MEDICARE HEALTH
California Businesses Lead Nation in New HRA Signups As Reimbursement Model of Benefits Grows in Popularity
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By Jack Hooper
new model of benefits called the individual coverage health reimbursement arrangement (HRA) hit the market this past January. HRAs have quickly gained traction as an alternative to traditional group plans, with California businesses leading the country in signups for the new plan. In fact, our research shows that California accounts for 35% of total signups since the HRA’s inception. As an HRA platform, our team at Take Command Health analyzed our first 200 signups for the individual coverage HRA to identify emerging trends in location, size, industry and design. The new individual coverage HRA (ICHRA for shortpronounced ick-ruh), sometimes referred to as defined contribution or 401(k) style benefits, allows business owners to reimburse their employees for health premiums and expenses tax-free. While one-size-fits-all group plans are subject to year-over-year premium hikes and participation rate concerns, ICHRAs are flexible, predictable, budget-friendly, and allow business owners to effectively exit managing the risk of administering a health plan. Why California is prime for ICHRA It’s not surprising that California tops the list for ICHRA signups; the individual insurance market in several key California cities is prime for the adoption of ICHRA, according to a recent study we released. Our research analyzed metros across the country that have ideal conditions for individual coverage HRAs, including affordability of lowest cost silver plan and how it interacts with premium tax credits; difference in individual vs group plan premiums; network types and availability; carrier competition; average premium change year over year, and name brands of carriers. While San Jose, San Diego, Sacramento and San Francisco all make the top
34 | CALIFORNIA BROKER
50 list for top individual insurance markets prime for ICHRA, Los Angeles comes in at #2 and Riverside #10, claiming more major metros in the State of California than any other state. Los Angeles, for example, has more options than most in terms of insurance carriers, and the average individual premium increase is less than 1%—two key indicators that the market has optimized conditions for ICHRA. For 2020, California has implemented an individual mandate and statebased subsidies to boost participation and keep costs low on the individual market. While California state subsidies cannot be accepted with an ICHRA, the subsidies have contributed to an overall market environment where ICHRA can thrive. The research also shows what types of companies are opting for an ICHRA, with non-profits, associations, software and technology companies, home health, healthcare providers, financial services, household employees, professional services (like architects and engineers), consulting, churches, staffing firms, and manufacturing and construction at the top of the list. A good portion of these companies signed up through their group brokers. While the average number of employees in this study was seven, small businesses aren’t the only ones signing up—6% are large businesses with more than 50 employees and 16% are midsized companies with up to 50 employees. How ICHRA works The mechanics of ICHRA are fairly simple. First, the business owner sets the monthly reimbursement amount and the employees purchase an individual health plan that works best for them. After an employee submits receipts, the business owner simply reimburses them. The funds aren’t subject to payroll tax from an employer standpoint and aren’t considered income for the employee and taxed accordingly.
- CalBrokerMag.com -
NOVEMBER 2020
