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:
Good summary of HRA rule by @C4AHC, with detail on how specifically it relates to previous law: https://t.co/gMeBE6Zg5E pic.twitter.com/vknC983uKi
— Chris Pope (@CPopeHC) June 20, 2019
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.
Point I was trying to make in this (excellently explained) @saunderswsj piece: for whatever you think about HRAs, they make the value of your health benefit radically transparent. https://t.co/fsydV4NZf4
— John Barkett (@jmbarkett) June 21, 2019
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.
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.
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.
Duane
It’s right-wing bullshit free market fairy dust. The on-your-ownership society. No thanks.
Major Major Major Major
@David Anderson:
The modern incarnation of the institutionally gerrymandered party doesn’t give a shit about such things, but this is still a fair point.
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.
Another Scott
@Michael Allen: I assume David is riffing off this:
tl;dr – squeaky wheel gets the grease?
Just a guess.
HTH.
Cheers,
Scott.
Another Scott
Drum’s take:
That Kevin, such a kidder.
FWIW.
Cheers,
Scott.