On June 20, 2019, the federal Departments of Treasury, Labor, and Health and Human Services issued rules expanding the permitted use by employers of health reimbursement arrangements (HRAs) to pay for employees' individual health insurance or HMO coverage.
An HRA is an account-based group health plan funded by employer contributions that reimburses an employee for medical expenses. HRA reimbursements are excludable from the employee's income and wages for federal income tax and employment tax purposes.
The recent federal rules adopted three new sections to the Code of Federal Regulations: 26 CFR 54.9802-4, 29 CFR 2590.702-2, and 45 CFR 146.123. The rules apply to plan years beginning on or after January 1, 2020. The rules permit small and large employers to fund individual coverage HRAs (ICHRAs), which are HRA plan accounts that employees can use to pay for individual health coverage, if certain requirements are met.
The new federal rules also permit employers under certain conditions to create "excepted benefit HRAs" to reimburse employees' costs incurred under coverage that is not itself an excepted benefit (for example, cost sharing for individual health coverage).
Texas Insurance Code Section 1501.003 (for small employers) and Section 1501.004 (for large employers) apply employer HMO and health insurance requirements to an individual's health coverage when the individual's employer pays a portion of the premium or claims a federal tax benefit for providing employee health care benefits.
In August 2018, TDI issued Bulletin #B-0013-18 on the federal 21st Century Cures Act, which permitted small employers meeting the Cures Act's requirements to fund employees' individual health coverage through a qualified small employer health reimbursement arrangement (QSEHRA). As discussed in that bulletin, Insurance Code Section 1501.003 still applies to small employer health plans that do not meet the Cures Act's requirements.
With the adoption of the new federal rules, Section 1501.003 continues to apply to plans that are neither a QSEHRA nor an ICHRA, and 1501.004 still applies to plans that do not meet ICHRA requirements.
This means that –
- If a small employer pays part or all of the cost of its employees' individual health insurance, but does not use a QSEHRA, an ICHRA, or an excepted benefit HRA, the employer's arrangement will continue to be regulated under Insurance Code Section 1501.003 as a small group health plan; and
- If a large employer pays part or all of the cost of its employees' individual health insurance, but does not use an ICHRA or an excepted benefit HRA, the employer's arrangement will continue to be regulated under Insurance Code Section 1501.004 as a large group health plan.
For questions about this bulletin, contact the Life and Health Lines Office at LIFEHEALTH@tdi.texas.gov.