Rethinking Employer-Sponsored Healthcare with ICHRA

What if small to mid-sized employers could offer IRS-approved, employer-sponsored healthcare coverage without increasing their healthcare budget year over year?

You’d probably say that’s impossible, and before 2020, it largely was. But new legislation opened the door to this alternative strategy for employers of all sizes: the Individual Coverage Health Reimbursement Arrangement (ICHRA).

What’s ICHRA?

ICHRA allows employers to take back control from the unpredictability of traditional group health plans and shift the risk away from their organization when offering healthcare benefits to employees.

Instead of establishing a group policy with an insurance carrier like Blue Cross Blue Shield, UnitedHealthcare, Cigna, or Aetna, employers can set a defined contribution for their healthcare budget using tax-free reimbursement dollars for employees who elect coverage. These contributions are also tax-deductible for the business, similar to employer premium contributions under traditional group health plans.

Employees who enroll in an ICHRA can then use those tax-free dollars to purchase an ACA-compliant medical plan that best fits their needs and lifestyle through the individual marketplace or exchange.

The Result?

• Employer groups gain more predictability and stability in managing healthcare budget growth rather than facing annual premium increases dictated by insurance companies
• Employers can adjust their healthcare budget annually if they choose, putting them back in the driver’s seat
• Employees gain greater freedom of choice, autonomy, and ownership in their healthcare decisions — rather than having an employer choose a medical plan and insurance carrier for them, employees can select from a variety of insurance carriers and Bronze, Silver, or Gold plan designs

ICHRA: The “401(k)” Approach to Healthcare

A good analogy to better understand ICHRA is to compare it to how employer-sponsored retirement plans have evolved in America.

Years ago, pension plans were the standard offering. Employers provided retirement benefits to employees, but they also made all the administrative decisions and controlled the investment strategies on behalf of their staff.

Then, decades ago, 401(k)s and IRAs became far more common. These were still employer-sponsored retirement strategies that allowed employers to contribute toward employee retirement, but they gave employees the freedom to choose the specific investment strategies that fit their personal goals and financial situations.

In many ways, ICHRA represents a similar shift in healthcare benefits. You can think of ICHRA as the “401(k) of healthcare,” while traditional group health plans resemble the pension plans of the past. Today, it would feel outdated for employers to make all retirement investment decisions for employees — so why should employers be responsible for choosing every employee’s health insurance carrier and plan design as well?

ICHRA helps solve that by giving employees more ownership, flexibility, and choice in their healthcare decisions while still allowing employers to provide meaningful, tax-advantaged healthcare benefits.

Enhancing ICHRA with Ancillary & Supplemental Benefits

As adoption and long-term retention of ICHRA continues to grow among employer groups of all sizes, many businesses are also expanding their overall benefits offerings.

Employers may choose to offer a full suite of ancillary and supplemental benefits to their employees, including dental, vision, accident, critical illness, hospital indemnity, and life insurance coverage, while also educating employees on how these benefits can best support their individual needs.

For example, an employee enrolled in an ICHRA may choose a more affordable Bronze-level medical plan to help lower their monthly premium costs. They can then pair that coverage with supplemental benefits such as accident, critical illness, and hospital indemnity plans.

These supplemental policies are often very affordable and can provide tax-free cash benefits directly to employees in the event of accidents, injuries, hospitalizations, or critical illness diagnoses. This can help offset out-of-pocket medical expenses or simply provide additional financial support for everyday living expenses.

Why Employers Partner with Decisely

At Decisely, we provide an efficient single sign-on platform that simplifies the administration of both medical and non-medical ancillary and supplemental benefits for employees. Combined with year-round support from dedicated benefits experts and leading technology solutions, we help employers streamline benefits management while improving the employee experience.

In fact, Decisely client data shows that employer groups who partner with us for their healthcare benefits programs see employees who enroll in benefits stay twice as long as those who do not.

If you’re interested in learning whether an ICHRA strategy could be a fit for your organization, I’d love the opportunity to connect and help you build a more sustainable, employee-focused benefits strategy.