Trump rule gives small businesses new tool to help workers buy health coverage
Until October, Andrea LaRew was paying $950 a month for health insurance through her work at the Northwest Douglas County Chamber & Economic Development Corp. in the Denver metro area.
His company contributed nothing to the bounty. Additionally, LaRew and her husband had a high deductible of $13,000 for the plan. But the coverage and cost of the premium were in line with other plans available to the company, because options for such a small workgroup — just LaRew and one other employee wanted to sign up — weren’t plentiful.
Now they are trying a new approach. Instead of a traditional plan, the chamber has established an “Individual Health Coverage Reimbursement Agreement” (sometimes called ICHRA) to which it allocates $100 per month per employee that they must spend on full coverage on the individual insurance market. These employer contributions can be used to pay for expenses such as bonuses or cost sharing.
Refunds do not count as taxable income for workers.
Proponents of the plans say they’re a good option for companies who may not think they can afford to offer workers a traditional plan, but want to give them something to help pay for the health expenditure. But consumer advocates worry about hurting some workers.
These smaller companies cannot afford to offer health care coverage as premium prices rise, said Garry Manchulenko, director of the GMBA Advisors Group in the Denver metro area, who suggested the arrangement to bedroom. “They want to help their employees, but they can’t sustain these increases, especially at the small group level.”
Manchulenko said he suggests the new setup for some of his clients, noting that in some places premiums in the individual market are lower than in group plans.
LaRew, 48, purchased a plan similar to the group plan, but with a monthly price of $730 after factoring in the company’s contribution, a savings of more than $2,600 per year.
“It’s still super expensive for two healthy people,” said LaRew, who oversees many of the chamber’s administrative functions. But she appreciates that her premiums are deducted from her pre-tax income, like when she participated in the group plan.
She also liked having several plans to choose from. “I could choose my own individual plan that works best for my family, and not be tied to a group plan that works great for a colleague but not for me.”
The new hedging option has been established by a rule issued by the Trump administration last year. That could be helpful for workers like LaRew whose income is too high to qualify for the Affordable Care Act tax credits that help pay for policies sold in the individual market. It may also be attractive for part-time or seasonal workers who don’t qualify for coverage from their employer, according to insurance brokers and policy experts familiar with the new option.
But consumer advocates have warned it could encourage employers who had offered a traditional insurance scheme to switch to the new arrangement because of the cost savings. This could leave their workers with a cumbersome registration process and less generous coverage.
“I think there are pitfalls for employees,” said Jason Levitis, nonresident researcher at the USC-Brookings Schaeffer Initiative for Health Policy. “There is confusion about the ICHRAs themselves.
“And even if you know you need an ACA-compliant plan, how do you find one?” he asked, noting the prevalence of deceptive marketing of plans that don’t meet ACA standards.
Additionally, due to a quirk in how the new rules work, low-income workers who purchased ACA Marketplace plans because their employer didn’t offer coverage could lose federal subsidies for their Marketplace plans if their company sets up an ICHRA.
Here’s how it could come into play. Only people earning 400% of the federal poverty level or less (about $51,000 for one person) are eligible for premium subsidies. Also, to qualify, coverage provided by an employer must be considered unaffordable to the worker. If an employer offers individual health reimbursement coverage, that means workers who would otherwise hit the poverty line would also have to contribute more than 9.78% of their income to buy the least individual money plan. expensive on the exchange. This amount would be based on the cost of the plan after taking into account an employer’s contribution.
If the worker’s contribution is less than this standard, the only assistance to which he is entitled is the contribution from ICHRA. Federal rules do not allow workers to accept both ICHRA contributions and premium tax credits.
“I’m concerned about people on a premium tax credit” who could lose that subsidy if they don’t meet the federal standard, said Peter Newell, health insurance project manager for the United Hospital Fund in New York, who wrote analysis of the new hedging option in October.
There are also affordability caps in the ACA for regular employer-sponsored coverage, but these caps are generally lower than the ICHRA caps. As employers offer ICHRAs instead of traditional coverage, some workers will lose their premium tax credits due to the higher affordability threshold, according to Newell’s analysis.
If that sounds complicated, that’s because it is, and brokers and advocates agree that many workers will need help figuring out what to do. In addition to running the numbers, people may need to figure out where to buy a comprehensive ACA-compliant plan. Such plans can be purchased on and off the exchange, but if workers want the company to deduct their bonuses from their wages, as LaRew did, they must purchase a plan off the exchange.
“There are so many paths to take and so many confusing points, it’s super, super important that employees have a little support to get through this,” said Cat Perez, co-founder and chief product officer at Health Sherpa. , whose technology platform helps people. sign up for market plans. It incorporated information about the ICHRAs.
Colorado is working with the broker community to build interest in the new product, said Kevin Patterson, chief executive of Connect for Health Colorado, the state’s insurance exchange.
“If we can get more people into the individual market, that makes it stronger,” Patterson said.
In theory, that makes sense, but some analysts worry that passing these new provisions could drive up market premiums by encouraging employers with sick workers to move them into the individual market.
“It’s a way to provide a lower premium option to some employers, but results in higher premiums in the individual market and costs to the federal government through higher premium tax credits,” said Matthew Fiedler, a researcher in economic studies at USC. -Brookings, co-author of a analysis of new offers.
Still, large employers are currently not very interested in adopting these new provisions, said Jay Savan, partner at Mercer, a human resources consultant.
Federal rules do not allow employers to simultaneously offer an employee both a traditional plan and an ICHRA, and most large employers are not prepared to replace their traditional plans.
“As long as it’s black or white, there are very few sizeable employers who are willing to make that leap,” he said.