Using the Spousal Incentive Health Reimbursement Arrangement to Control Employer Health Plan Costs

With medical costs inflating back to pre-COVID-19 pandemic levels, employers continue to seek innovative ways to control costs while keeping employees satisfied with their health benefits. The Spousal Incentive Health Reimbursement Arrangement ("SIHRA") may provide a tool to meet both goals.  

What is a SIHRA and How Does it Work?  

Typically, the SIHRA is integrated with a self-insured health plan. However, the employer may also do this with a fully insured plan. Since spouses and dependents can add up to 60% of a health plan's expense, the SIHRA seeks to shift the risk by coupling a Health Reimbursement Arrangement (“HRA”) with a spousal incentive.  

The HRA allows employers to reimburse eligible employees and their dependents for qualified healthcare costs. The incentive motivates employees with working spouses to have those working spouses elect coverage under their employer's plan rather than participating in the employee's plan. The incentive can be up to 100% of the spouses and dependents in network, out-of-pocket costs. For 2024, the Affordable Care Act (“ACA”) out-of-pocket maximum (“OOPM”) is $9,450 for an individual and $18,900 for a family.   

While many employers tie the incentive to the OOPM, they can further control the plan spending by limiting the reimbursements to deductibles, co-pays and/or coinsurance, or a certain percentage of the OOPM. To decide the level of the employer contribution, the employer should consider the following:  

• Are there a disproportional number of claims incurred by spouses and dependents?
• Are spouses and dependents a significant portion of the total enrollment?
• Are the enrolled spouses likely to be offered coverage by their employers? 

Regardless of the funding formula, the SIHRA creates more goodwill with the employees than a spousal surcharge, carve-out, or exclusion. State laws may also prohibit these other spousal alternatives as a form of marital discrimination.  

Key Considerations for Implementing a SIHRA  

Communication is the key to the success of any employer benefit plan. While the spouse is welcome to stay on the employee’s group health plan, the SIHRA incentive is only offered if the spouse enrolls in the alternate group coverage. The SIHRA can cover up to 100% of any OOP costs incurred by the spouse, with contributions from the employer. Then, instead of enrolling their spouse in the group health plan, the employee enrolls the spouse in the SIHRA. Enrollment in the SIHRA will require spousal proof of enrollment in alternate health coverage other than excepted benefits, such as only dental and vision benefits. Enrollment must also be coordinated with spousal plans of differing plan years.  

When writing the SIHRA plan document, the focus should be on integrating with ACA-compliant group health plan coverage. Integration can include a spouse's employer plan, as discussed in the DOL's FAQS About Affordable Care Act Implementation Part 37.  

As mentioned before, the employer will need spousal proof of enrollment. With proof of enrollment, the SIHRA will be integrated; otherwise, the SIHRA will likely violate some of the ACA rules, such as the prohibition on lifetime and annual dollar limits on essential health benefits and covering ACA-mandated preventive care without cost sharing. Beyond integration, the plan document should discuss eligibility, reimbursable benefits and amounts, and any timing requirements, among other things.  

SIHRA Plan Compliance Considerations  

As a group health plan, the SIHRA will also have to consider the alphabet soup of laws related to compliance, such as ERISA, HIPAA, COBRA, PCORI, and Medicare Part D reporting. The Code must also be considered related to nondiscrimination testing, and as a general-purpose HRA, the plan will exclude both the employee and the spouse from making HSA contributions.  

The SIHRA may not be the perfect tool for controlling employer health plan costs. Still, for employers with a current strategy that does not defray the health plan expenses of spouses and dependents, it allows the employer to examine its population data and develop an incentive for the employer’s benefit.