Final HRA Regulations 1-4
Final HR Regulations
by Christoper E. Condeluci, Principal and sole shareholder of CC Law & Policy PLLC in Washington, D.C.
On Friday June 13th, the Departments of Labor, HHS, and Treasury released final regulations expanding the use of Health Reimbursement Arrangements (HRAs) to pay for certain medical expenses, including premiums for “individual” market plans. The release of these regulations closes out the Trump Administration’s health care policy priorities that the White House announced back in October 2017 (which also included the expansion of the use of “short-term health plans” and new, added flexibility for employer groups and self-employed individuals that want to participate in an association health plan (AHP)). The White House will build on these 3 policy priorities in a broader “health care plan” that the Administration will release some time over the next 6 to 8 months, as the Presidential election campaign heats up. This forthcoming health care plan will serve as a proposal that President Trump will “run on” in his bid for re-election.
At the end of October of last year, these HRA regulations were issued in proposed form. In November, I put together a detailed write-up of what those proposed regs said, along with some analysis on the policy changes that were being advanced in the regs (see attached, scroll down to “Employer Update”). Much of what was proposed was finalized without change. However, there were some changes, including some additional requirements that were not initially proposed, but were suggested by commenters, which the Federal Departments accepted and added to the regulations.
Because the HRA regulations are fairly long and detailed – and because there are a number of policy points that I want to raise as I summarize and analyze the regs – I will be sending you a series of emails focusing on the HRA regs. The below email is the first in this series of emails, where I discuss policy-related issues and assumed behavioral changes. I will follow-up with more specifics on the requirements set forth in the final regs. I will also be sending you a series of emails focusing on other health care policy issues like the debate over “surprise medical bills” and Medicare-for-All, as well as commentary on the Senate HELP Committee’s health care cost and transparency legislation that the Committee will be marking up soon. As always, feel free to reach out with any questions. Take care!
- By now, you have probably read some “opinion” pieces extolling the virtues of the final HRA regulations, with assertions that the HRA regs have the potential to “transform the health insurance markets.” You also likely read some news stories contending that the HRA regulations will allow employers to discriminate against their employees, especially less healthy employees, and that the HRA regs will adversely affect either the “individual” market or the “group” market or both.
- Analysis: I was recently quoted in a news article as saying, “At the end of the day, the Republican idea is to not even have an employer-based system—it’s to have everyone buying insurance in the private individual market.” That is NOT exactly what I said. The context in which I made these comments was this: If Republicans could create a health care system from scratch, on a blank sheet of paper, Republicans would NOT deliver health insurance through employers. Rather, Republicans would choose to allow every American to choose their own health insurance coverage in an open, free market where health insurance is bought and sold. Juxtapose this utopian view to the Democrats’ utopian view. If Democrats could create a health care system from scratch, on a blank sheet of paper, Democrats too would NOT deliver health insurance through employers. Rather, Democrats would choose a government-run health care system. Don’t believe me? President Obama noted this several times during the ACA debate, and more recently, as former President, he made this statement about a year-and-a-half-ago as the debate over Medicare-for-All was just starting to heat up. We have also heard several of the Democratic Presidential Candidates say the same thing. The point that I am trying to make here is this: If either political party could create a health care system from scratch, it would NOT be run primarily through employers. BUT, that is NOT the reality that we live in. The delivery of health insurance IS primarily run through employers, AND, unless the Democrats and the Republicans want HUGE disruption on their hands, it is ill-advised to eliminate the employer-sponsored system whole-cloth. Instead, it is advisable to work with the system that is currently in place, and if you want to change it, you must do so incrementally. That is the point I was trying to make when I spoke to the reporter. In a perfect world, Republicans would want a health care system similar to what the HRA regulations are promoting. That is, Republicans would love to allow people to purchase their own health insurance in an open and free “individual” market. But again, this is NOT possible under our current health care system. Soooo, the next best thing for Republicans is to incorporate a Republican idea into our current system. And here, that idea is allowing an employer to give their employees a tax-free contribution to purchase a private, “individual” market plan on their own. Again, it does not perfectly fit into the Republicans’ utopian health care system. But, over time, it may actually get Republicans closer to their utopia. BUT, it is too difficult to look out 10 to 20 years. Last comments: It is important to emphasize that people need “help” affording health insurance. And there are only 2 ways to “help” people afford health insurance – (1) The government “subsidizes” the health coverage (e.g., by giving it away for free, or offering some sort of subsidy like the ACA’s premium subsidy, or offering an age-adjusted flat tax credit like Republicans have proposed) OR (2) Employers “subsidize” the health coverage (through compensation, which is then bolstered by a tax preference). Because the government does not have enough money to “subsidize” 100% of the cost of health coverage for every American (without dramatically increasing taxes or reducing spending), the next best thing is to encourage employers to “subsidize” the health coverage. In the case of a “group health plan,” employers (and employees) are currently afforded a tax preference as a way to encourage employers to “subsidize” the purchase of health insurance through an employee’s compensation. Interestingly, the final HRA regulations are merely building on the current system – and also – the idea that if you offer employers (and employees) a tax preference to use the employee’s compensation to purchase health insurance, more people will access health coverage. In the case of the final HRA regulations, it does NOT matter whether the health insurance that is being accessed is a “group health plan” or an “individual” market plan. To me, this is the transformative part of the HRA regs. The regs are expanding what people can purchase with tax-preferred employer contributions, which I believe will “help” people access health coverage – for many, for the first time.
Will the Final HRA Regs Dismantle the Employer-Sponsored System?
- In my opinion, NO.Analysis: I have said it before and I will say it again: The #1 reason why employers offer health insurance coverage to their employees is NOT because they like it, but because they know that in order to compete in a global, national, or even a local marketplace, they MUST offer quality and comprehensive health benefits to attract and retain the best talent, and to also make sure their employees remain healthy and productive. As I have also stated, employers are not huge fans of offering health insurance coverage to their employees. Offering health benefits is super-expensive. And, employers are either annoyed with the fact that they have to pay extra money to an insurance company to assume the health risk of their employees, or the employers have to hire a lot of HR employees and employee benefit consultants to help manage their employees’ health risks under a self-insured plan. Soooo, if you were to ask most CEOs, I believe most of them would tell you that they would rather NOT sponsor a “group health plan.” BUT, CEOs and their companies are willing to deal with these annoyances and the high-expenses because they know they NEED to offer health insurance coverage to…wait for it…(1) attract and retain talented workers and (2) keep their employees healthy, happy, and productive. Now, in order to attract and retain talented workers, employers MUST offer comprehensive health coverage. The labor market demands it. And, most if not all employers – and me – will tell you that an existing ACA-compliant “individual” market plan is NOT comprehensive enough to constitute “good” coverage that is going to attract talented workers. Yes, an ACA-compliant “individual” market plan covers the EHBs and the plan complies with all of the ACA’s consumer protections like pre-ex protections, no under-writing based on health status, no annual and lifetime limits, etc. But guess what?!? Employers voluntarily cover all of virtually all of the EHBs, and a “group health plan” is ALSO subject to all of the same consumer protections under the ACA. Actually, an employer plan has greater consumer protections on account of ERISA’s requirements that do not apply to “individual” market plans. And, “group health plans” have broader provider networks as compared the “narrow network” plans that are the primary types of plans offered in the “individual” market. Soooo, that is a long way of saying that an employer offering a “group health plan” is going to be offering BETTER coverage than an ACA-compliant “individual” market plan. And again, if attracting and retaining talented workers can best be accomplished by offering comprehensive coverage at an affordable price, employers are going to want to KEEP offering a “group health plan” instead of simply giving their employees a tax-free contribution to purchase an “individual” market plan on their own. As a result, I do NOT believe that we are going to see a lot employers – especially large employers – discontinue their “group health plan,” and instead, offer its employees a tax-free contribution to purchase an “individual” market plan on their own. So NO, the HRA regs will NOT dismantle the employer-sponsored system.
What Type of Employers Will Offer an “Individual Market HRA Arrangement”?
- You are probably saying, okay Chris, if large employers are NOT going to offer its employees a tax-free contribution to purchase an “individual” market plan on their own (i.e., an “individual market HRA arrangement”), what type of employers will offer this option? After all, this Administration is suggesting that 11.4 million people will be accessing health insurance through an “individual market HRA arrangement” within 10 years, coupled with a reduction of close to 7 million people currently covered by an employer plan. My answer: The majority of employers offering an individual market HRA arrangement will be small- and mid-sized employers (in my opinion, an equal amount if not more mid-sized employers than small employers).
- Analysis: As stated above, most if not all large employers (with, for example, 1,000 employees and above) are going to continue offering a “group health plan” because it offers BETTER coverage relative to an “individual” market plan. BUT, small- and mid-sized employers (ranging from 2 employees up to 999 employees), typically do NOT have the same resources and capital as large employers to offer comprehensive coverage through a “group health plan.” Even if they did have some capital, most of these small- to mid-sized employers do not have a large enough risk pool to self-insure their employees’ own health risks. So, these small- to mid-sized employers are forced to contract with an insurance carrier, where little savings can be produced over the short- and long-term, although some small- to mid-sized employers are self-insuring through level-funded plans, which can produce savings, but it also increases the financial risk that many small- to mid-sized employers are not in a position to take on. BUT, these small- to mid-sized employers share the same desire as large employers to attract and retain talented workers and to keep their employees healthy and productive. And, while the expense and/or financial risk associated with offering a fully-insured or a self-insured “group health plan” is often times difficult to bear, these small- to mid-sized employers STILL want to offer SOME type of health insurance coverage. Enter the HRA regulations, which NOW allows these small- to mid-sized employers to offer their employees at least some type of access to health insurance. Here, it is access to an “individual” market plan. While not as “good” as a “group health plan” (as discussed above) an “individual” market plan offers relatively comprehensive coverage. And NOW, these small- to mid-sized employers (and their employees) are afforded a tax preference to purchase a relatively comprehensive “individual” market plan. The beauty of this concept is that the small- to mid-sized employer continues to “subsidize” their employees’ health insurance (instead of the government, other than through the tax preference). In other words, these small- to mid-sized employers continue to serve as the “financier” of their employees’ health coverage. But now, these small- to mid-sized employers can get out of the “health care game.” That is, no longer do these small- to mid-sized employers have to look at their insurance broker’s spreadsheets and decide what deductibles, co-pays, and premium price point their “group health plan(s)” should include for a particular year. And, these small- to mid-sized employers can continue to point to their tax-free HRA contribution as an “employee benefit,” as a way of attracting and retaining workers. It is obviously not as good as offering tax-free contributions for a “group health plan.” BUT, it is the next best thing. Which – at least in my opinion – is a GOOD thing, and I do believe that the HRA regs will allow employers to offer their employees access to “subsidized” health insurance coverage for the first time. A win-win.
Will the “Individual” and/or “Group” Markets Be Adversely Affected By the Final HRA Regulations?
- It is really tough to say at this point. Which is why I believe that we have not heard many claims of “sabotage.” That’s because at the end of the day, the HRA regulations could actually IMPROVE the existing “individual” market, while also NOT adversely impacting the “group” market. But on the other hand, the “individual” market could take a hit in a short-term, and if the “individual” market cannot recover from this short-term hit, then that would be bad.
- Analysis: What I mean here is this: There are a lot of “start-up” companies out there with employees on the younger side. These “start-ups” often times do not have the capital to offer a “group health plan.” But, as a way to attract talented workers, these “start-ups” can NOW offer a tax-free HRA contribution, which will allow their younger (and typically healthier) employees to purchase an “individual” market plan. As a result, this influx of younger/healthier lives into the “individual” market will HELP balance out the current un-balanced “individual” market risk pool. In addition, large employers (with 1,000 employees or more) could – and SHOULD – view the HRA regulations as offering them new “planning opportunities.” What I mean here is this: Large employers typically do NOT offer “group health plan” coverage to their part-time or seasonal employees. BUT, according the HRA regulations, a large employer can continue to (1) offer “group health plan” coverage to its full-time employees, and NOW, (2) offer its part-time and/or seasonal employees an individual market HRA arrangement. While there is a stereotype out there that part-time and seasonal employees are less healthy, there is equally a stereotype that part-time and seasonal workers are on the younger side. If some of these young/healthy part-time and/or seasonal employees are offered a tax-free HRA contribution to purchase an “individual” market plan – in many cases offered access to health insurance for the first time – a greater number of younger/healthier lives will enter the “individual” market than would have without the HRA regulations. On the other hand, part-time workers in particular may be less healthy. For example, they may be early retirees between say 50 and 64, and the stereotype here is that older people use more health care (actually this is verified by CBO). In addition, some part-time employees may be working part-time due to a health condition that limits their ability to work. Here, if an employer offered these part-time employees an individual market HRA arrangement, the addition of these less healthy lives in the “individual” market could adversely impact the market. BUT, I would make a strong argument that these less healthy risks will be offset by the younger/healthier risks that will also be entering the “individual” market (as discussed above), resulting in a wash.
Could Things Go Side-Ways for the “Individual” Market?
- Maybe, but I am skeptical.
- Analysis: Here is what I mean: There are a lot of small- and mid-sized employers out there who are NOT good candidates for a level-funded self-insured plan because they employ an un-healthy workforce. So here, these small- to mid-sized employers are forced to work with an insurance carrier that will be charging these employers a hefty premium to take on the health risks of this un-healthy population. In many cases, the premiums are so exorbitant that these small- to mid-sized employers struggle to offer health insurance coverage to their employees. But NOW, the HRA regs give these small- to mid-sized employers an off-ramp to get out of the “health care game” and offer their un-healthy workers an individual market HRA arrangement. The addition of these un-healthy risks would be BAD for the “individual” market. To put a finer point on this last point, a broker is going to sit down with these small- to mid-sized employers with a spreadsheet. The spreadsheet will list out various “group health plans” with varying deductibles, co-pays, and premium price points. This spreadsheet is ALSO going to have a new column of, for example, the cost of the lowest-cost “silver” plan in the employer’s rating area (because pegging the HRA contribution to the lowest cost “silver” plan in the employer’s rating area will typically allow the employer to satisfy the “employer mandate”). If the column with the lowest-cost “silver” plan is cheaper than the “group health plan” columns, it is more likely than not that the employer will opt for the cheapest option – here offering an individual market HRA arrangement. In most cases, for this new column of the lowest-cost “silver” plan to be cheaper than the “group health plan” columns, the employer will by definition be employing an un-healthy workforce. Thus it follows that if this un-healthy workforce is now shifted to the “individual” market, the “individual” market will take a hit. Last comments: I believe the HRA regulations now provide States an incentive to take steps to improve their “individual” market. What I mean is, States have the ability to establish a reinsurance program through a 1332 Waiver, which has been shown to lower “individual” market premiums. While a reduction in “individual” market premiums will incentivize the employer with an un-healthy workforce (discussed above) to offer an individual market HRA arrangement, it could very well incentivize “start-ups” and other small- to mid-sized employers with relatively healthy employees to also shift to offering an individual market HRA arrangement, thus ensuring that there is a “mix” of health risks that are now flowing into the “individual” market. I also believe that the HRA regulations provide insurance carriers with an incentive to improve the coverage offered through an ACA-compliant “individual” market plan. When I say “improve” coverage, I primarily mean offering broader network plans – as opposed to the current “narrow network” plans that are typically offered – and to also offer value-based insurance designs that include tele-health, improved access to primary care doctors, and chronic disease management. Again, if these “individual” market plans are offering “good” coverage, some employers will feel more inclined to send their employees to the “individual” market, and the incentive here will NOT be to push un-healthy risks into the “individual” market, but rather, an incentive to provide access to health insurance for a more balanced mix of health risks. Stay tuned for my additional emails on the final HRA regulations.