How to Avoid PPACA Penalties on Retiree Health Insurance

In our last issue of PPACA Watch newsletter, we brought you information about non-discrimination rules that may soon come into play. The new rules extend legislation that prohibited self-funded plans from discriminating in favor of highly compensated individuals (HCI) to all group plans, including fully insured plans. While the federal tax agency has yet to announce an effective implementation date for these rules, once the measures are in place, non-compliance could lead to serious penalties.

Do your contributions to retiree health insurance vary by class?
Public employers face questions about administering retiree health insurance premiums under non-discrimination rules because contributions often vary by class. After the regulations go into effect, continued non-compliance will result in a fine of $100 per day, per retiree. Boards will most certainly modify benefits to avoid penalties. Administrators and superintendents with higher contributions are in particular risk of losing their retirement benefits.

How can you keep current benefits under PPACA mandates?
Through extensive PPACA research and backed by legal review, National Insurance Services (NIS) has discovered a solution: institute a retiree-only Health Reimbursement Arrangement (HRA). A retiree-only HRA plan can be specifically designed to pay for an employee's medical insurance premiums on a tax-free basis. This type of HRA is exempt from the non-discrimination rules as well as a host of other regulations and mandates, which makes them extremely beneficial for school districts and other governmental employers.

With an HRA plan, instead of paying insurance premiums on behalf of the retiree, employers deposit the dollar equivalent into a tax-free HRA account. Retirees can use funds in the account to pay for the organization's health coverage plan or opt to join another plan.

The Benefits of a Retiree-Only, Premium-Only HRA
In addition to resolving non-discrimination issues, HRAs offer important benefits for public employers and their workers:

• HRAs relieve employers from retiree plan administration.
• By removing retirees from the health insurance plan, HRAs will
  • reduce insurance premiums for active employees.
  • significantly change actuarial assumptions that in turn reduce employers' Government Accounting Standards Board (GASB) other post-employment benefits (OPEB) liabilities.
• The HRA funds can roll over from year to year and aren't forcibly forfeited, allowing retirees to accumulate interest on invested money.
• HRA accounts can be used tax-free for any medical insurance premium and help retirees bridge the gap between retirement and Medicare eligibility.
• Retirees are free to use HRA funds for a variety of medical insurance plans including Health, Dental, Vision, Long-Term Care Insurance, Medicare B, D and Supplements, as well as private exchanges as they become available.

Taking Action
Under current IRS legislation, once the agency determines a start date for PPACA non-discrimination rules, employers will be given a grace period to alter their health insurance offerings accordingly. To avoid incurring costly penalties and reduce pressure from boards, consider setting up your HRA soon.

School districts and other local government employers should contact NIS promptly for further information. We can present at your committee or regional meetings and help you set up a retiree-only HRA.

For a copy of the legal guidance we used as a basis for this article, please contact David Branback at 800.627.3660 or dbranback@nisbenefits.com.