Individual coverage health reimbursement arrangements (ICHRAs) and their sisters, excepted benefit HRAs (EBHRAs) and qualified small employer HRAs (QSHRAs), are ringing in the new year as the new shiny thing in health benefits. The excise tax for high-cost employer-sponsored health plans looms over health plans, and presidential candidates are betting on entirely different health insurance delivery models that give health plans the shivers, as seen from a range of efforts to discourage or bury the possibility altogether. The question for 2020 then, is which health plans can adapt to change—challenging or not—and survive.
Let’s look at several select pieces of legislation: ICHRAs, which will be effective as of January 2020; the Cadillac tax, which is pending regulation or repeal; and a public health insurance plan, which looms on the horizon as a main point of presidential debates.
In a 2019 research report, Aite Group reviewed the Centers for Medicare and Medicaid Services’ (CMS’) projections surrounding ICHRAs and compared them to Aite Group’s analysis drawn from industry stakeholders ranging from health plans to third-party administrators (TPAs) to technology processors. This analysis finds CMS projections to be aggressive and in need of further qualification. Aite Group projections indicate a milder and slower adoption compared to market expectations. Ultimately, the successful adoption of ICHRAs will come down to how well they are understood and adapted and how easy it is to incorporate them into existing benefit packages. As of today, both need help.
Regardless of adoption speed, the exciting thing about ICHRAs is that they crack open a door to how health insurance may be procured in the future. They effectively decouple employers from the administrative burdens of offering and managing health plans, premiums, claims, and fees, and place that responsibility on employees instead. Here’s a quick look at how it would work: Employers would offer employees an amount that works within their budgets that employees can use to purchase health plans from health exchanges. Employees would then be responsible for selecting an appropriate level of coverage from said exchanges. This tool is a valuable option for gig economy workers or part-time and contract workers who otherwise may not be offered health insurance at all.
Excise tax on high-cost employer-sponsored health coverage
The private-sector employers and health plans seek to delay, or at this point repeal, the excise tax on high-cost employer-sponsored health coverage, or Cadillac tax, under the Affordable Care Act (ACA). Those who argue in favor of passing it do so on grounds of the federal tax revenue that would be generated from passing the tax. The passage of this tax, if it is passed, would have profound implications on how health insurance is delivered and paid for.
“Medicare for All” or a public option
Cries about offering Medicare for All, or some form of a public health insurance option, have rattled the health plan industry. The notion of a public option or a single payer would threaten the viability of their business. Regardless of how the presidential elections in November 2020 pan out, businesses—health plans or otherwise—should always have plans in place to account for multiple scenarios. Such arrangements after all are the norm outside the U.S., and the prevalent business model in many countries includes a public payer and an opening for supplemental private insurance.
Such scenarios may mean restructuring, downsizing, or evolving the product or services portfolio to align with the changing laws and market requirements. Industries are routinely inconvenienced, disrupted, and forced to change. These scenarios would not be pain-free, nor would they be easy. However, adaptability is key to survival. We have learned these lessons from other industries.
- The financial industry failed to implement common-sense, fair, and transparent measures, capitalizing subprime mortgages that ultimately brought about the Great Recession. The result was a number of major financial institutions breaking, closing down, and being acquired by other banks; a massive bailout by the government using taxpayer funds; and an economic recession that took a decade to recover from. Ultimately, those institutions that survived did so by abiding by new rules around lending practices and financial solvency requirements that held the industry to greater accountability.
- The U.S. automotive industry failed to respond to well-made, economical Japanese cars in the mid-1980s, and in the 2010s these companies too slowly adapted their production lines to accommodate hybrid or electrically powered engines that do not rely on fossil fuels. The ensuing massive reductions in operations resulted in plant closures, layoffs, financial bailouts, and finally a slow painful adoption to evolving market conditions.
- The camera and photography industry failed to adapt its business model to the emerging competition from digital cameras and smartphones with increasingly high-resolution cameras. This made the film business increasingly redundant. This industry’s failure to adapt to change resulted in multiple major companies collapsing or downsizing to cater to a niche set of specialty professional offerings.
A wise lesson, often attributed to Charles Darwin states, “It’s not the smartest or the fastest that survive, but those that can adapt to change.” Health plans can decide whether they want to adapt to change and survive. If not, they should stop complaining and prepare for extinction.