by Matt Gerard
on July 26, 2019
The DOL, HHS, and IRS recently announced final regulations expanding the use of HRAs. Among other changes, the final regulations settle requirements for two new HRAs available in 2020: the “Individual Coverage HRA” and the “Excepted Benefit HRA.” In a previous article, I discussed the ins and outs of the Individual Coverage HRA. This follow-up article will discuss the Excepted Benefit HRA (EBHRA), and unlike the name suggests, the EBHRA has more to offer than reimbursement of “excepted benefits.”
While other HRAs, including the Individual Coverage HRA, must integrate with other insurance coverage, Excepted Benefit HRAs do not. A sponsoring employer must offer an EBHRA in conjunction with a traditional group health plan (other than account-based group health plans or coverage consisting solely of excepted benefits); however, employees are not required to enroll in the traditional plan (or in any other coverage) to enroll in an Excepted Benefit HRA. This means employees who have insurance coverage through a spouse’s group health plan may still participate in an EBHRA sponsored by their employer.
Employers can contribute a maximum of $1,800 per plan year to an Excepted Benefit HRA. This limit is indexed for inflation, and the adjusted limit for plan years after 2020 will likely be published in the early fall. The $1,800 limit does not include carryover amounts, so participants could have more than $1,800 available to them during a plan year. However, if an employer provides more than one type of HRA to an EBHRA participant, then all amounts made available under all such HRAs will need to be aggregated to determine whether the EBHRA $1,800 limit is exceeded. On a positive note, HRAs that only reimburse excepted benefits (e.g., limited-scope HRAs) may be excluded from the aggregation rules.
Employers who offer an EBHRA must make the EBHRA available under the same terms and conditions to all “similarly situated individuals” regardless of health factors. The final rules define similarly situated individuals with the same definition found in the HIPAA nondiscrimination rules. Under these rules, a group health plan may treat groups of participants as distinct groups if the distinction is based on bone fide employment-based classifications consistent with the sponsoring employer’s usual business practices. The HIPAA nondiscrimination rules provide the following examples of bone fide classifications:
This uniform availability requirement of EBHRAs differs from Individual Coverage HRAs which must be offered on the same terms to all individuals within a class of employees.
Important item of note: An employer cannot offer an Individual Coverage HRA and an Excepted Benefit to the same employee.
Unlike for Individual Coverage HRAs, the final regulations do not provide eligibility and substantiation requirements for Excepted Benefit HRAs, other than the uniform availability requirement, discussed in the previous section. Since sponsoring employers must offer a traditional health plan to EBHRA participants, a logical assumption would be that EBHRA participants must also be eligible for the offered traditional health plan, even if the EBHRA participants do not enroll in the offered traditional plan. Again, an employer cannot offer an Individual Coverage HRA and an Excepted Benefit to the same employee.
Notice of Availability
Unlike QSEHRAs and Individual Coverage HRAs, Excepted Benefit HRAs currently are not subject to a special notice requirement other than the notice requirements under Part 1 of ERISA. Thus, private-sector employers who offer an EBHRA will need to provide a Summary Plan Description (SPD), Summary of Material Modifications (SMM), and summaries of material reduction in covered services or benefits to employees. The SPD for an Excepted Benefit HRA must include such information as:
The final regulations do not contain a notice requirement for EBHRAs sponsored by employers who are not subject to ERISA. Nevertheless, the final regulations do state that HHS has the intent to propose a notice requirement for EBHRAs sponsored by non-federal governmental entities. Such proposed notice requirement is anticipated to be similar in content and timing to existing SPD requirements. Although not obligated to provide an SPD-like document to employees, the best practice for employers who are not subject to ERISA and who sponsor an EBHRA would likely to be to provide some information to employees about the EBHRA including plan eligibility, benefit limits, and a description of the available benefits.
Contrary to what the name implies, Excepted Benefit HRAs can reimburse medical care expenses other than excepted benefits. For example, an employer may permit an EBHRA to reimburse all medical care expenses not disallowed by the final rule. Generally, Excepted Benefit HRAs may reimburse medical care expenses of an employee and certain members of the employee’s family including premiums for excepted benefits, such as dental and vision coverage, as well as for short-term, limited-disability insurance (STLDI). The excepted benefit coverage may be through a group health plan or through an individual health insurance plan. Nevertheless, an EBHRA may not reimburse the following:
Like other types of HRAs, sponsoring employers have discretion to specify which medical expenses are eligible for reimbursement under the EBHRA which they establish. Because an EBHRA can reimburse medical care expenses other than just excepted benefits, employers can offer an EBHRA and continue to offer a limited-scope HRA that reimburses only excepted benefits.
Comparison to QSEHRAs
EBHRAs are not similar to Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs) most respects. The similarities are limited in that both EBHRAs and QSEHRAs can reimburse out-of-pocket medical expenses and are potentially compatible with a Health Saving Account (HSA), depending on the design of the EBHRA or QSEHRA. However, unlike QSEHRAs, employers of any size can offer an EBHR; whereas, only employers who have fewer than 50 employees may offer QSEHRAs. Additionally, employers can offer EBHRAs and a traditional group health plan to their employees, and EBHRAs are compatible with health flexible spending arrangements (health FSAs). Additionally, employers can offer an EBHRA and limited-scope HRA for excepted benefits (e.g., dental and vision insurance) to their employees. Conversely, employers who offer QSEHRAs cannot offer any other group health plan, including a health FSA. Other account-based plans can impact the maximum dollar amount available under an EBHRA whereas this limitation does not apply to QSEHRAs. While COBRA does not apply to QSEHRAs, EBHRAs will be subject to COBRA.
Act Now to Sponsor an EBHRA for 2020
Employers who wish to offer an Excepted Benefit HRA at the start of 2020 need to take quick action. Employers will need to plan what the amount of Excepted Benefit HRA benefit, what expenses will be reimbursable, who will be eligible for the Excepted Benefit HRA, and how the Excepted Benefit HRA will mesh with other offered benefits. For more information, the IRS has posted Frequently Asked Questions about the Individual Coverage HRA and Excepted Benefit HRA available here.
Interested employers should contact National Benefit Services, LLC today to discuss EBHRAs and how they can complement and expand an employer’s current benefit plans. As always, NBS is readily available to assist employers with employee benefit plan design and fringe benefit design and administration, amending plan documents, creating required notices and summary plan descriptions.