The Trump administration is set to roll out a new policy that could reshape how employers offer insurance coverage.

The proposal, which will be announced Tuesday, would lift an Obama-era prohibition on allowing more companies to use health reimbursement arrangements (HRAs) to pay for insurance premiums, administration officials told reporters Monday.

ADVERTISEMENT

The proposal would allow companies to use HRAs to reimburse employees’ premiums on the individual health-insurance market.

The new policy would apply to small- and medium-sized companies that currently do not offer health insurance coverage to employees, administration officials said.

The proposal is the third part of President Trump Donald John TrumpSteele Dossier sub-source was subject of FBI counterintelligence probe Pelosi slams Trump executive order on pre-existing conditions: It 'isn't worth the paper it's signed on' Trump 'no longer angry' at Romney because of Supreme Court stance MORE’s executive order on ObamaCare and insurance competition from last fall. Two other policies from the order have already been made final: expanding the duration of non-ObamaCare short-term insurance plans, and allowing for employers to form association health plans.

HRAs allow workers to purchase coverage using tax-free dollars. Currently, an HRA can only be used to reimburse an employee or dependents for certain qualified medical expenses.

The Obama administration prohibited HRAs from being used to pay for employee premiums in large and mid-sized companies, and the IRS previously said HRAs did not comply with ObamaCare coverage requirements. HRA contributions can only be tax-free if they are coupled with a group health plan that meets ObamaCare’s coverage protections.

The new proposal aims to loosen these restrictions. A second part of the proposal would allow employees to be reimbursed up to $1,800 for premiums on certain qualified medical expenses, so long as the company offers traditional employer-sponsored coverage. Those qualified expenses would include short-term insurance plans that don't have to meet ObamaCare’s coverage requirements.

Administration officials said on a call with reporters the new proposal would increase competition among insurers, so employees will have a better choice of plan options available to them.

According to the officials, expanding access to HRAs lead to an estimated 10 million employees to get coverage. Of those, an estimated 1 million are individuals who are currently uninsured.

The expanded HRA policy will have “guardrails,” officials said. For example, employers will have to provide either an HRA to purchase coverage or traditional employer-sponsored health plan, but not both.

The concern for health advocates is that the new policy could this trigger employers to “dump” their expensive, less healthy employees into the ObamaCare marketplace, while steering healthy employees to cheaper, non-ObamaCare insurance.

Updated Tuesday at 5:10 p.m.