A Trump administration rule expanding small employers’ right to provide Health Reimbursement Arrangements (HRAs) to their employees is facing scrutiny from the Biden administration.
President Joe Biden issued a regulatory freeze order on Jan. 20 (Inauguration Day) that required, among other things, the withdrawal of all regulations that had not become effective before that date. Because the Trump HRA final rule had not yet been published in the Federal Register, it fell under the withdrawal order. The HRA rule will now be subject to review by Biden officials, a process that could end in its elimination.
The Trump rule expanded the IRS-approved HRA program to allow employers to reimburse employees so they can pay for their own health care arrangements, such as direct primary care and health care sharing ministries. HRAs have grown in popularity among small businesses because the program provides a tax advantage to employers and employees, similar to the kind given to employees with employer health insurance.
Some HRAs can operate alongside group health insurance as an alternative benefit for a select group of employees or supplement the organization’s group health benefit. The funds are not taxed as income to employees, just as employer-provided health insurance isn’t taxed. With HRAs, employers are able to offer health coverage to part-time or seasonal workers, when in the past it may have been too expensive to provide the full benefit of health insurance.
HRAs Targeted by the Obama Administration
In his recent book, “New Way to Care: Social Protections that Put Families First,” John C. Goodman, the co-publisher of Health Care News points out the Obama administration was extremely hostile to HRAs.
“An Obama regulation stipulated that employers caught giving their employees pretax dollars to purchase their own coverage could be fined as much as $100 per day for each employee, or $36,500 a year,” Goodman writes. “This was the highest penalty of all of Obamacare regulation.”
The Trump administration eliminated this penalty, but because it was an executive order, not an act of Congress, Biden is free to reinstate it.
Two other Trump-era health care initiatives also appear headed for the chopping block. Both were opposed by California Attorney General Xavier Becerra before he became Biden’s Secretary of Health and Human Services.
One is a Department of Labor rule that would allow small businesses to band together through Associated Health Plans (AHPs) to provide large-group market health plans to their employees. By doing so, employers could avoid some of the regulatory requirements that individual states and the ACA impose on small group markets.
The other is a rule allowing insurers to sell short-term, limited-duration insurance (STLDI) that provides coverage for up to three years. These plans do not cover all the treatments and services required by the Affordable Care Act, but they cost the consumer less than ACA-compliant plans. The plans are designed for healthy people who don’t require extensive health care. Both rules are tied up in litigation.
HRAs were established in 2002 and are an example of consumer-directed health care, a sector that also includes Medical Savings Accounts, for people enrolled in a typical high-deductible Medicare plan, and cash accounts available under Medicaid. Such programs make it easier for individuals to self-insure for medical expenses. Employees can take HRAs with them as they travel from job to job and go in and out of the labor market.
Last year, the Trump administration conducted several workshops designed to get more small businesses interested in HRAs. However, COVID-19 and the Biden administration’s recent actions against HRAs have put those efforts on hold, leaving many small businesses in limbo pending the Biden review of the Trump rule.
The options provided by HRAs, AHPs, and STLDIs may be the reason why they are attracting the ire of Biden officials who appear to prefer having consumers constrained within the strictures of the ACA.
Bonner R. Cohen, Ph.D., (bcohen@nationalcenter.org) is a senior fellow at the National Center for Public Policy Research.