Business owners now have a way to help their employees get individual health care coverage.
The U.S. Departments of Health and Human Services; Labor; and Treasury released a new rule in June that allows employers to contribute to Individual Coverage Health Reimbursement Arrangements (ICHRA) as an alternative to traditional group health plan coverage.
An ICHRA is a way to provide employees with tax-preferred funds to pay for personal health care expenses, including the cost of health insurance coverage purchased in the individual market, as well as Medicare. Money employers contribute to these tax-free accounts also is tax-deductible.
The rule will take effect January 2020 and is available to businesses of all sizes. Allowances within the same class must be the same size but employers can make distinctions based on the employee’s age or family size. Employer annual contributions for ICHRAs are not limited.
Businesses can offer the individual HRA to all types of employees, including full-time; part-time; seasonal; salaried; hourly; temporary employees working for a staffing firm; employees covered under a collective bargaining agreement; employees in a waiting period; foreign employees who work abroad; employees working in different locations; and a combination of two or more of the above. In order for employees to be eligible for ICHRA reimbursements, they must have coverage under an individual health insurance policy.
The rule also allows employers to set up an Excepted-Benefit HRA (EBHRA), which allows reimbursement of expenses other than premiums (e.g., copays, deductibles, or other expenses not covered by the primary plan) and COBRA, dental and vision premiums. Accounts can be funded up to $1,800 per year and employees are allowed to participate even if they decline enrollment in the company’s traditional group health plan.
There are also a myriad of other rules concerning HRAs so check with your advisor for full details.
Standard HRAs — offered in addition to standard health coverage plans — are used to reimburse employees for qualified medical expenses and, in some cases, group health insurance premiums. Employers can claim a tax deduction for the reimbursements and reimbursement dollars received by employees generally are tax free.
In 2013, the Internal Revenue Service (IRS) issued a notice that limited employers’ ability to offer HRAs and prevented employees from using the HRAs to pay for individual health coverage. In 2016, Congress created the qualified small employer HRA which allowed small employers with fewer than 50 employees to offer an HRA integrated with individual health insurance – although there were many restrictions.
Some observers have concerns that employees, who are used to having their employer choose their health care coverage, will not be happy about choosing their own insurance. Others worry that only small employers will offer this option.
One of the reasons the Trump administration is interested in expanding the use of HRAs is that as health costs and insurance premiums have risen, employers have had to shift more of the costs to employees through higher premiums or larger deductibles. High insurance costs have particularly been hard on small employers who have 100 or fewer employees because they have less bargaining power. Proponents hope that the rule will allow employees to shop for coverage that is a better fit for them and their families, instead of one-size-fits-all group plans. The White House believes that more than 11 million workers may benefit from the rule change, including about 800,000 who would otherwise go uninsured.
Experts believe small employers will like this new option because an HRA is a fixed cost from year to year. It’s also an economical way for businesses that previously have not offered coverage to now provide coverage.
Again, there are a lot of rules and conditions pertinent to these new HRA options, so be sure to contact your broker or reach out to us at email@example.com to get connected.