The Departments of the Treasury, Labor, and Health and Human Services jointly issued final regulations governing health reimbursement arrangements (HRAs). The final regulations allow integration of HRAs with individual health insurance coverage or Medicare, if certain conditions are satisfied. The rules also allow certain HRAs to be recognized as excepted benefits. The rules apply for plan years beginning on or after Jan. 1, 2020.

INDIVIDUAL COVERAGE HRA (ICHRA)

The rules create a new category of HRA, called an “individual coverage HRAs” or “ICHRAs”. In general, the regulations remove the prohibition on integrating an HRA with individual health insurance coverage, if certain conditions are met, and contain requirements that an HRA must meet to be integrated with individual health insurance coverage.

Under the new rules, an employer may integrate an HRA with individual health coverage only if:

participants and dependents are actually enrolled in individual health insurance coverage (though not coverage that consists solely of excepted benefits) for each month they are covered by the HRA;

coverage is offered to a class of employees to whom a traditional group health plan is not offered;

coverage is offered on the same terms in amount and conditions to all employees within each class (though certain variations based on age are allowed);

an opt out option is provided for individuals who prefer Affordable Care Act Exchange coverage, but would not be eligible for the premium tax credit if enrolled in an employer health plan such as an HRA; and

substantiation and notice requirements are met.

EXPECTED BENEFIT HRA

The rules also created a new category of Excepted Benefit HRAs. Funds in an excepted-benefit HRA can reimburse medical care (as defined in IRC § 213(d)), such as copays, coinsurance, deductibles or expenses not covered by a primary plan. But an excepted-benefit HRA cannot reimburse premiums for individual health insurance, group health plan coverage (other than COBRA or other continuation coverage), or Medicare. However, this type of HRA may reimburse premium costs for other HIPAA excepted benefits, such as dental or vision coverage. Special rules apply as to whether an HRA may reimburse short-term, limited-duration insurance.

The final rules impose following requirements for excepted benefit HRA:

the HRA must not be an integral part of the plan

the HRA must provide benefits that are limited in amount ($1,800 per year, adjusted for inflation after 2020);

the HRA cannot provide reimbursement for premiums for certain health insurance coverage; and

the HRA must be made available under the same terms to all similarly situated individuals.

In addition to the release of the final rules, the Departments also released a FAQ document, Model Notice and Model Attestation.

Resources:

Final Rule

Frequently Asked Questions

Model Notice (link downloads a Word document)

Model Attestation (link downloads a Word document)

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This information is provided as a courtesy, may change and is not intended as legal or tax guidance. Employers with questions or concerns outside the scope of a Payroll Service Provider are encouraged to seek the advice of a qualified CPA, Tax Attorney or Advisor.