Dave Lantz, a father of three, has experienced the financial strain of high medical bills due to his family’s health plan with a high deductible. However, in mid-2022, his employer replaced their group health plan with an individual coverage health reimbursement arrangement (ICHRA), providing Lantz with a set amount each month to put towards a family plan on the individual insurance market. Although the monthly premium for the new plan is higher than before, Lantz saves money overall by avoiding the large deductible and gaining more control over his health spending. Employers are increasingly turning to ICHRAs to control health care costs while still offering valued benefits to their workers.
These plans allow employers to make tax-preferred contributions to employees for purchasing coverage on the individual market, limiting their financial exposure to rising health care costs. Supporters of ICHRAs argue that they allow companies to offer coverage to diverse employee groups and set budgets that control costs. However, some consumer advocates are concerned that the plans could result in pricier and skimpier coverage, particularly for older and sicker individuals. Furthermore, the plans may lead to higher premiums in the individual market, potentially affecting lower-wage workers who would lose out on subsidy benefits by using the ICHRA.
Plans sold on the individual market often have smaller provider networks, higher deductibles, and higher premiums compared to employer-sponsored coverage. While the plans are currently only available to a small portion of workers, interest is growing among employers, especially larger ones with at least 50 workers. Some insurers and venture capitalists see opportunities for expansion through ICHRAs. However, health insurance specialists caution that the plans may not be the best option for consumers or the individual insurance market due to potential implications on premiums and subsidy eligibility.
Employers can offer ICHRAs to specific classes of employees while continuing to provide group plans to others based on various characteristics. Lycoming College, a small liberal arts school in Pennsylvania, experienced significant cost savings and employee satisfaction after switching to the ICHRA coverage model. However, the plan’s administration complexity has posed challenges, leading some companies to revert back to group plans. Vendors are emerging to assist employers and employees in managing their ICHRAs effectively and efficiently, highlighting the need for guidance and support in navigating this new coverage model.
The future of ICHRAs remains uncertain, with some experts likening them to a disruptor akin to 401(k) plans. While the plans offer potential benefits for both employers and employees, they may not be suitable for every organization. As interest in ICHRAs continues to grow, it will be crucial for employers to carefully consider the implications on costs, coverage, and overall employee satisfaction in determining whether to adopt this alternative coverage model. Ultimately, the success and sustainability of ICHRAs will depend on the ability of employers and employees to navigate and adapt to this changing landscape in health care benefits.
