The U.S. Departments of Labor, Treasury, and Health and Human Services released a final ruling expanding the availability of health reimbursement arrangements (HRAs) employers can use to pay for or reimburse employees for qualifying medical expenses, including premiums for individual health insurance coverage. This HRA ruling will significantly expand employers’ options for offering healthcare benefits to their employees for Missouri Affordable Care Act Compliance.

An HRA is an employer-funded group health plan that reimburses employees and their dependents for medical care expenses they incur on a tax-free basis. The Affordable Care Act (ACA) prohibited HRAs from being used to purchase health insurance coverage on the individual market due to violations of certain market reform rules and annual dollar limits.

Instead, HRAs were only available if they were integrated with an employer-sponsored health plan. As a result, many employers were reluctant to offer HRAs and opted to offer healthcare flexible spending accounts or health savings accounts as alternatives.

The new rules are intended to provide employers with additional flexibility in offering employee health coverage and provide more choice of coverage to employees without the previous requirement that the HRA be integrated with an employer sponsored group health plan. This is accomplished by creating two new types of HRAs: individual coverage HRAs and excepted benefit HRAs.

Individual Coverage HRAs

One of the most significant effects of the new rule is that it removes a prior ACA-related restriction on integrating HRAs or other account-based group health plans (such as employer payment plans or health FSAs) with individual health insurance obtained in the market or Medicare as long as certain conditions are satisfied. The rule refers to these as “individual coverage HRAs.” As noted above, prior to the new rule, HRAs generally could be integrated only with traditional group health plan coverage offered by an employer.

Based on this change, the door is open for employers to consider scaling back traditional group health coverage in favor of individual coverage HRAs integrated with individual insurance policies purchased by employees on the insurance market, similar to what some employers have already chosen to do with respect to retiree-only medical plans, which are exempt from ACA regulation.

Although many factors would go into such a decision, the cost savings to employers and the predictability of employee healthcare spend on a year-to-year basis could make individual coverage HRAs a very attractive alternative to traditional group health plan coverage.

Excepted Benefit HRAs

The new ruling also creates an “excepted benefit HRA.” In general, following the Departmental guidance issued under the Health Insurance Portability and Accountability Act (HIPAA), certain benefits are considered “excepted benefits” and are exempt from many of the federal healthcare requirements under ERISA and the ACA.

Where they meet the applicable requirements, “excepted benefits” can include limited-scope dental and vision, long-term care plans, hospital indemnity plans, employee assistance or EAP plans and on-site medical clinics.

The excepted benefit HRA is intended to constitute an excepted benefit that can be offered in conjunction with a traditional group health plan to help cover the cost of copays, deductibles or other non-covered expenses.

Impacts of The New Ruling on Affordable Care Act Compliance

The impact of the new ruling will depend significantly on what employers do next. The Trump administration is trying to make this an attractive option to employers, especially small businesses, and they expect employers to take them up on their offer.

But the rule itself is quite complex, and employers of all sizes will have to meet a number of requirements before offering an HRA-IIHIC. New substantiation and notice requirements, for instance, will result in administrative and compliance burdens.

Employees are likely to be confused, particularly if employers transition from a group health plan to an HRA-IIHIC. The rule could lead to coverage losses if employers stop offering group health plans in favor of an HRA and their employees do not accept the HRA or obtain other coverage.

The ruling could also cut off access to marketplace subsidies, potentially resulting in higher premiums through an HRA, and consumers may face higher cost-sharing and narrower networks in the individual market relative to a traditional group health plan.

The ruling might prove attractive to employers who do not currently offer coverage to their employees but now have a way to provide funds to support coverage. If the employers that opt to offer the HRA-IIHIC have generally healthy workforces, this influx into the individual market could be good for the individual market risk pool.

The broader the market, the better the average risk profile and the lower the premiums. However, the Departments own estimates suggest that premiums in the individual market will rise by about 1 percent throughout the 2020 to 2029 period. This is because employers that will be attracted to the HRA option are expected to have slightly higher health care expenses than other employers and current individual market enrollees.

The final ruling does include some additional safeguards to protect the individual market from the risk of employers using the HRA-IIHIC option to “dump” their higher-risk employees, such as minimum class size requirements. And the Departments reiterate their belief that employers will act in the best interest of their employees to recruit and retain talent. But the impact of these changes is not yet known.

If your business would like to investigate where these new HRA rulings are an attractive option for your Missouri Affordable Care Act Compliance, consult your business accountant at Schultz, Wood, & Rapp.