Trump administration loosens restrictions on health reimbursement arrangements

The Trump administration is proposing to allow U.S. workers to use tax-free health reimbursement arrangements to shop for coverage in the individual market. It's another move aimed at expanding consumer choices and lowering costs for small businesses.

The departments of Labor and Treasury and HHS will release a proposed rule Tuesday that would allow employers to fund tax-exempted health reimbursement arrangements to help pay for workers' individual health insurance premiums, undoing Obama-era guidance that restricted HRAs for that purpose.

The proposed rule would also allow employers that offer traditional group health coverage to fund an HRA of up to $1,800 per year to reimburse employees for certain medical expenses, including stand-alone dental benefits or premiums for short-term insurance plans.

Senior administration officials said reducing Obama-era limitations on the use of HRAs would increase health insurance options for workers while reducing costs and administrative burden for employers, particularly small and mid-sized ones.

Importantly, officials said the HRAs used to pay for individual health insurance premiums would count as an offer of coverage to satisfy the employer mandate.

"This proposal should dramatically increase choices for workers whose employers offer an HRA, and with more consumers in the driver's seat, there will be increased incentive for insurers and providers to deliver high quality services at affordable prices," one official said in a call with reporters on Monday.

The Treasury expects that 10 million employees spread across 800,000 employers would have insurance through HRAs, and almost 1 million of those employees would be newly insured. The agencies expect most of the companies that take advantage of the proposed HRA flexibility to have fewer than 50 employees.

The proposed rule harkens back to President Donald Trump's October 2017 executive order directing agencies to expand the availability of association health plans, short-term limited-duration insurance plans, and HRAs. Regulations expanding the use of association health plans and short-term plans have already been finalized.

The proposed rule undoes Obama administration guidance that had prohibited employers from funding HRAs to pay for workers' individual health insurance premiums. Such arrangements wouldn't have satisfied the so-called employer mandate requiring companies with more than 50 full-time employees to provide health benefits and employers would have been required to pay a fine. Officials on Monday said those restrictions have led to a decline in employer-sponsored coverage offered by small employers.

While the new proposed rule does not eliminate the employer mandate penalty, it would allow HRAs used to pay for individual insurance premiums on the exchange or off the exchanges to satisfy the employer mandate, depending on whether the HRA is affordable. That would depend in part on the amount the employer contributes to the HRA. Officials said the agencies will provide additional guidance to address the affordability test. The HRA would be excluded from the employees' income and wages for federal income and payroll tax purposes, and the amount reimbursed would be tax deductible for the employer.

A senior administration official said the proposed rule addresses concerns that employers could choose to offer traditional group coverage to heathy employees while pushing costlier ones to the individual market by including guardrails to prevent discrimination. For instance, an employer that offers an HRA must offer it on the same terms for all employees of a class and may only vary that amount based on age and the number of dependents using the funds.

The proposed rule would also require employers that offer HRAs to allow a worker to opt out and instead claim a federal premium tax credit to purchase coverage on the individual exchanges.