On June 13, 2019, the U.S. Department of the Treasury, Department of Labor, and Department of Health and Human Services issued final regulations which expand the options for employers to fund health insurance for employees. Previously, employers were not permitted to establish heath reimbursement accounts (“HRAs”) for employees to purchase individual health insurance coverage unless the employer had less than 50 full-time employees and did not maintain a group health plan. That will change on January 1, 2020.
Under the new final regulations, beginning January 1, 2020, any employer may establish an individual coverage HRA to provide unlimited employer funding for an employee to purchase individual health insurance coverage on or off an Exchange. By using the Individual Coverage HRA to purchase health insurance, the reimbursements are not included in the employee’s taxable wages just as being covered under group health insurance is not included in an employee’s taxable wages.
An employer who offers an Individual Coverage HRA need not offer it to all of its employees but must offer it on the same terms to all individuals within a class of employees. However, an employer is permitted to increase its contribution amount for older workers or workers with more dependents. An employer may not offer a choice between an Individual Coverage HRA and a traditional group health plan to the same class of employees. However, it may offer a traditional group health plan to one class of employees and an Individual Coverage HRA to another class of employees. Likewise, an employer may permit an employee covered by an Individual Coverage HRA who purchases individual health insurance coverage outside of an Exchange to pay the balance of the premium for the coverage through a cafeteria plan. Additionally, an offer of an Individual Coverage HRA is considered an offer of coverage under the Affordable Care Act’s employer mandate provided certain requirements are met.
The final rules also permit employers to establish Excepted Benefit HRAs which may be offered in addition to a traditional group health plan to cover the costs of non-covered medical expenses and dental and vision insurance. Excepted Benefit HRAs must be available to all similarly situated employees and may allow the rollover of unused contributions from year to year.
Employers may take advantage of the new Individual Coverage and Excepted Benefit HRA regulatory provisions effective January 1, 2020; however, to meet an effective January 1st date, pre-planning must occur.