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On Thursday, the Trump administration’s Departments of Health and Human Services, Labor, and Treasury jointly issued a final rule aimed at expanding opportunities for employers and their workers to gain access to health reimbursement arrangements (HRAs) as a means of financing insurance coverage through a hybrid version of the group and individual markets. At its core, the new rule overturns prior regulatory guidance from the Obama administration that culminated in a 2015 rule finding that employer-provided HRA funds could not be integrated with individual market coverage.
The past, present, and future legal and regulatory background is complex and far from consistent. HRAs were launched a little over 15 years ago as a more creative interpretation of what the tax code for health spending might permit, and several acronyms and a few regulatory detours later, their use to facilitate wider coverage choices for employers and employees may have been boosted again. Of course, the long history of exaggerated predictions of health care coverage transformations suggests that change will be far more gradual, limited by hesitant market responses, and subject to future shifts in the political winds. But for the moment, the new rule opens a few more cracks in the regulatory walls of the Affordable Care Act (ACA) that tried to steer more Americans into the latter’s own particular forms of made-in-Washington insurance arrangements.
The new HRA rule, first proposed in late October 2018, largely completes a series of regulatory workarounds by the Trump administration that may provide second- or third-best ways to modify, limit, or sidestep ACA provisions it could not overturn legislatively in 2017. Earlier efforts since then have included rules to authorize short-term limited duration (STLD) insurance plans and expand use of Association Health Plans. The poorly, if not haphazardly, drafted ACA allowed great degrees of administrative discretion in how it could be interpreted and implemented. So some of the inflated ambitions that went up in one administration’s balloons are coming back down in the next one, with further interruptions and unexpected detours possible, as always, in the courts.
The expanded HRA approach does address, however imperfectly, some real problems in health care policy that were aggravated by the ACA. Smaller employers, particularly those with fewer than 50 employees, already faced ample difficulty in offering affordable coverage to their workers. Since the ACA’s enhanced load of mandated benefits, regulatory cross-subsidies, and income-capped tax subsidies took root, small-employer offers of group coverage and their employees’ take up of it have dropped further. The ACA’s imagined solution of Small Business Health Options Program (SHOP) insurance exchanges and limited tax credits for small employers was a dud. Meanwhile, larger employers remained wary of dropping their own group coverage arrangements, given the persistent cost, choice, and access problems in the ACA’s individual insurance exchanges.
Hence, just about any different way to deliver taxpayer subsidies to workers looking for a cheaper, if not comprehensive, coverage deal will find some takers. The hard part is maneuvering through the defensive land mines planted by the ACA’s architects, who already knew what was best for everyone else and remain puzzled why they didn’t just accept the deal more willingly. One might think of most modern health policy as a battle between central planners constructing a host of rules, subsidies, and interest-group favors in order to distort prices, shift costs, and limit choices enough to ensure that more people are deterred from following their own instincts and wandering off the politically prescribed path to progress. If one’s pre-eminent policy goals include expanded coverage, comprehensive benefits, risk-insensitive pricing, income redistribution, and a large role for public-sector overseers, PLUS the political credit for promising all of that, then trading off decentralized choices, transparent prices, and market-sensitive mediating mechanisms may be seen as far more of a necessary feature than a bug.
To be sure, we are not yet at the point where everything in health care that is not mandatory is prohibited. But the contradictions in balancing a mixed system in which everyone thinks they can get a better deal (pay less, get more) than someone else through politics, even while keeping a private-sector face around on vendors in hopes of restoring some competitive efficiencies, produce periodic disequilibrium and mood swings that, nevertheless, stop well short of either extreme.
We won’t have Medicare, or Medicaid, for all, but markets are not for everyone either. The current moves to open small holes in the ACA’s regulatory maze face several real limits. The new HRA provisions are multi-layered with protective overlays, complicated exceptions, and untested options. Their implementation time line is overly ambitious. An initial shortage of willing sellers and buyers is likely. The health sector’s first law of inertia continues to exceed even the universal power of compound interest. Complaining about the devil we know is not the same as ditching it for the untested and unknown.
Like any newer, promised-to-be-improved, product, the Trumped-up HRA options ahead are subject to some sales puffery in the showroom. Your consumer coverage mileage may vary, if employers can’t find enough money to fill up their reimbursement tanks. Unlike health savings account options, the HRA funds can only be provided by employers, and workers cannot take any balances with them whenever they change jobs. Affordability standards for determining whether employer group coverage through an HRA remains so insufficiently generous that employer mandate penalties, and tax credits for exchange-based individual coverage, might apply remain to be determined.
And just about all potential employer-directed health benefits compensation (at least for small- to mid-sized firms) will have a hard enough time financing substantial insurance coverage without finding extra dollars for account-based funding of discretionary health expenses. The new rule’s dollar caps on excepted-benefits HRAs could pay for more limited forms of individual insurance coverage (STLDs), but they are set below even the ACA’s ceiling for flexible spending accounts and won’t go far.
The biggest appeal of expanded HRAs comes not from new opportunities for individual workers to become more “cost conscious” Rather, it simply could help a different group of health care consumers hope that they, too, can get a chance to tap the keg of taxpayers subsidies for health care purchases (at least before it runs dry) while providing an exit route for some employers who would like to cap their mounting exposure to employee health care costs.
The new HRA rule does work at both edges of the opportunity versus security balance. It suggests various ways to slice and dice up current employer groups, between traditional coverage and HRA-subsidized individual coverage, while maintaining most of the ACA’s cushions and guardrails. It’s most likely in any event that initial take-up will be a net positive for coverage, in providing a new route for revenue-strapped smaller employers to make some contribution to their employees’ coverage, rather than none. However, even though the new ability to split off “new” hires from current workers seems like a potential lure for larger employers to consider a longer-term transition out of group coverage, their health benefits arrangement decisions will prove to be far stickier and more risk averse than the defined benefit pension, or retiree health, phase-out moves developed over the last three decades. As long as health benefits remain a pre-eminent recruiting and retention tool for talented workers, and the latter remain in short supply relative to economic demand, it’s hard to see many larger employers tossing away the keys to their workforce development mortgages
The long-nurtured dreams of some right-of-center philosopher dukes may envision a long-overdue rapid shift from over-regulated and over politicized health care arrangements constructed around post-World War II collective choices (one-size doesn’t fit all government programs OR single-package employer group coverages) to a more flexible, if leaner, set of choices for entrepreneurial risk takers. But that doesn’t square with Americans’ political desires to try to have it both ways — seek upside gains through personal choices with security against downside risk through political guarantees. Hence, more caution should be heeded to the future politics of health care in a policy world where large employers might no longer play as much of a buffering role in resisting excessive regulation of health care choices and configurations, and demands escalate for increased political oversight of a vastly expanded but uncharted individual market, It might become harder to argue that Medicare for All would be too disruptive if the main alternative is a parallel leap into the unknowns of either a Hobbesian, or hyper-regulated, individual health insurance market.
Health care politics ensure that ample barriers will remain to lengthen the distance between individual preferences, transparent prices, and vigorous competition, on the invisible market hand; and regulatory floors, interest-group rent seeking, and cost shifting, on the other offsetting, government-gloved fist. Simply allowing willing buyers and sellers to meet and strike deals in the medical marketplace and remain responsible for the consequences has rarely been among the primary goals of health policy, nor a leading voter preference. Hence, the resort to complicated workaround exceptions at the margins that never fully match loftier promises.
On balance, we remain far more likely to stumble and stagger through our chronic pre-existing conditions. ACA architects may bemoan the dire consequences of unraveling the edges of their regulatory sand castles. And another round of litigants will return to court to challenge procedural irregularities and corner cutting in rule making. But the counterrevolutionaries won’t be shutting down the armory where taxpayer subsidies, regulatory protections, and price distortions are dispensed, because overcoming the withdrawal pain from dependencies and addictions to political opioids will require stronger medicine and personal resolve, if not a more robust 12-step plan.
Just wake me when the HRA revolution is over.
On Thursday, the Trump administration’s Departments of Health and Human Services, Labor, and Treasury jointly issued a final rule aimed at expanding opportunities for employers and their workers to gain access to health reimbursement arrangements (HRAs) as a means of financing insurance coverage through a hybrid version of the group and individual markets.
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