The IRS, DOL, and HHS have recently proposed new regulations (10-23-18) that would allow employers to establish two new types of health reimbursement arrangements (HRAs), which were NOT allowed under prior rules issued under the Obama Administration:
- Premium Reimbursement HRAs –for premiums for individual policies
- Excepted Benefit HRAs – reimburse for excepted benefits, & the HRA itself will be considered an excepted benefit
These are only PROPOSED regulations and even if they are finalized, they would not go into effect until plan years beginning on or after January 1, 2020. The existing rules still apply for now, and they impose substantial penalties on most employers who use HRAs to reimburse active employees for individual health insurance premiums ($100/day or $36,500/year, per affected individual). (The main exception is that Qualified Small Employer HRAs can reimburse for individual premiums.)
Some Details on the Two New Proposed Types of HRAs
- An employer could not offer both an Integrated HRA and an Excepted Benefit HRA to the same employee.
- Notice Requirement: An HRA must provide written notice to eligible participants at least 90 days prior to the beginning of each plan year that includes specified information, including the terms of the HRA, the participant’s right to opt out, and the premium tax credit eligibility consequences for participants who enroll in the HRA.
- Premium Reimbursement HRAs – Integrated with Individual Health Insurance
- This HRA can reimburse employees for premiums they paid for individual health insurance (and maybe also for eligible medical expenses)
- This HRA can be available only to employees (and their dependents) who are actually enrolled in individual health insurance policies. Employers must have reasonable procedures to verify that an individual is enrolled, which could be attestation by the participant or documentation from a third party (e.g., health insurance ID card).
- Employers cannot offer employees a choice of either this HRA or a traditional group health plan. Employers can divide employees into separate classes and offer some classes an HRA and others a traditional GHP. The proposed regulations specify the allowable classes (such as full-time, part-time, seasonal, union, primary employment site, others), but hourly v. salaried are not allowable classes.
- This HRA must be offered on the same terms and conditions to all employees in the same class; however, the employer can increase the dollar amount based on the employee’s age or family size. The regulations do not specify a maximum or minimum amount.
- This type of HRA plan is not subject to ERISA if the employer follows certain rules: for example, participation must be voluntary, and the employer cannot endorse a specific insurer.
- Excepted Benefit HRAs
- This type of HRA can only be offered to participants who are also offered coverage under a traditional group health plan. They can enroll in the Excepted Benefit HRA even if they do not enroll in the group health plan.
- This type of HRA can be funded up to $1,800 each year by the employer (indexed after 2020) and can also have amounts carryover into future years.
- This HRA cannot reimburse for premiums paid for individual health insurance, group health plan coverage, or Medicare Parts B or D.
- This HRA can reimburse for premiums for excepted benefits, STLDI or COBRA coverage. Excepted benefits include stand-alone dental or vision coverage (not integrated with the group health plan). STLDI is short-term limited duration insurance.
- This type of HRA would itself be considered an “excepted” benefit. This is significant because excepted benefits are not subject to PHSA mandates such as the Affordable Care Act’s prohibition of annual or lifetime limits.
- Here is s link to a 2012 HealthReformUpdates.com article on “Excepted” Benefits: https://news.leavitt.com/health-care-reform/what-are-excepted-benefits/
Additional Background Information on HRAs
Under existing rules there are four allowable types of HRAs:
- Retiree HRAs,
- Limited Purpose HRAs,
- Integrated HRAs for individuals covered under another group health plan, and
- QSEHRAs (Qualified Small Employer HRAs).
The proposed regulations do not change these, but only add 2 new types of HRAs.