PeopleKeep has exciting news for the beginning of the new year.
Late last month, we responded to the October 23 request from the Departments of the Treasury, Labor, and Health and Human Services for commentary on their proposed new health reimbursement arrangement (HRA) regulations.
The proposals, which were designed to increase the availability and usability of HRAs, would create two new HRAs: the individual-coverage HRA (ICHRA) and the excepted-benefit HRA. The ICHRA would provide a new vehicle for all businesses to integrate an HRA with individual coverage, while the excepted-benefit HRA would function as a smaller HRA that works alongside group policies.
As the leading provider of personalized benefits automation software for small businesses, we at PeopleKeep were eager to represent small business interests in our formal response to the proposed rules and new HRAs.
In our comments, officially submitted December 28, 2018, we offered feedback on several areas including:
- The desired ability for businesses to vary HRA offerings by job-based criteria, such as employee role
- The desired ability for businesses to reimburse employees and dependents covered by a spouse’s group policy using the new ICHRA
- An earlier implementation of all proposed regulations, apart from the new special enrollment period (which would go into effect on the proposed date of January 1, 2020)
We invite you to read through our formal recommendations to the Departments below. If you have any questions, or would like to know more about current PeopleKeep HRA offerings—including the qualified small employer HRA (QSEHRA)—please contact us.
We’ll update you again when the Departments issue their final recommendations.
Comments from PeopleKeep on “Health Reimbursement Arrangements and Other Account-Based Group Health Plans”
December 28, 2018
Internal Revenue Service
Attn: CC:PA:LPD:PR (REG-136724-17)
P.O. Box 7604
Ben Franklin Station
Washington, DC 20044
Submitted electronically via http://www.regulations.gov
Re: Health Reimbursement Arrangements and Other Account-Based Group Health Plans (REG-136724-17)
To Whom It May Concern:
PeopleKeep appreciates the opportunity to provide comments on the proposed rules titled “Health Reimbursement Arrangements and Other Account-Based Group Health Plans” issued by the Department of the Treasury, the Department of Labor, and the Department of Health and Human Services.
PeopleKeep, headquartered in Salt Lake City, Utah, is the leading provider of personalized benefits automation software for small businesses. PeopleKeep assists thousands of small businesses in offering qualified small employer health reimbursement arrangements (“QSEHRA”) and other account-based health benefits. As such, we’re closely acquainted with the needs and interests of small business owners and employees, and seek to represent them in our commentary. In particular, we have industry-leading experience working with small businesses that are seeking alternatives to traditional group health insurance.
While the PPACA did much to expand health insurance access to individuals, it had the unintended effect of restricting small businesses’ access to group health insurance alternatives. In particular, these businesses saw a significant and disproportionate reduction in their options on how to help offset the cost of health care for their employees in a defined contribution, personalized model.
These effects were mitigated somewhat by the creation of the QSEHRA, and PeopleKeep commends the Departments’ efforts to continue assisting businesses by re-examining prior rules regarding HRAs. We believe the proposed rules are a material step in the right direction toward providing greater parity for small businesses to offer competitive benefits. Additionally, enabling employers to take a defined contribution approach paired with individual coverage is a great way to get more healthy individuals to purchase coverage on the individual market and should therefore contribute to the success of the individual market over the long term.
With our comments below, we’ve provided recommendations we believe will advance the underlying aims of the proposed regulations even further. Overall, we encourage the Departments to approach the final rules with an aim of providing the greatest degree of flexibility for small businesses and their employees while preserving the protections contemplated by the PPACA.
New special enrollment periods
PeopleKeep supports the Departments’ recommendation to create a new special enrollment period (“SEP”) for individuals who become newly eligible for either a QSEHRA or an HRA integrated with individual health insurance coverage (“ICHRA”).
Our experience selling QSEHRA affirms that many small businesses won’t see an account-based health benefit as a viable solution unless it helps their employees purchase insurance without significant delay.
As regulations currently stand, a business that wants to hire an employee outside of open enrollment wouldn’t be able to offer that employee the full value of an HRA unless they qualified for an SEP on an individual basis (such as losing group coverage through their previous employer). Faced with the prospect of waiting several months to gain health insurance, the potential employee may choose not to accept the job offer. That’s a significant cost to the business.
Even in the event the potential employee does accept, the business can’t provide the employee the full value of their compensation package and the employee suffers.
Similarly, existing employees who become newly eligible for the benefit (moving from part-time to full-time status, for example) would also be denied the full value of their benefit unless they already had individual coverage.
Creating an SEP for employees who become newly eligible for a QSEHRA or an ICHRA would solve these problems and allow businesses to more completely leverage HRAs for their intended purpose: recruiting and retaining talented employees. When employees are able to use their HRA immediately, they receive more value from the benefit and employers achieve their goals without delay.
Additionally, research from Gallup suggests that individuals who are employed full-time are in better physical health. In our estimation, driving more healthy individuals into the individual risk pool through an HRA with reliable SEPs will more than offset any anticipated risk of adverse selection stemming from such SEPs.
Thus, the proposed new SEP will make QSEHRAs and ICHRAs a viable employee benefit for many more employers, fulfilling the mandate of the executive order and simultaneously strengthening the individual health insurance market.
Insurance carriers may raise concerns about non-calendar year HRAs creating complexity and increasing the risk of adverse selection. Non-calendar year HRAs could allow employees to sign up for insurance twice per year (once during open enrollment and once during the SEP created at the start of each new HRA plan year). Employees who choose to go uninsured might take advantage of the SEP to gain insurance ahead of an expected medical expense. While this would only create one extra enrollment event, it does introduce one additional opportunity for adverse selection.
In contrast, employees who have no gaps in insurance coverage would be disincentivized to switch plans mid-year because they would lose the progress they had made toward annual deductibles and out-of-pocket maximums.
The Departments could mitigate concerns about the new SEP (if such concerns are deemed to warrant mitigation). For example, a rule could be made that an SEP is only created when an employee becomes eligible for an HRA after a period of at least 60 days in which the employee was not eligible for an HRA from the same employer. This would cause a new HRA plan year to not be a triggering event for most employees. Only those who had a true change in HRA availability would gain the access they needed outside of open enrollment.
PeopleKeep supports the Departments’ recommendation that the SEP provision go into effect January 1, 2020, which will allow insurance carriers time to develop SEP approval processes and to price their plans appropriately.
Substantiation of individual health insurance coverage
PeopleKeep supports the Departments’ recommendation that employees may self-attest to having individual health insurance in order to participate in the ICHRA. Such attestation is sufficient when combined with the fact that nearly all individual health insurance plans sold on the individual market must satisfy sections 2711 and 2713 of the PHS Act.
Integration with non-HRA group coverage
The Departments seek comments on whether integration should be permitted with any other type of coverage that satisfies sections 2711 and 2713 of the PHS Act, how such integration rules should be structured, as well as comments on what, if any, potential benefits and problems might arise from allowing these types of HRA integration. The Departments also seek comments on whether allowing
such integration would raise any concerns about health status discrimination leading to additional adverse selection in the individual market.
PeopleKeep has years of experience selling QSEHRAs and other account-based health reimbursement arrangements. Our clients remind us that one of the reasons they choose reimbursement arrangements over traditional group benefits is that they can offer value to all of their employees regardless of their employees’ individual circumstances. Often, several employees receive their insurance coverage through their spouse’s group insurance plan. Many employers still want to contribute toward the health expenses of such employees without offering multiple types of health benefits. In particular, our clients often want to provide one dollar amount to all employees regardless of how each employee obtains their insurance. QSEHRAs are an option for some but not all of these employers.
PeopleKeep recommends that the Departments add rules permitting ICHRAs to be integrated with individual insurance and non-HRA group coverage provided by another employer as long as such coverage meets the requirements in sections 2711 and 2713 of the PHS Act. While some may argue that such integration could prove too burdensome on HRA plan sponsors, each plan sponsor should be allowed to choose for themselves whether offering a benefit to all employees regardless of how they have obtained their adequate coverage is worth any added complexity.
PeopleKeep sees a couple ways ICHRAs could be integrated with non-HRA group coverage.
- Participants could be allowed to self-attest that they have major medical coverage from another employer. This could be deemed sufficient coverage for sections 2711 and 2713 of the PHS Act. If, as proposed by the Departments, participants are allowed to self-attest that they have individual insurance coverage, why can’t participants who have group insurance from another employer also self-attest? Participants who have group health insurance are quite likely to have coverage for EHBs and preventive expenses, since few employers exclude such expenses because they want to remain competitive in their benefit offering.
- The Departments could construct a group integration test for ICHRAs similar to the current integration tests described in Section 54.9815-2711. However such tests would need to be modified so that the HRA plan sponsor would only be required to offer an ICHRA and not a traditional group health plan.
Integration with short-term limited-duration insurance
The Departments seek comments on whether integration with short-term limited-duration insurance (“STLDI”) should be permitted and whether allowing such integration would lead to adverse selection in the individual market.
While PeopleKeep typically advocates for increased choice in how to provide employee benefits, we recognize that ICHRA integration with STLDI would likely drive healthier employees away from the individual market.
STLDI will be disproportionately purchased by healthy individuals. This is because such plans can exclude benefits typically provided by employer-sponsored coverage and individual insurance. More significantly, STLDI are not subject to the PPACA’s guaranteed issue requirements. As a result, these plans will only be available to healthy individuals who make it through underwriting.
Furthermore, STLDI is not required to satisfy sections 2711 and 2713 of the PHS Act. Allowing an ICHRA to be integrated with STLDI would not provide sufficient coverage to satisfy sections 2711 and 2713.
We support the Departments recommendation to not allow ICHRAs to be integrated with STLDI. Allowing ICHRAs to be integrated with STLDI could lead to adverse selection, making individual insurance less affordable for all (especially the sick employees who would be left behind and would need to integrate their ICHRA with individual insurance).
Employee class definitions
Because businesses use benefits to attract and retain talent, they need flexibility in determining HRA eligibility and allowance amounts. The Departments have accommodated this need by providing several employee classes that businesses can utilize when structuring their benefit.
PeopleKeep commends the Departments for their conscientious effort to avoid opportunities for health status discrimination and adverse market selection when crafting these classes. The proposed classes prevent employers from carving out high-risk employees for the HRA while maintaining a healthier pool for their own group health insurance offering. With this possibility removed, any potential adverse market selection is avoided as well.
However, the dangers of health risk discrimination and adverse market selection do not apply to all businesses equally. Specifically, employers that fall in the small group health insurance market have no incentive to engage in health risk discrimination and thus cause adverse market selection. Because employee health risk is not a rating factor in the cost of small group health insurance, the incentive to shift these employees to the individual market is simply not present.
Therefore, PeopleKeep recommends allowing small employers to structure classes to the fullest extent allowable by existing nondiscrimination rules. This is a feature many of our clients ask for, and it would represent a material improvement over the QSEHRA, which allows very little flexibility. In particular, our small business clients frequently ask if they can structure employee classes based on employee title or other classifications of job duties, such as those specified in the FLSA. PeopleKeep asks for guidance on how small employers can structure classes based on job duties.
Furthermore, some time after these rules go into effect, there will be a number of ALEs who choose to offer an ICHRA that provides Minimum Value as their sole health benefit, without offering group health insurance at all. For example, a small employer who has an ICHRA in place may eventually grow above the ALE threshold and decide not to replace their existing health benefit with group health insurance. Since ALEs who don’t offer group health insurance would similarly not have an incentive to engage in health risk discrimination and thus cause adverse market selection, the Departments should consider what additional flexibility should be afforded to these employers in terms of employee class definitions as well.
Traditional group health plan optionality
The Departments’ proposed rule against offering employees in the same class a choice between a traditional group health insurance policy and an HRA integrated with individual health insurance is necessary to guard against health status discrimination and potential adverse market selection for large employers. Without such a provision, large employers may be able to persuade high-risk employees to choose an HRA over their group health plan. High-risk employees may also naturally gravitate to an HRA, given the potentially more robust nature of individual policies.
However, as established previously, small employers have no incentive to steer individuals with health risks from their small group health insurance plan to the individual market or visa versa. Therefore, employers in the small group health insurance market should potentially be able to offer their group health insurance plan and an ICHRA to the same class of employees.
Premium tax credit eligibility
PeopleKeep supports the Departments’ proposed rules for premium tax credit (“PTC”) eligibility. Plan sponsors must give employees the ability to opt out of the ICHRA and preserve their eligibility for PTC. We have seen many instances where employers want to help their employees, but decline to do so when we tell them how this will impact their employees’ PTCs. The opt out provision will make the ICHRA a more viable benefit for many employers, especially those who cannot afford traditional group benefits.
PeopleKeep recommends using the second-lowest-cost silver plan to determine affordability calculations. This would be consistent with affordability calculations for QSEHRA. It will also ease the administrative burden on employers because this premium information is readily available as the PPACA benchmark plan.
While PeopleKeep supports the January 1, 2020 implementation date for SEPs as stated above, we strongly urge the Departments to consider allowing the remaining provisions to go into effect upon completion of the final rules.
Thanks to rising costs and other restrictions, millions of small businesses don’t offer health benefits. However, the pressure to do so is growing daily; the labor market is increasingly competitive and employees will no longer settle for an employer that doesn’t offer a formal health benefit.
As tens of thousands of small businesses look to offer benefits throughout 2019, they will find their options are limited -- especially for those that can’t offer a QSEHRA. HRAs present an invaluable solution to this dilemma, and small businesses shouldn’t have to wait until 2020 for their improved availability.
While there are legitimate concerns preventing the Departments from implementing the SEP provision earlier than January 2020, we believe the remaining recommendations might go into effect without any adverse effects. Providing the regulatory clarity businesses need to offer these HRAs as soon as possible would extend benefits options for thousands of businesses and their employees.
We appreciate the opportunity to provide comments on the proposed rules. If you have any questions or would like to discuss further, please contact Dane Willis, PeopleKeep’s Head of Product.
Chief Executive Officer