There’s a new trend in healthcare that’s saving small businesses money

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I see an increasing number of my small clients canceling their health insurance plans. For what? Because for them – and for others – there is a better option.

It’s no secret that providing health insurance is a major — and often insurmountable — cost for many small business owners. I have a number of clients who contribute to the health care of their employees – sometimes up to 100% for individuals – and it can cost tens or even hundreds of thousands of dollars every year. And there is no end in sight.

A recent survey from Benefits Consultants Buck found that on top of previous year-over-year increases, health care costs will rise another 6-7% – and for many of my clients, it’s been a good year! Every year they face the same volatile, spiraling, and seemingly uncontrollable challenge to control those costs and this year is no different. That’s why more than half of small businesses find themselves unable to offer health benefits – and lose talent as a result.

And it’s not just the cost of premiums. There is also the cost of administrative time and lost opportunities. There is the seemingly unsuccessful search for better prices in what is clearly an oligarchic market made up of very few major suppliers. It’s the inconvenience – and potential privacy issues – of knowing your employees’ medical history that often figures into the bonuses we pay. And that’s the time we spend trying to find other ways to make health care more affordable through complementary programs like health savings and flexible spending accounts.

The good news is that there is an alternative and more and more of my clients are learning about it. These are called Individual Health Reimbursement Accounts – or ICHRAs.

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These types of plans are becoming extremely popular with small businesses. So popular that the Department of Health and Human Services predicts about 800,000 employers will offer these types of plans to nearly 11 million employees over the next few years. A recent report by the HRA Council – a consortium of health benefit companies – found that these types of plans have grown 350% since 2020 and “double on average across states, with significant growth across all industries, employer types and employee groups” and that companies with 20 or fewer employers account for 90% of adoption.

According to Jack Hooper, Chairman of the HRA Council and CEO and Founder of benefits administrator Take Command, the number of large employers switching to ICHRAs has grown exponentially, but “small and medium-sized businesses are leading the charge to provide much-needed benefits innovation, consumer empowerment and employee choice, and cost control and flexibility for employers.”

Why so popular? Not only do ICHRAs reduce healthcare costs, but they also help employers exit the healthcare industry altogether.

With an ICHRA, you’ll likely pay the same premiums (it’s up to you), but this time through a contribution to an employee’s account set up under the plan. But that’s it – the rest is up to the employee. Your employee is reimbursed by you – before taxes like any other health plan and you get a tax deduction for your contribution. But now it’s up to them to purchase their own health insurance, either through their state or federal health care exchange or through an independent insurance broker (some of my clients provide their employees with recommended companies that do).

There’s no more need to decipher the ins and outs of complicated health plans. There is no more negotiation with health care providers. There are no more privacy issues. There is no more internal administration (most of my clients outsource this work to companies that manage these plans). Basically, you just reimburse the employee and you’re done with health care. The sums contributed remain with the employer in the event of the worker’s departure. And if you are having a bad year and you want to contribute less, you can also do so without changing your plan, even if you risk the wrath of your staff, so be careful!

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With ICHRAs, employees have more flexibility in their health plan choices and are not dependent on what an employer provides. Remote workers may be able to get better deals on their health insurance depending on what’s offered in their state. They can choose how much they want to spend, and their employers can choose to reimburse additional costs like prescriptions or mental health coverage.

Because they are easier to understand and provide a lower cost option for employees, younger workers participate in these plans at a higher rate than their older counterparts. The HRA Council report found that 57% of employees accepting an HRA (which includes either ICHRAs or QSEHRAs – a similar, but less flexible plan that an employer can offer directly to workers) to fund their health insurance in the market are between 18 and 44 years old, with the largest age cohort being 26-34 for each year since 2020.

ICHRAS is “causing a seismic shift in the employer-sponsored group market – addressing employers’ needs to dramatically control costs and opening the door for employees to be more informed healthcare consumers,” John Kelly, CEO and founder of healthcare benefits provider Nexben, a benefits technology company, told HR Executive. “ICHRAs are the 401(k) of health benefits.”

Why am I so optimistic about these plans? Because they allow even the smallest companies to provide some type of health care coverage to their current and potential employees instead of just giving up and saying, “we can’t afford it.” In these tight work times, you can’t go unanswered when someone asks you about your health care benefits. With an ICHRA, you have an answer. A good answer. That’s why I see so many of my clients take advantage of this option over the past few years.

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