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Long Term Advocacy Efforts Net New HRA Regulations

Finally, after nearly six years of active advocacy efforts, the Trump Administration announced on June 14, 2019, new rule on how Health Reimbursement Arrangements (HRA) can be leveraged by small employers. The rule undoes an Obama administration action that severely limited how businesses could utilize HRAs.

Under the proposed rule, employees can spend the money in their HRA accounts on policies they may prefer outside the workplace. The funds are tax free to both the employer and employee. Additionally, leftover funds can roll over from year to year. This revised HRA rule is expected to give an estimated 800,000 businesses more options in obtaining health insurance.

Starting on January 1, 2020, employers will be able to offer their workers HRAs to buy individual market coverage for themselves and their families.

“Too many Americans today have little say in how their healthcare is financed,” said HHS Secretary Alex Azar, one of three cabinet departments that joined in issuing the rule. “President Trump has promised Americans that he will put them in control of their healthcare, and this expansion of health reimbursement arrangements will help deliver on that promise by providing Americans with more options that better meet their needs. This rule and other Administration efforts are projected to provide almost 2 million more Americans with health insurance.”

In effect, individual coverage HRAs extend the tax advantage for traditional group health plans (exclusion of premiums, and benefits received, from federal income and payroll taxes) to HRA reimbursements of individual health insurance premiums, the administration explains.

The rule includes guardrails as well. Firms that offer an individual coverage HRA must offer it on the same terms to all individuals within a class of employees, such as their salaried or wage workers or their full-time or part-time workers, etc. Contributions would have to be equal for everyone in the class, but they can be varied by age and number of dependents. Employers can contribute as little or as much as they want to an individual coverage HRA.

The final rule contains another provision for “Excepted Benefit HRAs” (EB-HRA). This will allow an employer to deposit up to $1,800 a year into a separate employee EB-HRA account. The money can be used to help cover the cost of copays, deductibles, or noncovered expenses, but not to pay premiums for traditional insurance.

The EB-HRA can be used, however, to reimburse premiums for dental and vision coverage, as well as for short-term insurance plans, which typically cost 40% to 60% less than ACA plans. The rule explains how employers can structure the HRA so they are in compliance with the employer mandate. To prevent adverse selection, an employer must offer either the HRA option or traditional insurance to each class of employees. Individual employees cannot opt in or out on their own.

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