Defined contribution health plans

While HRAs and HSAs are both defined contribution plans, they work differently. Employers can offer stand-alone HRAs independently of group health insurance plans, while HSAs require HSA-eligible high deductible health plans (HDHPs). Employers can also offer HRAs, such as a GCHRA, in conjunction with group plans.

There are also annual limits on employer and employee contributions with HSAs. Employees who are 50 and older have the option to make additional catch-up contributions. While there are annual contribution limits with a qualified small employer HRA (QSEHRA) and excepted benefit HRA (EBHRA), other HRAs, like the ICHRA or GCHRA, have no limits on employer contributions.

Additionally, the employer owns and manages the HRA, as it's an arrangement instead of an individual account. However, the employee owns the HSA, meaning they can take their contributions and your contributions with them when they leave your organization. With an HRA, the unused funds stay with you.

Another significant difference is which expenses are eligible. With a stand-alone HRA, like the QSEHRA or ICHRA, you can reimburse employees for individual health insurance premiums, dental and vision insurance premiums, and more. This allows you to offer an HRA instead of a group health plan. However, an HSA can’t pay for insurance premiums.

PeopleKeep by Remodel Health offers HRA administration software that meets the needs of nearly any employer, from for-profit companies to nonprofit organizations.

We offer three popular types of HRAs, including:

Defined contribution health plans work for employers and employees because:

• Individual health insurance costs 20% - 60% less than comparable group health coverage. The employer's healthcare dollars go further.
• Contributions are tax-deductible to the employer, and employees receive reimbursements income tax-free.
• The employer gains fiscal control and predictability over their health benefits budget.
• There are no minimum or maximum contribution amounts, depending on the HRA offered, and no minimum participation requirements.
• Employees have control over their individual health insurance plans, enabling them to make consumer-driven choices.

There are two key questions to ask when designing your health plan.

When will the plan year start?

Your organization can decide when your defined contribution plan will start. For many organizations, this is at the beginning of the year, but it doesn't have to be.

How much will you provide each month?

You probably already have a budget in mind for health benefits. Within this budget, how will you divide up employees' monthly allowances? If you offer an HRA, you will come up with a monthly allowance that employees can use toward health expenses.

With an ICHRA, you can provide the same monthly allowance amount to all employees or different monthly allowances to different types/classes of employees. You must base employee classes on 11 types of job-based criteria.

An ICHRA also allows you to provide an ICHRA to only certain employee classes, such as part-time or hourly employees, while still offering a group health insurance policy to a different employee class, such as salaried employees.

You can also vary the allowance amounts by family status on any HRA.

The federal government sees Section 105 plans as group health plans. As such, they must comply with IRS, HIPAA, COBRA, ERISA, and ACA regulations.

This section details compliance requirements that may impact your health benefit options.

Internal Revenue Service (IRS) requirements

The IRS has many rules that organizations must satisfy for benefits, such as HRAs, to be tax-advantaged.

The IRS requires the following:

• Documentation: The IRS requires that employees submit proper documentation verifying their claim for reimbursement and that employers save supporting documentation on file for ten years.
• Eligible expenses: The IRS maintains the list of HRA- and HSA-eligible expenses. You may only reimburse employees for these qualifying expenses.
• Nondiscrimination: Defined contribution health plans must comply with nondiscrimination rules. The rules state the plan must not discriminate in favor of highly compensated individuals (HCIs) with respect to eligibility to participate in the plan or benefits provided under the plan.

Health Insurance Portability and Accountability Act (HIPAA)

HIPAA rules apply to defined contribution health plans. To administer a plan correctly, the entity processing employee reimbursement claims receives protected health information (PHI) that the government requires you to hold confidentially.

Consolidated Omnibus Budget Reconciliation Act (COBRA)

For plans subject to ERISA with 20 or more participants, employers must give terminated employees the option to continue their participation in the plan for a period after termination and may charge an employee up to 102% of the value of their allowance if COBRA is elected. Many states have their own COBRA laws that apply to smaller organizations. COBRA rules don’t apply to HSAs or QSEHRAs.

Employee Retirement Income Security Act of 1974 (ERISA)

ERISA rules apply to all formal health benefits, including traditional group health insurance and HRAs.

ERISA requires every welfare plan to have a summary plan description (SPD) and to furnish copies to each participant.

ERISA also requires that employers establish and maintain written plan documents. Plan documents define what expenses are eligible for reimbursement, the amount of employer contribution, and other required details about the reimbursement plan. If you use PeopleKeep as your plan administrator, we automatically generate your plan documents.

The U.S. federal government also has specific regulations employers must comply with to reimburse employees for individual health insurance premiums without triggering ERISA plan status for the individual health insurance policies. For example, the employer can't endorse specific individual health insurance policies or pay directly for them.

Affordable Care Act (ACA) rules

Several ACA regulations apply to defined contribution plans.

ACA rules to know include:

• Annual limit compliance: Section 2711 of the Public Health Services (PHS) Act, as added by the ACA, provides that no annual or lifetime limits may be placed on essential health benefits (EHB). The act provides that annual limits and lifetime limits may be placed on benefits that are not EHB, such as health insurance premiums.
• Preventive care compliance: Section 2713 of the PHS Act requires group health plans (including defined contribution plans) to cover basic preventive health services without cost-sharing.
• 90-day waiting period compliance: The ACA prohibits waiting periods longer than 90 days for eligible employees.
• Internal and external claims appeal process: The ACA added new requirements to the internal and external appeals process, including clearer standards for notifying participants about procedures.
• Dependent coverage for adult children up to age 26: Section 2714 of the PHS Act provides that group health plans (including defined contribution plans) that make available dependent coverage for children must make such coverage available for children until 26 years of age.
• Uniform explanation of coverage and definitions: The ACA requires that group health plans, participants, and beneficiaries receive a standardized summary of benefits and coverage (SBC) and a set of uniform definitions (uniform glossary), both of which must conform to requirements outlined in the ACA and existing regulations.
• PCORI fee: The ACA includes a research fee that individual health insurance plan sponsors must pay annually via IRS Form 720.
• 60-day notice of material modification: The ACA requires employers to provide 60 days of advance notice to participants when making material modifications to their group health plan.

If your organization decides to offer an HRA to your employees, you have three options:

• Self-administration of your health benefits
• Use a third-party administrator (TPA) to ensure compliance
• Use a software solution

If you decide to manage your defined contribution health plan on your own, you take on all of the various responsibilities and liabilities for those benefits, including compliance.

Many organizations choose a third-party service or software solution to avoid this risk and ensure proper compliance.

When you use PeopleKeep by Remodel Health as your plan administrator, you keep complete ownership of your HRA while taking advantage of our award-winning customer support and easy-to-use platform. We’ll generate legal plan documents and review all of your employees’ reimbursement requests to ensure compliance with federal regulations. If you want more hands-on support and automatic premium payments, Remodel Health’s ICHRA+ platform might be right for you.