Proposal Would Allow Employers to Offer Alternative to Traditional Health Insurance

June 16, 2020


Elizabeth (Izzy) Montgomery, MPA
Policy Analyst

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The Trump administration continues to seek alternative paths for individuals to pay for medical care without purchasing traditional health insurance. Under a new proposal, employers could begin offering medical care payment options this year through a health reimbursement arrangement (HRA) instead of offering traditional insurance coverage. HRAs are a type of employer-funded program in which employees are reimbursed tax-free for certain medical expenses, up to a fixed dollar amount each year.

Recently, the administration proposed expansion of HRA options, as outlined in a June 8 release by the IRS. Under the proposal, employers could fund direct primary care through HRAs. A direct primary care (DPC) arrangement is distinct from a traditional health insurance plan, with the patient making monthly, quarterly, or annual payments directly to the primary care provider to cover a defined set of primary care services. Among the touted benefits of DPC providers are unlimited and digital access to services, reduced administrative costs, revenue consistency, and lower physician burnout. However, specialty, pharmacy, and hospital needs are generally not covered unless individuals opt for additional coverage through separate arrangements.

The IRS proposal also would allow employers to reimburse employees through HRAs for memberships in health care sharing ministries. We previously published an explainer on health care sharing ministries, which are faith-based, nonprofit organizations that offer an alternative to health insurance by allowing others in a ministry to help pay for medical expenses. These types of arrangements vary in types of covered services and payment plans, are not subject to state insurance regulation in Arkansas, and are exempt from the essential health benefit requirements in the Affordable Care Act.

The expansion of HRAs could lead to increased participation by individuals desiring more flexible benefits and cheaper alternatives. However, it could also draw employers and their employees into unregulated healthcare markets with risk of insolvency or unscrupulous activity that has already led several states to intervene. Washington state has ordered the company Aliera to stop selling insurance in the state, claiming that it doesn’t meet the definition of a health care sharing ministry. Texas and New Hampshire have taken similar actions against the company.

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