ICHRA healthcare

Individual coverage health reimbursement arrangements (ICHRAs) are playing a role in expanding access to health coverage, particularly among small businesses, rather than displacing traditional group plans among larger firms, according to recent research from the Employee Benefits Research Institute (EBRI). The study, Individual Coverage HRAs: The Next Chapter in Employment Based Health Benefits?, explained that an ICHRA is a type of employer-sponsored health benefit that allows businesses to reimburse employees for their individual health insurance premiums and qualified medical expenses.

“Our new research report explores the history, policy development and current landscape of HRAs and ICHRAs and evaluates each plan’s potential to reshape the employment-based health benefits landscape. Originally introduced in 2002 as a tax-advantaged way for employers to reimburse employees for out-of-pocket medical expenses, HRAs evolved significantly following the Patient Protection and Affordable Care Act of 2010 (ACA) and a 2019 federal rule that permitted stand-alone ICHRAs for workers to purchase ACA-compliant individual coverage,” said Paul Fronstin, Ph.D., director of health benefits research at EBRI.

The study found the following:

• Slow but steady uptake. Despite predictions that ICHRAs would rapidly gain ground, adoption has been far more modest. EBRI noted that most employers offering an ICHRA had not previously provided health benefits. This suggests that ICHRAs are playing a role in expanding access to health coverage, particularly among small businesses, rather than displacing traditional group plans among larger firms.
• Barriers to broader adoption. Concerns include administrative complexity, especially with ACA affordability requirements varying by geographic region, reluctance to relinquish control over plan design and uncertainty about the individual market’s long-term stability. Behavioral economic concerns about overwhelming employees with choice further complicate the appeal.
• Potential for systemic change. The appeal to employers of both 401(k) plans and ICHRAs is more predictable benefit costs and meeting the needs of a changing workforce. According to EBRI, however, systemic transformation to ICHRAs, like what happened with retirement programs, will likely require more than regulatory permission, as it will depend on shifts in market dynamics, labor market pressures and willingness of employers to be early adopters.

“For decades, health policy analysts and employers have explored the idea of shifting from a traditional health benefits arrangement to a defined contribution approach, which would give employees a fixed amount of money with which to purchase health coverage themselves. While this idea gained traction conceptually, its practical application remained limited due to regulatory, market and administrative hurdles. However, the emergence of ICHRAs may finally offer a scalable vehicle for that long-anticipated shift,” said Fronstin.

SOURCE: www.ebri.org

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