How ICHRAs Can Ignite a Revolution in Coverage

Most people either know nothing about ICHRAs or have a negative impression. Are these opinions valid?

You're excused if you've never heard of an Individual-Coverage Health Reimbursement Arrangement. Or if you've heard the term ICHRA (pronounced ick'-rah) but don't understand the particulars.

These plans are new. They're not widely available to employees. And many company benefits professionals aren't receiving much information about ICHRAs from their benefits advisors.

In short, there's a communication gap. This weekly column will address that gap by introducing key concepts about ICHRAs. Whether you're a benefits advisor, an employer representative, or an employee, you'll know more about ICHRAs - how they may save a company and employees money, who's responsible for what activities during the annual enrollment, and where workers can buy nongroup coverage to which to apply their ICHRA stipend.

Defining ICHRAs

Simply defined, an Individual-Coverage HRA is an account established, managed, and funded by a company to help employees cover medical premiums. It's an alternative to employer-sponsored coverage, the traditional means of offering medical benefits.

Employer-sponsored coverage. In this model, the company offers one, two, or sometimes three or more medical plans that it purchases directly from insurers. Premiums are based on claims of the company (experience-rated) or similar companies (community-rated). The employer pays the premium monthly (usually combining company funds with employee payroll deductions). Depending on its size, the company may have flexibility to create a non-standard benefit design and may be able to negotiate its annual premium increase. The company dedicates resources to choosing plans, negotiating premiums, enrolling employees annually, and assisting employees by providing information or advocacy with the insurer during the year.

ICHRA. This model isn't employer-centric. Employees purchase coverage in the nongroup market, either directly from an insurer or through a public marketplace (or exchange) or private distributor that offers plans from multiple insurers. Employees choose any plan available in the store that they choose, leading to perhaps dozens of choices in a company of 50 benefits-eligible workers. These nongroup plans are community-rated, which means that premiums are established by looking at claims incurred by everyone covered on that plan, without regard to individual enrollees' medical risk or claims experience. The company provides a tax-free stipend through an ICHRA to help employees pay their monthly premiums. Depending on the model, the company, the ICHRA platform, or the employee may send the monthly premium to the insurer.

A Brief History of ICHRAs

Prior to passage of the Affordable Care Act of 2010, employers could establish a Health Reimbursement Arrangement to give employees a tax-free stipend to purchase medical coverage in the nongroup market. This option allowed companies to provide for medical coverage for their benefits-eligible workers without actually providing access to a group medical plan.

Example: Mike's and Ike's Bikes gave each of its six employees who worked 30 or more hours a $400 tax-free monthly stipend that could be used only to purchase a nongroup medical plan or Medicare coverage.

The ACA eliminated this option by requiring most HRAs to be integrated with a major medical plan to meet the new federal regulations. Thus, Mike's and Ike's Bikes would have to not subsidize coverage, offer a post-tax stipend (either costing the company more money or giving workers a lower dollar amount), or assume the administrative burden of sponsoring a company plan.

In late 2016, Congress passed the CURES Act, legislation that focused primarily on federal subsidies for cancer research and reforms in the Food and Drug Administration and Medicare. An unrelated provision established Qualified Small-Employer Health Reimbursement Arrangements (or QSEHRA - pronounced Q-ser-ra). QSEHRAs allowed employers with 50 or fewer benefits-eligible workers to once again offer a tax-free premium stipend through an HRA. The program was restrictive (limited to small employers and imposing restraints on the dollar value and presence of other employee benefits), so uptake was limited.

In 2019, the Trump Administration took regulatory action to establish ICHRAs - a more expansive approach. At the time, the administration projected that ICHRAs would cover about 11 million workers when fully adopted about a decade from their introduction.

Interest in and adoption of ICHRAs is growing rapidly, albeit from a low base. Click here for some hard numbers compiled by the HRA Council, an industry trade group.

Aspects of ICHRAs That We'll Explore

You'll find ICHRA Insights in your LinkedIn feed every week going forward. In these columns, we'll look at a different aspect of ICHRAs. Topics include:

• Key features of the ICHRA program.

• Key benefits to employers and employees.

• Defined-benefit versus defined-contribution approach to employee benefits and the Texas-Baylor football tickets.

• Why Democrats should love ICHRAs.

• Why Republicans should love ICHRAs.

• How ICHRAs partially compensate for the flaw of the employer exemption.

• How the company parking lot relates to a key benefit of ICHRAs.

• The effect of ICHRAs on the nongroup-market risk pool.

• Permitted employee classes in the ICHRA program.

• Two distinct ICHRA designs.

• Whether Company Size Matters.

• Combining ICHRAs and employer-sponsored (group) coverage.

• Using ICHRAs to satisfy the needs of a multigenerational work force.

• Using ICHRAs to cover a national base of virtual workers.

• Whether ICHRAs are simply a tool to dump bad risk.

• Whether employers should offer different ICHRA stipends based on employees' and dependents' age and family size.

• The effect of ICHRAs on benefits advisors' compensation and range of services offered.

• Whether benefits advisors have a fiduciary responsibility to propose ICHRAs to their clients.

• How ICHRAs can help companies retain seasonal and part-time workers.

• How ICHRAs can help companies offer a benefit to gig and contract workers.

• How ICHRAs can fill the coverage gap during waiting periods.

• How ICHRAs help employees right-size their benefits.

• How COBRA applies to ICHRAs.

• The benefits of nongroup coverage versus COBRA.

• Key targets for ICHRAs - company size, industry, location, demographics.

• The process gaps when firms switch from group plans to ICHRAs.

• Efforts to codify ICHRA rules.

The Bottom Line

ICHRAs provide companies with another option to help their employees pay medical premiums. ICHRAs aren't the right choice for everyone, any more than a three-bedroom ranch, a hybrid SUV, or a chicken entree doesn't meet the needs of every person or family. But it's important that benefits advisors and employee benefits professionals understand ICHRAs to determine how this approach to coverage may help them manage their benefits budget as they retain and attract talent.

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The content of this column is informational only. It is not intended, nor should the reader construe the content, as legal advice. Please consult your personal legal, tax, or financial counsel for information about how this information applies to you or your entity.