If your company or organization has been in business for a few years, you’re likely familiar with the concept of employer-sponsored group health insurance plans. You know the dance, too. You or your dedicated Human Resources teams would engage with health insurance providers every year to negotiate an affordable platform that would offer health insurance benefits to your employees. But today, and after a chaotic year of shutdowns and public health concerns, businesses are looking elsewhere for viable insurance options.
Today, we’ll take a hard look at employer-sponsored plans, as well as some of the new solutions companies are leveraging. Affordability, flexibility, and cost control matter most to many businesses. And it’s the Individual Coverage Health Reimbursement Arrangement (ICHRA) that is proving to be the answer to these newly prioritized needs. The movement is making many industry experts wonder if the employer-sponsored group health plans are going to be phased out entirely. And based on current trends, it may happen as soon as the end of the year.
1. The Traditional Employer-Sponsored Plans Worked, for a While
For decades, companies engaged with health insurance providers directly to enroll in group plans that could be offered at the employee level. Individuals grew accustomed to having insurance from their employers. And for a while, those traditional group plans served their purposes well, for both the sponsoring company and the employees leveraging those benefits.
The Business Takes the Reins in Choosing a Group Plan
Companies would find value in choosing a group health insurance plan. Every year, there would be an opportunity to make changes based on budgets and core offerings. And it’s the company that takes the reins and does all the legwork in terms of doing research, selecting a provider, and outlining available employee plans. This level of control, oftentimes, is valuable to company bottom lines.
The Pre-Tax Benefits of a Group Plan
Another advantage of employer-sponsored plans comes in the form of pre-tax benefits. Premium contributions at the employer level are not subject to federal taxation. And for participating employees, those portions paid can be done in a pre-tax capacity, helping to lower the overall taxable income.
Average Group Plan Spending
When it comes to affordability, a group health insurance plan needs to meet two needs: the employer budget and the employee budget. The company assumes the responsibility for some of the costs while individual staff members pay their designated percentages. The Kaiser Family Foundation shared data from 2019 suggesting the average cost of annual premiums for employer-sponsored health insurance was $7,188 for individual coverage and $20,576 for the family plans.
2. Changes at the Company and Employee Levels
Times have really changed, as have the needs of companies and employees. These shifts in priorities are leading to new ways of approaching employer-sponsored health insurance. And the transition to more innovative and cost-effective benefits may be long-lasting, leaving the traditional group plan models behind.
COVID-19 Affected Affordability
Countless Americans lost their jobs during the pandemic, and with them, they lost health insurance coverage. Companies shuttered their doors, losing months and months of potential revenue, as well. Expensive group health insurance plans are no longer a viable option for many businesses.
The Prioritization of Health and Wellness
After coping with a major public health crisis, a more focused spotlight has been put on the need for health and wellness. Businesses need to know their employees are safe and taking personal measures to stay healthy. Individuals are keener to their own health and wellness, looking for contingency health coverages for themselves and their families. And not that pre-pandemic health and wellness concerns didn’t exist; rather, today’s environment has made health protections, maintenance, and safety a top priority.
The Health Insurance Industry Adjustments
The health insurance industry was also affected by the pandemic. The Kaiser Family Foundation has already tallied increases in yearly premiums. In fact, traditional employer-sponsored health insurance plans jumped four percent over the past year or so, making the average premium for family coverage $21,342.
3. The ICHRA Plan Is Taking Over
One solution to meet the changing demands of employers and individuals is the Individual Coverage Health Reimbursement Arrangement. The ICHRA is proving to be a flexible, affordable, and customizable answer to these emerging new needs. And the increased popularity of companies adopting the ICHRA platform has many predicting the phasing out of the traditional employer-sponsored plans.
An Answer to the New Affordability Requirements
After having shuttered storefronts and experiencing temporary shutdowns, there isn’t a business in America that didn’t experience some loss or transition in 2020. Some company leaders were forced to re-evaluate their employee benefits and health insurance coverages due to new affordability constraints.
With monthly premiums going up, businesses weren’t able to assume those costs after a year of lost revenue and facing a year of slow recovery. Employees and individuals face tighter budgets, too. The ICHRA solution allows businesses to choose their reimbursement model criteria based on company budgets. It’s the way forward as companies explore ways to offer much-needed benefits to their employees without overspending.
A Surge in ACA Support
With millions of Americans facing uncertain times, the federal government initiated a series of relief efforts, including a surge of support and funds to the ACA Marketplace. With added tax benefits, individuals could venture onto the platform and select a health insurance plan that cost substantially less, and in some instances were under $50 per month. The ACA ecosystem receiving renewed support and participation also became attractive to businesses looking for ways to tap into those potential savings as well. The ICHRA allows businesses to direct their employees to these significant ACA plan savings and reimburse based on actual out-of-pocket expenses.
Individuals Seeing Better Value in Taking Control
In a traditional employer-sponsored plan scenario, the company takes control of selecting the plan and associated benefits. But with so many individuals forced to experience the individual plan selection process, they were quick to recognize the benefits of taking control of their health plans themselves. People could choose a plan that fits their household budgets, health needs and get free preventive care. The ICHRA allows employees to enroll in health insurance coverage that stays with them, not their employers. And individuals can enroll in as much or as little coverage, according to their budgets. Turning in receipts for out-of-pocket expenses is a smarter way to recoup those costs, as well.
The traditional employer-sponsored plans are shifting to adapt to the new needs of businesses and individuals. But many are suggesting the old ways of offering health insurance may soon be obsolete. With the growing popularity of the ICHRA model, companies may soon see a phasing out of the old ways. If you’re ready to explore setting up an ICHRA for your business, let W3ll be your guide and help you realize the countless benefits.