Understanding EBHRAs for Flexible Coverage

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Like ICHRAs, EBCHRAs are a health reimbursement arrangement offering employers more flexibility in how they offer benefits. EBHRAs allow an employee to receive reimbursement for out-of-pocket medical costs from the employer, even if they have declined to enroll in their employer’s traditional health insurance plan. Beginning January 1, 2020, EBHRAs will be available to employers of any size, and their employees will be allowed to enroll after 90 days.

Unlike health savings accounts (HSAs), the employee does not draw from a fund but rather pays expenses out of pocket; these expenses are to be reimbursed later by the employer.

What is an excepted benefit?

An excepted benefit is a kind of health plan or coverage that does not meet all of the Affordable Care Act’s list of essential health benefits. Reimbursements with an EBHRA can include limited-scope vision and dental insurance, STDLIs (short-term limited duration insurance), COBRA continuation coverage, co-pays and/or deductibles, and long-term care coverage, like nursing care or home health care.

What are the rules?

In order to take advantage of this flexible plan, the U.S. Departments of Labor (DOL), Health and Human Services (HHS), and the Treasury have created rules regarding how the plan operates:

• Employer must offer a group health plan. An employer group health plan must be available to the employee for the plan year; however, an individual employee isn’t required to enroll in order to be eligible for the EBHRA. Furthermore, an employer cannot offer both an ICHRA and an EBHRA at the same time.
• Benefits are limited to $1,800. After December 31, 2020, the $1,800 limit will be indexed for inflation. Additionally, unused coverage doesn’t have to expire—the employer can choose to let the unused dollar amount roll over to the next year. Those “rollover” dollars won’t count against the next year’s limit.
• Only certain medical expenses are reimbursed. EBHRAs cannot reimburse premiums for individual health insurance group coverage (other than COBRA coverage or Medicare Parts A, B, C or D).
• Must be available to all employees within that class. There are nine different classes of employees according to the DOL, HHS and the Treasury. For example, full-time employees are one class, so EBHRAs must be offered to every full-time employee. They also are required to offer the same amount of coverage within that class. Code Section 105(h) nondiscrimination rules will apply.
• Employers can’t make eligibility contingent on refusing a traditional group health plan. This is especially beneficial for those who might not be able to afford the premiums on a traditional plan—they can purchase short term insurance and get the premiums reimbursed.

EBHRAs vs. ICHRAs

While we’ve outlined several similarities, there are also a few key differences between ICHRAs and EBHRAs. Which plan is right for your business will vary depending on your unique employee needs.

• Employees aren’t required to enroll in the group health plan. Employees must have traditional group health coverage in order to use an ICHRA. However, EBHRAs exist in additional to traditional group health coverage, so an employee can enroll in one or both.
• Employers can’t offer ICHRAs and a traditional group health plan to the same class of employees. EBHRAs, on the other hand, are a supplemental benefit and can be offered to the same class of employees at the same time.
• Opting out. Employees must be allowed to opt out of an ICHRA and waive reimbursements for that year. EBHRAs do not have this requirement.
• Nondiscrimination rules. ICHRAs must be offered on the same terms and conditions to the same employee class. EBHRAs are similar, but unlike an ICHRA that is designed to reimburse only premiums, there is no exception from the Code Section 105(h) rules.
• Neither can be offered to certain types of employees. Neither of these HRA options can be offered to self-employed individuals, partners or more than 2% S-corporation shareholders.

If you’re interested in learning more, the DOL, HHS and the Treasury have compiled an HRA guide to answer all of your questions. In the meantime, if you run a medical practice or other healthcare facility, we recommend that you contact your healthcare CPAs to see how patient use of EBHRAs might affect your operations and billing processes. And don’t hesitate to contact a James Moore certified CPA and HR consultant to find out if an EBHRA is right for your company.

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