New HRA Rules in Effect

January 4, 2020

Starting in 2020, new rules will be in effect governing health reimbursement arrangements (HRAs) which will ease restrictions and allow employees to use pre-tax accounts to purchase insurance, even certain policies that don’t meet the Affordable Care Act’s (ACA) requirements.

Under the ACA, HRA’s were primarily restricted only to pay for medical expenses, not insurance plans. This rule will undo that Obama-era guidance that restricted HRAs for that purpose. While the new rule does not eliminate the employer mandate penalty, it will allow HRA funds to be used to pay for individual insurance premiums on the exchange or off the exchanges to satisfy the employer mandate, provided the HRA is deemed affordable.

Employers can contribute up to $1,800 per year in an employee’s HRA account however employees cannot contribute to HRAs. The money employers put in the accounts is tax-free to workers and tax-deductible for the company. The administration estimates the rule will expand health coverage by about 800,000 people.

NSBA supported this rule as a common-sense way to help small-business owners deal with the competitive disadvantage inherent in providing benefits as compared with larger companies.

Click here for more from NSBA on this issue.

Click here to download a white paper from Gary Kushner, former chair of NSBA.

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