Proposed Rule Would Allow Defined Contribution Approach for Health Benefits

March 22, 2019

The American Health Policy Institute released a policy brief, "Trump Administration Opens Door to Defined Contribution Approach to Employer Health Care Benefits," detailing how a proposed HHS rule would pave the way for a tax-preferred defined contribution approach for large employers to provide health care benefits—without being subject to the ACA’s employer mandate.

Background:  Current Affordable Care Act rules do not allow large employers to offer a health reimbursement arrangement (HRA) for employees to purchase individual coverage without being subject to the employer mandate.  In October 2018, the Trump administration published a proposed HRA rule that would allow two new types of HRAs for large employers:

  • A stand-alone HRA that would be integrated with individual health insurance coverage; and
  • A stand-alone HRA that would qualify as an excepted benefit.

Impact:  If finalized, the former would enable large employers to pursue a tax-preferred defined contribution approach for providing health care benefits to current employees.  This new type of HRA, an individual coverage HRA (ICHRA), would contain no employer contribution limits, but would still be subject to the ACA’s definition of “affordable coverage.”

Opportunity for nontraditional workers:  The concept could provide an alternative for employers to offer health benefits to the nontraditional workforce, but this would require Congress to expand the ability of employers to offer HRAs to independent contractors.  Such an approach could expand benefits to a growing segment of the workforce.

Outlook: Some have questioned the legal authority for the proposal, which suggests the final rule may be challenged in court.  Moreover, any final rule could be rescinded or changed by any future administration.