Options for employers when group health premiums increase

Rising healthcare costs aren’t just a budgeting nightmare. They can impact your employees’ access to quality coverage and your organization’s ability to remain competitive. For many employers, the challenge becomes especially clear during group health insurance renewal season, when premium increases appear without warning.

In this article, we’ll explain why these price hikes happen and outline practical options employers can pursue to regain control of their healthcare budget.

In this blog post, you’ll learn:

• How large, midsize, and small businesses can offer affordable employee benefits.
• The two most popular stand-alone HRAs.
• How Remodel Health can help employers save on health insurance costs.

It’s more than rising premiums. Learn about the hidden costs of traditional group health insurance that ICHRA eliminates.

Why do group health insurance premiums go up?

Health insurance premium increases stem from a mix of factors, many outside of an employer’s control. Group health plans are experience-rated, meaning your employees’ insurance claims can directly impact your renewal rates. If they use more healthcare services than expected, you might see higher rate increases. But, there are also changes in the wider healthcare and insurance industry that impact premiums.

Common drivers include:

• Medical inflation and increasing healthcare utilization
• Prescription drug spending, especially on weight-loss medications (GLP-1s)
• Employee age and demographic shifts
• Geographic location, particularly in areas with fewer providers or higher medical pricing
• Plan design changes, such as lower deductibles

Industry data reflects the size of this challenge. National reports show that employer-sponsored premiums have continued rising year over year, with sharp increases expected in both the group and individual insurance markets.

While you can’t prevent your employees from aging or moving, and you can’t control insurer pricing models, you can choose how your organization responds when premiums rise.

Below are several strategies employers use to keep benefits sustainable.

Option 1: Switch from group health insurance to an ICHRA

One of the most powerful ways employers can counteract rising premiums is by moving from a traditional group health insurance plan to an individual coverage health reimbursement arrangement (ICHRA). ICHRAs work for large, midsize, and small businesses alike.

Rather than offering a group health insurance plan to the whole workforce, employers provide monthly contributions to their employees so they can purchase their own individual health insurance plans. This method allows you to sidestep annual rate hikes. You simply set the budget that works for you and stick to it for the plan year.

Here’s how an ICHRA helps employers control costs:

• Budget transparency and stability. You determine the monthly allowance. No more unpredictable renewal increases.
• Flexibility for different employee groups. Customize contributions by employee class, age, or family size.
• Employee choice and personalization. Each employee selects the individual health plan that fits their needs, rather than a one-size-fits-all group health insurance plan. They can purchase an on-exchange marketplace plan or go off-exchange for their individual healthcare coverage. When employees enroll in an off-exchange plan through Remodel Health, we can automate monthly premium payments and set up withholding for any excess costs. This is a smoother experience than having employees front the money and wait for reimbursement.
• Unused dollars stay with the employer. Unlike group premiums, unspent allowances return to your organization. For example, if you offer $600 monthly, but an employee’s self-only premiums are only $450, you only contribute $450 per month, keeping the remaining $150.

As the industry’s leading ICHRA administration platform, Remodel Health helps employers transition from costly group plans to an innovative healthcare solution. Our team supports compliance, handles payments, and provides guidance to employees through every step of the process.

Option 2: Transition away from group health insurance and adopt a QSEHRA (for small businesses)

If you’re a small business owner with fewer than 50 full-time equivalent employees (FTEs), a qualified small employer HRA (QSEHRA) can be another cost-effective alternative to group health insurance.

A QSEHRA allows small businesses to reimburse employees tax-free for individual health insurance premiums and eligible medical expenses.

Eligible medical expenses include:

• Doctor visits
• Prescription drugs
• Over-the-counter medication
• Dental care
• Vision care
• Mental health counseling

QSEHRAs are similar to ICHRAs, but they aren’t as flexible. Small businesses can’t vary allowances or eligibility using employee classes with a QSEHRA. There are annual limits on employer contributions. That said, a QSERHA is a strong, compliant alternative for small businesses ready to leave behind unpredictable group premiums.

Small businesses can partner with Remodel Health to administer an ICHRA with white-glove service, or they can administer a QSEHRA or ICHRA with our PeopleKeep brand.

Option 3: Negotiate your group health renewal

If you’re hesitant to leave your group health insurance plan, it’s worth asking your broker or carrier whether alternative plan designs or rate adjustments are available.

Some employers try:

• Changing carriers
• Adjusting networks
• Tweaking plan design
• Reviewing claims data for cost-saving opportunities

However, negotiation typically offers minimal relief, as insurance companies aren’t responsible for some of the factors driving premium increases, such as inflation. Even so, this step can be a useful part of evaluating all your options.

And if negotiations don’t yield meaningful savings, your broker can work with Remodel Health to compare a switch to ICHRA.

Option 4: Move to a high-deductible health plan (HDHP) with supplemental benefits

When a traditional group healthcare plan becomes too expensive, some employers switch to a high-deductible health plan (HDHP) to reduce monthly premiums.

You can pair an HDHP with:

• Health savings accounts (HSAs) give employees tax-advantaged dollars for their medical care
• Group coverage HRAs (GCHRAs) reimburse employees for eligible out-of-pocket expenses not covered by the health insurance plan

This can help offset the burden of a higher deductible for medical care. However, it still ties your organization to the traditional group health plan renewal cycle, leaving the door open for future rate spikes. Switching to an ICHRA can offer greater savings and long-term budget stability without sacrificing the quality of coverage your employees have.

Option 5: Offer a health stipend

If group insurance costs are rising and you’re not ready to transition to an HRA, a taxable health stipend can provide budget-friendly flexibility.

A health stipend is an employer-funded, taxable allowance employees can use for health-related expenses. It’s not a formal health plan and doesn’t include the compliance requirements associated with HRAs.

Why employers consider health stipends:

• Easy to offer. No formal plan. No reimbursement review. Just a flat, taxable benefit.
• Flexible for employees. Employees can use the funds for premiums, out-of-pocket medical costs, wellness services, or other health expenses, depending on your guidelines.
• Budget control. You choose a monthly amount that fits your budget.

Problems with stipends:

• They don’t satisfy the employer mandate. Stipends aren’t formal health benefits, so they don’t satisfy the ACA’s employer mandate for those with 50 or more full-time equivalent employees (FTEs). Employers could risk steep financial penalties.
• Employees may not see it as a real benefit. Because stipends are informal and taxable, employees may not see them as a benefit.
• Stipend contributions are taxable. However, employers can switch to an ICHRA instead and offer a tax-free contribution for health insurance.

While stipends don’t offer tax advantages like HRAs, they’re an affordable way to support your employees without committing to the cost of group health insurance.

Conclusion

Premium increases are unavoidable, but employers have more options than ever before to protect their finances. Whether you renegotiate your plan or move to an individual coverage health reimbursement arrangement (ICHRA), you can take back control of your budget while still offering competitive benefits.

Remodel Health specializes in helping organizations break free from rising group health plan premiums by transitioning to individual health coverage through ICHRA. Schedule a call with a personalized benefits advisor today to get started!

Is ICHRA still a viable option when individual insurance rates increase? Yes, and here’s why.