On June 13, 2019, the U.S. Departments of Health and Human Services, Labor and the Treasury issued a final rule allowing employers of all sizes to offer two new kinds of health reimbursement arrangements (HRAs). The two new HRAs include:
individual-coverage HRAs (ICHRA) and
These new HRAs must meet certain conditions and may be offered to employees on or after January 1, 2020. The departments posted FAQs on the new rule that include a Q & A as well as a model notice and language that can be used by employers.
The regulations provide rules and criteria that must be met in order for employers to qualify for these new benefit offerings. Please read more below about the two types of HRAs as well as how Employee Benefits Corporation will be responding to the new HRA options available next year:
Individual-Coverage HRA (ICHRA)
Starting on or after January 1, 2020 employers of all sizes will now be able to offer pre-tax, employer dollars so that employees can purchase individual medical insurance plans (in some cases, paying for Medicare premiums). Previously with the Affordable Care Act (ACA), IRS Notice 2013-54, limitations were put on all group health plans (including HRAs). This meant that individual major medical plans had to meet integration rules and as a result premiums could not be reimbursed pre-tax under employer-sponsored HRAs. In 2016, the 21st Century Cures Act permitted small employers (under 50, who meet certain requirements) to qualify for a QSEHRA (qualified small-employer HRA). The QSEHRA permitted employees that met certain conditions to receive a limited pre-tax reimbursement for their qualified medical expenses including major medical insurance premiums from their employer.
Now, all employers who meet the criteria set forth in the final regulations will be eligible to offer pre-tax employer dollars for their employees to purchase individual insurance coverage.
In order to offer the ICHRA:
- Participants cannot be given a choice between the ICHRA or traditional group health insurance.
- Participants may NOT be eligible for a traditional group health plan.
- Participants must be enrolled in eligible coverage for each month they are receiving reimbursement from the ICHRA.
- Coverage must be in effect on a monthly basis to be reimbursed.
- Coverage can be purchased on or off exchange.
- Coverage cannot be for short-duration policies or excepted benefits.
- Only one ICHRA option can be offered per class of employee. The maximum HRA benefit can only vary within the class by age (variation limits apply) or family size.
- Participants must be given the right to opt-out of the ICHRA at least annually, prior to the start of the year.
- Written notices must be provided to each participant at least 90 days prior to the start of the plan year (some exceptions apply). A model notice has been provided, but is not required.
- An employer cannot “endorse” or “sponsor” an individual plan or carrier.
- Participants covered by an ICHRA are not eligible for premium tax credits (PTC) or advanced premium tax credits (APTC). This differs from QSEHRAs, in which contributions reduce the premium tax credits.
Beneficial features of the ICHRA include:
- There is no limit established on the maximum benefit offered through an ICHRA.
- The ICHRA can reimburse all types of medical care as defined by IRC §213(d).
- Employers can define classes of employees (with minimum class size requirements) who are eligible for a group health plan vs. who are eligible for the ICHRA (this would include allowing all current employees to remain on the group health plan and new employees to elect an ICHRA). Examples of allowable classes include:
- Full-time vs. part-time.
- Classes based on geographic location.
- Seasonal employees.
- Employees in a unit of employees covered by a particular collective bargaining agreement.
- Employees who have not satisfied a maximum 90 day waiting period.
- Salaried vs. hourly workers.
- Special enrollment periods (both on and off the marketplace) will be granted to individuals who gain access to an ICHRA.
- COBRA will apply to this benefit. This benefit can be structured to be health savings account (HSA) compatible.
One outstanding question is whether ICHRAs meet the requirements of the employer mandate. The Departments issued guidance on this in November of 2018 and final guidance on this is expected later this year.
Starting on or after January 1, 2020 employers of all sizes will now be able to offer pre-tax, employer dollars in order for their employees to purchase excepted benefit plans (such as limited-scope dental or vision plans). This plan can be offered to all employees who are eligible for a group health plan, but does not require the employee to be enrolled in the group health plan. Below are some key points regarding this offering:
- Individual health insurance premiums, group health plan coverage (other than continuation coverage) and Medicare Premiums are not eligible for reimbursement.
- The excepted-benefit HRA can reimburse premiums for dental, vision, COBRA coverage and in some cases, short-term health plans.
- The maximum reimbursement for excepted benefits plans is $1,800 per plan year (indexed for inflation after 12/31/2020).
- This benefit can include all IRC § 213(d) expenses.
- This benefit must be offered on the same terms to all similarly situated individuals regardless of health factor.
- This benefit cannot be offered alongside of the ICHRA.
- This benefit can be structured to be health savings account compatible.
Employee Benefits Corporation is an HRA market leader
Employee Benefits Corporation is currently reviewing the nearly 500 pages of regulations to understand the full impact of these rules on our products and services. We are working toward any needed adjustments so that we can continue to support our clients and ensure that all requirements regarding the new HRA options are met. We expect to be able to accommodate requests from clients for the new HRA options by 2020.