As of January 1, 2020, a newly issued regulation could transform how employers pay for their employees’ health care coverage. This ruling will allow employers of all sizes that do not offer a group coverage plan to fund a new kind of Health Reimbursement Arrangement (HRA) known as an individual coverage HRA (ICHRA).
On June 20, 2019, final rules were published by the Internal Revenue Service, Department of Labor, and the Department of Health and Human Services regarding Health Reimbursement Arrangements and Other Account-Based Group Health Plans. “The new rule is primarily about increasing employer flexibility and worker choice of coverage.” Said Brian Blase, Special Assistant to the President for Health Care Policy. “We expect this rule to particularly benefit small employers and make it easier for them to compete with larger businesses by creating another option for financing worker health insurance coverage.“
ICHRAs can only be used to reimburse medical expenses consistent with the existing HRA rules, and under the NEW HRA rule:
- Employers may either offer an ICHRA or a traditional group health plan but not a choice between the two.
- Employers can create classes of employees around certain employment distinctions, such as salaried vs. hourly, full-time vs. part-time, and in certain geographical areas. Employers can offer ICHRAs to certain classes while providing traditional group coverage for others.
- Employers that offer the ICHRA must do so on the same terms for all employees in a certain class, but may increase the amount for older workers and for workers with more dependents.
- Employers can maintain their traditional group health plan for existing enrollees, and offer new hires only the ICHRA.
“… Employers will be able to provide their workers and their workers’ families with tax-preferred funds to pay all or a portion of the cost of coverage that workers purchase in the individual market.” Said Joe Grogan, director of the White House Domestic Policy Council.
He goes on to say that once rules are set, roughly 800,000 employers will offer this HRA to pay for insurance for more than 11 million employees and their families. This new HRA will provide them with more options that will better fit their needs.
This new plan may seem very familiar - the Qualified Small Employer HRA (QSE HRA) allows small businesses with fewer than 50 full-time employees to use their pre-tax dollars to reimburse employees who buy non-group health coverage, but the new rule goes further than that.
The new HRA allows all employers, regardless of size, to pay premiums for individual policies, clarifies that when employers fund an ICHRA paired with individual-market insurance it will not cause it to become part of an ERISA plan provided certain safe harbor conditions are satisfied, and creates a special enrollment period. With the QSE HRA, there is a maximum annual contribution limit, but the new rule doesn’t cap contributions for the ICHRAs. Instead of having one choice, the QSE HRA, employers now have two. With the QSE HRA, participants who obtain health insurance from an ACA exchange who are eligible for a tax credit must report to the exchange that they are participants. ICHRAs, however, will not be able to receive any premium tax credits for exchange-based coverage.
In addition, the ruling creates a new Excepted-Benefit HRA that lets employers that offer traditional group health plans provide an additional pre-tax $1,800 per year to reimburse employees for certain qualified medical expenses, such as premiums for vision and dental insurance, COBRA continuation coverage, and in some circumstances short-term, limited-duration insurance. The new excepted-benefit HRA can be used by employees whether or not they enroll in their employer’s group health plan.
Stay tuned as more information comes out on the new ruling, and how BASE® can help!