Proposed HRA rule could reshape health coverage for small businesses

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A new proposed law loosening restrictions on health reimbursement accounts could significantly expand the use of such accounts and make them a much bigger part of employers’ healthcare offerings.

The Trump administration this week proposed to allow employers to fund tax-exempted HRAs to help pay for employees’ individual health insurance premiums, undoing Obama-era guidance that restricted HRAs for that purpose. HRAs currently have to be connected to a group health plan, with some exceptions for retirees, and are typically used to pay out-of-pocket expenses and for other medical and dental services defined by the IRS.

The proposed rule also would allow employers that offer traditional group health coverage to fund an HRA of up to $1,800 each year to reimburse employees for “qualified medical expenses” such as stand-alone dental visits.

Employer and benefits industry groups have urged the administration to loosen HRA restrictions so the accounts could become more widely used. An Obama administration guidance in 2013 prohibited using an HRA to pay premiums for individual market coverage.

HRA offerings have stayed modest and relatively flat over the years, in part because of such restrictions — 19% of employers offer HRAs, just a 2% increase since 2014.

American Benefits Council President James Klein called the proposed rule a “positive step” that would “provide employers and employees more flexibility in meeting health coverage needs of workers and their families.”

The National Association for the Self-Employed, a self-employed and small business advocacy group that had been advocating for HRA changes for five years, said flexibility in the use of HRAs is particularly important for small and self-employed companies, since many of them obtain healthcare in the individual market. The Trump administration said the rule would “dramatically” increase health insurance options for employees of small businesses, bringing coverage to nearly 1 million currently uninsured individuals.

The new rules are proposed to apply for plan years beginning on and after Jan. 1, 2020, and comments are requested by Dec. 28, 2018.

“Ultimately, whether employers use the opportunities envisioned by this initiative will depend on the terms of the final rule and whether workers can obtain good and affordable coverage in the individual market,” Klein says.

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