New HRA Rule Could Reshape Enrollment and Access in Individual and Employer Markets

Summary

A proposed rule released by the Treasury Department, Department of Labor, and Department of Health and Human Services would expand the allowed uses of employer-sponsored Health Reimbursement Arrangements (HRA). Comments on the rule can be submitted until December 28, 2018.

The proposed rule, released on October 23, would provide new flexibilities for employers to use HRAs to transition some or all enrollees into the individual market or into alternative plans. While only 10% of covered employees are currently providing HRAs, that number is likely to grow over time as more employers adopt these new flexibilities. If adoption increases under the finalized HRA rule, it could restructure the risk pools and coverage landscapes in both the individual and group insurance markets.

Currently, all large and most small employers are prohibited from using HRAs to help their employees purchase coverage in the individual market. A 2013 IRS guidance required HRAs to be “integrated” with minimum value employer-sponsored group coverage. While the 21st Century Cures Act introduced the qualified small employer health reimbursement arrangement (QSEHRA) to allow certain small groups to use HRAs for individual market plans, no similar flexibility has been given to large employers.

This proposed rule would present employers with 2 new options:

The alternative coverage under the second option could include short-term limited duration insurance (STLDI), fixed indemnity plans (such as accident and sickness or specific disease policies), healthcare sharing ministries, direct primary care, or farm bureau/association plans. These alternative plans may have significantly different—often fewer—covered benefits and less generous cost-sharing policies than current employer-sponsored insurance (ESI).

Changes to the individual and small group market may be more likely to occur in the near and medium term, whereas shifts in the large employer market may unfold over a longer time period. Market dynamics will also vary by state and by type of plan.

Implications of the Proposed Rule

The most significant impacts to each market and their current enrollees will likely relate to changes in the risk pools of each market and employer groups and the impact of any changes to enrollee access in new or existing plan options (including changes to covered benefits as well as to premiums and out-of-pocket costs).