The new year is fast approaching! Employers who may be considering implementing a high deductible health plan (HDHP) with a Health Savings Account (HSA), should begin reviewing their existing Health Reimbursement Arrangement (HRA) to ensure it is HSA compatible.
Employers who currently offer an HRA that is HSA compatible must also carefully review their plans for any necessary updates at renewal. For 2020, the minimum required deductibles to be HSA compatible have changed! This may require you to make changes to your HRA in order for your employees to remain eligible to make or receive HSA contributions.
Here are some key points to ensure a smooth start to the new plan year:
1. Stacking plans can increase tax advantage, while saving money:
Many employers implement an HRA in order to save money on the costs of employee benefits. By implementing plans with higher deductibles and coinsurance, employers are able to pay lower premiums to a health insurance carrier. Employers then can self-fund part of the higher out-of-pocket costs, at a lower cost – saving them money, while providing a greater benefit to employees.
Employers who offer HRAs can also pair this plan with an HSA. Together, these plans can expand the tax savings for both the employer and the employee.
Reimbursements to employees from the HRA for medical costs are tax free and are not included in gross wages. In addition, both employer and employee HSA contributions made through a cafeteria plan are made pre-tax and are not included in gross wages. This allows both employers and employees to save on payroll taxes.
2. Qualifying high deductible health plan (HDHP):
In order to qualify as an HSA qualified high deductible health plan (HDHP), the minimum deductible for 2020 will increase to $1,400 for Single coverage and $2,800 for Family coverage. (This is an increase from $1,350/$2,700 in 2019.) The maximum out-of-pocket limits will be increasing in 2020 to $6,900 for Single coverage and $13,800 for Family coverage. (This is an increase from $6,750/$13,500 in 2019).
HSA qualified HDHPs require employees to pay the full deductible before any coverage is provided (with the exception of preventive care). This means that plans cannot provide 1st dollar coverage like copayments on services such as office visit copays or prescription drugs, until after the minimum deductible is met.
Be sure to carefully review your group health plan to make sure it is meets the requirements to be considered an HSA qualified HDHP.
3. Disqualifying coverage voids HSA eligibility:
Keep in mind that any coverage that provides first dollar coverage for medical care may be disqualifying coverage that will void an individuals’ eligibility to open or contribute to an HSA. Likewise, this will prevent them from receiving employer contributions to the HSA. Disqualifying coverage includes, but is not limited to, other group health plan coverage that has a deductible below minimum levels, a participant’s or participant’s spouse’s regular Health Care Flexible Spending Accounts (FSA), Medicare and HRAs that reimburse medical or prescription expenses below the minimum required deductible.
4. HRA plan designs must meet certain criteria to be HSA compatible:
In order to qualify as an HSA compatible HRA, the employee must incur at least the minimum deductible ($1,400 Single or $2,800 Family) as an out of pocket expense before the HRA can reimburse for medical or prescription drug expenses. This means that if there is an embedded deductible on a family plan, it could not reimburse any individual’s expenses until the entire family has met the $2,800 family deductible. If the HRA design fails to meet the required minimum deductibles it will be considered disqualifying coverage and individuals will not be HSA eligible.
HRAs can be designed to provide coverage for excepted benefits such as dental and/or vision expenses prior to the minimum deductible.
Because the minimum deductible has changed from 2019 to 2020, employers with an HRA set-up to begin paying once the minimum deductible is met will have to amend their HRAs in order to maintain HSA eligibility in 2020.
If you have the EBC HRA and are offering an HSA or are considering offering a HSA compatible HRA in 2020, please download your My Company Plan to review your plan design.
To be considered HSA compatible, the first tier of the HRA that is the employee’s responsibility must be greater than or equal to equal $1,400 for Single only coverage. The first tier of the HRA that is the employee’s responsibility must greater than or equal to $2,800 for limited family and family coverage.
If you are unsure if your HRA is compatible or your plan needs to be amended, please contact your Client Services Consultant.
Non-Calendar Year HRA and Non-Calendar Year Health Plan
If the HRA is integrated with the employer sponsored HDHP and they renew on the same date off-calendar year, the IRS supports not treating the HRA as disqualifying coverage unless the lower deductible persists past HDHP renewal.
HRA should reflect the 2020 minimum required deductible for the first plan year that starts or renews on or after 1/1/2020.
Effective with the start of the HRA plan year in 2020, the first tier of the HRA that is the employee’s responsibility must be equal to or greater than $1,400 Single and $2,800 Family.
Calendar Year HRA and Non-Calendar Year Health Plan
If the HRA is integrated with the employer sponsored HDHP and the HRA has a different renewal date than the HDHP, the HRA may be considered disqualifying coverage as of 1/1 of the new calendar year to which the new minimum applies unless the HRA is amended to incorporate the new minimum deductible. (This scenario is often found when the underlying group health plan renews off-calendar year, but the health plan deductible runs calendar year.) While there is not definitive IRS guidance on this matter, amending the HRA would ensure that it not be classified as disqualifying coverage for any individual.
For plans converting to HSA compatible HRAs, the HRA should be amended 1/1/2020 to reflect the 2020 minimum required deductible.
Effective with the start of the HRA plan year in 2020, the first tier of the HRA that is the employee’s responsibility must be greater than or equal to $1,400 Single and $2,800 Family.
Making sure your HRA is HSA compatible for 2020 is critical if you plan on maximizing the tax advantages that both the HRA and HSA can offer. The minimum HDHP deductibles have increased from 2019 to 2020. Clients and Brokers should contact their Client Service Consultant to complete any necessary paperwork to amend the HRA to ensure their HRA is HSA compatible for 2020.