HRAs in 2020: Everything You Need to Know

New HRAs
For 2020!
1
Larry Grudzien Attorney at Law

1. Review what happened –
final regulations released
2. What is an Individual
Coverage HRA?
3. What is an Excepted Benefit HRA?
4. Other provisions from
the final regulations
5. Compare these new HRAs with
traditional HRAs and QSEHRAs
6. Comments and conclusions
7. Take your questions
AGENDA
2

What Happened?
• On June 13, 2019, Treasury, DOL and HHS
released final regulations that are effective for
plan years beginning on or after January 1, 2020.
• These regulations create two new HRAs:
Individual Coverage HRAs (“ICHRA”) and
Excepted Benefit HRAs (“EBHRA”).
4

What Happened?
• These new HRAs will be subject to ERISA and COBRA, but the ICHRA will
not be subject to the nondiscrimination rules under Code Section 105(h).
• Any employer can offer these new HRAs to their common law employees,
but there are restrictions that must be followed.
• They cannot be offered to self-employed individuals, partners and more
than 2% S corporation shareholders.
5

INDIVIDUAL COVERAGE
HRAS (ICHRAS)
6

Individual coverage
HRAs (ICHRAs)
• Employees and their dependents
must be enrolled in individual health
insurance coverage before being
eligible for any reimbursements
under the Individual Coverage HRA.
• This HRA can reimburse premiums
and/or any Code Section 213(d)
medical expenses.
7

Individual coverage HRAs (ICHRAs)
For this purpose, “individual insurance coverage” includes:
• Individual market coverage (whether offered through the
Exchange/marketplace or not)
• Student health insurance coverage (applicable to certain educational institutions)
• Grandfathered and grandmothered plans, but not coverage that
consists of excepted benefits
• Medicare Parts A and B or Medicare Part C premiums
Individual insurance coverage excludes all of the following:
• Coverage under the plan of a spouse
• Short-term limited duration policies
8
• Health care sharing ministries
• TRICARE.

• An employer cannot offer an employee or a dependent
a choice between the Individual Coverage HRA and
a traditional group health coverage.
• An employer can offer such employee and or
dependent participation in a health flexible spending
account or group health coverage that consists solely
of excepted benefits (dental and vision).
• Pre-tax contributions to a cafeteria plan to pay for a
portion of the individual coverage premium will not
be seen as an endorsement and will not subject the
employee’s individual coverage to ERISA.
9
OR
ICHRA
Traditional
Group Plan

• An employee and/or a dependent will need to substantiate each month
that he or she is covered by health insurance before the Individual
Coverage HRA can be reimbursed.
• Such substantiation may be by either:
• a document from a third party showing that the employee and
any dependent are enrolled or
• an attestation by individuals that they are or will be enrolled in individual
health insurance coverage, the date coverage began or will begin and the
name of the provider of the coverage.
• To satisfy this requirement, the agencies have developed model forms both for
substantiating coverage and requesting a reimbursement for medical expenses.
0

Individual coverage HRAs (ICHRAS)
• The Individual Coverage HRA must be offered on the “same terms” to all
members of an employee class.
• The final regulations contain eleven different classes:
• full-time employees that can be defined under Code Section 105(h)
(35 hours or more or Code Section 4980H (30 hours or more);
• part-time employees that can be defined under Code Section 105(h)
(less than 35 hours) or Code Section 4980H (less than 30 hours);
• seasonal employees that can be defined under Code Section 105(h)
(less than 9 months or Code Section 4980H (less than 6 months);
• employees who have satisfied a waiting period for coverage;
• non-resident aliens with no US source income;
• salaried employees;
1

• The final regulations contain eleven different classes (continued):
• employees in a unit covered by a particular collective bargaining agreement.
• non-salaried employees;
• employees whose primary site of employment is the in the same rating area;
• temporary employees; and
• a combination of these ten categories
• If former employees are offered reimbursements, then the former employees
are treated as being in the same class they were in immediately before the
separation from service.
• The designated classes are determined on a common-law employer basis and
not on a controlled group.
2

• A minimum class size requirement applies if an employer offers a
traditional group plan to one class of employees and offers an individual
coverage HRA to another class of employees.
• The minimum class size:
• 10 employees if the employer has fewer than 100 employees
• 10% of employees if the employer has between 100 to 200 employees
• 20 employees if the employer has more than 200 employees
• applies to full-time employees, salaried employees, non-salaried employees
and employees whose primary site of employment is the same ratings area.
3

Individual coverage HRAs (ICHRAS)
There are permitted exceptions to the “same terms” requirement:
• The employer can provide a higher dollar amount under the
Individual Coverage HRA on the basis of age or family size so long
as the increase in the maximum dollar amount is because of an
increase in age or family size is made available to all participants in
the class of employee who are the same age or have the same
number of dependents covered under the HRA.
• The premium for the oldest person cannot exceed three times the
premium of the youngest person.
• An Individual Coverage HRA can be made available to some former
employees but not to all.
4

There are permitted exceptions to the “same terms” requirement (continued):
• Participants can pay the difference on a pre-tax basis under a cafeteria plan, so
long as this option is provided to all members of the class and the coverage was
not obtained on the Exchange.
• Any unused amounts allowed to be carried over to later plan years are offered on
the same terms.
• Amounts transferred from a prior HRA can be disregarded, so long as the
transferred amount rules apply to all participants.
• Adjustments to the maximum dollar amount available during the plan year are
allowed for newly hired employees and new dependents.
• Employees can be offered a choice between an HSA compatible Individual
Coverage HRA and an Individual coverage HRA that is not HSA compatible.
5

• An individual who is no longer covered
by an individual health insurance cannot
receive reimbursement from the
Individual Coverage HRA.
• COBRA will be offered if coverage is
lost under the HRA because of a
circumstance that would constitute
a COBRA qualifying event.
• The Individual Coverage HRA must require
employees to provide a notice to the
employer if their coverage is cancelled.
6

• An employee must be allowed to opt out and waive future
reimbursements on behalf of the employee and all dependents
eligible for the Individual Coverage HRA.
• This option must be offered once every plan year.
• At termination of employment, the remaining
amounts in the Individual Coverage HRA
must be forfeited or the employee
must be permitted to permanently
opt out and waive future
reimbursement from the
Individual Coverage HRA.
7

• The employer must provide an annual notice to employees at least 90 days
before the start of each plan year or before the effective date of coverage
(if the employee becomes eligible after the start of the plan year).
• An extended notice period is allowed for the first plan year, and the
agencies have provided a model notice for these purposes.
• For ERISA-covered plans, the notice can be delivered electronically,
consistent with ERISA’s electronic communication requirements.
• A sample notice is provided in the final regulations.
8

The notice must alert the employee to, among other things, the following:
• The terms of the ICHRA, including the maximum dollar amount made available
and other specified provisions.
• A specific individual or group to contact for additional information on the ICHRA.
• Information related to the individual Exchange special enrollment period (SEP)
relating to eligibility to enroll in IMC for a newly eligible ICHRA individual.
• The right to opt out of and waive future reimbursement under the ICHRA.
• That the premium tax credit (PTC) for coverage in the Exchange may be available:
• if the participant opts out of and waives the ICHRA; and
• the ICHRA is not “affordable”
9

The employee’s required individual health insurance coverage will not be
considered employer-sponsored and subject to ERISA if:
• the purchase of insurance by the employee is voluntary.
• the employer is not involved in the selection of the coverage.
• the employer does not receive any consideration for providing the
coverage to employees.
• reimbursement for non-group health insurance premiums is limited
solely to individual health insurance coverage that does not consist solely
of excepted benefits.
• the employee is notified annually (if the employer meets the other
conditions) that coverage under the HRA is not subject to ERISA.
0

EXCEPTED BENEFIT
HRAS (EBHRAS)
21

Excepted Benefit HRAs (EBHRAs)
There are four requirements which must be met for an HRA to qualify as an
Excepted Benefit HRA:
• An employer group health coverage must be available to the employee
for the plan year.
• To be eligible to participate in the Excepted Benefit HRA, such coverage has
to be offered, but the employee is not required to enroll.
• The benefits available under the Excepted Benefit HRA must be limited in amount:
• The annual benefit is limited to $1,800, to be indexed for inflation after
December 31, 2020.
• The employer can allow those unused amounts to be carried over, and such
carryover amounts will not count against the dollar limit for the year.
2

Excepted Benefit HRAs (EBHRAs)
There are four requirements which must be met for an HRA to qualify as
an Excepted Benefit HRA (continued):
• The Excepted Benefit HRA can only reimburse certain medical expenses.
• It cannot reimburse premiums for individual health insurance group
coverage (other than COBRA coverage) or Medicare Parts A, B, C or D.
• It can reimburse premiums for excepted
benefits, such as dental or vision
coverage or short-term limited
duration insurance.
3

Excepted Benefit HRAs (EBHRAS)
There are four requirements which must be met for an HRA to qualify as
an Excepted Benefit HRA (continued):
• The Excepted Benefit HRA must be made available on the same terms to
all “similarly situated individuals,” regardless of any health condition.
• A separate group of employees may be viewed as similarly situated
individuals are treated differently from other groups if the difference is
based on bona-fide classification.
• Code Section 105(h) nondiscrimination rules will apply.
4

The regulations list the following employment classifications as those that
generally may reflect bona fide business practices:
• full-time/part-time
• occupation
• date of hire
• geographic location
• membership in a collective bargaining agreement
• length of service
• current/former employees
5

• An employee cannot be offered an Excepted Benefit HRA and
an Individual Coverage HRA simultaneously.
• An employee’s eligibility for an Excepted Benefit HRA will not disqualify
the employee from accessing premium tax credits from an
Exchange/Marketplace.
6

OTHER PROVISIONS FROM
THE FINAL REGULATIONS
27

Other Provisions
The final regulations include other provisions designed to ease
requirements for these HRAs:
• Special enrollment: special enrollment rights in the individual health
insurance market have been expanded for individuals who gain access to
HRAs integrated with individual health insurance.
8

Other Provisions
The final regulations include other provisions designed to ease requirements
for these HRAs:
• HRA offers counted for employer mandate purposes.
• An offer of an Individual Coverage HRA counts as an offer of coverage under the
employer mandate rules.
• Whether an applicable large employer that offers Individual Coverage HRAs to its
full-time employees (and their dependents) might face employer mandate
assessments will depend on whether the HRA is affordable.
• Under the premium tax credit rule issued as part of these HRA regulations,
affordability is based, in part, on the amount the employer makes available
under the HRA.
• The IRS indicates that it will “soon” provide additional guidance on how the
employer mandate rules apply to Individual Coverage HRAs.
9

Comparing HRAs
Which employers can adopt?
• HRA: Any employer, but an HRA must be integrated with a group health
plan of the employer or the spouse’s employer.
• QSEHRA: Any employer which is not an Applicable Large Employer (ALE) for
the year and does not offer a “group health plan”
(excepted benefits are counted for this purpose).
• ICHRA: Any employer who does not offer group coverage or an Excepted
Benefit HRA to those employees who have individual medical coverage.
• EBHRA: Any employer offering group coverage but those employees
offered an Excepted Benefit HRA can waive group coverage and must not be
offered an Individual Coverage HRA.
1

Comparing HRAs
Which employees are eligible to participate?
• HRA: Any group of employees as long as the group eligible passes the eligibility
test under Code Section 105(h).
• QSEHRA: Any employee of the “eligible employer,” and allows certain employees
to be excluded:
• Employees who have not completed 90 days of service
• Employees who have not attained age 25 before the beginning of the plan year
• Part-time or seasonal employees;
• Non-participating employees covered by a collective bargaining agreement (if
health benefits were the subject of good faith bargaining)
• Non-resident aliens who do not receive earned income from the employer from
sources within the United States
2

Comparing HRAs (cont.)
Which employees are eligible
to participate?
• ICHRA: A group of employees defined
by the employer participating in
individual coverage, but cannot be
eligible for group coverage or EBHRA.
• EBHRA: A group of all similarly situated
individuals as defined by the employer,
but cannot be offered ICHRA and group
must pass non-discrimination rules
under Code Section 105(h).
3

Comparing HRAs
When are employees eligible to participate?
• HRA: A waiting period cannot exceed 90 days.
• QSEHRA: When employee is no longer considered an excluded employee.
• ICHRA: A waiting period cannot exceed 90 days.
• EBHRA: A waiting period can exceed 90 days.
4

Comparing HRAs
What expenses can be reimbursed?
• HRA: Reimbursement of any Code Section 213(d) expense, except for
individual health insurance coverage premiums, during a period of
coverage is permitted.
• QSEHRA: Reimburse individual major medical health insurance premiums,
as well as other Code Section 213(d) expenses incurred during the QSEHRA
coverage period, is permitted. A QSEHRA can even reimburse premium
payments for coverage of a spouse or other eligible family member, including
expenses paid through another employer’s plan. The limit for self-only
coverage is $5,150 for 2019 and the limit for family is $10,450 for 2019.
5

Comparing HRAs (cont.)
What expenses can be reimbursed?
• ICHRA: Reimburse any Code Section 213(d) medical care expenses or to limit
reimbursements to particular expenses (e.g., premiums), but not group health
coverage.
• EBHRA: Reimburse any Code Section 213(d) medical expenses but not premiums
for individual health coverage, Medicare, or non-COBRA group coverage
(premiums for coverage consisting solely of excepted benefits can be
reimbursed). STLDI premiums can also be reimbursed, although the agencies may
restrict small employers’ EBHRAs from allowing such reimbursement under
certain circumstances. No more than $1,800 (indexed after 2020) can be newly
available to each participant for each plan year.
6

Comparing HRAs
Must reimbursement of expenses be substantiated?
• HRA: Yes. HRA benefits must be substantiated like any other
excludable employer-provided health benefit.
• QSEHRA: Yes. May only pay or reimburse medical expenses “after the
employee provides proof of coverage.”
• ICHRA: Yes. Must substantiate enrollment annually on or before the
first day of the plan year (or when coverage begins, if later) and before
each reimbursement.
• EBHRA: Yes. Must substantiate before any reimbursement
can be made.
7

Comparing HRAs
Can amounts be carried over
to the next plan year?
• HRA: Yes.
• QSEHRA: Yes.
• ICHRA: Yes.
• EBHRA: Yes.
8

Comparing HRAs
Are benefits under the plan subject to ERISA and COBRA?
• HRA: Yes.
• QSEHRA: ERISA Yes COBRA No
• ICHRA: Yes.
• EBHRA: Yes.
9

Comparing HRAs
What notice and disclosure requirements must be provided to participants?
• HRA: SPD, SBC and other notices.
• QSEHRA: Employers that provide a QSEHRA must furnish a written notice to
each eligible employee at least 90 days before the beginning of each plan
year. For employees who become eligible to participate in the QSEHRA after
the beginning of the plan year (e.g., employees who are hired midyear), the
notice must be sent on or before the first day the employee becomes eligible
for a QSEHRA.
• ICHRA: SPD, and special individual coverage HRA notice -90 days before.
• EBHRA: SPD
0

Comparing HRAs
Must an employee be allowed to opt out of coverage?
• HRA: Employees (and former employees) must be offered the opportunity to
permanently opt-out of and waive future reimbursements from the HRA at
least annually. And on termination of employment, the HRA must either be
forfeited or it must allow the employee to permanently opt out and waive
future reimbursements.
• QSEHRA: No.
• ICHRA: Employee must be able to opt out and waive future reimbursements
annually before each plan year. Upon termination of employment, employees
must either forfeit the remaining balance (subject to COBRA) or be able to
permanently opt out of and waive future reimbursements.
• EBHRA: No
1

Comparing HRAs
What nondiscrimination rules apply?
• HRA: Each plan year must pass Code Section 105(h) nondiscrimination tests.
• QSEHRA: Must provide for the payment or reimbursement of eligible medical
expenses “on the same terms to all eligible employees” of the eligible employer and
all other members of its controlled group.
• ICHRA: Must offer the ICHRA on the same terms and conditions to all eligible
employees within a “designated” class.
• EBHRA: The terms and conditions must be the same for all “similarly situated”
individuals (as defined by the HIPAA wellness nondiscrimination rules. Unlike an
ICHRA that is designed to reimburse only premiums, there is no exception from the
Code Section 105(h) rules. Consequently, if an EBHRA offered to salaried employees
has a higher benefit amount than the HRA benefit offered to hourly employees, the
EBHRA could be discriminatory.
2

Comments and conclusions
• Are these new HRAs to too complex for employers?
• Just give employees a taxable bonus?
• Which employers may use them?
• Offer to temporary and variable hour employees?
• Useful in industries where group coverage is not offered.
• Is there a market for these HRAs?
• Can the individual market support this?
• Many areas have one insurer.
• Many coverages have limited networks,
4

6
Larry Grudzien, Attorney at Law
• Phone: 708-717-9638
• Email: larry@larrygrudzien.com
• Website: www.larrygrudzien.com
CONTACT INFORMATION

HRAs in 2020: Everything You Need to Know

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