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Erosion of Job-Based Insurance to Defined Contribution

An Affordable Care Act mechanism intended to help small companies support ACA health insurance for workers is now being used by large companies to satisfy their ACA obligation to provide insurance to employees, under a Trump-induced loophole. They’re saving money, and selling it as enhancing choice.

November 22, 2023

Larger Employers Fund Worker Obamacare Option as Costs Spike
Bloomberg Law
Nov. 15, 2023
By Sara Hansard

Larger employers … are increasingly funding their workers’ purchases of Obamacare plans during open enrollment instead of providing pricier group health plans, taking a cue from small companies that have used this option.

The number of workers offered individual coverage health reimbursement arrangements grew 171% from 2022 to 2023, and the number of employers with at least 50 full-time employees offering the plans increased 144%, according to the HRA Council, a nonprofit advocacy group.

ICHRAs are tax-free accounts employers use to reimburse employees for health plans that comply with the Affordable Care Act. Employees can use the funds provided by their employers to choose individual plans in the ACA exchanges, rather than having to enroll in the more limited number of group health plans that employers typically offer. With fully-insured group plans, employers pay a health insurer for plans that cover the entire company.

The arrangements started in 2020 under a Trump administration regulation and have primarily been used by companies with fewer than 50 employees that opt to provide workers with health insurance options although the ACA doesn’t mandate it for companies that small.

But with inflation-driven health care costs rising quickly for both workers and employers, some larger companies that are required to comply with the ACA are using the reimbursement plans. …

“We were offering less and less benefit and it was costing more,” McKamey said. “We had to keep pulling out benefits and paring down the plan design in order to keep costs somewhat reasonable for the employees and the employer.”

ICHRAs allow employees to fit plans that meet the needs of young and healthy employees, as well people over age 65, who can receive employer payments that can be used towards Medicare supplemental plans, McKamey said.

Comment by: Ed Weisbart

Big employers are accelerating the transfer of financial risk for health care to their employees under the false guise of individual choice, freedom, and consumerism. Rather than bearing the rising costs of health insurance, employers are shifting towards paying a flat amount toward whatever insurance product their workers can find in the ACA marketplace, taking advantage of lax ACA rules quietly established near the end of the Trump administration. They do this by contributing to tax-free “Individual Coverage Health Reimbursement Arrangements” (ICHRAs) that workers can tap to pay part of the cost of insurance they purchase on ACA exchanges.

Under this scheme, employers no longer have to deal with rising premiums – that’s now the worry of workers, not their bosses. Companies pay a flat amount, regardless of premium costs, and workers are left out in the cold as the premium prices climb. Employers call this “Level-Funded Plans”, corporate-speak meant to obscure the fact that they’re abandoning their workers to the whims of inflation and the commercial insurance industry. But hey, at least the workers get to choose the insurance that best meets their current health needs, a fairytale that assumes we’ll never get sicker than we are today. Good luck with that illusion (just one more reason we need single payer!)

This emerging employer strategy is a strong echo of what they did to pensions in recent years.

Thanks to strong union organizing, employers used to fund pensions with a “guaranteed benefit” ensuring a predictable income for retirees – regardless of what happened in the stock market. Retirees liked the pension model because they could rely on it and make personal budgets based on a promised – and earned – income. Employers didn’t like it as it gave them unpredictable costs.

So employers dumped their financial risk from the “guaranteed benefit” of pensions onto workers by switching to “guaranteed contributions” of matching funds deposited into IRAs. Employers prefer the IRA model over pensions as it represents a predictable financial burden.

Retirees saw the fallacy of having their post-retirement income dependent on the stock market and didn’t accept the scam. That is, until employers reframed giving up their negotiated pensions as “you know how to manage your own retirement funds …” or “you deserve your own choice and control over how those funds are invested…” or my favorite “pick the investment strategy that best meets your own personal needs. You’re not the same at 65 as you will be at 90, why should your retirement plan fail to adapt to your changing life situation?”

Sound familiar? “Choose the health insurance you need.” Employers are now trying the same scam in healthcare. The ICHRAs are designed to hide the real intent of employers to shift from funding a financially unpredictable (and, for the worker, reliable) healthcare benefit into just budgeting a flat amount towards the cost of an ACA plan, leaving workers to pick up the rest.

It was a terrible trend that led to the demise of pensions; now it’s a terrible trend that could lead to the demise of (already moribund) health insurance.

On the bright side, health care should have never been linked to employment. The sooner we enact single payer, the sooner workers and employers can stop worrying about this game of whack-a-mole and focus on their work, their employment conditions, and their actual health.

© Health Justice Monitor
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