Trump administration expands health reimbursement arrangements for marketplace coverage

Stack of health insurance application forms with stethoscope on top
The Trump administration is planning to release new rule on Tuesday expanding the use of HRAs. (Getty/vinnstock)

The Trump administration plans to release a proposed rule on Tuesday morning allowing businesses to give employees money to purchase health insurance on the individual marketplace, a move senior officials say will expand choices for employees that work at small businesses.

The proposed rule, issued by the Department of Health and Human Services (HHS), the Department of Labor (DOL) and the Department of Treasury, would restructure Obama-era regulations that limited the use of employer-funded accounts known as health reimbursement arrangements (HRA). The proposal is part of President Donald Trump's "Promoting Healthcare Choice and Competition" executive order issued last year, which tasked the agencies with expanding the use of HRAs.

Senior administration officials said the proposed change would bring more competition to the individual marketplace by giving employees the chance to purchase health coverage on their own. The rule includes "carefully constructed guardrails" to prevent employers from keeping healthy employees on their company plans and incentivizing high-cost employees to seek coverage elsewhere.

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That issue was a primary concern under the Obama administration, which barred the use of HRAs for premium assistance. The 21st Century Cures Act established Qualified Small Employer Health Reimbursement Accounts (QSEHRA), but those are subject to stringent limitations.

RELATED: The unsung beneficiaries of Obamacare marketplaces: small businesses

Under the new rule, HRA money would remain exempt from federal and payroll income taxes for employers and employees. Additionally, employers with traditional coverage would be permitted to reserve $1,800 for supplemental benefits like vision, dental and short-term health plans.

Officials estimate 10 million people would purchase insurance through HRAs, including 1 million people that were not previously insured. Most of those people would be concentrated in small and mid-sized businesses.

The proposed change would "unleash consumerism" and "spur innovation among providers and insurers that directly compete for consumer dollars," one senior official said. Officials expect 7 million people will be added to the individual marketplace over the next 10 years.

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The rule does not change the Affordable Care Act's employer mandate, which requires employers with 50 or more employees to offer coverage to 95% of full-time employees. Administration officials expect the proposal will have the biggest impact on small businesses with less than 50 employees.

However, the rule could scale back the use of premium subsidies. If the HRA is considered "affordable" based on the amount provided by the employer, the employee would not be eligible for a premium tax credit. If the HRA fails to meet those minimum requirements, the employee could choose between a premium tax credit and the HRA.

Overall, the rule will "create a greater degree of value in healthcare and the health benefits marketplace than we would otherwise see," one official said.

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