ICHRA Sounds Simple, But Long Island Employers Should Think Twice

Individual Coverage Health Reimbursement Arrangements (ICHRA) are gaining attention as an alternative to traditional group health plans, particularly as small business health plans face an 11% premium spike this year. The concept sounds appealing: instead of offering a group plan, employers give employees a monthly allowance to purchase individual insurance on the ACA marketplace.

For Long Island business owners managing tight budgets, ICHRA's promise of predictable costs and reduced administrative burden can seem attractive. However, the reality often proves more complicated than the sales pitch suggests.

The Hidden Costs Employees Face

When employees shop for individual coverage, they lose the negotiating power that comes with group plans. Individual marketplace premiums are typically higher per person than group rates, especially for older employees or those with health conditions. Without professional guidance, employees often select inadequate coverage or pay more than necessary for benefits they don't need.

The administrative burden doesn't disappear—it shifts. Instead of HR dealing with one insurance carrier, employees must navigate plan selection, enrollment, and claims issues entirely on their own. When problems arise, there's no dedicated broker advocating on their behalf with insurance companies.

Compliance Complexity for Employers

ICHRA compliance requires careful documentation and monthly administration that many small businesses underestimate. Employers must verify that employees have qualifying coverage, process reimbursement requests, and maintain records for tax reporting. The IRS rules governing ICHRA are complex, and mistakes can result in the entire arrangement being deemed taxable income for employees.

Nassau and Suffolk County employers with 50+ employees must also ensure their ICHRA offer satisfies ACA employer mandate requirements—a calculation that varies based on employee age and location. Getting this wrong triggers significant penalties.

Why Group Plans Still Work Better

Traditional group health insurance with professional broker guidance remains the better choice for most small businesses with 10-50 employees. Group plans provide economies of scale, professional plan management, and dedicated advocacy when employees face coverage issues.

A knowledgeable broker helps employers navigate plan options, manage renewals, and provide year-round support to both HR staff and employees. Recent expansions in HSA-eligible options give group plans additional flexibility without forcing employees to shop alone.

When ICHRA Might Make Sense

ICHRA can work for specific situations: businesses with mostly young, single employees in areas with robust marketplace options, or companies where employees strongly prefer individual plan flexibility. However, these scenarios represent a small fraction of Long Island's professional service firms, medical practices, and established small businesses.

Before considering ICHRA, employers should carefully evaluate whether the promised savings account for increased employee turnover, reduced satisfaction, and potential compliance costs.

Rather than jumping to alternatives like ICHRA, working with an experienced benefits broker often reveals group plan options that provide better value and employee satisfaction. Professional guidance helps identify cost-saving strategies within traditional group coverage while maintaining the security and support employees expect.

Compliance Note: Benefit plan rules and tax implications vary based on company size and location. This summary is for informational purposes only. Please contact your Benton Oakfield representative to review how these changes impact your specific plan documents.

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