New Final Rule Expands Access to HRAs

Feds say the new rule will benefit 800,000 employers, and more than 11 million employees and their families, including 800,000 previously uninsured people.  

The Trump Administration on Thursday released a final rule that expands access to tax-free health reimbursement arrangements (HRAs) for employer-sponsored health insurance.

The new rule – released jointly by the Treasury Department, Department of Labor and the Department of Health and Human Services – lets employers offer HRAs that workers can use to pay premiums for Medicare Parts A, B, C, D or Medigap policies, or to buy coverage in individual markets.

The rule, which takes effect in January 2020, also creates a "limited excepted benefit" HRA for alternative health plans outside of an employer-sponsored plan, and eliminates an Obama-era Treasure rule that blocked HRAs that were not part of a comprehensive employer-sponsored plan.

The Trump Administration estimates that the new rule will benefit about 800,000 employers, and more than 11 million employees and their families, including 800,000 previously uninsured people.  

"The HRA final rule offers millions of American workers more health coverage choices and portability," Labor Secretary Alex Acosta said in a media release. "HRAs create a great opportunity for job creators to support their employees and for those employees to be empowered to make the best healthcare decisions for their families."

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Critics contend that the proposal could allow employers to push higher-risk employees away from company-sponsored coverage and into individual coverage offered through the Affordable Care Act's Marketplaces.

The Trump Administration says there are conditions built into the proposal to "mitigate the risk that health-based discrimination that could increase adverse selection in the individual market." Those conditions include a disclosure provision to ensure employees understand the benefit.

Chad Brooker, associate principal at Avalere Health consultants, says the final rule "underscores the administration's focus on granting employers and individuals enhanced flexibility, including tax-advantaged account-based benefits."

"Long term, this added flexibility may reshape a significant number of employer coverage offerings and result in sizable shifts from employer to individual coverage," he says.   

Other observers are less enthusiastic.

Kim Buckey, vice president of client services at DirectPath, says she doesn't believe the HRAs will "see much interest from large employers, as the plans they already offer provide them with a competitive advantage."

"Small to midsize employers seeking to provide some level of support for their employees and to avoid the employer mandate penalty may well be interested if they are not put off by the compliance and administrative aspects of setting up an HRA," Buckey says in an email exchange with HealthLeaders.

Furthermore, the response to the HRAs could be tepid from healthcare consumers, Buckey says, who are already "baffled by health insurance" and rely on their employers to narrow their choices.

"Employers who back out of this 'contract' may face some substantial employee relations issues as well as attraction/retention challenges," Buckey says. "If employers are considering the DC approach to health care, they’d better be willing to commit to a lengthy and robust communications campaign to ensure that their employees understand what it is they are buying, and how to shop effectively (not just on premium cost)."