The Internal Revenue Service (IRS), Department of the Treasury (DOT), Employee Benefits Security Administration (ESA), and Department of Health and Human Services (DHS) recently issued a final ruling on the use of employer-funded health accounts. Effective January 1, 2020, employers of all sizes that do not offer a group coverage plan may use HRAs as a vehicle to help employees pay for health insurance premiums. This ruling extends beyond the current scope of health reimbursement arrangements (HRAs), which allows businesses to offer employer-funded accounts for employees to apply to out-of-pocket medical expenses and now allows employees to pay for insurance premiums.

The new ruling is expected to affect more than 800,000 employers and 11 million employees, making it a far-reaching update to the current system. Under the guidance, employers may offer two new types of HRAs:

• Individual coverage HRAs (ICHRAs) – Employees can use these funds to buy individual-market insurance as well as insurance on the public exchanges formed under the Affordable Care Act (ACA), pay insurance premiums and in some cases reimbursements.  These can be offered when no group health coverage is provided by the employer.
• Excepted-benefit HRAs (EBHRAs) – Employees can use these funds to pay premiums for vision and dental coverage or similar benefits. This is only permitted if you offer employees group health coverage.

The Benefits

• Small employers can now more effectively compete with larger businesses when it comes to benefits offerings.
• The change allows businesses, small businesses, in particular, flexibility in providing their workers with tax-preferred funds to pay all or a portion of their cost of health coverage.
• Employers can segment their employees and offer customized health benefits to individual groups. For instance, you could have one group qualify for traditional group coverage while another group qualifies for ICHRA but you may not offer them a choice between the two. For a full list of employee classifications, visit https://www.irs.gov/pub/irs-utl/health_reimbursement_arrangements_faqs.pdf
• Employers must offer the HRA on the same terms to all employees within a segment, but ICHRA benefit levels can be customized within segments.
• Employers can provide more substantial benefits to older workers and workers with more dependents. ICHRAs can be used to reimburse premiums for Medicare and Medigap when certain conditions are met.
• ICHRAs can also be compatible with HSAs when set-up correctly.

Considerations:

• Employers should note that they are only allowed to fund ICHRAs if they do not offer a group health plan. Conversely, EBHRAs may only be offered if employers sponsor coverage under a group health plan.
• Participation in an ICHRA may make employees ineligible for certain tax credits or subsidies when purchasing a policy from the ACA exchange, even if they opt-out of the ICHRA.
• Employers are required to give employees at least 90-days-notice before the beginning of the plan year and include disclosure provision to help employees thoroughly understand their options.
• Although the new ruling offers more flexibility, it does not permit employers to provide employees with a choice between ICHRAs or a traditional group plan. However, when it comes to new employees, employers can maintain their existing benefits for enrollees while offering new hires only an ICHRA.
• The new rule does not cap contributions to ICHRAs. Excepted-benefit HRAs are capped at $1,800 per year.

To assist employers, the DOL issued this Individual Coverage HRA Model Notice: https://www.dol.gov/sites/dolgov/files/ebsa/laws-and-regulations/rules-and-regulations/completed-rulemaking/1210-AB87/individual-coverage-model-notice.pdf .

This notice is not exhaustive. If you would like more information on how your business might benefit from an ICHRA, give the professionals in our office a call. We can go over your options and determine if you satisfy the ACA’s affordability and minimum value requirements.