HRAs have been making headlines these past couple of weeks. Want to know what all the buzz is about? For one, starting January 2020, companies will have more options and flexibility for benefits for their staff with the emergence of the Individual Coverage HRA and the Excepted Benefit HRA. Is your company or client a good candidate?
What is an HRA and where did it come from?
An HRA is a tool that allows business owners to set aside a certain amount of money each month to reimburse their employees for marketplace plan premiums and medical expenses on a tax-advantaged basis. The benefit for the business owner is that it's pre-tax, putting small businesses on nearly the same playing field as large corporations when it comes to tax breaks for health benefits.
The basic idea is that prior to the changes in the rules surrounding HRAs, small businesses have been offering pricy, one-size-fits-all group health insurance plans that creep up in price year over year.
For many small business owners, there’s the added burden of having to choose and administer a plan for employees and handle all the paperwork. For their employees, they might be stuck in a plan that doesn’t really suit them without any other options.
That all changed when Obama signed the 21st Century Cures Act, which created the Qualified Small Employer Health Reimbursement Arrangement (QSEHRA), which is what my startup client Take Command Health specializes in.
What’s so great about HRAs?
The expansion of HRAs, one of the key aims of the Executive Order from President Trump in 2017, created two new tools with more features and flexibility than their predecessor. The regulatory rules that were finalized last week expand the benefits of QSEHRAs to a larger footprint of businesses.
HRAs allow employers to get out of the insurance “risk” game. For any employer that is over 50 employees, whether they are currently self-insured or fully-insured, they are effectively responsible for their employees’ healthcare spend.
Some employers are figuring out how to manage costs effectively: they are invested in wellness programs, engaged in high-performance network design, and interested in helping employees with chronic conditions effectively manage costs. Other employers would rather not try to manage employee healthcare spend. If that’s you, an ICHRA is the way to go. You can still offer generous benefits (or not generous, up to you) and your costs are fixed because you have no risk to manage.
The good news for the new HRAs coming in January is that instead of limiting participation to companies with less than 50 employees with a set contribution limit ($5150 for individuals / $10,450 for families) like a QSEHRA or keeping up with participation requirements like a group plan, it can be any sized company with no minimum or max contributions at whatever monthly cost you want.
What comes next
We think HRAs are the way of the future, similar to the shift from pensions to 401Ks, which is why my client is working hard to create the first Individual Coverage HRA tools on the market. With a bipartisan history and no loud opposition to the new regulatory changes, we are confident in the longevity of HRAs. The White House estimates about 800,000 companies will opt for these new HRAs over the next 5 years and will benefit around 11 million employees. We think it will be even more.
Timing-wise, the new HRAs are going to be available January 2020, which means employers need to consider them prior to open enrollment to get their ducks in a row.
If you want to learn more, you can check out the guide we just published on the new Individual Coverage HRA, or our CEO’s recent blog on the new rules, or a press release on our White House visit, or watch the President’s remarks on the matter.