A Free Market Shift Away From Employer-paid Health Insurance - Health Reimbursement Arrangements

Nov 17, 2020

Half of all Americans receive their health insurance from their employer or their spouse’s employer. This arrangement began during World War II and has now lasted for several generations. As health care costs have risen dramatically, employers now face ever-increasing health insurance premiums for their employees.

In 2019, the Trump Administration, through regulatory changes, greatly expanded the use of health reimbursement arrangements (HRA) which offer an alternative to the traditional group health insurance plans used by most employers. (here)

These “new” HRAs became available in 2020 and are called Individual Coverage HRAs (ICHRA). The specifics are outlined by Take Command Health (here):

  • Any size of company is eligible to offer an ICHRA.
  • Employees must maintain Minimum Essential Coverage (MEC).
  • Employees in different classes (for example geographic location, seasonal, part-time, abroad) can be offered different levels of benefits.
  • There are no maximum or minimum limits for monthly reimbursement rates. 
  • Employers can choose to offer an ICHRA any time throughout the year (not just during open enrollment). Switching from a group plan is easy. 
  • Employees have a 60 day window to enroll in an individual health plan once the ICHRA becomes available.
  • ICHRAs can meet the employer mandate for employers with greater than 50 full-time Applicable Large Employers (ALEs) if the offer is “affordable” and meets minimum value (MV).
  • An ICHRA can be offered with a traditional group plan as long as both options aren't being offered to the same class of employees.
  • If ICHRA is deemed “unaffordable,” employees can choose between using premium tax credits or the ICHRA. If it is deemed “affordable,” they cannot opt out and receive a premium tax credit.  
  • ICHRA can be used to reimburse for premiums and qualified medical expenses, including excepted benefits like dental, vision.

Bottom line, employers can give employees a tax-exempt amount of money and let the employee purchase their own health insurance in the individual market. This allows employees to shop for and purchase the best plans for themselves and their families, without participating in the employers’ group plans. This is not only a free market solution, but also is the start of uncoupling health insurance from employment.

The most recent national survey conducted by the Willis Towers Watson Company found that roughly 15 percent of employers, both large and small, are considering using ICHRAs. (here)

The one downside of an ICHRA is that depending on income, employees may elect to use the ICHRA money to purchase insurance in the Obamacare exchanges and receive taxpayer subsidies. These subsidies are given to people who earn less than 400 percent of the federal poverty level, which for a family of four is $104,500 per year in 2020. (here) It is conceivable that many lower income people will seek insurance in the exchanges and thereby swell the taxpayer burden of Obamacare.

Time will tell how popular ICHRAs become. They were created by federal regulatory changes, which hopefully the Biden Administration will not revoke.

(For a more indepth discussion of health insurance, please see my new book Health Care Policy Simplfied; Understanding a Complex Issue available through amazon.com.)