While opinions differ on whether the executive order on health care that President Donald Trump signed on Thursday might affect pricing for group health plans, there’s a possibility that it could lead to some companies eliminating such plans for some or all employees.
One aspect of the executive order is a directive to the Treasury, Labor, and Health and Human Services departments to consider ways to increase the usability of health reimbursement accounts (HRAs) and to expand employers’ ability to offer HRAs to their employees.
An HRA is a IRS-approved, employer-funded, tax-advantaged health benefit that reimburses employees for out-of-pocket medical expenses not covered by insurance.
An obvious step that would help accomplish the president’s goals with respect to HRAs would be allowing employers to fund the accounts for the purpose of providing workers with tax-free cash to buy their own health insurance policies. But would employers welcome that change?
The Affordable Care Act barred companies from funding HRAs for that purpose. Employers with fewer than 50 employees can now do so, although with limits, under the 21 Century Cures Act, which was signed into law in 2016. But back in March, consulting firm Mercer asked 750 benefits professionals, from companies of all sizes, whether they would consider doing that, were they allowed to.
Only one third (34%) of respondents said they wouldn’t consider the move at all. While just 16% indicated that they would consider it for all eligible employees, 42% said they would do so depending on whether new rules allowed adequate funding for employees to buy health insurance; and 21% would, depending on the strength of the individual insurance market. Additionally, 8% would consider it for part-timers or other employee subsets. (Multiple answers were allowed.)
That so many respondents would consider the change “was something of a surprise,” wrote Tracy Watts, Mercer’s national leader for U.S. health-care reform, and Beth Umland, the firm’s director of employer research for health and benefits, in a Thursday blog post. “We have surveyed employers since the Affordable Care Act was signed into law, and they have consistently rejected the idea of terminating their health plans and sending employees to the public exchanges to buy coverage on their own.”
Most employers, they wrote, even those that might be attracted to the idea of getting out of the business of providing health care, “realized that the math simply didn’t work.” That is, employees would be buying coverage with after-tax dollars, so employers would need to gross up their pay to keep them whole. They’d also have to pay the ACA penalty for not providing coverage.
If funding an HRA satisfied the ACA’s “employer shared responsibility” requirements and the money contributed was tax free, the math “would get better,” Watts and Umland noted.
But that would still leave on the table the issues as to whether employers would be allowed to contribute enough so that employees could obtain coverage of comparable value to that offered in their existing group plan, and whether the individual market would offer coverage that employees would want at prices they could afford.
Even if HRA rules were changed immediately — which is not likely — few employers with a Jan. 1 plan year would be able to take advantage of them for 2018. Most employers have already finalized benefit offerings and are preparing to launch open enrollment.
“Employers [also] will need to see how the regulations are written before they can assess whether tax-free HRAs could have a role in their benefits strategy,” wrote Watts and Umland. But, they added, “a change like this could lead to new approaches to defined contribution benefits and a way to attract gig workers.”
Meanwhile, two major health-care coalitions, each with hundreds of member corporations, expressed opposing views on whether the executive order will affect pricing for group plans.
The centerpiece of the order is the Trump Administration’s decision to halt subsidy payments to insurance companies that help them lower deductibles for low-income customers. That will make health insurance unaffordable for some consumers.
The American Benefits Council said in a statement, “Employers rely on a healthy and viable individual health insurance marketplace, since an unstable market could result in further cost-shifting from health-care providers to large employer plans. Additionally, erosion of the ACA exchanges would make individual market coverage a less viable option for part-time workers, early retirees, and those who would otherwise elect to secure coverage through the individual market rather than sign up for, or remain on, COBRA.”
The National Business Group on Health took an opposite view, that any heightened costs for insurers resulting from the executive order would not much affect group pricing. “The group market is fairly stable, so the impact is likely to be minimal,” said Steve Wojcik, the group’s vice president of public policy.
Nor, Wojcik added in an email to CFO, is it even a given that the executive order would boost insurers’ costs: “The individual market is already fairly unstable, and it’s unclear how the executive order would affect it.”