Best ICHRA vs. Group Plan Comparison
Is ICHRA health insurance better than a traditional group plan?
Maybe.
At a high-level, these new health reimbursement arrangements are a superior model compared to traditional employer-based plans. How it might be implemented for a particular client will depend on a lot of local market factors and what you or your client care most about when it comes to benefits.
The following chart provides a summary of where ICHRA wins and loses compared to a traditional group plan. We’ll then dive into a few key areas below.
ICHRA | Group Plan |
Cost Control Define your benefit budget and stick with it. No more surprise group increases year after year | Provider Networks Individual plans generally have narrow, HMO or EPO based networks compared to group plans |
Plan Customization & Flexibility Design a plan that fits your team vs being locked into what an insurance company offers | Premium Pricing On average, individual plans are usually 10-20% more expensive than traditional group plans |
Risk De-Management Take managing your employees’ health risk out of your business plan | |
Network Flexibility Give your employees the ability to choose plans and doctors that work for them | |
Plan Portability Employees own their health plan and can take it with them if they change jobs | |
Plan Choice & Personalization Employees select individual plans that fit their needs: doctors and RX coverage | |
Employee Experience Individual insurance companies provide a superior experience (apps, concierge, etc) |
Why are ICHRA plans better than traditional group health plans?
- Transfers employer responsibility for health risks
- More personalized plan choices for employees
- Simpler and more flexible plan design options
- Greater budget control
- No participation concerns
Transfers employer responsibility for health risks
Do you or your clients want to play in the insurance risk management game? For any client that is over 50 employees (100 employees in NY, VT, CA & CO), whether they are currently self-insured or fully-insured, they are effectively responsible for their employees’ healthcare spend. Self-insured clients will feel changes right away; fully-insured clients will feel it next year when their plan renews at a higher rate.
Some employers are figuring out how to manage costs effectively: they are invested in wellness programs, engaged in high-performance network design, and interested in helping employees with chronic conditions effectively manage costs.
Other employers would rather not try to manage employee healthcare spend. If that’s you or describes your client, ICHRA could be a great solution. You can still offer generous benefits (or not generous, up to you) and your costs are fixed because you have no risk to manage.
Personalized plan choices
Traditional group plans rely on a “one-size-fits-all” model. For example, if you or your client choose a Blue Cross plan, the employees may get to choose from a few flavors of Blue Cross, but networks and formularies are the same. Is that really the best fit?
ICHRA is much more personalized than employer-provided group plans and allows employees to choose their own plan.
If one employee wants Blue Cross because it has his doctor in network, great! If another employee wants to move to Aetna because it handles her prescription better, no problem! Finally, if another employee already gets great coverage through their spouse, they can stay on that plan and opt-out of the individual coverage health reimbursement arrangement benefit.
If the HRA insurance plan is designed to allow for medical expense reimbursement too, employees can spend it on whatever they need (contacts, prescriptions, dental care, etc). Reimbursements go directly towards meeting employee needs, not into a pit of group plan deductibles and premiums.
Simple and flexible design options
Traditional group plans come in all sorts of crazy shapes and sizes—a dizzying and confusing concoction of deductibles, coinsurance rates, employee vs. employer contributions, single versus family limits, etc. Then you get to hassle with census uploads and comparing quotes you have no control over. Employers are forced to guess on plan designs that’ll keep employees happy and fit the budget.
ICHRA allows employers to use their time focusing on what they do best–serving their customers–and not on managing complex group plans
Furthermore, an ICHRA can be customized and designed to achieve you or your clients’ goals. We’ll cover this more in our ICHRA Design section, but you can offer different rates of reimbursement for full-time vs part-time employees, single vs. family employees, etc. Super easy.
The Individual Coverage HRA’s biggest selling point is that it has eleven different classes that can be used to divide employees into different benefit levels. While employers have to treat employees fairly, there are a lot of levers they can pull on how much to reimburse and who gets to participate.
Budget Control
If you or your client are tired of constant premium increases for your group health plan, then ICHRA should be an option to consider. You or your clients set the allowable reimbursement rates and your costs will never be greater than that. And if employees don’t buy insurance or don’t use all of their allowance? The employer keeps the money.
No minimum participation requirements
Most group plans require employers to maintain a high participation rate–typically around 70%. This can force employers to offer more generous and expensive benefits than they may have otherwise in order to keep the plan intact. With ICHRA, there are no participation requirements. If employees decide not to use the benefit, there is no cost or concern for the plan.
ICHRA PROs & CONs
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Advantages of ICHRA Plans
ICHRA allows employers to customize the health plan to meet their budget and company goals while providing employees with the necessary coverage. With ICHRA, employers reimburse employees for insurance premiums and qualified medical expenses
Here’s what to know about ICHRA pros and cons.
ICHRA Pros
ICHRA Cons |
ICHRA is Relatively New |
Non-Transferable Funds |
Limited Coverage |
One of the major benefits of ICHRA is the flexibility it offers employers. Employers can customize the plan to meet the needs of their business and their employees. The employer can choose the type of coverage they want to offer, the amount of the reimbursement, and the eligibility requirements..
This allows employers to tailor the plan to their specific needs, budget, and objectives. Additionally, employers can also choose to offer different levels of coverage to different classes of employees, such as full-time, part-time, or seasonal employees. This flexibility is the type of health coverage employers need to provide health benefits to the modern mixed workforce.
Cost Savings
Since employers decide on the maximum reimbursement allowances, they control how much is spent on health coverage. And any unused HRA account funds can roll over at the employer’s discretion annually; otherwise, the funds stay with the employer. They also roll over month over month.
ICHRA Tax Advantages
ICHRA offers tax benefits to employers and employees – everyone loves a win-win! Employers can deduct reimbursements made to employees through ICHRA, reducing their overall tax liability. And reimbursements given to employees through ICHRA are not considered taxable income, so employees won’t have to pay taxes on reimbursements. This helps reduce healthcare costs for employers and employees and everyone benefits.
Attract and Retain Talent
ICHRA offers a more customized health plan than other employer-sponsored plans, making it more attractive to potential employees. The plan can provide employees with the coverage they need, helping employers retain top talent by ensuring employees have access to the health care they need. This can help employers save money in the long run by reducing turnover costs. Employers can demonstrate their commitment to their health and well-being by offering a health plan that gives employees the freedom to choose the individual health coverage that works best for them and then reimbursing them for expenses, including premiums.
ACA Compliance
ICHRA also helps employers comply with the Affordable Care Act (ACA). The plan meets the ACA’s minimum requirements for employer-sponsored health plans, allowing employers to avoid potential penalties. This can help employers save money in the long run by avoiding any fines or penalties associated with non-compliance.
Administration Simplicity
The plan can also help employers simplify their administrative processes. ICHRA does not require employers to manage a large group insurance plan, which can help reduce the administrative burden. This can help employers save time and money by streamlining their administrative processes.
Potential Disadvantages of ICHRA Plans
ICHRA is relatively new
Since ICHRA is a new benefit model, it will take time for employers and employees to get accustomed to the ins and outs of how an ICHRA health coverage plan works. Employers must educate themselves on ICHRA, decide if they will administer the plan in-house or outsource to an HRA administrator (recommended), then communicate to employees about the new health benefit.
Non-transferable Funds
ICHRA funds are not transportable, so they stay with the employer if the employee leaves the company. The good news is that the employee keeps their health insurance plan!
Limited Coverage
If individual insurance markets in your area are weak, your employees won’t have as many options as they might like. Luckily, we continue to see the ACA health insurance marketplace grow and innovate with more great options for employees.
Please don’t hesitate to contact us here.
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