ICHRA vs Group Plans

What is an ICHRA (Individual Coverage Health Reimbursement Arrangement)?

An ICHRA is a way for your business to offer healthcare benefits to your team. HRAs are a new way to provide employer-sponsored healthcare that allows you to use pre-tax money from your business to reimburse your team for any of their healthcare expenses. This includes health insurance, dental insurance, vision insurance, and even out-of-pocket costs.

ICHRAs are particularly attractive to small and medium-sized businesses because they provide your team with more flexible and cost-effective healthcare benefits. Thatch is a service that administers and manages ICHRAs for your team.

What is a group health plan?

A group health plan is a traditional form of employer-sponsored healthcare coverage. Under a group health plan, an organization purchases a standard health insurance policy for its employees. This type of plan often covers employees and sometimes their dependents under a single policy. Under a group health plan, both the employer and employees typically share the cost of premiums.

Group health plans are often more attractive for larger employers, particularly those that self-insure. Because the plan is selected by the employer, it limits employees to the health services, facilities, and doctors stipulated within that plan.

How does ICHRA compare to group health plans?

Choosing between a group health plan and ICHRA can be challenging. Both options have their pros and cons, depending on your organization's specific needs, budget, and operational considerations.

Flexibility

ICHRAs are known for their flexibility, allowing employees to choose their own insurance plans that fit their unique healthcare needs. Beyond insurance, employers also have the option to use their healthcare budget for any qualified medical expense, including out-of-pocket costs for items like prescriptions, OTC medications, or even healthcare bills.

Group plans are less flexible, instead offering a single policy (or, sometimes, a small number of options) for all employees. In a way, this model means employers are effectively choosing the doctors their employees can see, how much their medications cost, and which services are covered. It's common for employees to be unhappy with the carrier or plan their employer chooses, sometimes even finding new doctors who accept their insurance.

Cost-Effectiveness

ICHRAs can be more cost-effective for businesses, especially smaller organizations, as they allow employers to set a specific budget for healthcare through a defined contribution. Employers can decide how much to contribute, offering some control over healthcare costs.

The defined contribution model of ICHRAs also provides an element of cost predictability that is often lacking in group health plans. Traditional plans come with the unpredictability of rate hikes, new fees, or cost-sharing changes, making it challenging for businesses to budget accurately. The ICHRA’s fixed contribution system avoids these pitfalls by putting the control back in the employer’s hands.

However, it’s worth noting that the cost stability for employers could translate into more financial variability for employees. Under an ICHRA, if healthcare costs rise and the employer doesn’t increase contributions accordingly, employees will have to shoulder the difference. Employers to use an ICHRA administrator or external service to help them understand and budget accordingly.

Administrative Complexity

In a group health plan setup, administrative tasks usually involve initial setup, yearly renewals, and addressing employees' questions or concerns. While this may sound straightforward, it can often become time-consuming, especially during periods of employee onboarding or annual renewal. In some cases, these processes can be streamlined through a human resources information system (HRIS) or similar software.

For businesses considering ICHRAs but concerned about administrative complexity, third-party services are available to manage contributions, compliance, and reimbursements. These services often come with digital platforms that make it easier for both employers and employees to manage healthcare needs.

Ultimately, the choice between the administrative simplicity of group health plans and the customization afforded by ICHRAs depends on what suits your business model and your employees' needs. Both options come with their own sets of responsibilities and complexities that should be weighed carefully.