity acting in
an official capacity on behalf of the HRA
has actual knowledge that any individual
covered by the HRA is not, or will not be,
enrolled in individual health insurance
coverage for the plan year (or applicable
portion of the plan year) or the month, as
applicable.
(6) Notice requirement—(i) Timing.
The HRA must provide a written notice to
each participant:
(A) At least 90 calendar days before the
beginning of each plan year for any partic-
ipant who is not described in either para-
graph (c)(6)(i)(B) or (C) of this section;
(B) No later than the date on which the
HRA may first take effect for the partici-
pant, for any participant who is not eligi-
ble to participate at the beginning of the
plan year (or is not eligible to participate
at the time the notice is provided at least
90 calendar days before the beginning of
the plan year pursuant to paragraph (c)(6)
(i)(A) of this section); or
(C) No later than the date on which the
HRA may first take effect for the partici-
pant, for any participant who is employed
by an employer that is first established less
than 120 days before the beginning of the
first plan year of the HRA; this paragraph
(c)(6)(i)(C) applies only with respect to
the first plan year of the HRA.
(ii) Content. The notice must include
all the information described in this para-
graph (c)(6)(ii) (and may include any ad-
ditional information that does not conflict
with that information). To the extent that
the Departments of the Treasury, Labor
and Health and Human Services provide
model notice language for certain ele-
ments of this required notice, HRAs are
permitted, but not required, to use the
model language.
(A) A description of the terms of the
HRA, including the maximum dollar
amount available for each participant (in-
cluding the self-only HRA amount avail-
able for the plan year (or the maximum
dollar amount available for the plan year
if the HRA provides for reimbursements
up to a single dollar amount regardless
of whether a participant has self-only or
other than self-only coverage)), any rules
regarding the proration of the maximum
dollar amount applicable to any partici-
pant (or dependent, if applicable) who is
not eligible to participate in the HRA for
the entire plan year, whether (and which
of) the participant’s dependents are eli-
gible for the HRA, a statement that there
are different kinds of HRAs (including
a qualified small employer health reim-
bursement arrangement) and the HRA
being offered is an individual coverage
HRA, a statement that the HRA requires
the participant and any covered depen-
dents to be enrolled in individual health
insurance coverage (or Medicare Part A
and B or Medicare Part C, if applicable),
a statement that the coverage in which the
participant and any covered dependents
must be enrolled cannot be short-term,
limited-duration insurance or consist sole-
ly of excepted benefits, a statement that
individual health insurance coverage in
which the participant and any covered de-
pendents are enrolled is not subject to the
Employee Retirement Income Security
Act if the conditions under § 2510.3-1(l)
of this chapter are satisfied, the date as of
which coverage under the HRA may first
become effective (both for participants
whose coverage will become effective
on the first day of the plan year and for
participants whose HRA coverage may
become effective at a later date), the dates
on which the HRA plan year begins and
ends, and the dates on which the amounts
newly made available under the HRA will
be made available.
(B) A statement of the right of the par-
ticipant to opt out of and waive future re-
imbursements from the HRA, as set forth
under paragraph (c)(4) of this section.
(C) A description of the potential avail-
ability of the premium tax credit if the par-
ticipant opts out of and waives future re-
imbursements from the HRA and the HRA
is not affordable for one or more months
under 26 CFR 1.36B-2(c)(5), a statement
that even if the participant opts out of
and waives future reimbursements from
an HRA, the offer will prohibit the par-
ticipant (and, potentially, the participant’s
dependents) from receiving a premium tax
credit for the participant’s coverage (or the
dependent’s coverage, if applicable) on an
Exchange for any month that the HRA is
affordable under 26 CFR 1.36B-2(c)(5), a
statement describing how the participant
may find assistance with determining af-
fordability, a statement that, if the partici-
pant is a former employee, the offer of the
HRA does not render the participant (or
the participant’s dependents, if applicable)
ineligible for the premium tax credit re-
gardless of whether it is affordable under
26 CFR 1.36B-2(c)(5), and a statement
that if the participant or dependent is en-
rolled in Medicare, he or she is ineligible
for the premium tax credit without regard
to the offer or acceptance of the HRA;
(D) A statement that if the participant
accepts the HRA, the participant may not
claim a premium tax credit for the partic-
ipant’s Exchange coverage for any month
the HRA may be used to reimburse medi-
cal care expenses of the participant, and a
premium tax credit may not be claimed for
the Exchange coverage of the participant’s
dependents for any month the HRA may
be used to reimburse medical care expens-
es of the dependents.
(E) A statement that the participant
must inform any Exchange to which the
participant applies for advance payments
of the premium tax credit of the availabili-
ty of the HRA; the self-only HRA amount
available for the HRA plan year (or the
maximum dollar amount available for the
plan year if the HRA provides for reim-
bursements up to a single dollar amount
regardless of whether a participant has
self-only or other than self-only cover-
age) as set forth in the written notice in
accordance with paragraph (c)(6)(ii)(A)
of this section; whether the HRA is also
available to the participant’s dependents
and if so, which ones; the date as of which
coverage under the HRA may first become
effective; the date on which the plan year
begins and the date on which it ends; and

Bulletin No. 2019–28 229 July 8, 2019
whether the participant is a current em-
ployee or former employee.
(F) A statement that the participant
should retain the written notice because it
may be needed to determine whether the
participant is allowed a premium tax cred-
it on the participant’s individual income
tax return.
(G) A statement that the HRA may
not reimburse any medical care expense
unless the substantiation requirement set
forth in paragraph (c)(5)(ii) of this section
is satisfied and a statement that the partic-
ipant must also provide the substantiation
required by paragraph (c)(5)(i) of this sec-
tion.
(H) A statement that if the individual
health insurance coverage (or coverage
under Medicare Part A and B or Medi-
care Part C) of a participant or dependent
ceases, the HRA will not reimburse any
medical care expenses that are incurred by
the participant or dependent, as applica-
ble, after the coverage ceases, and a state-
ment that the participant must inform the
HRA if the participant’s or dependent’s
individual health insurance coverage (or
coverage under Medicare Part A and B or
Medicare Part C) is cancelled or terminat-
ed retroactively and the date on which the
cancellation or termination is effective.
(I) The contact information (including
a phone number) for an individual or a
group of individuals who participants may
contact in order to receive additional in-
formation regarding the HRA. The plan
sponsor may determine which individual
or group of individuals is best suited to be
the specified contact.
(J) A statement of availability of a
special enrollment period to enroll in or
change individual health insurance cover-
age, through or outside of an Exchange,
for the participant and any dependents
who newly gain access to the HRA and are
not already covered by the HRA.
(d) Classes of employees—(1)
In general. This paragraph (d) sets forth
the rules for determining classes of em-
ployees. Paragraph (d)(2) of this section
sets forth the specific classes of employ-
ees; paragraph (d)(3) of this section sets
forth a minimum class size requirement
that applies in certain circumstances;
paragraph (d)(4) of this section sets forth
rules regarding the definition of “full-time
employees,” “part-time employees,” and
“seasonal employees”; paragraph (d)(5)
of this section sets forth a special rule for
new hires; and paragraph (d)(6) of this
section addresses student premium reduc-
tion arrangements. For purposes of this
section, including determining classes un-
der this paragraph (d), the employer is the
common law employer and is determined
without regard to the rules under sections
414(b), (c), (m), and (o) of the Code that
would treat the common law employer as
a single employer with certain other enti-
ties.
(2) List of classes. Participants may be
treated as belonging to a class of employ-
ees based on whether they are, or are not,
included in the classes described in this
paragraph (d)(2). If the individual cov-
erage HRA is offered to former employ-
ees, former employees are considered to
be in the same class in which they were
included immediately before separation
from service. Before each plan year, a
plan sponsor must determine for the plan
year which classes of employees it intends
to treat separately and the definition of
the relevant class(es) it will apply, to the
extent these regulations permit a choice.
After the classes and the definitions of the
classes are established for a plan year, a
plan sponsor may not make changes to the
classes of employees or the definitions of
those relevant classes with respect to that
plan year.
(i) Full-time employees, defined at the
election of the plan sponsor to mean either
full-time employees under section 4980H
of the Code (and 26 CFR 54.4980H-1(a)
(21)) or employees who are not part-time
employees (as described in 26 CFR 1.105-
11(c)(2)(iii)(C));
(ii) Part-time employees, defined at the
election of the plan sponsor to mean either
employees who are not full-time employ-
ees under section 4980H of the Code (and
under 26 CFR 54.4980H-1(a)(21) (which
defines full-time employee)) or employees
who are part-time employees as described
in 26 CFR 1.105-11(c)(2)(iii)(C);
(iii) Employees who are paid on a sal-
ary basis;
(iv) Non-salaried employees (such as,
for example, hourly employees);
(v) Employees whose primary site of
employment is in the same rating area as
defined in 45 CFR 147.102(b);
(vi) Seasonal employees, defined
at the election of the plan sponsor to mean
seasonal employees as described in either
26 CFR 54.4980H-1(a)(38) or 26 CFR
1.105-11(c)(2)(iii)(C);
(vii) Employees included in a unit of
employees covered by a particular collec-
tive bargaining agreement (or an appro-
priate related participation agreement) in
which the plan sponsor participates (as de-
scribed in 26 CFR 1.105-11(c)(2)(iii)(D));
(viii) Employees who have not satis-
fied a waiting period for coverage (if the
waiting period complies with § 2590.715-
2708 of this part);
(ix) Non-resident aliens with no U.S.-
based income (as described in 26 CFR
1.105-11(c)(2)(iii)(E));
(x) Employees who, under all the facts
and circumstances, are employees of an
entity that hired the employees for tempo-
rary placement at an entity that is not the
common law employer of the employees
and that is not treated as a single employ-
er with the entity that hired the employees
for temporary placement under section
414(b), (c), (m), or (o) of the Code; or
(xi) A group of participants described
as a combination of two or more of the
classes of employees set forth in para-
graphs (d)(2)(i) through (x) of this section.
(3) Minimum class size requirement—
(i) In general. If a class of employees is
subject to the minimum class size require-
ment as set forth in this paragraph (d)(3),
the class must consist of at least a mini-
mum number of employees (as described
in paragraphs (d)(3)(iii) and (iv) of this
section), otherwise, the plan sponsor may
not treat that class as a separate class of
employees. Paragraph (d)(3)(ii) of this
section sets forth the circumstances in
which the minimum class size requirement
applies to a class of employees, paragraph
(d)(3)(iii) of this section sets forth the
rules for determining the applicable class
size minimum, and paragraph (d)(3)(iv) of
this section sets forth the rules for a plan
sponsor to determine if it satisfies the min-
imum class size requirement with respect
to a class of employees.
(ii) Circumstances in which minimum
class size requirement applies—(A) The
minimum class size requirement applies
only if a plan sponsor offers a traditional
group health plan to one or more class-
es of employees and offers an individual

July 8, 2019 230 Bulletin No. 2019–28
coverage HRA to one or more other class-
es of employees.
(B) The minimum class size require-
ment does not apply to a class of employ-
ees offered a traditional group health plan
or a class of employees offered no cover-
age.
(C) The minimum class size require-
ment applies to a class of employees of-
fered an individual coverage HRA if the
class is full-time employees, part-time
employees, salaried employees, non-sal-
aried employees, or employees whose
primary site of employment is in the same
rating area (described in paragraph (d)(2)
(i), (ii), (iii), (iv), or (v) of this section, re-
spectively, and referred to collectively as
the applicable classes or individually as an
applicable class), except that:
(1) In the case of the class of employ-
ees whose primary site of employment is
in the same rating area (as described in
paragraph (d)(2)(v) of this section), the
minimum class size requirement does not
apply if the geographic area defining the
class is a State or a combination of two or
more entire States; and
(2) In the case of the classes of em-
ployees that are full-time employees and
part-time employees (as described in
paragraphs (d)(2)(i) and (ii) of this sec-
tion, respectively), the minimum class
size requirement applies only to those
classes (and the classes are only applica-
ble classes) if the employees in one such
class are offered a traditional group health
plan while the employees in the other such
class are offered an individual coverage
HRA. In such a case, the minimum class
size requirement applies only to the class
offered an individual coverage HRA.
(D) A class of employees offered an
individual coverage HRA is also subject
to the minimum class size requirement if
the class is a class of employees created
by combining at least one of the applica-
ble classes (as defined in paragraph (d)
(3)(ii)(C) of this section) with any other
class, except that the minimum class size
requirement shall not apply to a class that
is the result of a combination of one of the
applicable classes and a class of employ-
ees who have not satisfied a waiting peri-
od (as described in paragraph (d)(2)(viii)
of this section).
(iii) Determination of the applicable
class size minimum—(A) In general. The
minimum number of employees that must
be in a class of employees that is subject to
the minimum class size requirement (the
applicable class size minimum) is deter-
mined prior to the beginning of the plan
year for each plan year of the individual
coverage HRA and is:
(1) 10, for an employer with fewer than
100 employees;
(2) A number, rounded down to a whole
number, equal to 10 percent of the total
number of employees, for an employer
with 100 to 200 employees; and
(3) 20, for an employer with more than
200 employees.
(B) Determining employer size. For
purposes of this paragraph (d)(3), the
number of employees of an employer is
determined in advance of the plan year
of the HRA based on the number of em-
ployees that the employer reasonably
expects to employ on the first day of the
plan year.
(iv) Determining if a class satisfies the
applicable class size minimum. For pur-
poses of this paragraph (d)(3), whether a
class of employees satisfies the applicable
class size minimum for a plan year of the
individual coverage HRA is based on the
number of employees in the class offered
the individual coverage HRA as of the
first day of the plan year. Therefore, this
determination is not based on the number
of employees that actually enroll in the
individual coverage HRA, and this deter-
mination is not affected by changes in the
number of employees in the class during
the plan year.
(4) Consistency requirement. For any
plan year, a plan sponsor may define “full-
time employee,” “part-time employee,”
and “seasonal employee” in accordance
with the relevant provisions of sections
105(h) or 4980H of the Code, as set forth
in paragraphs (d)(2)(i), (ii), and (vi) of this
section, if:
(i) To the extent applicable under the
HRA for the plan year, each of the three
classes of employees are defined in accor-
dance with section 105(h) of the Code or
each of the three classes of employees are
defined in accordance with section 4980H
of the Code for the plan year; and
(ii) The HRA plan document sets forth
the applicable definitions prior to the be-
ginning of the plan year to which the defi-
nitions will apply.
(5) Special rule for new hires—(i) In
general. Notwithstanding paragraphs (c)
(2) and (3) of this section, a plan sponsor
that offers a traditional group health plan
to a class of employees may prospectively
offer the employees in that class of em-
ployees who are hired on or after a cer-
tain future date (the new hire date) an in-
dividual coverage HRA (with this group
of employees referred to as the new hire
subclass), while continuing to offer em-
ployees in that class of employees who are
hired before the new hire date a traditional
group health plan (with the rule set forth
in this sentence referred to as the special
rule for new hires). For the new hire sub-
class, the individual coverage HRA must
be offered on the same terms to all partic-
ipants within the subclass, in accordance
with paragraph (c)(3) of this section. In
accordance with paragraph (c)(2) of this
section, a plan sponsor may not offer a
choice between an individual coverage
HRA or a traditional group health plan to
any employee in the new hire subclass or
to any employee in the class who is not a
member of the new hire subclass.
(ii) New hire date. A plan sponsor may
set the new hire date for a class of employ-
ees prospectively as any date on or after
January 1, 2020. A plan sponsor may set
different new hire dates prospectively for
separate classes of employees.
(iii) Discontinuation of use of special
rule for new hires and multiple applica-
tions of the special rule for new hires. A
plan sponsor may discontinue use of the
special rule for new hires at any time for
any class of employees. In that case, the
new hire subclass is no longer treated as
a separate subclass of employees. In the
event a plan sponsor applies the special
rule for new hires to a class of employees
and later discontinues use of the rule to
the class of employees, the plan sponsor
may later apply the rule if the application
of the rule would be permitted under the
rules for initial application of the special
rule for new hires. If a plan sponsor, in
accordance with the requirements for the
special rule for new hires, applies the rule
to a class of employees subsequent to any
prior application and discontinuance of
the rule to that class, the new hire date
must be prospective.
(iv) Application of the minimum class
size requirement under the special rule

Bulletin No. 2019–28 231 July 8, 2019
for new hires. The minimum class size re-
quirement set forth in paragraph (d)(3) of
this section does not apply to the new hire
subclass. However, if a plan sponsor sub-
divides the new hire subclass subsequent
to creating the new hire subclass, the min-
imum class size requirement set forth in
paragraph (d)(3) of this section applies to
any class of employees created by subdi-
viding the new hire subclass, if the min-
imum class size requirement otherwise
applies.
(6) Student employees offered student
premium reduction arrangements. For
purposes of this section, if an institution
of higher education (as defined in the
Higher Education Act of 1965) offers a
student employee a student premium re-
duction arrangement, the employee is
not considered to be part of the class of
employees to which the employee would
otherwise belong. For the purpose of this
paragraph (d)(6) and paragraph (f)(1) of
this section, a student premium reduction
arrangement is defined as any program of-
fered by an institution of higher education
under which the cost of insured or self-in-
sured student health coverage is reduced
for certain students through a credit, off-
set, reimbursement, stipend or similar ar-
rangement. A student employee offered a
student premium reduction arrangement
is also not counted for purposes of deter-
mining the applicable class size minimum
under paragraph (d)(3)(iii) of this section.
If a student employee is not offered a stu-
dent premium reduction arrangement (in-
cluding if the student employee is offered
an individual coverage HRA instead), the
student employee is considered to be part
of the class of employees to which the em-
ployee otherwise belongs and is counted
for purposes of determining the applicable
class size minimum under paragraph (d)
(3)(iii) of this section.
(e) Integration of Individual Coverage
HRAs with Medicare—(1) General rule.
An individual coverage HRA will be con-
sidered to be integrated with Medicare
(and deemed to comply with PHS Act
sections 2711 and 2713 and § 2590.715-
2711(d)(4) of this part), provided that the
conditions of paragraph (c) of this section
are satisfied, subject to paragraph (e)(2)
of this section. Nothing in this section
requires that a participant and his or her
dependents all have the same type of cov-
erage; therefore, an individual coverage
HRA may be integrated with Medicare
for some individuals and with individu-
al health insurance coverage for others,
including, for example, a participant en-
rolled in Medicare Part A and B or Part C
and his or her dependents enrolled in indi-
vidual health insurance coverage.
(2) Application of conditions in para-
graph (c) of this section—(i) In general.
Except as provided in paragraph (e)(2)
(ii) of this section, in applying the condi-
tions of paragraph (c) of this section with
respect to integration with Medicare, a
reference to “individual health insurance
coverage” is deemed to refer to coverage
under Medicare Part A and B or Part C.
References in this section to integration
of an HRA with Medicare refer to integra-
tion of an individual coverage HRA with
Medicare Part A and B or Part C.
(ii) Exceptions. For purposes of the
statement regarding ERISA under the no-
tice content element under paragraph (c)
(6)(ii)(A) of this section and the statement
regarding the availability of a special en-
rollment period under the notice content
element under paragraph (c)(6)(ii)(J) of
this section, the term individual health in-
surance coverage means only individual
health insurance coverage and does not
also mean coverage under Medicare Part
A and B or Part C.
(f) Examples—(1) Examples regard-
ing classes and the minimum class size
requirement. The following examples
illustrate the provisions of paragraph (c)
(3) of this section, taking into account the
provisions of paragraphs (d)(1) through
(4) and (d)(6) of this section. In each ex-
ample, the HRA is an individual coverage
HRA that may reimburse any medical care
expenses, including premiums for individ-
ual health insurance coverage and it is as-
sumed that no participants or dependents
are Medicare beneficiaries.
(i) Example 1: Collectively bargained employ-
ees offered traditional group health plan; non-col-
lectively bargained employees offered HRA—(A)
Facts. For 2020, Plan Sponsor A offers its employ-
ees covered by a collective bargaining agreement a
traditional group health plan (as required by the col-
lective bargaining agreement) and all other employ-
ees (non-collectively bargained employees) each an
HRA on the same terms.
(B) Conclusion. The same terms requirement of
paragraph (c)(3) of this section is satisfied in this
paragraph (f)(1)(i) (Example 1) because collectively
bargained and non-collectively bargained employees
may be treated as different classes of employees, one
of which may be offered a traditional group health
plan and the other of which may be offered an in-
dividual coverage HRA, and Plan Sponsor A offers
the HRA on the same terms to all participants who
are non-collectively bargained employees. The min-
imum class size requirement does not apply to this
paragraph (f)(1)(i) (Example 1) even though Plan
Sponsor A offers one class a traditional group health
plan and one class the HRA because collectively
bargained and non-collectively bargained employees
are not applicable classes that are subject to the min-
imum class size requirement.
(ii) Example 2: Collectively bargained employ-
ees in one unit offered traditional group health plan
and in another unit offered HRA—(A) Facts. For
2020, Plan Sponsor B offers its employees covered
by a collective bargaining agreement with Local 100
a traditional group health plan (as required by the
collective bargaining agreement), and its employees
covered by a collective bargaining agreement with
Local 200 each an HRA on the same terms (as re-
quired by the collective bargaining agreement).
(B) Conclusion. The same terms requirement of
paragraph (c)(3) of this section is satisfied in this
paragraph (f)(1)(ii) (Example 2) because the employ-
ees covered by the collective bargaining agreements
with the two separate bargaining units (Local 100
and Local 200) may be treated as two different class-
es of employees and Plan Sponsor B offers an HRA
on the same terms to the participants covered by the
agreement with Local 200. The minimum class size
requirement does not apply to this paragraph (f)(1)
(ii) (Example 2) even though Plan Sponsor B offers
the Local 100 employees a traditional group health
plan and the Local 200 employees an HRA because
collectively bargained employees are not applicable
classes that are subject to the minimum class size re-
quirement.
(iii) Example 3: Employees in a waiting period
offered no coverage; other employees offered an
HRA—(A) Facts. For 2020, Plan Sponsor C offers
its employees who have completed a waiting period
that complies with the requirements for waiting peri-
ods in § 2590.715-2708 of this part each an HRA on
the same terms and does not offer coverage to its em-
ployees who have not completed the waiting period.
(B) Conclusion. The same terms requirement of
paragraph (c)(3) of this section is satisfied in this
paragraph (f)(1)(iii) (Example 3) because employees
who have completed a waiting period and employ-
ees who have not completed a waiting period may be
treated as different classes and Plan Sponsor C offers
the HRA on the same terms to all participants who
have completed the waiting period. The minimum
class size requirement does not apply to this para-
graph (f)(1)(iii) (Example 3) because Plan Sponsor
C does not offer at least one class of employees a
traditional group health plan and because the class of
employees who have not completed a waiting period
and the class of employees who have completed a
waiting period are not applicable classes that are sub-
ject to the minimum class size requirement.
(iv) Example 4: Employees in a waiting period
offered an HRA; other employees offered a tradi-
tional group health plan—(A) Facts. For 2020, Plan
Sponsor D offers its employees who have completed
a waiting period that complies with the requirements

July 8, 2019 232 Bulletin No. 2019–28
for waiting periods in § 2590.715-2708 of this part a
traditional group health plan and offers its employees
who have not completed the waiting period each an
HRA on the same terms.
(B) Conclusion. The same terms requirement
of paragraph (c)(3) of this section is satisfied in
this paragraph (f)(1)(iv) (Example 4) because em-
ployees who have completed a waiting period and
employees who have not completed a waiting pe-
riod may be treated as different classes and Plan
Sponsor D offers an HRA on the same terms to all
participants who have not completed the waiting
period. The minimum class size requirement does
not apply to this paragraph (f)(1)(iv) (Example 4)
even though Plan Sponsor D offers employees who
have completed a waiting period a traditional group
health plan and employees who have not completed
a waiting period an HRA because the class of em-
ployees who have not completed a waiting period
is not an applicable class that is subject to the min-
imum class size requirement (nor is the class made
up of employees who have completed the waiting
period).
(v) Example 5: Staffing firm employees tempo-
rarily placed with customers offered an HRA; other
employees offered a traditional group health plan—
(A) Facts. Plan Sponsor E is a staffing firm that
places certain of its employees on temporary assign-
ments with customers that are not the common law
employers of Plan Sponsor E’s employees or treated
as a single employer with Plan Sponsor E under sec-
tion 414(b), (c), (m), or (o) of the Code (unrelated
entities); other employees work in Plan Sponsor E’s
office managing the staffing business (non-tempo-
rary employees). For 2020, Plan Sponsor E offers its
employees who are on temporary assignments with
customers each an HRA on the same terms. All oth-
er employees are offered a traditional group health
plan.
(B) Conclusion. The same terms requirement of
paragraph (c)(3) of this section is satisfied in this
paragraph (f)(1)(v) (Example 5) because the em-
ployees who are hired for temporary placement at
an unrelated entity and non-temporary employees of
Plan Sponsor E may be treated as different classes
of employees and Plan Sponsor E offers an HRA
on the same terms to all participants temporarily
placed with customers. The minimum class size re-
quirement does not apply to this paragraph (f)(1)(v)
(Example 5) even though Plan Sponsor E offers one
class a traditional group health plan and one class
the HRA because the class of employees hired for
temporary placement is not an applicable class that
is subject to the minimum class size requirement (nor
is the class made up of non-temporary employees).
(vi) Example 6: Staffing firm employees tempo-
rarily placed with customers in rating area 1 offered
an HRA; other employees offered a traditional group
health plan—(A) Facts.
The facts are the same as in paragraph (f)(1)(v)
of this section (Example 5), except that Plan Sponsor
E has work sites in rating area 1 and rating area 2,
and it offers its 10 employees on temporary assign-
ments with a work site in rating area 1 an HRA on the
same terms. Plan Sponsor E has 200 other employees
in rating areas 1 and 2, including its non-temporary
employees in rating areas 1 and 2 and its employees
on temporary assignments with a work site in rating
area 2, all of whom are offered a traditional group
health plan.
(B) Conclusion. The same terms requirement
of paragraph (c)(3) of this section is not satisfied in
this paragraph (f)(1)(vi) (Example 6) because, even
though the employees who are temporarily placed
with customers generally may be treated as employ-
ees of a different class, because Plan Sponsor E is
also using a rating area to identify the class offered
the HRA (which is an applicable class for the min-
imum class size requirement) and is offering one
class the HRA and another class the traditional group
health plan, the minimum class size requirement
applies to the class offered the HRA, and the class
offered the HRA fails to satisfy the minimum class
size requirement. Because Plan Sponsor E employs
210 employees, the applicable class size minimum
is 20, and the HRA is offered to only 10 employees.
(vii) Example 7: Employees in State 1 offered
traditional group health plan; employees in State 2
offered HRA—(A) Facts. Plan Sponsor F employs
45 employees whose work site is in State 1 and 7
employees whose primary site of employment is in
State 2. For 2020, Plan Sponsor F offers its 45 em-
ployees in State 1 a traditional group health plan, and
each of its 7 employees in State 2 an HRA on the
same terms.
(B) Conclusion. The same terms requirement
of paragraph (c)(3) of this section is satisfied in
this paragraph (f)(1)(vii) (Example 7) because Plan
Sponsor F offers the HRA on the same terms to all
employees with a work site in State 2 and that class
is a permissible class under paragraph (d) of this sec-
tion. This is because employees whose work sites are
in different rating areas may be considered different
classes and a plan sponsor may create a class of em-
ployees by combining classes of employees, includ-
ing by combining employees whose work site is in
one rating area with employees whose work site is in
a different rating area, or by combining all employ-
ees whose work site is in a state. The minimum class
size requirement does not apply to this paragraph (f)
(1)(vii) (Example 7) because the minimum class size
requirement does not apply if the geographic area
defining a class of employees is a state or a combina-
tion of two or more entire states.
(viii) Example 8: Full-time seasonal employees
offered HRA; all other full-time employees offered
traditional group health plan; part-time employees
offered no coverage—(A) Facts. Plan Sponsor G
employs 6 full-time seasonal employees, 75 full-
time employees who are not seasonal employees,
and 5 part-time employees. For 2020, Plan Sponsor
G offers each of its 6 full-time seasonal employees
an HRA on the same terms, its 75 full-time employ-
ees who are not seasonal employees a traditional
group health plan, and offers no coverage to its 5
part-time employees.
(B) Conclusion. The same terms requirement of
paragraph (c)(3) of this section is satisfied in this
paragraph (f)(1)(viii) (Example 8) because full-time
seasonal employees and full-time employees who
are not seasonal employees may be considered dif-
ferent classes and Plan Sponsor G offers the HRA on
the same terms to all full-time seasonal employees.
The minimum class size requirement does not apply
to the class offered the HRA in this paragraph (f)(1)
(viii) (Example 8) because part-time employees are
not offered coverage and full-time employees are not
an applicable class subject to the minimum class size
requirement if part-time employees are not offered
coverage.
(ix) Example 9: Full-time employees in rating
area 1 offered traditional group health plan; full-
time employees in rating area 2 offered HRA; part-
time employees offered no coverage—(A) Facts.
Plan Sponsor H employs 17 full-time employees and
10 part-time employees whose work site is in rating
area 1 and 552 full-time employees whose work site
is in rating area 2. For 2020, Plan Sponsor H offers
its 17 full-time employees in rating area 1 a tradition-
al group health plan and each of its 552 full-time em-
ployees in rating area 2 an HRA on the same terms.
Plan Sponsor H offers no coverage to its 10 part-time
employees in rating area 1. Plan Sponsor H reason-
ably expects to employ 569 employees on the first
day of the HRA plan year.
(B) Conclusion. The same terms requirement of
paragraph (c)(3) of this section is satisfied in this
paragraph (f)(1)(ix) (Example 9) because employees
whose work sites are in different rating areas may
be considered different classes and Plan Sponsor H
offers the HRA on the same terms to all full-time
employees in rating area 2. The minimum class size
requirement applies to the class offered the HRA in
this paragraph (f)(1)(ix) (Example 9) because the
minimum class size requirement applies to a class
based on a geographic area unless the geographic
area is a state or a combination of two or more entire
states. However, the minimum class size requirement
applies only to the class offered the HRA, and Plan
Sponsor H offers the HRA to the 552 full-time em-
ployees in rating area 2 on the first day of the plan
year, satisfying the minimum class size requirement
(because the applicable class size minimum for Plan
Sponsor H is 20).
(x) Example 10: Employees in rating area 1 of-
fered HRA; employees in rating area 2 offered tradi-
tional group health plan—(A) Facts. The facts are
the same as in paragraph (f)(1)(ix) of this section
(Example 9) except that Plan Sponsor H offers its
17 full-time employees in rating area 1 the HRA and
offers its 552 full-time employees in rating area 2 the
traditional group health plan.
(B) Conclusion. The same terms require-
ment of paragraph (c)(3) of this section is not sat-
isfied in this paragraph (f)(1)(x) (Example 10) be-
cause, even though employees whose work sites are
in different rating areas generally may be considered
different classes and Plan Sponsor H offers the HRA
on the same terms to all participants in rating area
1, the HRA fails to satisfy the minimum class size
requirement. Specifically, the minimum class size re-
quirement applies to this paragraph (f)(1)(x) (Exam-
ple 10) because the minimum class size requirement
applies to a class based on a geographic area unless
the geographic area is a state or a combination of two
or more entire states. Further, the applicable class
size minimum for Plan Sponsor H is 20 employees,
and the HRA is only offered to the 17 full-time em-
ployees in rating area 1 on the first day of the HRA
plan year.
(xi) Example 11: Employees in State 1 and rating
area 1 of State 2 offered HRA; employees in all oth-
er rating areas of State 2 offered traditional group
health plan—(A) Facts. For 2020, Plan Sponsor I

Bulletin No. 2019–28 233 July 8, 2019
offers an HRA on the same terms to a total of 200
employees it employs with work sites in State 1 and
in rating area 1 of State 2. Plan Sponsor I offers a tra-
ditional group health plan to its 150 employees with
work sites in other rating areas in State 2. Plan Spon-
sor I reasonably expects to employ 350 employees
on the first day of the HRA plan year.
(B) Conclusion. The same terms requirement of
paragraph (c)(3) of this section is satisfied in this
paragraph (f)(1)(xi) (Example 11). Plan Sponsor I
may treat all of the employees with a work site in
State 1 and rating area 1 of State 2 as a class of em-
ployees because employees whose work sites are in
different rating areas may be considered different
classes and a plan sponsor may create a class of
employees by combining classes of employees, in-
cluding by combining employees whose work site is
in one rating area with a class of employees whose
work site is in a different rating area. The minimum
class size requirement applies to the class of employ-
ees offered the HRA (made up of employees in State
1 and in rating area 1 of State 2) because the mini-
mum class size requirement applies to a class based
on a geographic area unless the geographic area is a
state or a combination of two or more entire states. In
this case, the class is made up of a state plus a rating
area which is not the entire state. However, this class
satisfies the minimum class size requirement because
the applicable class size minimum for Plan Sponsor
I is 20, and Plan Sponsor I offered the HRA to 200
employees on the first day of the plan year.
(xii) Example 12: Salaried employees offered a
traditional group health plan; hourly employees of-
fered an HRA—(A) Facts. Plan Sponsor J has 163
salaried employees and 14 hourly employees. For
2020, Plan Sponsor J offers its 163 salaried employ-
ees a traditional group health plan and each of its 14
hourly employees an HRA on the same terms. Plan
Sponsor J reasonably expects to employ 177 em-
ployees on the first day of the HRA plan year.
(B) Conclusion. The same terms requirement of
paragraph (c)(3) of this section is not satisfied in this
paragraph (f)(1)(xii) (Example 12) because, even
though salaried and hourly employees generally may
be considered different classes and Plan Sponsor J
offers the HRA on the same terms to all hourly em-
ployees, the HRA fails to satisfy the minimum class
size requirement. Specifically, the minimum class
size requirement applies in this paragraph (f)(1)
(xii) (Example 12) because employees who are paid
on a salaried basis and employees who are not paid
on a salaried basis are applicable classes subject to
the minimum class size requirement. Because Plan
Sponsor J reasonably expects to employ between
100 and 200 employees on the first day of the plan
year, the applicable class size minimum is 10 per-
cent, rounded down to a whole number. Ten percent
of 177 total employees, rounded down to a whole
number is 17, and the HRA is offered to only 14
hourly employees.
(xiii) Example 13: Part-time employees and
full-time employees offered different HRAs; no tra-
ditional group health plan offered—(A) Facts. Plan
Sponsor K has 50 full-time employees and 7 part-
time employees. For 2020, Plan Sponsor K offers
its 50 full-time employees $2,000 each in an HRA
otherwise provided on the same terms and each of
its 7 part-time employees $500 in an HRA otherwise
provided on the same terms. Plan Sponsor K reason-
ably expects to employ 57 employees on the first day
of the HRA plan year.
(B) Conclusion. The same terms requirement of
paragraph (c)(3) of this section is satisfied in this
paragraph (f)(1)(xiii) (Example 13) because full-time
employees and part-time employees may be treated
as different classes and Plan Sponsor K offers an
HRA on the same terms to all the participants in each
class. The minimum class size requirement does not
apply to either the full-time class or the part-time
class because (although in certain circumstances the
minimum class size requirement applies to a class
of full-time employees and a class of part-time em-
ployees) Plan Sponsor K does not offer any class of
employees a traditional group health plan, and the
minimum class size requirement applies only when,
among other things, at least one class of employees is
offered a traditional group health plan while another
class is offered an HRA.
(xiv) Example 14: No employees offered an
HRA—(A) Facts. The facts are the same facts as in
paragraph (f)(1)(xiii) of this section (Example 13),
except that Plan Sponsor K offers its full-time em-
ployees a traditional group health plan and does not
offer any group health plan (either a traditional group
health plan or an HRA) to its part-time employees.
(B) Conclusion. The regulations set forth under
this section do not apply to Plan Sponsor K because
Plan Sponsor K does not offer an individual cover-
age HRA to any employee.
(xv) Example 15: Full-time employees offered
traditional group health plan; part-time employees
offered HRA—(A) Facts. The facts are the same as
in paragraph (f)(1)(xiii) of this section (Example
13), except that Plan Sponsor K offers its full-time
employees a traditional group health plan and offers
each of its part-time employees $500 in an HRA and
otherwise on the same terms.
(B) Conclusion. The same terms requirement
of paragraph (c)(3) of this section is not satisfied
in this paragraph (f)(1)(xv) (Example 15) because,
even though the full-time employees and the part-
time employees generally may be treated as different
classes, in this paragraph (f)(1)(xv) (Example 15),
the minimum class size requirement applies to the
part-time employees, and it is not satisfied. Specif-
ically, the minimum class size requirement applies
to the part-time employees because that requirement
applies to an applicable class offered an HRA when
one class is offered a traditional group health plan
while another class is offered an HRA, and to the
part-time and full-time employee classes when one
of those classes is offered a traditional group health
plan while the other is offered an HRA. Because Plan
Sponsor K reasonably expects to employ fewer than
100 employees on the first day of the HRA plan year,
the applicable class size minimum for Plan Sponsor
K is 10 employees, but Plan Sponsor K offered the
HRA only to its 7 part-time employees.
(xvi) Example 16: Satisfying minimum class size
requirement based on employees offered HRA—(A)
Facts. Plan Sponsor L employs 78 full-time em-
ployees and 12 part-time employees. For 2020, Plan
Sponsor L offers its 78 full-time employees a tradi-
tional group health plan and each of its 12 part-times
employees an HRA on the same terms. Only 6 part-
time employees enroll in the HRA. Plan Sponsor L
reasonably expects to employ fewer than 100 em-
ployees on the first day of the HRA plan year.
(B) Conclusion. The same terms requirement of
paragraph (c)(3) of this section is satisfied in this
paragraph (f)(1)(xvi) (Example 16) because full-time
employees and part-time employees may be treated
as different classes, Plan Sponsor L offers an HRA
on the same terms to all the participants in the part-
time class, and the minimum class size requirement
is satisfied. Specifically, whether a class of employ-
ees satisfies the applicable class size minimum is de-
termined as of the first day of the plan year based on
the number of employees in a class that is offered an
HRA, not on the number of employees who enroll
in the HRA. The applicable class size minimum for
Plan Sponsor L is 10 employees, and Plan Sponsor L
offered the HRA to its 12 part-time employees.
(xvii) Example 17: Student employees offered
student premium reduction arrangements and same
terms requirement—(A) Facts. Plan Sponsor M is
an institution of higher education that offers each of
its part-time employees an HRA on the same terms,
except that it offers its part-time employees who are
student employees a student premium reduction ar-
rangement, and the student premium reduction ar-
rangement provides different amounts to different
part-time student employees.
(B) Conclusion. The same terms requirement of
paragraph (c)(3) of this section is satisfied in this
paragraph (f)(1)(xvii) (Example 17) because Plan
Sponsor M offers the HRA on the same terms to
its part-time employees who are not students and
because the part-time student employees offered a
student premium reduction arrangement (and their
varying HRAs) are not taken into account as part-
time employees for purposes of determining whether
a class of employees is offered an HRA on the same
terms.
(xiii) Example 18: Student employees offered stu-
dent premium reduction arrangements and minimum
class size requirement—(A) Facts. Plan Sponsor N
is an institution of higher education with 25 hourly
employees. Plan Sponsor N offers 15 of its hourly
employees, who are student employees, a student
premium reduction arrangement and it wants to of-
fer its other 10 hourly employees an HRA for 2022.
Plan Sponsor N offers its salaried employees a tradi-
tional group health plan. Plan Sponsor N reasonably
expects to have 250 employees on the first day of the
2022 HRA plan year, 15 of which will have offers of
student premium reduction arrangements.
(B) Conclusion. The same terms requirement
of paragraph (c)(3) of this section is not satisfied
in this paragraph (f)(1)(xviii) (Example 18). The
minimum class size requirement will apply to the
class of hourly employees to which Plan Sponsor
N wants to offer the HRA because Plan Sponsor N
offers a class of employees a traditional group health
plan and another class the HRA, and the minimum
class size requirement generally applies to a class
of hourly employees offered an HRA. Plan Sponsor
N’s applicable class size minimum is 20 because
Plan Sponsor N reasonably expects to employ 235
employees on the first day of the plan year (250 em-
ployees minus 15 employees receiving a student pre-
mium reduction arrangement). Plan Sponsor N may
not offer the HRA to its hourly employees because
the 10 employees offered the HRA as of the first day

July 8, 2019 234 Bulletin No. 2019–28
of the plan year does not satisfy the applicable class
size minimum.
(2) Examples regarding special rule
for new hires. The following examples
illustrate the provisions of paragraph (c)
(3) of this section, taking into account the
provisions of paragraph (d) of this section,
in particular the special rule for new hires
under paragraph (d)(5) of this section. In
each example, the HRA is an individual
coverage HRA that has a calendar year
plan year and may reimburse any medical
care expenses, including premiums for in-
dividual health insurance coverage. The
examples also assume that no participants
or dependents are Medicare beneficiaries.
(i) Example 1: Application of special rule for
new hires to all employees—(A) Facts. For 2021,
Plan Sponsor A offers all employees a traditional
group health plan. For 2022, Plan Sponsor A offers
all employees hired on or after January 1, 2022, an
HRA on the same terms and continues to offer the
traditional group health plan to employees hired be-
fore that date. On the first day of the 2022 plan year,
Plan Sponsor A has 2 new hires who are offered the
HRA.
(B) Conclusion. The same terms requirement of
paragraph (c)(3) of this section is satisfied in this
paragraph (f)(2)(i) (Example 1) because, under the
special rule for new hires in paragraph (d)(5) of this
section, the employees newly hired on and after Jan-
uary 1, 2022, may be treated as a new hire subclass,
Plan Sponsor A offers the HRA on the same terms
to all participants in the new hire subclass, and the
minimum class size requirement does not apply to
the new hire subclass.
(ii) Example 2: Application of special rule for
new hires to full-time employees—(A) Facts. For
2021, Plan Sponsor B offers a traditional group
health plan to its full-time employees and does not
offer any coverage to its part-time employees. For
2022, Plan Sponsor B offers full-time employees
hired on or after January 1, 2022, an HRA on the
same terms, continues to offer its full-time employ-
ees hired before that date a traditional group health
plan, and continues to offer no coverage to its part-
time employees. On the first day of the 2022 plan
year, Plan Sponsor B has 2 new hire, full-time em-
ployees who are offered the HRA.
(B) Conclusion. The same terms re-
quirement of paragraph (c)(3) of this sec-
tion is satisfied in this paragraph (f)(2)(ii)
(Example 2) because, under the special
rule for new hires in paragraph (d)(5) of
this section, the full-time employees new-
ly hired on and after January 1, 2022, may
be treated as a new hire subclass and Plan
Sponsor B offers the HRA on the same
terms to all participants in the new hire
subclass. The minimum class size require-
ment does not apply to the new hire sub-
class.
(iii) Example 3: Special rule for new hires imper-
missibly applied retroactively—(A) Facts. For 2025,
Plan Sponsor C offers a traditional group health plan
to its full-time employees. For 2026, Plan Sponsor
C wants to offer an HRA to its full-time employees
hired on and after January 1, 2023, while continuing
to offer a traditional group health plan to its full-time
employees hired before January 1, 2023.
(B) Conclusion. The special rule for new hires
under paragraph (d)(5) of this section does not ap-
ply in this paragraph (f)(2)(iii) (Example 3) because
the rule must be applied prospectively. That is, Plan
Sponsor C may not, in 2026, choose to apply the spe-
cial rule for new hires retroactive to 2023. If Plan
Sponsor C were to offer an HRA in this way, it would
fail to satisfy the conditions under paragraphs (c)(2)
and (3) of this section because the new hire subclass
would not be treated as a subclass for purposes of
applying those rules and, therefore, all full-time em-
ployees would be treated as one class to which either
a traditional group health plan or an HRA could be
offered, but not both.
(iv) Example 4: Permissible second application
of the special rule for new hires to the same class of
employees—(A) Facts. For 2021, Plan Sponsor D of-
fers all of its full-time employees a traditional group
health plan. For 2022, Plan Sponsor D applies the
special rule for new hires and offers an HRA on the
same terms to all employees hired on and after Janu-
ary 1, 2022, and continues to offer a traditional group
health plan to full-time employees hired before that
date. For 2025, Plan Sponsor D discontinues use of
the special rule for new hires, and again offers all
full-time employees a traditional group health plan.
In 2030, Plan Sponsor D decides to apply the special
rule for new hires to the full-time employee class
again, offering an HRA to all full-time employees
hired on and after January 1, 2030, on the same
terms, while continuing to offer employees hired be-
fore that date a traditional group health plan.
(B) Conclusion. Plan Sponsor D has permissibly
applied the special rule for new hires and is in com-
pliance with the requirements of paragraphs (c)(2)
and (3) of this section.
(v) Example 5: Impermissible second application
of the special rule for new hires to the same class of
employees—(A) Facts. The facts are the same as in
paragraph (f)(2)(iv) of this section (Example 4), ex-
cept that for 2025, Plan Sponsor D discontinues use
of the special rule for new hires by offering all full-
time employees an HRA on the same terms. Further,
for 2030, Plan Sponsor D wants to continue to offer
an HRA on the same terms to all full-time employees
hired before January 1, 2030, and to offer all full-
time employees hired on or after January 1, 2030, an
HRA in a different amount.
(B) Conclusion. Plan Sponsor D may not apply
the special rule for new hires for 2030 to the class of
full-time employees being offered an HRA because
the special rule for new hires may only be applied to
a class that is being offered a traditional group health
plan.
(vi) Example 6: New full-time employees offered
different HRAs in different rating areas—(A) Facts.
Plan Sponsor E has work sites in rating area 1, rat-
ing area 2, and rating area 3. For 2021, Plan Sponsor
E offers its full-time employees a traditional group
health plan. For 2022, Plan Sponsor E offers its full-
time employees hired on or after January 1, 2022, in
rating area 1 an HRA of $3,000, its full-time employ-
ees hired on or after January 1, 2022, in rating area 2
an HRA of $5,000, and its full-time employees hired
on or after January 1, 2022, in rating area 3 an HRA
of $7,000. Within each class offered an HRA, Plan
Sponsor E offers the HRA on the same terms. Plan
Sponsor E offers its full-time employees hired prior
to January 1, 2022, in each of those classes a tradi-
tional group health plan. On the first day of the 2022
plan year, there is one new hire, full-time employee
in rating area 1, three new hire, full-time employees
in rating area 2, and 10 new hire-full-time employees
in rating area 3.
(B) Conclusion. The same terms requirement of
paragraph (c)(3) of this section is satisfied in this
paragraph (f)(2)(vi) (Example 6) because, under
the special rule for new hires in paragraph (d)(5) of
this section, the full-time employees in each of the
three rating areas newly hired on and after January
1, 2022, may be treated as three new hire subclass-
es and Plan Sponsor E offers the HRA on the same
terms to all participants in the new hire subclasses.
Further, the minimum class size requirement does
not apply to the new hire subclasses.
(vii) Example 7: New full-time employee class
subdivided based on rating area—(A) Facts. Plan
Sponsor F offers its full-time employees hired on or
after January 1, 2022, an HRA on the same terms
and it continues to offer its full-time employees
hired before that date a traditional group health plan.
Plan Sponsor F offers no coverage to its part-time
employees. For the 2025 plan year, Plan Sponsor F
wants to subdivide the full-time new hire subclass so
that those whose work site is in rating area 1 will be
offered the traditional group health plan and those
whose work site is in rating area 2 will continue to
receive the HRA. Plan Sponsor F reasonably expects
to employ 219 employees on January 1, 2025. As of
January 1, 2025, Plan Sponsor F has 15 full-time em-
ployees whose work site in in rating area 2 and who
were hired between January 1, 2022, and January 1,
2025.
(B) Conclusion. The same terms requirement of
paragraph (c)(3) of this section is not satisfied in this
paragraph (f)(2)(vii) (Example 7) because the new
hire subclass has been subdivided in a manner that is
subject to the minimum class size requirement, and
the class offered the HRA fails to satisfy the mini-
mum class size requirement. Specifically, once the
new hire subclass is subdivided the general rules for
applying the minimum class size requirement apply
to the employees offered the HRA in the new hire
subclass. In this case, because the subdivision of the
new hire full-time subclass is based on rating areas;
a class based on rating areas is an applicable class
subject to the minimum class size requirement; and
the employees in one rating area are to be offered
the HRA, while the employees in the other rating
area are offered the traditional group health plan, the
minimum class size requirement would apply on and
after the date of the subdivision. Further, the mini-
mum class size requirement would not be satisfied,
because the applicable class size minimum for Plan
Sponsor F would be 20, and only 15 employees in
rating area 2 would be offered the HRA.
(viii) Example 8: New full-time employee class
subdivided based on state—(A) Facts. The facts are

Bulletin No. 2019–28 235 July 8, 2019
the same as in paragraph (f)(2)(vii) of this section
(Example 7), except that for the 2025 plan year, Plan
Sponsor F intends to subdivide the new hire, full-
time class so that those in State 1 will be offered the
traditional group health plan and those in State 2 will
each be offered an HRA on the same terms.
(B) Conclusion. The same terms requirement of
paragraph (c)(3) of this section is satisfied in this
paragraph (f)(2)(viii) (Example 8) because even
though the new hire subclass has been subdivided, it
has been subdivided in a manner that is not subject
to the minimum class size requirement as the subdi-
vision is based on the entire state.
(ix) Example 9: New full-time employees and
part-time employees offered HRA—(A) Facts. In
2021, Plan Sponsor G offers its full-time employees
a traditional group health plan and does not offer
coverage to its part-time employees. For the 2022
plan year, Plan Sponsor G offers its full-time em-
ployees hired on or after January 1, 2022, and all of
its part-time employees, including those hired before
January 1, 2022, and those hired on and after January
1, 2022, an HRA on the same terms, and it continues
to offer its full-time employees hired before January
1, 2022, a traditional group health plan.
(B) Conclusion. The minimum class size require-
ment applies to the part-time employees offered the
HRA in 2022 because the class is being offered an
HRA; the special rule for new hires does not apply
(because this class was not previously offered a tra-
ditional group health plan) and so it is not a new hire
subclass exempt from the minimum class size re-
quirement; another class of employees (that is, full-
time hired before January 1, 2022) are being offered
a traditional group health plan; and the part-time em-
ployee class is generally an applicable classes that
is subject to the minimum class size requirement.
However, because the full-time, new hire subclass is
based on the special rule for new hires, the minimum
class size requirement does not apply to full-time
new hires offered an HRA in 2022.
(g) Applicability date. This section ap-
plies to plan years beginning on or after
January 1, 2020.
14. Section 2590.715-2711 is amended
by revising paragraphs (c), (d), and (e) to
read as follows:
§ 2590.715-2711 No lifetime or annu-
al limits.
* * * * *
(c) Definition of essential health ben-
efits. The term “essential health benefits”
means essential health benefits under sec-
tion 1302(b) of the Patient Protection and
Affordable Care Act and applicable regu-
lations. For the purpose of this section, a
group health plan or a health insurance is-
suer that is not required to provide essen-
tial health benefits under section 1302(b)
must define “essential health benefits” in
a manner that is consistent with the fol-
lowing:
(1) For plan years beginning before Jan-
uary 1, 2020, one of the EHB-benchmark
plans applicable in a State under 45 CFR
156.110, and including coverage of any
additional required benefits that are con-
sidered essential health benefits consistent
with 45 CFR 155.170(a)(2), or one of the
three Federal Employees Health Benefits
Program (FEHBP) plan options as defined
by 45 CFR 156.100(a)(3), supplemented
as necessary, to satisfy the standards in 45
CFR 156.110; or
(2) For plan years beginning on or after
January 1, 2020, an EHB-benchmark plan
selected by a State in accordance with
the available options and requirements
for EHB-benchmark plan selection at 45
CFR 156.111, including an EHB-bench-
mark plan in a State that takes no action
to change its EHB-benchmark plan and
thus retains the EHB-benchmark plan ap-
plicable in that State for the prior year in
accordance with 45 CFR 156.111(d)(1),
and including coverage of any additional
required benefits that are considered es-
sential health benefits consistent with 45
CFR 155.170(a)(2).
(d) Health reimbursement arrange-
ments (HRAs) and other account-based
group health plans—(1) In general. If an
HRA or other account-based group health
plan is integrated with another group
health plan or individual health insurance
coverage and the other group health plan
or individual health insurance coverage,
as applicable, separately is subject to and
satisfies the requirements in PHS Act
section 2711 and paragraph (a)(2) of this
section, the fact that the benefits under the
HRA or other account-based group health
plan are limited does not cause the HRA
or other account-based group health plan
to fail to satisfy the requirements of PHS
Act section 2711 and paragraph (a)(2) of
this section. Similarly, if an HRA or other
account-based group health plan is inte-
grated with another group health plan or
individual health insurance coverage and
the other group health plan or individual
health insurance coverage, as applicable,
separately is subject to and satisfies the
requirements in PHS Act section 2713
and § 2590.715-2713(a)(1) of this part,
the fact that the benefits under the HRA or
other account-based group health plan are
limited does not cause the HRA or other
account-based group health plan to fail to
satisfy the requirements of PHS Act sec-
tion 2713 and § 2590.715-2713(a)(1) of
this part. For the purpose of this paragraph
(d), all individual health insurance cov-
erage, except for coverage that consists
solely of excepted benefits, is treated as
being subject to and complying with PHS
Act sections 2711 and 2713.
(2) Requirements for an HRA or oth-
er account-based group health plan to
be integrated with another group health
plan. An HRA or other account-based
group health plan is integrated with anoth-
er group health plan for purposes of PHS
Act section 2711 and paragraph (a)(2) of
this section if it satisfies the requirements
under one of the integration methods set
forth in paragraph (d)(2)(i) or (ii) of this
section. For purposes of the integration
methods under which an HRA or other ac-
count-based group health plan is integrat-
ed with another group health plan, integra-
tion does not require that the HRA or other
account-based group health plan and the
other group health plan with which it is in-
tegrated share the same plan sponsor, the
same plan document or governing instru-
ments, or file a single Form 5500, if ap-
plicable. An HRA or other account-based
group health plan integrated with another
group health plan for purposes of PHS Act
section 2711 and paragraph (a)(2) of this
section may not be used to purchase in-
dividual health insurance coverage unless
that coverage consists solely of excepted
benefits, as defined in 45 CFR 148.220.
(i) Method for integration with a group
health plan: Minimum value not required.
An HRA or other account-based group
health plan is integrated with another
group health plan for purposes of this
paragraph (d) if:
(A) The plan sponsor offers a group
health plan (other than the HRA or other
account-based group health plan) to the
employee that does not consist solely of
excepted benefits;
(B) The employee receiving the HRA
or other account-based group health plan
is actually enrolled in a group health
plan (other than the HRA or other ac-
count-based group health plan) that does
not consist solely of excepted benefits,
regardless of whether the plan is offered
by the same plan sponsor (referred to as
non-HRA group coverage);
(C) The HRA or other account-based
group health plan is available only to
employees who are enrolled in non-HRA

July 8, 2019 236 Bulletin No. 2019–28
group coverage, regardless of whether
the non-HRA group coverage is offered
by the plan sponsor of the HRA or other
account-based group health plan (for ex-
ample, the HRA may be offered only to
employees who do not enroll in an em-
ployer’s group health plan but are enrolled
in other non-HRA group coverage, such as
a group health plan maintained by the em-
ployer of the employee’s spouse);
(D) The benefits under the HRA or
other account-based group health plan are
limited to reimbursement of one or more
of the following — co-payments, co-in-
surance, deductibles, and premiums under
the non-HRA group coverage, as well as
medical care expenses that do not consti-
tute essential health benefits as defined in
paragraph (c) of this section; and
(E) Under the terms of the HRA or oth-
er account-based group health plan, an em-
ployee (or former employee) is permitted
to permanently opt out of and waive future
reimbursements from the HRA or other
account-based group health plan at least
annually and, upon termination of em-
ployment, either the remaining amounts
in the HRA or other account-based group
health plan are forfeited or the employee
is permitted to permanently opt out of and
waive future reimbursements from the
HRA or other account-based group health
plan (see paragraph (d)(3) of this section
for additional rules regarding forfeiture
and waiver).
(ii) Method for integration with an-
other group health plan: Minimum value
required. An HRA or other account-based
group health plan is integrated with anoth-
er group health plan for purposes of this
paragraph (d) if:
(A) The plan sponsor offers a group
health plan (other than the HRA or other
account-based group health plan) to the
employee that provides minimum value
pursuant to Code section 36B(c)(2)(C)(ii)
(and its implementing regulations and ap-
plicable guidance);
(B) The employee receiving the HRA
or other account-based group health plan
is actually enrolled in a group health
plan (other than the HRA or other ac-
count-based group health plan) that pro-
vides minimum value pursuant to Code
section 36B(c)(2)(C)(ii) (and applicable
guidance), regardless of whether the plan
is offered by the plan sponsor of the HRA
or other account-based group health plan
(referred to as non-HRA MV group cov-
erage);
(C) The HRA or other account-based
group health plan is available only to
employees who are actually enrolled in
non-HRA MV group coverage, regard-
less of whether the non-HRA MV group
coverage is offered by the plan sponsor
of the HRA or other account-based group
health plan (for example, the HRA may
be offered only to employees who do not
enroll in an employer’s group health plan
but are enrolled in other non-HRA MV
group coverage, such as a group health
plan maintained by an employer of the
employee’s spouse); and
(D) Under the terms of the HRA or oth-
er account-based group health plan, an em-
ployee (or former employee) is permitted
to permanently opt out of and waive future
reimbursements from the HRA or other
account-based group health plan at least
annually, and, upon termination of em-
ployment, either the remaining amounts
in the HRA or other account-based group
health plan are forfeited or the employee
is permitted to permanently opt out of and
waive future reimbursements from the
HRA or other account-based group health
plan (see paragraph (d)(3) of this section
for additional rules regarding forfeiture
and waiver).
(3) Forfeiture. For purposes of inte-
gration under paragraphs (d)(2)(i)(E) and
(d)(2)(ii)(D) of this section, forfeiture
or waiver occurs even if the forfeited or
waived amounts may be reinstated upon a
fixed date, a participant’s death, or the ear-
lier of the two events (the reinstatement
event). For the purpose of this paragraph
(d)(3), coverage under an HRA or other
account-based group health plan is con-
sidered forfeited or waived prior to a re-
instatement event only if the participant’s
election to forfeit or waive is irrevocable,
meaning that, beginning on the effective
date of the election and through the date
of the reinstatement event, the participant
and the participant’s beneficiaries have no
access to amounts credited to the HRA or
other account-based group health plan.
This means that upon and after reinstate-
ment, the reinstated amounts under the
HRA or other account-based group health
plan may not be used to reimburse or pay
medical care expenses incurred during the
period after forfeiture and prior to rein-
statement.
(4) Requirements for an HRA or oth-
er account-based group health plan to be
integrated with individual health insur-
ance coverage or Medicare Part A and
B or Medicare Part C. An HRA or other
account-based group health plan is inte-
grated with individual health insurance
coverage or Medicare Part A and B or
Medicare Part C (and treated as comply-
ing with PHS Act sections 2711 and 2713)
if the HRA or other account-based group
health plan satisfies the requirements of
§ 2590.702-2(c) of this part (as modified
by § 2590.702-2(e), for HRAs or other ac-
count-based group health plans integrated
with Medicare Part A and B or Medicare
Part C).
(5) Integration with Medicare Part B
and D. For employers that are not required
to offer their non-HRA group health plan
coverage to employees who are Medi-
care beneficiaries, an HRA or other ac-
count-based group health plan that may be
used to reimburse premiums under Medi-
care Part B or D may be integrated with
Medicare (and deemed to comply with
PHS Act sections 2711 and 2713) if the
following requirements are satisfied with
respect to employees who would be eli-
gible for the employer’s non-HRA group
health plan but for their eligibility for
Medicare (and the integration rules under
paragraphs (d)(2)(i) and (ii) of this section
continue to apply to employees who are
not eligible for Medicare):
(i) The plan sponsor offers a group
health plan (other than the HRA or other
account-based group health plan and that
does not consist solely of excepted bene-
fits) to employees who are not eligible for
Medicare;
(ii) The employee receiving the HRA
or other account-based group health plan
is actually enrolled in Medicare Part B or
D;
(iii) The HRA or other account-based
group health plan is available only to em-
ployees who are enrolled in Medicare Part
B or D; and
(iv) The HRA or other account-based
group health plan complies with para-
graphs (d)(2)(i)(E) and (d)(2)(ii)(D) of
this section.
(6) Definitions. The following defini-
tions apply for purposes of this section.

Bulletin No. 2019–28 237 July 8, 2019
(i) Account-based group health plan.
An account-based group health plan is
an employer-provided group health plan
that provides reimbursements of med-
ical care expenses with the reimburse-
ment subject to a maximum fixed dollar
amount for a period. An HRA is a type of
account-based group health plan. An ac-
count-based group health plan does not
include a qualified small employer health
reimbursement arrangement, as defined in
Code section 9831(d)(2).
(ii) Medical care expenses. Medical
care expenses means expenses for medical
care as defined under Code section 213(d).
(e) Applicability date. The provisions
of this section are applicable to group
health plans and health insurance issuers
for plan years beginning on or after Jan-
uary 1, 2020. Until the applicability date
for this section, plans and issuers are re-
quired to continue to comply with the cor-
responding sections of this part, contained
in the 29 CFR parts 1927 to end edition,
revised as of July 1, 2018.
15. Section 2590.732 is amended by
revising paragraph (c)(3)(i) and adding
paragraph (c)(3)(viii) to read as follows:
§ 2590.732 Special rules relating to
group health plans.
* * * * *
(c) * * *
(3) * * *
(i) In general. Limited-scope dental
benefits, limited-scope vision benefits, or
long-term care benefits are excepted if
they are provided under a separate policy,
certificate, or contract of insurance, or are
otherwise not an integral part of a group
health plan as described in paragraph (c)
(3)(ii) of this section. In addition, benefits
provided under a health flexible spending
arrangement (health FSA) are excepted
benefits if they satisfy the requirements
of paragraph (c)(3)(v) of this section;
benefits provided under an employee as-
sistance program are excepted benefits if
they satisfy the requirements of paragraph
(c)(3)(vi) of this section; benefits provid-
ed under limited wraparound coverage
are excepted benefits if they satisfy the
requirements of paragraph (c)(3)(vii) of
this section; and benefits provided under a
health reimbursement arrangement or oth-
er account-based group health plan, other
than a health FSA, are excepted benefits if
they satisfy the requirements of paragraph
(c)(3)(viii) of this section.
* * * * *
(viii) Health reimbursement arrange-
ments (HRAs) and other account-based
group health plans. Benefits provided un-
der an HRA or other account-based group
health plan, other than a health FSA, are
excepted if they satisfy all of the require-
ments of this paragraph (c)(3)(viii). See
paragraph (c)(3)(v) of this section for the
circumstances in which benefits provided
under a health FSA are excepted benefits.
For purposes of this paragraph (c)(3)(viii),
the term “HRA or other account-based
group health plan” has the same meaning
as “account-based group health plan” set
forth in § 2590.715-2711(d)(6)(i) of this
part, except that the term does not include
health FSAs. For ease of reference, an
HRA or other account-based group health
plan that satisfies the requirements of this
paragraph (c)(3)(viii) is referred to as an
excepted benefit HRA.
(A) Otherwise not an integral part of
the plan. Other group health plan coverage
that is not limited to excepted benefits and
that is not an HRA or other account-based
group health plan must be made available
by the same plan sponsor for the plan year
to the participant.
(B) Benefits are limited in amount—(1)
Limit on annual amounts made available.
The amounts newly made available for
each plan year under the HRA or other ac-
count-based group health plan do not ex-
ceed $1,800. In the case of any plan year
beginning after December 31, 2020, the
dollar amount in the preceding sentence
shall be increased by an amount equal to
such dollar amount multiplied by the cost-
of-living adjustment. The cost of living
adjustment is the percentage (if any) by
which the C-CPI-U for the preceding cal-
endar year exceeds the C-CPI-U for calen-
dar year 2019. The term “C-CPI-U” means
the Chained Consumer Price Index for All
Urban Consumers as published by the Bu-
reau of Labor Statistics of the Department
of Labor. The C-CPI-U for any calendar
year is the average of the C-CPI-U as of
the close of the 12-month period ending
on March 31 of such calendar year. The
values of the C-CPI-U used for any calen-
dar year shall be the latest values so pub-
lished as of the date on which the Bureau
publishes the initial value of the C-CPI-U
for the month of March for the preced-
ing calendar year. Any such increase that
is not a multiple of $50 shall be rounded
down to the next lowest multiple of $50.
The Department of the Treasury and the
Internal Revenue Service will publish the
adjusted amount for plan years beginning
in any calendar year no later than June 1 of
the preceding calendar year.
(2) Carryover amounts. If the terms
of the HRA or other account-based group
health plan allow unused amounts to be
made available to participants and depen-
dents in later plan years, such carryover
amounts are disregarded for purposes of
determining whether benefits are limited
in amount.
(3) Multiple HRAs or other ac-
count-based group health plans. If the
plan sponsor provides more than one HRA
or other account-based group health plan
to the participant for the same time period,
the amounts made available under all such
plans are aggregated to determine whether
the benefits are limited in amount, except
that HRAs or other account-based group
health plans that reimburse only excepted
benefits are not included in determining
whether the benefits are limited in amount.
(C) Prohibition on reimbursement of
certain health insurance premiums. The
HRA or other account-based group health
plan must not reimburse premiums for
individual health insurance coverage,
group health plan coverage (other than
COBRA continuation coverage or other
continuation coverage), or Medicare Part
A, B, C, or D, except that the HRA or oth-
er account-based group health plan may
reimburse premiums for such coverage
that consists solely of excepted benefits.
See also, paragraph (c)(3)(viii)(F) of this
section.
(D) Uniform availability. The HRA or
other account-based group health plan is
made available under the same terms to
all similarly situated individuals, as de-
fined in § 2590.702(d) of this part, regard-
less of any health factor (as described in §
2590.702(a)).
(E) Notice requirement. See sec-
tions 2520.102-3(j)(2) and (3) and
2520.104b-2(a) of this chapter regarding
the time, manner, and content for summa-
ry plan descriptions (including a descrip-
tion of conditions pertaining to eligibility
to receive benefits; annual or lifetime caps

July 8, 2019 238 Bulletin No. 2019–28
or other limits on benefits under the plan;
and a description or summary of the ben-
efits).
(F) Special rule. The HRA or other ac-
count-based group health plan must not
reimburse premiums for short-term, lim-
ited-duration insurance (as defined in §
2590.701-2 of this part) if the conditions
of this paragraph (c)(3)(viii)(F) are satis-
fied.
(1) The HRA or other account-based
group health plan is offered by a small
employer (as defined in PHS Act section
2791(e)(4)).
(2) The other group health plan cover-
age offered by the employer pursuant to
paragraph (c)(3)(viii)(A) of this section is
either fully-insured or partially-insured.
(3) The Secretary of Health and Human
Services (HHS) makes a finding, in con-
sultation with the Secretaries of Labor and
the Treasury, that the reimbursement of
premiums for short-term, limited-duration
insurance by excepted benefit HRAs has
caused significant harm to the small group
market in the state that is the principal
place of business of the small employer.
(4) The finding by the Secretary of
HHS is made after submission of a writ-
ten recommendation by the applicable
state authority of such state, in a form and
manner specified by HHS. The written
recommendation must include evidence
that the reimbursement of premiums for
short-term, limited-duration insurance by
excepted benefit HRAs established by in-
sured or partially-insured small employers
in the state has caused significant harm to
the state’s small group market, including
with respect to premiums.
(5) The restriction shall be imposed or
discontinued by publication by the Sec-
retary of HHS of a notice in the Federal
Register and shall apply only prospec-
tively and with a reasonable time for plan
sponsors to comply.
* * * * *
Department of Health and
Human Services
45 CFR Chapter 1
For the reasons stated in the preamble,
the Department of Health and Human Ser-
vices amends 45 CFR parts 144, 146, 147
and 155 as set forth below:
PART 144 – REQUIREMENTS
RELATING TO HEALTH
INSURANCE COVERAGE
16. The authority for part 144 is revised
to read as follows:
Authority: 42 U.S.C. 300gg through
300gg-63, 300gg-91, and 300gg-92.
17. Section 144.103 is amended by re-
vising the definition of “Group health in-
surance coverage” to read as follows:
§144.103 Definitions.
* * * * *
Group health insurance coverage
means health insurance coverage offered
in connection with a group health plan. In-
dividual health insurance coverage reim-
bursed by the arrangements described in
29 CFR 2510.3-1(l) is not offered in con-
nection with a group health plan, and is
not group health insurance coverage, pro-
vided all the conditions in 29 CFR 2510.3-
1(l) are satisfied.
* * * * *
PART 146 – REQUIREMENTS FOR
THE GROUP HEALTH INSURANCE
MARKET
18. The authority citation for part 146
continues to read as follows:
Authority: 42 U.S.C. 300gg-1 through
300gg-5, 300gg-11 through 300gg-23,
300gg-91, and 300gg-92.
19. Section 146.123 is added to read as
follows:
§ 146.123 Special Rule Allowing In-
tegration of Health Reimbursement
Arrangements (HRAs) and Other Ac-
count-Based Group Health Plans with
Individual Health Insurance Coverage
and Medicare and Prohibiting Dis-
crimination In HRAs and Other Ac-
count-Based Group Health Plans.
(a) Scope. This section applies to health
reimbursement arrangements (HRAs) and
other account-based group health plans,
as defined in § 147.126(d)(6)(i) of this
subchapter. For ease of reference, the
term “HRA” is used in this section to in-
clude other account-based group health
plans. For related regulations, see 26
CFR 1.36B-2(c)(3)(i) and (c)(5), 29 CFR
2510.3-1(l), and 45 CFR 155.420.
(b) Purpose. This section provides
the conditions that an HRA must satisfy
in order to be integrated with individual
health insurance coverage for purposes of
Public Health Service Act (PHS Act) sec-
tions 2711 and 2713 and § 147.126(d)(4)
of this subchapter (referred to as an indi-
vidual coverage HRA). This section also
allows an individual coverage HRA to be
integrated with Medicare for purposes of
PHS Act sections 2711 and 2713 and §
147.126(d)(4) of this subchapter, subject
to the conditions provided in this section
(see paragraph (e) of this section). Some
of the conditions set forth in this section
specifically relate to compliance with PHS
Act sections 2711 and 2713 and some re-
late to the effect of having or being offered
an individual coverage HRA on eligibility
for the premium tax credit under section
36B of the Internal Revenue Code (Code).
In addition, this section provides condi-
tions that an individual coverage HRA
must satisfy in order to comply with the
nondiscrimination provisions in PHS Act
section 2705 and that are consistent with
the provisions of the Patient Protection
and Affordable Care Act, Public Law 111–
148 (124 Stat. 119 (2010)), and the Health
Care and Education Reconciliation Act
of 2010, Public Law 111–152 (124 Stat.
1029 (2010)), each as amended, that are
designed to create a competitive individ-
ual market. These conditions are intended
to prevent an HRA plan sponsor from in-
tentionally or unintentionally, directly or
indirectly, steering any participants or de-
pendents with adverse health factors away
from its traditional group health plan, if
any, and toward individual health insur-
ance coverage.
(c) General rule. An HRA will be con-
sidered to be integrated with individual
health insurance coverage for purposes
of PHS Act sections 2711 and 2713 and §
147.126(d)(4) of this subchapter and will
not be considered to discriminate in vio-
lation of PHS Act section 2705 solely be-
cause it is integrated with individual health
insurance coverage, provided that the con-
ditions of this paragraph (c) are satisfied.
See paragraph (e) of this section for how
these conditions apply to an individual
coverage HRA integrated with Medicare.
For purposes of this section, medical care
expenses means medical care expenses as
defined in § 147.126(d)(6)(ii) of this sub-
chapter and Exchange means Exchange as
defined in § 155.20 of this subchapter.

Bulletin No. 2019–28 239 July 8, 2019
(1) Enrollment in individual health
insurance coverage—(i) In general. The
HRA must require that the participant
and any dependent(s) are enrolled in in-
dividual health insurance coverage that
is subject to and complies with the re-
quirements in PHS Act sections 2711 (and
§ 147.126(a)(2) of this subchapter) and
PHS Act section 2713 (and § 147.130(a)
(1) of this subchapter), for each month
that the individual(s) are covered by the
HRA. For purposes of this paragraph (c),
all individual health insurance coverage,
except for individual health insurance
coverage that consists solely of excepted
benefits, is treated as being subject to and
complying with PHS Act sections 2711
and 2713. References to individual health
insurance coverage in this paragraph (c)
do not include individual health insurance
coverage that consists solely of excepted
benefits.
(ii) Forfeiture. The HRA must pro-
vide that if any individual covered by the
HRA ceases to be covered by individual
health insurance coverage, the HRA will
not reimburse medical care expenses that
are incurred by that individual after the in-
dividual health insurance coverage ceas-
es. In addition, if the participant and all
dependents covered by the participant’s
HRA cease to be covered by individual
health insurance coverage, the participant
must forfeit the HRA. In either case, the
HRA must reimburse medical care ex-
penses incurred by the individual prior to
the cessation of individual health insur-
ance coverage to the extent the medical
care expenses are otherwise covered by
the HRA, but the HRA may limit the pe-
riod to submit medical care expenses for
reimbursement to a reasonable specified
time period. If a participant or dependent
loses coverage under the HRA for a reason
other than cessation of individual health
insurance coverage, COBRA and other
continuation coverage requirements may
apply.
(iii) Grace periods and retroactive ter-
mination of individual health insurance
coverage. In the event an individual is
initially enrolled in individual health in-
surance coverage and subsequently timely
fails to pay premiums for the coverage,
with the result that the individual is in a
grace period, the individual is considered
to be enrolled in individual health insur-
ance coverage for purposes of this para-
graph (c)(1) and the individual coverage
HRA must reimburse medical care ex-
penses incurred by the individual during
that time period to the extent the medical
care expenses are otherwise covered by
the HRA. If the individual fails to pay the
applicable premium(s) by the end of the
grace period and the coverage is cancelled
or terminated, including retroactively, or
if the individual health insurance cover-
age is cancelled or terminated retroactive-
ly for some other reason (for example, a
rescission), an individual coverage HRA
must require that a participant notify the
HRA that coverage has been cancelled or
terminated and the date on which the can-
cellation or termination is effective. After
the individual coverage HRA has received
the notice of cancellation or termination,
the HRA may not reimburse medical care
expenses incurred on and after the date the
individual health insurance coverage was
cancelled or terminated, which is consid-
ered to be the date of termination of cov-
erage under the HRA.
(2) No traditional group health plan
may be offered to same participants. To
the extent a plan sponsor offers any class
of employees (as defined in paragraph (d)
of this section) an individual coverage
HRA, the plan sponsor may not also offer
a traditional group health plan to the same
class of employees, except as provided in
paragraph (d)(5) of this section. For pur-
poses of this section, a traditional group
health plan is any group health plan other
than either an account-based group health
plan or a group health plan that consists
solely of excepted benefits. Therefore, a
plan sponsor may not offer a choice be-
tween an individual coverage HRA or a
traditional group health plan to any partic-
ipant or dependent.
(3) Same terms requirement—(i) In
general. If a plan sponsor offers an indi-
vidual coverage HRA to a class of em-
ployees described in paragraph (d) of this
section, the HRA must be offered on the
same terms to all participants within the
class, except as provided in paragraphs (c)
(3)(ii) through (vi) and (d)(5) of this sec-
tion.
(ii) Carryover amounts, salary reduc-
tion arrangements, and transfer amounts.
Amounts that are not used to reimburse
medical care expenses for any plan year
that are made available to participants in
later plan years are disregarded for pur-
poses of determining whether an HRA is
offered on the same terms, provided that
the method for determining whether par-
ticipants have access to unused amounts
in future years, and the methodology and
formula for determining the amounts of
unused funds which they may access in fu-
ture years, is the same for all participants
in a class of employees. In addition, the
ability to pay the portion of the premium
for individual health insurance coverage
that is not covered by the HRA, if any, by
using a salary reduction arrangement un-
der section 125 of the Code is considered
to be a term of the HRA for purposes of
this paragraph (c)(3). Therefore, an HRA
is not provided on the same terms unless
the salary reduction arrangement, if made
available to any participant in a class of
employees, is made available on the same
terms to all participants (other than former
employees, as defined in paragraph (c)(3)
(iv) of this section) in the class of employ-
ees. Further, to the extent that a participant
in an individual coverage HRA was pre-
viously covered by another HRA and the
current individual coverage HRA makes
available amounts that were not used to
reimburse medical care expenses under
the prior HRA (transferred amounts), the
transferred amounts are disregarded for
purposes of determining whether the HRA
is offered on the same terms, provided that
if the HRA makes available transferred
amounts, it does so on the same terms for
all participants in the class of employees.
(iii) Permitted variation. An HRA
does not fail to be provided on the same
terms solely because the maximum dollar
amount made available to participants in a
class of employees to reimburse medical
care expenses for any plan year increases
in accordance with paragraph (c)(3)(iii)
(A) or (B) of this section.
(A) Variation due to number of depen-
dents. An HRA does not fail to be provid-
ed on the same terms to participants in
a class of employees solely because the
maximum dollar amount made available
to those participants to reimburse medical
care expenses for any plan year increas-
es as the number of the participant’s de-
pendents who are covered under the HRA
increases, so long as the same maximum
dollar amount attributable to the increase

July 8, 2019 240 Bulletin No. 2019–28
in family size is made available to all par-
ticipants in that class of employees with
the same number of dependents covered
by the HRA.
(B) Variation due to age. An HRA
does not fail to be provided on the same
terms to participants in a class of employ-
ees solely because the maximum dollar
amount made available under the terms
of the HRA to those participants to reim-
burse medical care expenses for any plan
year increases as the age of the participant
increases, so long as the requirements in
paragraphs (c)(3)(iii)(B)(1) and (2) of
this section are satisfied. For the purpose
of this paragraph (c)(3)(iii)(B), the plan
sponsor may determine the age of the par-
ticipant using any reasonable method for
a plan year, so long as the plan sponsor
determines each participant’s age for the
purpose of this paragraph (c)(3)(iii)(B)
using the same method for all participants
in the class of employees for the plan year
and the method is determined prior to the
plan year.
(1) The same maximum dollar amount
attributable to the increase in age is made
available to all participants who are the
same age.
(2) The maximum dollar amount made
available to the oldest participant(s) is not
more than three times the maximum dol-
lar amount made available to the youngest
participant(s).
(iv) Former employees. An HRA does
not fail to be treated as provided on the
same terms if the plan sponsor offers the
HRA to some, but not all, former employ-
ees within a class of employees. However,
if a plan sponsor offers the HRA to one
or more former employees within a class
of employees, the HRA must be offered to
the former employee(s) on the same terms
as to all other employees within the class,
except as provided in paragraph (c)(3)(ii)
of this section. For purposes of this sec-
tion, a former employee is an employee
who is no longer performing services for
the employer.
(v) New employees or new dependents.
For a participant whose coverage under
the HRA becomes effective later than the
first day of the plan year, the HRA does
not fail to be treated as being provided
on the same terms to the participant if the
maximum dollar amount made available
to the participant either is the same as the
maximum dollar amount made available
to participants in the participant’s class
of employees whose coverage became ef-
fective as of the first day of the plan year,
or is pro-rated consistent with the portion
of the plan year in which the participant
is covered by the HRA. Similarly, if the
HRA provides for variation in the maxi-
mum amount made available to partic-
ipants in a class of employees based on
the number of a participant’s dependents
covered by the HRA, and the number of
a participant’s dependents covered by the
HRA changes during a plan year (either
increasing or decreasing), the HRA does
not fail to be treated as being provided
on the same terms to the participant if the
maximum dollar amount made available
to the participant either is the same as the
maximum dollar amount made available
to participants in the participant’s class
of employees who had the same number
of dependents covered by the HRA on the
first day of the plan year or is pro-rated
for the remainder of the plan year after the
change in the number of the participant’s
dependents covered by the HRA consis-
tent with the portion of the plan year in
which that number of dependents are cov-
ered by the HRA. The method the HRA
uses to determine amounts made available
for participants whose coverage under the
HRA is effective later than the first day
of the plan year or who have changes in
the number of dependents covered by the
HRA during a plan year must be the same
for all participants in the class of employ-
ees and the method must be determined
prior to the beginning of the plan year.
(vi) HSA-compatible HRAs. An HRA
does not fail to be treated as provided on
the same terms if the plan sponsor offers
participants in a class of employees a
choice between an HSA-compatible in-
dividual coverage HRA and an individual
coverage HRA that is not HSA compatible,
provided both types of HRAs are offered
to all participants in the class of employ-
ees on the same terms. For the purpose of
this paragraph (c)(3)(vi), an HSA-com-
patible individual coverage HRA is an
individual coverage HRA that is limited
in accordance with applicable guidance
under section 223 of the Code such that
an individual covered by such an HRA
is not disqualified from being an eligible
individual under section 223 of the Code.
(vii) Examples. The following exam-
ples illustrate the provisions of this para-
graph (c)(3), without taking into account
the provisions of paragraph (d) of this
section. In each example, the HRA is an
individual coverage HRA that has a cal-
endar year plan year and may reimburse
any medical care expenses, including
premiums for individual health insurance
coverage (except as provided in paragraph
(c)(3)(vii)(E) of this section (Example
5)). Further, in each example, assume the
HRA is offered on the same terms, except
as otherwise specified in the example and
that no participants or dependents are
Medicare beneficiaries.
(A) Example 1: Carryover amounts permitted—
(1) Facts. For 2020 and again for 2021, Plan Sponsor
A offers all employees $7,000 each in an HRA, and
the HRA provides that amounts that are unused at
the end of a plan year may be carried over to the next
plan year, with no restrictions on the use of the car-
ryover amounts compared to the use of newly avail-
able amounts. At the end of 2020, some employees
have used all of the funds in their HRAs, while other
employees have balances remaining that range from
$500 to $1,750 that are carried over to 2021 for those
employees.
(2) Conclusion. The same terms requirement of
this paragraph (c)(3) is satisfied in this paragraph (c)
(3)(vii)(A) (Example 1) for 2020 because Plan Spon-
sor A offers all employees the same amount, $7,000,
in an HRA for that year. The same terms requirement
is also satisfied for 2021 because Plan Sponsor A
again offers all employees the same amount for that
year, and the carryover amounts that some employ-
ees have are disregarded in applying the same terms
requirement because the amount of the carryover for
each employee (that employee’s balance) and each
employee’s access to the carryover amounts is based
on the same terms.
(B) Example 2: Employees hired after the first
day of the plan year—(1) Facts. For 2020, Plan
Sponsor B offers all employees employed on Janu-
ary 1, 2020, $7,000 each in an HRA for the plan year.
Employees hired after January 1, 2020, are eligible
to enroll in the HRA with an effective date of the
first day of the month following their date of hire, as
long as they have enrolled in individual health insur-
ance coverage effective on or before that date, and
the amount offered to these employees is pro-rated
based on the number of months remaining in the plan
year, including the month which includes their cov-
erage effective date.
(2) Conclusion. The same terms requirement of
this paragraph (c)(3) is satisfied in this paragraph (c)
(3)(vii)(B) (Example 2) for 2020 because Plan Spon-
sor B offers all employees employed on the first day
of the plan year the same amount, $7,000, in an HRA
for that plan year and all employees hired after Jan-
uary 1, 2020, a pro-rata amount based on the portion
of the plan year during which they are enrolled in
the HRA.
(C) Example 3: HRA amounts offered vary based
on number of dependents—(1) Facts. For 2020,

Bulletin No. 2019–28 241 July 8, 2019
Plan Sponsor C offers its employees the following
amounts in an HRA: $1,500, if the employee is the
only individual covered by the HRA; $3,500, if the
employee and one dependent are covered by the
HRA; and $5,000, if the employee and more than
one dependent are covered by the HRA.
(2) Conclusion. The same terms requirement of
this paragraph (c)(3) is satisfied in this paragraph
(c)(3)(vii)(C) (Example 3) because paragraph (c)(3)
(iii)(A) of this section allows the maximum dollar
amount made available in an HRA to increase as the
number of the participant’s dependents covered by
the HRA increases and Plan Sponsor C makes the
same amount available to each employee with the
same number of dependents covered by the HRA.
(D) Example 4: HRA amounts offered vary based
on increases in employees’ ages—(1) Facts. For
2020, Plan Sponsor D offers its employees the fol-
lowing amounts in an HRA: $1,000 each for employ-
ees age 25 to 35; $2,000 each for employees age 36
to 45; $2,500 each for employees age 46 to 55; and
$4,000 each for employees over age 55.
(2) Conclusion. The same terms requirement of
this paragraph (c)(3) is not satisfied in this paragraph
(c)(3)(vii)(D) (Example 4) because the terms of the
HRA provide the oldest participants (those over age
55) with more than three times the amount made
available to the youngest participants (those ages 25
to 35), in violation of paragraph (c)(3)(iii)(B)(2) of
this section.
(E) Example 5: Application of same terms re-
quirement to premium only HRA—(1) Facts. For
2020, Plan Sponsor E offers its employees an HRA
that reimburses only premiums for individual health
insurance coverage, up to $10,000 for the year.
Employee A enrolls in individual health insurance
coverage with a $5,000 premium for the year and
is reimbursed $5,000 from the HRA. Employee B
enrolls in individual health insurance coverage with
an $8,000 premium for the year and is reimbursed
$8,000 from the HRA.
(2) Conclusion. The same terms requirement of
this paragraph (c)(3) is satisfied in this paragraph
(c)(3)(vii)(E) (Example 5) because Plan Sponsor E
offers the HRA on the same terms to all employ-
ees, notwithstanding that some employees receive a
greater amount of reimbursement than others based
on the cost of the individual health insurance cover-
age selected by the employee.
(4) Opt out. Under the terms of the
HRA, a participant who is otherwise eligi-
ble for coverage must be permitted to opt
out of and waive future reimbursements
on behalf of the participant and all depen-
dents eligible for the HRA from the HRA
once, and only once, with respect to each
plan year. The HRA may establish time-
frames for enrollment in (and opting out
of) the HRA but, in general, the opportuni-
ty to opt out must be provided in advance
of the first day of the plan year. For partic-
ipants who become eligible to participate
in the HRA on a date other than the first
day of the plan year (or who become eli-
gible fewer than 90 days prior to the plan
year or for whom the notice under para-
graph (c)(6) of this section is required to
be provided as set forth in paragraph (c)(6)
(i)(C) of this section), or for a dependent
who newly becomes eligible during the
plan year, this opportunity must be pro-
vided during the applicable HRA enroll-
ment period(s) established by the HRA for
these individuals. Further, under the terms
of the HRA, upon termination of employ-
ment, for a participant who is covered by
the HRA, either the remaining amounts in
the HRA must be forfeited or the partici-
pant must be permitted to permanently opt
out of and waive future reimbursements
from the HRA on behalf of the participant
and all dependents covered by the HRA.
(5) Reasonable procedures for cover-
age substantiation—(i) Substantiation of
individual health insurance coverage for
the plan year. The HRA must implement,
and comply with, reasonable procedures
to substantiate that participants and each
dependent covered by the HRA are, or
will be, enrolled in individual health in-
surance coverage for the plan year (or for
the portion of the plan year the individual
is covered by the HRA, if applicable). The
HRA may establish the date by which this
substantiation must be provided, but, in
general, the date may be no later than the
first day of the plan year. However, for a
participant who is not eligible to partici-
pate in the HRA on the first day of the plan
year (or who becomes eligible fewer than
90 days prior to the plan year or for whom
the notice under paragraph (c)(6) of this
section is required to be provided as set
forth in paragraph (c)(6)(i)(C) of this sec-
tion), the HRA may establish the date by
which this substantiation must be provid-
ed, but that date may be no later than the
date the HRA coverage begins. Similarly,
for a participant who adds a new depen-
dent during the plan year, the HRA may
establish the date by which this substanti-
ation must be provided, but the date may
be no later than the date the HRA cover-
age for the new dependent begins; howev-
er, to the extent the dependent’s coverage
under the HRA is effective retroactively,
the HRA may establish a reasonable time
by which this substantiation is required,
but must require it be provided before the
HRA will reimburse any medical care ex-
pense for the newly added dependent. The
reasonable procedures an HRA may use to
implement the substantiation requirement
set forth in this paragraph (c)(5)(i) may in-
clude a requirement that a participant sub-
stantiate enrollment by providing either:
(A) A document from a third party
(for example, the issuer or an Exchange)
showing that the participant and any de-
pendents covered by the HRA are, or will
be, enrolled in individual health insurance
coverage (for example, an insurance card
or an explanation of benefits document
pertaining to the relevant time period or
documentation from the Exchange show-
ing that the individual has completed the
application and plan selection); or
(B) An attestation by the participant
stating that the participant and depen-
dent(s) covered by the HRA are, or will
be, enrolled in individual health insurance
coverage, the date coverage began or will
begin, and the name of the provider of the
coverage.
(ii) Coverage substantiation with each
request for reimbursement of medical care
expenses. Following the initial substanti-
ation of coverage, with each new request
for reimbursement of an incurred medical
care expense for the same plan year, the
HRA may not reimburse a participant for
any medical care expenses unless, prior to
each reimbursement, the participant sub-
stantiates that the individual on whose be-
half medical care expenses are requested
to be reimbursed continues to be enrolled
in individual health insurance coverage
for the month during which the medical
care expenses were incurred. The HRA
must implement, and comply with, rea-
sonable procedures to satisfy this require-
ment. This substantiation may be in the
form of a written attestation by the partic-
ipant, which may be part of the form used
to request reimbursement, or a document
from a third party (for example, a health
insurance issuer) showing that the partici-
pant or the dependent, if applicable, are or
were enrolled in individual health insur-
ance coverage for the applicable month.
(iii) Reliance on substantiation. For
purposes of this paragraph (c)(5), an HRA
may rely on the participant’s documen-
tation or attestation unless the HRA, its
plan sponsor, or any other entity acting in
an official capacity on behalf of the HRA
has actual knowledge that any individual
covered by the HRA is not, or will not be,
enrolled in individual health insurance

July 8, 2019 242 Bulletin No. 2019–28
coverage for the plan year (or applicable
portion of the plan year) or the month, as
applicable.
(6) Notice requirement—(i) Timing.
The HRA must provide a written notice to
each participant:
(A) At least 90 calendar days before the
beginning of each plan year for any partic-
ipant who is not described in either para-
graph (c)(6)(i)(B) or (C) of this section;
(B) No later than the date on which the
HRA may first take effect for the partici-
pant, for any participant who is not eligi-
ble to participate at the beginning of the
plan year (or is not eligible to participate
at the time the notice is provided at least
90 calendar days before the beginning of
the plan year pursuant to paragraph (c)(6)
(i)(A) of this section); or
(C) No later than the date on which the
HRA may first take effect for the partici-
pant, for any participant who is employed
by an employer that is first established less
than 120 days before the beginning of the
first plan year of the HRA; this paragraph
(c)(6)(i)(C) applies only with respect to
the first plan year of the HRA.
(ii) Content. The notice must include
all the information described in this para-
graph (c)(6)(ii) (and may include any ad-
ditional information that does not conflict
with that information). To the extent that
the Departments of the Treasury, Labor
and Health and Human Services provide
model notice language for certain ele-
ments of this required notice, HRAs are
permitted, but not required, to use the
model language.
(A) A description of the terms of the
HRA, including the maximum dollar
amount available for each participant (in-
cluding the self-only HRA amount avail-
able for the plan year (or the maximum
dollar amount available for the plan year
if the HRA provides for reimbursements
up to a single dollar amount regardless
of whether a participant has self-only or
other than self-only coverage)), any rules
regarding the proration of the maximum
dollar amount applicable to any participant
(or dependent, if applicable) who is not el-
igible to participate in the HRA for the en-
tire plan year, whether (and which of) the
participant’s dependents are eligible for
the HRA, a statement that there are differ-
ent kinds of HRAs (including a qualified
small employer health reimbursement ar-
rangement) and the HRA being offered is
an individual coverage HRA, a statement
that the HRA requires the participant and
any covered dependents to be enrolled in
individual health insurance coverage (or
Medicare Part A and B or Medicare Part
C, if applicable), a statement that the cov-
erage in which the participant and any
covered dependents must be enrolled can-
not be short-term, limited-duration insur-
ance or consist solely of excepted benefits,
if the HRA is subject to the Employee Re-
tirement Income Security Act (ERISA), a
statement that individual health insurance
coverage in which the participant and any
covered dependents are enrolled is not
subject to ERISA, if the conditions under
29 CFR 2510.3-1(l) are satisfied, the date
as of which coverage under the HRA may
first become effective (both for partici-
pants whose coverage will become effec-
tive on the first day of the plan year and
for participants whose HRA coverage may
become effective at a later date), the dates
on which the HRA plan year begins and
ends, and the dates on which the amounts
newly made available under the HRA will
be made available.
(B) A statement of the right of the par-
ticipant to opt out of and waive future re-
imbursements from the HRA, as set forth
under paragraph (c)(4) of this section.
(C) A description of the potential avail-
ability of the premium tax credit if the par-
ticipant opts out of and waives future re-
imbursements from the HRA and the HRA
is not affordable for one or more months
under 26 CFR 1.36B-2(c)(5), a statement
that even if the participant opts out of
and waives future reimbursements from
an HRA, the offer will prohibit the par-
ticipant (and, potentially, the participant’s
dependents) from receiving a premium tax
credit for the participant’s coverage (or the
dependent’s coverage, if applicable) on an
Exchange for any month that the HRA is
affordable under 26 CFR 1.36B-2(c)(5), a
statement describing how the participant
may find assistance with determining af-
fordability, a statement that, if the partici-
pant is a former employee, the offer of the
HRA does not render the participant (or
the participant’s dependents, if applicable)
ineligible for the premium tax credit re-
gardless of whether it is affordable under
26 CFR 1.36B-2(c)(5), and a statement
that if the participant or dependent is en-
rolled in Medicare, he or she is ineligible
for the premium tax credit without regard
to the offer or acceptance of the HRA;
(D) A statement that if the participant
accepts the HRA, the participant may not
claim a premium tax credit for the partic-
ipant’s Exchange coverage for any month
the HRA may be used to reimburse medi-
cal care expenses of the participant, and a
premium tax credit may not be claimed for
the Exchange coverage of the participant’s
dependents for any month the HRA may
be used to reimburse medical care expens-
es of the dependents.
(E) A statement that the participant
must inform any Exchange to which the
participant applies for advance payments
of the premium tax credit of the availabili-
ty of the HRA; the self-only HRA amount
available for the HRA plan year (or the
maximum dollar amount available for the
plan year if the HRA provides for reim-
bursements up to a single dollar amount
regardless of whether a participant has
self-only or other than self-only cover-
age) as set forth in the written notice in
accordance with paragraph (c)(6)(ii)(A)
of this section; whether the HRA is also
available to the participant’s dependents
and if so, which ones; the date as of which
coverage under the HRA may first become
effective; the date on which the plan year
begins and the date on which it ends; and
whether the participant is a current em-
ployee or former employee.
(F) A statement that the participant
should retain the written notice because it
may be needed to determine whether the
participant is allowed a premium tax cred-
it on the participant’s individual income
tax return.
(G) A statement that the HRA may
not reimburse any medical care expense
unless the substantiation requirement set
forth in paragraph (c)(5)(ii) of this section
is satisfied and a statement that the partic-
ipant must also provide the substantiation
required by paragraph (c)(5)(i) of this sec-
tion.
(H) A statement that if the individual
health insurance coverage (or coverage
under Medicare Part A and B or Medi-
care Part C) of a participant or dependent
ceases, the HRA will not reimburse any
medical care expenses that are incurred by
the participant or dependent, as applica-
ble, after the coverage ceases, and a state-

Bulletin No. 2019–28 243 July 8, 2019
ment that the participant must inform the
HRA if the participant’s or dependent’s
individual health insurance coverage (or
coverage under Medicare Part A and B or
Medicare Part C) is cancelled or terminat-
ed retroactively and the date on which the
cancellation or termination is effective.
(I) The contact information (including
a phone number) for an individual or a
group of individuals who participants may
contact in order to receive additional in-
formation regarding the HRA. The plan
sponsor may determine which individual
or group of individuals is best suited to be
the specified contact.
(J) A statement of availability of a
special enrollment period to enroll in or
change individual health insurance cover-
age, through or outside of an Exchange,
for the participant and any dependents
who newly gain access to the HRA and are
not already covered by the HRA.
(d) Classes of employees—(1)
In general. This paragraph (d) sets forth
the rules for determining classes of em-
ployees. Paragraph (d)(2) of this section
sets forth the specific classes of employ-
ees; paragraph (d)(3) of this section sets
forth a minimum class size requirement
that applies in certain circumstances;
paragraph (d)(4) of this section sets forth
rules regarding the definition of “full-time
employees,” “part-time employees,” and
“seasonal employees”; paragraph (d)(5)
of this section sets forth a special rule for
new hires; and paragraph (d)(6) of this
section addresses student premium reduc-
tion arrangements. For purposes of this
section, including determining classes un-
der this paragraph (d), the employer is the
common law employer and is determined
without regard to the rules under sections
414(b), (c), (m), and (o) of the Code that
would treat the common law employer as
a single employer with certain other enti-
ties.
(2) List of classes. Participants may be
treated as belonging to a class of employ-
ees based on whether they are, or are not,
included in the classes described in this
paragraph (d)(2). If the individual cov-
erage HRA is offered to former employ-
ees, former employees are considered to
be in the same class in which they were
included immediately before separation
from service. Before each plan year, a
plan sponsor must determine for the plan
year which classes of employees it intends
to treat separately and the definition of
the relevant class(es) it will apply, to the
extent these regulations permit a choice.
After the classes and the definitions of the
classes are established for a plan year, a
plan sponsor may not make changes to the
classes of employees or the definitions of
those relevant classes with respect to that
plan year.
(i) Full-time employees, defined at the
election of the plan sponsor to mean either
full-time employees under section 4980H
of the Code (and 26 CFR 54.4980H-1(a)
(21)) or employees who are not part-time
employees (as described in 26 CFR 1.105-
11(c)(2)(iii)(C));
(ii) Part-time employees, defined at the
election of the plan sponsor to mean either
employees who are not full-time employ-
ees under section 4980H of the Code (and
under 26 CFR 54.4980H-1(a)(21) (which
defines full-time employee)) or employees
who are part-time employees as described
in 26 CFR 1.105-11(c)(2)(iii)(C);
(iii) Employees who are paid on a sal-
ary basis;
(iv) Non-salaried employees (such as,
for example, hourly employees);
(v) Employees whose primary site of
employment is in the same rating area as
defined in § 147.102(b) of this subchapter;
(vi) Seasonal employees, defined
at the election of the plan sponsor to mean
seasonal employees as described in either
26 CFR 54.4980H-1(a)(38) or 26 CFR
1.105-11(c)(2)(iii)(C);
(vii) Employees included in a unit of
employees covered by a particular collec-
tive bargaining agreement (or an appro-
priate related participation agreement) in
which the plan sponsor participates (as de-
scribed in 26 CFR 1.105-11(c)(2)(iii)(D));
(viii) Employees who have not satis-
fied a waiting period for coverage (if the
waiting period complies with § 147.116 of
this subchapter);
(ix) Non-resident aliens with no U.S.-
based income (as described in 26 CFR
1.105-11(c)(2)(iii)(E));
(x) Employees who, under all the facts
and circumstances, are employees of an
entity that hired the employees for tempo-
rary placement at an entity that is not the
common law employer of the employees
and that is not treated as a single employ-
er with the entity that hired the employees
for temporary placement under section
414(b), (c), (m), or (o) of the Code; or
(xi) A group of participants described
as a combination of two or more of the
classes of employees set forth in para-
graphs (d)(2)(i) through (x) of this section.
(3) Minimum class size requirement—
(i) In general. If a class of employees is
subject to the minimum class size require-
ment as set forth in this paragraph (d)(3),
the class must consist of at least a mini-
mum number of employees (as described
in paragraphs (d)(3)(iii) and (iv) of this
section), otherwise, the plan sponsor may
not treat that class as a separate class of
employees. Paragraph (d)(3)(ii) of this
section sets forth the circumstances in
which the minimum class size requirement
applies to a class of employees, paragraph
(d)(3)(iii) of this section sets forth the
rules for determining the applicable class
size minimum, and paragraph (d)(3)(iv) of
this section sets forth the rules for a plan
sponsor to determine if it satisfies the min-
imum class size requirement with respect
to a class of employees.
(ii) Circumstances in which minimum
class size requirement applies—(A) The
minimum class size requirement applies
only if a plan sponsor offers a traditional
group health plan to one or more class-
es of employees and offers an individual
coverage HRA to one or more other class-
es of employees.
(B) The minimum class size require-
ment does not apply to a class of employ-
ees offered a traditional group health plan
or a class of employees offered no cover-
age.
(C) The minimum class size require-
ment applies to a class of employees of-
fered an individual coverage HRA if the
class is full-time employees, part-time
employees, salaried employees, non-sal-
aried employees, or employees whose
primary site of employment is in the same
rating area (described in paragraph (d)(2)
(i), (ii), (iii), (iv), or (v) of this section, re-
spectively, and referred to collectively as
the applicable classes or individually as an
applicable class), except that:
(1) In the case of the class of employ-
ees whose primary site of employment is
in the same rating area (as described in
paragraph (d)(2)(v) of this section), the
minimum class size requirement does not
apply if the geographic area defining the

July 8, 2019 244 Bulletin No. 2019–28
class is a State or a combination of two or
more entire States; and
(2) In the case of the classes of em-
ployees that are full-time employees and
part-time employees (as described in
paragraphs (d)(2)(i) and (ii) of this sec-
tion, respectively), the minimum class
size requirement applies only to those
classes (and the classes are only applica-
ble classes) if the employees in one such
class are offered a traditional group health
plan while the employees in the other such
class are offered an individual coverage
HRA. In such a case, the minimum class
size requirement applies only to the class
offered an individual coverage HRA.
(D) A class of employees offered an
individual coverage HRA is also subject
to the minimum class size requirement if
the class is a class of employees created
by combining at least one of the applica-
ble classes (as defined in paragraph (d)
(3)(ii)(C) of this section) with any other
class, except that the minimum class size
requirement shall not apply to a class that
is the result of a combination of one of the
applicable classes and a class of employ-
ees who have not satisfied a waiting peri-
od (as described in paragraph (d)(2)(viii)
of this section).
(iii) Determination of the applicable
class size minimum—(A) In general. The
minimum number of employees that must
be in a class of employees that is subject to
the minimum class size requirement (the
applicable class size minimum) is deter-
mined prior to the beginning of the plan
year for each plan year of the individual
coverage HRA and is:
(1) 10, for an employer with fewer than
100 employees;
(2) A number, rounded down to a whole
number, equal to 10 percent of the total
number of employees, for an employer
with 100 to 200 employees; and
(3) 20, for an employer with more than
200 employees.
(B) Determining employer size. For
purposes of this paragraph (d)(3), the
number of employees of an employer is
determined in advance of the plan year of
the HRA based on the number of employ-
ees that the employer reasonably expects
to employ on the first day of the plan year.
(iv) Determining if a class satisfies the
applicable class size minimum. For pur-
poses of this paragraph (d)(3), whether a
class of employees satisfies the applicable
class size minimum for a plan year of the
individual coverage HRA is based on the
number of employees in the class offered
the individual coverage HRA as of the
first day of the plan year. Therefore, this
determination is not based on the number
of employees that actually enroll in the
individual coverage HRA, and this deter-
mination is not affected by changes in the
number of employees in the class during
the plan year.
(4) Consistency requirement. For any
plan year, a plan sponsor may define “full-
time employee,” “part-time employee,”
and “seasonal employee” in accordance
with the relevant provisions of sections
105(h) or 4980H of the Code, as set forth
in paragraphs (d)(2)(i), (ii), and (vi) of this
section, if:
(i) To the extent applicable under the
HRA for the plan year, each of the three
classes of employees are defined in accor-
dance with section 105(h) of the Code or
each of the three classes of employees are
defined in accordance with section 4980H
of the Code for the plan year; and
(ii) The HRA plan document sets forth
the applicable definitions prior to the be-
ginning of the plan year to which the defi-
nitions will apply.
(5) Special rule for new hires—(i) In
general. Notwithstanding paragraphs (c)
(2) and (3) of this section, a plan spon-
sor that offers a traditional group health
plan to a class of employees may pro-
spectively offer the employees in that
class of employees who are hired on or
after a certain future date (the new hire
date) an individual coverage HRA (with
this group of employees referred to as the
new hire subclass), while continuing to
offer employees in that class of employ-
ees who are hired before the new hire
date a traditional group health plan (with
the rule set forth in this sentence referred
to as the special rule for new hires). For
the new hire subclass, the individual cov-
erage HRA must be offered on the same
terms to all participants within the sub-
class, in accordance with paragraph (c)
(3) of this section. In accordance with
paragraph (c)(2) of this section, a plan
sponsor may not offer a choice between
an individual coverage HRA or a tradi-
tional group health plan to any employee
in the new hire subclass or to any em-
ployee in the class who is not a member
of the new hire subclass.
(ii) New hire date. A plan sponsor may
set the new hire date for a class of employ-
ees prospectively as any date on or after
January 1, 2020. A plan sponsor may set
different new hire dates prospectively for
separate classes of employees.
(iii) Discontinuation of use of special
rule for new hires and multiple applica-
tions of the special rule for new hires. A
plan sponsor may discontinue use of the
special rule for new hires at any time for
any class of employees. In that case, the
new hire subclass is no longer treated as
a separate subclass of employees. In the
event a plan sponsor applies the special
rule for new hires to a class of employees
and later discontinues use of the rule to
the class of employees, the plan sponsor
may later apply the rule if the application
of the rule would be permitted under the
rules for initial application of the special
rule for new hires. If a plan sponsor, in
accordance with the requirements for the
special rule for new hires, applies the rule
to a class of employees subsequent to any
prior application and discontinuance of
the rule to that class, the new hire date
must be prospective.
(iv) Application of the minimum class
size requirement under the special rule
for new hires. The minimum class size re-
quirement set forth in paragraph (d)(3) of
this section does not apply to the new hire
subclass. However, if a plan sponsor sub-
divides the new hire subclass subsequent
to creating the new hire subclass, the min-
imum class size requirement set forth in
paragraph (d)(3) of this section applies to
any class of employees created by subdi-
viding the new hire subclass, if the min-
imum class size requirement otherwise
applies.
(6) Student employees offered student
premium reduction arrangements. For
purposes of this section, if an institution
of higher education (as defined in the
Higher Education Act of 1965) offers a
student employee a student premium re-
duction arrangement, the employee is
not considered to be part of the class of
employees to which the employee would
otherwise belong. For the purpose of this
paragraph (d)(6) and paragraph (f)(1) of
this section, a student premium reduction
arrangement is defined as any program of-

Bulletin No. 2019–28 245 July 8, 2019
fered by an institution of higher education
under which the cost of insured or self-in-
sured student health coverage is reduced
for certain students through a credit, off-
set, reimbursement, stipend or similar ar-
rangement. A student employee offered a
student premium reduction arrangement
is also not counted for purposes of deter-
mining the applicable class size minimum
under paragraph (d)(3)(iii) of this section.
If a student employee is not offered a stu-
dent premium reduction arrangement (in-
cluding if the student employee is offered
an individual coverage HRA instead), the
student employee is considered to be part
of the class of employees to which the em-
ployee otherwise belongs and is counted
for purposes of determining the applicable
class size minimum under paragraph (d)
(3)(iii) of this section.
(e) Integration of Individual Coverage
HRAs with Medicare—(1) General rule.
An individual coverage HRA will be con-
sidered to be integrated with Medicare
(and deemed to comply with PHS Act
sections 2711 and 2713 and § 147.126(d)
(4) of this subchapter), provided that the
conditions of paragraph (c) of this sec-
tion are satisfied, subject to paragraph (e)
(2) of this section. Nothing in this section
requires that a participant and his or her
dependents all have the same type of cov-
erage; therefore, an individual coverage
HRA may be integrated with Medicare
for some individuals and with individu-
al health insurance coverage for others,
including, for example, a participant en-
rolled in Medicare Part A and B or Part C
and his or her dependents enrolled in indi-
vidual health insurance coverage.
(2) Application of conditions in para-
graph (c) of this section—(i) In general.
Except as provided in paragraph (e)(2)
(ii) of this section, in applying the condi-
tions of paragraph (c) of this section with
respect to integration with Medicare, a
reference to “individual health insurance
coverage” is deemed to refer to coverage
under Medicare Part A and B or Part C.
References in this section to integration
of an HRA with Medicare refer to integra-
tion of an individual coverage HRA with
Medicare Part A and B or Part C.
(ii) Exceptions. For purposes of the
statement regarding ERISA under the no-
tice content element under paragraph (c)
(6)(ii)(A) of this section and the statement
regarding the availability of a special en-
rollment period under the notice content
element under paragraph (c)(6)(ii)(J) of
this section, the term individual health in-
surance coverage means only individual
health insurance coverage and does not
also mean coverage under Medicare Part
A and B or Part C.
(f) Examples—(1) Examples regard-
ing classes and the minimum class size
requirement. The following examples
illustrate the provisions of paragraph (c)
(3) of this section, taking into account the
provisions of paragraphs (d)(1) through
(4) and (d)(6) of this section. In each ex-
ample, the HRA is an individual coverage
HRA that may reimburse any medical care
expenses, including premiums for individ-
ual health insurance coverage and it is as-
sumed that no participants or dependents
are Medicare beneficiaries.
(i) Example 1: Collectively bargained employ-
ees offered traditional group health plan; non-col-
lectively bargained employees offered HRA—(A)
Facts. For 2020, Plan Sponsor A offers its employ-
ees covered by a collective bargaining agreement a
traditional group health plan (as required by the col-
lective bargaining agreement) and all other employ-
ees (non-collectively bargained employees) each an
HRA on the same terms.
(B) Conclusion. The same terms requirement of
paragraph (c)(3) of this section is satisfied in this
paragraph (f)(1)(i) (Example 1) because collectively
bargained and non-collectively bargained employees
may be treated as different classes of employees, one
of which may be offered a traditional group health
plan and the other of which may be offered an in-
dividual coverage HRA, and Plan Sponsor A offers
the HRA on the same terms to all participants who
are non-collectively bargained employees. The min-
imum class size requirement does not apply to this
paragraph (f)(1)(i) (Example 1) even though Plan
Sponsor A offers one class a traditional group health
plan and one class the HRA because collectively
bargained and non-collectively bargained employees
are not applicable classes that are subject to the min-
imum class size requirement.
(ii) Example 2: Collectively bargained employ-
ees in one unit offered traditional group health plan
and in another unit offered HRA—(A) Facts. For
2020, Plan Sponsor B offers its employees covered
by a collective bargaining agreement with Local 100
a traditional group health plan (as required by the
collective bargaining agreement), and its employees
covered by a collective bargaining agreement with
Local 200 each an HRA on the same terms (as re-
quired by the collective bargaining agreement).
(B) Conclusion. The same terms requirement of
paragraph (c)(3) of this section is satisfied in this
paragraph (f)(1)(ii) (Example 2) because the employ-
ees covered by the collective bargaining agreements
with the two separate bargaining units (Local 100
and Local 200) may be treated as two different class-
es of employees and Plan Sponsor B offers an HRA
on the same terms to the participants covered by the
agreement with Local 200. The minimum class size
requirement does not apply to this paragraph (f)(1)
(ii) (Example 2) even though Plan Sponsor B offers
the Local 100 employees a traditional group health
plan and the Local 200 employees an HRA because
collectively bargained employees are not applicable
classes that are subject to the minimum class size re-
quirement.
(iii) Example 3: Employees in a waiting period
offered no coverage; other employees offered an
HRA—(A) Facts. For 2020, Plan Sponsor C offers
its employees who have completed a waiting period
that complies with the requirements for waiting peri-
ods in § 147.116 of this subchapter each an HRA on
the same terms and does not offer coverage to its em-
ployees who have not completed the waiting period.
(B) Conclusion. The same terms requirement of
paragraph (c)(3) of this section is satisfied in this
paragraph (f)(1)(iii) (Example 3) because employees
who have completed a waiting period and employ-
ees who have not completed a waiting period may be
treated as different classes and Plan Sponsor C offers
the HRA on the same terms to all participants who
have completed the waiting period. The minimum
class size requirement does not apply to this para-
graph (f)(1)(iii) (Example 3) because Plan Sponsor
C does not offer at least one class of employees a
traditional group health plan and because the class of
employees who have not completed a waiting period
and the class of employees who have completed a
waiting period are not applicable classes that are sub-
ject to the minimum class size requirement.
(iv) Example 4: Employees in a waiting period
offered an HRA; other employees offered a tradi-
tional group health plan—(A) Facts. For 2020, Plan
Sponsor D offers its employees who have completed
a waiting period that complies with the requirements
for waiting periods in § 147.116 of this subchapter a
traditional group health plan and offers its employees
who have not completed the waiting period each an
HRA on the same terms.
(B) Conclusion. The same terms requirement of
paragraph (c)(3) of this section is satisfied in this
paragraph (f)(1)(iv) (Example 4) because employees
who have completed a waiting period and employ-
ees who have not completed a waiting period may be
treated as different classes and Plan Sponsor D offers
an HRA on the same terms to all participants who
have not completed the waiting period. The mini-
mum class size requirement does not apply to this
paragraph (f)(1)(iv) (Example 4) even though Plan
Sponsor D offers employees who have completed
a waiting period a traditional group health plan and
employees who have not completed a waiting period
an HRA because the class of employees who have
not completed a waiting period is not an applicable
class that is subject to the minimum class size re-
quirement (nor is the class made up of employees
who have completed the waiting period).
(v) Example 5: Staffing firm employees tempo-
rarily placed with customers offered an HRA; other
employees offered a traditional group health plan—
(A) Facts. Plan Sponsor E is a staffing firm that
places certain of its employees on temporary assign-
ments with customers that are not the common law
employers of Plan Sponsor E’s employees or treated
as a single employer with Plan Sponsor E under sec-

July 8, 2019 246 Bulletin No. 2019–28
tion 414(b), (c), (m), or (o) of the Code (unrelated
entities); other employees work in Plan Sponsor E’s
office managing the staffing business (non-tempo-
rary employees). For 2020, Plan Sponsor E offers its
employees who are on temporary assignments with
customers each an HRA on the same terms. All oth-
er employees are offered a traditional group health
plan.
(B) Conclusion. The same terms requirement of
paragraph (c)(3) of this section is satisfied in this
paragraph (f)(1)(v) (Example 5) because the em-
ployees who are hired for temporary placement at
an unrelated entity and non-temporary employees of
Plan Sponsor E may be treated as different classes
of employees and Plan Sponsor E offers an HRA
on the same terms to all participants temporarily
placed with customers. The minimum class size re-
quirement does not apply to this paragraph (f)(1)(v)
(Example 5) even though Plan Sponsor E offers one
class a traditional group health plan and one class
the HRA because the class of employees hired for
temporary placement is not an applicable class that
is subject to the minimum class size requirement (nor
is the class made up of non-temporary employees).
(vi) Example 6: Staffing firm employees tempo-
rarily placed with customers in rating area 1 offered
an HRA; other employees offered a traditional group
health plan—(A) Facts.
The facts are the same as in paragraph (f)(1)(v)
of this section (Example 5), except that Plan Sponsor
E has work sites in rating area 1 and rating area 2,
and it offers its 10 employees on temporary assign-
ments with a work site in rating area 1 an HRA on the
same terms. Plan Sponsor E has 200 other employees
in rating areas 1 and 2, including its non-temporary
employees in rating areas 1 and 2 and its employees
on temporary assignments with a work site in rating
area 2, all of whom are offered a traditional group
health plan.
(B) Conclusion. The same terms requirement
of paragraph (c)(3) of this section is not satisfied in
this paragraph (f)(1)(vi) (Example 6) because, even
though the employees who are temporarily placed
with customers generally may be treated as employ-
ees of a different class, because Plan Sponsor E is
also using a rating area to identify the class offered
the HRA (which is an applicable class for the min-
imum class size requirement) and is offering one
class the HRA and another class the traditional group
health plan, the minimum class size requirement
applies to the class offered the HRA, and the class
offered the HRA fails to satisfy the minimum class
size requirement. Because Plan Sponsor E employs
210 employees, the applicable class size minimum
is 20, and the HRA is offered to only 10 employees.
(vii) Example 7: Employees in State 1 offered
traditional group health plan; employees in State 2
offered HRA—(A) Facts. Plan Sponsor F employs
45 employees whose work site is in State 1 and 7
employees whose primary site of employment is in
State 2. For 2020, Plan Sponsor F offers its 45 em-
ployees in State 1 a traditional group health plan, and
each of its 7 employees in State 2 an HRA on the
same terms.
(B) Conclusion. The same terms requirement
of paragraph (c)(3) of this section is satisfied in
this paragraph (f)(1)(vii) (Example 7) because Plan
Sponsor F offers the HRA on the same terms to all
employees with a work site in State 2 and that class
is a permissible class under paragraph (d) of this sec-
tion. This is because employees whose work sites are
in different rating areas may be considered different
classes and a plan sponsor may create a class of em-
ployees by combining classes of employees, includ-
ing by combining employees whose work site is in
one rating area with employees whose work site is in
a different rating area, or by combining all employ-
ees whose work site is in a state. The minimum class
size requirement does not apply to this paragraph (f)
(1)(vii) (Example 7) because the minimum class size
requirement does not apply if the geographic area
defining a class of employees is a state or a combina-
tion of two or more entire states.
(viii) Example 8: Full-time seasonal employees
offered HRA; all other full-time employees offered
traditional group health plan; part-time employees
offered no coverage—(A) Facts. Plan Sponsor G
employs 6 full-time seasonal employees, 75 full-
time employees who are not seasonal employees,
and 5 part-time employees. For 2020, Plan Sponsor
G offers each of its 6 full-time seasonal employees
an HRA on the same terms, its 75 full-time employ-
ees who are not seasonal employees a traditional
group health plan, and offers no coverage to its 5
part-time employees.
(B) Conclusion. The same terms requirement of
paragraph (c)(3) of this section is satisfied in this
paragraph (f)(1)(viii) (Example 8) because full-time
seasonal employees and full-time employees who
are not seasonal employees may be considered dif-
ferent classes and Plan Sponsor G offers the HRA on
the same terms to all full-time seasonal employees.
The minimum class size requirement does not apply
to the class offered the HRA in this paragraph (f)(1)
(viii) (Example 8) because part-time employees are
not offered coverage and full-time employees are not
an applicable class subject to the minimum class size
requirement if part-time employees are not offered
coverage.
(ix) Example 9: Full-time employees in rating
area 1 offered traditional group health plan; full-
time employees in rating area 2 offered HRA; part-
time employees offered no coverage—(A) Facts.
Plan Sponsor H employs 17 full-time employees and
10 part-time employees whose work site is in rating
area 1 and 552 full-time employees whose work site
is in rating area 2. For 2020, Plan Sponsor H offers
its 17 full-time employees in rating area 1 a tradition-
al group health plan and each of its 552 full-time em-
ployees in rating area 2 an HRA on the same terms.
Plan Sponsor H offers no coverage to its 10 part-time
employees in rating area 1. Plan Sponsor H reason-
ably expects to employ 569 employees on the first
day of the HRA plan year.
(B) Conclusion. The same terms requirement of
paragraph (c)(3) of this section is satisfied in this
paragraph (f)(1)(ix) (Example 9) because employees
whose work sites are in different rating areas may
be considered different classes and Plan Sponsor H
offers the HRA on the same terms to all full-time
employees in rating area 2. The minimum class size
requirement applies to the class offered the HRA in
this paragraph (f)(1)(ix) (Example 9) because the
minimum class size requirement applies to a class
based on a geographic area unless the geographic
area is a state or a combination of two or more entire
states. However, the minimum class size requirement
applies only to the class offered the HRA, and Plan
Sponsor H offers the HRA to the 552 full-time em-
ployees in rating area 2 on the first day of the plan
year, satisfying the minimum class size requirement
(because the applicable class size minimum for Plan
Sponsor H is 20).
(x) Example 10: Employees in rating area 1 of-
fered HRA; employees in rating area 2 offered tradi-
tional group health plan—(A) Facts. The facts are
the same as in paragraph (f)(1)(ix) of this section
(Example 9) except that Plan Sponsor H offers its
17 full-time employees in rating area 1 the HRA and
offers its 552 full-time employees in rating area 2 the
traditional group health plan.
(B) Conclusion. The same terms require-
ment of paragraph (c)(3) of this section is not sat-
isfied in this paragraph (f)(1)(x) (Example 10) be-
cause, even though employees whose work sites are
in different rating areas generally may be considered
different classes and Plan Sponsor H offers the HRA
on the same terms to all participants in rating area
1, the HRA fails to satisfy the minimum class size
requirement. Specifically, the minimum class size re-
quirement applies to this paragraph (f)(1)(x) (Exam-
ple 10) because the minimum class size requirement
applies to a class based on a geographic area unless
the geographic area is a state or a combination of two
or more entire states. Further, the applicable class
size minimum for Plan Sponsor H is 20 employees,
and the HRA is only offered to the 17 full-time em-
ployees in rating area 1 on the first day of the HRA
plan year.
(xi) Example 11: Employees in State 1 and rating
area 1 of State 2 offered HRA; employees in all oth-
er rating areas of State 2 offered traditional group
health plan—(A) Facts. For 2020, Plan Sponsor I
offers an HRA on the same terms to a total of 200
employees it employs with work sites in State 1 and
in rating area 1 of State 2. Plan Sponsor I offers a tra-
ditional group health plan to its 150 employees with
work sites in other rating areas in State 2. Plan Spon-
sor I reasonably expects to employ 350 employees
on the first day of the HRA plan year.
(B) Conclusion. The same terms requirement of
paragraph (c)(3) of this section is satisfied in this
paragraph (f)(1)(xi) (Example 11). Plan Sponsor I
may treat all of the employees with a work site in
State 1 and rating area 1 of State 2 as a class of em-
ployees because employees whose work sites are in
different rating areas may be considered different
classes and a plan sponsor may create a class of
employees by combining classes of employees, in-
cluding by combining employees whose work site is
in one rating area with a class of employees whose
work site is in a different rating area. The minimum
class size requirement applies to the class of employ-
ees offered the HRA (made up of employees in State
1 and in rating area 1 of State 2) because the mini-
mum class size requirement applies to a class based
on a geographic area unless the geographic area is a
state or a combination of two or more entire states. In
this case, the class is made up of a state plus a rating
area which is not the entire state. However, this class
satisfies the minimum class size requirement because
the applicable class size minimum for Plan Sponsor
I is 20, and Plan Sponsor I offered the HRA to 200
employees on the first day of the plan year.

Bulletin No. 2019–28 247 July 8, 2019
(xii) Example 12: Salaried employees offered a
traditional group health plan; hourly employees of-
fered an HRA—(A) Facts. Plan Sponsor J has 163
salaried employees and 14 hourly employees. For
2020, Plan Sponsor J offers its 163 salaried employ-
ees a traditional group health plan and each of its 14
hourly employees an HRA on the same terms. Plan
Sponsor J reasonably expects to employ 177 em-
ployees on the first day of the HRA plan year.
(B) Conclusion. The same terms requirement of
paragraph (c)(3) of this section is not satisfied in this
paragraph (f)(1)(xii) (Example 12) because, even
though salaried and hourly employees generally may
be considered different classes and Plan Sponsor J
offers the HRA on the same terms to all hourly em-
ployees, the HRA fails to satisfy the minimum class
size requirement. Specifically, the minimum class
size requirement applies in this paragraph (f)(1)
(xii) (Example 12) because employees who are paid
on a salaried basis and employees who are not paid
on a salaried basis are applicable classes subject to
the minimum class size requirement. Because Plan
Sponsor J reasonably expects to employ between
100 and 200 employees on the first day of the plan
year, the applicable class size minimum is 10 per-
cent, rounded down to a whole number. Ten percent
of 177 total employees, rounded down to a whole
number is 17, and the HRA is offered to only 14
hourly employees.
(xiii) Example 13: Part-time employees and
full-time employees offered different HRAs; no tra-
ditional group health plan offered—(A) Facts. Plan
Sponsor K has 50 full-time employees and 7 part-
time employees. For 2020, Plan Sponsor K offers
its 50 full-time employees $2,000 each in an HRA
otherwise provided on the same terms and each of
its 7 part-time employees $500 in an HRA otherwise
provided on the same terms. Plan Sponsor K reason-
ably expects to employ 57 employees on the first day
of the HRA plan year.
(B) Conclusion. The same terms requirement of
paragraph (c)(3) of this section is satisfied in this
paragraph (f)(1)(xiii) (Example 13) because full-time
employees and part-time employees may be treated
as different classes and Plan Sponsor K offers an
HRA on the same terms to all the participants in each
class. The minimum class size requirement does not
apply to either the full-time class or the part-time
class because (although in certain circumstances the
minimum class size requirement applies to a class
of full-time employees and a class of part-time em-
ployees) Plan Sponsor K does not offer any class of
employees a traditional group health plan, and the
minimum class size requirement applies only when,
among other things, at least one class of employees is
offered a traditional group health plan while another
class is offered an HRA.
(xiv) Example 14: No employees offered an
HRA—(A) Facts. The facts are the same facts as in
paragraph (f)(1)(xiii) of this section (Example 13),
except that Plan Sponsor K offers its full-time em-
ployees a traditional group health plan and does not
offer any group health plan (either a traditional group
health plan or an HRA) to its part-time employees.
(B) Conclusion. The regulations set forth under
this section do not apply to Plan Sponsor K because
Plan Sponsor K does not offer an individual cover-
age HRA to any employee.
(xv) Example 15: Full-time employees offered
traditional group health plan; part-time employees
offered HRA—(A) Facts. The facts are the same as
in paragraph (f)(1)(xiii) of this section (Example
13), except that Plan Sponsor K offers its full-time
employees a traditional group health plan and offers
each of its part-time employees $500 in an HRA and
otherwise on the same terms.
(B) Conclusion. The same terms requirement
of paragraph (c)(3) of this section is not satisfied
in this paragraph (f)(1)(xv) (Example 15) because,
even though the full-time employees and the part-
time employees generally may be treated as different
classes, in this paragraph (f)(1)(xv) (Example 15),
the minimum class size requirement applies to the
part-time employees, and it is not satisfied. Specif-
ically, the minimum class size requirement applies
to the part-time employees because that requirement
applies to an applicable class offered an HRA when
one class is offered a traditional group health plan
while another class is offered an HRA, and to the
part-time and full-time employee classes when one
of those classes is offered a traditional group health
plan while the other is offered an HRA. Because Plan
Sponsor K reasonably expects to employ fewer than
100 employees on the first day of the HRA plan year,
the applicable class size minimum for Plan Sponsor
K is 10 employees, but Plan Sponsor K offered the
HRA only to its 7 part-time employees.
(xvi) Example 16: Satisfying minimum class size
requirement based on employees offered HRA—(A)
Facts. Plan Sponsor L employs 78 full-time em-
ployees and 12 part-time employees. For 2020, Plan
Sponsor L offers its 78 full-time employees a tradi-
tional group health plan and each of its 12 part-times
employees an HRA on the same terms. Only 6 part-
time employees enroll in the HRA. Plan Sponsor L
reasonably expects to employ fewer than 100 em-
ployees on the first day of the HRA plan year.
(B) Conclusion. The same terms requirement of
paragraph (c)(3) of this section is satisfied in this
paragraph (f)(1)(xvi) (Example 16) because full-time
employees and part-time employees may be treated
as different classes, Plan Sponsor L offers an HRA
on the same terms to all the participants in the part-
time class, and the minimum class size requirement
is satisfied. Specifically, whether a class of employ-
ees satisfies the applicable class size minimum is de-
termined as of the first day of the plan year based on
the number of employees in a class that is offered an
HRA, not on the number of employees who enroll
in the HRA. The applicable class size minimum for
Plan Sponsor L is 10 employees, and Plan Sponsor L
offered the HRA to its 12 part-time employees.
(xvii) Example 17: Student employees offered
student premium reduction arrangements and same
terms requirement—(A) Facts. Plan Sponsor M is
an institution of higher education that offers each of
its part-time employees an HRA on the same terms,
except that it offers its part-time employees who are
student employees a student premium reduction ar-
rangement, and the student premium reduction ar-
rangement provides different amounts to different
part-time student employees.
(B) Conclusion. The same terms requirement of
paragraph (c)(3) of this section is satisfied in this
paragraph (f)(1)(xvii) (Example 17) because Plan
Sponsor M offers the HRA on the same terms to
its part-time employees who are not students and
because the part-time student employees offered a
student premium reduction arrangement (and their
varying HRAs) are not taken into account as part-
time employees for purposes of determining whether
a class of employees is offered an HRA on the same
terms.
(xiii) Example 18: Student employees offered stu-
dent premium reduction arrangements and minimum
class size requirement—(A) Facts. Plan Sponsor N
is an institution of higher education with 25 hourly
employees. Plan Sponsor N offers 15 of its hourly
employees, who are student employees, a student
premium reduction arrangement and it wants to of-
fer its other 10 hourly employees an HRA for 2022.
Plan Sponsor N offers its salaried employees a tradi-
tional group health plan. Plan Sponsor N reasonably
expects to have 250 employees on the first day of the
2022 HRA plan year, 15 of which will have offers of
student premium reduction arrangements.
(B) Conclusion. The same terms requirement
of paragraph (c)(3) of this section is not satisfied
in this paragraph (f)(1)(xviii) (Example 18). The
minimum class size requirement will apply to the
class of hourly employees to which Plan Sponsor
N wants to offer the HRA because Plan Sponsor N
offers a class of employees a traditional group health
plan and another class the HRA, and the minimum
class size requirement generally applies to a class
of hourly employees offered an HRA. Plan Sponsor
N’s applicable class size minimum is 20 because
Plan Sponsor N reasonably expects to employ 235
employees on the first day of the plan year (250 em-
ployees minus 15 employees receiving a student pre-
mium reduction arrangement). Plan Sponsor N may
not offer the HRA to its hourly employees because
the 10 employees offered the HRA as of the first day
of the plan year does not satisfy the applicable class
size minimum.
(2) Examples regarding special rule
for new hires. The following examples
illustrate the provisions of paragraph (c)
(3) of this section, taking into account the
provisions of paragraph (d) of this section,
in particular the special rule for new hires
under paragraph (d)(5) of this section. In
each example, the HRA is an individual
coverage HRA that has a calendar year
plan year and may reimburse any medical
care expenses, including premiums for in-
dividual health insurance coverage. The
examples also assume that no participants
or dependents are Medicare beneficiaries.
(i) Example 1: Application of special rule for
new hires to all employees—(A) Facts. For 2021,
Plan Sponsor A offers all employees a traditional
group health plan. For 2022, Plan Sponsor A offers
all employees hired on or after January 1, 2022, an
HRA on the same terms and continues to offer the
traditional group health plan to employees hired be-
fore that date. On the first day of the 2022 plan year,
Plan Sponsor A has 2 new hires who are offered the
HRA.
(B) Conclusion. The same terms requirement of
paragraph (c)(3) of this section is satisfied in this
paragraph (f)(2)(i) (Example 1) because, under the

July 8, 2019 248 Bulletin No. 2019–28
special rule for new hires in paragraph (d)(5) of this
section, the employees newly hired on and after Jan-
uary 1, 2022, may be treated as a new hire subclass,
Plan Sponsor A offers the HRA on the same terms
to all participants in the new hire subclass, and the
minimum class size requirement does not apply to
the new hire subclass.
(ii) Example 2: Application of special rule for
new hires to full-time employees—(A) Facts. For
2021, Plan Sponsor B offers a traditional group
health plan to its full-time employees and does not
offer any coverage to its part-time employees. For
2022, Plan Sponsor B offers full-time employees
hired on or after January 1, 2022, an HRA on the
same terms, continues to offer its full-time employ-
ees hired before that date a traditional group health
plan, and continues to offer no coverage to its part-
time employees. On the first day of the 2022 plan
year, Plan Sponsor B has 2 new hire, full-time em-
ployees who are offered the HRA.
(B) Conclusion. The same terms requirement of
paragraph (c)(3) of this section is satisfied in this
paragraph (f)(2)(ii) (Example 2) because, under the
special rule for new hires in paragraph (d)(5) of this
section, the full-time employees newly hired on and
after January 1, 2022, may be treated as a new hire
subclass and Plan Sponsor B offers the HRA on the
same terms to all participants in the new hire sub-
class. The minimum class size requirement does not
apply to the new hire subclass.
(iii) Example 3: Special rule for new hires imper-
missibly applied retroactively—(A) Facts. For 2025,
Plan Sponsor C offers a traditional group health plan
to its full-time employees. For 2026, Plan Sponsor
C wants to offer an HRA to its full-time employees
hired on and after January 1, 2023, while continuing
to offer a traditional group health plan to its full-time
employees hired before January 1, 2023.
(B) Conclusion. The special rule for new hires
under paragraph (d)(5) of this section does not ap-
ply in this paragraph (f)(2)(iii) (Example 3) because
the rule must be applied prospectively. That is, Plan
Sponsor C may not, in 2026, choose to apply the spe-
cial rule for new hires retroactive to 2023. If Plan
Sponsor C were to offer an HRA in this way, it would
fail to satisfy the conditions under paragraphs (c)(2)
and (3) of this section because the new hire subclass
would not be treated as a subclass for purposes of
applying those rules and, therefore, all full-time em-
ployees would be treated as one class to which either
a traditional group health plan or an HRA could be
offered, but not both.
(iv) Example 4: Permissible second application
of the special rule for new hires to the same class of
employees—(A) Facts. For 2021, Plan Sponsor D of-
fers all of its full-time employees a traditional group
health plan. For 2022, Plan Sponsor D applies the
special rule for new hires and offers an HRA on the
same terms to all employees hired on and after Janu-
ary 1, 2022, and continues to offer a traditional group
health plan to full-time employees hired before that
date. For 2025, Plan Sponsor D discontinues use of
the special rule for new hires, and again offers all
full-time employees a traditional group health plan.
In 2030, Plan Sponsor D decides to apply the special
rule for new hires to the full-time employee class
again, offering an HRA to all full-time employees
hired on and after January 1, 2030, on the same
terms, while continuing to offer employees hired be-
fore that date a traditional group health plan.
(B) Conclusion. Plan Sponsor D has permissibly
applied the special rule for new hires and is in com-
pliance with the requirements of paragraphs (c)(2)
and (3) of this section.
(v) Example 5: Impermissible second application
of the special rule for new hires to the same class of
employees—(A) Facts. The facts are the same as in
paragraph (f)(2)(iv) of this section (Example 4), ex-
cept that for 2025, Plan Sponsor D discontinues use
of the special rule for new hires by offering all full-
time employees an HRA on the same terms. Further,
for 2030, Plan Sponsor D wants to continue to offer
an HRA on the same terms to all full-time employees
hired before January 1, 2030, and to offer all full-
time employees hired on or after January 1, 2030, an
HRA in a different amount.
(B) Conclusion. Plan Sponsor D may not apply
the special rule for new hires for 2030 to the class of
full-time employees being offered an HRA because
the special rule for new hires may only be applied to
a class that is being offered a traditional group health
plan.
(vi) Example 6: New full-time employees offered
different HRAs in different rating areas—(A) Facts.
Plan Sponsor E has work sites in rating area 1, rat-
ing area 2, and rating area 3. For 2021, Plan Sponsor
E offers its full-time employees a traditional group
health plan. For 2022, Plan Sponsor E offers its full-
time employees hired on or after January 1, 2022, in
rating area 1 an HRA of $3,000, its full-time employ-
ees hired on or after January 1, 2022, in rating area 2
an HRA of $5,000, and its full-time employees hired
on or after January 1, 2022, in rating area 3 an HRA
of $7,000. Within each class offered an HRA, Plan
Sponsor E offers the HRA on the same terms. Plan
Sponsor E offers its full-time employees hired prior
to January 1, 2022, in each of those classes a tradi-
tional group health plan. On the first day of the 2022
plan year, there is one new hire, full-time employee
in rating area 1, three new hire, full-time employees
in rating area 2, and 10 new hire-full-time employees
in rating area 3.
(B) Conclusion. The same terms requirement of
paragraph (c)(3) of this section is satisfied in this
paragraph (f)(2)(vi) (Example 6) because, under
the special rule for new hires in paragraph (d)(5) of
this section, the full-time employees in each of the
three rating areas newly hired on and after January
1, 2022, may be treated as three new hire subclass-
es and Plan Sponsor E offers the HRA on the same
terms to all participants in the new hire subclasses.
Further, the minimum class size requirement does
not apply to the new hire subclasses.
(vii) Example 7: New full-time employee class
subdivided based on rating area—(A) Facts. Plan
Sponsor F offers its full-time employees hired on or
after January 1, 2022, an HRA on the same terms
and it continues to offer its full-time employees
hired before that date a traditional group health plan.
Plan Sponsor F offers no coverage to its part-time
employees. For the 2025 plan year, Plan Sponsor F
wants to subdivide the full-time new hire subclass so
that those whose work site is in rating area 1 will be
offered the traditional group health plan and those
whose work site is in rating area 2 will continue to
receive the HRA. Plan Sponsor F reasonably expects
to employ 219 employees on January 1, 2025. As of
January 1, 2025, Plan Sponsor F has 15 full-time em-
ployees whose work site in in rating area 2 and who
were hired between January 1, 2022, and January 1,
2025.
(B) Conclusion. The same terms requirement of
paragraph (c)(3) of this section is not satisfied in this
paragraph (f)(2)(vii) (Example 7) because the new
hire subclass has been subdivided in a manner that is
subject to the minimum class size requirement, and
the class offered the HRA fails to satisfy the mini-
mum class size requirement. Specifically, once the
new hire subclass is subdivided the general rules for
applying the minimum class size requirement apply
to the employees offered the HRA in the new hire
subclass. In this case, because the subdivision of the
new hire full-time subclass is based on rating areas;
a class based on rating areas is an applicable class
subject to the minimum class size requirement; and
the employees in one rating area are to be offered
the HRA, while the employees in the other rating
area are offered the traditional group health plan, the
minimum class size requirement would apply on and
after the date of the subdivision. Further, the mini-
mum class size requirement would not be satisfied,
because the applicable class size minimum for Plan
Sponsor F would be 20, and only 15 employees in
rating area 2 would be offered the HRA.
(viii) Example 8: New full-time employee class
subdivided based on state—(A) Facts. The facts are
the same as in paragraph (f)(2)(vii) of this section
(Example 7), except that for the 2025 plan year, Plan
Sponsor F intends to subdivide the new hire, full-
time class so that those in State 1 will be offered the
traditional group health plan and those in State 2 will
each be offered an HRA on the same terms.
(B) Conclusion. The same terms requirement of
paragraph (c)(3) of this section is satisfied in this
paragraph (f)(2)(viii) (Example 8) because even
though the new hire subclass has been subdivided, it
has been subdivided in a manner that is not subject
to the minimum class size requirement as the subdi-
vision is based on the entire state.
(ix) Example 9: New full-time employees and
part-time employees offered HRA—(A) Facts. In
2021, Plan Sponsor G offers its full-time employees
a traditional group health plan and does not offer
coverage to its part-time employees. For the 2022
plan year, Plan Sponsor G offers its full-time em-
ployees hired on or after January 1, 2022, and all of
its part-time employees, including those hired before
January 1, 2022, and those hired on and after January
1, 2022, an HRA on the same terms, and it continues
to offer its full-time employees hired before January
1, 2022, a traditional group health plan.
(B) Conclusion. The minimum class size require-
ment applies to the part-time employees offered the
HRA in 2022 because the class is being offered an
HRA; the special rule for new hires does not apply
(because this class was not previously offered a tra-
ditional group health plan) and so it is not a new hire
subclass exempt from the minimum class size re-
quirement; another class of employees (that is, full-
time hired before January 1, 2022) are being offered
a traditional group health plan; and the part-time em-
ployee class is generally an applicable classes that
is subject to the minimum class size requirement.
However, because the full-time, new hire subclass is

Bulletin No. 2019–28 249 July 8, 2019
based on the special rule for new hires, the minimum
class size requirement does not apply to full-time
new hires offered an HRA in 2022.
(g) Applicability date. This section ap-
plies to plan years beginning on or after
January 1, 2020.
20. Section 146.145 is amended by
revising paragraph (b)(3)(i) and adding
paragraph (b)(3)(viii) to read as follows:
§ 146.145 Special rules relating to
group health plans.
* * * * *
(b) * * *
(3) * * *
(i) In general. Limited-scope dental
benefits, limited-scope vision benefits, or
long-term care benefits are excepted if
they are provided under a separate policy,
certificate, or contract of insurance, or are
otherwise not an integral part of a group
health plan as described in paragraph (b)
(3)(ii) of this section. In addition, benefits
provided under a health flexible spending
arrangement (health FSA) are excepted
benefits if they satisfy the requirements
of paragraph (b)(3)(v) of this section;
benefits provided under an employee as-
sistance program are excepted benefits if
they satisfy the requirements of paragraph
(b)(3)(vi) of this section; benefits provid-
ed under limited wraparound coverage
are excepted benefits if they satisfy the
requirements of paragraph (b)(3)(vii) of
this section; and benefits provided under a
health reimbursement arrangement or oth-
er account-based group health plan, other
than a health FSA, are excepted benefits if
they satisfy the requirements of paragraph
(b)(3)(viii) of this section.
* * * * *
(viii) Health reimbursement arrange-
ments (HRAs) and other account-based
group health plans. Benefits provided un-
der an HRA or other account-based group
health plan, other than a health FSA, are
excepted if they satisfy all of the require-
ments of this paragraph (b)(3)(viii). See
paragraph (b)(3)(v) of this section for the
circumstances in which benefits provided
under a health FSA are excepted benefits.
For purposes of this paragraph (b)(3)(viii),
the term “HRA or other account-based
group health plan” has the same meaning
as “account-based group health plan” set
forth in § 147.126(d)(6)(i) of this sub-
chapter, except that the term does not in-
clude health FSAs. For ease of reference,
an HRA or other account-based group
health plan that satisfies the requirements
of this paragraph (b)(3)(viii) is referred to
as an excepted benefit HRA.
(A) Otherwise not an integral part of
the plan. Other group health plan coverage
that is not limited to excepted benefits and
that is not an HRA or other account-based
group health plan must be made available
by the same plan sponsor for the plan year
to the participant.
(B) Benefits are limited in amount—(1)
Limit on annual amounts made available.
The amounts newly made available for
each plan year under the HRA or other ac-
count-based group health plan do not ex-
ceed $1,800. In the case of any plan year
beginning after December 31, 2020, the
dollar amount in the preceding sentence
shall be increased by an amount equal to
such dollar amount multiplied by the cost-
of-living adjustment. The cost of living
adjustment is the percentage (if any) by
which the C-CPI-U for the preceding cal-
endar year exceeds the C-CPI-U for calen-
dar year 2019. The term “C-CPI-U” means
the Chained Consumer Price Index for All
Urban Consumers as published by the Bu-
reau of Labor Statistics of the Department
of Labor. The C-CPI-U for any calendar
year is the average of the C-CPI-U as of
the close of the 12-month period ending
on March 31 of such calendar year. The
values of the C-CPI-U used for any calen-
dar year shall be the latest values so pub-
lished as of the date on which the Bureau
publishes the initial value of the C-CPI-U
for the month of March for the preced-
ing calendar year. Any such increase that
is not a multiple of $50 shall be rounded
down to the next lowest multiple of $50.
The Department of the Treasury and the
Internal Revenue Service will publish the
adjusted amount for plan years beginning
in any calendar year no later than June 1 of
the preceding calendar year.
(2) Carryover amounts. If the terms
of the HRA or other account-based group
health plan allow unused amounts to be
made available to participants and depen-
dents in later plan years, such carryover
amounts are disregarded for purposes of
determining whether benefits are limited
in amount.
(3) Multiple HRAs or other ac-
count-based group health plans. If the
plan sponsor provides more than one HRA
or other account-based group health plan
to the participant for the same time period,
the amounts made available under all such
plans are aggregated to determine whether
the benefits are limited in amount, except
that HRAs or other account-based group
health plans that reimburse only excepted
benefits are not included in determining
whether the benefits are limited in amount.
(C) Prohibition on reimbursement of
certain health insurance premiums. The
HRA or other account-based group health
plan must not reimburse premiums for
individual health insurance coverage,
group health plan coverage (other than
COBRA continuation coverage or other
continuation coverage), or Medicare Part
A, B, C, or D, except that the HRA or oth-
er account-based group health plan may
reimburse premiums for such coverage
that consists solely of excepted benefits.
See also, paragraph (b)(3)(viii)(F) of this
section.
(D) Uniform availability. The HRA or
other account-based group health plan is
made available under the same terms to all
similarly situated individuals, as defined
in § 146.121(d), regardless of any health
factor (as described in § 146.121(a)).
(E) [Reserved]
(F) Special rule. The HRA or other
account-based group health plan must
not reimburse premiums for short-term,
limited-duration insurance (as defined in
§ 144.103 of this subchapter) if the condi-
tions of this paragraph (b)(3)(viii)(F) are
satisfied.
(1) The HRA or other account-based
group health plan is offered by a small
employer (as defined in PHS Act section
2791(e)(4)).
(2) The other group health plan cover-
age offered by the employer pursuant to
paragraph (b)(3)(viii)(A) of this section is
either fully-insured or partially-insured.
(3) The Secretary makes a finding, in
consultation with the Secretaries of Labor
and the Treasury, that the reimbursement
of premiums for short-term, limited-dura-
tion insurance by excepted benefit HRAs
has caused significant harm to the small
group market in the state that is the prin-
cipal place of business of the small em-
ployer.
(4) The finding by the Secretary is
made after submission of a written rec-
ommendation by the applicable state au-

July 8, 2019 250 Bulletin No. 2019–28
thority of such state, in a form and manner
specified by HHS. The written recommen-
dation must include evidence that the re-
imbursement of premiums for short-term,
limited-duration insurance by excepted
benefit HRAs established by insured or
partially-insured small employers in the
state has caused significant harm to the
state’s small group market, including with
respect to premiums.
(5) The restriction shall be imposed or
discontinued by publication by the Secre-
tary of a notice in the Federal Register and
shall apply only prospectively and with a
reasonable time for plan sponsors to com-
ply.
* * * * *
PART 147 – HEALTH INSURANCE
REFORM REQUIREMENTS FOR
THE GROUP AND INDIVIDUAL
HEALTH INSURANCE MARKETS
21. The authority citation for part 147
is revised to read as follows:
Authority: 42 U.S.C. 300gg through
300gg-63, 300gg-91, and 300gg-92, as
amended.
22. Section 147.126 is amended by re-
vising paragraphs (c), (d), and (e) to read
as follows:
§ 147.126 No Lifetime or annual lim-
its.
* * * * *
(c) Definition of essential health ben-
efits. The term “essential health benefits”
means essential health benefits under sec-
tion 1302(b) of the Patient Protection and
Affordable Care Act and applicable regu-
lations. For the purpose of this section, a
group health plan or a health insurance is-
suer that is not required to provide essen-
tial health benefits under section 1302(b)
must define “essential health benefits” in
a manner that is consistent with the fol-
lowing:
(1) For plan years beginning before
January 1, 2020, one of the EHB-bench-
mark plans applicable in a State under §
156.110 of this subchapter, and including
coverage of any additional required ben-
efits that are considered essential health
benefits consistent with § 155.170(a)(2)
of this subchapter, or one of the three
Federal Employees Health Benefits Pro-
gram (FEHBP) plan options as defined
by § 156.100(a)(3) of this subchapter,
supplemented as necessary, to satisfy the
standards in § 156.110 of this subchapter;
or
(2) For plan years beginning on or after
January 1, 2020, an EHB-benchmark plan
selected by a State in accordance with
the available options and requirements
for EHB-benchmark plan selection at
§ 156.111 of this subchapter, including an
EHB-benchmark plan in a State that takes
no action to change its EHB-benchmark
plan and thus retains the EHB-benchmark
plan applicable in that State for the prior
year in accordance with § 156.111(d)(1)
of this subchapter, and including coverage
of any additional required benefits that are
considered essential health benefits con-
sistent with § 155.170(a)(2) of this sub-
chapter.
(d) Health reimbursement arrange-
ments (HRAs) and other account-based
group health plans—(1) In general. If an
HRA or other account-based group health
plan is integrated with another group
health plan or individual health insurance
coverage and the other group health plan
or individual health insurance coverage,
as applicable, separately is subject to and
satisfies the requirements in PHS Act
section 2711 and paragraph (a)(2) of this
section, the fact that the benefits under the
HRA or other account-based group health
plan are limited does not cause the HRA
or other account-based group health plan
to fail to satisfy the requirements of PHS
Act section 2711 and paragraph (a)(2) of
this section. Similarly, if an HRA or other
account-based group health plan is inte-
grated with another group health plan or
individual health insurance coverage and
the other group health plan or individual
health insurance coverage, as applicable,
separately is subject to and satisfies the
requirements in PHS Act section 2713
and § 147.130(a)(1) of this subchapter,
the fact that the benefits under the HRA or
other account-based group health plan are
limited does not cause the HRA or other
account-based group health plan to fail to
satisfy the requirements of PHS Act sec-
tion 2713 and § 147.130(a)(1) of this sub-
chapter. For the purpose of this paragraph
(d), all individual health insurance cov-
erage, except for coverage that consists
solely of excepted benefits, is treated as
being subject to and complying with PHS
Act sections 2711 and 2713.
(2) Requirements for an HRA or oth-
er account-based group health plan to
be integrated with another group health
plan. An HRA or other account-based
group health plan is integrated with anoth-
er group health plan for purposes of PHS
Act section 2711 and paragraph (a)(2) of
this section if it satisfies the requirements
under one of the integration methods set
forth in paragraph (d)(2)(i) or (ii) of this
section. For purposes of the integration
methods under which an HRA or other ac-
count-based group health plan is integrat-
ed with another group health plan, integra-
tion does not require that the HRA or other
account-based group health plan and the
other group health plan with which it is in-
tegrated share the same plan sponsor, the
same plan document or governing instru-
ments, or file a single Form 5500, if ap-
plicable. An HRA or other account-based
group health plan integrated with another
group health plan for purposes of PHS Act
section 2711 and paragraph (a)(2) of this
section may not be used to purchase in-
dividual health insurance coverage unless
that coverage consists solely of excepted
benefits, as defined in
§ 148.220 of this subchapter.
(i) Method for integration with a group
health plan: Minimum value not required.
An HRA or other account-based group
health plan is integrated with another
group health plan for purposes of this
paragraph (d) if:
(A) The plan sponsor offers a group
health plan (other than the HRA or other
account-based group health plan) to the
employee that does not consist solely of
excepted benefits;
(B) The employee receiving the HRA
or other account-based group health plan
is actually enrolled in a group health
plan (other than the HRA or other ac-
count-based group health plan) that does
not consist solely of excepted benefits,
regardless of whether the plan is offered
by the same plan sponsor (referred to as
non-HRA group coverage);
(C) The HRA or other account-based
group health plan is available only to
employees who are enrolled in non-HRA
group coverage, regardless of whether
the non-HRA group coverage is offered
by the plan sponsor of the HRA or other
account-based group health plan (for ex-
ample, the HRA may be offered only to

Bulletin No. 2019–28 251 July 8, 2019
employees who do not enroll in an em-
ployer’s group health plan but are enrolled
in other non-HRA group coverage, such as
a group health plan maintained by the em-
ployer of the employee’s spouse);
(D) The benefits under the HRA or
other account-based group health plan are
limited to reimbursement of one or more
of the following — co-payments, co-in-
surance, deductibles, and premiums under
the non-HRA group coverage, as well as
medical care expenses that do not consti-
tute essential health benefits as defined in
paragraph (c) of this section; and
(E) Under the terms of the HRA or oth-
er account-based group health plan, an em-
ployee (or former employee) is permitted
to permanently opt out of and waive future
reimbursements from the HRA or other
account-based group health plan at least
annually and, upon termination of em-
ployment, either the remaining amounts
in the HRA or other account-based group
health plan are forfeited or the employee
is permitted to permanently opt out of and
waive future reimbursements from the
HRA or other account-based group health
plan (see paragraph (d)(3) of this section
for additional rules regarding forfeiture
and waiver).
(ii) Method for integration with an-
other group health plan: Minimum value
required. An HRA or other account-based
group health plan is integrated with anoth-
er group health plan for purposes of this
paragraph (d) if:
(A) The plan sponsor offers a group
health plan (other than the HRA or other
account-based group health plan) to the
employee that provides minimum value
pursuant to section 36B(c)(2)(C)(ii) of the
Code (and its implementing regulations
and applicable guidance);
(B) The employee receiving the HRA
or other account-based group health plan
is actually enrolled in a group health
plan (other than the HRA or other ac-
count-based group health plan) that pro-
vides minimum value pursuant to section
36B(c)(2)(C)(ii) of the Code (and applica-
ble guidance), regardless of whether the
plan is offered by the plan sponsor of the
HRA or other account-based group health
plan (referred to as non-HRA MV group
coverage);
(C) The HRA or other account-based
group health plan is available only to
employees who are actually enrolled in
non-HRA MV group coverage, regard-
less of whether the non-HRA MV group
coverage is offered by the plan sponsor
of the HRA or other account-based group
health plan (for example, the HRA may
be offered only to employees who do not
enroll in an employer’s group health plan
but are enrolled in other non-HRA MV
group coverage, such as a group health
plan maintained by an employer of the
employee’s spouse); and
(D) Under the terms of the HRA or oth-
er account-based group health plan, an em-
ployee (or former employee) is permitted
to permanently opt out of and waive future
reimbursements from the HRA or other
account-based group health plan at least
annually, and, upon termination of em-
ployment, either the remaining amounts
in the HRA or other account-based group
health plan are forfeited or the employee
is permitted to permanently opt out of and
waive future reimbursements from the
HRA or other account-based group health
plan (see paragraph (d)(3) of this section
for additional rules regarding forfeiture
and waiver).
(3) Forfeiture. For purposes of inte-
gration under paragraphs (d)(2)(i)(E) and
(d)(2)(ii)(D) of this section, forfeiture
or waiver occurs even if the forfeited or
waived amounts may be reinstated upon a
fixed date, a participant’s death, or the ear-
lier of the two events (the reinstatement
event). For the purpose of this paragraph
(d)(3), coverage under an HRA or other
account-based group health plan is con-
sidered forfeited or waived prior to a re-
instatement event only if the participant’s
election to forfeit or waive is irrevocable,
meaning that, beginning on the effective
date of the election and through the date
of the reinstatement event, the participant
and the participant’s beneficiaries have no
access to amounts credited to the HRA or
other account-based group health plan.
This means that upon and after reinstate-
ment, the reinstated amounts under the
HRA or other account-based group health
plan may not be used to reimburse or pay
medical care expenses incurred during the
period after forfeiture and prior to rein-
statement.
(4) Requirements for an HRA or oth-
er account-based group health plan to be
integrated with individual health insur-
ance coverage or Medicare Part A and
B or Medicare Part C. An HRA or other
account-based group health plan is inte-
grated with individual health insurance
coverage or Medicare Part A and B or
Medicare Part C (and treated as comply-
ing with PHS Act sections 2711 and 2713)
if the HRA or other account-based group
health plan satisfies the requirements of §
146.123(c) of this subchapter (as modified
by § 146.123(e), for HRAs or other ac-
count-based group health plans integrated
with Medicare Part A and B or Medicare
Part C).
(5) Integration with Medicare Part B
and D. For employers that are not required
to offer their non-HRA group health plan
coverage to employees who are Medi-
care beneficiaries, an HRA or other ac-
count-based group health plan that may be
used to reimburse premiums under Medi-
care Part B or D may be integrated with
Medicare (and deemed to comply with
PHS Act sections 2711 and 2713) if the
following requirements are satisfied with
respect to employees who would be eli-
gible for the employer’s non-HRA group
health plan but for their eligibility for
Medicare (and the integration rules under
paragraphs (d)(2)(i) and (ii) of this section
continue to apply to employees who are
not eligible for Medicare):
(i) The plan sponsor offers a group
health plan (other than the HRA or other
account-based group health plan and that
does not consist solely of excepted bene-
fits) to employees who are not eligible for
Medicare;
(ii) The employee receiving the HRA
or other account-based group health plan
is actually enrolled in Medicare Part B or
D;
(iii) The HRA or other account-based
group health plan is available only to em-
ployees who are enrolled in Medicare Part
B or D; and
(iv) The HRA or other account-based
group health plan complies with para-
graphs (d)(2)(i)(E) and (d)(2)(ii)(D) of
this section.
(6) Definitions. The following defini-
tions apply for purposes of this section.
(i) Account-based group health plan.
An account-based group health plan is
an employer-provided group health plan
that provides reimbursements of med-
ical care expenses with the reimburse-

July 8, 2019 252 Bulletin No. 2019–28
ment subject to a maximum fixed dollar
amount for a period. An HRA is a type of
account-based group health plan. An ac-
count-based group health plan does not
include a qualified small employer health
reimbursement arrangement, as defined in
section 9831(d)(2) of the Code.
(ii) Medical care expenses. Medical
care expenses means expenses for medi-
cal care as defined under section 213(d) of
the Code.
(e) Applicability date. The provisions
of this section are applicable to group
health plans and health insurance issu-
ers for plan years beginning on or after
January 1, 2020. Until the applicability
date for this section, plans and issuers are
required to continue to comply with the
corresponding sections of this subchap-
ter B, contained in the 45 CFR, subtitle
A, parts 1-199, revised as of October 1,
2018.
PART 155 – EXCHANGE
ESTABLISHMENT STANDARDS
AND OTHER RELATED
STANDARDS UNDER THE
AFFORDABLE CARE ACT
23. The authority citation for part 155
is revised to read as follows:
Authority: 42 U.S.C. 18021-18024,
18031-18033, 18041-18042, 18051,
18054, 18071, and 18081-18083.
24. Section 155.420 is amended
a. By revising paragraph (a)(4)(iii) in-
troductory text;
b. By adding paragraph (b)(2)(vi);
c. By redesignating paragraph (c)(3) as
paragraph (c)(4);
c. By adding a new paragraph (c)(3);
d. In paragraph (d)(12) by removing “;
or” and adding “;” in its place;
e. In paragraph (d)(13) by removing
the period at the end of the paragraph and
adding “; or” in its place; and
f. By adding paragraph (d)(14).
The revisions and additions read as fol-
lows:
§ 155.420 Special enrollment peri-
ods.
* * * * *
(a) * * *
(4) * * *
(iii) For the other triggering events
specified in paragraph (d) of this section,
except for paragraphs (d)(2)(i), (d)(4), and
(d)(6)(i) and (ii) of this section for becom-
ing newly eligible for cost-sharing reduc-
tions, and paragraphs (d)(8), (9), (10),
(12), and (14) of this section:
* * * * *
(b) * * *
(2) * * *
(vi) If a qualified individual, enroll-
ee, or dependent newly gains access to
an individual coverage HRA or is newly
provided a QSEHRA, each as described
in paragraph (d)(14) of this section, and
if the plan selection is made before the
day of the triggering event, the Exchange
must ensure that coverage is effective on
the first day of the month following the
date of the triggering event or, if the trig-
gering event is on the first day of a month,
on the date of the triggering event. If the
plan selection is made on or after the day
of the triggering event, the Exchange
must ensure that coverage is effective on
the first day of the month following plan
selection.
* * * * *
(c) * * *
(3) Advanced availability for individu-
als with an individual coverage HRA or
QSEHRA. A qualified individual, enrollee,
or his or her dependent who is described
in paragraph (d)(14) of this section has 60
days before the triggering event to select
a QHP, unless the HRA or QSEHRA was
not required to provide the notice setting
forth its terms to such individual or enroll-
ee at least 90 days before the beginning
of the plan year, as specified in 45 CFR
146.123(c)(6), 26 CFR 54.9802-4(c)(6),
and 29 CFR 2590.702-2(c)(6) or section
9831(d)(4) of the Internal Revenue Code,
as applicable, in which case the qualified
individual, enrollee, or his or her depen-
dent has 60 days before or after the trig-
gering event to select a QHP.
* * * * *
(d) * * *
(14) The qualified individual, enroll-
ee, or dependent newly gains access to an
individual coverage HRA (as defined in
45 CFR 146.123(b)) or is newly provided
a qualified small employer health reim-
bursement arrangement (QSEHRA) (as
defined in section 9831(d)(2) of the Inter-
nal Revenue Code). The triggering event
is the first day on which coverage for the
qualified individual, enrollee, or depen-
dent under the individual coverage HRA
can take effect, or the first day on which
coverage under the QSEHRA takes effect.
An individual, enrollee, or dependent will
qualify for this special enrollment period
regardless of whether they were previ-
ously offered or enrolled in an individual
coverage HRA or previously provided a
QSEHRA, so long as the individual, en-
rollee, or dependent is not enrolled in the
individual coverage HRA or covered by
the QSEHRA on the day immediately pri-
or to the triggering event.
* * * * *
(Filed by the Office of the Federal Register on June
13, 2019, 4:15 p.m., and published in the issue of the
Federal Register for June 20, 2019, 84 F.R. 28888)
T.D. 9868
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Part 1
Electing Small Business
Trusts with Nonresident
Aliens as Potential Current
Beneficiaries
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations.
SUMMARY: This document contains
final regulations regarding the statuto-
ry expansion of the class of permissible
potential current beneficiaries (PCBs) of
an electing small business trust (ESBT)
to include nonresident aliens (NRAs).
In particular, the final regulations ensure
that the income of an S corporation will
continue to be subject to U.S. Federal
income tax when an NRA is a deemed
owner of a grantor trust that elects to be
an ESBT.
DATES: Effective Date: The final regula-
tions are effective on June 18, 2019.
Applicability Date: The final regulations
are applicable to all ESBTs after Decem-
ber 31, 2017.

Bulletin No. 2019–28 253 July 8, 2019
FOR FURTHER INFORMATION CON-
TACT: Cynthia Morton, (202) 317-5279
(not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
This document contains final amend-
ments to the Income Tax Regulations (26
CFR part 1) under sections 641 and 1361
of the Internal Revenue Code (Code).
Section 13541(a) of the Tax Cuts and
Jobs Act, Public Law 115-97, 131 Stat.
2054, 2154 (TCJA) amended section
1361(c)(2)(B)(v) of the Code to allow
NRAs to be PCBs of ESBTs. As amend-
ed, section 1361(c)(2)(B)(v) provides that
NRA PCBs will not be taken into account
for purposes of the S corporation share-
holder-eligibility requirement that oth-
erwise prohibits NRA shareholders. See
section 1361(b)(1)(C).
On April 19, 2019, the Department of
the Treasury (Treasury Department) and
the IRS published a notice of proposed
rulemaking (REG-117062-18) in the Fed-
eral Register (84 FR 16415) proposing
regulations under sections 641 and 1361
(proposed regulations). No comments ad-
dressing the proposed regulations were
received in response to the notice of pro-
posed rulemaking. As no request for a
public hearing was received, no hearing
was held.
Explanation of Provisions
This document adopts the proposed
regulations with no change as final regu-
lations. Where an NRA is a deemed own-
er of a grantor trust that has elected to
be an ESBT, the final regulations ensure
that such ESBT’s S corporation income
will continue to be subject to U.S. Fed-
eral income tax. Specifically, the final
regulations modify the allocation rules
under §1.641(c)-1 to require that the
S corporation income of the ESBT be
included in the S portion of the ESBT
if that income otherwise would have
been allocated to an NRA deemed own-
er under the grantor trust rules. Accord-
ingly, such income will be taxed to the
domestic ESBT by providing that, if the
deemed owner is an NRA, the grantor
portion of net income must be reallocat-
ed from the grantor portion of the ESBT
to the ESBT’s S portion.
The final regulations also implement
Congress’ amendment to section 1361(c)
(2)(B)(v) by making conforming revi-
sions to §1.1361-1(m). For example, the
final regulations update the description
of PCBs in §1.1361-1(m)(4)(i) to reflect
the ability of NRAs to be PCBs of ESBTs.
The final regulations similarly update oth-
er provisions in §1.1361-1(m) to reflect
that ability.
Effective/Applicability Date
Section 7805(b)(1)(A) and (B) of the
Code generally provide that no temporary,
proposed, or final regulation relating to the
internal revenue laws may apply to any
taxable period ending before the earliest
of (A) the date on which such regulation
is filed with the Federal Register, or (B)
in the case of a final regulation, the date on
which a proposed or temporary regulation
to which the final regulation relates was
filed with the Federal Register. However,
section 7805(b)(2) provides that regula-
tions filed or issued within 18 months of
the date of the enactment of the statutory
provision to which they relate are not pro-
hibited from applying to taxable periods
prior to those described in section 7805(b)
(1). Furthermore, section 7805(b)(3) pro-
vides that the Secretary may provide that
any regulation may take effect or apply
retroactively to prevent abuse.
Accordingly, to prevent abuse of sec-
tions 641 and 1361, and the final regula-
tions thereunder, the final regulations ap-
ply to all ESBTs after December 31, 2017.
Special Analyses
The final regulations are not subject to
review under section 6(b) of Executive
Order 12866 pursuant to the Memoran-
dum of Agreement (April 11, 2018) be-
tween the Treasury Department and the
Office of Management and Budget regard-
ing review of tax regulations.
The final regulations do not impose a
collection of information on any entities,
including small entities. Pursuant to the
Regulatory Flexibility Act (5 U.S.C. chap-
ter 6), it is hereby certified that the final
regulations would not have a significant
economic impact on a substantial num-
ber of small entities. This certification is
based on the fact that the final regulations
would primarily affect sophisticated own-
ership structures involving ESBTs that
have NRAs as PCBs.
Pursuant to section 7805(f), the pro-
posed regulations preceding these final
regulations were submitted to the Chief
Counsel for Advocacy of the Small Busi-
ness Administration for comment on its
impact on small business, and no com-
ments were received.
Drafting Information
The principal author of the final reg-
ulations is Cynthia Morton of the Office
of Associate Chief Counsel (Passthroughs
and Special Industries). However, other
personnel from the IRS and the Treasury
Department participated in their develop-
ment.
* * * * *
Amendments to the Regulations
Accordingly, 26 CFR part 1 is amend-
ed as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.641(c)-1 is amended
by:
1. Revising paragraphs (b)(1) and (2).
2. In paragraph (k):
i. Revising the paragraph heading.
ii. Removing the language “(l) Ex-
ample 1” and adding “(l)(1) (Ex-
ample 1)” in its place.
iii. Adding a sentence to the end of
paragraph (k).
3. In paragraph (l), designating Exam-
ples 1 through 5 as paragraphs (l)(1)
through (5), respectively.
4. In newly designated paragraph (l)(1)
(ii), adding a heading to the table.
5. In newly designated paragraph (l)(1)
(iii):
i. Designating the undesignated para-
graph before the first table as
paragraph (l)(1)(iii)(A) and add-
ing a heading for the table in
newly designated paragraph (l)
(1)(iii)(A).

July 8, 2019 254 Bulletin No. 2019–28
ii. Designating the undesignated
paragraph before the second ta-
ble as paragraph (l)(1)(iii)(B) and
adding a heading for the table in
newly designated paragraph (l)
(1)(iii)(B).
iii. Designating the undesignated
paragraph before the third table
as paragraph (l)(1)(iii)(C) and
adding a heading for the table in
newly designated paragraph (l)
(1)(iii)(C).
6. Adding headings for the tables in
newly designated paragraphs (l)(1)
(v), (vi), and (vii).
7. In newly designated paragraph (l)
(3)(i), removing the language “Ex-
ample 2” and adding “Example 2 in
paragraph (l)(2) of this section” in its
place.
8. Adding paragraph (l)(6).
The revision and additions read as fol-
lows:
§1.641(c)-1 Electing small business
trust.
* * * * *
(b) * * *
(1) Grantor portion--(i) In general.
Subject to paragraph (b)(1)(ii) of this sec-
tion, the grantor portion of an ESBT is the
portion of the trust that is treated as owned
by the grantor or another person under
subpart E of the Code.
(ii) Nonresident alien deemed owner.
If, pursuant to section 672(f)(2)(A)(ii), the
deemed owner of a grantor portion of the
ESBT is a nonresident alien, as defined in
section 7701(b)(1)(B) (NRA), the items
of income, deduction, and credit from that
grantor portion must be reallocated from
the grantor portion to the S portion, as de-
fined in paragraph (b)(2) of this section,
of the ESBT.
(2) S portion--(i) In general. Subject
to paragraph (b)(2)(ii) of this section, the
S portion of an ESBT is the portion of the
trust that consists of S corporation stock
and that is not treated as owned by the
grantor or another person under subpart E
of the Code.
(ii) Nonresident alien (NRA) deemed
owner of grantor portion. The S portion of
an ESBT also includes the grantor portion
of the items of income, deduction, and
credit reallocated under paragraph (b)(1)
(ii) of this section from the grantor portion
of the ESBT to the S portion of the ESBT.
* * * * *
(k) Applicability date. * * * Para-
graphs (b)(1) and (2) of this section, and
Example 6 in paragraph (l)(6) of this sec-
tion, apply to all ESBTs after December
31, 2017.
(l) * * *
(1) * * *
(ii) * * *
Table 1 to paragraph (l)(1)(ii)
* * * * *
(iii) * * *
(A) * * *
Table 2 to paragraph (l)(1)(iii)(A)
* * * * *
(B) * * *
Table 3 to paragraph (l)(1)(iii)(B)
* * * * *
(C) * * *
Table 4 to paragraph (l)(1)(iii)(C)
* * * * *
(v) * * *
Table 5 to paragraph (l)(1)(v)
* * * * *
(vi) * * *
Table 6 to paragraph (l)(1)(vi)
* * * * *
(vii) * * *
Table 7 to paragraph (l)(1)(vii)
* * * * *
(6) Example 6: NRA as potential cur-
rent beneficiary. Domestic Trust (DT) has
a valid ESBT election in effect. DT owns
S corporation stock. The S corporation
owns U.S. and foreign assets. The foreign
assets produce foreign source income. B,
an NRA, is the grantor and the only trust
beneficiary and potential current benefi-
ciary of DT. B is not a resident of a coun-
try with which the United States has an
income tax treaty. Under section 677(a), B
is treated as the owner of DT because, un-
der the trust documents, income and cor-
pus may be distributed only to B during
B’s lifetime. Paragraph (b)(2)(ii) of this
section requires that the S corporation in-
come of the ESBT that otherwise would
have been allocated to B under the grantor
trust rules must be reallocated from B’s
grantor portion to the S portion of DT. In
the example in this paragraph (l)(6), the S
portion of DT is treated as including the
grantor portion of the ESBT, and thus all
of DT’s income from the S corporation is
taxable to DT.
Par. 3. Section 1.1361-1 is amended by:
1. Revising paragraph (m)(1)(ii)(D).
2. Revising paragraph (m)(2)(ii)(E)(2).
3. Adding two sentences to the end of
paragraph (m)(4)(i).
4. Revising the second sentence of para-
graph (m)(5)(iii).
5. In paragraph (m)(8), designating Ex-
amples 1 through 9 as paragraphs (m)
(8)(i) through (ix), respectively.
6. Redesignating paragraphs (m)(8)(i)
(i) through (iii) as paragraphs (m)(8)
(i)(A) through (C), respectively.
7. Redesignating paragraphs (m)(8)(ii)
(i) and (ii) as paragraphs (m)(8)(ii)
(A) and (B), respectively, and revis-
ing the second sentence of newly re-
designated paragraph (m)(8)(ii)(A).
8. In the first sentence of newly redes-
ignated paragraph (m)(8)(ii)(B), re-
moving the language “Example 2(i)”
and adding “Example 2 in paragraph
(m)(8)(ii)(A) of this section” in its
place.
9. Redesignating paragraphs (m)(8)(vi)
(i) through (iii) as paragraphs (m)(8)
(vi)(A) through (C), respectively, and
revising the first sentence of newly
redesignated paragraph (m)(8)(vi)
(B).
10. In the first sentence of newly redes-
ignated paragraph (m)(8)(vi)(C), re-
moving the language “paragraph (i)
of this Example 6” and adding “Ex-
ample 6 in paragraph (m)(8)(vi)(A) of
this section” in its place.
11. In paragraph (m)(9):
i. Removing the language “Para-
graphs (m)(2)(ii)(A), (m)(4)(iii)
and (vi), and (m)(8), Example 2,
Example 5, Example 7, Example
8, and Example 9” from the sec-
ond sentence and adding “Para-
graphs (m)(2)(ii)(A) and (m)(4)
(iii) and (vi) of this section and
Examples 2, 5, and 7 through 9
in paragraphs (m)(8)(ii), (v), and
(vii) through (ix), respectively,”
in its place.
ii. Adding a sentence at the end of
the paragraph.
The revisions and additions read as fol-
lows:

Bulletin No. 2019–28 255 July 8, 2019
§1.1361-1 S corporation defined.
* * * * *
(m) * * *
(1) * * *
(ii) * * *
(D) Nonresident aliens. A nonresident
alien (NRA), as defined in section 7701(b)
(1)(B), is an eligible beneficiary of an
ESBT and an eligible potential current
beneficiary.
* * * * *
(2) * * *
(ii) * * *
(E) * * *
(2) All potential current beneficiaries
of the trust meet the shareholder require-
ments of section 1361(b)(1); for the pur-
pose of this paragraph (m)(2)(ii)(E)(2), an
NRA potential current beneficiary does
not violate the requirement under section
1361(b)(1)(C) that an S corporation can-
not have an NRA as a shareholder.
* * * * *
(4) * * *
(i) * * * An NRA potential current ben-
eficiary of an ESBT is treated as a share-
holder for purposes of the 100-shareholder
limit under section 1361(b)(1)(A). How-
ever, an NRA potential current beneficiary
of an ESBT is not treated as a shareholder
in determining whether a corporation is a
small business corporation for purposes of
the NRA-shareholder prohibition under
section 1361(b)(1)(C).
* * * * *
(5) * * *
(iii) * * * For example, the S corpora-
tion election will terminate if a charitable
remainder trust becomes a potential cur-
rent beneficiary of an ESBT. * * *
* * * * *
(8) * * *
(ii) * * *
(A) * * * On January 1, 2006, A, a part-
nership, becomes a potential current bene-
ficiary of Trust. * * *
* * * * *
(vi) * * *
(B) * * * Assume the same facts as
Example 6 in paragraph (m)(8)(vi)(A) of
this section except that D is a charitable
remainder trust. * * *
* * * * *
(9) * * * Paragraphs (m)(1)(ii)(D), (m)
(2)(ii)(E)(2), (m)(4)(i), (m)(5)(iii), and
(m)(8) of this section apply to all ESBTs
after December 31, 2017.
Kirsten Wielobob,
Deputy Commissioner for Services
and Enforcement.
Approved: June 10, 2019
David J Kautter,
Assistant Secretary of the Treasury
(Tax Policy).
(Filed by the Office of the Federal Register on June
13, 2019, 4:15 p.m., and published in the issue of the
Federal Register for June 18, 2019, 84 F.R. 28214)

July 8, 2019 256 Bulletin No. 2019–28
Part III.
Credit for Renewable
Electricity Production and
Refined Coal Production,
and Publication of Inflation
Adjustment Factor and
Reference Prices for
Calendar Year 2019
Notice 2019-41
This notice publishes the inflation ad-
justment factor and reference prices for
calendar year 2019 for the renewable elec-
tricity production credit and the refined
coal production credit under section 45
of the Internal Revenue Code. As of Oc-
tober 2, 2018, the credit period for small
irrigation power electricity production
expired. The 2019 inflation adjustment
factor and reference prices are used in de-
termining the availability of the credits.
The 2019 inflation adjustment factor and
reference prices apply to calendar year
2019 sales of kilowatt hours of electricity
produced in the United States or a pos-
session thereof from qualified energy re-
sources and to calendar year 2019 sales of
refined coal produced in the United States
or a possession thereof.
BACKGROUND
Section 45(a) provides that the renew-
able electricity production credit for any
tax year is an amount equal to the prod-
uct of 1.5 cents multiplied by the kilowatt
hours of specified electricity produced by
the taxpayer and sold to an unrelated per-
son during the tax year. This electricity
must be produced from qualified energy
resources and at a qualified facility during
the 10-year period beginning on the date
the facility was originally placed in ser-
vice.
Section 45(b)(1) provides that the
amount of the credit determined under
section 45(a) is reduced by an amount
which bears the same ratio to the amount
of the credit as (A) the amount by which
the reference price for the calendar year
in which the sale occurs exceeds 8 cents,
bears to (B) 3 cents. Under section 45(b)
(2), the 1.5 cent amount in section 45(a),
the 8 cent amount in section 45(b)(1),
the $4.375 amount in section 45(e)(8)
(A), and, in section 45(e)(8)(B)(i), the
reference price of fuel used as feedstock
(within the meaning of section 45(c)(7)
(A)) in 2002 are each adjusted by mul-
tiplying the amount by the inflation ad-
justment factor for the calendar year in
which the sale occurs. If any amount as
increased under the preceding sentence
is not a multiple of 0.1 cent, the amount
is rounded to the nearest multiple of 0.1
cent. In the case of electricity produced
in open-loop biomass facilities, landfill
gas facilities, trash facilities, qualified
hydro-power facilities, and marine and
hydrokinetic renewable energy facilities,
section 45(b)(4)(A) requires the amount
in effect under section 45(a)(1) (before
rounding to the nearest 0.1 cent) to be re-
duced by one-half.
Section 45(b)(5) provides that in the
case of any facility using wind to produce
electricity, the amount of the credit deter-
mined under section 45(a) (determined
after the application of section 45(b)(1),
(2), and (3) and without regard to section
45(b)(5)) shall be reduced by (A) in the
case of any facility the construction of
which begins after December 31, 2016,
and before January 1, 2018, 20 percent,
(B) in the case of any facility the con-
struction of which begins after December
31, 2017, and before January 1, 2019, 40
percent, and (C) in the case of any facili-
ty the construction of which begins after
December 31, 2018, and before January 1,
2020, 60 percent.
Section 45(c)(1) defines qualified en-
ergy resources as wind, closed-loop bio-
mass, open-loop biomass, geothermal
energy, municipal solid waste, qualified
hydropower production, and marine and
hydrokinetic renewable energy.
Section 45(d)(1) defines a qualified
facility using wind to produce electricity
as any facility owned by the taxpayer that
is originally placed in service after De-
cember 31, 1993, and the construction of
which begins before January 1, 2020. See
section 45(e)(7) for rules relating to the
inapplicability of the credit to electricity
sold to utilities under certain contracts.
Section 45(d)(2)(A) defines a qualified
facility using closed-loop biomass to pro-
duce electricity as any facility (i) owned
by the taxpayer that is originally placed in
service after December 31, 1992, and the
construction of which begins before Janu-
ary 1, 2018, or (ii) owned by the taxpayer
which before January 1, 2018, is original-
ly placed in service and modified to use
closed-loop biomass to co-fire with coal,
with other biomass, or with both, but only
if the modification is approved under the
Biomass Power for Rural Development
Programs or is part of a pilot project of
the Commodity Credit Corporation as
described in 65 FR 63052. For purposes
of section 45(d)(2)(A)(ii), a facility shall
be treated as modified before January 1,
2018, if the construction of such modifi-
cation begins before such date. Section
45(d)(2)(C) provides that in the case of
a qualified facility described in section
45(d)(2)(A)(ii), (i) the 10-year period
referred to in section 45(a) is treated as
beginning no earlier than the date of en-
actment of section 45(d)(2)(C)(i) (October
22, 2004), and (ii) if the owner of the fa-
cility is not the producer of the electricity,
the person eligible for the credit allowable
under section 45(a) is the lessee or the op-
erator of the facility.
Section 45(d)(3)(A) defines a quali-
fied facility using open-loop biomass to
produce electricity as any facility owned
by the taxpayer which (i) in the case of a
facility using agricultural livestock waste
nutrients, (I) is originally placed in ser-
vice after the date of enactment of section
45(d)(3)(A)(i)(I) (October 22, 2004) and
the construction of which begins before
January 1, 2018, and (II) the nameplate
capacity rating of which is not less than
150 kilowatts, and (ii) in the case of any
other facility, the construction of which
begins before January 1, 2018. In the case
of any facility described in section 45(d)
(3)(A), if the owner of the facility is not
the producer of the electricity, section
45(d)(3)(C) provides that the person eligi-
ble for the credit allowable under section
45(a) is the lessee or the operator of the
facility.
Section 45(d)(4) defines a qualified
facility using geothermal energy to pro-

Bulletin No. 2019–28 257 July 8, 2019
duce electricity as any facility owned by
the taxpayer which is originally placed
in service after the date of enactment of
section 45(d)(4) (October 22, 2004) and
the construction of which begins before
January 1, 2018. A qualified facility using
geothermal energy does not include any
property described in section 48(a)(3) the
basis of which is taken into account by the
taxpayer for purposes of determining the
energy credit under section 48.
Section 45(d)(6) defines a qualified
facility using gas derived from the bio-
degradation of municipal solid waste to
produce electricity as any facility owned
by the taxpayer which is originally placed
in service after the date of enactment of
section 45(d)(6) (October 22, 2004) and
the construction of which begins before
January 1, 2018.
Section 45(d)(7) defines a qualified
facility (other than a facility described
in section 45(d)(6)) that burns municipal
solid waste to produce electricity as any
facility owned by the taxpayer which is
originally placed in service after the date
of enactment of section 45(d)(7) (Oc-
tober 22, 2004) and the construction of
which begins before January 1, 2018. A
qualified facility burning municipal solid
waste includes a new unit placed in ser-
vice in connection with a facility placed
in service on or before the date of enact-
ment of section 45(d)(7), but only to the
extent of the increased amount of elec-
tricity produced at the facility by reason
of such new unit.
Section 45(d)(8) provides, in the case
of a facility that produces refined coal
(other than a facility producing steel in-
dustry fuel), the term “refined coal pro-
duction facility” means any facility pro-
ducing refined coal placed in service after
the date of the enactment of the American
Jobs Creation Act of 2004 (October 22,
2004) and before January 1, 2012.
Section 45(d)(9) defines a qualified
facility producing qualified hydroelectric
production described in section 45(c)(8)
as (i) any facility producing incremental
hydropower production, but only to the
extent of its incremental hydropower pro-
duction attributable to efficiency improve-
ments or additions to capacity described
in section 45(c)(8)(B) placed in service af-
ter the date of enactment of section 45(d)
(9)(A)(i) (August 8, 2005) and before
January 1, 2018, and (ii) any other facility
placed in service after the date of enact-
ment of section 45(d)(9)(A)(ii) (August
8, 2005) and the construction of which
begins before January 1, 2018. Section
45(d)(9)(B) provides that, in the case of
a qualified facility described in section
45(d)(9)(A), the 10-year period referred
to in section 45(a) is treated as beginning
on the date the efficiency improvements
or additions to capacity are placed in ser-
vice. Section 45(d)(9)(C) provides that
for purposes of section 45(d)(9)(A)(i), an
efficiency improvement or addition to ca-
pacity is treated as placed in service be-
fore January 1, 2018, if the construction
of such improvement or addition begins
before such date.
Section 45(d)(11) provides in the case
of a facility producing electricity from
marine and hydrokinetic renewable ener-
gy, the term “qualified facility” means any
facility owned by the taxpayer which (A)
has a nameplate capacity rating of at least
150 kilowatts, and (B) which is originally
placed in service on or after the date of the
enactment of section 45(d)(11)(B) (Octo-
ber 3, 2008) and the construction of which
begins before January 1, 2018.
Section 45(e)(8)(A) provides that the
refined coal production credit is an amount
equal to $4.375 per ton of qualified refined
coal (i) produced by the taxpayer at a re-
fined coal production facility during the
10-year period beginning on the date the
facility was originally placed in service,
and (ii) sold by the taxpayer (I) to an un-
related person and (II) during the 10-year
period and the tax year. Section 45(e)
(8)(B) provides that the amount of cred-
it determined under section 45(e)(8)(A)
is reduced by an amount which bears the
same ratio to the amount of the increase
as (i) the amount by which the reference
price of fuel used as feedstock (within the
meaning of section 45(c)(7)(A)) for the
calendar year in which the sale occurs ex-
ceeds an amount equal to 1.7 multiplied
by the reference price for such fuel in
2002, bears to (ii) $8.75.
Section 45(e)(2)(A) requires the Secre-
tary to determine and publish in the Fed-
eral Register each calendar year the infla-
tion adjustment factor and the reference
price for the calendar year. The inflation
adjustment factor and the reference prices
for the 2019 calendar year were published
in the Federal Register at 84 FR 26508 on
June 6, 2019.
Section 45(e)(2)(B) defines the infla-
tion adjustment factor for a calendar year
as the fraction the numerator of which is
the GDP implicit price deflator for the pre-
ceding calendar year and the denominator
of which is the GDP implicit price defla-
tor for the calendar year 1992. The term
“GDP implicit price deflator” means the
most recent revision of the implicit price
deflator for the gross domestic product as
computed and published by the Depart-
ment of Commerce before March 15 of
the calendar year.
Section 45(e)(2)(C) provides that the
reference price is the Secretary’s determi-
nation of the annual average contract price
per kilowatt hour of electricity generated
from the same qualified energy resource
and sold in the previous year in the United
States. Only contracts entered into after
December 31, 1989, are taken into ac-
count.
Under section 45(e)(8)(C), the deter-
mination of the reference price for fuel
used as feedstock within the meaning of
section 45(c)(7)(A) is made according to
rules similar to the rules under section
45(e)(2)(C).
INFLATION ADJUSTMENT
FACTOR AND REFERENCE
PRICES
The inflation adjustment factor for cal-
endar year 2019 for qualified energy re-
sources and refined coal is 1.6396.
The reference price for calendar year
2019 for facilities producing electrici-
ty from wind (based upon information
provided by the Department of Energy)
is 5.18 cents per kilowatt hour. The ref-
erence prices for fuel used as feedstock
within the meaning of section 45(c)(7)
(A), relating to refined coal production
(based upon information provided by the
Department of Energy) are $31.90 per
ton for calendar year 2002 and $49.23
per ton for calendar year 2019. The
reference prices for facilities producing
electricity from closed-loop biomass,
open-loop biomass, geothermal energy,
municipal solid waste, qualified hydro-
power production, and marine and hy-
drokinetic energy have not been deter-
mined for calendar year 2019.

July 8, 2019 258 Bulletin No. 2019–28
PHASEOUT CALCULATION
Because the 2019 reference price for
electricity produced from wind (5.18 cents
per kilowatt hour) does not exceed 8 cents
multiplied by the inflation adjustment fac-
tor (1.6396), the phaseout of the credit pro-
vided in section 45(b)(1) does not apply to
such electricity sold during calendar year
2019. However, refer to section 45(b)(5)
for an additional phaseout of the credit for
wind facilities the construction of which
begins after December 31, 2016. Because
the 2019 reference price of fuel used as
feedstock for refined coal ($49.23) does not
exceed $88.92 (which is the $31.90 refer-
ence price of such fuel in 2002 multiplied
by the inflation adjustment factor (1.6396)
and 1.7), the phase-out of the credit pro-
vided in section 45(e)(8)(B) does not apply
to refined coal sold during calendar year
2019. Further, for electricity produced
from closed-loop biomass, open-loop bio-
mass, geothermal energy, municipal solid
waste, qualified hydropower production,
and marine and hydrokinetic energy, the
phaseout of the credit provided in section
45(b)(1) does not apply to such electricity
sold during calendar year 2019.
CREDIT AMOUNT BY QUALIFIED
ENERGY RESOURCE AND
FACILITY AND REFINED COAL
As required by section 45(b)(2), the
1.5 cent amount in section 45(a)(1), and
the $4.375 amount in section 45(e)(8)(A)
are each adjusted by multiplying such
amount by the inflation adjustment fac-
tor for the calendar year in which the sale
occurs. If any amount as increased under
the preceding sentence is not a multiple
of 0.1 cent, such amount is rounded to the
nearest multiple of 0.1 cent. In the case of
electricity produced in open-loop biomass
facilities, landfill gas facilities, trash facil-
ities, qualified hydropower facilities, and
marine and hydrokinetic renewable ener-
gy facilities, section 45(b)(4)(A) requires
the amount in effect under section 45(a)(1)
(before rounding to the nearest 0.1 cent)
to be reduced by one-half. Under the cal-
culation required by section 45(b)(2), the
credit for renewable electricity production
for calendar year 2019 under section 45(a)
is 2.5 cents per kilowatt hour on the sale
of electricity produced from the qualified
energy resources of wind, closed-loop
biomass, and geothermal energy, and 1.2
cents per kilowatt hour on the sale of elec-
tricity produced in open-loop biomass fa-
cilities, landfill gas facilities, trash facil-
ities, qualified hydropower facilities, and
marine and hydrokinetic energy facilities.
Under the calculation required by section
45(b)(2), the credit for refined coal pro-
duction for calendar year 2019 under sec-
tion 45(e)(8)(A) is $7.173 per ton on the
sale of qualified refined coal.
CORRECTION TO THE CREDIT
AMOUNT FOR REFINED COAL
PRODUCTION FOR CALENDAR
YEAR 2018 AS PROVIDED IN
NOTICE 2018-50
While drafting Notice 2019-41, a
rounding error was discovered in last
year’s version of the notice, Notice 2018-
50 (2018-22 IRB 626). The credit rate
for refined coal production for calendar
year 2018 as provided in Notice 2018-50
is $7.03 per ton on the sale of qualified
refined coal, but the amount of the cred-
it should have been $7.032 per ton on the
sale of qualified refined coal. This notice
modifies Notice 2018-50 by correcting
the credit amount for refined coal produc-
tion for calendar year 2018 by changing it
from $7.03 per ton on the sale of qualified
refined coal to $7.032 per ton on the sale
of qualified refined coal.
EFFECT ON OTHER DOCUMENTS
Notice 2018-50 (2018-22 IRB 626) is
modified by correcting the credit amount
for refined coal production for calendar
year 2018 by changing it from $7.03 per
ton on the sale of qualified refined coal to
$7.032 per ton on the sale of qualified re-
fined coal.
DRAFTING AND CONTACT
INFORMATION
The principal author of this notice is
Martha M. Garcia of the Office of Asso-
ciate Chief Counsel (Passthroughs & Spe-
cial Industries). For further information
regarding this notice contact Ms. Garcia at
(202) 317-6853 (not a toll-free number).

Bulletin No. 2019–28 259 July 8, 2019
Part IV.
Limitation on Deduction
for Dividends Received
from Certain Foreign
Corporations and Amounts
Eligible for Section 954
Look-Through Exception
REG-106282-18
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemaking
by cross-reference to temporary regula-
tions.
SUMMARY: The Rules and Regulations
section of this issue of the Internal Rev-
enue Bulletin contains temporary regula-
tions under the Internal Revenue Code (the
“Code”) that limit the dividends received
deduction available for certain dividends
received from current or former controlled
foreign corporations. The temporary reg-
ulations also contain rules that limit the
applicability of the exception to foreign
personal holding company income for
certain dividends received by upper-tier
controlled foreign corporations from low-
er-tier controlled foreign corporations and
temporary regulations to facilitate admin-
istration of certain rules in the temporary
regulations. The temporary regulations af-
fect certain U.S. persons that are domestic
corporations that receive certain dividends
from current or former controlled foreign
corporations or are United States share-
holders of upper-tier controlled foreign
that receive certain dividends from low-
er-tier controlled foreign corporations.
DATES: Written or electronic comments
and requests for a public hearing must be
received by September 16, 2019.
ADDRESSES: Send submissions to:
CC:PA:LPD:PR (REG-106282-18),
Room 5203, Internal Revenue Service,
PO Box 7604, Ben Franklin Station,
Washington, DC 20044. Submissions may
be hand-delivered Monday through Friday
between the hours of 8 a.m. and 4 p.m. to
CC:PA:LPD:PR (REG-106282-18), Cou-
rier’s Desk, Internal Revenue Service,
1111 Constitution Avenue, N.W., Wash-
ington, DC 20224. Alternatively, taxpay-
ers may submit comments electronically,
via the Federal eRulemaking Portal at
http://www.regulations.gov (IRS REG-
106282-18).
FOR FURTHER INFORMATION CON-
TACT: Concerning the proposed reg-
ulations, Logan M. Kincheloe, (202)
317-6937; concerning submission of
comments and/or requests for a hearing
Regina Johnson at (202) 317-6901 (not
toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background and Explanation of
Provisions
Temporary regulations in the Rules
and Regulations section of this issue of
the Internal Revenue Bulletin amend 26
CFR 1. The temporary regulations limit
the section 245A dividends received de-
duction for certain dividends from current
or former controlled foreign corporations
as well as the section 954(c)(6) exception
to foreign personal holding company in-
come for certain dividends received by
an upper-tier controlled foreign corpora-
tion from a lower-tier controlled foreign
corporation. The text of those regulations
also serves as the text of these regulations.
The preamble to the temporary regula-
tions explains the temporary regulations
and these proposed regulations.
Special Analyses
I. Paperwork Reduction Act
The collections of information con-
tained in these proposed regulations are
explained in the temporary regulations
under sections 245A, 954(c)(6), and 6038
published elsewhere in this issue of the
Internal Revenue Bulletin.
II. Regulatory Flexibility Act
It is hereby certified that this rulemak-
ing will not have a significant economic
impact on a substantial number of small
entities within the meaning of section
601(6) of the Regulatory Flexibility Act
(5 U.S.C. chapter 6).
The small entities that are subject to
proposed §1.245A-5 are small entities
that are U.S. shareholders of certain for-
eign corporations that are otherwise el-
igible for the section 245A deduction on
distributions from the foreign corporation.
Additionally, to be subject to the proposed
regulations, the foreign corporation that is
owned by the small entity must have en-
gaged in certain related party transactions
described in Part II.B of the Explanation
of Provisions section of the preamble to
the temporary regulations, or the U.S.
shareholder must have transferred certain
stock in the foreign corporation during the
taxable year.
Based on 2014 Statistics of Income
tax data, the Department of the Treasury
(“Treasury Department”) and the IRS esti-
mate that there are approximately 15,000
U.S. corporations with controlled foreign
corporations (“CFCs”) of which approxi-
mately half (6,000-9,000) have less than
$25 million in gross receipts. Not all of
these corporations will be affected by
the proposed regulations. In particular,
only small U.S. taxpayers with fiscal year
CFCs that transfer assets in related party
transactions during the gap period, or U.S.
taxpayers that transfer more than 10 per-
cent of their stock of a CFC in a taxable
year or U.S. taxpayers that reduce their
ownership of stock of a CFC by more than
10 percent, have the potential to be affect-
ed by these regulations.
The Treasury Department and the IRS
have concluded that there is no signifi-
cant economic impact on such entities as
a result of these proposed regulations. To
make this determination, the Treasury De-
partment calculated the ratio of estimat-
ed global intangible lowed-taxed income
(“GILTI”) and subpart F revenue attrib-
utable to these businesses to aggregate
total sales data (Data on total sales of all
U.S. parented companies are drawn from
the Bureau of Economic Analysis Inter-
active Data accessed at this web address
in December, 2018: https://apps.bea.gov/
iTable/iTable.cfm?ReqID=2&step=1)
adjusted to reflect the total sales of these
businesses. Projected net tax proceeds

July 8, 2019 260 Bulletin No. 2019–28
from GILTI and subpart F are estimated to
be below one percent of the sales of U.S.
parented multinational enterprises for
2018 through 2027. The tax thus amounts
to less than 3 to 5 percent of receipts (as
defined in 13 CFR 121.104), an economic
impact that the Treasury Department and
IRS regard as the threshold for significant
under the Regulatory Flexibility Act. This
calculated percentage is furthermore an
upper bound on the true expected effect
of the proposed regulations because not
all the GILTI and subpart F revenue es-
timated to be attributable to small entities
will be captured by the proposed regula-
tions. Consequently, the Treasury Depart-
ment and the IRS have determined that
proposed §1.245A-5 will not have a sig-
nificant economic impact on a substantial
number of small entities.
Accordingly, it is hereby certified that
the proposed rule would not have a sig-
nificant economic impact on a substantial
number of small entities. Notwithstanding
this certification, the Treasury Department
and the IRS invite comments from the pub-
lic on both the number of entities affected
(including whether specific industries are
affected) and the economic impact of this
proposed rule on small entities.
Pursuant to section 7805(f) of the Code,
these regulations have been submitted to
the Chief Counsel for Advocacy of the
Small Business Administration for com-
ment on the impact on small businesses.
Comments and Requests for Public
Hearing
Before these proposed regulations are
adopted as final regulations, consideration
will be given to any written or electronic
comments that are submitted timely to the
IRS as prescribed in this preamble under
the “ADDRESSES” heading. Comments
are requested on all aspects of the proposed
regulations, and specifically on the issues
identified in Part II.B and Part III.A of the
Explanation of Provisions section and the
Parts I and II of the Special Analysis sec-
tion of the preamble to the temporary reg-
ulations. All comments will be available at
www.regulations.gov or upon request. A
public hearing will be scheduled if request-
ed in writing by any person that timely sub-
mits written comments. If a public hearing
is scheduled, then notice of the date, time,
and place for the public hearing will be
published in the Federal Register.
Drafting Information
The principal author of the proposed
regulations is Logan M. Kincheloe, Office
of Associate Chief Counsel (Internation-
al). However, other personnel from the
Treasury Department and the IRS partic-
ipated in their development.
*****
Proposed Amendments to the
Regulations
Accordingly, 26 CFR part 1 is pro-
posed to be amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation
for part 1 is amended by adding sectional
authorities for §§1.245A-5 and 1.954(c)
(6)-1 in numerical order to read in part as
follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.245A-5 also issued under 26
U.S.C. 245A(g), 951A(a), 954(c)(6), and
965(o)
* * * * *
Section 1.954(c)(6)-1 also issued under
26 U.S.C. 954(c).* * *
Par. 2. Reserved sections 1.245A-1
through and § 1.245A-5 are added to read
as follows:
Sec.
1.245A-1 [Reserved].
1.245A-2 [Reserved].
1.245A-3 [Reserved].
1.245A-4 [Reserved].
1.245A-5 Limitation of section 245A
deduction and section 954(c)(6) excep-
tion.
§1.245A-5 Limitation of section 245A
deduction and section 954(c)(6) excep-
tion.
The text of proposed §1.245A-5 is the
same as the text of §1.245A-5T published
elsewhere in this issue of the Internal
Revenue Bulletin.
Par. 3. Section 1.954(c)(6)-1 is added
to read as follows:
§1.954(c)(6)-1 Certain cases in which
section 954(c)(6) exception not available.
The text of proposed §1.954(c)(6)-1 is
the same as the text of §1.954(c)(6)-1T
published elsewhere in this issue of the
Internal Revenue Bulletin.
Par. 4. Section 1.6038-2 is amended by:
1. Adding reserved paragraphs (f)(13)
through (15)
2. Adding paragraph (f)(16).
3. Revising paragraph (m).
The additions and revision read as fol-
lows:
§1.6038-2 Information returns re-
quired of United States persons with re-
spect to annual accounting periods of cer-
tain foreign corporations beginning after
December 31, 1962.
* * * * *
(f) * * *
(13) through (15) [Reserved].
(16) The text of proposed §1.6038-2(f)
(16) is the same as the text of §1.6038-
2T(f)(16) published elsewhere in this is-
sue of the Internal Revenue Bulletin.
* * * * *
(m) The text of proposed §1.6038-2(m)
is the same as the text of §1.6038-2T(m)
published elsewhere in this issued of the
Internal Revenue Bulletin.
Kirsten Wielobob,
Deputy Commissioner for Services
and Enforcement.
(Filed by the Office of the Federal Register on June
14, 2019, 4:15 p.m., and published in the issue of the
Federal Register for June 18, 2019, 84 F.R. 28426)

Definition of Terms
Revenue rulings and revenue procedures
(hereinafter referred to as “rulings”) that
have an effect on previous rulings use the
following defined terms to describe the
effect:
Amplified describes a situation where
no change is being made in a prior pub-
lished position, but the prior position is
being extended to apply to a variation of
the fact situation set forth therein. Thus, if
an earlier ruling held that a principle ap-
plied to A, and the new ruling holds that
the same principle also applies to B, the
earlier ruling is amplified. (Compare with
modified, below).
Clarified is used in those instances
where the language in a prior ruling is be-
ing made clear because the language has
caused, or may cause, some confusion. It
is not used where a position in a prior rul-
ing is being changed.
Distinguished describes a situation
where a ruling mentions a previously pub-
lished ruling and points out an essential
difference between them.
Modified is used where the substance
of a previously published position is being
changed. Thus, if a prior ruling held that a
principle applied to A but not to B, and the
new ruling holds that it applies to both A
and B, the prior ruling is modified because
it corrects a published position. (Compare
with amplified and clarified, above).
Obsoleted describes a previously pub-
lished ruling that is not considered deter-
minative with respect to future transactions.
This term is most commonly used in a ruling
that lists previously published rulings that
are obsoleted because of changes in laws or
regulations. A ruling may also be obsoleted
because the substance has been included in
regulations subsequently adopted.
Revoked describes situations where the
position in the previously published ruling
is not correct and the correct position is
being stated in a new ruling.
Superseded describes a situation where
the new ruling does nothing more than
restate the substance and situation of a
previously published ruling (or rulings).
Thus, the term is used to republish under
the 1986 Code and regulations the same
position published under the 1939 Code
and regulations. The term is also used
when it is desired to republish in a single
ruling a series of situations, names, etc.,
that were previously published over a
period of time in separate rulings. If the
new ruling does more than restate the sub-
stance of a prior ruling, a combination of
terms is used. For example, modified and
superseded describes a situation where the
substance of a previously published ruling
is being changed in part and is continued
without change in part and it is desired to
restate the valid portion of the previous-
ly published ruling in a new ruling that is
self contained. In this case, the previously
published ruling is first modified and then,
as modified, is superseded.
Supplemented is used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and that
list is expanded by adding further names
in subsequent rulings. After the original
ruling has been supplemented several
times, a new ruling may be published that
includes the list in the original ruling and
the additions, and supersedes all prior rul-
ings in the series.
Suspended is used in rare situations to
show that the previous published rulings
will not be applied pending some future
action such as the issuance of new or
amended regulations, the outcome of cas-
es in litigation, or the outcome of a Ser-
vice study.
Abbreviations
The following abbreviations in current use
and formerly used will appear in material
published in the Bulletin.
A—Individual.
Acq.—Acquiescence.
B—Individual.
BE—Beneficiary.
BK—Bank.
B.T.A.—Board of Tax Appeals.
C—Individual.
C.B.—Cumulative Bulletin.
CFR—Code of Federal Regulations.
CI
—City.
COOP—Cooperative.
Ct.D.—Court Decision.
CY—County.
D—Decedent.
DC—Dummy Corporation.
DE—Donee.
Del. Order—Delegation Order.
DISC—Domestic International Sales Corporation.
DR—Donor.
E—Estate.
EE—Employee.
E.O.—Executive Order.
ER—Employer.
ERISA—Employee Retirement Income Security Act.
EX—Executor.
F—Fiduciary.
FC—Foreign Country.
FICA—Federal Insurance Contributions Act.
FISC—Foreign International Sales Company.
FPH—Foreign Personal Holding Company.
F.R.—Federal Register.
FUTA—Federal Unemployment Tax Act.
FX—Foreign corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grantee.
GP—General Partner.
GR—Grantor.
IC—Insurance Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited Partner.
LR—Lessor.
M—Minor.
Nonacq.—Nonacquiescence.
O—Organization.
P—Parent Corporation.
PHC—Personal Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Partnership.
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Real Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Rul.—Revenue Ruling.
S—Subsidiary.
S.P.R.—Statement of Procedural Rules.
Stat.—Statutes at Large.
T—Target Corporation.
T.C.—Tax Court.
T.D.—Treasury Decision.
TFE—Transferee.
TFR—Transferor.
T.I.R.—Technical Information Release.
TP—Taxpayer.
TR—Trust.
TT—Trustee.
U.S.C.—United States Code.
X—Corporation.
Y—Corporation.
Z—Corporation.
Bulletin No. 2019–28 i July 8, 2019

Numerical Finding List
1
Bulletin 2019–28
Announcements:
2019-07, 2019-27 I.R.B. 62
Notices:
2019-12, 2019-27 I.R.B. 57
2019-40, 2019-27 I.R.B. 59
2019-41, 2019-28 I.R.B. 256
Proposed Regulations:
REG-105476-18, 2019-27 I.R.B. 63
REG-106282-18, 2019-28 I.R.B. 259
Revenue Rulings:
2019-16, 2019-28 I.R.B. 96
Treasury Decisions:
9863, 2019-27 I.R.B. 1
9864, 2019-27 I.R.B. 6
9865, 2019-27 I.R.B. 27
9867, 2019-28 I.R.B. 98
9868, 2019-28 I.R.B. 252
1
A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2018–27 through 2018–52 is in Internal Revenue Bulletin
2018–52, dated December 27, 2018.
July 8, 2019 ii Bulletin No. 2019–28

Bulletin No. 2019–28 iii July 8, 2019
Finding List of Current Actions on
Previously Published Items
1
Bulletin 2019–28
1
A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2018–27 through 2018–52 is in Internal Revenue Bulletin
2018–52, dated December 27, 2018.

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