ICHRA stands for "Individual Coverage Health Reimbursement Arrangement." It's a tax-advantaged tool that represents a new, superior model of benefits for businesses of all sizes.
ICHRA (pronounced ick-ruh) is a type of HRA that allows business owners to reimburse their employees for health insurance premiums and qualified medical expenses on a pre-tax basis.
Here's how it works.
First, the business owner sets the monthly reimbursement amount and the employees purchase an individual health plan that works best for them. After an employee submits receipts, the business owner simply reimburses them. The funds aren't subject to payroll tax from an employer standpoint and aren't considered income for the employee and taxed accordingly. Plus, the employer can skip the hassle of choosing and administering a group plan that would bring with it premium hikes and participation rate requirements.
Businesses of any size can offer this new 401(K) style of group benefits and there's no limit on reimbursement rates. The sky's the limit.
This new type of HRA resulted from President Trump's Executive Order (E.O. 13813) asking the Departments of the Treasury, Health and Human Services, and Labor to expand the usability of Health Reimbursement Arrangements (HRAs), prompting new regulatory rule announcements June 2019.
While the Individual Coverage HRA is new, it represents a super-charged version of another HRA called a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) that was created by the Obama Administration a few years earlier.
How is ICHRA different from other HRAs?
There are two key differences between an Individual Coverage HRA and a traditional HRA:
- An ICHRA can reimburse individual insurance premiums, while a traditional HRA cannot
- A traditional HRA must be “integrated” with a group health plan, whereas an ICHRA works with individual insurance plans. Note that an ICHRA can be used alongside a group plan if employee classes aren't offered both.
There are a lot great things about ICHRA. What we love most is that it's beneficial for both business owners and employees.
ICHRA brings the following benefits to business owners:
- Eliminates risk: ICHRA allow business owners to get out of the insurance “risk” game. For any employer with 50+ employees, whether they are currently self-insured or fully-insured, they are effectively responsible for their employees’ healthcare spend. Some employers are figuring out how to manage costs by investing in wellness programs, engaging in high-performance network design, and helping employees with chronic conditions effectively manage costs. Others are looking for a way out while still helping their employees with coverage.
With an ICHRA, you can still offer generous benefits and your costs are fixed because you have no risk to manage.
- Budget control: Unlike the costs of an employer-sponsored plan that can flux with premium hikes, employers can rest assured that their ICHRA costs will stay the same. Business owners can choose a reimbursement rate that works for their budget, choose which classes of employees will receive the benefit, and not have to worry about fluctuating prices or participation rate requirements.
- No limit on reimbursement rates: Instead of limiting participation to companies with less than 50 employees with a set contribution limit ($5150 for individuals / $10,450 for families) like a Qualified Small Employer HRA, ICHRA can be any sized company with no minimum or max contributions at whatever monthly cost you want.
- No restriction on company size: ICHRA is an HRA solution for every company, from small businesses AND mid-size to large companies.
- Customizable: Employers can vary monthly reimbursement amounts to different classes of employees. These 11 employee classes separate employees into groups by job-based criteria. Examples are: hours worked, geographic location, salary v. hourly, age and filing class.
Pro-tip: This is particularly helpful for companies wanting to offer a reimbursement to all employees but want to make a distinction between salaried management and hourly and/or part-time.
For employees, ICHRA also has a major benefit.
- Plan choice: In contrast to a one-size-fits-all group plan, ICHRA allows employees to choose an individual health plan that's best for their family, their prescriptions, their conditions, or that's accepted by their favorite doctors.
- Portability: The ownership of the health plan stays with the individual. That means if layoffs occur or if they switch jobs, they don't lose their insurance. They can take their health plan to work with them at their next job and won't be left scrambling with pricey COBRA as their only option for coverage.
Need help with ICHRA?
Our team of design consultants is waiting to help you. Individual Coverage HRAs are a simple benefit that can be designed to maximize your health budget (not to mention ICHRA setup is so easy!). Read our ICHRA Guide or chat with our team with any questions you may have about these new, tax-friendly benefits. We would be happy to help.
Other helpful ICHRA resources:
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!