ICHRA’s Shake Up Market

Your broker advisor will probably never recommend ICHRA’s because to do so will destroy their business model. That’s probably why you’ve never heard about ICHRA’s until now……..

Freedom Plan vs Traditional Group Health Insurance Plans

By Bill Rusteberg

Effective January 1, 2020, employers of all sizes are allowed to establish a new group health plan that will reimburse employee premiums paid to purchase individual health insurance. The term ‘group health insurance‘ has become an oxymoron because this new type of group health plan is composed of individual health insurance policies.

Government officials call this group plan an Individual Coverage Health Reimbursement Account (ICHRA). Some employers will call it the Freedom Plan.

As a defined contribution plan, the Freedom Plan allows employers to control costs while providing employees freedom to pick and choose insurance plans that best suits their individual needs and budgets versus the ‘one size fits all‘ which is characteristic of traditional group plans.

Highlights include:

► No cap on Freedom Plan (ICHRA) contributions which are entirely employer funded.

► Employees cannot be offered a choice between a regular group health plan and an ICHRA.

► Employers can offer an ICHRA on a class basis. For example, hourly versus salaried employees, full time versus part time, and by geographic areas, etc.

► Employers may increase the ICHRA amount for older workers and for workers with more dependents.

► Employers maintaining a traditional group health plan can stipulate new hires  only eligible for an ICHRA.

While the Freedom Plan may not fit the benefit strategies for some employers, it may be attractive to others for a variety of reasons. Elimination of budget busting renewals, the inordinate amount of time normally expended towards employee benefit management, and onerous government mandates (and punishing sanctions) are just a few of them.

There are instances where adopting the Freedom Plan makes more sense than others.  A self-funded health plan may be facing a difficult renewal with a series of budget busting lasers will find the Freedom Plan to be an attractive, and perhaps only, alternative. Large groups, unprotected by guarantee issue mandates as small groups are in Texas, may find it difficult to procure competitive group health coverage, if at all. The Freedom Plan solves this problem.

With the passage of the ACA, many of the historic distinctions between group and individual plans blurred. Both now share common characteristics important to consumers. For example pre-existing conditions must be covered without waiting periods for all ACA compliant health plans.

However, there remain important distinctions too such as rating basis. While group plans offer composite rating, individual plans by nature do not. In the former case younger members pay more to subsidize older members who in turn pay less than their risk demands. Not so under individual plans.

The Kaiser Family Foundation is one of many online resources where consumers can go to look up available plans in their geographic areas as well as monthly insurance premium rates.

Below, for example, are sample rates for individuals living in San Antonio, Texas. The rates shown below are the total rates without any government welfare (subsidies) assistance.

Kaiser Family Foundation Health Insurance Calculator

Silver Plan

Applicant Age                                Estimated Mo. Cost

25                                                                    $320

35                                                                    $441

45                                                                    $521

55                                                                    $804

62                                                                    $915

An employer can compare their group rates to individual rates very easily to determine best premium and benefit value.

Your broker advisor will probably never recommend ICHRA’s because to do so will destroy their business model. That’s probably why you’ve never heard about ICHRA’s until now.

TPA’s would be wise to be prepared to administer ICHRA’s because as this gains momentum, as it surely will, there will be a demand for ICHRA administrative services. A quick check among a few TPA’s show none are prepared to step in and take advantage of the opportunities now before them.

There are pros and cons one must consider when comparing the Freedom Plan to traditional group plans. It’s up to you to decide which outweighs the other. It’s your choice.

RiskManager@RiskMangers.us

FROM ERISA ATTORNEY

Bill, this is spot on. You should call Jeff Bohnson at Best in Class Care (www.bestinclasscare.com) and see a demo. It is the “Expedia” of health care and opens up opportunities to be way ahead of the curve.

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