Today we want to clear up any confusion you might have about the ICHRA definition. ICHRA (we pronounce it “ick-rah”) stands for Individual Coverage Health Reimbursement Arrangement and is still considered the new HRA on the block, having burst onto the healthcare scene in January 2020.
ICHRA is an evolution of another type of HRA, called a QSEHRA, 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 limits and greater design flexibility that will appeal to more employers.
Benefits of the ICHRA
For business owners
- Transfers employer responsibility for health risks
- Simpler and more flexible plan design options
- Greater budget control
- No participation concerns
- Helps with employee recruitment and retention
- More personalized plan choice
- Plan portability (they can take their health plan with them if they switch jobs)
- Since HRAs are tax-free, workers won’t have to pay any income or payroll taxes on the funds
- More responsibility over their healthcare spend
- May represent the first employer assistance they have when funding a health plan
ICHRA definition: how it works
As the “reimbursement” part of its 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 amounts (unlike its predecessor, the QSEHRA, with ICHRA, there’s no maximum limit)
- Employees purchase the individual plans they want - ICHRA works with all off- and on-market major medical plans as well as Medicare Parts A+B or C, catastrophic plans for those under 30, and student health insurance.
- Employees submit claims for reimbursement
- Employers reimburse employees for valid claims
- Employers outsource administrative functions like verifying coverage and compliance.
How ICHRA reimbursement works
There are no limits to how much an employer can offer for reimbursement under ICHRA. This is a big difference with QSEHRA which has rather restrictive limits. With ICHRA, employers can offer as much or as little as they’d like as long as it’s offered fairly to each class.
In addition, employers can choose what they want their ICHRA to reimburse:
- Insurance Premiums Only
- Insurance Premiums + Qualified Medical Expenses
- Qualified Medical Expenses Only
How ICHRA classes work
Reimbursements can be applied to all employees, or employers can choose to create different reimbursement rules for different types of employees, referred to as employee “classes”. For example, you could offer one set of reimbursement rules to full-time employees and a separate set of rules for part-time employees.
Classes cannot be used to discriminate or adversely shift health risk off of an existing group plan. However, they still provide incredible flexibility that can help employers really fine-tune their offering. Here’s a quick list of how you can segment employees:
- Full-Time Employees
- Part-Time Employees
- Seasonal Employees
- Employees covered by a collective bargaining agreement
- Employees who have not satisfied a waiting period for coverage
- Salaried Employees
- Non-Salaried Employees
- Temporary employees of staffing firms
- Non-Resident aliens with no US-based income
- Employees in the same geographic rating area
- Any combination of two or more classes from above.
Beyond the ICHRA definition: getting started
Chat with our team with any questions you may have about the ICHRA's new, tax-friendly benefits or check out our new ICHRA Guide for more information on its background, setup process, requirements, and rules. Our administration tool makes it easy to get started, and our team of experts are with you (and your employees) every step of the way.