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ICHRA Carve-Outs: Crafting Customized Benefits Solutions

Brokers are adept at finding innovative solutions, and ICHRA “carve-outs” stand out as one of the most effective tools in their arsenal when it comes to tackling health benefit challenges.

What’s an ICHRA?

An Individual Coverage Health Reimbursement Arrangement (ICHRA) is an employer-funded Health Reimbursement Arrangement (HRA) that increases flexibility for both employers and employees to utilize the Individual Marketplace better. This HRA allows employers of any size or industry to reimburse employees tax-free for qualified medical expenses. 

What’s an ICHRA “Carve-Out”?

An ICHRA carve-out is an instance where employers keep a specific group or class of employees on a traditional group plan while other employees are offered an ICHRA. Essentially, it’s the exclusion of a certain group(s) from participating in the ICHRA.

ICHRA carve-outs allow employers to enroll certain groups of employees in ICHRA and, if desired, enroll other groups of employees in a group health plan. The strategy behind these carve-outs works exceptionally well when individual health plan prices are favorable in one location but less so in another. It’s also great for employers who simply want to offer different plan designs to different employee classes. 

The Most Common ICHRA Carve-Outs

Full-Time Employees

Some employers may choose to offer ICHRAs only to full-time employees, typically defined as those who work a certain number of hours per week or month.

Part-Time Employees

Conversely, some employers may exclude part-time employees from participating in the ICHRA. Part-time status is often defined by working fewer hours than full-time employees.

Hourly/Salary Employees

This ICHRA strategy classifies employees as hourly or salary to offer different benefit levels. For instance, salary employees might receive higher reimbursements than hourly workers.

Geographic Rating Area

Employers use this ICHRA approach to adjust benefits based on employees’ geographic location. It helps manage costs by offering higher reimbursements in areas with higher healthcare costs.

These are general examples. Specifics can vary based on the employer’s preferences and compliance with regulatory requirements, including those outlined in the Affordable Care Act (ACA). It’s important for employers to consult with benefits advisors to ensure their ICHRA compliance with relevant laws and regulations. For more information about segmenting an ICHRA, check out our ICHRA Classes Guide.

Our ICHRA Carve-Outs Success Story

With approximately 120 benefits-eligible employees spread out across multiple states—including Illinois, Louisiana, Tennessee, New Mexico, Texas, and Arizona—health benefits were feeling overwhelming for a prominent client of a Remodel Health broker partner.

For the last three years, this company’s fully-insured Aetna group plan has increased by 50% every year. No other group carriers would quote this group because of its claims experience. Their average total plan cost was $1,375 per month after their 1/1/2024 renewal, as they have two large claimants (both with hemophilia). Traditional group insurance wasn’t working for them, and the why is obvious.

With ICHRA carve-outs, this group was able to carve out all of their Louisiana, Tennessee, New Mexico, Texas, and Arizona employees and offer ICHRA through Remodel Health. ICHRA plans are guaranteed issue, so they can decrease average total plan cost, which is exactly what they did for this company’s 76 benefits-eligible employees. These employees experienced a $435 decrease in average plan cost through ICHRA, taking each of their original average total plan cost of $1,375 down to $940. This was while using a benchmarked plan with a $1,500 deductible. The Aetna plan was a $5,000 deductible. Based on these factors, the company ultimately improved plan quality and lowered both employer and employee costs.

The company decided to leave its Illinois employees on a fully-insured plan due to plan network concerns in Illinois’ individual market. Because its high-cost claimants are now offered the ICHRA, the average plan cost for the fully insured plan in Illinois also decreased for those Illinois employees. The total cost savings was $302,000 for the 76 non-Illinois employees.

Our ICHRA+® Product and Service Model

With Remodel Health’s ICHRA+® product, employers and employees receive individual guidance and support from our team of health benefits experts. Remodel Health is the leading ICHRA provider.

With the ICHRA+® product, you can expect high-quality plan options, white-glove service, and employee retention. Reach out to Remodel Health today!