Individual Coverage HRA

Individual-Coverage HRAs

An individual-coverage HRA, which can reimburse all types of medical care (as defined in IRC § 213(d), may be integrated with individual health insurance if the following requirements are met:

  • Participants (and their dependents, if applicable) must be enrolled in Medicare or individual health insurance.
  • Employees in the same class do not have the choice of enrolling in an individual-coverage HRA or a traditional group health plan.
  • All employees in the same class are generally offered the same level of HRA benefits under the same terms and conditions.
  • Employees enrolled in an individual-coverage HRA have an opportunity to opt out at least once a year.
  • Employers have reasonable procedures to substantiate that individual-coverage HRA participants (and their dependents, if applicable) have or soon will have individual health insurance or Medicare.


Enrollment in Individual Health Insurance or Medicare Mandatory
Participants and any dependents covered by an individual-coverage HRA for any month must provide proof of enrollment in Medicare or individual health insurance

The individual health insurance can be purchased on or off a public exchange.

No Offer of Traditional Group Health Plan Coverage
Employer cannot offer the same class of employees (e.g., full-time, part-time, hourly, salaried) a group health plan.

However, an employer can offer a group health plan to other classes of employees (minimum class size rule applies).

‘Same Terms’ Requirement
ICHRAs must offer the same benefit amount on the same conditions to all employees within the same employee class.

HRA amounts carried over from prior years or transferred from a prior HRA are disregarded.

Plan sponsors may allow participants with individual health insurance, other than public exchange policies, to pay their portion of health premiums using pretax dollars via a cafeteria plan.

Employees with individual-coverage HRAs must be able to opt out and waive future reimbursements. Opting out may restore qualifying individuals’ eligibility to receive a premium tax credit for enrolling public exchange coverage. The opt-out opportunity must be available only once with respect to each plan year and generally must be offered before the start of a new plan year. Participants eligible for coverage under an individual-coverage HRA must receive information on how the offer of or enrollment in the HRA affects their ability to claim ACA premium tax credits.

Reasonable Procedures for Coverage Substantiation
Individual-coverage HRAs must have reasonable procedures to substantiate that participants and any covered dependents are or soon will be enrolled in individual health insurance or Medicare for the plan year (or for the portion of the plan year they are covered by the HRA). The plan sponsor may establish a deadline for employees to provide this substantiation, which generally must be supplied by the first day of the plan year.

Substantiation procedures also apply before individual-coverage HRAs can reimburse any medical expense. For each reimbursement request, a participant must substantiate that the person who incurred the expense had individual health insurance or Medicare for the month during which the expense was incurred.

For both of these substantiation requirements, a plan sponsor generally may rely on the participant’s documentation or attestation.

The plan sponsor must provide a written notice to each participant at least 90 calendar days before the beginning of each plan year. For participants not eligible for coverage as of the beginning of the plan year, a notice must be provided no later than the date on which the HRA may first take effect for the participant. The agencies have provided an Individual Coverage HRA Model Notice that plan sponsors may use for this purpose.