Since its launch in 2020, Individual Coverage Health Reimbursement Arrangement (ICHRA) has sparked curiosity and questions about their structure and benefits. ICHRA adoption grows each year, with the US Department of Labor projecting a 255% increase in 2025. This growth shows a significant number of individuals are likely shopping for insurance using ICHRA funds during this open enrollment (OE) period.
For BenTechs and the employers they support, ICHRA represents an opportunity to modernize health benefits. Here’s a closer look at what ICHRA is and the top questions everyone should know about this transformative solution.
What is Individual Coverage Health Reimbursement Arrangement (ICHRA)?
ICHRA is a flexible health benefit that allows employers to reimburse employees for health insurance premiums and other qualified medical expenses. Unlike traditional employer-sponsored coverage, ICHRA enables businesses to maintain cost control while meeting Minimal Essential Coverage (MEC) requirements.
With ICHRA adoption increasing, health plans are exploring how to offer tailored support for employees who choose Marketplace coverage funded by ICHRA. W3LL’s platform empowers BenTechs and health plans to streamline ICHRA enrollments, creating a seamless experience for employers and employees alike.
1. How is ICHRA different from employer-sponsored coverage?
ICHRA is gaining traction as premiums on traditional group plans rise, and employers continue their search for cost-effective, flexible alternatives. ICHRA empowers employers to manage costs while giving employees the freedom to choose plans tailored to their needs.
Why employers and employees are opting for ICHRA:
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- Flexibility and Customization: In 2020, 74% of firms only offered one type of health plan to employees. ICHRA allows employees to select individuals plans that meet their personal health care needs. Employers can reimburse employees for these plans, offering personalization not possible traditional group plans.
- Cost Control: Employers can set defined contribution limits, ensuring predictable budgets while avoiding the premium volatility of group plans.
- Reduced Risk and Administration: By allowing employees to manage their own health coverage, employers reduce administrative burdens while mitigating the risk typically associated with group plans.
- Provider Flexibility: Employees enjoy the freedom to choose health plans that include their preferred doctors, ensuring their health care aligns with their expectations.
- Plan Portability: Plans purchased with ICHRA funds are portable and remain with employees if they change jobs, offering continuity that is not typically available with traditional employer-based plans.
- Tax Advantages: ICHRA offers notable tax benefits. Employers enjoy tax deductions on contributions, while employees benefit from tax-free reimbursements.
- Employee Satisfaction: Offering flexibility fosters a positive employee experience, and healthier workforce, supporting talent retention and differentiation from competitors.
The Role of Brokers
While ICHRA introduces a new approach to health benefits, one thing remains the same: the importance of the broker. Brokers continue to play a crucial role, acting as trusted advisors, helping employers design and implement ICHRA strategies while guiding employees through plan selection.
W3LL’s technology supports brokers by providing the tools they need to deliver personalized recommendations, simplify enrollment, and ensure compliance.
2. What are people saying about ICHRA’s future?
ICHRA is not just a passing trend. First introduced in June 2019 by the Trump administration, ICHRA expanded the benefits of Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs) to businesses of all sizes. The HRA Council’s “Growth Trends: ICHRA & QSEHRA” report highlights four key takeaways for 2024:
- Continued Growth: ICHRA usage is climbing as more employers adopt and renew HRAs.
- Large Employer Adoption: There’s exponential growth in large employers choosing ICHRA solutions.
- Nationwide Adoption: Hundreds of thousands of U.S. workers across all states receive ICHRA or QSEHRA as a benefit.
- Market Impact: ICHRA and QSEHRA are increasingly serving as gateways for adding new lives to the ACA Marketplace.
Since its introduction in 2020, ICHRA has seen nearly 350% growth, with the U.S. Department of Labor projecting an additional 255% growth by 2025. The year-over-year growth from 2023 to 2024 neared 30%, with Applicable Large Employers (ALEs) being the fastest-growing segment.
*Chart from the HRA Council’s “Growth Trends: ICHRA & QSEHRA” report and reproduced by W3LL
Given the rising enrollments in both ICHRA and ACA, along with the increasing costs of traditional group insurance, there’s a strong economic incentive for businesses to adopt ICHRA. With W3LL’s support, BenTechs can position themselves to capitalize on this rising demand by offering solutions that simplify ICHRA enrollments.
3. Which individuals are most likely to enroll in a plan using ICHRA funds?
Individuals with Limited Access to Employer-Sponsored Coverage
ICHRA is specifically designed for employees who lack traditional employer-sponsored coverage options, focusing on meeting the needs of the underinsured. Employers can categorize their workforce into 11 different ICHRA classes, including groups traditionally underserved by employer health plans:
Under ICHRA guidelines, employers must ensure fair distribution of contributions within each class. The one exclusion is for certain classes where employers can provide up to three times more funding to the oldest employees compared to the youngest. This flexible class structure enables ICHRA to extend coverage to employees who previously lacked employer-sponsored options. Download W3LL’s guide for all the nuances about ICHRA.
Younger, Healthier Members Improve ACA Risk Pools
According to the HRA Council, more than half (57%) of employees enrolled in HRAs are between the ages of 18-44. This younger and healthier membership can improve ACA risk pools and potentially lower healthcare costs and premium rates.
Traditionally, younger generations have either been overlooked by employer-sponsored plans or priced out of subsidized coverage. To effectively cater to these often geographically dispersed members, health plans need to prioritize a strong provider network capable of supporting remote employees.
4. What does ICHRA administration look like?
With ICHRA, majority of the pressure is taken off the employers as employees take responsibility for choosing and managing their plans. Employers are responsible for determining contribution amounts, building employee classes, and informing and educating employees about their ICHRA funds. The employee will then need to purchase a qualified health insurance plan before they can utilize the ICHRA funds they’ve been allocated.
While each employer will create their own specific process, here’s a general ICHRA workflow:
- Configuration: This initial step involves setting up the ICHRA plan according to the employer’s specific needs and preferences. This includes selecting the appropriate software or platform to administer the ICHRA.
- Define Classes: There are 11 employee class for employers to categorize their employees. Employees can be broken out based on job roles, locations, full-time or part-time status, etc.
- Define Contributions: The employer determines a fixed dollar amount to contribute towards each class. This amount can vary across each employee class, with age and family status being variable factors.
- Employee Roster: A comprehensive list of employees participating in an ICHRA for each class type is prepared and uploaded accordingly to the platform chosen. This roster includes all relevant details needed to administer the benefits for each employee, including name, date of birth, class, and contribution amount.
- Review Affordability: When offering an ICHRA, it must meet the affordability criteria set by the ACA. Employers will need to ensure their ICHRA contributions meet this requirement to avoid penalties and ensure compliance. Reliable and trusted platforms should have safeguards in place that will check that affordability requirements are met.
- Notify Employees: With contributions determined, classes defined, and affordability calculations met, employees are then informed about their ICHRA offerings and how to utilize the benefits should they opt in. This notification often includes guidance on how to shop for and enroll in a qualified plan.
- Shop & Enroll: Once notified of their ICHRA plan and contribution amounts, employees can use the funds to shop for and enroll in a qualified health insurance plan. This step is critical and relies solely on the employee. If they do not purchase a qualified plan, they are not eligible to be reimbursed with the ICHRA funds and will not have health coverage.
- Submit Receipt: After a plan is purchased, employees will submit receipts for reimbursement on the premiums and any QMEs. Each employer determines their own reimbursement process. Regardless of how reimbursements are handled, employees will need to maintain proper documentation for all medical expenditures.
- Reimburse Expenses: All submitted expenses will be reviewed by the employer’s designated benefits administrator and once approved, the employee will be reimbursed per the employer’s predetermined process.
- Maintenance: Regular maintenance of ICHRA plans involve ongoing administrative tasks such as updating employee information and ensuring compliance with regulatory changes.
5. How does ICHRA couple with Federally Facilitated Marketplace and State-Based Marketplace policies?
ICHRAs can reimburse coverage purchased both On- and Off-Exchange in all 50 states. However, federal-subsidized premiums available through the Federally Facilitated Marketplace (FFM) and State-Based Marketplaces (SBMs) cannot be combined with the funds provided through an ICHRA. This may create challenges for individuals in accessing affordable health insurance.
Given the income thresholds for qualifying for subsidized coverage through the Marketplace, it’s anticipated that most employees with ICHRA would not be eligible for zero to low-cost Marketplace plans. This tradeoff highlights a significant consideration for health plans as they assess the role of ICHRA within their coverage offerings, especially in terms of member affordability and plan accessibility.
6. How can health plans integrate ICHRA into their offerings?
Health plans interested in integrating ICHRA face several operational and technical considerations. Strategies for inclusion within a broader product portfolio need careful planning, especially for health plans witnessing declines in traditional employer-sponsored profit margins or those looking to expand their ACA business.
Offer a Tailored Shopping Experience for ICHRA
A pivotal component in supporting ICHRA is offering a tailored shopping experience that aligns with the health plan’s existing enrollment processes. This could include a “one-stop branded shop” for employees using their ICHRA benefits, complete with recommended insurance plans and estimated out-of-pocket costs factoring in ICHRA contributions. The improvements and enhancements that have been effective in growing ACA enrollments should be adapted and applied to optimize the ICHRA shopping experience.
Building a Support Network
Beyond technical integration, successful adoption of ICHRA by health plans also depends heavily on building and maintaining strong partnerships with BenTechs and brokers. These relationships are crucial as they help navigate the complex landscape of health insurance, ensuring that the ICHRA offerings are not only compliant but also competitive and well-positioned within the market. Effective collaboration with these stakeholders is essential to maximize the reach and impact of ICHRA plans, facilitating better outcomes for all.
W3LL: Your Strategic Partner in Navigating ICHRA Growth
As ICHRA adoption accelerates, W3LL empowers BenTechs with the tools needed to navigate this transformation. Our platform automates data management, streamlines compliance, and enhances the employee experience, ensuring success for all stakeholders. Ready to capitalize on the ICHRA opportunity? Reach out to W3LL and take advantage of EDI connections linking you directly with health plans.
If your health plan is looking to capitalize on this rapid ICHRA growth, reach out to Softheon to connect with one of our solution experts.
