In October, the Departments of Treasury, Labor, and Health and Human Services (the “Departments”) issued a proposed rule that aims to expand the “flexibility and use” of health reimbursement arrangements (HRAs). Public comments on the proposal were due December 28, 2018 and the Departments could publish the final rule at any time.

HRAs are 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: 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 (with contributions 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, 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, employer and benefit advisor groups, and consumer and patient advocates and employee unions. In this final blog in the series, we highlight a selection of comments from the following organizations:

• American Cancer Society Cancer Action Network (ACS-CAN)
• American Diabetes Association (ADA)
• Hemophilia Foundation of America (HFA)
• United Food and Commercial Workers International Union (UFCW)
• AFL-CIO
• Children’s Dental Health Project (CDHP)

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

Most groups urged the Departments to rescind the proposed rule

Four of the six groups (all but AFL-CIO and ADA) urged the Departments to withdraw the entire proposed rule. HFA argued that the rule would effectively “create two insurance markets –one with less expensive coverage for healthy individuals, and one with greater coverage and costs for those with chronic conditions.” ADA and AFL-CIO, while not calling for the entire proposal to be withdrawn, recommended several added protections.

Concerns about adverse selection, affordability, and confusion

All the groups in this analysis voiced considerable concern about the impact of HRAs on the individual market, employees’ ability to afford coverage comparable to traditional group coverage with the money allotted to them through the HRA, the possibility of greater underinsurance and uninsurance among employees, and increased consumer confusion about the new insurance option.

Adverse Selection Concerns

The groups argued that the proposal could incentivize employers to send lower income, less healthy workers to the individual market, even with the proposed safeguards that require employers to offer HRAs on the same basis to all employees within a given class (such as full-time vs. part-time). Several urged the Departments to more narrowly define the types of classes employers could use to differentiate among employees. For example, ACS-CAN noted that cancer patients often must reduce their hours worked due to treatment and expressed concern that the proposal could result in status shifts triggering the loss of a more generous group plan with greater provider choice. ADA recommended employers only be allowed to combine classes if the group of employees is “sufficiently large” as a proportion of total number of employees to avoid the potential of cherry-picked groups of employees, such as seasonal employees in a geographic rating area. The UFCW observed that most employees covered under a collective bargaining agreement have coverage comparable to a Gold plan on the individual market, and an integrated HRA could effectively shift them to less generous coverage with higher out-of-pocket costs for employees. Multiple groups also took issue with the proposed ability for employers to pick a definition of full- and part-time, recommending that the definitions be set via regulation to avoid employers picking a definition that is advantageous to them, but potentially detrimental to employees.

Affordability Concerns

Under the proposed rule, to satisfy the ACA’s employer mandate, employers must offer an HRA that meets an affordability standard. The cost of the employee’s premium, less the HRA contribution, must be no more than 9.86 percent of the employee’s household income. If an employee has an HRA that satisfies the affordability test, they are ineligible for premium tax credits (PTCs). The Departments propose that the HRA affordability test be tied to the cost of the lowest cost silver plan in the market. However, under the ACA, the benchmark for determining an individual’s premium tax credit subsidy is the premium for the second-lowest cost silver plan. Consumer and union groups thus took issue with the Departments using the lowest cost silver plan for purposes of the HRA affordability test. For example, ACS-CAN pointed out that where a lower-income cancer patient might have enrolled in a plan with a $0 premium, thanks to premium tax credits, that same employee would now only be able to afford a high-deductible bronze plan with the new HRA funds.

Consumer Confusion

Consumer and union advocates also argued that the HRA proposal would lead to greater confusion for individuals choosing insurance. CDHP and others noted that the federal government has significantly cut funding for education and enrollment assistance in the individual market. They argued that adding an influx of employees with HRA accounts to a market with inadequate support would leave a lot of consumers confused, potentially selecting sub-optimal plans or, worse, becoming uninsured. ACS-CAN further noted that many open enrollment periods (OEP) for employer group plans occur outside of the individual market OEP, meaning there could be an influx of consumers needing assistance during a time when there are few, if any, Navigators to help them find coverage.

Multiple consumer groups reject integrating short-term health plans with HRAs

HFA, ACS-CAN, and the AFL-CIO responded to the Departments’ request for comment on the possibility of allowing employees to enroll in short-term health insurance under the integrated HRA. All three groups voiced concern about the increased risk of instability in the individual market. The groups also noted that these plans are not comparable to comprehensive ACA individual market coverage, nor should they be considered a replacement for employer-sponsored group coverage. Groups note that these plans contain exclusions for pre-existing conditions, underwriting that could leave consumers with newly developed or diagnosed conditions on the hook for tens or even hundreds of thousands of dollars, and often leave out important benefits such as maternity care, mental health, and prescription drugs.

Most consumer advocates reject the excepted benefit HRA proposal in part or in whole

The proposed rule also contemplates allowing employers to contribute to an “excepted benefit” HRA that would allow employees to choose between enrollment in the group plan or the purchase of insurance products such as short-term limited duration coverage. ACS-CAN, ADA, and CDHP asked the Departments to withdraw the excepted benefit HRA proposal, stating that it would result in “costly confusion” for consumers. ACS-CAN expressed concern that, because employees are not required to enroll in group coverage when enrolling in an excepted benefit HRA, cancer patients could erroneously enroll in cancer-only coverage and forego more comprehensive group coverage. CDHP noted that although they appreciate the addition of dental benefits as an excepted benefit HRA, they do not support HRAs when they are offered “at the expense of purchasing comprehensive overall coverage.”

The UFCW and the AFL-CIO urged the Departments to bar enrollment into short-term plans as an excepted benefit HRA. They highlighted the increased risk of adverse selection occurring when healthier and younger employees opt into short-term plans, leaving the older and sicker workers with higher health costs in traditional group coverage, which would in turn make such coverage more expensive in the future.

Other recommendations of note: retirees, age-related contributions, and employee notices

Both UFCW and the ALF-CIO recommended allowing retired persons to have a classification that is separate from the classification they held while employed at the establishment, giving all retired people from an establishment either an integrated HRA or a traditional group plan, but not a choice between the two. Both organizations also support a spouse-only classification as well.

ACS-CAN and AFL-CIO supported employers’ ability to vary contribution amounts to employee HRAs according to the 3:1 age rating band established under the ACA.  However, AFL-CIO asked the Departments to clarify that the net out-of-pocket premium paid for by the employee be the same regardless of age. ACS-CAN requested the Departments to require – not just permit – employers to vary contributions by age in order to prevent age discrimination.

ACS-CAN and AFL-CIO also highlighted the need for employers to give “clear,

understandable, and timely notices” to eligible employees, and are concerned that employers might not be capable of crafting notices that would alleviate confusion. The AFL-CIO asked the Departments to provide draft notices ahead of the first open enrollments and asked that the draft notice be written by experts in plain language and that the notices be tested on workers to ensure comprehension.

It’s a Wrap: Cross-Section of Stakeholders Highlight a Potential “Catch-22” for HRA Proposal

CHIR researchers have reviewed comments on the HRA proposal from a broad set of health care stakeholders: state insurance and marketplace officials, health insurers, employers, brokers and benefit advisors, and consumer and union advocates. These comments covered a wide range of issues, but many highlighted a potential “Catch-22” for the proposal: Employers’ interest in and take-up of HRAs for their workforces is dependent on maintaining stable and affordable source of coverage in the individual market. Yet, without proper safeguards, employers’ use of HRAs could actually de-stabilize that market by shifting older, sicker workers to individual policies. Although some groups felt the Departments had proposed adequate safeguards against such a risk, many expressed concern that these safeguards would be insufficient. To the extent individual market coverage is viewed as more expensive and less adequate than traditional group plans, many employers who view health benefits as a critical recruitment and retention tool will be reluctant to send their employees to this market.

A Note on Our Methodology

This blog is intended to provide a summary of comments submitted by specific stakeholder groups: consumer, patient, and union organizations. This is not intended to be a comprehensive report of all 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.