According to the Centers for Medicare and Medicaid Services (CMS), health reimbursement arrangements (HRAs) are a type of account-based health plan that employers can use to reimburse employees for their medical care expenses. Because HRAs are tax-preferred, workers who buy an individual market plan with an HRA receive the same tax advantages as workers with traditional employer-sponsored coverage, as stated by the Department of Health and Human Services.
A recently released final rule by the Departments of Labor, Health and Human Services and the Treasury would allow employers to offer a new “individual health insurance coverage HRA” as an alternative to traditional group health plan coverage. This rule reverses prior federal guidance by allowing HRAs to be used to fund both premiums and out-of-pocket costs associated with individual health insurance coverage. The rule is the final response to President Trump’s October 2017 Executive Order on “Promoting Healthcare Choice and Competition Across the United States,” joining the recently finalized rules on short-term coverage and association health plans.
Starting in January 2020, employers can use an individual health insurance coverage HRA (HRA-IIHIC) to reimburse premiums for individual coverage. Reimbursement can cover premiums, non-premiums, or particular medical expenses. If an employee receives an affordable HRA-IIHIC, they are prohibited from being eligible for premium tax credits.
The individual coverage HRA must work in conjunction with a plan that complies with Sections 2711 and 2713 of the Public Health Service Act, which ban the use of annual dollar limits on essential health benefits (EHBs) and require the coverage of preventive services without cost-sharing, respectively. Individual health insurance coverage is assumed to satisfy these sections. To qualify as an HRA that does not discriminate on health status, the HRA-IIHIC must follow the three general rules and six integration requirements, as outlined by Health Affairs:
Three general rules:
- A participant must enroll in individual health coverage that complies with Sections 2711 and 2713.
- If an enrollee stops being covered under the individual policy, they forfeit the HRA-IIHIC, and the HRA-IIHIC would stop reimbursing their medical expenses prospectively.
- Individuals who are within the “grace period” to pay their premiums are still considered enrolled in individual coverage.
Six integration requirements:
- Any type of coverage that complies with Sections 2711 and 2713 qualifies for HRA integration.
- Employers can offer either an HRA-IIHIC or a traditional group health plan to a class of employees, but not both. The rule also establishes a minimum size requirement for certain classes to prevent employer manipulation and adverse selection.
- To the extent that an employer offers an HRA-IIHIC to a class of employees, it must do so on the same terms for all participants within the class.
- All participants, including former employees, must be able to opt out of an HRA-IIHIC and waive future HRA-IIHIC reimbursements on at least an annual basis and in advance of the start of the plan year.
- HRA-IIHICs are required to adopt reasonable procedures to confirm that HRA-IIHIC participants are, or will be, enrolled in qualifying individual health insurance coverage for the portion of the plan year when they will be covered.
- HRA-IIHIC must provide detailed written notices to each participant at least 90 days before the beginning of each plan year.
Since employees must enroll in individual health insurance coverage to take advantage of the HRA, the rule creates a special enrollment period for employees who newly gain access or are newly provided an HRA-IIHIC. This special enrollment period accommodates employees who might need access to individual market coverage or want to change plans.
The offering of the HRA-IIHIC could make it more difficult for employees to decide which coverage to choose. They would have to first compare costs between what they would pay without an HRA-IIHIC, which could potentially include using tax credits, with what they would pay under an HRA-IIHIC. The Departments have published a frequently asked questions document to clarify the HRA for employees and employers.
The rule also creates an “expected benefits HRA” of up to $1,800 per year. The HRA could be used to pay premiums for excepted benefits, short-term plans, and COBRA premiums. According to Health Affairs, the HRA seems designed to reimburse premiums for short-term plans. To qualify as an excepted benefits HRA, the HRA must:
1) Not be an integral part of a group health plan
2) Provide benefits that are limited in amount
3) Not reimburse for premiums for individual health insurance coverage, group health plan coverage, or Medicare Parts A, B, C, or D.
4) Be made available under the same terms to all similarly situated individuals
The Trump Administration bills the new coverage options in the rule as ways to promote employee and employer flexibility. It believes this rule will benefit, in particular, small businesses that face cost difficulties in offering a traditional group health plan to employees.
On the rule CMS Administrator Seema Verma said, “The policy creates an exciting new opportunity for employers—especially small employers than might not offer coverage today—to provide employees tax-preferred funds to help buy coverage on the individual health insurance market. Making this option available to employers will significantly increase coverage across America and reduce the number of uninsured.”
The Administration also expects that 800,000 employers will offer these new HRAs to over 11 million employees, and 800,000 Americans who would otherwise be uninsured are projected to gain coverage.
According to Katie Keith of Health Affairs, an estimated 11.4 million people will be in an HRA-IIHIC in 2029 while the number of people with traditional group health plan coverage will drop by up to 7 million. The rule’s disruption to employer-sponsored coverage, a deviation that has received bipartisan support in the past, could be welcomed, but this deviation has “long been a third rail of health policy.”
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