Using HRA Funds To Purchase Individual Health Insurance

The intersection of state and federal laws can sometimes be a thorny issue, and Health Reimbursement Arrangements (HRAs) have proven to be so in Colorado.  For nearly two decades, Colorado has had a law (Article 16) that prohibits employers from paying for individual health insurance for their employees.  Group health insurance is guaranteed issue, but more expensive than individual policies.  Without the law in place, there were valid concerns that employers might opt to not offer guaranteed issue group policies, and instead pay for individual coverage for their healthy employees (who would be able to qualify for a medically underwritten policy) and shift coverage for unhealthy employees over to CoverColorado, the state’s high risk pool.

How To Set Up An HRA

For years, insurance agents have been trained that they cannot market any individual policies at a place of business or present individual policies as a potential option to an employer looking for health insurance for her employees.  Then HRAs came on the scene, bringing plenty of confusion about the subject.  The IRS makes it very clear that one of the qualified medical expenses that HRA funds may be used for is “amounts paid for health insurance premiums.”  But in 2009, the Colorado Division of Insurance clarified their position on using HRA funds to pay for individual health insurance, and noted that health insurance policies paid for with HRA funds would still be “subject to the provisions of Article 16 including requirements of §10-16-105, C.R.S”.  We wrote about this conflict between state and federal law a few months ago.

However, it appears that the Colorado Division of Insurance has repealed its 2009 order regarding the use of HRA funds to purchase individual health insurance.  Final Agency Order O-11-064 details the questions involved (including issues regarding eligibility for CoverColorado) and concludes that

“Self-funded employee benefit plans sponsored by a private company such as an HRA, are employee benefit plans under ERISA and are not subject to the jurisdiction of the Commissioner.”

This means that HRA funds (which employers contribute on behalf of their employees) can be used to purchase individual health insurance, and neither the employer nor the employee will be running afoul of the Colorado Division of Insurance regulations.  One caveat is in regards to CoverColorado:  Final Agency Order O-11-064 notes that although HRA funds may be used to purchase individual health insurance, that does not include CoverColorado policies if it can be shown that the “…employer sponsoring the HRA is a payer that could financially benefit from the coverage of the individual under CoverColorado.”  It is less expensive for employers to set up an HRA and reimburse employees for individual health insurance than to provide a costlier guaranteed issue group policy.  But this encourages employees who have pre-existing conditions to utilize the state-subsidized high risk pool, and the Division of Insurance obviously wants to prevent this shifting of costs from employers to the state.

If it passes, Senate Bill 19 might make the whole issue a moot point.  The Colorado legislature is still considering the bill, which would do away with the law that prohibits employers from paying for individual health insurance.  It passed the Senate on February 28th, and was assigned to the Health and Environment Committee in the House in early March.  It was referred to the House Committee of the Whole on March 10th, and is still being considered by the House.

About Louise Norris

Louise Norris has been writing about health insurance and healthcare reform since 2006. In addition to the Colorado Health Insurance Insider, she also writes for,, Verywell, Spark by ADP, and Boost by ADP, and Gusto. Follow on twitter and facebook.


  1. Commissioner Morrison’s November decision certainly made the waters murkier.
    I think its important to note the SB-19 would clarify the issue for brokers and business owners, and lso protect the small group market to some degree by stating that businesses that have had small group coverage within the last 12 months would not be allowed to use an HRA or list bill arrangement for individual policies. As you say, SB-19 offers a bit more protection for CoverColorado which needs to stay solvant into 2014. These are the reasons that CSAHU supports SB-19.

  2. Would it be possible to market individual policies that would be primary to group insurance?
    For example, policies with coverage from $10,000-$50,0000, in which the deductible on group insurance starts where the primary coverage ends?
    Don Levit

  3. We are mixed on this legislation, because we believe people get better coverage and protections in the small group market. We’re uneasy about moving what is essentially the DOI order into statute, making it harder to modify or reverse.

    However, SB 19 actually improves the status quo from our perspective, because of the 12 month “go bare” requirement for employers, which reduces the likelihood that an employer who is currently offering small group insurance will switch to an HRA. We’d also like to see this potentially coupled with a provision regarding small businesses who qualify for the ACA tax credits . . .

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