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Proposed HRA expansion met with praise and pushback

Published on March 11th, 2019 by Triton Benefits & HR Solutions

Late last year, the government released a proposed rule to expand the use of health reimbursement arrangements – the employer-funded, tax-advantaged accounts that employees can currently only use to reimburse the cost of out-of-pocket medical expenses.

The Trump administration's proposal would allow HRAs to be used for the purchase of individual health insurance coverage, subject to certain conditions, and would go into effect for plan years beginning January 1, 2020.

Though the rule would not alter the Affordable Care Act mandate that requires employers with 50 or more employees to provide coverage, it would allow for HRAs to be used to purchase individual health insurance premiums that satisfy the mandate.

However, companies with less than 50 employees would be the most heavily impacted by the change, as the new rule would enable small- and medium-sized companies that do not presently provide health insurance benefits to their employees to offer coverage through HRAs.

Once the new rule has been adopted and companies have adapted to the changes, the Treasury Department estimates that some 800,000 employers will provide HRAs that over 10 million employees can use to pay for individual health insurance coverage.

However, the new rule could also prompt employers to drop their health coverage and opt instead for individual coverage through the ACA or short-term limited duration plans, notes Healthcare Finance News.

Plan embraced by some, but insurance companies urge delay

The Trump administration's proposed change has found some unlikely supporters, including a former member of the Obama administration.

"What leapt off the page for me after reading the proposal was how much they cared about protecting the individual market from adverse selection," John Barkett, who served in the Office of Health Reform under President Obama, told Health Leader Media. "They were very concerned about putting this rule out in a way that wouldn't let employers send their sickest workers into the individual marketplace."

Barkett cited the requirement that employers only offer the HRA program or traditional group coverage, but not both, as evidence that the new system will not permit companies to keep their sickest workers on their own plan while sending others out to the individual market.

He also noted the Treasury Department's estimates that average premiums would change by less than 1 percent if a projected 7.5 million people transitioned to the individual market under the new HRA. The marginal impact on premiums predicted illustrates confidence that not just sick individuals will switch to the individual market as a result of this change, Barkett argued.

There was a bit more caution expressed by America's Health Insurance Plans, a trade association and advocacy group comprised of U.S. health insurance companies, which sent a letter to the secretaries of Treasury, Labor and Health and Human Services requesting that the effective date of the final rule be pushed back by at least a year-and-a-half.

"As with any change of this size and complexity, adequate planning time is required," AHIP executive Keith Fontenot wrote in the letter. "We recommend the effective date be no earlier than January 1, 2021, or 18 months following publication of the final rule, whichever is later."

In addition to the request for postponement, AHIP called for strong non-discrimination provisions to protect those with pre-existing conditions, protection for employer provided coverage and supplemental benefit offerings, continuation of HIPAA excepted benefits that ensure access to health coverage which promotes financial security for specific needs and affordable coverage for employees.

The organization also asked that the final rule prohibit the use of Integrated HRAs to purchase short-term, limited duration insurance, according to Health Leaders Media. 

"We strongly believe that an Integrated HRA as a benefit offering should reimburse only major medical coverage," wrote Fontenot. "Such coverage will protect consumers from financial harm upon an illness or injury and ensure a balanced risk pool." 

Aside from those six primary concerns, however, AHIP's letter largely expressed support for HRAs, provided they were "properly regulated and implemented." 

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