ICHRA-nomics: Optimizing The Potential of ICHRAs
Managing employee reimbursements can be as easy as traditional group plans, and the flexibility often makes the most ICHRA-nomic sense.
Interest in Individual Coverage Health Reimbursement Arrangements (ICHRAs) has taken center stage since joint legislation from the Departments of Treasury, Labor, and Health and Human Services took effect in 2020. These employee-centric plans can be offered by employers of all sizes and offer desirable benefits of flexibility and affordability.
The Rise of ICHRA Adoption
ICHRA adoption grew nearly 350% in the first two years, from 2020-2022. Further, employees offered an ICHRA increased 171% from 2022 to 2023, an indication these plans are mainstreaming into the workplace. ICHRAs are an incredibly apt alternative to traditional group plans for anyone looking for a way to provide more personalized and cost-effective options for employers and their employees.
However, this freedom comes at a cost. The administrative process for ICHRAs is more complex because an employee can choose from many plans, so premiums, deductibles, and benefits will differ from employee to employee. These tax-free benefits
are often accessed like other account-based plans requiring reimbursement requests and substantiation documentation to be compliant with IRS Regulations. Because of this, documentation is required to avoid running counter to I.R.S. regulations. Managing this for a few employees, let alone a few thousand, is daunting when everyone has their own health plan, and the
painful administrative experience could erode the value of ICHRAs.
Today’s ecosystem of brokers, employers, and employees is accustomed to pre-established group rates that current infrastructure has been outfitted to manage – some more efficiently than others. Many brokers continue looking for an experience they’re used to—and they’re not getting it. It’s leading to frustration, confusion, and a feeling of helplessness.
The good news? There is a way to recreate the administrative experience of a traditional health plan when managing the flexibility of ICHRAs.
First, The Basics
Implementing an ICHRA is straightforward. Employers define a fixed amount to contribute to each employee based on employee classes and affordability rules for Applicable Large Employers (ALEs), as defined by federal regulations. If the employee chooses a plan with a premium that is higher than the employer contribution, the employee must cover the difference.
Employee flexibility in choosing a plan with the right coverage and cost for their personal needs is a big reason to choose an ICHRA. Employers may find that ICHRAs have benefits over traditional group plans through increased flexibility and more affordability:
- Employees choose any plan from any carrier.
- Employers provide funding for more personalized benefits that cater specifically to an individual or family.
- Can be more cost-effective for employers than group rates or renewals for similar type plans.
Some ICHRAs, however, require the employee to pay the carrier directly and then send a reimbursement request to the employer, or to the employer’s administrator, for the HRA portion. In some cases, employees may not have the funds when needed or can be out of pocket for a substantial timeframe until they are reimbursed. This may cause financial hardship or even a lapse in coverage.
Payroll adjustments can also be tedious. When an employee selects a plan that exceeds their allotted employer contribution, the plan may fund the employee contribution via payroll deduction. Employers run the risk of incorrect payroll amounts that need to be fixed later without an easy way to reconcile, not to mention that this adds more stress and headaches for the administrators on the back end.
Next, Optimizing the Potential of ICHRAs
Fortunately, specialized technology can open the full potential of ICHRAs. It is important to partner with solutions that have proven success and have the right model to meet individual needs. When evaluating ICHRA market solutions, the employer and employee experience should be a seamless, painless process as the value of employer benefits ultimately comes down to the consumer perspective.
Here are a few things to consider:
- Software providers can enable brokers or employees to direct all premiums to the appropriate carrier.
- Tools with real-time reporting or integrations that help employers manage payroll are critical to handling the employee portion of premiums. Alerts and reporting confirming premiums were transacted as expected, including the correct amount, will ensure payroll deductions are fast and easy with no issues with member coverage.
- Software providers can eliminate the intense reimbursement burden by enabling payments of the entire premium to the carrier.
A versatile software platform will integrate with any existing enrollment or benefits administrative platform and help facilitate the funding and reimbursement process. It should be able to stand independently and control the entire process. This versatility allows brokers to efficiently manage the end-to-end process of ICHRA administration or just those bits and pieces their clients need.
As with any new technology, it is important to consider how easy it is to manage the necessary data. Transferring the carrier or premium information into a platform to administer the ICHRA payments and reimbursements should be seamless.
As employers look to their broker or administrator as their trusted advisor, it is important to consider: what visibility do you have to confirm an employee premium has been paid to the carrier each month? Ensuring the premium is paid and the ICHRA benefit is used prevents any coverage lapse and disruptions for the employee. It is important to ask what automated alerting capabilities and reporting functionality exist to manage these necessary functions.
The Bottom Line
Brokers, employers, and employees need help in the emerging world of “ICHRA-nomics”. Offering ICHRAs’ flexibility can be a competitive tool for attracting (and retaining) talent; however, managing the regulatory requirements and myriad health payments and reimbursements can be a mind-numbing task for even the smallest of employers. But it doesn’t have to be a showstopper.
With the right technology partner addressing this glaring conundrum is more than possible. The right platforms will help you manage ICHRA administration and offer a suite of payment options that make ICHRAs consumer-friendly.
Given the burgeoning popularity of ICHRAs, brokers who embrace technological innovation can seize a new opportunity to drive client satisfaction, helping employers empower America’s workers with the freedom to choose individualized health plans that can ultimately drive better healthcare and bend the cost curve for everyone.
Ready to maximize the value of an ICHRA offering? Learn more about Premium Payment Manager.
