A Sign of Hope for Affordable Health Care

Senate prescription drug prices, health care for rural communities

A final
on health reimbursement arrangements set to take effect in August
could expand opportunities for American workers and their families to attain
affordable health care, increase access to health care for employees of small
businesses, and create new competitive market forces that will increase
coverage charges for all.

The rule, which
would loosen many of the restrictions that have limited the scope and utility
of health reimbursement arrangements, represents a large step in shifting the
rigid defined-benefits insurance structure toward a defined-contributions
structure that allows patients to direct their health care spending.

“We want more
decision making and power in the hands of the consumer and worker over how to
finance their health care,” said Brian Blase of the National Economic Council
in summarizing the goal of the rule change.

A health reimbursement
arrangement is an employer-based, tax-advantaged account that allows employees
to pay for their health care needs using funds deposited by their employer.
Employees can then use the funds to pay for health care expenses as agreed upon
with the employer in the terms of the arrangement.

Funds deposited by
the employer will not be taxed, and funds used by employees will not be taxed
as income. Furthermore, funds in the account may roll over year to year
depending on the terms set by the employer.

This rule change will create two new health reimbursement arrangements—the individual coverage HRA and the excepted benefits hRA—and allow funds in a health reimbursement arrangement to be applied to purchasing health insurance plans.

Small employers who cannot afford a traditional group plan, or employees dissatisfied with their employer’s group health plan, instead can be offered a health reimbursement arrangement to purchase a plan from the individual market.

Health reimbursement
arrangements, which don’t have the administrative expenses of normal health
insurance plans, can be much less costly than traditional employer-based group
health insurance, an important consideration for small businesses.

Blase said a quarter
of small businesses in 2010 stopped offering health insurance, and he expects
changes in this rule will reverse that trend. In fact, he expects that in five years,
800,000 businesses will take advantage of these new plans, and 90% will be small
businesses, covering 90 million workers and their dependents.

The administration
expects that with hundreds of thousands of new consumers shopping for
individual plans, the individual market will expand and grow robust competition
in favor of the consumer.

Excepted benefits
HRAs, capped at $1,800 annually, can be used for benefits that are exempted
from the Affordable Care Act and Health Insurance Portability and
Accountability Act provisions and, importantly, can be used to purchase
limited-duration health insurance plans. Because they are exempted from minimum
essential coverage requirements, these plans can be offered at low prices with
high deductibles but broad networks.

Excepted benefits
arrangements must be offered along with traditional group plans. An employee
who turns down an employer’s traditional group plan would be able to use
tax-advantaged funds in an excepted benefits plan to purchase a short-term
limited-duration plan.

Blase noted 27% of
employees of small businesses choose to turn down their employer’s group health
plan because it was a bad fit for their individual needs. With an excepted
benefits plan, employers still will be able to contribute to employee health
even if they turn down the employer’s group health plan, giving both employee
and employer increased flexibility in their health care choices.

In August 2018,
the administration finalized changes to rules
governing short-term limited-duration
plans to make them less cumbersome to
use, lengthening their maximum duration to one year, renewable up to three years.
The previous administration had limited these plans to no longer than three

Individual Coverage
HRAs, in contrast to excepted benefits plans, have no limits on tax-advantaged
contributions. They can be used to cover out-of-pocket expenses or services not
otherwise covered by an existing health insurance plan. The new rule should
make them much more practical and easy to use.

The Affordable
Care Act added certain provisions to the Public Health Service Act that were
nearly impossible for health reimbursement arrangement to comply with,
including a ban on annual and lifetime limits on spending, and the requirement
to cover a large selection of preventative health services without cost sharing.
These plans also were not previously integrated with individual market plans,
so they would be ineligible even if used to purchase a fully compliant health
plan on the individual market.

As long as health reimbursement
arrangement funds are used to purchase a compliant plan on the individual
market, it will satisfy the requirements of Public Health Service Act under the
new rule.

According to Blase, compliant plans “can be grandfathered coverage[…]on Obamacare exchange coverage, or off Obamacare exchange coverage.” He said the administration expected “the vast majority of people” would “use the individual coverage HRA to purchase an Obamacare plan off the exchange.”

Blase said the
rules could do for health coverage what 401(k) and 403(b) did for retirement
planning. This rule change greatly expands the potential uses of these accounts
and makes it much more affordable for small businesses to offer their employees
health care coverage.

If Blase’s expectations pan out, Americans will be directing a large part of their own health care spending, shifting the market power away from the insurance companies to patients, where it belongs.

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