Final HRA Rule Creates New Health Care Options for Employers

On June 13, 2019 the Departments of Treasury, Labor, and Health and Human Services (the Departments) issued a final rule that will add flexibility to the way a Health Reimbursement Arrangement (HRA) may be used by employers. This guidance finalizes the October 2018 proposed rule, taking into account comments from employers and industry stakeholders about the proposed new options.

Under the Obama administration, HRAs were largely restricted unless fully integrated with a major medical plan due to noncompliance with the Affordable Care Act’s (ACA’s) eligibility and coverage mandates. The Trump administration has adopted a different interpretation, ordering the Departments to provide greater “health care choice and competition” through the use of these types of accounts. With that in mind, the final rule expands how HRAs may be used, offering two new ways an employer could use an HRA to offset employee health costs.

Individual Coverage HRAs
Beginning January 1, 2020, employers can offer Individual Coverage HRAs (ICHRAs) to employees. ICHRAs can be used to purchase ACA-compliant individual coverage (including Marketplace and private coverage, Medicare or student health insurance coverage) and to reimburse qualified medical, dental and vision expenses. Under the final rule, these HRAs must meet the following requirements:

  • The ICHRA must require the employee and eligible dependents to enroll in individual health insurance coverage for any month during which reimbursement is available. The plan must adopt reasonable procedures to substantiate individual coverage for each participant.
  • For defined classes of employees, employers must choose to offer either an ICHRA or traditional group health coverage – employees in the same classification cannot have a choice between an ICHRA and a group health plan. The ICHRA must be the only offer of coverage to the entire class of employees to which it is offered.
  • An employee who is eligible for the ICHRA could choose to opt out if eligible for subsidized coverage (e.g. premium tax credits and cost sharing subsidies) in the Marketplace.
  • The final rule does not establish a minimum or maximum annual reimbursement amount. However, the ICHRA must be offered on the same terms to all employees in the same class, with variations allowed only based on age and number of covered dependents. If age is used as a criterion to determine reimbursement amount, the variance cannot exceed a 3:1 age band ratio.
  • When an employee (or dependent) gains access to an ICHRA, the employee will also get a new special enrollment period (SEP) in the Marketplace.
  • Written notice of the ICHRA must be provided to eligible employees at least 90 days prior to the start of the plan year. A model notice from the regulators is expected well in advance of the 1.1.2020 effective date.

Importantly, the ICHRA qualifies as minimum essential coverage under Section 4980H of the Affordable Care Act – allowing employers subject to the mandate to avoid ACA penalties by offering an ICHRA so long as the coverage meets affordability requirements. Future guidance on affordability safe harbors is also expected before the effective date.

Excepted Benefit HRAs
Also included in the final rule is the option for employers to offer an Excepted Benefit HRA (EBHRA). Key features of the EBHRA include:

  • An EBHRA may reimburse qualified medical, dental and vision expenses, as well as premiums for COBRA, dental and vision coverage, and short-term, limited duration individual policies. They cannot be used for individual or group health premiums or Medicare premiums.
  • Unlike the individual coverage HRA, the EBHRA may be offered to employees who also have access to the employer’s group health plan.
  • These HRAs are considered “excepted benefits,” meaning that they are exempt from the eligibility and coverage mandates of the ACA.
  • Employers can provide up to $1,800 per year (indexed annually) to reimburse for eligible expenses.
  • The EBHRA does not have to be integrated with a group health plan, meaning it can be available regardless of whether or not an employee is enrolled in his employer’s plan.
  • It’s important to note that an employer cannot offer both an ICHRA and EBHRA.

Prior to ACA limitations of recent years, individual coverage HRAs were traditionally a vehicle used by small employers. However, we believe the ICHRA creates new options for employers of all sizes who are looking to move closer to a defined contribution approach to providing health benefits, or who are looking for additional options to comply with the Employer Mandate.

Our advisory team will continue to monitor the market impact of these new options, determine how they might fit into your health and cost strategy, and bring options forward as appropriate. In the meantime, please reach out to your account team or our Compliance Team to learn more.