The individual coverage HRA has brought with it many questions. We've collected the most common questions we hear and have them all in one, easy-to-find place. To learn more about ICHRA as a small business health insurance solution, read our ICHRA Guide or watch our webinar.
Summary of Topics
General ICHRA Questions
What is an ICHRA?
ICHRA stands for “Individual Coverage Health Reimbursement Arrangement” and is the newest standalone HRA that enables employers of all sizes to reimburse their employees tax-free for health insurance premiums and medical expenses. Our CEO told Bloomberg that ICHRA is part of an employer-based health benefits revolution and we couldn't agree more.
For more information on the new HRA, read our in-depth ICHRA Guide.
Where did it come from?
In October 2017, President Trump issued an Executive Order (E.O. 13813) asking the Departments of the Treasury, Health and Human Services, and Labor to expand the usability of Health Reimbursement Arrangements (HRAs). The new rules creating the ICHRA were released in June 2019.
Although ICHRA is new, it represents an evolution of another HRA called a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) that was created by the Obama Administration a few years earlier.
The ICHRA rules went into effect January 2020.
For a more in-depth explanation of where and how the new HRA originated, read our in-depth ICHRA Guide.
How does ICHRA work?
An individual coverage HRA is an employer-funded HRA that reimburses employees for medical premiums and expenses. Employees pay their individual insurance premiums and/or medical expenses (depending on how the employer designs the ICHRA) and then submits receipts for reimbursement from the employer. The employer establishes the reimbursement allowances per employee.
How does an ICHRA differ from a traditional HRA?
There are two primary differences between an ICHRA and a traditional HRA:
- An ICHRA can reimburse individual insurance premiums, while a traditional HRA cannot
- A traditional HRA must be “integrated” with a group health plan, whereas an ICHRA works with individual insurance plans
To read our further discussion on the benefits and downsides of ICHRA, read out blog titled, “ICHRA pros and cons”.
What’s the difference between a QSEHRA and an ICHRA?
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.
For a side-by-side comparison of the two HRAs, read our blog titled, “Individual Coverage HRA (ICHRA) vs. QSEHRA”.
Under ICHRA, are premium reimbursements taxable income for the employee?
No. With ICHRA, all reimbursements are tax-free, including premiums.
What qualifies as medical expenses under ICHRA?
In addition to enabling employers to help employees pay for their individual heath insurance premiums tax-free, ICHRA also allows reimbursement for medical expenses. The list of qualified medical expenses is originally found in the IRS’s Publication 502 (starting on page 5). We’ve re-listed these items for convenience. Keep in mind employers can choose from this list so everything will not necessarily be included. Here is the list of medical expenses that are reimbursable through ICHRA.
Before an employee can receive reimbursements, they must show proof of existing health insurance coverage. (This is similar to the rules in effect governing QSEHRA.)
What happens if employees don’t use their allowance?
Because ICHRA is a reimbursable arrangement (and not an account), the employer simply keeps the dollars that were earmarked for reimbursement. Throughout the year, however, the employee’s unused allowances accrue, but if the employee never submits receipts for the full reimbursable amount, the employer keeps the funds.
Employers have the option to either carry over the funds or reset them at the end of the year. Which option employers utilize will depend on their benefit strategy.
What is required from an employee to participate in ICHRA?
An employee must fall within one of the designated classes set forth by the employer, and the employee must have an ICHRA-compliant individual insurance plan to be eligible. Our post on employee requirements for ICHRA eligibility dives into the details for your workers, and don't miss our post on ICHRA requirements that every business owner needs to know.
What happens if employees lose or drop their coverage in the middle of the year?
Employees who lose or drop coverage mid-year are no longer able to participate in ICHRA and claim reimbursements.
When can I set up an Individual Coverage HRA?
ICHRAs become effective January 1st, 2020. That means starting in Q4 2019, employers can start setting these up for 2020.
Now that ICHRA is officially "live," we've put together a post on how to set up an an ICHRA just for you. Trust us, it's as easy as one-two-three.
Designing an ICHRA
How much can employers contribute to an ICHRA?
There are no minimum or maximum contribution limits for ICHRA in 2020. Furthermore, employers can choose to offer different amounts to different classes.
Are there minimum participation rates?
No, there are no minimum participation rates for ICHRA. This is a big difference over traditional group plans which typically require 70% participation.
Note: If you are offering a group plan to one employee class and ICHRA to others, minimum class sizes may apply.
Can employees located in other states be offered an ICHRA?
Yes, employers can use the “rating area” employee class to offer different benefit solutions to employees in different states (or rating areas). This could include different reimbursement amounts through ICHRA or traditional group plans.
Please note: if employees in one state are being offered an ICHRA and employees in another state are being offered a traditional group plan, minimum class size requirements may apply. There are no class size requirements if the rating area defining the employee class is the size of a state or larger.
|Class size minimum||Size of employer|
|10||< 100 employees|
|10% (rounded down)||100-200 employees|
For a more information on offering ICHRA to remote employees, read about ICHRA classes in our comprehensive ICHRA Guide.
What are "employee classes" and how do they work?
The ICHRA classes are as follows:
- Full-time employees
Employees covered under a collective bargaining agreement
Employees in a waiting period
Foreign employees who work abroad
Employees working in the same geographic location (same insurance rating area, state, or multi-state region)
Non-Salaried workers (such as hourly workers)
Temporary employees of staffing firms
- A combination of two or more of the above
The amounts offered to employees can be increased within each class based on either age or number of dependents.
ICHRA will also feature a new hire rule which allows employers to offer new employees an Individual Coverage HRA while grandfathering existing employees in a traditional group health plan.
For more information, read our article “How do ICHRA classes work?”
Can an employer offer a group plan to full-time employees and an ICHRA for part-time employees?
Yes. When initially setting up the ICHRA, an employer will need to create separate classes for both part-time and full-time employees then set the reimbursable limits.
Can an employer reimburse for medical expenses only (and not premiums)?
Under ICHRA, an employer can create a plan that reimburses “expenses only” (and not premiums). However, employers and employees would still be subject to the PTC rules based on the HRA’s “affordability” (see notes above). If “unaffordable”, the employee would be able to choose between the PTC and the HRA. If “affordable”, then no PTC is available. Unfortunately there’s not a design opportunity for employees to leverage both the PTC and the HRA.
What businesses are able to offer an Individual Coverage HRA?
All businesses are eligible to offer this HRA as long as they a.) do not already offer a QSEHRA or EBHRA and b.) do not simultaneously offer a traditional group plan and ICHRA to the same class of employees.
Do owners qualify for coverage under ICHRA?
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.
Is ICHRA applicable for household employers hiring privately with 1 or more employees?
Yes. Household employers will need an EIN to offer an ICHRA to household employees. This post discussed how to set this up with QSEHRA. The process will be no different with ICHRA.
Does an employer have to fund an ICHRA or do they put money in as needed?
ICHRA (as well as QSEHRA) is a reimbursement arrangement rather than an account. This means that employees will typically pay for insurance or medical care themselves and then file a reimbursement claim. Employers only pay out funds to employees when a claim is made and approved. While some employers may choose to setup separate bank accounts for tracking purposes, it is not required.
Can large employers offer an ICHRA to meet the corporate mandate?
Yes. However, specifics from the IRS regarding calculations and benchmarks are still pending. These should help large employers understand what their minimum HRA contributions would have to be so they can meet the mandates.
Initial guidance and examples were provided in Notice 2018-88 as well as ideas on potential safe harbors for large employers (ALEs). These safe harbors are important to make Individual Coverage HRAs more practical and less administratively burdensome for large employers.
The initial safe harbors include:
- Employee location: Allowing ALEs to base HRA rates based on their primary business location instead of every employee's actual address.
- Calendar year and non-calendar years: Provisions for HRA plan years that are different from individual insurance plan year.
- Affordability: Allowing ALEs to estimate an employee's Household wages using one of three different methods: Form W-2 Wages, Rate of Pay, or Federal Poverty Line.
- Another safe harbor based on employee ages was also discussed but not yet provided. The IRS is asking for comments on how this might be practically implemented.
For a more in-depth discussion regarding the corporate mandate, read our recent post titled, “Can ICHRA meet the employer mandate?”
How much must an employer contribute to meet the Minimum Value (MV) requirements and avoid corporate mandate penalties?
IRS Notice 2018-88 provides our first glimpse into how this might work. Employers will be able to utilize some of the safe harbors listed above or able to do their own calculations--providing they apply them consistently to different employee classes.
In general, the HRA contributions made by an employer using an Individual Coverage HRA must be high enough that an employee could purchase the lowest cost silver plan in his or her market and not pay more than 9.78% (rate for 2020) of his or her income out-of-pocket.
For example, Employer ABC is offering employees an Individual Coverage HRA. Employee A is 40 years old. The lowest silver cost plan for self-only coverage in Employee A's rating area is $7,000 a year. Using the safe harbors described above, Employer ABC estimates Employee A's household income to be $15,000 and offers $6,000 through the HRA.
This is deemed "affordable" for MV sake and Employer ABC would be compliant because Employee A's effective contribution of $1,000 (The cost of the lowest silver plan $7,000 less the available HRA funds of $6,000) is less than 9.78% of Employee A's total income of $15,000 ($1,000/$15,000 = 6.67%).
Check out our post on ICHRA and corporate mandate penalties for more info.
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.
Employee Coverage Requirements
Can ICHRA be used to reimburse employees on Medicare?
Yes, Medicare can be reimbursed through ICHRA. Employees must have Part A and B or Part C to qualify for participation. All parts of Medicare including Medi-gap coverage are reimbursable for qualified employees and their dependents.
Do employees covered by their spouses qualify for an ICHRA?
If the spouse has purchased the plan through the individual marketplace, the employee can participate in ICHRA and submit the family premium rate for reimbursement. However, if the spouse’s plan is a group plan offered through the spouse’s employer, the employee would not be eligible to participate in ICHRA because the plan is not secured from the individual market.
To learn more, read our blog titled, "Will ICHRA reimburse employees on a spouse's plan?"
If an employee declines participation in a spouse’s group plan, do they qualify for the ICHRA?
If the employee is not on his/her spouse’s plan and has an individual health insurance plan, yes, they are eligible for ICHRA.
Does Medi-Share and other sharing plans qualify as individual coverage under ICHRA?
No. Unfortunately, sharing ministries including Medi-Share do not qualify for participation under ICHRA. Learn more about this in a blog post that addresses sharing ministries and ICHRA.
Does TRICARE or CHAMPVA qualify for ICHRA?
The guidelines for ICHRA are very clear that Tricare eligible employees will need to purchase a separate individual insurance plan to participate in ICHRA. While the guidelines didn’t call out CHAMPVA specifically our understanding is that these employees will fall under the same guidance as Tricare eligible employees and need to purchase an individual plan to participate in ICHRA. You can learn more about this in a blog post that addresses Tricare and ICHRA.
Will P-MEC qualify for ICHRA participation?
P-MEC and limited medical plans won’t work with ICHRA. ICHRA requires eligible employees maintain individual coverage that meets ACA guidelines (including no cost sharing for preventive benefits and unlimited lifetime benefits). Most P-MEC and limited medical plans don’t meet these criteria.
Note: these plans may be eligible for reimbursement, but ICHRA rules would require the employee to purchase a qualified health plan first, so it would limit the practicality of P-MEC and limited med plans.
Does ICHRA cover Medical Concierge Plans (e.g., MDVIP)?
Generally yes, but it depends. At the federal level, Concierge Plans and Direct Primary Care (DPC) are currently treated as insurance premiums. (Note: in some states, these plans have been classified as medical expenses) ICHRA can reimburse both premiums and expenses (if allowed by the plan sponsor) and can therefore reimburse both of these plan types as long as the eligible employee maintains qualified individual coverage (Concierge and DPC plans themselves do not satisfy the coverage requirements).
Affordability and Tax Credits
Can Employees participate and receive Premium Tax Credits (PTC)?
No, but employees will have an option to opt out of the new HRA for a year which will allow the employee to be eligible for tax credits. An employee is able to opt out of the ICHRA after looking at their allowance amount and finding that it was low enough so that any policy they purchased would be considered “unaffordable” and wouldn’t provide any value under ACA.
For more helpful info, check out our post on ICHRA and Premium Tax Credits.
In terms of the premium tax credits, how is "affordable" and "unaffordable" determined?
ICHRA is considered “affordable” if the remaining amount an employee must pay for a self-only silver plan on the exchange does not exceed 1/12 of their household income. If the ICHRA offering is deemed “affordable”, then the employee cannot accept a premium tax credit. If ICHRA is deemed “unaffordable” the employee can choose to decline the ICHRA and accept the premium tax credit.
Don’t worry if the math sounds a little complicated, we’ve created an ICHRA Affordability Calculator that makes this easy! Here's the ICHRA Affordability press release that explains how this new feature works.
Interactions Between ICHRA and Other Plans
Can an employer offer both ICHRA and EBHRA?
ICHRA and EBHRA cannot be offered together to the same class of employees. Because EBHRA must be offered in conjunction with a traditional group plan it disqualifies ICHRA from being offered. However, employers could offer ICHRA to one employee class and a group plan supplemented with an EBHRA to another employee class.
Can an employer offer both an ICHRA and a QSEHRA?
Unfortunately, the rules specifically state an employer cannot offer both an ICHRA and QSEHRA. Regulatory-wise, ICHRA is considered a “group health plan” therefore making it incompatible with QSEHRA which does not allow employers to offer a group health plan. This also includes different employee classes—offering an ICHRA or traditional group plan to any class of employees would disqualify any other class from receiving a QSEHRA (per QSEHRA’s rules).
Can an ICHRA and HSA work together?
Yes. However, a successful integration depends on how the ICHRA is originally setup by the employer.
An ICHRA must be designed to only reimburse premiums (not premiums and expenses) in order for the employee to be eligible to make contributions to an HSA. Additionally, an individual must have a High Deducible Health Plan (HDHP) to participate in an HSA as well as carry an ICHRA-compliant individual insurance plan.
We've put together a very comprehensive post on how HRAs and HSAs work together if you want more context.
What comes next?
The White House estimates that 800,000 employers and upwards of 11 million workers and their families will benefit from the new individual coverage HRA.
Will your company or client be a part of this exciting change? Start the process today on our first-of-its-kind ICHRA Administration platform. Use the chat feature below to connect with our team.