Final HRA Ruling Could Shake up Health Plan Offerings and Insurance Markets

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New rule will allow employers to use tax-advantaged health reimbursement arrangements to provide health insurance coverage, notes Cowden Associates. Administration projects that 800,000 employers will offer HRAs to help workers purchase individual coverage.

Cowden Associates | A Nationally Known Expert in Actuarial, Compensation, and Employee Benefits Issues

Elliot Dinkin, CEO of Cowden Associates, discusses how HRA changes could boost individual market enrollment.

"The new rule provides some flexibility to employers who would otherwise have been forced to either provide benefits or cancel coverage. This gives employers an alternative in employee health coverage."

A new ruling restoring the ability to purchase individual market insurance with health reimbursement arrangements (HRAs) could have a major impact as an alternative approach to employee health coverage, according to a nationally known employee benefits expert.

Cowden Associates President and CEO Elliot Dinkin said that the final rule, which takes effect in January 2020, reverses prior federal guidance by allowing HRAs to fund both premiums and out-of-pocket costs associated with individual health insurance coverage[1].

The U.S. departments of Health and Human Services, Labor and Treasury issued a final rule in mid-June to expand the use of HRAs by employers to fund employee premiums in the individual health insurance market.

“The new rule provides some flexibility to employers who would otherwise have been forced to either provide benefits or cancel coverage,” Dinkin said. “This gives employers an alternative in employee health coverage. If it works the way it is apparently designed to work, it could have a significant impact on the health insurance market while also creating a defined contribution alternative.”

An analysis by the Treasury Department asserts that these changes could boost individual market enrollment, stabilizing the market while decreasing the number of people without insurance. Payer industry groups and healthcare organizations, however, say that the changes could result in higher costs, limit accessibility and cause employees to drop Affordable Care Act (ACA)-compliant coverage for association health plans (AHPs), creating a less healthy and costlier ACA risk pool. The American Medical Association and other leading provider organizations have objected to short-term health plan rules that allow individuals to enroll in plans that don’t cover essential health benefits for three years[3].

Before the ACA was enacted in 2010, HRAs allowed employees to purchase a non-group plan of their choice. Employees submitted receipts and employers reimbursed them with pre-tax dollars. Several requirements in the ACA, including the creation of essential health benefits and removal of annual and lifetime limits on health insurance, curtailed this option.

Without this new rule, the Treasury Department predicts that employers will place unhealthy employees into HRAs so they can take on less risk in their traditional group plans. Such a scenario would increase adverse selection in the individual market and raise premiums, according to the Treasury Department.

Dinkin said that the new regulations place restrictions on how employers decide who is eligible for an HRA versus traditional group insurance, by creating an objective non-discriminatory criterion. This should alleviate concerns pertaining to adverse selection or other subjective issues about who is eligible for benefits and why[2].

“Does this mean employers can offer tax-free money for health benefits completely separate from a qualified individual or group plan? The answer appears to be yes,” Dinkin said. “By limiting application to entire large classes of employees, it also offers some protection to covered individuals.”

About Cowden:
Cowden Associates, Inc., (Cowden) headquartered in Pittsburgh, was created in 2001 by the merger of Halliwell and Associates and MMC&P Spectrum Benefits, which was founded by Jere Cowden in 1986. Currently led by President and CEO Elliot Dinkin, Cowden specializes in helping corporate clients find the best solutions, both for the enterprise and for its employees, with regard to compensation, healthcare benefits, retirement and pension issues, and Taft-Hartley fund consulting. Winning Workplaces and The Wall Street Journal have recognized Cowden as a “Top Small Workplace,” a lifetime designation awarded to executives for their ability to build and lead savvy organizations. For more information, visit

1.    Keith, Katie, “Final Rule on Health Reimbursement Arrangements Could Shake Up Markets,” HealthAffairs, June 14, 2019.
2.    Keisling, Jonathan, “Sizing Up the Proposed HRA Rules,” American Action Forum, October 25, 2018.
3.    Beaton, Thomas, “Proposed Rule Alters HRAs to Allow Direct Reimbursement to Employees,” Healthpayer Intelligence, October 24, 2018.

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