ICHRA Interest Is Not a Predictor of Adoption

As employers face mounting pressure from healthcare costs, individual coverage health reimbursement arrangements may offer a route to more predictable healthcare costs while giving employees greater choice in their insurance selection. However, a joint study from the Employee Benefits Research Institute and Morgan Health, a division of JPMorganChase & Co., cautioned that employer interest should not be interpreted as a guarantee of rapid adoption.

An ICHRA is an employer-funded benefit that reimburses employees for the cost of individual health insurance, rather than providing a group health plan. With an ICHRA, employers contribute a fixed dollar amount that employees then use to purchase their own individual health insurance coverage.

“ICHRAs have the potential to represent a significant shift in how some employers approach health benefits, but the survey shows that interest and adoption are not the same thing,” said Paul Fronstin, EBRI’s director of health benefits research, in a statement. “Employers see possible advantages in flexibility, affordability and employee choice. At the same time, many remain concerned about whether the individual market can provide the affordability, provider networks, plan quality and administrative support needed to make ICHRAs a practical alternative to traditional group health plans.”

Interest and Awareness

Employers with at least 100 employees that offer health plans expressed the greatest interest in ICHRAs, with 69% reporting they were at least somewhat likely to adopt the arrangements in the next two years. More than one-third of all employers surveyed reported that they were actively planning or evaluating an ICHRA, including 62% of large employers offering health plans, 48% of small employers—defined as those with fewer than 100 employees—offering health plans and 42% of small employers not offering health plans.

Nearly 60% of all employers reported being at least somewhat familiar with ICHRAs, though familiarity varied considerably by employer size and current coverage status. Familiarity increased with employer size and was highest among employers that already offered health benefits. Small employers that did not already offer health benefits were substantially less familiar with ICHRAs (30% were not very familiar or not at all familiar), than large employers (8%), suggesting an opportunity for additional education and outreach among smaller employers, the report stated.

Among small companies not offering healthcare coverage, one in four reported a preference for ICHRAs over traditional group plans. However, awareness remained an issue—55% were unaware that an ICHRA was an option.

Employers’ knowledge about the basics of ICHRAs was lacking, the survey showed. Only between 56% and 69% of employers knew an ICHRA entailed contributing a fixed dollar amount that employees use to purchase their own individual health insurance. Many respondents incorrectly answered a survey question by saying that in an ICHRA, employers select and purchase coverage on behalf of employees.

Advantages and Factors to Increase Adoption

The primary advantages of ICHRAs were ranked relatively consistently across employer sizes: flexibility of benefits, increased employee choice and affordability to employers were the highest rated. Among the three most-cited advantages ICHRAs can provide, employers that offered health benefits placed greater emphasis on employee choice (57% of large, 65% of small) than employers not offering benefits (38%).

Looking ahead, employers stated they would be more interested in adopting an ICHRA model if the arrangements could guarantee the same quality of network and choice as a group plan (85%), if the ICHRA included payroll integration (79%), if the employer was able to add on point solutions for specific additional benefits (79%), and if the ICHRA integrated with existing health benefits offerings (78%).

Employers’ hesitancy to adopt ICHRAs was driven largely by their perceived employee preferences for group plans, as well as the employers’ unfamiliarity with ICHRAs and uncertainty about how the plans work. Concerns about the affordability of individual market premiums and out-of-pocket costs were widespread, as well, respectively cited by 85% and 84% of large employers offering health plans; 81% and 84% of small employers offering health coverage, and 79% and 72% of small employers not offering health coverage.

Public policy changes could further drive ICHRA adoption, however, the report noted. Among all respondents, state and federal tax credits for the employer (75% and 84%) and greater stability of individual marketplace rates (80%) received the strongest support among the policy options EBRI and Morgan Health evaluated. Employers also expressed interest in greater flexibility that would allow them to combine ICHRAs with traditional group health plans, currently not allowed, since it can risk employers moving only unhealthy employees out of the group plan.

The EBRI-Morgan Health survey was conducted from March 19 through May 5 among 984 benefits decisionmakers at employers with at least three employees. Respondents had been employed by their company for at least six months.