Employees will benefit from new HRA regulations, which permit employers who offer traditional health plans to provide an excepted benefit HRA of up to $1,800 per year. (Photo: Shutterstock)
The three rulings resulting from a 2017 executive order will have a significant impact on the health care market by providing businesses and employees with additional health insurance options. These changes should be a catalyst for employers to review benefits programs as part of total employee compensation and consider optimizing health benefits to attract and retain employees.
Employers are tired of the merry-go-round approach. Whether a medical or ancillary benefit renewal, employee compensation reviews or payments for 401(k) matches, for employers to achieve optimal programs that meet their needs and those of employees, they need to do something different.
A Society for Human Resource Management survey found employers that approach employee benefits programs strategically are nearly twice as likely to have more satisfied employees and to report better business performance than organizations that don’t.
The October 2017 executive order that launched all of these changes is intended to promote health care choices and competition by revising three components of the Affordable Care Act (ACA): association health plans (AHPs), short-term limited-duration insurance (STLDI) and health reimbursement arrangements (HRAs).
|HRA ruling
HRAs in particular will transform the health insurance arena as we know it. The new HRA ruling gives employees greater control over their salaries while allowing employers to have more control over year-to-year expenditures.
The new HRA regulations will permit employers to contribute any amount to individual coverage HRAs (ICHRA) as long as it is available on the same terms to all individuals within a class of employees. However, increases are permissible for older workers and those with more dependents.
Employees will benefit from the regulations, which now permit employers who offer traditional health plans to provide an excepted benefit HRA of up to $1,800 per year even if the employee does not enroll in the traditional group health plan. The HRA dollars can be used to reimburse employees for certain qualified medical expenses, including premiums for vision, dental and short-term limited duration insurance. Essentially, this creates a limited standalone HRA that would be exempt from ACA requirements if the employee was offered traditional group coverage.
Smaller employers will now be able to better attract, retain and motivate their employees without the high cost and complexity of providing health coverage. Employees will also have increased portability of coverage and options to meet their individual needs through the market or exchange.
|AHP ruling
Action came quickly with the release of the final rule for AHPs in June 2018, allowing small employers to offer health insurance on terms similar to that of large employers. Small employers will have a larger pool and the ability to spread risk and administrative costs, avoiding many of the ACA’s costly requirements and providing more affordable health insurance options.
The final ruling relaxes the “commonality of interest” standard allowing businesses to tie together only by being in the same line of business or geographic area to form an association for the sole purpose of offering health coverage. Structurally, members who control the plan will have group functions and activity responsibilities. Additionally, the AHP must have a governing body and bylaws for legal formalities as well as meet all Employee Retirement Income Security Act (ERISA) provisions applicable to group health plans and employee welfare plans.
|STLDI ruling
Designed to fill temporary gaps in coverage when individuals are transitioning from one plan to another, STLDI is exempt from the individual health insurance coverage mandate and is not required to comply with ACA regulations. The ruling allows insurers to renew or extend short-term coverage for up to 36 months as well as limit coverage of pre-existing conditions and benefits including hospitalization, emergency services, maternity care, preventive care, prescription drugs, and mental health and substance abuse services. Insurers are permitted to rescind coverage and require higher premiums based on health status and out-of-pocket cost sharing than permitted under the ACA.
|Opposition
Industry groups and health care organizations, however, say that the HRA changes could result in higher costs, limit accessibility and cause employees to drop ACA- compliant coverage for AHPs, creating a less healthy and costlier ACA risk pool. The American Medical Association and other leading provider organizations have objected to short-term health plan rules that allow individuals to enroll in plans that do not cover essential health benefits for three years.2
|Total compensation
These changes are a great opportunity for employers to revisit total compensation packages through analysis of salary, benefits, ancillary benefits, retirement and PTO.
Employers (especially small businesses) should review the new available coverage options and determine how to create a more attractive total compensation strategy.
Employers need to determine how benefits and compensation fit within their corporate objectives in terms of cost and flexibility:
- Is the total compensation package flexible enough to meet diverse employee needs?
- Is it competitive enough to increase retention and motivation?
- Is it the right percentage of the total operating budget?
Similar to the initial rollout of the ACA, the new health insurance rulings are game changers. Now is the time for companies to think strategically about the importance of benefits programs in their total compensation philosophy.
Elliot Dinkin is president and CEO of Cowden Associates, a Pittsburgh-based company specializing in helping corporate clients find the best solutions for compensation, healthcare benefits, retirement and pension issues, and Taft-Hartley fund consulting.
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