QUESTION

I work for a large employer. My employer has offered me a Health Reimbursement Arrangement (HRA), with money to buy health insurance on my own. What are my options?

Individuals with coverage | Coverage for Employees of a Large Employer
ANSWER

Your options will depend on the type of HRA you have from your employer. If you work for a large employer (with more than 50 full-time employees), you may be offered multiple kinds of HRAs, but two new options under federal law are:

  • An “individual coverage” HRA. Under this HRA, your employer funds an account to reimburse you for the premiums for an Affordable Care Act-compliant individual health insurance policy and/or other qualified medical expenses, instead of offering a traditional health plan.
  • An “excepted benefit” HRA. Under this HRA, your employer must still offer you the opportunity to enroll in a traditional health plan. In addition to that plan, the employer may put funds in an HRA account (up to $1,800 in 2021) to help you purchase vision, dental, COBRA, short-term, or other insurance products not subject to the Affordable Care Act’s full consumer protections. Excepted benefit HRAs may also be used to pay directly for health care services and for cost-sharing like deductibles and co-payments.

Individual Coverage HRAs

If your employer offers you an individual coverage HRA, you should visit the health insurance marketplace in your state to determine whether you are eligible for federal premium tax credits or cost-sharing help. If you are offered an individual coverage HRA outside of open enrollment, you should be eligible for a special enrollment period. You will need to provide information about the amount your employer is contributing to your HRA for self-only coverage. Note: Some employers may fund your HRA to help you buy a family plan, but for the marketplace to determine your eligibility for premium tax credits, you will need to know the amount the employer contributes just for self-only coverage.

If your employer’s contributions to the HRA are small, so that your after-HRA premium for the lowest cost silver-level marketplace plan available to you would exceed 9.83 percent of your household income, you may be eligible for premium tax credits through the marketplace. If you choose to purchase marketplace coverage with premium tax credits, you must opt out of the HRA. Accepting both the HRA and marketplace premium tax credits will subject you to additional tax liability.

If you choose to accept the HRA, you may use it towards premiums for Affordable Care Act-compliant individual market coverage (or certain student health plans and Medicare). If your employer also offers you a plan that allows you to pay the remainder of the premiums using pre-tax dollars (often called a “cafeteria plan” or a “salary reduction agreement”), you must purchase your individual market policy outside of the marketplace to take advantage of the salary reduction agreement. Unfortunately, marketplace Navigators are not permitted to assist you with the purchase of an off-marketplace plan. Because many companies aggressively and deceptively market insurance products that do not comply with the Affordable Care Act’s consumer protections and are not permissible types of insurance to purchase with an HRA, you should consult your employer’s human resources department or state department of insurance for referrals to a qualified, reputable broker who can help ensure you are buying Affordable Care Act-compliant coverage. (26 C.F.R. §54.9802-4; 26 C.F.R. § 1.36B-2; Individual Coverage HRA Model Notice; Marketplace coverage & HRAs)

Excepted Benefit HRAs

An excepted benefit HRA is designed to supplement your employer’s traditional health plan. It can be used to pay for out-of-pocket expenses like deductibles, co-pays, and services not included in your traditional coverage. It can also be used to help pay for more limited insurance products, such as vision, dental, or short-term coverage. You should not need a special enrollment period in order to use your HRA. Note: these products are not replacements for a comprehensive health insurance plan. And, unlike your employer plan, some of these products can deny you coverage of a pre-existing condition. If your employer offers you an excepted benefit HRA and you are interested in purchasing a supplementary product, you should consult your employer’s human resources department for qualified, impartial advice on the financial risks and benefits of purchasing such supplementary products. (26 C.F.R. §54.9831-1; IRS FAQs for New Coverage Options for Employers and Employees; IRS Rev. Proc. 2020-43)

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