Pros, Cons of Individual Coverage Health Reimbursement Arrangements

Individual coverage health reimbursement arrangements (ICHRAs), which have been offered as the alternative to the Affordable Care Act, have negative impacts on low-income New Yorkers, according to a brief recently published by the United Hospital Fund (UHF).

“While the ICHRA proposal may be the best of a bad lot in terms of the Trump administration’s coverage initiatives, this brief examines the rule’s significant risks for New York consumers, particularly lower-income enrollees,” the brief stated.

ICHRAs do have advantages, the brief acknowledged. With ICHRAs, employers set any amount of tax-free funds aside and employees can submit their claims to receive reimbursement. It is also a good option for part-time and gig workers.

“ICHRAs can help employers avoid another pitfall as well: the tax-advantaged ICHRA reimbursements don’t count as income for an employee, unlike well-intentioned salary increases for workers without group coverage that might reduce or eliminate their eligibility for advance premium tax credits (APTCs) through the marketplace,” the brief explained.

These types of HRAs can be especially useful for smaller businesses that cannot afford the rising healthcare costs associated with employer-sponsored health plans. New Yorkers with Parts A, B, and D Medicare premiums can use ICHRAs as can those with Affordable Care Act marketplace plans or who fall in the Affordable Care Act gap.

However, the brief focused on the negative impacts of these plans.

ICHRAs can prevent employees from being eligible for advance premium tax credits on Affordable Care Act marketplace plans if they reach a certain level of funding.

Also, there are a number of ways in which employers can offer these types of HRAs that lead to four main concerns, depending on which strategy the employers choose.

ICHRAs can lead to adverse selection, which could draw. healthier individuals away from the Affordable Care Act marketplace plans. Consequently, this may cause individual health insurance marketplace premiums to skyrocket.

The United Hospital Fund brief noted that employers might shift sicker employees to ICHRAs and keep their healthier employees in the more expensive employer-sponsored health plan.

“The final rule seeks to address the employer shift problem by setting minimum numbers of workers within a class that must participate in order for an ICHRA to be established,18 along with other safeguards,” the brief acknowledged. “The federal agencies estimate a 1% increase in individual market premiums, but one recent analysis warns of the risk of higher premium increases, despite the changes.”

ICHRAs also have the potential to drive a loss of employer-sponsored insurance.

“Promoters of ICHRAs also describe other benefits for employers, such as ‘getting out of the business of managing your employees’ health risk,’ and reducing costs by replacing a defined benefit plan (ESI) with a defined contribution plan—the same argument that has led many employers to ditch pensions for IRAs,” the brief explained.

There are additional measures still under consideration that could increase the negative impacts of this type of health plan on retiree’s health plans as well, the brief mentioned.

This type of HRA can disrupt access to advance premium tax credits and the essential plan for low-income individuals.

The brief characterizes this as the biggest threat that ICHRAs pose to employees. Essential plans cover New Yorkers whose income is under 200 percent of the federal poverty level.

Employees can avoid going into an ICHRA if the lowest-cost silver tier individual plan available to them is priced at more than 9.78 percent of their income. When this happens, employees can no longer receive advance premium tax credits.

“The federal agencies estimate that take-up of ICHRAs by employers will lead to a reduction in premium tax credits of $6.2 billion annually by 2029, and it’s easy to see why: the reduction in tax credits is baked into the design of the minimum affordable ICHRA rule,” stated the brief. “It effectively overrides ACA statutory caps on premiums for enrollees eligible for APTCs.”

Individuals who receive coverage through an affordable ICHRA may see their dependents lose coverage or lose their advance premium tax credits.

Lastly, HRAs, including the individual coverage HRA, can place a heavy administrative burden on consumers, who often already have low health literacy.

Although New York has put several aids in place to help residents decide whether an ICHRA is the right option and decipher tax information related to their health plan or HRA, the process can still be complex, especially if an employee joined the company after the ICHRA open enrollment period.

In 2019, the Trump Administration made HRAs available on the individual health insurance market.

The Trump administration has argued that the Affordable Care Act raised premiums and limited the power of choice.

As the administration works toward repealing the Affordable Care Act—which will soon be decided by the Supreme Court on November 10, 2020— it has continued to emphasize association health plans, short-term limited-duration health plans, and individual coverage HRAs in its policy agenda to increase competition.

When the Trump administration first announced this policy agenda in 2017, 21 percent of counties had only one payer option on the Affordable Care Act marketplaces and 58 percent of the counties had three or more payers, according to the Kaiser Family Foundation.

In 2020, 10 percent of counties with only one payer option and most counties (67 percent) have access to three payers or more on the marketplaces.