Health Reimbursement Arrangement

Concerns Rise Over Letting Employers Fund HRAs for Individual Health Plans

Employers, health insurers, regulators and hospitals are all raising concerns about the Trump administration’s rules issued last year that allow employers to fund health reimbursement arrangements (HRAs) that their workers can use to purchase health plans on the open market.

The Centers for Medicaid and Medicare Services, IRS and the Department of Labor issued the final rules in late 2019. They reverse one of the major pinch-points of the Affordable Care Act, which bars employers from paying employees to buy their own health insurance either on publicly run health insurance exchanges or on the open market.

The fine for breaching this part of the law is a hefty $36,500 annually.

The rules continue to receive pushback from small business groups, insurers, regulators and others, who say that employers who want to go this route are facing a bureaucratic nightmare.

And one of the biggest concerns is that employers will use the opportunity to move older and sicker workers from their group health plans to exchanges, in order to reduce the cost burden on their plans.

Complexity a major issue

The National Federation of Independent Business has said that small businesses that want to offer workers an HRA integrated with an individual-market health plan are facing a lot of complexity.

“NFIB recommends that your departments plan to release… a publication that explains in plain English, step-by-step, how small businesses can establish, administer, and comply with the rules,” the group wrote.

HRAs are tax-sheltered accounts funded employers that typically are offered to reimburse employees for out-of-pocket medical expenses. This rule expands how those HRAs can be used. HRAs have been tax-advantaged only if they are coupled with an ACA-compliant group health plan. They cannot be used now to pay premiums for individual-market health insurance.

Under the rule, employers could provide an HRA that is integrated with individual health insurance coverage. The rule does include provisions to prevent employers from steering workers or dependents with costly health conditions away from the employer group plan and toward individual coverage.

Employers also could offer a different type of HRA, funded up to $1,800 a year, that could be used by employees to pay premiums for short-term plans that don’t comply with ACA consumer protections.

Employers could not offer the same employees the choice of either a traditional group plan or an HRA-funded individual-market plan. But they could offer a group plan to certain classes of employees, such as full-time workers under age 25, and an HRA plan to other classes, such as part-time employees.

Fears many may be shunted from group plans

Other concerns that are being raised include those by the American Academy of Actuaries that self-insured employers, in particular, may use the rule to shunt less healthy employees out of their group health plans, which in turn could result in worsening the ACA individual-market risk pool.

The Federation of American Hospitals expressed concern that the proposal would shift people out of the employer group market into the less stable individual market, which offers thinner benefits and less support for consumers.

The conservative National Federation of Independent Business supports the new rule but is concerned that it will be a complex process to set this type of arrangement up, especially for small businesses.

The liberal Center on Budget and Policy Priorities said the proposal to let a special type of HRA be used to buy short-term plans could be challenged legally, because the ACA and the Health Insurance Portability and Accountability Act (HIPAA) prohibit group plans from discriminating based on health status, as short-term plans are allowed to do.

New Rules Allow Employers to Reimburse for Health Premiums

Starting Jan. 1, 2020, employers can establish accounts for their employees to help them pay for individual health insurance policies they purchase, as well as for other health care expenses.

A new regulation expands on how health reimbursement accounts can be used. Currently, employers and their workers can contribute to these accounts, which can be used to reimburse workers for out-of-pocket medical expenses.

With these new Individual Coverage HRAs, employers can fund the account workers would use to pay for health insurance premiums for coverage that they secure on their own.

Up until this new regulation, such arrangements were prohibited by the Affordable Care Act under the threat of sizeable fines in excess of $36,000 per employee per year.

This rule is the result of legislation signed into law by President Obama in December 2016, which created the “qualified small employer health reimbursement arrangement (QSEHRA),” which would allow small employers to reimburse for individual insurance under strict guidelines.

The Trump administration was tasked with writing the regulations, which created the Individual Coverage HRA (ICHRA).

How it works

Under the new rule, if an employer is funding an ICHRA, the plan an employee chooses must be ACA-compliant, meaning it must include coverage for the 10 essential benefits with no lifetime or annual benefit maximums — and must adhere to the consumer protections built into the law.

Once the ICHRA is created, the employer will a set amount every month into the account on a pre-tax basis, which the employee can then use to buy or supplement their purchase of health insurance benefits in the individual market.

The law allows employers to set up as many as 11 different classes of employees for the purposes of distributing funds to ICHRAs. The employer can vary how much they give to each different group. For example, one class may get $600 a month per single employee with no dependents, while members of another class may receive $400 a month.

The allowable classes are:

Full-time employees — For the purposes of satisfying the employer mandate, that means a worker who averages 30 or more hours per week.

Part-time employees — Like the above, the employer can choose how to define what part-time is.

Seasonal employees — Workers hired for short-term positions, usually during particularly busy periods.

Temps who work for a staffing firm — These employees provide temporary services for the business, but are formally employed through a staffing firm.

Salaried employees — Staff who have a have a fixed annual salary and are not typically paid overtime.

Hourly employees — Staff who are paid on an hourly basis and can earn overtime.

Employees covered under a collective bargaining agreement — Employees who are members of a labor union that has a contract with the employer.

Employees in a waiting period — This class would include workers who were recently hired and are in their waiting period before they can receive health benefits (in many companies, this is 90 days).

Foreign employees who work abroad — These employees work outside of the U.S.

Employees in different locations, based on rating areas — These employees live outside the individual health insurance rating area of the business’s physical address.

A combination of two or more of the above — Businesses can also create additional classes by combining two or more of the above classes.

The rules for ICHRAs are as follows:

Any employee covered by the ICHRA must be enrolled in health insurance coverage purchased in the individual market, and must verify that they have such coverage (as mentioned above, that coverage must be ACA-compliant);
The employer may not offer the same class of workers both an ICHRA and a traditional group health plan;
The employer must offer the ICHRA on the same terms to all employees in a class;
Employees must be allowed to opt out of receiving an ICHRA;
Employers must provide detailed information to employees on how the ICHRA works;
Employers may not create a class of employees younger than 25, whom they might want to keep in their group plan because they’re healthier;
A class cannot have less than 10 employees in companies with fewer than 100 workers. For employers with 100 to 200 employees, the minimum class size is 10% of the workforce, while for employers with 200 or more staff, the minimum size is 20 employees;
While benefits must be distributed fairly to employees that fall within each class, each class can be broken down further by age and family size. That means employees with families can be offered a higher amount per month and rates can be scaled by age.

New Rule Allows Employers to Pay Workers to Buy Their Own Health Coverage

The Trump administration has issued new rules that would allow employers to provide workers with funds in health reimbursement accounts (HRAs) that can be used to purchase health insurance on the individual market.

The rule reverses a long-standing part of the Affordable Care Act that carried hefty fines of up to $36,500 a year per employee for applicable large employers that are caught providing funds to workers so they can buy insurance.

The rule was put in place to keep employers from shunting unhealthy or older workers from their group health plans into private insurance and government-run marketplaces.

Under the rules issued by the Departments of Health and Human Services, Labor and Treasury, employers would be authorized to fund, on a pre-tax basis, health reimbursement funds that to buy ACA-compliant plans. The new rules take effect Jan. 1, 2020.

With the final rules written in a way to keep employers from trying to reduce their group benefit costs by sending sicker and older workers into the individual market, HHS noted in a press release announcing the rule that it would closely monitor employers to make sure this type of adverse selection doesn’t occur.

Typically, HRAs have only been allowed to be used to reimburse workers for out-of-pocket medical expenses. This rule allows them to also be used to pay for health insurance premiums for coverage that a worker may secure on their own.

’Integration’ conditions

The regulation permits an HRA to be “integrated” with certain qualifying individual health plan coverage. In order to be integrated with individual market coverage, the HRA must meet several conditions:

Any individual covered by the 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 HRA and a “traditional group health plan”;
The employer must offer the HRA on the same terms to all employees in a “class”;
Employees must have the ability to opt out of receiving the HRA;
Employers must provide a detailed notice to employees on how the HRAs work;
Employers may not create a class of employees younger than age 25, whom they might want to keep in their group plan because they’re healthier.
For employers with one to 100 employees, a class cannot have less than 10 employees; for employers with 100 to 200 employees, the minimum class size is 10% of the workforce; and for employers with 200 or more employees, the minimum class size is 20 employees.

While the HRA money can be used mostly for buying plans that meet ACA requirements, employers under the rule can establish a special type of “excepted benefit” HRA for employees who want to buy less expensive short-term plans that do not comply with the ACA. The contribution for such plans would be capped at $1,800 a year.

Under the ACA, employers with 50 or more full-time workers (applicable large employers) must provide their employees with health insurance that covers 10 essential minimum benefits and must be “affordable.”

Under the new rule, an applicable large employer could meet their obligation if they provide adequate HRA contributions for employees to buy individual coverage.

New Rule Allows Employers to Pay Workers to Buy Their Own Health Coverage

The rule was put in place to keep employers from shunting unhealthy or older workers from their group health plans into private insurance and government-run marketplaces.

’Integration’ conditions

Any individual covered by the 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 HRA and a “traditional group health plan”;
The employer must offer the HRA on the same terms to all employees in a “class”;
Employees must have the ability to opt out of receiving the HRA;
Employers must provide a detailed notice to employees on how the HRAs work;
Employers may not create a class of employees younger than age 25, whom they might want to keep in their group plan because they’re healthier.
For employers with one to 100 employees, a class cannot have less than 10 employees; for employers with 100 to 200 employees, the minimum class size is 10% of the workforce; and for employers with 200 or more employees, the minimum class size is 20 employees.

Under the new rule, an applicable large employer could meet their obligation if they provide adequate HRA contributions for employees to buy individual coverage.