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Small Business Employee Benefits and HR Blog

New Executive Order Directs Federal Departments to Expand Personalized Health Benefits

A new executive order from President Donald Trump seeks to expand personalized health benefits for U.S. businesses.

The order, issued Thursday, October 12, directs the Secretaries of the Treasury, Labor, and Health and Human Services to consider how to expand the flexibility and use of health reimbursement arrangements (HRAs).

HRAs are an important supporting structure of personalized benefits, which is a new way to offer employee benefits. These arrangements allow small businesses to reimburse employees tax-free for health insurance and medical expenses.

By expanding HRAs, the order would allow more businesses to adopt personalized health benefits. It would also increase the level of personalization possible for employees.

In this post, we’ll examine the language of the executive order, what it means, and what will happen next.

What does the executive order actually say?

The executive order says the Trump administration will prioritize HRAs as an area for improvement. Doing so will “provide many Americans, including employees who work at small businesses, with more options for financing their health care,” the order claims.

Specifically, the order says:

Within 120 days of the date of this order, the Secretaries of the Treasury, Labor, and Health and Human Services shall consider proposing regulations or revising guidance, to the extent permitted by law and supported by sound policy, to increase the usability of HRAs, to expand employers’ ability to offer HRAs to their employees, and to allow HRAs to be used in conjunction with nongroup coverage.

The order also directs the Secretaries to evaluate public comments on these regulations and incorporate them into their work.

What would expanded HRAs look like?

The Secretaries of the Treasury, Labor, and Health and Human Services have a lot of freedom as far as which recommendations they make to expand HRAs. The executive order’s most likely intention, though, is to allow more types of HRAs to pay for premiums in the individual market.

Right now, there are two types of HRAs that allow businesses to reimburse employees’ individual premiums: the one-person stand-alone HRA and the Qualified Small Employer HRA (QSEHRA). Both of these HRAs are restricted to certain types of businesses and come with other limitations (see below).

For all other businesses, HRAs can only be used when integrated with a group health policy. If expanded, HRAs could be offered independent of a group health policy.

This model could allow businesses to decide:

  • The amount of employees’ HRA allowances, with no maximum or minimum contribution amounts. The business could decide how much they want to make available for employees to spend on their health care needs. Because there are no federal limitations on this amount, businesses could give as much or as little as they chose. Additionally, employees receiving this HRA may not be subject to premium tax credit coordination, which requires employees to reduce the amount of their premium tax credit by the amount of their HRA allowance. However, employees need to make sure they're only receiving reimbursements for the sum of their premium after premium tax credits have been applied. For example, an employee with a $400 premium and a $300 premium tax credit would only be eligibile to have $100 reimbursed from the HRA.
  • Whether to offer different allowance amounts to different employees. Businesses could set different allowance amounts for different employees, as long as these differences relate to job-based criteria. For example, the business could choose to give managers $350 a month, while entry-level staff would receive $200. 
  • What happens to unused balances at the end of the year. The business would be free to decide whether employees’ unused balances could “roll over” to the next year or if the balance would be returned to the business.
  • What types of medical expenses to reimburse. The business could choose to reimburse all expenses allowed under IRS Publication 502 or to limit reimbursable expenses to a certain number of categories. This includes the ability to reimburse the premiums employees pay for their individual insurance policies. 
  • Employee eligibility criteria. The business could choose to base eligibility on criteria like hours worked or length of employment.

This expanded HRA would likely be available to businesses of all sizes. However, it is unclear how these HRAs might impact the employer shared responsibility fee.

Wasn’t there already something like this?

If followed, the executive order would effectively bring back the stand-alone HRA.

The stand-alone HRA was widely used before 2014, when the IRS and the Departments of Labor and Health and Human Services issued guidance that seriously limited it.

According to the Departments’ guidance, the HRA is a group health plan that must comply with Affordable Care Act requirements—including the law’s preventive services coverage mandate and prohibition on annual limits. As such, businesses couldn’t use a stand-alone HRA to pay their employees’ individual premiums.

Instead, businesses could only use an HRA in conjunction with an ACA-compliant group health policy. Stand-alone HRAs that only covered one person were also permitted.

What about the QSEHRA?

An exception on HRAs was granted with the passage of the 21st Century Cures Act in December 2016.

This law allows small businesses with fewer than 50 FTE employees to reimburse employees for individual health insurance premiums and other health care expenses. This arrangement is called a qualified small employer health reimbursement arrangement (QSEHRA), and it has many of the same features as the old stand-alone HRA.

For example, the QSEHRA allows businesses to decide what types of medical expenses to reimburse and what happens to unused balances at the end of the year.

The QSEHRA is more limited than the stand-alone HRA, though. Annual employee allowances are limited to $5,050 for self-only employees and $10,250 for employees with a family in 2018. These allowances must be offered to all eligible employees on the same terms, and benefit participants must coordinate their allowance amount with any premium tax credits.

By contrast, stand-alone HRAs would be available to a larger number of businesses and allow for greater personalization.

So how do all of these HRAs compare with each other?

Here’s a chart to help distinguish the stand-alone HRA—which could be the model for the Trump administration’s newly expanded HRAs—and the existing HRA options: the QSEHRA, the integrated HRA, and the one-person stand-alone HRA.

 

 

Stand-alone HRA

QSEHRA

Integrated HRA

One-person stand-alone HRA

Business size restrictions

None

Limited to businesses with fewer than 50 FTE employees

None

Limited to one benefit participant

Allowance amount restrictions

No minimum or maximum contribution requirements. Businesses can give different employees different allowance amounts based on job-based criteria.

Limited to $5,050 for self-only employees and $10,250 for employees with a family in 2018. Businesses cannot give different employees different allowance amounts based on any criteria.

No minimum or maximum contribution requirements. Businesses can give different employees different allowance amounts based on job-based criteria.

No minimum or maximum contribution requirements. Businesses can give different employees different allowance amounts based on job-based criteria.

Group health policy requirements

None

Can’t be offered with a group health policy

Must be offered with a group health policy

None

Individual health policies permitted

Yes

Yes

No

Yes

Premium tax credit coordination requirements

Employees can only receive reimbursements for the sum of their premium after premium tax credits have been applied.

Employees must reduce their premium tax credit by the amount of their HRA allowance.

N/A. These HRAs can’t reimburse employees for individual premiums.

Employees can only receive reimbursements for the sum of their premium after premium tax credits have been applied.

Annual rollover permitted

Yes

Yes

Yes

Yes

Medical expenses available for reimbursement

Any or all items listed in IRS Publication 502

Any or all items listed in IRS Publication 502

Any or all items listed in IRS Publication 502 with the exception of individual insurance premiums

Any or all items listed in IRS Publication 502

Employee eligibility guidelines

None

All full-time employees are eligible. Businesses can decide on part-time employee eligibility.

None

Only one employee may be eligible.


What will happen next?

The Secretaries of the Treasury, Labor, and Health and Human Services have 120 days to gather public comment and issue guidance on how to expand HRAs.

This guidance could contain any number of recommendations and could be implemented on any date—including a date in the past, providing retroactive relief.

Subscribe to the PeopleKeep blog for ongoing updates on this and other executive orders affecting personalized benefits.

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