Expanding HRA Options Effective 2020

hra

On June 13, 2019, The Departments of Health and Human Services, Labor, and Treasury issued the final rule expanding health reimbursement accounts (HRAs) which allows employers greater flexibility in the breadth and scope of HRAs available for their employees.

Background:

Since 2013, regulations have prohibited employers from paying for an employee’s individual health insurance policy and required that HRAs offered to employees be integrated with a group health plan. In 2016, Qualified Small Employer HRAs (QSEHRA) were developed to allow small employers (under 50 lives) to offer an HRA with IRS defined annual limits (in 2019 $5,150/individual and $10,450/family) to be used to pay for individual health premiums of minimum essential coverage when the employer does not offer a group health plan. In October of 2017, President Trump issued an Executive Order that in part directed the agencies to end rules that prohibited employers from paying for individual health insurance premiums through an HRA.

Two New HRA Options arising out of the Executive Order effective January 1, 2020 are:

  1. Individual Coverage HRA
  2. Excepted Benefit HRA

Individual Coverage HRA:

This HRA would allow employers to provide tax-free funding to an employee’s HRA account that could be used to purchase individual health insurance policies. This differs from the QSEHRA in that there is no requirement around the size of the employer.

  • Employers cannot offer both a traditional group health plan and an Individual Coverage HRA to similarly situated employees. However, they can choose a group of employees to offer either the group health plan or the HRA based on a specific class:
        • Full-Time Employees*
        • Part-Time Employees*
        • Seasonal Employees
        • Employees covered by a collective bargaining agreement
        • Employees who have not satisfied a waiting period for coverage
        • Non-Resident aliens with no US-based income
        • Employees whose primary site of employment is in the same rating area*
        • Salaried Employees*
        • Non-Salaried Employees*
        • Temporary Employees of staffing firms
        • Combination of 2 or more of the above*
          *Minimum class size requirements will apply depending upon the classes defined (those with asterisk), whether some classes have a group health plan offered, and the size of the employer. (For example, the minimum class size is 10 for employers with 100 or less employees and 20 employees for an employer with 200 or more employees. The minimum class size for mid-sized employers (between 100 to 200) is 10 percent of the total number of employees.)
  • The HRA must be offered on the same terms and conditions to all similarly situated employees. Dollar amounts, however, can vary based on age and number of dependents;
  • Employees must have the ability to opt out of the HRA and waive future HRA reimbursements at least annually;
  • HRA sponsors must be able to vary their HRA terms to account for different effective dates for individual coverage which can vary based on enrollment;
  • If an employee stops being enrolled in an individual policy, they forfeit the HRA prospectively;
  • Loss of the HRA for reasons other than failing to maintain individual coverage may qualify the HRA for COBRA;
  • Individuals covered by the HRA must attest to being enrolled in an individual policy providing minimum essential coverage. Employers can rely on their employees attestation statement as accurate. No further verification is required;
  • Individual coverage can be purchased on or off the exchange. It also includes student health coverage;
  • Employers can specify reimbursements – premiums only, non-premium cost shares, or particular medical expenses per existing HRA rules. An Individual Coverage HRA that reimburses solely for premiums would not disqualify contributions to an HSA if the individual otherwise meets the requirements (enrollment in a HDHP);
  • Under some circumstances, an Individual Coverage HRA may reimburse for Medicare premiums;
  • Employers must provide a notice to participants which outlines the terms and conditions of the HRA at least 90 days before the start of the plan year;
  • Individual Coverage HRAs are not considered ERISA plans;
  • Individual Coverage HRAs are considered an offer of minimum essential coverage for 4980H(a) employer shared responsibility provision. If the Individual Coverage HRA is also deemed affordable, the offer would also satisfy the 4980H(b) employer shared responsibility provision;
  • Employees being offered an affordable Individual Coverage HRA will not be eligible for a premium tax credit from the exchange (also must be stated clearly in the employee notice);
  • Affordability means that health insurance for the employee should cost no more than 9.86% (indexed annually) of the employee’s household income, using the lowest cost silver plan for self only coverage on the local exchange and incorporating the employer’s contributions. Because this would be a logistical impossibility for most employers, the final notice includes 3 safe harbors to determine affordability:
        • Location: This safe harbor allows employers to use the lowest cost silver plan where the employer’s primary site of employment is located as the standard for affordability calculations;
        • Calendar Year: Employers who implement an individual coverage HRA for the following calendar year could use the existing year’s estimates as a baseline for affordability;
        •  Affordability: Since it is unlikely that employers know their employee’s household income, they can use the already established affordability safe harbors of W-2, rate of pay or federal poverty line.

Excepted Benefits HRA:

Currently, only HRAs classified as an excepted benefit HRA (reimburses only limited expenses, such as vision or dental) can be stand-alone/not integrated with the medical plan. The new Excepted Benefit HRA would allow a stand-alone HRA to also reimburse cost sharing expenses and still qualify as an excepted benefit if it meets certain requirements:

  • The maximum benefit cannot exceed $1,800 for the plan year (indexed annually);
  • Must be offered alongside a traditional group health plan although employees do not have to be enrolled in the traditional plan;
  • The HRA must be available on the same terms for all similarly situated individuals regardless of health factor. Similarly situated means job classification, such as full-time, part-time, different geographic locations, union, non-union, and different occupations or even dates of hire or length of service ;
  • Reimburses cost sharing expenses as well as premiums for excepted benefits (such as vision, dental, std), short-term medical plans, and COBRA premiums (individual or group premiums, Medicare premiums are not eligible);
  • No employer size requirement;
  • Can permit rollover of unused amounts;
  • Subject to Section 105(h) nondiscrimination rules.

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