By Emily Curran

In October 2018, the Departments of Treasury, Labor, and Health and Human Services issued a proposed rule that aims to expand the “flexibility and use” of health reimbursement arrangements (HRAs). HRAs are employer-funded accounts in which employers set aside a fixed amount of money every year to help employees pay for medical expenses that are not covered by their health insurance plan (see e.g., HRA eligible expenses). Employees can then use the funds to reimburse their medical expenses, and in some cases – their premiums, up to a maximum dollar amount per coverage period, and any unused funds may be carried into the next year.

In 2017, the Trump Administration issued an Executive Order that sought to expand employers’ ability to offer HRAs. This proposed rule makes good on that promise by allowing employers to offer two new HRA options:

• Integrated HRAs (IHRA): Instead of offering a traditional group health plan, employers could offer employees HRAs to purchase ACA-compliant individual policies; and
• Excepted Benefit HRAs: In addition to offering a traditional group health plan, employers could also offer employees HRAs (capped at $1,800 annually) to purchase an “excepted benefit” (e.g. vision, dental, long-term care coverage) or short-term plan; however, the employee could choose to enroll in only the HRA

Currently, most employers can only offer HRAs if employees are enrolled in a traditional group health plan that meets the ACA’s standards, with a few exceptions. To understand reactions to the proposal, CHIR reviewed a sample of comments from state officials, insurers, consumer advocates, and employer, broker and benefit advisor groups. In this blog, we highlight comments from ten major medical insurers and associations, including:

• Alliance of Community Health Plans (ACHP)
• America’s Health Insurance Plans (AHIP)
• Association for Community Affiliated Plans (ACAP)
• BlueCross BlueShield Association (BCBSA)
• Centene
• Cigna
• Health Care Service Corporation (HCSC)
• Kaiser Permanente
• Liberty HealthShare (a health care sharing ministry)
• UPMC Health Plan

For a complete summary of the proposed rule, you can find more information here.

Insurers Support the Non-Discrimination Protections But Request Stronger Safeguards

The majority of insurers commented that the proposed rule has the potential to positively expand choice and competition, so long as robust non-discrimination protections are adopted to protect consumers with pre-existing conditions. Under the proposal, insurers noted that “potentially millions” of individuals could shift from employer-based coverage into the individual market, many for the first time (AHIP). Insurers expressed concerns that the individual market could “becom[e] nothing more than a dumping ground for high-risk employees” (ACAP), if employers drive their highest-cost employees there, by declining to offer traditional coverage. To prevent this adverse selection, the proposed rule imposed a number of conditions on offering IHRAs, such as requiring that all individuals covered by the HRA be enrolled in individual coverage.

Classes: One condition that drew much attention from insurers relates to “classes” of employees. The condition would require plan sponsors offering IHRAs to a class of employees (e.g., full-time employees) to “offer the HRA on the same terms to all employees within the class (but the amount may vary based on age and family size)[.]” Insurers largely expressed support for the “same term” requirement, as it would prevent employers from singling out or discriminating against particular individuals with high medical costs.

However, many insurers took issue with allowing employers to vary HRAs by age, as well as defining one of the classes to include only employees under the age of 25. Insurers argued that the classes should not be age-based, as it would allow employers to segment employees by health status. Kaiser Permanente explained that an “under 25” class could result in employers steering younger, healthier employees into traditional group coverage, “while sending older and potentially higher-risk employees to the individual market.” Centene shared this sentiment, saying employers might simply provide higher HRA contributions to older employees as a means of enticing them to enroll in the individual market. Many insurers – ACAP, AHIP, Centene, Cigna, Kaiser Permanente – asked that the Departments eliminate the “under 25” class and not allow variations by age. For similar reasons, several insurers also recommended that the class based on rating area be eliminated, since rating areas can sometimes be used “as a pretext for classification based on likely health status” (AHIP).

Insurers Opposed HRA Integration with Short-Term Insurance

The Departments requested comments on whether HRAs should be allowed to integrate with other forms of non-group coverage, including short-term limited duration insurance (STLDI). Nine of the ten insurers reviewed said such integration should be prohibited. UPMC explained the option would lead employees with few health needs to purchase STLDI, while those with more significant needs—who could not pass STLDI underwriting—would stay in the individual market. UPMC argued that such a scheme would be “financially harmful,” “imperil the integrity of the individual market as a whole,” and “benefits no one.” HCSC agreed, saying STLDI integration would “undermine the otherwise very strong non-discrimination provisions in the rule.” Insurers “strenuously object[ed]” (e.g., ACAP) to the proposal, calling STLDI “not a meaningful substitute for a traditional group health plan” (Cigna).

Only Liberty HealthShare, a health care sharing ministry (HCSM), did not comment on the integration of STLDI. Rather, Liberty argued that the proposed rule imposes a burden on its exercise of religion, because the proposal would grant tax exemptions for participants in IHRAs, but would not allow HRAs to integrate with HCSMs. It believes participation in HCSMs would therefore be more expensive and requested that integration with HCSMs be permitted.

The Majority Recommended Actions to Promote Individual Market Stability: SEPs, Verifications, Consumer Assistance

Insurers outlined a number of efforts the Departments’ should take to ensure the stability of the individual market, since it “is less than a tenth of the size of the group market, [and] just a small shift of high-cost persons…can have a significant impact” (BCBSA).

Special Enrollment Period (SEP): The proposed rule provides a SEP for individual market consumers who gain access to an IHRA or qualified small employer health reimbursement arrangement. Insurers mostly supported the creation of this new SEP, noting that it would allow employees to take advantage of a significant employment benefit, while reducing potential gaps in coverage. However, insurers argued the SEP should be limited. BCBSA said “there should not be a reoccurring annual [SEP] for employees with non-calendar year benefits.” Centene urged the Departments to meet with insurers and employers to develop operational guidelines on what to do when employers’ benefit years do not align with individual market plan years. It expressed concern that mid-year enrollments might trigger issues with employees never reaching their annual deductibles or impacting their out-of-pocket spending. Kaiser Permanente shared these concerns, saying, “It is unfair to force employees to bear the burdens of functioning on two, likely unaligned timelines,” (i.e., the employer plan year and the individual market calendar year/open enrollment). It recommended that employers choosing to offer new IHRAs be required to align benefits with the individual market’s open enrollment.

Verifications: A few insurers recommended that if the proposed SEP is implemented, employees should be required to provide verification of their eligibility, similar to other individual market SEPs. However, AHIP commented that the verification requirements proposed may be “overly burdensome” to employers, employees, and insurers. It suggested that the Departments rely on employee attestations asserting they have enrolled in individual coverage, with penalties for misrepresentations.

Consumer Assistance: Several insurers noted that the expansion of options under the proposed rule will likely confuse consumers and could be challenging for employers to navigate (ACHP). They advised strengthening notice requirements and simplifying the new rules (ACHP, Centene), in addition to developing trainings and materials to ensure that employees effectuate (i.e., select a plan and pay their first month’s premium) their enrollment (AHIP).

Many Urged the Departments to Study the Rule’s Impact on Employer-Sponsored Coverage

Insurers argued for preserving existing benefits in the employer-based market. They noted that, today, approximately 180 million individuals obtain their coverage through an employer (Cigna). Employer plans have traditionally had more flexibility to design benefits to fit the needs of their workforce, including attributes like wellness and incentive programs (e.g., offering fitness trackers or gift cards to members that engage in physical activity), out-of-network coverage, and care management programs. Since many have grown accustomed to these benefits, many insurers raised concerns that employees may not be prepared to make the switch to the individual market, where such programs are not as common. Others, like Kaiser Permanente, wrote that the Departments’ estimates regarding the impact the rule could have on enrollment and premiums do not adequately take into account the complexities proposed. For instance, Kaiser noted that employees migrating to the individual market are likely to encounter new administrative burdens, like shopping for coverage, comparing benefits, and reviewing premium tax credit rules. Employees new to this environment may fail to obtain reimbursements or become frustrated and forgo the IHRA altogether, ultimately dropping coverage. If implemented, insurers urged the agencies to study the impact the rule has on individuals, employer-sponsored coverage, individual market pricing, and affordability (BCBSA).

Take-Away: Insurers were largely supportive of the proposed rule’s attempt to expand consumer choice and affordability, and to improve market competition. However, they argued that stronger non-discrimination provisions are needed to prevent adverse selection and ensure stability in the individual market. Insurers applauded many of the non-discrimination provisions proposed, but offered a wide-range of comments on other provisions that might undermine these protections – mainly, integration with STLDI. The group urged the Departments to recognize the potential magnitude of the changes proposed, and cautioned against anything that might diminish existing employer-sponsored coverage. While the rules are proposed to begin on or after January 1, 2020, stakeholders asked that implementation be no earlier than 2021, calling the proposed timeline “entirely untenable” (UPMC).

A Note on Our Methodology

This blog is intended to provide a summary of comments submitted by a specific stakeholder group: major medical insurers and associations. This is not intended to be a comprehensive report of all insurer comments on every element in the Health Reimbursement Arrangement proposed rule, nor does it capture every component of the reviewed comments. Additionally, a portion of submitted comments were not available for our review at the time of publication. For more stakeholder comments, visit http://regulations.gov.