Trying to understand health insurance can be like decoding a foreign language. But as of 2020, there’s a new vocabulary term you might want to learn: Individual Coverage Health Care Reimbursement Arrangement, or ICHRA.
An ICHRA (pronounced “ick-ruh”) refers to situations where an employer reimburses employees for health insurance expenses. With an ICHRA, employees go to the insurance exchange, purchase their own plan, and receive a tax-free reimbursement from their employer. This is a departure from traditional group health insurance plans, where employees have only one option: the health insurance plan that their employer purchases for them.
Snarf’s Sandwiches from Colorado is an example: “We used to have a large group plan,” says Cara Greene, Snarf’s human resources manager. “And when we were going through a renewal for 2021, we got a 46% increase in premium, which is not sustainable.” Greene had to find another option for the company’s approximately 100 employees. His broker introduced him to the concept of an ICHRA.
“We were a little hesitant at first,” says Greene, but trying it in 2021 has proven to be a success for employees. Now, Snarf’s Sandwiches employees are no longer locked into a single group plan, and the company can help employees pay their premiums by offering fixed reimbursement amounts based on age. “They have the flexibility to go out and shop for a health plan that best suits them and their health issues,” she says. “So if they’re willing to pay a little more out of pocket each month, to have a stronger plan, they have the option to do that.”
“It’s a fundamentally new way for employers to provide employee benefits,” says Jack Hooper, CEO of Take Command, a Dallas-based ICHRA trustee. An ICHRA offers employers a way to help lower their monthly premiums by providing employees with cash, tax-free reimbursements to help offset the cost of health insurance.
Like the HRAs, but with more choices
HRAs, or Health Reimbursement Arrangements, have been around for decades. “They were usually set up for large employers who were self-insured – didn’t buy insurance – and they had to cover things that weren’t covered by the health plan,” says Bill Lindsay, director and CEO of benefits consulting firm Lindsay 3 Another form of coverage, the Qualified Small Employer HRA, or QSEHRA, offered a provision for employers with 50 or fewer employees who wanted to offer health insurance options. QSEHRAs haven’t really taken off, he says, because they’ve proven to be very restrictive.
An ICHRA therefore represents a tool allowing employers to reimburse employees for health insurance premiums with fewer restrictions and no upper limit; an employer of any size can use it, and the employer decides how much to reimburse per employee per month.
Then, Lindsay says, the employee can decide what coverage they want or need simply by choosing a plan from the Colorado Health Insurance Marketplace and submitting proof to their employer.
Claire Brockbank, CEO of Peak Health Alliance – a health insurance purchasing alliance founded in Summit County – says ICHRA “gives the employee maximum choice.” Brockbank adds that many Peak Health Alliance members cover more employees for less money – a big deal in a tough job market.
According to Take Command, Colorado employers reimbursed an average of $371.59 per month per employee. That covers more than the average bronze plan and silver plans — $280 and $313 respectively — on Colorado’s official health insurance marketplace, Connect for Health Colorado.
Colorado has 527 individual plans available statewide, creating more choice and competition in the marketplace. Additionally, Colorado’s reinsurance program – essentially insurance for insurance companies – reduces insurance company risk, which in turn reduces costs.
Why are ICHRAs all the rage in Colorado?
The Centennial State has plenty of seasonal industries and small businesses, but many of these businesses have never offered insurance before — and if they employ fewer than 50 people, they don’t have to. Group insurance can be expensive and many plans require 70% employee participation. For companies that have a mix of hourly or full-time and seasonal workers, it is difficult to meet this threshold. And due to the pandemic, employees may be more dispersed than ever. Traditional group plans may not be covered outside of the employer’s head office.
Colorado has 527 individual plans available statewide, creating more choice and competition in the marketplace. Additionally, Colorado’s reinsurance program – essentially insurance for insurance
insurance companies — reduces the risk of insurance companies, which in turn reduces costs.
Additionally, in October 2021, Governor Jared Polis and Lt. Governor Dianne Primavera announced that Coloradans will save an average of 24.1% on individual premiums in 2022. Colorado consumers who purchase individual plans can only expect only a modest average increase of 1.1% over 2021 premiums. Compare that to the 46% premium increase Snarf’s Sandwiches faced with its old group plan, and you can see the appeal.
ICHRAs also offer more choices to employees. Let’s say their employer offers a reimbursement of $400 per month. They can always choose a plan that costs $500/month, but in this situation only $100 comes out of their paycheck. If the employee chooses a plan that costs less than the employer’s monthly ICHRA amount, they can allocate that difference to a copayment or prescriptions.
New concept, new challenges
ICHRAs are not without potential setbacks. Moving from the traditional small fully insured group market to the ICHRA market takes time, energy and skill.
“There are fewer and fewer agents selling individual health insurance,” Lindsay says. “A lot of them have left this market because insurance companies have dramatically reduced the commissions they pay, or maybe don’t even offer commissions.”
The employer must have a description of the plan and timely communications with employees, otherwise they could face penalties. If a company already has a general insurance agent for workers’ compensation or liability insurance, it may be able to call on the agent for that expertise – or hire a third-party administrator like Take Command. “Otherwise, this employer would have to figure this all out on their own,” Lindsay says.
“It’s kind of a new concept that you have to try to get used to,” says Greene, both for Snarf’s Sandwiches and its employees. She had to get used to telling the workers, “You have to go out and you have to choose a plan that works for you, and I can’t make that decision for you. You have to do it for yourself. Even if employees leave the company, they can keep their plan as long as they continue to pay premiums.
Yet companies are finding value in this new way of paying for employee insurance. Snarf’s Sandwiches will continue to use an ICHRA in 2022 and even plans to increase its employee reimbursement benefit.