Why carriers want ICHRA for large groups

Why are insurance carriers interested in ICHRA for large groups?

The short answer is money, of course.

But how could ICHRA be more profitable than group? With individual billing and service, costs should be higher, right?

Maybe.

There are two significant benefits for a carrier when writing ICHRA instead of group coverage.

1. The Minimum Loss Ratio (MLR)

For large groups (over 50 full-time equivalents in most states, 100 in NY, CA, CO, and VT) an 85% MLR applies. That means that the carrier has to spend 85% of premium dollars (for the risk pool, not the specific plan) on health care and health care improvement expenses.

If that group moves to ICHRA, the applicable MLR changes to 80%.

The carrier just picked up 5% on the same population.

2. Risk Adjustment

A key part of the PPACA design for affordability and rate stability (hold your laughter 🤭 ) is a program called Risk Adjustment. The risk adjustment process scores each participant and the carriers with better overall scores (healthier risks) pay the carriers with the worse overall scores (sicker risks).

That program only applies to individual and small group plans.

So for a carrier, a large group is a pure risk that sits on their risk pool, and has to be managed to an 85% MLR.

Move that same group and the MLR drops to 80%, and the carrier picks up added assurances of the Risk Adjustment Program if they pick up the unhealthy risks in the pool.

Now, it’s not all guaranteed roses and profits, because the Risk Adjustment process isn’t a dollar-for-dollar reimbursement. Risk must still be managed, and service expenses may be higher. Overall, there’s good reason to believe that the math likely works out for carriers on an insured basis moving large groups to individual coverage.

*A bonus reason, individual commission is generally lower than group commissions as well. Even though individual coverage can take more work per enrollment for the benefits broker, they get paid less.

Because of these reasons, I expect to see more carriers continue to lean into ICHRA and away from fully-insured group coverage.

What did I miss?