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The Administration Provides Employers and Employees with Enhanced Flexibility in Connection with Health Reimbursement Arrangements

Summary

Final rule by the Treasury Department, Department of Labor, and the Department of Health and Human Services reverses previous Treasury Department guidance blocking tax-advantaged HRAs that were not integrated with a comprehensive employer-sponsored plan.

On June 13, 2019, the Treasury Department, Department of Labor, and the Department of Health and Human Services jointly released a final rule that:

  • Allows all employers to offer their employees health reimbursement arrangements (HRAs) that could be used to buy individual market plans or to pay for Medicare policy premiums (Parts A, B, C, D or Medigap)
  • Creates a “limited excepted benefit” HRA that an employee could use on coverage that is not considered a comprehensive individual plan (alternative coverage) even outside of their employer-sponsored coverage

Importantly, this rule reverses Treasury Department guidance issued during the Obama administration that blocked tax-advantaged HRAs that were not “integrated” with a comprehensive employer-sponsored plan. “The rule underscores the administration’s focus on granting employers and individuals enhanced flexibility, including tax-advantaged, account-based benefits,” said Chad Brooker, associate principal at Avalere. “Long term, this added flexibility may reshape a significant number of employer coverage offerings and result in sizable shifts from employer to individual coverage.”

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