As employers' health care premiums rise to the tune of 8.5% for 2024, HR professionals and benefits consultants are exploring alternatives to group coverage. The first stop for many companies feeling the full weight of that increase – which is nearly double what it was from 2022 to 2023 – is to consider moving from fully insured plans to a self-funded strategy.
While transitioning a company to a self-funded model can show some initial cost savings, it's not always a silver bullet for employers in the long run. For many organizations, an individual coverage health reimbursement arrangement (ICHRA) is the better solution. Below, we explore how ICHRAs can pick up where self-funding leaves off.
First, let's break down the key differences between the two health insurance options.
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Self-funded plans
Self-funded plans, sometimes called administrative services only (ASO) plans, function much like their fully insured counterparts. However, they come with an increased risk for employers, tend to have a high degree of administrative complexity, and offer little in terms of predictable cost savings. In addition, they:
- Differ from traditional plans in risk tolerance and funding, plan design flexibility, and overall administration.
- Can be customized and offer employers more choice over plan designs, carriers, and third-party administrators (TPAs).
- Shift the financial risk from the carrier to the employer, allowing for reinsurance via individual and aggregate stop-loss arrangements.
ICHRAs
An ICHRA is a type of employer-provided health benefit plan that allows employees to choose their own health insurance coverage and to receive tax-advantaged funds from their employer for a portion of their plan's premiums and qualified medical expenses. With an ICHRA, choice is the central theme.
- Employers enjoy being able to choose exactly how much they want to contribute, tax-free, to employees' health coverage.
- At the same time, employees have an abundance of choice in their health plans like never before; they can shop around for the individual health plan that best fits their needs instead of settling for one or two options selected by their employer.
5 reasons ICHRAs could be a an alternative to self-funding
1. Predictable pricing
Moving from fully insured to self-funded doesn't eliminate the claims risk for a company; it simply shifts that risk to the employer, making it a yearly gamble. An ICHRA, on the other hand, disperses the risk across the much larger individual market, so pricing remains much more stable.
This is especially useful for companies that already have high utilizers with ongoing claims. On average, moving from a fully insured or self-funded model to an ICHRA saves businesses 20% on their yearly premiums. And unlike self-funded plans, which may show cost savings the first year based on immature stop-loss fees, ICHRAs keep prices predictable over time.
2. No need for stop-loss or reinsurance
There's no need for stop-loss insurance with an ICHRA because, again, those rates aren't based on the company's claims. This is especially beneficial after year two or three, when stop-loss rates typically go up, even for organizations with a younger, relatively healthy population.
3. In-network, local coverage across the country
ICHRAs are a game-changer for organizations with multi-state footprints. Employees choose from all available ACA-compliant individual plans in their area, so there is always an option for them to find local coverage. The same cannot be said for self-funded plans, which may still limit availability in certain geographic regions.
4. Administrative ease
Besides taking on the financial risk, companies that go the self-funding route must also handle more administrative tasks than they do with fully insured plans. Even with a TPA, employers will need to constantly monitor their claims and think about what's triggering their individual and aggregate stop-loss policies. Migrating to an ICHRA, on the other hand, simplifies the entire process and HR teams never even have to think about claims. And with the right ICHRA administrative partner, they won't have to worry about paying individual carriers or reimbursing employees for premiums.
5. Plan portability
That ease of administration with an ICHRA also extends to employee termination. Self-funding doesn't change the plan model for the employee. They are still essentially renting coverage from their employer, which means that if they leave the company, their only option to extend the coverage is through COBRA. With an ICHRA, employees own their plan and can take it with them.
When you consider all the ways companies and their employees can win with an ICHRA, it comes as no surprise that the group health alternative is gaining traction. The Bureau of Labor Statistics predicts that 11 million employees will have an ICHRA by the end of 2025. In today's age of choice, you don't need to be tied to the one-size-fits-all approach of the past. As a benefits leader, you, too, have the opportunity to choose.
Tom Mafale is the Chief Revenue Officer at SureCo, a healthcare and insurance technology company that specializes in ICHRA administration.
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