Today, the Trump administration released a final rule on Health Reimbursement Arrangements (HRAs).  This is great news for employers, particularly small companies, and their employees.  It is an excellent example of how the Trump administration is using the private sector and the free market to provide more choice, improve competition, and drive down healthcare costs without heavy-handed government mandates.

It is expected this rule change will benefit 800,000 employers and more than 11 million employees and their families, including an estimated 800,000 citizens that are uninsured.  Employers and their employees will be able to utilize this change starting January 1, 2020.  This final rule completes the effort President Trump undertook on October 12, 2017 with Executive Order 13813 that sought to improve choice and lower costs in obtaining health insurance through association health plans (AHP), short-term limited-duration insurance (STLD), and HRAs.

Due to inaction by congressional Republicans, particularly in the Senate, after promising for seven years to repeal and replace the Patient Protection and Affordable Care Act (ACA), or Obamacare, the Trump administration has undertaken several initiatives to fix the individual health insurance market that had been severely damaged.  These actions, along with changes being made under Sec. 1332 of the ACA, will help provide more choice and lower costs for Americans.

An HRA is like a health savings account (HSA) or flexible spending account (FSA) in that it provides a tax advantage when purchasing qualified medical expenses.  However, unlike the HSA or FSA, the employer owns and solely funds the account for the employee.  

Starting in January 2020, an employer will be able to provide their employees with tax-preferred funds to purchase their own health insurance in the individual market, under certain conditions.  Importantly, an employer with 50 employees or more could offer an HRA to an employee and satisfy the ACA employer mandate, provided a sufficient amount is offered.

You can read more that kind of changes the HRA rule will bring about and how it affects employers and employees here.

It is hoped that this new rule will stop the steady 10-year decline of small businesses not offering any health insurance to their employees and help those employers that offer only one type of plan to their employees, enabling them to provide more choices instead.  Plus, it will help make it easier for small employers to compete against larger companies by being able to finance health insurance for their employees.

In addition, the rule change also allows an “excepted benefit HRA” that will allow employers that already offer a group healthcare plan to provide tax-preferred funding up to $1,800 a year that will enable their employees to pay for certain medical expenses, including premiums for vision, dental and STLD plans.  This contribution will be indexed to inflation after 2020.  Even employees that do not participate in their group plan will be able to utilize the excepted benefit HRA.

You can read the rule here and the press release here.