September 16th, 2011 – A few months ago Colorado introduced a new state law that allows companies with 50 or fewer employees to pay or reimburse employees for the costs of health insurance premiums through a Health Reimbursement Arrangement (HRA). Previously it had been illegal for companies to pay for individual coverage for an employee/family, but this law seemed to change that.
However, now it seems that employers using HRAs to purchase individual policies for employees may be violating Federal law. Employers who contribute to or reimburse employees for individual plan premiums through an HRA may cause the Individual/Family health insurance policy to be seen as part of an Employer Sponsored Group Health Insurance plan and subject to the requirements found in ERISA, COBRA, HIPPA and other Federal mandates.
Moreover, by combining an HRA and an individual policy funded by the HRA the employer could be liable for medical costs for benefits not covered by individual plans, but that are required by Federal laws that govern group plans. Another concern is that CoverColorado may not cover applicants when an HRA replaces a group plan.
Senate Bill 11-019 adds the following language to the Colorado Revised Statues:
“10-16-105.2. Small employer health insurance availability program. (1.5) NOTWITHSTANDING ANY OTHER PROVISION OF LAW, A SMALL EMPLOYER THAT DOES NOT HAVE, AND HAS NOT HAD IN THE PREVIOUS TWELVE MONTHS, A SMALL GROUP HEALTH BENEFIT PLAN PROVIDING COVERAGE TO ITS EMPLOYEES UNDER THIS ARTICLE MAY REIMBURSE AN EMPLOYEE, WHETHER THROUGH WAGE ADJUSTMENTS OR HEALTH REIMBURSEMENT ARRANGEMENTS, FOR ANY PORTION OF THE PREMIUM FOR A HEALTH COVERAGE PLAN.”
While the legality of using an HRA to reimburse employees for individual plans is a serious concern, insurance carriers have introduced a new portfolio of Employer Sponsored Group Health Insurance plans for HRA’s that are legal, reduce the amount that employers are required to contribute, and often have reduced premiums compared to traditional group plans. There is no 12 month wait period requirement to obtain these plans.