New Health Insurance Approach Could Unlock Benefits For Millions Of American Workers

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This Labor Day, one of the best things an employer can do for its workers may be something it allows employees to do for themselves: buy their own health insurance.

In an “everything old is new again” twist, the next health insurance trend may be one that’s been around for decades. “Defined contribution” plans allow employees to buy their own health insurance with funds their employer provides rather than signing up for a “defined benefit” plan, health insurance plans with set benefits that the employer has chosen.

A decade ago, experts predicted that rising healthcare costs and new health insurance marketplace options would finally usher in the era of defined contribution in healthcare. Others argued that the time for defined contributions in health insurance had arrived. That was not the case.

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Despite obvious benefits—such as the opportunity for employees to get a plan that fits their specific needs and for employers to cap their financial exposure from ever-rising health insurance costs—defined benefit plans have failed to gain widespread adoption.

eHealth (NASDAQ: EHTH), a private online health insurance marketplace, is hoping to change that this time around. The company announced last week that it is now offering Individual Health Coverage Reimbursement Arrangement (ICHRA) products in addition to traditional health insurance plans.

ICHRA is a relatively new form of defined contribution plan that lets businesses set a fixed financial contribution for employees to use to pay health insurance expenses. Employees choose and purchase their own qualifying health insurance plan and the employer (or its third-party administrator) reimburses the employee for the approved amount. These funds are tax free for qualifying expenses, such as monthly insurance premiums and copayments.

Companies of any size can offer ICHRA but it may be especially appealing to smaller companies who want to offer health benefits but can’t afford to. Especially in a tight labor market amidst the Great Resignation, ICHRA may help employers compete for workers in a financially manageable and predictable way.

There is no maximum employer contribution under ICHRA, and all employees can participate in an ICHRA plan, including part-time workers who may not qualify for traditional health benefits in most companies. Staff who haven’t satisfied a waiting period for benefits eligibility can also participate in an ICHRA plan.

For employees, ICHRA represents a new way to get help paying for health insurance, making health coverage more accessible and easing financial strain and anxiety about healthcare costs. Additionally, ICHRA enables employee mobility, as the employee can keep the plan if they leave the employer, rather than being tied to a specific company for health benefits (a phenomenon known as job lock).

According to Anthony Lopez, general manager of individual, family, and small business plans at eHealth, full- and part-time employees who weren’t otherwise going to get any help paying for health insurance stand to benefit the most from ICHRA. But, he says, there are also broader benefits that any employee may appreciate.

“If you’ve ever had traditional employer-sponsored health insurance, you may remember being given one or two or maybe three plan options to choose from. That can be restrictive because everyone’s coverage needs are different,” Lopez said. “ICHRA typically allows you to choose from among a broader range of options and find the best one available for your needs and budget, while still getting help from your employer to reduce your monthly premiums.”

The specific federal rule governing ICHRAs went into effect in August of 2019, for health insurance plan years beginning on or after January 1, 2020. But according to Lopez, ICHRA is just getting started.

“It’s taken some time for coordination between the financial and the insurance side of the program to grow,” he said.

According to government estimates from June 2019 (when the ICHRA final rule was published), as many as 800,000 employers may ultimately offer these options, which would benefit as many as 11 million workers and their families. The government also estimated that 800,000 previously uninsured people may get access to health insurance as a result.

Though it’s too soon to know how accurate those projections will turn out to be, Lopez sees significant growth potential ahead.

“Apart from the lack of broad familiarity with ICHRA, there really are no barriers to more widespread adoption,” Lopez said.



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