An Overview of the Expanded HRA Options
The IRS recently published final rules, model notices, and frequently asked questions on new types of HRAs for plan years beginning on and after January 1, 2020. The final rules permit two types of HRAs: Individual Coverage HRAs (ICHRA) and Excepted Benefit HRAs (EBHRA).
What are HRAs?
HRAs are account-based group health plans in which an employer credits employee accounts with a specific dollar amount that can be used to reimburse the employee for eligible medical expenses. HRAs do not allow employees to make contributions and employers may vary the HRA amount by the coverage tier in which the employee enrolls. Additionally, the HRA may specify whether an employee’s unused amounts may or may not be carried forward from year-to-year.
The Affordable Care Act (ACA) created several challenges for HRAs. Namely, a requirement that group health plans: (1) are prohibited from imposing an annual or lifetime dollar limit on essential health benefits; and (2) if non-grandfathered, the plan is required to cover preventive care services on a first-dollar basis. HRAs, by their design, violate both of these requirements.
To continue to allow HRAs to be available, guidance was previously issued allowing HRAs to be “integrated” with a traditional group health plan that complied with these ACA requirements. The integration rules required the employee participating in the HRA to also be covered by a group plan. The regulations were clear that HRAs could not be integrated with individual health insurance policies, including by reimbursing employees for premiums for individual health insurance policies because such an arrangement would violate these ACA requirements.
Individual Coverage HRAs (ICHRA)
The ICHRA is available to all size employers, however it is anticipated to primarily benefit small employers. The ICHRA may satisfy the ACA requirement for offering coverage if the amount contributed meets the affordability rules. Employers also have some flexibility in offering the ICHRA only to certain portions of the organization. If conditions are met, they are not subject to nondiscrimination rules. However, employers may not offer the same class of employees a choice between an ICHRA and coverage under a group health plan.
Under the ICHRA, employees must first enroll in individual coverage. Individual coverage includes: individual policies, student health coverage and Medicare Part A, B, or C Premiums. Individual coverage does not include coverage under a spouse’s group plan, short term limited duration policies and health care sharing ministries.
Once an employee obtains eligible coverage, the employee may submit eligible Section 213(d) medical expenses for reimbursement under the ICHRA. The employer must require monthly substantiation that the employee has individual coverage each month for which benefits are provided under the ICHRA.
An annual notice must be provided to employees 90 days before the plan year starts to ensure employees understand how such coverage would impact their Premium Tax Credit eligibility. Accordingly, for employers adopting the ICHRA for 2020, the notice must be provided to employees by October 1, 2019.
Excepted Benefit HRAs (EBHRA)
As an alternative to the ICHRA, the final rules allow for EBHRA to be provided for employees offered group health coverage, even if they choose to not enroll. The annual benefit must be limited to $1,800 for 2020 (to be indexed for future years). The EBHRA may not reimburse for individual premiums or Medicare coverage. It may reimburse for excepted benefits such as dental and vision expenses. The non-discrimination rules under Section 105(h) will apply, meaning employers should be cautious about offering coverage to only limited classifications of employees.
The new types of HRA present additional plan design opportunities for all size employers effective January 1, 2020. Employers should work with their advisors to understand how these rules operate and develop a strategy for offering cost effective heath coverage for their organization.
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