A little over a third of employers are considering Individual Coverage Health Reimbursement Arrangements (ICHRAs) as a potential option for health benefits, but there are challenges to adoption, a new survey reveals.
The survey was conducted by the Employee Benefit Research Institute with support from Morgan Health and received responses from 984 employers. An ICHRA allows employers to provide tax-free reimbursements to employees for qualified medical expenses (such as premiums) versus providing a traditional group plan. They’ve been a major topic of discussion in the healthcare industry due to their potential to offer employees more flexibility with their health benefits.
The survey found that awareness about ICHRAs is a major barrier to adoption. About 6 in 10 employers said they are at least somewhat familiar with ICHRAs. Awareness was especially low among small employers not currently offering health coverage, with 55% of these employers unaware that ICHRAs are an option.
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However, once small businesses became aware of ICHRAs, they had more interest: one in four not currently offering insurance showed a preference for ICHRA over a traditional group plan.
“There’s just increasing pressure on these small businesses. … Cost escalation is a problem for larger businesses as well, but for the smaller businesses, it’s more existential because they just don’t have the margins or the resources to be able to support this kind of cost escalation, and that’s really why we are focused on ICHRA as one of the possible ways that businesses can access less expensive, strong insurance product,” said Dan Mendelson, CEO of Morgan Health, in an interview.
Awareness isn’t the only barrier to adopting ICHRAs. Employers also cite concerns about the individual health insurance market and whether individual market premiums and out-of-pocket costs are affordable for their employees. In addition, they’re worried about provider networks, plan quality and employees’ ability to shop for insurance.
Employers also have concerns over compliance requirements, implementation complexity and the long-term stability of ICHRA.
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However, employers see a lot of reasons to consider ICHRA as well, including flexibility in benefit design, increased employee choice and affordability for employers. They’re especially beneficial to employers who otherwise may not be able to offer health coverage.
Adoption in ICHRAs could increase if provider networks have the same quality as group plans, the survey found. In addition, 77% of employers said a broker or benefits consultant recommendation would make them more likely to adopt an ICHRA, and 76% said the same about a recommendation from a peer business. Tax credits, the stability of the individual marketplace and compliance requirements also play a role in adoption.
Employers showed the greatest interest in offering ICHRAs to all employees (78%). Among targeted employee groups, they were most interested in offering ICHRAs to remote employees (66%) and new hires (66%), followed by part-time (47%) and seasonal workers (42%).
Regardless, it may take some time for ICHRAs to really take off.
“Trends and benefits don’t tend to take off like a space shuttle,” said Paul Fronstin, director of health benefits research at EBRI, in an interview. “They take off like an airplane, and it takes a while to get to cruising altitude. Like with HSAs, HSAs have been around for over 20 years now, and we’re maybe a third of workers in an HSA plan. Maybe we’re at cruising altitude now, and that’s all we’ll ever get to. We don’t really know. Feels like it, but we didn’t shoot up to 33% overnight.”
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