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February 13, 2020

Health Reimbursement Arrangements (HRAs) – a 401(k) for Employer Health Plans?

Some of the biggest changes to health care design at this moment are encompassed by final rules published by the current administration around health reimbursement accounts that took effect in January 2020. They have the potential to alter traditional employer-provided health care coverage, doing for medical insurance what the 401(k) did for worker pensions four decades ago.

Beyond HRAs, there are so many evolving, complex issues for employers to understand. To help you keep up, check out our latest handbook – Regulatory & Legislative Update: What Employers Need to Know in 2020.

Basics of HRAs

A health reimbursement arrangement (HRA) is a self-funded medical reimbursement plan that typically supplements other coverage. An HRA is funded only by employer contributions; no employee contributions are allowed. That contribution amount is excludable from the employee’s income.

HRA sponsors may be private-sector employers, state, local and federal government employers, C-corporations, S-corporations, partnerships, LLPs and LLCs, or sole proprietors.

Only common law employees may participate in an HRA. Those who are ineligible to participate are self-employed, sole proprietors, partners in a partnership and over-2% shareholders of an S-corporation.

There are three new forms of HRAs for employers to understand and evaluate – individual coverage HRA (IC-HRA), qualified small employer HRA (QSEHRA) and excepted benefit HRA (EB-HRA). Two of these — IC-HRAs and EB-HRAs — are newly available for employers to establish for plan years beginning on and after Jan. 1, 2020. Here are the basics of each type of plan:

Individual Coverage HRA (IC-HRA)

There are many criteria for an IC-HRA. It requires actual enrollment in individual coverage (marketplace coverage permitted) or Medicare Parts A, B or C. No group coverage can be offered. Further, there must be procedures for proving coverage and substantiation of medical expense reimbursement. An IC-HRA also requires annual and mid-year written notices of HRA availability by the employer/plan sponsor. Additional criteria include:

  • Offer annual opt-out and waiver of future reimbursements
  • Class of employees offered IC-HRA can have excepted benefits such as dental, vision or excepted FSA
  • Can be established for plan years beginning on or after Jan. 1, 2020

Expenses that can be reimbursed from an IC-HRA are IRC Section 213(d) expenses, including individual premium and marketplace coverage. Any premium not reimbursed from the IC-HRA can be paid through a Section 125 (cafeteria) plan.

Qualified Small Employer HRA (QSEHRA)

Of course, there are also criteria for a QSEHRA. 1) It can only be sponsored by an employer who employs less than 50 employees on business days during the calendar year and who does not currently offer group health insurance; 2) Retirees, former employees and non-employees are ineligible; and 3) It must be made available on uniform basis, although certain variations of payments or reimbursements based on family size or age are allowed.

Interested in knowing the Top 3 Benefits Questions employers like you are asking – click here.

Excepted Benefits HRA (EB-HRA)

An EB-HRA can be established for plan years beginning on or after Jan. 1, 2020. The reimbursement limit on expenses from an EB-HRA is up to $1,800 in benefits per year (subject to inflationary indexing). Additionally, the EB-HRA must be uniformly available to similarly situated individuals based on HIPAA’s bona fide employment classifications:

  • Full-time versus part-time employee status
  • Different geographic location
  • Membership in collective bargaining unit
  • Date of hire or length of service
  • Differing occupations

Expenses that CAN Be Reimbursed

Expenses that CANNOT Be Reimbursed

IRC Section 213(D) expenses

Individual premium

Out-of-pocket expenses

Medicare premium

Excepted benefit premium (dental & vision)

Non-COBRA group premium

Short-term limited duration insurance premium (subject to applicable state restrictions)

 

 

So, is an HRA a good fit for your business?

The overarching advantages are that an HRA can be unfunded and that the employer only reimburses upon proper claims submission. However, the primary challenges you will need to consider are that no employee funding is permitted, there are many details that must be carefully attended to, and simply that there are just so many choices and still so many unanswered questions.

If you are contemplating an HRA, the best place to start is by contacting a benefits advisor experienced in HRAs. They will be able to help you navigate the complexities and take the guesswork out of determining which, if any, HRA is best for you.

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