On June 13, 2019, US Departments of Labor, Treasury, and Health and Human Services issued a “final rule”, which was actually a collection of rules and other changes, with regards to Health Reimbursement Arrangements (HRAs).
HRAs are employer-funded accounts that can be used for qualified medical expenses. There are several kinds of HRAs, each with their own rules regarding contribution limits and which medical and health insurance-related expenses they can be used for. The “final rule” issued on June 13th created two new kinds of HRAs: the Individual Coverage HRA (ICHRA) and the Excepted Benefit HRA (EBHRA), and it made some small changes regarding Qualified Small Employer HRAs (QSEHRAs).
Individual Coverage HRAs (ICHRAs)
Starting Jan 1, 2020 employers of any size, who don’t offer a group health insurance plan, can choose to fund an ICHRA for employees so those employees can use the money to purchase an individual health insurance plan in the marketplace. Here’s what you need to know about these new HRAs:
- There’s no cap on employer contributions.
- The contributions are pretax and can be used to pay all or a portion of the health insurance coverage.
- The new rules allow employers to create classes of employees: ex. Salaried vs. Hourly, and allow employers to offer an ICHRA to one class and group health insurance to another. But every employee in the same class must be offered the same health insurance option funded at the same level. The two exceptions are for older workers and those with dependents. An employer may increase the ICHRA amount for these workers in order to cover the cost of their health insurance. Here are the rules regarding employee classes:
- For employers with fewer than 100 employees: a class must be at least 10 people.
- For employers with 100-200 employees: a class must be 10% of employees.
- For employers with 201+ employees: a class must be at least 20 employees.
- The size of the employee classification is determined on the first day of the ICHRA plan year.
- Employers can also maintain group health coverage for existing employees and start offering an ICHRA to new employees.
- Under certain circumstances, ICHRA money can be used to reimburse for Medicare or Medigap premiums.
- If an employee buys health insurance outside the ACA marketplace and the ICHRA doesn’t have enough to cover the cost of the premium, the employer can allow the employee to pay the balance out of the company cafeteria plan. However, employees can’t take a salary reduction in order to purchase ACA marketplace health insurance through their cafeteria plan.
Something to note: the ACA still requires employers with more than 50 employees to offer ACA-compliant group health plans.
Excepted Benefit HRAs (EBHRAs)
Starting January 1, 2020, an employer can fund an EBHRA to enable its employees to pay for premiums for dental and vision coverage, COBRA continuation coverage, short-term limited-duration insurance (in some circumstances) or other ACA-exempt coverage. Here’s what you need to know about these new HRAs:
- An employer offering EBHRAs must also offer other employer-sponsored group health insurance coverage. But the employee can take advantage of the EBHRA without participating in that group health coverage.
- Contributions are capped at $1800 (indexed to inflation after 2020).
- EBHRAs can be used in conjunction with a Limited Scope HRA, which has no cap on employer contributions but can only be used for a smaller subset of reimbursements.
The “final rule” also clarifies that a QSEHRA won’t become part of an Employment Retirement Income Security Act (ERISA) plan as long as the employer doesn’t endorse a specific health insurance plan. It also creates a special enrollment period in the ACA marketplace for those who gain access to an ICHRA or QSEHRA outside of the normal enrollment period so that those individuals can go buy health insurance.
Whether you’re an employer looking for more flexibility in terms of the health benefits you offer your employees, or you’re an employee wanting financial help in purchasing health insurance, an HRA could be the right solution.
Disclaimer: the content presented in this article are for informational purposes only, and is not, and must not be considered tax, investment, legal, accounting or financial planning advice, nor a recommendation as to a specific course of action. Investors should consult all available information, including fund prospectuses, and consult with appropriate tax, investment, accounting, legal, and accounting professionals, as appropriate, before making any investment or utilizing any financial planning strategy.