In 2020 the Department of Labor, HHS and IRS changed the rules for employer health benefits. They changed the Affordable Care Act mandates and penalties for every employer. It created the Individual Coverage HRA (ICHRA) to help average employers compete. ICHRA gives average employers a new alternative to group health insurance..
The new ICHRA rules went into effect on the eve of the shutdown, so most employers don’t know about it yet. Most don’t know that ICHRA is an ACA compliant alternative to group health insurance. The majority of large employers still believe group health insurance is the only way to offer great health benefits, and comply with the law.
Year after year, expecting a different result. Group Health Insurance is as close to Insanity as it gets.
But, after a paycheck, ‘good health benefits’ are the number one thing job applicants are after. Now more than ever, great employee health benefits are important. It’s getting harder to find great employees, and even harder to hang on to them. Employees need health benefits that are affordable and something they can actually use. Yet at the same time rising premiums continue to rise. This pressures employers to make hard compromises in plan selection that decrease the coverage just to hold down the premium increase. It’s a sad situation that employers suffer through during open enrollment.
Every year about this time owners and CFO’s are bracing for the coming insurance renewal quotes. You know the dreaded feeling? That Q4 call from your insurance broker is never good news. Seeing your worst-case budget guess, surpassed by a double digit premium hike.
Any good health insurance broker is able to present lots of ways to ‘rearrange the deck chairs’ and help you buy more insurance. They all involve decreasing benefits and increasing the employee’s share of premiums. This means restricting access, increasing deductibles, and/or coinsurance.
So once your broker has the open market insurance quotes, it’s time for the dreaded plan redesign. This is when you and your insurance broker skinny down the benefits to lower the premium. It can take days reviewing plans, and hours discussing ways to limit the employee’s health benefits. It’s a lot of work just to keep the premiums from rising too much. It makes you feel kind of cheap, taking benefits away from your employees. Hopefully there isn’t too much of a bad reaction this year.
Most large employers have a smart health insurance broker. They get paid to submit your company census and rate history to insurance carriers, and then return with quotes. A good broker should assess your benefit objectives and compile financial comparisons and recommendations to get you there. They should also be able to help you source group health insurance in several different formats:
Note that each of these requires insurance to be purchased to protect against the risk that some employees get really sick.
There’s no such thing as a free lunch with group health insurance. The carriers will look at your group demographics, rate history and claims history. They have all the data and it tells them a lot about the health of your group. This year’s data is the basis of your premiums next year. They look at last year’s ‘experience’ (also known as claims) to determine how much of an increase you will get to pay.
They use a thing called the Medical Loss Ratio. This compares a previous year of premiums against the health claims paid for your employees. If the carrier didn’t make the federally approved profit on your policy, they are allowed to increase your premiums. The increase is meant to catch-up on the lost profit, and to make sure your group is profitable next year. Playing catch up is why double digit premium increases are so common.
Some employers try to implement wellness programs and incentives for healthy behaviors. Thbis can result in employees using less healthcare. Others implement health access tools like direct primary care, Teladoc, or 2MD. The idea is to help employees be smarter healthcare consumers. Health tools like this can reduce claims and premium increases over time. But results can be slow and continuous employee engagement is vital to be successful.
If your group gets healthier and your claims history decreases your insurance broker should be shopping for a rate decrease. This is usually something you should push your broker to do every year, or every other year at a minimum. Not all brokers feel incentivized to ask for rate decreases. Because lower premiums means a lower commission. It’s always a good idea to keep motivations in mind with your outside consultants. If your group is healthy, it might be productive to consider shopping brokers from time to time.
Once you have your best health insurance rates and plans is the time to compare to an ICHRA based strategy. Because group insurance is not needed for an ICHRA approach, brokers have a small conflict of interest. Switching to ICHRA is going to take a little extra effort this one time. Renewing your group health insurance coverage is easier. But this simple side by side comparison will help you know how much a little extra effort can save you. The best news is, that once you make the switch to ICHRA you never have to deal with open enrollment for group health insurance, ever again. Once your employees test drive their new ICHRA health benefits they will be more loyal and productive.
Unlike group insurance, ICHRA is not a one size fits all solution. ICHRA is flexible for employees and for employers. There’s an ICHRA strategy for big employers with high turnover, low wages. There is an entirely different strategy where high quality, affordable health benefits are essential to the stable operation and growth of the company.
Fortunately there are ICHRA specialists like Scoop Health who work with employers to customize an ICHRA strategy to meet the goals and objectives for benefits. This can range from outstanding health benefits that attract, retain and reward employees, to the lowest cost ACA compliance.
Scoop Health uses a detailed financial model to compare your existing group insurance to an ICHRA strategy. This includes testing for ACA Affordability, which was just increased to 9.83% of pay in 2021. They can help you make contribution adjustments for things like age, class, eligibility, and location. The resulting model provides a clear contrast between the two alternatives. It makes the decision to stay or switch much more obvious and easy to make.
Not surprisingly, Individual Coverage HRA has been dubbed the ‘401K for employee health benefits’ by the HR experts at SHRM. It’s because both 401K, and ICHRA involve an employer making a defined contribution that employees get to ‘invest’ the way they want. ICHRA is basically a tax vehicle, just like the 401K. The employer offers to contribute pre-tax funds via the HRA. Employees use it to pay for health benefits they select to suit their lifestyle and budget. If an employee declines, the employer keeps the money, and satisfies the ACA coverage mandate.
The bare bones ICHRA contribution could be the lowest dollar amount to satisfy the ACA’s ‘affordability testing’, thus avoiding ACA penalties. Employees could use the contribution offer to purchase health insurance of their own choosing. With the employee probably paying a part of the total premium out of pocket. This is often the case with group insurance too. In the ICHRA implementation, any employees opting for individual health insurance are helped through the process using advisors like Kind Health.
When high quality employee health benefits are important ICHRA can be used as the foundation for a more robust plan. The ICHRA is used to pay for certain ‘Qualified Medical Expenses’ when packaged in an Employee Assistance Program. The EAP provides these first dollar benefits to every employee.
In Scoop Health’s ICHRA strategy the EAP is used to pay for unlimited virtual primary care. The ICHRA also reimburses 100% of preventative care costs, including vision and dental. This first dollar benefit is highly appreciated by employees. Virtual primary care has been shown to address 85% of most employees’ everyday health needs. It’s a big hit with employees, especially those with families, busy schedules, and juggling working from home. What employee wouldn’t love unlimited primary care, for free?
For catastrophic protection employees get to choose. They can invest the employer’s ICHRA contribution to purchase individual health insurance if they want. Ot accept the employers contribution towards a less costly alternative known as, Medical Cost Sharing. Employees feel better about their employer’s health benefits when they get to choose what is best for their health and their finances.
In 2019 the Department of Labor and HHS said group health insurance was only working for the very largest employers and punishing the rest. They created Individual Coverage HRA to level the playing field. The Feds predict that over one million businesses will make the switch from group health insurance to ICHRA by 2030. ICHRA went live on 1/1 2020.
There are real positive benefits for employers choosing ICHRA vs group health insurance.
Post-pandemic health insurance premiums are expected to spike. That is why more employers are showing strong interest in ICHRA as the secret to affordable group health benefits that employees will use and brag to their friends about.