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New HRAs:  The Good, The Bad, And The Ugly!

New HRAs: The Good, The Bad, And The Ugly!

The Administration has put forth 2 new types of HRA’s, slated to become effective in January, 2020. Similar in some respects to the Qualified Small Employer HRA’s (QSEHRA), there are some differences that are worthy of note. Here they are:

  • The Individual Coverage HRA (ICHRA), which is designed to reimburse employees on a non-taxable basis for medical care and individual insurance policies they purchase, up to a limit determined by the employer. The only groups that can participate are those that do not offer a traditional group health plan. Employees may purchase insurance either on or off the Federal Exchange.
    • The Good: Unused portions may roll over into subsequent years, an offer of an ICHRA counts as an offer of coverage under the employer mandate, and off-exchange premiums not covered by the ICHRA may be pre-taxed through an FSA. And employers can use these HRA’s to pay employees’ Medicare premiums! 
    • The Bad: Complexity. The rules and notifications required pursuant to the ICHRA are complicated and the penalties for violations are severe. And if the employer is subject to the ACA Employer Mandate, the ICHRA must be sufficient enough to cover the premiums of a Silver-level policy.
    • The Ugly:  Employees may opt out of the ICHRA, but the amount available to them under the ICHRA will still count against any federal subsidies to which they may be entitled for a marketplace plan. So offering an ICHRA may actually be quite harmful to lower income employees.
  • The Excepted Benefit HRA (EBHRA), which reimburses employees on a nontaxable basis for medical expenses, dental and vision expenses and policies, and short-term medical policies.  Limited to no more than $1,800 per year, unused amounts may be carried over from year to year don’t count against the next year’s contribution maximum.
    • The Good: EBHRA’s can be offered along with a traditional group health plan, to help cover deductibles, copays and non-covered expenses. They generally allow for greater employer contributions than FSA’s, and aren’t subject to the ‘use it or lose it’ rule.
    • The Bad: The group has to offer tradition group health coverage, although employees may opt out of that coverage and have an EBHRA. And they cannot be used to cover either individual, group or spousal group health premiums. 
    • The Ugly:  EBHRA’s are ERISA plans and subject to applicable ERISA disclosure rules (ERISA wraps, plan documents and so forth) and nondiscrimination rules. And if the federal government concludes that EBHRA’s are harming a state’s small group market, they may be limited after the fact.   
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