Two prominent health care policy leaders wrote in a Wall Street Journal editorial this month that personalized health benefits, including health reimbursement arrangements (HRAs), could "save American health care."
At PeopleKeep, our mission is to personalize benefits for small businesses. HRAs are a powerful framework for delivering on this mission, one we've been utilizing to simplify and personalize small business employee health benefits.
In the article, “The IRS Can Save American Health Care,” Harvard Business School professor Regina Herzlinger and Oscar Health’s Joel Klein propose the IRS adjust its definition of HRAs so that they satisfy the Affordable Care Act’s employer mandate.
Herzlinger and Klein argue that greater access to HRAs “would create a more efficient health-care system” in three ways:
- Employees will choose more efficient, personalized policies.Because they’re shopping and budgeting only for themselves, employees will be more likely to choose a policy that suits their needs, with a tailored group of providers. With these smaller networks, insurers will have more leverage to negotiate lower prices.
- Individuals will use healthcare more conservatively. With traditional group health insurance, the sponsoring business is the principal beneficiary when health care becomes more efficient. With HRAs, that changes; employees have a strong financial incentive to seek out cheaper options. When individuals behave this way, increased competition brings down prices.
- Competition would encourage the health care industry to improve. If insurers were forced to compete, they would embrace innovations in new technologies and improve in cost transparency and appointment scheduling.
These suggestions are very much in line with our public advocacy efforts here at PeopleKeep. While Herzlinger and Klein’s proposals relate to a specific interpretation of HRAs, they align with PeopleKeep’s larger goal of personalizing benefits for small businesses.
Rather than forcing businesses to select and sponsor certain programs and services, PeopleKeep believes businesses (and especially their employees) would be better served by giving employees tax-free money to spend on the consumer services they find most valuable.
With personalized health benefits like HRAs, there are no minimum contribution requirements, no wrangling with benefits providers, and no decisions that benefit some employees but not others. At the same time, personalized health benefits are formal benefits options that save businesses and employees 35 percent in taxes compared with wages.
This concept may seem new, but the trends fueling it aren’t. The foundations for personalized health benefits developed early, with the creation of benefits like the HRA and health savings account (HSA).
These benefits models have evolved and expanded over time in response to pressures and limitations associated with the traditional group health market, and Herzlinger and Klein’s proposals are just the latest developments in the ongoing personalized benefits movement.
Through our efforts at PeopleKeep and the work of other thought leaders in the space, personalized health benefits opportunities have continued to grow. Today, thousands of small businesses offer personalized health benefits to their employees.
By 2025, we believe the movement will grow so powerful that one million businesses will offer them, and personalized health benefits will be the primary way small businesses offer tax-free compensation to employees.
As we continue working toward this endpoint, proposals like Herzlinger and Klein’s are exciting to watch. They continue to move the needle on how we think about and develop health benefits, and will eventually reshape the way millions of Americans receive, consume, and benefit from health care.