Is a New Individual Health Plan in Your Future?The Affordable Care Act (ACA) requires companies with at least 50 employees to provide health benefits and pay for a good portion of the coverage’s cost. But many smaller employers in Maine and across the country provide health coverage too — even if they aren’t required to do so. Some do it to attract and retain talent. Others do it because they genuinely care about the well being of the people who help run their business.

But regardless of the reasons why an employer provides health benefits — legal, practical or benevolent — very few employers enjoy the time-consuming and complex process of selecting and managing health plans.

That’s why many employers are interested in the recent decision to relax regulations governing health reimbursement arrangements (HRAs). Due to kick in next year, these changes give employers more flexibility by shifting some responsibility of acquiring and managing coverage to employees. So it’s a good idea to be prepared for changes in buying individual health coverage.

Two HRA Categories

The regulations deal with two HRA categories: “Excepted benefit” HRAs and “individual coverage” HRAs (ICHRAs).

ICHRAs — as the name suggests —  enable an employer to give employees money towards purchasing the coverage they need. With ICHRAs, you, not your employer, are responsible for purchasing health plans and paying for any costs not covered by the ICHRA with your own money. For this reason, only small employers could offer them, which is why they were previously called “qualified small employer HRAs”.

But under the new regulations, both large and small employers can offer ICHRAs, and there are no caps on the amount an employer can contribute (this year the cap was $5,150 for single coverage and $10,450 for family coverage). However, ICHRAs of employers with at least 50 employees are still subject to the same basic ACA rules as conventional health plans, including the breadth of coverage and satisfying affordability tests.

The other type of HRAs — “Excepted benefit” HRAs — are already in existence and only subsidize employee spending on benefits that aren’t required by the ACA employer mandate — such as dental and vision services. Beginning next year, employers that already sponsor a traditional health plan can also contribute up to $1,800 annually per employee to an excepted benefit HRA.

Tax Benefits

Some employers have a “cafeteria” style plan that allows employees to park pre-tax payroll deductions into an account. This money can then be used to pay the difference between what an employer contributes to an ICHRA and what the premium costs. This keeps employees from being taxed on any of the value of a health plan. (Note: This wouldn’t be the case if you bought a health policy through an ACA “public exchange.”)

Employers have quite a bit of control in how much they contribute to an employee’s ICHRA. For example, regulations allow contribution amounts to vary by an employee’s age — since older people often pay higher premiums than younger ones when buying health coverage on the open market. This is generally the case if they have ICHRAs too. For that reason, employers can contribute up to three times as much to the oldest employee age bracket as they do to the youngest bracket that they establish.

Employers can also contribute varying amounts based on the number of dependents an employee has or by job classification (e.g. an employer can contribute more to salaried employees’ accounts than to hourly workers).

However, the regulations do prevent small employers from creating many different employee classes with only a few employees in each. That’s because an employer can choose to only require some employee segments to get their health benefits via an ICHRA, and not others. The rules are designed to keep employers from creating small employee categories that would be dominated by groups with actual or expected higher health costs than others and forcing those groups to go the ICHRA route (a practice known as “adverse selection”).

Employer Flexibility

An employer can let employees within a classification stay in the original health plan but require newly hired employees who fall within the same classification to receive their health benefits through an ICHRA.

Also, employees within each classification can’t be given the choice of staying in a conventional health plan or opting for an ICHRA. Your employer must require that employees within each category be all in, or not offer it to them at all.

So what if you’re forced to take an ICHRA? What if you don’t like the options on the open market? The regulations require your employer to allow you, prior to your enrollment date, to opt out of participating in the ICHRA (and thus employer health coverage) entirely, thus making you eligible to participate in the ACA public exchange.

But if your employer is big enough to be covered by the ACA mandate, it probably won’t make economic sense for you to do that. Employers subject to the mandate face penalties if employees wind up getting their benefits via the public exchanges. In fact, that’s the basic enforcement mechanism behind the employer mandate.

Also, you aren’t able to save pre-tax dollars in an ICHRA and just skip out on buying insurance in the private marketplace. Regulations require your employer to make sure you do buy coverage.

Health insurance can certainly be a confusing topic, and it’s not one where you want to risk choosing the wrong option. If you have questions, your employer’s human resources department may be able to help. Employers should also contact their employee benefits advisors with questions.