How ICHRA helps small businesses reduce the rising cost of healthcare | hioscar Blog | Oscar
How ICHRA helps small businesses reduce the rising cost of healthcare
ICHRA empowers employees to make informed decisions about healthcare while freeing SMBs to focus on what they do best.
How Insurance WorksThe Individual Market
6 min read
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Let's face it: Healthcare can be a real pain. The United States has one of the highest costs of healthcare of any country in the world, with healthcare spending reaching $4.5 trillion as recently as 2022.
As these costs continue to rise, small- and medium-size businesses (SMBs) often feel that impact the most. Over the last five years, the cost of health insurance premiums paid by small businesses have increased by 33%. When margins are already tight, these increasing expenditures can make it difficult — or impossible — for SMBs to thrive.
But it doesn't have to be this way. There's a simple hack that can help small-business owners reduce the rising cost of healthcare.
We caught up with Louis DeStefano, SVP of Growth at Oscar Health. Leading sales and marketing across Oscar's insurance companies, DeStefano has his finger on the pulse of all things related to small business and healthcare. The following conversation has been edited for length and clarity.
Let's get right to it. Why is healthcare for small business employers and employees so expensive?
DeStefano: Unlike large corporations, small businesses often find themselves improperly insured, purchasing expensive plans to compete with larger employers, even though they rarely need such comprehensive coverage.
Many small businesses opt for alternative or self-funded insurance products, which can be risky. If just one or two employees fall seriously ill, it can cause their rates to spike dramatically. On the other hand, the high cost of coverage means many small businesses can't afford to offer any health insurance to their employees. Historically, there hasn't been a tax-advantaged way for these businesses to contribute to their employees' healthcare costs.
Unfortunately, healthcare costs are expected to rise by double digits in 2025, further straining small businesses. The current healthcare model is inflexible, designed around traditional employment relationships, and often requires high participation rates (more than 60% of employees) to select a group plan. This setup doesn't work for most small businesses, especially when considering the growing number of gig workers and alternative work arrangements.
"There's an urgent need for a system that meets the needs of modern businesses and their evolving workforces. The time is ripe for change, and it's crucial to develop a model that accommodates the realities of today's evolving employment landscape."
What do you say to small-business owners who feel overwhelmed by healthcare options?
DeStefano: It's completely understandable for small-business owners to feel overwhelmed. After all, you didn't start your business to become an expert in managing employee healthcare costs. For those who are self-funded, the burden can be even greater, as it involves worrying about the specifics of what drugs employees use or which doctors they see.
One solution that can alleviate this stress is the Individual Coverage Health Reimbursement Arrangement (ICHRA). ICHRA allows you to focus on funding your employees' healthcare coverage without the hassle of buying and managing the plans yourself. This approach shifts the responsibility of selecting the right plan to the employees, who are often more than capable of navigating their options.
What is ICHRA? How does it work?
DeStefano: ICHRA is a significant innovation in group health coverage that was introduced in 2020. It represents a much-needed shift in how employers and employees approach healthcare benefits.
At its core, ICHRA opens the individual marketplace to both employers and employees. How it works is simple. Employers set a defined contribution amount for their employees. Employees can then use this allowance to shop for health plans on the individual marketplace. This gives them the freedom to choose from a wide range of plans, such as Oscar's suite of affordable, tech-savvy solutions*.
This sensible approach to employee benefits moves away from the traditional one-size-fits-all group health plans. It places more choice and control in the hands of employees, allowing them to select coverage that best suits their personal circumstances. At the same time, it enables employers to stabilize their healthcare costs by setting predictable contributions. ICHRA is a win-win solution that aligns with the diverse needs of today's workforce while providing financial clarity for businesses.
Can you outline the benefits?
DeStefano: For employers, ICHRA provides:
Cost and risk control. Employers can set stable, tax-free benefit contributions, allowing them to manage costs and risks more effectively.
Reduced administrative burden. By not having to manage a health plan or the underlying health risks of their employees, employers can focus more on their core business operations.
Flexibility for all sizes. ICHRA is available to employers of any size, with no caps on reimbursement, making it a versatile option for businesses large and small.
For employees, ICHRA offers:
Personalized choice. Employees have the freedom to choose a health plan based on individual factors such as network, specific providers, cost-sharing, prescription coverage, and benefits. This means they aren't stuck with a one-size-fits-all plan chosen by their employer.
Financial flexibility. Employees can select plans that align with their financial needs and decide how to spend their contribution dollars, whether on concierge primary care physicians, vision/dental, life insurance, or other options.
Portability. They can keep their PCPs, networks, hospitals, and plan designs throughout multiple stages of life.
What types of SMBs should be looking into ICHRA? Can businesses really save money doing this?
DeStefano: Let's start with cost savings. Employers are seeing savings of up to 40% on their health insurance costs, and employees are also saving thousands of dollars.
In terms of who can benefit, ICHRA can work well for a wide range of SMBs. It's particularly advantageous for small businesses that are new to offering benefits, as it provides a straightforward way to start without the complexities of traditional group plans.
Companies with remote workforces also find ICHRA appealing, as it accommodates diverse healthcare needs across different locations. For businesses with low participation rates in traditional plans, ICHRA is ideal because it doesn't require a minimum participation rate, allowing them to offer high-quality benefits regardless of employment status. Additionally, businesses facing large renewals can use ICHRA to stabilize and control their health insurance budget, while groups looking to manage their costs appreciate the ability to set tax-free, defined contributions, providing financial predictability and stability.
How can owners and managers effectively communicate this to their employees?
DeStefano: Leadership should take the time to thoroughly guide employees through the benefits of this approach. While people have control over the products they buy and use in every other aspect of their lives, healthcare has been an exception. ICHRA is changing that. Emphasize that your employees will now have the freedom to choose a plan that best suits their needs and budget. Clear communication can go a long way in making employees feel comfortable with this change.
Oscar also has dedicated concierge teams to help ease this transition and answer any questions you or your employees may have. Ultimately, fostering a healthier, happier workforce benefits everyone, leading to improved morale and productivity.
This sounds like something business owners and employees should be thrilled about. DeStefano: Absolutely. Small-business owners deserve the ability to provide healthcare for their employees without jeopardizing their financial stability.
At the same time, employees should have the freedom to make healthcare decisions that best suit themselves and their families. ICHRA is a key to unlocking these opportunities, offering a flexible and empowering approach to healthcare that benefits both employers and employees.
Click here (opens in new tab)to learn more about how Oscar Health and ICHRA can help your business save time and money on healthcare.
