When looking for a benefits alternative, self-funded health insurance may seem appealing for the budget control. But self-funded plans are the highest-risk insurance option. With ICHRA, you still have a predictable budget and you get zero risk. It’s a good time to think about a new approach.
In this article:
- ICHRA Overview
- Risk Comparison: Self-Funded Plans vs. ICHRA
- The Downsides of a Self-Funded Health Plan
- Self-Funded HRA Program
- Keep Reading
ICHRA Overview
If you already know about ICHRA, you can skip this part. If you’re still learning about ICHRA, here’s a quick overview.
ICHRA allows employers to reimburse employees for individual health insurance premiums and qualified medical expenses tax-free. The way it works is simple. An employer establishes a budget for benefits, employees choose a health plan, and the employer reimburses them on their paycheck.
Benefits of ICHRA
- Risk mitigation
- Budget predictability
-
Choice for employees
If you’d like to dig deeper, you can read our full ICHRA guide and learn about Take Command as an ICHRA administrator.
Risk Comparison: Self-Funded Plans vs. ICHRA
When it comes to risk, self-funded health insurance plans are on one end, and ICHRA is on the other. The difference comes from who takes on risk.
(Side note: Some people refer to ICHRA as a self-funded HRA program or self-funded ICHRA benefits.)
Risk, Budget, and Plan Administration
|
How does the budget work? |
Who assumes risk? | Who administers the plan? | |
| Self-Funded Health Plan | The employer uses cash reserves to pay for employee medical claims directly | The employer | The employer |
| ICHRA | The employer establishes a budget allowance and pays monthly premiums for employees | The healthcare marketplace | The ICHRA administrator |
Where does the risk go?
If you have a self-funded healthcare plan, you already know that the risk is yours alone. But if you choose ICHRA, where does the risk go? The most important part of the answer is that you’re not pushing it to employees.
When you have an ICHRA, you push risk to the individual market, which has the biggest risk pool and risk mitigation strategies.
The Downsides of a Self-Funded Health Plan
Runaway Train
The term “runaway train” is commonly known in the world of self-funded health plans. That’s because the employer assumes risk for the health of every single employee. And if several high claims come in at once? The employer covers the cost, and it feels like the budget has gone off the tracks.
Administrative Burden
With self-funded health insurance, employers must manage the health plan, negotiate with providers, and ensure compliance with relevant laws and regulations. There are third-party administrators who can help, but employers still face an increased admin burden for plan management.
Stop-Loss Insurance
To mitigate the risk of very high claims, self-funded employers get stop-loss insurance. This insurance reimburses the employer for claims that exceed a certain dollar threshold, and it’s very expensive.
Self-Funded HRA Program
Like we mentioned, some folks refer to ICHRA as a self-funded HRA program or self-funded ICHRA benefits.
If you’re interested in mitigating risk by moving to ICHRA, Take Command can help. Signature, our enterprise ICHRA offering, provides a wealth of benefits to companies with 500+ employees, and we’d love to talk to you about it.
Keep Reading
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