You may have heard the exciting news last month about Health Reimbursement Arrangements (HRAs) – or did you? Recently, the IRS announced that employers will be able to offer two new variations of HRAs – the Individual Coverage HRA and the Excepted Benefits HRA – to your benefits package starting on January 1, 2020. What exactly does this mean and how will it impact the benefits industry? Let’s take a look.
First, here is an overview of the new types of Health Reimbursement Arrangements.
The Individual Coverage Health Reimbursement Arrangement
The first HRA announced is the Individual Coverage HRA, also known as ICHRA, a type of HRA that reimburses premiums for individual health insurance that is chosen by the employee. In order to use the ICHRA, employees must enroll in individual health insurance (on or off an exchange) or Medicare for each month the employee is covered by the ICHRA. Employers can allow unused funds to roll forward from year to year.
- Tax savings – reimbursements are not counted as employee taxable wages
- More options – employees can shop for health insurance plans in the individual market
- Increased portability
The ICHRA expands the way health insurance is offered to employees, thereby allowing more workers the chance to obtain coverage with more flexibility. In turn, this helps employers – especially small employers – be more competitive in attracting talent and retaining employees.
Like any benefit plan, there are rules employers must follow when offering the ICHRA. For instance, the ICHRA must be the same for all individuals within a class of employees, with the exception that older employees and employees with dependents can be given more funds in the plan. Employers can establish different types of ICHRAs based on different classes of employees, such as full-time or part-time. For a complete list of rules please see the IRS FAQs.
Looking ahead: the Impact of the ICHRA
The Departments of the Treasury, Labor and Health & Human Services estimate that with the addition of the ICHRA, approximately 800,000 previously uninsured workers will gain coverage. Americans will have more options and opportunities to select coverage that is right for them and their families. The introduction of the ICHRA can potentially affect much of today’s workforce who is without coverage.
The Excepted Benefit Health Reimbursement Arrangement
The second new Health Reimbursement Arrangement introduced is the Excepted Benefit HRA, a type of HRA that allows employers to finance additional medical care regardless of whether the employee is enrolled in a traditional group health plan. Excepted Benefit HRAs can also roll over from year to year.
What makes an Excepted Benefit HRA a valid type of HRA? Well, there are certain rules and requirements the HRA must adhere to, including:
- Must be uniformly available to similarly situated individuals
- Cannot be used to reimburse health insurance premiums (either individual or group), with the exception of COBRA
- A traditional group health plan must be offered, regardless of whether the employee enrolls in it
- A cap on the annual contribution amount, beginning with $1,800 per year and adjusted annually for inflation
ICHRAs and Excepted Benefit HRAs have the potential to have a sizable impact on the benefits industry; what employers offer and the value added for employees will be closely examined by benefit professionals in the coming year. If you would like to discuss these options in more detail, please contact a P&A Group benefits consultant.
Stay tuned for our next article about HRAs and other design options employers can offer.