By Brian Blase
The Trump Administration’s rule expanding health reimbursement arrangements (HRAs), specifically allowing employers to reimburse employee’s individual market premiums under certain conditions, is a significant step to empower American families with greater choice and control of their health insurance. These individual coverage HRAs (ICHRAs) are already being used by hundreds of employers to offer coverage to tens of thousands of employees.
The Treasury Department modeled the effect of the rule and expects that in about five years, 800,000 employers will offer the ICHRA and more than 11 million individual market enrollees will be receive coverage through the ICHRA. This rule change should add far more people to the individual market with a much lower budgetary cost than the Affordable Care Act (ACA).
Employers and benefit consultants working to help employers establish ICHRAs have identified several obstacles to offering the ICHRA. One concern is that the individual market overwhelmingly consists of expensive plans that cover few providers in many areas of the country. It will take Congressional action, particularly loosening some of the ACA rules that keep average premiums high to meaningfully improve the market. However, the main operational obstacle to ICHRA adoption thus far—a requirement to provide a written notice of the ICHRA at least 90 days before the start of the plan year—can be remedied by the administration now. The 90-day notice period makes it difficult for employers to adopt the ICHRA, reduces health care choices, and means that more people are uninsured as a result. The notice period should be cut in half.
Shortening the ICHRA Notice Period to 45 Days
One benefits expert wrote me that, “The 90-day notice requirement is terrible. If there was one thing to change, that would be it. … It’s in the name of employee protection, but the reality is it hurts employees more often than not (why should an employee artificially have to wait 2-3 months if their employer wants to help with reimbursements now?). I get making sure they have time to buy a plan, but Open Enrollment itself is only 45 days, so 90 days is silly and pointless.”Recommended For You
This sentiment is similar to comments that the Departments received on the proposed rule as some commenters “indicated that small employers will not be able to provide notices 90 days prior to the plan year because they do not make benefit decisions that far in advance.” Given that the ICHRA is now operational but early ICHRA offerings appear to be falling short of Treasury projections and initial interest by employers , it’s clear that these commenters were right and the Departments should have used a shorter notice period.
The notice is required to provide several pieces of information, including the maximum dollar amount for each participant, a statement that enrollment in individual coverage or Medicare is required, a statement that the coverage obtained through the ICHRA is not ERISA coverage, the date that coverage becomes effective, the dates the plan year begins and ends, a statement that the participant can opt out of and waive future HRA reimbursements, rules on how the HRA interacts with the premium tax credit (PTC) including that people cannot get a PTC if they have an offer of an affordable HRA, and a statement that the participant must inform any exchange to which the participant applies for advance payment of the PTC.
The primary reason that the 90-day notice period was required was to ensure that employees had adequate time to research their options and prepare prior to open enrollment. The annual open enrollment period for ACA plans typically runs from November 1 through December 15, so the purpose was for employers to notify their employees by October 1 of their intent to offer an ICHRA for the following year.
It turns out that the 90-day notice is problematic because it is too far in advance of when employers traditionally distribute enrollment materials for coverage beginning January 1. Those materials are often distributed in November, contemporaneous with open enrollment; earlier than that simply does not correspond to employee norms or even employee expectations.
Most business owners only think about benefits once a year, at renewal. Each year the benefits advisor will reach out a few months before the expected renewal date to start assessing benefit options for the upcoming year based on the evolving needs of the business. This is when adopting an ICHRA model is most likely to enter the employers’ consideration. Importantly, a group and its broker often receive the renewal notice on the current group plan from the insurer or third-party administrator approximately 60 days before the start of the next plan year. Therefore, employers are not able to compare their expected group insurance plan premium with an ICHRA option because by the time they have the information they need to do the comparison, it’s technically too late to consider an ICHRA for a January 1 start date. If the Departments adopt a 45-day notice period, employees will have at least 30 days during open enrollment to shop for coverage.
For employers who want to switch to an ICHRA mid-year, 90 days is an exceedingly long advance notice period, which bears zero connection to the ACA open enrollment period, as these employees will enroll through a special enrollment period. Employees should not need to wait 90 days in order to receive coverage. This problem is particularly relevant now given the severe economic downturn inflicted by the coronavirus-related shutdowns of business activity. Many employers, facing the most severe economic pressure in their history, are looking to cut costs and gain greater cost certainty. Some employers are looking at ICHRAs as a result and the 90-day notice requirement limits their flexibility in maintaining employee coverage in another form. Therefore, the 90-day notice period is almost certainly leading to an increase in the number of people without employer-provided health coverage. To remedy this, the Departments should reduce the notice period for employers switching from a group plan to an ICHRA to 30 days.
Reducing the length of the notice period is consistent with President Trump’s recent Executive Order on Regulatory Relief to Support Economic Recovery. This order directs agencies to “remove barriers to…the innovation, initiative, and drive of the American people.” The order goes on to state that “[a]gencies should address this economic emergency by rescinding, modifying, waiving, or providing exemptions from regulations and other requirements that may inhibit economic recovery.” Providing more flexibility around the notice period helps employers, particularly small and mid-sized employers most attracted to the ICHRA, by giving them a more viable method—and in some cases a lower-cost method—to offer or maintain employer-financed coverage. Thus, granting additional flexibility to employers will help boost the economic recovery.
The primary reason that the Departments gave for a long notice period was for participants to have the necessary information in order for the exchanges to accurately determine eligibility for the advance premium tax credits (APTC). This issue is most relevant if employers are looking to newly offer health coverage. For those that switch from a traditional plan to an ICHRA, this is less relevant since the offer of an ICHRA will almost certainly be ‘affordable’, and therefore firewall an employee from APTC eligibility. It’s more of a concern for employers newly offering an ICHRA since they may have employees who are used to obtaining exchange coverage with an APTC. So, for employers offering coverage for the first time, a 60-day notice period that aligns with the beginning of the open enrollment period may make more sense. Of course, the Departments should continue to encourage employers to provide the notice as soon as possible so employees have the maximum amount of time to prepare and consider their options.
Finally, the longer notice period made more sense in the initial year of ICHRA adoption since the rule was not finalized until mid-June 2019 and was effective on January 1, 2020. Last year, the Exchanges had less time to adequately inform people about the interaction between the APTC and the ICHRA, so the rule writers heavily relied on the employer notice. As the second year of the ICHRA approaches, it’s appropriate that the Exchanges assume more responsibility—replacing burden on small and mid-sized employers—to inform people about the APTC and ICHRA interaction, and specifically that if they receive an ICHRA they may need to update their information with the Exchange and their APTC eligibility may change.