As health care costs continue to rise, employers look for creative ways to meet employee needs while also reduce benefit costs. One option employers are increasingly considering is the spousal incentive health reimbursement arrangement (SIHRA), which reduces the employer’s exposure to claims incurred by spouses and other dependents.

Like a traditional HRA, a SIHRA is a 100% employer-funded account-based plan that provides tax-free reimbursement of qualified medical expenses. Unlike a traditional HRA, a SIHRA provides an incentive for employees’ spouses to enroll in their own employers’ major medical plans. This is done by restricting SIHRA eligibility to employees who:

• Decline participation in the employer’s major medical plan and instead enroll in their spouse’s employer’s major medical plan, or
• Enrolls in the employer’s major medical plan as self-only (or self with children) and their spouse (or spouse and children) enrolls in their spouse’s employer’s major medical plan.

Successful implementation of a SIHRA reduces the overall claims experience for the employer’s major medical plan, which can translate into lower premium cost for fully insured coverage and lower medical expenses for self-funded plans.

As a type of HRA, the SIHRA has design flexibility. For example, employers can determine the maximum reimbursement levels for the SIHRA. The SIHRA may be designed to reimburse various expenses under the spouse’s major medical plan including (but not limited to) deductibles, coinsurance, and copays.

Although the SIHRA has design flexibility, because it is a type of HRA, a number of compliance requirements apply. Below is a high-level summary of ten of those requirements:

1. A SIHRA cannot allow “double dipping”. A SIHRA could not reimburse the cost of premiums incurred by the spouse for the spouse’s employer sponsored medical plan if the spouse already pays for those premiums on a pre-tax basis through a cafeteria plan.
2. A SIHRA must integrate with a group health plan to be ACA-compliant. Employees who participate in a SIHRA should be required to provide the employer with evidence that they are enrolled in an employer sponsored medical plan. Participants must submit their reimbursement request (claim), along with substantiation of their qualified medical expenses in order to be reimbursed. This proof of eligible expenses may include an Explanation of Benefits (EOB), billing statements, or receipts to provide evidence that the expense has been incurred in the plan year and that it is an eligible expense according to the plan design.
3. A SIHRA is subject to HIPAA’s privacy and security requirements.
4. A SIHRA must have a plan document and summary plan description in order to be ERISA-compliant for employers subject to ERISA.
5. If more than 100 employees participate in the employer’s SIHRA, a Form 5500 is required unless the employer is exempt from ERISA.
6. COBRA for the SIHRA would have to be offered to employees and/or their dependents who experience a COBRA qualifying event, unless the employer qualifies for the small employer exception.
7. The SIHRA cannot benefit primarily highly compensated individuals.
8. If the employer is an Applicable Large Employer under the ACA, coverage under the SIHRA may need to be reported to the IRS under Code Sections 6055 and 6056.
9. PCOR fees are payable for employees covered under the SIHRA.
10. A SIHRA is subject to CMS Section 111 Reporting requirements if the SIHRA provides $5,000 or more in reimbursements to any enrollee.

Employers that want to implement a SIHRA and address their compliance obligations typically engage a third-party administrator (TPA) like EBC to assist with SIHRA plan design and administration of claims. EBC has experience administering HRAs for 22 years, (including SIHRAs) making us a trusted partner to administer your plan.

As we go towards open enrollment season, SIHRAs may offer a way for employers to reduce their overall health plan costs and provide tax-free dollars to employees for qualified medical expenses.

EBC can help, please contact us at Sales@ebcflex.com.