Employers that have decided to offer their staff individual healthcare reimbursement accounts to purchase health insurance on their own have been encountering administrative headaches.
Simply tracking whether workers in an ICHRA plan have secured coverage can be complicated, but employers need to contend with other compliance issues too. As a result, more firms have turned to third party plan administrators or insurers to simplify enrollment for ICHRAs, which adds to the costs of administering these plans.
ICHRAs are still foreign to most employers and their workers. They became a viable option for funding health insurance for employees in 2020. Since then, they have grown in popularity as they provide another option for businesses to help fund employees’ coverage. Younger and healthier workers have been most responsive to these plans, as the arrangements provide a way for them to secure low-cost coverage on their own.
Employers can contribute a specific amount to an ICHRA each year or each month. Participating employees must use those funds to purchase individual health insurance coverage on an Affordable Care Act marketplace or in the open market.
Employers can offer an ICHRA as a stand-alone benefit or alongside a group health insurance policy. For example, an employer could offer group coverage to full-time employees and an ICHRA to part-time employees.
However, employers who offer ICHRAs may face various administrative challenges:
- Documentation —Employers are required to comply with IRS reporting rules, just as they would if they provide health insurance.
- Reimbursements —Employers must track reimbursements and verify that participating employees secure and maintain their coverage.
- Compliance—ICHRAs must comport with IRS, Department of Labor, ERISA and COBRA regulations.
- Employee understanding —Employees may be unfamiliar with ICHRAs and need help understanding eligibility and benefits. This requires additional training as well as one-on-one meetings.
- Setup—Employers must navigate setup requirements, determine administrative methods and educate employees.
Other considerations for employers include:
Loss of premium tax credits —Employees eligible for affordable ICHRA coverage lose access to ACA premium tax credits, which reduce their premium on exchanges, resulting in higher costs for them. They lose this credit even if they decline the benefit.
Coverage and family limitations—ICHRA funds cannot be applied to spousal group plans. As a result, family members need to secure coverage from another source, like a group plan for the other parent, or purchasing a plan on the ACA marketplace.
Employee backlash —Since these are still relatively new products, forcing workers to shop for health coverage on their own could create resentment in the ranks.
What employers can do
One benefit of these plans is that they often pull young, healthy workers back into the risk pool. However, older staff with health conditions that increase health plan usage are not likely to go for an ICHRA. Likewise, staff with families needing coverage are likely to balk at the option.
Employers considering offering employees ICHRAs and looking to reduce administrative and other burdens may want to hire a third party administrator specializing in ICHRAs.
Some of these administrators function as a bridge between employers and health insurance companies, facilitating the enrollment process for employees choosing individual health plans. Administrators can manage communication, ensure compliance and streamline the selection of plans available through different insurers.
Companies who prefer not to outsource these functions can:
- Use software tools to streamline processes.
- Train personnel to manage reimbursements and compliance.
- Provide clear communication and training to employees.
- Offer support to help employees navigate eligibility requirements.
- Work with us to stay up to date on compliance requirements.
- Use detailed consolidated invoicing to simplify the billing process.
