Healthcare remains top–of–mind in post–midterm election America. Government agencies recently released proposed regulation changes affecting health reimbursement arrangements (HRAs). According to Discovery Benefits, “If finalized, would make these accounts more accessible and expand the ability of employees to spend their funds within the customizable plans.”
Background
HRAs are accounts funded entirely by employers to pay for medical expenses incurred by employees or their dependents. HRA contributions are excluded from taxation because HRAs are considered group health plans. They must comply with Affordable Care Act group health plan restrictions and requirements, including the prohibition on annual dollar limits and the preventive services coverage requirement.
In the ‘HRA Proposed Regulations: State Implications and Responses’ webinar, consultant Jason Levitis of Levitis Strategies LLC explains the Notice of Proposed Rule Making (NPRM) eases rules for HRAs and similar offerings, permitting them to pay for individual market premiums. Firms and businesses alike can adhere to his approach at the firm level or subject limitations at the sub-firm level. As a result, large employers could use HRAs to shift elder and ill workers to the individual marketplace, increasing premiums, predominately in healthier markets.
HRAs are like other account-based benefits, but these must be funded solely with employer contributions. These funds can be used to pay for a larger set of expenses, not limited to insurance premiums. HRAS are group health plans and thus are generally prohibited under ACA market rules on annual limits and preventive services.
Notable dates:
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- 10/12/2017 Executive order called for easing these rules
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- 10/29/2018-Departments issued proposed regulations
- 11/19/2018-Treasury released notice on interaction with over provisions
What’s in the NPRM?
The central provision allows HRAs to be integrated with individual market coverage, firms cannot offer both HRAs and traditional coverage to any employee or to any two members of the same class of employees. The secondary provision creates new excepted benefit HRA, capped at $1,800. This may be used to purchase short-term but not individual market coverage or group coverage other than COBRA. Lastly, this must be offered together with traditional group health plan, but employee may decline traditional plan and receive only HRA.
Levitis’ impact analysis predicts a 1% premium increase with 800,000 more consumers covered but proposes potential challenges for individual markets. The ACA divides the market for health coverage by individuals and small employers who use community rated markets. This protects them from the cost of ill individuals. Large employers bear the cost of their own risk pool in large group market or by self-insuring. The NPRM would allow large employers to choose: continue to bear the cost or use HRA to access community-rated individual market. Employers with a sicker workforce would be interested in shifting, despite safeguards.
Which individual markets are most likely to be impacted?
- Less likely: Markets with poor risk pools, higher premiums. Only firms with very bad risk pools with harm market.
- More likely: Markets with better risk pools and premiums like group premiums.
In short, individual markets with healthier risk pools are more likely to be significantly impacted. NPRMS economic impact analysis assumed single nationwide market and likely missed this dynamic.
Sources:
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