IRS issues final regulations on HRAs

Tax Hot Topics newsletterThe IRS, along with the Departments of Labor, and Health and Human Services, issued final regulations (84 FR 28888) on health reimbursement arrangements (HRAs) and other account-based group health plans.

HRAs are a type of account-based health plan that employers can use to reimburse employees for their medical care expenses. The final regulations permit employers to offer a new “Individual Coverage HRA” as an alternative to traditional group health plan coverage, subject to certain conditions. Individual Coverage HRAs can be used to reimburse premiums for individual health insurance chosen by an employee. Among other requirements, employees must enroll in individual health insurance (or Medicare) for each month the employee (or the employee’s family member) is covered by the Individual Coverage HRA. This can be individual health insurance offered on or off an ACA exchange. However, it cannot be short-term, limited-duration insurance or coverage consisting solely of dental, vision, or similar “excepted benefits.”

The final regulations also create another, limited kind of HRA that can be offered in addition to a traditional group health plan. These “Excepted Benefit HRAs” permit employers to finance additional medical care (for example, to help cover the cost of co-pays, deductibles, or other expenses not covered by the primary plan), even if the employee declines enrollment in the traditional group health plan.

Employers can start offering Individual Coverage HRAs and Excepted Benefit HRAs on Jan. 1, 2020. If an employer would like to offer Individual Coverage HRAs in 2020, the employer would need to take certain actions before then, including providing a required notice for eligible participants at least 90 calendar days before the coverage becomes available.

The departments also issued, in conjunction with the final regulations, FAQs and a model notice employers may provide to employees offered Individual Coverage HRAs to satisfy the advance notice requirement. As noted, there are additional requirements that would need to be met to offer Individual Coverage HRAs, including (but not limited to) the following:

  • Participants and their dependents must provide proof of enrollment in individual health insurance or Medicare
  • Plan sponsors could not offer the same class of employees a choice between a traditional group health plan and an Individual Coverage HRA
  • Individual Coverage HRAs must generally offer the same level of HRA benefits on the same terms and conditions to all employees within the same employee class
  • Employees must have the opportunity to opt out and waive future reimbursements at least once a year
  • Plans must have reasonable procedures to substantiate that participants and their dependents have or will soon have individual health insurance or Medicare for the plan year (the IRS issued a model attestation form that plan participants may complete to satisfy these substantiation requirements)


Jeff Martin
Washington National Tax Office
T +1 202 521 1526

Keith Mong
Managing Director
Washington National Tax Office
T +1 202 521 1554

James Sanchez
Senior Associate
Washington National Tax Office
T +1 202 861 4107

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