Individual Coverage Health Reimbursement Arrangements (ICHRA) have been increasing in popularity over the last few years. With more and more businesses looking to participate in an ICHRA, your HRA administrator team at Take Command will make your enrollment and management experience as efficient and effortless as possible. Given the vast amount of information available, we’ve created this overview to answer your biggest question– What is an ICHRA?
ICHRA Plans at a Glance
What is an Individual Coverage HRA (ICHRA plan)?
An Individual Coverage Health Reimbursement Arrangement (ICHRA) is a type of HRA that was developed in 2017 to give employers the option to provide tax-advantaged healthcare benefits.
An ICHRA is similar to a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) in that employers are able to reimburse their employees for qualified health-related expenses. An ICHRA, however, allows employers to set higher spending limits, has no limitations on business size, and provides more flexibility in plan setup.
How does an ICHRA plan work?
An ICHRA allows employees to select their own health insurance plan based on their own unique needs. Through the ICHRA, employees submit medical expenses to their employers who then reimburse approved purchases.
ICHRA allows employers to use their time focusing on what they do best–serving their customers–and not on managing complex group plans.
Participating in an ICHRA frees employers from having to select a group health insurance plan. Once the decision has been made to take part in an ICHRA plan, the whole structure is very simple:
- Employers design their plan by determining a reimbursement limit and identifying which employees will be eligible to participate in the ICHRA based on classes, age, and family size.
- Employees are notified of the change in health care benefits and purchase individual health care plans that best fit their individual health care needs.
- Once employees have successfully completed the onboarding process, they are able to begin submitting medical expenses for reimbursement.
- An ICHRA administrator will review reimbursement requests and approve eligible expenses. Each month, the employer will grant tax-advantaged reimbursements to those who submitted requests.
If you need help getting started, reach out! Our enrollment team at Take Command is happy to answer your questions.
ICHRA plan rules
Because health insurance compliance is regulated by the IRS, it’s absolutely essential to make sure your business is keeping up with legal requirements. A list of general ICHRA rules includes:
- While there is a great amount of flexibility in how ICHRA plans are set up, health insurance benefits must be offered fairly to groups of employees.
- There are no maximum limits to how much an employer chooses to reimburse.
- Employers can choose what they will reimburse (insurance premiums, qualified medical expenses, or both).
- ICHRA plans must abide by affordability guidelines.
What are the benefits of an ICHRA plan?
According to the HRA Council, ICHRAs have grown 3.5x in the past year. Given the extensive benefits to both employers and employees alike, it’s easy to understand the appeal.
Here’s what we love about ICHRAs.
- Simplicity: Once you set up your ICHRA, it’s easily maintained. By determining your fixed amount of reimbursement funds when you first set up your plan, you’re able to focus your attention and energy on running your business.
- Tax efficiency: ICHRAs are tax-advantaged! This means that all reimbursements on premiums and qualified health-related expenses aren’t taxable.
- Individualized plans: Instead of needing to follow a group plan determined by an employer, employees are able to shop around for a health insurance plan that best fits the health and medical needs of them and their families.
- Special enrollment trigger: While most insurance plans require participants to wait until open enrollment to begin participating in a health care plan, an ICHRA allows employees to enroll as soon as an insurance policy as soon as their employer sets up their company ICHRA. In other words, employees are able to shop around at different points in the year instead of waiting for open enrollment season.
- Flexibility: As long as your plan setup is equitable, you’re able to offer different monthly allowance amounts to different groups of employees based on age, employment class, and family size. For more information, take a deeper look at the 11 employee classes.
- Premium tax opt-out: If an ICHRA set up by an employer is considered “unaffordable” employees have the option to opt out of ICHRA reimbursements and keep their tax credit instead.
- No contribution limits: While QSEHRAs have reimbursement limits, an ICHRA doesn’t have any limitations on contributions. Funds allocated for reimbursement are predetermined at the discretion of the employer.
- No limitations on employee numbers: Also unlike a QSEHRA, there are size requirements for a business to participate in an ICHRA. Businesses of all sizes are able to set up their own ICHRA health insurance plan.
What can an ICHRA plan be used for?
The IRS actually uses the same list of approved expenses for Health Savings Accounts (HSAs) for ICHRAs. Take a look at the comprehensive list here, but in general:
- Doctor visits
- Medical equipment
- Dental procedures
Additionally, as we mentioned above, an employer can choose to reimburse medical insurance premiums as well!
Who is eligible for an ICHRA plan?
While an ICHRA is generally more inclusive than a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA), it’s important to make sure you and your business are eligible to participate.
- Businesses. As long as you don’t already participate in a QSEHRA or Excepted Benefit Health Reimbursement Arrangement (EBHRA) or offer a traditional group health care plan, you’re eligible to participate in an ICHRA.
- Owners. Whether or not you’re able to participate in your ICHRA as an owner very much depends on how your business is set up. For example, C-corp and non-profit owners are able to participate. However, S-corp owners are not eligible. To better determine your eligibility, we recommend that you take a look at this article and reach out to an accountant.
- Employees. Employee eligibility is based on how the employer set up their ICHRA. If you’re an employee, we recommend you take a look at the specific ICHRA plan created by your employer.
How to set up an ICHRA
Setting up an ICHRA health insurance plan for your business is actually fairly simple and can take just a few hours.
Step 1: Determine the start date
The best part about participating in an ICHRA is you’re able to set up your plan at any time. Once you choose a start date that works best for your business, your employees are given permission to enroll in an individual healthcare plan- no need to wait for open enrollment!
Step 2: Determine employee eligibility
As we mentioned above, there are 11 different classes of groups. Before you implement your ICHRA, you need to determine which groups will be eligible for which health care benefits.
Step 3: Determine your budget
Determining your budget is another great part of implementing an ICHRA plan for your business. Not only can you choose your reimbursement limits, but you can also vary benefits for your different employee groups.
Step 4: Complete legal documentation
Before you can implement your ICHRA, you’ll need to submit a detailed plan summary that includes your reimbursement amounts, class structure, claims processes, reimbursement eligibility, and privacy. As with anything involving the IRS, there are, of course, rules to follow. Failure to do so results in penalties. Many businesses choose to use ICHRA administration software to alleviate any stresses associated with compliance.
Step 5: Inform employees of new health care benefits.
Once all your documentation has been submitted, you need to inform your employees of all relevant information regarding their ICHRA. They will also need to be onboarded.
Step 6: Support employees in choosing individual health insurance
While you cannot legally be involved in helping an employee select their individual health care plan, you can assist by providing resources. In order to avoid the fine lines, you can utilize an HRA administration software, like Take Command, to help your employees enroll in a health care plan that works best for them.
Step 7: Start reimbursing!
Once your employees have been successfully onboarded, your employees can begin submitting reimbursement requests!
Need more information on ICHRA?
Check out this article to take a deeper look at everyone’s favorite HRA plan.
Reach out to our specialists at Take Command to see how our ICHRA administration software can help make your plan setup and maintenance quick and effortless!
Susanne is a copywriter specializing in the health and wellness industry. Before starting her own business, she spent nearly a decade at a marketing agency doing all of the things – advisor, copywriter, SEO strategist, social media specialist, and project manager. That experience gives her a unique understanding of how the consumer-focused content she writes flows into each marketing piece. Susanne lives in Oklahoma City with her husband and two daughters. She loves being outdoors, exercising and reading.