The Individual Coverage Health Reimbursement Arrangement, or ICHRA, brought exciting changes to the health care market when it hit the scene at the beginning of 2020. An evolution of another type of HRA, called a QSEHRA (created in 2017), the ICHRA represents a “super-charged” version of QSEHRA with higher limits and greater design flexibility that will appeal to more employers.
If you are looking to set up an HRA like ICHRA (or its predecessor QSEHRA), you're probably wondering how much you should reimburse each month and what the limits are. Just like HSAs have limits announced each year that rise with inflation, you're probably thinking all HRAs have limits too. That's not necessarily the case!
In this post, we will go through the contribution limits for both ICHRA and QSEHRA, two of our absolute favorite ways to reimburse employees tax-free for health expenses.
ICHRA contribution limits
Surprise! There aren’t limits with the ICHRA! You can be as generous as you want to be here. The sky's the limit.
ICHRA also has another feature for those who want to offer their employees different amounts. While QSEHRA requires that all employees are reimbursement equally and that amount is only allowed to be scaled based on age or family size, ICHRA offers 11 different employee classes that represent different buckets for an employer to offer different amounts to. Again, it's a great option for some businesses and we are here to help you make the right decision for your company.
While there 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.
ICHRA is considered affordable if the remaining amount an employee must pay for a self-only silver plan on the exchange does not exceed 9.78% of their household income for 2020. For 2021, that percentage changes to 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.
QSEHRA 2020 contribution limits
While ICHRA doesn't have any contribution limits, QSEHRA does. All QSEHRA reimbursements are subject to annual maximums and become available to employees on a monthly basis. This means employees can’t take the full annual amount in January—instead, the funds become available to employees each month. Although if they do submit a medical expense that exceeds their reimbursement limits, they can be paid out on a monthly basis.
In the law, these amounts are tied to inflation, so we expect them to go up a little bit every year. In 2020, maximum annual allowance amounts are set at $5,250 for single employees and $10,600 for employees with a family.
While there are numerous differences, the primary contrast when you compare QSEHRA vs. ICHRA is eligibility based on company size 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. 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.
Here to help
Setting up an ICHRA is a snap and monthly administration is quick and painless, especially when you use a third party HRA administrator like Take Command Health. We take care of ICHRA compliance, reporting, onboarding employees and documents needed for tax time.