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Integrated HRAs

A new option exists for employers when it comes to paying for employee health care coverage. On June 13^th, the U.S. Departments of the Treasury, Labor, and Health and Human Services (the Departments) issued a final rule allowing employers to use pretax dollars to subsidize employee premiums in the individual health insurance market. Now, employers of all sizes that do not offer a group coverage plan can fund a new health reimbursement arrangement (HRA) known as individual coverage HRA (ICHRA).

Previously, under the Affordable Care Act, employers were prevented from offering stand-alone HRAs that would allow an employee to purchase coverage on the individual market. That has changed. Employers now have the option to provide their workers and their families with tax-preferred funds to pay all or a portion of the cost of coverage that workers purchase in the individual market. The departments posted an FAQs regarding the new regulation. ICHRAs are advantageous to employers because they maintain the tax favored status that apply to a traditional group health plan. Additionally, another employer-sponsored insurance called Excepted Benefit HRAs (EBHRA) allows employers to finance an additional pretax $1,800 per year to reimburse employees for certain qualified medical expenses (such as premiums for vision and dental insurance) even if the employee opts out of enrollment in the traditional group plan.

Qualified Small Employer HRAs (QSEHRA) are still an attractive alternative to group coverage for smaller employers- those with fewer than 50 full-time employees. Under QSEHRAs, employers can give their employees money tax-free to purchase individual health policies through the ACA exchange, similar to ICHRAs. Employees can use these funds to pay all or part of the insurance plan premium or pay for out-of-packet medical costs. While ICHRAs are void of caps on annual allowance amounts, in 2019, QSEHRAs allowance amounts were capped at $5,150 for self-only employees and $10,450 for employees with a family. While ICHRAs are free of caps, employees who choose ICHRAs will not be able to receive any premium tax credit/subsidy for exchange-based coverage. In some instances, if an employer funds an ICHRA or a QSEHRA coupled with individual-market insurance, this will bar the individual-market coverage from becoming part of the Employee Retirement Income Security Act (ERISA).

If employers choose to offer ICHRAs, then the new regulations require a written notice be issued to all employees who are eligible. In this notice, employers need to include a provision that states the ICHRA may make them ineligible for a premium tax credit or subsidy when buying an Affordable Care Act exchange-based plan. ICHRAs will be available for plan years starting on or after January 1, 2020. Employers offering an ICHRA with a plan year that begins on January 1, 2020 should help eligible employees understand that they must enroll in individual health insurance coverage during the open enrollment period, November 1, 2019 through December 15, 2019, for individual health insurance coverage that takes effect on January 1, 2020.

ICHRAs and EBHRA are two new health insurance arrangements that could provide smaller employers with innovative and more cost-effective ways to finance worker health insurance coverage. The IRS has noted that including safe harbor provisions to ensure employers still satisfy the ACA’s affordability and minimum value requirements with ICHRAs will come out later this year.