The new Excepted Benefit HRA (EBHRA) is a great benefit for employers looking to build a comprehensive benefits package. It offers employees flexibility in how they spend their healthcare dollars. The most frequently asked questions about EBHRA are compiled below.
The top questions we hear about the new Excepted Benefit HRA, a relative newcomer to HRA benefits.
What is an EBHRA?
An EBHRA stands for Excepted Benefit HRA. It is a tax-advantaged health reimbursement arrangement that pays premiums and qualified medical expenses for excepted benefits like dental and vision coverage. With these types of health reimbursement arrangement HRAs, there's a few things to keep in mind:
- The EBHRA is offered alongside a group plan.
- An employee can participate even if they decline participation in the employer’s group health plan.
- It allows employers to help their employees with health care expenses that aren't covered by insurance within a plan year.
What does EBHRA stand for?
EBHRA stands for Excepted Benefit Health Reimbursement Arrangement.
Where did the "Excepted Benefit HRA" come from?
In October 2018, the U.S. Departments of the Treasury, Health and Human Services, and Labor proposed new regulations to expand the usability of health reimbursement arrangements (HRAs). This is the 3rd and final part of President Trump's Executive Order from October 2017 (E.O. 13813) to reform the health system through regulatory changes. You can see the press release, accompanying fact sheet, and proposed rule itself here. The final rules were passed June 13, 2019 that outline EBHRA, ICHRA (Individual Coverage HRA), and QSEHRA (Qualified Small Employer HRA).
Why was EBHRA created?
Traditionally, HRAs have always been required to integrate with a group health plan unless they fit the narrow criteria to be considered a stand-alone HRA (like a QSEHRA). However, regulators have recognized that some employers may wish to offer tax-free reimbursement without regard to whether or not employees have qualified insurance coverage. The Excepted Benefit HRA offers reimbursement opportunities to employees that do not participate in the group health plan.
What are "excepted benefits?"
"Excepted Benefits" is insurance jargon to refer to insurance plans that are not primary health plans. Examples of excepted benefits include vision insurance, dental insurance, long-term care insurance, nursing home care, etc.
HRA Benefits: What are the benefits of offering an EBHRA?
There are some instances in which an employer may wish to offer an HRA in addition to the traditional group health plan, for example to cover the cost of copays, deductibles, or other costs not covered by the plan. Excepted Benefit HRAs allow for higher levels of employer contributions than flexible spending arrangements (FSAs) and the unused funds can rollover year to year.
What are the requirements for EBHRA?
To keep the HRA limited to excepted benefits, the rules state that EBHRA:
- Must not be an integral part of the group health plan
- Benefits must be limited in amount
- Cannot provide reimbursement for premiums for certain health insurance coverage
- Be made available under the same terms to all similar situated employees
- Must submit documents to remain compliant
What are the maximum contribution rates for EBHRA?
The maximum contribution rate for 2020, 2021, and 2022 was $1,800.
For 2023, that maximum contribution rate for EBHRAs rate has gone up to $1,950.
In the future, this rate is expected to adjust with inflation but so far the past three years have had the same amount.
What is eligible for reimbursement with an EBHRA?
Here are some of the qualified medical expenses and other eligible expenses that can be reimbursed with EBHRA tax-free.
- Limited scope dental and vision insurance;
- COBRA continuation coverage;
- Short-term limited duration insurance (STDLI);
- Cost sharing (copays and deductible); and,
- Long-term care coverage, nursing home care, home healthcare, community-based care, or any combination thereof.
What is not eligible for reimbursement under EBHRA?
HRA funds from the Excepted Benefit HRA may not reimburse premiums that are not considered excepted benefits including:
- Medicare part A, B, C or D
- Individual Health insurance coverage
- Group plan premiums (except COBRA)
Are employees required to enroll in the employer offered group health plan to participate in EBHRA?
No, employees do not have to accept the employer sponsored group health plan in order to participate in EBHRA. This is great news for employees who might not be able to afford the premiums under their group plan, as they will be able to purchase a short-term plan instead and use their EBHRA allowance to reimburse the premium.
What happens to unused funds at year end?
Employers have the option of designing EBHRA to allow unused HRA funds to carry over year over year. The carryover amounts will not be included when determining if the following year’s limit is exceeded.
Can employees have both an EBHRA + HSA?
Yes, employees can contribute to an HSA and participate in EBHRA. Employees must ensure their health coverage is compatible with the HSA to participate.
Do employers have to offer a group health plan to use an Excepted Benefit HRA?
Technically, yes, an employer must offer group health insurance in order to also offer an Excepted Benefit HRA. However, unlike traditional HRAs, employees do not have to participate in the group plan in order to receive reimbursements. This is really what separates this new HRA from traditional HRAs which required employees participate to receive reimbursements.
What can EHBRA pay for?
Individual major medical premiums, coverage under a group health plan, and Medicare Parts B and D are not excepted benefits and would not be eligible. The proposed rules make exceptions that would allow for payment of COBRA premiums, short-term plans (STLDI), and individual or group plans that consist solely of excepted benefits.
What are the limits for EBHRA?
Employers can offer $1800 a year starting in 2020 to employees. While this does not sound like much, this works out to $150 a month which can go pretty far for non-major medical health insurance plans. The $1800 amount is tied to inflation, so it'll go up a little bit every year.
Can unused EBHRA funds carry-over to the next year?
Yes, if an employee does not use all of his or her allowance in a given year, the unused balance can carry-forward to the next year. Presumably, the employer will be able to choose whether to allow this or not, but we'll see. According to the proposed rules, any carry-over amount will not count towards the annual maximum the following year.
Can an Excepted Benefits HRA work with other types of HRAs?
Because an Excepted Benefits HRA requires a group health plan be offered, it will not work with the newly proposed Individual Integrated HRAs or existing QSEHRAs.
However, the proposed rules do allow employers to offer different benefit solutions to different classes of employees (assuming the classes are defined in a fair manner).
An employer could offer an Excepted Benefits HRA to one class (say, part-time employees) and a QSEHRA to full-time employees.
When can employers start offering EBHRA?
Employers were able to start offering this new type of health reimbursement arrangement HRA, the Excepted Benefit HRA, on January 1, 2020.
About Take Command
Take Command is a recognized leader in QSEHRA administration and small business HRA tax strategy. We're also the first and only ICHRA administrator to offer in-house, hands-on employee support. Our team is passionate about HRAs and the impact they can have on businesses of all sizes.
This post was originally published in 2019 and has been updated in 2023 to reflected the latest regulatory and policy updates.
I wrote this blog because I love helping people decode confusing insurance jargon and understand the fine print. I'm a licensed health insurance professional and specialize in simplifying health insurance for individuals and small businesses. My QSEHRA articles have been featured regularly on Accounting Today, Accounting Web, HRWeb, and other industry publications. I'm also a member of Take Command Health's client success team and a full-time mom. Learn more about me and connect with me on our about us page. Thanks!