Imagine this: you’re a small- to mid-sized specialty trade contractor with a healthy, younger trade workforce that may value the “take home” pay more than the health insurance. At the same time, you may also have an aging office and support population that makes use of the company health plan. All of this ultimately leads to rising health insurance premiums over time.

For a couple of years, the increases were taken, and the health insurance utilization/loss ratio prevented any substantive push back on the underwriters.

But this point, the company needed to consider other options. They collaborated with a broker, but overall insurance costs were increasing for the company, as well as the employees. There was now no other real choice but to look at alternatives.

From this, the broker suggested individual coverage health reimbursement arrangement (ICHRA) insurance plans. After resigning to one more year with traditional health insurance and the increased premiums, it was time to make the leap.

ICHRA Plans

With the help of a specialist, ICHRA plans allow employees to choose the individual health plan that best fits their needs. The employee is ultimately responsible for paying the difference between the reimbursement amount and the plan cost.

With an ICHRA plan, the company would pay the entire bill for all employees covered. From there, the necessary portion for each employee is collected through payroll, much like a traditional plan works, but the difference is that the employee selects their plan.

Some companies, depending on their benefits plan, may reimburse the employee for the cost of the plan based on where the employee lives and their age. In addition to this, reimbursement rates may differ for individual vs. family plans.

For example, if your company has a 31-year-old, single employee living in Kentucky, their monthly reimbursement could be up to $330 per month. That same employee living in Ohio would receive $270 per month. If the 31-year-old had a family, the reimbursement amount would be $960 in Kentucky and $780 in Ohio.

Benefits

Moving to an ICHRA can save employees, and therefore the company, significant dollars in health insurance costs. The funds withheld from the employees are done under a Section 125 plan on a pre-tax basis, just like traditional health insurance.

Additionally, the ICHRA allows companies to contribute to employees who had reached the age of Medicare and were using Medicare benefits. This may reduce the hesitancy to jump from the company health plan to Medicare.

The ICHRA solution also meets the Affordable Care Act (ACA) requirements for an applicable large employer to offer medical insurance to employees since legislation that was passed in 2020. An ICHRA administrator and broker can help you design the employer contribution to ensure it meets the affordability portion of the ACA rules. 

Conclusion

With an ICHRA, while some may choose more robust or tailored coverage and did not save as much, others may save hundreds of dollars on an annual basis. The critical point is that it is the employee’s choice, with help from an expert.

ICHRA arrangements are essentially defined contribution plans for health insurance, leveraging the individual insurance market and, therefore, an enormous pool of insureds.