ICHRA 101: Everything you need to know

Welcome to ICHRA 101. We’ve worked hard and are very proud of our comprehensive ICHRA Guide, but maybe you’re just looking for the key points and trying to determine if this new health reimbursement arrangement is right for company or your client. If so, this ICHRA 101 post is just for you.

ICHRA 101

Learn the basics of the Individual Coverage HRA. Here's what to know!

→ Check out our post on ICHRA 2022 for the latest information! 

What does ICHRA stand for?

ICHRA stands for Individual Coverage HRA.

What is an ICHRA? 

The ICHRA health insurance model allows employers to reimburse their employees tax-free for individual insurance and medical expenses. Employees choose any plan they want from the individual marketplace to qualify for participation.

At a high-level, ICHRA is a superior model compared to traditional employer-based plans. How it might be implemented for a particular client will depend on a lot of local market factors, but read on to find out why you or your client should consider an ICHRA over a group plan.

→ Read more about What is an ICHRA?

→ Read more about How does an ICHRA work? 

Is an ICHRA better than a group plan? 

Here are a few reasons why ICHRA wins over traditional, employer-sponsored group health insurance.

• Transfer of Risk
• Personalized Plan Choice
• Greater Tax Efficiency
• Simple and Flexible Design Options
• Budget Control

One of the biggest advantages and differentiators for ICHRA is the increased number of classes, which can be used to scale benefits across different types of employees based on legitimate job-based criteria. 

ICHRA gives employers more freedom to design a plan that best suits their needs. More classes mean more flexibility and affordability for the employer, letting a company focus their health benefit dollars on the employees that matter most.

→ Read more about ICHRA vs. Group Plans

→ For decision making support, check out our post on what the best insurance is for your business. 

What's the difference between an ICHRA and a QSHERA?

While there are numerous differences, the primary contrast between QSEHRA and ICHRA are eligibility based on company size, limitations on contributions from employers, and design flexibility. For example, a QSEHRA can only be offered by businesses with less than 50 employees, while an ICHRA is available for businesses of any size. QSEHRAs have annual contribution limits, while ICHRAs have no limits. While both ICHRA and QSEHRA need to be offered to employees on the same terms, ICHRA allows for more design flexibility with 11 customizable class distinctions compared to QSEHRAs 4 classes.

→Read more about ICHRA vs. QSEHRA

What's the difference between an ICHRA and a traditional HRA?

There are two primary differences between an ICHRA and a traditional HRA:

1. An ICHRA can reimburse individual insurance premiums, while a traditional HRA cannot

2. A traditional HRA must be “integrated” with a group health plan, whereas an ICHRA works with individual insurance plans

→ Read more about ICHRA pros and cons

What are the ICHRA employee classes?

1. Full-Time Employees
2. Part-Time Employees
3. Seasonal Employees
4. Employees covered by a collective bargaining agreement
5. Employees who have not satisfied a waiting period for coverage
6. Salaried Employees
7. Non-Salaried Employees
8. Temporary employees of staffing firms
9. Non-Resident aliens with no US-based income
10. Employees in the same geographic rating area
11. Any combination of two or more classes from above.
    

In addition, the new hire provision allows employers to phase out their group plan by grandfathering in old employees, and requiring employees hired after a specified date participate in ICHRA regardless of other class distinctions. 

→ Read more about the New Hire Provision and ICHRA

→ Read more about ICHRA Classes 

How do the ICHRA employee classes work?

ICHRA is a scalable benefit, meaning you can scale reimbursements across different types of employees, like hourly vs. salary. One class of employees can be offered one reimbursement rate, and another class can be offered a different amount. 

→ Read more about How ICHRA Classes Work

What are the key ICHRA rules?

• Company size: ICHRA is available to employers of all sizes, including a 5-person startup, a 50-person team, or a 500-person corporation. 

• Annual Contribution Allowances: No limit. 

• Reimbursement options:  Plans can be designed to include premiums only or premiums plus expenses.

• Group plan interaction: An ICHRA can be offered with a traditional group plan as long as both options aren't being offered to the same class of employees. Note: this does not preclude group dental and vision.

• Owner eligibility: Depending on the legal setup of the company, employers may be eligible to participate in ICHRA. For example, C-corp and non-profit owners can participate, while S-corp owners are not eligible (but can deduct expenses directly). It’s recommend that business owners talk to an accountant before setting up an HRA.

→ Read more about ICHRA Rules

→ Learn more about how ICHRA affects premium tax credits. 

→ Learn more about ICHRA eligibility rules.

What are the ICHRA Requirements for employers?

Employer requirements:

• Company cannot offer a traditional group plan and ICHRA to same class (does not preclude group dental and vision like QSEHRA)
• ICHRAs can meet the employer mandate for employers with greater than 50 full-time Applicable Large Employers (ALEs) if the offer is “affordable” and meets minimum value (MV)
• Business size doesn’t matter. It can be a 5-person startup, a 50-person team, or a 500-person corporation. ICHRA is a scalable benefit for all of these.
  
• The amount doesn’t matter. There are no contribution caps each year. That means the sky’s the limit for this tax-friendly benefit.
  
• Everyone does NOT have to be treated equally across the board. An employer can choose to treat different classes of employees differently based on the nine divisions of classes proposed in the new law.

What are the ICHRA Requirements for employees?

Employee requirements: 

• Maintain health coverage that meets PHS 2711 & 2713 requirements ($0 preventive and no annual or lifetime limits). In other words, they need to meet Minimum Essential Coverage through an individual marketplace plan.

→ Read more about ICHRA Requirements 

Does ICHRA meet the employer mandate?

One of the biggest points of confusion (and opportunity!) for this new HRA is the issue of affordability as it relates to premium tax credits and satisfying the employer mandate. The main takeaway is that ICHRA satisfies the mandate if it is affordable. If it’s not affordable, the employee can opt out and receive premium tax credits instead.

Is ICHRA subject to COBRA and ERISA?

Yes, since ICHRA is considered a group health plan it is subject to both COBRA and ERISA unless an exception applies (certain small employers, churches or governments not subject to Code Section 4980B).

COBRA requires an employer with 20 or more employees to offer continuation coverage to employees and their dependents where they lose coverage as a result of a qualifying event, such as an employee’s death, divorce, or job loss.

ERISA provides minimum standards for employee benefit plans including protecting plan interests and establishing fiduciary relationships between the plan and participants. ERISA applies to all employers establishing ICHRA and relates to the type of plan documents they must deliver.

→ Read more about The COBRA requirements you need to know for ICHRA.

→ Read more about ERISA and ICHRA

Still have questions?

Our team is ready to help you make the best choice for your company (or client). Just chat with us on your screen or set up a call by clicking on that beautiful green button below. 

Here are a few resources for extra credit →

• The Ultimate ICHRA Guide
• The top 10 ICHRA rules to remember
• ICHRA FAQs
• Our ICHRA Administration Platform
• How to set up an ICHRA