Proposal Announced To Expand Access to Affordable Health Coverage

The Trump administration announced a proposed rule today that would allow businesses to give employees money to purchase health insurance on the individual marketplace, a move senior officials say will expand choices for employees that work at small businesses.

The proposed rule, issued by the Department of Health and Human Services (HHS), the Department of Labor (DOL) and the Department of Treasury, would restructure Obama-era regulations that limited the use of employer-funded accounts known as health reimbursement arrangements (HRA). The proposal is part of President Donald Trump’s “Promoting Healthcare Choice and Competition” executive order issued last year, which tasked the agencies with expanding the use of HRAs.

Senior administration officials said the proposed change would bring more competition to the individual marketplace by giving employees the chance to purchase health coverage on their own. The rule includes “carefully constructed guardrails” to prevent employers from keeping healthy employees on their company plans and incentivizing high-cost employees to seek coverage elsewhere.

That issue was a primary concern under the Obama administration, which barred the use of HRAs for premium assistance. The 21st Century Cures Act established Qualified Small Employer Health Reimbursement Accounts (QSEHRA), but those are subject to stringent limitations.

Under the new rule, HRA money would remain exempt from federal and payroll income taxes for employers and employees. Additionally, employers with traditional coverage would be permitted to reserve $1,800 for supplemental benefits like vision, dental and short-term health plans.

Officials estimate 10 million people would purchase insurance through HRAs, including 1 million people that were not previously insured. Most of those people would be concentrated in small and mid-sized businesses.

The proposed change would “unleash consumerism” and “spur innovation among providers and insurers that directly compete for consumer dollars,” one senior official said. Officials expect 7 million people will be added to the individual marketplace over the next 10 years.

The rule does not change the Affordable Care Act’s employer mandate, which requires employers with 50 or more employees to offer coverage to 95% of full-time employees. Administration officials expect the proposal will have the biggest impact on small businesses with less than 50 employees.

However, the rule could scale back the use of premium subsidies. If the HRA is considered “affordable” based on the amount provided by the employer, the employee would not be eligible for a premium tax credit. If the HRA fails to meet those minimum requirements, the employee could choose between a premium tax credit and the HRA.

Overall, the rule will “create a greater degree of value in healthcare and the health benefits marketplace than we would otherwise see,” one official said.

The regulation, if finalized, is proposed to be effective for plan years beginning on and after January 1, 2020.

IRS Issues Initial ‘Cadillac’ Excise Tax Guidance

The IRS and the Treasury Department issued a notice on the so-called “Cadillac Tax”—a 40 percent excise tax to be imposed on high-cost employer-sponsored health plans beginning in 2018 under the Affordable Care Act (ACA).

Notice 2015-16, released on Feb. 23, 2015, discusses a number of issues concerning the tax and requests comments on the possible approaches that ultimately could be incorporated in proposed regulations. Specifically, the guidance states that the agencies anticipate that pretax salary reduction contributions made by employees to health savings accounts (HSAs) will be subject to the Cadillac tax.

Background

In 2018, the ACA provides that a nondeductible 40 percent excise tax be imposed on “applicable employer-sponsored coverage” in excess of statutory thresholds (in 2018, $10,200 for self-only, $27,500 for family). As 2018 approaches, the benefit community has long awaited guidance on this tax. While many employers have actively managed their plan offerings and costs in anticipation of the impact of the tax, those efforts have been hampered by the lack of guidance. Among other things, employers are uncertain what health coverage is subject to the tax and how the tax is calculated.

Particularly, Notice 2015-16 addresses:

• Definition of applicable coverage
• Determination of cost of coverage
• Application of dollar limits

The agencies are requesting comments on issues discussed in this notice by May 15, 2015. They intend to issue another notice that will address other areas of the excise tax and anticipates issuing proposed regulations after considering public comments on both notices.

Applicable Coverage

Of most immediate interest to plan sponsors is the specific type of coverage (i.e., “applicable coverage”) that will be subject to the excise tax, particularly where the statute is unclear.

Employee Pretax HSA Contributions
The ACA statute provides that employer contributions to an HSA are subject to the excise tax, but did not specifically address the treatment of employee pretax HSA contributions. The notice says that the agencies “anticipate that future proposed regulations will provide that (1) employer contributions to HSAs, including salary reduction contributions to HSAs, are included in applicable coverage, and (2) employee after-tax contributions to HSAs are excluded from applicable coverage.”

Note: This anticipated treatment of employee pretax contributions to HSAs will have a significant impact on HSA programs. If implemented as the agencies anticipate, it could mean many employer plans that provide for HSA contributions will be subject to the excise tax as early as 2018, unless the employer limits the amount an employee can contribute on a pretax basis.

Self-Insured Dental and Vision Plans
The ACA statutory language specifically excludes fully insured dental and vision plans from the excise tax. The treatment of self-insured dental and vision plans was not clear. The notice states that the agencies will consider exercising their “regulatory authority” to exclude self-insured plans that qualify as excepted benefits from the excise tax.

Employee Assistance Programs
The agencies are also considering whether to exclude excepted-benefit employee assistance programs (EAPs) from the excise tax.

Onsite Medical Clinics
The notice discusses the exclusion of certain onsite medical clinics that offer only de minimis care to employees, citing a provision in the COBRA regulations, and anticipates excluding such clinics from applicable coverage. Under the COBRA regulations an onsite clinic is not considered a group health plan if:

• The health care consists primarily of first aid provided during the employer’s work hours for treatment of a health condition, illness or injury that occurs during work hours.
• Health care is only available to current employees.
• Employees are not charged for use of the facility.

The agencies are also asking for comment on the treatment of clinics that provide certain services in addition to first aid:

• Immunizations.
• Allergy injections.
• Provision of nonprescription pain relievers, such as aspirin.
• Treatment of injuries caused by accidents at work, beyond first aid.

In Closing

With the release of this initial guidance, plan sponsors can gain some insight into the direction the government is likely to take in proposed regulations and can better address potential plan design strategie