What You Need to Know About ICHRAs
Keep US Covered posted on February 26, 2021
A health care regulation finalized in recent years now represents a threat to the quality, affordability, and basic fairness of health coverage in the workplace. Before this regulation can fully disrupt our system, you should understand its potential harm and the opportunity that exists to protect the coverage and care of American workers.
What is an ICHRA?
ICHRA [ick-ruh] stands for an Individual Coverage Health Reimbursement Arrangement. As the name implies, workers with ICHRAs are given a voucher for insurance rather than participating in a health insurance plan coordinated and sponsored by their employer. Participants in this system typically purchase an individual plan on the Affordable Care Act marketplace and employers reimburse them for their premiums up to the voucher limit. There are, however, no rules governing the quality of plans for ICHRA participants nor the amount employers provide for reimbursements, guaranteeing little for participants.
Where did ICHRAs come from?
This new system for health coverage stems from an executive order signed by former President Donald Trump in 2017. Different types of Health Reimbursement Arrangements (HRAs) have long existed as a way for employers to help employees pay for certain health care related expenses. In 2017, however, Trump signed an executive order that sought to significantly expand the use of HRAs. The result was a new regulation finalized in 2019 that changed HRA rules and promoted what are now known as ICHRAs as an alternative to traditional employer-sponsored insurance and the quality health coverage for which that system is known. For employers participating in this ICHRA system, their employees no longer receive coverage through the employer, which often has significantly greater bargaining power than an individual has on his or her own. Instead of a health plan being administered directly by employers, workers in ICHRAs must depend on a reimbursement program. Still more concerning, this regulation allows workers to be divided by “class” so that some “classes” could continue to receive their regular health coverage from employers while others are given an ICHRA and are forced to find their own coverage. This regulation went into place in 2020.
What’s the big deal?
The dangers of this ill-conceived policy are significant: threatening the quality of coverage, opening the door to discrimination, and undermining the entire individual health care market.
All on your own
With an ICHRA, workers are on their own to find their family’s health coverage. Employees with an ICHRA have employer-set reimbursement limits to work within and must research and purchase a qualified health plan on the individual market by themselves. At best, this is a hassle, but for many, without the assistance – or bargaining power – of an employer, it may prove confusing or mean struggling to find or afford a plan that meets their particular needs. Workers who have relied on their employer to do due diligence and provide quality coverage now have to fend for themselves.
While the Affordable Care Act has significantly improved the coverage offered on the individual market, plans offered by employers are typically more comprehensive and more affordable. Workers placed in the ICHRA system are likely to be stuck with weaker coverage at a higher price. And if a plan costs more than their employer provides in the ICHRA, workers have to pay the difference out of their own pocket.
Allowing workers for the same employer to be divided into different “classes” means some receive inferior forms of coverage. This is a clear invitation for discrimination. Health experts have warned that higher risk groups of employees (i.e., the most expensive ones to insure) could be cleaved off a company’s health plan and forced into an ICHRA. For example, workers in a factory in one state could be dumped into an ICHRA while employees at headquarters in another keep their employer-provided health plan. That’s unfair to the workers placed in an ICHRA and opens the door to discrimination.
Threatening the ACA
The ability to move high-risk – and more costly to insure – workers into an ICHRA not only leaves them at risk of getting weaker coverage. It also threatens the stability and affordability of the Affordable Care Act marketplace. The cost of coverage on the ACA exchange is set in part by the combined cost of people buying coverage there. Shifting high-cost workers off of job-based insurance and onto the ACA marketplace will drive up prices for everyone who relies on it and could ultimately threaten the stability of the entire program. The ACA marketplaces were designed to strengthen individual health coverage options, not serve as a place to send high-risk workers.
What can we do about it?
The good news is that what the last administration did can be undone by the new one. And President Joe Biden has already indicated he recognizes the problem. On January 28, Biden signed an executive order directing federal agencies to review this regulation to potentially revise or reverse it. Keep US Covered, and other like-minded organizations, are urging the Biden Administration to rescind this rule and restore fairness and protect the quality of workers’ health coverage. You can learn more and join the effort at KeepUSCovered.org.