Newly published proposed regulations from the U.S. Departments of Treasury, Health and Human Services, and Labor, if implemented, would significantly change the landscape in the healthcare market, reinstating (in new form) some health care reimbursement options that existed prior to the Affordable Care Act.
Not intended to be effective until final regulations are issued and not before 2020, the proposed rules seek to implement President Trump’s October 12, 2017, Executive Order 13813, which directed the agencies to propose guidance to expand employers’ ability to offer health reimbursement arrangements (HRAs) to their employees. The proposed rules would seek to restore some plan options to employers that ACA regulations subjected to a potential $100 per day per employee penalty. Comments are sought on the proposed regulations through December 28, 2018.
Before the ACA, many small businesses, including farming businesses reimbursed their employee for the cost of coverage they purchased on their own. This reimbursement was tax free to the employee and deductible by the employer. The ACA imposed a number of new “market reforms” that had to be included in all group health insurance policies.
IRS Notices 2013-54 and 2015-17 established that employer reimbursement plans and standalone HRAs are “group health plans.” Consequently, if an employer reimburses its employees for the cost of acquiring health insurance on the individual market, the employer has established a “group health plan” subject to ACA market reforms. Because such a plan imposes an annual dollar limit up to the cost of the individual market coverage purchased, it violates the “no annual dollar limits” requirement of the ACA. Similarly, because standalone employer payment plans do not provide preventive services without cost-sharing in all instances, they violate the preventive services requirements of the ACA. As such, the agencies made clear that such arrangements did not comply with the law and that their sponsors were subject to an excise penalty in an amount up to $100 per day per employee per violation.
In December of 2016, Congress passed a law (as part of the 21st Century Cures Act) that allowed small employers to again offer some HRAs to their employees. Called Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs), these plans are helpful for some employers. If the plan complies with the law, the QSEHRA is deemed not to be a “group plan” subject to ACA market reforms. Significant restrictions, however, have limited their usefulness for many small employers. In particular, if employees must buy coverage on the Marketplace, the QSEHRA will make them ineligible for a premium tax credit (PTC) or, if the coverage is “unaffordable,” the PTC is still reduced by the amount offered by the QSEHRA. The fact that the employer offers the plan (even if the employee does not receive a benefit) triggers the PTC reduction. There is no opt-out. If an employee has insurance coverage through a spouse’s employer, the QSEHRA may reimburse for those premiums. If the spouse can pay those premiums on a tax-free basis, however, the QSEHRA reimbursement is taxable. In other words, the employer could provide the same economic benefit to the employee by raising wages.
If finalized, the proposed regulations would allow employers to establish new forms of payment plans and HRAs to help their employees purchase health care insurance or pay medical expenses. Here are some highlights:
These proposed regulations are in the early stages. We will stay tuned to see how they evolve. In the meantime, individuals who must purchase their health insurance on the individual market continue to struggle with affordability if they are not eligible for premium tax credits.
We will keep you posted.
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