The new kind of group health plan: an Individual Coverage Health Reimbursement Arrangement, ICHRA (pronounced ICK-ra).
A consequence of being an advisor in the highly regulated and politicized health insurance industry is the need to constantly adopt to change. One way to have the mental endurance to do this year after year is to keep the book “Who Moved My Cheese” by Dr. Spencer Johnson next to your computer and flick through it from time to time.
In case you don’t remember this 1998 book, the short story is a kitschy fable about four mice who live in a maze and love cheese. Cheese is their nourishment and source of fulfillment. One day they realize their cheese has gone missing. While two mice set out to find new cheese, two other mice remain where they are hoping their missing cheese will re-appear. The journey of the four characters and their choices is laced with simple yet powerful lessons in leadership and survival in times of change.
The Affordable Care Act in 2010 was the most significant legislation to affect health insurance in the United States since the introduction of Medicare by Lyndon Johnson in 1965. And incremental swings of the legislative pendulum going back and forth since then has left people exhausted. But throughout these changing times, health insurance advisors and their employer clients have remained united in dealing with never ending rate increases and less control over the ability to incentivize healthy habits. Together, the health insurance advisor has helped their employer clients understand and adjust to changing conditions in order to continue to find the best options available in the new environment. Studies show that insurance advisors are a trusted and valuable resource to their employer clients, and they have a proven track record.
Then something changed again in 2020 that only a few people who were paying attention noticed. At the beginning of the year an entirely new type of employee health care coverage was created (with largely bipartisan support) that meets the definition of a group health plan under the ACA. The new model of an employer sponsored health plan allows an employer to not have to sponsor a traditional group health insurance plan at all, but instead the employer is allowed to create a cash reimbursement plan that reimburses employees income tax free for having their own individual or family health insurance from the individual market.
This is a game changer for group health insurance advisors.
No longer does the employer need to be in the group health insurance business at all, leaving behind the administrative responsibility and financial risk of providing the best group healthcare value to their employees. Instead, employers through a new vehicle called an Individual Coverage HRA (ICHRA), can set a per employee per month budget, or type of allowance, that the employees can use to be reimbursed for the cost of their own individual or family health insurance premiums and out of pocket medical expenses. It also covers Medicare plans, should an employee be Medicare eligible. This defined contribution approach is simpler for the employer to budget for and implement. It also empowers employees by giving them the freedom to select and manage their own health insurance and therefore automatically take it with them when they change jobs.
The Health and Human Services department of the federal government estimates that 800,000 employers over the next 5-10 years will be leaving the traditional group health insurance market and instead opting for the ICHRA model. This has significant consequences for everyone involved: the group health insurance agent, the employer, and the employees.
When an employer moves to an ICHRA, they will likely want to do so in partnership with their trusted advisor. The group health insurance advisor must now consult on the choices in the individual health insurance market. One advantage that has long helped the group health insurance market over the years is efficiency. One group health plan can service an entire company. Large companies therefore play a significant role in insuring the working population. But now with employees in the individual health insurance market, serving each individual employee with their own plan selection is a challenge and administrative headache that many group health insurance advisors don’t want to make. Plus, along with the extra work of serving each individual employee, the compensation paid to the health insurance advisors is less in the individual market than the group market. So, less compensation for more work. While the health plan itself, the ICHRA, is typically administered by a third party which may or may not offer fees revenue back to the consulting insurance producer.
So while previous health care policy changes have solidified the insurance advisor and employer client relationship, the introduction of the ICHRA now creates competing interests. An insurance advisor always maintains the fiduciary responsibility to do what’s in the best interest of the client. So learning about ICHRAs, educating employers about this new option in the marketplace, and providing solutions for individual health insurance enrollment is a tool that must be added to the advisor toolbox.
Now, back to the cheese. When the cheese disappears, Scurry and Sniff enthusiastically, Head out into the maze to find new cheese. While Hem and Haw feel betrayed and complain, and they fret away their time hoping the old cheese will return. Haw eventually realizes the old cheese won’t return so he sets out into the maze in search for new cheese. He writes what he learns on the walls hoping that Hem will follow him. Eventually he discovers new cheese and sees that Scurry and Sniff were already there.
Cheese is a metaphor for what you want to have in life. It could be a good job, loving relationship, money or health. The core message of the book is that things constantly change so we must adapt. The quicker we adapt a change the more satisfied we will be with it. It is important to recognize that not only should we realize change happens, we must also anticipate and monitor change, and get ready to move quickly to change with the cheese.
Ultimately health insurance agents who present ICHRA’s along side traditional group health insurance in order to arrive at the best solution for each company, will again enhance the trusted advisor-client relationship that already exists. It allows the relationship to continue to move forward together, albeit in a different model, and can remain a win-win for everyone.
By Margaret Lett Ph.D
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