Individual Coverage HRAs will enable employers to provide their workers with a fixed amount of money in a tax-preferred account each year that the worker can then use to buy coverage in the individual market. In an attempt to prevent employers from using the new HRAs to steer their sicker workers into the individual market, regulators have built certain “guardrails” into the rules. These include a prohibition on offering both a traditional group health plan and an Individual Coverage HRA to workers within the same class as well as a requirement that the HRA must be offered on the same terms and conditions to all workers within a given class. (However, the dollar amount of the Individual Coverage HRA may differ based on age or number of eligible dependents.)
Since enrollment in an Individual Coverage HRA would cause a worker to lose eligibility for a premium tax credit when purchasing individual health insurance through a public exchange, the regulations also require that workers be allowed to opt out of coverage and reimbursement at least once each plan year.
Proponents of the regulations contend that they will offer businesses, particularly small businesses, and their workers greater options and control over their health coverage. Since the new HRAs will be more affordable than traditional group health coverage, these new options are expected to make it easier for small businesses to compete with larger businesses for talent. The most ardent supporters also believe that the expected increase in the individual market will spur competition, resulting in better options for consumers.
Others have expressed several areas of concern with regard to the new regulations. First, limitations on age variations in HRA contributions mean that older workers will always pay more than younger workers for the same coverage, unless the HRA contributions are large enough to cover the full premium.
Second, while the regulations require that workers be enrolled in a suitable individual health plan in order to participate in an Individual Coverage HRA, substantiation requirements are virtually non-existent. This is likely to result in healthier workers choosing coverage under non-compliant plans or purchasing no insurance at all. This could significantly increase the risk to the individual market and result in large premium increases.
Finally, the January 1, 2020 effective date gives exchanges little time to make the necessary changes to enrollment systems and materials. Many state-based exchanges have already made it clear that they will not be ready, and it is highly unlikely that the federal exchange will be ready either. This may result in some consumers receiving financial assistance for which they are not eligible, and which they will ultimately be expected to pay back.
It will probably take several years before the true effect of these new regulations is known. In the meantime, it’s important to note that they make no changes to the existing HRA options currently available to employers.