HRA Expansion Has Arrived

The Departments have released final rules greatly expanding the use of employer provided health reimbursement arrangements (HRAs) beginning in 2020. Since the 2013 regulations had drastically restricted the permitted uses of these plans under IRS Notice 2013-54, this is welcome news for many employers.

The birth of qualified small employer health reimbursements (QSEHRAs) a few years ago was a step in this new expansive direction, but still fairly limited in application (for example, no group health plan could be offered at all and only ‘small’ employers could offer this). Two forms of HRAs can now be offered even if an employer offers a traditional group health plan to certain groups of employees: Individual Coverage HRAs and Excepted benefit HRAs.

In short, employers will be able to offer employees tax free reimbursement for individual health plan premiums, as well as offer employees the ability to pay any remaining individual premiums through salary contributions using a section 125 plan (this is only possible for individual plans that are NOT Exchange plans). Its expected this expansion in permitted use and offering of HRAs will benefit those employees with 50 or fewer employees most, however it is not limited by employer size.

Note that the rule mentions Medicare as permissible individual coverage for the new HRA, but the Medicare Secondary Payer rules prohibiting employer incentives such as premium payments still need to be examined in this context.

Click here to view a comprehensive Q&A on the new rules.