As an employer or as an employee you should familiarize yourself with ICHRA (Individual Coverage Health Reimbursement Arrangements) for addressing Employment Benefit Offerings in Medical insurance.
The problem buyers know all too well is that medical and RX trends are compounding at rates that are not sustainable long run and unhealthy short run. A recent report from PWC shows the current medical and RX trend at an 8 – 12% increase. This trend does not consider the forces behind the Big Beautiful Bill in treatment and pull back of Medicaid funding where the costs will be shifted to hospitals to commercial buyers which is expected to have actuaries add to the medical trends in your rates as early as 2026. The cost of healthcare exists no matter what, and this is a shift from US taxpayer to the commercial market. I’m not an actuary yet those costs are now spread amongst taxpayers and will be squeezed into viable commercial paying medical which will further increase rates.
ICHRA is a model that is compliant if set up and executed correctly with ACA and ERISA for employers and centered around defined contributions made by employers and choice for employees. In essence, getting the employer some more control and stability over their costs via contributions they set to stay market competitive for talent. Group plans are designed where they may or may not fit all employees based on different employee classes, ages, income levels, and family status. In ICHRAs, employees can choose a plan offered in the individual market of the state they live in. This would be akin to what happened with 401ks when employer-controlled pensions went from employer-controlled to employee self-selection choice model for 401ks. The employer still sets it up, contributes to it, creates the offerings, and administers it along with all other group benefit offerings like Life, Disability, and voluntary benefits. With ICHRA, the medical is bought individually by the employee through the employer-controlled platform.
Strategically, the employer is shifting the risk of losses/claims and healthcare trends from the employer’s balance sheet (effected directly if self-insured or via rate increases every year if insured in guaranteed) to the entire individual market which is much broader and not employer-based experience rated. The guaranteed programs using one year rate guarantee is negatively impacting employers as they digest the never-ending carrier rate increases year to year, renewal to renewal, to keep up with trends while the self-insured exposure is taking on additional risk. We believe self-insuring with appropriate cost containment tools and group buying of stop loss is a viable option to manage the risk to an employer while continuing to offer benefits to their employees. However, when opting to self-insure an employer still takes the claims risk and has the pressure, burden, and costs of implementing the cost containment tactics that are sometimes conflictive with providers and employees.
We are not suggesting ICHRA is for everyone. It is past the bleeding edge stage of formation as it was approved compliant during Trump’s first administration and has both political parties’ support to date. Democrats like it because it is driving employees to the individual market for which Government regulates closely while GOP likes it as it is employee freedom of choice. ICHRA, however, due to its admin model being a change from a group buying model, is evolving in carrier digital connectivity, money flow, and enrollments thus has the potential to be a big change from Group to ICHRA model. It also is state specific to how healthy the Individual market is relative to the experience of your group or community in the group market.
We have seen clients save $1mill and some clients not save money based on their group dynamics. So, with its pain of progress in execution and relative rate variability, ICHRA may or may not be a good option right now for employers. My message is research it. Research it with someone like us who has studied it, piloted it, and has implemented it. Do not research it with a Group Benefits agent who is resisting change as they will not be comfortable in this space unless they specialize in it.
At Smith Brothers, we are agnostic. We offer it all as an independent and objective Risk Advisor for our clients and ICHRA should be part of your due diligence. You owe it to your employees who want choice and your employer who needs to manage the risk of out-of-control healthcare costs embedded in employer provided medical offerings.
We are part of a National Platform sharing ICHRA best practices and collectively have executed on close to 100 ICHRA conversions saving millions for employers. Use of ICHRAs is up by employers over 50% for all employers and over 80% of employers over 50 lives. ICHRA is not limited to small employers. Let us know if you would like to learn more about self-insurance, captives, or ICHRAs as other ways to manage your risk and fund it optimally.
Be Sure.
Joe