The Individual Coverage Health Reimbursement Arrangement (ICHRA) is a shift in the way health insurance is delivered. For many businesses, an ICHRA will provide a welcome alternative to traditional group health benefits.
An Individual Coverage HRA represents a modern model of employer-sponsored health insurance. Now employers, of any size, can use pre-tax dollars to create a group health plan to reimburse employees for part or all of their individual health plan premiums. Employees are given the opportunity and flexibility to shop for and purchase individual coverage that best fits their unique needs.
Stay Informed on the Latest Rules and Regulations
How did ICHRAs change in 2021?
For 2021, the IRS stipulated an affordability rate of 9.83% of employee household income.
So, the calculation is now:
Why do we care about affordability when it comes to ICHRAs?
The Affordable Care Act (ACA) requires that employers of over fifty full-time (including full-time equivalent) workers must offer those workers health insurance (known as the Employer Mandate). Furthermore, that health insurance plan must be affordable and the calculation above was spelled out in the stipulation.
So, how does an employer know the household income of their employees? They don’t; the IRS outlines safe harbors they can use. A “safe harbor” is a provision of a statute or regulation that defines activities that would not violate the given rule. These are the three safe harbors an employer can use:
- W2 Wages – the reported income from Box 1 of W-2 form of the employee
- Rate of pay – the hourly rate of an employee multiplied by 130 hours per month to estimate a monthly wage
- Federal Poverty Level – assume the employee’s income level to be equal to the federal poverty level
Identifying the Groups that Fit
What groups are a good fit for ICHRAs? There are a number of different industries, company sizes, and geographic regions that determine an answer to that question. Some people will want to say “Every company is a good fit for an ICHRA.” While it’s true that all companies can offer an ICHRA, some are better fits than others.
First, which industries would benefit the most from an ICHRA? According to SHRM, they have reported data that indicates popularity for ICHRAs in the health care, restaurant, manufacturing, delivery, professional services, nonprofits, and tech industries.
Within the categorization of industry type, what size company would fit well into an ICHRA? The automatic assumption would be that small companies, with 50 or less employees, are a better fit. In reality, regardless of size, companies with contribution concerns, high-turnover, high claims rates, and participation issues are good fits for an ICHRA.
At Nexben, we follow the companies showing interest in ICHRAs or have implemented one and assess how ICHRAs impact them and their employees. Along with updating our resources regularly, we publish our findings from case studies which we link to here. Follow along with this first example by clicking the button below and viewing the referenced case study.
The first company assessed operates in the national freight transportation industry, headquartered in Minnesota with locations in Nebraska and California. They have 98 employees eligible for benefits. With their prior group medical plan, the company was facing a 30% renewal increase for the third consecutive year.
Trovia, our ICHRA marketplace solution powered by the Nexben platform, immediately helped the company avoid the renewal increase. The cost predictability offered through Trovia lent itself to plan affordability, allowing this employer to remain attractive in recruitment periods. Employees aged 65 and older were offered Medicare coverage through a Trovia solution and a dedicated Medicare-certified specialist was available to support the employee throughout the process.
By making the switch to Trovia, this company saved a little over $211,000 in total premium costs, split between the employer and employees. The broker also earned points for innovation and being solution-oriented. On average, employees saved $2,063 per year. Read our case study to find out how many unique plans and carriers were ultimately selected, and what contribution strategy the broker and company used.
Next, we looked at a company that had 1,084 eligible employees. They were self-insured and looking for an alternative that would give them better control over their health plan costs. With an ICHRA plan, they reduced the overall premium costs by $848,531.
The company’s workforce is anticipated to double in the coming year, with much of the growth across the country. By offering an ICHRA, the company is positioned to forecast and manage future costs.
In short, company size does not impact a company’s ability to realize huge savings and provide more plan options for their employees when considering an ICHRA.
Finally, what states should you consider for ICHRAs?
There are some states where the individual health insurance marketplace is strong and has very competitive rates when compared to group plans. This would indicate a potential plus for ICHRAs due to the availability of plan options.
Then there are states where ICHRA and group plan rates are in the same ballpark. This could signal that an ICHRA may be the way to go. When rates are comparable you have to go beyond price. There are a variety of questions to be asked: Are there broad plan options available on the individual market? Are there multiple carriers to choose from? If yes, an ICHRA may be a better option.
But will an ICHRA actually save money versus a group plan? How do you know? Aside from our case studies, there are numerous articles available online and being published every day to help you be more confident. However, the absolute best way is to simply compare, side-by-side, an ICHRA plan cost to the group plan renewal cost. Thanks to modern technology, health insurance quoting could be the easiest first step you take.
You may think that putting together a comparison quote on an ICHRA to be a difficult task, but it won’t be with the right technology partner.
Use a Technology Provider
Technology is changing the world around us. The insurance industry is not immune. By playing a significant role in how a broker operates and provides services to their client base, technology is forever changing the playing field.
When leveraged effectively, technology can set a broker apart from the pack. It automates many core processes that the broker business model has relied on for years, formerly manual. Streamlining these processes decreases the time spent doing paperwork and increases time spent building relationships with clients. Tech is about improving efficiencies.
What should a broker do? Embrace the digital disruption. It will:
- Improve customer relations – Technology allows a broker to communicate more effectively and faster providing improved service while demonstrating how well you stay on top of industry trends.
- Save Time – Technology is a primary driver for improved efficiency. The manual processes can be greatly reduced, if not eliminated, reducing not only time but potential human error too!
- Increase Transparency – Why not display all options available to a client? Being able to show a broader view of available plans and rates can lead a client to make more informed decisions. Ultimately the broker provides better service and increases trust with the client.
Brokering ICHRAs in 2021 will require some work upfront: getting familiar with changes, finding the clients that fit, and learning new technology. But in the end, it will help set you up to sell more business as a broker and help you keep the customers you have who are looking for alternatives.