Why Smart Small Employers Are Dropping Group Health for ICHRA and DPC

With the cost of providing health insurance to a single employee and family now nearly $24,200 per year, business owners across the country are scrambling to find more affordable and cost-effective solutions to providing health benefits to their teams. It’s time to look at ICHRA and DPCs.

Traditional health insurance plans often come with hefty premiums, co-pays, and deductibles, making it increasingly unaffordable for small business owners to offer the best coverage.

The result is that many employees are left with inadequate protection and financial burden.

And many small employers are finding a viable alternative to conventional health benefits planning by dropping group health altogether.

Instead, these forward-thinking employers are combining two rapidly emerging tools: Individual Coverage Health Reimbursement Arrangement (ICHRA) and Direct Primary Care (DPC).

In today’s environment, these are two game-changing options that are transforming the way businesses approach healthcare benefits.

The end result: Your employees will still have a competitive health plan that suits their needs for major medical events as well or better than a standard, one-size-fits-all traditional group health insurance policy.

And thanks to the DPC part of your benefits package, your employees will also actually have improved access to primary care services.

All at a lower cost than a traditional group health insurance policy, with less administrative overhead for you as a plan sponsor, and lower fiduciary risk.

This article will show you how the combination of Direct Primary Care and ICHRA (pronounced “Ick-rah”) can help your small business become more competitive by saving you money, improving your cash flow while still allowing you to demonstrate your commitment to your employees.

What is an ICHRA?

ICHRAs, (Individual Coverage Health Reimbursement Arrangements) are a subcategory of Health Sharing Arrangements (HSA’s).

In contrast to conventional group insurance plans, an Individual Coverage Health Reimbursement Arrangement (ICHRA) represents a fresh and innovative way for employers to assist their employees with healthcare expenses.

Under this arrangement, employers provide their workforce with a pre-tax cash benefit that they use to purchase a health insurance plan of their own choosing.

This empowers workers to choose plans better tailored to their own individual healthcare requirements.

How Do ICHRAs Work?

1. Your employees select a health insurance plan on the individual market – usually during open enrollment.
2. They submit an invoice for their health insurance premiums. Employees can also use ICHRA funds for qualifying deductibles, copays, coinsurance, and other expenses detailed in IRS Publication 502 – Medical and Dental Expenses. View a list of qualified medical expenses here.
3. You as the employer simply reimburse the worker via your ICHRA for their health insurance premiums and other qualifying expenses.
4. All ICHRA benefits are tax-deductible to employers as compensation expenses. They are also tax free for workers. ICHRA benefits also bypass payroll taxes, providing further savings for both plan sponsors and employees.
5. There are no limits to ICHRA benefits per employee. However, all ICHRA funds can only be spent on qualified medical expenses.

How does ICHRA differ from traditional group health insurance plans?

ICHRA differs in that it does not provide a one-size-fits-all group plan.

Instead, employees select their individual policies, tailored to their needs. This approach shifts the administrative burden away from employers, and allows employees more control over their health coverage.

Employers don’t have to commit so many man-hours to plan administration and fiduciary duties under ERISA as traditional group health insurance sponsors. This saves money and reduces fiduciary risk for the employer.

At the same time, employees and their families aren’t stuck with a limited menu of group health offerings the company chooses for them, but are free to purchase any traditional individual/family health insurance plan available in their state.

ICHRAs vs QSEHRAs

In concept, ICHRAs are very similar to qualified small employer health reimbursement arrangements (QSEHRAs).

But both ICHRAs and QSEHRAs, employees must purchase individual insurance coverage.

But there are a couple of important differences:

QSERHAs are limited to employers with fewer than 50 employees and that do not have a group health plan of their own, while ICHRAs are available to businesses of any size.

Employees can only use their QSEHRA benefits to purchase health insurance, and nothing else.

In contrast, ICHRAs can also be used to reimburse other medical expenses.

What is the limit on ICHRA benefits?

ICHRA has no minimum or maximum contributions. Employers can set their own benefit levels, within IRS guidelines.

In contrast, QSEHRA benefits are much more limited than ICHRA benefits: For tax years beginning in 2024, QSEHRA tax benefits are capped at $6,150 for self-only employees ($512.50 per month) and $12,450 for employees with a family ($1,037.50 per month).

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ICHRAs and Employee Classes

Unlike Qualified Small Employer HRAs, which are a special type of HRA only available to companies with fewer than 50 full-time equivalents that don’t offer a group health insurance benefit at all, ICHRAs allow employers to discriminate among employee classes.

That is, you can offer a different benefit to rank and file workers compared to executives, management, and highly-compensated employees.

That is, ICHRA sponsors have much more freedom to design their HRA benefits and distribute them among different classes of employees.

Who Can Participate in an ICHRA?

To participate, employees must enroll in a qualified health insurance plan of their own that meets minimum essential coverage (MEC) requirements, be enrolled in Original Medicare (Parts A and B), or be enrolled in a Medicare Advantage plan.

ICHRAs and Small Businesses

• Cost Control. ICHRAs allow small businesses to establish a fixed budget for employee healthcare, providing cost predictability.
• Competitive Edge. Offering ICHRAs can attract top talent and set your business apart from competitors.
• Administrative Ease. ICHRAs simplify administrative tasks, reducing paperwork and streamlining benefit management.
• Employee Empowerment. Employees can choose the healthcare plan that best suits their needs, promoting satisfaction and engagement.
• Customization. ICHRAs offer a range of coverage options, allowing employees to tailor their plans to their unique circumstances.
• Portability. Employees can take their selected health insurance plans with them when they leave the company, ensuring continuity of coverage.
• Tax Benefits.  ICHRAs provide tax advantages for both employers and employees, making access to healthcare more affordable.
• Healthcare Transparency. ICHRAs promote cost transparency, enabling employees to make informed choices about their healthcare.
• Savings. Employers can potentially save money on taxes and healthcare benefits while still offering competitive coverage to employees.
• Flexibility. In contrast to QSEHRAs, employees can use ICHRA benefits for any qualified medical expense. They are not restricted to using their benefits to pay health insurance premiums.

ICHRAs tend to be more customizable and flexible compared to QSEHRAs.

How do employees access their ICHRA funds to pay for insurance premiums and eligible expenses?

Employees submit their eligible expenses and premiums to the employer or a third-party administrator for reimbursement.

The employer reviews and approves these requests, and the funds are provided on a tax-free basis.

What are the tax implications for ICHRA reimbursements?

Reimbursements under ICHRA are generally tax-free for employees, and businesses can typically deduct these expenses as a business expense.

HSA for America does not provide tax advice. Consult with a tax professional for specific guidance.

Is there a minimum or maximum contribution requirement for ICHRA?

There is no minimum contribution or maximum required contribution required for ICHRAs.

There is a maximum contribution for QSEHRAs, however: As of 2023, the maximum allowable QSEHRA contributions are $5,850 ($487.50/month) for single employees and $11,800 ($983.33/month) for families).

The 2024 contribution amounts are expected to be announced in November 2023.

What is Direct Primary Care?

Direct Primary Care (DPC) is a patient-centered approach to healthcare that fosters a direct and personal relationship between patients and their primary care physicians, bypassing the traditional fee-for-service insurance model. 
With DPC, patients don’t go through a health insurance company every time they go see their primary care or family doctor.

Instead, they pay a monthly or annual fee directly to their primary care physician or clinic, which covers a range of comprehensive primary care services, such as check-ups, preventive care, and treatment of common illnesses.

DPC plans offer multiple benefits for patients:

• No deductibles to meet
• No copays
• No coinsurance
• No other fees to see their primary care doctor. 
• Focus on preventative care
• Longer appointment times, with more face-to-face time with their doctors. 

Is a DPC Plan Right for You? An In-Depth Guide to DPC Pros and Cons

Can I combine ICHRA and DPC for my small business?

Yes, you can integrate ICHRA with a DPC model, creating a holistic healthcare solution.

In fact, combining Direct Primary Care (DPC) with an Individual Coverage Health Reimbursement Arrangement (ICHRA) can be a winning strategy for small businesses and their employees.

By offering DPC as a part of the employee benefits package through ICHRA, businesses can provide their staff with direct access to comprehensive primary care, which means more personalized and readily accessible healthcare services.

Employees benefit from longer appointment times, reduced out-of-pocket costs, and a focus on preventive care, leading to improved health outcomes.

Additionally, the employer gains cost predictability with ICHRA while simplifying administration.

It’s a win-win: employees receive top-notch care, and business owners save money and streamline their benefits, enhancing the overall well-being of their workforce.

Can employees use their ICHRA benefits to pay for DPC memberships?

Yes, DPC memberships are generally considered an eligible expense under ICHRA, allowing employees to use their ICHRA funds to pay for primary care services.

ICHRA Benefits to Employees

• Customization. ICHRA allows employees to choose the health insurance plan that best suits their individual needs. They can tailor their coverage to match their unique circumstances, offering a level of personalization that traditional plans simply can’t match.
• Flexibility. Employees can use their ICHRA allowance not only for traditional health insurance but also for non-traditional options like medical cost sharing or direct primary care. This flexibility empowers employees to think outside the box and explore innovative healthcare solutions.
• Portability. One significant advantage of ICHRA is that employees can take their chosen health insurance plan with them when they leave the company. This ensures continuity in coverage and peace of mind, even in the face of job changes.
• Ease of Use. Employees can purchase health insurance using a user-friendly platform set up by their employer. It’s a hassle-free process that demystifies the complexities of healthcare selection and enrollment.

Cost Savings for Employers

• Predictable Costs. With ICHRA, you establish a fixed contribution for each employee, eliminating the uncertainty associated with traditional health insurance premiums that tend to increase annually. This allows you to plan and budget more effectively.
• Reduced Administrative Burden. ICHRA simplifies administrative tasks associated with healthcare benefits, freeing up valuable time and resources. Employees themselves take on the task of choosing their plans, reducing the employer’s workload.
• Reduced taxes. ICHRA contributions are free of payroll taxes as well as being completely tax deductible for the employee.
• Customizability. Employers have the freedom to offer ICHRA to certain classes of employee and traditional insurance to other classes. ICHRAs can be an excellent choice for high earners within your company.
• Better employee value proposition. You can tell employees and applicants your benefit package goes one step further than a group plan: Your ICHRA lets employees choose any qualified plan available in their state. And the DPC part of the plan eliminates out-of-pocket costs when they need to see their primary care doctor.

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Next Steps to Revolutionize your Business

If you’re tired of your profits being constantly eroded due to costly health insurance expenses,we’re here to help!

By integrating an ICHRA, a DPCs and the prudent utilization of voluntary benefit products such as hospital and accident insurance you can slash costs while providing quality health benefits to your team.

Click here to make an appointment with one of our expert Personal Benefits Managers, or call 800-913-0172 today!

For Further Reading: The Complete Guide to Health Reimbursement Arrangements (HRAs) for Small Employers | The Most Effective Health Benefits Strategies for Small Businesses With Fewer Than 50 Employers | Evergreen Primary Care Clinic brings DPC to Saint Paul

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