Come for the politics, stay for the snark.

I might just take the rest of the day off and do even more nothing than usual.

Incompetence, fear, or corruption? why not all three?

If you are still in the gop, you are either an extremist yourself, or in bed with those who are.

Something needs to be done about our bogus SCOTUS.

Books are my comfort food!

“Perhaps I should have considered other options.” (head-desk)

… riddled with inexplicable and elementary errors of law and fact

Wow, you are pre-disappointed. How surprising.

Imperialist aggressors must be defeated, or the whole world loses.

Not loving this new fraud based economy.

New McCarthy, same old McCarthyism.

The “burn-it-down” people are good with that until they become part of the kindling.

We can show the world that autocracy can be defeated.

If rights aren’t universal, they are privilege, not rights.

Good lord, these people are nuts.

Balloon Juice, where there is always someone who will say you’re doing it wrong.

Only Democrats have agency, apparently.

Fight them, without becoming them!

The rest of the comments were smacking Boebert like she was a piñata.

Democracy cannot function without a free press.

We’re watching the self-immolation of the leading world power on a level unprecedented in human history.

There is no compromise when it comes to body autonomy. You either have it or you do not.

Come on, media. you have one job. start doing it.

That’s my take and I am available for criticism at this time.

You are here: Home / Anderson On Health Insurance / The new Health Reimbursement Account rule for employer sponsored insurance

The new Health Reimbursement Account rule for employer sponsored insurance

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Last week, the Trump Administration released a new rule that will allow business to put money into a couple of different types of Health Reimbursement Accounts (HRA) for their employees to use that money to buy individual market insurance.  It is an interesting rule on several front; notably it presumes a well functioning (or at least not a dysfunctional individual market) and it advances a long term health/economics policy wonk goal of disconnecting insurance from employment.

The theory of change behind the rule is that employer sponsored insurance operates under price and scream at HR constraints which leads to broad networks at high reimbursement rates for all providers.  Moving people to the exchanges means people with low willingness to pay for access to a broad network won’t be paying for those broad, expensive networks.  And that will place downward aggregate pressure on medical prices.  This is not banana pants.

Below is a good summary of what the different types of HRAs do:

The other big part of the rule is that it is a radical transparency experiment on a quasi-hidden part of the compensation package of employees.

Right now, I can’t compare the value of my Duke employer sponsored insurance all that well to the employer sponsored insurance of any other employer.  There are too many hidden attributes that I can’t figure out how to value well (and this is what I do for both a living and for fun!) However I can see what Duke would offer if I was to buy on the Exchange vs what any other employer would offer if I was to buy on the Exchange.  That would provide tremendous clarity.

The Brookings Institute crew has been following this rule making process hard.  They’ve identified a potentially significant problem with the rule.  The employer contribution can vary no more than 3:1 by age.  This means that unless the employer is paying 100% of the premium, older employees are worse off.

Let’s walk through an example.  Let’s say Company X employs a 21 year old and a 64 year old.  Right now they are in the small group market and only offer a single plan.  Total monthly premiums for the group are $1,200/month of which the company pays 75% or $900.  Each employee than gets a $150/month payroll deduction  for their employer sponsored insurance.  Now fast forward and move these two people to the exchanges with an HRA.  The company will still  pay $900/month to the HRAs.  However the rules say that the 21 year old will face a $300 premium while the 64 year old will see a gross premium of $900/month with standard ACA 3:1 age banding.  The HRA contribution is split $225 to the youngster and $675.  The net premium for the 21 year old is now $75/month while the 64 year old will see a net out of pocket premium of $225.  The older workers are worse off in this scenario.

Here is how I visualize the impact of this rule on people who are currently buying insurance in the individual market.  These are mainly directional estimates that are highly sensitive to the number of people who will get their health insurance through employer provided HRA but buy their plans on the individual market.

There is a secondary HRA proposal that will allow employers to lightly fund ($1,800/year) anything goes purchases such as short term limited duration plans.  I think this would be attractive to fast food/low wage franchise operations only.  However, most of the action would be HRAs funding Exchange/ACA regulated plans though.

Reader Interactions

7Comments

  1. 1.

    Major Major Major Major

    This is a recipe for disaster if we have administrations uninterested in fixing the individual market, such as the Trump and hypothetical Sanders administrations. But in a vacuum, with a trustworthy administration and broad democratic majorities and a non-Roberts court, this would be a good idea.

  2. 2.

    David Anderson

    @Major Major Major Major: If there is a shift of 11 million people from the ESI market to individual market, it is a shift of people with higher incomes and higher propensity to vote into the Exchanges than the current heavily subsidized exchange pool. This would create a much larger class of people whose screams of pain will be listened to if they are getting screwed.

  3. 3.

    Duane

    It’s right-wing bullshit free market fairy dust. The on-your-ownership society. No thanks.

  4. 4.

    Major Major Major Major

    @David Anderson:

    This would create a much larger class of people whose screams of pain will be listened to if they are getting screwed.

    The modern incarnation of the institutionally gerrymandered party doesn’t give a shit about such things, but this is still a fair point.

  5. 5.

    Michael Allen

    “employer sponsored insurance operates under price and scream at HR constraints”

    I do not know what that means, although screaming at HR or the health insurance situation in the US seem appropriate.

  6. 6.

    Another Scott

    @Michael Allen: I assume David is riffing off this:

    Individual market products which are not just the ACA but also Medicaid Managed Care, Medicare and Medicare Advantage have a single decision maker and either a single individual reacting to the network quality or at most a single family group. If there is a sufficient network as defined by the single decision maker, the person screaming about a bad network is the decision maker. There is heterogeneity in defining what a “good” network looks like. For a lot of people a “good” network can be a very small network. Janet Weiner of Penn made the point that for most prospectively healthy people with ex ante good risk a “good network” can be what ever network that has their PCP and a local urgent care in network and everything else is almost irrelevant. This is the space for individual insurance market narrow networks that can lead to significant price per unit reductions.

    On the other hand, group insurance products for large firms have the HR department being the decision maker. They face a budget constraint and a “keep most employees reasonably happy” sub-constraint. If there is a geographic dispersion of employees, knocking out one hospital in Town X and making all employees travel 15 miles to Town Y’s much cheaper and equally good hospital will produce a lot of screaming from employees. Smaller employer groups may be facing a much stronger budget constraint than large groups but this dynamic makes forcing large group insurers into narrower networks much harder. And if narrower networks are less plausible, then the negotiating leverage shifts to the providers which means higher rates for the providers.

    tl;dr – squeaky wheel gets the grease?

    Just a guess.

    HTH.

    Cheers,
    Scott.

  7. 7.

    Another Scott

    Drum’s take:

    For years, opponents of Obamacare have been exercised by President Obama’s supposed “Lie of the Year” for 2013: If you like your health care plan, you can keep it. This turned out to be untrue in a specific sense: you could keep your plan if your insurance company continued to offer it. However, many insurance companies decided to cancel their existing plans and replace them with new ones that conformed to Obamacare’s rules. In 2013 the cancellation letters went out and Republicans pretended to be outraged.

    Fast forward to 2019. The Trump administration has just issued a final rule governing HRAs and is busily promoting it. An HRA is a Health Reimbursement Account, and what it means is this: your employer can now decide to cancel its group plan and replace it with an HRA that reimburses you for an individual plan that you buy in the open market. There are various rules in place about how much employers have to spend and who can qualify, but the nut of the thing is simple. It’s a new policy that actively appeals to employers to ditch their group plan—most likely for an assortment of individual plans that provide worse coverage.

    This will spawn outraged coverage from Fox News and the rest of the conservative noise machine, right?

    That Kevin, such a kidder.

    FWIW.

    Cheers,
    Scott.

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