Small businesses account for some of the early adopters of the Individual Coverage Health Reimbursement Arrangement (ICHRA) according to Take Command Health. With just two months since the start of the new employer-sponsored health insurance plan, 78% of the enrollees in the plan are small businesses.
Nonprofits and associations account for 20% of the early adopters in the new ICHRA plan. They are followed by professional organizations that include engineers and architects (14%). Other adopters include tech companies (11%) and healthcare providers and services (9%).
The new health reimbursement plan is touted to have advantages over traditional group plans employers might find appealing. This includes the reimbursement model which affords employers greater ability to control costs and provides employees with more options to choose from.
This is in stark contrast to previous model of group insurance where employers can only choose a one-size-fits-all plan. This had previously limited options sponsored by the employer.
“With more than 200 companies signed up with ICHRA so far, it’s no surprise to us that small businesses are emerging as true pioneers in this new world of benefits,” said Jack Hooper, CEO and founder of Take Command Health.
Some 61% of employers are also choosing to reimburse medical expenses and premiums. While the remaining make reimbursements for premiums only. Noticeably enough, small businesses prefer to include medical expenses as part of their benefits packages for their employees.
Through the ICHRA applications small business employers are either varying rates by family status or contribute the same to all employees. However, many employers are opting out from choosing the option to vary by age.
By customizing allowances that fit to their respective budgets and employee needs they are making much use of the uncapped contribution. With rates for a single employee ranging from $ 400 to $1,200 a month. For those packages that include coverage for a family, the average rate is between $500 to $ 1,500.
All businesses with at least one W-2 employee or salaried employee can offer an ICHRA. However, for employees to be part of ICHRA they will need to have an individual health insurance. Employees covered by a spouse’s group health insurance plan, employees participating in a health care sharing, or employees who choose to go without insurance coverage cannot participate in the ICHRA.
ICHRA is open to a range of employees including full-timers, part-timers, seasonal employees, hourly employees, temporary employees who work for a staffing firm and others.
Within the past two months, the most common classes entered in ICHRA include salaried vs hourly employees, geographic location and full-time vs part-time.
ICHRA is gaining popularity in states with strong individual markets such as those in California, Texas, Florida, and Oregon.
What is ICHRA
ICHRA came into law in June 2019 when the federal government finalized a new type of Health Reimbursement Arrangement (HRA). It is an expansion of the earlier qualified small employer HRA (QSEHRA) whereby businesses with 50 or fewer employees can reimburse employees for medical expenses without providing group health insurance.
Now ICHRA allows all businesses, regardless of their size, to reimburse employees for their health care expenses. And also allowing employees to choose a health insurance plan that works best for them as well as reimburse individual insurance premiums, which traditional HRAs cannot.
ICHRA is essentially an employer-funded, tax-free health benefit used to reimburse employees for individual health insurance and other medical expenses. It is based on reimbursing employees for insurance rather than buying it for them.
With this scheme businesses offer employees a monthly allowance. From the allowance employees can choose and pay for individual coverage and other qualified expenses. In instances where employees have never submitted receipts for the full reimbursable amount, the employer gets to keep the funds. They also have the option to carry over the funds or reset them at the end of the year. All ICHRA reimbursements are free of both payroll tax and income tax.
It works on four simple stages. First with ICHRA employers can design their own specific plan. They can then determine which of their employees are eligible and set reimbursements limits. Two employees have the option to purchase the individual plan they want. Three employees can submit claims on reimbursements. Lastly, reimbursements are made for valid claims.
How do small business benefit from ICHRA
ICHRA helps small businesses in providing coverage for its employees by eliminating restrictions based on employee size. It also allows small business owners to manage costs, choose plans that make financial sense while providing coverage to their employees.
ICHRA also unburdens employers from managing a health plan and underlying health risks. Thus, easing the stress that come with renewals, participation rates, what doctor networks employees want, or annual premium increases. Instead, now, employers can decide which employees qualify, set their monthly allowances, and get back to managing their business while employees get to choose the plans they want.
With ICHRA employers can choose from four reimbursement structures. Provide employees the same amount; reimburse by family size; reimburse by employee age, or vary by both family size and age.
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