Individual Coverage HRAs and Expanded HRA Rules

On June 13, the U.S. Departments of the Treasury, Labor, and Health and Human Services 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.

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 an individual coverage HRA 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 individual coverage HRA, but not both.
    • Offering an individual coverage HRA will satisfy the ACA Employer Mandate, if it meets the affordability threshold.  More information is pending from the Treasury and the IRS for determining affordability under the Employer Mandate.
    • Employees can opt out of an individual coverage HRA if they are eligible for premium tax credits on the public Marketplace.
  • Employers are required to make the individual coverage HRA available to entire “classes” of employees (e.g., full-time, part-time, or seasonal workers).
    • 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 individual coverage HRA.  A model notice will become available.
  • Employers can contribute as little or as much as they want to an individual coverage HRA.  However, the employer must offer the HRA on the same terms to all employees in a class except the employer can increase the amount available based on the age of the participant (not to exceed a 3:1 age band), or 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 individual coverage HRA.

It is expected that the individual coverage HRAs (ICHRA) will be most attractive to employers who do not presently offer a group health plan to their employees or to a class of employees. The individual insurance market has demonstrated much less stability than the group insurance market with regard to escalating premiums, decreasing carrier choice, rising cost of care and diminishing provider networks which makes transitioning from the group market to the individual market very challenging. Additional changes in Washington and at the state level could breathe new life into the individual market for 2020 and beyond thereby broadening the adoption of the ICHRA.

Excepted Benefit HRAs

Under the final rule, employers are given more flexibility in employer-sponsored benefits by creating another limited kind of HRA. Employers that offer traditional group health coverage can offer Excepted Benefit HRAs (EBHRA) 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.

FAQ on healthcare coverage for employers and employees

More information