HEALTH REIMBURSEMENT ARRANGEMENTS (HRAs)

It can be difficult for small businesses and middle class, working families to find comprehensive, affordable healthcare. However, this may be about to change. There is at least a new option on the horizon.

Beginning January 1, 2020, approximately 800,000 businesses will be able to provide Health Reimbursement Arrangements (HRAs) through the expansion of the program. HRAs are tax-free, employer-funded arrangements that workers use to pay for medical expenses and individual insurance coverage for themselves and their families. The administration’s new rule will provide the same tax advantage traditional employer-sponsored group plans received — exclusion of premiums from federal income or payroll taxes — to coverage workers in the individual market purchase from an HRA.

The hope is that this new rule will significantly expand workers’ options when it comes to healthcare coverage. For example, currently 80% of businesses who offer insurance benefits to their employees only offer one type of plan. In 2020, not only will employees be able to choose their own coverage, but they can keep that coverage should they switch jobs. Additionally, this new ruling will relieve much of the burden small business owners have in maintaining traditional group health plans for their employees. They will now be able to fund coverage with less hassle and cost.

The administration expects that it will take five years for the full impact of this HRA ruling to register. They anticipate the HRA rule to increase the individual market by over 50% and result in a more competitive market that drives insurers to deliver better, more affordable options to consumers. There is the additional hope that the HRA rule will reduce wasteful healthcare spending. Regardless of political leanings, this HRA ruling has the potential to transform the healthcare industry.

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