The Trump administration has finalized a rule intended to give employers and employees more flexibility in providing health insurance coverage.
It’s too soon to make a definitive assessment, but it could be the biggest step toward a conservative health insurance vision since the 2003 passage of Health Savings Accounts (HSAs).
The rule allows some 800,000 small and mid-sized employers, beginning in 2020, to make tax-free contributions to their employees’ health reimbursement arrangement (HRA) accounts, which employees could use to buy their own health insurance policy in the individual market.
Could this action smooth the transition to a system where individuals, rather than employers, own and control their own health coverage? Yes, because it:
1. Begins addressing the tax treatment of employer-provided coverage.
The U.S. has an employer-based health insurance system, with some 160 million workers and their dependents receiving coverage through an employer.
That fact is largely a result of the tax system. The money spent on employer-provided health insurance is excluded from employees’ income. So employees want as much of it as they can get.
Conservatives have long wanted to equalize the tax treatment of health insurance and this rule would do that for millions of Americans.
2. Encourages employee-owned and controlled health coverage.
Employer-based health insurance has several benefits, but many downsides also: employers choose and own employees’ coverage and employees lose it if they change jobs.
With the tax treatment equalized, employees may prefer to buy their own coverage in the individual market. That coverage could travel with them in job changes, just like life and auto insurance.
3. Turns employees into health insurance consumers.
If employees choose their health coverage, they are much more likely to be involved in the details. They will want policies that meet their needs, rather than their employer’s needs. And they will be the ones deciding on the trade-offs. For example, lower out-of-pocket costs for prescription drugs vs. higher out-of-pocket for hospitals—or the reverse.
4. Pushes health insurers to create consumer-friendly policies.
The individual health insurance market has always been small compared to employer coverage. So there has been little incentive for health insurers to innovate new policies to attract consumers.
That will have to change if the new rule is going to work. Employees will need good health insurance options that they want and are willing to spend their HRA money on. That puts a burden on health insurers to abandon their old ways and think like vendors who have to meet customers’ demands.
5. Creates a consumer-driven health care system.
Conservatives have long wanted a consumer-driven health care system, where consumers control the money and make the choices—and bear the responsibility for making the wrong choices. This rule could take us in that direction.
The Affordable Care Act envisioned a large, robust individual health insurance market with affordable prices and lots of choices. That didn’t happen. The Trump administration’s new HRA rules may achieve that goal where Obamacare utterly failed.