Any time lawmakers can introduce greater choice and dynamism into the health insurance market, patients benefit. The CHOICE Arrangement Act, which passed the House last month, is a perfect example.
The bill would codify the so-called "individual coverage health reimbursement arrangements," or ICHRAs, established through executive order by President Donald Trump in 2019. ICHRAs allow employers to offer their workers tax-free cash to help pay for coverage on the individual market.
As such, they represent a more personalized and portable alternative to employer-sponsored health insurance — something many Americans would gladly welcome.
Employer-sponsored insurance is largely an accident of history. It came about in response to World War II-era wage controls. Health benefits were exempt from those controls and from income tax, so companies started offering generous health plans to attract and retain workers. That special tax treatment for employer-sponsored health insurance has persisted since.
Workers understandably like compensation that's free from tax. But the downside is that they have little say in what kind of health benefits their employers offer. They generally take whatever they're offered, even if they might prefer a health plan that provides different benefits — or an increase in cash wages in lieu of health insurance.
Employer-based coverage is also, by definition, tied to a single job, or at least a single company. This situation can lead workers to stay in a job longer than they might otherwise want to, purely out of fear of losing their insurance.
Despite these drawbacks, roughly half of Americans — about 178 million — currently get their coverage through their work.
ICHRAs offer a way around this imperfect system. Employers can still provide tax-free compensation to their employees — and so use health benefits as a component of their recruitment and retention strategy. But they offload the administrative burden associated with running a health benefits program.
Employees, meanwhile, can use their ICHRA to shop around for a health plan that meets their specific needs. And should a worker change jobs, their insurance is portable and travels with them.
Among the biggest beneficiaries of ICHRAs are those employed by small businesses. According to one analysis, less than one-third of companies with fewer than 50 workers provide health coverage. That's compared to more than 97% of firms with 50 or more employees.
In many cases, small businesses may want to help their workers secure health coverage. But a comprehensive employer-sponsored health plan may not be affordable.
ICHRAs provide these firms with a more affordable means of subsidizing their workers' health care. Over time, the arrangements could vastly increase the number of companies that provide some form of health benefits.
By enabling more people to "own" their health coverage, ICHRAs could lead to a more diverse, competitive, patient-centric individual market.
The enormous value provided by ICHRAs is so plain to see that even supporters of Obamacare have endorsed them.
Back in 2020, Peter Lee — then the executive director of California's insurance exchange Covered California — noted that, of all the Trump-era health policies, ICHRAs have "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."
He's right. ICHRAs offer a welcome path beyond the confines of employer-based coverage. They deserve to be enshrined permanently into law.
Sally C. Pipes is president, CEO, and the Thomas W. Smith fellow in healthcare policy at the Pacific Research Institute. Her latest book is "False Premise, False Promise: The Disastrous Reality of Medicare for All," (Encounter Books 2020). Follow her on Twitter @sallypipes. Read Sally Pipes' Reports — More Here.
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