Did you know that the excepted benefits health reimbursement arrangement (EBHRA) is the only HRA that allows short term insurance plans (STLDI) to be reimbursed tax-free? That’s right! Read on to learn more about some of the finer points of this arrangement.
But first, what is an EBHRA?
EBHRA stands for excepted benefit HRA which can be used to reimburse employees for medical expenses and limited medical premiums. EBHRA must be offered in conjunction with an employer sponsored group health plan, but interestingly the employees do not have to accept the health insurance to participate in 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 ($1,800 for 2020)
- Cannot provide reimbursement for premiums for certain health insurance coverage (including Medicare, group health plans, and individual health insurance)
- Be made available under the same terms to all similar situated employees
Why would an employee want a short-term plan over the group health plan?
Just because an employer offers a group health plan doesn’t mean the employee will take it. In a survey conducted by Kaiser Family Foundation in 2018, 27% of employees who were offered coverage from their employer turned it down. There are many reasons why employees may turn down the coverage.
One finding is that low-wage workers at small firms are likely to turn down coverage when offered when the premium is a larger share of their income. EBHRA + short term insurance is a good option for employees that can't afford the group health insurance but still want some coverage for emergencies or gaps.
How is short term insurance different from other health insurance?
STLDI may not be suitable coverage for all individuals in all circumstances and in many instances it might not provide coverage that is as comprehensive as individual health insurance coverage.
A few key differences:
- Does not meet ACA requirements for health insurance
- May exclude or limit preexisting conditions
- May not include coverage for hospitalization, emergency services, maternity care, preventive care, prescription drugs, mental health, and substance abuse disorders
- Has lifetime or annual dollar limits on health benefits
However, STLDI can be a viable health insurance option for many people in many circumstances. Also, no individual is required to enroll in STLDI; rather, it is simply an additional (and in some circumstances, more affordable) option that may be available to them.
Can Short term (STLDI) be reimbursed through any other HRAs?
Different types of HRA’s have different requirements of what type of insurance is required to participate in the HRA. Here is how STLDI works with two other HRA’s.
QSEHRA stands for qualified small employer HRA and is for employers with fewer than 50 full time employees. In order to participate in QSEHRA, employees need insurance that meets Minimum Essential Coverage. Since STLDI plans do not meet the MEC requirement, individuals will need to purchase a MEC supplement plan to participate. Once MEC is purchased, both the STLDI premium and MEC premium are eligible for reimbursement.
The individual coverage HRA (ICHRA) is for employers of any size. In order for employees to participate in the plan, they must purchase a qualifed individiual plan (think bronze, silver, gold metal levels) or have Medicare. Short term plans are not eligible for participation or reimbursement under ICHRA.
Want to learn more?
Take Command Health is here to help you keep all these acronyms straight and to help you decide the insurance coverage that's right for you and your business. Our team of HRA experts is always available for a chat! You can also browse our comprehensive guides or our up to date blog for more information!