Key Employee Retention: Spousal HRA

As employers continue to search for innovative employment benefits to attract and retain key talent, they’re faced with one issue: the ever-increasing cost of providing employees and their families with health insurance coverage, which is now a non-negotiable employment benefit for employers with at least 50 employees. At the same time, both traditional and non-traditional health benefits are more important than ever for employees who are also struggling with health-related costs. One often-overlooked option is the spousal incentive health reimbursement arrangement (known as a spousal HRA or SIHRA). The spousal HRA can provide the dual benefits of offering a married couple a valuable tax-preferred health savings option while also encouraging the employee’s spouse to enroll in qualifying health coverage offered by their own employer.

Spousal HRAs: The Basics

By way of background, a health reimbursement arrangement is a vehicle funded solely by an employer. The funds can then be used to pay for the employee’s qualifying medical expenses, up to an annual limit. The employer determines the amount that will be contributed to the HRA. Unused funds carry over from year to year, so the employee can continue to build their account balance over time.

The employee must incur the qualifying medical expenses before requesting reimbursement from the HRA. With certain types of HRAs, however, the HRA funds can be used to cover the cost of health insurance premiums themselves. The employer can deduct the amounts contributed to the HRA and, when reimbursed for qualifying medical expenses, the employee receives the funds tax-free.

HRAs are considered group health plans. Certain requirements exist if an employer wishes to offer an HRA—including an integration rule that requires the participant to actually enroll in ACA-qualifying health coverage.

A spousal incentive HRA is an HRA offered to the working spouse of an employee who has access to group health insurance coverage through their own employer. When the employee’s working spouse elects the HRA option, they waive group health coverage through the employee-spouse and agree to enroll in their own employer’s coverage.

Compliance Considerations

The employer who offers the spousal HRA must obtain verification that the employee’s spouse is actually enrolled in their employer’s group coverage. The spouse must attest that they were enrolled in qualifying group health coverage that did not merely provide excepted benefits. The attestation will serve to confirm that the HRA is integrated with qualifying health coverage for ACA compliance purposes.

Further, spousal HRAs cannot reimburse the spouse for health insurance premiums that the working spouse has paid on a pre-tax basis through that spouse’s employer’s cafeteria plan. If the spouse pays for their health premiums on a pre-tax basis, the spousal HRA must limit reimbursements to other qualifying medical expenses, like co-pays and deductibles.

It’s also important to remember that access to a general-purpose HRA eliminates the individual’s ability to fund a health savings account (HSA) even if the spouse’s employer-provided health plan is an HDHP. Because HSA funding generally falls to the individual, not the employer, the employer offering the spousal HRA should make sure the spouse and employee have full information about this limitation.

Spousal HRAs are considered group health plans. They must have their own written document and summary plan description to outline rules regarding caps on reimbursements, limits on the amounts that can be rolled over from year to year and rules on reimbursement timing and eligibility. The plan should also contain information about what happens to the spouse’s HRA eligibility if the spouse eventually loses their own coverage and elects to join the employee’s coverage.

Conclusion

Employers who are searching for non-traditional health benefits for employees and their families should carefully consider the spousal HRA option to determine whether it might reduce their health coverage costs. However, they should also consider the potential compliance and administrative burden that the spousal HRA will create when determining whether to adopt the option.

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