Prompted by a letter from State Senator Charles Perry, R-Lubbock, Texas Attorney General Ken Paxton issued an advisory opinion asserting that a court would 'likely determine' that ERISA preempts certain state regulations pertaining to health reimbursement arrangements. Specifically, on August 8, 2017, Senator Perry wrote to Attorney General Paxton "requesting clarification on whether the Texas Department of Insurance (TDI) regulations from 2006 on Health Reimbursement Arrangement[s] (HRA) are preempted by recent federal law enacted in 2016."
The Texas regulation in question is Commissioner's Bulletin #b-0028-06 issued August 1, 2006, which remains Texas' authority on HRA practices. It effectively prohibits employers from reimbursing the premiums of individually owned health benefit plans of their employees and requires individual plans to include certain benefits usually only required in group health plans. The practical effect of the regulation invalidates the use of HRAs.
In 2016, the U.S. Congress passed the 21st Century Cures Act, which amended, among other laws, the Internal Revenue Code and the Patient Protection and Affordable Care Act (PPACA) to exempt qualified small employer HRAs from requirements imposed under group health plans. Importantly, a large employer is defined as "with respect to a calendar year, an employer who employed an average of at least 50 full-time employees on business days during the preceding calendar year." 26 U.S.C § 4980(H)(c)(2). The Act provides that HRAs meeting certain requirements should not be considered group health plans and thus are exempt from the requirements that apply to them, including coverage and cost sharing requirements.
Based on Texas Attorney General Paxton's assessment, small employer HRAs, as a private self-funded plan, are "not subject to state insurance regulation in light of the 2016 Congressional changes." Because the 21st Century Cures Act provides that specific types of health reimbursement arrangements offered by qualified small employers cannot considered a group health plan, they do not need to comply with regulatory requirements for group health plans. Importantly, the Act does not preempt Texas regulation of large employer health benefit plans.
Small Texas employers may now consider HRAs as a viable option to pay or reimburse eligible healthcare expenses. While Attorney General Paxton's advisory opinion is not the same as a judicial decree, it strongly suggests Texas' de facto prohibition of HRAs has ended.
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