With COVID-19, job losses have been catastrophic, and there’s likely more to come.
A survey at the end of April found that 3% of Americans had already lost their employer-sponsored healthcare coverage and an additional 18% were worried about the possibility. Another 20% didn’t have insurance before the pandemic, potentially because they worked in a job or sector where employer-provided coverage isn’t typically offered. The balance (59%) hadn’t lost coverage and were not worried they might.
These numbers may change over time as the crisis unfolds, but they highlight an important reality: When healthcare coverage is coupled with employment it can create significant issues when people lose their job.
During the last recession—before the Affordable Care Act and the public marketplace—the government created a COBRA subsidy to assist employees who had involuntarily lost their jobs because of economic conditions. Even with a 65% subsidy, only a small percentage of those eligible for COBRA elected it. For some, the reduced cost may have been prohibitive. Or, perhaps the options offered didn’t meet people’s specific needs.
COBRA isn’t typically associated with choice. Generally, when a former employee chooses COBRA, they continue in the plan they had prior to losing or leaving their job. In some cases, the employer will allow the former employee to make a new election and choose from any available group option, but the choices are still limited.
Even before the pandemic employees wanted choice and customizability. Benefits have evolved to meet some of those needs with voluntary and other supplemental coverage. However, healthcare options have continued to be somewhat limited with the average employer offering two or three medical plan options.
The effects of COVID-19 highlight areas of potential improvement in benefits design, funding and delivery. Even with traditional group coverage, employees can still face significant financial hurdles in terms of contribution affordability as well as out-of-pocket costs, even while their employers foot most of the bill. It may make more sense than ever for employers to connect employees with coverage that is truly customizable.
Individual Coverage HRAs (ICHRAs) are not new but they may gain traction more quickly as we wrestle with issues related to COVID-19.
- Loss of employer-sponsored coverage. Most Americans have health insurance through their employer, so we’re used to this system of access and delivery and are reluctant to change. However, it prevents people from seeking and securing coverage that may better meet their needs and offer them more flexibility. When you already have individual coverage—even if your employer is providing funds through an ICHRA for you to buy it—if your job ends or you leave, your coverage is still there. Uncoupling healthcare from the employment relationship can offer people more peace of mind and less uncertainty if that relationship ends.
- Non-traditional employees without coverage. In certain industries and for some types of employees, access to an employer-provided group healthcare plan is not a reality. This includes many part-time and contract workers who had no coverage to lose in the current crisis. Because the rules around ICHRAs allow an employer to create different classes of employees, it's possible to extend ICHRAs to people working part-time or on a contract basis at a different funding level than full-time employees. Again, since the employee is purchasing individual coverage, it is entirely portable if they leave or lose their job.
- Unpredictable costs for employers. In this period of uncertainty, employers are looking to control spending. With benefits accounting for around a third of labor costs, ICHRAs may make sense for 2021 and beyond because they offer a level funding strategy that also includes significant flexibility to address different classes of employees. Employers can continue to fund access to high-quality coverage while being able to control any future increases.
As employers begin to consider their benefits strategies for 2021 and beyond, ICHRAs may represent a new paradigm that addresses some of the unforeseen consequences of the COVID-19 pandemic. ICHRAs are a flexible approach that empowers employees to be healthcare consumers who don’t need to rely entirely on their employer for coverage. For employers, ICHRAs can help control costs while also offering the opportunity to extend benefits to employees not eligible for traditional group coverage.
Individual Coverage HRAs are only one type of HRA that employers should be considering in light of COVID-19. Learn more about other options for separated employees in our upcoming webinar.