New Rules for 2020 to Pay Attention To
Many Employers offer things such as HRAs, FSAs or HSAs to help Employees offset the out-of-pocket costs and gaps in their Health Benefits. I’ll give a quick summary of each:
-A Health Reimbursement Arrangement (HRA) is an employer-funded account that helps employees pay for qualified medical expenses not covered by their health plans. HRAs are compatible with all types of health insurance plans and since they are solely funded by the employer, they also own it.
-A health savings account (HSA) is a tax-advantaged medical savings account available to people enrolled in a high-deductible health plan (HDHP). The funds contributed to an account are not subject to federal income tax at the time of deposit and roll over year to year. There are yearly limits to how much you can deposit into your HSA.
-A Fkexible savings account (FSA) is almost exactly like an HSA; however, the most significant difference between flexible spending accounts (FSA) and health savings accounts (HSA) is that an individual controls an HSA and allows contributions to roll over, while FSAs are less flexible and are owned by an employer.
Since 2014, many new changes took place in regards to these kinds of accounts. In 2014, IRS Notice 2013-54 limited the types of HSAs. Under the 21st Century Cures Act (2017), Qualified Small Employer HRAs (QSEHRA) became available for Employers not subjected to the Employer Coverage Mandate. It also allowed funds to be used towards Individual Health Plan Premiums (in some cases).These plans had a max contribution limit of $5,150 single/$10,450 for a family and could not be offered in conjunction with any other Group Health Plan (dental, vision, FSA, etc).
Also, in 2017 Executive Order 13813 was signed. This did a few things such as expand short term medical policies, expand the avaliability of Association Health Plans and allowed companies to use HRA funds to cover individual health insurance premiums.
Today, even more new rules and executive orders have came into play. The most recent being that TWO new HRAs have been created. The Individual Coverage Health Reimbursement Account (ICHRA) and the Excepted Benefit HRA (EBHRA).
The individual coverage HRA (ICHRA) is a health reimbursement arrangement integrated with individual health insurance. It’s available to businesses of all sizes.
With an ICHRA, the business sets an allowance of tax-free money for employees. Employees make health care purchases and the business reimburses them up to their allowance amount.
Here’s a step-by-step of how the ICHRA works:
- The business sets the allowance. With an ICHRA, the business sets a monthly allowance of tax-free money for employees to use on individual health insurance and other health care expenses. There are no caps on allowance amounts, and businesses can offer different allowance amounts for different classes of employees, including:
- Temporary employees working for a staffing firm
- Employees covered under a collective bargaining agreement
- Employees in a waiting period
- Foreign employees who work abroad
- Employees in different locations, based on rating areas
- A combination of two or more of the above
In general, HRA allowances should be the same within classes. However, businesses can make distinctions based on the employee’s age or family size.
- Employees make health care purchases. With their own money, employees purchase the health care products and services that fit their personal needs, including individual health insurance. IRS Publication 502 contains a full list of expenses that can be reimbursed with an HRA. You can also check out our blog on ICHRA eligible expenses.
- Employees submit proof of their expenses. After incurring an expense, employees submit proof to the business through formal documents, such as a receipt or an explanation of benefits from their insurance company.
- The business reviews the documentation and reimburses the employees. If the documentation is correct and the employee’s expense is a reimbursable one, the business reimburses the employee up to their allowance amount. These reimbursements are tax-free for both the business and its employees.
There are two additional things to keep in mind. First, employees and their families are only eligible for the ICHRA if they have coverage under an individual health insurance policy. If the employee or a participating family member ever loses individual coverage, they can no longer receive reimbursements.
Second, the ICHRA comes with premium tax credit restrictions. Specifically, if an employee participates in the ICHRA, they’re no longer eligible for premium tax credits. For this reason, employees are free to opt out of the ICHRA as long as their allowance amount was low enough that any policy would still be considered “unaffordable” and wouldn’t provide minimum value under the ACA.
An excepted benefit is a type of health coverage that does not provide comprehensive health coverage with the essential health benefits prescribed under the Affordable Care Act (ACA).
So an Excepted Benefit Health Reimbursement Account (EBHRA) works with that. Under a EBHRA, reimbursements may include:
- Limited scope dental and vision insurance;
- COBRA continuation coverage;
- Short-term limited duration insurance (STDLI);
- Cost sharing (co-pays and deductible); and,
- Long-term care coverage, nursing home care, home healthcare, community-based care, or any combination thereof.
The proposed EBHRA cannot be an “integral part of the plan.” As such, an employer must offer a traditional group health plan with essential health benefits to employees eligible to participate in the HRA; however, the employee does not have to take that insurance.
Only employees eligible for the group health plan may participate in the EBHRA but the employer may not require that an employee must refuse the group health plan in order to participate in the EBHRA.
Since the HRA for excepted benefits will in itself be considered an excepted benefit, it must be limited in both scope and amount. The proposed limit for the 2020 plan year is $1,800. Also:
- The amount will be indexed for inflation, and,
- If the employer allows unused funds at the end of a plan year to rollover to the next, that amount will not be counted toward the annual limit in the new plan year.
The EBHRA cannot reimburse premiums for individual health coverage or group health plan premiums (with an exception for COBRA continuation coverage). Also, participation must be available to all employees in a particular employee classification on the same terms including the same amount.
The Newest Executive Order cam on June 24th, 2019 in regards to High Deductible Health Plans (HDHPs). This order did a few things, first it allowed HDHPs to reimburse low-cost preventative services for idividuals with cronic medical conditions. Next it allowed expenses related to direct primary care arrangements and healthcare sharing ministires to be reimbused under FSAs, HRAs, and HSAs, and it increased the carryover amount for FSAs (currently it is $500).
So, what happens now? The current Administration estimates that ICHRA will be offered by 800,000 Employers to cover 11,000,000 employees. The reasons why so many Employers may offer this type of arrangement is simple: Cost. If an Employer does not offer coverage due to the cost, has a huge renewal increase and can not longer afford the Employee coverage or if the Employers have only offered coverage because of the Employer Mandate under Obamacare, they will likely jump onto an ICHRA as an Employee Benefit (if this is a positive or negative, si up for opinion).
As for the QSEHRAs, they will more than likely become obsolete since it’s restrictions have been removed, while EBHRAs will likely become a niche offering. In General, the latest executive order is good news for FSAs, HSAs and HRAs, but we will have to see how the actual Employees like and utilize these new types before forming an opinion.
With all the changes happening constantly in the insurance industry, we know that it’s hard to keep up. If at anytime you have any questions or concerns regarding your coverage, please do not hesitate to give us a call at 215-355-2121. We will be happy to assist you!