Healthcare costs continue to rise, and employers are always looking for ways to better manage their large corporate spend. There is an increased interest around Individual Coverage Health Reimbursement Arrangements (ICHRAs), but there are several things to consider when deciding if this is the right fit for your company as well as for your employees.
WHAT YOU NEED TO KNOW
Individual Coverage Health Reimbursement Arrangements (ICHRAs) are a new kind of health reimbursement arrangement where employers of any size can reimburse their employees for some, or all, of the premiums that the employees pay for health insurance.
With ICHRAs, employers can reimburse employees on a tax-free basis for individual health insurance. This includes Medicare, as well as both coverages purchased on federal or state sponsored exchanges and with individual markets.
Under federal rule changes in 2019, ICHRAs can be structured to fulfill the employer mandate under the Affordable Care Act (ACA), which requires that organizations offer “affordable” coverage for their employees. As healthcare costs continue to increase, employers are searching for ways to manage costs. Meanwhile, many employees—especially those who are younger with lower incomes—have opted out of employer-sponsored plans because of the expense, causing HR teams to re-evaluate benefit options.
In addition, the Biden Administration is working to enhance the ACA with financial support to provide additional coverage options. Due to these factors, ICHRAs are seen as an alternative to traditional, employer-sponsored health insurance plans. Approximately some 800,000 employers and 11 million employees and their families are expected to gain coverage with ICHRAs.1
Right now, there is a growing interest around ICHRAs, but there are some factors to consider when deciding if this is the right fit for a company.
WHY CONSIDER AN ICHRA?
- Eliminates claim risk and cost unpredictability. Fixed employee contributions result in more effective budgeting and cost management.
- Reduces administrative burden of designing and managing a group health plan. Employees select the carrier and plan that best suits their needs.
- Offers health benefits to part-time and hourly employees. Attract and retain part-time and hourly employees by offering them an ICHRA plan with flexible employer contributions.
- Meets ACA employer mandate requirements and avoids ACA penalties.
WHAT TO CONSIDER
While there are no absolute guidelines in evaluating ICHRAs, there are a few important considerations to evaluate prior to moving in this direction.
What are your objectives? Lowering spending on health benefits is a primary objective but shouldn’t be the only one; it’s also important to consider current workforce needs along with providing a competitive benefits package to attract new talent to the organization.
Can an ICHRA meet compliance requirements? The issue is whether an employer can meet compliance requirements in offering an ICHRA option, such as meeting the affordability requirement under the ACA. Expert insight is usually essential in determining compliance.
How do you plan to administrate an ICHRA? A solid technology platform solution to facilitate enrollment and administration is essential. Compliance, as well as employer and employee tools, are key components of such a solution, as are premium handling and reconciliation.
Are employees on board? An ICHRA may increase overall participation while lowering costs for the organization, but the transition from group to individual insurance represents an enormous change.
Improved communication and employee education are essential to ensure a smooth experience over time.
ICHRAs can be a viable alternative to traditional group health benefits for some organizations and employees that may not be able to afford them otherwise. Understanding all aspects of an ICHRA (financial, compliance, technology and carrier, and plan availability in the market) is critical to its success.
Your broker or consultant should be well educated on all components of ICHRAs and have compliance and technology expertise to help make the right decision for your organization.
HHS.gov, “U.S. Departments of Health and Human Services, Labor, and the Treasury Expand Access to Quality, Affordable Health Coverage Through Health Reimbursement Arrangements,” June 13, 2019.
BY GARY SHAPIRO, SENIOR VICE PRESIDENT, WEISBURGER INSURANCE BROKERAGE