Spousal Incentive HRAs: A New(?) Tool to Control Employer’s Health Care Costs

Spousal Incentive HRAs (SIHRAs) aren’t new. But they’re getting new exposure as a means of helping employers control health care costs, increasing employee recruiting and retention and aiding employees when they have choices between two group health plans to elect a spouse’s coverage over the employer’s.

In the past, employers frequently used a Section 125 Medical Opt-Out Plan (MOP) incentive to attempt to move dependents off of the employer’s group health plan–whether fully insured or self-funded–into the spouse’s group health coverage. By offering an employee a set amount of taxable money each pay period, the employee was incented to take the other coverage. Some employers developed disincentives to having the spouse and dependents in the employer’s plan:

  • Spousal surcharges, where the employer required additional employee contributions if a spouse had coverage available elsewhere;
  • Spousal carve-outs, where the employer didn’t allow the employee to elect to cover the spouse if the spouse had coverage available elsewhere; or
  • Although rare, complete spousal exclusion from the plan (and no, this doesn’t violate ACA).

Over time, the problem with all of these attempts at moving a spouse off the employer’s plan failed, with some states even prohibiting such manuevers as a form of marital discrimination.

Now, some employers are turning to a second tool, the SIHRA, either in conjunction with or a replacement for a MOP.

With a SIHRA, a spouse is still allowed to be enrolled in the employer’s plan, but is now incented (a carrot) to elect coverage instead with his or her own employer’s group health plan.

Here’s how a SIHRA works: an eligible employee has a choice between electing her employer’s group health plan or her spouse’s employer’s plan. In order to incent her, the employer offers a contribution to the SIHRA to any eligible employee who chooses to elect to enroll the spouse and dependents in the spouse’s coverage rather than the employer’s. That employer contribution is not taxed, resulting in tax savings for both the employer and the employee. Further, when eligible expenses (more on that in a moment) are incurred, those reimbursements are also not taxed to the employee at any level.

The employer can determine what are eligible expenses under the SIHRA, ranging from all unreimbursed eligible medical expenses under IRC Section 213(d), to most often only deductibles, coinsurance amounts, and copays. It’s up to the employer when they are designing the SIHRA and building the plan document.

There are a number of requirements for establishing and operating a SIHRA:

    1. The SIHRA must stand alongside the employer’s ACA-compliant group health plan.
    2. A written plan document is required.
    3. Any eligible claim for reimbursement must be substantiated by the employee. Depending upon what the plan defines as an eligible unreimbursed expense, an Explanation of Benefits (EOB) or detailed receipt is required. For that reason, a high-quality TPA is usually engaged to provide services for the SIHRA.
    4. Since a SIHRA is technically a group health plan, all of the alphabet-soup laws and regulations apply (ACA, ERISA, HIPAA, etc.).


The SIHRA may not be the perfect tool for controlling employer health plan costs. Still, for employers seeing spousal and dependent health costs consuming a large and ever-growing percentage of total health care spending, it allows the employer to develop an incentive for the employer’s and employee’s benefit.