Why an ICHRA can or can't be essential for organizations: A Q&A with Annie Bushey

ICHRAs are sometimes considered an essential tool to employers when it comes to benefits choices. However, like anything, ICHRAs have pros and cons. Annie Bushey, client executive at Holmes Murphy & Associates, elaborates on the advantages of an ICHRA, as well as the drawbacks that employers and employees face.

Why would an employer consider an ICHRA for their organization?

As the state of health care coverage and individual employee needs become more complex, it’s even more crucial that employees have options that best fit their unique needs and situation.

An Individual Coverage Health Reimbursement Arrangement (ICHRA) is a modern model of employer-sponsored health insurance. ICHRAs allow the employer to reimburse individual insurance premiums with pre-tax dollars, where these would be traditionally integrated with a group health plan.

ICHRAs offer a contemporary plan solution where employees buy their insurance directly from the individual insurance market, in contrast to utilizing an employer-offered plan for the entire company. With this, employers have an ACA-compliant offer of coverage that is not underwritten, which can often mean more flexibility both administratively and financially.

What is the difference between ICHRA vs. traditional insurance?

Traditional insurance revolves around products and plans specifically selected by the employer. An ICHRA plan, on the other hand, moves away from singular insurance products. Instead, ICHRAs allow employers to offer a spendable allowance to employees to shop for individual health insurance from the entire marketplace of options.

What are the long-term implications of choosing an ICHRA?

When employees are given the freedom to select their plan from the individual insurance market, much of the involved risk is shifted to that of the employee themselves. This can be attractive to employers looking to add flexibility to their benefits package, but as with any new plan, it should also be approached with caution and consideration for what is best for the company based on a number of factors, including employee demographics, capacity to select their own plan, and any specific needs of their workforce.

For employees looking to tailor their benefits to their own needs and budget, the flexibility to choose from the entire insurance marketplace can be quite a game changer. Since premiums are not based on the health of the organization’s group or claims experience, rates under ICHRA are simply based on geographic location and their age at the time of enrolling.

What advantages does an ICHRA provide?

A few key advantages of ICHRA include:

Risk transfer – When setting up an ICHRA, employers essentially disband a traditional group health plan and have employees go to the individual market or the exchange to purchase their own individual policies. The transfer of risk will be mostly advantageous for those employers that have high claims experience and low participation in their group health plans, which in this case is likely contributing to higher renewal increases year over year.

Employee flexibility – With an ICHRA, employees have the freedom and flexibility to choose from the entire marketplace and their plan can be tailored to their situation.

Cost savings – Employers with higher premiums will likely see significant cost savings after moving to ICHRA. Under the ICHRA model, premiums are not based on the health or claims experience of the group but are instead based on the age and location of your employees and their dependents at the time they enroll in coverage.

What limitations could come with choosing an ICHRA?

A few important limitations of ICHRAs include:

Provider networks – Depending on your state, the individual marketplace may have very narrow provider networks with a short list of hospitals and clinics. While there are many plan design options with varying deductibles, maximums, and co-pays, the network offering itself can be very limited. This can be a major deterrent for potential enrollees who have a preference on which health care providers they seek, particularly if they require specialists or live in an area with limited options.

Employee ownership – With the seemingly endless options available through the individual market, many employees could feel overwhelmed or underinformed by the number of choices. Likewise, most employees are accustomed to being offered 1-4 plans that either have a broad network or cater to the company’s specific location under a traditional plan, and this transition could be simply inconvenient for many.

Read more: ICHRAs: An integral part of benefits strategy

Administration and advocacy – With ICHRA, employees are “on their own” to a certain extent when navigating their health plan. Because employers and brokers don’t have access to the details of each employee’s plan, they usually can’t advocate on the company’s or the employee’s behalf. If an issue with a claim arises, the employee must handle it directly with the carrier, which is a barrier for many. For employers, payroll deductions are a manual process due to the unique pricing that each employee has with the variety of ages and plan choices.