The Internal Revenue Service, in collaboration with the Department of Labor and the Department of Health and Human Services released Proposed Regulations on Tuesday, October 23, 2018 to expand employers’ options for providing health coverage to their employees.
The proposed regulations would allow employers who do not provide group health plan coverage to provide Health Reimbursement Arrangements (HRAs) to employees to pay premiums for individual marketplace insurance through the exchanges.
The proposed would also allow employers offering traditional group health insurance to offer an HRA with an annual limit of up to $1,800 to reimburse employees for certain qualified medical expenses like standalone dental benefits and premiums for a short-term health insurance plan.
Certain safeguards would also be put in place to reduce the risk of health-based discrimination, which could increase adverse selection in the individual market.
“Today’s announcement is another example of President Trump’s delivering on his promise to provide for more affordable healthcare options for the American people,” said Alex Azar, U.S. Secretary of Health and Human Services, in the press release. “More access to association health plans, short-term insurance, and flexible HRAs complement the work we are doing at HHS to bring down drug prices and lower the cost of healthcare services. Each of these actions is focused on empowering patients through transparency, choices, and competition.”
An HRA fact sheet accompanying the announcement also pointed to some alarming stats regarding the percentage of employees covered by a small employer’s health benefits. “For firms that employ 3-24 workers, the percentage of workers covered by employer health benefits has fallen from 44% in 2010 to 30% in 2018. For firms that employ 25-49 workers, the percentage of workers covered by employer health benefits has fallen from 59% in 2010 to 44% in 2018.”
It would be possible, under the guidance, for an employer to use an HRA to reimburse employees for purchasing health insurance coverage via the individual market and comply with the employer mandate under the proposed rules.
However, just giving employees the option to use HRA funds to purchase individual coverage would not be enough for compliance purposes. HRA participants would be required to enroll in coverage via the individual market and prove such enrollment to the employer.
While the HRA would be provided by the employer, the individual market coverage would be provided by a carrier directly to an employee. As a result, employees would be able to keep the coverage purchased on the exchange even if they left the company sponsoring the HRA.
Neither arrangement has been finalized and both are subject to a comment period. The proposed regulations include extensive requirements for both potential arrangements and additional guidance will be needed to inform employers’ implementation of the arrangements.
“Of those smaller employers that provide health benefits, 81 percent offer only a single option. This proposal is about empowering American workers to have more consumer-driven healthcare choices. Health Reimbursement Arrangements can provide another way for employers to help their employees access quality, affordable health coverage,” said Alexander Acosta, U.S. Secretary of Labor, in the announcement.