What is group health insurance?

A group plan is what you’re probably thinking of when discussing traditional, employer-sponsored health insurance. A group health insurance plan is employer-sponsored health insurance where both the employer and the employee make contributions toward health insurance coverage. These payments are deductible expenses for employers and can be taken out of employee pay checks pre-tax. Group plans are a major benefit that employees are looking for when job-hunting, and can help you attract and retain high value talent.

What is an ICHRA?

An individual coverage health reimbursement arrangement, or ICHRA, is a healthcare reimbursement arrangement offered as a benefit by employers. An ICHRA is based on reimbursing employees for insurance rather than necessarily buying it for them – though it is important to note that an ICHRA can be offered alongside a group health insurance plan. At a very high level, this is how you can expect an ICHRA to work from implementation to reimbursement:

1. Employers set up and design their plan, this includes defining which employees are eligible (based on class) and setting reimbursement limits (can be based on class and/or family size).
2. Employees make healthcare purchases, including buying individual plans or spending money on certain eligible healthcare products and services.
3. Employees submit their claims for reimbursement by the employer. The employee should include information such as receipts, times, dates, and a description of the product or service.
4. Employers then approve and reimburse their employees. These reimbursements are deductible expenses for employers and are not subject to an employee’s payroll tax.

ICHRA vs group health coverage comparison

When you are looking to build your benefits package, it can be hard to determine what is right for your small business. Are you wondering if traditional group coverage, such as a plan offered through the Small Business Health Options Program (SHOP), is right for you and your employees? Or are you wondering if an ICHRA is a better choice?

Here is how an ICHRA compares to traditional group health coverage:

	ICHRA	Group Health Insurance
Reimbursement model	Employers decide how much money to contribute to employees (based on employee class and family size).	Employers offer a plan, or a selection of plans to employees – and if the employer chooses – their employees’ families.
What employers are eligible?	Employers of any size with at least one other employee (other than their spouse)	Generally, small employers with1-50 employees are eligible for SHOP. Employers of any size can offer group coverage.
What employees are eligible?	Any employee classes of the employers choosing – there are 11 of these classing options – so long as they have minimum essential coverage.	Any employee classes of the employers choosing.
Coverage flexibility	Employees choose their health insurance plan and what healthcare purchases they make so long as they are qualifying expenses. If they choose to leave the company, they can keep their current plan.	Employees have a plan or selection of plans to choose from that offer minimum essential overage based on what the employer chooses to offer.
Enrollment	Employers can enroll any time of the year; employees with an ICHRA election will be offered a special enrollment period.	Small businesses can generally enroll during any time of the year.
Is there a limit on employer contributions?	No. Employers can decide their contribution limits with no annual maximum.	No. However, in order to be eligible for the Small Business Health Care Tax Credit employers must contribute 50% or more of the cost of premiums for all full-time employees who enroll in SHOP coverage.
Tax information	ICHRA reimbursements are not taxed to the employee. However, if an employee accepts an ICHRA offer they cannot receive premium tax credits.	Group health plan contributions are generally not taxed to the employee. However, in order to offer a SHOP plan the employer must be eligible for the Small Business Health Care Tax Credit – which means they must contribute 50% or more of full-time employees’ premiums.
Is minimum participation required	No	Yes

Is an ICHRA or Small Group Insurance right for my small business?

Ultimately deciding what is the best option for the benefits you want to offer to your employees is deeply subjective and will vary greatly from situation to situation. Let’s walk through what options might be best for a small business that employs full-time, part-time, and freelance employees with the following concerns:

I’m concerned that I won’t be able to afford a group health plan

The business cost of small group insurance can really add up, especially considering in order to be eligible for a traditional group plan the employer must pay 50% or more of all of their full-time employee’s health insurance premiums. If group health insurance seems too expensive for your business, an ICHRA may be a better option.

Not only does this offer you as the business owner more flexibility in who you offer benefits to and how much you contribute to your employee’s qualified healthcare expenses, but your employees have more freedom when it comes to their coverage choices. They do not have to choose from pre-selected plans and if they choose to leave the business, they can take their plan with them.

While this is not the same as offering a health insurance plan to your employees, it’s a great way to balance the employee’s need with the needs of the business.

I’m concerned about group plan qualifications like minimum participation and contribution minimums

If you are concerned with all the qualifications and expenses that come with group health insurance, an ICHRA may be a good choice for all or some of your employees.

ICHRA can be used with companies of any size, so you don’t have to worry about minimum participation. Additionally, if you have unused allowances, you can carry that forward to the following year or reset it to zero. Unused funds stay with you, the employer.

As stated earlier, ICHRAs have no minimum or maximum contribution limits. This means you as the employer gets to decide what you can afford in terms of contribution. Plus, you get to choose which classes of employees you offer this benefit to. This means you can offer an ICHRA only to your full-time employees. Or you can choose to offer group insurance to one class of employees and an ICHRA to another – for example, you could offer group insurance to your full-time employees and an ICHRA to your part-time employees (if you choose to do this you must meet class size requirements.

This allows you to strike a balance between what you can afford and what you qualify for and finding benefits that attract talent.

Let eHealth help you find a plan

What is right for your business might vary differently than what is right for another. Be sure to consider factors like what’s best for you, your local market, your employee needs when deciding between an ICHRA and a small group plan. eHealth’s team of licensed agents can help you figure out which type of plan is better for your needs. Check out small business health plans available in your area or give us a call today to get started!

Before you jump in and make any decisions, it’s always wise to speak with your CPA.