ICHRA stands for Individual Coverage Health Reimbursement Arrangement, which is a type of health benefit that allows employers to reimburse their employees for their individually purchased health insurance premiums and other medical expenses. ICHRA is a cost-saving alternative to traditional group health plans, as it gives employers more control over their healthcare budget and gives employees more choice over their healthcare coverage.
How Does ICHRA Work?
ICHRA works by having an employer set a monthly allowance for each employee or group of employees, which can vary based on factors such as age, family size, or job category. The employer does not have to offer a minimum or maximum amount, nor does it have to offer the same amount to all employees. The employer also does not have to provide a group health plan or a network of providers.
The employee can then use the allowance to purchase any individual health insurance plan that meets the minimum essential coverage requirements under the Affordable Care Act (ACA), such as a plan from the Health Insurance Marketplace, a state exchange, or a private insurer. The employee can also use the allowance to pay for other qualified medical expenses, such as deductibles, copayments, coinsurance, or prescription drugs.
The employer reimburses the employee for the eligible expenses up to the allowance amount on a tax-free basis. The employee does not have to pay income or payroll taxes on the reimbursement, nor does the employer have to pay payroll taxes on the allowance. The employer can also deduct the allowance as a business expense.
What are the Benefits of ICHRA?
ICHRA offers several benefits for both employers and employees who want to have more flexibility and cost-effectiveness in their health benefits, such as:
- Lower Health Care Costs: ICHRA can lower health care costs for employers by allowing them to set their own budget and avoid the rising premiums and fees of group health plans. ICHRA can also lower health care costs for employees by allowing them to shop for the best plan that suits their needs and preferences, and by giving them access to federal subsidies for individual plans if they qualify.
- More Choice and Customization: ICHRA gives employers more choice and customization in how they design their health benefit, as they can vary the allowance amount and eligibility criteria among different employees or groups of employees. ICHRA also gives employees more choice and customization in how they use their health benefit, as they can choose any individual plan that meets their needs and preferences and use the allowance for any qualified medical expense.
- Portability and Continuity: ICHRA provides portability and continuity of coverage for employees, as they can keep their individual plan regardless of their employment status or location. This means that employees do not have to worry about losing or changing their coverage if they change jobs, move to another state, or retire. ICHRA also provides an alternative to COBRA, which can be expensive and limited in duration.
- Transparency and Simplicity: ICHRA provides transparency and simplicity for both employers and employees, as they can easily understand how much they are paying or receiving for their health benefit. ICHRA also simplifies the administration and compliance of the health benefit, as it does not require a group health plan or a network of providers.
Is ICHRA Right for Your Business?
ICHRA is an attractive option for employers who want to offer a flexible and cost-effective health benefit to their employees. However, it may not be suitable for every business. Some factors to consider before choosing ICHRA are:
- Your business size and employee population: ICHRA is available for any size of business, from small to large. However, some businesses may have different reporting requirements depending on whether they are considered an applicable large employer (ALE) or not under the ACA. ALEs are businesses with 50 or more full-time equivalent employees who have to offer affordable and minimum-value coverage to at least 95% of their full-time employees or face penalties. Non-ALEs are businesses with fewer than 50 full-time equivalent employees who do not have this requirement.
- Your risk tolerance and cash flow: ICHRA reduces but does not eliminate the risk of health care spending. There is still a possibility that your employees may incur high medical expenses that exceed your allowance amount. You also need to have sufficient cash flow to cover your monthly allowance payments and any unexpected expenses that may arise.
- Your health care goals and needs: ICHRA offers more control and transparency over your health care costs and data than a group health plan, but less than a fully self-funded plan. You may have limited choices in terms of benefit design and customization. You also need to comply with the rules and regulations of your plan administrator and stop-loss insurer.
If you are interested in learning more about ICHRA or finding out if it is right for your business, please contact us today. We can help you compare different options and find the best solution for your healthcare needs.