Last week was a big push by the Trump administration to reduce benefit burdens on small businesses by re-energizing Health Reimbursement Accounts (HRAs) and 401Ks. These efforts will make an impact towards coverage of small employer employees with both healthcare and 401K access and allow these employers to be more competitive in the war for talent.
In October 2017, President Trump signed an executive order (EO) directing federal agencies to review the Affordable Care Act (ACA) regulatory framework. Specifically, the EO directed the agencies to bring back to life the HRA as a viable tool to control healthcare costs. Under current regulations, if the group policy provides a stand-alone HRA to be used for the purchase of insurance coverage on the individual market, it would not be considered integrated with that coverage under the Affordable Care Act (ACA) and would, therefore, be illegal. Currently, HRAs that are used as a part of the group plan are considered integrated and legal.
On October 23rd, the Trump administration proposed regulation that would have a significant impact on small employers. These proposed regulations would substantially expand the use of tax-advantaged health reimbursement accounts (HRAs) by allowing employers to pay for their workers' health plans in the individual market. In effect these changes could move small employers to defined contribution approaches that would allow budget control over increasing expenses. Although healthcare is expected to rise 5% or so in cost in 2019, the increase is still almost twice as high as inflation.
Under the Obama administration, there was a genuine distrust of the HRA. Guidance issued prevented the use of HRAs, cafeteria plans, or other employer arrangements to buy such coverage. The thought was that employers would push less healthy employees onto the exchanges. However, the proposed rule adds safeguards to address these concerns. Nondiscrimination will still apply. Although employers may offer different types of employee coverage through either an HRA or a traditional group health plan, all employees within the same class (e.g., full-time, part-time, collectively bargained employees, and employees working at the same site) would have to be offered the same type of plan and generally receive the same amount of money.
The proposed rule would allow for integration of the HRA with the purchase of an individual plan sold through the public exchange. Under a special rule, employees could pay the portion of the premiums not covered by the HRA for off-exchange policies with pretax cafeteria plan salary reductions. The HRA contribution could be as much as an employer would have made for the premiums of the employer-sponsored plan. Further, the proposed regulations would allow an employer that offers a group health plan to also offer up to $1,800 per year (indexed for inflation) to cover out-of-pocket costs and premiums for excepted benefit coverage such as dental or vision coverage, COBRA, or short-term limited duration insurance. However, an employer can only offer one type of HRA, not both an excepted-benefit or integrated HRA for purchase of individual plan.
Still unknown is how the these integrated HRAs count toward an employer’s ACA shared responsibility obligations.
Another area which the Trump administration is pushing is Association Retirement Plans. The proposed regulations would allow small employers to have better footing competing for talent by allowing 401K plans to be offered through employer groups or associations as well as professional employer organizations (PEOs), changing the definition of “employers” within the meaning of ERISA Sec. 3(5) for purposes of establishing or maintaining an individual account “employee pension benefit plan.” Companies of any size can join these plans, but small and midsize firms would likely have the most to gain in terms of cost savings. Such plans would be able to use their size to bargain for lower administrative and investment fees than small businesses might otherwise be able to secure. The association sponsoring the 401(k) plan would serve as the fiduciary and have responsibility for setting up and running the plan. Employers would retain fiduciary responsibility for selecting the plan to begin with and would have the ability to determine if they will match contributions made.
Sources: Mercer 10/25/18, Seyfarth Shaw 10/26/18, CCH 10/29/18, The Wall Street Journal 10/22/18