HRAs, AHPs, and STLDIs: What the Executive Order Means for Benefit Plans

President Trump issued Executive Order 13813 on October 12, 2017, directing the Secretaries of Treasury, Labor, and Health and Human Services (the Secretaries) to consider proposing regulations or revising guidance on three health care issues: health reimbursement arrangements (HRAs), short-term limited duration insurance plans (STLDIs) and association health plans (AHPs). Below, I provide a high-level explanation of these issues and note how each may impact benefit plans from employer and worker perspectives.

HRAs, AHPs, and STLDIs: What the Executive Order Means for Benefit Plans

Health Reimbursement Arrangements (HRAs)

One directive that could significantly affect employers and employees is reducing restrictions on HRAs. Currently, because HRAs are considered a type of group health plan funded by tax-exempt employer contributions, they are subject to the Affordable Care Act (ACA) group health plan requirements. Under ACA, health plans, including HRAs, must not impose annual monetary limits on benefits. Because of this, HRAs are effectively barred from funding premiums for employees’ individual health plans. An exception to the ban on annual limits is made if an HRA is fully integrated with a group health plan.

Currently, under a limited small-employer exception to the ban on HRA annual limits, employers with fewer than 50 full-time equivalent employees may fund employee premiums for minimum essential health coverage through stand alone Qualified Small Employer HRAs (QSEHRAs). These QSEHRAs are subject to many strict requirements.

Loosening current HRA restrictions by allowing all employer HRAs to pay for individual employee premiums on a tax-advantaged basis could have several effects. Smaller employers might be interested because it would be less restrictive than offering a QSEHRA and possibly less expensive than providing health insurance directly or raising employees’ salaries to enable them to purchase individual health coverage with after-tax dollars.

Employers of many sizes might consider substituting HRAs for direct health care coverage to protect themselves from volatile increases in health care coverage costs. However, in this scenario employees would bear the risk of rising premiums and volatile health care costs.

The individual insurance market might grow due to more individuals purchasing coverage with employer-funded HRA money. The pricing of individual insurance policies might become more competitive.

In the long- erm, the effect of expanding HRAs on employers’ recruitment and retention efforts and employees’ quality and affordability of health care coverage is unknown.

The Secretaries were given 120 days to consider drafting new regulations or guidance on HRAs.

[Related: Uncover What Is Driving Your Pharmacy Spend]

Short-Term Limited Duration Insurance Plans (STLDIs)

Another directive is expanding availability of STLDIs. These plans generally offer inexpensive limited coverage to individuals. They are intended as a stopgap option with affordable premiums but limited coverage, so individuals can purchase short-term protection when they are not covered by employer-sponsored group health plans or other comprehensive health insurance policies. STLDIs may exclude coverage of preexisting and other conditions, have steep deductibles and place a limit on benefits paid.

Under the executive order directive, STLDI coverage would satisfy the ACA mandate that individuals obtain minimum value health coverage, even though STLDI coverage could be very limited. The order also directs the Secretaries to issue rules extending the length of time this coverage could remain in effect. Currently, STLDIs are only authorized to provide coverage for less than three months. The executive order also suggests STLDI policies could become renewable. In effect, someone could remain on STLDI coverage for many years, undermining the ACA goal that everyone obtain health coverage meeting or exceeding a minimum value. ACA currently requires health care coverage to meet or exceed standards exposing an individual to less risk than a typical STLDI policy.

The potential effect on employers could be that young and healthy individuals might purchase STLDIs instead of COBRA or ACA marketplace coverage after their employment eligibility ends. They might also reject employer-sponsored coverage while employed in favor of purchasing less expensive STLDI policies. This would shrink the employer-sponsored group pool of individuals to fewer and less healthy employees.

The Secretaries were given 60 days to propose regulations or guidance on STLDIs.

Association Health Plans (AHPs)

A third directive, expanding access to AHPs, could allow employers to form AHPs through existing organizations or create new ones for the express purpose of offering group insurance. This is to allow employers to form groups with more purchasing power than they would have on their own.

AHPs are currently allowed with strict limitations. This order directs expansion to allow employers in the same line of business to band together to purchase health care coverage anywhere in the country, including across state lines.

This could affect small employers in different ways. It might make it easier for them to join AHPs to gain bargaining power. On the other hand, AHPs could find legal ways to discourage unhealthy individuals from joining. They could make coverage more affordable but less comprehensive by, for example, not providing the ten essential health benefits that small group plans must currently cover. Unhealthy individuals might migrate toward employer-sponsored group health plan coverage (other than AHPs), leading to adverse selection for employers.

The Secretary of Labor was given 60 days to propose regulations or guidance on AHPs.

Public Can Comment

If the Secretaries propose regulations in accordance with these directives, the public will be invited to comment, and the Secretaries will consider and evaluate the comments. Details on how and when to comment would be included in the proposals.

Watch for the details on these three issues to unfold on the Future of ACA page of the International Foundation Benefits Transition Tracker.

Lois Gleason, CEBS
Lois Gleason, CEBS
Senior Information/Research Specialist at the International Foundation

 

Comment (1)

  1. Patrick Pine

    Many state s have laws and regulations affecting insurance including association plans (MEWAs) . While self insured ERISA plans have a federal preemption of state regulation, it is unclear how “association plans” would meet ERISA requirements. In other words it is questionable whether an executive order trumps state law.

    Reply

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