New Rules Will Allow Employees to Buy Individual Health Insurance Plans Through HRAs

Author: Michael Cardman, XpertHR Legal Editor

June 20, 2018

The Trump Administration today published new rules that will allow employees to use employer-funded Health Reimbursement Arrangements (HRAs) to purchase health insurance on the individual market.

A Health Reimbursement Arrangement (HRA) is an employer-established benefit that lets employees receive tax-free reimbursements of qualified medical expenses up to the maximum dollar amount in the coverage period. An HRA is funded solely by the employer and may be offered in conjunction with other employer-provided health benefits. Contributions through a voluntary salary reduction agreement with employees are prohibited.

Effective January 1, 2020, employers will be able to use a new "Individual Coverage HRA" (ICHRA) to reimburse employees for their premiums for individual health insurance coverage on a tax-preferred basis, subject to certain conditions, according to the US Department of Labor (DOL). The reimbursements will not count toward the employees' taxable wages.

"This new rule gives businesses a better way to offer health insurance to employees and allows workers to select coverage that best fits their and their families' needs," said Treasury Secretary Steven T. Mnuchin.

The new rules also will:

  • Set conditions under which certain HRAs would be recognized as limited excepted benefits;
  • Provide premium tax credit eligibility for employees offered coverage under certain HRAs that are integrated with individual health insurance coverage; and
  • Clarify to plan sponsors that, when premiums are reimbursed by an HRA or a qualified small employer health reimbursement arrangement, individual health insurance coverage does not become part of an ERISA plan.

New FAQs from the administration provide additional information.