The new federal regulations released last month created quite a splash, with most industry commentators—including PeopleKeep—concentrating on the creation of two new health reimbursement arrangements (HRAs).
While the addition of the individual coverage HRA (ICHRA) and the excepted benefit HRA are exciting, we’re also thrilled about what the new regulations do for the existing qualified small employer HRA (QSEHRA).
In this post, we’ll cover how the HRA rule affects the QSEHRA in 2020 and beyond. Specifically, we’ll discuss:
- The new special enrollment period (SEP) for the QSEHRA
- Rules around offering the QSEHRA with other HRAs
- What the HRA landscape looks like now
Let’s get started.
What is the new HRA rule?
In June 2019, the Departments of the Treasury, Labor, and Health and Human Services issued a new HRA rule that revised the federal government’s previous standing on HRAs.
While IRS Notice 2013-54 decided the Affordable Care Act doesn’t support integrating HRAs with individual health insurance, the new rule allows the integration as long as it follows certain guidelines.
The result was the creation of the new individual coverage HRA (ICHRA). The rule also created the excepted benefit HRA.
Finally, the rule made some changes that affect the qualified small employer HRA (QSEHRA), an HRA created by Congress in 2016 as an exception to the 2013 IRS ruling.
The QSEHRA and special enrollment periods (SEPs)
The biggest update the new rule made to the QSEHRA was to allow the use of special enrollment periods (SEPs) for employees newly eligible for the benefit.
Previously, employees who gained access to a QSEHRA midyear had to wait until open enrollment to shop for health insurance. Those who were uninsured could still participate in the benefit, but they had to pay income tax on all QSEHRA reimbursements they received.
With the new SEP, employees can get the full tax-free value of a QSEHRA right away. As soon as they become eligible, they’ll have access to a 60-day SEP during which they can shop for and purchase individual health insurance.
This SEP benefits employees in multiple situations, including:
- All employees of a company that decides to offer a QSEHRA for the first time
- New employees who are hired midyear by a company that offers a QSEHRA
- Current employees of a company that offers a QSEHRA, who gain eligibility midyear (e.g. an employee who transitions from part-time to full-time status in a company that only offers the QSEHRA to full-time workers)
The new SEP will be available to businesses offering both an QSEHRA and an ICHRA beginning January 1, 2020.
Check back on our blog next week for a deeper dive into how the SEP will work with the QSEHRA.
Offering a QSEHRA with the two new HRAs
With the addition of two new HRAs, many businesses want to know whether they can offer them alongside the QSEHRA.
The simple answer is no.
Although a business could choose to offer both the excepted benefit HRA and the ICHRA at the same time, businesses cannot offer both the QSEHRA and the ICHRA or both the QSEHRA and the excepted benefit HRA.
The new rule expressly forbids these pairings. Instead, businesses must first decide whether they want to offer employees a QSEHRA or an ICHRA.
For help making that decision, check out “Individual coverage HRA (ICHRA) vs. qualified small employer HRA (QSEHRA): How do they compare?”
Multiple HRA options in 2020 and beyond
For companies considering offering an HRA after 2019, the new rule expands the available options.
Previously, businesses could choose from three HRAs:
The group coverage HRA, which must be offered alongside a group health insurance policy
- The one-person stand-alone HRA, which can only be offered by businesses with one full-time W-2 employee
- The QSEHRA, which is available to businesses with fewer than 50 full-time employees and must be offered as a stand-alone benefit
In 2020 and beyond, businesses can still choose from among the previous three options. However, they’ll also have two additional choices:
- The ICHRA, which is available to all businesses and can be offered as a stand-alone benefit or one of multiple benefits (including group health insurance and the excepted benefit HRA)
- The excepted benefit HRA, which must be offered alongside a group health insurance policy (though employees don’t need to be enrolled in the policy to participate in the HRA)
This rich suite of HRAs gives businesses a great deal of choice. Beginning in 2020, they’ll be able to offer an HRA more closely tailored to their particular needs.
The QSEHRA may still end up being the best choice, but they may also be better served with an ICHRA.
The new HRA rule doesn’t just create new HRAs; it also makes beneficial changes to the HRA landscape.
For the QSEHRA in particular, new special enrollment periods will help both businesses and their employees get the full, tax-free value of the benefit right away.
Businesses will also have a greater degree of choice in how they structure their benefits and how they think about the QSEHRA’s comparative value.
For 2020 and beyond, the future of HRAs (and of the QSEHRA) is only improving.