ACA Impact on HRAs for Rehired Employees

The ever-changing nature of Health Care reform has left many employers with more questions than answers. One of the most significant questions facing our clients today is how their rehired retirees will be affected by the new rules. Rehired retirees offer substantial value for many hard to fill positions, such as substitute teachers and other variable and flexible hour positions.  These same retirees often rely on their Health Reimbursement Arrangement (HRA) to fund their medical premiums in retirement.  However, such HRAs are typically designed to be for retirees only - and the question then arises as to whether rehired retirees can receive benefits from the HRA. Absent clear guidance, many in the marketplace have been very conservative in their approach, maintaining that even one day of returning to work in any capacity would either jeopardize a participant’s ability to access their HRA account, or, alternatively, subject the entire arrangement to ACA rules that the HRA could not satisfy.

MidAmerica has requested guidance from our outside legal counsel as to the most appropriate approach to complying with the retiree HRA rules given their current uncertainty. They believe that the better view is that rehiring an employee in a limited position that would not otherwise be eligible for the employer’s benefits should not harm the “retiree only” status of the HRA.

During our outside counsel’s research, they had informal discussions with various governmental agencies to obtain their views. A knowledgeable representative in the national office of at least one agency agreed that the aforementioned approach - that the retiree plan status of the HRA should not be jeopardized where a substitute teacher or other temporary type worker was rehired, so long as the rehired retiree wasn't working at a level where they would otherwise be eligible for benefits – is a reasonable, good faith interpretation of the law.

Of course, such informal discussions cannot be relied on, but to further support this position by analogy, the Center for Medicaid & Medicare Support Services (CMS) has in the past addressed reemployed retirees in the context of the Medicare Secondary Payer (MSP) rules.  While not precisely the same, under the MSP rules, if the services performed by the rehired retiree are sufficient to qualify that individual for benefits as an employee, they would be considered active employees and not retirees for purposes of these Medicare rules. Conversely, if the services performed would not otherwise qualify the rehired retiree for health benefits, CMS continues to consider the rehired retiree as retired. (See 42 CFR 411.172(d)).

As a result, until further guidance is issued, and based on current guidance from our outside counsel, MidAmerica is supportive of an employer taking the position that, so long as the retiree doesn't come back to work at a level where he or she would otherwise qualify for health benefits, the rehired employee can continue to be considered a retiree and be able to access their HRA. However, as with many issues under the ACA, it is not possible to be certain until more guidance is issued.  We will continue to monitor legislative and regulatory developments with the ACA. Should the DOL, IRS or any other governmental agency issue further guidance contrary to our counsel's current view, we reserve the right to change our course of action and make appropriate recommendations for plan design modifications in the future.

This letter is provided solely for your general information. MidAmerica does not provide tax or legal advice. Employers should consult with their own legal counsel as to any course of action they wish to take based on their own facts and circumstances. In addition, this letter is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer.