An ICHRA, or Individual Coverage Health Reimbursement Arrangement, is an alternative for traditional health insurance group plans. With this type of plan employees choose their own health insurance coverage, potentially from the Healthcare Marketplace. Because their employer receives a tax deduction for these plans, their employees in turn get a tax-free reimbursement.
The employee is initially responsible for the monthly premium and medical expenses related to the plan. Then after submitting the required information to their employer, they will receive set reimbursements.
How Does an ICHRA Work?
The process of the ICHRA is fairly straightforward. There are basically 4 steps for the employer and their new employee:
The employer sets the monthly allowance for their employees to use towards their premium and healthcare costs each month.
The employee is responsible for choosing health insurance coverage that meets their needs.
The employee provides documentation from their health insurance provider for medical expenses as they arise.
The employer will review the documentation and reimburse the employee up to their allotted amount.
Setting Up an ICHRA
One of the biggest benefits of the ICHRA for employers, is the flexibility of this plan. Employers of any size can offer this plan to their employees, whether you have 10 employees or 100, the ICHRA can work for your business.
As an employer, here are a few things to consider:
Decide which employees will be eligible to participate (full-time, part-time, seasonal)
Decide on an amount that your business can allocate to healthcare reimbursements each month. There is no minimum or maximum amount. For example, an employer could offer $300 monthly to full-time employees and $150 to part-time employees.
There is not a required timetable for employers to offer their employees an ICHRA, but employees must acquire coverage within 60 days after the offer.
Your employees must have qualified health insurance coverage to participate.
Be sure to fully understand what costs are and are not reimbursable to your employees according to the IRS standards. These standards are available in full at the IRS document linked below.
The following are just a few of the many expenses covered by the average ICHRA:
Health insurance premiums
Mental health services
Prenatal and postnatal services
It is also important to note that these expenses are not only eligible for reimbursement for the employee but these expenses are eligible for reimbursement for the employees’ spouse and dependents covered on their chosen plan.
Calculating the Affordability of the ICHRA
The flexibility of the ICHRA can make it tricky to calculate the affordability of the plan. To determine the affordability of the ICHRA, they will need to take each employees’ household income into account.
Knowing the household income of each employee is nearly impossible, therefore the IRS allows you to use information such as the employees’ W-2, rate of pay, or the federal poverty line as a baseline to estimate this number.
When determining if the ICHRA is affordable or not, employers should use the lowest cost silver plan on the Healthcare Marketplace.
What are my ICHRA requirements as an employer?
The main requirement here is that employers can not offer their employees an ICHRA in addition to a group health insurance plan. However, an employer can, for example, offer a group health insurance to all of their full-time employees and an ICHRA option to all of their part-time workers.
Do I have to Help My Employees find Health Insurance?
No, the employee has freedom to choose the health insurance plan that best fits their needs. However, you should provide them with the following information. Once you offer your employee an ICHRA, and they accept, this counts as a qualifying life event.
This allows employees to enter a special enrollment period of approximately 60 days to obtain health insurance coverage on the Healthcare Marketplace or from a private insurance provider.
ICHRA vs. QSEHRA
A QSEHRA, officially known as the Qualified Small Employer Health Reimbursement Arrangement is specifically designed for businesses with less than 50 employees.
While these plans are both tax deductible for employees and tax free for employees, there are also some key differences. Mainly, the QSEHRA comes with less flexibility and more requirements.
While the ICHRA doesn’t require any minimum reimbursement amount from employers, the QSEHRA does. Small businesses must reimburse their single employees at least $5,250 and their employees with spouses/dependents at least $10,450. These rates were set by the IRS for the 2020 tax year.
Whether you are providing your employees with an ICHRA or traditional group health insurance, ACAwise is here to help you maintain your IRS compliance. We offer a full range of services to meet the needs of mandated reporters of all sizes.