Making ICHRA Plans Work for Providers and Patients

What you need to know: The adoption of individual coverage health reimbursement arrangements (ICHRAs) increased by 64% from 2022 to 2023, and major ACA exchange payers are placing their bets on these types of plans to further disrupt the employer group insurance market. ICHRA plans will likely have an eventual impact on reimbursements to providers since individual plans traditionally pay less than employer-sponsored plans. With the increased adoption of ICHRAs, now is the time for providers to proactively rethink their contracting strategies with exchange plans.

Individual coverage health reimbursement arrangements (ICHRAs) enable employers to reimburse their employees for a designated amount of health insurance premiums toward individual health plans purchased by the employee on their state’s ACA exchange.

This recent model, first offered in 2019, stands in contrast to the traditional group health plan model where employers pay the entirety of a health plan’s cost directly rather than through reimbursement to an employee.

The subsidized structure of ICHRA plans offers benefits to several key stakeholders:

  • For payers: Annual reports from a major payer show that their most profitable lines of business are the fully insured, where the payer holds the risk. Self-insured employer plans offer limited margins for payers since the employer funds the actual claim for payment and therefore holds the risk themselves, with the payer acting as a Third-Party Administrator (TPA). When employees opt for a fully insured product, as in ICHRA plans, the model becomes more profitable for payers.
  • For employers: Employers can set a reimbursement limit that fits their existing financial structure, often making ICHRA plans more affordable for an organization than traditional group health plan options. The variety of plans an employee can choose from under an ICHRA structure can also make an employer’s benefits more competitive for talent acquisition. Finally, ICHRA plans relieve employers of many administrative responsibilities, as well as of the need to internally monitor and address legislation that might impact group health plans.
  • For employees: The structure of ICHRA plans is meant to give employees the flexibility to choose the plan that’s right for them and their families. Often this might mean staying with a preferred provider or opting for coverage specific to their needs. This helps avoid the one-size-fits-all format of traditional employee group health plans.

Of note — unlike their counterpart plans, Excepted Benefit HRAs (EBHRAs), which are general-purpose HRAs meant for employees under an employer-sponsored group plan, ICHRAs are integrated with individual market coverage and Medicare but not with a group health plan.

ICHRA plans in action

ICHRA plans have been estimated to eventually impact millions of Americans. Once fully established, “roughly 800,000 employers will offer ICHRAs to pay for insurance for more than 11 million employees and family members,” reported HHS in a 2019 FAQ about the ICHRA plans.

This growth goes hand-in-hand with ACA on-exchange enrollment trends, which hit a record high of 15.7 million in 2023 and saw more than 20 million enrollments during the most recent open enrollment period.

If close to a million employers are predicted to move from traditional group plans to individual reimbursements, what does this shift in coverage mean for hospitals and providers, and for the reimbursement amounts they can expect?

With many major payers expanding their ACA offerings, these are questions worth asking.

Rethinking traditional ACA participation agreements

When exchange plans first came onto the scene, they had minimal adoption in many areas and did not carry significant membership. ACA exchange plans have always been government subsidized and were therefore recognized as having different economic constraints based on their funding source.

For many, these exchange plans were regarded as a cost of doing business, or a small product contract that rode the coattails of the larger payer agreement or relationship. The ACA agreements have typically been an afterthought, and providers don’t put up a strong rate ask on them since, historically, they were so small.

These factors led to the current reimbursement situation: Most providers heavily discount their participation agreements with ACA exchange plans as compared to a standard commercial product. It’s common for providers to significantly discount rate agreements with ACA plans as compared to their commercial agreements. This rate disparity creates a problem as members migrate from the higher-paying, employer-sponsored plans to the ACA plans and their associated fee structures.

Recognizing the revenue impact of ICHRA plans

In order to know if an organization is experiencing an issue stemming from wider adoption of ICHRA plans, it will first need to monitor the volume and utilization of both ICHRA and traditional employer-sponsored plans, noting outmigration from the employer-sponsored to the ICHRA model.

To identify specific employers that have transitioned, an organization might analyze the guarantor data for instances where a patient’s plan changed from employer-sponsored to ICHRA while the patient remained with the same employer as when they had an employer-sponsored plan. This could indicate the specific local employer that has moved to an ICHRA model.

Allowing ICHRA plans to empower provider negotiations

There are regulatory requirements imposed on these plans to ensure the plan has an adequate ability to serve the insured members. As employers eye implementation of ICHRA plans, providers need to understand where they have negotiating power.

To mitigate the revenue impact, providers might look to contract with ACA products at rates consistent with the alternative commercial product. Many of the ACA plans are relatively new entrants to the markets they operate in and may need the provider’s network for adequacy purposes. This may help establish the leverage to command the equivalent rates.

The exchange products are also subject to an open enrollment period. This creates an entirely new opportunity for providers as they approach contracting and communicating with their members.

Currently, employers in traditional group health plans make the decision on what plan the employees get. An employee’s preferred provider or facility may not be in network for the employer’s selected plan, or the plan might change from year to year, causing inconsistencies in care. For employees who would prefer to choose and remain with a particular provider, this can be a difficult transition.

Under the ICHRA plan structure, employees can select between individual health plans available on their state’s ACA exchange, often giving them the ability to choose a plan that offers coverage for a particular provider or set of providers for themselves and their families.

This driving impetus for patients also creates a new lever for providers to consider in their negotiation strategies. If the employee had the freedom of choice between multiple ACA plans each year at the time of open enrollment — as Medicare beneficiaries do — a savvy provider could utilize this and align their negotiation efforts around open enrollment. Then, if a deal is not reached, the provider could accurately inform the community and steer those patients into a participating plan that agreed to the provider’s rate demands.

Leveraging the ICHRA plans in this way can empower providers in their negotiation strategies while at the same time enabling patients to stay with their preferred provider by choosing the plan that’s best for their own needs.

The bottom line

Negotiations with payers are one example of how providers can be empowered by the growth of ICHRA plans to improve both reimbursement rates for themselves and network adequacy and access for patients. This is not a “wait-and-see” scenario; actual adoption of ICHRA plans has more than tripled since their 2020 introduction. With 89% of employers considering ICHRAs as a solution by 2026, providers need to be proactively monitoring the adoption of ICHRA plans and be prepared to address this trend to prevent negative consequences.

These materials are for general informational purposes only. These materials do not, and are not intended to, constitute legal or compliance advice, and you should not act or refrain from acting based on any information provided in these materials.
Neither Ensemble Health Partners, nor any of its employees, are your lawyers.Please consult with your own legal counsel or compliance professional regarding specific legal or compliance questions you have.