The U.S. Departments of Health and Human Services, Labor, and the Treasury (the Departments) have issued a final regulation that will expand the use of health reimbursement arrangements (HRAs). See the Department news release available here. Under the rule, starting in January 2020, employers will be able to consider two new alternative HRA approaches allowing HRA dollars to be used by employees in conjunction with health insurance purchased on the individual market. The first method allows for an HRA that may be used to pay for premiums for individual health insurance purchased on or off the exchanges. The second method is an HRA that employees may use to pay for certain out-of-pocket medical expenses. Like all HRAs, these new alternative HRAs are entirely employer funded; no employee contributions are allowed. The new and existing HRA design options are described below. Conner Strong & Buckelew will be hosting a private client webinar shortly to review the specifics of the new HRA options in detail.
GHPHRA – The Traditional Strategy
Group Health Plan HRAs (GHPHRAs) have been in existence for some time (no new rules here) and are intended as a means to combine an employer group health plan (GHP) with an employer-paid source (the HRA) to reimburse certain health plan-related cost-sharing (but a GHPHRA may not be used to pay individual insurance premiums). Employees who participate in this type of HRA must also be enrolled in the employer’s GHP. There are variations to this integrated HRA approach including the spousal coverage HRA and the retiree-only HRA. These GHPHRAs are the traditional way that HRAs have been used and we believe these HRAs will remain a critical element for some small to mid-sized employers to manage the cost of health care. See our update, Additional Guidance on Health Reimbursement Arrangements, for a comprehensive overview of traditional GHPHRAs.
QSEHRA – For Small Employers
Employers with fewer than 50 employees and therefore not subject to the Affordable Care Act (ACA) coverage mandate are eligible for the Qualified Small Employer HRA (QSEHRA). The small employer HRA option was introduced in 2017 and the rules have not been changed. In 2019, annual employer contributions to QSEHRAs are capped at $5,150 for a single employee and $10,450 for an employee with a family. QSEHRA participants who obtain health insurance from an ACA exchange and who are eligible for a tax credit/subsidy must report to the exchange that they are participants in a QSEHRA (the amount of the tax credit/subsidy is reduced by the available QSEHRA benefit). See our Update, 21st Century Cures Act -Small Employer HRA Guidance, for more on QSEHRAs that may be offered by employers with less than 50 full-time equivalent employees.
ICHRA – New HRA to Reimburse Individual Premiums (no GHP) The new Individual Coverage HRA (ICHRA) allows employers, regardless of size, to provide an HRA that reimburses employee premiums paid to purchase individual health coverage. There is no cap on the amount of the ICHRA contribution. Employers may either offer an ICHRA or a traditional GHP, but may not offer employees a choice between the two.
Employers can offer an ICHRA on a class by class basis (creating classes around certain employment distinctions, such as salaried versus hourly, full-time versus part-time, and workers in certain geographic areas, but employers that offer an ICHRA must do so on the same terms for all employees in a class, and may increase the ICHRA amount for older workers and for workers with more dependents).
Employers can maintain their traditional GHP for existing enrollees, with new hires offered only an ICHRA.
An ICHRA must provide a written notice to all employees (including former employees) who are eligible for the ICHRA which will help them understand the type of HRA being offered and how the ICHRA offer may make them ineligible for a premium tax credit/subsidy for ACA exchange-based coverage.
ICHRAs must implement, and comply with, reasonable procedures to have covered individuals substantiate and verify that they have purchased individual health coverage. A model attestation is available.
Guidance is still to be issued on premium tax credits, the employer mandate and the issue of affordability, and other tax related issues. It is expected that follow-up guidance will address the issues covered in IRS Notice 2018-88.
The individual health coverage purchased by the employee will not become part of an Employee Retirement Income Security Act (ERISA) plan if certain requirements are met (for instance, employers may not select or endorse a particular individual-market plan). Changing to an ICHRA model will take time in planning for the transition. See the Department FAQs for more details.
EBHRA – New Excepted Benefit HRA (GHP offered)
The new Excepted Benefit HRA (EBHRA) permits employers that offer a GHP to provide an EBHRA of up to $1,800 per year (indexed to inflation after 2020), even if the employee doesn’t enroll in the GHP. The EBHRA can reimburse an employee for certain types of qualified medical expenses, including premiums for vision, dental, short-term limited-duration insurance, and COBRA. An employer can offer an EBHRA or an ICHRA, but it cannot offer both. The two new HRAs are not compatible since the ICHRA does not allow an employer to offer employees a GHP, and the EBHRA requires the employer to offer a GHP.
Employers interested in adopting a new alternative HRA will want to stay tuned for more information. We expect that this new HRA rule may impact what some employers and plan sponsors do by way of benefit strategy in the short and long term. While the new HRA approaches may not fit the benefit strategies for many employers, they may be attractive to those employers and employees who are seeking a more defined contribution approach to health care coverage.
Should you have questions, contact your Conner Strong & Buckelew account representative toll free at 1-877-861-3220. For a complete list of Legislative Updates issued by Conner Strong & Buckelew, visit our online Resource Center.