The Internal Revenue Service (IRS), in coordination with other Federal agencies, published a final ruling which expands Health Reimbursement Arrangement (HRA) plan types for employers. HRAs are employer-funded benefit plans used by employees to cover qualified healthcare expenses. The newly-created Individual Coverage HRA (ICHRA) and Excepted Benefit HRA (EBHRA) became available on January 1, 2020.
What are the ICHRA and EBHRA?
The ICHRA and EBHRA were created as a result of President Trump’s October 2017 executive order, “Promoting Healthcare Choice and Competition Across the United States.” The executive order sought to expand HRA usage and overturn some provisions in the Affordable Care Act (ACA).
Under the ACA, employers were not allowed to offer HRAs for the reimbursement of health insurance plans purchased by individuals on the open market. In 2016, President Obama approved the 21st Century Cures Act, creating Qualified Small Employer HRAs (QSEHRAs). A QSEHRA allows companies that have fewer than 50 full-time employees and do not offer a group health plan to use an HRA for non-group health insurance premium reimbursement.
With the creation of the ICHRA and EBHRA, businesses may sponsor HRAs to help employees cover health insurance premiums. The following outlines the differences between the two.
Individual Coverage HRA (ICHRA)
Under an ICHRA, all employers (regardless of size) may offer HRAs to reimburse employees for individual health insurance plan premiums. There are some conditions under the new HRA rule. To offer an ICHRA, employers:
- May offer either an ICHRA or a group health plan, but they cannot give employees a choice between the two
- Can create employee class designations (salary vs hourly, full time vs part time, etc.) and offer the ICHRA to certain classes while offering a group health plan to others
- Must offer all employees within a certain class the same ICHRA terms, but may increase the amount for older workers or those with more dependents
- Can keep their traditional group health plan for existing enrollees, and offer an ICHRA only to new hires
With an ICHRA, there are no federal contribution limits.
Excepted Benefit HRA (EBHRA)
Along with the new ICHRA, the IRS’s final rule also created the EBHRA. An EBHRA may be offered to all employees to cover co-pays, deductibles, and premiums for vision and dental insurance. It may also cover COBRA continuation and some short-term insurance.
With an EBHRA, companies must sponsor coverage under a group health plan. However, employees do not have to enroll in the plan to participate in an EBHRA. The annual pre-tax contribution limit for employers is $1,800.
For more details on the ICHRA and EBHRA, you can view the final ruling at the Federal Register. The Society for Human Resource Management (SHRM) also has an in-depth article about the new HRA types. Contact your benefits administrator for more information and to see if an ICHRA and EBHRA are right for your company.
DataPath Administrative Services is an Arkansas-based third party benefits administrator. Contact us today for personalized consultation on HRA administration services.