New Rule Could Mean Consumer Confusion, Higher Premiums in Marketplace

The Trump Administration has finalized a rule to expand health reimbursement arrangements (HRAs) that it predicts will shift, by 2029, 7 million people from traditional group health plans to individual plans that people can buy with help from a limited employer cash contribution. This sizable shift toward HRAs is expected to cost the federal government $51 billion and raise premiums in the Affordable Care Act’s (ACA) health insurance marketplaces while enrolling fewer than 1 million people in new coverage.

The new rule, which the Administration finalized last week, lets employers forgo offering group coverage to some or all workers and instead contribute to a tax-free account for employees to use to help buy their own coverage. A second option under the rule, the excepted benefits HRA, lets employers set aside up to $1,800 per year for employees to pay premiums for certain limited benefit coverage (such as a vision plan) or for short-term health plans, which have large coverage gaps and other shortcomings.

The new rule could:

• Raise marketplace premiums. The rule will almost certainly raise marketplace premiums because HRAs will be more attractive to firms with sicker-than-average employees. Such firms could stop offering group coverage, since they can fund HRAs for individual market coverage for less than if they bought a group health plan. A second scenario ― in which employers selectively shift their sick workers into the individual market but keep the healthy ones ― could raise premiums considerably more. The rule has guardrails designed to prevent that from occurring, but employers may still find ways to target sicker workers. The Administration expects the rule to raise marketplace premiums by 1 percent, a number that could grow substantially if the guardrails break down.
• Cause confusion about enrollment and eligibility for premium tax credits. Employees will need to do considerably more work to enroll in an individual market plan than an employer’s group plan. They’ll need to submit a coverage application, research and select a plan, arrange premium payments, and understand which expenses the HRA may reimburse. Confusion at each step will likely lead some employees who would have enrolled in group coverage to become uninsured. Workers also could be confused about whether their HRA offer makes them ineligible for a marketplace premium tax credit — that is, whether it constitutes an “affordable” employer offer that precludes credit eligibility. The marketplaces may not be equipped to decide the issue by the rule’s January 1, 2020 effective date. And while employers must give workers a notice of HRA rules, they needn’t personalize them to tell individual workers whether their plan is affordable; the six-page model notice that the Administration released with the rule shows how hard it will be to explain workers’ eligibility.
• Expand short-term plans. The new rules will likely expand enrollment in short-term plans —which aren’t subject to ACA insurance rules, discriminate against people based on preexisting conditions, and have skimpy benefits — in two ways. First, without appropriate support, consumers may be confused or misled into enrolling in a short-term or other non-ACA-compliant plan instead of the individual coverage they must enroll in to use their HRA funds. Some insurance brokers use aggressive tactics to enroll people in these limited-coverage, high-commission plans, instead of comprehensive individual coverage. Enrolling in the wrong type of coverage could make consumers ineligible for the HRA, offer them minimal protection against health costs, and, when they discover the error, give them no opportunity to switch to an individual market plan mid-year. Second, enrollees can use funds from the excepted benefits HRA to pay short-term plan premiums in lieu of enrolling in a traditional group plan — boosting enrollment in these short-term plans at a time when many states are trying to shut them down.

All told, the rule will likely cause a sizable shift in where workers get coverage. The Administration forecasts that 11.4 million people will participate in individual coverage HRAs by 2029. The $51 billion that it will cost, in reduced tax revenue, could instead be used to provide more targeted help to people who remain uninsured, such as by increasing marketplace subsidies, without any of the rule’s significant downsides for other consumers.