ICHRA vs. Group Plans: Comparisons, Responsibilities, and Risks

Individual Coverage Health Reimbursement Arrangement or ICHRA (pronounced “ick-rah”) is a new health benefit design that has been available since January 2020. This type of HRA is a great option for employers looking to provide their employees’ benefits for the first time or those looking for a better, simpler way to provide personalized health insurance to their employees. ICHRA represents a new, more flexible, and personalized model of employer-sponsored health insurance.

How does ICHRA stack up against traditional group plans? Keep reading for everything you need to know.

ICHRA vs. Traditional Group Plans

If you are an employer and you are already offering benefits through a traditional group plan, ICHRA has some serious benefits that should be considered as you plan for 2021.

Traditional group plans can be confusing and expensive. There are so many types out there, with various deductibles, coinsurance rates, employer vs. employee contributions, and more. Employers try to offer plans with the richest benefits that will keep their employees happy and fit the company’s budget at the same time.

ICHRA, on the other hand, gives employers a better, simplified option for controlling escalating health insurance costs for their employees. This benefit design makes their health insurance, like their health care – personalized. ICHRA allows employers to:

1. Easily design the ICHRA – they set the budget and decide if/when it increases.
2. Be relieved of the risk (via increased premiums) for the health risks of their employees.
3. Allow employees to select their own plan and coverage.

What happens if there are employees who prefer a group plan? Good news! The employer’s healthcare offerings do not have to be either–or – meaning a group plan or an ICHRA. The employer can offer a traditional group plan to certain classes of their employees. The caveat is that they cannot offer a group plan and an ICHRA to the same class. Another selling point is that ICHRA is its flexibility. ICHRA’s have eleven different classes that divide employees into different benefit levels. The employer has the option to use as few or as many as they choose. However, for some classes, there are minimum class sizes if the employer offers traditional group coverage to any of their employees.

Additionally, there are also no minimum participation requirements with ICHRA! If an employee chooses to decline the benefit, there is no impact to the plan or the other employees.

ICHRA Increases Recruitment and Retention

Now, more than ever, personalizing the benefits employers offer their employees may be the difference between attracting top talent or well, not.

With an ICHRA:

1. If new and potential employees already have an individual plan, they will not have to switch health plans from what they had previously and can receive a monthly benefit to contribute to the cost.
2. New employees can be offered an Individual Coverage HRA while grandfathering existing employees in a traditional group health plan. This is a great way to transition the workforce from a group plan to an individual coverage HRA.
3. Out of state and remote employees do not have to worry about group coverage covering them. They can choose the plan in their state that is right for them. In fact, there is a separate class for them.

ICHRA Controls Administrative Costs

ICHRA costs are for the most part fixed, meaning the employer’s risk is alleviated, and their employees have the freedom to choose how they want to spend their health allowance. Employers no longer need to spend their valuable time working out the right group plan to meet everyone’s needs, or they have the headache of administering the group plan. The employer chooses the dollar amount they want for the ICHRA benefit per class, and the employee takes care of the rest.

If you are an employer, and premium increases for group health plans have been a pain point for you in the past, ICHRA could be the answer. You set the maximum allowable reimbursement rates, along with what the dollars can be spent on, and the cost will never be able to exceed that number. The best part? Unless your ICHRA has a rollover option, if your employees do not use all their allowances, the money goes back into your pocket,

For more information about ICHRA, check out the W3LL overview page.

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