As a payroll/HR company which works with employer-groups of all sizes, we have started to notice a trend in employers adopting ICHRA (Individual Coverage Health Reimbursement Arrangements) medical plans as alternatives to traditional group insurance. Based on what we are seeing, plus what we are researching/studying, we do recommend that all employers ask their benefits consultants/brokers about how an ICHRA plan compares to their group plans, as to both coverages and costs. Insurance companies are getting involved in the ICHRA market (Centene and Oscar Health) and private equity/venture capital is flowing to some of the ICHRA service providers/plan administrators, which suggests that ICHRA plans may be more than a “passing fad”. TAKEAWAY FROM THIS—–ASK YOUR BENEFITS ADVISOR TO PROVIDE YOU WITH COSTS/COVERAGES OF AN ICHRA PLAN AS COMPARED TO GROUP PLANS
THE BACKGROUND OF MEDICAL INSURANCE AND THE RISE IN HEALTH REIMBURSEMENT ARRANGEMENTS—-JUST A BIT OF HISTORY
Employer-sponsored group health insurance for employees pre-dates World War II, BUT it was in the 1940’s that employer-paid group insurance took off as a benefit of value since the government imposed a “wage freeze” to combat inflation during World War II. When the Internal Revenue Code was codified/organized in 1954, a provision in the tax code made payments for employee group insurance tax-deductible to employers and non-taxable to employees—–and since then employer-sponsored healthcare now covers over 150 million individuals, per studies by the industry. Jump forward to 2002 when HRA’s (health reimbursement arrangements) were created, allowing employers to reimburse employees, tax-free, for their personal medical insurance. The use of HRA’s in this manner became prohibited when the Affordable Care Act was enacted in 2010 (an employer could still offer to reimburse employee medical insurance BUT on a taxable basis). Congress enacted legislation in 2016 which created the “QSEHRA” (qualified small employer HRA), which became effective January 1, 2017. This legislation’s intent was to incentivize smaller employers (those with less than 50 employees) to offer reimbursements to employees of personal health insurance premiums on a tax-free basis (the QSEHRA is the younger brother of the ICHRA). President Trump signed an Executive Order which broadened the QSEHRA tax-free HRA concept to larger employers, which became known as ICHRA’s, first effective January 1, 2020. It is estimated that only about 500,000 employees are enrolled in either a QSEHRA or ICHRA employer reimbursement plan as of now, but the trend towards “employer cash for personal insurance coverage” HRA plans is increasing with money flowing into the HRA concept from both insurance companies and private equity funds. Additionally, Indiana passed legislation in 2023 which provides state income tax credits to employers who adopted or increased coverage in HRA employee accounts during 2024—-other states are considering similar legislation, with the intent to subsidize smaller employers in installing HRA accounts for their employees. NOBODY KNOWS AT THIS TIME HOW LARGE THE ICHRA/QSEHRA MARKET WILL BECOME AS AN ALTERNATIVE TO TRADITIONAL GROUP INSURANCE.
HOW DO THE EMPLOYER-SPONSORED ICHRA/QSEHRA MEDICAL REIMBURSEMENT ACCOUNTS WORK?
Employers interested in exploring HRA options should ask their benefits consultant to educate them about the pros/cons of HRA reimbursement plans verses traditional group insurance, to include comparisons of both premium costs and network coverages between group and HRA plans. The consultant will typically reach out to one of the several ICHRA/QSEHRA administrative/software service providers in order to project outcomes between group and HRA plans. Some cited advantages of ICHRA/QSEHRA plans compared to group insurance plans are as follows:
- With a HRA reimbursement plan, the employer determines the “reimbursement allowance amounts” which the employer is willing to pay to employees of various classes. Generally, “classes” are based on full-time verses part-time, salaried verses hourly. There is a list of 11 possible “classes” of employees, with varying amounts of reimbursement allowances. The pricing of insurance renewals flows to the employee, not the employer (but the employer may choose to increase their reimbursement allowances). So “cost controls” at the employer level are one reason an employer may opt for an ICHRA/QSEHRA plan.
- A HRA reimbursement program provides each employee the opportunity to “shop” for an individual policy which meets their specific needs—HRA promoters would say group coverage is a “one size fits all,” limited employee choice.
- Since HRA reimbursement plans revolve around individual insurance policies, they are obviously “portable” if an employee terminates from the employer—-it is their policy so they can keep it themselves
- Both group insurance and ICHRA/QSEHRA plans provide “tax-free” benefits, IF the HRA plan uses “off exchange” policies with a Section 125 plan to handle any employee cost over/above the HRA reimbursement amount
- An ICHRA employer plan will avoid all possible ACA penalties IF the ICHRA cost to the employee is calculated as “affordable”—-this only applies to employers with 50+ FTE’s who are subject to possible ACA penalties
- A HRA reimbursement plan does not require any “minimum participation” such as is needed with a group plan
THE BIG ISSUE IN THE GROUP VS HRA DECISION—–What plans are available in the individual markets and at what costs, as compared to available group insurance plans?—-THIS IS WHY EXPERT CONSULTANTS ARE SO IMPORTANT!
IF YOU DECIDE TO ADOPT AN ICHRA OR QSEHRA PLAN, IT IS GENERALLY WISE TO USE AN OUTSIDE ICHRA/QSEHRA SERVICE PROVIDER—-HERE ARE SOME QUESTIONS TO ASK AN HRA SERVICE PROVIDER:
- How much do you charge the employer for your HRA functions/services?——Most charge “per employee per month” and they can vary significantly as to pricing
- Does the HRA provider have significant expertise/experience in administration of HRA reimbursement plans—-talk to more than one in a similar manner as selecting your CPA firm—-referrals from others?
- Will the HRA service provider help your employees select the best individual plan to meet each person/family’s needs?—-An easy shopping experience with education and advice is important to the employee experience!
- Does the HRA services provider have a platform and procedures in place to make administration, billing, and employee deductions easy, similar to a group plan?—-We all want “ease of use,” both employer and employees!
KEEP IN MIND THAT ICHRA AND QSEHRA PLANS ARE NOT INSURANCE—-THEY INSTEAD ARE “TOOLS/VEHICLES” WHICH ARE USED TO OFFER THE INSURANCE POLICIES IN A TAX-FREE/EFFICIENT MANNER (just like an IRA is not an “investment,” it is simply a tax-favored tool/system in which to offer investments.)
TO OUR BENEFIT/INSURANCE BROKER CLIENTS/READERS
We solicit your opinions/input as to items worthy of discussion in the group verses HRA discussion. ICHRA/QSEHRA plans are very new when compared to how long group insurance has been around, and AccuPay is interested in your observations—-We enjoy learning about new issues in the payroll/HR space, which obviously includes group health insurance!!
BOTTOM LINE TO OUR READERS
As stated above, our primary goal in this PayDay is to recommend that you discuss HRA plans with your benefits consultant/broker as a possible alternative or even “add-on” to a group plan.
For more information and insight regarding employee benefits check out our blog or contact our HR team at hr@accupay.com.
This PayDay is for educational purposes only and does not constitute tax and/or legal advice. Any links to external resources are for educational purposes only. AccuPay is not affiliated with nor receives any renumeration from any outside sources. Please consult with your tax and/or legal advisor before applying any suggestions made here or through external links.