Starting January 1, 2020, two new Health Reimbursement Arrangements (HRAs) will be available to employers – the Individual Coverage HRA and Excepted Benefit HRA.
The Internal Revenue Service (IRS) issued the ruling June 13th after Trump Administration’s October 2017 executive order on healthcare choice and competition.
What are HRAs?
An HRA is an IRS-approved, employer-funded, tax-advantaged benefit plan that is used to reimburse employees’ qualified medical-related expenses. The rising cost of healthcare is a concern for most employers. With the addition of an HRA, employers can enhance and customize their benefit package while still achieving their overall corporate goal of lowering or capping benefit costs.
A few of the customizable features of an HRA include contribution amounts, eligible expenses, whether funds roll over, as well as when and how funds become available. This benefit plan is similar to a Healthcare FSA; however, it is employer-funded rather than employee-funded.
What is an Individual Coverage HRA?
Unlike traditional HRAs, the Individual Coverage HRA (ICHRA) would expand the usability of the HRA by eliminating the current exclusion on integrating HRAs with individual health insurance coverage. Therefore, eligible employees will now be allowed to use the ICHRA with their individual health insurance coverage to pay for eligible medical expenses as defined by IRC Section 213(d). With the implementation of the ICHRA, businesses of any size can reimburse employees tax-free.
Which businesses can offer the ICHRA?
The ICHRA is available to businesses of all sizes if they have at least one W-2 employee. However, there are a few guidelines.
First, the business must not already offer a Qualified Small Employer HRA (QSEHRA) or Excepted Benefit HRA to all classes of employees. Secondly, the business can offer a group health plan but not to the same employee class it is offering an ICHRA.
Which employees are eligible for the ICHRA?
The ICHRA allows businesses to make distinctions on eligibility and allowance amounts for employees based on 11 different classes:
- Temporary employees working for staffing firm
- Employees covered under a collective bargaining agreement
- Employees in a waiting period
- Foreign employees who work abroad
- Employees in different locations, based on rating areas
- A combination of two or more of the above
In addition to meeting the employer’s eligibility requirements, employees must also have an individual health insurance coverage to participate. If the employee fails to have the appropriate coverage, they will not be able to enroll or be reimbursed from the ICHRA.
What is an Excepted Benefit HRA?
In addition to the ICHRA, the final ruling also created the Excepted Benefit HRA. This HRA option allows employees to pay premiums for excepted benefits and short-term coverage. The annual pre-tax limit for this benefit plan is $1,800. Please note, certain requirements must be met to offer this type of HRA, including that the business must offer a group health insurance policy and cannot also offer an ICHRA.
To learn more about the new HRAs, please contact an FBA Administrator today at (800) 437-3539. Our hours of operation are Monday through Friday 8:30 am – 5:00 pm EST. Additionally, the IRS published a list of FAQs that you can read here.