On June 13, the HRA rule was announced by the Trump administration, allowing small businesses to offer accounts to employees to purchase their own health insurance plans as a means of increasing employer flexibility. But, critics warn that the rule could mean trouble for the individual insurance marketplace.
According to senior administration officials, final regulatory action was taken to lift Obama Administration restrictions on health reimbursement arrangements (HRAs) for small businesses today. HRAs are tax-advantaged accounts that employers can set up for employees to purchase their own insurance on the individual market or access traditionally uncovered services like dental care. President Trump first proposed the rule in a 2017 executive order.
The senior officials noted that the Obama administration’s restriction on small businesses offering HRAs to their employees “prohibited employers from reimbursing employees’ individual market premium,” calling it a “misguided action” that “restricted employer flexibility and employee choice.”
The White House anticipates that, because of the new HRA rule, 800,000 small-business employers (each with fewer than 20 workers) will offer HRAs and that these HRAs will cover health costs for more than 11 million employees as well as their families. The HRAs will also have the ability to be combined with workplace insurance to access vision and dental care.
The senior administration officials cited the need for the HRA rule as lying in the decline of coverage offered by small businesses, stating that “a significant number of small employers have stopped offering coverage since 2010” and that “the percentage of workers covered by employer health benefits fell from 59% in 2010 to 44% in 2018.” This rule, the administration believes, will increase coverage for Americans, noting that “the number of individual market participants will eventually grow by 50%.” The White House further noted that the HRA rule will increase flexibility for employers and might decrease healthcare spending by employers leading to higher wages.
The officials also stated that the HRA rules “strike the right balance between employer flexibility and guardrails meant to protect the individual market against adverse selection theory.” However, there exist critics of the rule who worry that small businesses will force employees with expensive health issues to accept the HRAs and therefore enter the individual ACA marketplace by only offering cheap group insurance that does not cover expensive health conditions. According to Katie Keith of the Center on Insurance Reforms, [the rule] could result in worse overall risk profiles and lead to higher premiums and, with them higher federal outlays for premium tax credits and a higher uninsured rate,” hurting the individual healthcare marketplace.
The rule is set to go into effect on January 1, 2020.