On June 13, 2019, the Department of Labor, the Department of Health and Human Services, and the Department of Treasury (the “Departments”), published final regulations which significantly broaden the types of health plans that may be integrated with a health reimbursement arrangement (“HRA”). More specifically, beginning January 2020, the finalized rules allow HRAs to be integrated with certain qualifying individual health plan coverage and/or Medicare. The final rules reverse current guidance which requires HRAs to be integrated with only qualifying group health plan coverage. Practically speaking, this means that employers, beginning in 2020, will be allowed to subsidize employee premiums in the individual health insurance market and/or Medicare using pre-tax dollars, provided certain conditions are met. The final rules also allow certain HRAs to reimburse participants for certain premiums paid for excepted benefits. To achieve these results, the final rules create two new types of HRAs.
Individual Coverage HRA
Individual Coverage HRAs (“ICHRAs”) permit employers to create an HRA through which employees can purchase health insurance coverage on the individual market. ICHRAs can integrate with health insurance coverage purchased (a) on the ACA Health Insurance Marketplace (“Marketplace”), (b) outside the Marketplace (including on a private exchange), or (c) under some circumstances, under Medicare Parts A, B, C, or D and Medigap. While the employer is generally provided with flexibility in designing its ICHRA, there are considerable limitations and requirements, a few of which are highlighted below:
- While employers can specify a maximum annual ICHRA allocation and define which expenses can be reimbursed through the ICHRA, the ICHRA can only be used to reimburse medical expenses consistent with existing HRA rules.
- Employers can choose which classes of employees it wishes to offer ICHRAs, but employers will not be allowed to offer both an ICHRA and a traditional health plan to the same class of employees.
- The final rules contain uniform access requirements which restrict an employer’s ability to discriminate among employment classifications.
- Employers that offer ICHRAs must do so on the same terms for all employees in a class of employees but can increase annual amounts for older workers and workers with more dependents.
- When employers offer ICHRAs to certain classes of employees and offer a traditional group health plan to other classes of employees, the class of employees offered the ICHRA must meet a “minimum class size requirement.” The minimum number of employees for each class varies depending on the employee population.
Lastly, the final rules require certain employer notices and employee attestations. The notices must be given to employees at least ninety days before the beginning of the plan year outlining the type of HRA being provided and informing employees that the ICHRA offer may make them ineligible for premium tax credits through the Marketplace. Employees must be enrolled in individual health insurance coverage and must be able to confirm coverage annually and on an ongoing basis while they are participating in an ICHRA. Fortunately, the Departments issued a model notice, model annual substantiation form, and a model ongoing substantiation form.
Excepted-benefit HRAs permit employers to credit up to $1,800 per year (indexed for inflation after 2020) to HRAs from which employees may be reimbursed for premiums paid for vision and dental coverage, COBRA premiums, or similar benefits exempt from ACA and other legal requirements. These excepted-benefit HRAs can only be offered by an employer where the employer otherwise offers a group health plan, however, there is no requirement that an employee enroll in the employer’s group health plan in order to be eligible to participate in the excepted-benefit HRAs.
In addition to the requirement above, to be recognized as an excepted-benefit HRA, the HRA must provide benefits that are limited in amount; cannot provide reimbursement for certain health insurance premiums; and must be made available under the same terms to all similarly situated individuals.The final regulations have an effective date of January 1, 2020 allowing employers that might be interested in offering either of the new HRAs less than five months to plan for the upcoming enrollment period.