ICHRA Explained: A Cost-Effective Health Insurance Solution for Employers

Anyone who knows me knows I love thinking outside the box.

Believe it or not, we can find creative alternatives for cost savings in healthcare if we know where to look.

One option worth considering is the Individual Coverage Health Reimbursement Arrangement (ICHRA).

An ICHRA allows employers to reimburse employees for individual health insurance premiums on a pre-tax basis, offering flexibility and potential cost savings.

In this article, we will explore the benefits of ICHRA and what the law requires.

First, let’s understand the background and legal context to fully understand how ICHRA works and why it might be the right choice for your organization.

The Legal Landscape

Traditionally, employers face legal constraints when it comes to providing funds for employees to purchase individual health insurance plans on their own.

Direct payments to employees for this purpose must be made with after-tax dollars. For instance, offering $600 per month would net the employee around $450 after taxes.

However, this can be hard to manage.

One of the challenges is trying to provide uniform benefits.

For example, do you give younger employees less money than older employees? The cost of individual health insurance is solely based on age – the older you are, the more expensive the insurance.

If you give employees a flat dollar amount, your younger employees could have money remaining while your older employees are paying three times more for their coverage.

It can be a difficult road and sometimes this is the only option available for employers.

Employer Obligations

Employers with more than 50 employees must provide employees with affordable health insurance or pay an annual fine.

Most employers in Atlanta, who have more than 50 employees, are using some form of self-funding, usually a level-funded product.

Companies with less than 50 employees can purchase a fully insured group policy without underwriting. If this is your company, I suggest you price your health plan using both methods of fully insured and self-funding, as well as consider an ICHRA.

Monitoring Claims

Ongoing, expensive claims can still pose a significant burden.

For example, a small company with an employee requiring bi-weekly infusions might find insurers unwilling to cover such high-cost cases. Fully insured group health insurance is expensive, and level / self-funded policies can decline to offer your company a health insurance policy in such cases.

The law mandates that employers cannot deny coverage to individuals based on medical conditions. You must offer the same benefit to everyone, and you cannot discriminate within an employee class. Additionally, employers with more than 50 employees are required to provide affordable health insurance to their staff.

This is where companies turn to the Individual Coverage Health Reimbursement Account.

Obamacare Requirements

Under the Affordable Care Act (ACA), individual health insurance policies must cover individuals without medical underwriting, with premiums based on age and geographic location.

Remember, companies cannot pay individuals to purchase their own health insurance.

However, the Individual Coverage Health Reimbursement Account provides the infrastructure to offer employees individual health insurance, pre-tax.

How ICHRA Works

Employers determine a monthly reimbursement amount for each employee, who then selects a health insurance policy that best suits their needs from the Marketplace.

Importantly, employers cannot dictate the choice of insurance carrier or influence the employee’s decision in any way.

The advantage for the employees is that they can choose the health insurance benefits they want.

Benefits of an ICHRA Administrator

We advise companies, no matter how small, to use an ICHRA administrator. Employees still choose their individual policy on the Marketplace; however, it is ‘managed’ through the ICHRA administrator.

An ICHRA administrator handles the logistics, including paying premiums directly to the different insurance companies and managing employee contributions. They also provide critical tracking and reporting, ensuring compliance and affordability. This setup alleviates administrative burdens and ensures smooth operation.

Budgeting and Future Considerations

Employers should anticipate up to a 20% annual increase in individual policy premiums annually while the percentage may be intimidating, the overall initial cost is usually much lower. Incorporating these projections into your annual budget is essential for maintaining financial stability.

Conclusion

I hope this gives you a better understanding of the context and legal requirements that shape how employers can reimburse employees for healthcare.

For companies facing the challenges of providing affordable health insurance, the ICHRA presents a viable, tax-advantaged solution. By leveraging the expertise of an ICHRA administrator, employers can streamline the process and maintain compliance with legal requirements.

Braden Benefit Strategies, Inc. is a group health insurance agency based in the Atlanta Metro area, specializing in small businesses with 20 to 300 employees. Our mission is to provide expert advice to help you manage one of the largest expenses on your P&L while ensuring your employees have access to quality, affordable healthcare. We would be honored to become your trusted agent. Call us today to find out how we can help you at 770-447-9843.