The U.S. Departments of Health and Human Services, Labor and Treasury issued a joint rule expanding the use of Health Reimbursement Accounts (HRAs). An HRA is a tax-favored benefit plan that reimburses employees for the cost of medical expenses and health insurance premiums. An HRA is completely funded by an employer with no employee contributions.
Under the new rule, employers will be able to establish individual coverage HRAs to provide their employees with tax-free money to pay for the cost of health insurance coverage the employee purchases through the individual marketplace. The individual coverage HRA may be desirable for small employers who find offering health coverage too costly. An employer cannot offer an individual coverage HRA to any employee who is offered a traditional group health plan. Employers can contribute as little or as much as they want to an individual coverage HRA, but the plan must be offered on the same terms to all employees in a class of employees. The amount contributed to the HRA can be increased based on the employee’s age or number of dependents. Coverage may even count as an offer of coverage under the ACA employer mandate. Individual coverage HRAs go into effect starting January 2020 and certain notice requirements must be satisfied.
In addition to the individual coverage HRA, the new rule creates an excepted benefit HRA. This allows employers who offer traditional group health plans to provide an HRA benefit of up to $1,800 per year (indexed for inflation) to reimburse an employee for certain qualified medical expenses such as premiums for vision, dental, and short-term, limited-duration insurance. An employee can have an excepted benefit HRA even if the employee does not enroll in the employer’s main health plan.
FAQs on the new rule can be accessed by clicking here.
