Implications of the Individual Coverage Health Reimbursement Arrangement
The Individual Coverage Health Reimbursement Arrangement (ICHRA) offers employers an alternative to traditional group plans for the provision of employee health insurance. This shifts the insurance model from an employer-design model to an employer-facilitated one.1 Under ICHRA, employers effectively reimburse employees for their insurance purchase rather than purchase it for them.2 Three key elements characterize ICHRA: the absence of size restrictions, employer-defined contribution amounts, and flexible class options.2
ICHRA’s basic workflow framework is quite simple.2 First, employers decide how much money to contribute to each health reimbursement arrangement (HRA).1 Then, employees individually purchase medical insurance coverage in the individual marketplace based on what suits them best. Next, employees submit claims for their insurance purchases to their employers. Finally, employers reimburse their employees based on their original HRA contribution commitment.
The Individual Coverage Health Reimbursement Arrangement particularly appeals to employers because it minimizes employer responsibility in health insurance and employee health risk management. Employer responsibility under ICHRA essentially boils down to (1) set reimbursement limits and (2) reimburse employees.1 Employers no longer need to involve themselves in coverage design or claims administration. Financially, ICHRA affords employers a greater ability to remain within budget when they set their reimbursement limits.2
This arrangement also offers a flexible program that potentially appeals to individual employees. This arrangement does not lock employees into a group plan that employers design as a one-size-fits-all. Rather, ICHRA allows employees to customize their plans to what best fits their needs, within the limitations of the employer-defined contribution. Employees can scour the individual marketplace to select both the network and plan that work for them. Moreover, employees enjoy plan portability because they own their health plan individually.2 If they change jobs, employees can take their health plans with them.
ICHRA, however, leaves employees vulnerable to the tides of the individual healthcare market. Employees must subscribe to the narrow, HMO- or EPO-based networks typically found in individual plans. ICHRA also forces employees to contend with premium prices because individual plans usually cost 10-20% more than group plans.2
The Individual Coverage Health Reimbursement Arrangement may spur employers who currently do not offer medical coverage to participate in ICHRAs and, therefore, to participate in the broader individual insurance market risk pool. The newly insured will likely consist of low- and moderate-income workers. If this population comprises primarily healthy individuals, this improved insurance access will benefit both the newly insured and general consumers who participate in the market risk pool. However, if primarily unhealthy individuals enter the market, the influx potentially will increase individual coverage costs.1
Unfortunately, ICHRA potentially attracts large employers with sicker workforces as an insurance alternative to traditional group plans. Traditional coverage typically reflects above-average medical needs. ICHRA offers employers the possibility to avoid this burden if individual employees obtain subsidized community-rated individual market coverage.1,3 Employers may save if they move their unhealthy employees to the individual market, but individual market premiums likely will increase – and burden individual employees. Although ICHRA imposes safeguards to try to prevent this situation, experts do not believe these policies provide sufficient protection.3
The implications of ICHRA largely depend on how many and what types of employers subscribe to it.3 Experts do expect an increase in HRA use, even if the market sees only a modestly successful transition to an individual reimbursement model.1 By 2028, they estimate that ICHRA will cover 10.7 million people.1 As time continues, experts will be better able to assess whether ICHRA makes medical care insurance coverage more accessible to the American worker.
References
1. Schneider, P. J. Final Regulations Could Expand the Use of Health Reimbursement Arrangements. J. Financ. Serv. Prof. 74, 66–83. ISSN: 1537-1816 (2020).
2. Skinner, A. ICHRA: A Practical Guide for Employers and Consultants | Take Command Health. Take Command Health https://www.takecommandhealth.com/ichra-guide (2020).
3. Young, C. L., Levitis, J. A. & Fiedler, M. Evaluating the Administration’s Health Reimbursement Arrangement Proposal. https://www.brookings.edu/research/evaluating-the-administrations-health-reimbursement-arrangement-proposal (2018).