Individual Coverage Health Reimbursement Arrangements a New Option for Employers
NEW YORK, NY—October 23, 2020—A Trump administration regulation that allows employers to establish health reimbursement arrangements to help workers buy health coverage on their own holds significant risks for New York consumers, particularly lower-income enrollees, according to a report issued today by United Hospital Fund.
Individual coverage health reimbursement arrangements (ICHRAs), which officially became available in in January 2020 (too late for most employers’ open enrollment periods), allow employer groups to establish monthly allowances for each employee. Employees can then submit medical expenses related to their individual coverage for reimbursement on a tax-free basis. Employers that establish an ICHRA have broad discretion over the amount of reimbursement; whether to provide allowances for both individuals and families; different allowances based on workers’ ages; what expenses can be reimbursed, such as premiums or cost sharing or both; and whether to roll over unspent amounts from one year to the next.
“ICHRAs could help some workers afford coverage in the individual market,” said Peter Newell, director of UHF’s Health Insurance Project and author of the report. “But some workers could also forfeit premium subsidies through the ACA or lose eligibility for free or low-cost coverage through the Essential Plan. Other workers might see their comprehensive group coverage replaced with an ICHRA, which could mean benefit reductions and narrower provider networks.”
To illustrate the potential shortcoming of ICHRAs, the report presents hypothetical insurance purchasers in three counties with a range of incomes, and shows the impact on their current coverage from an ICHRA offered by an employer that meets federal minimum affordability standards. In lower-cost Erie County, for example, all workers with incomes of $48,000 would pay more for coverage with a minimum affordable ICHRA and without ACA tax credits, and workers earning around $24,000 would lose eligibility for the $20-per-month Essential Plan, with coverage of comparable value only available for more than $700 per month. Workers ineligible for ACA premium subsidies (incomes exceeding about $50,000 annually) would be the clear beneficiaries of ICHRAs, particularly in higher-cost counties like upstate Tompkins, according to the report.
ICHRAs are one of three coverage initiatives first announced by the Trump administration in 2017. One proposal, short-term limited duration insurance, has been banned by New York insurance regulators, and a second, association health plans, has been challenged in court by a coalition of state attorneys general led by New York. The upcoming elections and a Supreme Court decision in a case seeking to overturn the entire ACA could have a seismic impact on coverage in New York. But whatever the broader legal and political issues, ICHRAs could be vastly improved for New Yorkers with three changes—made through the federal regulatory agencies or by Congress—that would help address shortcomings in the employer-sponsored insurance market and the ACA, rather than undermining them:
1) Grant Essential Plan enrollees an automatic right to opt out of ICHRAs without an affordability test
2) Allow individuals to receive both ICHRAs and ACA tax credits if they are eligible for both, regardless of income
3) Discourage the wholesale replacement of employer-subsidized insurance with ICHRAs, limit the option to small employers, or condition large employers’ exemption from the employer responsibility provisions
The report, Trump Administration Health Reimbursement Arrangements Put ACA Subsidies at Risk for Low-Income Workers, is supported by a grant from The New York Community Trust and can be downloaded from UHF’s website here.
United Hospital Fund
United Hospital Fund works to build a more effective health care system for every New Yorker. An independent, nonprofit organization, we analyze public policy to inform decision-makers, find common ground among diverse stakeholders, and develop and support innovative programs that improve the quality, accessibility, affordability, and experience of patient care. For more on our initiatives and programs please visit our website at www.uhfnyc.org and follow us on Twitter.