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HRA’s or Health Reimbursement Arrangements have been around for decades. New regulations have just been released for Individual Coverage Health Reimbursement Accounts (ICHRA) and Excepted Benefits Health Reimbursement Accounts (EBHRA). Both are designed to allow employers to reimburse employees for their qualified health care expenses.

This new law would take effect on January 1, 2020. Employers would enjoy preferred tax treatment of these plans and employees would receive the reimbursements without creating a taxable event.

Employers would utilize an ICHRA, a newly defined Health Reimbursement Arrangement to reimburse employees for their qualified health insurance premiums and any scheduled medical expenses. The employer determines how much they are willing to reimburse employees each year as their budget allows. These employees would be defined by class and must not be eligible for any group insurance program the company may offer. Employees can have several classes, each with their own set of benefits.

The EBHRA would work in similar fashion and would include reimbursement for plans such as Dental, Vision, Long-Term Care, Medicare Supplements and even Short-Term Health Insurance Plans for up to 36 months (The latter are outlawed in California and New York). Annual reimbursements for the EBHRA cannot exceed $1,800.

The purpose of this legislation is to expand coverage to more Americans by allowing employers another vehicle to offer affordable benefits to more employees on a tax-preferred basis. Many employees continue to forego insurance because they do not find premiums affordable and they do not qualify for government exchange subsidies. Employers who do not currently offer benefits may be able to offer benefits to some or all of their employees through these programs. This allows the employer to subsidize what they can while not being forced into stringent group insurance contribution and participation requirements. When premiums increase in subsequent years, they can determine the amount of premium they want to continue to fund. This effectively allows them to determine their budget each year without being subject strictly to the effect of the rate increase.

Employees not currently being offered coverage may not flock to the employer ICHRA. Low income employees and many dependents have found very substantial federal subsidies through the exchanges. Many have moved on to comprehensive Medicaid programs at no cost. Individuals cannot continue to receive subsidies when they are participating in an ICHRA. For some, those subsidies may be more advantageous.

Small employers not wishing to participate in a group insurance program for all employees will find the ICHRA an attractive option. Allowing the employer to choose their level of reimbursement and specify a smaller group of eligible class of employees will help contain their budget. Most employers with the desire to continue to offer coverage to all employees will not be tempted by the ICHRA solely on cost as individual plans no longer offer the premium savings they once did. However, employers may find the Excepted Benefits HRA (EBHRA) as an attractive option to reimburse those Excepted Benefits where allowed. As health insurance premiums have risen and employers are dropping vision and dental plans, this could be the answer to beef up the employee benefit portfolio. At a time in history when a large pool of available talent is scarce, enhanced benefits may be the ticket to that next important new hire.

As with all new legislation, industry insiders have more questions than answers. Since employers with more than fifty full-time equivalent employees will continue to be subject to the employer mandate and the annual reporting, how will that be accomplished with individual policies and HRA contributions combined? Will insurers reinstate agent commissions where they have been dropped to nearly or completely to zero? If not, who will help employers through this maze?

How will the introduction of these plans affect the current markets? As group insurance markets stabilize, the individual health insurance market continues to be very unstable. Some populated areas of the country have only one insurance carrier option offering no competition to keep the rates down. Group Insurance plans are concerned they may lose participants in the group area. While individual plans are concerned they will experience an influx of higher cost individuals.

Employers should speak with an experienced benefits agent and third-party administrator to define the plan of benefits and the reimbursement mechanisms to be used. Making sure the program is arranged to comply with competing tax preferred programs and other group insurance plans will be paramount. Additional compliance steps will also be necessary when issuing notices to employees. Fees for the administration of these plans vary based on the extent of the plan. These fees should be considered when weighing the cost effectiveness of the plan.

Please feel free to contact our office if you would like to dive deeper into this topic or you would like Paula to speak to a group on this or other benefit-related topics.

Permitted classifications for distinguishing among employees include:

• Full-time or part-time employees.
• Salaried or hourly employees.
• Seasonal employees.
• Temporary employees of staffing firms.
• Unionized employees, including those covered by a particular bargaining unit.
• Employees working in the same insurance rating area as defined by the ACA.
• Employees who have not met the employer’s waiting period for medical coverage.
• Nonresident aliens with no U.S.-source income.
• Any group of employees formed by combining two or more of the above classes.
• Employers could keep their group plan for all existing employees and offer the ICHRA to all future new hires.

Most major metropolitan areas have only a few insurers offering individual policies. An example of the cost difference is shown below.

Insured Age 45, Orange County, California — Monthly Premium July 2019

Blue Shield of CA Small Group Plan · $6,500 · Deductible $498
Blue Shield of CA Individual Plan · $6,300 · Deductible $485

MANA welcomes your comments on this article. Write to us at [email protected].