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ICHRA Redefines Employer-Sponsored Health Insurance
UROne | April 18, 2024
For years, employer groups have embraced the idea of adopting a defined contribution health insurance delivery model to better manage and control what in many cases is the second-largest expense in their budget.
Recent federal legislative and regulatory initiatives expanding the use of health reimbursement arrangements may prove to be the best vehicle to clear a new path for defined contribution in health care.
Enter the Individual Coverage Health Reimbursement Arrangement (ICHRA – “ick-ruh”).
Just as the shift from defined-benefit pensions to defined-contribution 401(k) plans altered how Americans save for retirement, ICHRAs could have a similar effect on how employers of all sizes fund and manage employee health benefits.
While traditional group health insurance will continue to prove the more favorable route for many, this tool is widely viewed as a way to strategically position benefits offerings while controlling costs and expanding employee choice.
Through the rule’s provisions, employers may elect to replace part or all of their group health plan with a defined-contribution ICHRA. This will allow employers to reimburse employees for some or all of the premium cost of individual health and Medicare plans that their employees will purchase in the individual market.
The future
Governmental agencies estimate 800,000 employers will offer ICHRAs in the coming years, covering approximately 11 million employees and dependents.
The agencies further indicated that ICHRAs may appeal to two large and distinct employee segments: baby boomers and millennials. Baby boomers, many of whom are working beyond age 65, may appreciate the broader network access and lower out-of-pocket costs afforded through Medicare, while millennials could welcome the plan choice and having control over their health insurance.
The mechanics
ICHRAs are a fresh strategic opportunity, and federal law has been designed to protect companies who use them by providing the following guidelines.
- There are specific permissible classes of employees that can be used.
- All participants must be enrolled in an individual health or Medicare program.
- The ICHRA policy must use reasonable procedures to substantiate participants are enrolled in coverage.
- An organization may not offer both a group health plan and an ICHRA to the same class of employees.
- An ICHRA must be offered on the same terms to all employees within a specified allowable class.
The list of provisions is complex and confusing, but the effort will be worth it for employers who seek a new way to position their employee benefits offering.
Early findings
Having analyzed scores of possible ICHRAs for employers since late 2019, we have found that approximately 40% make sound financial sense. Our experience, from the dozens of companies we have implemented or are currently implementing, has taught us that a successful ICHRA rollout relies on three major areas:
- Strategy/design and compliance: Analyze and design a plan that is right for organizational financial goals and culture, including providing the necessary model notices and legal documents to ensure compliance.
- Employee engagement and enrollment: An education, communication and rollout strategy are paramount to a positive experience. Employers need to provide opportunities to have individual health insurance specialists meet one-on-one with employees to assist them in making informed individual health insurance decisions.
- Administration: From the initiation and communication of the program to the management and delivery of monthly employee reimbursements, the new program comes with a host of new administrative functions, all of which must be handled systematically.
If we have learned anything about the health insurance industry over the past decade, it is that things change and they change quickly. The ICHRA provides an opportunity for those seeking a path to defined contribution and a path for those who seek to get out of the annual health renewal game.
ezICHRA can help you determine if this is the right path for your employees and your company. Contact me at [email protected] or 440-823-6665.
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