House passes bill giving small businesses and their employees better health plan options

Yesterday the U.S. House of Representatives passed the CHOICE Arrangement Act, which would expand and protect access to valuable health plan options for employees, and in particular small business employees. In particular, this legislation gives employers a clear legal pathway to fund individual market health plans for their employees with tax-advantaged dollars. This would empower employees to purchase a personal and portable individual market plan that they can keep when they change jobs.

By giving employees real health plan choices, this policy offers possibly the best opportunity to finally create the competition necessary to drive health plans to deliver more affordable, higher quality coverage options. That opportunity is why this has long been American Experiment’s highest priority health care policy.

ICHRAs, AHPs, and Stop-Loss Insurance

As Bloomberg Law reports, the legislation “would codify two of the Trump administration’s major achievements in health-care policy.” This includes the 2019 rule that allows businesses to give employees tax-advantaged contributions to fund individual market health insurance premiums. These defined cash contributions to premium can currently be made through individual coverage health reimbursement arrangements (ICHRAs). However, the current and any future administration can modify this 2019 rule. Codifying it will provide employers the certainty and confidence to fully embrace a defined contribution health plan approach.

The other Trump-era rule the legislation would codify expands access to Association Health Plans (AHPs) which allows smaller businesses to band together to buy health coverage with the negotiating power of a large group. That rule was voided by a federal judge in 2019 and remains in legal limbo today. In addition to codifying these two rules, the legislation would help ensure small businesses can keep offering a type of health plan that relies on stop-loss insurance to protect against catastrophic costs.

American Experiment led the push for ICHRAs

After the Affordable Care Act passed in 2010, most conservative organizations focused simply on complaining about the law and pressing states to not cooperate by not expanding Medicaid, not creating state-based insurance exchanges, and not taking advantage of federal waivers from the ACA’s requirements. In contrast, American Experiment took the view that conservatives should loudly call out the serious problems with the ACA and push for repeal while, at the same time, work to make the best of a very flawed law. It was the law of the land after all.

With the firm belief that conservatives should be able to walk and chew gum at the same time, American Experiment published “Three Strategies for Implementing a State Exchange” in January 2013. These strategies focused on protecting a robust private health insurance market outside the Exchanges. A key strategy recommended that states should establish a small business exchange to facilitate enrollment in the individual market with employer funding, while maintaining the traditional small group market.

Then in November 2013 we began reporting and providing in-depth legal analysis on how the Obama administration was taking steps to ban employers from funding individual market plans, including through health reimbursement arrangements. This led to the publication of an important working paper in December 2015 entitled “State Strategies to Revive Defined Contribution Health Plan Options in Response to New Federal Obstacles”. This paper delivered the strongest legal critique of the Obama administration’s effort to ban employers from funding individual coverage, outlined the legal basis to challenge the ban, and offered strategies for states to sidestep the ban.

Benefits of defined contribution ICHRAs

American Experiment prioritized work to promote ICHRAs and other types of defined contribution health plans out of a strong belief that America’s health care system would offer more affordable, higher quality coverage if employees could choose their own individual health plan. While employers can and should play an important role in helping employees purchase health care, traditional employer-sponsored coverage restricts employee choice and this lack of choice limits competition in the health insurance marketplace.

Implementing ICHRAs and other improvements to the ACA

After investing substantial time and effort in developing policies to make the best of the ACA with all its flaws, I had the privilege to work in the Trump administration as a Senior Advisor to the Administrator at the Centers for Medicare & Medicaid Services. In that role I helped to directly implement several of the ideas that I had been writing about at American Experiment. This work included helping to draft the ICHRA rule.

After leaving federal service, I took the opportunity to come back to American Experiment where I have been able to continue promoting all the important health policies we implemented under the Trump administration. In addition to ICHRAs, this includes policies that gave states more flexibility to waive ACA requirements, strengthened individual market risk pools, expanded opportunities for private Exchanges and, most important, increased price transparency for patients.

ICHRA’s future

It remains to be seen whether ICHRA’s will prove to be as transformative and beneficial as those of us who wrote the rule hope. If more employers offer ICHRAs, the individual market will grow. This growth should draw more insurers to participate and result in more competitive and affordable insurance market. Ultimately, ICHRAs could become the dominant way people purchase health insurance which, in turn, could boost competition among insurers to a level that actually holds down America’s health care costs. That’s the vision.

Surveys show a promising amount of early take-up from employers. The Kaiser Family Foundations Employer Health Benefits 2022 Annual Survey shows 13 percent of small firms (3-49 workers) that offer health benefits “provide workers funds to purchase non-group insurance, such as through an ICHRA.” That’s up from 4 percent in 2021.

Bipartisan support for ICHRAs

To their credit, the Biden administration has not taken any steps that would turn back the policy. ICHRAs tend to garner bipartisan support. President Obama signed into law a very similar policy to allow qualified small employer health reimbursement arrangements. Peter Lee, the former executive director of California’s ACA Exchange said, “in many ways [an ICHRA] has the most promise to consumers who might otherwise be in employer coverage that doesn’t meet their needs—a way to get robust coverage that will be there when they need it.” This bipartisan sentiment makes sense. After all, ICHRAs will only work if the ACA’s individual market works.

Despite bipartisan support, there may remain uncertainty and hesitancy on the part of some businesses to wait to see if the Trump-era rule holds. It did run counter to Obama administration rulemaking. Codifying the rule in federal statute would lift this uncertainty and put ICHRAs on a level playing field with traditional employer-sponsored health plans. Passage in the House takes the first step, but the policy will need to garner stronger bipartisan support to succeed.