Most Workers Uncomfortable with Cash-for-Coverage Plans

A recent survey found that the majority of employees prefer traditional employer-sponsored health insurance over receiving cash through an individual coverage health reimbursement arrangement (ICHRA) to buy their own coverage on the Affordable Care Act marketplace.

The survey, conducted by Softheon, a health coverage distribution technology firm, and its subsidiary W3LL, found that 80% of respondents would rather have their employer provide health insurance, while only 20% preferred receiving employer funds to purchase their own plan.

The findings also showed that 54% of workers favored their firm offering multiple health plan options, while 26% preferred a single plan.

The findings reflect the importance of educating workers about ICHRAs if an employer is planning to start offering these vehicles.

How  ICHRAs work

ICHRAs allow employers to provide tax-free funds that employees can use to purchase their own health insurance on the marketplace or through private insurers.

With an ICHRA, employers set a fixed allowance for employees to use toward their health insurance premiums and qualifying medical expenses. Employees then select their own coverage and pay premiums upfront, submitting receipts for reimbursement up to their firm’s contribution limit.

The employer’s funding is tax-deductible, and reimbursements are tax-free for employees as long as they purchase a plan that meets the ACA’s qualifying criteria.

These plans have grown in popularity as companies look for cost-effective alternatives to group health insurance, especially small and mid-sized businesses that may struggle with the rising costs of traditional plans.

While ICHRAs provide greater customization, they also require employees to take a more active role in selecting and managing their own health coverage, which can be a barrier for those unfamiliar with navigating the insurance marketplace.

Employee comfort levels with ICHRAs

Workers’ attitudes toward ICHRAs varied depending on how the questions were framed. When asked directly about receiving a cash stipend for health coverage:

• 29% said they were very comfortable with the idea.
• 40% said they were somewhat comfortable.
• 31% expressed discomfort with the concept.

Concerns about selecting their own coverage were also significant:

• 30% of respondents worried about choosing the wrong plan and either getting too much or too little coverage.
• 29% were primarily concerned about paying too much for a plan.
• 63% believed that employer assistance in navigating the ACA marketplace would improve their experience.

ICHRA awareness and adoption

Four out of five respondents admitted to knowing little or nothing about ICHRAs, while 20% said they were somewhat or very familiar with the concept, even though they didn’t have ICHRA coverage themselves.

In light of this lack of awareness, if you plan to offer an ICHRA, you’ll want to educate your staff about the arrangements and ensure employees understand that they are responsible for selecting their own individual health insurance plan under an ICHRA.

Key points to cover when educating staff:

Basic definition: Explain what an ICHRA is, highlighting that it’s a reimbursement account where the employer contributes a set amount towards the employee’s individual health insurance premiums.

Eligibility: Clearly state who is eligible for the ICHRA within the company, including any criteria based on job role or location.

Allowance amount: Specify the monthly or annual ICHRA allowance each eligible employee will receive.

Plan selection process: Guide employees on how to shop for an individual health insurance plan on the marketplace or through other providers, emphasizing the importance of comparing coverage options to find the best fit for their needs.

Reimbursement process: Explain how to submit claims for reimbursement, including required documentation and deadlines.

Impact on premium tax credits: Inform employees how the ICHRA may affect their eligibility for premium tax credits, and how to navigate this aspect when selecting a plan.