Introducing ICHRA for Employee Health Benefits
As an employer, providing healthcare benefits to your employees is crucial for attracting and retaining top talent. But with rising healthcare costs and the need for flexibility, traditional group health insurance plans may not always be the best option. This is where an ICHRA, or Individual Coverage Health Reimbursement Arrangement, comes in.
Get to know the what, how, who, and why of an ICHRA, so you can decide if it's the right choice for your organization.
What’s an ICHRA?
An ICHRA is a relatively new type of health reimbursement arrangement that allows employers to reimburse their employees for individual health insurance premiums and certain medical expenses. The benefits are twofold. Employees get to choose the coverage that best suits their individual needs, while employers may save on healthcare costs.
How does an ICHRA work?
Employers can use an ICHRA as an alternative to offering a traditional group health plan. However, if you plan to offer an ICHRA to some employees while offering a group health plan to others, special rules apply. Eligible employees cannot be offered both a traditional employer-sponsored group health plan and an ICHRA.
To use ICHRA funds, employees must be enrolled in individual health insurance coverage that complies with Affordable Care Act (ACA) requirements, such as a plan they bought through the Marketplace or an individual plan. While employees can use ICHRA funds to pay for a Marketplace plan, they cannot receive a premium tax credit if enrolled in an ICHRA.
Who can offer an ICHRA?
Generally, employers of any size can offer an ICHRA if they have one employee who isn’t a self-employed owner or the spouse of a self-employed owner. ICHRAs are only for employees, not self-employed individuals. Note that they are also restricted to certain groups of employees.
What’s eligible for reimbursement?
Employees participating in the ICHRA can be reimbursed for a wide range of eligible medical expenses, including:
- Individual major medical premiums
- Medicare premiums
- Cost-sharing expenses such as co-pays, co-insurance, and deductibles
- Eligible out-of-pocket medical costs
Employers have the flexibility to decide how much to contribute toward employees' ICHRAs for each 12-month plan year. There are no annual minimum or maximum contribution requirements, but ACA employer shared responsibility penalties apply to the contribution level and should be considered when deciding contribution levels.
What are the next steps if an ICHRA seems like a right fit?
If you're considering an ICHRA as a solution for providing major medical coverage options to your employees, or for managing an ACA penalty risk, there are a few key steps to take.
- Determine if an ICHRA is the right fit for your organization and employees.
- Decide if you will self-administer the ICHRA or find outside help.
- Structure your ICHRA and develop a plan document that contains all the relevant details.
- Prepare employee notices and begin educating employees on the new ICHRA option and what it means for them.
By following these steps, you can successfully implement an ICHRA and provide your employees with a valuable healthcare benefit.
This information is intended to be educational. It is general in nature and should not be considered financial, legal or tax advice. Consult an attorney or a tax professional regarding your specific situation.
This blog is up to date as of November 2023 and has not been updated for changes in the law, administration or current events.
