As reported in our November 7, 2018 SW Benefits Blog Zombie Benefits – Are Health Reimbursement Arrangements (“HRAs”) Back From the Dead?, the Departments of Health and Human Services, Labor, and Treasury (the “Agencies”) proposed two new types of health reimbursement arrangements, Individual Coverage HRAs (“ICHRAs”) and Excepted Benefit HRAs (“EBHRAs”). Final regulations outlining the requirements of these two new HRAs were published in the Federal Register on June 20, 2019. The final regulations can be found here.
January 1, 2020 Effective Date May Require Quick Employer Action
ICHRAs and EBHRAs may be offered for plan years beginning on or after January 1, 2020. The final regulations are long, incredibly complex, and in some cases require advance notice to employees. Accordingly, employers wanting to offer one of these new HRAs as of January 1, 2020 need to move quickly, prepare plan documents and summaries, and timely distribute applicable notices. In addition, employees who want to take advantage of an ICHRA with a January 1, 2020 effective date will need to enroll in individual medical coverage during the open enrollment period at the end of 2019 (running from November 1, 2019 to December 15, 2019) unless they have Medicare.
Additional Information
The Agencies have issued a News Release, Frequently Asked Questions (“FAQs”), a Model ICHRA Notice, and two Model ICHRA Attestations (for annual and ongoing substantiation). The FAQs provide a helpful overview of the new HRA requirements. Additional details can be found in the final regulations.
Key Features of ICHRAs and EBHRAs
Care must be taken to comply with all applicable requirements for ICHRAs and EBHRAs. Otherwise, significant penalties could apply. The key features and requirements are described in the chart below.
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Individual Coverage HRA ("ICHRA")
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Excepted Benefit HRA (“EBHRA”)
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Effective date
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Plan years beginning on or after January 1, 2020.
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Plan years beginning on or after January 1, 2020.
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Eligible Employers
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Small and large employers.
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Small and large employers.
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Key Requirements
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- Participants must be enrolled in individual health coverage (“IHC”) that satisfies certain requirements;
- no traditional employer group health plan may be offered to the same class of participants;
- the same terms and benefits apply to all participants in a class, with a few limited exceptions, such as number of dependents and age;
- participants must be given right to opt out annually and at termination;
- enrollment in IHC must be substantiated (the Agencies have issued a model form); and
- written notice of the ICHRA (including specified content) must be provided 90 days before each plan year, and new participants must receive notice before their eligibility date (the Agencies have issued a model notice including the required content). A special rule applies for new ICHRAs for the first plan year.
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- Participants must be offered a traditional group health plan, but employees are not required to enroll;
- maximum $1,800 annual contribution, indexed for inflation;
- cannot reimburse premiums for any of the following: individual health coverage (“IHC”); Medicare Parts A, B, C, or D; or group health plan coverage, (other than COBRA coverage); and
- the EBHRA must be uniformly available to all similarly situated employees, as defined under HIPAA.
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Employer Contributions
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Only the employer may make contributions. Employers may contribute as little or as much as they want.
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Only the employer may make contributions. Employers may contribute up to $1,800 per year, indexed for inflation.
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Eligible Expenses
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An employer may design an ICHRA to reimburse some, or all, of the following:
- premiums for IHC, (including premiums for Medicare Parts A, B, C, and D); and
- Section 213(d) medical expenses.
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An employer may design an EBHRA to reimburse some, or all, of the following:
- premiums for excepted benefit (e.g., dental or vision) coverage, short-term limited duration insurance coverage (until further notice), and COBRA coverage; and
- Section 213(d) medical expenses.
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Is the HRA Treated as an Offer of Minimum Essential Coverage for Purposes of the Code Section 4980H(a) 95% Test?
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Yes.
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No.
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Is the HRA Treated as Minimum Value Affordable Coverage for Purposes of Code Section 4980H(b)?
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Yes, if certain requirements are met. If coverage is determined to be affordable it is also treated as providing minimum value.
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No.
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May the Employer’s Cafeteria Plan Permit Pre-tax Payment of Individual Health Coverage?
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It depends. If an employee buys IHC outside a Health Care Exchange, and the ICHRA does not reimburse the full premium, the employer may modify its cafeteria plan to permit the employee to pay the balance of the premium on a pre-tax basis. IHC purchased through a Health Care Exchange is not eligible for this pre-tax treatment under a cafeteria plan.
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Not applicable.
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Do Other HRA Requirements Apply?
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Yes. In addition to the rules that apply to ICHRAs, they must comply with other generally applicable HRA rules including, but not limited to: 1) having a written plan document; 2) substantiating reimbursements; 3) offering COBRA; 4) complying with HIPAA; and 5) complying with ERISA.
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Yes. In addition to the rules that apply to EBHRAs, they must comply with other generally applicable HRA rules including, but not limited to: 1) having a written plan document; 2) substantiating reimbursements; 3) offering COBRA; 4) complying with HIPAA; and 5) complying with ERISA.
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Is the HRA Subject to Code Section 105(h) Non-Discrimination Requirements?
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Yes, unless it only reimburses premiums.
Future guidance is expected on additional Section 105(h) issues.
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Yes.
Future guidance is expected on additional 105(h) issues.
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Is the HRA Subject to ERISA?
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Yes, but IHC funded through the ICHRA is not subject to ERISA if the following requirements are met:
- the participant’s purchase of IHC is completely voluntary, although it is permissible for the employer to require an employee to have IHC to participate in the ICHRA;
- the employer cannot select or endorse any particular health insurer or health coverage;
- reimbursement is limited to “individual health insurance coverage” as defined in 29 CFR 2590.701-2;
- the employer receives no consideration in the form of cash or otherwise for the employee’s purchase of IHC; and
- the employer annually notifies each participant that IHC is not subject to ERISA.
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Yes.
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Other HRAs Are Still Permitted
In addition to these two new HRAs, employers may continue to offer limited purpose HRAs, HRAs integrated with an employer group health plan, and retiree-only HRAs. Small employers may additionally offer qualified small employer HRAs (“QSEHRAs”). These two new HRAs are mutually exclusive. Accordingly, an employer can offer one, but not both an ICHRA and an EBHRA, to the same class of employees.
Section 4980H Penalties
As noted in the above chart, ICHRAs, but not EBHRAs, may provide large employers potentially subject to penalties under Code Section 4980H an additional way to avoid those penalties. The Code Section 4980H penalties are explained in more detail in our “Health Care Reform’s Employer Shared Responsibility Penalties: A Checklist for Employers.”
New Health Care Exchange Special Enrollment
The final regulations establish a new special enrollment period for employees and dependents who gain coverage under an ICHRA or a QSEHRA, allowing them to enroll in IHC, or to change from one IHC option to another IHC option.
Possible Legal Challenges
The final regulations are the end result of an Executive Order signed by President Trump on October 12, 2017. Many of the health care changes made by the Trump Administration have been challenged in court. For example, the relaxed association health plan regulations were stricken by the court in State of New York v. United States Department of Labor on March 28, 2019 for being an “end-run around” the Affordable Care Act and doing “violence” to ERISA. There remains the possibility that the final HRA regulations could be challenged. However, more than two months after being published, that has yet to happen. One reason could be that ICHRAs might increase the number of individuals who purchase coverage through Health Care Exchanges, which would help strengthen the Health Care Exchanges.
Conclusion
The final regulations could have a significant impact on how some employers offer health insurance to their employees starting in 2020. Although the rules apply to employers of all sizes, it is expected that small and mid-size employers may find the new rules most beneficial.
