A new health insurance option from the Trump administration could help Obamacare achieve the influx of customers that has long escaped it and also lay the groundwork for either a conservative or a liberal overhaul to the system.
Under the rule, released in June, employers have the option of forgoing coverage for their workers in favor of giving them a pot of tax-free money known as health reimbursement arrangements, or HRAs, that they can use to buy their own health insurance. The provision appeals to conservatives because it allows patients to have more choice and gets closer to the goal of disentangling health insurance from employment.
“They want to give providers, payers, enrollees, and employers in theory as much flexibility to choose the types of coverage that best meets their individual needs as long as there are the proper guardrails that don’t destabilize the market,” said Chad Brooker, a director at the firm Avalere Health.
The administration estimates that 11 million people will use the HRAs to buy Obamacare plans by 2029. That would greatly shake up what is known as the “individual market,” the slice of the privately insured population that includes the 11 million people who buy coverage on the Obamacare marketplaces and another group of roughly 5 million who buy coverage directly from insurers that must abide by Obamacare’s rules.
An influx of 11 million new enrollees could help stabilize the exchanges. The Congressional Budget Office had projected in 2010 that 24 million people would be enrolled in the individual market by now, and the shortfall has posed a problem for premium costs because having more people, and a mix of healthy and sick, helps to keep costs under control and bring in more insurers to compete.
One of the reasons the enrollment prediction was off was that the federal budget agency thought employers would stop offering coverage and instead send their workers to the marketplaces. That largely didn’t happen.
The new rule on HRAs could help move enrollment along. The Trump administration says 90% of companies who use the plans will be businesses of 20 or fewer workers, and 800,000 people who are uninsured will gain coverage. Another 7 million would come from employer plans, which now cover 150 million people.
The rule is aimed at small businesses, which struggle to compete under Obamacare and in many cases stopped offering coverage. Letting HRAs have the same tax treatment as employer-provided plans levels the playing field, supporters say.
Proponents also believe the arrangement could provide a free market approach to reducing healthcare costs.
“Employers have to satisfy all their staff when they’re choosing insurance plans,” said Chris Pope, senior fellow at the conservative Manhattan Institute. “That makes it hard for insurers to negotiate good prices with hospitals and doctors, as they have to include a wide range of providers. Putting individuals in charge of picking health insurance plans doesn’t just give people choice, it helps them get a better deal.”
But the influx could also benefit liberal policy goals. More robust enrollment paves the way for a future Democratic Congress and president to set up a government plan for individual market customers to buy instead of private insurance.
“If this really works the way that the administration thinks this is going to work, it could strengthen the depth of the individual market, which increases the space for what anyone wants to do,” whether liberal or conservative, said David Anderson, a healthcare researcher at Duke University’s Margolis Center for Health Policy.
All of these forecasts, however, depend on a large number of variables, including whether enrollment gets as high as the Trump administration projects. Also, the enrollment prediction is complicated by the fact that the rule can be tossed easily by a future administration.
“There’s a good chance that not much happens,” Anderson said. “I don’t think there’s a significant downside. If everything works well, it could be a big deal.”
James Gelfand, senior vice president of health policy at the ERISA Industry Committee, said he was skeptical that enrollment in HRAs would grow by 11 million people. Large employers, the cohort his group represents, are unlikely to hop onto the HRA model, he said.
“There’s a huge economy of scale to it,” he said of companies offering coverage to employees. “They’re able to empower negotiations with providers, pharmacy benefit managers, and all that because they have this gigantic group.”
The rule has the potential to destabilize some marketplaces. If employers dump workers into the exchanges who are disproportionately sicker, it will lead to higher premiums for middle-income workers who make 400% of the federal poverty level and don’t get Obamacare’s subsidies to help them pay for coverage.
It’s not clear this would occur, however, because the Trump administration added protections with those dangers in mind, and officials say they’ll be watching closely. Employers can’t ask individual workers to buy their own coverage. Instead, they have to offer a plan or an HRA to a full “class” of employees, whether part-time or full-time workers or workers in a specific geographic area.
One part of the rule lets employers offer their own coverage or offer $1,800 for HRAs to buy short-term plans, which don’t have to cover people with preexisting illnesses. Younger, healthier people would be expected to use this option. That’s why Gelfand doesn’t think employers will go for it, because unloading the “young invincibles” would just make group coverage more costly.
The Trump administration will let companies offer HRAs to new hires beginning in 2020, but it’s not clear they’ll be available to many others that soon.
The exchanges aren’t yet prepared to verify that people are using their HRAs to buy Obamacare plans, and the sign-up period is coming up in November. Many large employers have already finalized their coverage for next year, and employers would need time to evaluate whether it benefits them to do an HRA instead of a group plan. They also would need to see how the marketplaces in their states are faring.
“Somewhat at issue here is whether employers see the individual market as stable and sustainable,” said Cori Uccello, senior health fellow at the American Academy of Actuaries. “If not, they will be more hesitant to direct employees to that market.”
