5 FAQs about the next big thing in benefits: Individual coverage HRAs
Two health experts discuss the ins and outs of ICHRAs, as well as their effect on the health care benefits industry in both the near- and long-term.
The spiraling cost of healthcare continually challenges employers to provide higher-quality, more affordable health benefits to their employees – this year perhaps more than ever due to COVID-19. The good news? A new benefits option entered the market in early 2020 that can help. Individual coverage health reimbursement arrangement (ICHRA) allow employers to control costs and give employees more flexibility in their coverage.
According to the Departments of Labor, Health and Human Services, and Treasury, once adjusted to the newly expanded health reimbursement arrangement (HRA) rules, roughly 800,000 employers will offer an ICHRA to pay for more than 11 million employees and their families – signaling significant interest and upcoming demand.
Related: Who are the early-adopters of ICHRAs?
Below, Brian Colburn, senior vice president of corporate development and strategy at Alegeus, and Catherine Perez, chief product officer and co-founder of HealthSherpa, discuss the ins and outs of ICHRAs, as well as the effect these tax-advantaged accounts could have on the healthcare benefits industry in both the near- and long-term.
What are the top benefits to employers of providing an ICHRA? And what are the top benefits of enrolling in an ICHRA for employees?
Brian Colburn (BC): ICHRAs eliminate the one-size-fits-all plan or set of plans, providing consumers the flexibility to choose the best plan for their unique circumstances. For example, a younger, healthier employee can avoid over-spending on a comprehensive group plan that doesn’t necessarily apply to them, in favor of using an ICHRA to find a plan that better suits their needs.
From an employer standpoint, ICHRAs allow for more predictable, more controlled health benefit costs – employers can set costs in advance and know exactly what to expect in a given plan year. Because ICRHAs allow employers to offer what they can at a set cost, they’re particularly beneficial for newer companies that may not be able to offer group coverage. Essentially, ICHRAs allow employers that don’t currently offer health coverage to get into the game at whatever level they’re comfortable funding, making them more competitive from a talent perspective.
ICHRAs also work particularly well for small or seasonal businesses because they offer a way to provide some type of coverage for part-time employees and because they don’t require a minimum number of employees. While this provision was especially relevant pre-COVID, before many employers unfortunately were forced to conduct layoffs, I do anticipate that as employers recover, ICHRAs will remain very attractive from a cost containment perspective.
Catherine Perez (CP): On the employer end, ICHRAs also require less internal resources to offer and manage because the employer essentially designs and approves the ICHRA amounts, and then hands off the process. Any questions employees may have are directed to the plan issuer and enrollment support partner, rather than an HR-driven employee benefits team.
From an employee perspective, it’s also important to note that ICHRAs provide greater portability of coverage, as compared to a traditional plan. With an ICHRA, when an employee leaves a job, they can often keep their same plan at a similarly low cost, because federal subsidies fill any gap.
What type of consumer is an ICHRA a good fit for?
BC: ICHRAs work well for many people. In particular, they can be great for those with unique health needs because the plan options are essentially unlimited. More broadly, they work well for any company that has an employee set with a wide range of healthcare needs, which, candidly, is the case for most companies. That said, there is a certain degree of responsibility required on the employee’s end in order to be successful in an ICHRA. If you want someone else to make your health plan decisions for you, then an ICHRA might not be the best option.
And to build on Cat’s previous point, ICHRAs are portable, so they’re also ideal for people who anticipate a job change and want to retain their health plan throughout the year. With a traditional plan, you have to start from scratch. For example, if you have a traditional group plan with a $3,000 deductible and you’ve reached $2,900 by the time you get a new job, you would have to start all over again with a new plan.
CP: Absolutely. Employees in high-turnover industries or working for small businesses that currently don’t offer any benefits are great ICHRA candidates.
Do you anticipate high adoption of ICHRAs over the next few years? Why or why not?
BC: The short answer is yes, I do. With the economy in a recession and more companies looking to save money, it makes sense that ICHRA adoption would increase, given its possibilities for cost containment and plan flexibility. From a market perspective, it also warrants noting that if one or two big-name employers went to an ICHRA model, that would likely create a tipping point and others would follow.
ICHRAs, to me, represent the direction the healthcare coverage world is headed as a whole. We’ve been experiencing a turn toward consumer-driven healthcare for years now, and ICHRAs are one of the most recent strides we’ve made. ICHRA arrangements make healthcare coverage consumer-controlled and therefore, more personal. When you think about it, we don’t get car insurance from our employers, so it makes sense that healthcare may start to shift in the direction of the consumer.
CP: Further, as the pandemic continues to impact small businesses and vulnerable sectors like retail, ICHRAs will continue to be a great way for these groups to start or continue providing high-quality healthcare.
Do you think consumers have the knowledge and support they need in order to be successful in an ICHRA?
CP: This is a whole new world for employees – they’re going from choosing between two plans to having dozens to search through! Luckily, we are seeing effective solutions emerging that guide employees through the process of electing an ICHRA and finding a plan. This digital, omnipresent support is an essential component of the employee education and support process and, by extension, the success of an ICHRA model for all involved.
BC: Having been introduced to the market in January 2020, ICHRAs are fairly new, so we’re all getting up to speed – industry experts included. That said, employers can make understanding and using an ICHRA much easier, and they should take on the responsibility of doing so. Employers can make sure consumers have access to an exchange like HealthSherpa that will help guide them to the right plan and provide easy access to the funds to pay for it.
How will ICHRAs affect the employer-sponsored health care model?
BC: I think ICHRAs have the potential to completely revolutionize healthcare benefits by playing an integral role in the switch to a more consumer-controlled model. We’ve seen certain benefits change the landscape, such as the 401(k), and there’s a chance that ICHRAs could be the next big development, as consumers continue to demand simplified, flexible, personalized benefits. Whether this ends up being the case remains to be seen.
CP: By putting buying power back into the hands of individual employees, ICHRAs essentially remove the burden off of employers. In this way, ICHRAs hold the ability to basically “crack open” the individual coverage market, leading to potential effects on the adoption rates of other programs that folks may be eligible for as well, such as premium tax credits and cost-sharing reductions or Medicaid. The personalization of an ICHRA, complemented by the level of automation that’s inevitably coming to the healthcare industry, create a perfect opportunity to empower employees to take full control of their benefits.
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