On October 12, 2017, President Trump issued an executive order directing the Departments of Health and Human Services and Treasury to look into the possibility of using health reimbursement arrangements (HRAs) in conjunction with the individual insurance market. HRAs are tax favored, employer funded accounts used to reimburse employees for out of pocket expenses when using their health plan. The regulations were finalized in mid-June, and they reversed several years of the Affordable Care Act’s prohibition against using HRAs for this purpose.
There are two types of new HRAs: the Individual Coverage HRA and the Excepted Benefits HRA.
The Individual Coverage HRA
Starting on January 1, 2020, employers can use an Individual Coverage HRA (ICHRA) to reimburse employees and dependents for medical expenses and individual medical premiums. Here is a quick summary:
- Employers can set the plan’s dollar limit, and different amounts can be used for older people and larger families.
- The HRA is only available to those who are not eligible for a group insurance plan.
- The HRA must be offered to all employees in the same class.
- Participants can waive coverage if they would like to do so as it may preclude them from getting a premium tax credit.
- Participants must substantiate their individual health coverage, and this can be done by attestation.
- The employer must provide written notice to employees at least 90 days before the beginning of the plan year.
- It is subject to both ERISA and COBRA, but ERISA does not have to extend to the individual policies if certain conditions are met.
- If the individual health premium exceeds the HRA amount, employees can use Section 125 to pay the difference pre-tax as long as the policy was not purchased through the state’s health exchange.
- Medicare premiums can be reimbursed by the HRA.
On the surface, the ICHRA sounds a lot like the Qualified Small Employer HRA (QSEHRA) that became available on January 1, 2017. Here are a few differences:
- The QSEHRA has a contribution limit of $5150 for a single person and $10,450 for a family in 2019. There is no cap so far for the ICHRA.
- The QSEHRA is only available to employers with fewer than 50 full time employees. There is no limit for the ICHRA.
- The QSEHRA is available today. The ICHRA is not available until January 1, 2020.
- An employer has to cancel their health plan to offer a QSEHRA. With an ICHRA, an employer could theoretically keep their group health plan and offer the ICHRA only to new hires or certain classes of people. I suspect this would create a concern for the group insurance underwriters, but it is possible under the regulations.
From an implementation perspective, one of my concerns about both the ICHRA and the QSEHRA is the 90 day notice requirement. It’s fairly common for insurance companies to issue renewal rates with well less than 90 days notice. An employer would have to be planning ahead to make the decision to offer one of these plans BEFORE they get their renewal in many cases. Another concern might be the cost of individual coverage, which can be more expensive than group insurance plans. A final concern is the potential for additional complexity or penalties with ACA shared responsibility rules.
The Excepted Benefit HRA
With an Excepted Benefit HRA (EBHRA), an employer can reimburse employees and dependents up to $1800 per year for or certain types of medical expenses and premiums for the following:
- Individual health coverage that consists solely of excepted benefits like stand-alone vision and dental plans, accident-only coverage, or disability coverage.
- Short term, limited duration insurance plans
- COBRA coverage
The EBHRA cannot reimburse for individual health coverage or Medicare Parts B or D.
These new HRAs open up new possibilities for employers trying to find creative ways to control health plan costs. If you’d like to discuss these or other creative cost containment strategies in more detail, please call us at (866) 724-0008 or click the link below.