Unlock the Flexibility of ICHRAs: A Cost-Effective Health Benefit Solution for Your Employees
There’s a smarter, more flexible way to offer health benefits—one that lets your employees keep the coverage they love while still providing them with valuable support, without pushing them into a one-size-fits-all group health plan.
Enter Individual Coverage Health Reimbursement Accounts (ICHRAs):
In short, an ICHRA:
Is an employer-funded health benefit that reimburses employees for individual health insurance premiums and qualified medical expenses on a tax-free basis (& are even exempt from FICA taxes).
Employers set defined reimbursement limits, and employees choose their own health insurance plans.
The arrangement allows businesses to provide flexible, ACA-compliant health benefits without the need for a traditional group health plan.
It’s a win-win.
Creating an ICHRA can be done in 4 steps:
Plan Design
Employees pick a plan on the open marketplace
Employees submit their health insurance for reimbursement
Employer reimburses the employee
When building your plan design, there are a couple things I would consider:
Employee Classes:
Define the different employee classes for offering varying reimbursement levels, such as full-time, part-time, seasonal, remote employees, etc. The IRS allows specific classes, and you can customize benefits for each. Idea being - for full-time employees, they would be eligible for a higher reimbursement amount than seasonal or part-time. You could exclude certain classes of employees but there are restrictions on this based on your business size (IRS doesn’t want you to exclude very small groups).
Reimbursement Limits:
This could be up to 100% of your employees health insurance premium. You have flexibility here with regards to what you want to reimburse - which you can vary this based on employee class.
Eligibility & Affordability Requirements:
As an employee - you’ll need an insurance plan that meets the minimum essential coverage (MEC) under the Affordable Care Act (ACA) - which is just a way of saying that you’ll need a plan on the open healthcare exchange (your spouses group plan or a health sharing plan doesn’t count as coverage eligible for reimbursement).
Note - employers with more than 50 employees must meet the ACA affordability standards - meaning that the employees required contribution towards the cost of the lowest-priced self-only plan to them (after the ICHRA reimbursement) does not exceed 9.12% of their household income.
Covered Expenses:
This obviously includes health insurance premiums but can also include dental, vision, and other medical expenses such as MRIs, X-Rays, Bloodwork, prescription drugs, chiropractic & preventive care, or even long-term care if it’s built into your plan document.
Integration with Other Benefits:
It’s important to note that you cannot double dip with an ICHRA - meaning, if your employer offers health insurance and an ICHRA, you don’t get to submit reimbursement claims on the same dollars for the group plan.
If you’re eligible, you don’t get to claim the Premium Tax Credit (PTC) and get ICHRA reimbursements but if you opt-out of the ICHRA, you can claim the PTC (this wouldn’t be the case if your employer offered group health insurance).
Opt-Out Option:
This is important specifically for those who would otherwise be eligible for the PTC. If you opt-into the ICHRA, you’re ineligible for the PTC. If you opt-out of the ICHRA you can claim the PTC. Obviously, your employee will want to go with whatever option is going to generate you the lowest premium amount for their health insurance.
Claims and Reimbursement Process:
Typically this is handled via sending proof of payment to the appropriate person at your employer or a third-party administrator of your plan then reimbursements are disbursed.
Compliance:
This means making sure coverage is meeting the MEC under ACA guidelines, affordability standards (discussed above) and non-discrimination requirements noted from employee classes. ERISA testing requires a summary plan document (detailing the plan) and fiduciary standard adherence for those in contact with the plan.
Ensure the ICHRA complies with ACA, IRS, ERISA, and other relevant regulations, including requirements for plan documents, disclosures, and non-discrimination rules.
Administration:
Typically this is done through your employer or a third-party administrator. Whether it’s through admin or a TPA is typically based on company size.
When employees pick their plan, they have the flexibility to choose a specific provider, type of plan, deductible, PPO/EPO/POS/HMO, HSA eligibility, drug/care needs, etc. - much more choice architecture than a group health insurance plan.
All this sounds great but there’s still one hurdle to work through:
Employee perception & knowledge.
Health insurance and other benefits are used as attraction and retention tools for small/medium sized business owners & without offering health insurance, it has the potential to be seen as a missing benefit.
Truthfully - employer group life insurance isn’t always the most cost advantageous & it’s lack of flexibility may not meet the needs of employees.
The gap between what people believe vs what they need to know can be bridged with education.
When education on ICHRAs, there’s a couple items I’d highlight:
Emphasis on health insurance flexibility/choice/personalization
Show the numbers - total premiums paid with ICRHAs vs group coverage cost
Explain how the reimbursement process works (get them comfortable with this) & what benefits they would qualify for.
Offer to walk them through shopping for a plan on the open marketplace to illustrate how this would work (bonus points if you illustrate to them the reimbursement vs PTC subsidy)
All this to be said that while an ICHRA doesn’t make sense for everyone - it can be a great bridge from offering nothing in the way of health insurance benefits to offering something.
Even if you’re an established employer with group health insurance - you could consider segmenting employee classes to add an ICHRA to reduce your total health insurance costs to your business.
ICHRAs are flexible & so are your options for providing health insurance benefits to your employees.