New HRAs For 2020! Larry Grudzien Attorney at Law 2 AGENDA 1. - PowerPoint PPT Presentation

1 New HRAs For 2020! Larry Grudzien Attorney at Law

2 AGENDA 1. Review what happened – final regulations released 2. What is an Individual Coverage HRA? 3. What is an Excepted Benefit HRA? 4. Other provisions from the final regulations 5. Compare these new HRAs with traditional HRAs and QSEHRAs 6. Comments and conclusions 7. Take your questions

3 WHAT HAPPENED?

4 What Happened? • On June 13, 2019, Treasury, DOL and HHS released final regulations that are effective for plan years beginning on or after January 1, 2020. • These regulations create two new HRAs: Individual Coverage HRAs (“ICHRA”) and Excepted Benefit HRAs (“EBHRA”).

5 What Happened? • These new HRAs will be subject to ERISA and COBRA, but the ICHRA will not be subject to the nondiscrimination rules under Code Section 105(h). • Any employer can offer these new HRAs to their common law employees, but there are restrictions that must be followed. • They cannot be offered to self-employed individuals, partners and more than 2% S corporation shareholders.

6 INDIVIDUAL COVERAGE HRAS (ICHRAS)

7 Individual coverage HRAs (ICHRAs) • Employees and their dependents must be enrolled in individual health insurance coverage before being eligible for any reimbursements under the Individual Coverage HRA. • This HRA can reimburse premiums and/or any Code Section 213(d) medical expenses.

8 Individual coverage HRAs (ICHRAs) For this purpose, “individual insurance coverage” includes: • Individual market coverage (whether offered through the Exchange/marketplace or not) • Student health insurance coverage (applicable to certain educational institutions) • Grandfathered and grandmothered plans, but not coverage that consists of excepted benefits • Medicare Parts A and B or Medicare Part C premiums Individual insurance coverage excludes all of the following: • Coverage under the plan of a spouse • Health care sharing ministries • Short-term limited duration policies • TRICARE.

9 Individual coverage HRAs (ICHRAs) ICHRA • An employer cannot offer an employee or a dependent a choice between the Individual Coverage HRA and a traditional group health coverage. OR • An employer can offer such employee and or dependent participation in a health flexible spending account or group health coverage that consists solely Traditional of excepted benefits (dental and vision). Group Plan • Pre-tax contributions to a cafeteria plan to pay for a portion of the individual coverage premium will not be seen as an endorsement and will not subject the employee’s individual coverage to ERISA.

1 0 Individual coverage HRAs (ICHRAs) • An employee and/or a dependent will need to substantiate each month that he or she is covered by health insurance before the Individual Coverage HRA can be reimbursed. • Such substantiation may be by either: • a document from a third party showing that the employee and any dependent are enrolled or • an attestation by individuals that they are or will be enrolled in individual health insurance coverage, the date coverage began or will begin and the name of the provider of the coverage. • To satisfy this requirement, the agencies have developed model forms both for substantiating coverage and requesting a reimbursement for medical expenses.

1 1 Individual coverage HRAs (ICHRAS) • The Individual Coverage HRA must be offered on the “same terms” to all members of an employee class. • The final regulations contain eleven different classes: • full-time employees that can be defined under Code Section 105(h) (35 hours or more or Code Section 4980H (30 hours or more); • part-time employees that can be defined under Code Section 105(h) (less than 35 hours) or Code Section 4980H (less than 30 hours); • seasonal employees that can be defined under Code Section 105(h) (less than 9 months or Code Section 4980H (less than 6 months); • employees who have satisfied a waiting period for coverage; • non-resident aliens with no US source income; • salaried employees;

1 2 Individual coverage HRAs (ICHRAs) • The final regulations contain eleven different classes (continued): • employees in a unit covered by a particular collective bargaining agreement. • non-salaried employees; • employees whose primary site of employment is the in the same rating area; • temporary employees; and • a combination of these ten categories • If former employees are offered reimbursements, then the former employees are treated as being in the same class they were in immediately before the separation from service. • The designated classes are determined on a common-law employer basis and not on a controlled group.

1 3 Individual coverage HRAs (ICHRAs) • A minimum class size requirement applies if an employer offers a traditional group plan to one class of employees and offers an individual coverage HRA to another class of employees. • The minimum class size: • 10 employees if the employer has fewer than 100 employees • 10% of employees if the employer has between 100 to 200 employees • 20 employees if the employer has more than 200 employees • applies to full-time employees, salaried employees, non-salaried employees and employees whose primary site of employment is the same ratings area.

1 4 Individual coverage HRAs (ICHRAS) There are permitted exceptions to the “same terms” requirement: • The employer can provide a higher dollar amount under the Individual Coverage HRA on the basis of age or family size so long as the increase in the maximum dollar amount is because of an increase in age or family size is made available to all participants in the class of employee who are the same age or have the same number of dependents covered under the HRA. • The premium for the oldest person cannot exceed three times the premium of the youngest person. • An Individual Coverage HRA can be made available to some former employees but not to all.

1 5 Individual coverage HRAs (ICHRAs) There are permitted exceptions to the “same terms” requirement (continued): • Participants can pay the difference on a pre-tax basis under a cafeteria plan, so long as this option is provided to all members of the class and the coverage was not obtained on the Exchange. • Any unused amounts allowed to be carried over to later plan years are offered on the same terms. • Amounts transferred from a prior HRA can be disregarded, so long as the transferred amount rules apply to all participants. • Adjustments to the maximum dollar amount available during the plan year are allowed for newly hired employees and new dependents. • Employees can be offered a choice between an HSA compatible Individual Coverage HRA and an Individual coverage HRA that is not HSA compatible.

1 6 Individual coverage HRAs (ICHRAs) • An individual who is no longer covered by an individual health insurance cannot receive reimbursement from the Individual Coverage HRA. • COBRA will be offered if coverage is lost under the HRA because of a circumstance that would constitute a COBRA qualifying event. • The Individual Coverage HRA must require employees to provide a notice to the employer if their coverage is cancelled.

1 7 Individual coverage HRAs (ICHRAs) • An employee must be allowed to opt out and waive future reimbursements on behalf of the employee and all dependents eligible for the Individual Coverage HRA. • This option must be offered once every plan year. • At termination of employment, the remaining amounts in the Individual Coverage HRA must be forfeited or the employee must be permitted to permanently opt out and waive future reimbursement from the Individual Coverage HRA.

1 8 Individual coverage HRAs (ICHRAs) • The employer must provide an annual notice to employees at least 90 days before the start of each plan year or before the effective date of coverage (if the employee becomes eligible after the start of the plan year). • An extended notice period is allowed for the first plan year, and the agencies have provided a model notice for these purposes. • For ERISA-covered plans, the notice can be delivered electronically, consistent with ERISA’s electronic communication requirements. • A sample notice is provided in the final regulations.

1 9 Individual coverage HRAs (ICHRAs) The notice must alert the employee to, among other things, the following: • The terms of the ICHRA, including the maximum dollar amount made available and other specified provisions. • A specific individual or group to contact for additional information on the ICHRA. • Information related to the individual Exchange special enrollment period (SEP) relating to eligibility to enroll in IMC for a newly eligible ICHRA individual. • The right to opt out of and waive future reimbursement under the ICHRA. • That the premium tax credit (PTC) for coverage in the Exchange may be available: • if the participant opts out of and waives the ICHRA; and • the ICHRA is not “affordable”