A Health Reimbursement Arrangement (HRA) is a type of employer-funded savings account designed to help employees pay qualified medical expenses. Generally, it is set up to cover expenses beyond those which are covered by the employer’s health insurance plan. President Trump issued an executive order calling for the expansion of a variety of healthcare options, including HRAs, and the new regulations are in response to this order. They will go into effect on January 1, 2020 and create two new types of HRAs.
Individually Integrated HRAs
This new type of HRA removes the prohibition that keeps employers from providing HRAs that cover the entire cost of individual health coverage, so long as the following requirements are met:
- The HRA must require the participant and any dependents to be enrolled in qualifying individual health insurance.
- If a covered individual ceases to be covered by their qualified individual health insurance, then they cannot seek reimbursement for claims that occur after their coverage ends. Further, the participant must forfeit their HRA. This requirement is also subject to COBRA. Therefore, if coverage was lost due to a COBRA qualifying event such as termination of employment, then the HRA may cover COBRA continuation coverage.
- Plan sponsors cannot offer a choice between an HRA and a traditional group health plan.
- Participants must prove that they have compliant coverage. The regulations do not currently have a specified procedure for this, but instead they mandate that the employer have in place a reasonable procedure.
- The HRA must be offered to all similarly situated employees in the same class on the same terms.
- The regulations provide for 11 different classes including full-time employees, part-time employees, employees subject to a collective bargaining agreement, those who are still in a waiting period for coverage to begin, nonresident aliens, salaried employees, non-salaried employees, temporary employees, employees located in certain geographies, and a combination of these different factors.
Excepted Benefit HRAs
This simple HRA has only four requirements. While this type of HRA has no special notice requirements, it will be subject to ERISA disclosure requirements.
- It cannot be an integral part of the business’s group health plan. Employees must be offered and have access to group health plan coverage that is not limited to excepted benefits.
- Benefits in an Excepted Benefit HRA are limited in amount starting at $1,800 annually and increasing with inflation. Unused HRA balances can be carried forward into the next year.
- Only certain benefits can be covered by the HRA. It cannot reimburse premiums (except for COBRA premiums). Instead, the HRA is designed to cover excepted benefits such as dental or vision.
- The HRA must be available to all similarly situated individuals on the same terms, regardless of health. If groups are separated and treated differently, they must be separated based on a bona-fide classification such as full-time vs part-time, geographic location, date of hire, different occupations, and other qualifications.