Eliminate the Health Insurance Time Bomb on Your Balance Sheet

It’s that time of year again: Employer health insurance plans are up for renewal. For finance leaders, this period can feel like a lottery. If your plan only increases by a few percentage points, you’ve won by avoiding catastrophe.

But for others, the renewal period can feel like a time bomb just went off. An increase of 20% can completely change the state of a company’s finances.

The worst aspect of the renewal period is that it’s completely unpredictable. Strong financial management is built on predictable, data-driven decision-making — accurately forecasting revenues and proactively anticipating costs. But there’s no way to adequately prepare for health plan renewals.

This situation has been the status quo for CFOs for decades. But over the last few years, a new option has emerged that allows finance leaders to gain control over their health insurance costs while continuing to provide quality benefits to their employees.

Individual Coverage Health Reimbursement Arrangements — or ICHRAs — empower companies to give their employees funds to spend on the individual market. ICHRAs allow CFOs to escape the annual cycle of renewal panic — and they’re gaining in popularity.

Health Insurance Renewal Increases Tied to All Employees

A company’s rate increase is tied directly to the risk pool of its group health insurance plan. A company’s group plan may include 150 employees. If one of those employees or their dependents have a difficult diagnosis or require specialized care, that will cause the overall group rate to skyrocket.

These are the moments when you most want to be there to care for your employees — to help them through a challenging time and assure them they’ll be supported. But there’s a harsh reality to the situation: One employee’s health diagnosis can have dramatic consequences for the business. As the company’s costs skyrocket, the CFO has no choice but to shift some costs and increase employee contributions. One person’s health status has an immediate financial impact on the other 149 people in the group plan.

Stable Health Insurance Costs & Flexible Plans

Business leaders understand the risk of an employee getting sick and needing expensive care. As a result, employers will often try to join a consortium and participate in the largest possible group plan. The arrival of ICHRAs means that companies can now join the largest imaginable risk pool — the more than 20 million Americans who purchase health insurance on the individual market. When spread out across that risk pool, an expensive diagnosis has no impact on the overall cost of the plan. 

That stability means that financial leaders can finally establish a reliable figure for their health insurance costs. Many organizations pay their employees $500 to $1,000 per month to purchase an ICHRA plan on the individual market. When the time comes for renewal, they can continue paying the exact same amount.

In addition to providing stability for the employer, ICHRAs also provide flexibility to employees. When companies purchase a one-size-fits-all group plan, they often have the problem of providing too little coverage for some employees and too much coverage for others. The individual market allows employees to choose the right amount of coverage for their families: While some may use the entire stipend for their plan, others may choose a less expensive plan that allows them to use the remainder on qualified medical expenses.

Most importantly, ICHRAs give employees a wide range of options to choose the services and providers that matter most to them. Whether it’s keeping a family doctor they like or choosing a network with the hospital closest to their home, the individual market offers dozens of options to meet the needs of every employee. 

The New Normal for Health Insurance?

Transitioning a company’s health insurance from a group plan to an ICHRA is undoubtedly a significant shift, one which requires careful planning and proactive communication with employees. But this transition is, for now, the only way for a company to escape the annual risk of a devastating rate increase.

Choosing between a group plan and an ICHRA comes down to a fundamental question: Should your company’s health insurance costs depend on your employees’ health status? Should those costs depend on the health status of even one individual employee?

ICHRAs allow businesses to permanently separate their health insurance costs from the health status of their employees. And as more organizations empower their employees to buy coverage through the individual market, the larger the risk pool will grow. This in turn leads to more competitive pricing and better coverage as carriers are now developing ICHRA-specific plans.