Outside the Box: The way your company can offer health insurance is changing in a fundamental way — and no one knows about it

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Starting this year, some employees will have a new set of health insurance options. Instead of choosing plans preselected by their employer, these employees will receive tax-free dollars from their employer and will use these funds to purchase their health insurance from the individual marketplace.

The new option, created by the Trump administration, may herald the biggest shift in how employees access health insurance since employer-sponsored health plans first gained traction after World War II.

What do you need to know if your employer notifies you that this new option, known as an individual coverage health reimbursement arrangement, or ICHRA (pronounced ick-ruh), is going into effect?

1. You’ll receive funds to contribute toward your health insurance costs. Employers who move to this option will provide tax-free dollars to employees through a Health Reimbursement Arrangement (HRA), and employees will be reimbursed from this fund for a portion of, though not always all of, the costs of the health insurance plan they choose.

The size of the account will vary by employer, but in order for an employer to avoid financial penalties, the fund must provide enough so the lowest-cost Obamacare silver-level premium for an individual costs no more than about 10% of the employee’s household income. Some employers will be more generous than others, but when receiving job offers (if both include an ICHRA), you’ll benefit by being able to easily determine which employer provides a greater subsidy.

Whether the funds are given to employees all at once, monthly or in some other way and how the funds can be accessed will depend on how the employer sets up the plan.

2. You’ll hold the reins on your health insurance options. Traditional group health insurance tends to offer a handful of plans to choose from. But the “few sizes fits most” approach doesn’t always give employees access to the coverage that works best for their individual situations.

With ICHRA, you’ll be responsible for choosing which health plan on the individual market is best for you and your family.

There will be help. Employers working with an ICHRA administrator should be able to offer year-round support to employees as well as health care navigation assistance to help you choose the plan that makes the most sense for you and your family’s health needs and budget.

ICHRA funds can be used only to purchase Affordable Care Act-compliant health plans — short-term insurance doesn’t count. And leftover funds can be used for other health costs, if your employer allows it.

The new option may herald the biggest shift in how employees access health insurance since employer-sponsored health plans first gained traction after World War II.

3. The health plan is yours to take with you. But the HRA is specific to your job. You’ll no longer lose your health insurance if you change employers. (Whether you can take any unspent funds with you will depend on how your old company has structured the plan.) But if your new employer does not offer an ICHRA, you will need to find a new option for funding your health insurance—or switch to your new employer’s group plan—since the HRA will stay with your old employer.

As more employers adopt ICHRAs, it will become smoother for workers to move from job to job, ICHRA to ICHRA, without ever having to change doctors or health plans.

4. You may need to pay out of pocket for a portion of your plan. Today, most people pay some portion of their group health plan premiums through a payroll deduction. Likewise, employees will probably need to contribute a portion out of their own pockets (for example if they choose to buy a health plan with more coverage or if they need dependent coverage), and employers may set up their ICHRA to allow employees to pay these additional amounts through a payroll deduction.

If all the funds in your HRA aren’t needed to purchase your health plan of choice, your employer may offer you the ability to roll over those funds to the following plan year, as part of your benefit.

5. Why wasn’t this an option before, and am I likely to be the only one using it? ICHRAs became an option for the first time in January when a new federal rule allowed HRAs to be used in new ways to fund health insurance.

The new option, which goes back to a 2017 executive order, was introduced as a way to provide employers with more options for financing their employees’ health care. The most likely early adopters of ICHRAs will be small businesses that lack the scale to negotiate more affordable health plan costs for their employees, growing businesses that are about to reach the 50-employee threshold (at which point businesses are required to provide access to health insurance), or established businesses looking for a more sustainable way to provide health insurance benefits in competitive labor markets.

In the next 12 to 24 months, these early adopters may be at the forefront of a trend that eventually supports millions. According to government estimates, in just five years, 10 million Americans could access their health insurance via an ICHRA. Today, 160 million people have some form of employer-sponsored health insurance, leaving plenty of room for ICHRA adoption.

John Barkett is senior director of policy affairs at Willis Towers Watson, a global risk-management company and insurance brokerage. Follow him on Twitter @jmbarkett.

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