ICHRAs allow companies to compensate employees for insurance purchased in individual markets and may help clinical laboratories reduce patient bad debt
Both employees and their employers are frustrated with current options for health coverage. Now, a recent report from the HRA Council suggests that more employers are turning to Health Reimbursement Arrangements (HRA) as an alternative to traditional group insurance coverage to cope with the increasing cost of employee health benefits. This will be of interest to clinical laboratories that must collect copays/deductibles from patients. Health insurance arrangements that make it easier for patients to pay help labs reduce patient bad debt.
According to its website, HRA Council is “dedicated to improving and expanding health coverage options for millions of workers by giving employers better ways to offer workers health insurance.”
The non-partisan advocacy organization, which consists of insurers, brokers, employers, and other stakeholders, estimates that only 500,000 workers are currently covered by these plans nationwide. That number of workers represents a 29% increase since 2023, with most of the growth coming from large employers.
Under HRA arrangements, employers provide non-taxed financial assistance to workers who then obtain coverage for themselves and/or their families in the insurance marketplace.
One type of plan, known as the Qualified Small Employer HRA (QSEHRA), was established as part of the 21st Century Cures Act, which Congress passed in 2016. QSEHRAs, however, are available only to businesses with 50 or fewer full-time (or equivalent) employees. Most of the recent growth has come from Individual Coverage HRAs (ICHRA), established under regulations issued by the Trump Administration in 2019.
In contrast to QSEHRAs, ICHRA plans are available to companies of any size, HRA Council notes.
“It’s a way to offer coverage to more diverse employee groups than ever before and set a budget that controls costs for the companies,” HRA Council Executive Director Robin Paoli told KFF Health News.
“ICHRAs are bringing a fresh new approach for employers who need a new or different solution to enable providing health benefits to their employees,” said Andrew Reeves (above), senior vice president and general manager, Gravie ICHRA, in the HRA Council report. Gravie is one of the health benefits companies allied with HRA Council. “Through the defined contribution approach that ICHRA brings, employers are now able to set their budget and enable employees to make their own individual decisions on the coverage they need for themselves and their families. ICHRAs are delivering an approach to employee benefits that is both stable yet at the same time flexible for the individual,” he added. These types of alternatives to traditional employer-sponsored health plans may also help clinical laboratories and anatomic pathology groups reduce patient bad debt. (Photo copyright: LinkedIn.)
How ICHRA Plans Work
As explained by HRA Council, “an ICHRA allows the employer to allocate to each employee a specific amount of money to spend on ACA [Affordable Care Act]-compliant individual health insurance plans. Employees then purchase their own plans, and the employer reimburses them up to the allocated amount.”
The rule allows employers to define up to 11 classes of workers and offer different benefit packages to each. These benefits can be based on characteristics such as:
geography,
whether the worker is employed full-time, part-time, or seasonally,
whether the worker is paid a salary or hourly wage, and
Employers can choose to offer ICHRAs to some classes and traditional group plans to others. Within each class of employee, employers also can vary compensation based on age—up to a 3-to-1 ratio—since older workers will generally pay higher premiums than younger ones.
For example, the HRA Council explains, “if an employer offers its 26-year-old employee $300 per month, it could only offer the oldest employee up to $900 per month.”
However, some consumer advocates have pointed to potential downsides of these plans, KFF Health News reported.
The rule, they concede, provides guardrails to prevent companies from moving only their sicker employees—the ones most costly to cover—to the individual market. For example, employers must offer the HRAs to entire classes of workers, and the rule prevents them from defining classes that contain only a small number of employees.
However, the authors contend that employers can still target HRAs to classes more likely to be sick while offering group coverage to other classes. In general, they argue, employers with sicker workforces will be most attracted to HRAs. As these workers enter individual insurance markets premiums could rise, particularly “in states that today have individual markets with a relatively low-cost mix of enrollees,” the authors wrote.
Although the rule allows companies to vary compensation based on age, older workers will still pay more for insurance unless the contribution covers the entire cost of the premium. This would likely make the HRAs “less attractive to employers by making it harder for employers to avoid leaving some workers worse off,” the authors noted.
The Brookings authors also observed that workers who accept the contributions are ineligible for premium tax credits enabled by the Affordable Care Act.
KFF Health News noted other potential downsides as well. “Plans sold on the individual market often have smaller provider networks and higher deductibles than employer-sponsored coverage. Premiums are often higher than for comparable group coverage.”
In addition, ICHRAs can create administrative headaches that have prompted some employers to return to group plans. “Instead of a company paying one group health plan premium, dozens of individual health insurers may need to be paid,” KFF Health News reported. “And employees who’ve never shopped for a plan before need help figuring out what coverage works for them and signing up.”
One Employer’s Example
KFF Health News highlighted one organization that appears to be happy with its newly adopted ICHRA: Lycoming College in Williamsport, Penn. The school, which provides health benefits for 400 faculty, staff, and family members, saved $1.4 million in healthcare costs in the first year after implementing the plan. “Employees saved an average of $1,200 each in premiums,” KFF noted.
Prior to the transition, one employee with a family of five paid $411 per month for a plan that had a $5,600 annual deductible. Under the ICHRA, he pays $790 per month with no deductible.
“It’s nice to have the choice to balance the high deductible versus the higher premium,” he told KFF Health News. Before, “it was tough to budget for that deductible.”
Which is where the benefit to clinical laboratories comes back in. Making it easier and affordable for patients to pay their co-pays and deductibles also means more patients showing up at labs for doctor ordered tests and blood draws.
When people receive COVID-19 testing at an out-of-network facility, federal law requires insurers to pay that clinical laboratory’s posted ‘cash price’ when negotiated prices have not previously been established
In the latest example that some COVID-19 testing companies are charging significantly higher prices than others, The New York Times (NYT) recently reported that one COVID lab company with “more than a dozen testing sites” throughout the US was charging $380 for a COVID-19 rapid test that can be purchased at many drug stores for $20. Sadly, this practice, the NYT also noted, is protected by federal law.
Media reporters and the lay public are not fully aware of the long-established clinical laboratory test payment modalities that govern the daily performance of tests ordered as part of regular healthcare. Thus, when the COVID-19 pandemic hit—along with tens of billions of federal dollars to pay for SARS-CoV-2 tests—it triggered a gold rush of people wanting to get into the clinical laboratory testing business specifically to make money.
It is the bad actors in this group who are tainting the entire clinical laboratory industry with often outrageous business practices that, at best, cross ethical lines—such as overpricing tests to consumers—and at worst, represent fraudulent behavior, such as inducing medically-unnecessary tests, then submitting claims for these tests.
Even as the pandemic appears to be waning, news outlets are reporting instances of insurers being charged higher “cash prices” for tests performed by out-of-network testing laboratories. Worse yet, federal law requires insurers to pay these exorbitant prices and they are not happy about it.
In-Network versus Out-of-Network Pricing
In its report, the NYT noted that the CARES Act (H.R. 748) requires insurers to pay whatever “cash prices” out-of-network labs post online, and that this is leading to “expensive coronavirus tests” that could ultimately be reflected in future “higher insurance premiums” charged to healthcare consumers.
One company the NYT highlighted in its report is GS Labs in Omaha, Neb., a provider of COVID-19 testing throughout the US. The testing company’s COVID-19 Pricing Transparency webpage lists these prices for the following COVID-19 tests:
“Insurers are obligated to pay cash price, unless we come to a negotiated rate,” Christopher Erickson, a GS Labs Partner, told the NYT.
Negotiate or ‘Pay the Provider’s Cash Price’
In Missouri, Blue Cross and Blue Shield of Kansas City (Blue KC) has filed a lawsuit against GS Labs. “This action seeks a judgment declaring Blue KC and our members are not required to pay GS Labs’ unreasonable, inflated reimbursement demands,” according to a Blue KC news release.
However, section 3202 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act “specifies the process for private health insurance plan issuers to reimburse providers of COVID-19 diagnostic tests. Specifically, a reimbursement rate negotiated for such test prior to the public health emergency declared on January 31, 2020, continues to apply for the duration of the emergency. If a reimbursement rate was not negotiated prior to the emergency declaration, an issuer may either negotiate such rate or pay the provider’s cash price.”
In its own news release, GS Labs said it has “countersued Blue KC over the insurance company’s failure to pay $9.7 million for COVID tests covered by federal law.”
According to a legal expert who spoke with the NYT, GS Labs has grounds for its test charges due to the CARES Act. “Whatever price the lab puts on their public facing website, that is what has to be paid. I don’t read a whole lot of wiggle room in it,” said Sabrina Corlette, JD, Research Professor and Co-Director of the Center on Health Insurance Reforms at Georgetown University.
“Unfortunately,” noted Loren Adler (above), Associate Director of the USC-Brookings Schaeffer Initiative for Health Policy, in a blog post, “this ‘cash price’ is not a market-determined price—it is irrelevant to patients because all options have to be made free to them by law, so there is little constraint on how high this is set by testing entities. Nor is there any reason for out-of-network entities to accept any less than this amount (other than a desire to contract in the future with the insurer for fear of a public relations backlash). Moreover, in theory the patient can still be surprise balance billed if the provider’s charge is higher than this ‘cash price,’ though it is unclear why any provider would list a ‘cash price’ lower than their charge.” (Photo copyright: The Brookings Institution.)
In his analysis, Adler suggested the law be revised to require commercial insurers to pay for COVID-19 testing at Medicare prices.
Patient Receives a $54,000 ‘Surprise’ Bill for COVID-19 Out-of-Network Test
The patient, Travis Warner, reportedly has insurance from Molina Healthcare through the federal Health Insurance Marketplace. After an employee at his company tested positive for COVID-19, Warner drove 30 miles outside of Dallas in search of COVID-19 testing sites. He eventually visiting an out-of-network free-standing emergency room in Lewisville where he received PCR diagnostic and rapid antigen tests. The results of the tests were negative for COVID-19. But the bill was a shock.
The total bill came to $56,384. Molina Healthcare paid its negotiated rate of $16,915.20 for the testing and facility fee, leaving Warner responsible for the remaining $54,000!
In the end, Warner did not have to pay the bill. Molina resolved the charge with SignatureCare and, in a statement to KHN, wrote, “This matter was a provider billing error, which Molina identified and corrected.”
For its part, SignatureCare Emergency Centers, with freestanding centers throughout Texas, said it has a “robust audit process” to flag errors and processed “thousands of records a day” at the height of the pandemic, according to KHN, which reported the business showing a $175 price for a COVID-19 test on its website.
“If the insurance company is paying astronomical sums of money for your care, that means in turn that you are going to be paying higher (insurance) premiums,” Adler told KHN.
Insurance Group Finds Price Gouging
“Price gouging on COVID-19 tests by certain providers continues to be a widespread problem,” according to a statement by America’s Health Insurance Plans (AHIP), a national association representing insurers.
AHIP has studied COVID-19 test prices since April 2020. It released a survey earlier this year which found COVID-19 test prices were on average $130. However, AHIP also found that out-of-network providers charged “significantly higher” (more than $185) for more than half (54%) of COVID-19 tests (PCR, antigen, antibody) in March 2021—a 12% increase since 2020. More than 27% of COVID-19 tests in March 2021 were done out-of-network, a 6% increase since 2020.
However, in, “COVID-19 Lab Test Prices Give Some Health Plans ‘Indigestion’,” Dark Daily’s sister publication, The Dark Report, wrote, “Interestingly, [AHIP] researchers reported that the share of COVID-19 tests claims submitted from ‘high-cost locations’—identified as hospitals and emergency departments—declined from 18% in the first three months of the pandemic to only 5% during the first three months of 2021.”
Niall Brennan, President and CEO of the Health Care Cost Institute (HCCI), told KHN, “People are going to charge what they think they can get away with. Even a perfectly well-intentioned provision like [the CARES Act] can be hijacked by certain unscrupulous providers for nefarious purposes.”
Of course, most medical laboratories priced their tests fairly and have performed them in an efficient and professional manner during the pandemic. So, it is unfortunate to learn through AHIP’s survey findings and the media that some COVID-19 testing providers are posting prices that may confuse patients and affect their health insurance premiums.