In June, the Trump administration finalized rules that expand the use of health reimbursement arrangements (HRAs) by relaxing current federal restrictions. Today, to comply with the Affordable Care Act’s (ACA) employer mandate, large employers can only offer the tax-advantaged accounts to employees if they also have a group health plan that is compliant with the ACA. Beginning in 2020, employers of any size can offer an HRA instead of traditional group health insurance.
In the 2017 executive order that prompted the rules, President Trump lauded HRAs as a way to give employees “more flexibility and choices regarding their health care.” Despite this pitch, the proposed rules received pushback from state officials, consumer advocates and other stakeholders, who expressed concerns about discriminatory practices, adverse selection and administrative burden. In addition to these concerns, expanding the use of HRAs will leave employees to fend for themselves on the individual market, and because of an obscure provision of the tax code, many will be required to shop for a plan outside of the ACA’s marketplaces.
Unfortunately, consumers shopping for coverage off-marketplace must deal with the aggressive marketing of products that do not have to comply with the ACA’s requirements, a problem made worse by other federal rules expanding the availability of skimpy coverage. With the new HRA rule estimated to shift 6.9 million people off of traditional group insurance over the next decade, sending masses of employees to shop for off-marketplace coverage poses major risks for consumers and increases regulatory burdens for states.
Employers Offering HRAs in Lieu of Group Health Plans May Send Employees into Murky Coverage Waters
Under the new rule, employers can either offer “individual coverage HRAs” which provide funding for employees to purchase ACA-compliant plans on the individual market, or offer “excepted benefit HRAs” which provide a maximum of $1800 per year to pay for certain cost sharing, or purchase excepted benefits or short-term, limited duration insurance (short-term plan), which are not subject to the ACA’s rules. For the latter option, employers are required to offer a traditional group health plan in addition to HRA, but employees may opt exclusively for the HRA. You can read more about the final rules here.
Individual coverage HRAs require the employee to purchase individual health insurance coverage, either through the ACA’s marketplace or directly from an insurer outside of the marketplace. If the HRA is deemed to be “affordable” – based on the employee’s household income and the premium of their area’s lowest-cost silver plan – the employee will not qualify for premium tax credits on the marketplace. Under traditional employer-sponsored insurance, employees often contribute their portion of the premium using pre-tax dollars (this arrangement is often called a Section 125 or “cafeteria plan”). A similar arrangement will likely be popular among both employers and employees to pay for premiums via one of these new HRAs. However, federal law requires employees with an individual coverage HRA connected to a cafeteria plan to purchase individual health insurance coverage outside of the ACA’s marketplace.
Further, the new HRA rules require employees with an individual coverage HRA to select an ACA-compliant individual health insurance plan, which are available off-marketplace. But while the marketplace only sells products that are compliant with the ACA, which provide protections such as a ban on excluding coverage of pre-existing conditions, consumers shopping for coverage outside of the marketplace will find a plethora of products that are not subject to the ACA’s rules, without resources like Navigators to offer unbiased guidance on their coverage options. Further, recent actions from the Trump administration have increased the prevalence of these non-ACA-compliant products.
Employees with Individual Coverage HRAs and Recent Expansion of Unregulated Products Provide Fodder for Aggressive Marketing Tactics
Last year, the Trump administration finalized rules expanding the availability of short-term plans, loosening Obama-era restrictions so that such products are now available for almost a full year, or up to three years including potential renewals. Short-term plans are not subject to the ACA’s consumer protections; for example, they can deny plans to people with pre-existing conditions and often don’t cover essential health services like prescription drugs or maternity care.
When employees are sent outside of the ACA’s marketplace to shop for individual coverage, they will likely be met with aggressive – and often deceptive – pitches for short-term plans and other products (such as health care sharing ministries and fixed indemnity insurance) that are not actually health insurance. While these products do not satisfy the requirement of an individual coverage HRA to enroll in individual health insurance coverage, it is often extremely difficult for consumers to tell the difference between an ACA-compliant plan and a short-term plan. To make matters worse, the marketing tactics employed by insurers and brokers selling these products often misdirect consumers shopping for ACA-compliant plans, making it even harder for employees who are forced to look for coverage off-marketplace to be smart shoppers. With 11.4 million people estimated to receive an individual coverage HRA over the next decade, it could be a feeding ground for bad actors to take advantage of consumers looking for the best way to spend their employer’s HRA offering and their own pre-tax dollars.
Inadequate Checks Place Onus on Employees, States
The new rules stipulate that employees in an individual coverage HRA must be enrolled in “individual health insurance coverage,” defined as coverage offered through the individual market or a student health insurance plan. Short-term plans and many other non-ACA-compliant products do not meet this requirement. To ensure compliance, the rule compels employees to sign an attestation indicating that they have met this requirement. Employers who rely on this attestation will largely be held harmless if it is later found to be incorrect. Unfortunately, evidence suggests that consumers may not always know what they’re buying. Unwittingly purchasing a non-ACA-compliant product could put consumers in danger of losing their tax advantaged reimbursement, at risk of financial ruin if they try to seek care while enrolled in patchy coverage, and in a position where they are locked out of accessing comprehensive coverage until the next annual open enrollment period.
Insufficient federal oversight of these arrangements and limited employer bandwidth will likely leave consumer protection in these situations to states, the primary regulators of insurance. States can act to limit or ban short-term plans and other non-compliant products or conduct adequate oversight to tamp down on deceptive marketing. Given the likelihood of confusion over the new HRA rules, states should also consider launching consumer education campaigns and improving online information available to consumers. But a lack of resources and further federal attempts to expand non-ACA-compliant products will likely constrain state consumer protection efforts.
It remains to be seen whether HRAs expanded under this rule will be popular with employers. The Trump administration estimates that around 800,000 firms will offer individual coverage HRAs once they adjust to the new rules, leaving many employees in the situation described above. The Trump administration may issue further guidance on employees using pre-tax dollars for their portion of the premium to purchase coverage outside of the marketplace. But when the rules take effect next year, as employers are sending their employees into the individual market, the recent growth of a parallel, unregulated market with unscrupulous salesmen creates the perfect storm for unknowingly enrolling in coverage that too often comes up short. Without sufficient regulatory oversight, many employees could be at considerable financial risk.