Proponents of consumer-driven health care have long advocated for an arrangement under which employers provide a sum of money to their employees, with which employees can purchase coverage in the individual health insurance market without any further employer oversight or involvement. The regulators refer to this sort of employer contribution as a “Health Reimbursement Arrangement” or “HRA.” Beginning in 2014, this approach will run afoul of the ban on annual limits imposed by the Patient Protection and Affordable Care Act (the Act). A September 27, 2012 Wall Street Journal article suggests an alternative. The Journal reported that Sears Holdings Corp. and Darden Restaurants, Inc. have adopted a consumer-driven health care arrangement under which employees can access medical coverage through an online marketplace—or “private health insurance exchange.” While the Journal does not provide details, the approach works equally well whether the employee contributions are paid under a cafeteria plan or partially subsidized by an HRA.

Consumer-driven health care designs that provide unfettered access to individual market coverage pose a series of daunting compliance challenges. As noted above, the unlimited employee choice model runs afoul of the Act’s bar on annual and lifetime limits. (These limits are currently in effect, but their enforcement has been suspended under a blanket waiver granted by the Department of Health and Human Services that expires at the end of 2013.) Also coming on line in 2014 are the Act’s employer-shared responsibility (aka “pay-or-play”) rules. Here, an employer’s offer to make funds available to enable the purchase of individual market products appears to violate the Act’s “minimum value” requirement. By wrapping the employer contribution, if any, into a group market insurance product, private exchanges seek to address these and other issues.

Read a comprehensive discussion of the relevant regulatory issues.