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HRAs for individual-market health insurance: Flexibility and choice for employers and their workers

Published on August 15th, 2019 by Triton Benefits & HR Solutions

A new rule could shake up the way employers and employees leverage their health reimbursement arrangement funds. The regulation, passed recently by the departments of Labor, Treasury and Health and Human Services, enables employers to leverage pretax money to subsidize the cost of employee healthcare premiums for individual market insurance coverage. 

Using pre-tax dollars for individual coverage

On June 13, officials from federal departments issued the final rule, reported Society for Human Resource Management contributor Stephen Miller, which would change standards for the use of health reimbursement agreement (HRA) funds.

"Starting Jan. 1, 2020, employees will be able to use employer-funded [individual coverage HRA] to buy individual-market insurance, including insurance purchased on the public exchanges formed under the Affordable Care Act (ACA)," Miller wrote.

Previously, according to IRS guidance under the previous administration, employers were unable to extend this type of funding benefit, and couldn't provide stand-alone HRAs for workers to buy individual-market coverage.

What impact will the final rule have?

Some experts, including Brian Blase, special assistant to the president for health care policy, pointed to benefits like increased employer flexibility and boosted choice for individuals.

"We expect this rule to particularly benefit small employers ad make it easier for them to compete with larger businesses by creating another option for financing worker health insurance coverage," Blase said.

In addition, the ability to potentially use pre-tax dollars for individual-market coverage is particularly attractive to workers with a focus on health care coverage cost.

Under the new rule, employers also have more flexibility pertaining to offering ICHRAs for certain classifications of workers. For instance, as Miller explained, internal company HR stakeholders can establish distinctions between salaried and hourly workers, and offer ICHRAs for one group, and traditional group insurance coverage for the other group.

However, employers that do offer ICHRAs must ensure that the terms of reimbursement agreements are the same for employees within the same classification. At the same time, decision-makers have the flexibility to increase reimbursement amounts for older employees or those with more dependents, for instance.

According to a 2017 Mercer study, 16% of companies said they'd consider offering an HRA for all eligible employees to support their ability to buy nongroup insurance.

"[A] majority of employers of all sizes would consider replacing their group plan with an individual-coverage HRA if they were allowed to contribute enough so that employees could obtain coverage of comparable value," Miller wrote.

Hesitation to shift their approach

Despite benefits offering more flexibility and using pre-tax funds, some employers – particularly large enterprises – are concerned about making a significant shift in their employee benefits structure. The new rule stipulates that ICHRAs can only be offered if the employer forgoes a group health plan.

This new option provides choice for small business employers, and is something to consider for employees' health benefit administration.

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