An ICHRA is a way for your business to offer healthcare benefits to your team. HRAs are a new way to provide employer-sponsored healthcare that allows you to use pre-tax money from your business to reimburse your team for any of their healthcare expenses. This includes health insurance, dental insurance, vision insurance, and even out-of-pocket costs.
ICHRAs are particularly attractive to small and medium-sized businesses because they provide your team with more flexible and cost-effective healthcare benefits. Thatch is a service that administers and manages ICHRAs for your team.
A group health plan is a traditional form of employer-sponsored healthcare coverage. Under a group health plan, an organization purchases a standard health insurance policy for its employees. This type of plan often covers employees and sometimes their dependents under a single policy. Under a group health plan, both the employer and employees typically share the cost of premiums.
Group health plans are often more attractive for larger employers, particularly those that self-insure. Because the plan is selected by the employer, it limits employees to the health services, facilities, and doctors stipulated within that plan.
ICHRA | Group Plans |
Employees pick a plan from the individual marketplace. | Employers select one plan to provide to all employees. |
Easy to predict costs. | Less predictable costs and yearly increases. |
Employees can customize their health benefits based on their personal needs and preferences within their allocated budget. | All benefits are pre-selected by the employer. |
No participation minimum is required. | Participation minimum is required. |
Choosing between a group health plan and ICHRA can be challenging. Both options have their pros and cons, depending on your organization’s specific needs, budget, and operational considerations.
ICHRAs are known for their flexibility, allowing employees to choose their own insurance plans that fit their unique healthcare needs. Beyond insurance, employers also have the option to use their healthcare budget for any qualified medical expense, including out-of-pocket costs for items like prescriptions, OTC medications, or even healthcare bills. Group plans are less flexible, instead offering a single policy (or, sometimes, a small number of options) for all employees. In a way, this model means employers are effectively choosing the doctors their employees can see, how much their medications cost, and which services are covered. It's common for employees to be unhappy with the carrier or plan their employer chooses, sometimes even finding new doctors who accept their insurance.
ICHRAs can be more cost-effective for businesses, especially smaller organizations, as they allow employers to set a specific budget for healthcare through a defined contribution. Employers can decide how much to contribute, offering some control over healthcare costs.
The defined contribution model of ICHRAs also provides an element of cost predictability that is often lacking in group health plans. Traditional plans come with the unpredictability of rate hikes, new fees, or cost-sharing changes, making it challenging for businesses to budget accurately. The ICHRA’s fixed contribution system avoids these pitfalls by putting the control back in the employer’s hands.
However, it’s worth noting that the cost stability for employers could translate into more financial variability for employees. Under an ICHRA, if healthcare costs rise and the employer doesn’t increase contributions accordingly, employees will have to shoulder the difference. Employers to use an ICHRA administrator or external service to help them understand and budget accordingly.
In a group health plan setup, administrative tasks usually involve initial setup, yearly renewals, and addressing employees’ questions or concerns. While this may sound straightforward, it can often become time-consuming, especially during employee onboarding or annual renewal. Sometimes, these processes can be streamlined through a human resources information system (HRIS) or similar software.
For businesses considering ICHRAs but concerned about administrative complexity, third-party services are available to manage contributions, compliance, and reimbursements. These services often come with digital platforms that make it easier for employers and employees to manage healthcare needs.
Ultimately, choosing between the administrative simplicity of group health plans and the customization afforded by ICHRAs depends on what suits your business model and your employees’ needs. Both options come with their own sets of responsibilities and complexities that should be weighed carefully.
The landscape of employer-sponsored healthcare is undergoing a transformative shift, driven by rising costs and the increasing need for flexibility. One innovative solution gaining traction is called the Individual Coverage Health Reimbursement Arrangement (ICHRA). An ICHRA is a healthcare benefit model that allows employers to reimburse employees for their individual health insurance premiums and other qualified medical expenses. Instead of offering a traditional group health insurance plan, employers allocate a specific amount of pre-tax dollars for each employee to spend on healthcare.
At its core, the ICHRA model is simple. Employers allocate a specific pre-tax amount to reimburse employees for their medical expenses, including health insurance premiums. Unlike traditional group plans, where everyone is more or less “locked into” the same plan, ICHRAs offer greater latitude for employees to pick the insurance coverage that suits their individual or family needs best. Employers determine the reimbursement amount, which can be customized based on various classifications such as full-time or part-time employment, geographic location, or seniority.
One of the key advantages of an ICHRA is the flexibility it offers. Employers can define the amount of money they wish to reimburse employees for their medical expenses. Employees, in turn, have the flexibility to choose a health insurance plan that best suits their needs rather than accepting a one-size-fits-all group plan.
Employers can decide how much they want to contribute to employees' health care expenses, offering better control over costs.
ICHRA allows employees to make decisions about their own healthcare needs. They can choose the coverage that fits them best and even opt for plans that may cover their specific healthcare providers or any specialized treatments they may need. This can result in a better fit between the employee's needs and the insurance coverage, increasing overall satisfaction.
The health coverage in ICHRA is tied to the individual, not the job, making it portable. If an employee leaves their job, they can keep their health insurance plan and continue paying for it independently or transition it to a new employer's ICHRA. This can make job changes or life transitions smoother with regard to healthcare coverage.
Both employers and employees can benefit from tax advantages when using an ICHRA. Employers' contributions are generally tax-deductible business expenses, reducing the overall tax liability for the company. Employees also receive tax benefits, as the reimbursement for health insurance premiums is generally tax-free.
If an employer provides an ICHRA that is deemed "affordable" under ACA guidelines, employees are not eligible to receive premium tax credits for marketplace plans.
The determination of whether an ICHRA is "affordable" can be complex and involves several factors like employee income and the cost of individual insurance plans in their area.
With ICHRAs, employers have less control over the quality and type of health plans that employees may select. If an employee chooses a subpar plan and receives inadequate healthcare coverage, the employer has little to no say in improving the quality of care.
While flexibility is often seen as a benefit, the wide array of insurance options can be overwhelming for some employees. Navigating the individual insurance market can be complicated, requiring a degree of healthcare literacy that not everyone possesses.
Despite potentially simpler administration compared to group plans, ICHRAs still require a level of oversight that can be challenging for smaller employers. Employers must validate expenses, manage reimbursement processes, and ensure compliance with healthcare laws, which can still be time-consuming.
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