With the changing landscape of how, where and when people work, providing health insurance options can’t be one-size-fits-all. Now, thanks to a special kind of health reimbursement arrangement, employers of all sizes can offer benefits to their employees, whether they are part-time, remote or seasonal.
Individual Coverage Health Reimbursement Arrangements hit the market in January of 2020 and allow employers to give tax-free reimbursements for insurance premiums and other medical expenses to employees that enroll in a health plan through the individual marketplace.
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ICHRAs can be a great resource for employers as they look to support employees’ overall wellness, but there are legal considerations organizations should keep in mind before offering this benefit. First of all, ICHRAs, like all HRAs, must comply with all of the general requirements applicable to traditional group health plans. For employers subject to Employee Retirement Income Security Act, this includes the written plan document, summary plan description and annual filings of Form 5500. In addition, ICHRAs are subject to other laws that apply to group health plans, such as COBRA and HIPAA. This is important to keep in mind because failure to follow the rules can result in regulatory penalties and litigation over benefits. In some cases, failure to follow the rules means there is no ICHRA.
To avoid common pitfalls, an employer should work with an experienced service provider and invest time to understand what an ICHRA is, how it operates, what it can do, what it requires, why it may be a better fit for their employees and how to set it up successfully.
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Once adopted, ICHRAs can provide significant benefits for both employers and employees. Eighty-two percent of brokers, technology leaders, and regulatory experts believe ICHRAs provide better benefit options than traditional group plans, while 73% believe ICHRAs can reduce cost uncertainty for employers, according to data from Nexben, creator of the end-to-end cloud-based benefits platform that provides a simplified marketplace experience for the benefits industry.
So let’s dive a little deeper. There are three things that really differentiate an ICHRA from traditional group health plans and can help determine if this option is a better fit for your benefit needs:
Flexibility
ICHRAs offer employers and employees greater flexibility when it comes to their coverage needs, as the workforce is composed of individuals all in different stages of their healthcare journey. In addition, employees’ medical coverage needs will change over the years they’re employed. The ICHRA allows flexibility to address both. Plus, an ICHRA provides the employer with financial flexibility because the employer defines the contribution amount it will reimburse its employees. The employer can offer all employees the same amount, vary amounts by full-time, part-time or hourly workers, or vary amounts by employee age and family status.
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More predictable budgeting
Because the ICHRA is a defined contribution type of approach, the employer cost is more predictable, too. If the contribution is $500 per month per employee, the employer can budget for that amount, multiplied by the number of employees. Annual increases in the cost of traditional group coverage is much less certain, ranging from a few percentage points to double-digit increases. The time at which the employer is made aware of the increases allows little room for meaningful change. The employer often is left with reducing the number of coverage options, tinkering with coverage, and increasing the portion of the cost that is passed to employees to try and reduce the annual increase. All of this impacts the certainty of the cost of coverage for the upcoming year, making budgeting difficult.
Liability
For an employer subject to ERISA, a traditional group medical plan involves more responsibility on the part of the employer sponsoring the plan. The employer, as a fiduciary of a traditional group medical plan, is responsible for the selection of the group insurance carrier (if insured) or responsible for the selection of third-party service providers (if self-insured).
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With an ICHRA, the choice of an individual policy is up to each employee. The employee chooses the individual policy based on their needs and personal budget. The employee also chooses the carrier that issues the policy. The employer’s responsibility for claims adjudication is also more limited. With a traditional self-insured group plan, the employer as the named fiduciary is responsible for claims adjudication (e.g., whether an expense is medically necessary, whether a claim is subject to exclusion, whether a drug is a specialty drug subject to prior authorization). With an ICHRA, the claim is for the reimbursement of the individual health coverage premiums, not the medical services available through the individual health coverage.
ICHRAs are one way to keep pace with the evolving landscape of work and the changing needs of employees throughout their lives. ICHRAs provide employers with more flexibility to address situations that until recently hadn’t been considered commonplace, such as remote work sites, and the ability to predict costs and remove liability while providing benefits that meet or exceed employee expectations.
