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Big biz, small biz, they’re all feeling the pinch: The cost of offering health insurance to employees continues to ratchet upward. Health benefits costs rose particularly high in 2021, due to climbing medical costs and an increase in benefit use as employees resumed care on items deferred during the height of the pandemic.
While many companies are swallowing the costs themselves to stay competitive (and empathetic) amid a tight labor market, employees and their families still find themselves struggling to manage their own share of the expense. In fact, nearly half of insured adults report difficulty paying for out-of-pocket expenses, and 1 in 4 report challenges affording their deductible, according to an October 2021 Health Tracking Poll from the Kaiser Family Foundation.
So how can companies reign in — or better yet, dial down — health benefit costs for not only themselves but also their employees? One recent yet rapidly rising solution is switching from traditional group plans to Individual Coverage Health Reimbursement Arrangements (ICHRAs). New to the marketplace in 2020, ICHRAs are an employer-funded, tax-advantaged health benefit used to reimburse employees for qualified medical expenses, including premiums and out-of-pocket expenses.
Available to businesses of any size, ICHRAs bypass the often unpredictable costs of traditional group plans. With an ICHRA, employers define and contribute a fixed amount for each employee, who is then empowered to shop and select an individual policy that suits their unique health care needs.
While much of the buzz around ICHRAs focuses on benefits for the C-suites and HR staff, this revolutionary reimbursement model group health plan also delivers substantial perks to employees.
More Access to Coverage
Traditional group plans may work for traditional workforces, but today’s labor landscape is diverse and decentralized — and the pandemic has only accelerated this trend. More and more employers are hiring part-time, temporary, and out-of-state workers to round out their talent force.
Employers offering traditional group plans often leave many of these non-traditional workers out of their benefit plan offering. ICHRAs allow employers to include all employees, and set a defined contribution amount based on 11 different employee classes (e.g., full-time, part-time, non-salaried). Employers can also set classes and contribution amounts by insurance rating areas, allowing employees to purchase policies in their local market — a huge perk for the rapidly rising remote workforce.
More Freedom & Choice
Employees and their families are incredibly diverse — and so are their health care needs. While traditional group plans cram everyone into the same benefits package with limited coverage options to select from, ICHRAs empower employees to shop, compare, and select their own individual insurance policy, which can then be reimbursed in part (or fully) by the employer’s defined contribution amount. The user-friendly platform includes live links to carrier plan details, Rx Lookup, and Find a Doctor to simplify the comparison process. In addition, employee contributions, if any, may be payroll deducted on a pre-tax basis, just like other group health plans.
Whether their priority is specialty drug coverage, routine lab work/imaging, or comprehensive mental health services, employees can easily search and find policies that fit their individual health needs.
More Cost Control
Given the greater choice of coverage options, employees are in control of their health insurance decisions. Some employees opt to spend more money to purchase more robust coverage. On the flip side, many employees are seeing lower premium costs. By selecting an insurance policy that suits their unique needs and budget, employees can stop paying for coverages or services they never use.
Related: Cost management opportunities and strategies to optimize employer health plans
In fact, many employees whose employers use ICHRAs have saved hundreds, even thousands, of dollars on their annual health insurance spend, and lowered their premiums from 30% to 50%. That’s a big chunk of cash — and a big way for businesses of any size to attract and retain talent in this tight labor market.
ICHRAs are delivering us into the future of health benefits — a future where health insurance stays affordable and a diverse workforce has the freedom to find the best coverage for their needs. Employers who recognize and adapt to this future will emerge as the true leaders of tomorrow.
John Kelly is the Founder and CEO of Nexben, offering the first end-to-end technology platform that connects all aspects of the benefits industry.
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