Dave Lantz is no stranger to emergency departments or physician billing. With three kids in their teens and early 20s, “when someone gets sick or breaks an arm, all of a sudden you have a thousand-dollar medical bill,” Lantz said.
The family health plan he works for as an assistant director of the physical plant at Lycoming College, a small liberal arts school in central Pennsylvania, didn’t begin covering his expenses until he paid a $5,600 medical bill. Lantzes were on the hook until the annual threshold. A high-deductible plan isn’t ideal for a family of five, but it’s the only coverage option available to them.
It is very different now. By mid-2022, the college is phasing out group health plans and replacing them with a new type of plan — an individual coverage health reimbursement arrangement, or ICHRA.
Now Lantz gets a set amount from his employer each month that he puts into a family plan in the individual insurance market. They choose a no-deductible plan with a richer level of coverage than a group plan. Although the monthly premium of $790 is higher than the $411 they used to be, they will save money by not having to pay such a large deductible. In addition, they now have more control over healthcare spending.
“It’s good to have the option to offset a high deductible versus a higher premium,” Lantz said. Before, “it is difficult to budget for that deductible.”
As the cost of health insurance continues to rise, employers are looking to this type of health compensation payment to control health care costs while still providing workers with the benefits they value. Some consumer advocates worry that the plan could lead to lower and lower coverage for certain consumers, especially the sick and older.
These plans allow employers to make tax-advantaged contributions to employees that are used to purchase coverage in the individual market. Employers limit their financial exposure to rising health care costs. Everyone wins, say supporters of the plan, which was floated in 2019 as part of a group of proposals the Trump administration says would increase health insurance choice and competition.
“This is a way to provide coverage to a larger group of employees than ever before and set a budget that controls costs for companies,” said Robin Paoli, executive director of the HRA Council, an advocacy group.
Some health insurance specialists say the plan isn’t a good choice for consumers or the individual insurance market. Although the rules prevent employers from offering this type of coverage to certain workers who may be sicker and more expensive than others, employers with unhealthy workers may find the arrangement attractive. This, in turn, may increase premiums in the individual market, according to an analysis by the University of Southern California-Brookings Schaeffer Initiative for Health Policy.
Plans sold in the individual market often have smaller provider networks and higher deductibles than employer-sponsored coverage. Premiums are often higher than comparable group coverage. Workers, especially those with lower wages, may be better off financially with premium tax credits and cost-sharing reductions for purchasing Affordable Care Act marketplace plans, but using work-based ICHRA benefits will exclude them.
“From a worker’s perspective, the biggest impact is that being offered affordable coverage by your employer makes you ineligible for marketplace subsidies,” said Matthew Fiedler, a senior fellow at the Brookings Institution who wrote an analysis of the rules that created the plan.
The plan is currently only offered to a small number of workers: about 500,000 of the roughly 165 million people with employer-sponsored coverage, according to the HRA Council. But interest is growing. The number of employers offering the ICHRA and its previous type of plan, called the qualified small employer HRA, increased by 29% from 2023 to 2024, according to the council. And, although small employers have made the most users so far, larger employers with at least 50 workers are the fastest growing group.
Individual market insurers like Oscar Health and Centene see opportunities to expand their footprint through these plans. Some venture capitalists are saying the same thing.
“The (traditional group) health insurance foundation of health insurance from the last 60 years has outlived its usefulness,” said Matt Miller, whose Headwater Ventures has invested in ICHRA administrator Venteur. “The goal is to make sure people have coverage, take it out of the workplace construction and make it portable.”
Employers can offer this type of health reimbursement arrangements for some classes of employees and group plans for others based on characteristics such as geography, full-time vs. part-time status, or salaried vs. hourly pay.
Lycoming College does not aim to be sophisticated when it comes to making this coverage switch. Faced with a 60% increase in premiums after some members had high claims, the school, which includes about 400 faculty and staff and family members, had to find an alternative, said Kacy Hagan, the association’s vice president for human resources and compliance.
In the end, they chose to offer ICHRA coverage to employees who work at least 30 hours a week.
In the first year of offering the new benefit, the college saved $1.4 million in health care costs over what it would have if it had stuck with the group plan. Employees save an average of $1,200 per premium.
Gene J. Puskar / AP
“Financial people are very happy,” Hagan said. For employees, “from a cost standpoint, people tend to be very happy, and people like to have a choice of plans,” he said. However, there are problems with the administration of the plan. Some employees’ coverage was dropped and had to be reinstated, he said. These issues have largely been resolved since changing plan administrators this year.
These coverage adjustments can be complicated to manage. Instead of companies paying group health plan premiums, dozens of individual health insurers must pay. And employees who have never purchased a plan before need help figuring out what coverage is right for them and enrolling.
That complexity can be unsettling. This year, some companies that have tried to manage their health benefits have decided they prefer to return to group plans, said Tim Hebert, managing partner of Sage Benefit Advisors, based in Fort Collins, Colorado.
“They said, ‘Employees are all on different plans, and they don’t feel like they’re being taken care of,'” Hebert said.
Vendors continue to grow to help employers like Lycoming College and workers manage their plans.
“If you just say, ‘Here’s $1,000,’ it’s confusing and confusing,” said Jack Hooper, CEO of Take Command Health, which now manages the Lycoming ICHRA.
It’s not clear if the plan will stop or remain a special product.
“This is a big disruption, just like 401(k)s,” said Mark Mixer, chairman of the HRA Council and CEO of HealthOne Alliance in Dalton, Georgia. However, it is not for everyone. “It’s just another tool that employers should consider. If it fits, do it.”
