Looking for ICHRA rules, ICHRA regulations or ICHRA requirements? The tax-advantaged benefits of the Individual Coverage HRA (ICHRA) have been available since January 1, 2020. Our team sees this HRA option as a game changer for companies that traditionally offer group plans to their employees. It gives employers flexibility to scale benefits, control costs, and make the design work for their unique staffing situation. Here's what to know about ICHRA rules.
Before we dive in, let's all take a moment to go over what an ICHRA actually is. An Individual Coverage HRA is a tax-advantaged solution that allows a company of any size to reimburse employees for individual health plan premiums and ICHRA qualified medical expenses.
It works like this: 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 a their part-time team, $400 a month for remote employees, and a traditional group plan for the full-time team. Employees would 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 plan, employers can scale their benefits based on employee classes and employees can choose the best plan that works for them.
A quick recap of all the ICHRA benefits:
- Streamlined and simple from an administrative standpoint
- Optimized for benefits savings and budget control
- Scalable for growing companies
- Portable benefits for employees
- Personalized and flexible to fit a diverse workforce
This is the opposite of one-size-fits-all. And it's positioned to completely rewrite the way companies offer health benefits to their staff.
ICHRA Regulations: Where are the ICHRA rules coming from?
The final rules for the Individual Coverage HRA were announced June 13, 2019 from the U.S. Departments of Treasury, Health and Human Services, and Labor. The rules expand upon the executive order from President Trump last fall which instructed the U.S. Departments of the Treasury, Health and Human Services, and Labor to expand the usability of HRAs. This was the third step the President has used to reform healthcare policy through regulatory changes. ICHRA rules can change so it's always important to have a well-informed ICHRA administrator on your side (like us!).
Recent HRA research has shown that since its inception, ICHRA has seen triple digit growth, according to the HRA Council.
See if your location is prime to save with ICHRA with our HRA Heatmap!
ICHRA Rules: The Complete List
Here's the complete list of ICHRA rules and requirements.
- 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. (We think THIS IS HUGE in terms of giving more flexibility and affordability to employers).
- 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!). Switching from a group plan to an ICHRA is super 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.
→ Learn more about how ICHRA affects premium tax credits.
→ Learn more about ICHRA eligibility rules.
→ Check out our ICHRA plan document template!
Here are a few important ICHRA requirements to remember for the Individual Coverage HRA.
Company size requirements
Good news, everyone! The individual coverage HRA is a scalable benefit, available for businesses of all sizes (unlike its predecessor, the QSEHRA, which is only for companies of less than 50).
This means that a five-person startup, a mid-sized 50-person team, or a 500-person corporation can all sign up for an individual coverage health reimbursement arrangement.
ICHRA contribution requirements
More good news. There is no limit on what you can contribute to an ICHRA. The sky’s the limit for this tax-friendly alternative to traditional group plans.
ICHRA class requirements
ICHRA classes, one of our favorite things about this new type of HRA, allows employers to scale benefits across different types of employees. That means everyone doesn’t have to be treated fairly across the board and you can concentrate your benefits dollars on the employees who matter most. Within each class (like part time, salary, remote, etc), employees have to be treated equally.
ICHRA Employee Requirements
Any member of the team is eligible to participate in ICHRA, but for employees to be ICHRA compliant and receive reimbursements, two boxes must be checked when it comes to whether or not their health plan will integrate with ICHRA.
First, they must be covered by a qualified individual health plan, meaning that the plan has no annual or lifetime limits (PHS 2711) and covers preventive health services with no cost sharing (PHS 2713).
Plans that jive with the individual coverage requirements include individual major medical plans found on or off the exchange, catastrophic plans (limited to those under 30 or those who qualify for a hardship exemption), Medicare parts A or B+C, and student health insurance.
While employees will have many options on the individual market, the rules do not apply for employees seeking coverage on a spouse’s employer-based plan. We think this is a bummer, but it’s an important individual coverage requirement to know.
In addition, we know there are a lot of alternative plans on the market now based on short-term plans, fixed indemnity plans, and sharing ministries. Although these alternative plans may provide great coverage, they will not work with ICHRA.
If an employee doesn’t have a plan, no worries! Being eligible for ICHRA means that you have a special enrollment period to find a plan that works for you.
→ Learn more about how ICHRA affects premium tax credits.
ICHRA administration requirements
Setting up an ICHRA is not rocket science, but ICHRA administration does require some important components:
- Legal Plan Documents (subject to ERISA)
- COBRA Administration (if not exempt)
- Process to substantiate employee claims
- Reimbursement mechanism
- Record-keeping and Tax Reporting
- ICHRA reporting
If this seems overwhelming to you, remember that if you have an ICHRA Administration software like Take Command, we'll do all the heavy lifting for you.
About Take Command
Take Command is a recognized leader in HRA administration and small business HRA tax strategy. We were at the forefront of the new ICHRA administration regulations and responded with our own comprehensive and exclusive research to the proposed regulations. We are also a founding member of the HRA Council.
We were the only HRA provider invited to Washington when the new regulations were passed and are the only HRA administrator to offer personalized, hands-on enrollment support for employees.
Our team is passionate about HRAs and the impact they can have on a business.
Chat with our team of HRA administrators with any questions you may have about these new, tax-friendly benefits or check out our ICHRA Guide for more information on its background, setup process, requirements, and rules.
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
- Learn about how ARPA effects ICHRA and COBRA
- Check out our ICHRA administration software!
This was post was originally published in 2019 and has been updated in 2023 to reflect the latest policy and regulatory updates.
I wrote this blog because I care about ideas (big and little) that can help fix our healthcare system. I used to work on projects for Kaiser Permanente and the Parkland Health & Hospital System so I've seen the system inside and out. It's so important that consumers keep up with industry shifts and changing health insurance regulations. I'm also Take Command Health's Content Editor and a busy mom. Learn more about me and connect with me on our about us page. Thanks!