Some of the biggest changes to healthcare design at this moment are encompassed by final rules recently published by the current administration around health reimbursement accounts.
There are three new forms of HRAs for employers to understand and evaluate: qualified small employer HRAs (QSEHRAs), individual coverage HRAs (ICHRAs) and excepted benefit HRAs (EBHRAs). Two of these — ICHRAs and EBHRAs — are newly available for employers to establish for plan years beginning on and after Jan. 1, 2020. Here are the basics of each type of plan.
QSEHRAs have been available since 2016 but only to employers of fewer than 50 full-time workers, all of whom must be automatically eligible. They are available only to employers who do not offer group healthcare coverage. The employer contribution amount is limited in 2019 to $5,150 per single employee or $10,450 per employee with a family. If an employee goes without minimum essential coverage (a penalty-free option since Jan. 1, 2019), QSEHRA reimbursements are taxable to the employee. QSEHRA money can be used for any purpose considered a medical expense by the IRS and balances roll over from year to year but reimbursements from the plan are limited annually.
New for 2020: ICHRAs will be available for employers to offer in plan years beginning Jan. 1, 2020. There are no employer size restrictions on ICHRAs and no employer contribution limits per year. Employers can segment their employee populations by up to 11 different criteria (e.g., full-time, part-time, hourly, salaried, union, non-union and combination). Importantly, for each employee group, only either an ICHRA or a group health coverage plan may be offered, not both. When using certain groupings, participation must meet minimum class size standards imposed by the IRS and intended to avoid adverse selection. Generally, participants are not eligible for premium tax credits for any exchange coverage they obtain unless the ICHRA allowance is considered unaffordable (IRS rules for this are still being finalized) and is therefore waived. Like QSEHRAs, ICHRA money can be used for any purpose considered a medical expense by the IRS, and balances roll over from year to year.
New for 2020: EBHRAs will be available for employers to offer in plan years beginning Jan. 1, 2020, with no employer size restrictions. To offer an EBHRA, an employer must offer group healthcare coverage. But participation in the EBHRA is available to all employees — whether they participate in that employer’s group health plan or not. Contributions per employee are limited to $1,800 in 2020, regardless of family status. EBHRA money can be used only to reimburse excepted benefits.
These new HRAs have been put in place to act as employee reimbursement mechanisms for new and expanded health plans specifically designed to evade ACA consumer protections with the intent that such changes will result in lower premiums. These include expansions of association health plans (currently on hold pending appeal of a March federal district court opinion striking down the expansion) and short-term limited duration insurance (which are full speed ahead, based on a July federal district court opinion, but have been outlawed or severely restricted in a growing list of states). Both are designed to circumvent various ACA protections by reimposing restrictions like annual and lifetime reimbursement limits, ignoring minimum essential coverage standards and reintroducing pre-existing condition exclusions.
Employers have all these new options, and some of them are open to virtually any employer of any size. Will they take them up? If so, how soon? Consider the following.
Each employer must decide for themselves whether some coverage is better than no coverage at all and if going back to pre-ACA coverage provisions is appropriate for their workforce. The answer will depend on more than just what’s contained within the four corners of the insurance policy. The decision will have to be made with an eye toward competition for the best talent, the lowest unemployment rates in at least 50 years and a general public opinion of the ACA which has swung from minus 16% in 2014, to plus 13% in 2018 – a massive 29-point swing. The problem could boil down to a single, philosophical question for some employers: “If we offer an HRA that puts the employee in a position of selecting their own insurance and they choose wrong, how are we going to feel about that?”
The underlying plans for some of these new HRA options are still in litigation. Certain decisions have been reached at the district court level, but those on the losing side have already made known their intent to appeal. No employer wants to be in the position of having to put an annual set of healthcare benefits in place for all of 2020 and then find out that fundamental rules for administering those plans have changed due to appellate court action — even if the impact of that action is stayed until the next plan year.
For decades, economic realities have continually forced employers to reevaluate the healthcare benefits they offer their employees, but in recent years, it can be the political realities which determine what they can and cannot legally offer and those can change in November every two or four years.
While there’s no way to anticipate what will happen next on Capitol Hill, employers will likely want to immunize themselves as much as possible from unforeseen and sometimes sudden regulatory changes.
