Individual Coverage & Excepted Benefit Health Reimbursement Arrangements
On Thursday, June 13, 2019, the U.S. Departments of Health and Human Services, Labor and Treasury issued a final rule that creates two new kinds of Health Reimbursement Arrangements (HRAs) effective for January 1, 2020 plan start dates:
- Individual coverage HRA (ICHRA)
- Excepted benefit HRA (EBHRA)
These HRA rules are intended to provide businesses, especially those with a high turnover rate of part-time employees, a better way to offer health insurance coverage so that millions of workers and their families can obtain the best coverage for their needs and recruit and retain talent in a tight talent market.
The ICHRA has been developed to help employers provide an alternative to traditional health coverage since many struggle with affordability. Contributing to an ICHRA can allow employers to offer a subsidy to offset the cost of an employee’s individual health coverage. Also, the EBHRA has been developed to benefit the growing number of employees who have opted out of their employer’s coverage.
At Alight, our priority is to make it simple for our health solutions clients to make smarter healthcare choices every day. Our enrollment solutions and Alight Smart-Choice Accounts™ reimbursement platform will fully support the account administration for these types of HRAs.
Let’s look at the details
Individual coverage HRA
Employers of all sizes can offer an ICHRA in lieu of traditional group health plan coverage for all or certain classes of employees. To enroll in the ICHRA, employees must purchase ACA-compliant health insurance in the individual market, which could include insurance purchased in the public exchanges.
If employers choose to offer this new ICHRA benefit in 2020, they will need to act soon to provide sufficient, required advance notice. Employees who choose to take advantage of an ICHRA in the new year must enroll in an individual health plan during the fall open enrollment period.
Considerations for employers exploring this new ICHRA benefit:
- Individuals taking advantage of the ICHRA benefit must be enrolled in ACA-compliant individual health insurance coverage
- Employers may offer different coverage to different classes of employees, as specified under the final rule (e.g., part-time vs full-time employees)
- Employees will be required to annually confirm their enrollment and continued coverage in ACA-compliant individual health insurance coverage with each claim submission to meet substantiation rules
- An employer may limit reimbursable expenses under an ICHRA to preserve HSA eligibility
- For employers that want to use the ICHRA to meet the ACA employer mandate for full-time employees, contributions must meet certain affordability rules
Excepted benefit HRA
The EBHRA will increase flexibility for employer-sponsored group health plans. An EBHRA 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 or premiums for vision, dental, COBRA and short-term insurance coverage), even if the employee has declined enrollment in the traditional group health plan.
Considerations for employers exploring this new EBHRA benefit:
- Employers must offer other, non-account-based medical coverage that does not consist solely of excepted benefits (e.g., dental or vision coverage)
- The benefit must be a limited amount (maximum of $1,800 for 2020)
- The EBHRA can only reimburse certain medical expenses and cannot reimburse premiums for individual coverage, group health plan coverage or Medicare
- The EBHRA must be made uniformly available and on the same terms to all individuals
- While employers can offer both the ICHRA and the EBHRA, the same class of employees cannot be offered both of these HRA options
Is this a fit for my organization?
Many employers are questioning whether these new HRA options are right for them. Employers should consider whether the following applies:
- I need to provide coverage to a population that may not be eligible for our employer sponsored group health plan
- I’d like to offer coverage to new hires after a designated effective date
- I’d like a new way to meet our financial objectives
- I have a Gig population
- I have a growing contingent workforce and am looking for ways to attract and retain them
If you checked any of the boxes above, your organization may want to explore the new HRA options and Alight can partner with you to deliver your strategies. We see a lot of potential for employers to take advantage of these new rules and we are ready to help. Contact us today if you have questions or would like to learn more about the new rules.
Additional Resources for more information:
U.S. Department of Labor — U.S. Departments of Health and Human Services, Labor, and the Treasury Expand Access to Quality, Affordable Health Coverage through Health Reimbursement Arrangements
Federal Register — Health Reimbursement Arrangements and Other Account-Based Group Health Plans
Frequently asked questons
We've answered some of the most commonly asked questions.
Will Alight support these HRAs?
Our enrollment solutions and Alight Smart-Choice Accounts™ reimbursement platform will fully support the account administration for these types of HRAs.
What are the benefits of offering an Individual Coverage HRA to employees?
ICHRAs can help enable businesses to focus on what they do best— serve their customers —and not on navigating and managing complex health benefit designs. ICHRAs provide tax advantages because the reimbursements provided to employees do not count toward the employees' taxable wages. In effect, ICHRAs extend the tax advantage for traditional group health plans (exclusion of premiums and benefits received from federal income and payroll taxes) to HRA reimbursements of individual health insurance premiums.
What are the benefits of offering an Excepted Benefit HRA?
An EBHRA will benefit the growing number of employees who have been opting out of their employer's traditional group health plan because the employee's share of premiums is too expensive.
There may be scenarios in which employers wish to offer an EBHRA in addition to a traditional group health plan, for example to help cover the cost of copays, deductibles, or non-covered expenses. EBHRAs generally allow for higher levels of employer contributions than health flexible spending arrangements (FSAs) and can permit rollover of unused amounts from year to year.
To qualify as an EBHRA:
- Employers must offer other, non-account-based medical coverage that does not consist solely of excepted benefits (e.g., dental or vision coverage)
- The benefit must be a limited amount ($1,800 for 2020)
- The EBHRA can only reimburse certain medical expenses and cannot reimburse premiums for individual coverage, group health plan coverage or Medicare
- The EBHRA must be made uniformly available and on the same terms to all individuals
- While employers can offer both the ICHRA and the EBHRA, the same class of employees cannot be offered both HRA options.
What other responsibilities do employers have when implementing ICHRAs?
ICHRAs must provide a notice to eligible participants regarding the terms of the ICHRA and how it affects eligibility for a premium tax credit in the public marketplace. Employees must also be permitted to opt out of an ICHRA at least annually so they may claim the premium tax credit if they are otherwise eligible. The ICHRA must also have reasonable procedures to substantiate that participating employees and their families are enrolled in individual health insurance or Medicare, while covered by the ICHRA both at initial enrollment and with each request for reimbursement of expenses.
Employers generally will not have any responsibility with respect to the individual health insurance itself that is purchased by the employee, because it will not be considered part of the employer-sponsored plan, provided:
- An employee's purchase of any individual health insurance is completely voluntary
- Employers do not select or endorse any particular insurance carrier or insurance coverage
- Reimbursement of premiums is limited to premiums for ACA-compliant individual health insurance coverage, including Medicare premiums
- Employers don't receive any cash, gifts, or other consideration in connection with an employee's selection or renewal of any individual health insurance
- Each employee is notified annually that the individual health insurance is not subject to the Employee Retirement Income Security Act (ERISA), which is the federal law governing employer-provided health coverage