Proposed Rule Would Expand Use of Health Reimbursement Arrangements

October 26, 2018

Regulators have issued a proposed rule to allow health reimbursement accounts (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 proposal primarily affects small employers.  Fulfilling the requirement in Executive Order 13813 to “increase the usability of HRAs,” it also allows COBRA premiums and excepted benefits such as vision and dental coverage, long-term care insurance, Medicare supplement coverage, and health flex plans.

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 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.

HRAs still would not satisfy the ACA employer mandate and large employers would still be subject to those penalties, although the IRS plans to issue further guidance regarding a safe harbor for determining whether an HRA used to purchase individual health coverage meets the ACA’s minimum value standard.

Outlook:  A final rule is not expected until the end of 2019 and will likely be challenged in court.