EBHRA

Excepted Benefit HRA (EBHRA)

EBHRA is the acronym for Excepted Benefit HRA. It’s been on offer by all sizes of employers since Jan 1, 2020.

In short, EBHRAs are ‘’limited dollar’’ nonintegrated HRAs that;

• Qualifies as excepted benefits

Offers tax-free reimbursements for Benefits not typically offered in traditional health plans like vision, dental work, and Coinsurance for Individual health covers or for other expenses not covered by the primary group cover.

• Not subject to Public Health Service mandates.

Employers who offer group health insurance to their employees can still offer an EBHRA.

EBHRAs are popular as they offer higher annual employer contributions and do permit rollover of unused funds at any plan year-end (usually a 12-month plan set by the employer).

EBHRA Rules

Employer Eligibility

For an HRA to qualify for an EBHRA, an employer is to ensure its;

• Not be an integral part of the group plan

EBHRA can be offered in conjunction with a traditional group coverage health plan; however, It’s should not set conditions for EBHRA participants to enroll in the traditional group coverage plan to benefit from the coverage.

This means employees can opt out of the group coverage plan and still use EBHRA. Similarly, an employee can lose their primary coverage but still be able to use EBHRA.

• Reimbursement is to be offered for premiums paid only on certain health insurance coverage

EBHRA cannot reimburse employees for any premiums not considered an excepted benefit. It doesn’t cater for premiums paid in respect of individual health insurance plans, group health insurance plans (COBRA continuation coverage is an exception), or Medicare plans.

• Employer to avail EBHRA under a uniform basis to all “Employee classes.”

Employers are bound to make this cover available on a uniform basis to all “employee classes.” These classes should not be based on health factors (status) but rather on bona fide employment-based classification like Full-time or part-time employees, Geographic locations, membership in collective bargaining agreements, Date of hire, Length of service, etc.

• Subject to COBRA

EBHRA Is subject to COBRA if the employer is and if they the employer is making an annual benefit of more than $500(maximum limit is $1,800)

• The Maximum Employer contribution within the federal allowance caps

Only the employer makes the contribution and the federal allowance cap for employer contributions is $1,800(indexed annually for inflation). Employees are allowed to rollover un-used EBHRA funds and the rollover does not affect the federal allowance cap
Reimbursements to employees are not to be counted as employees’ taxable wages

• All claim and expenses submissions are substantiated

Any reimbursable medical expense must get substantiated with the following items:

1. Independent third-party paperwork detailing the service or product, date, and cost.
2. An attestation that the expense has not yet been reimbursed and that the employee will not use it again to seek reimbursement from any other health plan coverage.

• ICHRA and EBHRA benefit

Employers are not allowed to provide both ICHRA and an EBHRA to the same employee. This is due to the fact that ICHRA is not available to employees covered by a group health plan while EBHRA is an addition to employees with a group plan.

Employee Eligibility

Employees covered by a group health plan are eligible to join an EBHRA. However, Unlike ICHRAs, EBHRAs are not available for the participant’s spouse or children.

Employees who are unable to afford the premiums paid for their group plan, can instead purchase a short-term plan, and then apply for an EBHRA reimbursement on the premium.

Expenses Eligibility

EBHRAs are allowed to issue tax-free reimbursements to participants for both excepted benefits, and any other qualifying out-of-pocket expenses.

This includes:

1. Premiums for Limited scope dental and vision insurance
2. COBRA continuation coverage
3. Cost sharing in respect of copayments, deductibles, and any other eligible medical costs
4. Premiums for Short-term limited duration insurance(STDLI)
5. Long-term care insurance includes nursing home care, home health care, community-based care, etc.

EBHRAs will not reimburse participants for premiums that are not considered an excepted benefit.

This includes Premiums paid for:

1. Individual health coverage
2. Medicare premiums(part A, B, C, or D) and
3. Premiums for Group health plans(other than COBRA)

This exclusion can still benefit participants. This is so because they still remain eligible for Premium Tax Credits (PTCs). PTCs can be used to subsidize the purchase of individual health insurance through the health insurance exchange or marketplace.

EBHRA Employee Classes

The plan must meet the nondiscrimination rules as defined under the Health Insurance Portability and Accountability Act (HIPPA).

EBHRA should be available to any employee on the same terms and conditions as other similarly situated employees.

Employment-based classifications include:

1. Full-time versus part-time
2. Different geographic locations
3. Union membership
4. Date of hire
5. Length of service
6. Different jobs, and
7. Current versus former employee status.

A classification based on any health factor generally isn’t permissible.

EBHRA Unused Funds

EBHRAs may allow unused funds for any plan year to be rolled over, but without affecting the subsequent year’s contribution.

However, Employers are allowed to cap the rollover and/or may restrict the use of the rolled-over amounts as HRAs are technically employer accounts (unlike HSAs).

When a rollover is allowed, the amount does not count toward the annual limit for the new plan year.

Are EBHRA Participants HSA Eligible

Employees are eligible for both HSA and an EBHRA.

However, care needs to be taken to ensure that their health coverage is compatible with the HSA in order to participate in EBHRA and it won’t affect their HSA eligibility.

Bottom line

Why offer EBHRA to employees?

Very Flexible for both the employer and their employees

Employees are not obliged to be tied with the employer’s group health insurance plan or any individual health insurance plan. They get the freedom to acquire a combination of health care options that suits them (works well with Integrated HRA or QSEHRA).

On the other hand, employers are free to set the reimbursement limits up to the IRS prescribed limit.

Tax benefits

Reimbursements are not considered part of wages (all the way to $1,800) hence free of tax. The employee is free to use these funds on qualified excepted benefit premiums and other out-of-pocket health care costs.

On the employer’s side, IRS allows businesses to treat this reimbursement as 100% deductible (business expense) hence a huge reduction in taxes payable. Also, employers have the option of taking back unused funds instead of rolling them over to the next year.

Unique

EBHRA can be offered by any employer size It can also easily be combined with other health benefit plans to maximize employer benefits while also maximizing the tax benefits that accrue with it.