Today’s job seekers are looking for their prospective employers to offer competitive benefits in addition to salaries. In fact, in a 2023 survey, workers deemed employer-covered healthcare their most important benefit, so companies need to carefully consider how to offer the most comprehensive and affordable plans. Fortunately, the changing landscape of U.S. healthcare means that there is now an alternative to offering an outdated, traditional group health plan that rarely satisfies anyone. The new generation of employer-sponsored insurance puts money directly into the hands of the employees and allows them to customize their own coverage.
We’re talking about the Individual Coverage Health Reimbursement Arrangement (ICHRA). It’s an account-based health plan that lets employees choose their own health insurance from the individual market and receive pre-tax reimbursement from their employer.
Switching from a traditional group health plan benefits both the employer and the employee, making it an ideal solution for businesses looking to cut costs while also attracting and retaining talent. An ICHRA gives employers predictability in their budgets and relieves the administrative burden of selecting a group plan. On the flip side, employees value the flexibility and customization of choosing any plan that fits their own personal needs.
Not all ICHRAs however, are the same. There are premium-only plans and spending-account plans, which are sometimes referred to as qualified medical expense plans. Below, we’ll explain the differences between the two, and explore how companies can use them in tandem to gain a competitive advantage in recruiting and retaining talent.
Think of the premium-only ICHRA as the basic building block. A premium-only ICHRA, like its name suggests, reimburses employees solely for a portion of their individual health insurance premiums, but not for out-of-pocket expenses. Because employees choose the type of coverage they want with an ICHRA, they have the ability to choose a more or less expensive plan, depending on their anticipated medical needs. They will then pay the difference if the premium is more than the employer contribution. In most cases, the additional funds can be deducted straight from the worker’s paycheck, pre-tax.
In addition to the premium-only plan, employers can also offer spending-account ICHRAs to help workers cover certain out-of-pocket medical costs. Qualified medical expenses are outlined in section 213(d) of the Internal Revenue Code and include things like co-pays, prescriptions and some over-the-counter drugs, eye exams and contact lenses, breast pump and lactation supplies, chiropractic services, and more.
Unlike the premium-only plan, a spending account ICHRA may be desirable for employees with ongoing medical costs or life situations that require additional costs. Like most HRA funds, spend-account ICHRA dollars that aren’t used in a given year can roll over into the next year.
A spending-account ICHRA is similar to a Health Spending Account (HSA), but with some key differences:
- HRAs are funded by employers; HSAs are owned by employees and can receive contributions from both employees and employers.
- Because the employer owns the HRA, unused funds can be recouped at the end of the year, or the company can choose to roll over a portion of funds, and when an employee leaves the company, any remaining funds return to the employer. With an HSA, there are no carryover rules, and the account remains with the employee if they leave the company.
- Only employers can open HRAs; any qualified individual can open an HSA.
- In some HRAs, there is no annual limit on the amount of contribution. With an HSA, limits are set by the IRS.
How Offering Both Types of ICHRAs Can Give Your Company a Competitive Advantage
Employers can demonstrate their commitment to their employees’ well-being by offering both a premium-only and spending-account ICHRA to give them a better choice in their healthcare. Because there are no contribution limits for ICHRAs, companies can set the highest maximum appropriate for their business. Health benefits, in particular, can have a major impact on recruiting new employees, as well as on employee productivity and retention. So rather than a cookie cutter, one-size-doesn’t-necessarily-fit-all plan, a flexible system of ICHRAs can help a business attract and retain the top talent.
Talk to a SureCo Benefits Advisor today to learn more.