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I am seeing a growing number of my smaller clients canceling their health insurance plans. Why? Because for them — and others — there’s a better option.
It’s no secret that providing health insurance is a major — and oftentimes insurmountable cost — for many small business owners. I have a number of clients that contribute to their employees’ healthcare — sometimes as much as 100% for individuals — and this can run tens if not hundreds of thousands of dollars every year. And there’s no end in sight.
A recent survey from employee benefits consultants Buck found that on top of prior year-after-year increases, healthcare costs will go up yet again between 6-7 % – and to many of my clients, that’s a good year! Each year, they’re faced with the same, volatile, uncontrollable and seemingly uncontainable challenge to control these costs and this year is no different. This is why more than half of small businesses find themselves unable to offer health benefits – and lose talent as a result.
And it’s not just the cost of premiums. There’s also the cost of administrative and lost opportunity time. There’s the seemingly fruitless search for better prices in what is clearly an oligarchic market made up of just a very few large providers. It’s the awkwardness — and potential privacy concerns – of knowing your employees’ health histories which oftentimes figures into the premiums we pay. And it’s the time we spend trying to find alternative ways to make healthcare more affordable through add-on schemes like Health Savings and Flexible Spending Accounts.
The good news is that there’s an alternative and a growing number of my clients are learning about it. It’s called Individual Health Reimbursement Accounts — or ICHRAs.
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These types of plans are becoming enormously popular with small businesses. So popular that the Department of Health and Human Services forecasts that approximately 800,000 employers will offer these types of plans to almost 11 million employees over the next few years. A recent report from the HRA Council — a consortium of health benefit firms — found that these types of plans have grown 350% since 2020, and are “doubling on average among all states, with significant growth across all industries, employer types and employee groups” and that companies with 20 or fewer employers are accounting for 90% of their adoption.
According to Jack Hooper, the chairman of the board for the HRA Council and CEO and founder of benefits administrator Take Command, the number of large employers switching to ICHRAs has grown exponentially but “small and medium-sized businesses are leading the charge to deliver much-needed innovation in the benefits space, consumer empowerment and choice for employees, and cost control and flexibility for employers.”
Why so popular? ICHRAs not only cut healthcare costs, but they help employers get out of the healthcare business altogether.
With an ICHRA, you’re likely going to pay the same premiums (it’s up to you), but this time by a contribution to an employee’s account that’s setup under the plan. But that’s it – the rest is up to the employee. Your employee gets reimbursed by you — pretax like any other health plan and you get a tax deduction for your contribution. But now it’s on them to get their own healthcare insurance either through their state or federal healthcare exchange or through an independent insurance broker (some of my clients provide their employees with recommended firms that do this).
There’s no more deciphering the ins and outs of complicated health plans. There’s no more negotiation with healthcare providers. There are no more privacy issues. There’s no more internal administration (most of my clients outsource this work to firms that handle these plans). Basically, you just reimburse the employee and you’re done with healthcare. Amounts contributed stay with the employer if a worker leaves. And if you’re having a bad year and feel like contributing less, you can do that too without switching plans, although you may suffer the wrath of your workforce, so be careful!
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With ICHRAs, employees have more flexibility in their health plan choices and aren’t dependent on what an employer is providing. Remote workers may be able to get better deals on their health insurance depending on what’s offered in their state. They can choose how much they want to spend and their employers can choose to reimburse for additional costs like prescriptions or mental health coverage.
Because they’re easier to understand and offer a less-expensive option for employees, younger workers are participating in these plans at a rate greater than their older counterparts. The HRA Council report found that 57% of employees accepting an HRA (which includes either ICHRAs or QSEHRAs — a similar, but less flexible plan that an employer can offer directly to workers) to fund their marketplace health insurance are between 18 and 44, with the largest age cohort being 26 through 34 for each year since 2020.
ICHRAS are “causing a seismic shift in the employer-sponsored group market — addressing employers’ needs to significantly control costs and opening the doors for employees to be more informed healthcare consumers,” John Kelly, CEO and founder of healthcare benefits provider Nexben, a benefits tech firm, told HR Executive. “ICHRAs are the 401(k) of health benefits.”
Why am I so bullish on these plans? Because they allow even the smallest of businesses to provide some type of healthcare coverage for their existing and prospective employees instead of just throwing up their hands and saying, “we can’t afford this.” In these times of tight labor, you can’t not have an answer when someone asks you about your healthcare benefits. With an ICHRA you’ve got an answer. A good answer. Which is why I’m seeing so many of my clients take advantage of this option over the past few years.
