Individual Coverage HRAs Now Available to Small Businesses

The choices for employers who offer Health Reimbursement Accounts (HRAs) expanded in 2020. In addition to the traditional HRAs, employers can offer qualified small employer HRAs (QSEHRAs), individual coverage HRAs (ICHRAs) and excepted benefit HRAs (EBHRAs).

An HRA is an employer benefit plan that reimburses employees for out-of-pocket medical expenses. The distributions for qualified medical expenses are tax free for the taxpayer. Qualified medical expenses include health insurance, long-term care insurance, medical expenses not covered by another plan and medicines prescribed to the employee. In a traditional HRA, there is no limitation on how much the employer can set aside for each employee. A traditional HRA can be combined with other employer-provided health benefits.

Small businesses can set up a QSEHRA. There are more benefits, but more requirements. QSEHRAs can be set up by a company with fewer than 50 full-time employees. The company must not offer group health insurance, and all participants must have their own insurance whether from a spouse’s employer, a private insurance contract or the Marketplace. Most employees must be eligible for the plan, although there are a number of exceptions. In 2020, the employer must not reimburse more than $5,250 for a single employee, or $10,600 for an employee with family coverage.

New in 2020 is the ICHRA. An ICHRA is available for employers of all sizes. The employer cannot offer a traditional group health insurance plan, and the employee must have their own insurance. It is integrated with employee-held insurance, which can include Marketplace insurance. This type of HRA allows for the reimburse­ment for health insurance. The annual contribution limit is set by the employer. Employees must be given the ability to opt out if insurance is not affordable, even after the reimbursements. Opting out may lead to the employee being eligible for the premium tax credit.

An EBHRA is not part of a group health plan. Contributions are limited to $1,800 in 2020. Funds cannot be used to reimburse health insurance premiums. An EBHRA can be offered in conjunction with a group health plan. The expenses that can be reimbursed are limited.