Year after year, for many employers it’s the same story. The cost of employee benefits keeps rising, causing many companies to look for ways to plug the leak. This often means reducing benefits and shifting more of the cost to employees, but it doesn’t have to.

An Individual Coverage Health Reimbursement Arrangement or ICHRA (pronounced ick-ruh) is the next generation of employer-sponsored health care coverage. It not only provides richer benefits for employees, but also saves money for employers. Here’s how it works.

Employees choose the health plan that best suits their needs. Meanwhile, the employer has set aside a certain amount of money to reimburse employees for costs such as premiums, copays and deductibles.

What’s in it for employers?

There is no minimum or maximum an employer must contribute, and they can reimburse employees on a tax-advantaged basis.

ICHRAs can be provided for full-time, part-time, seasonal, salaried and hourly employees.

Employers can enter the next year knowing exactly what they will spend on employee health care, so the guessing game is replaced by a healthy bottom line.

By providing a flexible plan option, organizations can attract and retain top talent that wasn’t getting the right coverage under a group health plan. With six generations in the current workforce, employers who offer flexible benefits stand out from the competition.

Employers will work with a benefits administrator, eliminating the need for insurance companies to work directly with employees, which can be a confusing and drawn-out process.

What’s in it for employees?

The Individual Coverage Health Reimbursement Account (ICHRA) is being touted as the latest way for employers to control the cost of health benefits, but what’s in it for employees?

In an ICHRA, employees choose their own health care coverage from a wide array of individual marketplace insurers and plans. Meanwhile, employers set aside a certain amount of money to reimburse employees for the premiums of the plans they select.

This method enables organizations to accurately predict how much they’ll spend on health benefits each year, freeing up money to invest in other ways, such as acquisitions, recruiting, salaries or other company improvements.

It’s certainly a boon for employers, but employees also have something to gain.

Employees have the freedom to choose the health plan that best suits them, their families and their wallets. They’re not tied to a one-size-fits-all plan provided by their employer because, with an ICHRA, their decision can be very specific to their personal needs.

For example, if an employee is healthy and rarely uses health insurance, they may purchase a lower cost plan with a higher deductible, potentially saving money by not having to pay for coverage they rarely use.

On the other hand, an employee who often accesses health care may benefit from purchasing a higher cost plan, a plan that will cost them less when they use it.

Aside from the freedom of choice that an ICHRA allows, employees may continue to benefit from the tax advantages that they have today, just like they do through a traditional group health insurance plan.

Finally, if an employee takes a job with another organization, they don’t have to lose the health plan they have already chosen. Their plan is portable. They can keep it through their transition period and even take it with them to another employer that offers benefits through an ICHRA.

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