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The Affordable Care Act, Stand-Alone Health Reimbursement Accounts, and the Prospects for Consumer-Driven Health Plans

By Alden J. Bianchi

Employers are increasingly looking to consumer-driven health plans (CDHPs) in an effort to control health insurance costs.  CDHPs generally combine a high-deductible health plan with a tax-advantaged account, such as health reimbursement arrangement (HRA), that enrollees can use to pay for otherwise uninsured health care expenses.  Proponents claim that CDHPs can help restrain health care spending, arguing that the high deductibles and ability to carry over balances give enrollees an incentive to seek lower-cost health care services and to obtain services only when necessary.  Critics worry that these plans may disproportionately attract healthier enrollees who use fewer health care services or may discourage other enrollees from obtaining necessary care. 

With the arrival in 2014 of state-based and federally-facilitated insurance exchanges under the Affordable Care Act, CDHP proponents have touted a new approach under which an employer makes available funds under a “stand-alone” HRA (i.e., an HRA the is not coupled with a high deductible health plan or any other plan for that matter) that employees can use to purchase the coverage of their choice through one or more exchanges in the employee’s service area.  Employers like this design, since it does for health care what the 401(k) plan did for retirement: it lends a degree of predictability to the employer’s costs.  To CDHC critics, this and other CDHC approaches are mere cost-shifting devices, under which employees are burdened with an ever increasing proportion of aggregate health insurance premiums. 

Under current law, there is nothing to prevent an employer from adopting a stand-alone HRA, but it makes little sense because external insurance products are generally unavailable or unattractive.  The problem, of course, is that the individual market coverage to which an employee has access is not yet subject to important insurance market reforms under the Act.  This will change in 2014. 

Under current law, stand-alone HRAs of the sort described above would run afoul of the Act’s ban on annual limits but for a blanket waiver issued by HHS that expires in 2014.  The regulators will almost certainly be under a great deal of pressure from employer groups to continue to provide an accommodation for stand-alone HRAs thereafter.  This will not be easy. 

The Act defines “group health plan” with reference to the section 2791(a) of the Public Health Service Act, which, in turn, means “an ERISA employee welfare benefit plan to the extent that the plan provides medical care.”  While there is some case law might suggest otherwise, a stand-alone HRA is in most instances a group health plan for purpose of the Act, and for purposes of COBRA, HIPAA, GINA and other laws that are commonly associated with traditional group health plans.  There is also the question of whether the insurance coverage purchased with stand-alone HRA funds is individual market coverage or group coverage.  (Assuming no employer involvement, it would appear that the former approach is the better view.)  But make no mistake—what appears to be a relatively straight-forward business proposition is also a dense regulatory thicket.

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Martha Zackin