President Trump’s newly introduced rule for Health Reimbursement Accounts, or HRAs, might not seem like a big deal, but it has the potential to dramatically re-shape the individual market, contends a former Bush administration economic adviser
Douglas Holtz-Eakin, president of the American Action Forum, acknowledged it would expand by only 800,000 the number of Americans with insurance. And he pointed out the rule is at risk of being undone by a future administration.
Nevertheless, he said, it levels the tax playing field between the insurance policies purchased via HRAs and those who get employer-sponsored insurance, with both now using pre-tax dollars.
Further, it “respects individual choice; workers can choose plans in the individual market that best meet their needs. … Similarly, workers can effectively choose how much of their compensation they want in health insurance, thereby delivering to them the compensation package that they prefer. Finally, it caps the liability for the employer, thus turning health insurance into a defined contribution benefit. These advantages explain why the administration expects roughly 11 million individuals to participate in the HRAs permitted by the rule.”
Among Holtz-Eakin’s previous positions were chief economist of the President’s Council of Economic Advisers from 2001-2002 and director of the non-partisan Congressional Budget Office from 2003-2005.
President Trump introduced the plan last Friday as a way to bolster the private insurance market while helping small businesses provide coverage to their employees.
International Journalism Review noted many large companies now can choose one provider for all their employees. HRAs allow employers to fund their employees’ health care while still allowing employees to choose their own individual plan in the private market.
Prior to the Trump administration’s changes, HRAs were not eligible for preferential tax treatment under President Obama’s Affordable Care Act unless the HRA was funding an ACA-compliant group health plan.
The White House argues that pouring an estimated 800,000 small business workers into the individual market will lower costs for everyone.
“More people obtaining coverage from the individual market should spur increased competition among insurers and help deliver better coverage options to consumers,” the White House said.
The increased insurance pool also could result in lower prices.
Avik Roy, president of the Foundation for Research on Equal Opportunity, wrote in an op-ed to the Washington Post that HRA’s also would eliminate one of the middle men from insurance.
“In the employer-based market, not only is a third party — the insurer — paying for health care, but another third party — the employer — is choosing and funding the insurance plan. Call it ninth-party health care. In this system, workers almost entirely lack the tools they need to shop for low-cost, high-quality health-care services.”
Pelosi: Attempt to ‘dismantle’ health care
Responding to the new rule, House Speaker Pelosi, D-Calif., said in a statement that Trump’s bolstering of HRAs was an attempt to “dismantle Americans’ health care.”
She claimed that allowing workers to shop for their own insurance will result in more people receiving “junk” coverage.
“And since Day One, the Trump Administration has worked relentlessly to push families into disastrous junk plans, increase their health care costs and gut their health care protections,” Pelosi wrote.
However, Katherine Hempstead, senior policy adviser at the Robert Wood Johnson Foundation, told Vox that some workers might choose the Affordable Care Act marketplace.
Trump argued his plan is “putting the people back in charge with more choice for better care at a far lower cost — and other people will not be paying for their health care. We won’t be taxing you into oblivion.”
The rule, asserted the editorial board of Insights & Issues, will “start to unravel a 77-year-old policy mistake that is largely responsible for many of the problems the health care system suffers today.”
“In 1942, the Roosevelt administration imposed wage and price controls on the economy. But it exempted employer-provided benefits like health insurance, and the IRS later decreed that these benefits wouldn’t be taxed as income.”
Consequently, Insights and Issues said, the health insurance playing field tilted toward employer-provided insurance, with 88 percent of workers now getting their private insurance at work.
“The massive tax subsidy — now valued at more than $300 billion — also encouraged overly generous health plans, because any health care paid by insurers was tax exempt, while out of pocket spending had to come from after-tax dollars,” the editorial board explained.
“So not only did this Roosevelt-era mistake create an employer-dominated health insurance market, it made consumers largely indifferent to the cost of care, since the vast bulk of it was picked up by a third party.”
Health care experts across the political spectrum widely recognize that mistake, “but Democrats’ response has been to get the government even more involved in health care.”