New Bill Would Expand Pool of Individual Health Coverage Shoppers

The House is preparing to vote on a bill that supports the use of employer cash to pay for workers’ individual health coverage.

The House Rules Committee is preparing H.R. 3799, the Custom Health Option and Individual Care Expense (CHOICE) Arrangement Act bill, for action on the House floor. A vote could come as early as next week.

H.R. 3799 would add a section based on the current individual coverage health reimbursement arrangement (ICHRA) program rules to Internal Revenue Code section 9815(b). The IRC section 9815(b) update would apply to employers with plan years starting Jan. 1, 2024, or later.

What It Means

For advisors helping clients with their finances, passage of H.R. 3799 could mean that more clients would opt for their own individual health coverage, rather than employer-sponsored coverage.

For agents and brokers nostalgic for the days when producers could make money by selling individual commercial health coverage, expanded use of employer-paid individual health coverage could create new sales opportunities.

The History

Traditionally, small employers and their groups have clashed with health insurers and consumer groups over whether employers could give workers cash and let the workers buy their own individual health coverage.

Before the current Affordable Care Act restrictions on major medical insurance underwriting took effect in 2014, one obstacle was that insurers often refused to sell coverage to people with diabetes, cancer and other health problems, or charged those people higher rates.

After the ACA rules took effect, one concern was that encouraging employers to send workers to the individual market could destabilize either the group health market or the individual market by giving employers with the oldest, sickest workers an incentive to cluster in one part of the market and employers with younger, healthier workers an incentive to cluster in the other.

Consumer groups and regulators have likewise worried about the possibility that employers could use cash-for-coverage programs to discriminate against older, sicker workers.

The ICHRA

Former President Barack Obama created a cash-for-coverage for small employers, the qualified small employer health reimbursement arrangement (QSEHRA) program, in 2016 when he signed the bill that includes the 21st Century Cures Act.

When former President Donald Trump was in office, regulators then ruled that they had the authority to create a similar but more flexible cash-for-coverage program, the individual coverage health reimbursement arrangement, which is available to employers of all sizes.

An employer with an ICHRA can give workers in designated groups cash for coverage. The workers must use the cash to buy health coverage, and the employer cannot give workers with health problems less or more money than it gives other workers.

One big difference between the cash-for-coverage HRAs and a health savings account is that an employer can use the HRAs to pay for workers’ individual health coverage. Employers cannot use an HSA that way.

The workers can use the HRA money to buy no-deductible or low-deductible coverage, rather than the high-deductible coverage that’s compatible with the HSA program. But participants in the HRA-based plans do not own the HRA cash and cannot use it to build up a nest egg, the way they can use an HSA to accumulate assets.

The employer with a cash-for-coverage HRA program needs roughly the same kind of administrative support and asset custody services that an employer with an ordinary HRA program uses.

The Henry J. Kaiser Family Foundation found when it surveyed U.S. employers in 2022 that 13% of participating employers with three to 49 employees, and 11% of all participating employers, had ICHRA programs, QSEHRA programs or other cash-for-coverage programs.