Despite all the hoopla about Obamacare and its individual plans, most working-age Americans still get their health insurance through their employers. And as countless health wonks have noted, there are lots of problems with that. Employer offerings are limited and are not portable when people switch jobs. And the tax advantages that perpetuate this situation distort the economy: They encourage companies to offer more and more compensation in the form of health benefits, and they are unfair to workers without access to employer plans.
The Trump administration just finalized a rule to inject some flexibility into this arrangement. Starting next year, companies can help their employees buy plans in the individual market and still get the usual tax break. The kicker? With some exceptions, those plans are the ones subject to Obamacare regulations.
Oddly enough, the administration is expanding the reach of a big-government mistake it tried to eliminate — and free-marketeers should cheer, because this gives both businesses and workers more options than they had before.
The policy involves “Health Reimbursement Accounts,” or HRAs. Until now, these have been a way for employers to pay for certain medical expenses that insurance doesn’t cover. Starting in January of next year, though, these accounts can be set up to pay premiums on individual plans. The administration eventually expects 800,000 businesses with 11 million workers to participate, and for the total number of Americans with insurance to increase by nearly a million.
There are two different ways to take advantage of the new rule. First and foremost, a business could simply provide money for employees to spend in the individual market, in lieu of providing them insurance directly. Alternatively, a business that did offer traditional insurance could also provide up to $1,800 annually for “excepted benefits” including dental and vision care — as well as non-Obamacare-compliant “short-term, limited duration” plans for employees who declined to participate in the traditional plan. (These are far cheaper than Obamacare insurance but also don’t come with the same consumer protections, e.g., the ban on discrimination against those with preexisting conditions.)
There are big advantages here, especially with the first route. Employers who do this will free themselves of the hassles of providing health insurance without losing the related tax breaks — and some will be able to offer health insurance when they otherwise wouldn’t have. Employees, meanwhile, will be able to shop in a market rather than being restricted to the plans their company offers, an especially big deal at small businesses, which usually offer only a single plan if they offer insurance at all. Obamacare plans are limited in numerous ways too, of course, but at least each employee will have choices to make and money to spend on premiums.
Nothing in health care is simple, though, and there are some risks and tradeoffs involved here. For one thing, the administration includes “guardrails” to prevent businesses from offering these plans only to their sickest employees — which would, in effect, mean dumping their biggest health risks on the Obamacare system, which in turn is kept afloat by taxpayer subsidies to lower-income enrollees. But since companies are still allowed to offer HRAs to some “classes” of workers but not others, there will probably still be some gaming.
In addition, as experts at the Brookings Institution warn, pushing employees to the individual market is going to be most attractive to the companies with the least healthy workers (companies whose in-house insurance options will be the most expensive) and in the states with the healthiest Obamacare enrollees (where Obamacare-compliant plans are cheapest). They suggest the change might increase overall Obamacare premiums — and thus taxpayer subsidies for some enrollees on the exchanges, though workers paying with HRAs will not be eligible for those subsidies themselves. The administration itself puts the premium increase at 1 percent.
Further, Brookings points out that “employers will have to do very little to verify whether their workers are buying the comprehensive coverage required by the rule,” meaning some workers could end up with skimpier coverage than they’re supposed to get, perhaps not even realizing they’re breaking the rules. And in a previous analysis, the same authors raised the possibility that the rule could be subject to technical legal challenges stemming from the Obamacare statute.
One last concern: Mainly because more businesses will be offering health insurance and getting the related tax break, the rule will increase the deficit by about $50 billion over ten years, in the administration’s own estimation. Ideally this change would be offset by reducing the overall tax break for health insurance or cutting other health-care subsidies, though obviously this is not something the executive branch can do by itself.
These are issues that Congress should address, rather than relying on presidential administrations to make the most of a complicated and poorly devised set of statutes. But this is a small step toward a freer and more competitive health-insurance system, one where businesses don’t have to pick plans for their workers and workers aren’t bound by their bosses’ decisions. For that reason, it’s an Obamacare expansion that deserves conservative support.