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Analysis

Trump Administration Proposal Expands Access to HRAs

By John Commins  
   October 23, 2018

Advocates say the proposal would expand coverage options for small employers. Critics say the proposal could allow employers to shift high-cost employees into ACA plans.

The Trump Administration this week unveiled a proposal that "expands the usability" of tax-free health reimbursement arrangements (HRAs) for employer-sponsored health insurance.

"Of those smaller employers that provide health benefits, 81% offer only a single option," Labor Secretary Alexander Acosta said in a media release.

"This proposal is about empowering American workers to have more consumer-driven healthcare choices," he said. "Health Reimbursement Arrangements can provide another way for employers to help their employees access quality, affordable health coverage."

The proposed rule is a response to President Donald Trump's executive order "Promoting Healthcare Choice and Competition Across the United States."

The proposed rule removes an existing regulation that prohibits employers from reimbursing employees for individual health insurance coverage.

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.

The proposed rule would extend to HRAs the same tax breaks that workers receive for medical reimbursements from traditional employer-sponsored coverage, and would not affect the tax treatment of traditional employer-sponsored coverage.

Instead, the proposal would create a new tax-preferred option for employers of any size to use when paying for employee health coverage. The employer would fund the cost of the individual health insurance, but the employee would "own the coverage," which would allow them to keep their plan if they left that job, the Administration said 

The proposed regulation also would allow employers offering traditional employer-sponsored coverage to offer an HRA of up to $1,800 per year to reimburse an employee for some medical expenses, including premiums for short-term, limited-duration insurance plans.

The Treasury Department estimates that about 800,000 employers are expected to provide HRAs to pay for individual health insurance coverage to over 10 million employees when the proposal is up and running.

Comments on the proposal will be accepted by Dec. 28, 2018, and the regulation is expected to go into effect on Jan. 1, 2020.

John Commins is a content specialist and online news editor for HealthLeaders, a Simplify Compliance brand.


KEY TAKEAWAYS

Proposed rule removes an Obama-era prohibition on employers reimbursing employees for individual coverage.

HRAs would receive the same tax breaks as traditional employer-sponsored coverage.

Administration officials say the proposed rule will protect against 'health-based discrimination.'


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