This Labor Day, one of the best things an employer can do for their workers might be something that allows employees to do it for themselves: buy their own health insurance.
In an “everything old is new again” twist, the next health insurance trend may be the one that has been around for decades. “Defined contribution” plans allow employees to purchase their own health insurance with employer-provided funds rather than underwriting a “defined benefit” plan, health insurance plans with predetermined benefits chosen by the employer.
A decade ago, experts predicted that rising health care costs and new options in the health insurance market would finally usher in the era of defined contribution in the health sector. Others argued that it was time for defined contributions in health insurance. It was not like this.
Despite the obvious benefits, such as the opportunity for employees to obtain a plan that suits their specific needs and for employers to limit their financial exposure due to the ever-increasing costs of health insurance, defined benefit plans do not they have managed to achieve widespread adoption.
eHealth (NASDAQ: EHTH), a private online health insurance marketplace, hopes to turn things around this time around. The company announced last week that it now offers ICHRA (Individual Health Coverage Reimbursement Arrangement) products in addition to traditional health insurance plans.
ICHRA is a relatively new form of defined contribution plan that allows companies to set up a fixed financial contribution that employees can use to pay for their health insurance costs. Employees choose and purchase their own qualifying health insurance plan, and the employer (or its third-party administrator) reimburses the employee for the approved amount. These funds are tax free for eligible expenses, such as monthly insurance premiums and co-payments.
Businesses of any size can offer ICHRA, but it can be particularly attractive to smaller companies that want to offer health benefits but can’t afford it. Especially in a tight job market amidst the Big Resignations, ICHRA can help employers compete for workers in a financially manageable and predictable way.
There is no maximum employer contribution under ICHRA and all employees can participate in an ICHRA plan, including part-time workers who may not benefit from traditional health benefits in most companies. Staff who have not met a waiting period for eligibility for benefits can also participate in an ICHRA plan.
For employees, ICHRA represents a new way to get help paying for health insurance, making health coverage more affordable and alleviating financial strain and anxiety about health care costs. Additionally, ICHRA allows for employee mobility, as the employee can keep the plan if they leave their employer, rather than being tied to a specific company for health benefits (a phenomenon known as job lockdown).
According to Anthony Lopez, general manager of individual, family and small business plans at eHealth, full-time and part-time employees who otherwise would not have received any help paying for health insurance will benefit the most from ICHRA. But, he says, there are also broader benefits that any employee can appreciate.
“If you’ve ever had traditional employer-sponsored health insurance, you might remember getting one or two or maybe three plan options to choose from. This can be restrictive because everyone’s coverage needs are different, “Lopez said.” ICHRA typically allows you to choose from a wider range of options and find the best available for your needs and budget, while still receiving help from your employer to reduce monthly premiums “.
The specific federal rule governing ICHRAs went into effect in August 2019, for health insurance plan years starting January 1, 2020. But according to Lopez, ICHRA has only just begun.
“It took some time for coordination between the financial and insurance sides of the program to grow,” he said.
According to government estimates as of June 2019 (when the final ICHRA standard was published), up to 800,000 employers could eventually offer these options, benefiting as many as 11 million workers and their families. The government has also estimated that 800,000 previously uninsured people could have access to health insurance as a result.
While it’s too early to know how accurate those projections will be, Lopez sees significant growth potential ahead of him.
“Aside from a lack of broad familiarity with ICHRA, there are really no barriers to more widespread adoption,” Lopez said.