The open enrollment season for health insurance is close at hand, providing many people with an opportunity to re-evaluate their coverage. This year there is a new option for employers that could affect the individual market.
In the individual market, which is especially important to those without an affordable offer of employer coverage, open enrollment starts on November 1. Employers generally schedule open enrollment sometime in the fall. Open enrollment for Medicare Advantage started on October 15.
There is increased interest in participation by insurers in both Medicare Advantage and the individual market. Yet two new data points tilt in the wrong direction: the first increase in the uninsured rate since 2010, and the growing unaffordability of employer-sponsored insurance, with the average price for family coverage now exceeding $20,000 a year.
This may be the right moment to take the new health reimbursement arrangement (HRA) rule seriously.
This rule, finalized in June 2019 and effective in 2020, lets employers contribute to the cost of their employees’ coverage in the individual market. It is the last of three federal rules resulting from a 2017 executive order directing federal agencies to find ways to minimize the “economic burdens” of the Affordable Care Act.
The first two rules sought to liberalize regulations around short-term limited duration plans (less-comprehensive coverage that does not cover pre-existing conditions, among other restrictions), and association health plans, (plans sponsored by groups of small employers or self-employed individuals banding together to create a larger group).
The HRA rule is surely the pick of the litter. While short-term limited duration plans and association health plans take people out of the individual market, health reimbursement arrangements send them toward it. Short-term limited duration plans and association health plans are neither new nor exciting ideas. Both pre-date the Affordable Care Act and use a combination of cream-skimming — such as excluding less-healthy enrollees — and/or skimpier benefits to save a few dollars. The HRA rule, on the other hand, permits individuals to migrate from the group to the individual market and creates new opportunities for growth. If short-term health insurance plans are a broken bicycle and association health plans an adult tricycle, HRAs, while perhaps not a driverless car, are at least an electric scooter.
The HRA option has the potential to disrupt existing models of employer-sponsored coverage, in which employers are currently the customers. The rule permits employers to make defined contributions to their employees’ health insurance costs, while freeing them of the responsibility of purchasing a group health plan. It potentially gives employees more choice and transportability in their benefits.
HRAs can boost coverage if the prospect of making a defined contribution without contracting for a group plan motivates small employers who currently do not offer health insurance. For the individual market, an increase in enrollees transferring out of the employer segment is a potential game changer, dwarfing current sources of growth. This growth can improve the risk pool, reduce premiums, and increase insurer participation, thereby creating more choice for consumers. Even employers that offer group coverage may gain leverage in their negotiations with carriers and providers once the HRA possibility is on the table.
Despite this, there are many reasons to be cautious, especially in the short run.
The biggest headwind right now is that individual plans are currently more expensive and less generous than group coverage in most parts of the country, with higher premiums, more cost sharing, and narrower provider networks. And there is the danger of making the individual market less healthy if employers find ways to use the rule to offload their least healthy workers.
Adaptation will be slowed by pushback and inertia. Brokers and plans with employer insurance business won’t be expected to champion HRAs, at least in the short run. The impending rollout of the HRA rule in 2020 will also be a logistical challenge. Many employers won’t have the information they need in time to act, and the federal marketplace may struggle this year to assist employees who are offered HRAs. And of course, the employer segment is notoriously risk averse.
Yet while employers have historically resisted change, there has been some cage rattling lately, with activism around hospital prices, purchasing cooperatives, and direct contracting. At least rhetorically, employers seem to find the status quo of ever-increasing coverage costs to be decreasingly acceptable. While some brokers and insurance carriers will resist HRAs for business reasons, health plans are becoming more interested in selling directly to consumers, with increased participation this year in both the individual market (despite flat enrollment) and Medicare Advantage.
And aside from single payer, most new health reform proposals are based on expanding access to plans sold directly to individuals. Whether described as “the ACA with a public option” or “Medicare for all who want it,” the differences are more in labeling than substance. All include a regulated and subsidized plan that would be available to a broader share of the population, namely the group market.
Expect to see HRAs first in places where the individual and small-group markets are most competitive, or perhaps where offers of coverage among small employers are relatively less common. HRAs may also emerge earliest among certain populations, like retirees or part-time workers. Carriers that participate in the individual market and Medicare Advantage, but not the employer market, might be most likely to see the upside of the HRA rule in the short run.
The White House projects that HRAs will ultimately be offered to 11 million employees, with a net gain in health coverage for 800,000 Americans. This sounds bullish and would require narrowing the gap between individual and group plans. Yet at least in theory, the potential for growth is there.
The HRA rule deserves attention because it permits experimentation with an alternative to employer insurance. As such, it represents a bridge to a very different system. It remains to be seen who will cross it and when.
Kathy Hempstead is a senior policy adviser at the Robert Wood Johnson Foundation.
