The Department of Labor (DOL), Treasury Department and Department of Health and Human Services (HHS) recently proposed a new rule designed to expand the use of health reimbursement arrangements (HRAs), partially by permitting HRAs to be integrated with individual health insurance coverage.
By their terms, HRAs and qualified small employer HRAs (QSEHRAs) cannot generally satisfy the Affordable Care Act (ACA) requirements. Because of this, the agencies have found that HRAs cannot be used to reimburse employees for the cost of individual health insurance premiums in the past.
Under the new rules, employers would be allowed to provide HRAs to employees that could be used to reimburse those employees for individual health insurance purchased through the health insurance marketplaces if certain specific criteria are satisfied. In summary, the employer would be required to verify that the employee and his or her dependents were covered by comprehensive individual health insurance, and the employer sponsoring the HRA would not be permitted to provide employees with an option between an HRA and traditional group health insurance. The HRA would have to be offered on the same terms of all employees in the same class, and an “opt out” option would be required.
We asked Professors Robert Bloink and William Byrnes, who are affiliated with ALM’s Tax Facts, and hold opposing political viewpoints, to share their opinions on the new proposed regulations and their potential impact on the health insurance marketplaces.
Below is a summary of the debate that ensued between the two professors:
Byrnes: Expanding access to HRAs is a great idea, the new rules would provide much-needed flexibility for business owners of all sizes to create an employer-sponsored health insurance package that best suits the needs of the particular business and its employees.
Bloink: These regulations are a red herring–they don’t go nearly far enough to ensure access to affordable health insurance for all Americans. For starters, they encourage business owners to direct employees to the individual insurance marketplaces instead of providing comprehensive group health coverage—which would be fine, if anything was being done to stabilize costs in the individual health insurance marketplaces themselves.
Byrnes: Not all small business owners can afford to offer comprehensive group health coverage to all of their employees. The new regulations give these business owners an alternative solution to help employees pay for the cost of individual coverage through the marketplaces—this option is better than no option.
Bloink: Expanding health insurance options for smaller business owners is a positive step, yes, but employees of these businesses deserve to have more than just choices, they deserve to have good choices. We need to work on providing these workers with health insurance that doesn’t come with unmanageable cost-sharing requirements and sky-high deductibles, which means that we also need to eliminate short-term health insurance options that steer young and healthy employees away from the individual market, driving up the insurance prices for those who need comprehensive coverage purchased this way.
Byrnes: But the new HRA regs would actually steer MORE people into the individual marketplace, meaning more people from all age groups and at all health levels. This should be viewed as a positive step toward making sure that the individual markets are stable and coverage options are fairly priced.
Bloink: It’s not reasonable to say that this HRA expansion will help stabilize the insurance markets when you couple these regulations with the fact that the individual mandate will be gone in just over a month. Especially when you look to the complexity of the regulations themselves. I think that many small business owners might even be deterred from offering an integrated HRA-individual insurance program when they look to the rules’ requirements and consider the penalties to which they could be exposed if they don’t get it right.
Byrnes: Now we’re back to the individual mandate argument. The bottom line for me is that Americans deserve to have a choice in determining the type of health coverage that best serves their individual needs. The marketplace allows for this kind of choice. The regulations also make sure that employers that offer integrated HRAs verify that employees are actually purchasing health coverage—limited benefit policies are not enough under the rule, so these people actually will be purchasing comprehensive coverage with the HRA funds.
Bloink: I’m not actually saying that the regulations are all bad, I’m saying that they’re not enough. They’re another distraction tactic that’s taking our attention away from the real issues that need to be addressed in order for an HRA expansion like this to provide any real value for these employees.
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