On June 13, 2019, the Departments of Labor, Health & Human Services and Treasury released final rules concerning Health Reimbursement Arrangements (HRAs). The 497-page rule includes the creation of two new types of HRAs, the “Individual Coverage HRA” and the “Excepted Benefit HRA.”
Advantages of the Individual Coverage HRA include, but are not limited to:
- Funds can be used to reimburse the employee’s premiums for an individual health insurance policy.
- Reimbursements made to employees do not count towards the employee’s taxable wages.
- The employer can choose to roll-over unused amounts into the following year.
- Coverage can be offered to different classes of employees (e.g.; full-time, part-time, seasonal, salaried, hourly)
- An offer of the Individual Coverage HRA represents an “offer of coverage” under the employer mandate, however, contributions must meet affordability guidelines. The IRS will release further guidelines regarding this later.
The Individual Coverage HRA also comes with restrictions and regulations including but not limited to:
- An offer of an Individual Coverage HRA cannot be made to any employee that is offered a traditional group health plan.
- If an offer of coverage is made to a class of employees, there is a minimum class size that is required. Size is typically 10% of that specific class of employees. For example, if an employer has 200 employees, a minimum of 20 employees would have to be in a specified class.
- Contributions can be in any amount that the employer chooses, but contributions must be consistent for all employees in a specified class.
- The employer must provide notice of the Individual Coverage HRA to employees.
- The employer must be able to substantiate that the employee is enrolled in an individual plan or Medicare (model notices are available).
- The employer must notify employees on an annual basis that the individual health insurance is NOT subject to ERISA.
The final rule also created the “Excepted Benefit HRA” which, starting in January of 2020, will permit employers to finance additional medical care. Employees can use the HRA without having to be enrolled in the group’s traditional health plan.
The requirements associated with the “Excepted Benefit HRA” include, but are not limited to:
- The annual contribution is capped at $1,800.
- It must be offered in conjunction with a group health plan, but there is no requirement for the employee to enroll in that plan.
- The “Excepted Benefit HRA” cannot be used to fund group health or Medicare premiums.
- It can fund premiums for dental, vision, or short-term limited duration insurance.
Employers who want to offer the “Individual Coverage HRA” for January 1, 2020, can do so but employees will need to enroll in an individual plan during the 2019 open enrollment period (November 1, 2019 – December 15, 2019).