Trump’s Health Insurance Changes

Last month the Trump administration promulgated some new rules that take effect 1 January 2020 and further allow employers, especially small businesses, to make tax-advantaged employer-paid health insurance available to their employees. With his usual fondness for hyperbole, President Trump lauded it as “a monumental victory for small businesses” (link). I won’t argue with that. However, I would not call it a “monumental victory for health insurance more broadly.” In my opinion it is a small step in the right direction. The devil is in the details.

First, some explanation of terms should help.

HRA – Health Reimbursement Account – HRAs have existed for years, but a minority of people know what they are. They have mainly existed for retirees and public sector employees. The new rules will make them available for more people who work in the private sector without employer-paid insurance. Of course, a high percentage of them work in small businesses. The new rules will  allow money in them to also be used to pay for health insurance premiums.

HSA – Health Savings Account – HSAs have existed for years. They allow employers and employees to contribute money to an account that can be used to pay medical expenses – such as doctor and hospital bills – but not health insurance premiums. External to the HSA the employee must buy (pay premiums for) individual or family coverage catastrophic (high deductible) health insurance. Such premiums are not tax-deductible.

Group health insurance pertains mainly to coverage provided by larger employers. The employer pays for coverage for its employees, and often dependents. Typically, employers pay most of the cost – 80% is common – and it isn’t taxable income to the employee. The employees pay the other 20% or so, which reduces their take-home pay, and they do not get a tax deduction. Employers usually pay a lower share of the cost of coverage for dependents.

The Kaiser Foundation estimates that about 156 million people in the USA have employer-paid health insurance. That number includes spouses and children, so the number of employees so covered is somewhat less. Media coverage of ‘Medicare for All’ says that around 180 million people have private insurance, but that includes supplemental policies owned by people enrolled in Medicare and people in Medicare Advantage plans. The Trump administration changes are expected to result in, at best, about 11 million more people having employer-paid insurance. Obviously 11 million is a pretty small increase percentage-wise, less than 10%.

The new rules specify two kinds of HRAs:

1. Individual Coverage HRA, which cannot be offered to employees who are eligible for group health plan coverage.

2. Excepted Benefit HRA, which can be offered only to employees who are also eligible for an employer sponsored group health plan (link).

Not permitting employees who are eligible for group health insurance to have an Individual Coverage HRA is a “devil in the details.” First, it restricts their freedom of choice. Second, it blocks a huge number of people from switching from group insurance to individual insurance (without changing employers). Consequently, it prevents radically enlarging the individual insurance risk pool, which is what is needed to put downward pressure on premiums in the individual health insurance marketplace for people under age 65.

The other demerit of the new rules in my opinion is that the employer outlay for health insurance remains non-taxed compensation. Like I wrote here, Employer-paid Health Insurance, and here, Trump's "Across State Lines" Baloney, a radical move is needed to make the medical insurance market for individuals under age 65 as vibrant and competitive as the medical insurance market already is for individuals over age 65.