ICHRA - The future of employee benefits
Individual Coverage Health Reimbursement Arrangement (HRA)
Defined Contribution Levels for Individual - ACA - Marketplace Plans
How ICHRA is taking control of company health plans for employee benefits
Pre-tax Employer Contributions & No-Risk Renewals
- Savings vs. Traditional Group Plans (e.g., lower premium contributions)
- Predictable Budgeting (fixed monthly pre-tax rates vs. rising group plan costs)
- Reduced Administrative Costs (no need to manage a group plan)
Individual State Marketplace - Risk Mitigation
ICHRA provides a more stable and potentially lower-cost option for employers, especially for family coverage
- In 2020, traditional family coverage cost was $21,342, while ICHRA contributions averaged $11,183 | 48% savings for employers.
- By 2024, traditional family coverage for group plans increased to $27,462, while ICHRA family contributions rose to $13,400 | 51% savings (compared to group plans).
- Cumulative savings per employee over 5 years:
- $10,000 per year → $50,000+ per family over five years.
ICHRA is More Cost-Effective for Families
- No Mandatory Participation: Unlike group plans, employers don’t have to cover a fixed percentage of dependent costs
- Market-Based Pricing: Employees choose individual plans that fit their families, often at lower costs
- Automated Payment Solutions: Premium payments solutions are employer-controlled, preventing unexpected premium hikes
ICHRA Contribution Rates - Optimizing State Rating Areas
Medical rating areas significantly impact health plan prices by defining the geographic regions that insurance companies use to set premium rate costs
Insurers base premiums on the cost of healthcare services within a Medical Rating Area. If an area has higher medical costs due to expensive hospitals, higher provider rates, or greater utilization of services, premiums will be higher
In regions with more healthcare providers and insurers, competition can drive costs down. Conversely, areas with fewer providers or a dominant hospital system tend to have higher premiums
Risk Pool & Demographics
Rural vs. Urban Differences
The health status and demographics of a rating area’s population affect pricing. If an area has an older or sicker population, insurers may increase premiums to account for higher expected claims
State Market Dynamics
Rural vs. Urban Differences
Rural vs. Urban Differences
States determine the number and boundaries of rating areas, which can influence market dynamics. Some states have fewer, larger rating areas, while others divide regions more granularly, affecting price variations across the state
Rural vs. Urban Differences
Rural vs. Urban Differences
Rural vs. Urban Differences
Rural areas often have fewer providers and higher transportation costs for medical services, leading to higher premiums. Urban areas might have more provider options but could also experience higher costs due to demand and provider pricing power
ICHRA Employee Classes & How They Work
Employers can create distinct ICHRA Classes based on factors like employment status and location.
Full-Time Employees
- Employers can offer ICHRA to full-time employees while excluding part-time workers or offering them a different contribution rate
Part-Time Employees
- Separate class for part-time workers with different contribution amounts or eligibility rules
Seasonal Employees
- Employers can offer ICHRA to seasonal workers who may not qualify for traditional group plans
Employees in Different Rating Areas (Geographic Location)
- Addresses regional cost disparities by adjusting ICHRA contributions based on Medical Rating Areas
Employees Covered by a Collective Bargaining Agreement
- Employers can exclude or separately classify unionized employees if their health benefits are negotiated through a union contract
Salaried Employees
- ICHRA can be structured differently for salaried employees vs. hourly employees
Hourly Employees
- A separate class for hourly workers allows flexibility in contribution levels
Temporary Employees of a Staffing Firm
- Staffing agencies can offer ICHRA to temporary workers instead of group health plans
Foreign Employees Working Abroad
- Employers can provide ICHRA for employees working outside the U.S. who aren’t subject to ACA requirements.
Employees in a Waiting Period
- New hires can be placed in a separate class during their waiting period before transitioning to a standard ICHRA plan
Combination of Two or More Classes
- Employers can mix and match classes (e.g., "full-time employees in New York" as one class, "part-time employees in Texas" as another).
Our team of experts can help you make sense of your data.
Rules for Setting Up ICHRA Classes
No discrimination – Employers cannot base classes on age, health conditions, or individual risk factors.
- Minimum Class Size Rule - If an employer offers a traditional group plan alongside ICHRA, certain classes must meet a minimum size:
- 10 employees (for companies with fewer than 100 employees)
- 10% of employees (for companies with 100-200 employees)
- 20 employees (for companies with over 200 employees)
- All employees within a class must be treated the same – The employer must provide uniform contributions within a class (though contributions can still vary by age or family size).
How Employers Use ICHRA Classes Strategically
Geographic Adjustments – Adjusting contributions for higher-cost areas
- Job Role Differentiation – Higher allowances for full-time/salaried roles vs. hourly/part-time employees
- Phased Implementation – Offering ICHRA to new hires while keeping legacy employees on a group plan
- Union Exemptions – Keeping union employees on their existing negotiated benefits while extending ICHRA to non-union employees