Take Control of Your Employee Health Insurance Cost through ICHRAs
By Jaime Schloemer, CSFS
The two questions all employers ask at some point in the year are how much more am I going to have to pay in health insurance for my employees or how much more are my employees going to pay? It’s no secret that health insurance costs are on the rise. Usually, the choices are to take the increase on as a company, pass it on to the employees, or change the plan design where employees have to pay more in healthcare costs. What if there was an option where you can control what amount you want to pay for premiums and the employees have the choice in what plan design they want to choose? Good news! As of January 1, 2020 there is a new option called ICHRA, Individual Coverage Health Reimbursement Account.
An ICHRA is a tax-free fund set aside to help employees pay for premiums on their own purchase of individual health coverage. As the employer you can determine the amount to set aside for employee premium reimbursement. This way, your budget is set and you know what to expect to pay out on medical costs for the year. It also relieves the employer from the worry of what the renewal increase is going to be year over year. Employees have the option to choose a plan that fits their needs, whether it’s at the Bronze, Silver, or Gold level. The employees pay any premium difference that is not covered by the Employer’s ICHRA offering.
Another benefit of ICHRA’s is that it can be offered to certain classes of employees such as fulltime, part time, seasonal, salaried, hourly, and employees in different locations. You can determine to offer it to one or more classes and continue to offer a traditional health plan to the others. It cannot be an either-or option within a class. Each class will either be only offered the ICHRA or the traditional health plan. In order for the employee to be eligible to receive ICHRA funds they must be on individual health coverage and not a group plan, for example through a spouse. This seems like a pretty good way to control costs, right? Absolutely!
ICHRA’s also allow employers the flexibility to determine how much they want to contribute to the employees’ premiums and this also can be based on class, age and family size. Employers can set contributions based on these specifications and still know what they can expect to pay out in costs for the year. Makes budgeting an easy task.
This option sounds like a great idea, but you are probably thinking, what’s the catch? There is no catch. There are some challenges or questions that might pop up: do employees know how to go about purchasing coverage, can they find coverage that is right for them, and how do they provide substantiation for reimbursement. Your broker should be able to help you find a company to administer the ICHRA as well as provide services to help with employees’ questions and needs. This saves you time, and lets you focus on other business needs.
A few other things to consider when choosing to offer an ICHRA, the money can be used primarily for individual health premiums, but if the reimbursement amount offered is greater than the premium paid by the employee, the employee can use the additional money for out of pocket medical expenses. For example, if you offer an ICHRA monthly reimbursement of $400 a month and the employee purchases a plan that costs $300, they could use that additional money towards copays or deductible expenses. An ICHRA can be offered with Flexible Spending and Health Savings Accounts. Something to keep in mind, to be offered with the Health Savings Account, the ICHRA must only reimburse the individual coverage premiums. No double dipping!
If you’re interested in hearing more about ICHRA’s and the benefits of offering this to your employees, please contact me at 262-521-5700.