Losing any part of your health coverage is bad news right now, when the United States has just recorded its highest-ever new caseload of COVID-19. So depending on how you’re covering the health care needs of your lower-income employees, news out of the United Hospital Fund last week, brought to our attention from Modern Healthcare (paywall), may be especially alarming.

The UHF reported Friday that low-income workers who buy their health insurance through “individual coverage health reimbursement arrangements,” or ICHRAs, could lose ACA premium subsidies or lose their eligibility for free or low-cost coverage.

How do ICHRAs work?

ICHRAs, which became available in January of 2020 (probably too late for your most recent open enrollment periods), were designed with the intention to allow employer groups to establish “monthly allowances” for individual employees who could then submit their medical expenses back to their employers for reimbursement on a tax-free basis. The intention was to encourage employees to seek care on the individual market, and then reimburse the employees for some or all of their expenses. Employers offering ICHRAs have broad discretion over what is reimbursed, and how much; employers can choose whether to provide allowances for individuals or individuals and their families. They can offer different allowances based on workers’ ages, they can decide exactly what expenses can be reimbursed (premiums, cost sharing, or both), and the employers can decide whether or not to roll over unspent amounts from one year to the next.

What this could mean

Unfortunately, the downstream effect of this could be that “… some workers could also forfeit premium subsidies through the ACA or lose eligibility for free or low-cost coverage…comprehensive group coverage [could be] replaced with an ICHRA, which could mean benefit reductions and narrower provider networks,” as Peter Newell, director of UHF’s Health Insurance Project and author of the report, said. The report offers a theoretical to illustrate this:

In lower-cost Erie County, New York (Buffalo), workers with incomes of $48,000 would pay more for coverage with a minimum affordable ICHRA and without ACA tax credits than they would under straightforward employer coverage. Workers making ~$24,000 would lose eligibility for the $20-per-month Essential Plan, and to obtain comparable coverage it would cost them more than $700 per month, a net loss of $680 per month. The only workers who would clearly benefit from an ICHRA in such an environment would be those making more than ~$50,000 annually, who would be ineligible for ACA premium subsidies.

Potential solutions

To correct this, the UHF recommended three changes at the Federal level (either congressional or regulatory): First, they recommend allowing low-income workers to opt out of ICHRAs without an affordability test. Second, the UHF recommends that individuals participating in ICHRAs be allowed to keep their ACA tax credit if they’re eligible for both, regardless of income. And third, the authors recommend the government discourage employers from replacing employer-sponsored plans with ICHRAs through new regulations. Given the enthusiasm of the current Presidential administration for ICHRAs (along with short-term limited duration insurance and association health plans), this third recommendation seems completely dependent on the results of the November 3 election. But your company’s decision on ICHRAs is not dependent on the election at all. If you have low-wage employees who have had success or problems with individual coverage health reimbursement arrangements, we’d love to hear your experience.

As the Medical Director of the Kansas Business Group on Health I’m sometimes asked to weigh in on hot topics that might affect employers or employees. This is a reprint of a blog post from KBGH.