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.
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However, it appears that the Colorado Division of Insurance has repealed its 2009 order regarding the use of HRA funds to purchase individual health insurance.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.