You may have read Gene Mark’s recent health insurance column or heard him explain on Dashboard. Gene—who’s a small business owner, an expert on small business tech, a CPA, and a friend of 21 Hats—doesn’t see why business owners should be responsible for picking health coverage for employees. He also doesn’t like being at the mercy of health insurance companies and their annual rate increases. So he’s switched to something different:
“Last year I dropped my company’s health insurance plan altogether and replaced it with an Individual Coverage Health Reimbursement Arrangement or ICHRA. Why? Because an ICHRA changes the way business owners like you and me provide health care benefits for our employees. And it’s lowering my health care insurance costs.”
With an ICHRA, instead of paying for his employees health insurance directly, Gene reimburses them for the insurance they choose to buy. Gene says he’s pretty happy with the results:
“The benefits for an employer are significant. No longer do you go through the pain of choosing health insurance plans every year. You have complete control over your costs. You spend less time reviewing and administering your plans. No longer do you need to know about your employees’ health histories.”
Have you tried an ICHRA? Would you consider it? Tell us what your thinking has been?
So so so tempted to do something, ANYTHING else besides accept yet another 5-10% price increase with no increase in value. What a novel idea.
That said, I have some issues with ICHRA. Some of which I don't see addressed.
First, I get Gene’s motivation to find a better way for healthcare. It’s a totally broken system and is a massive burden on small businesses. Indeed, for years we went without (or with crappy coverage) because we simply couldn’t afford it.
But, as we grew, and wanted to attract and retain the “next level” employee, it became clear that weak benefits were hurting us. Ultimately, we not only increased our spend, but we also added more benefits like short term disability, life insurance, maternity leave, and more. Adding a 401K was part of our strategic benefits approach, too. It’s a PAIN IN THE BUTT. However, the results do speak for themselves – high levels of qualified applicants for every role, record-level retention, etc etc.
What Gene understates in his advocacy for ICHRA plans is the employer branding aspect of the benefit. Yes, when a business is very small and hiring young/healthy employees, this kind of plan might make sense. But as you grow and need more senior and experienced employees, telling folks “Go get your own plan,” is a weak brand position.
The point I’m making is that for companies like Gene’s where there’s no office, and employees are treated more like contractors than a team, ICHRA could be just fine. AND, for small companies just getting going, I can see a real win with this. But for companies like mine – culture-centric and looking to hire top-talent – this is (for now) a non-starter.
Many years ago I was at a event where an employment attorney was speaking.
In his talk he essentially told the audience, made up of mostly entrepreneurs, that paying the healthcare insurance premiums for employees was an open invitation to a discrimination lawsuit. He went on to say, that If that if you have two people of different ages doing the same job, the premium cost difference between the older worker and the younger worker amounted to different compensation to each worker. The older worker would be getting more compensation because their insurance premiums would cost more than the younger worker.
So about 20 years ago, we adopted a plan where the company would offer multiple levels of health insurance - low-deductible, high-deducible (HSA compliant), HMO, etc. - and provide our employees with a monthly health insurance stipend where they can choose and pay for their own plan. Since that time, the Obamacare exchanges have essentially eliminated the need for the company to offer any healthcare plans since they can purchase their insurance directly from the exchange with the monthly stipend we provide them.
The stipend is the same for every employee (top to bottom) and is recalculated each January using a simple formula that anyone can replicate on their own.
This plan also eliminates the situation whereas if an employee already has insurance from another source (from a spouse or perhaps military benefits) and is now able to use the healthcare stipend as additional compensation.
Most importantly, the monthly healthcare stipend takes my business out of the healthcare business and simply allows me to focus on providing higher compensation to attract and retain employees.