Small Groups Will Celebrate New HRAs

The IRS recently published finalized rules easing restrictions on health reimbursement arrangements (HRAs) to allow employers to provide their workers with tax-preferred funds to pay for the cost of health insurance coverage they buy in the individual market. The regulation is part of the Trump Administration’s commitment to deliver more health coverage choices to Americans.

The HRA rule should be extremely valuable to small businesses that have had a really hard time providing group health coverage. So hard, in fact, that the Kaiser Family Foundation Employer Health Benefits Survey recently reported that the percentage of businesses with 25 to 49 workers offering group coverage has fallen from 92% to 71% since 2010.

Two New Options Will Be Available
Effective January 1, 2020, employers will be able to help employees buy individual health insurance policies by offering two different tax free HRAs. The first is an Individual Coverage HRA, which can only be offered to similar classes of workers when a traditional group health plan is not currently available. Classes refer to groups of employees with similar circumstances, such as full-time, part-time, seasonal, salaried, temporary, etc. A class must include at least 10 employees for employers with fewer than 100 employees and 20 or more employees for employers of 200 or more workers.

The other option, an Excepted Benefits HRA, is designed to be offered with a traditional group health plan, although employees do not have to enroll in the health plan. The maximum annual benefit for an Excepted Benefits HRA is $1,800.

Tax-Preferred Benefits Can Extend to Millions
The new HRA rules will make it easier for small businesses to compete with larger organizations that provide high quality group health benefits. More importantly, the employees who buy individual health plans financed by a new HRA will receive the same tax advantages as those with traditional group coverage.

The Departments of Labor, Health and Human Services and Treasury estimate that HRA expansion will benefit as many as 800,000 employers and more than 11 million employees and family members, 800,000 of whom will have been previously uninsured. To learn more about these new HRAs as you begin your planning for 2020, contact your account representative at your convenience.

Further Guidance on ACA Compliance for HRAs and Employer Payment Plans

doctor-02IRS Notice 2015-87 provides further guidance on the application of key market reforms of the Affordable Care Act (including the preventive services requirements and annual dollar limit prohibition) to certain health care arrangements, including employer payment plans and health reimbursement arrangements (HRAs). Under prior agency guidance, employer payment plans and most stand-alone HRAs do not comply with the ACA and therefore may be subject to a $100/day excise tax per applicable employee.

Employer Payment Plans
An “employer payment plan” is an arrangement under which an employer reimburses an employee for some or all of the premium expenses incurred for an individual health insurance policy, or uses its funds to directly pay the premium for an individual health insurance policy covering the employee.

Among other things, the IRS notice provides that an employer arrangement reimbursing the cost of individual market coverage offered under a cafeteria plan is an employer payment plan (whether or not funded solely by salary reduction or also including other employer contributions, such as flex credits), and cannot be integrated with the individual market coverage. Accordingly, such an arrangement will generally fail to satisfy the ACA market reforms applicable to group health plans.

Health Reimbursement Arrangements
An HRA that is “integrated” with a group health plan—under either of two integration methods described in prior agency guidance—will comply with the ACA if the group health plan with which the HRA is integrated is compliant. Stand-alone HRAs (except for retiree-only HRAs and HRAs consisting solely of excepted benefits), and HRAs used to purchase coverage on the individual market do not comply with the ACA market reforms.

The IRS notice provides further guidance related to HRAs and integration, including clarifying that, subject to transition relief, an HRA is permitted to be integrated with an employer’s group health plan only as to the individuals who are enrolled in both the HRA and the employer’s group health plan. If an employee’s spouse and/or dependents are not enrolled in the group health plan, the coverage of these individuals under the HRA cannot be integrated with the group health plan, and the HRA coverage generally will fail to meet the ACA market reform requirements.

Review our section on Cash for Premium Payments & Other Employer Payment Plans for more.