Employer health insurance has long been a challenge, and is particularly difficult for small businesses. Now some things in the market are changing, with the rising cost of care for employers and employees being a strong catalyst for new approaches.
One of the rising recent trends is Individual Coverage Health Reimbursement Arrangements or ICHRA — employers, instead of buying health insurance for employees, give them a chunk of money and let them buy their own insurance.
Health insurance premiums are an ever-growing headache for businesses. More than 150 million workers get health insurance from employers, but the costs are always rising.. A recent report by JP Morgan Chase said; ”Over the last five years, nonemployer health insurance premium payments have increased by 19 percent, and employer payments have increased by 33 percent, implying compound annual growth rates of 3.5 percent and 5.9 percent, respectively.”
Smaller companies have a bigger burden, the report added. “Smaller firms with fewer employees may be less able to negotiate favorable insurance premiums compared to their larger counterparts. … Among firms with less than $600,000 in annual revenues, the median health insurance payroll burden was nearly 12 percent, compared to 7 percent among firms with revenues greater than $2.4 million.”
ICHRA enters the chat
Realizing this, lawmakers created a new kind of policy for both large and small employers. Instead of the employers buying insurance plans to cover all employees, this new option lets them contribute to employees’ health insurance by granting employees flat, tax-preferred contributions they can use to buy their own insurance from a public health insurance exchange such as HealthCare.gov, a private exchange or an individual company. If a plan costs more than the employer contribution, the worker pays the difference. In most cases, employees are not eligible for public exchange tax credits on top of their employers’ contributions.
This relieves the employer of the burden of choosing a plan every year, paying extra in premiums following a year of heavy claims, assessing and monitoring the plan’s performance, and other tasks. It places the burden of choice on the employee.
The Health and Human Services, Labor and Treasury departments authorized ICHRAs in a 2019 final rule that took effect in 2020. Now they are experiencing some growth.
“ICHRA’s time has come,” Oscar Health CEO Mark Bertolini said at the company’s annual investor day in June.
Early reports
There’s not a lot of data on ICHRA adoption, but employers are clearly hurting.
“We received the following unsolicited email this morning from a client we have worked with for more than 20 years who moved his plan to ICHRA’s last year. He’s happy he did,” Bill Rusteberg, a Texas insurance expert, wrote on his blog.
“So far, the ICHRA is great. For the first time in 40 years, I don’t have to worry about plan renewals, costs, outliers, stop loss, PBM’s and all the other crap (government regulation) that comes with this line item. And let’s not forget risk. I lived in fear each week those pay apps came through, not knowing what they were going to be.”
“Businesses should NOT be in the health insurance business. It’s a complete misallocation of resources and risk. Employees need to be weaned from the employer tit. I don’t like single payer either. Employees need choices that fit their particular needs. ICHRA seems to fulfill that requirement.”
But not all brokers and insurance players know enough about ICHRA’s to offer them — and if they do, they may not think that their fees for setting up an ICHRA are worth it, compared to more traditional routes.
The numbers are still pretty small. A study by the HRA Council found “The number of employees offered a defined contribution health benefit now exceeds 200,000, which does not include dependents — some estimates have said more than 500,000 people are enrolled.” The same study said “U.S. employers’ adoption of individual coverage health reimbursement arrangements (ICHRAs) increased 29% between 2023 and 2024.”
Oscar has made these available, and plans to expand its business. Centene and Highmark are also in the market.
There are some other companies in the market too. One, Thatch.ai, describes itself as “fintech meets healthcare,” and adds “Thatch makes it easy to give your team great healthcare. You set a budget, and your employees spend it the way that works best for them.” It seems that Thatch will set you up with an Oscar ICHRA, for example, and manage employees’ and employers’ benefits problems. Venteur Health and StretchDollar also offer ICHRA related services.
Is this yet another way for the healthcare system to make money? Another middleman to the middlemen? Thatch launched in February 2023, calling itself “a modern health benefits platform for startups.” A cautionary note: When I clicked on their “explore plans” button, I got an error: “Application error: a client-side exception has occurred (see the browser console for more information).”
Some flexibility
Many people might choose a bronze or silver plan, rather than a gold or platinum plan that the employer may have offered under the one-size-fits-all traditional model. Historical data gives an insight into what might happen.
“Overall, 26.3 percent of individuals chose bronze plans, 57.9 percent chose silver, and 15.8 percent chose gold,” the Urban Institute wrote in a report last year. “However, the choice of bronze, silver, and gold varied considerably by income. For the lowest income population, those between 100 percent of the federal poverty level (FPL) and 150 percent of FPL, over 4.9 million Americans (81.4 percent) chose silver plans. Most in the 150 to 250 percent income range, 61.3 percent, chose silver plans. The percentage choosing silver plans drops to 21.4 percent among those with incomes between 250 and 400 percent of FPL.
“From 2018 to 2023, enrollment in silver plans fell to 56.0 percent. There continues to be an increase in bronze plans (to 33.4 percent) as individuals take their premium tax credits and purchase low-cost bronze-tier products. In 2023, 10.6 percent of Healthcare.gov enrollees chose gold plans, up from 6.5 percent in 2018.”
The report added that a lot of A.C.A. enrollees choose plans based on price. Low premiums, after-tax credits, and cost-sharing reduction subsidies make silver plans attractive, the report said, but “even higher-income people are choosing bronze plans in large numbers because of low premiums despite the higher deductibles.”
Interestingly, the Urban Institute also found that premiums for marketplace plans are lower than employer-sponsored premiums. A report says: “After adjusting for differences in age, actuarial value, and cost-sharing reductions, we find that average silver Marketplace premiums are now 23 percent below premiums in the small-group market and 15 percent lower premiums in the large-group market. We conclude that the most likely reason Marketplace premiums are lower is the substantially higher payment rates and breadth of provider networks in commercial markets than in Marketplaces.”
Other options
Meanwhile, other companies are still trying to solve problems for employers.
Often small businesses will to to a Professional Employment Organization (PEO), which functions by grouping together a number of small businesses and giving rates and services that might only be available to larger employers. Two big ones are TriNet and JustWorks.
Health Rosetta, a public benefit corporation and nonprofit that collects a group of brokers, third-party administrators, pharmacy benefit manager alternatives and other ecosystem components, has been working since 2017 to supply different ways of getting employer-based insurance.
The founders, Dave Chase and Sean Schantzen, have made an effort to help employers ask the right questions, and help others in the system get service for employers that’s better than the old-line fully insured plans. They do education and certification for brokers, third-party administrators and others, and also set standards to guide toward better outcomes. Among their tools is a “Plan Grader” to assess the quality of existing arrangements.
In a sign of how difficult the employer problem is, three of the nation’s big employers — Amazon, JP Morgan Chase and Berkshire Hathaway — declared in 2018 that they were going to find a solution to employer healthcare. Their partnership, ultimately named Haven, folded after three years.
Decent Health, a no-longer-startup that survived some serious setbacks, has come up with a new employer insurance offering. The Decent site says their plans cost 40 percent less than traditional options. The sales materials say that the plan is driven by direct primary care, the membership model in which a monthly membership payment entitles the patient to unlimited primary care. Decent schedules appointments with a primary care provider, who delivers treatment and coordinates non-primary care.
According to their plan description, everything in the “preferred care” basket is free, not just primary care but also behavioral care, maternity care, surgery, hospital, prescriptions and pretty much everything else, which immediately raises questions. The price for employers is not available on the site.
One of the founders, Nick Soman, told Fierce Healthcare that he was motivated by the high price of insurance.
“Annual premiums for employer-sponsored family health coverage reached $23,968 this year, with workers on average paying $6,575 toward the cost of their coverage, according to KFF data. Workers at smaller firms on average contribute $2,445 more toward the cost of family coverage than workers at larger firms,” Fierce Healthcare wrote. “Soman said he was astonished at the cost of family health insurance. ‘My family of four was paying more for health insurance than for rent or anything else in our budget,’ he said.”
It re-launched July 1, so there’s no track record to speak of — though the founders have been trying to solve the employer health problem since they launched in 2018. Their initial business model was to be a startup focused on small businesses, with a partnership with a large insurance company. But the partnership fell through, according to news reports, and they had to retrench — although they had $43 million in investments.
In my 14 years in this space, I have seen dozens of companies arrive and declare that they have solved the problem — only to vanish a few years later. It’s a system that is so impenetrable that it seems impossible that it exists, leading founders who newly discover it to say “Hey, the only reason this isn’t working is that I haven’t come and applied my brains to it.” And then they discover how hard it is and leave, disheartened, taking investors’ and customers’ money and hopes.
Eventually that will not be true, but that right now the misaligned incentives and the strong interlocking relationships of the incumbents in the healthcare system — plus the risk-averse nature of employers in buying health insurance — are stacked to produce more of the same, and innovation only gradually. The work of Health Rosetta is promising in the effort to bring relief to employers.
