October 09, 2024

A spousal incentive HRA (sometimes informally called a “SIHRA” for short) is an HRA that provides funds for an employee or spouse (or both, plus covered dependents if desired) who waives the employer’s plan and enrolls in the spouse’s coverage instead. The result is similar to a spousal surcharge or carve-out, as it is a different way for an employer to impose a strategy to encourage spouses to enroll in their own coverage. A SIHRA may be seen as more employee-friendly since it offers a carrot approach instead of a stick. The HRA funds can be used to reimburse qualified medical expenses incurred under the spouse’s plan, such as deductibles, copayments, or coinsurance. Employers will need to obtain confirmation of enrollment in other coverage to allow participation in the SIHRA.

Since this is an HRA, the same rules that apply to traditional HRAs also generally apply to SIHRAs, so employers need to be mindful of compliance considerations prior to implementing this type of arrangement. Below is a high-level overview of some of the laws that would apply:

ACA: A SIHRA must be integrated with other group health coverage to comply with the ACA. This means the employer must sponsor a group health plan, the SIHRA must only be available to employees (or their spouses’ dependents) who enroll in the spouse’s group health plan, and the employee must be offered the opportunity to opt out of the HRA at least annually. Employers should verify enrollment in other coverage and should not allow enrollment in the SIHRA if the other coverage is individual insurance, Medicare, Medicaid, or TRICARE. Additionally, ACA reporting for self-insured plans is triggered since these individuals waived the employer’s medical plan but are enrolled in the SIHRA, which needs to be reported via form 1095-B even if the employer is not considered an applicable large employer. SIHRAs are also subject to PCORI filing rules since all HRAs are subject to PCORI and no exception exists since these enrollees are not also covered under the employer’s own medical plan.

Nondiscrimination rules: HRAs are considered self-insured health plans and therefore are subject to nondiscrimination rules under Section 105(h). The general idea is that these plans cannot discriminate in favor of highly compensated individuals. This includes things like eligibility or waiting period rules, amounts available under the HRA, or participation requirements. Employers who sponsor HRAs of any type should undergo annual nondiscrimination testing to ensure the plan is not discriminatory.

COBRA: HRAs are subject to COBRA as long as the employer meets the size requirements under federal law. Employers should ensure the SIHRA is included in all required COBRA notices, premiums are set appropriately, and beneficiaries receive timely election forms.

ERISA: Since HRAs are group health plans, they are subject to ERISA rules. This includes things like having a written plan document/SPD, claims and appeals procedures, and Form 5500 reporting requirements (depending on size).

HIPAA: HRAs are self-insured health plans and therefore subject to HIPAA privacy and security rules. A limited exemption may apply to a self-administered HRA with fewer than 50 participants.

SIHRAs are becoming more popular as employers try to find ways to reduce their healthcare spending. Employers interested in offering a SIHRA should pay close attention to the compliance considerations mentioned above prior to implementing such a program.