New twist on health insurance

Trying to understand health insurance can be like decoding a foreign language. But as of 2020, there’s a new vocabulary term you might want to learn: Individual Coverage Healthcare Reimbursement Arrangement, or ICHRA.  

An ICHRA (pronounced “ick-ruh”) refers to situations where an employer reimburses employees for health insurance expenses. With an ICHRA, employees go to the insurance exchange, buy their own plan, and receive a tax-free reimbursement from their employer. This is a departure from traditional group health insurance plans, where employees only have one option: the health insurance plan their employer buys for them.  

Colorado-born Snarf’s Sandwiches offers a case in point: “We previously had a large group plan,” says Cara Greene, Snarf’s human resources director. “And when we were going through a renewal for 2021, we got a 46% increase in premium, which is not sustainable.” Greene needed to find another option for the company’s nearly 100 employees. Her broker introduced her to the concept of an ICHRA. 

“We were a little hesitant at first,” Greene says, but trying it out in 2021 proved successful for employees. Now, Snarf’s Sandwiches employees aren’t locked into a single group plan, and the company can help employees pay their premiums by offering set reimbursement amounts depending on age. “They have the flexibility to be able to go out and shop for a health plan that works best for them and their health issues,” she says. “So if they’re willing to pay a little bit more out of pocket every month, to have a more robust plan, then they have the option to do that.” 

“It’s a fundamentally new way for employers to provide benefits to employees,” says Jack Hooper, CEO of Take Command, an ICHRA administrator based in Dallas. An ICHRA offers a way for employers to help reduce their monthly premiums by giving employees monetary reimbursements, tax-free, to help offset the cost of health insurance. 

Like HRAs, but with more choice 

HRAs, or Health Reimbursement Arrangements, have been around for decades. “They were typically established for large employers who were self-insured — didn’t buy insurance — and they were to cover things that were not covered by the health plan,” says Bill Lindsay, Principal and CEO of employee benefit consulting firm Lindsay 3. Another form of coverage, the Qualified Small Employer HRA, or QSEHRA, offered a provision for employers with 50 employees or fewer that wanted to offer health insurance options. QSEHRAs didn’t really take off, he says, because they proved to be very restrictive.  

An ICHRA, then, represents a tool for employers to reimburse employees for health insurance premiums with fewer restrictions and no upward cap; an employer of any size can use it, and the employer decides how much to reimburse per employee per month.  

Then, Lindsay says, the employee can decide what coverage they want or need simply by choosing a plan through Colorado’s health insurance marketplace and submitting proof to their employer.  

Claire Brockbank, CEO of Peak Health Alliance — a health insurance purchasing alliance founded in Summit County — says the ICHRA “gives the employee maximum choice.” Brockbank adds that many Peak Health Alliance members are covering more employees for less money — a big deal in a tough labor market. 

According to Take Command, Colorado employers reimbursed, on average, $371.59 per month per employee. This more than covers the average bronze plan and silver plans — $280 and $313 respectively — on Colorado’s official health insurance marketplace, Connect for Health Colorado. 

Colorado has a whopping 527 individual plans available across the state, which creates more choice and competition on the market. Additionally, Colorado’s reinsurance program — essentially insurance for insurance companies — lowers insurance companies’ risk, which in turn lowers costs.

Why are ICHRAs trending in Colorado? 

The Centennial state has many seasonal industries and small businesses, but many of those companies have never offered insurance before — and if they employ fewer than 50 people, they aren’t required to. Group insurance can be expensive, and many plans require 70% employee participation. For companies that have a mix of hourly or full-time and seasonal workers, it’s hard to meet that threshold. And due to the pandemic, employees may be more dispersed than ever before. Traditional group plans might not have coverage outside of the employer’s city headquarters. 

Colorado has a whopping 527 individual plans available across the state, which creates more choice and competition on the market. Additionally, Colorado’s reinsurance program — essentially insurance for insurance
companies — lowers insurance companies’ risk, which in turn lowers costs.  

What’s more, in October 2021 Gov. Jared Polis and Lt. Governor Dianne Primavera announced that Coloradans will save on average 24.1% on individual premiums in 2022. Those Colorado consumers buying individual plans can expect only a modest average increase of 1.1% over 2021 premiums. Compare that to the 46% premium increase Snarf’s Sandwiches was facing with their previous group plan, and you can see the appeal. 

ICHRAs offer employees more choice, too. Say their employer offers a $400 per month reimbursement. They can still choose a plan that costs $500/month, but in that situation only $100 comes out of their paycheck. If the employee chooses a plan that costs less than the monthly ICHRA amount from the employer, they can put that difference toward a copay or prescriptions. 

New concept, new challenges 

ICHRAs aren’t without potential setbacks. Moving from the traditional fully insured small-group market to the ICHRA market requires time, energy and know-how.  

“There are fewer and fewer agents who sell individual health insurance,” Lindsay says. “Many of them have moved out of that market, because the insurance companies have cut the commissions that they pay substantially, or maybe don’t even offer commissions.”  

The employer needs to have a plan description and timely employee communications or it could face penalties. If a company already has a general insurance agent for its workers’ comp or liability insurance, it might be able to call on the agent for that expertise — or, hire a third-party administrator like Take Command. “Otherwise, that employer would have to figure all this out on their own” Lindsay says. 

“It is a kind of a new concept to try to get used to,” Greene says, for both Snarf’s Sandwiches and their employees. She’s had to get used to telling workers, “You need to go out and you need to pick a plan that works for you, and I can’t make that decision for you. You have to do that for yourself.” Even if employees leave the company, they can keep their plan as long as they keep paying the premiums. 

Still, companies are finding value in this new way of paying for employee insurance. Snarf’s Sandwiches will continue using an ICHRA in 2022, and even plans to increase its employee reimbursement benefit.