Under final regulations issued last year by the U.S. departments of Health and Human Services, Labor and the Treasury, starting in January 2020, employers were able to use what are referred to as individual coverage health reimbursement arrangements (ICHRAs) to provide their workers with tax-preferred funds to pay for the cost of health insurance coverage that workers purchase in the individual market, subject to certain conditions.
According to PeopleKeep, an ICHRA provider, interest in the arrangements began almost immediately. Employers of all sizes could use a reimbursement model for their health benefit; applicable large employers (ALEs) could use an ICHRA to satisfy the Patient Protection and Affordable Care Act (ACA)’s employer mandate; and employees could be grouped into classes to determine benefit eligibility and allowance amounts. “With these and other tools at their disposal, 800,000 organizations are expected to offer an ICHRA by 2024,” PeopleKeep says.
PeopleKeep offers a view of the state of ICHRAs in its “The First 9 Months of ICHRA Report.” The firm found most employers that are using ICHRAs (78%) only use one class of employees when designing the benefit. The most common classes its customers are using, in order of popularity, are:
- All employees;
- Full-time salaried employees;
- Full-time employees;
- Salaried employees;
- Part-time employees;
- Full-time hourly employees; and
- Seasonal employees.
ICHRAs have been popular for employers that have employees across state lines. Twelve percent of PeopleKeep ICHRA customers used a class that included state-based criteria.
In 2020, the average monthly ICHRA allowance amounts PeopleKeep customers offer are $586.41 for single employees, $898.23 for single employees with dependents, $1,237.95 for married employees, and $1,374.28 for married employees with dependents. The firm found there is a vast difference in the allowance amounts offered by employers that allow reimbursement of both insurance premiums and out-of-pocket expenses compared with those that only reimburse employees for premiums.
In general, larger companies have more revenue and, therefore, more money to set aside for health benefits, so it would make sense to assume that larger companies would offer their employees more in allowance. However, PeopleKeep found the opposite is true. It said its customers offered less money in monthly allowances across all employee statuses as their employee count grew.
More Growth Expected
Willis Towers Watson has found ICHRAs are starting to attract more interest from U.S. employers, particularly wholesale and retail employers and those in education and the public sector.
According to the “Willis Towers Watson 2020 Health Care Delivery Survey,” about one in six employers (15%) is planning to offer or considering offering ICHRAs to at least some portion of its employees in 2022 or later. The survey results showed similar levels of interest regardless of employer size, with 20% of large employers planning to offer or considering offering ICHRAs to at least some portion of their active employees.
The survey found nearly one in three (29%) public sector and education employers and almost a quarter (22%) of wholesale and retail employers are planning to offer or considering offering ICHRAs in 2022 or later. These sectors may be among the early adopters of this new benefit option, which affords employers greater ability to control costs and provides employees with more health benefit options than their employers offer today.
“ICHRAs may align well with employers rethinking their overall approach to benefits, especially in certain industries that have struggled with the challenge of providing competitive benefits that meet the diverse needs of their workforces under ever-increasing budget pressures. And as more employers adopt the ICHRA approach, employees could find relief from the burden of having to change plans whenever they change jobs,” says John Barkett, senior director of policy affairs, benefits delivery and administration, Willis Towers Watson.
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