Imagine one year you receive a 10% increase for your health plan and then a 25% increase the following year. Insurance rate increases are all too familiar and may hit close to home for your organization. What if you could control your costs and alleviate the burdens of your health plan administration?
Welcome to the Individual Coverage Health Reimbursement Arrangement (ICHRA). Introduced to the healthcare world on January 1, 2020, the ICHRA is a creative way to control the rising healthcare costs and provide coverage your employees value. While there are numerous cost containment strategies, let’s take a close look at this one.
What Is an ICHRA?
An Individual Coverage Health Reimbursement Arrangement is an alternative way to structure your company’s health plan. An account is created for each employee and funded by your organization to a certain amount that you determine. Your employees can then use that money toward a health plan of their choosing on the individual exchange or market. Employees own their health insurance plan and can take it with them if they leave your organization.
The ICHRA can be used by any organization – no matter your industry or size. However, it can be useful if you either want to offer benefits and have a defined budget, or have a population segment that is a big driver to healthcare costs and you want to carve out a population.
For example, your organization hypothetically does not offer health benefits but really wants to have an option for your employees. Use an ICHRA. This strategy is common in the small group space (1-50 employees). You can feel safe financially with a defined budget and know your employees have access to desired health insurance.
Another example – you’re a larger organization with a populace at a particular location. For whatever reason, that location’s employees have substantially larger-than-normal claims on a consistent basis and is driving increased cost for the rest of your employees. With the ICHRA, you can define a budget for this location and get your employees access to health insurance, carving them out from the rest of the company, so they no longer drive a higher cost for others.
Examining the Cost of an ICHRA
As I mentioned before, you set a budget for how much your employees will be reimbursed each month for their health insurance premiums. Let’s walk through an example of how this might look.
Let’s say your budget is $300 per employee per month. That means each employee has $300 to put toward the insurance plan they selected for themselves and their family. If you have 40 employees, your organization’s annual spend is $144,000.
Here is an example of how this benefit would look for three different employees:
If you decide an ICHRA is right for your organization, you’ll want to consider how to administer it. Finding a vendor partner can alleviate the burden for you, ensure everything runs smoothly, and allow you to focus on your core business instead of benefits and renewals. Having the right partner in place can also make all the difference for your employees to make the experience feel just like your group health plan.
The cost of a platform varies a bit in the market, so I’ll use $60 per employee per month, totaling to $28,800 per year, as an example.
If you combine the costs of the employee allotment and an administrative partner in the examples above, your all-in cost would be $172,800 for the year. Still a lot of money, you say? Since you set the budget, you have flexibility. You could simply reduce the $300 per employee per month budget to $275. That $25 reimbursement reduction just saved you $12,000 per year!
Things to Consider
With ICHRAs the devil is in the details. Here are some things to keep in mind:
- Employees must purchase an individual health plan and document proof of purchase.
- Employers can class out the ICHRA from the conventional group plan. If you have 100 or fewer employees, a class must be at least 10 employees. There are 11 different classes permissible.
- Employers cannot offer the ICHRA and a group health plan to the same class.
- Employees can use the funding for Medicare A, B or C, but not TRICARE.
- The employer contribution can be a fixed amount or a percentage of premium and vary by class and family size.
- Employees cannot use the funds for a spouse’s health plan costs.
- Employers can payroll deduct employee cost of the health plan.
- Employers must notify employees at least 90 days prior to the offering of an ICHRA.
- Employers of any size can offer an ICHRA. However, you need to have one employee who is not a self-employed owner or spouse of a self-employed owner.
- Owners or greater than 2% shareholders in an S corporation are not eligible for the ICHRA.
This list is not complete. Please reach out to me about your specific situation or any specific questions.
Communicating Changes to Employees
This all sounds ideal, but what do employees think of it?
Here in Indiana, the insurance exchange gives you two choices: CareSource and Ambetter. These carriers are likely different than your current offering, that is, if you currently offer coverage. First, there may be a lack of name recognition as most people are familiar with Anthem, CIGNA or United Healthcare. Second, your employees may wonder if their doctor is in-network.
Moving to an ICHRA can feel like a step down if you are currently offering a conventional group health plan with a major insurance carrier. However, your employee benefits can still be leveraged to attract and retain talent. The key? Your communication strategy and tailoring the message to your company culture.
Let’s say you plan to move forward with an ICHRA. What’s important to communicate?
- You must notify employees at least 90 days prior to the ICHRA start date.
- Share the allowance each employee will have to use each month toward insurance premiums.
- Help your employees understand what an ICHRA is and how it is different from a QSEHRA or other types of HRAs.
- Let employees know who is administering the arrangement and how to contact them.
- Provide the option to opt out of the ICHRA.
While what you say is important, it’s also important how you say it. Emphasizing the positives is important, such as the health plan customization and flexibility they’ll have. You want employees to feel this is a positive move for them and their families.
The ICHRA is a creative solution to help employers control the rising cost of health insurance. Just like anything else, understanding why you are using or not using the strategy is important. It’s not for everyone; a thoughtful approach is necessary.