The U.S. departments of Health and Human Services, Labor, and the Treasury have adopted new rules regarding health reimbursement accounts (HRAs). Starting in January 2020, employers will be able to use “individual coverage health reimbursement accounts” or ICHRAs to provide their workers with tax-preferred funds to pay for the cost of health insurance coverage that they’ve purchased in the individual market.
Under the new tax law in 2018, small businesses with an annual gross receipt of under $25 million within a three-year period can use the cash method of accounting. The finalized reformed regulations are different from the original proposal, most notably in the fact that the final version offers a distinction between the treatment of salaried and hourly employees. The 500-plus page final rule boils down to a few main points, according to Caitlin Bronson, content marketing manager for PeopleKeep (which specializes in providing employee benefits to small businesses).
- As a formal revision of the 2013 notice from the IRS (which seriously inhibited small businesses from offering HRAs), the final rule clearly states that you can use HRAs as the main health benefit in a way that complies with the Affordable Care Act (ACA). The ICHRA is a brand new approach to HRAs that is expected to be popular among small businesses.
- The final rule creates a special enrollment period for employees that become eligible at any point during the year. Rather than waiting for open enrollment, the employees — including new hires — can open an account immediately.
- The final rule allows employers to define HRA eligibility according to 11 different employee classes, offering a flexible system to fit the needs of all your workers.
In short, these reforms are expected to be a boon to the 28 million small businesses — and their employees — across the country.
“It’s great to have these different approaches that serve different use cases,” Bronson said. “We expect small businesses to lead the interest here, but over time these reforms will influence businesses of all sizes. My sense is that this will actually improve the risk pool in the individual market. It will drive more full-time workers into the individual market, and research shows that full-time workers tend to be healthier.”