Use of employer HRA contributions to pay for individual health care or Medicare coverage

Important new employee health care funding opportunities for employers 

Individual Coverage Health Reimbursement Accounts

• Employees not permitted to choose between group health plan or ICHRA – An employer will be permitted to maintain both a group health plan and an ICHRA simultaneously; however, it will not be permissible for an employer to maintain both and to permit an employee to choose between them.
• No minimum or maximum contribution amounts – Subject to specified class requirements, the employer will be free to determine the amounts of its contributions (no employee contributions will be permitted).
• Differing treatment permissible for different classes of employees – An employer will be permitted to offer an ICHRA on a class-by-class basis (based on certain employment variations, such as salaried/hourly, full-time/part-time, seasonal, temporary, collectively bargained, and employees located in certain geographic areas – generally, the same insurance rating area, state, or multistate region)

o If, on the basis of full-time/part-time, salaried/nonsalaried, or geographic location (if the location is smaller than a state), an employer provides a group health plan to certain classes of its employees and an ICHRA to others, each class must be comprised of not less than: 10 employees if the employer has fewer than 100 employees, 10% of all employees if the employer has 100-200 employees, or 20 employees if the employer has more than 200 employees.

• Additional flexibility – Employers that offer an ICHRA will be required to do so on the same terms for all employees in a particular class, but it will be permissible for them to increase the ICHRA amount for older workers and for workers with a greater number of dependents.
• Employee individual or Medicare coverage required – To be eligible, an employee will be required to have individual coverage (whether or not purchased on an exchange) or be enrolled under Medicare for each month the employee or a family member is to be covered by the ICHRA. Employees will be required to substantiate their individual or Medicare coverage annually and each time they seek reimbursement; model attestation forms have been provided for this purpose. The individual coverage cannot be short-term, limited-duration insurance, or coverage consisting solely of dental and/or vision benefits.
• Grandfathering available – If desired, an employer will be able to continue its existing group health plan, but implement an ICHRA solely for new employees.
• No use-it-or-lose-it requirement – An ICHRA will be able (not required) to provide for unused amounts from one year to continue to be available for future-year reimbursements.
• Coverage satisfies Affordable Care Act (ACA) employer mandate – An employer’s offer of ICHRA coverage will count as an offer of coverage for purposes of the ACA’s employer mandate for “Applicable Large Employers” (generally, those having 50 or more full-time employees).
• No premium tax credit – No premium tax credit will be available for an individual for any coverage purchased on an exchange for any month for which the individual is covered by an ICHRA.
• Annual employee opt-out opportunity – Employees will be required to have at least an annual opportunity to opt out (i.e., to obtain a premium tax credit for the purchase of individual coverage on an exchange if the ICHRA is considered “unaffordable” under the ACA).
• Employee notice – A detailed written employee notice will be mandated, to explain the operation of the ICHRA, including how the availability of the ICHRA offer may preclude an employee’s eligibility for a premium tax credit in connection with their purchase of individual health care coverage on an exchange. A model notice has been provided as part of the Regulations package and may be used by employers to satisfy the notice requirement.

Excepted Benefit Health Reimbursement Accounts

• Annual contribution limitation – Contributions (employer only; no employee contributions permitted) will be limited to $1,800 per year (to be indexed for inflation annually, beginning in 2021).
• Must be offered in conjunction with a group health plan – An EBHRA must be required to be offered in conjunction with a group health plan; however, an employee will not be required to enroll in the employer’s group health plan as a requirement to have an EBHRA.
• Available for copays, etc. – An EBHRA would be used to cover employee costs for copays, deductibles, and/or noncovered medical expenses.
• Cannot be used for certain premium payments – EBHRA reimbursements will not be available for individual or group health insurance premiums or contributions, group health plan premiums (other than COBRA), or Medicare premiums; however, premiums for dental and/or vision coverage will qualify.

What does CohnReznick think?

Per the questions and answers issued by the Agencies in conjunction with the Regulations, ICHRAs are intended to increase the use of HRAs, especially for smaller employers, to assist them in avoiding the costs and administrative efforts involved in maintaining a traditional group health plan. However, in addition to the use of ICHRAs by small employers, consider a larger employer with a group health plan and one employee in a particular state where individual coverage is available at a low cost; the employer and the employee could each enjoy cost savings by the employee obtaining that individual coverage at the employer’s expense through the use of an ICHRA. It is also significant that the offer of an ICHRA to an employee will satisfy the employer mandate under the ACA for “Applicable Large Employers.”  An ICHRA does not eliminate all administrative requirements, due to the employee notice and attestation requirements; however, the model employee notices and attestation forms provided by the Agencies for these purposes are very helpful. The Agencies anticipate that approximately 800,000 employers will  offer ICHRAs to pay for health insurance covering more than 11 million individuals.

Contact

Dana Fried, Managing Director, National Tax Services 

516.417.5064

_{Any advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues. Nor is it sufficient to avoid tax-related penalties. This has been prepared for information purposes and general guidance only and does not constitute legal or professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice specific to, among other things, your individual facts, circumstances and jurisdiction. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its partners, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.}