By Jack Hooper
In a highly competitive labor market, generous benefits packages continue to be a leading factor in attracting and maintaining talent. Unfortunately for small business owners, group plan pricing just keeps going up. For companies that don’t have a big, corporate benefits budget to lean on, an employer-based group plan is often too expensive, too unpredictable (with costs continuing to rise each year), too one-size-fits-all, and too much of an administrative burden.
This open enrollment was different than years before, presenting a totally new insurance model that has been made possible by first-ever regulatory rule updates. While health reimbursement arrangements are nothing new, there’s a new type of HRA now on the market as of January 1st—the Individual Coverage HRA (ICHRA)—that’s giving traditional group plans a run for their money. In fact, HHS projects that in the next 5 to 10 years, roughly 800,000 employers will offer Individual Coverage HRAs to pay for insurance for more than 11 million employees.
With an ICHRA, the business owner decides upon a budget for reimbursement, tells their employees how it works, designs reimbursement levels per class, and then employees can choose the plan they want. Once an employee has a qualified medical expense or premium payment, they submit the receipt for reimbursement. Since it’s not a savings account, the employer only has to cover the costs when employees submit for reimbursement; there is no need to fund accounts in anticipation of healthcare costs.
In addition, ICHRA takes the burden of managing a health plan and underlying health risks off of the employer. There’s no need to hassle with renewals, worry about participation rates, stress about what doctor networks your employees want, or be surprised by annual premium increases.
Much like the shift from pensions to 401ks, the reimbursement model encourages employees to be their own advocate when it comes to how they spend their healthcare dollars. QSEHRA was the front-runner that brought this new model to small businesses of less than 50; ICHRA expands upon the benefits of QSEHRA with added customization to a larger footprint of businesses (no size requirements, no reimbursement limits).
The exceptional feature of this new HRA is the high degree of customization that business owners can use to design their HRA and allocate their health benefits budget to the employees who matter most. In other words, employers can offer different types of employees different benefits as long as it’s rolled out fairly. The numbers of ways in which you can divide your employees is essentially unlimited, because any class can be combined with another, making a new unique class.
Here’s how the classes break down:
- Full-time employees
- Part-time employees
- Seasonal employees
- Employees covered under a collective bargaining agreement
- Employees in a waiting period
- Foreign employees who work abroad
- Employees working in the same geographic location
- Salaried workers
- Non-Salaried workers (i.e., hourly workers)
- Temporary employees of staffing firms
- A combination of two or more of the above
The number of employees at companies less than 49 covered by an employer-sponsored plan fell by more than 25% in the past nine years. The new health reimbursement arrangement model will offer employers a new, better way to offer benefits, and by doing so, could add more healthy employees to the individual insurance market.
Some cities are better equipped than others to adapt this new model of benefits. Research findings by VeriCred and Take Command Health analyzed conditions that indicate whether or not an ICHRA would be successful: individual plan affordability, individual premium cost relative to the cost of a small group plan, availability of a broader set of plans, competition of carriers, and premium history. The cities at the top of the list include Minneapolis, Los Angeles, Providence, Boston and Philadelphia out of the top 50 markets in the U.S.
