The IRS Issued Final HRA Rules Expanding Opportunities for Many

On June 13, 2019, the IRS along with the Departments of Labor and Health and Human Services issued the final HRA rules. We are excited about these rules because they effectively expand opportunities for working men and women and their families to have better access to affordable quality healthcare. These rules are the direct result of an executive order issued by President Trump in October 2017 calling for regulations to expand the use of HRAs (as well as association and short-term health plans). These rules create two new kinds of Health Reimbursement Arrangements (HRAs):

  1. The Individual Coverage HRA (ICHRA)
  2. The Excepted Benefit HRA

The start date for both is for plan years effective January 1, 2020.

The ICHRA allows employers of all sizes to fund an HRA for employees to buy individual-market insurance coverage. An employer can elect to offer an ICHRA and a group health plan, providing they do not offer both to the same employee class. An employee class cannot have the option between the two, it has to be one or the other. Some key requirements of an ICHRA include:

  • The requirement for the participant and any eligible dependents to be enrolled in individual health insurance that complies with the prohibition on annual payout limits and the preventative services rules.
  • The requirement that the ICHRA not reimburse medical expenses incurred by the participant/eligible dependent after the individual health coverage ceases.
  • The requirement that the ICHRA plan sponsor must verify the participant’s individual health insurance coverage with each request for reimbursement. (Substantiation)
  • The requirement that the ICHRA plan sponsor not offer a choice between an ICHRA and a traditional group health plan. (It’s one or the other.)
  • The requirement that the ICHRA be offered on the same terms to all participants in the same class.

NOTE: Currently, qualified small-employer HRAs (QSHRAs) that were created by Congress in December 2016, allow small business with less than 50 full-time employees (FTEs) to use pretax dollars to reimburse employees who buy non-group health coverage. This ICHRA rule goes even further and doesn’t cap employer contributions. As a result, employers with less than 50 FTEs will have two choices – a QSEHRA or an ICHRA – with some regulatory differences between the two.

The Excepted Benefit HRA will increase flexibility for employer-sponsored insurance. It can be offered in addition to a traditional group health plan to permit employers to finance up to $1,800 (pre-tax) of additional medical care (such as copays, deductibles, premiums for vision, dental, COBRA and short-term insurance coverage), even if the employee has declined enrollment in the traditional group health plan.

Read the published rule here.

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