June 21, 2019
By Frank Knapp Jr.
Starting next year, for the first time, businesses will be allowed to give workers money specifically to purchase individual health insurance policies. This revised federal rule for tax-exempt health reimbursement arrangements was finalized last week.
President Donald Trump called the changes a “monumental victory for small business.”
Ironically, this “victory for small business” is completely dependent on a strong Affordable Care Act and the premium subsidies it provides to individuals who purchase policies through the health insurance exchanges.
Federal premium assistance is what makes the comprehensive policies affordable to individuals earning between 100 and 400 percent of the federal poverty level. About 87 percent of the nearly 11 million Americans who obtain their insurance through the ACA health insurance exchanges receive premium subsidies.
Without these ACA premium subsidies, this new HRA rule would have no benefit for small businesses. Most can’t afford group health insurance now, and none could afford to give their employees enough money to purchase unsubsidized policies.
Many of us who work with small businesses have recognized for years that the ACA offered the vehicle for workers to have good health insurance without the employer paying the high cost of offering group health insurance. However, because employers have not been allowed to directly cover the federally subsidized premiums their workers would have to pay under the ACA, we encouraged small business owners to instead give their employees a small raise that would cover the monthly premium.
So, this new rule will actually be good for small businesses that want healthier, more productive employees as a result of having individual health insurance, especially those with fewer than 20 employees that make up about 67 percent of all businesses in the nation. Hopefully, with this new formal process, more small businesses that do not offer group health insurance will start providing their own premium-assistance plan for their workers. This can be particularly important to the lower-income employees for whom even a $20-a-month premium is unaffordable.
All of this is legitimate good news for small businesses. Unfortunately, there are two significant concerns.
First, we all should know by now that when big businesses want some policy change, they always say that it is to help small businesses.
Businesses for Responsible Tax Reform, which I co-chair, has made it very clear that the 2017 tax reform, which was sold as a major benefit to small businesses, really was about giving corporations a permanent 40 percent tax rate cut. Our polling says that small businesses did not get the benefits promised.
While small businesses will receive a benefit with the new HRA rule, it is possible that big businesses were the real motivation because they see it as an opportunity for cutting their insurance costs.
Critics such as The Brookings Institution have pointed out that a prime concern about this new rule is that businesses offering group health insurance will seek to shift older and less healthy workers to the individual market. Brookings thinks that the guardrails to this happening are in place, but don’t count corporations out from finding loopholes to reduce benefits to their most costly workers. A better solution would be to limit the new HRA rule to small businesses with fewer than 50 employees.
The second concern is not a matter of speculative mistrust.
As already stated, small businesses can only benefit from the new HRA rule if the ACA itself is healthy. But that is exactly the opposite of what Trump wants.
The president has started his re-election campaign by calling for the complete repeal of the ACA. His Justice Department is in court calling for the entire ACA to be ruled unconstitutional.
Then there are all the incremental changes the administration has made to the ACA over the last two years in an attempt to destroy the program. Earlier this year, when changes were made in how premium subsidies are determined. The government expects 70,000 people receiving less subsidies will drop their ACA policies.
Yet, the president wants to declare this HRA rule change a “monumental victory for small business.” But that can only be a permanent success if he fails in his efforts to kill the ACA.
Frank Knapp Jr. is the co-chair of Businesses for Responsible Tax Reform and president/CEO of the South Carolina Small Business Chamber of Commerce.