Editorial · November 18, 2019
Individual coverage HRA: a small employer guide
An individual coverage HRA is a plan where an employer repays workers for the cost of health insurance they buy on their own. The rule that created it was published on June 20, 2019. Plans can start with plan years that begin on or after January 1 of next year. This guide covers the basics for a small employer.
What an individual coverage HRA is
HRA stands for health reimbursement arrangement. It is money an employer sets aside for staff health costs. Before 2019, federal rules made it hard to use an HRA with individual insurance. The final rule from the Treasury, Labor and Health and Human Services departments changed that. It lets an HRA work together with individual health insurance or Medicare.
The employer picks a monthly or yearly amount. The worker buys a plan on the individual market. The worker then sends proof of the plan and the bills. The employer repays the worker up to the set amount.
Sources: Federal Register, June 20, 2019 (84 FR 28888); IRS, health reimbursement arrangements page.
Who can offer one
The rule is not limited to small firms. Any employer may offer an individual coverage HRA if it meets the conditions. A small employer with 50 or fewer full-time and equivalent employees may also know the older QSEHRA, a similar plan with its own cap. The two cannot be offered together. The final rule did not change who may use a QSEHRA.
Sources: Federal Register, June 20, 2019; Mintz, July 10, 2019.
The main rules
An employer must follow these conditions:
- Workers and covered family members must be enrolled in individual health insurance or Medicare. The employer must be able to confirm it.
- The employer cannot offer the same group of workers a choice between a regular group plan and an individual coverage HRA.
- The HRA must be offered on the same terms to everyone in a group, with some limits. Amounts may vary by family size and by age. The oldest worker's amount can be no more than three times the youngest's.
- Workers must be able to opt out and give up future payments at set times.
- Workers must get a written notice, at least 90 days before the plan year in most cases. It explains how the HRA affects eligibility for the premium tax credit.
The final rule did not set a dollar cap for individual coverage HRAs.
Sources: Federal Register, June 20, 2019; Mintz, July 10, 2019.
Employee classes
An employer may offer the HRA to some groups and a regular plan to others. The rule lists the groups, called classes. They include full-time workers, part-time workers, salaried workers, hourly workers, seasonal workers, workers in one rating area, and workers in a union unit. Classes can be combined.
If one class gets the HRA and another gets a regular plan, a minimum class size can apply. With fewer than 100 employees, the minimum is 10. With 100 to 200, it is 10 percent of staff. Above 200, it is 20.
Sources: Mintz, July 10, 2019; Federal Register, June 20, 2019.
Tax credits and affordability
A worker offered an individual coverage HRA that counts as affordable may not get a premium tax credit. A worker who is offered one that is not affordable can decline it and claim the credit. The rules use the lowest-cost silver plan for one person in the worker's area to test this. In 2018, the IRS issued Notice 2018-88, which asked for comments on how the employer penalty rules and a nondiscrimination rule for employer health plans could apply to these plans. It was a request for comments and not guidance employers could rely on.
Sources: Mintz, July 10, 2019; IRS Notice 2018-88.
Dates to remember
- June 20, 2019: final rule published in the Federal Register.
- August 19, 2019: the rule took effect.
- January 1 of next year: plan years can begin, and a new special enrollment period starts in the individual market.
An employer that wants an individual coverage HRA for next year should check the notice date, pick its classes, and talk with a benefits adviser or tax professional. This guide gives general information only.
Sources: Federal Register, June 20, 2019; IRS, health reimbursement arrangements page.
Sources: Federal Register, Vol. 84, No. 119, June 20, 2019 (govinfo.gov); IRS, "Health reimbursement arrangements (HRAs)"; Mintz, "Agencies Issue Final Regulations Expanding Access to Health Reimbursement Arrangements," July 10, 2019.