Individual Coverage Health Reimbursement Arrangement (ICHRA)

As a small business owner, finding the right health benefits for your employees can feel like navigating a maze. You want to provide meaningful coverage without breaking the bank, but traditional group health plans often come with high costs and complex administration. That's where the Individual Coverage Health Reimbursement Arrangement (ICHRA) comes in. It’s a flexible, cost-effective solution that lets you reimburse employees for health insurance without the hassle of managing a group plan.

In this article, we’ll break down everything you need to know about ICHRA, from how it works to its benefits and requirements. Let’s simplify health benefits for your small business.

What is an Individual Coverage Health Reimbursement Arrangement (ICHRA)?

An Individual Coverage Health Reimbursement Arrangement (ICHRA) is a type of employer-funded benefit that allows businesses to reimburse employees for health insurance premiums and qualified medical expenses. Unlike traditional group health plans, ICHRA enables employees to select their own individual health insurance policy that suits their needs, and the employer reimburses them tax-free.

How Does ICHRA Work?

• Employer Sets a Budget: The employer decides how much to reimburse each employee class (e.g., full-time, part-time, seasonal) each month. There’s no minimum or maximum contribution limit.
• Employee Chooses a Plan: Employees purchase an individual health insurance plan that meets their needs. This can be from the Health Insurance Marketplace or a private insurer.
• Tax-Free Reimbursements: Employees submit proof of their premium payments and other qualified medical expenses. The employer then reimburses them on a tax-free basis.

This flexibility means employees can choose the coverage they want, while employers can control costs without managing a complicated group health plan.

Who Can Benefit from ICHRA?

Small Businesses Looking for Cost Control

One of the biggest advantages of ICHRA is the ability to set a budget without worrying about unpredictable premium hikes. You decide how much to contribute, making it a cost-effective option for small businesses.

Employers Seeking Flexible Benefits

ICHRA allows you to design custom reimbursement plans for different employee classes, such as full-time vs. part-time employees. This flexibility helps you provide competitive benefits that attract and retain talent.

Employees Wanting Personal Choice

Employees love ICHRA because it gives them the freedom to pick a health insurance plan that works best for their unique needs. They’re not stuck with a one-size-fits-all group policy.

Key Benefits of ICHRA

Cost Predictability for Employers

With ICHRA, you set a fixed budget for reimbursements, eliminating the risk of sudden premium increases. This makes financial planning easier and more predictable.

Tax Advantages

• For Employers: Contributions are tax-deductible.
• For Employees: Reimbursements are tax-free as long as they are used for qualifying medical expenses or insurance premiums.

Hassle-Free Compliance

At SimplyHRA, we handle all the paperwork and ensure your ICHRA plan stays compliant with IRS and ACA requirements, so you don’t have to worry about legal complications.

What Are the Requirements for ICHRA?

To offer an ICHRA, there are a few key requirements:

1. Eligible Individual Coverage: Employees must have individual health insurance that meets minimum coverage standards under the Affordable Care Act (ACA).
2. Class-Based Design: You must offer ICHRA to specific employee classes, such as full-time, part-time, or seasonal workers, to avoid discrimination.
3. Employee Notification: Employees must be informed at least 90 days before the start of the plan year.
4. Substantiation: Employees need to provide proof of their insurance coverage to receive tax-free reimbursements.

How Does ICHRA Compare to Other Health Benefits?

ICHRA vs. Group Health Insurance

• Cost: ICHRA allows employers to control costs with fixed reimbursement amounts, while group health premiums can fluctuate.
• Flexibility: ICHRA offers more flexibility as employees choose their own plans, unlike the one-size-fits-all group policies.
• Administration: ICHRA is simpler to administer, especially with SimplyHRA handling compliance and paperwork.

ICHRA vs. QSEHRA

• Employer Size: QSEHRA is only available for businesses with fewer than 50 employees, while ICHRA has no size restrictions.
• Contribution Limits: ICHRA has no contribution limits, whereas QSEHRA has annual maximums set by the IRS.
• Employee Classes: ICHRA allows more customization by employee class, while QSEHRA requires uniform benefits for all employees.

Is ICHRA Right for Your Small Business?

ICHRA is ideal for small businesses looking to:

• Control health benefits costs without the risk of premium hikes.
• Offer flexible, customizable benefits that attract and retain employees.
• Provide tax-advantaged health reimbursements without the burden of managing a group plan.

If you want to offer competitive health benefits while keeping things simple and affordable, ICHRA is a great choice.

Why Choose SimplyHRA for Your ICHRA Needs?

At SimplyHRA, we make setting up an ICHRA plan quick and easy. Here’s why small businesses choose us:

• Cost Control Without Surprises: You set your budget with no unexpected premium increases.
• Employee Freedom: Employees pick the health plan that works best for them.
• Hassle-Free Compliance: We handle the paperwork, keeping you compliant with all IRS and ACA regulations.
• Affordable and Efficient: Our software does the heavy lifting, saving you time and money.

We believe in making health benefits simple, flexible, and affordable for small businesses. Want to learn more? Schedule a demo or Sign up for an employer account today.

Final Thoughts on ICHRA for Small Businesses

ICHRA offers small businesses the flexibility and cost control they need to provide competitive health benefits. By giving employees the freedom to choose their own insurance plans, ICHRA keeps them happy while you stay on budget. With SimplyHRA, setting up an ICHRA is hassle-free, fully compliant, and tailored to your unique business needs.

Ready to take the next step? Contact SimplyHRA to learn more about our flexible ICHRA plans and how they can benefit your small business.

Frequently Asked Questions (FAQs) about Individual Coverage Health Reimbursement Arrangement (ICHRA):

Q: Can ICHRA be used to reimburse employees for out-of-pocket medical expenses?

A: Yes, ICHRA can reimburse employees for qualifying out-of-pocket medical expenses, such as copays, deductibles, and prescriptions, in addition to individual health insurance premiums. The employer determines which expenses are eligible for reimbursement when designing the plan.

Q: Can an employer offer both ICHRA and a traditional group health plan?

A: Yes, an employer can offer both ICHRA and a traditional group health plan, but they must be offered to different classes of employees. For example, full-time employees could receive a group health plan, while part-time employees are offered ICHRA.

Q: What happens if an employee does not use the full ICHRA reimbursement amount?

A: If an employee does not use the full amount allocated for ICHRA reimbursements, the unused funds remain with the employer. Unlike Health Savings Accounts (HSAs), ICHRA funds do not roll over to the next year for the employee.

Q: Can employees participate in an HSA if they receive ICHRA reimbursements?

A: Employees can participate in an HSA if the ICHRA is designed to reimburse premiums for a High Deductible Health Plan (HDHP). However, if the ICHRA reimburses other medical expenses before the deductible is met, the employee may become ineligible for HSA contributions.

Q: Are there any restrictions on the type of health insurance employees can purchase with ICHRA?

A: Yes, employees must purchase a plan that meets the minimum essential coverage requirements under the Affordable Care Act (ACA). This includes individual health plans from the Health Insurance Marketplace or a private insurer, but not short-term or limited-duration insurance plans.

Q: How does ICHRA affect employees who qualify for premium tax credits on the Health Insurance Marketplace?

A: If an employee is offered an ICHRA that makes their health insurance “affordable” according to ACA guidelines, they are not eligible for premium tax credits on the Health Insurance Marketplace. If the ICHRA is deemed unaffordable, the employee can opt out and claim premium tax credits.

Q: Can employees use ICHRA funds to pay for family health insurance premiums?

A: Yes, employees can use ICHRA funds to pay for family health insurance premiums, as long as the employer’s plan design allows it. The family members must also be covered by a qualifying individual health insurance plan.

Q: Is there a minimum or maximum amount an employer must contribute to an ICHRA?

A: No, there are no federal minimum or maximum contribution limits for ICHRA. Employers have complete flexibility to set reimbursement amounts that fit their budget and benefits strategy.

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

A: Typically, employers cannot change ICHRA contribution amounts mid-year unless the employee experiences a qualifying life event, such as marriage, divorce, or the birth of a child. Contribution changes should generally be made at the start of a new plan year.

Q: How does an employee submit claims for ICHRA reimbursements?

A: Employees submit claims by providing proof of payment for eligible expenses, such as receipts or explanation of benefits (EOB) documents. Employers can simplify this process by using a third-party administrator or benefits management platform, like SimplyHRA, to handle claim verification and reimbursements.