ICHRAs: An integral part of benefits strategy

Individual coverage HRAs or ICHRAs are an essential tool employers should include in their “benefits toolboxes.” Rather than simply offering employees one or more group health plan options chosen by the employer, ICHRAs allow employers to contribute towards the cost of individual health coverage purchased by the employee. Just like a hammer in a traditional toolbox will not be used on every single task, an ICHRA will not always be the best “tool” for employers to use in their benefits strategies. However, like toolbox without a hammer, a benefits toolbox without an ICHRA may be missing opportunities.

Choice

ICHRAs depend on the viability of coverage offered by insurance carriers in the individual market. Several years ago, the individual market had weakened, with some rating areas only having a single carrier option. Since then, the individual market has recovered and expanded. Recently several national insurance carriers have announced they will be further expanding their offerings in the individual market. The expanded individual market bolsters the business case for ICHRAs.

Expanded plan choice for employees is but one advantage of the ICHRA model. Instead of being tied to a specific network and handful of plan options chosen by the employer in the traditional group market, ICHRAs allow employees to choose from all available plans in the individual market. This means employees can choose not only the level of coverage that best meets their needs, but also the network access they seek.

Choice also factors into the decision to offer an ICHRA strategically to certain populations. Employers with employees in multiple areas, either by the nature of their business or as a result of the pandemic and “great reshuffle” may find this particularly relevant. Employers consider network access when determining plan selection in the traditional group market. As network access varies by geographic area, not all networks will be sufficient in all areas where an employer has employees. The ICHRA model allows employers to offer the ICHRA to employees based on geographic rating area, which could allow employees outside a core area to select individual coverage with their desired network, while the employer maintains their traditional group plan in other areas.

Price

The United States is experiencing inflation at the highest level in over forty years. For most of those forty years, medical inflation has far exceeded non-medical inflation. While medical trend is reported in the 6% to 10% range this year, many employers are experiencing rate increases far in excess of trend. Increases of 20%, 30% and even higher are not unheard of. Some employers are even experiencing consecutive years of double-digit rate increases.

These cost increases are but one reason employers may want to consider an ICHRA. Moving away from the traditional group market allows the employer to avoid renewals greater than trend driven by poor claims experience and adverse selection. Though an ICHRA may result in cost savings for the employer, it is a misnomer to believe this will result in cost increases for employees. Employee costs depend on both the employer’s contribution towards the ICHRA and the plan selected by the employee. Some employees may pay higher rates with an ICHRA, but this may be the result of them choosing a more comprehensive plan with lower cost sharing. At the same time, other employees may pay significantly lower rates with an ICHRA.

ICHRAs can be funded to meet ACA affordability requirements, but this is often the floor employers use in establishing ICHRA contributions. Rather, employers commonly look to minimize cost disruption for employees when moving to an ICHRA and thus set their contributions to manage employee cost increases, just as they would for a traditional group offering. This is particularly important given the low unemployment rate, which has resulted in employers competing for talent.

Employers who do not currently offer benefits to their employees can also use an ICHRA as a gateway to offer benefits to their employees. Rather than contend with carrier minimum contribution and participation requirements, an ICHRA allows the employer to avoid these requirements and offer something to employees who are not offered anything currently. In other words, ICHRAs allow employers to dip their toes into offering employee benefits before jumping into the deep end.

Portability

ICHRAs also have the added benefit of portability of coverage that differs from COBRA. With an ICHRA, the underlying coverage belongs to the employee, whereas with COBRA, the coverage is determined by the employer. If an employee enrolled in an ICHRA separate from their employer, they can continue to enroll in their individual plan for as long as that plan is available. When employers offer traditional group plans, those plans and networks can change from year to year at the discretion of the employer. For individuals on COBRA, this means they have no control over whether the plan they had while actively employed will continue to be available in the future. Even if the specific plan remains available, the individual will only have access to that plan for the duration of their COBRA eligibility.

Read more: ICHRA: The inflation antidote to help your clients navigate a higher-priced, uncertain world

A toolbox without a hammer is still a toolbox…albeit a toolbox that is not nearly as useful as one with a hammer. Likewise, ICHRAs are not the right tool for every employer, but they are still a tool employers should have in their benefits toolboxes should the opportunity arise.

Cory Jorbin, Esq., is Chief Compliance Officer, West Region Employee Benefits for Hub International out of the Phoenix office. Cory is a licensed attorney and is admitted to practice before the U.S. Tax Court.