Why You Should Think Twice Before Using ICHRA for Employee Health Benefits

Offering health benefits to your employees is an essential aspect of running a successful business. One option that has gained attention in recent years is the Individual Coverage Health Reimbursement Arrangement (ICHRA). While it may seem like an attractive choice at first glance, it's important to understand the potential drawbacks and limitations of ICHRA before implementing it as your company's health benefit strategy. In this article, we will explore 11 key reasons why you should think twice before using ICHRA.

1) Costs

One of the primary concerns with ICHRA is its cost-effectiveness. ICHRA essentially encourages employees to opt for individual health plans in the marketplace, particularly Silver plans, which can be 10-20 percent more expensive than group plans. This increased cost can burden both employers and employees.

2) Network Limitations

Individual plans often come with smaller networks of healthcare providers, especially on the HMO and EPO side. PPO plans may not even be available, and when they are, the provider network is typically more limited. EPOs, while similar to PPOs, lack out-of-network benefits, further restricting employees' choices. Growing in popularity is the freedom to choose any provider using a non-network plan. This option can help one gain both freedom of choice and savings in your health plan.

3) Compliance Concerns and Reporting

Employers utilizing ICHRA are still subject to ACA requirements for groups of 50 or more employees. This includes employer shared responsibility requirements, assuming Silver plan calculations. Complying with these regulations can be burdensome for HR departments and CPAs, leading to potential compliance issues. An administrator may be able to help here, but be sure to ask questions around compliance. Otherwise, you will limit the health plan choices for the employees and create extra complexities in managing what plans that they might have.

4) Employee Education and Health

ICHRA places the responsibility of choosing a suitable health plan on employees, which can be problematic. There's a risk that employees may select plans with limited networks, inadequate coverage, or fail to understand their specific healthcare needs, potentially leading to dissatisfaction and reduced employee productivity.

5) HSA Compatibility?

Love Health Savings Account (HSA)? These plans are popular, due to pre-tax benefits and potential retirement savings. ICHRA and HSA's are possible, but can get a little complicated for most businesses. An employee can contribute to their HSA if the ICHRA offered by their employer only reimburses the monthly insurance premiums and the employee is covered by a high deductible health plan. There are some other nuances here, and this can be a administrative burden for companies to stay on top of. A hard pass for most HR professionals.

6) Limited Choice

ICHRA may not provide sufficient options for employees who desire a variety of health plans with lower costs. Many employees may not have the financial means to afford traditional marketplace plans with high deductibles and out-of-pocket maximums.

7) Lack of Supplemental Coverage

Employees often need more than just basic health insurance. Dental, vision, and other supplemental plans are usually important to employees. If your looking at routine cleanings only, an ICHRA may work just fine as the cost of benefits may be more than those routine cleanings. But if you think deep cleaning, cavities, braces, or extensive work is required (love those root canal's), this could get very expensive. These expenses could be reimbursed via ICHRA, but without coverage here in a network, often employees are left holding the bag on high costs.

8) Spouse Group Plans Exclusion

Employees who are part of a spouse's group plan from another employer cannot participate in ICHRA. This limitation forces employees to purchase individual health insurance or enroll in Medicare Part A+B or Part C.

9) Exclusion of Sharing Plans

ICHRA regulations clearly exclude sharing plans like Zion HealthShare, Medi-Share, Samaritan Ministries, and Liberty Health Share from reimbursement. This restricts employees' choices and may not align with their personal beliefs or preferences.

10) Premium Tax Credits

Employees offered an "affordable" ICHRA lose the option to receive premium tax credits. This means they cannot choose to opt out of ICHRA and take advantage of these tax credits, potentially reducing their financial benefits.

11) Employee Turnover

If you have read this far, you may not be surprised by this last, but most important reason to think twice about an ICHRA. Studies have shown that ICHRA plans can contribute to higher employee turnover rates. What employer wishes to weaken competitiveness in this job market? A study from Avalere Health warned of the risk of discrimination in the workplace, finding that low-wage workers were the most likely employees to be pushed into ICHRA plans. According to a Benefits pro article, "The Kaiser Family Foundation found that as many as 60% of businesses utilizing ICHRAs are doing so targeting their lowest earners. No business that wants to attract talent should divide its employees into haves and have-nots based on their wage status." ICHRA plans tend to result in higher monthly health costs, inadequate coverage, and reduced overall well-being of employees.

Interestingly enough, President Biden addressed ICHRA's in his 2021 executive order. He identified ICHRAs for possible revision or rescission. I avoid politics at all costs here, and its impossible to accurately guess how politics may end up changing ICHRA's in the future. But I think there are much simpler ways to provide choices to employees.

Conclusion

While ICHRA may seem like an innovative solution for providing employee health benefits, it's crucial to weigh the potential disadvantages carefully. The costs, network limitations, compliance concerns, and limitations on employee choice and supplemental coverage can all impact the effectiveness of ICHRA plans. Before implementing ICHRA as your company's health benefit strategy, it's essential to consider these factors and explore alternative options that may better suit the needs of your employees and your organization.

If your considering an ICHRA and wondering if there might be a better way to provide health benefits for your employees - you have other options. At Planstin Administration, we believe in eliminating the need for ICHRA's and helping employer groups unlock even greater value. Reach out, and let's explore why there might be a more effective approach to employee health benefits.