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Facts About Upcoming Legislation to Expand Coverage Options

President at Paragon Health Institute
Brian Blase, Ph.D., is the President of Paragon Health Institute. Brian was Special Assistant to the President for Economic Policy at the White House’s National Economic Council (NEC) from 2017-2019, where he coordinated the development and execution of numerous health policies and advised the President, NEC director, and senior officials. After leaving the White House, Brian founded Blase Policy Strategies and serves as its CEO.

Tomorrow, the House of Representatives will vote to expand more affordable and flexible health coverage opportunities for businesses and workers through the CHOICE Arrangement Act. The legislation codifies a 2019 rule that permits employers to provide a tax-free contribution that workers would then use to purchase an individual market plan that works best for them and their family. The second would codify and improve a 2018 rule that permits businesses to join together to obtain advantages that larger employers receive when offering coverage. I led development of both rules while at the National Economic Council and want to share some important information on each prior to the vote.
Facts on Individual Coverage Health Reimbursement Arrangements
What is an ICHRA (renamed CHOICE accounts by the legislation)?
ICHRAs provide employers with another option for offering their employees health coverage. Rather than having to select the one or two plans available to all their employees, an employer can provide a contribution through an ICHRA for the employee to purchase an individual market plan. Employees place high value on choice, with one study finding that expanding choices provides as much benefit as a 13% premium reduction.

What plans can people buy with ICHRAs?
Only plans that are compliant with the Affordable Care Act and sold in the individual market.
What is the tax treatment of an ICHRA?
An ICHRA receives the same tax advantage as a traditional group plan, meaning that the premium amount is not subject to federal income or payroll tax.
Are ICHRAs bipartisan?
ICHRAs build off the Qualified Small Employer Health Reimbursement Arrangements signed into law in 2016 by President Obama and overwhelmingly supported by members of both parties. QSEHRAs have several limitations, such as being available only to small employers and restricting contribution amounts, that ICHRAs remedy.

How will ICHRAs affect the individual market?

By growing the number of people with individual market coverage, ICHRAs should create a virtuous cycle: more enrollees will lead to more insurers participating in the market, additional plans and competition between them will create a more attractive market, the better market will lead more employers to offer ICHRAs, leading to more enrollees, and so on. Importantly, ICHRAs add to individual market enrollment without any new government spending (i.e., no new ACA subsidies).

What are the expectations for the ICHRA market and for reducing the number of uninsured?

In 2019, the Treasury Department projected that by 2025 there would be about 11 million people enrolled in the individual market using an ICHRA—about 800,000 of them who would otherwise be uninsured. The market is evolving somewhat slower than expected, which is a combination of the pandemic and extremely tight labor market and a lack of education about ICHRAs. CBO expects a few million people will enroll in the individual market using ICHRAs by the end of the decade.

For more on ICHRAs, see a CNN piece I wrote when the rule came out and a recent op-ed on ICHRAs that I coauthored in Newsweek with Al Hubbard, the director of the National Economic Council from 2005-2007. I also authored a longer report on ICHRAs for the Galen Institute in 2020.

Facts on Association Health Plans
What is an AHP and why are they useful?
An AHP is an organization composed of companies working together to provide their employees’ health coverage through a single large group health plan. Larger groups have several advantages:

  • They can spread administrative costs over more people.
  • Larger groups can more easily self-insure, which avoids several costly government mandates.
  • Large group plans can better customize the benefit design to include programs to incentivize positive health outcomes and economic value in medical treatment.

Paragon released a policy brief by health insurance and AHP expert Kev Coleman in April that provides much more detail on AHPs.
What was in the 2018 Department of Labor AHP rule and what happened to it?
The rule created a new pathway for any employer, including sole proprietors, within a state and or common metropolitan area to join together and offer coverage through an AHP. The rule was in effect for several months, with favorable reviews. According to the Washington Post, “there are initial signs the plans are offering generous benefits and premiums lower than can be found in the Obamacare marketplaces.”
Unfortunately, a March 2019 decision by a federal judge invalidated this new pathway as an inappropriate extension of ERISA. While the appellate court never ruled (the Biden administration paused the appeal), the judge’s decision shows the importance of congressional action to expand employers’ ability to use AHPs.
What does this legislation do?
This legislation permits AHPs to form, irrespective of whether employers are in the same industry, trade, or professional group, so long as it maintains a group health plan that provides coverage to at least 51 employees with the organization in existence for at least two years prior to establishing a group health plan. Membership in the plan cannot be conditioned on any individual’s health status and coverage must be made available to all employer members. Self-employed individuals would be eligible to join the AHP as well, subject to certain conditions.
How does this legislation improve upon the 2018 rule?
This legislation improves upon the rule in two ways. First, it is more likely than the rule to form stable and successful groups and to expand coverage because it permits premium variation at the employer level. Second, it permits any employers to form an AHP regardless of geographic location.
Hopefully, this information is useful for policymakers and the public to understand the ramifications of this legislation.

All the best,
Brian Blase
Paragon Health Institute

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