HRA Changes That Affect Your Employees
A new law, along with rules governing Health Reimbursement Arrangements (HRA) affects the type of health care benefits you can offer your employees.
HRAs are employer-funded, tax-advantaged employer health benefit plans that help employees pay for out-of-pocket medical expenses and health insurance premiums.
Small Business HRA/QSEHRA
A new law created a Small Business HRA, also known as a Qualified Small Employer HRA (QSEHRA), provides a way for small businesses that don’t offer group health plans to fund HRAs for employees who purchase individual health insurance plans.
The HRA provision is part of the 21st Century Cures Act, signed into law by President Barak Obama in December 2016. The law primarily focuses on accelerating drug approvals and making innovative treatments more accessible. The law also overturns Internal Revenue Service and Department of Labor regulations penalizing small employers who provide HRA benefits. Employers with fewer than 50 full-time employees or equivalents can now fund employee HRAs if they don’t offer health coverage.
If an employer decides to offer a QSEHRA, it must offer them to all qualifying full-time employees. Exceptions are part-time or seasonal workers; employees who have not completed 90 days of service; employees who are younger than 25; or employees who are covered under a collective bargaining agreement for accident and health benefits.
Employers currently are limited to offering $4,950 HRAs for single coverage and $10,000 HRAs for family coverage. Contributions to the accounts should generally be equal, although there is some room for variance based on the price of an individual health insurance policy and factors such as the age of the employee, number of eligible family members, and other factors. Amounts are pro-rated for partial year coverage and indexed in future years.
Chatrane Birbal, senior advisor for government relations at the Society for Human Resource Management, applauds the new law.
“This change provides small employers greater flexibility in terms of benefit offerings and allows eligible employers to use HRAs to help employees purchase an affordable health insurance plan that fits their individual budget and health care needs,” Birbal said.
The timing of the law, however, made it too late for many employers to take advantage of the provision in 2017. Employers are being urged to start planning now to take advantage of this option for 2018.
Experts believe the new law could provide positive benefits for the estimated 2 million employees who currently don’t get employer-sponsored coverage. However, there is concern that many small employers might drop health care coverage and only fund an HRA.
If you’re an employer already offering health insurance to your employees, there are some updates to laws this year governing HRAs you need to know.
The rules were provided in Notice 2015-87 and generally became effective for plan years beginning on or after Dec. 16, 2015. Due to transition relief, many of the rules didn’t take effect until this year. You should work with your broker to ensure your HRA and group health insurance policies meet all Affordable Health Care Act (ACA) reform requirements.
An Integrated HRA — also known as a Deductible-only HRA, Linked HRA, or Group HRA — is an HRA linked to a high-deductible group health insurance policy. Your contributions to an Integrated HRA count as part of an employee’s required contribution. They also work to ensure your group health plan is “affordable,” according to ACA regulations. Employer contributions must be determined within a reasonable time before the employee is required to make a decision whether to enroll in your group health plan. Employees can use the HRA to pay for health insurance premiums, cost-sharing (deductibles, co-insurance and copays) and/or benefits not otherwise covered, like dental or vision services.
If an HRA covers both current employees and retirees, the retirees cannot use the money to pay for premiums. However, if the HRA is a retiree-only HRA, they can use the funds to pay for the cost of their individual health coverage. This pertains even if the balance available in the HRA was rolled over from another employer-sponsored HRA that the retiree participated in. Unused amounts that remain in a current-employee HRA, and which are not rolled over into a retiree-only HRA when an employee retires, may only be used to reimburse expenses for retiree group health insurance coverage.
Self-Only Health Plan Coverage and HRAs
According to Notice 2015-87, Q&A 4, an HRA is integrated with an employer’s group health plan coverage for purposes of the application of the ACA insurance market reforms “only as to the individuals who are enrolled in both the HRA and the employer’s other group health plan.” Thus, the level of coverage that an employee elects under an integrated HRA, i.e., self-only, self + one, family, etc., must match the level of coverage under the group health plan with which the HRA is integrated. An employee with self-only health coverage and integrated HRA can no longer use the HRA to reimburse the expenses of spouse and dependents. Employees can only use the HRAs to reimburse premiums and accepted benefits, such as dental and vision for themselves.
Please contact us for more details on implementing these changes to your plan.
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In this issue:
This Just In...
HRA Changes That Affect Your Employees
Four Questions to Ask Before Purchasing Dental Insurance for your Employees
Ways to Help Your Employees Have a More Secure Retirement
GOP Proposal to Tax Employer Health Plans - Pros and Cons