New Health Options for Small-Business Employees

This op-ed originally appeared in the The Wall Street Journal on October 22, 2018.

As we have traveled around the country talking to small-business owners and American workers, we’ve consistently heard that health insurance is unaffordable and workers need more options. The data back up their concerns. As insurance costs have risen since 2010, the share of workers at firms with between three and 24 workers covered by employer health benefits has fallen from 44% to 30%. For firms that employ 25 to 49 workers, the share of workers covered by employer health benefits has fallen from 59% to 44%.

Small businesses that continue to offer coverage to their workers generally only make a single plan available. In fact, 81% of small employers offering health benefits (those with fewer than 200 employees), and even 42% of large employers, provide only a single option for their employees.

Last year, President Trump signed an executive order telling us to consider steps to expand consumer choice and increase opportunities for businesses that want to offer health benefits to their employees. The president was right—the status quo is unacceptable. Over the past several decades, rising health-care costs have eaten away at American families’ disposable income and impaired employers’ ability to expand their businesses and create jobs. ObamaCare’s rules and mandates made the problem worse by increasing premiums and reducing consumer choice.

Americans should have more options than one plan their employer selects for them. And they should be able to maintain their insurance when they change employers or exit the job market to raise a family or care for a sick loved one.

That’s why the administration is proposing a regulation that would create a new way for employers to provide health coverage for employees. This proposal would give millions of workers and their families more control over their health care. It also holds the promise of more-efficient health-care spending, expanded business growth, and higher wages.

The proposed regulation seeks to accomplish this by expanding Health Reimbursement Arrangements. HRAs provide employer-funded reimbursements, which employees can use for health-care expenses. Reimbursements under an HRA do not count as taxable income.

First, we would permit employers to offer HRAs to reimburse employees for health insurance purchased in the individual market—allowing employers to provide a contribution as significant as they would have made for the premiums of a traditional employer-sponsored plan.

Second, we would allow employers that offer a traditional group plan to offer an HRA of up to $1,800 a year to reimburse an employee for certain qualified medical expenses such as stand-alone dental benefits.

Employers maintain considerable control over health insurance in part because of the tax benefit Washington provides for employer-sponsored insurance. The premiums for health coverage paid by both the employer and the employee are exempt from income and payroll taxes.

The new rule does not change the traditional tax benefit for employer-sponsored insurance. Instead, it provides an alternative way for employers to use this benefit for their employees. Rather than an employer choosing the plan, employers could opt to make contributions that empower employees to pick a plan that works for them and their families.

In 2013, the Obama administration forbade employers from using HRAs or any similar arrangements to reimburse employees’ premiums for individual market coverage. That shut down an option many employers had used to assist employees in obtaining coverage. Small and midsize businesses were likelier to use this approach, because they didn’t have the ability or resources to manage a health-insurance plan.

The Obama administration feared that some employers would segregate their workers—keeping the healthy on the employer’s traditional group plan and incentivizing sicker employees to purchase individual market coverage. We recognize this as a potential problem. Harming the individual market—already undermined by ObamaCare—would make this rule ineffective, since employees would not have attractive coverage options on the individual market. But shutting down employer reimbursement of individual market premiums went too far and harmed too many employers and workers. We instead propose carefully constructed guardrails to protect the individual market.

Initial estimates by the Treasury Department suggest that over the next 10 years, 10 million employees will have insurance through these HRAs, spread across roughly 800,000 employers.

Some experts, such as Harvard Business School’s Regina Herzlinger, suggest the effect could be even larger since expanded HRAs have the potential to create a more efficient health-care system by unleashing competition for consumers. That could lead to more workforce investment and higher wages as less is spent on insurance, and could spur innovation among providers and insurers as they directly compete for consumer dollars.

This kind of bold vision for a consumer-driven insurance market is part of President Trump’s plan to offer Americans better health care at lower cost. The proposed new regulation seeks to allow far more American workers to choose from a broader array of health-insurance options, while job-creating businesses can focus on doing what they do best—serving their customers—not on navigating and managing complex health-benefit designs.

Alex M. Azar II is the secretary of the U.S. Department of Health and Human Services.