Policy and Regulation News

Experts Debate Impact of HRAs on Individual Health Plan Market

Experts have mixed concerns about the health reimbursement arrangements (HRAs) final rule which makes HRAs available as individual health plans.

health reimbursement arrangements, HRA, individual health plans

Source: Getty

By Kelsey Waddill

The finalized rule on health reimbursement arrangements (HRAs) contains two major changes compared to its earlier version.

Employers will be permitted to provide HRAs that are integrated with individual health insurance coverage (HRA-IIHIC or “individual coverage HRA”). Whereas previously HRAs were eligible as group health plans only, under the revised rule employers can offer it as an individual market plan as long as they comply with Sections 2711 (annual dollar limits) and 2713 (preventative services without cost-sharing) and if they comply with three general rules and six integration rules.

The second divergence permits excepted benefits HRAs of up to $1,800 toward premiums (excepting benefits, short-term plans, and COBRA premiums).

As noted by HHS Secretary Alex Azar, the rule’s goal is to make HRAs more accessible for employers, particularly for smaller businesses that do not offer healthcare due to affordability. In order to integrate into an individual health insurance policy, the following general rules and integration policies must apply.

The health plan in which the individual is enrolled must comply with Sections 2711 and 2713. Stopping coverage results in forfeiture and when the HRA is forfeited, it will stop reimbursing medical expenses. Lastly, during the premium payment “grace period,” participants are still considered under the health plan.

The following six regulations also apply for integrating policies into an individual market:

The coverage must follow Sections 2711 and 2713 requirements.

To each employee class, which must be one of the ten classes identified by the agencies or a combination, employers are only allowed to present one option; they cannot offer employees the company plan and the individual plan at the same time.

The employer cannot offer different insurance options to beneficiaries within the same class; the offerings must be consistent.

Employees must be allowed to opt out at least once a year, prior to the first day of the plan year.

HRAs must verify that a participant is enrolled or soon-to-be enrolled. While the agencies do not adhere to any verification procedure, they offer suggestions such as submitting proof of insurance from a third party or submitting an attestation that includes the insurer’s name and the date of coverage. The verification applies for the full year of the plan.

At least 90 days before the plan year starts, HRAs are required to send written notices to their participants that detail at least the information which the agencies have designated.

HRA-IIHICs can only reimburse prevention, diagnosis, or treatment in scenarios identified by the HRA rules which are already in place.

Employees are eligible for premium tax credits only if an HRA-IIHIC was offered but unaffordable.

Large employers who are under the ACA employer mandate can offer HRA-IIHICs if they are available to 95 percent or more of the company’s full-time employees and if the plan meets pricing and value standards.

Special enrollment periods (SEP) may apply for individuals who want to switch plans in order to get an HRA-IIHIC or qualified small employer HRA (QSEHRA).

The new limited excepted benefit HRA is an HRA that fits the four criteria outlined in the rule (including an $1,800 cap on excepted benefit amount) and covers excepted and some medical non-excepted benefits.

Group health plans are defined as plans that exclude premiums for HRA-reimbursed individual insurance.

Section 2711 now allows for even greater customization of the annual dollar limits by providing more options for EHB benchmark plans.

Legal expert Katie Keith, JD, MPH, of Health Affairs contends that the outcome relies upon the administration’s immediate next steps.

According to Keith, the rule will lead to greater administrative burdens, confusion for employees, and coverage loss for employees who cannot access a group health plans and do not want an employer-sponsored HRA. There will be a decrease in marketplace subsidies, rise in premiums, rise in cost-sharing, and “narrower networks.”

“11.4 million people will be in an HRA-IIHIC in 2029 while the number of people with traditional group health plan coverage will drop by up to 6.9 million,” Keith predicts.

However, she concedes that the plan is attractive to businesses that do not currently offer coverage. She also forsees benefits to the individual market risk pool.

“The broader the market, the better the average risk profile and the lower the premiums,” she states.

Other experts are also weighing in with expressing mixed reactions.

Researchers at The Brookings Institute also wrote an analysis of the new HRA rule.

Their research highlights, positively, that employers are required to divide their workforce into classes and cannot extend both an HRA and a traditional group plan to the same class. This facet of the rule prevents companies from singling out sicker workers and placing them on the HRAs while offering traditional group plans to their peers. The authors predict, however, that this aspect of the plan will not prevent an increase in premiums in the individual market which, they claim, will be shouldered by older workers.

In addition, the article notes that there are significant tax implications attached to each excepted benefit HRA option, which may affect employees’ ACA eligibility.

The Brookings article notes four potential issues with the current plan:

  • The age limitations may prevent employers from wildly varying their contributions based on age, however, the authors argue that older workers will nevertheless be paying more, making employers less likely to opt to use HRAs

  • The January 1, 2020 effective date gives the Marketplace under five months to adjust to the new plan which may result in confusion and complications for employees undergoing the change in healthcare

  • Using individual market HRAs to purchase group policies is forbidden but due to relaxed verification standards and the tendencies of short-term limited-duration insurance and health care cost-sharing ministries to blend into the individual market, beneficiaries may not realize they are compromising their individual market HRA

  • The legal loopholes in the original version have not changed; these HRAs will remain noncompliant with ACA despite being ‘integrated”

Brookings experts also claim there are flaws in the projected budget of $51 billion because actual costs will be affected by rising individual marketplace costs and federal spending, and that healthier markets will be hardest hit by the outcomes of this new rule.

The full text of the final rule will be available to the public on June 20.