The Departments of the Treasury, Labor, and Health and Human Services proposed regulations this week that would significantly expand personalized health benefits for U.S. businesses.
The proposals, issued Tuesday, October 23, were a response to an executive order from President Donald Trump. That order instructed the Departments to increase the availability and usability of health reimbursement arrangements (HRAs)—especially those offered in conjunction with non-group insurance.
If enacted, the regulations would create two new HRAs: the individual coverage HRA and the smaller, excepted benefit HRA.
These new regulations are a critical development in the growing personalized benefits movement. Here at PeopleKeep, we believe they’ll bring personalized options to millions more Americans, offering employees more control and businesses a new way to compete in the job market.
In this post, we’ll go over the Departments’ proposals, how the new HRAs would work, and what the next steps are for implementing them. We’ll also examine what the regulations mean for personalized benefits, including how PeopleKeep plans to continue our participation in both the regulatory process and the personalized benefits movement.
Where did the regulations come from?
In 2013, IRS Notice 2013-54 issued guidance on the Affordable Care Act (ACA) that seriously limited businesses’ ability to offer HRAs. The IRS said that while HRAs integrated with group health insurance satisfy key ACA provisions, HRAs integrated with individual health insurance do not.
Congress provided some relief in December 2016 by creating the qualified small employer HRA (QSEHRA). The QSEHRA, a benefit specifically designed for small businesses with fewer than 50 employees, allows businesses to reimburse employees tax-free for their health care costs.
With his October 2017 executive order, President Trump sought to expand HRAs even further. In the order, he asked the Treasury, the DOL, and the HHS to reexamine past rulings and “increase the usability of HRAs, to expand employers’ ability to offer HRAs to their employees, and to allow HRAs to be used in conjunction with non-group coverage.”
The new proposed regulations are a direct response to that executive order, and deliver on its goals in a meaningful way.
What would the regulations do to expand HRAs?
The Departments’ proposals outline the new individual coverage HRA—an arrangement that would satisfy ACA provisions and allow businesses of all sizes to offer an HRA integrated with individual health insurance.
They also establish the excepted benefit HRA, a smaller HRA that would work in conjunction with group health insurance to reimburse employees for a limited set of expenses.
Finally, the proposals would create a special enrollment period for individuals who become eligible for the QSEHRA or the new individual-integrated HRA.
In this section, we’ll review the two HRAs as well as the new guidelines for special enrollment periods.
Individual coverage HRA (ICHRA)
By far the biggest piece of the Departments’ proposed regulations is the development of the individual coverage HRA (ICHRA).
As its name suggests, the ICHRA is a health reimbursement arrangement that is integrated with individual health insurance. With an ICHRA, the business would set an allowance of tax-free money for employees. Employees would make health care purchases, including individual health insurance policies, and the business would reimburse them up to their allowance limit.
The ICHRA would be available to businesses of all sizes, and there would be no caps on allowance amounts.
In determining HRA eligibility and allowance amounts, businesses would be free to make different decisions for different classes of employees. For example, a business could decide to offer the individual coverage HRA only to full-time employees. It could also choose to offer the HRA to both full-time and part-time employees, with full-time employees receiving $500 a month and part-time employees receiving $300 a month.
In general, HRA terms should be the same within classes, though businesses can make distinctions in allowance amounts based on the employee’s age or family size.
Under the proposed regulations, permitted employee classes include:
- Full-time employees
- Part-time employees
- Seasonal employees
- Employees covered under a collective bargaining agreement
- Employees in a waiting period
- Employees under age 25
- Foreign employees who work abroad
- Employees in different locations, based on rating areas
- A combination of two or more of the above
Businesses that offer the ICHRA can also offer a traditional group health insurance policy, as long as both are not available to the same employee class. For example, the business could offer group health to full-time employees and the ICHRA to part-time employees, but it couldn’t offer full-time employees a choice between group health and the HRA.
Employees participating in an ICHRA must have individual health insurance. If the HRA allows employees’ spouses and dependents to participate, they must also be covered.
If an employee or their participating family member experiences a lapse in coverage, they are no longer eligible for the ICHRA. To regain eligibility, they must regain coverage under an individual insurance policy.
Employees and their family members covered under a spouse’s group health insurance policy cannot participate in the ICHRA.
The ICHRA also comes with premium tax credit restrictions. Individuals participating in an individual-integrated HRA would be ineligible for a premium tax credit.
For this reason, employees are free to opt out of the ICHRA. Those who do so would still be eligible for the premium tax credit as long as the HRA’s allowance amount was considered “unaffordable” and didn’t provide minimum value under the ACA.
Under the terms of the proposals, the ICHRA would be available for plan years starting on or after January 1, 2020.
Excepted benefit HRA
The proposed regulations also outline a smaller HRA that would work in conjunction with a traditional group health insurance policy: the excepted benefit HRA.
Exempt from ACA group health plan requirements, the excepted benefit HRA allows businesses with a group health insurance policy to reimburse employees for certain medical expenses, such as a dental visit or a short-term health insurance premium. The HRA would be capped at $1,800 a year per employee.
The excepted benefit HRA cannot be offered alongside the individual coverage HRA and cannot reimburse premiums for individual health policies, group health policies, or Medicare parts B or D. Rather, this type of HRA can only reimburse excepted benefits, such as dental or vision premiums and expenses.
Like the ICHRA, the excepted benefit HRA would be available for plan years starting on or after January 1, 2020.
Special enrollment periods
The proposed regulations create special enrollment periods (SEPs) for individuals who become eligible for the ICHRA as well as the QSEHRA.
Previously, QSEHRA participants had to wait for open enrollment or until they experienced a qualifying life event to enroll in individual health insurance.
How would the ICHRA compare with the QSEHRA?
The new ICHRA is quite similar to the existing QSEHRA. However, the two differ in important ways.
Here’s a table to help you review the distinctions between the ICHRA and the QSEHRA.
Business size restrictions
Only available to businesses with fewer than 50 full-time employees.
Employee eligibility requirements
All full-time employees are automatically eligible. Part-time employees can be included, but the HRA must be offered on the same terms. Employees can participate in the HRA without individual health insurance, but those without MEC must pay income tax on all reimbursements during the time they were uninsured.
The business can set eligibility guidelines according to permitted employee classes, but the HRA must be offered on the same terms to all employees in each class. Employees without individual health insurance, including those covered by a spouse’s group policy, cannot participate in the HRA.
Allowance amount restrictions
In 2018, annual allowance amounts are capped at $5,050 for self-only employees and $10,250 for employees with a family. The business can vary allowance amounts only by family status, age, and family size, but not based on employee classes.
There are no caps on annual allowance amounts. The business can vary allowance amounts according to permitted employee classes, as well as age and family size.
Group policy requirements
Businesses offering the HRA cannot offer a group policy.
Businesses offering the HRA may offer a group policy, but it cannot offer both the group policy and the HRA to the same employee class.
Premium tax credit coordination
Individuals participating in the HRA are still eligible for premium tax credits, but the amount of the credit is reduced dollar-for-dollar by the amount of the HRA allowance.
Individuals participating in the HRA aren’t eligible for premium tax credits.
What are the next steps for the regulations?
On Monday, October 29, the proposed regulations will be submitted for a 60-day comment period.
All interested parties are invited to participate, and the Departments have specifically asked for feedback on a number of items, including:
- The possibility of expanding permitted employee classes
- Whether employees should have a choice between a traditional group health policy and the individual-integrated HRA
- How businesses should substantiate whether employees have individual health insurance coverage
- Whether employees covered by a spouse’s group health policy should be allowed to participate in the individual-integrated HRA
Following this comment period, the Departments will review feedback and may make adjustments to their proposals. Afterward, a final rule will be released followed by a 30-day comment period.
Final regulation is entered into the Federal Register and typically goes into effect in no less than 30 days.
What do the regulations mean for personalized benefits?
The Departments’ proposed regulations add an important new vehicle for personalized health benefits available to U.S. businesses. Like the QSEHRA before, the ICHRA is a significant step forward for the personalized benefits movement.
First, the new regulations would expand personalized benefits’ availability to businesses of all sizes. The Departments believe this new availability will help 10 million Americans become insured through their company, including 1 million who were previously uninsured.
Second, the regulations lift an important barrier from the implementation of personalized benefits. By creating special enrollment periods for the ICHRA and the QSEHRA, the regulations allow employees access to their benefit immediately rather than forcing them to wait for the short annual window of open enrollment or a qualifying life event to gain coverage.
Finally, the regulations would further the ultimate goal of personalized benefits by allowing businesses to tailor their offerings in a way that maximizes their ability to hire and keep employees.
As the country continues to shift from the employer-driven health care system to the consumer-driven system of personalized benefits, we’ll see more legislative and regulatory efforts like these. Over time, they will drive change and create better outcomes for both businesses and their employees.
What is PeopleKeep doing?
As the industry leader in the personalized benefits movement, PeopleKeep was instrumental in the development of the Departments’ proposals.
Feedback from our company was incorporated into the new regulations, and we’ll continue to help refine the proposals so they reflect the interests of the small businesses we work with every day.
In an increasingly competitive job market, these small businesses need to compete with larger businesses for the same talent. The proposed rules increase their ability to do that, but with some improvements, we believe they could be an even more powerful tool.
Specifically, we’d like to see the following incorporated into final regulations:
- The ability to vary benefits offerings by job-based criteria, such as employee role.
- The ability to reimburse employees and dependents covered by a spouse’s group policy using the new individual-integrated HRA.
- An earlier implementation of the regulations, so businesses won’t have to wait until 2020 for improved availability of personalized benefits.
We will continue to work with our partners and with the Departments as we push for regulatory and legislative improvements. We ask you to join us as we advocate for personalized benefits to reach all Americans.
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