Jonathan
Keisling October 25, 2018
EXECUTIVE SUMMARY
- Before the Affordable Care Act (ACA), Health
Reimbursement Arrangements (HRAs) allowed employees to use tax-preferred
dollars to purchase individual market insurance or a la carte health
care services; the ACA outlawed most uses of HRAs.
- The Trump Administration has introduced a rule that
would allow employees to purchase ACA-compliant individual market
insurance; the rule contains stipulations intended to prevent employers
from moving less healthy employees onto the individual market.
- An
analysis of the rule by the Treasury Department indicates the rule could
boost individual market enrollment, helping to stabilize the market, while
decreasing the number of people without insurance.
INTRODUCTION
On Tuesday, the Trump Administration released a
proposed rule that would expand the use of Health Reimbursement Arrangements
(HRAs) by rolling back Obama Administration-era regulations.[1] The
following summarizes how current law treats HRAs and what the proposed rule
would do.
BACKGROUND
Before the Affordable Care Act (ACA), HRAs
served as a vehicle that allowed employees to purchase a non-group insurance
plan of their choice or a la carte health care services. Employees
could then submit receipts to their employer, who would then reimburse them for
those expenditures with pre-tax dollars. This arrangement was appealing to
employers—especially small employers—as they could provide employees the means
to purchase health insurance without assuming the risk.
Several requirements in the ACA – the Essential
Health Benefits and removal of annual and lifetime limits on health insurance –
severely curtailed this option. HRAs were considered a form of group plan under
the ACA, meaning that any employer offering a stand-alone HRA would violate the
ACA and expose themselves to crippling penalties. HRAs have a limit on spending,
which was considered an annual limit even when the HRA was enough to purchase
individual market insurance. The ACA all but eliminated this form of HRA with
the exception of the qualified small employer health reimbursement arrangements
(QSEHRA) created by the 21st Century Cures Act.[2] Firms
with 50 or fewer employees use QSEHRAs for premiums of ACA-compliant qualified
health plans (QHP). Currently, roughly 10 percent of group plans couple an HRA
with some sort of high-deductible health plan.[3]
WHAT THE PROPOSED RULE WOULD DO
The proposed rule would expand HRAs by removing
current rules barring the use of HRAs for purchasing individual market
insurance. The rule stipulates that HRAs must be used to purchase individual
market insurance for the HRA to be legal. As the rule is currently proposed,
the HRA must be used to buy a QHP; an HRA could not be used to purchase a short term limited duration insurance plan (STLDI). The proposed rule does
state, however, that the administration is seeking comment as to whether it
should allow HRAs to be used for STLDIs.
The proposed rule predicts that, in the absence
of restrictions, employers would seek to place their unhealthy employees into
HRAs so that they could take on less risk in their traditional group plans.
Such a scenario would increase adverse selection in the individual market and increase
premiums. The proposed rule seeks to prevent this by placing restrictions on
how employers decide who receives an HRA versus traditional group insurance.
Employers can only discriminate based on different “classes” of employees that
are defined in the rule. The classes are as follows:
- Full time;
- Part time;
- Seasonal;
- Employees covered by a collective bargaining agreement;
- Employees that have not satisfied a waiting period for
coverage;
- Employees who have not attained age 25 prior to the
beginning of the plan year;
- Foreign employees who work abroad; and
- Employees
whose primary site of employment is in the same rating area.
Employers would be unable to change the
generosity of the HRA within a class based on health. Within a class, employers
would only be able to alter the generosity of an HRA based on age and household
size, parameters which coincide with the ACA’s community rating guidelines for
insurers.
Next, the proposed rule would give those
eligible for premium tax credits in the individual market the ability to opt
out of their HRA and into the tax credit. It stipulates that employers must
notify their employees if their HRA affects their ability to claim the ACA’s
premium tax credit, cost sharing reductions, or both.
Finally, the proposed rule would create
“excepted benefit” HRAs so that employers could reimburse employees for various
qualified medical expenses. These are HRAs that could be offered on top of an
employee’s traditional group coverage, Medicare, TRICARE, or individual health
insurance coverage. The rule sets out four main stipulations for an HRA to
qualify as an excepted benefit HRA:
- Other group plan coverage must be made available to the
employee;
- Employers could not offer more than $1,800 in 2020, an
amount that would grow by inflation for subsequent years;
- The HRA could not be used for premiums for individual
health insurance, group health insurance, or Medicare parts B or D,
although it could be used for STLDI or COBRA premiums; and
- Excepted
benefits HRAs must have uniform availability—employers couldn’t
discriminate based on health status—and the proposed rule requests comment
on what additional standards are needed to prevent health discrimination
for excepted benefit HRAs.
WHY IT MATTERS
HRAs were an unnecessary casualty of the ACA.
This proposed rule should give employers, who were forced into all-or-nothing
decisions regarding their employees’ health care, some flexibility and relief.
And it comes with some Treasury Department analysis to back this claim up. The
table below gives an overview of Treasury’s findings.
A few figures from the table stick out. The
number of uninsured is expected to decrease and federal revenues are expected
to decrease on net, but, most significantly, individual market insurance
coverage is expected to increase by over 10 million by the year 2024. This jump
would double the number of people in the individual market and would likely
have significant effects on premiums and overall stability in the individual
market. The Treasury estimates the ratio of relatively health to relatively
unhealthy people in the group market currently is 4:1. The Treasury estimated
that if the 10 million entering the individual marketplace is representative of
the current group marketplace, then premiums are estimated to go down by 3
percent. If a disproportionate number of unhealthy employees enter the
individual market, then premiums could rise. The proposed rule does take
discrete steps to prevent such adverse selection from happening, however.
Overall, the
administration’s proposed rule on HRAs would give employers and employees more
health care options, which could lead to potential increases in the number of
insured individuals. It does so while taking steps to limit the exposure to
increased health care costs that employees with pre-existing conditions might
have. And the proposed rule could even reduce premiums in the individual market
while doubling its size.
https://www.americanactionforum.org/insight/sizing-up-the-proposed-hra-rule/#ixzz5VjlLd9NT
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