Earlier this year, I was talking with a very astute healthy policy observer. They pointed out that the Trump Administration’s push towards much wider use of Health Reimbursement Accounts (HRA) to pay for employer coverage on the individual market is extremely interesting in a wide variety of ways. The basic HRA concept is that the employer would place an age/geography/family size adjusted sum of money into employee accessible accounts. Employees would then use the exchanges to purchase insurance on the individual market. The employer effectively makes explicit healthcare costs and off-loads the expense of administration of healthcare benefits to the exchanges.
This is interesting in a wide variety of ways. We talked about how the current system of requiring the reporting of insurance premiums on income tax W-2s (Box 12-DD) does not make people too sensitive. Right now, at most box 12-DD is an interesting factoid as the sum of money that Duke spends on my health insurance is intermediate through multiple opaque layers of value creation and destruction. I don’t know if other large employers can provide my family with the same or better realized value on health insurance. If I had to shop on the Exchange and Duke offers $12,000 for family coverage and Other Employer offered $10,000 in an HRA for family coverage, I can make a real estimate of the value trade-off. But right now, if Duke holds premiums constant while increasing deductibles, I have a hard time determining if my value proposition and trade-offs have changed.
In 2012, Paul Krugman was banging the drum on downward nominal wage rigidity.
What the paper shows is that many, many workers are getting precisely zero wage growth in dollar terms:
This stuck with me. People don’t like taking nominal pay cuts as their debts are mostly denominated in nominal dollars. Employers don’t want to demoralize their workforce with nominal pay cuts so they cut head count and fringes to reduce costs and then rely on several years of nominal zero percent changes in an inflationary environment to produce real pay cuts.
Health insurance in an employer sponsored world is a major source of potential savings as Box 12-DD numbers aren’t real. Employers could go to a tiered network or higher deductibles or more restrictive plans while still providing something that most of their remaining employees would consider “similiar” enough to a 0% raise. Those moves are invisible or close enough to invisible so that the scream minimization constraint is satisfied. ESI health insurance premiums are very well hidden compensation for employees although it is very clear compensation for employers.
A question that sticks in the back of my policy brain is “What if the 2008/2009 Great Recession happened again?” This question does not dominate my thinking but it gets asked at least a couple of times a year as I think about possibilities.
Moving to an common HRA arrangement for employer sponsored health insurance should make the cost of premiums far more explicit in a repeat version of 2008-2009 employment shocks. An employer who is seeking to cut compensation costs by taking an average of $800 per employee per year out of the health insurance budget can’t do that any more by narrowing the network, restricting the formulary and switching from a PPO to an HMO. Instead it is an explicit cut where the HR rep has to convince the workforce that this year they received on average $10,000 in employer premium support and next year they will receive $9,200 in average premium support and that is still a great deal. And it may be a good deal for individuals who qualify for subsidies as they will get topped up but for folks who don’t qualify for subsidies, this is an explicit wage cut.
The idea of HRA breaking the employer role of selecting health insurance is extremely attractive assuming deep and well functioning individual markets or at least individual markets that are no more dysfunctional than the current large group markets. However, making explicit the cost of health insurance may exacerbate a repeat of 2008-2009.