Individual Coverage Health Reimbursement Arrangements: A new way to offer health coverage
The ICHRA, authorized for use beginning in 2020, is a new way for employers to offer health coverage. Rather than using the traditional approach of paying a portion of employee premiums on a group plan, companies can direct employees to buy their own health insurance and reimburse some of the cost through a Health Reimbursement Arrangement.
Unlike the similar Qualified Small Employer Health Reimbursement Arrangements, ICHRAs are available to both small and large employers. They offer more options regarding which employees can be classed out of the group health plan and offered an ICHRA instead.
Benefits in budgeting and employee access
For employers, the benefits of an ICHRA are primarily financial. An ICHRA allows you to budget more precisely and predictably. It removes the risk of rate increases and the hassles of plan administration. It also can help you attract or retain employees to whom you might not otherwise be able to offer coverage. Employees can benefit, too, if the ICHRA makes coverage more affordable or accessible for the first time.
Perhaps the biggest benefit is that you can offer an ICHRA to some employees – say, field workers, part-time employees, or those working outside your primary location – even as you offer a group health plan to others. But you can’t allow employees to choose between the two. You also can offer different amounts of money to various classes or age bands – to equalize their buying power. But you can’t base the classes themselves on factors such as age, individual employees’ health or Medicare eligibility.
An ICHRA might be right for you if you are:
- Looking for a way to better manage health care costs for a certain group of employees – say those in a high-turnover class. You can offer them an ICHRA instead of group health coverage while keeping your group plan for other employees. This can be particularly effective because you only pay out ICHRA funds to employees who actually obtain coverage.
- Having trouble meeting carriers’ required participation rates. Offering an ICHRA to classes of employees who don’t typically enroll in your group health plan renders them ineligible to participate in that plan. This increases the percentage of eligible employees who are participating and improves your chance of meeting carrier participation requirements.
- Frustrated by huge renewals and think you’ve already pulled all the cost-control levers available.
- Finding it difficult to offer consistent group coverage across multiple locations. For example, Kaiser may work great for employees at a headquarters location in California, but not for those in other states where it’s not available. Those employers can offer an ICHRA to employees outside of Kaiser’s coverage area to assist them in purchasing individual coverage on their own.
- A small company and you want to help your employees with the cost of health insurance for the first time.
An ICHRA is not a good choice if …
- The health insurance market in the area you’re addressing is limited – by carrier or plan selection, cost or network restrictions.
- Changing from your current group plan would be too disruptive to your employees and damage your recruitment and retention efforts.
- More than 30% of the employees you would offer it to qualify for the ACA’s premium tax credit.
ICHRA application is narrow and requires expert assistance
ICHRAs aren’t a good fit for most (or even many) of our clients. But when used as a targeted tool to address specific challenges, they can be a win-win for employers and employees.
It’s difficult to manage an ICHRA on your own. Your broker can help connect you with an organization to administer the plan for you. The Miller Group has partnered successfully with Take Command Health, which has set up ICHRAs for thousands of companies. They can help you design an ICHRA to meet your goals, then handle all the work of administering the program and communicating with employees. That includes enrolling them, helping them choose a plan and handling reimbursements.
You’ll also want to take great care in communicating with employees about the new arrangement – especially if you’re replacing group coverage. Careful change management will be essential to a successful transition.
This innovative option is intriguing. Although it has a very narrow application, it can be a great solution for just the right situation. Talk with your broker if you’d like to explore it further.
by Tara Lippert, Benefits Advisor