HRA Availability Expanded: Agencies Issue Final Rules           

 

On June 13, 2019, the Department of Health and Human Services (HHS), Department of Labor (DOL) and the Treasury Department (IRS) issued a final rule allowing employers of ANY size to offer two new kinds of health reimbursement arrangements (HRAs), individual coverage HRAs (ICHRA) and excepted benefit HRAs (EBHRAs), beginning in plan year 2020.

 

Individual Coverage HRA: An Alternative to Traditional Group Health Coverage

ICHRAs can provide employees with tax-preferred funds to pay for their cost of health insurance coverage that is purchased in the individual market, on or off Exchange, if the following conditions are met:

1. Enrollment must be substantiated at least annually, on or before the first day of the plan year. Document from a third party of coverage or attestation by the individual is required and employers can require substantiation on a monthly or annual basis.
2. Employer must offer on the same terms and conditions to all employees within a class.
1. Defined classes include:
1. Full-time employees.
2. Part-time employees.
3. Employees working in the same geographic location.
4. Seasonal employees.
5. Employees in a unit of employees covered by a collective bargaining agreement.
6. Employees who have not satisfied a waiting period.
7. Non-resident aliens with no US based income
8. Salaried workers.
9. Non-salaried workers (hourly).
10. Temporary employees of staffing firms.
11. Any group of employees formed by combining two or more of these classes
2. Please note: classes are determined by a common law employer basis, not controlled group basis.
3. Minimum class sizes are:
1. Employers with less than 100 employees are equal to 10 employees.
2. Employers with 100 to 200 employees equal 10% of the total number of employees.
3. Employer with more than 200 employees equal 20 employees.
4. Employers may contribute more for employees based on their age or the number of dependents. Benefit amounts can be increased based on age, by up to three times the maximum dollar amounts available to the youngest participant or family size.

3.     Employers may not offer those employees an option to elect traditional group health coverage.

4.     Employers must allow employees to opt out and waive future reimbursements on an annual basis before each plan year.

5.     Notice requirements detailing HRA plan terms, employer and employee requirements: must provide the notice 90 days in advance of plan.

1. There is a first-year exception, if the plan was created less than 120 days prior to plan year, the notice is required to be given by the first day of the plan year.

ICHRAs are compatible with other plans:

1. ICHRA can be designed to be HSA compatible by only reimbursing premiums or limiting reimbursements in accordance with HSA rules.
2. ICHRA can integrate with Medicare Part A and B or Part C and can reimburse premiums for Medicare, including Part D and Medicare supplemental coverage.

Safe Harbor: the DOL amended the definition of a welfare plan, excluding individual health insurance funded by an ICHRA. The purchase of the insurance must be voluntary, and employer must not select or endorse any insurer or coverage. Participants must be notified annually that the individual coverage is not subject to ERISA.

Applicable large employers (ALEs) can avoid employer-shared responsibility penalties by offering an affordable ICHRA to full-time employees. Affordability is based on the premium for the lowest cost, silver plan available in the rating area where the employee resides.

Nondiscrimination testing is required. The IRS will issue guidance ‘in the near term’ describing a safe harbor that allows employers to increase the maximum dollar benefit based on a participant’s age (maximum benefit amount must be capped at 3x to the youngest participant or family size).

Employers may establish a cafeteria plan arrangement to allow employees to use pre-tax dollars to pay the cost of premiums for individual coverage not covered by the ICHRA (reminder: update your plan documents!). Coverage must be purchased outside of an Exchange and individuals are not eligible for premium tax credits.

Mid-year enrollment can be prorated, or employees can receive the full annual benefits. The method must be determined before the plan year and must be the same for all employees within a class. Nondiscrimination rules do not apply to the HRA premium reimbursement.

If a qualifying event occurs, such as a termination of employment, a participant either forfeits the remaining balance or continues under COBRA. If individual coverage is lost prior to termination, no COBRA coverage is required.

 

Excepted Benefit HRAs (EBHRA): Offer Non-Integrated HRAs

Employees that are offered the employer group health plan are eligible for pre-tax dollars for qualified medical expenses, including premiums for vision and dental insurance, COBRA continuation coverage and in some circumstances short-term, limited duration insurance (STLDI).

These plans allow for a greater employer contribution to deductibles, coinsurance, and copayments than compared to an FSA, and can permit rollovers from year-to-year.

EBHRAs are not subject to the Public Health Service Act (PHSA) mandates if the following conditions are met:

1. Employers must offer a traditional group health plan (not limited to excepted benefits) to the EBHRA

participant for the plan year, although the participant doesn’t have to enroll.

1. The HRA must not be an integral part of the employer’s group health plan.
1. The maximum benefit amount is $1,800 for each participant for each plan year. Unused amounts can be carried over to the following year and not count against the dollar limit for that year.
2. EBHRA permits reimbursement for 213(d) expenses and premiums for excepted benefits, such as dental or vision coverage or STLDI. It cannot reimburse for individual health insurance coverage, group health plan coverage (other than COBRA continuation coverage), or Medicare Parts A, B, C, or D.
3. EBHRAs must be available under the same terms and conditions to all similarly situated individuals, such as full-time vs. part-time, different geographic locations, union, date of hire, length of service, and different occupations.

EBHRA is subject to ERISA disclosure and nondiscrimination testing requirements.