FREQUENTLY ASKED QUESTIONS

FAQs on New Health Coverage Options for Employers and Employees

Find quick solutions and answers to common queries about our products and services.

What are the benefits of offering an Individual Coverage HRA to employees?

Individual Coverage HRAs can help enable businesses to focus on what they do best— serve their customers—and not on navigating and managing complex health benefit designs. Individual Coverage HRAs provide tax advantages because the reimbursements provided to employees do not count toward the employees’ taxable wages. In effect, Individual Coverage HRAs extend the tax advantage for traditional group health plans (exclusion of premiums, and benefits received, from federal income and payroll taxes) to HRA reimbursements of individual health insurance premiums.

Employers may also allow employees to pay for off-Exchange health insurance on a tax-favored basis, using a salary reduction arrangement under a cafeteria plan, to make up any portion of the individual health insurance premium not covered by the employee’s Individual Coverage HRA.

In most cases, the Individual Coverage HRA rule will increase worker options for health insurance coverage, allowing workers to shop for plans in the individual market and select coverage that best meets their needs. It will also result in coverage being more portable for many workers. 81% of small to midsized employers (fewer than 200 employees) and 42% of larger employers (at least 200 employees) offering health benefits in 2018 provided only one type of health plan to their employees (Kaiser Family Foundation Employer Health Benefits Survey, 2018).
How does an Individual Coverage HRA work?

An Individual Coverage HRA reimburses employees for their medical premiums (and sometimes their family members’ medical premiums), up to a maximum dollar amount that the employer makes available each year. Employees must enroll in individual health insurance (or Medicare) for each month the employee (or the employee’s family member) is covered by the Individual Coverage HRA. This can be individual health insurance offered on or off an Exchange. However, it cannot be short-term, limited- duration insurance (STLDI) or coverage consisting solely of dental, vision, or similar “excepted benefits.” There are other important requirements too. An employer that wants to offer an Individual Coverage HRA should review the HRA rule for more information on the conditions the HRA must meet.
Why is the HRA rule important for small businesses and their workers?

The HRA rule will provide hundreds of thousands of businesses a better way to offer health insurance coverage and millions of workers and their families a better way to obtain coverage. The HRA rule will especially help small employers, who face larger administrative costs from offering a traditional group health plan, compete for talent. Many small employers struggle to offer coverage to their employees, and a significant number of small employers have stopped offering coverage since 2010. Between 2010 and 2018, the percentage of firms offering coverage declined from 59% to 47% at firms with 3-9 workers, from 76% to 64% at firms with 10-24 workers, from 92% to 71% at firms with 25-49 workers, and from 95% to 91% at firms with 50-199 workers. (Kaiser Family Foundation Employer Health Benefits Survey, 2018)
What are the expectations for take-up of the Individual Coverage HRA?

The Departments estimate that once employers fully adjust to the new rules, roughly 800,000 employers will offer Individual Coverage HRAs to pay for insurance for more than 11 million employees and family members, providing these Americans with more options for selecting health insurance coverage that better meets their needs. The Departments estimate that, once fully phased in, about 800,000 people who were uninsured will gain coverage.
To whom can I offer an Individual Coverage HRA?
If you offer an Individual Coverage HRA, you must offer it on the same terms to all individuals within a class of employees, except that the amounts offered may be increased for older workers and for workers with more dependents. You cannot offer an Individual Coverage HRA to any employee to whom you offer a traditional group health plan. However, you can decide to offer an individual coverage HRA to certain classes of employees and a traditional group health plan (or no coverage) to other classes of employees.

Employers may make distinctions, using classes based on the following status:

Full-time employees,

Part-time employees,

Employees working in the same geographic location (generally, the same insurance rating area, state, or multi-state region),

Seasonal employees,

Employees in a unit of employees covered by a particular collective bargaining agreement,

Employees who have not satisfied a waiting period,

Non-resident aliens with no U.S.-based income,

Salaried workers,

Non-salaried workers (such as hourly workers),

Temporary employees of staffing firms, or

Any group of employees formed by combining two or more of these classes.

To prevent adverse selection in the individual market, a minimum class size rule applies if you offer a traditional group health plan to some employees and an Individual Coverage HRA to other employees based on: full-time versus part-time status; salaried versus non-salaried status; or geographic location, if the location is smaller than a state. Generally, the minimum class size rule also applies if you combine any of these classes with other classes. The minimum class size is:

Ten employees, for an employer with fewer than 100 employees,

Ten percent of the total number of employees, for an employer with 100 to 200 employees, and

Twenty employees, for an employer with more than 200 employees.

Also, through a new hire rule, employers can offer new employees an Individual Coverage HRA, while grandfathering existing employees in a traditional group health plan.
How do my employer contributions work?

Employers can contribute as little or as much as they want to an Individual Coverage HRA. However, an employer must offer the HRA on the same terms to all employees in a class of employees, except that employers can increase the amount available under an Individual Coverage HRA based on the employee’s age or number of dependents. Also, see Q7 for employers subject to the employer mandate.
Can an employer offer an Individual Coverage HRA to satisfy the employer mandate?

First, only certain employers – in general, those with at least 50 full-time employees, including full-time equivalent employees, in the prior year – are applicable large employers subject to the employer mandate.

An offer of an Individual Coverage HRA counts as an offer of coverage under the employer mandate. In general, whether an applicable large employer that offers an Individual Coverage HRA to its full-time employees (and their dependents) owes a payment under the employer mandate will depend on whether the HRA is affordable. This is determined under the premium tax credit rule being issued as part of the HRA rule and is based, in part, on the amount the employer makes available under the HRA. Therefore, if you are an applicable large employer and want to avoid an employer mandate payment by offering an Individual Coverage HRA, in general, you will need to contribute a sufficient amount for the offer of the Individual Coverage HRA to be considered affordable.

The Internal Revenue Service will provide more information on how the employer mandate applies to Individual Coverage HRAs soon. For more information on the employer mandate, see www.irs.gov/affordable-care-act/employers/employer- shared-responsibility-provisions.
What other responsibilities do I, the employer, have?
Individual Coverage HRAs must provide a notice to eligible participants regarding the Individual Coverage HRA and its interaction with the premium tax credit. The HRA must also have reasonable procedures to substantiate that participating employees and their families are enrolled in individual health insurance or Medicare, while covered by the HRA. The Appendix to this document includes a model notice and a model substantiation form that you can use. Employees must also be permitted to opt out of an Individual Coverage HRA at least annually so they may claim the premium tax credit if they are otherwise eligible and if the HRA is considered unaffordable.

You generally will not have any responsibility with respect to the individual health insurance itself that is purchased by the employee, because it will not be considered part of your employer-sponsored plan, provided:

An employee’s purchase of any individual health insurance is completely voluntary.

You do not select or endorse any particular insurance carrier or insurance coverage.

You don’t receive any cash, gifts, or other consideration in connection with an employee’s selection or renewal of any individual health insurance.

Each employee is notified annually that the individual health insurance is not subject to the Employee Retirement Income Security Act (ERISA), which is the federal law governing employer-provided health coverage.
Can large employers offer Individual Coverage HRAs too?
How can I get more information?
Employers and employees can contact the Department of Labor at 1-866-444- 3272 or https://www.askebsa.dol.gov. More information regarding Individual Coverage HRAs and Excepted Benefits HRAs is also accessible at: https://www.dol.gov/agencies/ebsa.

Contact the IRS Office of Chief Counsel, Health and Welfare Branch, at 202-317- 5500
(not a toll free number) regarding the federal tax-treatment of employer- provided health coverage.

For information on special enrollment rights in the individual market for insurance, as well as information on purchasing individual health insurance through the federal Exchange, see https://www.healthcare.gov/coverage-outside- open-enrollment/special-enrollment-period/.

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FAQs on New Health Coverage Options for Employers and Employees

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