New HRA Rules Could Boost Choice for Employers and Their Workers


August 17, 2019

Quite a few of the healthcare policy decisions made by the Trump administration have been mired in partisanship and acrimony, but this is certainly not the case with a proposed rule recently published on the Federal Register. The rule in question involves the expansion of health reimbursement agreements, known as HRAs, that would benefit Americans by means of an employer-based system for reimbursing out-of-pocket healthcare expenses.

HRAs had been put on ice by the Obama administration years ago, but an executive order signed by President Trump in 2017 directs the IRS as well as the Health and Human Services department to look for ways to expand them. 

The current proposal seeks not only to refresh HRAs but also to create a new type of benefit for employees who want to cut down on the medical spending that comes out of their own pockets. In the proposed new version of HRAs, small business owners stand to benefit the most, although there may be some advantages for large companies to consider. Before we get into the proposed changes to HRA rules, it helps to know how they work.

The Employer Role in Funding HRAs

As the situation currently stands, employers are tasked with the heavy lifting of HRAs because they are expected to set aside cash for workers, which they can then use throughout the year. In essence, this funding works like a feature of group health insurance coverage, and it can be used to cover qualified medical expenses that would not normally be covered by existing policies. To an extent, HRAs act like external supplements that make health insurance more comprehensive. Qualified expenses may even include overt-the-counter items.

HRAs only work in conjunction with the group health insurance programs that employers offer. They’re not available to individuals on the private market due to Affordable Care Act restrictions against products that don’t include coverage for essential health benefits. In other words, HRAs don’t count as minimum essential coverage, so they’re not available as standalone products outside of an employer setup.

Proposed Changes to HRA Rules

Here are some of the proposed improvements to HRA programs:

Excepted benefits: Under this proposal, a separate HRA could be set up by employers to let workers pay for dental and vision plans as well as short term health insurance policies. This improvement would be capped at $1,800 per year. This measure could be considered a progressive overhaul of ACA rules because of the flexibility it would offer to American workers.

Individual health insurance purchase: Employees could use HRA cash to purchase their own health insurance, but doing so would require them to obtain plans that provide major medical coverage, and the employer would be barred from offering traditional plans. All HRA offerings would be voluntary, as would participation in an employer-sponsored HRA.

Allowing expenses beyond the HRA cap: Should employees spend more on healthcare than the HRA allows per year, business owners could approve a reasonable payroll deduction program to cover these expenses, but only if those expenses are related to paying for major medical insurance premiums. It should be noted that this provision is voluntary for both employers and employees.

A significant aspect of the HRA rule proposal is that Republicans are now focused on giving Americans more flexibility in terms of choosing health insurance options. The days of seeking a full repeal of the ACA are over, particularly in light of the midterm elections that secured a Democrat majority in the House. What lawmakers are working on now represents reasonable rather than political improvements that take into consideration all aspects of the health insurance industry, particularly as it applies to working Americans.

Public comments are welcome on the proposed rule until December 28. If the rule becomes finalized, changes would take effect for plan years starting January 1, 2020.