On October 29, 2018, the Departments of Labor, the Treasury, and Health and Human Services jointly published a proposed rule that would loosen the rules governing Health Reimbursement Arrangements (HRAs) and other account-based health benefits that employers offer to their employees. In “Evaluating the Administration’s Health Reimbursement Arrangement Proposal”, Christen Linke Young, Jason A. Levitis, and Matthew Fiedler describe the proposed rule and its likely effects on insurance markets, employers, workers, and Marketplaces.
The authors begin by addressing the proposed rule’s introduction of an “individual-market-integrated HRA,” which would allow employers to use pre-tax dollars to subsidize their employees’ purchase of health insurance in the individual market. They explain that this new option would likely be particularly appealing to large employers with sicker workforces. These employers’ cost of offering a traditional health plan reflects their workers’ above-average health care needs, so subsidizing community-rated individual market coverage could allow them to offer similar coverage at lower cost. Similarly, large employers of all varieties would have an incentive to shift just their sicker workers into the individual market; the departments do propose safeguards that would limit this type of worker-level shifting, but likely not eliminate it.
The authors further explain that while these shifts would generate savings that would be shared between employers and their workers, the influx of sicker workers into the individual market would increase premiums, thereby increasing subsidy costs for the federal government and premiums for unsubsidized enrollees. These changes in employer coverage arrangements would also create winners and losers within firms to the extent that firms do not make offsetting changes to their compensation structures, with younger and higher-income workers generally benefiting at the expense of older and lower-income workers. Furthermore, the authors argue that there is reason to doubt that the departments’ proposal is legally permissible.