Some people dabble in health insurance. Others specialize. Those who dabble may sell it as a courtesy to
their clients, but they spend most of their time selling other products. In contrast, brokers who focus on
selling health insurance are constantly looking for ways to find more prospects and do more business.
Unfortunately, with the uninsured rate continuing to drop, that’s becoming more and more difficult. If
nearly everyone who wants and can afford health insurance already has it, it’s hard to generate new
That’s especially true between open enrollment periods, when most people can’t buy health insurance
even if they wanted it. Enrollment between February and November is restricted to those who qualify
for a special enrollment period, so the trick is to find people who 1) are uninsured, 2) want health
insurance, 3) can afford it, and 4) are eligible to enroll. Easier said than done.
A new bill, though, might help brokers identify individuals who meet all of these criteria, not just one at
a time but in groups. The bipartisan bill, which was introduced simultaneously in the House and the
Senate, would permit small employers that are not subject to the Affordable Care Act’s employer
mandate to drop their group health coverage, put money in a Health Reimbursement Arrangement
(HRA) instead, and let the employees use those funds to purchase health insurance in the individual
market. Though it’s not completely clear, the bill would likely create a 60-day special enrollment period
for employees who are losing their group coverage, which would provide brokers who help employers
set up these arrangements with multiple individual leads: people who are suddenly uninsured, need to
sign up for health coverage, have some employer money to help them pay for it, and have a special
enrollment right through the marketplace.
Defined Contribution: what the law says
Often referred to as defined contribution, this strategy – where an employer contributes money to a tax-
free account that employees can then use for qualified 213(d) medical expenses, including individual
health insurance premiums – has been debated for years. Because regulators hadn’t specifically said
that it wasn’t legal, some people thought it was while other people thought it wasn’t. Clearly, we
needed some guidance.
We’ve received some clarification over the past couple years. In fact, the Department of Labor, Treasury
Department, and Department of Health and Human Services (collectively referred to as “the
Departments”) have chimed in five times on this controversial issue. Here’s a short summary of their
- HRAs and other tax-advantaged accounts are group health plans under the law and therefore
are subject to all of the rules and regulations applicable to group health plans, including the
requirements that these plans cover up-front preventive care and do not place an annual dollar
limit on essential health benefits.
- Because these plans do not cover preventive care, they fail to comply with that market reform.
And because they are limited to the amount the employer contributes, they do place a dollar
limit on essential benefits. In other words, they’re out of compliance with insurance regulations.
- The penalty for offering a plan that is out of compliance is a whopping $100 per day per
employee, or $36,500 per year, so this can be a very costly strategy for employers.
- The IRS offered companies that were already reimbursing employees for the cost of individual
coverage a short transition period but has promised to start enforcing the penalties effective
July 1st, 2015.
New Bill Gaining Traction
Just before the deadline, though, on June 25th, “U.S. Senators Chuck Grassley (R-IA) and Heidi Heitkamp
(D-ND) and Congressmen Charles W. Boustany, Jr., MD, (R-LA) and Mike Thompson (D-CA) introduced
bipartisan companion language in the House (H.R. 2911) and Senate (S. 1697) known as the Small
Business Healthcare Relief Act to roll back existing Treasury Department guidance issued under the
authority of the Affordable Care Act prohibiting the use of Health Reimbursement Arrangements
(HRAs).” Read the press release here: http://www.grassley.senate.gov/news/news-releases/grassley-
The Small Business Healthcare Relief Act, according to the press release, would “restore flexibility and
choice into the marketplace by:
- Ensuring that small businesses and local municipalities with fewer than 50 employees are
allowed to continue using pre-tax dollars to give employees a defined contribution for
- Allowing employees to use HRA funds to purchase health coverage on the individual market, as
well as for qualified out-of-pocket medical expenses if the employee has qualified health
- Protecting employers from being financially penalized for providing this cost-sharing option to
The legislation would only apply to companies with 50 or fewer full-time equivalent employees that are
not applicable large employers subject to the employer mandate. It would also prohibit employees with
access to these employer funds from double-dipping and also applying for a premium tax credit.
In addition to the bipartisan backing in both chambers, this bill has a surprising amount of support from
several high-profile organizations, including the U.S. Chamber of Commerce, the National Association for
Towns and Townships, the American Farm Bureau Federation (AFBF), the National Association of
Manufacturers (NAM), the National Association of Home Builders (NAHB), the National Federation of
Independent Business (NFIB), the Small Business Majority, the National Association for the Self
Employed (NASE), the Coalition for Affordable Health Coverage (CAHC), the Retail Industry Leaders
Association (RILA), and the National Retail Federation (NRF). Many of these organizations are quoted in
the press release, saying this bill is a “common-sense solution” that would give small employers “the
flexibility they need to offer health care benefits in a way that makes the most sense for their employees
and their businesses.”
What does this mean to you?
A bill is just a bill. Until it’s passed, it doesn’t change the way we do business. Right now, the rules say
employers cannot pay for individual health plans through an HRA or any other funding arrangement,
and that’s how agents should advise their clients. That said, the Affordable Care Act is continually
evolving, and brokers who want to be successful in this business need to keep an eye on the proposed
changes to the health reform legislation and make sure they’re prepared in case some of the proposals
do end up becoming law. AHCP will continue to keep brokers abreast of any developments that will
present more sales opportunities.
This bill has a lot of support, and while it would have the effect of causing some companies to drop their
group health coverage, it would also encourage other small employers who don’t currently have a group
health plan to put some money toward their employees’ individual premiums. It’s the sort of proposal
that could attract supporters from both sides of the aisle; in fact, it already has. With identical bills in the
House and the Senate, the proposed legislation has a greater chance of passing, and with all of the
support out there, it’s something the President might consider signing.
With that in mind, brokers who don’t currently sell individual health insurance may want to go ahead
and get registered to sell through the marketplace. If the bill doesn’t pass, there’s no harm in being
registered; there are still plenty of people who need your help. On the other hand, if the bill does pass, a
lot of people who previously had coverage through their employer will suddenly be shopping for
individual policies, and you don’t want to miss out on that opportunity.