The health reimbursement arrangement (HRA) is having quite a moment.
After being seriously reduced by IRS guidance following the Affordable Care Act, they’ve reentered the scene as a serious option—particularly for small businesses.
With the creation of a new HRA in 2016 and two new HRAs on the horizon, it’s a good time to look forward to what’s in store next year.
In this post, we’ll cover everything you need to know about HRAs in 2020. That includes whether your business should consider one, which HRA options will be available, how any HRA rules might change, and what’s happening with federal proposals to create two brand-new HRAs in 2020.
Let’s dive in.
Will HRAs be a good option in 2020?
HRAs have always been a good option for businesses that struggle with group health insurance costs. As access to these benefits expand, more and more businesses can consider them as a viable alternative.
This will continue to be true in 2020. The underlying causes of rising health care costs haven’t been addressed, and group health insurance rates will continue to increase while small businesses struggle to meet them.
With the availability of the qualified small employer HRA (QSEHRA) firmly in place—and two new HRAs slated to become available in 2020)—small businesses will have a way to control their budgets while offering a formal benefit to employees.
What’s more, the individual market will continue to stabilize, with more insurance carriers returning to and entering public marketplaces. This makes for a fertile field of options for employees who will be shopping for their own policies during the 2020 open enrollment period.
What HRAs will definitely be available in 2020?
While federal proposals recommend creating two new HRAs in 2020, the list of confirmed HRAs for the year remains the same as it was in 2019.
- The group coverage HRA. The group coverage HRA is an HRA that operates alongside a group health insurance policy. A business using the group coverage HRA purchases a high-deductible health insurance policy and offers a separate HRA to employees enrolled in the policy. Employees could use the HRA to reimburse themselves for out-of-pocket, non-premium medical costs, including amounts paid toward their deductible.
- The one-person stand-alone HRA. As the name suggests, the one-person stand-alone HRA is a stand-alone HRA for businesses with one employee. The HRA reimburses the participant for all HRA-eligible expenses, including individual insurance premiums. To offer the HRA, businesses must have one full-time W-2 employee only
- The retiree HRA. The retiree HRA functions much like the one-person stand-alone HRA. All retired full-time employees can participate in the benefit. Typically, only larger businesses offer this HRA.
- The qualified small employer HRA (QSEHRA). Created through bipartisan congressional legislation in 2016, the QSEHRA is available to all businesses with fewer than 50 full-time employees. With the QSEHRA, employees can be reimbursed for all out-of-pocket medical expenses, including individual insurance premiums. All full-time employees are automatically eligible for the benefit and the business can choose to include part-time employees as well.
If the proposed federal regulations are affirmed in a final rule, we also expect to see two additional HRAs become available to businesses of all sizes. Read more below under “Can we expect new HRAs in 2020?”
Will any details about these HRAs change?
The group coverage HRA, one-person stand-alone HRA, and retiree HRA will all function in the same way in 2020 as they did in 2019. Some details regarding the QSEHRA will change, though.
First, annual contribution amounts will change. Every year, the IRS reexamines the maximum amount businesses can contribute to employees through the QSEHRA based on cost of living adjustments. In 2019, these amounts are $5,050 per single employee and $10,450 per employee with a family. The 2020 allowance amounts, which we expect to be released in October or November, will be higher.
Second, if federal proposals on HRA changes go forward, we’ll see new enrollment opportunities for employees with a QSEHRA. Right now, becoming newly eligible for a QSEHRA is not a qualifying life event that entitles an employee to a special enrollment period. Instead, the employee must wait until open enrollment season to shop for and purchase an individual health insurance policy.
With these new guidelines, that will change. If the proposals are enacted in 2020, employees who gain access to a QSEHRA will be able to claim a qualifying life event, which opens a 60-day special enrollment period.
Can we expect new HRAs in 2020?
In October, the Departments of the Treasury, Labor, and Health and Human Services released proposed regulations that would expand access to HRAs. The most exciting development in the proposals is the creation of two new HRAs: the individual coverage HRA (ICHRA) and the excepted benefit HRA.
With the ICHRA, businesses of any size could offer an HRA to employees as a stand-alone benefit. Unlike the QSEHRA, the ICHRA would have no annual contribution caps and businesses could choose to define eligibility and allowance amount by nine different employee classes.
The excepted benefit HRA would also be available to businesses of any size. Those offering the HRA could reimburse employees up to $1,800 per year for excepted benefits, including dental and vision expenses.
The regulations suggest an implementation date for both the ICHRA and the excepted benefit HRA of January 1, 2020. However, the final rule that would solidify this start date has yet to arrive.
In the meantime, insurance carriers and state insurance departments have been lobbying the departments to push the start date back to 2021 or later. They argue that because HRAs would allow a significant number of new people onto the individual market, it could affect their risk pools and the way they structure pricing. Because rates for the 2020 individual market have already been filed, they argue, it would be unnecessarily risky to introduce the new HRAs next year.
While we expect the ICHRA and the excepted benefit HRA to become available eventually, we can’t say for certain that they’ll be available in 2020. Subscribe to our blog or check back here frequently to stay updated on all your HRA options for next year.
As in years past, interest in HRAs as a stand-alone health benefit is increasing. In 2020, the HRA will be a great choice for businesses committed to providing health benefits, but who are concerned about cost.
With four strong HRA choices definitely available in 2020 and two more potential candidates, HRAs are poised to help thousands of businesses offer strong health benefits to employees.
For more information about HRAs, check out PeopleKeep’s HRA education page.