By Amy Lotven
As seen in Inside Health Policy
Health reimbursement arrangements (HRAs) that can be used to reimburse workers for purchasing individual market coverage on their own through an exchange are gaining in momentum, according to a recent report by the lobby tracking the arrangements -- the HRA Council -- as well as the American Academy of Actuaries, which mentioned individual coverage HRA (ICHRAs) in its most recent report on factors driving premium change.
Even more recently, Centene, the nation's largest exchange insurer and a founding member of the HRA Council, mentioned ICHRAs during its second quarter earnings call when investors asked about the company’s merger & acquisitions pipeline.
ICHRAs were created in 2020 under a regulation finalized by the Trump administration -- and would be codified under a recent House-passed bill -- and they allow employers of any size to contribute tax-free dollars to an HRA that workers can use to pay premiums for plans purchased in the individual market. Years earlier, as part of the 21st Century Cures Act, Congress had created a similar alternative to traditional group plans dubbed Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs) but limited their use to small businesses with less than 50 workers.
Benefit advisors see the new option as similar to the switch from defined benefits to defined contributions for retirement savings, and while take up of the option has fallen short of the 11 million users that CMS predicted would be using an ICHRA by 2025, interest in the option is picking up.
CMS has not published any data regarding the number of healthcare.gov enrollees that are utilizing an ICHRA but anticipates beginning to collect that data in the future, per the 2024 exchange rule.
Brian Blase, president and founder of Paragon Health Institute, who helped shepherd the ICHRA rule as a Trump administration advisor, estimates there are about 500,000 people using the option today -- and the Congressional Budget Office is now assuming about 2 million workers will have ICHRAs by 2032.
He suggests take up has been slower due to the pandemic, the tight labor market and lack of education about the option.
But there is still wide room for growth.
According to a recent analysis by the HRA Council based on data provided by members, the number of workers who were offered an ICHRA in 2023 grew by 171% compared to 2022 and the number of employees offered QSEHRAs grew by 97% in the same period. HRA Council’s report from June builds off the lobby’s initial analysis released in October that found the number of workers offered ICHRAs had grown by 350% from 2020 to 2022 and those offered QSEHRAs grew by 70% in the same period.
The initial report found the majority of businesses (64%) using ICHRAs/QSEHRAs had only 5 or fewer workers while 4% had 50 or more employees.
The June report finds that very small employers continue to comprise the majority of those offering the HRAs, which HRA Council’s Executive Director Robin Paoli says is likely due to the QSEHRA market being around longer and because small businesses can more easily adapt to changes. HRAs are being used as an on-ramp for small employers that were unable to offer traditional group benefits, Paoli says.
The report also underscores the growth potential.
Only 6% of employers with 50 or more workers are offering the HRAs for individual coverage, the report finds. But, as the report -- and Paoli -- emphasize, while only a fraction of the current numbers, these larger employers make up the fastest-growing cohort of firms who are offering the HRAs, increasing by 144% from 2022 to 2023.
“This report shows that an increasingly growing segment of employers see the benefits of allowing employees to choose their own individual health policies,” said Victoria Glickman Hodgkins, CEO of PeopleKeep. “The situation is a win-win for employers and employees. The employer still offers a formal health benefit that comes with tax benefits and can attract and retain employees, while the employee is able to get affordable health care that they have more control over.”
Other sources also indicate a growing interest in ICHRA. The American Academy of Actuaries, for example, included the HRAs in their list of potential premium drivers for 2024 for the first time since 2020 due to evidence that they’re gaining traction.
According to Donna Novak, vice president of the Academy’s Individual and Small Group Market Committee, every state now has a broker who will sell ICHRAs. Benefit consultants understand employers want workers to be able to choose the most appropriate plans -- but that has historically been difficult for smaller groups, she says. Not only do ICHRAs/QSEHRSAs allow employers to use the tax-free funding to reimburse for the costs of coverage, but they also facilitate coverage that is portable: An employee that leaves a firm can remain in the same plan by taking over payments.
The option works best in areas where the individual market premiums are lower than the small group rates, which is largely in states that have used the Affordable Care Act’s 1332 waivers to create reinsurance programs, Novak says.
As far as how use of ICHRAs /QSEHRAs drives rate changes either in the small group or individual market, that will depend on the size and morbidity of the group, she said. The current thinking is that groups taking up the option may be healthier than the overall small group market, meaning they would put upward pressure on those rates. The effect on the individual market will rely on the same factors.
Novak says in Arizona, where she is based, use of the HRAs has made no noticeable difference so far so it will take time to see what happens as those plans become more popular.
In other recent activity, Centene noted that capabilities related to ICHRAs may be important to its merger and acquisitions pipeline.
Congress has also been paying renewed attention to the option. In June, the House passed along party lines legislation by Rep. Kevin Hern (R-OK) that would codify the Trump-era rule that created ICHRAs -- and renamed them “CHOICE” plans. Democrats opposed the legislation over worries they could be used to discriminate against certain employees.
But supporters argue that the rule, and the bill, ensure that ICHRAs can only be used to purchase ACA-compliant policies.
The HRA Council report also attempts to clear up “myths” about the plans, including that employers would offer the option only to older workers and that employees don’t understand health insurance and would prefer their employers to make decisions.
According to the survey, however, Paoli stressed that 61% of workers using the arrangements in 2023 were aged 18- 44. The report also shows that employees are well-educated consumers, and, Paoli adds, 37% of them chose to enroll in gold or platinum plans that have more generous coverage, 28% in silver-level coverage and 35% in bronze-tier plans.
The legislation is not expected to be taken up in the Democratic-controlled Senate. But, as Paoli points out, House passage of the bill gives stakeholders an opening to educate more senators about the option and there’s hope that bipartisan champions will emerge. Ideally, the HRA Council wants to see a clean, bipartisan bill moved through Congress.
Paoli also says that codification isn’t necessary for more businesses to take up ICHRAs or QSEHRA; both options are currently the law of the land, she adds.
For more from Amy Lotven (alotven@iwpnews.com), visit Inside Health Policy,
