An increasing number of employers are turning to individual coverage health reimbursement arrangements for their employee health insurance plans. ICHRAs, which were first created in 2019 and officially became an available option in 2020, are an alternative to group medical insurance plans. Under an ICHRA, employers establish a budget that their employees can use to
An increasing number of employers are turning to individual coverage health reimbursement arrangements for their employee health insurance plans.
ICHRAs, which were first created in 2019 and officially became an available option in 2020, are an alternative to group medical insurance plans. Under an ICHRA, employers establish a budget that their employees can use to purchase their own health insurance plan. The employer then reimburses the employees tax-free for that pre-established amount. Employees can get reimbursed for qualifying monthly premiums, copays and deductibles, according to the U.S. Department of Health and Human Services’ health care website.
New Berlin-based Pindel Global Precision is one Milwaukee-area employer that has recently implemented an ICHRA plan with its employees. Bill Berrien, the company’s chief executive officer, learned about ICHRAs in 2021, when faced with a 20%-30% increase in group medical plan premiums.
Todd Catlin, a health insurance, small group and Medicare specialist at Brookfield-based Transition Health Benefits, serves as the individual medical benefits broker for Pindel’s ICHRA plan. Catlin said double-digit renewal increases have prompted some employers to consider an ICHRA plan.
“An ICHRA offers a good path to get out of, say, staring down a 40% rate increase, as long as they’re comfortable with the concept of ICHRA and what’s going to work for their employees and what the company’s trying to accomplish,” Catlin said.
ICHRAs have offered greater flexibility and potential cost savings for both employers and employees, Catlin said. With ICHRAs, employers can have a “known, set dollar amount” that they’ll spend on employee health insurance each year, Catlin said.
Berrien looked into the ICHRA model and found that it could cut costs for both the company and his employees, while also maintaining the same – or achieving greater – capabilities of the previous group plan, he said. Berrien went on to implement an ICHRA plan in 2021. Pindel Global Precision has about 75 employees, with 50 to 55 of them participating in the ICHRA plan, Berrien said.
“One of the best things is, employees get to tailor their insurance to their specific needs,” Berrien said.
[caption id="attachment_599079" align="alignnone" width="300"] Bill Berrien[/caption]
A growing trend faces a lack of familiarity
Hartland-based Diversified Benefit Services currently has more than 230 clients implementing ICHRAs, with most of those clients located in southeastern Wisconsin, said president and founder Tim Pederson. DBS handles the administration of Pindel’s ICHRA plan.
“Especially the last couple of years, the uptick or upturn in interest in ICHRAs and actually having employers implement those types of plans has grown tremendously since the inception,” Pederson said.
Similar to group market plans, most employers utilizing an ICHRA plan do not fund 100% of the cost of an employee’s coverage, he added.
M3 Insurance, a Madison-based company that provides brokerage services, “didn’t see a ton of traction” when ICHRAs initially entered the market, said Rebecca Menefee, vice president of M3 Insurance’s Elevate division.
“But we spent a ton of time digging into the space, learning more about it, and we’ve since had a number of clients that have engaged and are implementing and utilizing an ICHRA today,” Menefee said, adding some of those clients are located in the Milwaukee area.
While there’s been an increasing interest in ICHRAs within the business community, many people are not entirely familiar with the option, Catlin said.
Diversified Benefit Services sales manager Tony Burlo said about half of brokers know about ICHRAs and have started to implement them.
“There’s still a large sector of the broker community that does not know about this, though,” Burlo said. “There’s a huge opportunity here, and I think once that additional community of brokers learns about this and understands it, it’ll grow even more.”
Not only for small businesses
When ICHRAs first rolled out, the idea was that small businesses with up to about 50 employees would be the ones utilizing this option, Pederson said.
“In the last year to year-and-a-half, we have seen the ceiling of that blown off,” he said. Diversified Benefit Services clients that are using ICHRA plans range in size from five employees to more than 200, he said.
Menefee also said there’s been an uptick in larger organizations turning to ICHRAs for their employees. For example, Menefee has a client with about 300 employees using an ICHRA plan.
[caption id="attachment_599082" align="alignnone" width="300"] Rebecca Menefee[/caption]
Catlin said there is a misconception that ICHRAs “won’t work for certain-sized companies or employee populations.”
“Whether it’s a group of two or 2,000, it’s functionally going to work exactly the same,” Catlin said. “I don’t think there’s a better group than another that an ICHRA would work for.”
Meeting employee insurance needs
There’s been a growing interest in ICHRAs among some larger organizations because they are hiring across state lines, Menefee said. With the rise of remote work that came from the COVID-19 pandemic, some employers “no longer need to have people that live in your community to do the job that you need them to do,” Menefee said.
Remote employees may move because they similarly feel they don’t need to live in the same city or state as their employer, said Coreen Dicus-Johnson, CEO of Menasha-based Network Health.
[caption id="attachment_599081" align="alignnone" width="1280"] Coreen Dicus-Johnson[/caption]
“Well, if you get your health insurance benefits from your employer, sometimes where you’re moving, there may be different options, or the option that your employer is offering is no longer available to you in that state,” Dicus-Johnson said.
ICHRA regulations outline 11 employee classes, such as whether an employee maintains full-time or part-time status, works seasonally or works within the same geographic location as the employer. Catlin said these different classes can allow employers to set up different contribution strategies for remote employees living outside the employer’s geographic area.
“All health care’s local,” Catlin said. “It changes all over the place, and what you’re doing with maybe a company in Wisconsin is not what’s good for an employee out in Minnesota or California. So, you can tailor those benefits to those specific people.”
Berrien said the different employee class distinctions have allowed his company some flexibility to additionally support team members who are on Medicare.
The employee classes defined through ICHRAs can also help employers retain seasonal and part-time employees, Burlo said.
[caption id="attachment_599083" align="alignnone" width="300"] Tony Burlo[/caption]
“There’s employers that have seasonal folks that are just great and they want to be able to provide some sort of a benefit to them,” Burlo said.
Even within the same geographic area, though, a unified health care program “might not be the best fit for every employee,” Menefee said. Employees may need or want particular providers or plans with varying levels of deductibles, she said. ICHRAs provide a greater ease of choice for employers because they can “remove themselves from that decision-making process,” she said.
“As an employer, I can say, ‘I’m going to give you money, and you can go find the right solution for you, and we’re going to provide a resource for you to do that, so now you can decide what’s best for you and your family,’” Menefee said.
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