Bryan Bitticks couldn’t get health-care coverage for the single moms and other hair stylists working for the string of California and Oregon salons that he and his wife own.
So, like other small business owners across the U.S. are starting to do, Bitticks signed up for a program, new as of Jan. 1, that lets employers give their workers cash to buy coverage on an Affordable Care Act exchange instead of providing coverage himself. The company’s contribution for each worker is $300 to $600 monthly, or $9,000 to $10,000 a month total, he said.
“I hope they’re the wave of the future,” said Bitticks, co-owner of Portland, Ore.-based Tambry Ventures LLC, which operates 17 Great Clips franchises, of the individual coverage health reimbursement arrangements, or ICHRAs, implemented for his 142 employees after traditional health plans rejected coverage because too few Tambry employees signed up.
Although uptick in the Trump administration program has been slow, it could lead, eventually, to many companies getting out of the business of operating their own health-care plans altogether, according to health-care administrators and policy analysts.
Of all the administration policies, “in many ways this has the most promise to consumers who might otherwise be in employer coverage that doesn’t meet their needs—a way to get robust coverage that will be there when they need it,” Peter Lee, executive director of California ACA exchange Covered California, said in an interview.
But “the extent to which there will be a big uptick is a huge question mark,” Lee said.
Less Work, More Choice
More than 55% of the U.S. population—nearly 178 million people—is covered through employer-sponsored health insurance, according to 2018 Census Bureau data.
The new accounts, which could draw that number down and bring workers into Obamacare, are garnering guarded support from ACA backers who have otherwise criticized the administration for what they say are actions designed to sabotage the 2010 law, such as lengthening the period that people can sign up for health plans that don’t meet the law’s coverage requirements. About 11.4 million people enrolled in the ACA exchanges for 2020.
There are, as yet, no numbers on how many people are in ICHRAs—or even on how many ICHRAs there are.
Some workers, like the Tambry hair stylists, began getting reimbursements in January, Bitticks said, because those accounts were set up last year in time for 2020 open enrollment in Obamacare.
But new ICHRAs are being started each month, with employees signing up using a special enrollment period, said Jack Hooper, co-founder and CEO of Take Command Health, a Dallas-based firm that administers ICHRAs for about 300 companies and is one of the largest companies to work with the accounts.
Backers of the new accounts say they increase choice for consumers and will be popular among businesses that either aren’t equipped to manage or operate complex health-care plans or simply prefer not to.
“They want to run their company,” said Hooper, who works with many companies with 50 to 100 employees. “They don’t have an HR team.”
It’s not clear yet if ICHRAs will result in cost savings for employers.
Costs for premiums vary year by year both for fully insured plans traditionally purchased by smaller employers as well as for ACA plans. In addition, the range of ICHRA payments that employers provide to their workers varies depending on where the exchanges are located. Some state exchanges have more expensive plans than others, and the number of options available can also vary.
For consumers, one challenge is whether low-income workers will receive enough funding in the accounts to afford to buy qualified plans —and whether employers will able to escape ACA requirements to provide comprehensive coverage that is affordable for employees, said Lee.
Problems could arise if contributions aren’t enough to make ACA plans affordable for workers— but are high enough to make people ineligible for ACA subsidies, JoAnn Volk, a research professor at Georgetown University’s Center on Health Insurance Reforms, said in an interview.
There’s also a risk that ICHRAs will “be a way for some employers to shed older, sicker workers,” even though the rules governing ICHRAs for employers included protections aimed at preventing such discrimination, she said.
How It Works
Under the rules, companies have flexibility in how they use ICHRAs, Hooper said.
Similar to longstanding health reimbursement arrangements (HRAs), employers provide funding for health coverage through ICHRAs. However, unlike HRAs, which employees can use to pay monthly premiums and out-of-pocket costs, employees who receive ICHRAs must enroll in individual ACA-compliant health plans or Medicare coverage.
ICHRAs can be used to cover groups of employees, such as part-time workers, or those in particular locations. They are ideal, for instance, for an engineering company whose group plan for its Florida headquarters only provides out-of-network coverage for its employees elsewhere, he said.
ICHRAs can help bring about more certainty for planning health-care costs for employers, and employees are better able to keep their health plans if they lose their jobs, Hooper said.
“We did have a lot of clients that had to let employees go,” Hooper said. But with ICHRA plans, “the employee keeps the health plan,” he said.
“You might lose your employer’s contribution to it, or they might dial back the contribution, but you don’t have to do COBRA,” he said. Under the Consolidated Omnibus Budget Reconciliation Act, employees can keep their employer coverage if they pay for it themselves, but the premiums are usually very expensive. In ACA plans people can qualify for subsidies to make the plans more affordable.
“If this works, this is going to add more lives to the individual market than the mandate and penalties ever would have,” Hooper said, referring to the penalty for not having ACA coverage, which the prior Republican-controlled Congress abolished, effective last year. ACA proponents blame the penalty repeal for contributing to lower ACA sign-ups.
Uptake and Worries
Many companies haven’t yet adopted the new approach because they’d already finalized their health plans by the time the IRS rule specifying that employers could move forward with the program was released in September 2019, said Jody Dietel, senior vice president of advocacy and government affairs of the Draper, Utah-based HealthEquity Inc. The company administers consumer-directed benefit accounts for more than 80,000 companies and serves about 30 with fewer than 100 employees that are using ICHRAs.
The Covid-10 pandemic has also had an impact, she said, “because kind of just surviving the day is taking a lot of our energy, particularly for employers as they’re struggling to keep everyone employed.”
But given the accounts’ benefits, “I think they’ll take off like gangbusters if all of this craziness we’re in right now resolves quickly,” Dietel said.
Volk, the Georgetown analyst, said ACA plan access may offer some employees a better deal than typical, employer-based group plans.
“You know you’re getting a comprehensive package” with an ACA plan, she said, and may even qualify for “tax credits” to lower premiums and cost-sharing.
“It could end up being a real benefit for the marketplaces and for the employees,” Volk said.
For Tambry, the choice to move into ICHRAs was a no-brainer. Its employees are almost all women who are covered through their spouses or parents or are single mothers who can’t afford coverage, and the company couldn’t afford bigger subsidies to make their coverage more affordable, Bitticks said.
Insurers typically won’t provide coverage to companies unless at least half of the employees enroll, and only 12 of the company’s employees, usually childless women ages 30 to 40, chose to participate, Bitticks said.
He thinks the ICHRA plans may be better for workers by helping them “get a lot more involved in making decisions, and thinking critically about their health and their budget, and what is really the right choice for them.”
He also hopes ACA plans provide better value, given that they are “very much in the public eye.” With company-purchased group plans, he said, “You kind of never really know whether or not you’re getting a good deal.”