How to decide between the new individual coverage HRA and a group plan
Certain types of businesses, locations and company configurations will benefit more from the new HRAs than others.
With benefits season in full swing, it’s time to make smart choices for your company (or your client) on how to spend health care dollars for 2020. This open enrollment will be different than prior years, as there is a new HRA that is predicted to change the model of employer sponsored health care. While health reimbursement arrangements are often faced with limitations, the new Individual Coverage HRA (ICHRA) is radically different. So much so, that HHS projects that in the next 5 to 10 years, roughly 800,000 employers will offer Individual Coverage HRAs to pay for insurance for more than 11 million employees.
But the truth is, this new model of benefits isn’t perfect for everyone. Certain types of businesses, certain locations and certain company configurations will benefit more from the new HRAs than others. Here’s how to decide which route is best—the reimbursement arrangement model or the traditional, employer-based group plan.
But first, let’s start with the basics of ICHRA.
How the new Individual Coverage HRA works
As the name implies, ICHRA is based on reimbursing employees for insurance rather than buying it for them. At a high-level, the way ICHRA works is very simple:
- Employers design their plan, including establishing reimbursement limits and defining which employees are eligible. Employees can be divided by classes (full time, seasonal, part time, salaried vs. non-salaried, etc. and each class can be extended a different level of benefit—varying reimbursement amounts or even in combination with a group plan.
- Employees purchase the individual plans they want.
- Employees submit claims for reimbursement.
- Employers reimburse employees for valid claims.
How ICHRA stands out from other HRAs
- ICHRA is not required to be offered alongside a traditional employer sponsored group plan like traditional Section 105 HRAs
- It’s available to employers of all sizes unlike the Qualified Small Employer HRA (QSEHRA), which is available to employers with fewer than 50 full time employees
- It allows employees to opt out of an HRA unlike QSEHRA and the new Excepted Benefit HRA (EBHRA)
- Employer can set contribution amount without limits (similar to Section 105 HRA, but QSEHRA and EBHRA have restrictions)
When HRAs are a better option
- Are employer-sponsored group health plans too expensive for you?
- Are annual increases in pricing for group plans stressful to your budget?
- Do you want to only offer some of your employees (like full time) benefits but not others?
- If you could, would you offer a group plan to your most valuable employees but contribute much less for seasonal workers?
- Do you worry about minimum participation requirements?
- Is it stressful to choose one plan for a diverse group of workers who all have different health care needs and different preferred doctors?
- Is it a headache to administer a group health plan?
If the answer is yes to any of the questions above, an ICHRA may be the way to go.
Here are a few other arguments in favor of an Individual Coverage HRA benefits solution.
Budget prioritization: The 11 classes and unlimited custom class options allow employers to focus their health care spend on the most crucial team members. Want to offer salaried works a group plan and non-salaried workers $300 a month? The ICHRA can make that happen. Want to offer different reimbursement amounts to your seasonal crew than your full-timers? That works too. Want to keep your group plan for existing employees but offer an HRA to anyone new? You can do that as well.
Cost predictability: Define your benefit budget and stick with it. No more surprise group increases year after year.
Plan customization and flexibility: Design a plan that fits your team vs. being locked into what an insurance company offers.
Risk de-management: Take managing your employees health risk out of your business plan. Network flexibility: give your employees the ability to choose plans and doctors that work for them.
Plan portability: Employees own their health plan and can take it with them if they change jobs.
Plan choice and personalization: Employees select individual plans that fit their needs (doctors and Rx coverage).
Employee experience: Individual insurance companies can provide a superior experience with apps and concierge services.
No minimum participation concerns: Most group plans require employers to maintain a high participation rate—typically around 70 percent. This can force employers to offer more generous and expensive benefits than they may have otherwise in order to keep the plan intact.
When employer-sponsored group plans are still king
As mentioned above, the ICHRA has some serious advantages, but it isn’t for everyone. Let’s start with a few more questions for business owners to see if a group plan might be a better option.
- Are the prices on the individual market way more expensive than what you’d find in a similar group plan?
- Are there limited plan options in your area on the individual marketplace? Is there only one carrier available where your employees live?
If the answer is yes to the above questions, a group plan will probably keep everyone happier, despite the higher costs.
Here’s what to consider:
Provider networks: If you’re in an area where the individual plans have a narrow HMO or EPO based network, group plans in the same area will likely have better options.
Individual plan pricing: For much of the country, individual plans are more expensive for similar coverage.