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The New HRA Regulations Explained

Accounting Support • Aug 13, 2021
What is a Health Reimbursement Arrangement? HRA is a non-taxed health plan that is account-based and provides employers and employees with more control over

What is a Health Reimbursement Arrangement?

HRA is a non-taxed health plan that is account-based and provides employers and employees with more control over healthcare-related expenses. Employees receive Health Reimbursement Arrangement payments for monthly medical payments and health insurance-related costs. 

The New HRA Regulations Explained

What Do the Regulations of HRA Describe?

The previous regulations simplify the non-discrimination of HRA offerings, outlining the coding of HRA details of Form 1094-C and 1095-C.

The HRA regulations explain the safe harbor for determining the HRA affordability. According to Healthcare.gov “The affordability of an employee for HRA’s safe harbor depends upon the monthly premiums after employee’s reimbursement. An employee paying for the lowest cost silver plan through the Marketplace in their area will be affordable. The lowest cost is less than 9.83% of 1/12 of the employee’s household income.” 

What is the Look-Back Month HRA Safe Harbor?

It allows a contractor to control the monthly premiums for the lowest-cost silver plan from a month in the previous calendar year. These premiums will be used to determine the current individual coverage reimbursement costs. The employee's current age and location are used to leverage the Look-Back Month Safe Harbor. 

Location HRA Safe Harbor

It allows employers to determine HRA premium reimbursement using the employee’s primary site of employment as the location. The employee’s primary employment site serves as a proxy to determine the employee's ACA affordability. Due to COVID-19, most of the workers have to work from home, so ACA issues additional guidance for remote workers. For employees working from home, their home location will be used to determine affordability.

Is Age a Safe Harbor for HRA Affordability?

The employee's age on the first day of the plan year will be considered as his age for the individual HRA coverage. For the employees eligible for ICHRA coverage during the plan year, employers should use the new age for the remaining period. Because of nuances around age affordability, there is no age-specific safe harbor currently. Look-Back Month and Location HRA safe harbors both protect the contractors against 4980H(b) penalties. 

How the HRA Regulations Can Change?

After taking charge of administration, the top priority of Biden was to identify previous legislation that harmed the ACA. 

The previous HRA regulations could contain provisions that undercut the ACA’s ability to provide quality, affordable healthcare service. So to ensure alignment with Biden’s pro-ACA agenda, the HRA regulations released earlier this year could be amended. Currently, it is hard to say what the administration will do to HRA regulations.

Draft 2021 ACA Reporting Instructions

Both the Location and Look-Back Month HRA Safe Harbors are added as new codes for Line 14. After the Biden administration completes its review, the draft reporting instructions may change. 

According to the previous ACA mandate, ALEs are required to:

  • Provide minimum healthcare coverage to at least 95% of the full-time workforce
  • Ensure that coverage is affordable according to IRS-approved methods.

In case of failure to comply with these two requirements, employers could be subject to Internal Revenue Code Section 4980H penalties.

Build and manage a better workforce with integrated HR solutions from ADP Marketplace partners like Points North.

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