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ICHRA and EBHRA: New Employee Healthcare Benefit Accounts

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The IRS authorized two new types of healthcare benefit accounts in 2019: the Individual Coverage HRA (ICHRA) and the Excepted Benefit HRA (EBHRA). These were (and remain) pretty big news for businesses and employees in that they allow employers to subsidize the premiums for qualified health insurance that employees buy for themselves.

What is an HRA?

Before we dive into these new accounts, let’s take a quick look at HRAs. A Health Reimbursement Arrangement (HRA) is a special type of account that is funded solely by the employer. The company decides which healthcare expenses are covered, and employees get to use the money for those expenses. Commonly eligible expenses include prescriptions, dental care, vision care, medical co-pays and deductibles. However, employers can choose to cover any IRS-approved medical expense. The best part is that any amount an employee receives from an HRA does not count towards his or her taxable income.

There is one caveat to a “traditional” HRA account, which has been around for some time. Effective with passage of the Affordable Care Act (ACA), traditional HRA funds could no longer be used for health insurance premiums. That’s what makes the ICHRA and EBHRA special.

ICHRA Fast Facts

Let’s take a look at how the ICHRA works. Like other HRAs, an ICHRA can only be funded by the employer, who decides how much to put into the account. For employees, here’s how it works:

  • Employees may be put into different classes (salary vs hourly, full-time vs part-time, seasonal, temp, etc.) by the employer. However, each employee class must receive the same benefits.
  • There can be differences in amounts for family size and age difference.
  • Employees can use the funds to pay for eligible healthcare expenses.
  • Employees can use the funds for individual health insurance premiums (which means they can’t be on the employer’s group health plan).

EBHRA Fast Facts

An Excepted Benefit HRA is also funded by the employer but otherwise, works a little differently than the ICHRA. For example, the EBHRA has an annual limit on how much the employer can contribute, although they can choose to contribute less than the limit.

For employees, here’s how an EBHRA works:

  • You can pay for:
    • Vision insurance
    • Dental insurance
    • COBRA continuation coverage
    • Other “excepted benefits” including short-term limited-duration insurance, long-term coverage, nursing home care, etc.
  • You CANNOT pay for individual health plan or group health plan premiums.
  • All employees may participate, but they may be split into different classes (salary vs hourly, full-time vs part time, seasonal, temp, etc.). Like an ICHRA, all classes must receive the same benefits.

This coming enrollment season, ask your company about the ICHRA and EBHRA. It could save you (and your employer) a lot of money on health insurance premiums and healthcare expenses.