President Donald Trump signed an executive order in October meant to address the shortcomings of the individual market for health insurance. Trump asked for expanded access to three things: association health plans, short-term health insurance and health reimbursement arrangements.
The administration has proposed rules to expand association health plans and short-term health insurance. The Internal Revenue Service issued a notice, also in October, to provide tax guidance to small businesses offering HRAs, but we haven't heard much else about them.
An HRA is different from association health plans and short-term health insurance, which are (sort of/not really) alternatives to comprehensive health coverage. It's essentially a work benefit. Under a HSA, employees can use employer-provider funds to pay for medical expenses, including health insurance premiums.
Who pays for an HRA?
Employers fund HRAs. Under the recently issued IRS guidance, employees can't contribute to them.
HRAs work differently depending on the employer. Former President Barack Obama's health care law requires employers who offer HRAs to also maintain a group health plan. But there's an exemption for small employers with fewer than 50 full-time employees. They can offer HRAs without an accompanying health plan.
Employees with health plans can use HRAs to offset out-of-pocket costs like their deductible or pay for co-pays and co-insurance. Those without health plans can use HRAs to help pay individual insurance premiums.
What's the point of HRAs?
HRAs are an example of a consumer-driven health plan. The idea is that by giving people control of how they spend their health money, they'll be more conscious of the price of health care, shop for the best deals and spur competition among providers, said Paul Fronstin, director of the health research program at the Employee Benefit Research Institute.
"Part of it is really to get people to be more savvy shoppers where that's possible," Fronstin said.
What's the difference between an HRA & an HSA?
HRAs sound like health savings accounts. They're both money you can spend freely on health care. The big difference is that HRAs are funded solely by employers.
Also, unlike HSAs, you can't take the money from an HRA with you if you change jobs or earn interest on the available funds, though your employer may allow you to roll over unused money year-to-year. There's no "account" to speak of, really. Your employer is reimbursing you up to a certain limit, only spending money when you spend money.
How is an HRA taxed?
For employees, HRA money doesn't count toward your gross income. Reimbursements are tax-free as long as they're for medical expenses. The value of the HRA will show up on a W-2 form, but you don't do have to do anything with that info, unlike HSAs, which you have to report to the IRS. For employers, HRAs are tax-deductible.
What is Trump doing with them?
HRAs have been around since 2001. The IRS issued its first guidance in 2002, coming up with the phrase health reimbursement arrangement. But they haven't caught on. A 2015 survey by the Flexible Benefits Corporation found only 20% of employers offer HRS, compared to 44% for HSAs.
And unlike with association health plans or short-term health plans, we haven't seen any moves from the Trump administration to make them more available. Those alternative health plans were seen as a threat to the individual market, which Trump has sought to undermine since taking office, but it's not clear HRAs would do the same, since people can use them to buy individual plans.
"(HRAs) never took off, so there's this question of why we would expect them now," Fronstin said.
For more on what's in store for Obamacare in 2019, go here.
