A proposed rule that would expand the use of health reimbursement arrangements (HRAs) and other account-based group health plans has been issued by the Departments of the Treasury, HHS, and Labor. The proposed rule would provide opportunities to employers, especially small and mid-size employers who have struggled to offer health insurance coverage, to fund the cost of individually-selected employee health insurance coverage on a tax-preferred basis. Because medical expense reimbursements from HRAs would be tax-preferred, HRAs would provide the same tax advantage enjoyed by traditional employer-sponsored health insurance coverage. In addition, under the proposed rule, while the employer would fund the cost of individual health insurance coverage, the employee would own the coverage, allowing the employee to keep the coverage even if he or she left the employer (Proposed rule, 83 FR 54420, October 29, 2018).
The proposed rule is in response to President Trump’s October 12, 2017 Executive Order 13813, "Promoting Healthcare Choice and Competition Across the United States." Under that Executive Order, the Trump Administration has already issued regulations expanding Association Health Plans (AHPs) and short-term limited-duration insurance (STLDI) plans. AHPs allow any businesses within a state, including sole proprietors, to join together and offer health insurance coverage. STLDI plans can be offered with a contract period of up to 364 days with renewals for up to three years (see AHP final rule does not require EHBs or 'minimum value' coverage, June 20, 2018; and Final multi-agency rule creates short-term, limited-duration insurance not subject to ACA requirements, August 8, 2018).
Comments on the proposed rule are requested by December 28, 2018. The regulation, if finalized, will be effective for plan years beginning on and after January 1, 2020.
Definitions: HRAs and account-based group plans. An account-based group health plan is an employer-provided group health plan that provides for reimbursement of expenses for medical care subject to a maximum fixed-dollar amount of reimbursements for a period (such as a calendar year). An HRA is a type of account-based group health plan funded solely by employer contributions (with no salary reduction contributions or other contributions by employees) that reimburses an employee solely for medical care expenses incurred by the employee, or the employee’s spouse, dependents, and children who, as of the end of the taxable year, have not attained age 27, up to a maximum dollar amount for a coverage period. The reimbursements under these types of arrangements are excludable from the employee’s income and wages for federal income tax and employment tax purposes.
Current prohibitions removed. Section 1001 of the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) reorganized, amended, and added to the provisions of part A of title XXVII of the Public Health Services Act relating to health coverage requirements for group health plans and health insurance issuers in the group and individual markets. The term "group health plan" includes both insured and self-insured group health plans. As a result, current regulations prohibit employers from using HRAs to reimburse employees for the cost of individual health insurance coverage. By eliminating that prohibition, the proposed rule would permit HRAs to reimburse employees for the cost of individual health insurance coverage in a tax-favored way, subject to certain conditions.
Additional benefits. In addition to allowing HRAs to reimburse the cost of individual health insurance coverage, the proposed regulation would allow employers offering traditional employer-sponsored coverage to offer an HRA of up to $1,800 per year (indexed annually for inflation) to reimburse an employee for certain qualified medical expenses, including premiums for STLDI plans.
Finally, the proposed rule would provide a special enrollment period in the individual market for individuals who gain access to an HRA integrated with individual health insurance coverage or who are provided a qualified small employer health reimbursement arrangement (QSEHRA).
According to the proposed rule, preliminary estimates by the Department of Treasury indicate approximately 800,000 employers are expected to provide HRAs to pay for individual health insurance coverage to over 10 million employees. The proposed rule also suggests that the new regulations might produce better incentives for both consumers and providers and thereby improve the overall healthcare system, as well as potentially increase workforce investment and wages.
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