New legislation loosens restrictions on how employers implement health reimbursement arrangements (HRAs). For those looking to incorporate HRAs into their health plans for 2020, they need to act soon.

An HRA is an employer-funded group health plan that reimburses employees and their dependents for medical care expenses they incur on a tax-free basis. The Affordable Care Act prohibited HRAs from being used to purchase health insurance coverage on the individual market due to violations of certain market reform rules and annual dollar limits. Instead, HRAs were only available if they were integrated with an employer-sponsored health plan. As a result, many employers were reluctant to offer HRAs and opted to offer healthcare flexible spending accounts or health savings accounts as alternatives.

The new rules are intended to provide employers with additional flexibility in offering employee health coverage and provide more choice of coverage to employees without the previous requirement that the HRA be integrated with an employer sponsored group health plan. This is accomplished by creating two new types of HRAs: individual coverage HRA and excepted benefit HRA.

The individual coverage IRA and excepted benefit HRA may be offered to employees as of Jan. 1, 2020. Employers who have calendar-year plans and want to offer the individual coverage IRA will need to include it in their 2020 open enrollment period and provide the required notice at least 90 days prior to Jan. 1, 2020.

Individual coverage HRA

With an individual coverage HRA, HRA funds may be used to purchase individual health insurance coverage or Medicare as long as the following requirements are met:

• Employers can offer a traditional group health plan or an individual coverage HRA to a class of employees, but not both.
• Employers can vary the amount of reimbursement between classes of employees; however, there are exceptions for an employee’s age and number of dependents.
• Employers can limit reimbursements to insurance premiums; employers are not required to permit reimbursement for all medical expenses.
• Employers must provide a written notice to individuals eligible for participation at least 90 days before the beginning of each year, and to new employees upon eligibility.
• Prior to reimbursement, the medical expense must be substantiated by the employee. There also is an annual substantiation requirement.
• Individual health insurance may be purchased on the exchange or privately.
• Employees must be enrolled in individual health insurance or Medicare coverage for each month that they are covered by the HRA.
• Employees may reduce salary on a pretax basis through a cafeteria plan to pay for any portion of the premium for individual health coverage that is not covered by the HRA.

Excepted benefit HRA

An employer may fund an excepted benefit HRA to reimburse employees for excepted benefits such as dental and vision benefits. It may be offered as part of an employer’s traditional group health program and can reimburse medical expenses even when the employee chooses not to participate in the employer’s group health plan. The excepted benefit HRA must meet the following requirements:

• Contributions to the HRA are limited to $1,800 per year, indexed for increases in the cost of living for plan years after Dec. 31, 2020.
• An employer must sponsor a traditional group health plan in conjunction with the excepted benefit HRA; however, an employee can still receive reimbursement under the excepted benefit HRA even if coverage is declined under the traditional group health plan.
• Individual health insurance premiums, group health plan premiums or Medicare premiums are not eligible for reimbursement.
• Dental, vision and short-term, limited duration health insurance are eligible for reimbursement.
• Coverage to employees must be uniform across classes of employees, such as full-time and part-time.

For more information on this topic, or to learn how Baker Tilly specialists can help, contact our team.