On June 13, 2019, the U.S departments of Health and Human Services (“HHS”), Labor, and the Treasury (collectively, the “Departments”) pre-released final regulations that will expand the use of health reimbursement arrangement (“HRAs”). Beginning in January 2020, employers will be able to offer two new types of HRAs created by these final regulations – individual coverage HRAs (“ICHRAs”) and Excepted Benefit HRAs.
The final regulations will permit employers of all sizes to offer ICHRAs as an alternative to traditional group health plan coverage, subject to certain conditions. Consistent with existing HRAs, ICHRAs will be employer-funded accounts for employees to purchase individual-market insurance. Through an ICHRA, employers will reimburse employees for their medical expenses, up to an amount determined by the employer, and not count toward the employees’ taxable wages. ICHRAs will also allow employees to pay insurance premiums, whereas existing HRAs do not.
Historically, stand-alone HRAs could not satisfy all the Affordable Care Act (“ACA”)’s market reform provisions and required an HRA to be integrated with qualifying group health plan coverage. Once these final regulations are effective, HRAs can be integrated through a qualifying ICHRA if several conditions are met, which will meet the ACA’s market reforms.
To meet these conditions, employers must offer its employees either an ICHRA or a traditional group health plan, but not both. The ICHRA must be offered on the same terms to all individuals within a class of employees and follow the final rules regarding what types of class distinctions and sizes are permitted. A notice must also be given to all employees at least 90 days before the beginning of the plan year, as well as a disclosure provision ensuring employees understand the type of HRA being offered. The DOL issued an Individual Coverage HRA Model Notice to satisfy the notice and disclosure requirements under the final regulations.
In addition to the creation of individual coverage HRAs discussed above, the final regulations permit employers to offer HRAs as “excepted benefits,” which are exempt from various health care requirements. It is important to note the difference between the Excepted Benefit HRA and an HRA that only reimburses expenses for excepted benefits. Through an Excepted Benefit HRA, employers will be able to reimburse employees for medical expenses coverage that is not limited to excepted benefits. If an employer wishes to offer HRAs that only reimburse excepted benefits, it will not be subject to the requirements of an Excepted Benefit HRA (confusing, right?).
HRAs must meet several conditions to qualify as an Excepted Benefits HRA. Employers must offer the HRA in conjunction with a traditional group health plan, and the employee can enroll in the HRA even if he or she doesn’t enroll in the plan. Employers can contribute up to $1,800 per year into the Excepted Benefits HRA, but funds cannot be used to reimburse individual health insurance premiums, group health plan premiums, or Medicare premiums.
To learn about the other conditions an employer must meet to offer these new types of HRAs, see the final regulations and accompanying FAQs.
The information and content contained in this blog post are for general informational purposes only, and does not, and is not intended to, constitute legal advice.