New Rules Expand Individuals’ Healthcare Options

By Kyle Wingfield

Kyle Wingfield

Almost two years have passed since Republican efforts to reform the U.S. health insurance market were pronounced dead. Perhaps they were merely on life support.

In July 2017, Sen. John McCain surprised many observers by voting against the GOP’s “skinny repeal” of the Affordable Care Act. His rejection left the bill with just 49 votes, the closest Republicans have come to repealing the law they had by then spent almost eight years deriding as “Obamacare.”

There was one more short-lived effort to repeal and replace the law, but since then Republicans have lost their majority in the U.S. House – and their nerve. “Shell-shocked” is how D.C. denizens still describe congressional Republicans who spent years promising to repeal and replace the ACA, only to fall short.

The White House publicly moved on to other matters. But all the while, the Trump administration worked on a trio of reforms that wouldn’t require a vote in Congress. Two of them debuted last year: a report on various ways to boost competition and choice in the healthcare marketplace, and an outline of four new ways states could reform their insurance markets to help individuals and small businesses.

Unlike some Hollywood trilogies, this one didn’t run out of steam in the third iteration. In fact, the administration may have saved its best episode for last.

Earlier this month, the administration unveiled a new rule governing the way employers subsidize their workers’ health insurance. It amounts to an innovation akin to the 401(k) account for retirement. It expands employers’ ability to fund an account known as a Health Reimbursement Arrangement, with which their employees can purchase their own health insurance.

Why is this important? For decades, employer-sponsored insurance received more generous tax treatment than plans bought by individuals. That meant most people offered insurance by their employer took it – even if they were offered only one plan, and even if that plan ate up a large chunk of their paycheck. Buying insurance any other way was bound to be even more expensive.

Under the new rule for HRAs, employers can continue to offer traditional insurance plans or, instead, offer workers a flat, untaxed stipend to buy their own plans. Think of it like the difference between a defined-benefit retirement benefit (i.e., a pension) and a defined-contribution benefit (such as a 401(k) plan).

This change gives the many employers who don’t offer health insurance a new way to help subsidize a plan for their workers. According to the Kaiser Family Foundation, just 58.4% of working-age Americans were offered a plan by their employer in 2017 – up from a low of 55.6% in 2011, but still well below the 67.3% of Americans covered by an employer plan in 1999.

The Trump administration projects the new arrangement will reduce the number of uninsured Americans by about 800,000, with a total of 11 million Americans getting their coverage in this way.

Like many reforms, this one is no panacea. But along with moderately increasing the number of insured Americans, the HRA reform could finally put some downward pressure on insurance rates. How? By giving workers more options for obtaining their coverage.

Of the employers that offer insurance coverage, about 80% have just one plan. With an HRA under the new rule, workers get to choose from other insurers and products.

This change could be turbo-charged in Georgia: As Gov. Brian Kemp seeks federal flexibility for how Georgia administers the subsidies for private coverage on the exchange, an increase in the number of Georgians with tax-free dollars shopping for insurance would help.

Combine this with more flexibility in the types of plans that can be bought with subsidies on the exchange, along with a reinsurance program to more directly subsidize the sickest patients seeking coverage, and Georgia could soon see a much healthier market for individual coverage.

Kyle Wingfield is president and CEO of the Georgia Public Policy Foundation, an independent, nonprofit think tank that proposes market-oriented approaches to public policy to improve the lives of Georgians. Nothing written here is to be construed as necessarily reflecting the views of the Georgia Public Policy Foundation or as an attempt to aid or hinder the passage of any bill before the U.S. Congress or the Georgia Legislature.

© Georgia Public Policy Foundation (June 28, 2019). Permission to reprint in whole or in part is hereby granted, provided the author and his affiliations are cited.

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