Trump Admin Has a Plan to Bolster Private Insurance While Helping Small Businesses: 5 Things to Know About HRAs

Donald Trump
Leah Millis/Reuters

President Donald Trump has a plan to bolster the private insurance market while helping small businesses provide coverage to their employees.

Since the botched repeal of the Affordable Care Act, Republicans have been struggling to come up with a coherent policy on health care, prompting the Trump Administration to make changes of their own.

The Trump administration took steps to expand Health Reimbursement Arrangements (HRAs) as a health care option for employers.

Here are five things to know about HRAs and Trump’s plan to improve private health care in the United States.

What are HRAs?

HRAs are taxed-preferred accounts where employers can put money to allow workers to shop for their own health insurance. Where many large companies choose one provider for all their employees, HRAs allow employers to fund their employees’ health care while still allowing the employee 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 the Affordable Care Act unless the HRA was funding an ACA-compliant group health plan. An HRA designed for the individual market wasn’t allowed preferred tax status, disincentivizing businesses from funding workers in the individual market.

The White House noted, “Under the rule, employers will be able to provide their workers with tax-preferred funds to pay for the cost of health insurance coverage that workers purchase in the individual market.”

How do HRAs help small businesses?

Providing health insurance is a necessity for hiring and maintaining employees, especially when the employee market is tight in a growing U.S. economy. Small businesses need to provide insurance in order to remain competitive, but affording coverage for small companies is a major problem.

HRAs allow businesses to fund their employees’ coverage without strapping themselves to one large, expensive insurance program for their whole operation. As the White House explains, the new HRA rules allow employers to receive the same tax benefits large companies have while using an alternative funding mechanism.

“The rule corrects a major distortion by, in effect, providing the same tax benefits to these new HRAs that are provided today to traditional employer-sponsored plans.”

Do HRAs provide high-quality health care for workers?

HRAs give workers a choice in their coverage. Some workers can opt to purchase the best-of-the-best insurance or a much cheaper plan that allows them more discretionary money. So while the coverage is up to the employee, a larger HRA system in the U.S. could lower costs in the individual market as a whole.

The White House argues that pouring an estimated 800,000 small business workers into the individual market will lower costs for everyone, writing, “More people obtaining coverage from the individual market should spur increased competition among insurers and help deliver better coverage options to consumers.”

Not only could an increased insurance pool lower prices, but HRAs also take out an additional middle man in the insurance game.

As Avik Roy, president of the Foundation for Research on Equal Opportunity noted in an op-ed to the Washington Post, HRA’s eliminate the “ninth party” 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.”

What does Speaker Nancy Pelosi think about the proposal?

She hates it.

Speaker Pelosi (D-Calif.) wrote in a press release that President Trump was trying to “dismantle American’s health care” by bolstering HRAs. 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.

While Pelosi thinks Americans will be receiving “junk plans,” Katherine Hempstead, senior policy adviser at the Robert Wood Johnson Foundation, told Vox that many workers might opt to join the options under the Affordable Care Act marketplace.

It isn’t clear whether Pelosi, who forced the ACA through the House in 2010, actually thinks the individual market under the ACA is “junk.”

What do 2020 Democrats think of HRAs?

Considering that several 2020 Democrats have called for private insurance to be abolished, they probably won’t like the Trump administration bolstering the private market.

Senator Bernie Sanders (I-Vt.) has repeatedly explained that he would need to abolish private health care in order to push “Medicare for All,” as IJR reported.

In a statement about his plan, Trump called out 2020 Democrats pushing expensive, universal health care, saying, “We’re 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.”

As IJR previously reported, experts believe that Americans would need to more than double their taxes to afford Medicare for All.

What do you think?

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