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.
- 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
- 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
- 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.