Individual Coverage HRAs (ICHRA) were available for employers starting on January 1, 2020. They are available to any size employer, allowing them to help pay for employee’s individual health plan with pre-tax dollars. ICHRA has quickly become one of the fastest growing forms of employee benefits in the U.S., and we’re finding employers are eager to learn more about this new option and to see if it’s a good fit for them. If you’re an Employee Benefit Broker, it is time to start discussing ICHRAs with your clients. So…
To ICHRA, or not to ICHRA? That is the question brokers should consider at every client’s renewal. And more goes into determining the right client fit for an ICHRA than just examining the individual market premiums vs. the group premiums. Let’s take a look:
Does ICHRA make sense?
The first step every broker should take is to have a discussion with their client to determine if the company is philosophically on board with the idea of moving all or some of their employees to the individual market in lieu of a conventional group health plan. Here are some useful talking points to help explain the benefits of ICHRA for both the employer and employee to help them make an insightful decision.
ICHRA Benefits For Employees:
1. Employees are given more health plan choices to meet their family needs.
2. The employee’s medical plan survives employment, they take the plan with them.
3. The employer contribution towards the premium is tax free.
4. Employees can realize significant cost savings and gain access to large government subsidies if working for a small employer.
ICHRA Advantages For Employers:
1. ICHRAs can result in long term cost reduction offering a fixed, predictable budget.
2. ICHRAs get employers out of the insurance business, there is no risk.
3. ICHRAs comply with ACA mandate requirements for applicable large employers.
4. Employers no longer need to try to find the best plan fit for their diverse workforce.
5. There are no participation requirements.
6. ICHRAs offer less administrative tasks and remove open enrollment work.
Identifying groups at risk.
Brokers can easily identify groups for whom ICHRA might be a good fit by looking for certain “red flags”. A few examples:
1. Is a client experiencing network or carrier issues for remote workers?
2. Was a client surprised by unusually high renewals?
3. Is an employer finding lower than expected employee plan participation?
Benefitbay makes it easy for brokers to perform an ICHRA analysis to determine if it makes sense for an employer to either:
a) Replace their group health plan (GHP) with an ICHRA, or,
b) Maintain their GHP and offer an ICHRA plan to a strategic class of employees.
But brokers should keep in mind, it’s not always the squeaky wheels who might benefit from a little grease. Even if a client appears relatively happy with their group plan, it still might make sense to take the quick and easy step of modeling an ICHRA to see if you can deliver superior results. That is particularly true for employers in specific industries.
Industries that fit the ICHRA model:
Industries with high turnover, short employee tenure, populations of lower paid workers, or a mix of hourly and salary employees, tend to be a good fit for an ICHRA plan. Industry examples include, but are not limited to:
1. Hospitality
2. Retail
3. Restaurants
4. Manufacturing
4. Non-profits
5. Delivery
6. Construction
7. Landscaping
8. Health care
9. Professional services
Keys to success.
Plan design, contribution structure, and employee education are important to successful ICHRA implementation and will improve employee adoption and satisfaction. There are different approaches to structuring contributions based on the size of the company.
ICHRA for Applicable Large Employers (ALEs):
For Applicable Large Employers (ALEs) with 50 or more full-time equivalent employees, ICHRA contributions need to be affordable at both the individual and group level to comply with ACA mandates.
ICHRA for small businesses:
For small groups – employers with 49 or fewer employees – there is no ACA mandate for affordability. By structuring an unaffordable ICHRA contribution for a strategic class of employees you will enable the employee to waive their ICHRA participation and thereby grant them access to government subsidies. This strategy will reduce costs for both the employer and employee.
Benefitbay’s proprietary Subsidy Advantage™ tool provides employees with visibility of available subsidy dollars during enrollment.
ICHRA employee classes.
A key feature of ICHRA is the ability to sort employees into classes and assign a strategic employer contribution to each class. This is a valuable tool allowing contributions to fit both employer and employee needs. Benefitbay’s proprietary Fulcrum™ tool makes real-time modeling simple, with rigorously tested compliance standards built in throughout.
Classes can determine if an employee is eligible for a GHP or ICHRA, and classes can be used to vary the employer ICHRA contributions. Within each class you can establish age banded contributions to help provide equal buying power for all age employees.
Lastly, employers can offer employees more contribution based on their coverage tiers, such as family coverage.
Educating employees about ICHRA.
After the design and contributions are finalized the important step of educating the employees is an absolute necessity, especially if they are transitioning from a group health plan to the individual market. Because employers are no longer choosing the plan for the employees, it is critical the employees should know how to manage their new responsibility and what information to have available when making an individual plan choice.
Benefitbay has a best-in-class enrollment support team to help each employee through the enrollment process. Our support team is available via phone or live chat and we go the extra mile to make sure each employee understands their plan and knows what to expect. Employees should come into enrollment aware of the following important considerations:
1. A list of preferred health care providers.
2. A list of prescription drugs an employee is taking.
3. A list of upcoming medical procedures they may have planned.
A practical example of ICHRA with classes
Scenario: A restaurant with locations in 2 states, over 50 employees (Applicable Large Employer) with an employee population consisting of managers on salary along with hourly waiters and cooks.
Meeting group health plan participation requirements has been a challenge because the hourly staff find the cost of the group health plan unaffordable. The restaurant understands it is important to offer health insurance for recruiting and employee retention.
Solution: By replacing the group health plan with an ICHRA plan the broker and his client were able to remove the participation concern.
1. They set up classes with different, strategic employer contributions for each class.
2. Because premium differentials varied significantly by state they first established geographic classes to group employees by state.
3. Next, within each state class, they created a salary class for management and an hourly class for the waiting staff and cooks.
4. Finally, they added age bands to provide additional buying power across all ages and tiered contributions according to number of dependents.
Before Benefitbay, modeling all of this would have been very challenging and would likely have taken weeks, with no assurance of compliance. With Benefitbay, the broker and employer were able to manage the entire process in a single meeting with compliance built into every step.
How are ICHRA premiums paid for?
To help with adoption and to reduce employee financial hardship, Benefitbay is proud to provide our best-in-class banking tool ARC™ (Advance Reimbursement Checking). This banking arrangement allows employers to fund the employees full monthly premium, in advance, and easily deduct the employee’s portion of the premium from payroll. This arrangement feels exactly like a group plan funding mechanism. If plans were purchased off exchange, the payroll deduction can be pre-tax providing further tax advantages for both the employer and employee.
