Individual Coverage Health Reimbursement Arrangements (ICHRAs) have been marketed as a flexible alternative to traditional employer-sponsored health plans, promising greater employee choice and potential cost savings. However, many Michigan employers are finding that the reality is far more complex, leading to higher costs, administrative burdens, compliance concerns, and lower employee satisfaction.
The Cost Factor: Employer-Sponsored Plans Are Often the Better Deal
According to the Kaiser Family Foundation, employer-sponsored health plans in Michigan are 8% cheaper on average compared to individual health plans offered through ICHRAs. While an ICHRA can be more cost-effective in certain markets where individual rates are lower, if group rates are the same or more affordable, there is little to no advantage in using an ICHRA. Employers must carefully compare costs before assuming an ICHRA is the best option.
Administrative Burden: 40+ Hours a Month Managing ICHRA
A Michigan company recently reported spending over 40 hours per month managing its ICHRA plan. Unlike traditional group health plans, where HR oversees enrollment and compliance centrally, ICHRAs require employees to handle their own policies, payments, and reimbursements—forcing HR teams to provide constant support. This added complexity significantly increases workload, making administration far less efficient.
Employer Still Responsible for COBRA Compliance
Despite shifting employees to an individual coverage model, employers remain responsible for COBRA compliance. If an employee loses eligibility due to a qualifying event (such as termination or reduced hours), the employer must continue administering COBRA benefits, including notifications and reimbursement processes. This obligation adds another layer of complexity to an already burdensome system.
ERISA Compliance Risks
A major concern is ERISA violations. If employees pay out-of-pocket for premiums or medical expenses and employers fail to reimburse them properly, it could result in non-compliance issues. Employers offering ICHRAs must be diligent in adhering to ERISA regulations, which can be challenging given the decentralized nature of ICHRA administration.
Employee Confusion & Lower Satisfaction
One of the biggest drawbacks of ICHRAs is the confusion employees face when navigating individual policies, reimbursements, and compliance requirements. Unlike traditional group health plans, which offer streamlined enrollment and clarity, ICHRAs introduce uncertainty and frustration, leading to lower employee satisfaction and potential retention issues.
Limited Network Access & Coverage Concerns
Employees often struggle with narrow provider networks when selecting individual plans through ICHRAs. Employer-sponsored plans typically negotiate better rates and broader access, but individual plans frequently restrict provider choices, increasing out-of-pocket costs and limiting healthcare options.
The Bottom Line
While ICHRAs may work in select markets where individual rates are lower, Michigan employers must carefully compare costs before assuming an ICHRA is the best fit. If group rates remain equal or more affordable, the administrative burden, COBRA responsibilities, compliance risks, and employee dissatisfaction make traditional employer-sponsored health plans the smarter choice.
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Source: Kaiser Family Foundation Employer Health Benefits Survey