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New Rule Will Let Employees Use HRAs to Buy Health Insurance in 2020

June 14 - Posted at 4:33 PM Tagged: , , , , , , , , , ,

Advocates claim a newly issued regulation could transform how employers pay for employee health care coverage.

On June 13, the U.S. Departments of Health and Human Services, Labor and the Treasury issued a final rule allowing employers of all sizes that do not offer a group coverage plan to fund a new kind of health reimbursement arrangement (HRA), known as an individual coverage HRA (ICHRA). The departments also posted FAQs on the new rule.

Starting Jan. 1, 2020, employees will be able to use employer-funded ICHRAs to buy individual-market insurance, including insurance purchased on the public exchanges formed under the Affordable Care Act (ACA).

Under IRS guidance from the Obama administration (IRS Notice 2013-54), employers were effectively prevented from offering stand-alone HRAs that allow employees to purchase coverage on the individual market.

“Using an individual coverage HRA, employers will be able to provide their workers and their workers’ families with tax-preferred funds to pay all or a portion of the cost of coverage that workers purchase in the individual market,” said Joe Grogan, director of the White House Domestic Policy Council. “The departments estimate that once employers fully adjust to the new rules, roughly 800,000 employers will offer individual coverage HRAs to pay for insurance for more than 11 million employees and their family members, providing them with more options for selecting health insurance coverage that better meets their needs.”

The new rule “is primarily about increasing employer flexibility and worker choice of coverage,” said Brian Blase, special assistant to the president for health care policy. “We expect this rule to particularly benefit small employers and make it easier for them to compete with larger businesses by creating another option for financing worker health insurance coverage.”

The final rule is in response to the Trump administration’s October 2017 executive order on health care choice and competition, which resulted in an earlier final rule on association health plans that is now being challenged in the courts, and a final rule allowing low-cost short-term insurance that provides less coverage than a standard ACA plan.

New Types of HRAs

Existing HRAs are employer-funded accounts that employees can use to pay out-of-pocket health care expenses but may not use to pay insurance premiums. Unlike health savings accounts (HSAs), all HRAs, including the new ICHRA, are exclusively employer-funded, and, when employees leave the organization, their HRA funds go back to the employer. This differs from HSAs, which are employee-owned and portable when employees leave.

The proposed regulations keep the kinds of HRAs currently permitted (such as HRAs integrated with group health plans and retiree-only HRAs) and would recognize two new types of HRAs:

  • Individual coverage HRAs. Employers would be allowed to fund ICHRAs only for employees not offered a group health plan. 
  • Excepted-benefit HRAs. These would be limited to paying premiums for vision and dental coverage or similar benefits exempt from ACA and other legal requirements. These HRAs are only permitted if employees are offered coverage under a group health plan sponsored by the employer.

What ICHRAs Can Do

Under the new HRA rule:

  • Employers may either offer an ICHRA or a traditional group health plan but may not offer employees a choice between the two.
  • Employers can create classes of employees around certain employment distinctions, such as salaried workers versus hourly workers, full-time workers versus part-time workers, and workers in certain geographic areas, and then offer an ICHRA on a class by class basis.
  • Employers that offer an ICHRA must do so on the same terms for all employees in a class of employees, but they may increase the ICHRA amount for older workers and for workers with more dependents.
  • Employers can maintain their traditional group health plan for existing enrollees, with new hires offered only an ICHRA.

The rule also includes a disclosure provision to help ensure that employees understand the type of HRA being offered by their employer and how the ICHRA offer may make them ineligible for a premium tax credit or subsidy when buying an ACA exchange-based plan. To help satisfy the notice requirements, the IRS issued an Individual Coverage HRA Model Notice.

QSEHRAs and ICHRAs

Currently, qualified small-employer HRAs (QSEHRAs), created by Congress in December 2016, allow small businesses with fewer than 50 full-time employees to use pretax dollars to reimburse employees who buy nongroup health coverage. The new rule goes farther and:

  • Allows all employers, regardless of size, to pay premiums for individual policies through a premium-reimbursement ICHRA.
  • Clarifies that when employers fund an ICHRA or a QSEHRA paired with individual-market insurance, this will not cause the individual-market coverage to become part of an Employee Retirement Income Security Act (ERISA) plan if certain requirements are met (for instance, employers may not select or endorse a particular individual-market plan).
  • Creates a special enrollment period in the ACA’s individual market for those who gain access to an ICHRA or a QSEHRA to purchase individual-market health insurance coverage.

The legislation creating QSEHRAs set a maximum annual contribution limit with inflation-based adjustments. In 2019, annual employer contributions to QSEHRAs are capped at $5,150 for a single employee and $10,450 for an employee with a family.

The new rule, however, doesn’t cap contributions for ICHRAs.

As a result, employers with fewer than 50 full-time employees will have two choices—QSEHRAs or ICHRAs—with some regulatory differences between the two. For example:

  • QSEHRA participants who obtain health insurance from an ACA exchange and who are eligible for a tax credit/subsidy must report to the exchange that they are participants in a QSEHRA. The amount of the tax credit/subsidy is reduced by the available QSEHRA benefit.
  • ICHRA participants, however, will not be able to receive any premium tax credit/subsidy for exchange-based coverage.

“QSEHRAs have a special rule that allows employees to qualify for both their employer’s subsidy and the difference between that amount and any premium tax credit for which they’re eligible,” said John Barkett, director of policy affairs at consultancy Willis Towers Watson.

While the ability of employees to couple QSEHRAs with a premium tax credit is appealing, the downside is QSEHRA’s annual contribution limits, Barkett said. “QSEHRA’s are limited in their ability to fully subsidize coverage for older employees and employees with families, because employers could run through those caps fairly quickly,” he noted.

For older employees, the least expensive plan available on the individual market could easily cost $700 a month or $8,400 a year, Barkett pointed out, and “with a QSEHRA, an employer could only put in around $429 per month to stay under the $5,150 annual limit for self-only coverage.”

Similarly, for employees with many dependents, premiums could easily exceed the QSEHRA’s family coverage maximum of $10,450, whereas “all those dollars could be contributed pretax through an ICHRA,” Barkett said.

An Excepted-Benefit HRA

In addition to allowing ICHRAs, the final rule creates a new excepted-benefit HRA that lets employers that offer traditional group health plans provide an additional pretax $1,800 per year (indexed to inflation after 2020) to reimburse employees for certain qualified medical expenses, including premiums for vision, dental, and short-term, limited-duration insurance.

The new excepted-benefit HRAs can be used by employees whether or not they enroll in a traditional group health plan, and can be used to reimburse employees’ COBRA continuation coverage premiums and short-term insurance coverage plan premiums.

Safe Harbor Coming

With ICHRAs, employers still must satisfy the ACA’s affordability and minimum value requirements, just as they must do when offering a group health plan. However, “the IRS has signaled it will come out with a safe harbor that should make it straightforward for employers to determine whether their ICHRA offering would comply with ACA coverage requirements,” Barkett said.

Last year, the IRS issued Notice 2018-88, which outlined proposed safe harbor methods for determining whether individual coverage HRAs meet the ACA’s affordability threshold for employees, and which stated that ICHRAs that meet the affordability standard will be deemed to offer at least minimum value.

The IRS indicated that further rulemaking on these safe harbor methods is on its agenda for later this year.

Last week, the IRS announced the 2019 maximum contribution limits for Flexible Spending Accounts (FSA), Commuter Reimbursement Accounts (CRA), and Qualified Small Health Reimbursement Arrangements (QSEHRA). 

Below is a table comparing the 2018 limits to the adjusted limits for 2019.



Proposal Announced To Expand Access to Affordable Health Coverage

October 23 - Posted at 7:21 PM Tagged: , , , , , , , , ,

The Trump administration announced a proposed rule today that would allow businesses to give employees money to purchase health insurance on the individual marketplace, a move senior officials say will expand choices for employees that work at small businesses.

The proposed rule, issued by the Department of Health and Human Services (HHS), the Department of Labor (DOL) and the Department of Treasury, would restructure Obama-era regulations that limited the use of employer-funded accounts known as health reimbursement arrangements (HRA). The proposal is part of President Donald Trump’s “Promoting Healthcare Choice and Competition” executive order issued last year, which tasked the agencies with expanding the use of HRAs.

Senior administration officials said the proposed change would bring more competition to the individual marketplace by giving employees the chance to purchase health coverage on their own. The rule includes “carefully constructed guardrails” to prevent employers from keeping healthy employees on their company plans and incentivizing high-cost employees to seek coverage elsewhere.

That issue was a primary concern under the Obama administration, which barred the use of HRAs for premium assistance. The 21st Century Cures Act established Qualified Small Employer Health Reimbursement Accounts (QSEHRA), but those are subject to stringent limitations.

Under the new rule, HRA money would remain exempt from federal and payroll income taxes for employers and employees. Additionally, employers with traditional coverage would be permitted to reserve $1,800 for supplemental benefits like vision, dental and short-term health plans.

Officials estimate 10 million people would purchase insurance through HRAs, including 1 million people that were not previously insured. Most of those people would be concentrated in small and mid-sized businesses.

The proposed change would “unleash consumerism” and “spur innovation among providers and insurers that directly compete for consumer dollars,” one senior official said. Officials expect 7 million people will be added to the individual marketplace over the next 10 years.

The rule does not change the Affordable Care Act’s employer mandate, which requires employers with 50 or more employees to offer coverage to 95% of full-time employees. Administration officials expect the proposal will have the biggest impact on small businesses with less than 50 employees.

However, the rule could scale back the use of premium subsidies. If the HRA is considered “affordable” based on the amount provided by the employer, the employee would not be eligible for a premium tax credit. If the HRA fails to meet those minimum requirements, the employee could choose between a premium tax credit and the HRA.

Overall, the rule will “create a greater degree of value in healthcare and the health benefits marketplace than we would otherwise see,” one official said.

The regulation, if finalized, is proposed to be effective for plan years beginning on and after January 1, 2020.

 

A New Employer Healthcare Plan: Qualified Small Employer Health Reimbursement Arrangement (QSEHRA)

March 02 - Posted at 3:00 PM Tagged: , , , , , , , , , , , , , , , , , , ,

Until very recently, employers were at risk of receiving steep fines if they reimbursed employees for non-employer sponsored medical care – the Affordable Care Act (ACA) included fines of up to $36,500 a year per employee for such an action. Late in 2016, however, President Obama signed the 21st Century Cures Act and established Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs). As of January 1, 2017, small employers can offer these tax-free medical care reimbursements to eligible employees.


How Do QSEHRAs Work?


If an employee incurs a medical care expense, such as health insurance premiums or eligible medical expenses under IRC Section 213(d), the employer can reimburse the employee up to $4,950 for single coverage or $10,000 for family coverage. Employees may not make any contributions or salary deferrals to QSEHRAs.


The maximum amount must be prorated for those not eligible for an entire year. For example, an employer offering the maximum reimbursement amount should only reimburse up to $2,475 to an employee who has been working for the company for six months. For a complete list of medical expenses covered under IRC 213(d), see https://www.irs.gov/pub/irs-pdf/p502.pdf. Employers may tailor which expenses they will reimburse to a certain extent, and do not have to reimburse employees for all eligible medical expenses.


Much like other healthcare reimbursement arrangements, employees may have to provide substantiation before reimbursement. The IRS has discretion to establish requirements regarding this process, but has not yet done so. Although reimbursements may be provided tax-free, they must be reported on the employee’s W-2 in Box 12 using the code “FF.”


Which Employers Can Offer QSEHRAs?


To offer QSEHRAs, an employer cannot be an applicable large employer (ALE) under the ACA. Only employers with fewer than 50 full-time equivalent employees can offer this benefit. Further, a group cannot offer group health plans to any employees to qualify.

Which Employees Are Eligible For QSEHRAs?


Typically, an employer that chooses to offer a QSEHRA must offer it to all employees who have completed at least 90 days of work. The few exceptions to this rule include part-time or seasonal employees, non-resident aliens, employees under the age of 25, and employees covered by a collective bargaining agreement.


Employers may offer differing reimbursement amounts based on employee age or family size. However, such variances must be based on the cost of premiums of a reference policy on the individual market. It is currently unclear which reference policy will be selected or how permitted discrepancies will be calculated.


To be eligible for a tax-free reimbursement, employees must have proof of minimum essential coverage. It is uncertain how closely employers will have to scrutinize such proof, although guidance will hopefully be available soon.


Interaction Between QSEHRAs And Health Exchanges


Eligible employees must disclose to health exchanges the amount of QSEHRA benefits available to them. The exchanges will account for the reported amount, even if the employee does not utilize it, and will likely reduce the amount of the subsidies available. Employers should take this into account before adopting a QSEHRA.


Other Administrative Issues


In order to establish a QSEHRA, employers will have to set up and administer a plan. Group health plan requirements, such as ACA reporting and COBRA requirements, do not apply to QSEHRAs. But in order to properly provide reimbursements to employees, employers will likely have to establish reimbursement procedures.


Additionally, any eligible employees must be notified of the arrangements in writing at least 90 days before the first day they will be eligible to participate. For the current year, the IRS is giving employers who implement QSEHRAs an extension until March 13, 2017 to provide a notice. The notice must provide the amount of the maximum benefit, and that eligible employees inform health insurance exchanges this benefit is available to them. It also must inform eligible employees they may be subject to the individual ACA penalties if they do not have minimum essential coverage.

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