Healthcare continues to be a focus of the Trump Administration and President Trump has used Executive Orders to drive regulatory change. In October 2017, President Trump issued an Executive Order directing the Secretaries of the Treasury, Labor, and Health and Human Services to consider how to expand the flexibility and use of health reimbursement arrangements (HRAs). In response, on October 29, 2018, these departments announced a proposed a regulation that:
- Allows employers (in place of their traditional employer plan) to offer an HRA that reimburses premiums for individual market healthcare plans on a pre-tax basis.
- Allows employers that offer traditional employer plans to also offer an HRA to reimburse up to $1,800 toward short-term medical plan premiums.
The regulation raises key questions as to how large employers can offer HRA premium reimbursement plans in place of their traditional employer plan while satisfying ACA requirements and avoiding penalties.
HRAs are provided by employers and can be used pre-tax by employees to pay for qualified medical expenses. Under current law, large employers are prohibited from using HRAs to reimburse the cost of premiums for insurance purchased on the individual market. The proposed regulation reverses these rules.
Large employers that are subject to the Employer Shared Responsibility requirements and want to take advantage of these new regulations will want to consider the following:
1. What size employers benefit from this new expansion?
At this time the regulation appears to provide the greatest benefit to employers with under 50 employees who are exempt from ACA Employer Shared Responsibility provisions. For small employers, the proposed guidelines provide more options for offering health care to their employees—options that are likely cheaper with less coverage and/or pre-existing condition exclusions. For large employers, more details, such as a safe harbor (see #2 below), are needed in order to fully understand how premium-reimbursement HRAs can be offered within ACA requirements.
2. How will it be determined whether the employer is offering enough reimbursement to purchase an affordable plan under the ACA?
Under the proposed resolution, premium-reimbursement HRAs must still meet ACA affordability and minimum essential coverage requirements or will be subject to ACA penalties. In order for large employers to benefit, they will need safe harbor guidance to ensure employee premium payments meet affordability threshold requirements. However, the proposal as released does not define a specific safe harbor or clarify how employers offering such a plan can still meet ACA requirements.
Also, it doesn’t appear that marketplace subsidies will be available to individuals offered this type of plan. As with traditional employer plans, an employee that is offered an “HRA-only style” employer plan, that is deemed affordable and of minimum value, would not qualify for marketplace subsidies unless additional changes to the law are made.
3. Is short-term health insurance a viable option for your organization, if it does not meet ACA requirements or qualify for subsidies?
Many employers already offer short-term healthcare plans, but they have not been able to offer an HRA to reimburse for premium costs for this type of plan. The proposed regulation permits employers that offer traditional employer plans to also offer an HRA to reimburse up to $1,800 toward premiums for a short-term health plan. These short-term plans do not meet minimum essential coverage (MEC) under the ACA and do not qualify for government subsidies under the ACA.
Yet, for some organizations, it may make sense to offer a short-term plan for those who are not currently ACA eligible or who prefer this type of plan.
4. What level of administrative effort will be required?
Questions remain about the level of administration that will be required by employers. For example, how will employees request reimbursement and verify their purchase of a qualified benefit on the exchange? And, will the rule require modifications to large employer compliance and reporting requirements?
5. If an HRA-only plan is offered, how will this impact employer competitiveness?
Large employers use healthcare benefits as an attraction and retention tool. Many may not be willing to eliminate their traditional plan and require employees to go out to the individual market for their insurance. Moving in this direction may not support an employer’s competitiveness objectives. However, employers will want to keep an eye on these options as more guidance is released.
The regulation, now in its comment period, could become regular order in 90 days (roughly late January 2019). While the regulation is currently missing some key information from large employers, once the regulation is finalized, employers will want to discuss these options with their benefit consultant to see what benefits it could bring to their healthcare program. There may be certain industries and certain types of workers where the new HRA options will be more beneficial than for others.
This regulation has no immediate impact to ACA compliance or reporting requirements, or to what employers can do for 2018. Health e(fx) continues to analyze the regulations as they are released and keep our clients well-informed.
November 26, 2018