Sooner than expected, the Trump administration released its final rule expanding the use of Health Reimbursement Accounts to permit integration with individual health insurance. The proposal, which really just represents a return to guidance in place prior to 2015, presents employers with an alternative to the HDHP-HSA combination that has fueled HQY’s growth since passage of the ACA.
The final rule would:
- Permit employers to fund Health Reimbursement Accounts for employees for the purpose of purchasing health insurance in the individual market
- Create an “excepted benefit” HRA that can be used to fund health related expenses not generally included in a health plan like short-term duration insurance and COBRA costs
What the administration refers to as “individual coverage HRA” will have certain restrictions. For example, an employer must offer all similarly situated employees the same individual coverage HRA, provided they are not also offered a traditional health plan. The final rule also stipulates payments into HRAs cannot vary more than 3 times between the youngest to the oldest employees, consistent with the ACAs age band. Finally, the final rule establishes minimum sizes for categories of employees that are similarly situated, like part-time or hourly employees.
The “excepted benefit” HRA has a limit of $1,800/year and can only be offered to employees in a traditional employer health plan.
HRAs offer employers an opportunity to shift from a traditional defined benefit health plan to a defined contribution plan similar to the way in which employers moved from traditional pensions to 401(k)s. The administration estimates that about 11 million employees will move from traditional employer plans to individual coverage HRAs as a result of the rule change.
Although the rule clarifies that employers will not violate the new rules if they offer individual coverage HRAs that can be combined with non-HDHP and with the HDHP-HSA duo, there is likely to be some impact on use of HSA-eligible HDHPs. At a press availability in the Rose Garden on Friday, President Trump made a point of saying how the new rule will help small businesses.
As we pointed out in Best Ideas Short on HQY, small businesses are disproportionate users of HDHP-HSAs relative to their larger peers. For that reason, some of the shift of enrollment from traditional employer-sponsored plans to HRAs is bound to take a bite out of HSA-eligible HDHP offerings, presenting HQY with yet another policy headwind, in addition to the planned repeal of the Cadillac Tax and waning interest in expanding the HSA program.
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