Is The New Healthcare Rule A Sly Stimulus Program?

Last week, President Trump announced a change to federal healthcare rules which will affect employers that offer Health Reimbursement Accounts (HRAs). HRAs are vehicles which employers fund with tax-free money for an employee to use to purchase healthcare. Before this recent rule change, HRAs were not allowed to be used to purchase health insurance on the individual market. Starting in 2020, employers will be allowed to fund HRAs instead of offering group insurance policies to their employees.

I should pause here and note that 1) I’m not a health policy expert –not even close– and 2) this is fairly new info and there hasn’t been a ton of 3rd party analysis yet. So consider this post more of an interesting question than a definitive opinion. In fact, I’d love to hear your thoughts– let me know if you think I’m way off!

So the net effect is that some employers get to save money on insurance costs, some individuals get more “choice” in their healthcare, and the federal government spends more on subsidizing health care costs.

Here’s a good summary from Modern Healthcare:

The final rule, which takes effect Jan. 1, 2020, will prompt an estimated 800,000 large and small employers to fund individual coverage through health reimbursement accounts, or HRAs, for more than 11 million workers, nearly 800,000 of whom would be newly insured.

It includes a complex set of provisions designed to prevent employers from reducing their benefit costs by sending older and sicker workers into the Affordable Care Act individual markets, thereby driving up costs and premiums in those markets. The Trump administration acknowledged that it will have to closely watch how the changes play out and assess whether further regulation is needed.

Reversing prior policy, the 497-page rule lets employers dole out HRA funds—previously used to reimburse out-of-pocket medical expenses—to employees to buy individual-market plans.

Sooo, one thing off the bat– “11 million workers, nearly 800,000 of whom would be newly insured.” Which I guess means over 10 million people are about to get told they are getting kicked off their employer health plan and getting an HRA instead? Right?

Some potential negative effects

Dylan Scott at Vox goes into more detail on the potential effects:

That’s because employers in states where individual coverage is currently available relatively cheaply will have a stronger incentive, particularly if they have a sicker workforce, to offer HRAs. They can spend less on an HRA than they would on offering insurance plans. But if those companies funnel their sicker workers into the ACA markets, then premiums for the Obamacare coverage are going to increase.

Later in the same Vox article, Katherine Hempstead, senior policy adviser and the Robert Wood Johnson foundation, notes a potential downside:

If employers are able to use this to dump expensive employees in the individual market, they would save money, but the individual market could become more expensive. Employees may or may not like the individual market options as much as they liked their group plan, and if they don’t, their employers will hear about it.

Is this whole thing a spending increase in disguise?

But this is what caught my eye about the whole thing. If employers did game the system by shifting more expensive classes of employees onto the individual market, is that actually a bad thing? There are federal subsidies in the Affordable Care Act that limit individual health care spending to certain percentages of income for certain “silver level” plans.

So won’t that result in the following sequence?

1. A bunch of expensive classes of employees end up getting dumped on the individual market
2. This raises the riskiness of the overall individual market pool
3. This forces insurers to raise premiums on those silver plans
4. The increased premiums are pushed over the threshold where federal subsidies kick in
5. This results in the federal government “picking up the tab” for the corresponding increase in riskiness of the individual pool

So the net effect is that some employers get to save money on insurance costs, some individuals get more “choice” in their healthcare, and the federal government spends more on subsidizing health care costs. And, I guess that if you’re relatively wealthy and buying insurance on the individual market, your premiums go up. Isn’t this policy a sideways way to increase federal assistance for health insurance spending? I think that would be a great development, but it seems a little off-brand for this administration!

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