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Exchange Raises Concerns With Proposed HRA Safe Harbors

UNDATED

Exchange Raises Concerns With Proposed HRA Safe Harbors

UNDATED
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Washington Health Benefit Exchange Comments:
Proposed Rule — Application of the Employer Shared Responsibility Provisions and Certain Nondiscrimination Rules to Health Reimbursement Arrangements and Other Account Based Group Health Plans Integrated with Individual Health Insurance Coverage or Medicare (“HRA Safe Harbor Proposed Rule”)

The Washington State Health Benefit Exchange (WAHBE or the Exchange) appreciates your consideration of the following comments regarding the HRA Safe Harbor proposed rule published by the Department of the Treasury and the Internal Revenue Service (IRS) on September 30, 2019.

WAHBE urges reconsideration of the key components of the proposed safe harbors. While intended to reduce the burden on large employers, they add confusion about whether and how to fund HRAs for employers while further disadvantaging low- and moderate-income employees and their families. Employers will be placed in the untenable position of worsening rather than helping many employees' health and wellbeing if they choose to offer individual coverage health reimbursement accounts (ICHRAs) using the affordability standards set out in the proposed safe harbor rules.

If the safe harbors defined in the proposed rules are finalized, we additionally ask that the Department require employers offering ICHRAs to provide clearer notice to employees that they may be eligible for more affordable health insurance if they opt out of the ICHRA. This notice should direct employees to the Exchanges to calculate their true affordability so that they can make the most informed choice. We encourage the notice to have language that notifies individuals, within the first two pages, that they should take affordability into consideration when accepting an ICHRA offer. This information could be added to the current question “Can I opt out of individual coverage HRA?” as a reason individuals may opt out.

Individual Coverage HRAs Have the Potential to Create Consumer Confusion and Individuals Could Opt into an Unaffordable HRA Unknowingly

Affordability Safe Harbors Regarding Household Income

WAHBE is concerned about potential confusion to consumers if individual HRAs are advertised as “affordable” when employers are unable to accurately calculate affordability. Given that affordability safe harbors only apply for purposes of the employer mandate and many consumers may still be eligible for premium tax credits based on household income, WAHBE asks that employers provide notice to consumers that their estimates of affordability may not be accurate because they are not based on actual household income. This notice should refer consumers to other resources, like the Exchanges, to determine the affordability of the HRA and determine whether there are better options for themselves and their families.

Location Safe Harbor

WAHBE has significant concerns about the location safe harbors detailed in the proposed regulation that would allow an ALE to use the lowest cost silver plan for an employee's self-only coverage offered through the Exchange in the rating area in which the employee's primary site of employment is located. This could result in consumers being offered an “affordable” HRA by their employers but the plan falling above the affordability threshold defined in 26 CFR 1.36B-2(c)(5). Consumers may not be able to use the plan or end up contributing a significant amount of their income for health insurance if premiums in their area of residence are significantly more than in the site of employment. While we appreciate that these employees could still be eligible for PTC, we are concerned that these employees won't seek financial assistance since their employer offered them an “affordable” HRA.

WAHBE urges the Treasury to eliminate the proposed location safe harbor and have employers use the same location standards that employees must use for a calculation of affordability. Creating a different standard for affordability for the employer than the employee has the potential to confuse employees and discourage them from seeking financial assistance through the Exchange.

In the Washington exchange, the lowest silver plan prices can vary significantly by county. For plan year 2020, there is a 56% difference in the lowest silver plan in the lowest priced county compared to the highest priced county. This underscores the importance of using the plan that the consumer is eligible to buy to calculate affordability to have an accurate result.

The current safe harbor will disproportionately impact employees who live in rural areas but commute to urban areas for work. Consumers in rural areas of Washington have less issuers available to them and frequently have higher costs. For plan year 2020, three rural Washington counties only have the most expensive issuer in the market available. These consumers could be disadvantaged by this safe harbor if they work outside their county.

Consideration of Age Safe Harbor

WAHBE supports the decision to not provide a safe harbor for age to employers and encourages the finalization of using the age of each employee to calculate affordability. This aligns with the calculation of affordability for the employee and considers the fact that prices are substantially different for different ages with a 3:1 age rating.

Look Back Month Safe Harbor

WAHBE urges the Treasury eliminate the proposed look back month safe harbor and consider alternative options for employers to plan for the upcoming plan year. WAHBE proposes that employers use either current proposed rates or annual adjustment to prior premium information instead of relying on the look back month safe harbor. Past years' rates are not accurate as predictors, and the results generally disadvantage consumers. Individual market premiums change from year to year, and there have been significant increases in past years (most notably 2018). It should be noted that premiums continue to rise in all markets given continued growth in health care spending. While it might be unreasonable for employers to wait until November to plan for the upcoming plan year, proposed rates are submitted well before November. In Washington, proposed rates for the upcoming plan year are made public as of late May/early June. While these rates are subject to change through rate review processes, these generally are more accurate benchmarks of the upcoming plan year rates than using the current year for next years' premiums.

The Proposed Safe Harbors Could Allow Employers to Offer “Affordable” HRAs for purposes of the Employer Mandate that are even further removed from actual “affordability” under the ACA

Under the law, affordability for purposes of determining eligibility for premium tax credits in an exchange plan is determined by a sliding scale percentage. Lower-income consumers are expected to pay a smaller percentage of their income on premiums. For example, consumers up to 150% FPL are expected to contribute a maximum of 4% of their income toward the monthly premium in a benchmark plan (the second lowest-cost available silver plan).

The final HRA rule, however, applies a different standard of affordability to any consumer seeking an individual market plan whose employer has decided to offer an ICHRA. These consumers are expected to pay as much as 9.86% of their income toward their monthly premium for an exchange plan, regardless of their income, before being eligible for tax credits in an exchange plan. Where a single person earning $18,210 annually would be expected to pay 4% of their income — or $728 annually — toward their premium under current rules, the same individual would be expected to pay almost 10% of their income — $1,785 annually — toward their premium if their employer were to offer them an HRA under the proposed rule. This different definition of “affordable” that would apply to consumers with the same income seeking to buy the same exchange plan based on whether their employer offers an HRA already is inequitable and harms the most vulnerable consumers. The proposed safe harbors further bend the affordability definition for purposes of the employer mandate in a direction that disadvantages premium tax eligible consumers. The location and look back month safe harbors in particular mean many consumers will be offered an “affordable” employer option when in fact they could be better off purchasing via the exchange using the premium tax credit to which they are entitled.

This outcome adds complexity to decision making for both individuals and their employers. Today, many of the Exchange's consumers already have difficulty understanding whether they have received an affordable offer of employer-sponsored insurance that meets “minimum value” requirements, understanding how affordability in a self-only employer plan translates to “affordability” when buying coverage for their whole family in the Exchange, and understanding the impact of their employer's plan on their eligibility for tax credits in a QHP. These safe harbors deepen complexity and needlessly extend the confusion to more working individuals. We respectfully ask that you consider more consumer and business friendly approaches to coverage affordability.

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