For four years, businesses that wanted to reimburse employees for their health insurance premiums rather than buying their coverage for them were told that was no longer allowed under the ACA. But the health reimbursement arrangement (HRA) is back, brought back to life by provisions tucked into last year’s 21st Century Cures Act.
There are several ways the comeback might play out. They are available only to businesses who employ fewer than 50 people. Small employers that are currently offering group health insurance—which is little more than half of them—could decide to cut their health insurance costs by offering the HRA instead. The dollar limits are $4,950 for an individual and $10,000 for a family. The individual amount could cover the full premium in some markets, and employees who qualify might also cover some of their premium with federal ACA subsidies—at least till the repeal-and-replace axe falls.
Another possibility is that the small employers not now offering coverage might start offering HRAs, so more Americans will have health insurance. That’s what Rick Lindquist, CEO and president of Zane Benefits and an HRA fan, thinks will happen. “We’ve got about 3 million small businesses that don’t participate in the employer-based health care system because it’s become too expensive for them,” says Lindquist. “The HRA will produce more demand on the insurance market with less price sensitivity” by adding customers with employer-provided money in their pockets, he argues.
Or maybe HRAs will have little if any impact. John Barkett, senior director of policy affairs at Towers Watson Exchange Solutions, believes the major reason employers offer health insurance coverage is the same, regardless of whether they now have the HRA tool in their kit: “If you need to pay more to attract people you’ll do it, but if you don’t need to, I don’t think this model will change the calculus of how you put together a benefits package for people to come work at your company.”
Improving the relatively poor rate of coverage for people working in small businesses was one of the goals of the ACA. The dial didn’t move much, for various reasons. According to the Kaiser Family Foundation’s annual employer survey, 59% of small firms (companies with 3–200 employees) offered coverage in 2009. That proportion decreased slightly to 56% by 2015.
The ACA’s SHOP program, which was intended to create special exchanges where small businesses could buy coverage, was supposed to make a difference. The results, though, have been lackluster. The problem, says Barkett, was that the associated tax credit was so hard to qualify for that most small businesses already offering coverage were not willing to disrupt their current arrangement and enter a new marketplace.
HRAs, while not as familiar to many Americans as health savings accounts (HSAs), are actually pretty straightforward and, with time, might be an appealing option. The employer puts up the money, the employees are on their own to find and purchase insurance, and then submits bills for premiums and other out-of-pocket medical expenses to the employer for reimbursement. HRAs have the advantage of offering more portable coverage because the health plan the employees buy doesn’t go away when they leave the company; they could even keep it if their next job has a standalone HRA.
Lindquist acknowledges the $10,000 cap is not enough to cover a family plan, which averaged $16,625 for small companies last year. Congress may need to act to increase that limit, he said.
But HRAs will work only if people can buy insurance in a reasonably priced and stable marketplace, whether directly from insurers or through a public exchange, notes Barkett. Those markets, though, have been volatile in some states, with the loss of major carriers and big price increases. Lindquist hits an optimistic note and sees things evening out in coming months. “Before it gets substantially worse there will be some good things, either through concessions made by major carriers or legislation that curbs the trend. I see it as more of a stabilization process and I’m not worried about it.”