New program gives employers health insurance option

Data remains sparse on how well a new program that gives employers a way to keep their health care spending at a fixed dollar amount is working and how many businesses are participating. But the region’s providers of health care options for businesses say they are seeing increased interest.

Individual Coverage Health Reimbursement Arrangements (ICHRA), known as “ick-ruhs,” became available in 2020 after being created in 2019 under regulations passed by the Trump administration in 2019. They allow employers of any size to reimburse their employees for some or all of the premiums that their employees pay for health coverage they buy themselves.

“There is a lot of education needed to ensure that employers and brokers understand them,” said Brian Blase, president of health-policy think tank Paragon Health Institute, who testified about the program Feb. 17 before the House Education and Labor Subcommittee on Health, Employment, Labor and Pensions. “Moreover,” he added, “migration to individual coverage HRAs has been affected by employers’ understandable focus on weathering the pandemic as well as a general risk aversion to changing employee benefits in such a tight labor market.”

However, Blase said, “individual coverage HRAs will help employers attract and retain employees, gain greater predictability over their health costs, and reduce administrative expenses, allowing them to better concentrate on their core business purpose. The rule should help reverse the decline in small employers that offer coverage to their workers. Moreover, the rule contains significant flexibility for larger employers to offer coverage to part-time workers or hourly workers.”

ICHRAs differ from previous implementation rules under the Affordable Care Act that said employers couldn’t reimburse employees for individual market premiums. Large employers can use them to satisfy the ACA’s employer mandate as long as the benefit is big enough to make an individual health plan affordable. Affordability uses the same percentage of income that applies to employer group plans but is calculated based on the price of the lowest-cost “silver’’ plan in a state’s health care marketplace after the ICHRA benefit is subtracted from the total.

According to Internal Revenue Service regulations, “an ICHRA is affordable if the remaining amount an employee has to pay for a self-only silver plan on the exchange is less than 9.83% of the employee’s household income.”

Under the new rules, employers must offer either a group health plan or an ICHRA to a class of employees; they can’t give their workers a choice. They can be used to reimburse workers for qualified medical expenses in addition to premiums.

“As of Jan. 1, 2020, employers have been able to provide tax-preferred contributions through an individual coverage HRA, which their employees can use to purchase the individual market plan that work best for them,” Blasé said. “Most employers that offer health insurance provide workers only with a single option, so the HRA rule has the potential to significantly increase worker choice and control over their health insurance. Employees are currently limited to purchasing ACA-compliant plans in the individual market, although Congress could permit employees to use their HRAs to purchase a broader set of plans.”

Employees have to buy individual health insurance to participate in the ICHRA, or can be covered by Medicare Parts A and B or Medicare Part C. The business chooses a monthly allowance of tax-free money to make available to employees; that allowance is the maximum amount the business will pay out in reimbursements.

The advantages of ICHRA include the fact that it’s free of payroll tax for both the business and its employees, and available to businesses of all sizes. Unlike traditional group insurance, there are no minimum participation requirements and no maximum contribution limits, and businesses don’t need to act as a middleman between employees and insurance companies.

There are some disadvantages, however. It doesn’t provide benefits to employees who are uninsured or those on a spouse’s group plan, and businesses will need to retain an ICHRA administrator because otherwise they would have to create their own plan documents, handle employee reimbursement requests and keep up with changes in regulations on their own. The set monthly allowance rolls over into the next month if it’s unused, but resets at the end of the year.

ICHRAs represent a big change for workers who are used to having their portion of a health-insurance premium taken out of their paychecks while their employer pays its portion directly to the insurance company. With an ICHRA, the workers pay the entire premium themselves and then are reimbursed — an initial out-of-pocket cost that could put a strain on some cash-strapped employees. Still, to get a reimbursement is a simple process: The employee submits a receipt and gets paid back up to his or her accrued allowance amount after the employer verifies and approves it.