In June 2019, the U.S. Departments of Health and Human Services, Labor, and Treasury released a final regulation that will provide more flexibility for health reimbursement arrangements (HRAs).
Starting January 2020, employers will be able to contribute tax-preferred funds into what will be known as “Individual Coverage HRAs” to pay for employees’ premiums for health insurance coverage offered through the individual market. Historically, funds from an HRA were not eligible to pay for insurance premiums. In addition, the new rule will allow employers to use an HRA as an alternative payment to eligible employees who choose not to enroll in a group health plan offered by the employer — using an “Excepted Benefit HRA.”
Individual Coverage HRAs
With an Individual Coverage HRA, the new rule will allow for reimbursement of premiums for the following types of insurance plans:
- Short-term and limited-duration coverage
To be compliant with the Affordable Care Act (ACA)’s market reform provisions, an Individual Coverage HRA will need to be integrated within a qualified group health plan. The Individual Coverage HRA will also need to meet these conditions:
- Any individual enrolled in it must be enrolled in health insurance coverage purchased in the individual market and must substantiate and verify that they have such coverage
- The employer may not offer the same class* of individuals an Individual Coverage HRA and a “traditional group health plan”
- The employer must offer the HRA on the same terms to all employees in a class
- Employees must have the ability to opt-out of receiving funds through the HRA
- Employers must provide a detailed notice to employees
If an employer offers an Individual Coverage HRA in a given class, they will need to offer the same arrangement to all employees in that class. *Classes proposed for this new regulation include:
- Full-time employees
- Part-time employees
- Seasonal employees
- Employees in a unit covered by a collective bargaining agreement in which the employer participates
- Employees who have not satisfied a waiting period that meets the requirements of PHSA section 2708 (generally, no longer than 90 days other than for variable-hour employees whose hours of service cannot be determined in advance)
- Employees who are younger than 25 at the beginning of the plan year
- Foreign employees who work abroad
- Employees who work in the same rating area
Excepted Benefit HRAs
To offer an Excepted Benefit HRA to employees, the employer will need to provide some other type of group health coverage that satisfies the requirements under the ACA. Excepted Benefit HRAs will be able to reimburse employees for excepted benefits, such as limited-scope vision or dental benefits, short-term limited duration insurance, COBRA coverage, and other types of medical expenses. The annual maximum contribution for an Excepted Benefit HRA will be $1,800, then indexed to inflation after 2020.
Unlike an Individual Coverage HRA, an Excepted Benefit HRA will not be able to be used for reimbursements of premiums for individual health insurance coverage. Funds in an Excepted Benefit HRA will not be able to be used to reimburse for group health plan coverage (other than COBRA continuation coverage), or Medicare Parts A, B, C, or D — although out-of-pocket expenses under these coverages may be reimbursed.
Understanding benefit options for your business and your employees can be difficult. Fortunately, we’re here to help our clients navigate these complexities to ensure employee benefits are set up optimally and meet government regulations.
Contact an eBacon representative today to find out how we can set up your employee benefits more favorably for your business.
The material presented here is educational in nature and is not intended to be, nor should be relied upon, as legal or financial advice. Please consult with an attorney or financial professional for advice.