Employer-sponsored private health insurance, as we know it, is rapidly approaching a crossroads. Average family premiums for employers have increased 55% since 2010, and rising benefits costs have forced many small businesses to make the difficult decision to reduce or eliminate the health benefits they offer their employees. According to the HRA Council, between 2010 and 2020, businesses with less than 50 employees saw a nearly 20% reduction in employees covered by their firm’s health benefits.
Effects of the pandemic exposed this underlying challenge, expediting the need for better, more affordable employer-sponsored benefit solutions. Additionally, businesses in the service industry, with a considerable number of seasonal, part-time and hourly employees are struggling to attract and retain blue-collar employees. Simultaneously, a large contingent of Americans is participating in the gig economy, which offers no employer health benefits, creating additional hiring and recruitment challenges.
Now more than ever, Americans need new ways to access health insurance, and the advent of Individual Coverage Health Reimbursement Arrangements (ICHRAs) could be exactly what the doctor ordered. In January 2020, legislation made ICHRAs available to employers of all sizes. ICHRAs allow employers to give tax-free reimbursements for premiums to employees that enroll in health insurance through the individual marketplace. This plan frees employers from insurance risk, allowing them to better establish a more affordable and predictable annual healthcare budget and define the healthcare benefit paid to employees.
The benefits for employees are considerable as well. They have the flexibility to choose from a wider range of plan options than usually found in group-health plans by shopping on the individual marketplace. Because employees are enrolling in these plans themselves and not through their employers, they have the luxury of portability. If they change employment, their plan simply goes with them.
Is an ICHRA right for your company?
Like everything else, benefits that might be a great fit for one business might not be for another. Deciding whether an ICHRA offering makes sense for an organization is highly dependent on several factors.
Some of the most important factors to consider are related to employee population, geography and the stability of the individual market in a company’s area. Some states and counties are limited in regards to carrier options, plan selections and cost or network restrictions, so it’s essential that this is an early part of determining whether to switch to an ICHRA. An ICHRA administrator can provide the appropriate context and help employers make the best decisions.
It’s also important to take the “human factor” into account as well. An ICHRA administrator or partner can help with the plan/coverage options available in a specific market, but no one knows their workforce better than the employer. How will employees receive the idea of switching to an ICHRA? Will there be any disruption? Will the switch hinder or support the recruitment and retention of employees?
After deciding to offer an ICHRA, it’s important to prepare employees for making the switch. With a traditional group plan, a limited number of coverage options are available for employees to choose from. With an ICHRA, employees will have the option to select a plan from the individual marketplace that fits their needs, meaning their selection process went from two or three plans to potentially hundreds. Some ICHRA administrators provide online enrollment “shopping” solutions and access to an enrollment team that can help employees through the selection process.
The Challenges With ICHRAs
While ICHRAs have been well-received and there is significant emphasis placed on the design and enrollment aspects of them, the accompanying administrative burden has been a key factor in the hesitancy for many businesses considering adopting an ICHRA. Every individual employee’s premium must be paid each month. It is cumbersome and time-consuming for an employer, especially a small business, to manage each employee’s reimbursement for their premium payment.
There are also strict regulatory compliance guidelines related to these premium payments that dictate how they can be made, who can make them and what documentation is necessary to maintain tax-free status. If an ICHRA administrator doesn’t have a digital premium payment and reimbursement solution, then an ICHRA plan may be completely untenable for an employer. Ideally, an employer needs a solution partner that allows them to fund the premium automatically and manage everything behind the scenes. (Full disclosure, my company offers this type of service, as do others.)
Another roadblock with ICHRAs is the communication with employees. Although employers are no longer choosing the health insurance plan for their employees, they should take responsibility for educating them about what an ICHRA is, how it works, what their responsibilities are and what they can expect moving forward.
Choosing An ICHRA Partner
When employers decide to utilize partners to help alleviate the burdens associated with ICHRAs, there are important questions to consider.
• What does their platform provide for each phase of ICHRA administration: design, enrollment and ongoing maintenance? What is required of the employee/employer in each?
• If the platform is primarily automated, what level of human support does the partner provide on an ongoing basis?
• How do premium payment and reimbursement work? How involved do employees/employers have to be? Are employees required to pre-fund their full premiums?
• Are they fully compliant with ICHRA regulations and information security?
There are some innovative digital solutions available that harness emerging technologies that enable a more efficient reimbursement process with payment automation, complete reporting and regulatory compliance, so an ICHRA works more like a traditional health benefits plan. Ideally, the solutions that address these issues will manage this process even before the premium payment is delivered: organizing, managing and facilitating the payments so that a single monthly withdrawal from an employer pays each individual premium.
Digital solutions that are compliant, secure and address every piece of the process with the least required effort from employees and employers could encourage ICHRA adoption, providing access to health insurance for more Americans.