Trump Administration Proposes Tax-Exempt Employer Funding for Short-Term Health Plans

Published December 9, 2018

The goal, according to administration officials, is to empower employees to make their own decisions regarding the health care they choose to purchase. Rules imposed under President Barack Obama prevented employers from covering medical costs tax-free via HRAs, declaring they would not meet the federal government’s mandate requiring companies with more than 50 full-time employees to provide health insurance covering all items the Obama administration deemed “essential.”

Currently, an employer can contribute to a plan that is not Obamacare-qualified, such as a short-term health insurance plan, but the employer is taxed on the contribution. The 21stĀ Century Cures Act of 2016 rolled back this rule for small businesses of 50 or fewer employees, but large businesses were still taxed on contributions to short-term plans.

The proposed rule was offered by the Trump administration on October 23.

‘Should Dramatically Increase Choices’

In a call with reporters at the time of the announcement of the proposed rule change, senior administration officials said in addition to providing a tax break to larger firms, the rule would allow employers to fund tax-exempt health reimbursement arrangements to pay for some of workers’ individualĀ health insurance premiums. In contrast to the Obama administration’s policy, Trump officials said using HRAs to pay for premiums would qualify as an offer of coverage that satisfied the employer mandate.

“This proposal should dramatically increase choices for workers whose employers offer an HRA, and with more consumers in the driver’s seat, there will be increased incentive for insurers and providers to deliver high-quality services at affordable prices,” one official said.

Benefits to Small Employers

The U.S. Treasury Department estimates 10 million employees spread across 800,000 employers would ultimately opt for insurance through HRAs. Federal agency estimates say one million of those employees would be insured for the first time under the proposed rule.

Doug Badger, a visiting fellow at The Heritage Foundation and senior fellow at the Galen Institute, says he sees benefits for larger firms and their employees alike.

“Right now there is still an employer mandate on firms with more than 50 workers,” Badger said. “So there is a penalty if they don’t provide coverage. What this would do is add another option that employers can make a tax-deferred, defined contribution that would allow their employees to go out and buy their own coverage that would be fully portable and not tied to their job.”

INTERNET INFO:

Shelby Livingston, “Trump administration loosens restrictions
on health reimbursement arrangements,”
Modern Healthcare, October 22, 2018: https://www. modernhealthcare.com/article/20181022/NEWS/181029987