Alternative Funding Concepts

With health care expenses increasing every year, businesses need to get creative in their approach to mitigating health care costs and how they think about delivering affordable benefits to their employees. The impact of these challenges is a top concern for employers across the country.

In response to these challenges, alternative methods of funding and delivering health care benefits to employees have evolved into many sophisticated and affective approaches. Some popular solutions include concepts like fully insured, partial self-insured, level funding, health insurance captives and consortiums. However, the adoption of ICHRA’s has increased significantly and is now among the fastest growing option for employers. We will touch upon ICHRAs briefly below as the first in our series of education on Alternative Funding Concepts. We encourage you to reach out to us directly for questions or more information.

A new report by the HRA Council found that U.S. employers’ adoption of individual coverage health reimbursement arrangements (ICHRAs) increased by 64% from 2022 to 2023. Many employers noted that ICHRAs offer more autonomy for employees and budget control for themselves than traditional group plans, according to a 2023 report by benefits administration software company PeopleKeep.

What is an ICHRA?
ICHRA (“ik-rah”) is shorthand for “Individual Coverage Health Reimbursement Arrangement.” An ICHRA allows employers to reimburse employees a fixed allowance of tax-free money each month to buy health care services that fit their unique needs. They can reimburse for health insurance premium and health care related out-of-pocket expenses if they purchase their own health insurance plan. They are an alternate way of providing quality health insurance benefits to employees with the same tax benefits of a traditional group plan. As a result, ICHRA usage is increasing as more plan sponsors consider ways to control costs around health benefits.

How does an ICHRA work?
On a very basic level, an ICHRA works in the following way:

• Employees obtain individual health coverage through a Marketplace or another method rather than purchasing health coverage through their employer.
• Employers contribute a set amount every month so the employees can be reimbursed for premium and/or certain expenses as they are incurred. Contributions and reimbursements are both tax-free. Employers decide on an amount of premium reimbursement and  which expenses are eligible for reimbursement under the plan’s terms.
• Unused funds at the end of the plan year may go back to the employer or carry over, depending on the employer.

It is as simple as that.
The power of an ICHRA comes from its flexibility. ICHRAs are extremely flexible because they rely on employees’ individual health care plans. So, reimbursement contributions are basically all employers need to worry about.
The benefits of ICHRA for employers:

• Cost Control – set your budget and cap your spending.
• Savings – keep unclaimed reimbursements.
• Risk Removal – no more carrier renewals based on high claims and utilization!
• Participation – no minimums

The benefits of ICHRA for employees:

• Choice – employees can pick the health plan to meet their needs.
• Flexibility – secure the right level of coverage.
• Control – define benefits budget.

Setting up an ICHRA successfully that engages the employees and simplifies the processes requires a sophisticated and experienced Employee Benefits Advisor who selects appropriate solutions through the best-in-class vendors. There are multiple components that make up a properly implemented program.

This article is not intended to be exhaustive. There are many factors to consider when determining if an ICHRA is right for you. The summarized information comes directly from our resource libraries, Legislative Update Newsletters, and Zywave partnerships. Please contact us for all sources and/or complete articles. If you would like to be added to our email list or schedule a consultation, please contact the WBG Team.