Imagine a world without employer-sponsored health care. Late last week, the Trump administration finalized rules that could signal the beginning of that movement.
One element of the rules will let employers pay for their workers’ health insurance by subsidizing premiums in the Affordable Care Act’s individual market. It does this by making health reimbursement arrangement (HRA) plans more accessible to workers nationwide.
The use of HRA plans, which are funded with pre-tax money by employers, has long been restricted to exclude paying for insurance premiums. The new ruling, which goes into effect in Jan. 1, 2020, will change that.
John Barkett, director of policy affairs at Willis Towers Watson, worked in the Obama administration and helped write the ACA. Barkett said this rule will present employers with an interesting decision that wasn’t available before the ACA.
“Pre-ACA, employers could have offered this model to their workforce. Most did not, because they couldn’t guarantee everyone they employed would be able to find health insurance,” Barkett said. “Insurance companies in the individual market could turn their employees down for having preexisting conditions. So, even though it was possible, most employers didn’t use this model if they wanted to offer benefits to everyone in their workforce.”
The Trump administration projects that 800,000 employers, most with fewer than 20 workers, will eventually offer HRAs to help 11 million workers purchase individual insurance coverage by 2029. Whether those future projections are accurate will rely heavily on the whims of employers. It’s a model that could be attractive to employers from a portability and convenience standpoint, Barkett said, because employees who purchase health care on the individual market could bring it with them when they switch jobs.
There’s also an interesting political dynamic potentially underscoring these new rules, which could have a profound affect on the health-care market going forward, Barkett said.
“By endorsing the HRA model, Republicans are tacitly endorsing the underlying marketplace that supplies plans to the HRA model, which is the ACA marketplaces,” Barkett said. “If Republicans can stand up and say they’re supporting small business, and Democrats can get up and say they support the public exchanges and then agree on policies that support the individual marketplace on the whole, that could be a dynamic that we haven’t seen since the passage of the ACA in Washington. It could lead to betterment for the whole market.”
Some are forecasting that a shift to HRAs could resemble the movement in retirement benefits from defined benefit pensions to 401(k) plans, where employers make fixed contributions instead of promising a set benefit for years in the future. Adopting the HRA model would provide businesses with more predictable costs while shifting the risk of higher health-care expenses onto workers.
The overarching goal of the rules is to provide Americans with more choice when selecting health plans. Some experts worry that more people will go the cheap route and end up with less comprehensive coverage. However, Barkett suggested that could eventually force health providers to readjust their plans.
“The more patients that move into the individual market, the more providers may be forced to compete, either with their own insurance products, or working with only a handful of insurers, not only the big ones,” Barkett said. “That could be a good thing for consumers.”
Ultimately, it will take a while for these rules to take hold, Barkett said. But it’s not hard to picture a future where employees, not employers, are in charge of choosing their own health care packages.
“This is going to take time to play out — trends in employer purchasing usually take years to play out,” Barkett said. “Employers often look and see what their competitors are doing, so there’s always a chicken-and-egg problem when it comes to employers adopting trends. You can see how we might not have anything change if everyone’s thinking that way.”
HEALTH CARE REIMBURSEMENT ROUNDUP
Small Business Shakeup
Cameron Albert-Deitch writes that in six months, small business employees could have some of the same health insurance tax benefits as workers at large corporations in this piece for Inc. Albert-Deitch’s article explains how the Trump administration’s ruling on HRA plans makes it a level playing field for small businesses.
Remaking Health Insurance
President Trump’s attempt to transform American health insurance is almost complete, writes John Tozzi of Bloomberg. Tozi speculates that a broad shift to HRAs could resemble the movement in retirement benefits from defined benefit pensions to 401(k) plans, where employers make fixed contributions instead of promising a set benefit for years in the future.
Authors Christen Linke Young, Matthew Fiedler and Jason Levitis of The Brookings Institution provide a comprehensive look at the HRA rule and its implications. The writers touch on the rule’s limitations on age variation in HRA contributions, changes to guardrails against worker-level shifting and substantiation procedures for individual coverage.
Changing the Landscape
In a column for The Federalist in October 2018, Christopher Jacobs writes about how an obscure regulatory proposal by the Trump administration has the potential to change the way millions of Americans obtain health insurance. Jacobs provides a background for how the current health-care landscape was formed and how what are the now-finalized rules could alter the way employers and employees go about purchasing health insurance.
Changes and Clarifications
Rebecca Moore of PlanSponsor solicits insights from Rachel Leiser Levy from Groom Law Group to provide a rundown of the changes and clarifications to the final HRA rule. Leiser Levy explains that the final rules adhere closely to the originally proposed rules, but there are two noteworthy changes.
About the Author
Brett Christie is a staff writer at WorldatWork.