SHRM, or the Society of Human Resources Management, recently discussed a growing trend among businesses looking to offer reliable health insurance and benefits options to their employees. Individual coverage health reimbursement arrangements (ICHRAs) are relatively new to the benefits landscape. But as bottom lines become hardened and profit margins narrow, especially after a year like 2020, it’s clear the ICHRA is proving to be a popular solution for many companies.
To know if ICHRAs (also called “ick-rahs) are an ideal solution for your company, you’ll first need to understand how they work, how they benefit employees who use them, and how they impact the offering company’s budget. We’ll explore all of the above and shed some light on why ICHRAs may be more than a trending benefits offering. It may be a more ideal and permanent solution for both employers and employees alike.
What’s All the Buzz About ‘Ick-Rahs’ Anyway?
Independent coverage health reimbursement arrangements (ICHRAs) became effective, officially, in January of this year, so the platform is relatively new. The Trump administration initiated this employee benefits program under the IRS in June of 2019, well before anyone could have predicted the effects of COVID-19. But ICHRA plans couldn’t have become available at a better time.
Businesses felt devastating financial impacts of shutdowns earlier this year. And with those stalls in productivity came a need and high demand for solutions across a variety of segments that represent cost-efficient and digital options. When it comes to benefits and health insurance offerings for internal staff, the ICHRA has become an invaluable lifeline.
How the ICHRA Benefits Both Employers & Employees
Here’s how it works. The individual coverage health reimbursement arrangement serves as a kind of spending account. Sometimes called an individual integrated HRA, this company-owned and funded account is tax-advantaged and can be used to reimburse employees for their personal healthcare and insurance expenses. Unlike some of the other HRA products, the ICHRA is available to companies of any size.
Those company employers that are subject to the Affordable Care Act coverage requirements have other options besides offering traditional group health insurance to their staff. They can also choose to pay for an employee’s insurance coverage directly through the ACA Marketplace. For smaller businesses or those facing narrower margins, huge premiums for group plans can be burdensome. The ICHRA presents a cost-saving way to offer healthcare reimbursements as a form of health benefits. And companies can outline what expenses qualify for reimbursement and affordable benchmarks to help manage their contribution costs.
Employees will still need to enroll in their preferred health insurance plan via the ACA Marketplace to be eligible for participation in their employer-owned ICHRA. But once a plan is in place, individuals can submit expenses for doctor visits, scans, vaccinations, and even monthly premiums for reimbursement from their employers. Instead of paying hefty monthly premiums for group plan participation, individuals can pay for only those services they need and ultimately be reimbursed for them. It’s a cost-effective solution for both sides of the ICHRA coin.
3 Things Employers Should Know About ICHRAs
Similar to other HRAs, an ICHRA is not a portable benefit. Meaning, should an employee leave or be fired for any reason, any remaining funding is not eligible to go with the individual. Since the company owns and funds the ICHRA account, the benefit stays with the established company. Also, employees won’t pay taxes on their healthcare spending through any ICHRA platform. It’s critical that companies opting to offer ICHRAs understand that the allowances they establish must meet what the ACA considers to be affordable coverage. In 2021 plans being offered now, for example, the employer ICHRA benefit must be substantial enough to afford the low-cost silver plans. To calculate this figure, you’d combine the ICHRA funds with 9.83% of the employee’s gross income.
What 397 of the Largest Employers Think
Nearly 400 of the largest employers in the U.S. recently offered insights with participation in an HR consultancy Willis Towers Watson’s 2020 Health Care Delivery Survey, last September. Here’s what they think:
- Roughly 73% of all surveyed indicated they had plans to change their health insurance offerings over the next three years
- Almost 22% of retail and wholesale employers were exploring their ICHRA options for 2022 benefits or later
- Nearly 15% of all employers participating said they were considering or planning to offer an ICHRA benefit program to at least part of their workforce by 2022 or later
- One-third of all chief financial officers who participated in this survey shared they too were considering ICHRAs for active staff
Which Industries Are Flocking to ICHRA First?
One insurance brokerage in Minneapolis shared its thoughts about trends. Gravie CEO, Marek Ciolko, told SHRM that many businesses are looking for ways of getting out of the business of “administering health benefits.” Companies are simplifying their processes and controlling their associated costs by enabling ICHRAs to do just that. Some of the industries flocking to change away from group plans to ICHRAs include healthcare businesses, manufacturing, delivery service companies, and restaurants. Ciolko says there is an increase by mid-sized companies changing to ICHRA options, as well. It’s these midsized organizations that seem to be feeling the pinch of rising healthcare coverage costs the most. And in other markets, despite the unknowns and setbacks this year, the adoption of ICHRA plans are nearly doubling.
No Two ICHRAs Is the Same
The customizable nature of the ICHRA may be part of the reason it’s such an appealing option for companies. Business enterprises from small to sizable can set their allowance amounts to affordable benchmarks. Even in keeping with the ACA guidelines for affordable coverage, having set amounts to budget for can be a game-changer. It makes offering benefits a predictable endeavor. There are other HRA platforms available, as well, should there be another more suitable platform.
If you have been contemplating a company move to ICHRAs for your staff, you’re not alone. And you may have more questions about getting started, setting up, and communicating new plans to your employees. There are resources available, and when it comes to data applications, Softheon can be your trusted partner. Join us for our ICHRA webinar this week, to learn more about what ICHRAs can do for your business.. Register today and don’t miss the conversation!