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Health Insurance Options: New Regulations Will Make HRAs Viable Once Again

health insurance

In 2002, a new type of employer health coverage was introduced that became known as Health Reimbursement Arrangements, or HRAs for short. HRAs allowed small and mid-sized businesses to reimburse employees for the premiums they paid to buy health insurance policies in the individual market.

However, HRAs were effectively killed by the Affordable Care Act (ACA), which subjected businesses to potentially large fines if the health coverage they offered didn’t provide certain levels of benefits. But new regulations were recently finalized that will soon make HRAs a viable health coverage option for many businesses and their employees once again.

Rules Become Effective Next Year

The new rules — which were developed by the Departments Labor, Treasury and Health and Human Services — become effective for plan years beginning on or after January 1, 2020. As a result, employers can begin offering HRAs again starting next year.

Once the rules become effective, businesses will once again be allowed to reimburse their employees for premiums they paid to purchase health insurance themselves. The business will be allowed to deduct these reimbursements from gross income, and the reimbursements won’t be considered taxable income to employees if used to purchase health insurance. Funds can also be used to cover copays and out-of-pocket healthcare expenses.

Businesses of all sizes will be allowed to offer HRAs to practically any employee. This includes part-time and full-time, seasonal, hourly and salaried employees, as well as workers employed through temp staffing agencies. The regulations will create two new types of HRAs: 

  • Individual Coverage HRAs (ICHRAs) — These will be integrated with certain individual market coverage and Medicare.
  • Excepted Benefit HRAs (EBHRAs) — These will be nonintegrated general purpose HRAs and considered an expected benefit.

Expanding Healthcare Coverage

Many experts predict that the new regulations will make it possible for hundreds of thousands of businesses, including many small firms with fewer than 50 employees, to offer health coverage to their employees in a more cost-effective way. For example, the Trump Administration predicts that 800,000 businesses will eventually offer HRAs to more than 11 million employees. 

Currently, only about 30 percent of employees who work at businesses with between three and 24 employees receive healthcare benefits from their employer. This is down from 44 percent in 2010, before the ACA went into effect. The new rules could increase this percentage substantially over time as more small businesses become aware of the benefits of HRAs as an employee recruiting and retention tool.

According to a recent article in The Wall Street Journal, employees who don’t receive health coverage at work and who earn too much money to qualify for an ACA subsidy could be the biggest beneficiaries of the new rules. For example, at a small business with 20 employees, the risk pool may be too small for the employer to afford to offer insurance to employees. This would leave middle-income employees on their own to buy nonsubsidized coverage on the individual ACA exchanges.

Start Preparing Now

If you currently aren’t covered by a health plan where you work, talk to your employer about the new HRA rules and whether these might enable them to begin offering HRAs starting next year.

And if you own a small business but don’t offer health coverage to your employees, now might be a good time to investigate the potential benefits of HRAs in light of the new rules. Keep in mind that there are detailed and complex regulations governing the establishment of these new HRAs, so you should probably consult with a benefits consultant about your specific situation.

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