Compliance Update: HRAs Poised For a Facelift

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Guidance

Eligibility

Employees (including former employees) and dependents who are enrolled in major medical coverage purchased in the individual insurance market[1]

Coverage for any part of a month for which a premium is due qualifies

Classes of Employees

Employers may divide their workforces into the following classes of employees:

1. Full-time employees
2. Part-time employees
3. Seasonal employees
4. Employees covered by a collective bargaining agreement
5. Employees eligible for the employer’s traditional group health coverage, but who are in a waiting period
6. Employees who are under age 25 at the beginning of the Individual Insurance HRA plan year
7. Foreign employees working abroad with no U.S.-sourced income
8. Employees primarily employed in the same insurance community rating area

If an Individual Insurance HRA is offered to a class, it must be offered on the same terms to all employees within the class[2] (benefit levels may only vary based on age and family size within a class)

If an employer offers an Individual Insurance HRA to a class of employees, it may not offer its traditional group health coverage to that class[3]

Note: There are no other permitted classes such as hourly versus salaried employees.

ACA and the Employer Mandate

An Individual Insurance HRA automatically qualifies as minimum essential coverage and is an “offer of coverage” for the purposes of satisfying the ACA’s employer mandate

An Individual Insurance HRA (with its individual major medical insurance policy) is automatically deemed to satisfy the ACA’s minimum value requirement

An Individual Insurance HRA is deemed “affordable coverage” if the difference between the monthly premium for the lowest cost available silver plan and 1/12th of the annual Individual Insurance HRA contribution is equal to or less than the applicable affordability safe harbor percentage.

Affordable Coverage Example:

In 2020, an employer makes an annual contribution of $3,600 to an employee’s Individual Insurance HRA. The monthly premium for the lowest cost available silver plan is $400.   

$400 – ($3,600/12) = $100/month

The Individual Insurance HRA is an affordable offer of coverage for the employee if $100/month is within an affordability safe harbor for that employee in 2020  

Substantiation

Employees are required to substantiate enrollment in individual coverage (including for any dependents) each time a request for reimbursement is submitted

An employer may rely on the employee’s attestation of coverage or require reasonable proof of enrollment (such as an ID card)

Waiver

Employees must be permitted to waive participation annually, although the Individual Insurance HRA may still be considered an offer of affordable, minimum value coverage by the employer

ERISA Status, etc.

The Individual Insurance HRA itself is an employer-sponsored group health plan

The individual insurance coverage reimbursed by the HRA will not be considered an ERISA plan offered by the employer so long as the employer does not sponsor it or play a role in its selection

Cafeteria Plan Option

An employer may allow employees to pay for any remaining premium for the individual insurance policy through the employer’s cafeteria plan, but this is not available for coverage purchased through the public insurance exchange

Notice Requirements

Employers must provide eligible employees with a notice describing the terms of the Individual Insurance HRA and the affect it may have on the employee’s eligibility for a subsidy in the public insurance marketplace