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Individual Integrated HRAs: How Do They Work?

by Jack

In January 2020, employers will be able to offer a new type of HRA called an "Individual Integrated HRA". These are similar to Traditional HRAs except they integrate with individual health insurance coverage instead of group plans. Although the ink is still drying on the regulations, here's what we know so far about how these new HRAs will work.

For background, a Health Reimbursement Arrangement (HRA) is a vehicle that allows employers to help employees pay for medical expenses with tax-advantaged dollars. The most common types of HRAs are called Section 105 HRAs, named after the Internal Revenue Code Section 105, which created and regulates most types of HRAs today. 

What we're calling an "Individual Integrated HRA" is a new flavor of Section 105 HRA with unique benefits and applications. We'll be keeping a close eye on the regulatory situation and keep this blog up-to-date as we continue to learn more about it.

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Here's what we know now:

Where did the "Individual Integrated 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.

Another type of HRA was also created from these proposed rules called an "Excepted Benefit HRA". 

What are the requirements for an Individual Integrated HRA?

The proposed rules would require that several conditions be met for the Individual Integrated HRA to qualify:

  • Individual employees (and their dependents) must be covered by a health insurance plan
  • The design of the HRA does not intentionally or unintentionally discriminated (to prevent risk shifting)
  • Employees in the same "employee class" are offered an HRA on the "same terms"

What are the proposed "employee classes" and how do they work?

The proposed employee classes in regulations include:

  • Full-Time Employees
  • Part-Time Employees
  • Seasonal Employees
  • Employees covered by a collective bargaining agreement
  • Employees who have not satisfied a waiting period for coverage
  • Employees under age 25
  • Non-Resident aliens with no US-based income
  • Employees whose primary site of employment is in the same rating area

This means that employers could offer different reimbursement amounts or even different types of coverage to different classes of employees. This is a big upgrade over QSEHRA, which allows employers to choose whether to include or exclude classes of employees similar to the list above but not to offer different offerings.

For example, under the proposed rules, employers could offer full-time employees a traditional group plan and part-time employees an Individual Integrated HRA. Or employers could offer an HRA with certain reimbursement rates to an office in one geography and a different HRA with different reimbursement amounts to an office in another location (based on the rating area criteria above).

What can it help pay for?

The Individual Integrated HRA is designed to help employees pay for individual health insurance premiums. In addition, it can also help pay for medical expenses provided that the employee has substantiated he or she has health insurance coverage. This is similar to the rules in effect governing QSEHRA.

Is there a minimum or maximum number of employees needed?

No, there are no minimums and no maximums. Employers over 50 full-time employees may have to meet a minimum contribution in order to avoid ACA corporate mandate penalties.

What are the contribution limits?

No limits have been provided and none were suggested in the initial rule. Traditional 105 HRAs are only limited by employee wages and the "fair terms" requirements.

Can large employers offer an Individual Integrated HRA to meet the corporate mandate?

Yes. The IRS is expected to provide calculations and benchmarks to help large employers (ALE) subject to the corporate mandate determine what their minimum HRA contributions will have to be in order to satisfy the mandate.

Can an Individual Integrated HRA work with other types of HRAs?

Because an Individual Integrated HRA requires no group health plan be offered to the same class of employees, we know it will not work with the new Excepted Benefits HRA or with traditional Section 105 HRAs integrated with a group health plan. It may be able to work with QSEHRA but the benefits would likely be redundant.

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 will we learn more about the final rules?

Now that the proposed rules have been published, there is a 60 day public comment period. There are likely to be some minor tweaks and clarifications made to the rules. The IRS is expected to provide further guidance during 2019, although no timeframe has been provided.

When can I set up an Individual Integrated HRA?

The proposed rules recommend that these new HRAs become effective January 1st, 2020. We'll have to wait until then!

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Hi, I'm Jack! I wrote this blog to help people make smart health insurance decisions. I am a small business owner, a husband, and a dad to three boys, so I've seen firsthand how important understanding insurance decisions can be. As a co-founder of Take Command Health and a licensed health professional, I've been recognized as a leading expert on healthcare transparency and defined contribution arrangements (QSEHRA). I've been featured in the New York Times, Wall Street Journal, Dallas Morning News, Forbes and others. Learn more about me and connect with me on our about us page. Thanks!