Individual Coverage Health Reimbursement Arrangements (ICHRAs)

What Is An ICHRA?

For years, companies have been able to leverage Health Reimbursement Arrangements (HRAs) to reimburse their employees’ healthcare expenses. The Affordable Care Act (ACA), specifically IRS Notice 2013-54, limited a business’s ability to offer HRAs to their employees for individual policies.

An Executive Order was issued in 2017 directing the Departments of Treasury, Health and Human Services, and Labor to expand business’ use of HRAs once again. In June of 2019, new rules were released, establishing ICHRA as an option beginning on January 1, 2020.

In simplest terms, ICHRA allows businesses the alternative to offer employees a monthly allowance to buy individual health coverage tailored to fit their unique needs, control costs, and address Affordable Care Act compliance for applicable large employers.

This allowance, and the ability to offer it, is available to companies of all sizes from just a handful of employees to larger corporate entities. Removing the complexity of traditional group insurance plans, ICHRA brings a long list of benefits to both employers AND employees. Not only does ICHRA provide flexibility in how much a business chooses to spend, it also allows for different levels of contribution based on different employee classes.

To maintain eligibility for the ICHRA plan, employees must have coverage through an individual health plan. (An employee enrolled in a spouse’s group insurance plan is not eligible for an ICHRA.)

To qualify for an ICHRA, an employee eligible for Medicare must have coverage of Part A and Part B (“Original” Medicare) together or Part C (Medicare Advantage). ICHRA may be used to reimburse premiums for Medicare and Medicare supplemental health insurance (Medigap), as well as other medical care expenses. (Premiums for Parts A,B, C, D, and Medigap policies are all eligible for reimbursement).

The employer may use discretion in choosing which medical expenses (premiums, cost-sharing, or qualified medical expenses) are eligible for reimbursement under the terms of an ICHRA. However, the employer must offer the same benefits, on the same terms and conditions, to groups of employees in specified ICHRA classes. In addition, the amounts provided to employees can be increased within each class (see third paragraph below) based on either age or number of dependents.

Family members are also able to participate. As with typical state and federal enrollment rules, there is a short enrollment window that opens and closes. Outside that window, only certain life events can trigger a new enrollment window – things such as getting married, having a baby, and moving.

An employer offering ICHRA to its employees creates another enrollment window they can use to purchase a qualifying plan.

Employees must be given a chance annually to “opt-out” of the ICHRA plan, allowing them to claim their tax credits instead.

The process for implementing ICHRA benefits is simple, and its design allows employees to choose the plans and benefits that best meet their unique needs. From an administration perspective, ICHRA’s method is straight-forward. An employer decides what allowance each employee class will receive. Then, employees make their health care purchases, including insurance, and submit proof of their expenses. Within the allotted allowance amount, the company reimburses them for those expenses. It’s that easy!

Who’s eligible? As long as an employee has coverage under an individual health insurance policy, and the employer chooses to include their employee class in the ICHRA, they’re eligible.

How We Can Help

When ICHRAs were first introduced, ICHRA administration was difficult, and there were few tools available to establish and administer ICHRAs. However, as ICHRA became more popular, a large number of vendors became available to offer integrated systems that helped employers establish and design ICHRAs to meet their needs, to enroll employees in individual plans of their choice, and to handle all administration and compliance issues. The advent of artificial intelligence has helped proliferate vendors and develop sophisticated systems that can offer myriad choices of individual plans to meet their needs.

Group insurance premiums have been increasing 10 to 12% per year. Employee satisfaction and participation in group insurance plans has been decreasing, and some employers are being forced to decrease plan benefits because of the large premium increases.

Popularity of ICHRAs is increasing, employee satisfaction with ICHRAs is high, and ICHRAs are becoming an alternative to traditional group insurance, similar to how 401(k) plans became alternatives to traditional pension plans.

Agents offering group insurance plans are often not familiar with individual and family insurance and, hence, are sometimes reticent about offering ICHRAs.

However, as specialists in individual and family health plans (including options for Medicare beneficiaries) we are intimately familiar with the individual market and can help employers establish ICHRAs and explain the individual insurance plans available through ICHRAs. We are knowledgeable about many of the vendors who are available to help employers establish and administer ICHRAs.

If you as an employer wish to learn more about the ICHRA concept and how your present group insurance costs can be lowered, or if you are an employee who has been offered an ICHRA and want help in choosing an individual plan, please contact us at 786-970-0740 (cell).