Navigating the complexities of an Individual Coverage Health Reimbursement Arrangement (ICHRA) can be challenging. This comprehensive guide will help demystify ICHRA and provide you with valuable insights to make informed decisions about your healthcare coverage.

What is ICHRA and how does it work?

An ICHRA (Individual Coverage Health Reimbursement Arrangement) is a company-funded health benefit that reimburses employees for healthcare expenses. Unlike a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA), the ICHRA is available for businesses of any size. ICHRAs have been available to business owners since 2020.

Both big and small businesses – as well as nonprofits, churches, and other employers – can reimburse employees tax-free for the cost of their individual health insurance premiums and other healthcare expenses.

An ICHRA is a way to attract top talent and works as a stand-alone benefit or as a part of your businesses benefit program along with standard small group insurance. In this case, the company provides some classes of employees a small group insurance plan and other classes an ICHRA.

When you choose an ICHRA for your staff, you decide the amount of the monthly allowance you provide your employees.

Your employees then pay for their individual health insurance coverage and other qualified expenses, and you reimburse them up to the monthly allowance amount for those costs.

Keep in mind that all ICHRA payments you make are on a pre-tax basis, which means you pay no payroll or income taxes on the payments.

Advantages of ICHRA for employers and employees

Benefits for Employers:

1. Cost Control: ICHRA allows employers to set a budget for healthcare expenses while offering flexibility to employees, helping manage and predict costs more effectively.
2. Attracting Talent: Offering a customizable healthcare benefit can make your company more attractive to potential hires, especially in a competitive job market.
3. Tax Benefits: Employers can enjoy tax advantages through ICHRA, as contributions made to the plan are tax-deductible, potentially reducing overall business tax liabilities.
4. Minimal Administrative Burden: Compared to traditional group health plans, ICHRA typically involves fewer administrative responsibilities for employers.
5. Tailored Benefit Packages: Employers can tailor benefit packages to meet the unique needs of their workforce, promoting employee satisfaction and retention.
6. Compliance Simplicity: ICHRA may simplify compliance with healthcare regulations, reducing the risk of penalties for non-compliance.

An ICRHA can be an attractive option for employees, allowing you to attract top talent by providing the benefits employees want today. Some of the benefits include:

• Employees can choose plans that include their own doctors
• Employees can add other benefits like vision and dental insurance
• Each employee can choose the plan that works best for them
• Other healthcare expenses may be reimbursed along with plan premiums
• Employees own their health plan and can take it with them if they change jobs

ICHRA vs. QSEHRA

Individual Coverage Health Reimbursement Arrangements (ICHRAs) and Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs) are both appropriate for small businesses, but there are some key differences between the two. QSEHRAs are limited to businesses with fewer than 50 full-time equivalent (FTE) employees, while ICHRAs do not have a restriction on business size. Annual allowance amounts are also limited with QSEHRAs, to $5,850 for single employees and $11,800 for families in 2023. Family status is the only variable that can qualify for different allowance amounts.

Employers can offer ICHRAs and group health policies at the same time, although employees may not choose between the two. QSEHRAs may not be offered with a group health policy. Employers can decide who is eligible for an ICHRA based on the various employee classes, while QSEHRAs do not allow different classes and require eligibility for all full-time employees.

Eligibility and Requirements for ICHRA

In this section, we will explore the eligibility criteria and requirements for ICHRA (Individual Coverage Health Reimbursement Arrangement).

Employee Eligibility

Employee eligibility for ICHRA (Individual Coverage Health Reimbursement Arrangement) typically depends on several factors, including their employment status, the duration of employment, and their enrollment in other health coverage. Employees who meet certain criteria may be eligible to participate in an employer’s ICHRA.

Employer Requirements

Employer requirements for ICHRA (Individual Coverage Health Reimbursement Arrangement) include establishing and maintaining the plan, providing written notice to eligible employees, and offering a qualified health plan for employees to purchase. Additionally, employers must comply with certain regulatory guidelines and contribution limits when setting up an ICHRA.

Determining if an ICHRA is right for your business

Assessing the suitability of an ICHRA (Individual Coverage Health Reimbursement Arrangement) for your business involves considering various factors.

 ICHRA Considerations

When determining whether an ICHRA is the right choice for your business, there are some key factors to consider:

Employee Type

If you are a company that employs many different types of employees, the 11 classes allow you to choose which employees will be eligible for your ICHRA. This can be especially beneficial for businesses that employ many seasonal or international workers.

Number of Employees

Unlike a QSEHRA, you can offer an ICHRA even if you have more than 50 employees. You can also offer group health insurance to certain classes of employees and an ICHRA to others. This flexibility is an attractive option to business owners who want to be able to attract and retain talent.

Reimbursement Caps and Rate Hikes

With an ICHRA, you are not capped at a maximum reimbursement limit per year. This means you can offer more assistance to your employees to help with the cost of health care if you choose. In contrast, QSEHRAs have annual reimbursement caps that the IRS sets every year. With an ICHRA, you can also avoid annual rate hikes that many companies experience with their group health insurance plans.

How to Implement ICHRA in your company

Implementing an ICHRA (Individual Coverage Health Reimbursement Arrangement) in your company involves several steps and considerations.

Plan Design and Contribution Limits

Employers have the flexibility to design their ICHRA plan according to their preferences, tailoring it to meet the needs of their employees and organization. They can set contribution limits based on their budget and benefit goals, providing a customizable approach to healthcare reimbursement.

Employee Communications and Enrollment

Effective employee communication and enrollment are vital when implementing an ICHRA. Employers should provide clear and detailed information about the plan, its benefits, and the enrollment process. Offering support and guidance to employees during the enrollment period can help them understand their options and make informed decisions regarding their healthcare coverage. Providing resources, such as educational materials and access to HR representatives, can facilitate a smooth enrollment process.

Comparing ICHRA to traditional group health plans

In this section, we will compare ICHRA to traditional group health plans and highlight key differences and considerations for employers.

Cost Savings

ICHRA can offer cost savings for employers since they have control over the contribution amount and aren’t locked into fixed premium costs associated with traditional group health plans. Employees may also find ICHRA cost-effective as they can select plans that suit their needs.

Flexibility and Customization

ICHRA provides employers with the flexibility to customize their benefit offerings based on the needs and preferences of their workforce. This allows for greater tailoring of benefits and can lead to higher employee satisfaction.

Legal Requirements

Employers need to be aware of the legal requirements and compliance standards associated with ICHRA to ensure they meet all regulatory obligations. Understanding these requirements is crucial for a successful ICHRA implementation.

ICHRA vs. HSA (Health Savings Accounts) and FSA (Flexible Spending Accounts)

Tax Benefits

• ICHRA (Individual Coverage Health Reimbursement Arrangement): Employers can deduct ICHRA contributions as a business expense, and employees typically receive their reimbursements tax-free. This allows for potential tax savings for both employers and employees.
• HSA (Health Savings Account): Contributions made to HSAs are tax-deductible, reducing an individual’s taxable income. Additionally, interest and investment gains in HSAs are tax-free, and withdrawals for qualified medical expenses are also tax-free.
• FSA (Flexible Spending Account): Contributions to FSAs are typically made on a pre-tax basis, reducing an individual’s taxable income. Withdrawals for qualified medical expenses are tax-free.

Contribution Limits

When considering health-related financial accounts, understanding the difference between a Health Savings Account (HSA) and a Flexible Spending Account (FSA) is crucial.

• ICHRA (Individual Coverage Health Reimbursement Arrangement): ICHRA contribution limits are set by the employer and can vary. However, they must be uniform for all eligible employees within certain classes, such as full-time employees or part-time employees.
• HSA (Health Savings Account): For 2023, the annual contribution limit for HSAs is $3,650 for individuals and $7,300 for families. Individuals who are 55 or older can make an additional catch-up contribution of $1,000.
• FSA (Flexible Spending Account): The maximum annual contribution limit for FSAs in 2023 is $2,850 per individual. Employers can also offer a carryover option of up to $570 or a grace period of up to 2.5 months to use the funds from the previous year.

Expense Reimbursement

• ICHRA (Individual Coverage Health Reimbursement Arrangement): ICHRA allows employers to reimburse employees for qualified medical expenses, including insurance premiums, on a tax-free basis. The reimbursement amounts can vary based on the employer’s design.
  • HSA (Health Savings Account): HSAs are individual accounts that allow eligible individuals to contribute pre-tax dollars to cover qualified medical expenses. These accounts come with annual contribution limits set by the IRS. The money can be used tax-free for medical expenses, and any unspent funds can be rolled over from year to year.
  • FSA (Flexible Spending Account): FSAs are also individual accounts funded with pre-tax dollars to cover qualified medical expenses. However, unlike HSAs, FSAs are subject to “use it or lose it” rules, where any unused funds typically don’t roll over at the end of the plan year. Some FSAs offer a grace period or carryover option, allowing account holders to retain a portion of unused funds.

Additional resources for understanding and implementing ICHRA

Government Guidelines and Regulations

Government guidelines and regulations play a crucial role in shaping various aspects of healthcare, insurance, and employee benefits, including ICHRA, HSA, and FSA. These guidelines dictate eligibility criteria, contribution limits, tax advantages, and other important factors for each of these benefit options.

For the most up-to-date and comprehensive information on government guidelines and regulations related to ICHRA, HSA, and FSA, it’s advisable to refer to official government resources such as:

• Internal Revenue Service (IRS): The IRS provides detailed guidance on tax-advantaged accounts like HSAs and FSAs, including contribution limits, eligible expenses, and tax treatment. Visit the IRS website (https://www.irs.gov/) for the latest information.
• Department of Labor (DOL): The DOL oversees employee benefit plans, including ICHRA. They provide guidance on compliance with regulations related to health reimbursement arrangements. You can find valuable resources on their website (https://www.dol.gov/).
• Healthcare.gov: Healthcare.gov, managed by the Centers for Medicare & Medicaid Services (CMS), offers information on health insurance and benefit options, including ICHRA. You can explore relevant details at (https://www.healthcare.gov/).

              eHealth’s ICHRA Solutions

At eHealth, we can help you create the best ICHRA for your company and your employees. Our licensed brokers are also available to help your employees find the right plan for their needs and budget among the individual and family plans available in your state. We offer round-the-clock support and will help you and your employees maintain your plan from year to year.