This week, the U.S. Departments of Treasury, Health and Human Services and Labor issued joint proposed regulations that, if finalized, would expand the use of Health Reimbursement Arrangements (HRAs).
An HRA is an employer-funded account that is used to reimburse an employee’s qualified medical expenses. An employee may not contribute to the HRA- it is solely employer-funded. Distributions from an HRA must be used to reimburse qualified medical expenses incurred on or after the date of enrollment in the HRA, and contributions to an HRA are not included in an employee’s income for tax purposes.
The proposed regulations make two significant changes to the HRA rules. First, they allow HRAs to reimburse the cost of individual health insurance premiums. Second, they allow HRAs to reimburse the cost of excepted benefit medical expenses if employees are offered coverage under another group health plan sponsored by the employer.
Presently, HRAs may not be used to reimburse the cost of individual health insurance premiums. The new proposed regulations relax this rule and allow HRAs to reimburse employees for the cost of individual health insurance coverage, subject to several conditions.
This change is intended to create new options employers to use to fund health benefits. It is thought that small and mid-size employers may be particularly interested in funding HRAs and leaving it up to their employees to purchase individual health insurance policies with the HRA funds.
The proposed regulations also allow employers that offer traditional group health coverage to provide an HRA of up to $1,800 per year to reimburse certain excepted benefit medical expenses, such as dental or vision-only benefits and premiums for short-term health insurance plans.
If the regulation becomes final, it will be effective for plan years beginning on and after January 1, 2020. A copy of the regulation may be accessed by clicking here.
