Starting in January 2020 employers will have a new tool to provide workers with pretax dollars for purchasing insurance in the individual health care market instead of offering them a group plan.
The U.S. Department of Health and Human Services, the Department of Labor and the Department of the Treasury in June issued a new policy that expands the use of health reimbursement arrangements. Previously, HRAs could be used only in combination with an employer-sponsored group health plan. The new individual coverage HRAs, or IHRAs, could be used to pay for out-of-pocket expenses, Medicare premiums or individual policies purchased through or outside the health exchanges formed by the Affordable Care Act.
The rule is a reversal of 2013 IRS rule requiring account-based plans like HRAs to be integrated with an employer group plan. Stand-alone arrangements were in violation of the ACA’s market reform rules. While critics see the rule change as part of the Trump administration’s efforts to dismantle the ACA, benefits consultant Gary Kushner sees it as a win for smaller employers that want to offer a defined-contribution health plan.
“Before the ACA, it wasn’t unusual for small to mid-size employers to say, ‘We can’t afford group coverage, but we can reimburse employees, for example, up to $400 a month to buy individual coverage tax-free,” he said. “For smaller employers that made a lot of sense but that option was taken away in 2013 and the penalties were extremely severe. Now they have that option again.”
The rule also created an excepted benefit HRA that allows employers that offer a group health plan to provide an HRA of up to $1,800 a year to help pay for vision care and dental premiums and other qualified expenses, according to a Department of Health and Human Services media release. The Trump administration estimates the expansion of HRAs will benefit 800,000 employers and more than 11 million employees and family members.
“Now we have another arrow in our quiver to think about benefits and attraction and retention,” Kushner said. “It’s a significant enough change to cause employers to rethink their benefits strategies.”