U.S. Departments of Health and Human Services Finalizes A New Rule Expanding HRAs and What That Means For Your COBRA Administration
Earlier this month, the U.S. Departments of Health and Human Services, Labor, and the Treasury finalized a new policy...
...that will provide employers, including small businesses, an improved option to provide health insurance coverage through the expansion of health reimbursement arrangements (HRAs). According to The Departments, its estimated that once employers have fully adjusted to the expansion of HRAs it will benefit over 800,000 employers and impact over 11 million employees and family members. Set to go into effect January of 2020, the new rule will allow employers to use what is being referred to as “Individual Coverage HRAs” that will offer their employees tax-preferred funds to pay for the cost of health insurance coverage that workers purchase in the individual market. These individual coverage HRAs are designed to give working Americans and their dependents more control over their healthcare by providing an additional way for employers to finance health insurance. The new rule is the Department of Health and Human Services’ response to President Trump’s executive order to promote more healthcare choices and competition in the US.
Per an HHS press release, “The HRA rule makes it easier for small businesses to compete with larger businesses by creating another option for financing worker health insurance coverage. The rule enables businesses to better focus on serving their customers and growing their businesses—and not on navigating and managing complex health benefit designs.”
As the cost of healthcare in America has continued to go up and up, a large number of small businesses have opted to either not provide insurance to their employees altogether, or if they do, they only offer one plan that might not meet the needs of their workers. The HRA rule was legislated as a means for small businesses to compete with the benefit programs of larger corporations by producing another option for financing employee health insurance. The administration’s rule would overturn the ACA provision which limits the use of traditional HRAs to pay for only out-of-pocket medical expenses, but not insurance premiums. By allowing employees to purchase health coverage on their own with employer funds, administration officials believe more competition will be brought to the individual marketplace.
According to the HHS, in addition to allowing individual coverage HRAs, the HRA rule also creates an excepted benefit HRA. At large, this aspect of the rule permits employers that offer traditional group health plans to provide an excepted benefit HRA of up to $1,800 per year (indexed to inflation after 2020), even if the employee doesn’t enroll in the traditional group health plan, and to reimburse an employee for certain qualified medical expenses, including premiums for vision, dental, and short-term, limited-duration insurance. This provision will also benefit employees who have been opting out of their employer’s traditional group health plan because the employee share of premiums is too expensive.
Many bipartisan organizations have applauded the approved regulation, including the Employers Council on Flexible Compensation. Stating, “ECFC appreciates the efforts of the Administration for proposing regulations that would expand the opportunities for employers to offer HRAs to their employees. This is a positive step for employers and American workers. ECFC will continue to review the regulations and look forward to providing additional comments to the Administration.”
There are of course guidelines and exceptions for employers in terms of how this ruling with effect certain companies and what companies will be entitled to offer Individual Coverage HRAs. To learn more about the new ruling you can read the provision in its entirety here, or better yet, the HHS released a more practical FAQ that breaks down the ruling in more simplistic terms.
What This Means For Your COBRA Administration
For those unfamiliar, HRAs are a tax-advantaged benefit that helps both employers and employees save on the cost of healthcare and they are subject to COBRA. Any employee of a COBRA mandated company who experiences a qualifying event must be given the opportunity to elect and continue their participation in the employer sponsored HRA if they had it at the time of their qualifying event. It is the employer’s responsibility to determine the premium amount the participant would need to pay to continue using the HRA on COBRA. At the beginning of the plan year the employer should establish a reasonable premium amount applicable to the HRA benefit being offered, both for single and family coverages. As the premium is determined at the start of the plan year, it cannot take into consideration an employee’s account balance at the time of a qualifying event.
If administrating COBRA wasn’t already complex enough, if this new ruling to expand HRAs is utilized by as many companies as the Trump administration believes it will, the stakes will be even higher to assure proper compliance when it comes to COBRA and these new HRAs. For example, once this ruling goes into effect at the beginning of 2020, employees can elect Excepted Benefits HRAs even if they do not enroll in the traditional group health plan, or in any other coverages. That being said, it would be very easy for any HR personnel to make the assumption that if an employee wasn’t on any of the other employer sponsored plans (dental, medical, or vision), that they would not need to provide an initial rights notice or offer COBRA, which would not be the case if the employee elects the HRA. For any employers or brokers who plan on taking advantage of this new ruling, it is more paramount now than ever to have a trustworthy COBRA administration process in place.