To ICHRA or Not to ICHRA?

That is the question. The question that brokers should evaluate at every client’s renewal. There is more to an Individual Coverage HRA (ICHRA) client fit determination than just looking at the individual market premiums vs. group health premiums.

ICHRAs were available for employers starting on January 1, 2020 and are available to any size employer allowing them to help pay for employee’s individual market coverage with pre-tax dollars. Brokers, it is time to start discussing ICHRAs with your clients, we are finding employers are interested and want to know their options.

Does ICHRA Make Sense at First Glance?

First, determine if the company is on board philosophically moving all or some of their employees to the individual market in lieu of a group health plan. Explaining the benefits for both the employer and employee will help them make an insightful decision.

Employee ICHRA benefits include:

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.

Employer advantages include:

1. ICHRAs can result in long term cost reduction offering a fixed, predictable budget.

2. ICHRAs gets 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 no more open enrollment work.

Identifying Groups at Risk

For those groups experiencing network or carrier issues for remote workers, large renewals or low employee plan participation, brokers should perform an ICHRA analysis to determine whether to replace the group health plan or maintain the GHP and offer an ICHRA plan to a class of employees.

Industries That Are a Solid ICHRA Fit

Industries with high turnover, short employee tenure, population with lower paid workers and a mix of hourly and salary employees lend themselves to an ICHRA plan being a good solution. Industry examples are, but not limited to, hospitality, retail, restaurants, manufacturing, non-profits, delivery, construction, landscaping, health care, and professional services

Keys to Success

Plan design, contribution structure and employee education are key to a successful ICHRA implementation and will determine employee adoption and satisfaction. There are different plan design and contribution approaches based on the size of the company.

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.

For small groups, structuring unaffordable ICHRA contributions for a class of employees will allow the employee to waive their ICHRA participation to access their government subsidies, reducing the cost for both the employer and employee.

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. Although employers are no longer choosing the plan for the employees, they should take responsibility on educating the employee how to manage their new responsibility and what information to have available when making an individual plan choice, such as providers to review networks, prescriptions and any upcoming procedures.

Best in Class – An Important Component to ICHRAs The available ICHRA classes provides a valuable tool allowing contributions to fit both the employer and employee needs. There are 11 classes defined, the most common classes used are salary, hourly, full-time, part-time, seasonal and geographic location. These classes can be combined to create additional classes, for example, salary and hourly classes within a geographic class such as a state. 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 a class you can establish age banded contributions, not a flat dollar amount, to help provide equal buying power for all age employees. Lastly, employers can offer employees more contribution based on their coverage tiers, such as employee and family coverage.

Practical ICHRA Example with Classes

Scenario: A restaurant with locations in 2 states, over 50 employees (Applicable Large Employer) with an employee population of salaried management employees and hourly waiters and cooks. Meeting GHP 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.

ICHRA Approach: Replace the group health plan with an ICHRA plan to remove the participation concern. Set up classes to vary employer ICHRA contributions. Premium differentials vary state by state and can be significant, therefore establish geographic classes to group employees by state. Within that state class create a salary class for management and hourly class for the wait staff and cooks. Add age bands to provide for more equal buying power amongst all ages and tier contributions by employees and number of dependents.

Modeling this can be challenging, but there is software available to help with determining the best contribution formula while staying in compliance.

Bonus Idea

To help with adoption and to reduce employee financial hardship find an ICHRA provider that offers a banking arrangement to allow employer funding of the monthly premium and payroll deducting the employee’s premium responsibility. This arrangement feels 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.