Expanding the Reach of Health Reimbursement Arrangements

September 13, 2019

Will a new final rule expanding the use of health reimbursement arrangements shake up the markets as much as some fear?

Late last year, HHS, in partnership with the Departments of Labor and Treasury, offered a new proposed rule expanding the permitted uses of health reimbursement arrangements (HRAs), an employer-funded health benefit, not unlike a personal Health Savings Account (HSA), where employers offer employees a regular allowance of tax-free funds that can be used toward health insurance premiums as well as out-of-pocket medical expenses. The proposed rule received more than 500 comments in response-many of which voiced concerns that the expansion of such accounts, without proper regulation, could result in discrimination toward individuals with pre-existing health conditions.

For example, in an open comment to the issuing departments, Keith Fontenot, executive vice president of policy and strategy at America’s Health Insurance Plans (AHIP), cautioned, for HRAs to give employers and consumers more health insurance options, close attention must be paid to the way such arrangements are implemented.

“With proper safeguards and careful planning, HRAs will create new opportunities for businesses of all sizes to offer new coverage options to their employees while strengthening the individual market with new potential enrollees,” he wrote in the open comment. “However, enforceable safeguards and non-discrimination protections are essential for these options to work for Americans.”

He proceeded to call on the Labor, Treasury, and HHS to offer adequate consumer protections, ensure coverage is affordable for employees, preserve HIPAA-excepted benefits, and to allow enough time to for thoughtful, appropriate implementation. While such comments were reviewed, and a few changes made to the proposed rule in response to public concerns, mostly around integration requirements, a final rule was published on the Federal Register in June 2019. But while many are nervous about what the effects will be on healthcare reimbursements, David Jordan, PhD, chair of the Healthcare Administration and Systems Department at Slippery Rock University’s School of Business, says it will be important to take a wait-and-see approach.

“Unfortunately, none of us has a crystal ball,” he says. “It’s hard to know what will happen in the marketplace. I think the comments have raised some very legitimate concerns that we often have when we are looking at different insurance models that could lead to a shift in the risk pool that may have adverse impacts for people with pre-existing conditions, as a bunch of unhealthier people shift to this model and the healthier people go to another one.”

That said, Jordan says it appears the final rule has added guidance to help inhibit employers “gaming the system,” and that HRA expansion could introduce more choice for both employers and consumers in terms of health plan options. Yet, what no rule can do is change the fact that the employer “owns” the HRA.

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“In some ways, the HSA offers more latitude and flexibility in the long run,” he says. “Individuals own it and, if they can follow through with it throughout their entire career, filling it with a pretty significant sum of tax-free dollars, they can build up some significant equity. But with the HRA, if an individual changes jobs, they can use the HRA for COBRA coverage, but that’s it. There is a potential for loss there.”

He said that healthcare organizations should keep an eye on not only how employers respond to the new rule once it goes live in January 2020, but also other what other stakeholders do in response to the expansion of HRAs.

“There are two parts to this: smaller employers may want offer their employees something but they may have difficulty affording it at current rates and they then have to think about how to manage the group health component of it-there’s still some complexity involved to even administering these arrangements,” Jordan explains. “My curiosity is to see what brokers will do, what professional organizations will do, and what insurance companies will do to possibly assist with the management of that component. In addition, if an employer chooses an HRA, will it change access to what plans are available to them on the exchange? All of these things will make a difference in how many of these kinds of arrangements are actually adopted.”

Jordan hopes that this kind of incremental move towards more insurance options for employers will help broaden both employer and consumer choices in the long run. He said it may actually encourage payer organizations to build up their product market business in response.

“It’s possible that HRAs can drive insurance companies to offer some different variations of different plans, which can help the private market in the long run,” he says. “But even if that occurs, you still have the challenges of how these arrangements will be administered, what options are really open to employers and consumers, and, as ever, how providers are going to get paid. It’s going to take some time to work that all out. And we’re going to have to be patient to see how it all, ultimately, plays out.”

Kayt Sukel is a science and health writer based outside Houston.