Many colleges and universities provide graduate student employees (e.g., teaching assistants) with a stipend or reimbursement to offset the cost of their medical coverage under a student health plan. Recent guidance from the Departments of Health and Human Services (“HHS”), Labor (“DOL”), and the Treasury (collectively, the “Departments”) will soon make such arrangements problematic.
In 2012, HHS released regulations clarifying that student health insurance is a form of individual market coverage (rather than a group health plan) under the Affordable Care Act (“ACA”). Later, in 2013, the Departments issued guidance that prohibits employers from using a health reimbursement arrangement (an “HRA”) to reimburse employees for individual market coverage. The result? A school that provides a stipend to student employees enrolled in a student health plan is considered to be using an HRA to reimburse individual market coverage, and could be subject to penalties.
Such penalties are severe. This type of HRA would be treated as a group health plan, and thus would be subject to the ACA prohibitions on annual and lifetime limits and on cost-sharing for preventive services, each of which this type of HRA would fail to satisfy. Such a failure could result in a penalty of up to $100 per day per employee.
Fortunately, the Departments recently issued Notice 2016-17 to give colleges and universities some relief from these potential penalties. This guidance states that schools must re-structure their graduate student benefits and indicates that no penalties will apply for plan years beginning prior to January 1, 2017. During this transitional period, schools should change the way that they subsidize healthcare for their graduate student employees. Consideration should be given to allowing graduate student employees to participate in the school’s employee group health plan (under the ACA, an employer may provide a stipend/reimbursement through an HRA that is integrated with an employee group health plan without penalty). Alternatively, the student could be offered a cash bonus that the student could decide, in his or her discretion, to put toward the cost of healthcare.