New Health Reimbursement Arrangements Allowed Under Final Rules

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GUIDANCE

Eligibility

Employees (including former employees) and dependents enrolled in major medical coverage purchased in the public insurance exchange, individual insurance market, or Medicare[1] are eligible to participate.

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

Employees who are enrolled in coverage consisting solely of excepted benefits,[2] short-term limited duration insurance, TRICARE, or health care sharing ministry coverage are ineligible.

Reimbursements

The ICHRA may be designed to limit reimbursements solely for individual insurance premiums, or it can be designed to also allow reimbursements for qualified medical expenses (so long as the expenses are not limited to medical expenses not covered by Medicare).

Classes of Employees

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

1.  Full-time employees
2.  Part-time employees
3. Employees working in the same geographic location (generally, the same insurance rating area, state, or multi-state region)
4. Salaried workers
5. Non-salaried workers (such as hourly employees)
6. Seasonal employees
7. Employees covered by a collective bargaining agreement
8. Employees eligible for the employer’s traditional group health coverage who are in a waiting period
9.  Non-resident aliens with no U.S.-based income
10. Temporary employees of staffing firms
11. Any group formed by combining two or more of the above classes (Example:  Full-time, salaried employees).

If an Individual Coverage HRA is offered to a class, it must be offered on the same terms to all employees within the class.[3]  Benefit levels can vary only based on age[4] and family size within a class.

If an employer offers an Individual Coverage HRA to a class, it cannot offer its traditional group health coverage to that class, except that an employer may offer traditional coverage to grandfathered members of a class and limit new hires of that class to Individual Coverage HRAs after a date chosen by the employer.

Employee Class Size

If an employer offers traditional group health coverage to some of its employees, a minimum employee class size applies to Individual Coverage HRAs offered to classes (1) – (5) described above or any combination that includes one of those classes.

The minimum class size is:

• 10 employees for an employer with < 100 employees,
• 10% of the total number of employees, for an employer with 100 to 200 employees, and
• 20 employees for an employer with > 200 employees.

Special Enrollment Period

Individuals who gain access to an Individual Coverage HRA qualify for a 60-day special enrollment period in the public insurance exchange and individual market.

ACA and the Employer Mandate

An Individual Coverage HRA automatically qualifies as “minimum essential coverage” and is an “offer of coverage” for the purposes of satisfying the ACA’s employer mandate.[5]

An Individual Coverage 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 Coverage HRA contribution is equal to or less than the applicable affordability safe harbor percentage.[6]

Affordable Coverage Example

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

$400 – ($3,600/12) = $100/month

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

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

Waiver

Employees must be permitted to waive participation annually at the beginning of the plan year or effective date of coverage.

Exchange Subsidies

An individual who enrolls in an Individual Coverage HRA is ineligible for subsidies through the public insurance exchange.

An individual who waives coverage may be eligible for subsidies if the HRA is not considered an offer of affordable, minimum value coverage by the employer.

Substantiation

Employers are required to adopt reasonable substantiation procedures to confirm participants are enrolled in eligible medical coverage and communicate these to eligible employees no later than the first day of the plan year or effective date of coverage.

The rules indicate an employer may rely on the employee’s attestation of coverage or require reasonable proof of enrollment (such as an ID card).[7]

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

A model attestation is available.

ERISA Status, etc.

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

The individual insurance coverage reimbursed by the ICHRA 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.

HSA Eligibility

An individual who uses the ICHRA to purchase qualified high deductible health plan coverage is eligible to contribute to a health savings account unless the ICHRA can also be used to pay for general medical expenses.

Cafeteria Plan Option

An employer may allow employees within a class to pay for any remaining premium for eligible medical coverage through the employer’s cafeteria plan, but this is not available for coverage purchased through the public insurance exchange.[8]

Notice Requirements

Employers must provide eligible employees with a notice describing:

1. The terms of the Individual Coverage HRA,
   Contact information for assistance,
2. The availability of a special enrollment right for individual coverage, and
3. The effect the ICHRA may have on the employee’s eligibility for a subsidy in the public insurance exchange.
4. The notice must be provided at least 90 days before the beginning of the plan year. 

A model notice is available.