Released in January 2020, the individual coverage HRA (ICHRA) is an evolution of the QSEHRA, which was created in 2017. While both allow employers to reimburse employees tax-free for individual health insurance, the ICHRA represents a “super-charged” version of QSEHRA with higher contribution limits and greater design flexibility, making it even more appealing to employers. The ICHRA has really gained traction in the first half of 2020, and we are already looking ahead to what to expect in 2021.
But first, a quick refresher on the mechanics of the ICHRA.
How does ICHRA work?
As the name implies, ICHRA is based on reimbursing employees for insurance rather than buying it for them. At a high-level, the way ICHRA works is very simple:
- Employers design their plan, including defining which employees are eligible and establishing reimbursement limits
- Employees purchase the individual plans they want
- Employees submit claims for reimbursement
- Employers reimburse employees for valid claims
ICHRA: What we've seen so far
Our research shows that employers signing up for ICHRA are realizing they don't have to stress over huge renewals, worry about participation rate requirements, or manage the variability and unpredictability that comes with being responsible for employees’ health costs.
- Employers are taking advantage of the uncapped contribution limits and are customizing allowances to fit their budgets and employee needs.
- Rates for single employees range from $400-$1,200 a month and $500-$1,500 for families on average.
- Most companies are keeping the reimbursement structure fairly simple, preferring to offer the same rates to all employees or vary by family status. Fewer employers are choosing the option to vary by age.
- Most commonly used classes include salaried vs hourly employees, geographic area, and full-time vs. part-time.
- More than half of employers are choosing to reimburse medical expenses and premiums; the rest reimburse for premiums only. Small employers prefer to include medical expenses.
Looking forward: What we expect from ICHRA 2021
While there still aren’t any contribution limits, there is the issue of how little you can actually contribute. The minimum amount is determined by the issue of ICHRA affordability and how the HRA interacts with premium tax credits.
For 2020, the threshold was 9.78% meaning that an ICHRA offer is considered "affordable" to employees if based on the employee's income and the HRA contribution they are able to purchase the lowest cost silver plan without spending more than 9.78% of their income. For 2021 affordability, the IRS has said the affordability threshold is 9.83%
If the employee accepts the Individual Coverage HRA they cannot claim any premium tax credits for the year for either themselves or any family members.
A nice feature of individual coverage HRA is that employees have the option to participate in ICHRA or opt-out annually through the ICHRA opt-out provision. This is different then ICHRA's predecessor, QSEHRA, which does not allow employees to opt-out.
Sharing plans still will not integrate with ICHRA, but costs for these ministries now will qualify as payments for a medical care expense under Section 213(d), and should be considered tax-deductible. The new update, if passed, would allow for sharing ministry expenses to be tax-free, but it wouldn't erase the fact that individuals would need to have a marketplace plan in addition to a sharing ministry. And that leaves the individual with double coverage, which makes no financial or logical sense.
For more information
Take Command Health is here to help you with your ICHRA questions or to find the right fit for you, your business, and your employees. We will update this post and bring you all the latest info on ICHRA 2021 as it becomes available. In the meantime, check out our super helpful ICHRA FAQ page for more information.
We will keep this post updated as more information comes out about ICHRA 2021!