The 21st Century Cures Act, an omnibus health care measure signed into law this week by President Obama, contains a provision that could help stabilize the individual health insurance market segment. It does so by paving the way for employers of 49 or fewer employees that do not offer group coverage to subsidize employee purchases of individual plans starting January 1, 2017.
Section 18001 of the measure authorizes tax deductible Qualified Small Employer Health Reimbursement Arrangements (HRAs), allowing small employers to fund up to $4,950 annually for single employees and $10,000 for an individual plan covering an employee and their family members. The reimbursement must be offered to all full time, permanent employees age 25 and older with at least 90 days of service and may not be offset by employee salary reduction contributions.
Previously, guidance issued by the federal government disallowed employer subsidies of employee individual coverage. Since the subsidies are paid by employers, they trigger requirements governing employer group plans, the guidance stated, drawing a bright line between individual and employer group health benefits.
If a significant number of small employers — many of which are feeling pressure from rising small group health insurance premiums — subsidize employee purchases of individual coverage under this provision, it could help improve the spread of risk and age diversity of state individual risk pools. Individual health plan issuers are concerned over the quality of the individual risk pool and many have significantly increased premium rates for plan year 2017.
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