On October 24, 2018 the DOL, IRS, and HHS released proposed regulations broadening HRA rules to allow employers to offer an HRA that reimburses an employee’s individual insurance premiums or a standalone HRA that reimburses medical expenses of up to $1800 a year. These rules were finalized on June 14, 2019 and will be effective for plan years beginning on or after January 1, 2020. For the most part, the finals rules keep the terms of the proposed rules and offer helpful clarifications. The major changes include:
- New classes added for salary, hourly, and temporary workers
- Requirement for classes to have a minimum number of employees in certain situations
- Removed the "under age 25" class
- Limitation on contribution amount variance based on age within a class
- Guidance that neutral, unbiased assistance from agents, brokers, and technology will not be considered an impermissible employer endorsement of coverage
Individual Coverage HRA (“ICHRA”)
The first type of new HRA is an ICHRA. The ICHRA, in the simplest of terms is an HRA that is able to reimburse individual medical insurance premiums or qualified medical expenses. Any employer, whether considered small or large, would be able to offer the ICHRA to any of their employees. Any employee would be eligible for the ICHRA as long as they are not offered a traditional group health plan and the employee must have individual coverage, or other qualifying coverage. If the employee fails to have the appropriate coverage, they will not be able to enroll or be reimbursed from the ICHRA.
With a plan that allows an employer to contribute toward their employee’s medical insurance coverage purchased on the individual market, the federal government recognized that the ICHRA could incentive employers to offload sick employees to the individual market thereby destabilizing it. To prevent this from occurring the rule requires the employer must to treat all employees who fall into predefined classes the same. This means that the employer must decide which classes of employees would be offered a traditional group health plan and which would be offered the ICHRA. The employer is not allowed to offer both types of plans to an employee. The benefits within the employee classes must generally be the same both in the amount of the benefit and the terms of the ICHRA plan. Note that the ICHRA does not have any cap on how much the employer can give to their employees.
What follows is an in-depth outline of the ICHRA rules for employers:
a) Employer: Any employer may offer an ICHRA, including boards of trustees or similar entities
b) Employee: Any employee that maintains qualifying coverage and is not offered a traditional group health plan can opt-in to the ICHRA
c) Dependents: Any statutory dependent also enrolled in qualifying coverage
d) Opt-out: An employee and their qualified dependents must be given an opportunity to opt-out at least once annually
e) Qualifying Coverage:
i. Individual medical insurance (on or off exchange)
ii. Medicare, including Medigap
iii. Student health coverage
iv. Association health plans
f) Disqualifying Coverage
i. Short Term Limited Duration Plans (STLDI)
iii. Other group health coverage (ex. Spouse’s employer’s traditional group plan)
iv. Health sharing ministries
v. Coverage considered an excepted benefit (ex. Dental or Vision)
ICHRA Benefit Limits and Rules
a) General Limit: No annual benefit limits
b) Allowable Benefit Variation Within Classes:
ii. Age (limited to 3:1 youngest tier)
iv. Number of dependents
v. New hires (may pro-rate rather than give the full amount)
vi. New dependents (may pro-rate rather than give the full amount)
c) Runout: Runout for incurred claims is required but employer may limit time to a reasonable period.
d) Reimbursable Expenses
i. Individual insurance premiums purchased on or off the exchange
ii. Any out of pocket medical expense that falls under section 213(d)
f) Non-Reimbursable Expenses
i. Short Term Limited Duration Plans
ii. Non section 213(d) expenses
iii. Excepted benefit premiums such as dental or vision
iv. Employee Contributions
g) Employee Contributions: An employee may use §125 payroll deductions to pay any individual coverage premium differential so long as not purchased on a government exchange.
Requirement to Treat Employees the Same
i. Full time
ii. Part time
iv. Employees covered by a collectively bargained agreement
v. Employees not having satisfied a waiting period
vi. Non-resident aliens with no US income
ix. Temporary workers
x. Combination of any 2 of the above
b) Classes Requiring Minimum Number of Eligible Employees
i. salaried employees (only if the employees in either the part-time or full-time class are offered a traditional group health plan while the employees in the other class are offered an individual coverage HRA),
ii. non-salaried employees,
iii. full-time employees,
iv. part-time employees, and
v. employees whose primary site of employment is in the same rating area (although the minimum class size requirement does not apply if the geographic area defining the class is a state or a combination of two or more entire states)
c) Minimum Number of Eligible Employees (based on eligible employees)
i. 10, for an employer with fewer than 100 employees;
ii. A number, rounded down to a whole number, equal to 10% of the total employees for an employer with 100-200 employees
iii. 20, for an employer that has more than 200 employees
d) Exceptions Allowing for Benefit Variation
iii. Number of dependents
a) Employees: 90 days before plan year or when first eligible prior to HRA effective date
b) New ICHRA Plans: Plans less than 120 days from plan year start, by the HRA effective date but only for the first year
c) Delivery: Must be in writing or a method reasonably calculated for actual receipt (subject to applicable ERISA rules).
Substantiation of Reimbursement Requests
a) Annual Substantiation: Employee must provide proof that they will have coverage prior to the beginning other HRA effective date.
b) Ongoing Substantiation: Employee must provide proof of coverage or attest on an ongoing basis prior to each reimbursement request. Substantiation may also be achieved by other reasonable means to ensure continuing coverage such as the employer receiving a list of covered individuals from the carrier, an adequate debit card transaction, or an employer’s direct payment of the premium to the carrier.
Employer Mandate Impact
a) Affordability: An ICHRA is affordable if the required employee contribution does not exceed the employee’s household income which is the excess of (1) the monthly premium for the lowest cost silver plan (non-tobacco rate) for self-only coverage available to the employee through the Exchange for the rating area in which the employee resides; over (2) the monthly self-only HRA amount provided by the employee’s employer.
b) Offer of Coverage: Proposed rules for how an ICHRA will meet the “offer of coverage” obligation. The rules will be issued based on Notice 2018-88.
a) Applicability: An ICHRA is subject to COBRA, although, failing to maintain coverage alone is not a COBRA qualifying event.
a) Applicability: While an HRA is subject to ERISA but the individually purchased insurance coverage is not if the following is met:
i. The purchase is completely voluntary for employees.
ii. The employer, employee organization, or other plan sponsor does not select or endorse any issuer or insurance coverage.
iii. Reimbursement is limited solely to individual health insurance coverage.
iv. The employer, employee organization, or other plan sponsor receives no consideration in connection with the selection of any individual insurance coverage.
v. Each plan participant is notified annually that coverage is not subject to ERISA.
b) Documentation: SPD, SBC and any other applicable ERISA documents are required to be provided to the employee.
c) Employee Assistance: The employer may assist the employee in finding an insurance carrier, but it must be in a neutral, unbiased manner. Any recommendation or steerage will cause the plan to fail the ERISA safe harbor.
Retirees and Former Employees
a) Retiree Only HRAs: This rule does not apply to retiree only HRAs
b) Former Employees: Employer is not required to offer employees an ICHRA, but if they do, it must be on the same terms as the class the employee was in prior to separation.
Excepted Benefit HRA
a) Employer: Any employer may offer this HRA
b) Employees: Any employee offered a traditional group health plan (not an ICHRA). Employee does not have to be enrolled in the group health plan
c) Dependents: Any employee and their qualified dependents who is offered a traditional group health plan. The employee is not obligated to enroll in the coverage to be eligible for this HRA.
i. Contribution Amount: $1800 annually but can be carried over to the next year and employer must give the same benefit to similarly situated employees.
ii. Reimbursable Expenses: Generally only section 213(d) medical expenses with exceptions for certain premiums.
iii. Substantiation Requirement: Standard HRA substantiation rules.
ICHRA Benefit Limits and Rules
a) General Limit: Annual limit of $1800 (adjusted annually). Carryover is allowed with no cap. If other HRAs are provided, the amounts must be aggregated (excepted benefit HRAs are excluded from this rule).
b) Reimbursable Expenses
i. §213(d) expenses
ii. Premiums that are excepted benefits or COBRA related
c) Non-Reimbursable Expenses
i. Individual insurance coverage
iii. Non §213(d) expenses
d) Transfers: Transfers from other account-based plans is not permitted.
e) Ability to Vary Benefit: Similarly situated employees must be treated the same. Variation allowed based on bona fide employment based classifications as found under HIPAA.
f) Special Rule on Reimbursement of STLDI Premiums
i. If the following five elements are met, then STLDI cannot be reimbursed:
- Employer is a small group;
- Employer offers a fully or partially insured plan;
- HHS makes a finding that STLDI reimbursement would hurt the small group market;
- A State insurance agency has requested such a determination;
- Notice has been provided by HHS.
a) Requirement: No special notice is required except for non-federal government plans. Further guidance from the agencies will be forthcoming.
With 2020 fast approaching, employers will want to review the rules and determine if either HRA is appropriate for their benefit plan. The above outline only provides a high-level overview of the regulations. If an employer is considering offering either HRA, especially the ICHRA, they will need to take into consideration the modification of plan documents and enrollment materials, determining the benefit amount, defining the scope of which expenses should be considered reimbursable, who would be offered the HRA, and most importantly, consideration of the employee experience.
Employers are advised to work with knowledgeable consultants to implement these HRAs to make sure the plan is compliant with the final rules. Technology should be worth taking into consideration to help employees find coverage and help smooth administration of the plan, especially the premium payments and substantiation process. For example, an employer must be careful not to endorse a particular insurance carrier for employees to purchase individual coverage, which could easily occur if an employer limits the debit card or the payment process to exclude certain carriers.
To help in the transition to move from a traditional group plan to an ICHRA, the provided guidelines allow an employer to only offer the ICHRA to new employees and keep existing employees within the same class on the traditional group plan.
It is worth keeping in mind that employees would still be eligible for an HSA or FSA with either type of HRA. To be compatible with an HSA, the HRA could not reimburse out-of-pocket medical expenses before the HSA deductible is met.
A final consideration for groups wanting to offer an ICHRA for 1/1/20 is that they will need to notify employees at least 90 days before 1/1/20. Employees will need to have the opportunity to find individual coverage during the 2019 open enrollment period of 11/1/19-12/15/19.
If you have any questions about HRAs or any related spending accounts, please contact a Further representative.