ICHRAs growing and respond to affordability issues
Individual Coverage Health Reimbursement Arrangements (ICHRAs) are getting more attention. And they should.
I think ICHRAs are an interesting option that can expand coverage and give employees more choice. But as with almost everything in healthcare, we should distinguish between changing who pays for healthcare and actually making healthcare more affordable. That is an important part of the healthcare debate.
What is an ICHRA?
An ICHRA allows an employer to provide employees with a defined amount of tax-advantaged money that employees can use to purchase individual health insurance coverage rather than enrolling in a traditional employer-sponsored group plan.
In some ways, it is the healthcare equivalent of the shift from defined-benefit pensions to defined-contribution retirement plans. The employer establishes its contribution, while the employee has more responsibility—and potentially more choice—in selecting coverage.
The concept is gaining traction.
The HRA Council estimates that about 500,000 people are now covered through ICHRAs, roughly double the number from a year earlier. Larger employers are increasingly considering the model as well. But some perspective is important: ICHRAs remain a very small piece of the overall healthcare coverage system. We have between 170M and 180M who obtain insurance through employer coverage and the Exchanges.
Still, the growth is worth watching. One statistic especially caught my attention: more than two-thirds of small businesses offering ICHRAs previously offered no health benefits. That means ICHRAs can provide coverage where coverage might otherwise not exist.
But what about affordability?
This is where I have some questions.
ICHRAs clearly help employers manage their healthcare costs. Instead of absorbing unpredictable annual premium increases, an employer can establish a defined contribution.
But does that make healthcare itself more affordable?
Not necessarily.
Employees still purchase insurance in a healthcare system where hospital prices, physician costs, pharmaceutical spending and administrative expenses continue to rise. In fact, HRA Council data indicate that many employees contribute additional money beyond their employer allowance to purchase the coverage they want.
There is, however, another potentially important piece of the affordability equation: pairing ICHRAs with Health Savings Accounts (HSAs) when the employee’s coverage and ICHRA design meet HSA eligibility requirements. An employer could establish an ICHRA contribution toward coverage and also help fund an HSA so an employee starts the year with money available for deductibles and other qualified expenses. Employees can contribute both the buying up to a higher ICHRA-sourced plan and to an HSA.
The two programs serve different purposes. An ICHRA can help an employee obtain and pay for individual insurance coverage, while an HSA can provide tax-advantaged dollars to help pay eligible out-of-pocket healthcare expenses. This gives employees the ability to help afford accessing care once they pay anything left toward premiums for the ICHRA plan. The good news: many of the ICHRA plans chosen are eligible for HRA-pairing – usually Bronze and Catastrophic coverage.
It doesn’t reduce the underlying price of healthcare. But it can make the financial experience considerably more manageable for employees—and potentially give them greater control over how healthcare dollars are spent.
That doesn’t make ICHRAs a solution to healthcare affordability. It means they can be one tool, particularly when combined thoughtfully with other tools.
Other potential benefits
ICHRAs may have another interesting effect.
About half of ICHRA enrollees are under age 45. If adoption continues growing—particularly among larger employers—it could bring additional younger and healthier individuals back to or into the individual insurance market. That could strengthen and stabilize individual-market risk pools.
ICHRAs also fit into a broader movement toward consumer choice and portability. Employees can select plans that better match their circumstances instead of simply accepting the plan selected by their employer.
For younger Americans, that flexibility could become increasingly important. Millennials, Gen Z and the generations following them interact with almost every other part of the economy differently than previous generations. They bank differently. They shop differently. They communicate differently. Why should we assume they will always want to consume healthcare the same way?
Healthcare needs more innovation
I support efforts by the Trump administration to increase competition, transparency, and consumer choice as well to use technology to lower healthcare costs.
We should build on that.
Technology can make accessing healthcare easier. Direct primary care and other innovative delivery models can change how patients interact with clinicians. Artificial intelligence can reduce administrative costs and improve navigation. Better interoperability can give patients more control over their health information.
And younger Americans may be particularly receptive to these approaches.
Does it make healthcare better and more affordable for Americans?
But innovation should ultimately be judged against a simple question: are things demonstrably more affordable?
That is the test I would apply to ICHRAs as well.
I recently outlined my own thoughts on broader healthcare reform. My basic premise remains the same: America needs to attack the underlying cost of healthcare while improving access, outcomes, transparency, competition and accountability.
ICHRAs can be part of that conversation. They provide employers another option. They give employees additional choices. They can extend coverage to workers who might otherwise have none. Combined appropriately with HSAs, they can also help address both premiums and the upfront costs people face when they need care. And, if ICHRAs attract younger people into the individual market, they could potentially improve risk pools.
Those are meaningful benefits.
But ICHRAs are not, by themselves, a solution to America’s healthcare affordability crisis.
We need to keep experimenting with new coverage models. We should embrace technology and healthcare delivery models that appeal to younger generations. We should encourage competition and consumer choice. And we should pursue reforms that actually reduce the underlying cost of care.
ICHRAs are interesting.
They are growing.
They deserve a place at the table.
But the ultimate goal shouldn’t simply be finding different ways to pay for expensive healthcare. In the end, we shouldn’t confuse financing reform with healthcare cost reform. We should be making healthcare less expensive in the first place.
#ichras #healthcare #coverage
— Marc S. Ryan
