Larger Employers Fund Worker Obamacare Option as Costs Spike

Larger employers than before are increasingly funding their workers’ purchases of Obamacare plans during open enrollment instead of providing pricier group health plans, taking a cue from small companies that have used this option.

The number of workers offered individual coverage health reimbursement arrangements grew 171% from 2022 to 2023, and the number of employers with at least 50 full-time employees offering the plans increased 144%, according to the HRA Council, a nonprofit advocacy group.

ICHRAs are tax-free accounts employers use to reimburse employees for health plans that comply with the Affordable Care Act. Employees can use the funds provided by their employers to choose individual plans in the ACA exchanges, rather than having to enroll in the more limited number of group health plans that employers typically offer. With fully-insured group plans, employers pay a health insurer for plans that cover the entire company.

The arrangements started in 2020 under a Trump administration regulation and have primarily been used by companies with fewer than 50 employees that opt to provide workers with health insurance options although the ACA doesn’t mandate it for companies that small.

But with inflation-driven health care costs rising quickly for both workers and employers, some larger companies that are required to comply with the ACA are using the reimbursement plans.

‘Priced Out’

Coury Hospitality, a boutique hotel and restaurant company headquartered in the Dallas-Fort Worth area that employs about 1,300 people, switched to ICHRA-based coverage in 2023 because premiums for its fully-insured group health plan would have risen 20% following a 30% increase the previous year, said Kim Dunbar, vice president of human resources.

“It just was not sustainable,” Dunbar said. “We were priced out of the group insurance market.”

“Each year we were faced with having to say, OK, how do we raise the deductible?” or make other plan design changes to keep price increases down, she said.

Switching to ICHRA-based coverage resulted in the company paying $1.1 million less in premiums for 2023, saving the company 60% and its approximately 270 covered employees 40% over the previous year, Dunbar said.

Between 100 and 145 health plans with a variety of carriers, plan types, and premium costs are available in the mostly midwestern and southern state markets the company operates in, a far greater choice than was available through group plans, she said.

Some employees were able to afford health insurance coverage for the first time, Dunbar said. A 30-year-old has plan options that could range from $300 to $700 a month, and many employees eliminated premium contributions altogether with the company allowance, she said.

US employer health costs could rise as much as 8.5% in 2024, according to recent surveys. Coury’s costs are only increasing 3.5%, according to Dunbar.

Greater Awareness

Erik Wissig, chief operating officer of SureCo, an ICHRA technology administrator based in Santa Ana, Calif., said that the average size of companies using reimbursement arrangements is increasing due to greater awareness of the plans.

Employers and benefit brokers and consultants “are realizing that ICHRA is not only for the very small company, and there’s an opportunity for larger companies to benefit from implementing an ICHRA program,” Wissig said.

KR Management Development, which operates 14 skilled nursing facilities in Florida and has about 2,000 employees, kicked off its second open enrollment offering ICHRA plans on Nov. 13.

The company saw 25% cost jumps for its group plan two years in a row, and saved 19% on premiums in 2023, said Heather McKamey, vice president of human resources. Cost increases for ICHRA plans would be 6% for 2024, but the company will spend 21% more because it is contributing a larger share of premiums for the approximately 300 people in its plan.

“We were offering less and less benefit and it was costing more,” McKamey said. “We had to keep pulling out benefits and paring down the plan design in order to keep costs somewhat reasonable for the employees and the employer.”

ICHRAs allow employees to fit plans that meet the needs of young and healthy employees, as well people over age 65, who can receive employer payments that can be used towards Medicare supplemental plans, McKamey said.

Moving to Mid-Market

Jack Hooper, CEO and founder of Take Command Health, a health benefits technology company based in Dallas, said he’s seen ICHRAs spread to mid-market companies with about 50-500 employees over the past year.

Techniques for controlling costs that worked in the past are becoming less attractive, Hooper said. “In the last few years you’ve seen all these efforts to push level-funding plans onto smaller and smaller groups,” he said.

Level-funded plans are a type of self-funded plan in which employers contribute steady monthly payments combined with stop-loss insurance to cover big claims. It’s “a ticking time bomb until someone gets a large claim, and now all of a sudden they’re on the hook for these big bills, and their renewal [for premiums] goes to 60%,” Hooper said.

ICHRAs have received bipartisan support with some Democrats saying they offer more robust coverage than traditional small group plans, for which employees typically pay higher premiums and cost-sharing than in large group plans.

But critics worry that low-income workers won’t receive enough funding in their ICHRA accounts to afford to buy qualified health plans in the exchanges. A 2020 paper by the United Hospital Fund, a nonprofit that focuses on improving health care in New York, said ICHRAs carried “significant risks” for lower-income enrollees, who could become ineligible for subsidies on the Obamacare exchanges if employer funding levels meet the ACA’s requirement for minimum, affordable coverage.

Concerns have also been raised about the possibility that employers could shift older employees to the exchanges, which could raise costs for ACA plans. But the HRA Council counters that discrimination by age and health status is prohibited under the ACA, and many ICHRA enrollees are relatively young.

Stepping It Up

Premiums in the small group market are frequently growing by double-digits in 2024, compared to 4%-5% increases in the individual market, said Noah Lang, CEO and co-founder of San Francisco-based Stride Health, which works with “gig” economy companies such as Amazon.com Inc., Uber Technologies Inc., and DoorDash Inc., enrolling their workers with benefits.

Stride Health is an Affordable Care Act web broker, enrolling plan participants directly through its platform. A week into the ACA’s 2024 open enrollment period, which started Nov. 1, it had seen twice as many ICHRA enrollments compared to a year ago, Lang said.

Companies with fewer than 50 employees still the dominate the ICHRA market, making up 94% in 2023, according to the HRA Council.

Franchise waste hauler Bin There Dump That, Tri-State, which operates in parts of Pennsylvania, Ohio, and West Virginia, is offering health insurance to its 30 employees for the first time in 2024 using ICHRA plans, said owner Bruce Kozak.

The company decided to offer health coverage “because we have people who we could be hiring and they’re choosing not to come with us because we don’t have it,” Kozak said. “We knew we needed to step this up.”