Individual Coverage HRAs (ICHRAs) allow an employer to reimburse employees and family members for the cost of individual health insurance and Medicare policies. These plans became available on January 1 of this year, and I think they can be a good fit for some employers. I’ve heard some people say they are THE solution to our health care cost problem. They’re not. However, for the right employer, they can work very well.
In my opinion, the employers that will benefit most by considering an ICHRA are those that are experience rated (over 50 eligible employees in Massachusetts), and whose claims activity over the years has driven up the rates (or self-funded costs) to levels so high that individual policies would be cheaper for the majority of employees. Since individual policy prices are determined by the applicant’s age, group rates need to be pretty high to exceed individual prices for the older people in the group. I would argue that this is not the case for the majority of employers.
Here’s an example from a plan we’re working on this week:
- 60 eligible employees
- 34 enrolled in the health plan
- Current annual premium: roughly $500,000
- Renewal premium: roughly $550,000
- Estimated annual cost of ICHRA: $350,000
In this case, the math works REALLY well, primarily due to the fact that the group has had a number of large claims over the years, causing the rates to be high.
You might be wondering, “Ok, that looks great. What’s the down side?” There are a few potential negatives or complexities that employers need to consider with these plans.
- Individual health insurance policies renew on January 1. This client has a mid-year renewal, so we will probably have to do a short plan year initially to sync up with the calendar year.
- The current members that are over age 65 will need to switch to Medicare.
- Our estimated annual cost assumes that the same 34 people take the ICHRA. It’s possible that more people could enroll, decreasing the savings.
- Depending on how the plan is set up, administration can be a bit more difficult.
- Individual health plans and prices vary by state. In this example, we had to set up a separate class for the Connecticut employees and give them a higher reimbursement to make sure the plan was less expensive for all.
- The plan needs to be considered “affordable” under the Affordable Care Act for ALEs, and this is more complex with an ICHRA. In this case, the plan is “affordable” for all employees.
I really like the concept of the ICHRA, and I’m glad we have another “tool in the toolkit” to help employers control cost. In the right situations, an ICHRA can be a very compelling option.
If you’d like to discuss creative cost containment strategies, we’d love to hear from you. Give us a call at (866) 724-0008 or click the link below.