The Trump administration and other proponents of the so-called individual coverage health reimbursement arrangement believe it will revolutionize American health insurance by putting employees in the driver’s seat when it comes to their coverage and care. They bet it will further shore up the shrinking individual market and help small companies afford to offer health benefits.
Despite broad support, conversations with third-party administrators, brokers and insurers revealed that while many employers are interested in the HRA, they have so far been slow to make moves. But these sources anticipate that enrollment will pick up as employers become aware of the option and more vendors surface to help them design and administer the HRAs.
The individual coverage health reimbursement arrangement was created by a federal rule that was finalized in June 2019 and took effect Jan. 1. The rule also created what’s called an “excepted benefit HRA,” which employers can use to reimburse premiums for short-term plans.
Under the rule, employers can pay as much as they want toward workers’ individual plans on a pretax basis. Employees must enroll in an Affordable Care Act-compliant individual plan or Medicare to receive the funds. Previously, only companies with fewer than 50 workers could fund their employees’ individual coverage, and the amount they could reimburse was capped.
Little more than half of firms with fewer than 200 workers provide health benefits, but almost all larger firms do, according to the Kaiser Family Foundation.
“Without an HRA, employees with a traditional employer-sponsored plan have to accept their employers’ choice, which—of course—is no choice at all,” CMS Administrator Seema Verma told an audience at the Center for Consumer Information and Insurance Oversight’s Industry Day on Jan. 29. “While that may be a good plan, an HRA allows them to shop for one that best meets their needs and that of their families.”
Some worry that shifting enrollment to individual coverage HRAs could hurt the individual market rather than help it. That will depend on the characteristics of the people who enroll. The federal government projected that 800,000 employers would offer the individual coverage HRA to more than 11 million workers in the next five years, with 1.1 million of those workers enrolling this year alone.
Health insurers and hospitals also generally supported the rule expanding HRAs, and some health insurance companies are working with third-party administrators to drive enrollment so they can capture new individual market customers.
Though there was no tidal wave of employers who rushed to offer the individual coverage HRA on Jan. 1, at least a couple of hundred employers did make the change. Take Command Health, an HRA administrator that operates a private exchange, said it has so far helped 200 employers implement the new option.
Most of those employers, which span 36 states and Washington, D.C., have less than 10 workers, the company said. But a third of the employers had between 30 and 200 workers, a company size that, if self-funded, can be rocked by rate increases if just one or two employees rack up big medical bills.
“Those were the ones desperate for the ICHRA,” Take Command CEO Jack Hooper said. “The biggest opportunity—and what we saw among half of the groups wanting the ICHRA—was jettisoning the risk of the group plan.”
Victoria Hodgkins, CEO of PeopleKeep, another HRA administrator, said “a good number” of small and midsize employers signed up, but declined to say how many. The appetite for the individual coverage HRAs was strong among companies from different geographies and industries, and particularly among those with employees in multiple states, she said.
Large employers are also eying the new HRA. An informal survey by the American Benefits Council, whose members include Fortune 500 companies, showed that about half of the 71 companies that responded had not ruled out implementing the new HRA, and some of those were considering implementing one soon, said Katy Johnson, senior counsel of health policy.
Some of those employers were looking at offering the HRA to seasonal and part-time workers who don’t normally receive health benefits, but none that she knew of had actually implemented it. Under the rule, employers must offer the same amount to all employees within a “class,” with full-time, part-time or temporary employees each in their own class, for example. It cannot offer employees within a class a choice between a group plan or an individual coverage HRA.
Den Bishop, president of insurance brokerage Holmes Murphy & Associates, said he had one new employer customer choose to implement the individual coverage HRA this year, but none of his existing clients chose to do so.
Meanwhile, Doug Moore, a Pittsburgh-based insurance broker at Seubert & Associates, said just two of his clients made the switch. Both had more than 50 employees and their group health plan rates were based on their workers’ claims experience. High medical claims among the workers sent the companies’ rates higher, so the employers chose the HRA to gain more certainty over costs, Moore said.