HRA Council news & Updates

You'll find lots of HRA Council members mentioned in Nona Tepper of Modern Healthcare's piece on ICHRAs. Note: A subscription is required. 

PRNewswire reports on recent changes at Gravie introducing one of the HRA Council's newest members. We welcome Andrew Reeves and appreciate the shout out to the Council!

Tom Mafale, the Chief Revenue Officer at SureCo, a health care and insurance technology company that specializes in ICHRA administration, offers a compelling comparison in Benefits Pro. 

PeopleKeep's expansion is in the headlines at Newswire. Read the article here. 

The business journal Buffalo Business First is highlighting member OneBridge's expansion.  Read the article here. 

New to the HRA Council in 2023, Venteur is making headlines in HIT Consultant, Coverager, Wall Street Journal: Daily VC, Yahoo Finance, and Axios. 

Read the Axios article online with a subscription or download a pdf version here. 

By Amy Lotven 
As seen in Inside Health Policy

Health reimbursement arrangements (HRAs) that can be used to reimburse workers for purchasing individual market coverage on their own through an exchange are gaining in momentum, according to a recent report by the lobby tracking the arrangements -- the HRA Council -- as well as the American Academy of Actuaries, which mentioned individual coverage HRA (ICHRAs) in its most recent report on factors driving premium change.

Even more recently, Centene, the nation's largest exchange insurer and a founding member of the HRA Council, mentioned ICHRAs during its second quarter earnings call when investors asked about the company’s merger & acquisitions pipeline.

ICHRAs were created in 2020 under a regulation finalized by the Trump administration -- and would be codified under a recent House-passed bill -- and they allow employers of any size to contribute tax-free dollars to an HRA that workers can use to pay premiums for plans purchased in the individual market. Years earlier, as part of the 21st Century Cures Act, Congress had created a similar alternative to traditional group plans dubbed Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs) but limited their use to small businesses with less than 50 workers.

Benefit advisors see the new option as similar to the switch from defined benefits to defined contributions for retirement savings, and while take up of the option has fallen short of the 11 million users that CMS predicted would be using an ICHRA by 2025, interest in the option is picking up.

CMS has not published any data regarding the number of healthcare.gov enrollees that are utilizing an ICHRA but anticipates beginning to collect that data in the future, per the 2024 exchange rule.

Brian Blase, president and founder of Paragon Health Institute, who helped shepherd the ICHRA rule as a Trump administration advisor, estimates there are about 500,000 people using the option today -- and the Congressional Budget Office is now assuming about 2 million workers will have ICHRAs by 2032.

He suggests take up has been slower due to the pandemic, the tight labor market and lack of education about the option.

But there is still wide room for growth.

According to a recent analysis by the HRA Council based on data provided by members, the number of workers who were offered an ICHRA in 2023 grew by 171% compared to 2022 and the number of employees offered QSEHRAs grew by 97% in the same period. HRA Council’s report from June builds off the lobby’s initial analysis released in October that found the number of workers offered ICHRAs had grown by 350% from 2020 to 2022 and those offered QSEHRAs grew by 70% in the same period.

The initial report found the majority of businesses (64%) using ICHRAs/QSEHRAs had only 5 or fewer workers while 4% had 50 or more employees.

The June report finds that very small employers continue to comprise the majority of those offering the HRAs, which HRA Council’s Executive Director Robin Paoli says is likely due to the QSEHRA market being around longer and because small businesses can more easily adapt to changes. HRAs are being used as an on-ramp for small employers that were unable to offer traditional group benefits, Paoli says.

The report also underscores the growth potential.

Only 6% of employers with 50 or more workers are offering the HRAs for individual coverage, the report finds. But, as the report -- and Paoli -- emphasize, while only a fraction of the current numbers, these larger employers make up the fastest-growing cohort of firms who are offering the HRAs, increasing by 144% from 2022 to 2023.

“This report shows that an increasingly growing segment of employers see the benefits of allowing employees to choose their own individual health policies,” said Victoria Glickman Hodgkins, CEO of PeopleKeep. “The situation is a win-win for employers and employees. The employer still offers a formal health benefit that comes with tax benefits and can attract and retain employees, while the employee is able to get affordable health care that they have more control over.”

Other sources also indicate a growing interest in ICHRA. The American Academy of Actuaries, for example, included the HRAs in their list of potential premium drivers for 2024 for the first time since 2020 due to evidence that they’re gaining traction.

According to Donna Novak, vice president of the Academy’s Individual and Small Group Market Committee, every state now has a broker who will sell ICHRAs. Benefit consultants understand employers want workers to be able to choose the most appropriate plans -- but that has historically been difficult for smaller groups, she says. Not only do ICHRAs/QSEHRSAs allow employers to use the tax-free funding to reimburse for the costs of coverage, but they also facilitate coverage that is portable: An employee that leaves a firm can remain in the same plan by taking over payments.

The option works best in areas where the individual market premiums are lower than the small group rates, which is largely in states that have used the Affordable Care Act’s 1332 waivers to create reinsurance programs, Novak says.

As far as how use of ICHRAs /QSEHRAs drives rate changes either in the small group or individual market, that will depend on the size and morbidity of the group, she said. The current thinking is that groups taking up the option may be healthier than the overall small group market, meaning they would put upward pressure on those rates. The effect on the individual market will rely on the same factors.

Novak says in Arizona, where she is based, use of the HRAs has made no noticeable difference so far so it will take time to see what happens as those plans become more popular.

In other recent activity, Centene noted that capabilities related to ICHRAs may be important to its merger and acquisitions pipeline.

Congress has also been paying renewed attention to the option. In June, the House passed along party lines legislation by Rep. Kevin Hern (R-OK) that would codify the Trump-era rule that created ICHRAs -- and renamed them “CHOICE” plans. Democrats opposed the legislation over worries they could be used to discriminate against certain employees.

But supporters argue that the rule, and the bill, ensure that ICHRAs can only be used to purchase ACA-compliant policies.

The HRA Council report also attempts to clear up “myths” about the plans, including that employers would offer the option only to older workers and that employees don’t understand health insurance and would prefer their employers to make decisions.

According to the survey, however, Paoli stressed that 61% of workers using the arrangements in 2023 were aged 18- 44. The report also shows that employees are well-educated consumers, and, Paoli adds, 37% of them chose to enroll in gold or platinum plans that have more generous coverage, 28% in silver-level coverage and 35% in bronze-tier plans.

The legislation is not expected to be taken up in the Democratic-controlled Senate. But, as Paoli points out, House passage of the bill gives stakeholders an opening to educate more senators about the option and there’s hope that bipartisan champions will emerge. Ideally, the HRA Council wants to see a clean, bipartisan bill moved through Congress.

Paoli also says that codification isn’t necessary for more businesses to take up ICHRAs or QSEHRA; both options are currently the law of the land, she adds.

For more from Amy Lotven (alotven@iwpnews.com), visit Inside Health Policy,

Quick HRAC explainer: The following policy blog discusses the recent “family glitch fix.” The HRA Council testified before Treasury Department and Internal Revenue Service leaders this summer, supporting a “family glitch fix” and asking them to clarify that families can combine an employer’s offer of an HRA with eligible tax credits. Even though HRAs are group plans, the IRS declined to create equity between a traditional group plan and an HRA, and the resulting rule disadvantages HRAs.

The rule states that “the Treasury Department and the IRS, in coordination with HHS and the U.S. Department of Labor (DOL), will consider whether future guidance should be issued to change the ICHRA affordability rules for related HRA individuals in the manner suggested by the commenter.” In this case, the commenter is the HRA Council. We are grateful to Treasury and the IRS for considering whether future guidance will be issued. We believe the rule should be updated to equalize the treatment of all group plans, including HRAs.

In the following policy review, Brian Blase delves more deeply into the rule and its consequences.

An October rule from the Internal Revenue Service fixed the so-called Affordable Care Act (ACA) family glitch by using the cost of a family plan to determine affordability and not the cost of a self-only plan. This fix expands access to premium tax credits (PTCs) to purchase exchange plans and will lead some dependents to shift from employer-based plans to exchange plans. However, the final rule did not extend the revised affordability measure to individual coverage health reimbursement arrangements (ICHRAs) or qualified small employee health reimbursement arrangements (QSEHRA), which creates an inequity. The IRS did indicate that it might revisit this issue in future guidance with the Department of Health and Human Services and the Department of Labor. 

The Family Glitch and the Fix

In 2013, the IRS issued a rule, which it found to be the only one consistent with the ACA statute, that defined affordability with respect to the employer’s offer to the worker for self-only coverage. An affordable plan was one in which the cost to the employee of a self-only plan was less than about 10 percent of his or her household’s income. The affordability of the offer of employer coverage determines whether people in the household are eligible for a PTC to lower the net cost of an exchange plan. Thus, if the worker received an affordable offer of self-only coverage, then the worker was precluded from PTC eligibility. 

At issue is that the worker’s dependents were also precluded from PTC eligibility regardless of whether the family plan was affordable or not so long as a family plan was made available to the worker. This is the so-called family glitch. Large employers needed to offer family coverage to comply with the ACA’s employer mandate, but there was no requirement on the amount of the contribution.

Many advocacy organizations were concerned that some families were left in situations where the employer offer of family coverage was unaffordable, and the worker’s dependents would not have access to PTCs to purchase an exchange plan. According to an analysis from Kaiser Family Foundation, 5.1 million dependents were in the family glitch in 2019. Of these 5.1 million, 85% were covered as a dependent on an employer plan, 6% directly purchased a plan, and 9% were uninsured. 

On January 28, 2021, President Biden issued a health care executive order, which contained a directive to examine “policies or practices that may reduce the affordability of coverage or financial assistance for coverage, including for dependents.” In response to this order, the IRS proposed a rule in April 2022 that would strike its original interpretation and base affordability on family coverage. In October 2022, the IRS finalized the rule and the revised definition of affordability for the purchase of PTC eligibility.

Effect of the Family Glitch Fix

The practical effect of the rule is that that some offers of employer coverage for families that have been considered affordable in the past will be considered unaffordable in the future. The rule will boost individual market enrollment, but it will also discourage offers of affordable family health insurance from the employer, including ICHRAs and QSEHRAs, for family-based coverage. 

Some families’ choices will also be altered. Currently, the vast majority of families in the glitch accepted the employer offer of family coverage. They will now have the ability to get a PTC to purchase an exchange plan. For some families staying on a unified group plan will likely make sense. For other families, splitting coverage (employee stays on the group plan but dependents go to an exchange plan with a PTC) will make sense.

The fix is also occurring after a significant increase in the PTCs enacted by Congress. From 2021-2025, Congress increased the size of PTCs for people already eligible for them (Congress did this by reducing the amount of income that households had to pay for a benchmark plan) and lifted the cap at 400 percent of the federal poverty level to make more people eligible for them. The enhanced subsidies, along with the family glitch fix, both discourage the offer of coverage for employers (dependent coverage in the case of the family glitch fix), especially for small employers. Many employers will be in situations where they can boost wages and not offer coverage, or not offer affordable dependent coverage, with workers and dependents able to access PTCs.

Overall, these policy changes will significantly boost individual market enrollment, although the enhanced subsidy effect is mostly already accounted for since it’s been in place for nearly two years. 

The Effect of the Fix on ICHRAs 

The proposed rule to fix the family glitch did not refer to ICHRAs or QSEHRAs. Many commenters, including the HRA Council, noticed this gap and sought answers from IRS on how the fix would affect workers who received offers of HRAs from their employers. The final rule included a section on the affect of the rule on ICHRAs.

For ICHRAs, the rule did not adopt a family coverage affordability standard and instead maintained affordability based on the employer contribution to self-only coverage. The rule affirms that dependents can access PTCs if the employee is offered an ICHRA that is solely for the reimbursement of his or her (meaning the employees’) health care expenses. The rule also states that if the ICHRA does extend to dependents, a PTC is not allowed if the offer is affordable. And affordability for ICHRAs remains a function of self-only coverage, not family coverage. Even though HRAs are group plans, the IRS declined to create equity between a traditional group plan and an HRA. In sum, an affordable ICHRA offer precludes PTCs for dependents if the HRA covers dependents’ expenses. 

IRS wrote that “The proposed regulations do not address the affordability rules relating to an ICHRA offer, and, consequently, the final regulations also do not address ICHRAs.” This statement is a dodge from the IRS. If the Biden administration wanted to address ICHRAs in the final rule, they could have because of logical outgrowth from the comments made. They did not. Speculating on the failure to also amend the affordability standard for ICHRAs means that they likely didn’t have time to do so, that they didn’t have agreement on what to do, or that they are not inclined to support the growth of the HRAs.

If this inequity in the family glitch fix continues, employers, particularly at companies with below average wages, will be discouraged from offering ICHRAs or QSEHRAs that cover dependent expenses. Doing so would preclude PTC eligibility since affordability remains self-only coverage and not family coverage.

In its comments on the proposed rule, the HRA Council asked about whether an employee can combine their employer’s HRA contribution with the PTCs from dependents (if the employer offer to dependents was unaffordable) to purchase a single family plan in the exchange. The IRS did not explicitly address this comment, but it’s likely that such a policy change would need to be enacted by Congress. 

Possibility of Future Guidance

The government left the door open to address the lack of parity between affordability standards for traditional group plans and ICHRAs. The rule states that “the Treasury Department and the IRS, in coordination with HHS and the U.S. Department of Labor (DOL), will consider whether future guidance should be issued to change the ICHRA affordability rules for related HRA individuals in the manner suggested by the commenter.” 

HRA Council Member Ideon (formerly Vericred) has released a newly updated version of its interactive tool highlighting U.S. counties and states where the Small Group to Individual ACA health insurance premium dynamics are conducive to ICHRA adoption.

Learn more here: https://ideonapi.com/resources/blog/ideon-releases-2023-ichra-map/

Ten Member organizations contributed to this inaugural report, in alphabetical order: benefitbay, Flyte HCM, HealthSherpa, HRASimple, Nexben, OneBridge Benefits, PeopleKeep, Stride Health, TakeCommand, zizzl health. Read Member comments and download the report here: https://hracouncil.wildapricot.org/report