ICHRA has potential to reshape the way employers pay for benefits

The introduction of Individual Retirement Accounts changed the paradigm for the way employees approach retirement savings. Individual Coverage Health Reimbursement Arrangements (ICHRAs) may have the potential to do the same for employee benefits.

“Do we think this kind of shift could happen in a significant way over the next five years?” asked Michael Levin, cofounder and CEO of Vericred. “We do. It’s a very exciting time in group benefits.”

Levin shared his insights during the webinar “The ICHRA Revolution: Transforming Employer-Sponsored Health Insurance” on March 25. Despite the optimism, however, the industry has its work cut out for it.

“Right now, 99 percent of people have not heard of ICHRA,” said Jack Hooper, cofounder and CEO of Take Command Health. “But employers increasingly hate dealing with health insurance. We are putting more and more responsibility on the employer. They are saying, `I just want to give my employees $400 or $1,000 and make sure they are taken care of, but I don’t want to deal with this anymore.’ What ICHRA really represents is a way for employers to take a step back.”

ICHRA gives businesses the option to offer employees a monthly allowance of tax-free money to buy health insurance that fits their specific needs. Along with provisions for out-of- pocket health insurance expenses, ICHRA also directly addresses Affordable Care Act compliance for employers with more than 50 employees.

After an employee’s insurance premium or out-of-pocket expenses are approved, the business reimburses them up to their allowance amount. It’s that simple, and can satisfy all ACA mandates for large businesses.

“This is a fundamentally new model of how employers can provide benefits to employees,” Hooper said. “In this model, brokers help employers set a budget. It could be $200, $500 or $1,000 a month, and then employees are going to choose their own individual plan.”

For years, HRAs had been a popular solution for businesses that wanted to reimburse their employees’ health-care expenses. The ACA changed that, significantly limiting a business’s ability to offer HRAs for individual policies. Then in 2017, an executive order directed the Departments of Treasury, Health and Human Services, and Labor to expand business use of HRAs once again. In June of 2019, new rules were released, establishing ICHRA as an option for 2020.

“Before Jan. 1, 2020, employers had two options,” Levin said. “They could pay for employee benefits and health insurance directly, which was tax-free to the employee. Or if they made the choice to push additional money to the employee to use on their own to purchase these benefits, it was still tax-deductible to the employer but taxable to the employee. In 2019, the ICHRA rules were passed, effective Jan. 1, 2020, and fixed the tax rules. It effectively allows employers to send tax-deductible dollars through an ICHRA to employees to use tax-free for health insurance and benefits.”

The use of ICHRAs can benefit all stakeholders:

• Employers — Reduced and predictable costs, no minimum participation rates, less-onerous benefit administration, something rather than nothing and different solutions for different classes.
• Employees – Transportability, choice and broader range of covered costs.
• Brokers — Less churn, simplified renewals, reduced administrative support, solutions-oriented and potential new clients.

“Brokers love how simple the renewal process is,” Hooper said. “Put yourselves in the shoes of a broker who tells a clients: ‘we have another price increase this year, but it’s not as bad as last year. Let’s shop it around.’ Brokers are worried about competitors stealing their book of business.

“What we find with ICHRA is that it’s a financial conversation: ‘You were giving employees $400 this year. Do you want to go up to $450? Do you want to go down to $380?’ Because of that simple budgeting conversation, our brokers have a lot less churn than the industry average.”

Clear communication is essential for brokers, he said.

“Help employers understand that if they take the money they were putting in a group plan and instead put it in an ICHRA, will their employees buy more, will they buy less, will they be happy or are they all going to quit?” he said. “Getting an understanding of the market is really key.”

As with any new product, it will take time to fully understand how ICHRAs work and the benefits they can offer.

“What we have seen in our early experience is that there will be winners and losers,” Hooper said. “If this grows to 5, 20 or 50 percent of the market, it does change the landscape. If you are a carrier, broker or in the industry thinking about what this new paradigm looks like, there are amazing opportunities, but there also are going to be changes.”