“We are putting the people back in charge with more choice, for better care, at a far lower cost.”
-President Donald J. Trump
Remarks on Expanding Health Coverage Options
Rose Garden, 6/14/19
President Donald Trump recently issued an “Executive Order” that expands the use of Health Reimbursement Arrangements, or HRAs. This new rule allows employers to establish a health reimbursement account for employees to pay their health care premiums in Obamacare’s Exchange market. This Executive Order reverses the Obama Administration’s disallowance of using tax-free accounts for workers to buy their own individual health insurance.
Individual Coverage HRAs:
Beginning 2020, employers can sponsor individual coverage HRAs that allow employees to pay individual health insurance plan premiums. These individual coverage HRAs allow employers to provide their workers with pre-tax funds to pay for health insurance coverage purchased on the individual Exchange market, under certain conditions. The employer’s section 125 cafeteria plan may also be changed to permit employee pre-tax contributions to the HRA account to purchase off-Exchange individual insurance coverage. The individual health insurance can be on or off Exchange coverage, but such coverage cannot consist of short-term, limited duration insurance coverage or coverage that consists of only dental, vision or other “excepted” coverage.
The individual coverage HRAs are targeted to help medium and small-scale businesses that struggle with providing a health care plan to their employees. To prevent an adverse selection problem (the ability to shift sicker workers to individual insurance coverage), the new rules require employers to adopt sufficient sized “classes of employees” where the same coverage is being offered. The classes of employees can be based on such categories as full-time and part-time employment, geographic location, seasonal, collective bargaining unit employees, among some others. The employer’s minimum class size must be: (i) ten (10) employees for employers with less than 100 employees; (ii) ten percent (10%) of total employees for employers with 100 to 200 employees; and (iii) twenty (20) employees for employers with more than 200 employees. The IRS has provided a model notice that employers will need to distribute to eligible employees and employers will need to substantiate that the employee has purchased the individual insurance coverage. Employers will also need to take certain steps to avoid ERISA coverage of these plans. Finally, an applicable large employer may still be subject to potential Obamacare “Shared Responsibility” excise taxes if it adopts an individual coverage HRA, so applicable large employers are encouraged to review this new program with the appropriate consultants.
Excepted Benefit HRAs:
Aside from allowing individual coverage HRAs, this change creates an excepted benefit HRA. Employers that offer group health plans are also able to provide an excepted benefit HRA up to $1,800 annually, regardless if the employee enrolls in the group health plan or not. In addition, employers will now have the ability to reimburse employees for certain qualified medical expenses. Employers struggling with the raising prices of group insurance premiums every year can now put a fixed amount of money into the employees’ HRAs.
Additional guidance is expected from the Internal Revenue Service and the U.S. Department of Labor on both these new HRA programs. In the meantime, please call Ken Haneline at 330.867.9998 or email email@example.com if you have questions or need additional assistance.