Health Care Reform: Plan Features, HRAs, and Administrative Errors

Health Care Reform Monthly: Perspectives on the ACA for Employers

Future Focused: Trending Health Care Plan Features

The pace of health care cost inflation has remained moderate over the past year, and employers are trying to keep it that way. Rather than continuing to ask employees to shoulder more of the burden, however, many are aiming at longer-term changes in employee behavior, such as fostering a "culture of health" within their organizations.

Woman's face with a square highlighting her eye

These insights come from two newly issued reports from a pair of large benefits consulting and insurance brokerage firms, based on surveys conducted earlier this year. Looked at in total, the data indicates that employers are looking less at immediate cost-cutting measures and more at "future-focused" plan features.

Virtual Care

One of the future-focused strategies highlighted in Mercer's National Survey of Employer-Sponsored Health Plans is telemedicine services. Also known as virtual care, the service streamlines delivery of health care services by gathering medical data and offering interaction with health care professionals remotely via apps and the phone.

Among the promises of virtual care service is that patients will be more willing to seek medical attention when it can be delivered conveniently, and this inherent efficiency will lead to better health outcomes and reduced costs. But the study found that, though telemedicine services are widely offered, utilization rates remain low.

Specifically, the proportion of large employers (those with at least 500 employees) incorporating telemedicine into their health benefits — 80% — was up substantially from 71% the previous year and just 18% in 2014. But utilization was only 8% of eligible employees last year, though that rate is up slightly from 7% the previous year.

Other Trending Enhancements

Here are some additional future-focused health plan design features and their prevalence among the 2,409 employers that participated in the Mercer survey:

These strategies "may take more time to reduce medical costs than greater employee cost-sharing, but in the process they change how plans manage care, how providers are reimbursed, and even how people behave," according to the report.

And as noted, promoting a "culture of health" was found to be a high priority for many employers. Typical tactics to achieve this goal include providing healthy food choices in cafeterias and meetings, banning smoking on the work campus and building on-site fitness facilities. They also involve offering resources to support "financial health" and "a range of technology-based resources to engage employees in caring for their health and fitness."

New Health Promotion Strategy

The traditional approach used to motivate employees to embrace better health habits — offering financial incentives — is evolving as well, according to the second study, the annual Willis Towers Watson (WTW) Best Practices in Health Care Employer Survey.

To improve employee engagement in this area, "there is growing emphasis on connecting the workplace environment and leadership involvement to the many aspects of wellbeing," according to the report. This can translate into workplace initiatives that address employee "physical, emotional and social wellbeing," it states. Examples may include:

Regarding more concrete health spending optimization tactics, the report emphasized the importance of "new tools and technology and partnering with innovative companies to improve health care navigation," including decisions about what kind of medical support is needed.

Pharmaceutical benefit costs, rising faster than medical services, are a high employer priority, both reports found. Many organizations have made strides with proactively managing utilization — particularly of specialty drugs — "[but] significant opportunities remain to adjust plan designs and implement coverage changes," WTW maintains.

The Mercer survey found that, while the average health plan cost increase for larger employers was 3.2%, overall drug costs grew by 7% and specialty drug costs grew by 12%.

A Gap to Close

Meanwhile, smaller employers have a gap to close with larger employers in their overall health plan cost moderation progress. This year, the average increase for the under-500 employee group was 5.4%. And yet the average per-employee health plan cost for smaller employers — $12,148, according to the Mercer study — was nearly $1,000 below that of larger employers ($13,018). The disparity largely reflects differences in plan design, however.

And speaking of plan design, the percentage of smaller employers offering a high-deductible health plan (HDHP) jumped to 38% in 2018 from only 29% the previous year. The fact that HDHPs cost small employers, on average, 13% less than traditional PPO plans certainly played a major role.

Although HDHPs are much more prevalent among larger employers (at 68%, by Mercer's tally), that proportion grew more slowly (from 64%) than among smaller employers. Relatively few (about one in five) larger employers that offer an HDHP do so as their only plan option. Also, 82% of employers that offer HDHPs this year contribute to Health Savings Accounts paired with those plans, and the average employer contribution to those accounts ($694) rose from $653 last year.

The Right Balance

In a perfect world, smaller employers might be able to rely wholly on future-focused strategies and taper off on shifting more financial responsibility to employees, as many larger employers are doing. But when smaller employers lack the financial cushion to avoid the need for immediate cost-cutting options, their employees would probably prefer having jobs over keeping their health plan contributions fixed. So, find the right balance for your organization in consultation with your benefits advisors.

Agencies Propose Regulations To Expand Use of HRAs

Three federal agencies have proposed changes that could bring significant changes to Health Reimbursement Arrangements (HRAs). The IRS, Department of Labor (DOL) and Department of Health and Human Services (HHS) jointly proposed the regulations in response to President Trump's executive order directing the agencies to consider regulations or guidance that would expand the availability and permitted use of HRAs. Let's look at some highlights.

HRAs Funding Individual Insurance

Road leading to HRAs

The proposed regulations would allow HRAs to be integrated with, and to reimburse premiums for, individual health insurance coverage if certain conditions are met. Employees and dependents covered by an HRA would have to be enrolled in individual coverage (other than coverage that consists solely of excepted benefits), and an attestation or other verification of enrollment would be required when participation commences and when expenses are reimbursed.

Also, the HRA sponsor couldn't offer a "traditional" group health plan (one that's neither account-based nor limited to excepted benefits) to the same class of employees. (The proposed regs offer several permitted classifications, including full-time, part-time, seasonal and collectively bargained employees.)In addition, the HRA would have to be offered on the same terms and conditions to all employees within a class, except that the HRA benefit amount could increase by age or family size. Employees would have to be able to opt out and waive future HRA reimbursements at least annually, and they would have to receive timely written notices with specified HRA information.

Excepted Benefit HRAs

The proposed regs would allow employers to offer nonintegrated HRAs that qualify as excepted benefits — and thus aren't subject to the mandates of the Public Health Services Act — if they meet four requirements:

  1. The employer makes other nonexcepted, non–account-based group health plan coverage available to the HRA participants. (Enrollment isn't required.)
  2. No more than $1,800 (indexed after 2020) is newly available to each participant for each plan year. (Carryovers permitted under the arrangement would be disregarded.)
  3. The HRA doesn't reimburse premiums for individual health coverage, non-COBRA group coverage, or Medicare Parts B or D. (Premiums for coverage consisting solely of excepted benefits could be reimbursed.)
  4. The HRA is made available under the same terms and conditions to all similarly situated individuals. An excepted benefit HRA couldn't be offered to employees who are also offered an HRA that's integrated with individual health insurance.

Cafeteria Plan Salary Reductions

The preamble clarifies that employers with HRAs that are integrated with individual health insurance could allow employees to use pretax cafeteria plan salary reductions to pay any portion of their individual insurance premiums not covered by the HRA. (Presumably, salary reductions would be unavailable for individual policies offered through a Health Insurance Marketplace, also known as an Exchange, because of restrictions under the cafeteria plan rules.)

If offered, salary reductions would have to be made available on the same terms and conditions to all employees within a class.

ERISA Status

Under a proposed DOL regulation, the terms "employee welfare benefit plan" and "welfare plan" as used in the Employee Retirement Income Security Act (ERISA) wouldn't include individual health insurance funded by an HRA if certain requirements are met.

Among other requirements, the purchase of the insurance must be completely voluntary for participants and beneficiaries. Also, the employer or other plan sponsor must not select or endorse any particular insurer or coverage, and participants must be notified annually that the individual coverage isn't subject to ERISA.

Other Details

Here are a few other important details of the proposed regs:

Special enrollment period. A proposed HHS regulation would establish an "Exchange special enrollment period" for employees and their dependents who gain access to an HRA that's integrated with individual health insurance coverage or are provided with a qualified small employer health reimbursement arrangement (QSEHRA). The period would allow them time to enroll in individual insurance coverage or change from one individual coverage plan to another.

Premium tax credit guidance. A proposed IRS regulation would provide guidance regarding the premium tax credit consequences for individuals who are offered or covered by an HRA that's integrated with individual health insurance.

Applicability date; no reliance. The changes are proposed to apply for plan and taxable years beginning on or after January 1, 2020; they may not be relied on before they're finalized.

Significant Changes

If finalized as proposed, the regulations will bring significant changes to the HRA landscape by establishing two new types of HRAs that — unlike QSEHRAs — would be available to employers of any size. (Please note: Portions of the regulations would also apply to other account-based plans; employers and advisors interested in other designs should pay close attention to the applicable definitions.)

The proposal also indicates that the agencies are open to allowing cafeteria plan reimbursement of individual major medical policies. Indeed, the preamble specifically requests comments on cafeteria plan premium arrangements, including whether they should be permitted to integrate with individual insurance coverage. Comments have also been requested on a variety of other issues identified in the preamble and are due by December 28, 2018.

Can We Rescind a Participant's Coverage Based on a Plan Error?

Coworkers examining a document

Question: Our company sponsors a group health plan that covers employees who work at least 30 hours per week. After reassigning one of our covered full-time employees to a part-time position, we mistakenly continued to provide coverage for two months — collecting premiums and paying claims for that period.

After a routine audit, we discovered the error. Can we rescind the employee's health coverage effective as of the date that his status changed from full-time to part-time?

Answer: No, the plan can't rescind coverage in this instance. The Affordable Care Act prohibits rescissions — defined as the cancellation or discontinuation of coverage with retroactive effect — except in cases of fraud or intentional misrepresentation of a material fact as prohibited by the terms of the plan. Even when there is fraud or misrepresentation, plans must give at least 30 days' advance written notice of a rescission.

In the situation that you describe, there was no fraud or intentional misrepresentation of a material fact, so the rescission of coverage as of the date the employee's status changed to part-time would be impermissible. Your plan can cancel the employee's coverage prospectively, subject to other applicable federal and state laws.

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