The Trump administration is moving ahead with new regulations that would make it easier for employers to enter into health reimbursement arrangements (HRAs) with their employees, a practice that can be severely penalized under the Affordable Care Act.
Under the proposed regulations – issued by the departments of Labor, Treasury and Health and Human Services – employees would be allowed to shop and pay for their own coverage using tax-free HRAs that are set up by their employers.
Under the proposed rule, employers that offer traditional health insurance would be allowed to fund an HRA with up to $1,800 per year. The money in the HRA could be used to reimburse employees for certain medical expenses, as well as for premiums for health insurance policies or stand-alone dental benefits.
And offering HRAs used to help employees pay for individual health insurance premiums would count as an offer of coverage to satisfy the employer mandate under the ACA.
More options, lower costs
Administration officials said expanding HRAs would give employees more options in terms of health coverage, and it also would reduce costs and administrative burdens on employers.
If enacted, the new regulations would undo Obama administration guidance (as it was not actually written into the regulations) barring employers from paying into HRAs to help workers pay for health insurance premiums from policies they buy on the open market or on government-run exchanges.
Companies that were caught in such arrangements faced a hefty fine of up to $36,000 a year.
The employer mandate would stay intact but the proposed rule would allow an employer to satisfy the mandate by funding HRAs for its workers. Under the employer mandate, organizations with 50 or more full-time or full-time-equivalent employees are required to purchase “affordable” health coverage that covers at a minimum 10 essential benefits as outlined under the law.
HRAs must be affordable
The key is that the HRA must also be affordable under the proposed rules. That would depend in part on the amount the employer contributes to the HRA.
The agencies proposing the new regulations said in an announcement that they would provide further guidance on the HRA-specific affordability test.
Funds going into HRAs would be exempt from federal income and payroll taxes. Additionally, employers would be able to deduct the amount they put into HRAs from their taxes.
The proposed rule would also require employers that offer HRAs to allow a worker to opt out and instead claim a federal premium tax credit to purchase coverage on the individual exchanges.
This is the early part of the rule-making. The proposed regulations will have to go out for public comment before final rules are written and implemented.
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