Many employers are amazed at the amount of time and resources they must put into benefits and health plan management, and they are looking for a different approach to providing good benefits. At least one local employer has found that Individual Coverage Health Reimbursement Arrangements (ICHRAs), which became available in 2017 through the 21st Century Cures Act, are an alternative that can remove the administrative burden and reduce costs.
Under an ICHRA, businesses offer employees a monthly allowance of tax-free money, allowing them to buy health care services that fit their unique needs while controlling costs and addressing Affordable Care Act compliance. To examine how well they have worked for local employers, we spoke to Vaughn Vance, president and CEO of Madison-based WEA Trust, to offer a case study. Ironically, WEA Trust was in the group health insurance market for more than 50 years, and it converted to an ICHRA for its own employees after leaving that market.
For the purposes of this article, we’ll focus on ICHRAs rather than Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs). There are several distinctions between the two, but the main difference between ICHRAs and QSEHRAs is that ICHRAs are available for employers of all sizes, while QSEHRAs are designed for small businesses with less than 50 employees. In addition, ICHRAs allow employers to reimburse any amount they choose, while a QSEHRA has limits of $5,850 for individuals and $11,800 for family coverage in 2023.
Shifting burden
IB first heard about this type of medical insurance coverage during its 2022 Health Care Industry Roundtable, when Christian Rosenstock, executive vice president of business development for Total Administrative Services Corp. (TASC), touted their value as an option in the market. As Rosenstock explains, ICHRAs are relatively easy for an employer to set up — simply set a budget and then employees shop for their medical insurance coverage.
Under an ICHRA, there is no group plan. The individual employees can go on the exchange marketplace, or they can work directly with insurance agents or brokers to buy coverage. There is a shift in the responsibility from the employer to individual employees who submit claims for their expenses and are reimbursed through their ICHRA account. It’s a simple structure that is employer funded but takes the burden off the employer for shopping for and delivering coverage plans to employees, and it provides employees with the opportunity to take control of their coverage choices.
According to Rosenstock, ICHRAs are in the very early stages in Wisconsin. The numbers are very small compared to other states, but if costs continue to rise here, eventually employers will look for alternatives, and he believes ICHRAs are a good alternative. They satisfy the ACA requirements for applicable large employers, or ALEs, and they give employers budget flexibility.
However, while Rosenstock believes that local employers will lean more in this direction, greater adoption will take some time in Wisconsin. “There’s still a trend brewing in the [national] marketplace for ICHRAs and it has continued to accelerate,” he notes. “It’s still driven by the rising cost of health care, which has continued to accelerate, but we’re still not seeing the same growth of ICHRAs in the Wisconsin market that the rest of the country seems to be experiencing.”
One local employer that has taken the plunge is WEA Trust. According to President and CEO Vaughn Vance, there are five key things other employers should know about these arrangements.
- You need an administrative partner. WEA Trust has partnered with St. Paul-based Benafica to administer the program. WEA Trust’s decision was based on the fact it was in a downsizing situation while leaving the group health market, and it was hard to figure out who was going to be left to provide insurance for and how they would get rated. The company had employees who wanted different provider networks and different plan designs, and Vance wasn’t planning to have a large human resources presence, so keeping the workload low was a priority.
WEA Trust looked at various options in the health care market, everything from trying to self-fund to picking an existing plan, but none of them appeared to be a good fit. In addition, “we had a very difficult time with small group underwriting, and I also have a largely older population that was going to be difficult to price in the market,” Vance notes. “When someone came and gave me the option of the ICHRA, I wasn’t sure about it. I hadn’t heard a lot about it, and I had some anxiousness about it.”
Finding a good partner to administer the benefit is key — a partner that can help employees find the right plan for them, and a partner that will be able to turn around reimbursement requests quickly. “We’ve been very happy with that,” Vance says.
In addition, Rosenstock advises employers to work with administrators that have experience with ICHRAs because if they are not experienced in this space, there’s a risk that the employer might be unnecessarily limited in plan configuration or be misled about what they can or can’t do.
- Employers must determine how much funding to apply per employee. WEA Trust sets its contribution to the amount it was paying toward the premium for its employees in the previous year under the former plan — basically a 0% increase that was more than enough to cover their needs. “Basically, we went to all the employees and said, ‘Look, you can go find something that suits your individual needs. I’ll give you the same amount we gave last year — that we paid in premium. You can spend that how you want.’”
Vance knew that almost everybody on the team could buy the best insurance in the market and spend less than what the company was going to pay them in the ICHRA contribution, but if anyone would have told him during any previous year that he could get a 0% rate increase and empower his employees to have less out-of-pocket expense, he would not have believed it. “The only people who ran into problems,” he says, “were 55 and older couples who had three or more adult dependents on their plan because of the way the market priced it. But in the end, they all had access to other coverage, so they left and went to their spouses’ plan.”
Vance did not have to ask employees to give up their favorite provider-owned HMO. Whether they liked Quartz, Dean Health Plan, or Group Health Cooperative-South Central Wisconsin, they could stick with their preference. They are buying direct instead of having Vance act as an intermediary and making that decision for them. Giving employees the power and the resources necessary to personalize the choices turned out to be a net positive for WEA Trust.
“As the employer, I had to decide who’s in network and who’s not in network for all of my employees,” he explains. “Now, I have employees who are in every conceivable plan and configuration that’s offered in the market … It’s whatever fits your situation, and with the right advice up front, they can make some very informed decisions. I think, universally, that my employees saw their overall net benefits go up with less cost out of pocket, which I did not expect to say as a group insurance salesperson or as a company that once sold it.”
- It’s affordable. The overall plan costs on the exchange are lower than WEA Trust expected for relatively comparable coverage. For example, in Vance’s own experience, he and his 17-year-old son are on his plan. The total premium cost he pays for that plan on the marketplace is 60% less than the old family plan offered to employees on a premium basis. There’s more out of pocket expense in terms of copays and a slightly higher deductible, but the money that’s leftover in his ICHRA account more than makes up for that, and he was able to tell his employees that they don’t have to make a premium contribution on the employee side. “That’s a savings for most of our employees of $400 a month off the top,” he states.
- You can apply annual savings to other benefits. According to Vance, the biggest change with the new program is how the group is rated because when you’re a small employer, the experience that your group has had is the leading indicator that determines how much you pay for premium. When your employees are buying plans through the marketplace, they’re part of a much larger group and they benefit from that. “In our case, we’ve given a block of money to our employees, which was a 0% increase, but we will recoup the money that isn’t spent in the ICHRA at the end of the year,” he says. “Right now, I’m betting that will be more than 25% that we’ll get back — that employees won’t need to access more than 25% of the money we’ve set aside for them in individual accounts.”
Vance has told his staff that whatever savings accrue on the health side, WEA Trust will put those savings into other benefits. “Whether that’s year-end bonuses or an increased retirement contribution or something else, we will find a way to pour those dollars back into our people,” he states.
- Upfront education is vital. To Vance, upfront ICHRA education matters because his employees grew up working for a health insurer, they never thought they would have to look for medical insurance coverage on their own, and there was some anxiety associated with that. Knowing this, WEA Trust set up a deliberate communication plan — with group and individual sessions — to assuage their fears and to connect them with the right resources. “What we thought was going to be a difficult conversation about a benefit takeaway — we’re not going to offer group health insurance anymore — has really turned out universally among our employees as a benefit enhancement,” he marvels. “Frequent, transparent communication, and a lot of help in the first year to get people over that initial anxiety, will go a long way.”
Universal viability
From Vance’s standpoint, ICHRAs are a viable option for any business. “Just consistently going along as a large group, would we have spent as much time investigating it? Probably not, and that’s too bad because there’s an option here that would work for any size employer that more employers should spend time investigating.”
