ICHRA stands for Individual Coverage Health Reimbursement Arrangement. It is a fairly new type of HRA that allows employers of any size to reimburse employees for some of all of their health insurance premiums.
ICHRAs were created in 2019 and become available in 2020.
An alternative to group plans
If you are unsure how an HRA works, you should read up on that here first.
ACA rules forbid employers from reimbursing employees for individual market premiums. However, in 2017 QSEHRAs became available and allowed for small employers to bypass this law. The ICHRA is an evolution to that and allows for employers of any size to bypass this law and reimburse their employees for health insurance premiums. Unlike a traditional HRA, an ICHRA can reimburse individual insurance premiums. Additionally, a traditional HRA needs to be integrated with a group health plan, whereas an ICHRA works with individual insurance plans.
The employer mandate still remains, but the ICHRA allows large employers to satisfy this mandate as long as the benefit is substantial enough to make individual health insurance plan affordable.
Because the money used to fund the HRA satisfies the requirements of the employer mandate, group health insurance plans are not needed. The employee can instead use this money to pay for premiums and certain eligible expenses such as doctor visits, prescription and over the counter medications, and counseling.
Benefits of an ICHRA
As an employer, ICHRAs allow for flexibility. You are no longer required to piece together health coverage and offer it to your team. With an ICHRA you can instead decide to fund an account so that the employee can decide which type of health care is best for them.
The money used to fund the ICHRA is tax-deductible on the employer side and tax-free on the employee side. The funds are not considered income.
There are no minimum or maximum contribution limits, and employers can even chose to offer different amounts to to different classes of employees (such as full-time, part-time, seasonal employees, etc).
Unlike with most group insurance plans, there is no participation rate (however, if you offer both an ICHRA and a group plan, participation rates may still apply).
One of the biggest advantages of an ICHRA is its simplicity. Instead of needing to focus on a group health plan, you can offer a set amount each money and refocus your efforts where they need to be, you business.
What are the downsides of an ICHRA?
ICHRAs cannot be used to reimburse a spouse’s plan. As group benefit packages evolve, and these benefits also being offered to spouses and some domestic partners, you will need to decide between your spouses group benefits, which may be extensive, and an individual plan paid for in part by your employer-funded HRA. With an ICHRA, you will not be able to have both.
If your ICHRA provides what is considered ‘affordable’ health coverage, you not be able to to qualify for PTC from the marketplace. This can add a lot of expenses to the employee each year depending on the coverage the enroll in.
With an ICHRA, there is an inherent risk related to inadequate coverage through employees choosing insufficient plans or even plans that lack the minimum essential coverage requirements. ICHRAs do not require that employees select plans that meet the MEC requirements of the ACA. Consequently, some employees may choose plans that do not cover essential healthcare services. This can leave them vulnerable to high out-of-pocket expenses.
ICHRAs do not offer any real benefits. Shrewd businesses are today crafting robust benefit packages that meet not only the physical needs of employers, but also mental and financial needs. While an ICHRA may be an easy compromise to otherwise financially struggling operation, they do not do much to benefit the employee beyond affordable healtcare.
Considerations for implementation
ICHRAs are not insurance; they are an alternative to group benefits that can be offered along side group plans, but not in conjunction with. ICHRAs will need to be set up through payroll, and not through as insurance broker or agent.
ICHRAs tend to work well in business that have high employee turn-over, substantial number of lower paid workers, a mix of salaried and hourly workers, and mix of employees both on-site and remote.
Restaurants, hospitality, healthcare, and manual labor jobs are all good candidates for ICHRAs.
Alternatives to ICHRA for employers
Group plans are the predominant choice amount employers. They can be offered in coordinations with other options, such as an HSA.
Group plans are most often designed around specific networks such as PPOs or HMOs.
One of the biggest fears among small businesses is that they can not afford group insurance. As someone who has been all sides of that argument as the employee, the employer, and the person selling the insurance, I can assure you that there are options anyone can afford.
Takeaways
The ICHRA has its place. It should not be looked at as an option for everyone, but when offered along side group insurance plans, it can sometimes be the better option for some employees and employers.
If you need help deciding whether an ICHRA or another option is best for your business needs, give us a call and we can talk.
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