New CMS tool helps businesses decide on HRAs

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The CMS on Friday released a new tool designed to help employers decide if they should offer their workers individual coverage health reimbursement arrangements.

Earlier this year, the CMS finalized a rule that allows employers to give their employees tax-free money to buy health insurance on the individual market through an HRA beginning in January 2020. The tool offers employers access to health insurance premium data based on location. It also provides rate information for the cheapest plan in a category like the lowest-cost silver plan, which depends on a worker’s age and location.

Employers can use the tool to figure out how much it would cost them to fund an individual HRA. And large employers can use it to decide if the coverage that they want to offer through an HRA conforms with the Affordable Care Act’s employer affordability mandate.

HRAs are tax-advantaged accounts that employers own and fund for their employees. Before the rule change, employers could use HRAs to pay for their employees’ out-of-pocket medical expenses if they also provided them with a group health plan that met ACA requirements. They couldn’t use the funds to pay for individual-market health insurance.

But starting next year, employers can create HSAs that employees can use to buy their health insurance on the individual market. They will get the same tax advantages as employer-sponsored group health plans. Businesses with 50 or more full-time employees can use HRAs to meet the ACA mandate that they provide their employees with health insurance.

Companies can also offer “excepted benefit” HRAs for workers to buy cheaper, short-term plans. Those plans don’t need to meet ACA requirements like protections for pre-existing conditions and contributions are capped $1,800 per year.

The Trump administration estimates that an additional 800,000 people will get health insurance thanks to the new rule, with most of those gains stemming from employers that don’t offer health benefits currently.

But these changes have stoked fear among groups who worry that the individual market will suffer if businesses dump sicker, more expensive employees onto it. They would prefer employers continue covering their workers under more traditional group health plans.

The administration says the rule has enough backstops in it to prevent that from happening.

Many groups also worry that workers won’t understand how to use HRAs to buy an individual health plan, especially if they’re used to having an employer-sponsored group plan.

However, the administration thinks that those concerns are overblown and expects that an expansion of coverage and cost savings will more than makeup for whatever confusion might exist.

HHS, the Labor Department and the Internal Revenue Service said they would monitor how the new HRAs are performing to see if they need to make any adjustments.

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