One of former President Donald Trump's ostensibly business-friendly health care policies may be setting businesses up to fail. The last administration sought to give businesses a new way to provide health benefits, but their approach has turned out to be bad for employees and bad for businesses trying to remain competitive in the current labor market.
When the Trump administration announced the creation of individual coverage health reimbursement Arrangements (ICHRAs) in 2019, they were framed as policies that "provide funding that reimburses employees for their own purchase of individual health coverage that best fits their health care needs." But in reality, ICHRAs mean employees lose the employer-sponsored coverage they're accustomed to and have to fend for themselves to find substandard coverage with a fixed stipend that often doesn't go as far. Businesses also benefit from increased employee wellness and productivity when their workers have adequate coverage from their employer-sponsored plans – a 13.5% increase in employee wellbeing reduces medical costs by 5.2% per employee per year.
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ICHRAs leave workers with higher monthly health costs and the risk of inadequate coverage. A study from Avalere Health found that not only do ICHRA plans result in fewer available providers, they come with significantly higher deductibles when compared to employer-provided insurance plans. Upwards of 70% of those on ICHRA plans find themselves stuck under more restrictive provider networks, and on average, employees on ICHRA plans are paying triple the deductibles of those with employer-provided plans. Also in the fine print, workers find that being offered an ICHRA excludes them from premium tax credits provided by the Affordable Care Act.
The study also warned of the risk of discrimination in the workplace, finding that low-wage workers were the most likely employees to be pushed into ICHRA plans. The Kaiser Family Foundation found that as many as 60% of businesses utilizing ICHRAs are doing so targeting their lowest earners.
No business that wants to attract talent should divide its employees into haves and have-nots based on their wage status. There's also a reputational and business advantage to providing health coverage. Another study commissioned by the country's largest employer trade association, the U.S. Chamber of Commerce, shows that providing robust health coverage not only boosts recruitment and retention, but it produces a significant return on investment – 47% – including hundreds of billions of dollars in increased productivity.
With a labor market in which prospective employees have so much leverage and so many options, employee retention must be a priority for businesses. Placing employees on ICHRAs weakens employers' positions and could send employees sprinting for the exits.
Avalere estimates that at least 1.5 million people are on ICHRA plans today and warned that the number could double by year's end. President Biden has the power to stop ICHRAs before the program grows beyond reach and costs more workers the coverage they have and like. By rolling back former President Trump's ICHRA rules and helping more people stay on employer-provided insurance, President Biden can improve coverage for workers, and take a big step toward improving health equity – three long-held Biden administration priorities.
The good news is that President Biden knows about the threat posed by ICHRAs. His 2021 executive order – the first of his administration on health care – identified ICHRAs as well as short-term limited duration insurance (another Trump-era approach known as junk insurance) for possible revision or recission. The president should roll back both, without delay. American workers struggling under inadequate ICHRA plans have waited long enough for this action. Doing so will strengthen American businesses.
Liz Fairchild is the Executive Director of Business Forward Foundation, an independent research and education organization that takes a business-minded look at policy issues affecting America's economic competitiveness.
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