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12/28/2018

Insurance Commissioner Warns Proposed Health Reimbursement Arrangement Rule Could Cause Consumer Confusion and Destabilize Market

Harrisburg, PA - Insurance Commissioner Jessica Altman has submitted comments on behalf of the Commonwealth of Pennsylvania on the federal government’s proposed rule on the expansion of health reimbursement arrangements (HRA) and other account-based group health plans, warning that the proposed changes could increase potential for consumer harm and market destabilization.

HRAs are accounts that employers may establish and fund to set aside pre-tax dollars for employees to use on health care expenses. Currently, there are two common types of HRAs: qualified small employer HRA for small businesses with fewer than 50 employees, and group coverage HRA for companies that already offer group health coverage.

The proposed rule would allow a greater use of HRAs by employers by expanding on the current models to create two more models. The first, Integrated HRA/Individual coverage, would expand qualified small employer HRA to include businesses of all sizes and would allow businesses to offer various allowances based on certain employee classes. This HRA would allow employees to use the HRA dollars to purchase individual insurance. The second type is an excepted benefit HRA, which would be similar to group coverage HRA but could be used by an employee to purchase short-term, limited-duration or limited benefit plans.

The proposal was released by the U.S. Departments of Health and Human Services, Labor, and the Treasury on Oct. 29 and is the third regulation issued in response to an Executive Order issued in October 2017, which also resulted in new rules expanding short-term, limited-duration plans and association health plans. The proposed HRA rule would particularly impact small employers or employers of lower income wage workers, Altman said. 

“We commend the aspects of the proposed rule that provide consumer protection safeguards for individual coverage, but we are very concerned that the proposed rule would allow HRAs to be used for risky short-term, limited-duration coverage and would create confusion for consumers and employers alike,” Altman said. “Consumers are already navigating a myriad of tax-favored arrangements like health savings accounts and flexible spending accounts. Benefits administrators would have to navigate different regulatory rules on employee classes, age and family size variations for HRAs and for other employee benefits. This rule could open the door for further confusion that could end up costing small businesses and individual consumers.

“Further, we believe that this could lead to market destabilization, as employers could encourage high-risk employees to purchase an individual plan or facilitate the purchase of certain coverage, such as limited-benefit or short-term, limited-duration plans, which may not be comprehensive health coverage,” Altman said. “Moving more high-risk employees from employer-sponsored group coverage to the individual market could drive up premiums for everyone in the individual market.

“While we are pleased that the proposed rule takes certain steps to protect consumers and the integrity of the individual market, we believe that stronger protective measures are merited in other areas of the proposal.”

A copy of the letter is available on the Insurance Department website.

MEDIA CONTACT: Elizabeth Rementer - 717-787-3289

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