The tax-advantaged benefits of the Individual Coverage HRA (ICHRA) are a game changer for companies that traditionally offer group plans to their employees or are new to benefits altogether. ICHRA is an evolution of another type of health reimbursement arrangement, called a QSEHRA. Both allow employers to reimburse employees tax-free for individual health insurance, and both are built on a series of regulations to make sure they are being offered fairly and are achieving their intended aim, which is to help employees pay for benefits tax-free. Here’s what you need to know about ICHRA regulations.
How ICHRA works
The employer designs their HRA and determines the amount to reimburse on a monthly basis to different classes of employees, say $200 a month for their part-time team, $400 a month for remote employees, and a traditional group plan for the full-time team. Employees then submit proof of an expense for reimbursement and get paid back.
This transaction is tax-free, meaning that employers don't get dinged for payroll tax on the amount and the employees don't have to recognize the reimbursements as income.
The biggest benefit of all is that with ICHRA, employers can scale their benefits based on employee classes and employees can choose the best plan that works for them.
This is the opposite of one-size-fits-all. And it is completely changing the way companies offer health benefits to their staff.
10 ICHRA regulations you should know
- Any size of company is eligible to offer an ICHRA.
- Employees must maintain Minimum Essential Coverage (MEC), aka coverage that meets PHS 2711 & 2713 with a qualified health plan.
- Employees in different classes (think geographic location, seasonal, part-time, abroad) can be offered different levels of benefits.
- There are no maximum or minimum limits for monthly reimbursement rates.
- Employers can choose to offer an ICHRA any time throughout the year (not just during open enrollment!). Transitioning from a group plan to an ICHRA is easy!
- Employees have a 60 day window to enroll in an individual health plan once the ICHRA becomes available, as it triggers a special enrollment period. This makes finding an individual plan that meets MEC outside of open enrollment much easier for employees.
- ICHRAs can meet the employer mandate for employers with greater than 50 full-time Applicable Large Employers (ALEs) if the offer is “affordable” and meets minimum value (MV)
- An ICHRA can be offered with a traditional group plan as long as both options aren't being offered to the same class of employees. Note: this does not preclude group dental and vision like QSEHRA.
- If ICHRA is deemed "unaffordable," employees can choose between using Premium Tax Credits or the ICHRA. If it is deemed affordable, they cannot opt out and receive a premium tax credit. (Confused? We built an Affordability Calculator to help.)
- ICHRA can be used to reimburse for premiums and qualified medical expenses, including excepted benefits like dental, vision.
Take Command Health, your HRA experts
Is your company or client going to be a part of this exciting change? Chat with our team with any questions you may have about these new, tax-friendly benefits or check out our new ICHRA Guide for more information on its background, setup process, requirements, and rules.