The economic challenges faced by employees and employers in America today, such as recessionary pressures, and increasing inflation, have led to significant concerns at home and in the workplace. Surveys and polls have revealed that despite employee demand for more benefits, employers are cutting back. The primary reason for this trend is the rising cost of healthcare, which has become unsustainable for both employers and employees. As a result, employers are exploring alternative benefit options such as Individual Coverage Health Reimbursement Arrangements (ICHRA) and Qualified Small Employer Health Reimbursement Arrangements (QSEHRA) to mitigate theses rising costs of healthcare and barriers to traditional group coverage.
Rising Cost of Healthcare
There are several potential barriers employers experience in securing traditional group health insurance including pricing, participation, and health of employees. These barriers create immense pressure on employers to attract and retain employees while also keeping up with inflationary business costs side by side with the rising costs of healthcare.
Traditional group health insurance premiums are a major concern with some employers that are experiencing rate hikes from 45% to 60% compared to previous years. In a press release reported by Willis Tower Watson, they found that due to the rising cost of healthcare, one in four employers will choose higher premium contributions to offset their group policies. They also found that nearly 23% of employers will implement higher out-of-pocket costs relying on the more costly services to offset their rising costs of healthcare.
Overall health insurance for 2023 is up 5.6% from 2022 according to the 2023 Milliman Medical Index. Millman is reporting that a family of four could incur costs upward of $31,000 for their annual healthcare costs amid inflation in food, gas, housing, and more. Employers struggle in finding an affordable and equitable benefit solution, especially amid the compounded annual healthcare costs.
Barriers to Group Health Plans
There are other barriers to securing group health insurance, despite the rising cost of healthcare. Employers often face participation and minimum funding requirements. Most health plans require a certain ratio of employee participation relative to the total amount of eligible employees. For example, you have 48 eligible employees and only 5 would like to participate in your group health plan; the group application may be excluded due to low participation rates based on the total number of eligible employees. In group health insurance, employers are often required to pay a minimum amount per employee for a health insurance carrier to even issue the plan(s). As a result, employers who genuinely want to take care of their employees and their families are finding it difficult to obtain group health coverage, often needing to switch carriers each year due to rising costs or being canceled (i.e., non-renewed) by their carrier.
Another pain point to securing a group health plan can be the varying health conditions of employees and trying to choose networks or doctors that all their employees will be happy with. Sometimes there are one or two employees that have high claims utilization due to their or their family’s health status creating the skyrocketing renewal rate hikes seen above of 50% or more.
In the process of annual group health plan evaluation, employers must carefully choose the best options that can accommodate the various needs of their employees. Narrowing down the choices to one or two group health insurance plans can be a difficult process annually. These are just some barriers employers face when trying to balance the financial sustainability of their businesses with providing adequate group health insurance coverage for their employees along with the rising costs of healthcare.
A Solution to Group Health Barriers
ICHRA and QSEHRA are both defined contribution scenarios that allow employers to set aside a certain dollar amount that reimburses for premiums and healthcare expenses. The Willis Tower Watson press release reports that four in ten employers (40%) will provide a defined contribution or specific dollar amount to healthcare resources by employee tier (or class). These defined contribution strategies eliminate the need for employers to choose the best plan for their diverse demographic, meeting participation requirements, non-renewal, and excessive premium increases for group coverage.
With an ICHRA or QSEHRA, employers define the amount of contribution that is right for their company which empowers employees to choose individual health insurance coverage (in the case of ICHRA) or a variety of group or specific individual coverage (in a QSEHRA) that best meets their family’s needs.
Employers can only stretch their resources so far before reaching a breaking point where compromises must be made. As a result, employers, along with the help of trusted advisors, have gotten creative with their benefits offerings. Alternatives like ICHRA or QSEHRA combat the barriers to traditional group health insurance and have become popular choices for employers striving to strike a balance between financial viability and meaningful coverage. This complex task remains an annual challenge for employers due to the rising cost of healthcare.
