The Type of Health Insurance You Haven’t Heard Of

Have you heard about the new-ish insurance option for which individual coverage health reimbursement arrangements (ICHRA) let employees choose their own plan with employers reimbursing them for some or all of the premium? If not, join the club. These plans have pretty much flown under the radar since they were introduced federally in 2020.

ICHRAs are like ligers — half lion, half tiger — wrote Benjamin Sommers, M.D., Ph.D., a professor at Harvard’s T.H. Chan School of Public Health, recently in an article published in JAMA Health Forum. They are health insurance hybrids that allow employers to fund healthcare coverage with pretax contributions just like they do with conventional employer-based health insurance. But instead of the employer’s benefit office picking an insurance plan — or offering a limited number of plans — the employees, using funds provided by the employer to cover the premium, select their health plans from an Affordable Care Act marketplace or other source.

Brandy Burch

“ICHRAs, while innovative, are still relatively new,” says Brandy Burch, CEO and co-founder of Benefitbay, an ICHRA administration platform. “The complexity of health benefits can make it challenging for broader audiences to grasp the significance of ICHRAs fully.”

Using 2022 data, HealthSherpa calculated that between 100,000 and 200,000 people in the U.S. participated in ICHRAs. The KFF 2023 Employer Health Benefits Survey showed that 8% of all companies with employer-sponsored insurance offer ICHRA plans or something close to them. Although there are numerous health reimbursement account types available, employees using an ICHRA must have a health insurance policy to take advantage of the employer reimbursement, which can include money for the premium, deductibles and any other out-of-pocket payments.

‘Customizable benefit’

ICHRAs are cost-effective benefits, providing employer flexibility, says Ethan Pickner, founder of AZ Health Insurance Brokers. This is especially helpful when hiring remote workers in other states. Employers can determine the benefit amount, and employees are free to choose their plans. These upsides may encourage smaller employers to begin offering health benefits to their staff if
they don’t already.

Perry Braun

Employer-sponsored benefit plans are still currently viewed by employers as a vehicle to attract and retain employees, notes Perry Braun, president and CEO of Benefit Advisors Network, an association of independent benefit brokers. “Across the board, benefits remain a highly valued offering used in considering and determining employment.” ICHRAs can help companies restructure their compensation plans by using this defined employer-paid health benefit, with the employee purchasing the best coverage for their needs. Burch says that the demand for customizable benefits that attract and top talent will only increase as the labor market tightens. "ICHRAs fit perfectly into this trend,” says Burch.

For employees, though, ICHRAs may have some drawbacks. Employees can shop for a plan that suits their needs but choosing and managing a plan can be overwhelming. Another downside is that some employees with preexisting conditions would do better with a group plan. Many marketplace policies are structured as health maintenance organizations with a limited network of providers, says Pickner. “It may be challenging to find a plan that accepts their
doctors,” he says.

Employees who previously received marketplace coverage subsidies may not qualify for them if the employer offers an ICHRA. That can impact the employee’s coverage level or ultimate healthcare cost. The pros and cons of ICHRAs are relevant mainly to employees and employers. For providers, it is a matter of yet another species of insurance coverage adding more complexity and with it,
administrative burden.

Not surprisingly, arcane ICHRAs are not a topic in this fall's election season. But Burch says both parties value offering more health coverage choices and reducing employer burden, Burch says. That said, any changes to healthcare regulations under a new administration could affect how ICHRAs are implemented or expanded.