New legislation loosens restrictions on how employers implement health reimbursement arrangements (HRAs). For those looking to incorporate HRAs into their health plans for 2020, they need to act soon.
An HRA is an employer-funded group health plan that reimburses employees and their dependents for medical care expenses they incur on a tax-free basis. The Affordable Care Act prohibited HRAs from being used to purchase health insurance coverage on the individual market due to violations of certain market reform rules and annual dollar limits. Instead, HRAs were only available if they were integrated with an employer-sponsored health plan. As a result, many employers were reluctant to offer HRAs and opted to offer healthcare flexible spending accounts or health savings accounts as alternatives.
The new rules are intended to provide employers with additional flexibility in offering employee health coverage and provide more choice of coverage to employees without the previous requirement that the HRA be integrated with an employer sponsored group health plan. This is accomplished by creating two new types of HRAs: individual coverage HRA and excepted benefit HRA.
The individual coverage IRA and excepted benefit HRA may be offered to employees as of Jan. 1, 2020. Employers who have calendar-year plans and want to offer the individual coverage IRA will need to include it in their 2020 open enrollment period and provide the required notice at least 90 days prior to Jan. 1, 2020.
With an individual coverage HRA, HRA funds may be used to purchase individual health insurance coverage or Medicare as long as the following requirements are met:
An employer may fund an excepted benefit HRA to reimburse employees for excepted benefits such as dental and vision benefits. It may be offered as part of an employer’s traditional group health program and can reimburse medical expenses even when the employee chooses not to participate in the employer’s group health plan. The excepted benefit HRA must meet the following requirements:
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