Final Rule Issued Allowing HRAs to Be Used for Individual Coverage

On June 13, the U.S. Departments of the Treasury, Labor, and Health and Human Services (tri-agencies) issued a final rule allowing employees to use the dollars in employer-funded Health Reimbursement Arrangements (HRAs, also called Health Reimbursement Accounts) to purchase individual coverage both on and off the public Marketplace (or Exchange). The rule also creates a new excepted benefit HRA (EBHRA) to enable employees to be reimbursed for excepted benefit costs. This finalizes a proposed rule issued in Oct. 2018 largely as proposed, but with some modifications. The rule follows through on an Executive Order that directed the tri-agencies to consider ways to expand the flexibility of HRAs.

Individual Coverage HRAs

Beginning Jan. 1, 2020, employers can offer individual coverage HRAs (ICHRAs) to provide tax-exempt dollars to their employees for the purchase of Affordable Care Act (ACA)-compliant individual coverage, but not the less comprehensive, short-term, limited duration insurance (STLDI) coverage. Under the final rule:

• Employees can use ICHRA funds to pay the premium for individual insurance coverage purchased either on or off the public Marketplace.
• Employers can offer their employees either a group health plan or an ICHRA, but not both.
  • Offering an ICHRA will satisfy the Section 4980H Employer Mandate, if it meets the affordability threshold.
  • Employees can opt out of an ICHRA if they are eligible for premium tax credits on the public Marketplace.
• Employers are required to make the ICHRA available to entire “classes” of employees (e.g., full-time, part-time, or seasonal workers).
  • In response to comments received on the proposed rule, the final rule includes a minimum class size requirement based on employer size.
    • <100 employees: minimum class of 10 employees
    • 100-200 employees: minimum class of 10% of total employees
    • >200 employees: minimum class of 20 employees
• Employers must provide a written notice to employees at least 90 days prior to the start of the plan year that details the terms of the ICHRA. The tri-agencies will provide a model notice.
• The total funds offered through an ICHRA may vary in two instances: as the age of the participant increases (not to exceed a 3:1 age band), and based on the number of dependents covered.
• A new individual market Special Enrollment Period (SEP) has been established for when an employee or their dependent gains access to an ICHRA.

Excepted Benefit HRAs

Under the final rule, employers that offer traditional group health coverage can offer EBHRAs of up to $1,800 per year to reimburse employees for certain medical expenses, including stand-alone dental or vision benefits or premiums for STLDI coverage. The maximum amount will be indexed annually after 2020. Employees do not need to be enrolled in a group health plan to use EBHRA funds, and an employer cannot offer both an ICHRA and EBHRA.

The tax treatment of HRAs remains unchanged. The final rule can be read in detail here.

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