Can an ICHRA reimburse Medicare premiums?

Can an ICHRA reimburse Medicare premiums? Yes, and understanding how ICHRA and Medicare work together is crucial for employers with employees over 65. This guide explains exactly which Medicare premiums are reimbursable and how to ensure compliance when offering an Individual Coverage Health Reimbursement Arrangement (ICHRA) to Medicare-eligible employees.

ICHRA and Medicare: Understanding the Relationship

Medicare has complex existing regulations that HRAs must comply with. When ICHRAs were introduced, how they would integrate with Medicare rules wasn't immediately clear. The final HRA regulations provided critical clarity, making ICHRA and Medicare integration more coherent. 

This guide breaks down three key regulatory challenges that were resolved:

• The anti-duplication provision
• SSA's equal benefits rule
• The Medicare Secondary Payer (MSP) rule

Our team analyzed the 500-page regulatory document following our White House Celebration to provide clear guidance on this critical topic.

How ICHRA Integrates with Medicare Parts 

To understand ICHRA and Medicare integration, let's review which Medicare parts qualify for ICHRA plans.

• Part A - Hospital Insurance: Covers hospital costs and serves as primary Medicare coverage. Considered major medical insurance and required for ICHRA eligibility.
• Part B - Medical Insurance: Covers 80% of approved doctor visits and outpatient procedures after deductible. Also major medical coverage and required for participation. 
• Part C - Medicare Advantage: Combines hospital and medical coverage through private insurers. Qualifies as comprehensive coverage for ICHRA purposes. 
• Part D - Prescription Drug Coverage: Helps you pay for prescriptions but doesn't constitute major medical coverage alone. Not sufficient for ICHRA eligibility by itself. 

Medicare beneficiaries typically choose between two paths:

1. Medicare Advantage: All-in-one plans from private insurers that combine Parts A, B, and often D
2. Traditional Medicare with Supplements: Original Medicare (Parts A & B) plus Medigap coverage to limit out-of-pocket costs

Can ICHRA Reimburse Medicare Premiums? Yes, Here's What's Covered 

According to the federal regulations, ICHRA and Medicare work together as follows: 

Medicare Coverage Requirements:

• Employees must have Part A AND Part B together, OR Part C
• Part B alone doesn't qualify as Minimum Essential Coverage 
• ICHRA may be used to reimburse premiums for Medicare and Medicare supplemental health insurance (Medigap), as well as other medical care expenses. (Premiums for Parts A,B, C, D, and Medigap policies are all eligible for reimbursement).

Reimbursable Medicare Expenses:

• Part A premiums (if applicable)
• Part B premiums
• Part C (Medicare Advantage) premiums
• Part D (prescription drug) premiums
• Medicare supplemental insurance (Medigap) premiums
• Other qualified medical expenses

The ability to answer "yes" when asked "can an ICHRA reimburse Medicare premiums" represents a significant advantage when evaluating ICHRA pros and cons.

ICHRA Design Considerations for Medicare

Employers have flexibility when designing their ICHRA to determine which expenses are reimbursable, provided they offer the same benefits to all employees within designated ICHRA classes. An experienced ICHRA administrator like Take Command ensures ongoing compliance.

Important restriction: While an ICHRA can reimburse employees for health insurance including Medicare, you cannot design reimbursement based on what Medicare does or does not cover.

Medicare Secondary Payer (MSP) Rules

MSP rules determine primary payer responsibility when employees have both employer coverage and Medicare:

• Employers with 20+ employees: Group plan pays primary
• Employers with 100+ employees covering disabled employees: Group plan pays primary
• End-stage Renal Disease (ESRD) cases: Special rules apply

These MSP provisions apply to HRAs just as they do to traditional group plans. 

Navigating the Anti-Duplication Provision

Federal law prohibits selling individual health insurance that duplicates Medicare benefits. However, regulations clarify that ICHRA and Medicare can work together without violating the provision. The final rule permits ICHRA integration with Medicare regardless of MSP status, ensuring Medicare-eligible employees can fully participate in your ICHRA. 

This means employees enrolled in Medicare Part A and B or Part C can participate in ICHRA without concern about anti-duplication violations, removing a significant compliance concern. 

Substantiating Coverage with ICHRA and Medicare 

To maintain compliance when combining ICHRA and Medicare: 

Initial Enrollment:

• Employees must prove enrollment in Medicare Part A and B (or Part C)
• Family members can have individual health insurance instead of Medicare

Ongoing Verification:

• Each reimbursement request requires proof of coverage during the expense month
• Documentation must show Medicare or individual coverage was active

Critical Transition Considerations

When transitioning from group coverage to ICHRA, employers need to understand that Medicare-eligible employees often only have Part A enrolled. This creates a specific challenge for ICHRA and Medicare integration.

Why This Matters:

• Employees must have both Part A AND Part B (or Part C) to participate in ICHRA
• Many employees on group plans only enroll in Part A
• Without Part B, they cannot qualify for ICHRA reimbursements

Special Enrollment Period (SEP) for Part B:

• Losing group plan coverage qualifies employees for a Special Enrollment Period
• No late enrollment penalty applies during this SEP
• This allows employees to obtain Part B without the usual penalties

Key Requirements:

• Employees need proof of coverage for both Part A and Part B to participate in ICHRA
• Alternatively, they can enroll in in Part C (Medicare Advantage)
• Documentation must be provided before receiving ICHRA reimbursements

Employers should communicate these requirements clearly to Medicare-eligible employees before transitioning from group coverage to ensure they have time to enroll in Part B and avoid any gaps in benefits. 

Next Steps for Employers

Now that you know ICHRAs can reimburse Medicare premiums, consider implementing an Individual Coverage HRA for your organization. Understanding how ICHRA and Medicare work together ensures all employees, regardless of age, can benefit from your HRA offering. 

Take Command provides comprehensive support for employers navigating these complexities. Our platform simplifies administration while ensuring full compliance with Medicare regulations.

For more information, explore our ICHRA FAQ page or comprehensive ICHRA Guide. 

Additional resources →

• Learn about ICHRA Classes
• Learn about ICHRA Requirements 
• Learn about ICHRA Regulations
• Learn about ICHRA Plan FAQs
• Learn about our ICHRA Administration Platform

This post was originally published in 2019 and has been updated with new information and insights for 2025. 

Frequently Asked Questions

Can an ICHRA reimburse Medicare premiums for all parts of Medicare?

Yes, ICHRAs can reimburse premiums for Medicare Parts A, B, C (Medicare Advantage), and D (prescription drug coverage), as well as Medicare supplemental insurance (Medigap) premiums. However, employees must be enrolled in Parts A and B together or Part C to participate in the ICHRA.

What happens to Medicare-eligible employees when we switch from group coverage to ICHRA? 

Medicare-eligible employees who only have Part A will need to enroll in Part B during their Special Enrollment Period triggered by losing group coverage. They won't face late enrollment penalties during this period, but they must have both Parts A and B (or Part C) before participating in the ICHRA.

Can employees on Medicare have different ICHRA benefits than younger employees?

Employers must offer the same ICHRA benefits to all employees within the same class. While you can create different employee classes based on legitimate job-based criteria, you cannot design benefits differently based solely on Medicare status or what Medicare does or doesn't cover.

Do Medicare-eligible employees' spouses need to be on Medicare too?

No, family members of Medicare-eligible employees can be enrolled in individual health insurance coverage instead of Medicare. Each family member's coverage is verified separately when requesting reimbursements.