In June 2019, the IRS announced two new employee healthcare benefit accounts: the Individual Coverage HRA (ICHRA) and the Excepted Benefit HRA (EBHRA). This is pretty big news for businesses and employees! Starting in 2020, if your employer offers an ICHRA or EBHRA, you can pay for certain healthcare insurance premiums with them.
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 healthcare benefit account. With an HRA, only the employer pays into the account. The employer (or company) also decides which healthcare expenses it will pay for, and employees get to use the money for those expenses. Common expenses include prescriptions, dental care, vision care, co-pays, and deductibles. However, employers can choose to cover any IRS approved expense. Best part is, the amount from an HRA does not count towards an employee’s income.
There is one caveat to a “traditional” HRA. Under the Affordable Care Act (ACA), an HRA couldn’t 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, it is only funded by the employer. In addition, the employer decides how much to put into the account. For employees, here’s how it works:
- You can pay for eligible healthcare expenses.
- You can pay for individual health insurance premiums (which means you can’t be on your employer’s group health plan).
- 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.
EBHRA Fast Facts
An Excepted Benefit HRA works a little differently than the ICHRA. Like other HRAs, only the employer funds it. While the 2023 annual limit is $1,950, the employer may choose to contribute less.
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 insurance premiums and healthcare expenses.