What’s The Buzz? Have You Heard About ICHRA Plans?
“ICHRAs are designed to give employers flexibility when offering a group health plan.”
~ Rebecca Yates, CEO of Ark Insurance Solutions
Individual Coverage Health Reimbursement Arrangements, most commonly known as ICHRA plans, have become increasingly popular in some areas as a flexible alternative to group plans. And since they represent a significant shift in how businesses approach health insurance, they’re worth knowing about.
ICHRA plans are relatively new. First introduced in 2020, they’ve gained some traction among businesses looking for an affordable group health insurance option. But, like anything else, ICHRA plans also come with potential drawbacks. Depending on what state you’re in, how many employees you have, and the overall health of your group, an ICHRA plan might not be the best option for you.
If you’re a business owner looking at alternative health plans like ICHRA, we recommend getting an in-depth analysis with a trusted professional. While they can be particularly advantageous in states like Alaska, they aren’t so much in Utah — the nuance of which we’ll discuss below.
What exactly is an ICHRA plan?
In a nutshell, ICHRA plans allow employers to reimburse their employees for individual health insurance premiums and qualified medical expenses, and the reimbursement is completely tax-free. Rather than selecting and managing a one-size-fits-all group health plan, businesses can provide employees with a predetermined amount of money each month. Employees then use that money to purchase an individual health insurance coverage on the marketplace that best fits their specific needs.
Think of an ICHRA as essentially creating a personal expense account for each employee’s healthcare needs. When employees incur medical expenses or pay their individual insurance premiums, they can submit receipts for reimbursement up to their allowed amount. This arrangement offers a fair amount of flexibility, while still providing the same tax advantages that are typically associated with employer-sponsored health benefits.
Where ICHRAs shine
For some companies, ICHRAs present an attractive option, because they solve some of the most common challenges among business owners in providing adequate health benefits. This kind of control is valuable for growing businesses or those operating across multiple states.
ICHRAs also get rid of the administrative burden of managing a group health plan. No more annual renewal negotiations, plan design decisions, or employee enrollment periods. Instead, companies just have to decide what the employee reimbursement amounts will be and process employee receipts — this is something they should delegate to third-party administrators.
This arrangement can work pretty well for companies that have a diverse workforce spread across several states. Rather than trying to find a single group plan that satisfies everyone, employees can select the coverage that matches their needs. A young, healthy employee might choose a high-deductible plan with lower premiums, while an employee managing a chronic condition might opt for more comprehensive coverage.
“It’s not uncommon for an employer to come to us and say, ‘I have people in 20 states. How do I possibly build a group health plan for them?’ And often ICHRAs are the answer.”
Despite their advantages, ICHRAs aren’t without potential drawbacks. And much of this depends on what state your business and employees are operating in. The success of an ICHRA program directly correlates with the strength of the individual insurance market in your area. So, if you take Utah for instance, the state has a much more affordable group market with excellent benefits, which ICHRA can’t compete with. It’s likely that employees would struggle to find better coverage with their ICHRA allowance. But in Alaska, ICHRA plans often present a more beneficial choice.
Whether or not ICHRA is a good idea can also come down to the number of employees your business is supporting. If a large employer with more than 50 employees can’t get enough people to enroll in a group plan, or if that plan is somehow canceled by the carrier, they could potentially use an ICHRA as an affordable option.
“ICHRAs tend to be better for those large employer scenarios where they’re trying to be compliant because now they’re going to get penalized if they’re not offering, but they can’t find a good way to offer,” says Rebecca Yates, CEO of Ark Insurance Solutions. “They can be a good alternative for businesses that have a hard time meeting participation.”
Employee education represents another challenge to the overall effectiveness of an ICHRA plan. Many workers are familiar with traditional group health insurance but they might find the individual market confusing. They’ll need guidance on selecting appropriate coverage, understanding how reimbursements work, and managing their healthcare spending.
Some employees might also miss the simplicity of having their employer choose their health plan. While flexibility can be helpful, it also means employees must take more active roles in their healthcare decisions. This responsibility can feel overwhelming, especially for employees who have never had to shop for health insurance before.
Tax advantages
ICHRA does have its tax advantages, with reimbursements that are tax-deductible for employers and tax-free for employees. This is a significant benefit compared to simply providing extra salary for healthcare expenses. It allows businesses to provide health benefits with the same tax advantages as traditional group coverage but with greater flexibility and often lower administrative costs.
“We can have you give a dollar amount to each employee, have it come out with a pre -tax benefit, and then those employees can use that money to buy a plan that works for them in their area.”
Choosing ICHRA
When it comes to implementing an ICHRA plan, you need to carefully plan and provide clear communication and assistance for your employees. This isn’t a decision to enter into lightly, and you shouldn’t do it without a broker. If your business has less than 50 employees and they aren’t making high salaries, it may be smarter to allow them to qualify for federal subsidies through the ACA marketplace instead. Because there are so many caveats to an ICHRA plan, it’s best to get help from a knowledgeable professional.
When choosing an ICHRA plan, businesses need to determine appropriate reimbursement amounts for different employee classes, making sure these amounts give employees the ability to purchase adequate coverage. They also need to establish clear policies surrounding eligible expenses and reimbursement procedures.
“Most brokers are only comfortable with group or individual plans. But at Ark, we’re well-versed in both of these options and can help you find what best fits your business,” says Yates. “It’s important to get an analysis from someone who knows what they’re doing and is established in your area.”
Making the decision
Whether an ICHRA makes sense for your business or not depends on a variety of factors, like your workforce demographics, local insurance market conditions, and administrative capabilities. A thorough analysis from Ark will look at your current health benefit costs and challenges, and compare those against projected ICHRA expenses. We consider everything, including the reimbursement amounts and administrative costs of the plan. It’s also important to think about your employees and their preferences. You may want to take into account the overall health of your group and their potential needs when it comes to healthcare. At Ark, we take every factor into consideration.
As healthcare costs continue to rise and workforce needs evolve, ICHRAs represent a new approach to employee health benefits that may be helpful in certain states and/or situations. While they may not be the perfect solution for every business, they present a compelling alternative worth considering.
For businesses struggling with traditional group health insurance or seeking more predictable benefit costs, ICHRAs can be worth looking into. However, they still require careful planning. In the right use cases, ICHRAs can create a win-win situation – providing employees with the health benefits they need while giving employers greater control over their healthcare spending.
Want to see which plans might best fit your needs? Click here to schedule an appointment with an Ark Insurance Solutions agent.
Navigating the complex world of health insurance can be daunting. The Ark Insurance Solutions team has the skill and experience to guide you. We’ll help you compare health plans to make the best decision based on your unique circumstances and budget. Give us a call at 801-901-7800 or click here to schedule an appointment with us.
