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Employers of All Sizes May Get to Offer Workers 'Cash for Coverage'

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The administration of President Donald Trump wants to help employers of all sizes use health reimbursement arrangements (HRAs) to give employees cash the employees can use to buy their own individual major medical coverage.

The Trump administration also wants to help employers use HRAs to give employees cash they can use to pay their own short-term health insurance premiums.

Federal agencies have put rules that could make those kinds of arrangements possible in a new set of draft regulations — “Health Reimbursement Arrangements and Other Account-Based Group Health Plans.”

The HRA draft could implement a point Trump included in a health policy executive order he signed Oct. 12, 2017.

(Related: 3 Trump Health Benefits Executive Order Facts, for Agents)

The Internal Revenue Service, the Employee Benefits Security Administration (EBSA), and the Centers for Medicare and Medicaid Services (CMS) worked together on the draft and are preparing to publish it in the Federal Register Oct. 29.

A preliminary version of the draft regulations is available here.

The administration released the draft shortly after they posted guidance describing changes in Affordable Care Act Section 1332 state waiver program rules. The Section 1332 rule changes could let states use limited-benefit health coverage arrangements, including short-term health insurance, in efforts to expand residents’ access to health coverage.

Officials estimate in the HRA regulation draft that HRA-based cash-for-coverage plans could help about 5 million people — or about 2.8% of all people with employer-sponsored health benefits — pay for their own individual coverage by 2022.

But the IRS, EBSA and CMS have proposed many restrictions on use of the new cash-for-coverage arrangements, in an effort to prevent health-based discrimination, and to keep adverse selection from destabilizing either the individual or small-group markets, and those restrictions could hold down use of the proposed arrangements.

For a look at seven points of interest in the draft regulations, read on.

1. The idea of using HRAs to fund cash-for-coverage arrangements has been around for years.

In the new draft regulations, Trump administration officials provide a summary of the recent legislative and regulatory history of the cash-for-coverage fight.

Many employers, insurers, agents, brokers and benefit plan administrators have been calling for the use of employer-sponsored “premium-only plan” health coverage purchase arrangements for years.

One reason has been a belief that the current U.S. employer-based health coverage system is an accident of history, and that both workers and the health insurance market would be better off if workers could pick their own coverage. Some have argued, for example, that workers would tend to choose cheaper, leaner plans than employers do, and that workers’ focus on holding down the premiums would force insurers and health care providers to do more to hold down costs.

Skeptics have argued that employers could use cash-for-coverage arrangements to push sicker employees into the individual market.

Under the administration of former President Barack Obama, federal agencies tried to keep employers from using HRAs to help workers pay for individual coverage.

(Related: Labor Rejects Cash-for-Coverage Strategies)

Some employers were using cash-for-coverage arrangements before Jan. 1, 2014, when the main Affordable Care Act group health plan requirements took effect. The National Federation of Independent Business found when it surveyed small employers in 2015 that 16% were still using cash-for-coverage arrangements that year, even though the Obama administration had tried to ban the arrangements.

Congress included a provision allowing small employers to reimburse employees for individual health premiums through Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs) in the 21st Century Cures Act of 2016.

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2. An individual health insurance purchase HRA could offer some new perks.

The holder of such an HRA who found inexpensive major medical coverage might be able to carry over an unlimited amount of unused HRA value to the following year.

If an employee needed to spend cash on top of the HRA money to pay the individual major medical premiums, the employee could pay the employee’s share of the premiums through a payroll deduction program provided through a cafeteria plan.

3. An individual health insurance purchase HRA could come with many restrictions.

One provision in the draft regulations would let an employee opt out of a health insurance purchase HRA if the arrangement would make purchasing coverage with a minimum value unaffordable.

In that case, the employer could end up having to pay a penalty if the employee ended up qualifying for an Affordable Care Act public exchange premium tax credit subsidy.

Here are some of the other requirements and restrictions:

  • An employer could not offer a health insurance purchase HRA and a traditional group health plan to the same group of employees.
  • Participation in a health insurance purchase HRA would have to be voluntary, because the purchase of individual health coverage would have to be voluntary.
  • Any employee who did participate in a health insurance purchase HRA would have to have individual major medical coverage.
  • An employer could offer older employees higher HRA amounts, to reflect age-based health coverage pricing differences, but an employer could not use any means to offer sicker employees and healthier employees different HRA benefits.
  • An employer, employee organization or other plan sponsor could not select or endorse any particular issuer or insurance coverage, and the sponsor could not receive cash compensation tied to an employee’s selection or renewal of coverage.

4. An individual health insurance purchase HRA would not necessarily do anything to make suitable, affordable coverage show up.

Regulators have proposed letting employers offer individual health coverage purchase HRAs, but their draft regulation would do nothing to require any health insurer to sell HRA-compatible coverage.

6. The proposed excepted benefit HRA could be used to pay for short-term health insurance premiums.

Officials have suggested that an employer could offer an individual health coverage purchase HRA, and also a separate HRA for purchasing “excepted benefits.”

Excepted benefits are health-related benefits, such as dental insurance and vision insurance, that fall outside the scope of federal major medical insurance laws, such as the Employee Retirement Income Security Act (ERISA), the health benefits requirements in the Health Insurance Portability and Accountability Act (HIPAA), and the major medical insurance requirements in the Affordable Care Act.

Officials have suggested capping the annual amount an employer could make available through an excepted benefits HRA at $1,800, with the amount indexed for inflation.

An employer could offer an excepted benefit HRA only if it also offered an employee a traditional group health plan. That means that, under the rules in the proposal, the same employer could not offer both an individual health purchase HRA and an excepted benefit HRA to the same employee.

Although an employer would have to offer traditional health coverage to an employee offered an excepted benefit HRA, the employee could use the excepted benefit HRA without taking up the traditional health coverage.

Because short-term health insurance is an excepted employee, an employee could use excepted benefit HRA cash to pay for short-term health insurance.

An employee who refused to take up the group health coverage could, apparently, use excepted benefit HRA money to pay short-term health insurance premiums.

6. An excepted benefit HRA could turn out to be an alternative to flexible spending arrangements (FSAs).

The contribution limit for an excepted benefit HRA would be a low, but, under the rules given in the draft regulations, the holder of an excepted benefit HRA could carry over an unlimited amount of unused account value to the following year.

7. Members of the public can weigh in on the draft regulations.

Comments on the draft regulations are due Dec. 28.

One way members of the public can comment is by visiting the federal government’s website.

Officials have asked for comments on a number of specific technical issues, such as how to predict the impact of the proposal on the cost of coverage and the number of people with coverage.

Officials have also asked for ideas about how new HRA rules should be implemented, and what kinds of special enrollment periods or other arrangements might be needed.

— Read Texas Applies Group Rules to Individual-Policy Programson ThinkAdvisor.

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