June 27, 2019

Confused by the HRA rule? Here's how it could affect you.

Daily Briefing

    Editor's note: This story was updated June 28. A previous version of this story inaccurately represented the new individual and excepted benefit HRAs, and how HRAs previously were regulated.

    By Ashley Fuoco Antonelli, Contributing Editor

    The Trump administration recently finalized a pretty wonky rule that overhauls federal regulations regarding employer-funded health reimbursement accounts (HRAs). If you're already feeling overwhelmed by the jargon, don't fret. Let's take a closer look at what the rule actually does—and what it might mean for you.

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    What are HRAs?

    First thing's first: What is an employer-funded HRA?

    As Katherine Hempstead, a senior policy adviser at the at the Robert Wood Johnson Foundation, explained to Vox's Dylan Scott, an employer-funded HRA is an account funded by a person's employer that's used to reimburse workers for certain health care expenses. Employees can't contribute their own money to HRAs, which is a key difference between HRAs and health savings and flexible savings accounts.

    As Katie Keith—a principal at Keith Policy Solutions, which advises nonprofits and foundations on health care issues—explains in Health Affairs Blog, the Affordable Care Act (ACA) did not explicitly ban HRAs, but helped set in motion a series of complex rules and regulations that effectively prevented employers from offering stand-alone HRAs with individual health plans. Congress in 2016 created an exception that allowed firms with fewer than 50 employees that are not subject to the ACA’s employer mandate and do not offer a group health plan to offer HRAs that could be used to fund ACA-compliant individual market plans.

    What is the Trump admin changing about HRAsand what does it mean for you?

    The Trump administration's final rule will allow employers of all sizes to offer two new types of HRAs:

    Individual HRAs: Workers will be able to use their employer-funded HRAs to purchase private, individual health plans that comply with the ACA's coverage standards, as long as their employers do not offer group health coverage. In other words, if you work at a company that doesn't offer you group health insurance, the company instead could offer you an HRA, and you could use that HRA to buy an exchange plan.

    Excepted-benefit HRAs: Workers at companies that do offer group health coverage will be allowed to use up to $1,800 dollars from the HRA to pay the premiums of certain standalone benefits, such as dental benefits, and in some cases short-term health plans. That means you could enroll in a short-term health plan or purchase dental coverage and use your HRA to cover the plan's premiums.

    Workers of employers that offer individual HRAs also will be able to opt out of the accounts and instead claim federal subsidies available under the ACA to help them purchase exchange plans. So, if you work at a company that offers an individual HRA, you either could choose to use the HRA to buy an exchange plan, or you could choose to forgo the HRA altogether and instead accept federal subsidies to help you pay for the plan. However, employees will have this option only if the HRA is “unaffordable,” according to Keith. 

    What do the changes mean for the U.S. health system?

    HHS Secretary Alex Azar has said the final rule is intended to make it easier for employers to offer HRAs, increasing U.S. residents' access to coverage by encouraging smaller business that don't currently offer health coverage to offer HRAs.

    Keith writes that the final rule could bolster the individual health insurance market, including the exchanges, by encouraging more people to purchase individual health plans. The Department of the Treasury has estimated that, under the final rule, 800,000 employers eventually will offer HRAs to more than 11 million workers and their dependents.

    But Keith also notes that the final rule could increase administrative burdens for employers, create confusion for employees, and might lead to coverage losses if employers stop offering employer-sponsored health plans and instead choose to offer HRAs—and if workers don't use those HRAs to purchase health plans.

    Further, several industry experts have warned that there's a risk employers could game the system by unloading sicker employees into the individual market, causing premiums to rise. According to the Wall Street Journal's Laura Saunders, the administration estimated such unloading could increase individual market premiums by 1%.

    In addition, a Brookings Institute analysis notes that older workers could end up paying more for health coverage than younger workers because the final rule limits the degree to which employers can vary their contributions between older and younger workers.

    While Hempstead acknowledged the potential for premiums to rise, she told Scott that the final rule could be "a big deal" for the individual health insurance market—although it could take a few years to see significant changes. "Employers are cautious with benefits, so I wouldn't expect a huge acceleration of this right out of the gate. But the longer-term implications could be significant, because many people like the idea of a direct-to-consumer market for health insurance, and directionally, this is the kind of thing that needs to happen to bring that to scale," she said.

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