Beginning on January 1, 2020, employers will be able to take advantage of two new health reimbursement account (HRA) designs. These new plans were recently announced by the White House in a Rose Garden ceremony, and the issuance of the final rules completes the directives in President Trump’s 2017 Presidential Executive Order Promoting Healthcare Choice and Competition. These new HRA designs expand employers’ abilities to use consumer-directed health care accounts to improve the affordability and accessibility of coverage for their employees.
These final regulations will allow employers who do not provide group health plan coverage to offer HRAs to employees to pay premiums for individual marketplace insurance through the exchanges. The regulations also allow employers who provide traditional group health insurance to offer an HRA that has an annual limit of up to $1,800 to reimburse employees for most qualified medical expenses, including standalone dental benefits and premiums for a short-term health insurance plan.
Read on for more details about each plan.
HRA Design #1: The Individual Coverage HRA
The Individual Coverage HRA (“ICHRA”) allows employers to offer Affordable Care Act (ACA)-compliant coverage to employees by funding an HRA for payment of individual market health insurance premiums and other medical expenses. Employers must limit eligibility to those employees who substantiate their enrollment in an individual market plan. Such substantiation is required prior to any reimbursement from the plan. The Internal Revenue Service (IRS) has provided model attestation language in this Fact Sheet (see page 15).
Employers must offer the ICHRA on the same terms to all employees in designated classes and may not offer an ICHRA to a class of employees if they offer traditional group health plans to members of the same class. Employers must provide eligible employees with written notices (see the Fact Sheet for a model of the notice), as well as the option to opt out and waive reimbursements annually.
The regulations provide that employers may allow employees to use pre-tax cafeteria plan contributions to pay any portion of the individual health insurance premium not covered by the ICHRA. Employees and dependents offered ICHRA benefits are ineligible for premium tax credits, as long as the ICHRA coverage is affordable coverage as defined by the ACA.
HRA Design #2: The Excepted Benefit HRA
The Excepted Benefit HRA (“EBHRA”) is a non-integrated HRA, meaning that eligible employees do not need to participate in the group health insurance plan to participate and receive reimbursement under the HRA. Employers offering an EBHRA, however, must offer traditional group health insurance to participants in the EBHRA. Contributions to the EBHRA will be limited to $1,800 per year beginning in 2020, and will be subject to inflation increases in following years. The EBHRA may reimburse all 213(d) medical expenses except for individual health insurance, Medicare, or non-COBRA group health insurance. The EBHRA must be made available on the same terms and conditions to all employees in the same class of employees.
HRA Benefits for Employers
By nature, HRAs are designed to fit the needs of a company, and the new HRA plan designs are another option that employers can use to stretch their health care budget. Employers can choose from different plan types based on what they can afford, as well as their employees’ needs. Whatever dollar amount employers choose to put in their participants’ HRA accounts, that amount is exempted from the employer’s payroll and Social Security taxes. The full fund amount may be available to employees on the first day of the plan year, or on an employer-defined contribution schedule.
Learn more about the flexibility of HRAs by visiting our FAQ site here.