By Ben Light, Vice President, Partnerships
As company healthcare costs surge more than 5% for the third year in a row, benefits leaders are constantly looking for flexible, cost-effective ways to improve their health insurance offerings. One solution gaining significant traction is the Individual Coverage Health Reimbursement Arrangement (ICHRA). Regardless of your current pain points around company-sponsored health insurance, there are several compelling reasons to consider an ICHRA for your workforce.
1. Greater Cost Control and Budget Predictability
Health insurance premiums have skyrocketed over the past decade, making it challenging for businesses to predict and manage costs. ICHRA allows employers to have better control over their healthcare spending. Instead of being subject to annual premium increases, employers set their reimbursement budget at a level they are comfortable with, meaning no surprises and more predictability.
Why it matters: 2024 saw another year of 7% rate increases, with 2025 expecting much of the same.
2. Increased Plan Flexibility
Many traditional group health plans can be rigid, often offering limited customization and requiring businesses to conform to fixed structures. ICHRA flips the script, allowing employers to create a reimbursement plan that fits their specific budget and needs while best supporting their teams. By varying contributions based on factors such as employee classes (full-time vs. part-time, geographic location, etc.), companies can get creative while supporting employees in the ways they need it most. Better yet, they can enjoy this flexibility without the added risk of self-funding.
For example, companies with distributed workforces often struggle to support all their employees with equal quality and costs. ICHRA makes this simple by giving employees the ability to choose the plan that works best for their geographic and personal needs while ensuring everyone has equal purchasing power based on local rates.
Why it matters: According to the Society for Human Resource Management (SHRM), 70% of employers are now open to hiring out-of-state talent to fill positions. As a result, offering a plan that works great for headquarter employees may no longer suit everyone’s needs.
3. Reduced Risk Exposure
With ICHRA, employers can minimize the financial risks often associated with offering traditional group health insurance. In a traditional group plan, employers bear the risk of rising premiums and unexpected claims that can strain their budgets year after year. ICHRA, however, shifts this risk by giving employers a predictable, fixed monthly contribution per employee without escalating costs to compensate for a high claimant or pre-existing conditions.
Why this matters: According to the National Conference of State Legislatures (NCSL), a single high-cost claimant - typically defined as an employee with more than $50,000 in annual claims - can increase a small company’s healthcare costs by as much as 20-30%.
4. Greater Employee Choice
With ICHRA, employees are no longer beholden to the one-size-fits-few plans selected by their employer. Instead, employees get to explore all ACA marketplace and plans available in the individual market. As a result, employees have the power to choose a plan that works best for their own needs and preferences. For example, if an employee wants to keep their doctor, ensure a specific medication is covered, or simply decrease their monthly premium, they have that ability. And if an employee works remotely, lives out of state, or has dependents residing out of state, they are no longer restricted by the plans most central to their company headquarters.
Why it matters: According to Mercer’s 2024 Global Talent Trends Survey, employees’ most requested compensation improvement is to customize their benefits.
5. Simplified Administration and Compliance
Navigating the regulatory complexities of healthcare can be daunting for businesses. ICHRA provides a simplified, streamlined way to offer benefits, helping employers sidestep many administrative burdens associated with traditional group plans. ICHRA is already compliant with ACA requirements, allowing employers to meet their obligations while offering a modern alternative to traditional group coverage.
Why it matters: While ICHRA reduces compliance complexity, employers are still responsible for certain filings, such as Forms 5500, 1095, and 1094, as well as PCORI fees when applicable
Conclusion: A Win-Win Solution
Whether you’re a cost-sensitive business aiming for budget-friendly healthcare solutions or a growing company looking to offer more choice to your employees, ICHRA provides a versatile, compliant, and affordable solution. As the healthcare landscape continues to evolve, ICHRA stands out as a smart option for companies seeking flexibility and scalability in their benefits packages.
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