Executive Summary 

1. In 2019, the Trump administration authorized all employers the option to offer individual-coverage health reimbursement arrangements (ICHRAs) instead of a traditional health plan. 

2. ICRHAs are a tax-free contribution that employees use to purchase their own plan on the Affordable Care Act marketplace (or toward premiums for traditional Medicare or Medicare Advantage). 

3. Although the utilization of ICHRAs by employees has increased by 350 percent, only a small fraction of eligible employees are enrolled, an estimated 100,000-200,000 in 2022; further research is required to determine the barriers to utilization. 
    

Introduction  

On average, employer premium costs for traditional group plans have increased by 5-7% annually. In response, in 2019, the Trump Administration published a final rule to expand the use of health reimbursement arrangements (HRAs) to provide employers more flexibility in providing health coverage.  

Since January 1, 2020, employers of any size can offer the option of an individual-coverage health reimbursement arrangement (ICHRA) instead of a traditional group health plan. ICHRA plan design allows employers to provide tax-deductible reimbursements to employees to purchase their own plan on the Affordable Care Act marketplace (or put towards premiums for traditional Medicare or Medicare Advantage) for qualified medical expenses.  

Despite the 350 percent growth of utilization, in 2022, it is estimated that only 100,000-200,000 employees utilized ICHRA plans. Perceived benefits of ICHRA plan design for employers include increased predictability of costs due to the ability to define a set budget. For employees, benefits include flexibility in selecting a plan that best suits their needs. Possible disadvantages include requirements of purchasing an Affordable Care Act marketplace plan that may have unattractive qualities and a lack of employer bandwidth to implement this new program design. Further research is necessary to determine barriers to utilization and what else can be done to encourage more employers to offer health insurance as a benefit. 

What is an individual coverage health reimbursement arrangement (ICHRA)? 

An individual coverage health reimbursement arrangement (ICHRA) is an alternative health insurance model. A traditional employer-sponsored health insurance model operates by the employer purchasing and offering group health plans to their employees and covering part of the premium. Alternatively, an ICHRA allows an employer to provide a tax-free contribution that employees use to enroll in their own plan on the ACA marketplace. ICHRA reimbursements may also be put toward premiums for Medicare Parts A, B, D, Medigap, and Medicare Advantage. 

ICHRAs build off the Qualified Small Employer Health Arrangements (QSEHRA) signed into law by President Obama. While QSEHRA and ICHRAs operate almost identically, ICHRAs address the main QSEHRA limitation of only being available to small employers. Therefore, ICHRAs are available to any size business.  

ICHRA Advantages 

Employer and Employee Flexibility

ICHRA plans offer both employers and employees flexibility. Employers can choose the reimbursement amount and there is no maximum contribution – meaning if employers want to offer more assistance to their employees they can. Moreover, employees have the flexibility to select a plan in the marketplace that works best for them. For example, employees may select a plan that covers their current doctors or can add other benefits (ex: dental and vision) to suit their specific needs.  

Cost Control 

ICHRA plans enable employers to define a set budget and therefore have predictability over their insurance spending, compared to a traditional employer-sponsored model where employers face the risk of unforeseen high medical claims that may burden their business. Additionally, for small businesses that are not required to and have not previously offered health insurance as a benefit to their employees, the ICHRA model is a lower-risk, more predictable option to provide this benefit that can be used to attract and retain a high-quality workforce.  

ICHRA Disadvantages 

Marketplace, Medicare, or Nothing  

To qualify for a tax-free ICHRA reimbursement, employees are required to purchase an individual plan on the ACA marketplace (or be enrolled in traditional Medicare or Medicare Advantage). Therefore, reimbursements cannot go toward a spouse’s employer group plan. ACA marketplace plans also have smaller provider networks that may be unattractive. This provision may limit the number of employees interested in this benefit.  

New Model with New Confusions  

There are several provisions that employers will need to understand to implement this new model. For example, employers are required to offer the same terms of ICHRA benefits within a class of employees (ex: full-time, part-time, seasonal, hourly, etc.), and cannot offer a traditional group plan and ICHRA to the same employee class. Moreover, large businesses with 50+ employees are required to adhere to the affordability requirements of the Affordable Care Act. Businesses that want to implement this new model will require manpower to do so, and some may not have or want to use the resources to do so. 

Conclusion 

ICHRAs offer an alternative for employers to continue to provide insurance to their employees as an attractive benefit while maintaining cost control, predictability, and flexibility. Time will tell whether this new model of care will gain traction as a popular alternative to traditional employer-sponsored coverage. Further research will be necessary to determine the true barriers to utilization and what else can be done to encourage more businesses to offer health insurance as a benefit.