Top Mistakes to Avoid When Offering ICHRA to Your Employees

Implementing an Individual Coverage Health Reimbursement Arrangement (ICHRA) can be a game-changer for small businesses looking to offer flexible and affordable health benefits. But if not done right, it can lead to compliance issues, employee dissatisfaction, and unexpected costs. In this article, we’ll explore the top mistakes to avoid when offering ICHRA to your employees, ensuring you get the most out of this innovative benefits solution while staying compliant and keeping your team happy.

Not Understanding ICHRA Eligibility Rules

One of the biggest mistakes employers make is not fully understanding the eligibility rules for ICHRA. The IRS has specific guidelines on who can participate, and failing to comply can lead to penalties.

• Employee Classes: ICHRA allows you to offer benefits to different classes of employees, such as full-time, part-time, or seasonal workers. However, you must apply these classes consistently without discrimination.
• Medicare and Other Coverage: Employees must have individual health insurance that complies with ACA standards. Those on short-term plans or health-sharing ministries typically don’t qualify.
• Action Tip: Before setting up ICHRA, review the eligibility requirements on the IRS website or consult with an ICHRA specialist to ensure compliance.

Setting Unrealistic Reimbursement Amounts

Offering too little in reimbursements can lead to employee dissatisfaction, while offering too much can strain your budget.

• Market Research Matters: Understand the local insurance market and the average cost of individual health plans in your area.
• Affordability Requirement: To stay ACA compliant, the ICHRA must be “affordable” for at least one major class of employees. If not, employees may qualify for premium tax credits, which can disqualify them from ICHRA.
• Action Tip: Use tools like the HHS Affordability Calculator to ensure your reimbursement amounts meet the affordability threshold.

Poor Communication with Employees

A common pitfall is not adequately communicating how ICHRA works to employees. Since this is a relatively new type of benefit, confusion can lead to frustration and low participation rates.

• Education is Key: Employees need to understand how to choose and purchase individual health insurance, how to submit reimbursement claims, and how the tax benefits work.
• Action Tip: Provide clear and concise educational materials, host informational sessions, or partner with a third-party enrollment support team, like SimplyHRA’s in-house experts.

Not Coordinating with Open Enrollment Periods

One critical aspect of offering ICHRA is timing it with the health insurance marketplace’s open enrollment period.

• Limited Enrollment Window: Employees typically can only buy individual health insurance during the open enrollment period unless they qualify for a Special Enrollment Period due to life events like marriage or job loss.
• Action Tip: Plan your ICHRA rollout to coincide with the open enrollment period (usually November 1 to December 15). Notify employees well in advance to give them enough time to explore their options.

Ignoring Compliance and Documentation Requirements

ICHRA is subject to strict compliance regulations, and failing to keep accurate records can result in legal and financial penalties.

• ERISA and HIPAA Compliance: You must provide a written plan document and employee notices explaining the ICHRA rules and how it interacts with premium tax credits.
• Record-Keeping: Maintain detailed records of employee reimbursements, plan documents, and eligibility verifications.
• Action Tip: Use a compliant administrative platform like SimplyHRA that handles documentation and reporting, ensuring you stay compliant with IRS and Department of Labor regulations.

Not Getting Professional Help

Setting up and managing an ICHRA isn’t as simple as it sounds. It requires a clear understanding of health insurance laws, tax regulations, and compliance requirements.

• DIY Risks: Trying to manage ICHRA without expert assistance can lead to costly mistakes.
• Expert Support: Partnering with an experienced ICHRA administrator can streamline the setup, compliance, and employee communication processes.
• Action Tip: Contact SimplyHRA to schedule a demo or learn more about our hassle-free ICHRA management solutions.

Not Offering Adequate Employee Support

ICHRA shifts the responsibility of choosing health insurance to employees, which can be overwhelming without proper guidance.

• Employee Confusion: Without support, employees might struggle to find suitable plans or understand the reimbursement process.
• Support Solutions: Provide access to licensed insurance brokers or in-house support teams who can help employees navigate the insurance marketplace.
• Action Tip: SimplyHRA offers personalized enrollment support to help employees make informed choices, ensuring they maximize their benefits.

Failing to Review and Adjust the Plan Annually

Health insurance costs and employee needs change over time. Not reviewing and adjusting your ICHRA plan annually can result in budget misalignment and employee dissatisfaction.

• Annual Review: Assess the usage, cost-effectiveness, and employee feedback every year.
• Adjust as Needed: Be prepared to adjust reimbursement amounts or employee classes based on changing regulations or business needs.
• Action Tip: Schedule annual reviews with your ICHRA administrator to ensure the plan remains compliant and beneficial for your team.

Final Thoughts – Get ICHRA Right with SimplyHRA

Offering ICHRA can provide small businesses with a flexible and cost-effective way to offer health benefits. However, navigating the setup, compliance, and communication can be tricky without the right guidance. Avoiding these common mistakes ensures a smoother implementation and maximizes the benefits for both your business and your employees.

At SimplyHRA, we make it easy for small companies to offer ICHRA without the headaches of compliance or administration. Our platform handles all the paperwork, supports employees during enrollment, and keeps you compliant every step of the way. Ready to get started? Contact SimplyHRA today or sign up for an employer account to see how our flexible ICHRA solutions can work for your business.

Frequently Asked Questions (FAQs) about Offering ICHRA to Your Employees:

Q: What is the biggest challenge small businesses face when implementing ICHRA?

A: One of the biggest challenges is educating employees about how ICHRA works. Since it shifts the responsibility of purchasing health insurance to the employee, many are unfamiliar with navigating the individual health insurance marketplace. Providing adequate educational resources and support is crucial for a smooth transition.

Q: Can I offer ICHRA to some employees but not others?

A: Yes, ICHRA allows employers to categorize employees into classes, such as full-time, part-time, seasonal, or by geographic location. However, these classes must be applied consistently and without discrimination to comply with federal regulations.

Q: Are there any restrictions on the types of health plans employees can buy with ICHRA funds?

A: Yes, employees must purchase ACA-compliant individual health insurance plans. Short-term health plans, health-sharing ministries, or indemnity plans do not qualify for ICHRA reimbursements.

Q: How does ICHRA impact employees’ eligibility for premium tax credits?

A: If an ICHRA is deemed “affordable” under ACA guidelines, employees become ineligible for premium tax credits on the health insurance marketplace. Conversely, if it’s not affordable, employees can choose to decline the ICHRA and maintain their eligibility for tax credits.

Q: Is there a minimum or maximum amount I can reimburse employees through ICHRA?

A: There is no federally mandated minimum or maximum reimbursement amount. Employers have full flexibility to set the reimbursement limit based on their budget. However, the amount should be carefully considered to meet the ACA’s affordability requirements for at least one class of employees.

Q: Can employees carry over unused ICHRA funds to the next year?

A: It depends on the plan design. Employers can choose whether to allow rollovers of unused funds or set a “use it or lose it” policy. This flexibility lets employers manage costs while still supporting employees’ healthcare needs.

Q: How does ICHRA affect small businesses’ taxes?

A: Employer contributions to ICHRA are tax-deductible as a business expense. Additionally, reimbursements employees receive are tax-free, making it a tax-efficient option for both employers and employees.

Q: What happens if an employee leaves the company?

A: If an employee leaves the company, they lose access to their ICHRA funds as of their termination date unless the employer’s policy states otherwise. Employers can design the plan to allow a grace period, but it’s not mandatory.

Q: Can an employer change the ICHRA reimbursement amounts mid-year?

A: No, once an ICHRA is set up, the reimbursement amounts cannot be changed mid-year. Any adjustments must be planned for the following plan year, ensuring compliance with IRS rules.

Q: What support does SimplyHRA offer for implementing ICHRA?

A: SimplyHRA provides end-to-end support, including plan setup, compliance management, employee education, and enrollment assistance. Our platform also automates documentation and record-keeping to ensure regulatory compliance.