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FAQS ABOUT AFFORDABLE CARE ACT 
IMPLEMENTATION PART 37  
 
 
U.S.  Department of Labor 
Employee Benefits Security Administration 
January 12, 2017  
 
Set out below are additional Frequently Asked Questions (FAQs) regarding implementation of the 
Affordable Care Act.  These FAQs have been prepared jointly by the Departments of Labor (DOL), 
Health and Human Services (HHS), and the Treasury (collectively, the Departments).  Like previously 
issued FAQs (available at www.dol.gov/ebsa/healthreform/index.html and 
www.cms.gov/cciio/resources/fact-sheets-and-faqs/index.html), these FAQs answer questions from 
stakeholders to help people understand the law and benefit from it, as intended.   
 
HEALTH REIMBURSEMENT ARRANGEMENTS 
 
On September 13, 2013, DOL published Technical Release 2013-031 addressing the application of the 
Affordable Care Act market reforms to health reimbursement arrangements (HRAs) and employer 
payment plans (EPPs).2  The Treasury Department and the Internal Revenue Service (IRS) 
contemporaneously published parallel guidance in Notice 2013-54,3 and HHS issued guidance stating 
that it concurred in the application of the laws under its jurisdiction as set forth in the guidance 
issued by DOL, Treasury, and IRS.4  Subsequent guidance reiterated and clarified the application of 
the market reforms to HRAs and EPPs.5   
 
EPPs and HRAs typically consist of an arrangement under which an employer reimburses medical 
expenses (whether in the form of direct payments or reimbursements for premiums or other medical 
costs) up to a certain dollar amount.  As explained in Technical Release 2013-03 and Notice 2013-54, 
                                                 
1  Technical Release 2013-03 is available at http://www.dol.gov/ebsa/newsroom/tr13-03.html. 
2  Section 1001 of the Affordable Care Act added new Public Health Service Act (PHS Act) sections 2711-2719.  Section 
1563 of the Affordable Care Act (as amended by Affordable Care Act section 10107(b)) added Internal Revenue Code 
(Code) section 9815(a) and Employee Retirement Income Security Act (ERISA) section 715(a) to incorporate the 
provisions of part A of title XXVII of the PHS Act into the Code and ERISA, and to make them applicable to group health 
plans and health insurance issuers providing health insurance coverage in connection with group health plans.  The PHS 
Act sections incorporated by these references are sections 2701 through 2728.  Accordingly, these referenced PHS Act 
sections (i.e., the market reforms) are subject to shared interpretive jurisdiction by the Departments. 
3  2013-40 IRB 287.  Notice 2013-54 is available at http://www.irs.gov/pub/irs-drop/n-13-54.pdf. 
4  See 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. 
5  There have been several issuances on the topics addressed in the 2013 guidance: (1) FAQs About Affordable Care Act 
Implementation (Part XI), issued on January 24, 2013 by DOL (http://www.dol.gov/ebsa/faqs/faq-aca11.html) and HHS 
(http://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/aca_implementation_faqs11.html); (2) IRS Notice 2013-54 
and DOL Technical Release 2013-03, issued on September 13, 2013; (3) IRS FAQ on Employer Healthcare Arrangements 
(http://www.irs.gov/Affordable-Care-Act/Employer-Health-Care-Arrangements); (4) FAQs About Affordable Care Act 
Implementation (Part XXII), issued on November 6, 2014 by DOL (http://www.dol.gov/ebsa/faqs/faq-aca22.html) and HHS 
(http://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/Downloads/FAQs-Part-XXII-FINAL.pdf); (5) Notice 2015-17, 
2015-14 IRB 845, issued by Treasury and IRS on February 18, 2015; and (6) Notice 2015-87, 2015-52 IRB 889, Q&A-1 to 
Q&A-6, issued by Treasury and IRS on December 16, 2015.  See also 26 CFR 54.9815-2711(d), 29 CFR 2590.715-2711(d), 
and 45 CFR 147.126(d) (80 FR 72192, Nov. 18, 2015).  2 
 
and except as provided in the 21st Century Cures Act with respect to Qualified Small Employer Health 
Reimbursement Arrangements (QSEHRAs),6 EPPs and HRAs are group health plans that are subject to 
the group market reform provisions of the Affordable Care Act, including the prohibition on annual 
dollar limits under PHS Act section 2711 and the requirement to provide coverage of certain 
preventive services without cost sharing under PHS Act section 2713.  The 2013 guidance generally 
provides that EPPs and HRAs will fail to comply with these group market reform requirements 
because these arrangements, by definition, reimburse or pay medical expenses on the employees 
behalf only up to a certain dollar amount each year; those rules do not apply to QSEHRAs. 
 
INTEGRATION OF HRAS WITH GROUP HEALTH PLANS SPONSORED BY THE EMPLOYER 
OF A SPOUSE OF AN EMPLOYEE 
 
The 2013 guidance provided that an HRA will not fail to meet the group market reform provisions of 
the Affordable Care Act when integrated with a group health plan that otherwise complies with 
those provisions under the integration methods described in that guidance.  On November 18, 2015, 
the Departments issued final regulations implementing PHS Act section 2711, which incorporate the 
general rule set forth in the 2013 guidance clarifying that an HRA or EPP cannot be integrated with 
individual market policies to satisfy the market reforms.7  
 
Specifically, Q&A-4 of Notice 2013-54 and Technical Release 2013-03 provides requirements for 
integrating an HRA with a group health plan.  Under Q&A-4, integration does not require that the HRA 
and the coverage with which it is integrated share the same plan sponsor.  An example in Q&A-4 
illustrates that an HRA for an employee may be integrated with a non-HRA group health plan 
sponsored by the employer of the employees spouse.8   
 
Subsequently, the Treasury Department and the IRS issued Notice 2015-87.  Q&A-4 of Notice 2015-87 
clarifies that an HRA available to reimburse the medical expenses of an employees spouse and/or 
dependents (a family HRA) may not be integrated with self-only coverage under the employers other 
group health plan.  Questions have arisen regarding the application of Q&A-4 of Notice 2015-87 to a 
family HRA in cases in which the employee is enrolled in self-only coverage and the employees 
spouse and dependents are enrolled in a non-HRA group health plan sponsored by the spouses 
employer. 
 
Q1:   MAY A FAMILY HRA BE INTEGRATED WITH A NON-HRA GROUP HEALTH PLAN 
SPONSORED BY THE EMPLOYER OF THE EMPLOYEES SPOUSE THAT COVERS ALL 
OF THE INDIVIDUALS COVERED BY THE FAMILY HRA IF THAT NON-HRA GROUP 
HEALTH PLAN OTHERWISE MEETS THE APPLICABLE INTEGRATION REQUIREMENTS? 
 
Yes.  For purposes of determining whether a family HRA is integrated with a non-HRA group health 
plan, an employer may rely on the reasonable representation of an employee that the employee and 
other individuals covered by the family HRA are also covered by another non-HRA group health plan 
                                                 
6  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. 
7  26 CFR 54.9815-2711(d), 29 CFR 2590.715-2711(d), and 45 CFR 147.126(d); see also 80 FR 72192, Nov. 18, 2015. 
8  This rule is repeated in 26 CFR 54.9815-2711(d)(2), 29 CFR 2590.715-2711(d)(2), and 45 CFR 147.126(d)(2).  3 
 
that otherwise meets the applicable integration requirements (a qualifying non-HRA group health 
plan). 
 
Q2:   MAY A FAMILY HRA BE INTEGRATED WITH A COMBINATION OF (1) SELF-ONLY 
COVERAGE OF THE EMPLOYEE BY A QUALIFYING NON-HRA GROUP HEALTH PLAN 
SPONSORED BY THE EMPLOYER AND (2) QUALIFYING NON-HRA GROUP HEALTH 
PLAN COVERAGE SPONSORED BY THE EMPLOYER OF THE EMPLOYEES SPOUSE 
THAT COVERS ALL MEMBERS OF THE FAMILY COVERED BY THE FAMILY HRA 
(OTHER THAN THE EMPLOYEE)? 
 
Yes.  A family HRA is permitted to be integrated with a combination of coverage under other 
qualifying non-HRA group health plans for purposes of the group market reforms, provided that all of 
the individuals who are covered under the family HRA are also covered under other qualifying non-
HRA group health plan coverage.  The integration rules do not require that the HRA and the non-HRA 
group health plan with which it is integrated share the same plan sponsor, or that all of the 
individuals are covered under the same non-HRA group health plan, provided that all of the 
individuals covered by the HRA are also enrolled in other qualifying non-HRA group health plan 
coverage.  For example, a family HRA covering an employee, spouse, and one dependent child may be 
integrated with the combination of (1) the employees self-only coverage under the non-HRA group 
health plan of the employees employer, and (2) the spouse and dependent childs coverage under the 
non-HRA group health plan of the spouses employer, provided that both non-HRA group health plans 
are qualifying non-HRA group health plans. 
 
CODE SECTION 162(M)(6) 
 
Code section 162(m)(6)(A), as added by the Affordable Care Act, generally imposes an annual $500,000 
limitation on an employers federal income tax deduction for applicable individual remuneration for 
any disqualified taxable year.  Code section 162(m)(6)(B) defines a disqualified taxable year, with 
respect to any employer, as any taxable year for which the employer is a covered health insurance 
provider.  Code section 162(m)(6)(C)(1) provides that the term covered health insurance provider 
means, with respect to taxable years beginning after December 31, 2012, any employer which is a 
health insurance issuer (as defined in Code section 9832(b)(2)) and with respect to which not less than 
25 percent of the gross premiums received from providing health insurance coverage (as defined in 
Code section 9832(b)(1)) is from minimum essential coverage (as defined in Code section 5000A(f)).9 
 
As discussed in further detail below, questions have arisen whether certain clinical risk-bearing 
entities are covered health insurance providers for purposes of Code section 162(m)(6) (and thus 
subject to the deduction limitations for payments of certain remuneration), which requires 
determining whether these entities are health insurance issuers that receive premiums from providing 
health insurance coverage that is minimum essential coverage.   
 
Code section 9832(b)(2) (the definition of health insurance issuer) and Code section 9832(b)(1) (the 
definition of health insurance coverage) were added to the Code by the Health Insurance Portability 
and Accountability Act of 1996 (HIPAA), which simultaneously added parallel provisions at ERISA 
                                                 
9  Code section 162(m)(6)(C)(ii) further provides for aggregation rules, stating that two or more persons who are treated as 
a single employer under Code section 414(b), (c), (m), or (o) shall be treated as a single employer, except that in applying 
Code section 414(b) and (c), Code section 1563(a)(2) and (3) are disregarded.  4 
 
section 733(b) and PHS Act section 2791(b).  Under Code section 9832(b)(2), ERISA section 733(b)(2), 
and PHS Act section 2791(b)(2), the term health insurance issuer means an insurance company, 
insurance service, or insurance organization (including a health maintenance organization, as defined 
in Code section 9832(b)(3), ERISA section 733(b)(3), and PHS Act section 2791(b)(3)), which is licensed 
to engage in the business of insurance in a State and which is subject to State law which regulates 
insurance (within the meaning of ERISA section 514(b)(2), as in effect on August 21, 1996), but the 
definition explicitly excludes a group health plan.  In relevant part, Code section 9832(b)(1)(A), ERISA 
section 733(b)(1), and PHS Act section 2791(b)(1) provide that the term health insurance 
coverage means benefits consisting of medical care (provided directly, through insurance or 
reimbursement, or otherwise) under any hospital or medical service policy or certificate, hospital or 
medical service plan contract, or health maintenance organization contract offered by a health 
insurance issuer. 
 
APPLICATION OF CODE SECTION 162(M)(6) TO CERTAIN CLINICAL RISK-BEARING 
ENTITIES 
 
Since the regulations under Code section 162(m)(6) were issued, questions have arisen with respect to 
the application of Code section 162(m)(6) to entities that contract with the Centers for Medicare & 
Medicaid Services (CMS) to provide coverage as a clinical risk-bearing entity that is a licensed health 
insurer under State law in one or more of the following capacities:  (1) as a Medicaid Managed Care 
Organization (MCO), within the meaning of Social Security Act (SSA) section 1903(m);10 (2) as a 
Medicare Advantage organization governed by SSA sections 1851-185911 and approved by CMS under 
the rules set forth at 42 CFR 422.503; or (3) as a Medicare Part D prescription drug plan.12  These 
entities have asked for further clarification regarding whether they are providing health insurance 
coverage for purposes of Code section 162(m)(6) (and thus may be subject to the deduction 
limitations).   
 
The final regulations do not address whether, for purposes of Code section 162(m)(6), a covered 
health insurance provider includes a clinical risk-bearing entity that is a licensed health insurer under 
State law providing services under certain types of arrangements as part of the Medicare and 
Medicaid programs.  Section II.B of the preamble to the final regulations acknowledges that a person 
cannot be a covered health insurance provider unless it is a health insurance issuer that receives 
premiums from providing health insurance coverage, but the preamble explains that the definitions of 
the terms health insurance issuer and health insurance coverage have significant importance in 
many sections of the Code, ERISA, and the PHS Act, and that it would be inappropriate to provide 
broad guidance interpreting those terms in the regulations under Code section 162(m)(6), because 
that would require full consideration of the possible effects of that guidance on other statutory 
provisions.13  The preamble notes that future guidance may be provided on the meaning of those 
terms, including for purposes of the application of Code section 162(m)(6).   
 
                                                 
10  42 U.S.C. 1396b(m). 
11  42 U.S.C. 1395w-21 - 1395w-28. 
12 See section II.B. of the preamble to the section 162(m)(6) regulations, 79 FR 56892, 56895 (September 23, 2014).   
13  79 FR 56892, 56895.    5 
 
MLR GUIDANCE PROVIDED IN CCIIO TECHNICAL GUIDANCE 2012-002 
 
In 2012, CMS issued CCIIO Technical Guidance 2012-002 addressing whether insurance coverage 
provided under the Medicaid and Medicare programs is subject to the medical loss ratio (MLR) rules, 
added to Title XXVII of the PHS Act at section 2718, which require a health insurance issuer to issue a 
rebate to enrollees if the issuers MLR is less than the applicable percentage.14  Q&A-24 addresses 
application of the MLR rules to benefits provided through an MCO contract with a State Medicaid 
agency.  In the answer to Q&A-24, CMS concludes that because such coverage is governed by Title 
XIX of the SSA and underlying regulations and not by otherwise applicable State insurance law, 
issuers of the Medicaid coverage are offering neither group nor individual health insurance coverage 
and therefore are not subject to the MLR rules with respect to that coverage.  CMS further notes that 
Congress recognized that PHS Act Title XXVII does not apply to MCO contracts when it enacted SSA 
section 1932(b)(8), which makes some, but not all, Title XXVII requirements applicable to MCO 
contracts.15 
 
Similarly, Q&A-25 of CCIIO Technical Guidance 2012-002 addresses the application of the MLR rules 
to Medicare benefits provided by contract with CMS, such as Medicare Advantage plans (Medicare 
Part C) and Medicare prescription drug plans (Medicare Part D).  CMS concludes that this coverage 
also is not group health insurance coverage as defined under PHS Act section 2791(b)(4) (because the 
coverage is primarily provided under a contract with the Medicare program) or individual health 
insurance coverage as defined under PHS Act section 2791(b)(5) (because the coverage is not offered 
to individuals in the individual market); rather, this coverage is subject to a comprehensive regulatory 
scheme under Parts C and D of Title XVIII of the SSA and regulations at 42 CFR Parts 422 and 423.  In 
addition, CMS again notes that Congress recognized the inapplicability of PHS Act section 2718 to 
Medicare Advantage plans by adding separate and distinct MLR requirements to the Part C statute. 
 
COORDINATED AND CONSISTENT INTERPRETATION OF HEALTH INSURANCE 
COVERAGE 
 
Section 104 of HIPAA requires the Departments to interpret consistently the provisions shared by the 
Departments, including the definitions of health insurance coverage as used in the Code, ERISA, and 
the PHS Act.  These FAQs have been prepared jointly by the Departments and are intended to provide 
a consistent interpretation and application of the term health insurance coverage to the specific 
arrangements identified in the following questions. 
                                                 
14  CCIIO Technical Guidance (CCIIO 2012-002): Questions and Answers Regarding the Medical Loss Ratio Regulation (April 
20, 2012), available at https://www.cms.gov/CCIIO/Resources/Files/Downloads/mlr-qna-04202012.pdf. 
15  SSA section 1932(b)(8) reflects an amendment made by the Budget Act of 1997.  The amendment applied certain 
maternity and mental health parity requirements to MCOs.  On November 13, 2013, the Departments finalized rules 
implementing the Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008 (MHPAEA), 
which imposes mental health and substance use disorder parity rules on health insurance issuers providing health 
insurance coverage and group health plans.  78 FR 68240.  MHPAEA is codified in section 712 of ERISA, section 2726 of 
the PHS Act, and Code section 9812.  In the preamble to the final MHPAEA rules, the Departments note that the final 
rule does not apply to MCOs although those entities are separately subject to mental health and substance use disorder 
parity requirements that are incorporated by reference into statutory provisions that do apply to those entities.  78 FR 
68240, 68252.  On March 30, 2016, CMS separately finalized a rule implementing the mental health and substance use 
disorder parity provisions applicable to MCOs under SSA section 1932(b)(8).  81 FR 18390.  6 
 
Q3:   DOES A CLINICAL RISK-BEARING ENTITY THAT IS A LICENSED HEALTH INSURER 
UNDER STATE LAW PROVIDE HEALTH INSURANCE COVERAGE WITHIN THE MEANING 
OF CODE SECTION 9832(B)(1), ERISA SECTION 733(B)(1), AND PHS ACT 
SECTION 2791(B)(1) WITH RESPECT TO ITS PROVISION OF MEDICAID COVERAGE 
TO MEDICAID RECIPIENTS AS AN MCO UNDER CONTRACT WITH A STATE AGENCY? 
 
No.  Notwithstanding that a clinical risk-bearing entity is a licensed health insurer under State law, the 
provision of Medicaid coverage to Medicaid recipients as an MCO is not the provision of health 
insurance coverage within the meaning of Code section 9832(b)(1), ERISA section 733(b)(1), and PHS 
Act section 2791(b)(1), because the coverage is governed by SSA Title XIX and underlying regulations 
and not by otherwise applicable State insurance law.16 
 
Q4:   DOES A CLINICAL RISK-BEARING ENTITY THAT IS A LICENSED HEALTH INSURER 
UNDER STATE LAW PROVIDE HEALTH INSURANCE COVERAGE WITHIN THE MEANING 
OF CODE SECTION 9832(B)(1), ERISA SECTION 733(B)(1), AND PHS ACT 
SECTION 2791(B)(1) WITH RESPECT TO ITS PROVISION OF COVERAGE UNDER A 
MEDICARE ADVANTAGE ORGANIZATION OR PLAN OR A MEDICARE PRESCRIPTION 
DRUG PLAN? 
 
No.  Notwithstanding that a clinical risk-bearing entity is a licensed health insurer under State law, the 
provision of coverage under a Medicare Advantage organization or plan or a Medicare prescription 
drug plan is not the provision of health insurance coverage within the meaning of Code section 
9832(b)(1), ERISA section 733(b)(1), and PHS Act section 2791(b)(1), because the coverage provided by 
such an entity is governed by Parts C and D of SSA Title XVIII and regulations at 42 CFR Parts 422 and 
423, rather than otherwise applicable State insurance law.  This FAQ does not address the ERISA 
status of, or any obligations under ERISA with respect to, any such arrangement. 
 
 
                                                 
16  The same conclusion regarding treatment under Code section 9832(b)(1), ERISA section 733(b)(1), and PHS Act section 
2791(b)(1) applies to Prepaid Ambulatory Health Plans and Prepaid Inpatient Health Plans provided to Medicaid and 
Childrens Health Insurance Program enrollees governed by 42 CFR Part 438.