There’s no denying that HRAs (health reimbursement arrangements) make it easy to reimburse your employees tax-free for health insurance premiums and qualified medical expenses. However, there are several laws and legal requirements in place that you need to know about to avoid potential penalties. Here’s what's important to understand about ICHRA compliance.
Disclaimer: We always recommend that business owners consult with a CPA or lawyer to ensure that all relevant laws are followed. While there are several laws that apply to everyone, there are state-specific regulations and other laws that may be unique to your situation. Please do your homework!
The ICHRA, or individual coverage health reimbursement arrangement, really stands head and shoulders above other HRA contenders when it comes to contribution limits and classes. That makes the ICHRA incredibly customizable and appealing to employers and employees alike.
For business owners, ICHRA brings predictable costs, flexible and efficient design, and budget control. There's no need to worry about rising premiums or participation rates.
Let's jump in to some the issues to remember surrounding ICHRA compliance.
While all HRAs must be offered equally and fairly to all employees, QSEHRAs and ICHRAs achieve this differently. While QSEHRA eligibility can only be scaled based on family size or age, ICHRA offers a greater deal of efficiency with its class feature, which allows employers to divide employees up into an almost limitless amount of custom classes that receive varying rates of reimbursement.
Employers can offer ICHRAs to all eligible employees, or to only certain classes of employees. There are some special rules, but in general, individual classes are determined by job-based criteria such as salaried or non-salaried, non-resident aliens, seasonal employees, etc. One rule that stands out here is that while ICHRA can be offered to one class and a group plan offered to another, an individual cannot be offered both.
ICHRA Company Size
When it comes to company size, ICHRAs are available to businesses of any size, while its predecessor, QSEHRA, is intended only for companies with fewer than 50 employees who would not previously have been required to offer health insurance.
ICHRA Contribution Limits
As for contribution limits, ICHRA is not subject to any contribution limit in terms of reimbursement rates. You can make reimbursement rates as generous as you want.
Can I administer my own ICHRA?
It’s a question we get asked a lot. While it’s possible, it’s definitely not something we’d recommend you or your client do for a few practical reasons:
- Employee Privacy – Leveraging an administrator provides a necessary layer of privacy. For reimbursements to be tax-free, employers have to substantiate that employees are using funds to pay for health insurance and medical expenses. However, having employees submit receipts directly creates a significant problem because information about employees’ medical expenses (including individual insurance premiums) is considered Protected Health Information (PHI) under the Health Insurance Portability and Accountability Act of 1996 (HIPAA). Employers asking for employee medical records is a HIPAA privacy violation.
- Record Keeping – Because the IRS requires small businesses to keep records up to 7 years, record keeping can be problematic when small paper receipts are concerned. An administrator will keep all digital records organized and secure on your behalf providing peace of mind.
- Changing Regulations – In recent years, healthcare policy consistently proves to be evolving. Therefore, as ICHRA evolves, an administrator will always be up-to-date on regulation changes.
ICHRA compliance can be confusing. The good news is that if you choose a third-party HRA administrator (like Take Command Health!), we take care of all of this for you and ensure that you remain compliant and out of trouble. It's a lot less stressful, we promise.
Other helpful resources:
Chat with our team any time on our website and we would be happy to help walk you through any questions you may have.