Individual Coverage Health Reimbursement Accounts Overview
Effective Jan. 1, 2020, final regulations issued by the IRS, Department of Labor, and Department of Health and Human Services will permit employers to offer Individual Coverage HRAs (ICHRAs) that reimburse an employee for purchasing individual coverage and comply with the employer’s obligations under the ACA Employer Shared Responsibility rule.
Also effective Jan. 1, 2020, new regulations create a class of HRAs called Excepted Benefit HRAs (EBHRAs) that can be used solely to reimburse excepted benefits, including limited scope vision or dental benefits, up to an annual $1,800 inflation-adjusted limit.
Individual Coverage HRA (ICHRA)
Effective January 1, 2020, employers of any size may offer ICHRAs that reimburse individual market premiums without violating the ACA provided they operate the ICHRA according to the following rules:
• The individual covered by the ICHRA must be enrolled in individual market insurance coverage and verify this enrollment to the employer.
• The employer (or plan sponsor) may not offer a choice between ICHRA and group health coverage to any given class of employees – a class of employees (or all employees) may only be offered ICHRA coverage or
traditional group health coverage, but not both.
• The ICHRA must be offered in a nondiscriminatory manner to all members of the same class; members of the same class must receive the same benefits as other members under the same terms and conditions.
• ICHRA participants must be able to opt-out of the benefit at least once annually (to preserve eligibility and access to the Premium Tax Credit for individual coverage, if applicable.
• The employer (or plan sponsor) must notify employees of the ICHRA option at least 90 days before the beginning of the plan year.
Excepted Benefit HRA (EBHRA)
Effective Jan. 1, 2020, new regulations confirm that employers may offer EBHRAs to employees if the employer offers the given class of employees traditional group health insurance. Therefore, employees offered an ICHRA or QSEHRA may not participate in an EBHRA. Additional rules include:
• The individual covered by the EHBRA must be offered, but does not need to have enrolled in, traditional group health coverage
• The EBHRA must not be considered an integral part of the group health plan.
• The EBHRA’s maximum annual reimbursement is capped at $1,800 (this amount is indexed to inflation, so employers can expect it to rise in the future).
• Employers (or plan sponsors) must make the EBHRA available to similarly situated individuals under the same terms and conditions.
• Coverage must be limited to excepted benefits, including:
i. Accident only coverage
ii. Disability Income
iii. Limited Scope Dental & Vision Plans
iv. Long Term Care Plans
v. Certain Health FSAs
ICHRAs and EBHRAs open up a lot of new opportunities to employers and may offer a way to reduce overall healthcare spending. However, given that neither of these HRA categories currently exists, there is limited guidance on to what degree these will result in cost savings and what additional compliance issues could be raised by the actual implementation of either option.
*This article gives a basic overview of recent regulation as in effect on the date of the article. Please be aware that the determination of the requirements and the application of these rules to each employer may differ due to a number of variables. Nothing in this article should be construed as legal advice.