Traditional group health plans and employee benefits operate as a “one-size-fits-all” model. Every employee is a unique individual with personalized needs, so how can a “one-size-fits-all” model truly cater to their best interests? Forcing employees to try and fit into the same box is an outdated approach to group benefits. ICHRA, or Individual Coverage Health Reimbursement Arrangement, allows employers to offer a group benefit option that is as flexible and personalizable as their employees. For example, an ICHRA allows for employee “A” to work with one insurance provider because it has his doctor in network while allowing employee “B” to work with another provider because they handle employee B’s prescription better.
What Does ICHRA Stand For?
The acronym ICHRA– often pronounced “ick-rah” when spoken– stands for Individual Coverage Health Reimbursement Arrangement. There is a common misconception that the “A” in ICHRA stands for “accounts,” so if you hear someone discussing “individual coverage health reimbursement accounts,” they mean “Individual Coverage Health Reimbursement Arrangement.”
What Is An ICHRA?
An ICHRA (ick-rah) stands for Individual Coverage Health Reimbursement Arrangement and is a recent evolution from a traditional health reimbursement arrangement. The Individual Coverage Health Reimbursement Arrangement allows businesses of all sizes to provide defined non-taxed reimbursements for individual health insurance. ICHRAs only became available as of 2020 as they were created under recent government regulations. ICHRA is similar to another type of HRA, the Qualified Small Employer Health Reimbursement Arrangement (QSEHRA), but ICHRA is much more flexible and has higher limits which appeals to more employers.
How Does An Individual Coverage HRA Work?
ICHRA works by allowing employers to reimburse their employees for their insurance plans rather than buying it for them. Broken down in its simplest form, the process is pretty easy to understand:
- Employers design their plan by deciding the ICHRA eligibility rules for its employees. Then, the employers establish the reimbursement limits for the ICHRA.
- Eligible employees then select their individual plans based on their needs.
- Employees then submit claims to their employer for reimbursement.
- Employers reimburse their employees for valid claims.
To stay eligible for the ICHRA plan, employees must have coverage through an individual plan, including on-exchange or off-exchange coverage, Medicare Parts A and B, or Medicare Part C. Employers must offer their employees the chance to opt out of the ICHRA plan annually.
What Are The Benefits To An ICHRA Plan?
Like anything, there are pros and cons to an Individual Coverage HRA. Although individual plans are generally more expensive and have narrow, HMO or EPO based networks compared to traditional group plans, the added flexibility, and control that ICHRA offers make it a very popular option. Some of the key benefits for ICHRA health insurance plans over traditional group plans are:
- Budget Control- As an employer, once the ICHRA’s allowable reimbursement rates are set, then your cost will never be greater than that. No premium increases like a traditional group health plan.
- Personalized Plan Choices- Unlike the “one-size-fits-all” model that traditional group plans use, Individual Coverage HRA insurance plans allow employees to choose whatever plan works best for them.
- Plan Portability- Since each employee has an individual plan, if they leave they are able to take it with them.
- No Participation Concerns- Unlike traditional group plans, there are no minimum participation requirements associated with Individual Coverage HRA health insurance plans. If employees decide not to use the benefit, there is no concern to the employer.
How To Set Up An ICHRA Plan?
As an employer, your business is eligible to offer an ICHRA as long as you have at least one W2 employee. There is no maximum limit for size or reimbursement rate, so businesses of any size can participate.
- To set up an ICHRA plan, first, establish a start date. With an ICHRA plan, it can start any time of the year and will trigger a special enrollment period so employees can easily find plans on the individual market outside of the enrollment date.
- Next, design classes for eligible employees, then determine a budget for how much you will reimburse for premium costs and medical expenses and set monthly allowances.
- Make sure that you establish legal plan documents that must include a formal plan document and a summary plan document that include the ICHRA policies, including monthly reimbursement amounts, class structure, claims processes, reimbursement eligibility, and information on HIPAA and other procedures involving privacy.
- Once you set up the ICHRA employee benefit it is practical to communicate the new benefit to your employees, make sure they understand how to use it, and provide your employees with additional resources to help guide them through the daunting task of choosing an individual health insurance plan.
The process of setting up an ICHRA plan can be overwhelming to the uninitiated that is why it can be beneficial to recruit the help of experienced financial professionals like the team at Benefit & Financial, who can help employers through the set-up process and help employees navigate the many options on the individual market.
Want To Learn More? Contact Benefit & Financial Strategies Today!
At Benefit and Financial Strategies, we can help you with your financial needs surrounding health/medical/life insurance, employee benefits, retirement planning, and so much more. We offer advice that is unbiased and based on the current market. We have decades of experience servicing both small and large companies by creating and supporting flexible and affordable employee benefits and retirement plans. No matter what stage you are at in your life, it's essential to work with an insurance professional you can trust. This way, you can be sure that you will have what you need both now and in the future. If you would like to provide your team with the flexibility and personalization ICHRA offers, contact us today to learn more about how we can help.
Frequently Asked Questions
Can a person getting social security qualify for ICHRA?
Yes (W2 employees only)
Can an employee use the tax credit with an ICHRA?
No, an employee can only use either a tax credit or the employer contribution, not both.
Can an ICHRA reimburse medicare premiums?
Yes (W2 employees) Part time/full time ICHRA may be used to reimburse premiums for Medicare and Medicare supplemental health insurance (Medigap), as well as other medical care expenses.
Does ICHRA have participation minimums?
Yes (1 employee)
Can owners participate in ICHRA?
Only C-corporations & non profit businesses & owners can participate.