Jun 25, 2019
by Ken Doyle
If you serve employee groups of under 20, you’ll want to watch a new HRA final rule that goes into effect in January 2020. Companies will be able to use HRAs to subsidize workers to buy individual health plans. The White House expects 800,000 companies to take advantage of the new rules — and that nearly 90 percent of them will have fewer than 20 workers.
California state Attorney General, Xavier Becerra, argued, in a comment letter, that the HRA policy is at odds with Obamacare and could cause premiums to rise, suggesting that a lawsuit could be forthcoming, reports Politico.
The final rule also creates the Excepted Benefit HRA to reimburse premiums for excepted benefits, such as dental and vision coverage. The annual contribution is limited to $1,800 per year. The Excepted Benefit HRA must be offered with a traditional group health plan, although the employee is not required to enroll in the traditional plan.
Evaluating the Pros and Cons
Larry Levitt, Senior Vice President of the Kaiser Family Foundation said, “The Trump administration's new rule…could provide workers with more choice…But, there are risks…Employers may use them to move to more of a defined contribution approach for health insurance, much as they shifted from pensions to 401(k) plans. That could leave workers more at risk for premium increases.” He said another risk is that employers with sicker employees could dump them into the individual insurance market. However, there are some safeguards against that, he noted.
One potential benefit of offering reimbursement through an HRA is that the employee’s health insurance plan would no longer be formally tied to the employer. This could provide an incentive for employers with frequent turnover or employees who are dissatisfied with the coverage options that their employer has chosen.
Depending on how the location safe harbor is eventually drafted, it seems that employers who maintain offices in different states would have to calculate affordability based on plan availability in each state where their employees work. It would create an administrative burden that many employers may shy away from.
There is uncertainty about the safe harbors that Treasury has floated. When determining affordability, suppose that:
• The employer doesn’t have to consider the employee’s place of residence or actual household income, or
• The employer can use the prior year’s premium costs
In this scenario, employees could shoulder a larger percentage of premium costs while the employer avoids the employer mandate. LISI has prepared a compliance brief to provide more details.
Ken Doyle is LISI Senior Vice President of Sales.
