My wife is British and when she moved to the U.S. to begin work at a large consultancy firm she had a very strange experience. It had to do with health insurance.
“I don’t understand why my employer is involved in my healthcare,” she said. “That’s my business, not theirs.”
Ask any small business owner and they’ll wholeheartedly agree. Of course, my wife was used to the National Health System in the UK where people get benefits from a government-run healthcare service. There are many pros and cons to this. But she’s not wrong. With a National Health System both employers and their employees pay a tax for their healthcare insurance. Then everything else is left up to the employee and the employer doesn’t have to worry about healthcare.
That’s certainly not the case here in the U.S.
As a business owner, I must negotiate health insurance with big insurance companies every year for my employees with little control over the inevitable, annual cost increases. I’m often forced to analyze the demographics and health histories of my workforce, which is knowledge I don’t want, nor should I know. I have to pay someone to administer their claims, answer questions about coverages and go through a regular review of benefits. I’m just a humble CPA. I’m not a healthcare expert. Why am I involved in all of this?
The short answer is: I don’t have to be. And so I don’t any more. Last year I dropped my company’s health insurance plan altogether and replaced it with an Individual Coverage Health Reimbursement Arrangement or ICHRA. Why? Because an ICHRA changes the way business owners like you and me provide healthcare benefits for our employees. And it’s lowering my healthcare insurance costs.
Sounds too good to be true? Read on.
Simply put: with an ICHRA you still pay for your employees’ health insurance. But instead of forcing them into a plan that you choose for them, you reimburse your employees for the health insurance they choose to buy. And because you’re giving them the ability to buy their own health insurance you avoid all the time and costs involved to choose and administer a group plan.
The logistics are pretty straightforward. Your company sets up accounts for your employees with a qualified ICHRA administrator. Your partner – through direct consulting and technology – then helps your employees buy their own health insurance through a broker or on the healthcare exchanges. You then reimburse your employees for their health insurance premiums costs, up to a predetermined amount that’s determined in your plan.
The benefits for an employer are significant. No longer do you go through the pain of choosing health insurance plans every year. You have complete control over your costs. You spend less time reviewing and administering your plans. No longer do you need to know about your employees’ health histories. You can choose how much to fund each year based on a plan that you design. You still get a tax deduction for the premium reimbursements. And, depending on the state where an employee resides – a big issue in these days of remote workers – the costs available under certain health plans are lower so both you and your employees may pay less.
Your employees, meanwhile, get to choose a health plan that’s right for their specific needs and includes the network of doctors they want instead of being shoe-horned into a corporate plan which may not be as accommodating. They’re not taxed on your contributions. They can spend as little or as much as they want on their healthcare, subject to the plan’s parameters. As an employer, you can choose to reimburse for qualified medical expenses in addition to their premiums, meaning they can use the leftover funds for things like co-pays, prescriptions, mental health services, and other products and services they’d typically buy out of pocket. Their health history is confidential. And if an employee leaves your company, the unused funds stay with you, the employer. Finally, if you use a good administrator your employees can get help understanding all their options so that they can choose what’s best for them and their families.
Sounds great. But why isn’t every company doing this? It’s really about awareness.
ICHRAs were created as recently as 2020, so they’re relatively new. Many small businesses are still unaware of their existence and let’s face it: it’s not as if the insurance companies or their brokers are breaking down the doors to get the word out, given that many will wind up paying so much less.
But that’s changing and more businesses are waking up to the benefits. So much so that the Department of Health and Human Services projects that in the next 5-10 years roughly 800,000 employers will offer ICHRAs to pay for insurance for more than 11 million employees. Some believe that if market conditions break the right way, it could be much, much higher. A recent study shared that 48 percent of surveyed business owners were considerably or highly likely to offer an ICHRA as a group health insurance alternative.
The reason driving this change is that, with more than 10 million unfilled jobs and a very tight labor market, it’s a very competitive environment to attract and retain workers and many of those workers expect to receive some type of health insurance benefits when considering a potential employer. Companies – particularly small businesses – need to answer this need if they want to compete.
Having an ICHRA plan provides this answer. It directly addresses our health insurance woes. It enables even the smallest of employers the opportunity to offer a healthcare benefit. Because of the potential cost savings and flexibility, an ICHRA may be just the solution that even the smallest business can provide so that they can compete for the best talent available. I know one thing: my wife would prefer to work for a company that offers one instead of a traditional group plan!
Depending on where your business is located and other factors, an ICHRA may not be your best health benefits strategy. The best way to find out is to dive into the details with this ICHRA Guide, or talk to a competent partner. It could make the difference between hiring (and retaining) the best people to grow your business.