Final Rule Would Expand Use of Health Reimbursement Arrangements

June 14, 2019

The Trump administration has issued a final rule to allow tax-preferred health reimbursement arrangements (HRAs) to be used under certain conditions to purchase coverage in the individual market, which could provide a potential defined contribution option for employer-provided health care benefits should Congress zero out the ACA’s employer mandate penalty.

The final rule primarily affects small employers that are not subject to the employer mandate penalty.  For a large employer, the amount the employer contributes to the HRA would have to meet the ACA’s affordability standard to avoid the employer mandate penalty.  The IRS will provide more information on this soon.

Other aspects of the proposal include:

  • Employers would not be permitted to offer both a traditional group health plan and an HRA to purchase individual health coverage to the same class of employees (e.g., full-time, part-time, CBA unit, etc.);

  • HRAs cannot be used in conjunction with ACA premium tax subsidies to purchase coverage in the ACA exchanges; and

  • HRAs would be allowed for excepted benefits but would be limited to $1,800 annually and must be made available under the same terms to similarly situated individuals—these HRAs could be carried over and be used for COBRA premiums.

Outlook:  Although employers can start offering Individual Coverage HRAs and Excepted Benefit HRAs on January 1, 2020, the final rule is likely to be challenged in court and subject to congressional oversight hearings in the House.