New HRA Rule Could Alter Individual, Group Markets

by Leslie Small

On Oct. 23, the Trump administration issued a proposed rule that will expand the use of employer-funded health reimbursement arrangements (HRAs). Industry experts tell AIS Health that if employers opt to take advantage of the new regulation, it could add more individuals to the Affordable Care Act exchanges — even if those individuals are costlier to insure.

The new proposed rule on HRAs would reverse an Obama-era policy that prohibits employers from using such accounts to reimburse their employees for the cost of individual health insurance coverage. It would also allow companies that offer traditional employer-sponsored plans to offer an HRA of up to $1,800 per year to reimburse employees for "certain qualified medical expenses," including premiums for short-term, limited duration plans.

However, employers may be initially reluctant to take advantage of the new regulations, which are slated to go into effect in 2020.

"In today's climate, with very low unemployment, employers are not looking to rock the boat," according to Paul Fronstin, director of the Health Research and Education Program at the Employee Benefit Research Institute. "However, when we have a recession and unemployment hits 10% again, then this may become a very attractive option," he says.

A key question that the proposed rule raises is whether employers will opt to move only their older, sicker employees to the individual market so that they no longer bear the risk for their health expenses. To address those concerns, the regulation contains provisions that the administration says will "mitigate the risk that health-based discrimination could increase adverse selection in the individual market."

But JoAnn Volk, a research professor at the Georgetown University Center on Health Insurance Reforms, says the proposed rule might still leave some room for employers to discriminate against older and sicker workers, as it allows employers to offer different options to full- and part-time workers.

Jason Karcher, an actuary in the Milwaukee office of Milliman, Inc., says the most likely ramification of the new rule will be moderate enrollment growth on the ACA exchanges. And while employers with higher medical costs are the most likely to move their employees to the individual market, "it's uncertain if they would be less healthy enough to meaningfully worsen the ACA risk pool," he adds.

From Health Plan Weekly