Small businesses and large corporations have been spared some of Obamacare’s most burdensome regulations. Small firms are exempt from the employer mandate requiring them to offer coverage. Large ones don’t have to adhere to the law’s essential health benefits mandates.
Mid-sized businesses haven’t been so lucky. These firms, which typically employ between 50 and 100 people, don’t have the financial resources of their larger peers but are still subject to Obamacare’s costliest mandates. In many cases, they face a tough decision — sponsor health insurance plans they can scarcely afford, or pay the employer mandate fine and decline to provide insurance at all.
President Trump and his team are trying to give them another option. The administration recently proposed a rule that would expand employers’ ability to give their workers tax-free dollars to help them purchase health coverage on their own.
The rule could deliver multiple benefits. By empowering consumers to shop for health plans, it could increase competition in the individual market and drive down premiums. It could also help employers being squeezed by Obamacare provide affordable coverage.
It’s growing increasingly difficult for mid-sized employers to sponsor health plans. Since 2000, the number of businesses with 50-100 employees offering insurance has decreased by 7 percentage points, according to the Kaiser Family Foundation’s Employer Health Benefits Survey. Just over one in 10 employers of this size do not offer any type of health plan.
The rising cost of health insurance is one reason why. Between 2013 and 2018, the average employer-sponsored family premium rose 20 percent.
Paying the fine for failing to provide coverage can often be cheaper than sponsoring insurance. Last year, the annual premium for the average employer-sponsored individual plan was nearly $6,900. The average employer covered more than 80 percent of that cost directly. The employer mandate fine, by contrast, was $2,320 per employee, with the first 30 exempt from the calculation.
Consider the choices facing a business with 55 employees. It could pay a little over $300,000 for an average health plan. Or it could choose not to offer health insurance and send the government $58,000. That’s a difference of more than $240,000.
Declining to provide health insurance may be the smart financial decision. But it risks driving workers away.
Offering expensive health insurance may keep the rank and file happy. But it could threaten the employer’s financial future.
The Trump administration’s new rule aims to offer employers a third choice, one that allows them to do right by their employees without sinking their balance sheets.
The administration proposes to tweak the rules for Health Reimbursement Arrangements, or HRAs. Employers who sponsor conventional health insurance plans can put tax-free money into these accounts to help employees cover out-of-pocket medical expenses.
Since 2017, employers with fewer than 50 workers have been able to fund HRAs without offering conventional insurance. Their employees can use that money to help cover the cost of insurance on the individual market.
The Trump administration’s proposed rule would expand this option to larger employers. For example, an employer unable to afford the nearly $19,000 average annual premium for a family policy could put, say, $5,000 in an HRA. The worker could then apply that money toward the cost of a policy of his choosing. Perhaps he’d select a comprehensive policy on his state’s exchange. Or maybe he’d opt for a cheaper short-term plan.
Both employer and worker would be better off. The employer could lock in its spending on health benefits at levels it can afford. And by partially funding health benefits, it could improve its chances of attracting and retaining workers. The employee, meanwhile, would receive tax-free compensation that would make health insurance more accessible.
The administration could amplify the rule’s impact by allowing people to use HRA funds to buy into a health plan sponsored by their spouse’s employer.
The Treasury Department estimates that close to 800,000 employers could soon offer HRAs to help pay for health insurance. This would bring an additional 10 million workers into the individual market over the next five years. This influx of people, many of them healthy, would increase competition in the individual market and could reduce average premiums by 3 percent.
Expanding HRAs won’t fix our broken healthcare system. But it will give Americans more health insurance choices — far more than they’d have under the government takeover of the health-care system progressives are pushing for.