Small Business Employee Benefits and HR Blog

What You Need to Know About HRAs and Obamacare

May 27, 2015
What you need to know about HRAs and Obamacare

Health Reimbursement Accounts, or health reimbursement arrangements (HRAs), have been a popular type of medical reimbursement plan used by employers to control healthcare costs. The Affordable Care Act (“Obamacare”), however, changed the rules for health plans including Health Reimbursement Accounts (HRAs).

Are HRAs still available under Obamacare? Obamacare hasn't completely killed HRAs, but there are new rules HRAs need to follow. This article summarizes how HRAs can and cannot be used today.

Background on HRAs and Obamacare

Before we get into the availability HRAs today, it is important to understand how Obamacare impacts the history of HRAs. Here’s a brief summary.

In 2010 when Obamacare passed one of the big questions was how HRAs would be impacted by the new regulations to group health plans.

In 2013, the Department of Labor announced that stand-alone HRAs (with more than 2 participants) would need to comply with annual limit regulations (PHS Act 2711). As such, the availability of stand-alone HRAs after 2014 was limited for most companies.

These new Obamacare reforms are commonly referred to as the "Market Reforms." Employers using HRAs that do not comply with the Market Reforms may face a $100/day excise tax per applicable employee, starting July 1, 2015.

How You Can Use HRAs Today

Given the current Obamacare rules, there are four main ways employers can use HRAs today:

  1. Group Coverage HRA - You can generally still offer a group coverage HRA if it is linked with a group health insurance plan.

  2. Retiree-Only HRA - You can still offer an HRA to retired employees. Retiree-only HRAs are exempt from the Market Reforms.

  3. One-Person Stand-Alone HRA - You can still offer a stand-alone HRA if there is only one participant on the plan. One-person stand-alone HRAs are exempt from the Market Reforms.

  4. The Qualified Small Employer HRA - You can offer this new HRA created in 2016 specifically for small businesses with fewer than 50 full-time employees. With the QSEHRA, you can offer tax-free health reimbursement to multiple full-time employees and part-time employees if you choose.

There are also two new HRAs coming in 2020: the excepted benefit HRA and the individual coverage HRA (ICHRA). The excepted benefit HRA reimburses employees exclusively for excepted benefits like dental or vision premiums, while the ICHRA functions much like the QSEHRA without size or annual allowance amount restrictions.

How You Cannot Use HRAs Today

As mentioned previously, the big Obamacare change is that the old stand-alone HRAs are no longer available to most companies.

What is a stand-alone HRA? A stand-alone HRA is not linked with a group health insurance plan. It is offered as a standalone health benefit and is generally used to reimburse employees for individual health insurance premiums and/or out-of-pocket medical expenses.

If you’ve offered a stand-alone HRA, and the plan has two or more participants, you will need to adopt a new reimbursement plan that complies with the Market Reforms, such as the QSEHRA. This likely means making changes to what the plan will reimburse, and how it is structured.

How You Can Reimburse Individual Health Insurance Premiums Today

If you’ve used a stand-alone HRA in the past, or are looking to reimburse employees for individual health insurance premiums, you can use a QSEHRA.

A QSEHRA is a type of medical reimbursement plan designed for individual health insurance reimbursement.

Structured correctly, a QSEHRA complies with all applicable regulations including the Obamacare Market Reforms.

Conclusion

Under Obamacare, the rules about HRAs have changed. Are HRAs still available? In some circumstances, yes. Employers who have used a stand-alone HRA, however, should transition to a compliant reimbursement plan to avoid hefty fees.

What questions do you have about Health Reimbursement Accounts (HRAs) and Obamacare? Leave a comment or question below.


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