What is ICHRA?

ICHRA stands for “Individual Coverage Health Reimbursement Arrangement” and is the newest standalone HRA that enables employers of all sizes to reimburse their employees tax-free for health insurance premiums and medical expenses. 

An individual coverage HRA is an employer-funded HRA that reimburses employees for medical premiums and expenses. Employees pay their individual insurance premiums and/or medical expenses (depending on how the employer designs the ICHRA) and then submits receipts for reimbursement from the employer. The employer establishes the reimbursement allowances per employee.

While there are numerous differences, the primary contrast between QSEHRA and ICHRA is eligibility based on company size, limitations on contributions from employers, and design flexibility. For example, a QSEHRA can only be offered by businesses with less than 50 employees, while an ICHRA is available for businesses of any size. QSEHRAs have annual contribution limits, while ICHRAs have no limits. While both ICHRA and QSEHRA need to be offered to employees on the same terms, ICHRA allows for more design flexibility with 11 customizable class distinctions compared to QSEHRAs 4 classes.

For a side-by-side comparison of the two HRAs, read our blog titled, “Individual Coverage HRA (ICHRA) vs. QSEHRA”.

An employee must fall within one of the designated classes set forth by the employer, and the employee must have an ICHRA-compliant individual insurance plan to be eligible. Our post on employee requirements for ICHRA eligibility dives into the details for your workers, and don't miss our post on ICHRA requirements that every business owner needs to know.  

No, there are no minimum participation rates for ICHRA. This is a big difference over traditional group plans which typically require 70% participation.

Note: If you are offering a group plan to one employee class and ICHRA to others, minimum class sizes may apply.

The ICHRA classes are as follows:

• Full-time employees
• Part-time employees
• Seasonal employees
• Employees covered under a collective bargaining agreement
• Employees in a waiting period
• Foreign employees who work abroad
• Employees working in the same geographic location (same insurance rating area, state, or multi-state region)
• Salaried workers
• Non-Salaried workers (such as hourly workers)
• Temporary employees of staffing firms
• A combination of two or more of the above

The amounts offered to employees can be increased within each class based on either age or number of dependents.

ICHRA also features a new hire rule which allows employers to offer new employees an Individual Coverage HRA while grandfathering existing employees into a traditional group health plan.

ICHRA (as well as QSEHRA) is a reimbursement arrangement rather than an account. This means that employees will typically pay for insurance or medical care themselves and then file a reimbursement claim. Employers only pay out funds to employees when a claim is made and approved. While some employers may choose to setup separate bank accounts for tracking purposes, it is not required

No, but employees will have an option to opt out of the new HRA for a year which will allow the employee to be eligible for tax credits. An employee is able to opt out of the ICHRA after looking at their allowance amount and finding that it was low enough so that any policy they purchased would be considered “unaffordable” and wouldn’t provide any value under ACA.

Yes. However, a successful integration depends on how the ICHRA is originally setup by the employer.

An ICHRA must be designed to only reimburse premiums (not premiums and expenses) in order for the employee to be eligible to make contributions to an HSA. Additionally, an individual must have a High Deducible Health Plan (HDHP) to participate in an HSA as well as carry an ICHRA-compliant individual insurance plan.

We've put together a very comprehensive post on how HRAs and HSAs work together if you want more context.