Benefit Strategies: Utilization Is Key for Hourly Workers Hardest Hit by Inflation

How ICHRAs Can Help.

With inflation increasing at an alarming rate, low-wage workers have been hit the hardest, even while their pay rate has gone up more than other sectors of the workforce.  At the same time, premiums for group health plans are rising MORE than premiums for individual coverage available in the marketplace. Ironically, it seems, the cost savings for employees afforded by group insurance, and previously only made possible through employers, is being wiped out, leaving small and medium-sized employers with a very big gap in their tool kit for attracting and keeping workers.

This new market dynamic is attributable to the sheer number of people who purchase insurance on an exchange. The high participation rate changed actuarial equations and helped stabilize and even lower premium costs in the individual marketplace, providing an important hedge against inflation and rising premiums, when compared to group plans. Fortunately, the new Individual Contribution Health Reimbursement Arrangement legislation (ICHRA), now allows employers to take advantage of this changing marketplace dynamic. With employer reimbursements based on the lowest cost Silver plan in the marketplace under ICHRAs, employers can both increase the value of their benefit package and contain their costs. In this short piece, we focus on value as a correlation of utilization. If an employer can create more demonstrable value through benefit utilization, hourly wage workers are better protected from the effects of inflation; more than simply increasing wages. As we will see, this matters to employees.

In a piece entitled, “Nice Raise, Too Bad About Inflation,” Vox Media recently reported “inflation has wiped out at least half the average wage gains for front-line workers.” While workers are demanding higher pay, what impacts them the most is what puts “more money in their pockets” at the end of the day.  The right benefits, and by that, we mean benefits that are highly utilized by your workforce, can actually become a better hedge against inflation than pay raises, for lower-waged employees. As Darren Burton, Chief People Officer for KPGM, a global business consulting firm, put it: “When you take an approach of your total rewards, it’s all about balancing that portfolio and putting dollars where people value them most. If you take that approach and pay attention to what really matters, [employees’] satisfaction goes way up because you’re giving them what they’re asking for and what’s most relevant in the marketplace.”

In today’s super-competitive labor environment, it is extremely important for employees’ hard-earned dollars to be directed toward insurance products that actually deliver needed benefits, and which are directly correlated to employee retention. No longer can an employer remain competitive by choosing the lowest-cost option just to comply with ACA mandates. We’ve turned a corner. MEC plus or Minimum Value plans are first generation responses to the ACA. Let’s look at these approaches:

First, providing a MEC plus, as a combined solution for ACA compliance, while providing limited benefits, is a bad use of an employee’s dollars, because of historically low utilization rates.  Every dollar counts and monies going towards preventative and wellness benefits plans that have very low utilization could be considered a waste. It’s all about the utilization and claims, and the needs of hourly wage employees. While this may be the minimum cost strategy for you, what does it really accomplish for you when it comes to hiring and retention? So, one could argue it is a bad use of your dollars.

With a Minimum Value plan, you can go farther in helping employees if they are hit by catastrophic health events, but employees still have astronomical deductibles and co-pays before they can utilize any benefits. Plus, you give employees no choice. While too many choices can backfire, (see our white paper on the Paradox of Choice) employees are not one size fits all and utilization rates go up if employees are engaged in choosing a plan that works best for them.

This is where an ICHRA plan can benefit both you, on the cost containment side, and the employee, on the needs side, especially when combined with a solid voluntary insurance plan that helps cover the out-of-pocket expenses for the things that hourly wage workers need the most.*  ICHRAs allow the employee to choose their own plan from the marketplace (as long as it meets affordability requirements as set by the ACA), with the employer reimbursing a defined amount of the premium. This makes administration through payroll especially easy, with no need for a claim’s administrator.  But employers also have the flexibility to reimburse employees for other defined healthcare costs and this is where they can become creative, customizing benefits to their workforce, for the highest utilization rates. This goes back to “putting dollars where employees benefit the most.”

Giving employees a choice also increases their engagement and, in turn, utilization rates go up. As inflation continues at an alarming rate, employees, through engagement in the process, and utilization of benefits, are much more likely to see the value of their employer-sponsored benefits and stay where their hard-earned dollars are really being put to work.

But a word of caution—this is just an introduction. ICHRAs are relatively new (2 years), and you need expert guidance to navigate the rules and effectively set up and administer an employer sponsored ICHRA. Please look for our next installment that offers a more in-depth analysis of ICHRAs to determine if this strategy may be right for you.

*Voluntary Insurance offered by Essential StaffCARE helps pay for the most common out-of-pocket expenses for hourly workers, including things like doctor’s office visits, emergency and urgent care, virtual primary care, out-patient surgical procedures and more.

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