Direct Health Care Spending for Employees

Imagine being faced with a 60% premium increase for your group health insurance plan. That's the situation Lycoming College, a small liberal arts school in central Pennsylvania, found themselves in. Their solution? They ditched their group plan and instead gave employees a contribution to buy their own health insurance on the individual market.

This shift to individual coverage health reimbursement arrangements (ICHRAs) has become a growing trend among employers seeking to control their healthcare spending while still offering a valued benefit to their workers. With ICHRAs, employers make tax-preferred contributions to employees who then use those funds to purchase individual market coverage. This allows employers to limit their financial exposure to rising healthcare costs.

While supporters tout the benefits of increased choice and competition, some consumer advocates are concerned that ICHRAs could lead to skimpier and pricier coverage for certain individuals, particularly those who are older or have pre-existing conditions. The individual market, they argue, often has smaller provider networks, higher deductibles, and premiums that are higher than comparable group coverage.

The move to ICHRAs has also sparked debate about the impact on workers who might be eligible for subsidies under the Affordable Care Act. Using an ICHRA benefit could disqualify them from these subsidies. And while interest in ICHRAs is growing, with the number of employers adopting them increasing by 29% from 2023 to 2024, it remains to be seen whether they will become a mainstream option or remain a niche product.

Lycoming College's experience highlights the potential advantages and challenges of this new type of healthcare arrangement. While the school saved millions in healthcare costs and employees reported satisfaction with the choice and savings, there were also administrative hurdles. The complexities of managing multiple individual insurance plans, navigating the individual market, and ensuring proper enrollment can be daunting. The decision for employers to adopt ICHRAs is ultimately one that requires careful consideration of the potential benefits and drawbacks for both the employer and the employee.