What is ICHRA? An ICHRA, or Individual Coverage HRA, is a tax-advantaged tool that allows companies of any size to reimburse employees for health insurance with no contribution limits. Known as a "defined contribution" model or 401(K) style of insurance, ICHRA can be an alternative to or used in conjunction with traditional group insurance.
In the summer of 2019, regulatory rules were announced that set the stage for this new type of HRA, prioritizing accessibility for HRAs for business owners.
While HRAs have been around quite a while, ICHRA represents a new, superior model of health insurance that brings savings, predictability and flexibility for business owners and portability and personalization for workers. They are also an effective recruitment and retention tool.
→ Wondering which health insurance carriers are best suited for ICHRA? We've got a report for that.
What is ICHRA?
While also a destination in Pakistan, ICHRA is a health reimbursement arrangement (HRA) that helps businesses afford health insurance benefits. It's an arrangement, not an account, so there's no funding accounts ahead of time and if employees don't use the benefit, the employer keeps the rest.
ICHRA is a new type of HRA that expands upon the capabilities and benefits of its predecessor, the Qualified Small Employer HRA.
Now, instead of being capped at 50 employees, employers of any size can set up an HRA for their teams. Another limitation of QSEHRA is the contribution limits.
Another key differentiator from HRAs in the past? ICHRA allows business owners to customize their reimbursements across different classes of employees. While everyone must be treated fairly within a certain class, reimbursement rates can vary between full time, part time, seasonal, remote, etc. This allows for a higher degree of efficiency when it comes to spending your benefits budget.
Helpful resources:
→ Full list of ICHRA classes
→ How employers can contribute different amounts to different types of employees
How does ICHRA work?
The way the ICHRA health insurance model works is quite simple. First, employers design their HRA plan and set up monthly reimbursement allowances that work for their budget. As part of the design, employers choose how many classes to divide employees within and how much each class is reimbursed. In addition to scaling rates over different classes, they can also scale based on age and family size. They'll also decide whether or not they will be reimbursing employees for premiums only or premiums along with ICHRA eligible medical expenses. This first crucial step also includes engaging a third-party HRA administrator (like Take Command Health!) and telling employees about this new benefit.
After that, employees will sign up for the health plan of their choice that works best for their needs, prescriptions, doctors, etc. ICHRA works with all off- and on-market major medical plans as well as Medicare Parts A+B or C, catastrophic plans for those under 30, and student health insurance. They do not integrate with short-term plans, sharing plans, TRICARE, or spouse's group plans.
Employees then head to the doctor or fill a prescription. They'll need to submit the receipt as proof to get reimbursed. After that, employees reimburse the worker for the expense with their ICHRA.
See? Easy.
What are the benefits of ICHRA?
There are a lot of things to love about ICHRAs. Our favorite thing is that it helps both employers and employees.
For business owners, ICHRA brings predictable costs, flexible and efficient design, and budget control. There's no need to worry about rising premiums or participation rates.
For employees, instead of having to settle for a one-size-group plan, they can choose the plan they want. If they leave the company, they don't lose their insurance. They'll take it with them.
Helpful resource: our blog post on ICHRA pros and cons.
Want to reimburse your employees tax-free for health insurance?
Setting up an ICHRA is a snap and monthly administration is quick and painless, especially when you use a third party HRA administrator like Take Command. We take care of compliance, reporting, onboarding employees and documents needed for tax time.
Certain markets are ready for ICHRA more than others, and a few types of companies and locations are leading in signups so far.
Got questions?
Chat with our team online or brush up on your ICHRA knowledge with some helpful resources.
Additional resources →
- Learn about ICHRA Classes
- Learn about ICHRA Rules
- Learn about ICHRA Requirements
- Learn about ICHRA Regulations
- Learn about ICHRA Plan FAQs
- Learn about our ICHRA administration platform
