Proposed rules thatwould allow some employers to contribute funds to employee healthreimbursement arrangements for purchasing individual healthinsurance are coming closer to reality. (Photo:Shutterstock)

The new rules were proposed late last year by the U.S.Department of Labor, Department of Health and HumanServices, and the Treasury Department. They would allow employersto set up HRAsto help employees pay premiums forhealth insurance policies within the individual marketplace in eachstate. If finalized, the change would let some employers terminategroup health plans and shift workers into the individual markets.  

Separately, the Internal RevenueService also issued a notice (2018-88) proposing safe harbors thatwould allow employers to satisfy the “employer mandate” provisionsunder the Affordable Care Act by funding HRAs for employees to buyhealth insurance, thereby avoiding severe tax penalties fornoncompliance, according to the IRS notice of developing guidance,which is preliminary and is not binding.

Related: Experts warn HRA expansion could hurt workers,drive up premiums

“Theoretically, this would allowemployers, for the first time ever, to fully satisfy the employermandate without offering group major medical coverage to theiremployees,” said Nick Welle,senior counsel at Foley& Lardner inMilwaukee who advises clients on health benefits and regulatorycompliance matters.

Finn Pressly, a shareholder atemployment and labor firm Littler Mendelsonin Chicago, said, “Iam advising clients to watch this and think about this and whetherthis would make sense for them depending on their needs and theirculture.” If enacted, the rules change would likely affect onlysmaller employers and those who employ part-timers, at first. “Butit could be the first step in a very long road of employers gettingout of the game,” Pressly acknowledged.

Currently it is a violation ofthe ACA for large employers to allow health reimbursementarrangements to be used to help pay workers' premiums instead ofproviding group health insurance. Under the ACA, large employers must offeraffordable minimum essential coverage to 95 percent of employees inorder to avoid penalties.

There is a limited small-employerexception that allows employers of fewer than 50 full-timeemployees or equivalents, who are not subject to the employermandate and who don't offer any employees group health insurance,to use Qualified Small Health Employer HRAs to reimburse employeesfor individual health plan premiums. The proposed rule change wouldallow more employers to do this, but there would be additionalrequirements. The change would represent a significant shift in theemployee benefit landscape for employers if it comes to pass,lawyers said. The public comment period ended Dec. 28.

“Under current ACA rules there isa blanket prohibition, which a lot of employers in the under-200employee market were bummed about. They would rather have adefined-contribution approach,” Welle said. 

The Trump administration underExecutive Order 13813, issued in October 2017, proposed expandingthe defined-contribution approach to employer health insurancecoverage as part of an overallplan to repeal and/or replace the ACA and promotecompetition inU.S. health care. The proposals also included allowingassociation health plans and limited-duration, limited-benefithealth plans. While legislation overturning the ACA seems dead,some rule-making continues.

Under the proposed HRA rules,employers generally would have to contribute a fixed amount intoeach individual HRA sufficient that any remaining premiums theemployee would have to pay wouldn't exceed a percentage of his orher household income to be considered affordable under the employermandate, in order to avoid penalties, Welle said.

If finalized, the new ruleswouldn't take effect until Jan. 1, 2020, at the earliest. Wellesaid he believes that most large employers in the interim wouldprobably continue to offer group health plans because they provideemployers with a valuable recruitment incentive. In the lateststatistics from Kaiser Family Foundation, roughly16 million Americans were enrolled in the ACA marketplace or a BasicHealth Program.

“Very large employers,sophisticated Fortune 500 companies are going to want to keep grouphealth plans to attract and retain talent,” Welle said. “Theindividual market and the government exchange is just so muchinconsistency with the switch from a Democratic to Republicanadministration, there are a lot of unknowns. The larger,sophisticated employers will say they are not comfortable tellingtheir employees to go to the individual marketplace. I don't seechanges for the large employers, the Fortune 500 types.

“But in the future, I seeemployers in the range of 50 to 200 employees who are burdened bythe administrative responsibilities and the cost of administeringhealth plans say this is a way they can do something for theiremployees but off-load some of the responsibilities. It is stilldeveloping and there is nothing to hang their hats on yet, but in2021 or 2022 I can see the [smaller ones] saying this might be agood solution for us,” Welle said.

Pressly said the employers whoright now are most interested in this are those with 50 to 100workers and those who employ lots of part-time workers, as thiscould be a solution for providing coverage for them. 

But for larger employers, hesaid, “it looks really appealing but the way the rules are writtenif you roll it out for one class of employees, you will have topush it to all employees in that class and the benefits vary wildlyfrom state to state.”

Employers and employees might notfully grasp all the differences between the individual healthinsurance marketplaces in the states and its limitations, andemployer-sponsored group health insurance coverage, Pressly said.Resistance could arise when top executives accustomed to grouphealth plans' flexibility and coverage forexpensive procedures such as in vitro fertilizationencounter the limitations of many individual health insuranceplans, including differences in what states require them toprovide, he said.

In 2017, only 7 percent of thetotal U.S. population were in nongroup health insurance and 49percent received employer-provided insurance. A combined 35 percentwere on Medicaid or Medicare; 1 percent were on some other publicplan and 9 percent were uninsured, according to the Kaiser.

Pressly said, “This goeshand-in-hand with state insurance markets and you really need tounderstand what that is, the cost and the coverage that isavailable to know what the ultimate employee experience is going tolook like.”

Some of the hundreds ofcommenters on the notice of proposed rule making by the IRS,Employee Benefits Security Administration and HHS filed Oct. 29 inthe Federal Register included state public health plans, a publicemployees organization, unions, a global risk management, advisoryand insurance brokerage firm, and think tanks, the NationalFederation of Business, National Association of Dental Plans,American Benefits Council, and individual health care providers.The comments period is now closed.

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