Employers who offer a group health plan have a flexible new health reimbursement arrangement they can make available to employees as of Jan. 1, 2020. The new “Excepted Benefit HRA” allows employees to receive pre-tax reimbursement for qualified, out-of-pocket medical expenses, and employers can determine the maximum reimbursement amount – up to $1,800 annually. The reimbursements become deductible expenses of the business and do not have to be run through payroll.
Although premiums for group health plans are not reimbursable, Excepted Benefit HRAs may be used to cover payments of:
- Co-pays and deductibles not covered by insurance
- Short/long-term care plans
- COBRA premiums
- Premiums for supplemental insurance like Aflac hospital, accident or cancer plans
The employer may determine if the flexible benefit is available to all full-time employees or expanded to part-time, and reimbursable expenses may include qualifying healthcare costs for their spouses and dependents. The new Excepted Benefit HRA was designed to support the growing number of employees opting out of traditional, employer-sponsored health plans due to expensive insurance premiums. It’s available to employees regardless of whether they utilize the group plan, purchase an individual plan or are covered on their spouse’s plan. Although mental health and physical fitness costs do not qualify for reimbursement, employers have discretion to design the plan, including covered expenses, rollover amounts and plan administrators. The maximum annual reimbursement amount is tied to inflation and will increase as inflation does.
With reimbursements not subject to tax, business owners might want to offer it as a part of employees’ total compensation package – giving an employee $1,400 more in their pocket rather than a $1,000 raise, for example. If you’re interested in offering the new Excepted Benefit HRA to employees in 2020, talk with one of our tax advisors soon.
Blog by Nancy Roeming, Executive Director of Human Resources.