New health benefit options for small and midsize businesses

The article below is about Gravie ICHRA™ and level-funded plan options available for small and midsize businesses. It was originally featured in Upsize Magazine’s July/August issue. It is written by Kevin Kickhaefer, Gravie’s Chief Revenue Officer and President of Commercial Markets.

As open enrollment approaches, now is the time for small and midsize businesses (SMBs) to finalize their health benefits offering for 2025, and begin planning for the next few years. For many SMBs, this process can be daunting, particularly as they are forced to choose from health plans that cater more to the needs of large employers.

Making matters worse, they continue to contend with escalating costs for coverage that may not be meeting their employee’s greatest needs. Unwieldy costs are why 35% of small businesses don’t offer health benefits at all, according to a 2024 eHealth survey. Unfortunately, it doesn’t look like this trend will be letting up anytime soon. A recent KFF survey found the average annual premium for covered workers at small businesses is $8,722, an 8.8% increase from last year. We’re already seeing the impact of this in Minnesota, as the number of people with employer-sponsored group coverage decreased from 52% to 49.3% in 2023.

With these types of increases, it’s safe to assume SMBs will either cease offering health benefits altogether or find other ways to shift costs to employees, often by offering higher deductible health plans. The result? Benefits that don’t offer true value to employees and their health and wellbeing, despite the significant investment by both employers and employees each year.

The good news: there are two macro trends shaping the market now that can help alleviate some of the administrative and financial burdens of offering benefits, while still providing high-quality coverage for employees.

Level-funded health plans available to smaller groups           

SMBs have historically had two choices for funding their benefits, depending on their risk tolerance: 1) self-fund their health plan — which most small businesses can’t afford, or 2) fully fund with carriers setting the price and business owners paying more to less risk. But with level funding, SMBs can safely fund their health plan by controlling risk through stop-loss insurance, while also enjoying the cost certainty of fixed monthly premiums. The best part: if claims are lower in a given plan year, employers can potentially receive a refund at years’ end.

This cost certainty is likely why level-funded health plans have skyrocketed in popularity — from 13% of SMBs taking advantage of this model in 2020 to over 40% in 2023, according to KFF. With level-funding’s promise of increased predictability and more controlled risk, we can only expect that number to increase.

Individual Coverage Health Reimbursement Arrangements (ICHRAs)

In 2023, Gravie and Wakefield Research conducted a survey of 500 U.S. health benefits decision-makers and found 71% of employers think managing health insurance is one of the most difficult parts of their job. SMBs looking to reduce this administrative burden and offer affordable (tax-advantaged) health benefits should explore Individual Coverage Health Reimbursement Arrangements (ICHRAs) this open enrollment season.

This solution gives SMBs the option to contribute pre-tax dollars to their employees, who can then use that contribution to purchase a health plan from the individual marketplace that best fits their needs.

After learning about ICHRAs, 87% of the companies Gravie surveyed thought the solution could be a long-term fit for their company. This approach has proven successful for Wealshire, a Minnesota-based dementia and Alzheimer’s care organization with facilities in Medina and Bloomington.

After struggling with rising prices for their traditional group health plan, and later taking on all of the risk by moving to a self-funded model, Wealshire’s president felt desperate for a solution that offered cost certainty while providing his employees with quality coverage. Since implementing an ICHRA offering this year, Wealshire has gained more control over their benefits spend, seen strong enrollment numbers and has a satisfied employee population that appreciates more choices.

Along with growing interest in ICHRAs, we’re also seeing that hybrid models — offering an ICHRA in combination with a level-funded plan — can offer a unique and creative solution for SMBs. This approach is particularly useful for employers with segmented employee populations (temporary workers, part-time team members or even full-time employees living in different states) where it makes sense to offer different levels of benefits. Health benefits represent one of the largest expenses and administrative burdens for SMBs, and are often a stressful consideration. But it doesn’t have to be this way. With broadened access to level-funding and the rise of ICHRAs, small and midsize employers have more ways than ever to win at the benefits game.