Employers eye ICHRAs, but affordability remains a concern

Employers are increasingly considering Individual Coverage Health Reimbursement Arrangements, or ICHRAs, for their workers' health insurance, though knowledge gaps could dampen adoption, according to a recent survey from the Employee Benefit Research Institute and Morgan Health.

More than one-third of the nearly 1,000 employer respondents  said they were actively planning or evaluating an ICHRA, which allows companies to reimburse workers for purchasing their own health insurance. However, employers were significantly more likely to be evaluating these arrangements than actively planning, the survey revealed.

Employers are still hesitant to adopt ICHRAs largely because of individual marketplace concerns, including the affordability of premiums and out-of-pocket costs, adequacy of provider networks and whether employees would find it difficult to shop for a plan. Concerns about costs are especially relevant as premiums on the Affordable Care Act's Marketplace, where many employees with ICHRAs purchase coverage, are set to surge by 14% next year.

ICHRA adoption has accelerated since the Trump administration made the arrangements an official health benefit option in 2020, giving employers more flexibility with health reimbursement arrangements without company size limits.

Employers acknowledge the flexibility of benefits that ICHRAs offer, which was one of the top reasons businesses in the survey said they would consider offering one to their employees.

Business leaders also generally agreed that ICHRAs are more affordable, offering advantageous tax benefits and lower costs for the company. About half of the survey respondents from both large and small businesses cited this as a reason to offer one.

For small businesses, in particular, the top reason to consider an ICHRA was employee choice, preference and needs.

However, there are significant knowledge gaps about what ICHRAs truly are, which could hinder adoption, according to the survey. Nearly six in 10 employers reported being at least somewhat familiar with ICHRAs, but small employers that did not offer health benefits at all were substantially less familiar with the option.

About half of respondents from large employers also incorrectly identified an ICHRA as a type of group health insurance plan that employers choose and purchase coverage for their workers. Additional education and awareness are needed to drive adoption, the survey stated.

But policy changes could bolster ICHRA adoption, especially if they stabilize the individual market, employers said. They also indicated that state and federal tax credits would drive their adoption of an ICHRA, while greater flexibility to combine ICHRAs with traditional group health plans would help as well.

About three-quarters of employers said that they would be more likely to offer an ICHRA if it had features similar to group health plans, such as coverage for mental health and fertility services.

About the same percentage of employers also said they would be more likely to adopt an ICHRA if their broker or benefits consultant recommended one. Brokers are increasingly suggesting ICHRA adoption to their clients, with a recent survey finding that half are actively recommending them.

Still, interest is not the same as implementation, EBRI and Morgan Health researchers emphasized. The arrangements remain an emerging benefit strategy, but one that could take hold over the next two years as awareness grows, the survey indicated.

Jacqueline LaPointe is an Executive Editor at Xtelligent Healthcare Media, covering revenue cycle management, healthcare payers, health policy and health IT since 2016.