Proposal Would Expand Use of HRAs

On October 23, 2018, the U.S. Department of Labor, Department of Health and Human Services, and Treasury Department issued a proposed regulation that would expand the usability of health reimbursement arrangements (HRAs). The regulation would allow company employees to use HRAs to cover the cost of individual health insurance coverage, subject to certain conditions. The Department of Labor issued a news release on the proposed regulation.

Under current law, HRAs allow employers to reimburse their employees’ medical expenses in a tax-favored way, but not to reimburse employees for the direct cost of obtaining individual health insurance coverage. Under the proposed regulation, HRAs would reimburse employees for individual coverage with the same tax benefits as traditional, employer-sponsored coverage.

Expanding the use of HRAs could help small and mid-sized companies offer health insurance benefits to their employees for the first time, or provide additional coverage options.  Employers that already offer traditional group coverage would be able to use the newly expanded HRA to provide up to $1,800 per year to reimburse an employee for certain qualified medical expenses, including stand-alone dental or vision benefits.  Although employers would contribute to the cost, employees would still own the coverage, reducing the employer’s administrative burden and allowing employees to maintain the coverage if they leave the company.

If finalized, the proposed regulation will become effective for plan years beginning on and after January 1, 2020. The Treasury Department estimates that once fully phased in, roughly 800,000 employers would provide HRAs to pay for individual health insurance coverage to over 10 million employees.