10 S 5th St, Suite 645, Minneapolis, MN 55402 p 612-367-8100 f 612-367-8259 www.gobloomhealth.com

August 27, 2010

Submitted through the Federal eRulemaking Portal:

https://www.regulations.gov

Office of Health Plan Standards and Compliance Assistance

Employee Benefits Security Administration, Room N-5653

U.S. Department of Labor

200 Constitution Ave, NW

Washington, DC 202103

Attention: RIN 1210-AB43

Ladies and Gentlemen:

Bloom Health is pleased to submit these comments on the interim final

regulations implementing the rules for group health plans and health

insurance coverage in the group and individual markets under provisions of

the Patient Protection and Affordable Care Act (PPACA) regarding

preexisting condition exclusions, lifetime and annual dollar limits on benefits,

rescissions, and patient protections. The interim final regulations (IFRs) were

published by the Departments of Labor, Health and Human Services, and the

Treasury (collectively, the Departments) in the Federal Register on June 28,

2010. Our comments will specifically address the Public Health Service (PHS)

Act section 2711 regarding lifetime and annual dollar limits on benefits in

regards to stand-alone Health Reimbursement Accounts (HRAs) that are not

retiree-only plans.

1. Bloom Health’s Interest in the Interim Final Regulations

Bloom Health Corporation provides online and phone decision support

systems to assist individuals and employers with complex decisions

regarding health care coverage options. It also administers or facilitates

consumer-driven health care accounts and services, including HRAs, health

savings accounts (HSAs), cafeteria plans, and wellness programs. Bloom

Health believes that HRAs are an extremely valuable form of employee

benefit that will play an important role in the implementation and success of

health care reform. While Bloom Health applauds the efforts of the

Departments in fulfilling the enormous and complex tasks set before them by

Congress in the PPACA, it urges them to avoid interpretations that impose

unnecessary limitations on access to health care. HRAs play a vital role in

ensuring that millions of American workers can meet out-of-pocket expenses

for health care and will continue to seek care when necessary.
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2. Health Care Reform and HRAs

Like all forms and methods of health care financing, HRAs were scrutinized in

the negotiations and discussions surrounding health care reform. Congress

addressed similar forms of employee benefits, imposing new tax penalties on

nonqualified distributions from Health Savings Accounts, and limiting the

amount that may be set aside to health flexible spending arrangements that

are part of cafeteria plans to $2,500.1 Congress adjusted HRAs slightly by

limiting their ability to reimburse non-prescription drugs, but nothing in the

PPACA or any portion of the public record suggests that HRAs were to be

eliminated or significantly curtailed.2 By leaving HRAs largely untouched,

Bloom Health believes that Congress intended to ensure that HRAs will remain

available to help individuals pay for out-of-pocket medical expenses in the

post-reform environment.

Notwithstanding the limited treatment of HRAs by Congress in the PPACA, the

Departments requested comments in the IFR as to whether the PPACA

prohibits freestanding HRAs altogether. The question was raised in

connection with Section 2711 of the PHS Act, as added by the PPACA, which

generally prohibits group health plans and health insurance issuers offering

group or individual health insurance coverage from imposing lifetime or

annual limits on the dollar value of health benefits. The Departments note that

an HRA would not violate the prohibition on annual or lifetime limits if it was

combined with a group health plan without such limits. The Departments

further indicated that retiree-only HRAs are generally not subject to the rules

in PHS Act section 2711 relating to annual limits.

Implicit in this analysis, however, and in their request for comments, appears

to be an assumption by Departments that the account balance of an HRA is the

equivalent of an annual or lifetime limitation on a group health plan. It is not.

HRAs are defined contribution health plans. The balance of an individual’s

account in an HRA is not a lifetime or annual limitation. Each individual

account may vary within an HRA to reflect different levels of employer

contributions (subject to nondiscrimination rules), utilization (including

decisions by individuals preserve their HRA balances for retirement), and

investment returns (for funded HRAs).

Annual and lifetime limitations serve a different purpose for a different kind of

health plan. They have been used by traditional group health plans (i.e.,

defined benefit plans), to limit liability for unforeseen high claims. As a result,

there have been many circumstances where individuals lost coverage when

they needed it. The “Fact Sheet” published with the IFRs on June 22, 2010,

1

 PPACA §§ 9004 and 9005.

2

 PPACA § 9003(c).
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provides examples of the problems created by annual and lifetime limitations

and the intent of Congress in prohibiting them under the PPACA:

• No Lifetime Limits on Coverage. Millions of Americans who

suffer from costly medical conditions are in danger of having their

health insurance coverage vanish when the costs of their treatment

hit lifetime limits set by their insurers and plans. These limits can

cause the loss of coverage at the very moment when patients need

it most. Over 100 million Americans have health coverage that

imposes such lifetime limits.

o A teenager was diagnosed with an aggressive form of

leukemia requiring chemotherapy and a stay in the

intensive care unit. He reached his family’s plan’s $1

million lifetime limit in less than a year. His parents had to

turn to the public for help when the hospital informed them

it needed either $600,000 in certified insurance or a

$500,000 deposit to perform the bone marrow transplant

he needed.

The concern of Congress was that annual and lifetime limits frustrated the

purpose of traditional health insurance. The objective of the legislation was to

correct this problem. But there is no such confusion or concern about HRAs.

Participants fully understand that they are given a certain amount of funds by

their employer to use for the reimbursement of health care expenses. When

the HRA is depleted, it has fulfilled its purpose, and the understanding of the

employer and employee are perfectly in sync.

3. The Importance of Preserving HRAs

In July 2010 the Government Accounting Office (GAO) released an in-depth

analysis of HRAs, which includes a literature review of 31 other studies and the

experience of two large employers, one public and one private, that adopted

HRA programs in 2003.3 As with the vast majority of similar studies, it

concluded as follows:

3

 U.S. General Accounting Office. Consumer Directed Health Plans: Health Status, Spending, and Utilization of Enrollees

in Plans Based on Health Reimbursement Arrangements, GAO-10-616 (July 2006).
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Spending and utilization for enrollees in HRAs generally increased by a

smaller amount or decreased compared with those in traditional plans

that GAO reviewed.4

It is clear from this and other studies that HRAs combined with high

deductible health plans have a significant impact on slowing the cost curve for

health care inflation, one of the key goals of health care reform. In the

preamble to the IFR, the Departments seem to create some breathing room for

HRAs used in this manner, noting that,

When HRAs are integrated with other coverage as part of a group

health plan and the other coverage alone would comply with the

requirements of PHS Act section 2711, the fact that benefits under the

HRA by itself are limited does not violate PHS Act section 2711 because

the combined benefit satisfies the requirements.

But HRAs may also be established and maintained for the benefit of

employees who choose to purchase high deductible health plans on the

individual market. While this may not be commonplace at the present time, a

recent analysis by the Chief Actuary of the Centers for Medicare and

Medicaid Services (CMS) indicates that by 2019, 14 million Americans will

lose employer-based health insurance coverage due to the relatively high

values of subsidies for individuals on the exchange and the relatively low

penalties to employers that choose to drop coverage.5 If these employers

provide HRAs for their employees, the same dynamics that generate cost

savings through reduced utilization of employer-sponsored group health

plans will apply on the exchanges.

Employees with access to HRA accounts who purchase individual policies on

the exchanges will be more likely to select lower cost options such as high

deductible plans under the “Bronze” coverage category. This will reduce the

cost of premium subsidies to the federal government.6

4

Id. The study also notes that individuals who enroll in HRAs tend to be younger and healthier, but that does not

explain all of the findings:

For the public and private employers we reviewed, health care spending and utilization of health care

services for the HRA groups generally increased by a smaller amount or decreased compared with the PPO

groups, from the period before to the period after switching. Additionally, the majority of the studies we

reviewed that examined total or medical spending and controlled for differences in health status or other

characteristics of enrollees reported lower spending among enrollees in HRAs and other CDHPs relative to

traditional plans.

5

 Richard Foster, Department of Health and Human Services, Estimated Financial Effects of the “Patient Protection and

Affordable Care Act,” as amended (April 22, 2010) (the “Chief Actuary’s Study”).

6

 If and to the extent that the Departments’ proposed interpretation of the application of PHS Act section 2711 to HRAs

is influenced by revenue considerations, it should also take into account the Chief Actuary’s Study, supra, which

indicates that most of the loss in employer-provided coverage under the PPACA will occur among small employers

with low average salaries. Permitting freestanding HRAs for this population will not result in significant forgone tax

revenues, but will generate savings to the government as members use their accounts to assume greater risks,

resulting in lower subsidies.
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Regardless of where Americans purchase their insurance, the need for

resources to “fill in the gaps” has never been more apparent. The following

table7 below outlines average deductible and copayment amounts

nationwide:

Average Annual Deductible

HMO $699

PPO $634

POS $1,061

HDHP $1,838

Average Copay for In-Network

PCP Office Visit

HMO $18

PPO $21

POS $21

HDHP $22

The following table7 displays the high percentages of working Americans who

are subject to out of pocket expenses today:

Percentage of Covered

Workers Subject to an Annual

Deductible

HMO 16%

PPO 74%

POS 62%

Percentage of Covered

Workers Subject to a Copay for

a Physician Office Visit

HMO 94%

PPO 77%

POS 89%

These percentages are unlikely to significantly change as the PPACA

continues to be implemented. Whether offered in connection with employersponsored coverage or on a stand-alone basis, HRAs for non-retired

employees can be an extremely valuable tool for employers to use to help

protect their employees, specifically low income employees, from forgoing

medical care due to out-of-pocket expenses. 8

7

 Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 2009

8

 The Chief Actuary’s Study estimates that the out-of-pocket maximum for a family of four in a qualified plan sold on

the exchange will be $13,290 in 2014. Cost sharing subsidies are available depending on income, and a family with

income between 200 to 300% of the federal poverty level would be eligible for a reduction of 2/3rds of this amount.

PPACA §1402(c). But this still leaves potential out-of-pocket costs for that same family in the amount of $4,430. The

preservation and promotion of freestanding HRAs among employers that terminate their group health plans will have

a significant impact on helping Americans pay these costs and seek medical care when needed.
10 S 5th St, Suite 645, Minneapolis, MN 55402 p 612-367-8100 f 612-367-8259 www.gobloomhealth.com

Although other programs are available to help individuals pay for medical

expenses, HRAs provide a unique combination of features that make them

especially well-suited for this task. First, HRAs can only be funded with

employer dollars, which ensures that the benefit is available (few low income

employees will take advantage of salary reduction). Second, HRAs may only

reimburse substantiated medical expenses, which ensures that the funds are

not used for other purposes. Third, HRAs are subject to nondiscrimination

rules that promote uniform contributions among all wage classes of

employees.

Whether offered alongside other group health plans, on a freestanding basis,

or to retirees, HRAs help employees pay for health care they might otherwise

avoid or delay. This in turn helps bend the cost curve by encouraging early

treatment of conditions that may otherwise transform into serious illness or

chronic diseases. The preservation of HRAs, including freestanding HRAs,

will also help reduce the burden on the federal government as small

employers terminate their group health plans and employees enroll in the

exchanges. By maintaining a simple vehicle for small employers to contribute

to the cost of health care, the Departments will promote the goals of health

care reform and reduce the cost to the federal government.

4. A Better Interpretation Section 2711 of the PHS Act

Section 2711 of the PHS Act can and should be interpreted to prohibit lifetime

or annual limits on HRAs in a practical manner consistent with the definition of

an HRA. Consider the following examples:

Example 1. Employer A offers an HRA to its employees and contributes

$500 per year to their accounts, subject to an annual limit on

reimbursements of $1,000. After four years without incurring medical

expenses, Employee X has accumulated $2,000 in his account. At the

end of the fourth year, Employee X is hospitalized and incurs $2,000 in

out-of-pocket medical expenses. Although he has accrued $2,000 in his

account, the HRA imposes an annual limit on reimbursements of $1,000.

The $1,000 limit violates Section 2711 of the PHS Act.

Example 2. Employer B offers an HRA to its employees and contributes

$500 per year to their accounts, subject to a lifetime limitation on

reimbursements of $2,000. Employee Y has routine uninsured medical

expenses and spends down the Employer B’s HRA contribution each

year. At the end of the fourth year, Employer B informs Employee Y

that she has met the lifetime limitation under the HRA and is not longer

eligible for coverage. The lifetime limit violates Section 2711 of the PHS

Act.
10 S 5th St, Suite 645, Minneapolis, MN 55402 p 612-367-8100 f 612-367-8259 www.gobloomhealth.com

Example 3. Employer C offers an HRA to its employees and contributes

$500 per year to their accounts. Employer C does not adopt a policy

regarding annual or lifetime limitations for its HRA. The mere fact that

an employee could spend down his or her account in the HRA to zero in

a given year does not mean that the HRA violates the prohibition on

annual or lifetime limits under Section 2711 of the PHS Act.

5. Unintended Consequences of Prohibiting Stand-Alone HRAs

Numerous employers throughout the country have chosen to fully vest their

employees in their HRA balances. This is especially common among public

employers, many of which offer funded HRAs through irrevocable trusts in

arrangements that also permit employees to direct the investment of their

accounts. While HRAs offered in these programs are typically provided

alongside high deductible health plans, dwindling public resources and

subsidies available on the exchanges may cause many smaller public

employers to terminate their group health plans. This will leave employers

and employees “stranded” in funded, fully-vested, stand-alone HRAs.

Even where HRAs are not funded, many employers have made promises to

“vest” employees in their unfunded account balances. Other employers may

be uncomfortable requiring that employees forfeit unused balances that they

have accumulated over time. IRS rules prohibit offering cash or other benefits

in lieu of amounts accumulated in an HRA.9 If the Departments adopt the

unusual interpretation they suggest in the IFR, they will need to offer

grandfathered protection to current and future HRAs that are established in

connection with an employer’s group health plan. Ultimately, this exception

will swallow the rule.

9

 Notice 2002-45 (“If any person has such a right under an arrangement currently or for any future year, all

distributions to all persons made from the arrangement in the current tax year are included in gross income, even

amounts paid to reimburse medical care expenses.”)
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Conclusion

HRAs are defined contribution health plans. Most major medical plans are

defined benefit arrangements. When Congress eliminated annual and

lifetime limitations for group health plans, they were clearly addressing the

latter form of arrangement. Section 2711 of the PHS Act can be interpreted in

manner that is both consistent with the intent of Congress and does not

eliminate a common health care benefit that is modest in scope and primarily

benefits low wage employees. Bloom Health urges the Departments to

consider the needs of ordinary Americans in paying medical care expenses

that are not otherwise insured or subsidized, and in preserving all means by

which employers may continue in their traditional role of assisting employees

with the cost of health care.

Bloom Health Corporation appreciates the opportunity to provide comments

on the interim final regulations. If the Departments have any questions, or if

we can be of any further assistance, please let us know.

Sincerely,

Abir Sen

CEO, Bloom Health Corporation