After months of Congressional attempts to “repeal and replace” the ACA ended in failure, President Trump has issued an Executive Order and taken other actions that could significantly reshape the health care market. We are resuming our series on the changing state of the ACA to cover these developments. This issue covers a part of the Executive Order that could be implemented very quickly, allowing employers to use HRAs to reimburse employers for their individual insurance premiums.
Since our last update, the Senate failed in several attempts to pass either the House bill or any others to repeal and replace the ACA. On October 12, a frustrated President Trump issued an Executive Order designed to do as much as could be accomplished without legislation. Most of the Executive Order concerns changing the rules for Association Health Plans, and will be covered in a future Update. But one section directs the IRS, DOL, and HHS to act within 120 days to prepare regulations or revise guidance to increase the usability of HRAs “and to allow HRAs to be used in conjunction with non-group coverage.”
As we previously reported here, “Premium Reimbursement Arrangements” are a long-standing practice under which (usually small) employers would reimburse their employees, on a tax-free basis, for premiums that the employee paid for individual health insurance. (HRAs could also be used for this purpose, and might cover other medical expenses too.) The tax status of such arrangements is well-established, but under the ACA the IRS took the position in Notice 2013-54 that such arrangements would violate certain provisions of the ACA and subject the employers to hefty penalties. The IRS and later legislation provided penalty relief, but still expected all such arrangements to be abandoned by the end of 2016.
The Executive Order clearly aims to revive the use of HRAs in such arrangements. Because the IRS position disallowing their use under the ACA was taken in IRS Notices, FAQs, and other informal guidance, its position could be reversed relatively quickly and without the public comment period required by formal rulemaking. However it is unlikely that it will be in place in time for the Exchange open enrollment period that starts November 1, so it may not have much immediate impact on new enrollees in the individual market. We will report on the new guidance that emerges. Some commentators have speculated that an influx of HRA-funded employees could help the individual insurance market, while others have pointed out that employers may hesitate to send their employees to an individual market that is currently in turmoil. It is also unclear how the availability of reimbursement from an HRA would affect an individual who would otherwise be eligible for a subsidy in the individual market.
Interestingly, the Executive Order and accompanying publicity did not mention the fact that such HRAs are already available under limited circumstances in the Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) program enacted late in 2016. Read our previous advisory on this here. The QSEHRA program required prompt action to adopt it in time for 2017, so got off to a slow start. The Executive Order is intended to expand the use of HRAs beyond the QSEHRA program, although QSEHRAs will continue to remain available even if the broader use of HRAs is delayed or challenged.