With the issuance of new and final regulations related to Health Reimbursement Account (HRA) plans, here is a high-level overview, as the new rules are a lengthy 500 pages, and the possible impact for employers and plan sponsors. As we shared in our recent Legislative Update, starting in January 2020, employers and plan sponsors will be able to consider two new HRA approaches: Individual Coverage HRA and Excepted Benefit HRA. These new options will be available alongside the current HRA models.
This is the current HRA approach and has been in existence for some time. It is intended as a means to combine an employer group health plan (GHP) with an employer-paid source (the HRA) to reimburse certain health plan-related cost-sharing. Employers fund the HRA and generally enrolled employees can use the funds in the HRA to pay for eligible out of pocket costs such as deductible expenses, copays, etc. There are no new rules to this traditional HRA approach.
2. Individual Coverage HRA (IC-HRA)
The new IC-HRA allows employers, regardless of size, to provide an HRA that employees will use to pay premiums for coverage that the employee buys from the individual market. There is no cap on the amount of the IC-HRA contribution. Employers may either offer an IC-HRA or a traditional GHP-HRA, but may not offer employees a choice between the two. Employers can offer an IC-HRA on a class by class basis by creating certain employment distinctions (e.g., salaried versus hourly, full-time versus part-time, workers in certain geographic areas). Employers that offer an IC-HRA must do so on the same terms for all employees in a class, and may increase the IC-HRA amount for older workers and for workers with more dependents. Under this plan, the employer technically “exits” the benefits for medical and pharmacy coverage. The employee is responsible for purchasing their individual insurance. There are various accompanying rules that will come with this option. This option would meet the coverage option under the ACA. Furthermore, based on how much money the employer puts into the HRA, this option may meet the ACA’s affordability rules. The regulators have not yet issued the “affordability” rules. This is currently an open issue.
3. Excepted Benefit HRA (EB-HRA)
The new EB-HRA permits employers to provide an EB-HRA of up to $1,800 per year (indexed to inflation after 2020), even if the employee doesn’t enroll in the GHP. The new EB-HRA can reimburse an employee for certain types of qualified medical expenses, including premiums for vision, dental, long term care, nursing home, short-term limited-duration insurance and COBRA.
An employer can offer an IC-HRA or an EB-HRA. It cannot offer both. The two new HRAs are not compatible since the IC-HRA does not allow an employer to offer employees a GHP option and the EB-HRA requires the employer to offer a GHP.
There is another HRA option available to employers with fewer than 50 employees known as the Qualified Small Employer HRA. We are not commenting on this plan, as our firm does not conduct business in the small group space.
The two new HRA options expand what an employer may do for 2020.
The new IC-HRA may be a solution for certain business markets. With this option, the employer is providing pre-tax money for the employee to purchase coverage on their own. The employer is “out of the benefits” business (except for things like dental, life insurance, disability, etc.) Employees will have to “figure it out” and what an employer may fund, may not cover all of their individual premiums. The IC-HRA is comparable to a “private exchange” model without the employer “private exchange”. Since this option can be used for “classes” of workers, some companies may opt to offer this solution for certain segments of workers. Employers should consider the option and how it synchs with their overall benefits and HR strategy. Since all the rules are not published, final decisions will have to wait. We view this new HRA as an option for employers to consider.
The new EB-HRA is more of a “niche” play. Employers can only fund up to $1,800 a year into the HRA for 2020. This will be adjusted annually. This could be offered in place of a “stipend” for employees who waive coverage since an employee can waive the GHP and just enroll with the EB-HRA. We don’t see as much applicability for this new HRA although some businesses may consider.
Until the regulators issue the affordability rules for the new IC-HRA solution, it is hard to determine if this approach will be of value. If the affordability rules are reasonable, an employer could fund the HRA accordingly and simultaneously “get out of the benefits” business while meeting the ACA’s requirements. Yet for many employers, jettisoning workers to a “do it yourself” solution may diminish their competitive position as an employer in a tight labor market. For now, we are waiting on the financial rules to provide better guidance.
In the interim, click here to read our recent Legislative Update on the new rules. Please click here to find a simple FAQ on the IC-HRA from the regulators.
As more information surfaces we will provide rapid-response updates.