Dave Lantz is an expert on emergency department and physician billing. “When someone gets sick or breaks their arm, all of a sudden you’re facing thousands of dollars in medical bills,” said Lantz, who has three children ranging in age from teens to early 20s.
The family health plan he had obtained as associate director of the Physics Factory at Lycoming University, a small liberal arts school in central Pennsylvania, didn’t start covering costs until he paid $5,600 in medical bills. The Lantz family was about to reach that annual threshold. The high deductible plan wasn’t ideal for a family of five, but it was the only coverage option available to them.
Things are very different now. In mid-2022, the university retired its group health insurance plan and replaced it with a new type of plan: the Individual Health Reimbursement Arrangement (ICHRA).
Currently, Lantz receives a set amount each month from her employer that she uses to pay for her family plan in the individual insurance market. He chose a zero-deductible plan, which offered a better level of coverage than the group plan. The $790 monthly premium is higher than the $411 he was previously paying, but he will ultimately save money overall by not having to pay that high deductible. Additionally, he now has more control over his medical spending.
“It’s great to be able to choose a balance between high deductibles and high premiums,” Lantz said. Previously, “it was hard to budget for that deductible.”
As health insurance costs continue to rise, employers are turning to these types of reimbursement plans to control health care costs while providing the benefits that workers value. Some consumer advocates worry that the plan would provide less generous and more expensive coverage to certain consumers, especially the sicker and elderly.
This plan allows employers to make tax-advantaged contributions to employees that can be used to purchase insurance on the individual market. Employers therefore limit their financial risk to increased medical costs. Supporters of the plan, which was established in 2019 as part of a series of proposals by the Trump administration that it said would increase choice and competition in health insurance, say.
“This is a way to provide coverage to a more diverse group of employees than ever before and set budgets that control costs for businesses,” said Robin Paoli, executive director of the HRA Council, an advocacy group. Ta.
Some health insurance experts say the plan is not necessarily a good option for consumers or the individual insurance market. Regulations prohibit employers from offering this type of insurance to certain workers who are sicker than other workers and may have higher premiums, but those who are relatively unhealthy Employers with workers may find this scheme attractive. This could drive up premiums in the individual market, according to an analysis by the University of Southern California Brookings Schaefer Health Policy Initiative.
Plans sold in the individual market often have smaller provider networks and higher deductibles than employer-provided coverage. Premiums are often higher than comparable group coverage. Workers, especially low-wage workers, may benefit financially from premium tax credits and cost-sharing reductions for purchasing Affordable Care Act marketplace plans, but labor-based Using ICHRA benefits will result in disqualification.
“From a worker’s perspective, the biggest impact is that they are offered affordable coverage by their employer and are no longer eligible for market subsidies,” said a shared analysis of the rules establishing the plan. said author Matthew Fiedler, a senior fellow at the Brookings Institution.
The plan is currently available to only a small number of workers, according to the HRA Council. That’s an estimated 500,000 of the roughly 165 million people who have employer-sponsored insurance. But interest is growing. The number of employers offering ICHRA and an earlier type of plan called Qualified Small Employer HRAs increased by 29% from 2023 to 2024, according to the council. And while small employers have made up the majority of adopters so far, large employers with at least 50 employees are the fastest growing cohort.
Individual market insurers such as Oscar Health and Centene see an opportunity to expand their footprint through this plan. Some venture capitalists promote them as well.
“The 60-year-old foundation of (traditional group) health insurance has outlived its usefulness,” said Matt Miller, whose Headwater Ventures is an investor in ICHRA administrator Ventour. spoke. “The goal is to make sure people have insurance, decouple it from the employment structure, and make it portable.”
Employers offer this type of health coverage to some classes of employees and others based on characteristics such as geography, full-time and part-time status, or salary and hourly wages. We can offer group plans.
Lycoming University wasn’t trying to be on the cutting edge when it made this switch in coverage. Human resources and compliance officials say the school, which covers about 400 faculty and staff and their families, will have to consider alternatives after facing a 60% increase in premiums after some members filed large insurance claims. Vice President Casey Hagan said.
Ultimately, they chose to offer ICHRA coverage to employees who worked at least 30 hours per week.
In the first year of offering the new benefit, the university saved $1.4 million in medical costs over what it would have incurred if it continued with the group plan. Employees saved an average of $1,200 on insurance premiums.
Gene J. Pusker/AP
“The finance people really like it,” Hagan said. As for employees, “from a cost standpoint, people tend to be pretty happy with it, and people really like having a choice of plans,” she said. However, there were problems with the operation of the plan. Some employees’ coverage was terminated and needed to be restored, she said. Since changing plan administrators this year, these issues have largely been resolved.
This coverage arrangement can be complex to manage. Instead of paying one group health insurance premium, a company may have to pay premiums to dozens of individual health insurance companies. Additionally, employees who have never purchased a plan before need help understanding what coverage is right for them and signing up.
You might get tired of its complexity. Tim Hebert, managing partner at Fort Collins, Colo.-based Sage Benefit Advisors, said many companies that tried this type of reimbursement system this year decided to return to group plans. .
“They say, ‘My employees are scattered all over the place with different projects and they don’t feel valued,'” Ebert says.
Vendors like Lycoming University are emerging to help employers and their employees manage their plans.
“If you just say, ‘Here’s $1,000,’ that’s very confusing and confusing,” said Jack Hooper, CEO of Take Command Health, which currently manages Lycoming ICHRA. “It will be,” he said.
It’s unclear whether this plan will take off or remain a niche product.
“This is a big disruptor like 401(k)s,” said Mark Mixer, president of the HRA Council and CEO of HealthOne Alliance in Dalton, Georgia. Still, it’s not suitable for everyone. “This is one tool that employers should consider and, if appropriate, implement it.”