There's a new way to offer streamlined benefits solutions to your team. It's called an individual coverage health reimbursement arrangement (ICHRA, for short) and it's catching on quickly for businesses of all sizes across the country. You probably wondering what it is and what it can do for you. If that's you, keep reading.
What is an individual coverage health reimbursement arrangement?
An individual coverage health reimbursement arrangement is an alternative to traditional group insurance that allows employers to reimburse employees for health plan premiums and qualified medical expenses with pre-tax dollars. While HRAs are nothing new, it’s only recently that there are more options for businesses of all sizes.
For employees, this means that instead of everyone being on the same group plan, which are often too one-size-fits-all and too expensive for many companies, now individuals can choose the best plan that works for them on the individual market and get reimbursed for it tax-free. For employers, this is an excellent alternative to small business health insurance for owners, with top benefits including risk, cost, participation, flexibility, and issues with tax credits.
The individual coverage HRA, new this year, offers 401-k style benefits to businesses of all sizes without monthly contribution limits.
What can be reimbursed with an individual coverage health reimbursement arrangement?
In addition to qualified medical expenses, the individual coverage HRA can be used to reimburse insurance premiums for:
- individual major medical plans
- catastrophic plans (for those under 30 or who qualify for a hardship exemption)
- Medicare Part A+ B or C, and student insurance
ICHRA does not integrate with short-term limited duration insurance, sharing ministries, fixed indemnity plans, excepted benefit coverage only (vision, dental, etc.), association health plans, multiple employer welfare arrangements, or TRICARE.
How does an individual coverage HRA benefit the employee?
Flexibility: Being on a group plan is like requiring everyone to wear the same size suit. Since everyone has their own needs and preferences when it comes to their health, doctors, and prescriptions, an ICHRA allows each employee to choose what’s best for them.
Portability: Job changes aren’t uncommon in today’s market. But your health insurance shouldn’t have to change just because you change jobs. If you are offered an ICHRA at a company and then end up leaving—say, to go out on your own, your health plan will stay with you. No need to stress over pricey COBRA plans or switching plans that might not have your doctor in network; your individual plan will stay with you.
How does individual coverage HRA benefit an employer?
Cost control: Employers can define their benefits budget and stick with it. Simply set the allowable reimbursement rates and employer costs will never be greater than that. And if employees don’t buy insurance or don’t use all of their allowance? The employer keeps the money.No more surprise group increases year after year, no more pricey group plans, and no minimum participation requirements to worry about.
Save time and avoid headaches: Traditional group plans come in all sorts of crazy shapes and sizes—a dizzying and confusing concoction of deductibles, coinsurance rates, employee vs. employer contributions, single versus family limits, etc. Then you get to hassle with census uploads and comparing quotes you have no control over. Employers are forced to guess on plan designs that’ll keep employees happy and fit the budget. Then they have to spend time managing that plan.
Customized design: ICHRA allows for business owners to design a plan that fits their team versus being locked into what an insurance company offers. ICHRA’s biggest selling point is that it has eleven different classes that can be used to divide employees into different benefit levels, meaning the benefit budget can be allocated to the employees who matter most. ICHRA can also offer different rates of reimbursement for full-time vs part-time employees, single vs. family employees, etc. to maximize efficiency.
Risk de-management: For any business that is over 50 employees (100 employees in NY, VT, CA & CO), whether they are currently self-insured or fully-insured, they are effectively responsible for their employees’ healthcare spend. An ICHRA allows employers to “get out” of managing employee health risks.
For these reasons, ICHRA is seen as part of an emerging employer-based benefits revolution and we are here for it!
Is an individual coverage health reimbursement right for my business?
We always recommend businesses speak with their CPA to confirm that an HRA is the best route, especially given that different business entities are treated differently when it comes to ownership participation. When making your decision, it's important to keep in mind that some markets are more ready for this new benefits model than others, based on individual premium costs, individual insurance market health, and other factors analyzed by Vericred and Take Command Health. In fact, we've already run the numbers for the early adopters of the Individual Coverage HRA, including most common industries, reimbursement designs, location, etc.
We've put together some resources to help you choose. Head on over to our post on ICHRA vs. QSEHRA, which compares two of our favorite HRAs side by side, or a post about ICHRA vs. group plans and the pros and cons of each, or our every-popular ICHRA FAQ blog, or our extremely comprehensive and never boring ICHRA Guide.
Our team is on hand to chat with you on our website if you have any questions.