The Internal Revenue Services (IRS) issued a final rule to create two new types of Health Reimbursement Arrangements (HRAs). The Individual Coverage HRA (ICHRA) and the Excepted Benefit HRA went into effect on January 1, 2020.
Here is a brief overview of these HRA changes.
Individual Coverage HRA (ICHRA)
Under the Affordable Care Act (ACA), employers were not permitted to cover individual health premiums through an HRA. However, Qualified Small Employer HRAs (QSEHRAs) were created under the Cures Act (passed in 2016.) It allowed only those employers with 50 or fewer full-time employees, and that did not offer a group health plan, to offer an HRA to cover individual health insurance premiums. QSEHRAs have not been widely utilized, likely due to the complications and qualifying conditions in order to establish one.
An ICHRA allows employers of all sizes to offer the benefit account and there are no limits on contribution amounts. Employers can fund an ICHRA only for employees who are not offered a group health plan.
- May either offer an ICHRA or a traditional group health plan but may not offer employees a choice between the two.
- Can create classes of employees around certain employment distinctions (salaried workers vs hourly workers, full-time workers vs part-time workers, workers in certain geographic areas), and then offer an ICHRA to certain classes while providing traditional group coverage for other classes.
- Must offer an ICHRA on the same terms for all those within a designated class; they are allowed to increase the ICHRA amount for older workers and for workers with more dependents.
- Can maintain their traditional group health plan for existing enrollees, with new hires offered only an ICHRA.
According to a survey from Willis Towers Watson, employers are expressing interest in this option. Of the 397 large employers surveyed, 15% were planning or considering the addition of ICHRAs to some employees from 2022 or forward. And almost a quarter of surveyed employers in the retail and wholesale sectors echoed that sentiment.
Excepted Benefit HRA
In addition to the ICHRA, the final rule created an Excepted Benefit HRA. This HRA type may be offered to all employees, regardless of their participation in the company’s health plan, to cover co-pays, deductibles and premiums for vision and dental expenses. An excepted benefit HRA is only permitted if the company offers group health coverage to employees.
For more information on the new HRAs, read the list of FAQs published by the IRS.
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