ICHRA vs. Traditional group health plans

Birth of ICHRA – Empowering employees with flexible and tax-free health coverage options

Navigating the health insurance market can be pretty daunting, and Health Reimbursement Arrangements (HRA) plans come into play as an added benefit offered by employers. HRAs are account-based health plans employers offer their employees. HRAs can be a decent head-start for employees, but since benefits are pre-determined in using a “one-size-fits-all” approach, employee needs are not met. Apart from offering health coverage plans to their employees, employers are also focused on tax efficiencies, eliminating underlying health risks. Despite HRA plans being available, the rising healthcare costs have consistently taken a toll on employer and employee contributions. When these costs reach a threshold for the employer, they are transferred to employees in the form of (unfavorable) increased out-of-pocket costs. The figure below illustrates an upward trend in healthcare insurance costs.

 
Fig A: Average worker and employer contributions 2013, 2018 & 2023, source: KFF survey 2023

In 2016, the US administration paved the way for implementing QSEHRA, the predecessor of ICHRA. QSEHRA, or "Qualified Small Employer Health Reimbursement Arrangement," enabled small businesses with fewer than fifty full-time equivalent employees to provide contributions in pre-tax funds to their employees each year towards purchasing health insurance plans. Unfortunately, due to many restrictions and roadblocks to leveraging HRAs for employees, it lacked popularity amongst employers.

In 2019, the US administration introduced new regulations, allowing employers of all sizes to offer employees a pre-tax fixed benefit. This new program was called ICHRA, or Individual Coverage Health Reimbursement Arrangement, thus expanding the reach of this latest health benefit option.

Fig B: ICHRAs are the future of healthcare benefits, Source: Department of Labor

ICHRA, which entered the Healthcare Marketplace in January 2020, has become a powerful possibility that allows employers to provide tax-free allowances (controlled) to their employees. This allows employees to buy individual health coverage that best suits their needs while controlling employer costs. Employees have the option to either participate in ICHRA or decline the offer made by their employer. 

Comparing ICHRA and Group Health Plans: Insights from Sarah and John

Let us understand ICHRA through the perspectives of two employees, Sarah and John, as they navigate two different health plans offered by their employer. The employer, Altius, stratifies employees based on predefined criteria (ICHRA employee class for eligibility) and assigns specific health plans and benefits. Sarah and John’s findings on the health plans assigned by Altius will help us understand ICHRA and Group Health Plans. It will also uncover the advantages and drawbacks that determine which option suits their unique circumstances. 

But first, let us understand ICHRA eligibility. Employers can offer ICHRA plans with or without traditional group health plans only if the criteria below are met:

1. Employees participating in this plan must be signed up for individual health coverage.
2. Employers must only restrict eligibility based on specific staff groupings or employee classes. 

Sarah joined Altius as a seasonal employee, ICHRA is offered as a healthcare benefit program to this employee class. She discovered the innovative arrangement of ICHRA, which provided her with the flexibility of choosing a plan and proved to be invaluable for her overall well-being. ICHRA’s distinction from its preceding HRA’s is that the employer does NOT choose a (traditional group) health plan for their employees. Sarah must choose a health plan from all options made available by Altius to meet her needs and benefit from Altius’ monthly contributions. 

John joined Altius as a full-time employee and was offered a comprehensive Group Health Plan that covered all eligible employees under a distinct group policy. John appreciated the convenience of a group plan, which provided a sense of security knowing that his healthcare needs were well managed. 

How do we now help Sarah and John recognize the true benefits of both plans offered by Altius? 

Sarah’s research on ICHRA suggests that it is a very well-organized process in which both employer and employee have some responsibilities for the smooth functioning of the ICHRA plan.

1. It is the employer’s responsibility to first set up the ICHRA plan that suits the needs of the organization. The plan would involve: 
   1. Employee eligibility: Determine employee classes that are eligible for ICHRA (full-time, part-time, seasonal, hourly employees, etc.).
   2. Reimbursement limits: Define the reimbursement limits for ICHRA (no limits). These reimbursements cover various aspects, including monthly premiums, out-of-pocket costs, copays, and deductibles.
2. Once the plan has been set up, the employer can begin enrolling employees. Employees can choose a plan through various channels, including the Health Insurance Marketplace, a private exchange, or directly from an insurer.
   1. Research plans and enrollment: Factors for consideration are coverage, deductibles, premiums, and provider networks.  
3. The employer is also responsible for setting up the right claims reimbursement processes, etc.
   1. Employers would have to define the required documentation details, the claims process to be followed, deadlines, and the reimbursement frequency. 

That is a lot of administration for the employer, and so Sarah asks, “Is there an organization that can work with Altius and simplify this for everyone involved?”  

Streamlining ICHRA Administration: The role of third-party administrators

When administering ICHRA, using a third-party administrator can simplify the process. An ICHRA administrator helps businesses implement and manage their ICHRAs. They are experts in navigating the complexities of ICHRA, ensuring that companies meet legal requirements, and streamlining the administrative tasks associated with ICHRA. They oversee the entire ICHRA process of implementation and perform the following duties: