The DOL, Department of Health and Human Services (HHS) and Treasury recently released new proposed regulations that would expand the potential value of health reimbursement arrangements (HRAs), which, under the new rules, could be used to reimburse employees for the cost of individually purchased health insurance plans.
The expanded HRA rules would become effective in 2020, and could provide employers with a powerful new tool for providing employees with health coverage options.
Despite this, the proposal is complex, and, although not yet finalized, employers and employees alike should carefully analyze the potential consequences before jumping in.
HRAs and Individual Health Insurance Premium Reimbursement
Generally, HRAs fail the ACA requirements that prohibit establishing lifetime or annual limits on the value of essential health benefits.
After the Affordable Care Act (ACA) became effective, the Treasury Department issued guidance that, when it came to reimbursing health insurance premium costs, effectively prohibited the use of most HRAs that were not “integrated” with other group health coverage provided by the employer (or a spouse’s employer). As a result, employers that offered a stand-alone HRA would risk subjecting themselves to steep penalties, which caused many applicable large employers to discontinue HRA programs in favor of providing group health insurance coverage.
This prohibition was also put into place in order to prevent employers from encouraging less healthy employees to use HRAs to fund purchase of insurance through the health insurance marketplaces, while allowing more healthy workers access to traditional employer-sponsored health coverage.
New Rules Expand Access to HRAs
The new rules would allow employers to reimburse premiums for individual health insurance coverage through HRAs if the following conditions are satisfied (1) all individuals enrolled in the HRA are also enrolled in individual coverage, (2) the employer does not offer integrated HRA-individual coverage to one class of employees if it offers group health coverage to others in the same class of employees, and (3) the HRA must be offered on the same terms to members of employees within a given class of employees where consistent definitions are used to determine employee classifications.