Employer-provided health benefits are changing in America, especially for small businesses. Group healthcare costs continue to rise. Annual premiums for group policies have increased over 180 percent in the last 15 years, with the average coverage cost per family expected to reach $20,000 by 2016.
As such, many employers have stopped providing group healthcare policies entirely. The Wall Street Journal recently reported that the implementation of the Affordable Care Act prevents pre-existing conditions from being factored into policy prices, eliminating several incentives for small businesses to even offer group plans. In fact, the percentage of small to medium employers offering health benefits to their employees dropped 11 percent from 2010 to 2013.
The drop in group coverage has led some employees to the individual market where they can select and purchase healthcare coverage that best suits their needs.
Employer-Provided Health Benefits Are Still an Option
Section 105 Healthcare Reimbursement Plans (HRPs) are available to employers to reimburse qualified health insurance premiums.
This gives small business owners an opportunity to offer employer-provided health benefits to their employees without purchasing a group health insurance plan. Employees purchase the individual insurance that best suits them, and the HRP reimburses the cost of the premium up to the specified allowance.
How Does an HRP Work?
HRPs offer tax free dollars to reimburse employees for their premium expenses. It is one of several premium reimbursement options.
Employers select the specified monthly healthcare allowance available to employees, and the plan reimburses employees when they submit documentation showing that they have paid their health insurance premiums.
Is an HRP a Compliant Form of Employer-Provided Health Benefits?
Yes. When designed and administered correctly, HRPs comply with all applicable IRS, HIPAA, COBRA, ERISA, and ACA rules.
One of the biggest questions is how HRPs comply with the ACA’s “Market Reforms.” In order to comply with the Market Reforms, HRPs must be structured to comply with PHS Act Section 2711 annual limit rules and PHS Act Section 2713 preventive care rules.
PHS Act Section 2711 requires group health plans (including HRPs) not to place annual or lifetime limits on “essential health benefits.”
PHS Act Section 2713 requires group health plans (including HPRs) to cover basic preventive care services without cost-sharing.
It is important to note that PHS Act Section 2711 allows group health plans (including HRPs) to place annual limits on benefits that are not essential health benefits. Since health insurance premiums are not essential health benefits, group health plans (including HRPs) may place a “premium-specific” annual limit on premium reimbursements.
However, group health plans (including HRPs) may not place an annual limit on the basic preventive care expenses required by PHS Act Section 2713 because preventive care expenses are considered essential health benefits.
As such, one way to structure a compliant HRP is to design the arrangement to reimburse employees for health insurance premiums up to a specified monthly healthcare allowance, and preventive care as required by PHS Act Section 2713.
Employer-provided health benefits are viable in conjunction with individual insurance, and it is important to understand the fundamentals surrounding healthcare reimbursement plans as more and more employers drop group coverage.