A Detailed Look at Considerations for the New HRA Options

The final rule regarding HRA expansion was released and scheduled to take effect for plan years beginning on or after January 1, 2020. The rule was in response to the October 12, 2017 executive order issued by President Trump to prioritize near-term improvement: association health plans (AHPs), short-term, limited-duration insurance (STLDI), and health reimbursement arrangements.

The final rule establishes new parameters to allow employers to offer an HRA to be used for the purpose of purchasing individual health coverage in lieu of a traditional group health plan, and separately for an HRA to be used for excepted benefits coverage.

The first major provision of the proposal would establish new parameters to allow employers to offer an HRA for tax-preferred funds to be used for the purpose of paying all or a portion of individual health coverage in lieu of a traditional group health plan. This would effectively provide the same tax benefits of the employer exclusion for individuals who obtain coverage on the individual market. The individual coverage HRA will be available on a class-by-class basis, with employers permitted to create classes of employees around certain employment distinctions, such as salaried workers versus hourly workers, full-time workers versus part-time workers, and workers in certain geographic areas. Employers will be able to maintain their existing group health plan for current enrollees, with new hires offered an individual coverage HRA.

The second provision of the proposal would permit an employer to offer employees an HRA for excepted benefits, although the rule firmly states that excepted benefits are not individual coverage. Further, employers are not permitted to offer employees both an HRA for purchase of individual health coverage and an HRA for excepted benefits. This provision permits employers that offer traditional group health plans to provide an HRA of up to $1,800 per year, indexed to inflation, to reimburse an employee for certain qualified medical expenses, including premiums for short-term plans. NAHU specifically opposed this provision to reimburse individuals for the purchase of short-term plans under the proposed rule. Excepted benefits must not be an integral part of the health plan, the HRA must be made available under the same terms to similarly situated individuals, and the HRA cannot provide reimbursement for premiums for traditional health insurance coverage. This HRA could be available even if the employee doesn’t enroll in the traditional group health plan.

Items in the final rule that should be emphasized or have changed from the proposed rule include:

  • Applies to all size employers
    • The employer may offer both the HRA for individual premium (ICHRA) including Medicare A, B or C, Medicare supp, Medigap, and student health plans as long as it’s not excepted benefits.
  • Reiterates the prohibition against employee CHOICE of HRA or traditional group health plan
    • In light of the continued concern with the added complexity that would be required and the response from commenters, the final rules do not allow an individual coverage HRA to also be integrated with other group health plan coverage, such as spousal coverage.
  • Minimum class size requirements were added from the proposed rules based on comments.
  • Minimum  10 for an employer with less than 100 employees, a number rounded down to a whole number equal to 10% of total for an employer w 100-200 employees and 20 for employer with more than 200 employees
  • Includes an opt out provision due to concerns that an employee is unable to obtain a PTC while covered under the HRA
  • Employer substantiation requirements
  • Employer notice requirements
  • Do not permit integration with healthcare sharing ministry plans
    • reminder to be mindful of Medicare Secondary Payer (MSP) rules regarding incenting employees of the health plan
    • HRAs , OTHER than excepted HRAs, are group health plans and as such are MEC and can be used to avoid Penalty A of the ESR/ Play or Pay mandate
    • The HRA offered by a small employer may not reimburse premiums for short-term, limited-duration insurance
  • An Applicable Large Employer (ALE) must consider the HRA under the affordability rules of the Play or Pay mandate
    • The total funds offered through an ICHRA may vary in two instances: as the age of the participant increases (not to exceed a 3:1 age band), and based on the number of dependents covered.

For more information on the HRA final rule, join us on Thursday, July 18, at 1:00 p.m. Eastern for a NAHU member-exclusive Compliance Corner webinar on the health reimbursement arrangement final rule.

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