Employer adoption of ICHRAs increases significantly, study finds

The adoption of individual coverage health reimbursement arrangements (ICHRAs) by U.S. employers increased by 64% from 2022 to 2023.

“Many employers have found that ICHRAs offer more autonomy for employees and budget control for employers than traditional group plans,” according to a new report from PeopleKeep. “With it, organizations of all sizes can offer a defined monthly allowance for employees to spend on the individual health insurance plans and out-of-pocket medical expenses of their choosing, including prescription drugs, doctor visits, glasses and more.”

The report delves into how thousands of businesses from across the United States used their ICHRA benefits from midyear 2022 to midyear 2023. This report includes the average allowances organizations offered to employees, how employers designed their benefits and more.

Allowances. The study looked at allowances employers offered to their employees and then compared average monthly allowances to the average cost of individual health insurance premiums. The average monthly allowance employers offered their employees between July 1, 2022, and June 30, 2023, was $908.80. The median monthly allowance employers offered came out to $550. These average and median allowance amounts exceeded the cost of the average lowest-cost, self-only gold plan premium on the federal Marketplace for a 40 year old, which comes in at $472.

Employers also can vary allowances by family status. For married employees with no dependents, employers offered an average monthly allowance of $891.03, while single employees with dependents were offered $902.06. Employers also offered an average monthly allowance of $1,020.96 to married employees with dependents.

Plan design. Employers can choose whether to offer a premium-only or premium-plus plan. With a premium-only plan, employers limit reimbursements to cover only the cost of their employees’ individual health insurance premiums. With a premium-plus plan, employers also reimburse their employees’ premiums and qualifying out-of-pocket medical expenses.

Over the last year, 56% of PeopleKeep’s customers offered a premium-plus ICHRA, allowing their employees to purchase any eligible item under IRS Publication 502. On average, employers offering a premium-plus plan provide 49% more allowance than premium-only accounts

Waiting periods. In addition to being able to customize allowances and deciding whether to limit reimbursements to cover only insurance premiums, employers can implement voluntary features such as waiting periods. A waiting period, sometimes called a probationary period, is the time that new employees must wait before they can use their ICHRA benefit. This is helpful for employers who want to align their ICHRA with other probationary employee benefits already in place.

Roughly 31% of customers implemented a voluntary waiting period for new employees to join the benefit, showing that most employers that offer an ICHRA don’t use waiting periods

Employee classes. One of the most attractive features of an ICHRA is the ability for employers to offer different allowance amounts and vary benefit eligibility based on job-based criteria. An example of this is offering a higher allowance to full-time employees than part-timers or seasonal workers. The use of the full-time class is most common, followed by salaried, state-based and non-salaried classes.

Regional adoption. The most popular states for PeopleKeep ICHRA customers were California, New York, Florida, Texas and Colorado. Customers in these states offered an average allowance greater than the average price of their state’s lowest-cost silver and gold plans.

Out-of-pocket expenses. Insurance premiums, office visits and prescription drugs consistently were the most popular expenses submitted by employees. Employees who submitted expenses for reimbursement over the last year averaged 4.9 office visits, with an average reimbursement amount of $137.92.

They also submitted an average of 11.6 prescription drug reimbursement requests, with an average amount of $275.42. Although this amount may seem high, it reflects how employees can submit multiple prescriptions in the same reimbursement request. The average reimbursement amount for insurance premiums submitted over the last year was $573.14.

Related: House passes ICHRA bill to give (small) employers a ‘cash-for-coverage’ option

“Since first becoming available in 2020, the ICHRA has grown rapidly in popularity among employers looking for an affordable and personalized health benefit for their employees,” the report concluded. “With the acceleration in the number of companies offering an ICHRA and employees opting into participation, the benefit has asserted itself as a strong alternative to traditional group health insurance plans. The customer data in this report show that organizations of all sizes can leverage an ICHRA to provide their employees with a comprehensive, individualized health benefit to attract and retain top talent.”