Employers can reimburse staff for healthcare plans purchased from the marketplace
BY JOHN WIESLER
Brokers excel at helping clients find solutions to challenging issues. One key, but underutilized tool in the broker toolbox is the Individual Coverage Health Reimbursement Arrangement, or ICHRA. Available beginning in 2020, ICHRAs expand upon the concepts found in 2017’s Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs), which allow tax-free reimbursement of individual health insurance for businesses with fewer than 50 employees. An ICHRA is a formal, group health plan that allows businesses of all sizes to do the same.
How does an ICHRA work?
Under ICHRAs, employers can reimburse employees for healthcare plans purchased from the marketplace. ICHRA outlines 11 different permissible classes of employees, including part time and seasonal workers, non-salaried workers, and employees covered by collective bargaining agreements. Employers can offer both group health insurance plans and an ICHRA, but only if they are offering them to different groups of workers. This means that employees cannot be asked to choose between a group plan and an ICHRA. The employer must offer only one option to each employee group.
ICHRAs have no reimbursement limits for employees. If the ICHRA benefit does not cover all of an employee’s premium, employers can allow use of pre-tax salary reduction to cover the remainder of the premium, as long as the plan is purchased through the employer’s ICHRA portal, not directly on the exchange. From the employer side, payroll deductions are handled in the same way as employer sponsored group plans.
Once an employee has enrolled in an individual healthcare plan, they submit their receipts for qualified expenses or premium payments and their employer reimburses them, tax-free. For part-time and contingent workers, ICHRAs provide the added benefit of portability. They do not lose their healthcare coverage when their employment period ends.
Solving coverage challenges
Most group plans require a minimum of 70% participation. By contrast, ICHRAs have no minimum, making them a good option for employee groups with low enrollment or small groups in which a handful of employees opting out can have an outsized impact on participation percentages.
Here are three key scenarios where ICHRAs can be good options for employers
Offering benefits to part time and contingent workers
To compete in a tight labor market, more employers are offering healthcare benefits to part time and contingent workers. ICHRAs simplify the process, allowing employers to set their contribution amount and give employees the freedom to choose the type of coverage that is best for their situation. When workers complete their engagement with the company, they can continue their coverage, if they wish.
Increasingly, to broaden the labor pool, employers are leveraging the systems and processes developed during the COVID-19 pandemic to offer fully-remote jobs. For small businesses, this can result in a small number of employees located in states not covered by the company’s long-standing insurance carrier. Rather than seek higher cost options that cover all employees, ICHRAs allow employers to segment geographically-dispersed employers into a separate group who can shop for marketplace coverage in their area.
Increasing rates due to employees with poor medical history
Outside of community rating, coverage renewals are based on previous experience, projecting expected claims based on current claims. In 2020, many individuals postponed preventative screenings, while others were forced to delay diagnostics or treatment due to PPE shortages and overwhelmed hospital systems. As a result, employers may have seen a higher than expected rate of serious diagnoses and expensive treatments in 2021 and 2022, leading to rising premiums. For small businesses, a small number of employees with bad medical experiences and higher claims can have a profound cost impact on the group. Rather than forgoing employer sponsored healthcare coverage, employers with high premiums may want to consider ICHRAs as a way to continue offering healthcare benefits, while keeping costs manageable for themselves and their employees.
Employers may be intimidated by ICHRA’s “affordability” requirement, which is calculated for each individual employee, based on a reference plan for the location where the employee lives and works. Fortunately, there are calculators available to help simplify the process and brokers can analyze scenarios to balance meaningful benefits with affordability for employers and employees.
For companies facing large premium increases, the analysis can help determine if a combination of traditional group benefits and ICHRAs can keep premiums manageable for everyone.
If this seems intimidating, employers do not have to go it alone. There are several specialized vendors that have simplified and streamlined the affordability testing, enrollment, and billing processes, so ICHRA solutions act and feel much like traditional employer sponsored plans. For an employee to participate in an ICHRA, they must buy qualifying individual coverage, but not all plans in their local market will meet the required criteria. Without a curated shopping experience, employees can be overwhelmed with choices and confused about which plans qualify for reimbursement. Many vendors can create customized shopping experiences to simplify the process for employees and ensure they are selecting plans that meet all requirements.
Employers with high premiums may want to consider ICHRAs as a way to continue offering healthcare benefits, while keeping costs manageable for themselves and their employees.
Starting the conversation
Since ICHRAs were introduced fairly recently, many employers may be unaware of their options or how easy it can be to offer an ICHRA to some or all employees. ICHRAs can enable employers to offer benefits to more employees, address unique needs of certain classes of workers, and keep premiums manageable for everyone. Start by asking clients if they have considered offering benefits to groups they haven’t traditionally covered with group health plans, such as seasonal and part-time workers. See how they are feeling about their projected costs for 2023 health coverage and if it’s causing concern or making them reconsider their offerings. Introducing ICHRAs as part of educational efforts can help clients create the right mix of benefit offerings for employees and their business.
JOHN WIESLER joined BenefitMall in 2020 as the head of General Agency Sales bringing with him more than 30 years of experience in sales and sales leadership roles. As the head of general agency sales, Wiesler is responsible for the sales strategy and growth of BenefitMall’s General Agency business. Contact: benefitmall.com