By Susan Burnoski, CPA | Principal, Audit & Assurance
As of January 1, 2020, there are two new health reimbursement arrangement (HRA) alternatives for employers to consider. However, due to notice requirements, you need to begin the process now.
Individual Coverage HRA (ICHRA)
If the individual purchases ACA-compliant health coverage, an employer of any size can reimburse the employee for those premiums subject to these rules:
- Short-term Limited Duration Insurance (STLDI) policies don’t qualify as ACA-compliant coverage.
- The employer cannot also offer a traditional group health plan in addition to the ICHRA.
- Offering an ICHRA will satisfy the ACA employer mandate under Section 4980H so long as:
- The affordability threshold is met;
- The employer makes the ICHRA available to entire classes of employees, such as FTEs, or PTEs.
- There are minimum class sizes:
- Employers with less than 100 employees: minimum class of 10 employees
- Employers with 100-200 employees: the minimum class is 10% of total employees
- Employers with more than 200 employees: the minimum class is 20 employees
- There are minimum class sizes:
- A notice of the availability of an ICHRA must be provided at least 90 days prior to the beginning of the plan year (a model notice accompanied the final regulations).
- When an employee or their dependent gains access to an ICHRA, a Special Enrollment Period applies.
- The amounts contributed to the HRA must not favor highly compensated individuals—there are only two instances in which the employer’s HRA contributions can vary:
- older employees may receive higher amounts (but not to exceed a 3:1 age band);
- employees with greater numbers of covered dependents may receive a higher amount
- There is no limit on the amount the employer can contribute to the ICHRA.
- The amount of the ICHRA reimbursement is not taxable to the employee.
This is a great solution for many smaller employers!
Excepted Benefit HRA (EBHRA)
Employers wishing to continue offering traditional health benefits (including PPOs, HMOs, or qualified high deductible health plan/HSA plans) can offer an EBHRA to pay:
- Out-of-pocket medical expenses
- Dental benefits
- Vision benefits or
- STLDI premiums
Although these reimbursements are also tax-exempt, the amount that can be contributed by the employer is limited to $1,800 per year (indexed for inflation after 2020).
An employee can opt-out of his/her employer-sponsored health plan and still be eligible for the EBHRA. However, an employee cannot have both an ICHRA and an EBHRA.
This is an exciting and simple alternative for employers to consider.
If you’d like to discuss your company’s HRA options, contact me today to get started.