In a move to expand health care choices and lower costs for consumers, along with reducing administrative burdens for small employers, President Trump has proposed a rule to expand the use of Health Reimbursement Arrangements (HRA).
The president is proposing two new types of HRAs: Individual HRA and Excepted Benefits HRA.
Currently, integrated HRAs cannot be used for individual premiums. Traditional HRAs are required to integrate with a group health plan. The president is proposing to use HRAs to reimburse for individual health plans too. This new type of HRA would be an individual HRA.
Here’s how it would work. The employee shops the individual market and purchases a health plan that best meets their needs. The employee would use the employer-provided HRA funds to pay the premium on their plan of choice. The insurance carrier would provide the plan directly to the employee. Because the employee receives the coverage direct from the carrier, they ‘own’ it, unlike group health coverage. If they elected to terminate employment, they would be allowed to take their coverage with them.
Here are five requirements that employers must follow if they want to offer an individual HRA:
- Any individual covered by the individual HRA must be enrolled in health insurance coverage purchased in the individual market and must substantiate and verify that they have such coverage;
- The employer may not offer the same class of individuals both an individual HRA and a “traditional group health plan”;
- The employer must offer the individual HRA on the same terms to all employees in a “class”;
- Employees must have the ability to opt-out of receiving the individual HRA; and,
- Employers must provide a detailed notice to employees.1
Excepted Benefits HRA
The second proposed HRA type is called the excepted benefit HRA. This stand-alone HRA can be offered to employees, regardless of whether or not they elect group coverage. They simply have to be offered group coverage. The excepted benefits HRA could be used to reimburse for all medical expenses and only premiums or contributions for COBRA, excepted benefits coverage, and short-term limited-duration insurance ($1,800 limit, adjusted for inflation). This HRA must be available to all similarly situated employees. And employers can’t offer both an individual HRA and an excepted benefits HRA to employees.
Small employers may have the most to gain from this proposal. Since many offer no coverage or expensive coverage, it could give flexibility to employees on group plans to explore the individual market and exchanges.
With this proposed rule, it’s expected that 10 million employees amongst 800,000 employers would have insurance through HRAs, and almost 1 million would be newly insured.2
What happens next?
Comments can be submitted until December 28, 2018. Note that this proposed regulation is still subject to change. Final regulation will be released at a later date and is expected to become effective January 1, 2020. Stay tuned to our blog for the latest in public sector employee benefit news.
1 “Proposed Rules Allow the Use of HRAs to Pay For Individual Market Coverage.” Groom Law Group. 29 October 2018. https://www.groom.com/resources/proposed-rules-allow-the-use-of-hras-to-pay-for-individual-market-coverage/. Accessed November 1, 2018.
2 Livingston, Shelby. “Trump Administration loosens restrictions on health reimbursement arrangements.” Modern Healthcare. 22 October 2018. http://www.modernhealthcare.com/article/20181022/NEWS/181029987. Accessed October 25, 2018.
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