Are Individual HRAs the New Alternative to Group Health Coverage?

October 25, 2019
Hall Benefits Law, LLC

Many businesses use health reimbursement arrangements (HRAs). Recently finalized guidance from the Trump Administration, effective beginning in 2020, offers additional opportunities for businesses to utilize HRAs. Employers with more than 50 full-time employees must offer ACA-compliant health coverage and HRAs offer an option different from providing traditional group health plans.

HRAs under the new rules must meet certain requirements in order to be offered in lieu of an employer-sponsored group health plan and the reimbursement must be used by the employee to purchase compliant individual health coverage. When set up properly, the HRA is a tax-free account funded by an employer to reimburse employees for their qualified medical expenses. These funds can be rolled over each year and can cover a wide variety of medical costs.

Individual HRA Requirements

The new rule on HRAs goes into effect January 1, 2020, giving employers and employees time to consider this alternative to group healthcare. HRAs can now be offered as a benefit to cover an employee’s individual healthcare insurance premium if it meets the following requirements.

  • The covered employee, or the covered dependent, must be enrolled in an ACA-compliant individual health insurance plan. This can include insurance purchased on the healthcare exchange, Medicare coverage, or another ACA-compliant healthcare offering. Coverage such as short-term policies or policies that have excepted benefits does not meet this requirement.
  • The employer must be able to substantiate the employee’s coverage. In order to do this, the employer must put in place reasonable procedures to collect information proving that the employee and any dependents are enrolled in a compliant insurance plan. The Department of Labor has issued a model form that employers can use.
  • There must be only one option available per class of employee. A class of employees can be created based on a variety of approved characteristics (such as geographic location, part-time vs. full-time, etc.) and the employer must offer the same health coverage to all employees within that class. The employer cannot offer the same class of employees both a traditional group health plan and an HRA, but it can offer a traditional health plan to one class and an HRA to another. Further, there is also a minimum class size of roughly 10% of the workforce in each class. This minimum does not apply to a class that consists of new hires.
  • The individual HRA must be offered on the same terms to each employee. If an employee falls within a class that is offered an HRA, then they must be able to get it on the same terms as all other employees, except that businesses are allowed to offer higher HRA contributions based on either the employee’s family size or the employee’s age, but this contribution increase must be calculated the same across the entire class.
  • In order to inform employees of their options and how taking advantage of the HRA may impact their premium tax credit, employers must provide the employee notice of their options at least 90 days before they must enroll in a plan. This notice must also include relevant information such as how the dollar amount of the HRA contributions are calculated.
  • Finally, employees must be able to opt-out of HRA coverage on an annual basis. They must be given the opportunity to opt-in in the next plan year. Some employees may opt-out in order to receive the premium tax credit, though they can only receive that credit if the HRA is considered unaffordable or does not provide a minimum value. Further, the employee must be able to opt-out of the plan if they are terminated.

Individual HRAs are an interesting option for businesses to consider in order to meet their ACA insurance requirements. The benefit attorneys at Hall Benefits Law can help you decide if this is the right course for your business and put in place the paperwork, policies, and procedures to take advantage of this new option. To learn more or to get help making changes to your plans today, call 678-439-6236 today or visit the Hall Benefits Law website.

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Hall Benefits Law, LLC

HBL offers employers comprehensive legal guidance on benefits in mergers and acquisitions, Employee Stock Ownership Plans (ESOPs), executive compensation, health and welfare benefits, healthcare reform, and retirement plans. We counsel a wide spectrum of clients including small, mid-sized, and large companies, 401(k) investment advisors, health insurance brokers, accountants, attorneys, and HR consultants, just to name a few. HBL is passionate about advising clients, and we are dedicated to our mission: to provide comprehensive, personalized, and practical ERISA and benefits legal solutions that exceed client expectations.

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