Health Reimbursement Accounts in Limbo After Subsidies Cut

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By Kristen Ricaurte Knebel

Large employers cheered when President Donald J. Trump’s recent executive order on health care showed an interest in expanding access to health reimbursement accounts. About 12 hours later, Trump left them scratching their heads.

That’s because the president’s late-night announcement on the same day that he was discontinuing cost-sharing reductions for low-income Americans purchasing health coverage suddenly had employers questioning whether they’d want to take advantage of the HRA expansion.

Health reimbursement arrangements are self-insured medical expense plans that reimburse employee medical expenses only up to a specified dollar limit. Employers had hoped they could offer employees funds through such arrangements to purchase coverage on the individual market after the Affordable Care Act was enacted. The Treasury Department nixed that idea in 2013, saying that HRAs used to purchase coverage on the individual market would still be considered an employer-sponsored group health plan. The problem was that those plans wouldn’t be able to satisfy certain Obamacare requirements for such employer plans.

The Oct. 12 executive order, coupled with the cost-sharing reductions announcement, made it seem like Trump was handing employers “a victory with one hand and taking it away with the other,” Rachel Leiser Levy, former associate benefits tax counsel in the Treasury Department’s Office of Tax Policy and now a principal at Groom Law Group, told Bloomberg Law.

Forty-nine percent of Americans are covered by employer-sponsored plans, compared with 7 percent who are enrolled in “non-group” coverage, according to the Kaiser Family Foundation. That balance could change if more employers gave their workers money in HRAs to purchase individual coverage. Currently, 9 percent of employers offering health coverage offer HRAs in combination with high-deductible health plans and 9 percent of covered workers are in those plans, Kaiser found in its 2017 Employer Health Benefits Survey.

Some worries could be assuaged if an agreement is reached in Congress to continue providing cost-sharing reductions. Republicans and Democrats in the Senate, led by Sens. Lamar Alexander (R-Tenn.) and Patty Murray (D-Wash.), reached a deal on some fixes to Obamacare, including authorizing the payments for two years coupled with permitting states more freedom to bend the ACA’s rules. Trump voiced support for the idea.

Harming the Market?

Critics of Trump’s move to stop giving subsidies to certain populations say the move will tank the individual market. That means employers that might want to give their workers tax-free money in an HRA to purchase their own coverage might not feel as comfortable sending employees to an unstable market.

“Employers were happy to give pretax dollars. Now that the” cost-sharing reduction announcement is out and “the individual market will likely be destabilized, they will likely hit the pause button and reassess,” Katy Spangler, senior vice president for health policy at the American Benefits Council, which advocates for large employers on employer benefits policy issues, told Bloomberg Law.

Not everyone sees the HRA announcement as being dampened by the move to discontinue subsidies. Christopher Condeluci, a former Senate Republican aide who now runs his own law and consulting firm, told Bloomberg Law that the individual market was in trouble long before the cost-sharing reduction announcement.

“The individual market remains a dysfunctional market and it’s been a dysfunctional market. The cancellation” of the cost-sharing reductions “has nothing to do with the” state of the individual market, he said. One reason the market is so dysfunctional is because the ratio of older, less-healthy individuals to younger, healthier people is already skewed, he said. A less-healthy risk pool could increase health-care costs in the market.

One way to fix this would be to broadly increase the premium subsidies, which are still available for certain individuals, or increase subsidies for younger individuals to entice them to sign up for coverage. Some bills to repeal and replace Obamacare included this idea, Condeluci said.

To contact the reporter on this story: Kristen Ricaurte Knebel in Washington at

To contact the editor responsible for this story: Jo-el J. Meyer at

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