What happens to unspent funds with an ICHRA?

by Keely S.

Are you a small business owner interested in offering your employees the hot-off-the-presses individual coverage health reimbursement arrangement (ICHRA)? You probably have plenty of questions, and we’ve tried to answer most of those in our handy FAQ post. If you’re wondering what happens to unspent funds at the end of each calendar year, look no further. 

Unspent funds are a common question we receive from business owners, benefits consultants and CPAs. Unlike an HSA, it doesn't roll over unless you want it to. It's also different from an FSA, which can only have $500 rolled over each year now that the 'use it or lose it' policy has been amended.

Because you aren't funding an account and you are merely reimbursing for expenses once incurred, you have to look at HRAs a little differently than other tax-advantaged benefits tools. 

You've got options with unspent funds and ICHRA

According to the final rules, it is assumed that the entire ICHRA balance is spent on healthcare premiums and cost sharing each year. Employers have options when it comes to unused funds and ICHRA. Here they are:

  1. Employer can keep the unused funds if they choose and reset the balance at the end of the year.
  2. Employer can allow employees to carry unspent ICHRA balances over from year to year.

Which option each employer chooses will depend on their benefits strategy. 

Encouraging more efficient healthcare spending with ICHRA

The ability to carry over benefits from year to year could encourage employees to curtail healthcare spending, particularly less efficient spending.

We hope that this will have the desired effect, but we are cautious in our expectations. There are several factors that might affect the results on spending efficiency. First, unlike HSA balances, which can be withdrawn for non-health purposes subject to tax but without penalty after age 65 and with a 20 percent penalty before age 65, ICHRAs may only be used to reimburse expenses for medical care. In addition, unlike HSAs, ICHRAs are not the property of the employee and employers may limit the amount that can be carried over from year-to-year or accessed by the employee after separation, subject to applicable COBRA or other continuation of coverage requirements. 

Reach out if you have any questions! 

It’s going to take a little while for the market to realize the full potential of these new HRAs, but HHS projects that in the next 5 to 10 years, roughly 800,000 employers will offer Individual Coverage HRAs to pay for insurance for more than 11 million employees. Take Command Health, the number one small business HRA administration provider, estimates that as many as 50 million employees and family members could participate in an ICHRA in the coming years.

If you have any questions about this tax-advantaged benefits tool, feel free to chat with our team on the website. You can also brush up on your HRA knowledge with our ICHRA Guide, our ICHRA FAQs, or our HRA comparison chart. 

Let us know how you can help! 




Picture of Keely S.

Hi, I'm Keely S.! A wife to one and mother to four, Keely does all of the things. She’s also dabbled in personal finance blogging and social media management, contributed to MetroFamily magazine, and is passionate about good food, treasure hunting and upcycling. With a B.S. in Psychology from the University of Oklahoma and a knack for a witty punchline, it’s no surprise that Keely’s social posts are as clever as they get. In her (very little) free time, you’ll find Keely with her nose in a book or trying out a local restaurant with her family.