Get out of the Insurance Business by offering an ICHRA

ICHRA is an easy way for employers to provide health benefits to their employees. It is the modern model of employer-sponsored health insurance.

Learn More

What is an Individual Coverage HRA (ICHRA)?

ICHRA is a simple way for employers to provide health benefits to their employees. It represents a new, more modern model of employer-sponsored health insurance.

When done Properly with the ICHRA administration and the sales of insurance products separated then the employer has a much lower compliance standard to meet and a much more simple administration process.

What is an ICHRA plan?

ICHRA (pronounced ick-rah) stands for “Individual Coverage Health Reimbursement Arrangement” and has been available for employers to since as of January 2020.

How does ICHRA work?

As the name implies, ICHRA is based on reimbursing employees for insurance rather than buying it for them. At a high-level, the way ICHRA works is very simple:

  1. Employers design their plan, including defining which employees are eligible and establishing reimbursement limits
  2. Employees purchase the individual plans they want
  3. Employees use our Debit Card to pay for their plans (or a part of their plans)
  4. We make sure a plan is purchased and process the claims each month
  5. If an employee does not choose a plan within the Open Enrollment period then they are not eligible for reimbursement – and the employer has met their duty of offering health insurance coverage

Why Use an ICHRA?

ICHRA gives employers greater ability to control costs and provides employees with more options to choose from. Many large groups form internal “market places” which are extremely complex and requires multiple insurance carriers to form agreements with the employer. With an ICHRA any size employer can provide their employees the full market of individual health plans to choose from while defining their costs.

ICHRAs are also an excellent option for large employers trying to avoid unnecessary risk on their self-funded health plan by removing high cost areas or populations within the guidelines set forth by the IRS.

ICHRAs takes you out of the insurance business! With an ICHRA you will no longer have to manage a health plan, insure underlying health risks, reconcile TPA, Reinsurance, and PBM bills. You will not have to review networks or budget for renewal increases.

What benefits are there for employees?

As the name implies, ICHRA is based on reimbursing employees for insurance rather than buying it for them. At a high-level, the way ICHRA works is very simple:

  1. Choice: Instead of choosing from a limited number of options, employees can choose any ACA-compliant plan on the market.
  2. Portability: The individual health insurance selected with an ICHRA is portable, meaning if an employee loses their job, they don’t lose their health insurance. The employee is free to keep their plan.
  3. Flexibility: ICHRA works great for employees that are hard to keep on a group plan, such as remote workers.
  4. Not considered Income: ICHRA reimbursements are not subject to payroll tax and are not considered income for participants

What classes can be carved out for ICHRAs?

Employers can offer an ICHRA and traditional group plan to employees with the following guidelines.

  1. Employees in each class are only offered one solution. For example, an employer cannot offer employees within a class an ICHRA and a group plan.
  2. Certain classes being offered reimbursement through an ICHRA must meet class size minimums. 

Employers can offer ICHRAs to all or some of their employees. You can develop different classes based on the below:

  1. Full-Time Employees
  2. Part-Time Employees
  3. Seasonal Employees
  4. Employees covered by a collective bargaining agreement
  5. Employees who have not satisfied a waiting period for coverage
  6. Salaried Employees
  7. Non-Salaried Employees
  8. Temporary employees of staffing firms
  9. Non-Resident aliens with no US-based income
  10. Employees in the same geographic rating area
  11. Any combination of two or more classes from above.

In addition to multiple classes, employers can also offer an ICHRA to new employees while keeping current employees on a group plan. Essentially, an employer can “grandfather” in their group plan participants while offering an ICHRA to the new hires.

Employers can have multiple subclasses unless those classes are used to offer different ICHRA amounts.

How Can the reimbursements be structured for the classes?

  1. Give all employees the same amount: This one is easy. For example, you could give all employees $200/mo.
  2. Vary reimbursements by coverage tier: Since individual market plans cost more for families, employers can offer different amounts depending on who is covered.
  3. Vary reimbursements by employee age: employers can elect to offer higher reimbursement amounts to older employees. Reimbursements must be structured using a 1:3 ratio from the youngest to the oldest employee. For example, you could give a 21 year old $400/mo and a 64 year old $1200/mo.
  4. Vary by both family size and age: A combination of age based and coverage tier.

Please Note: For ACA Affordable offering compliance you must make sure that the second least expensive Silver plan meets the affordability guidelines for your employees.

What are the minimum Class Sizes?

  1. 99 or less employees require a minimum of 10 employees per class.
  2. 100 to 199 employees require a minimum of 10% (rounded down).
  3. 200 or more employees requires a minimum of 20 employees per class.

Minimum class sizes only apply to rating areas smaller than a state. For example, if you or your client has one employee in a remote state, you could have a class of one without violating the rules. However, if you’re using a narrower rating area design then minimum class sizes apply.

How is ACA affordability calculated?

The Affordable Care Act (ACA) requires employers with more than 50 full-time equivalent (FTE) employees to provide health insurance to their employees. This is known as the “employer mandate." Employers that don’t provide affordable insurance are subject to steep penalties.

Per IRS notice 2018-88 and IRS Notice rp-19-29 An ICHRA is affordable if the remaining amount an employee has to pay for a self-only silver plan on the exchange is less than the affordability percentage (determined by the IRS each year) of the employee’s household income.

Large employers that are subject to the corporate mandate to provide insurance (typically employers with over 50 lives) can design their HRA to satisfy the mandate and avoid any penalties. The catch is the HRA must be designed to be “affordable”. We’ll talk about what that means in the Affordability Section.

Similarly, employees purchasing their own insurance from the individual marketplace will want to know if they can accept premium tax credits to help pay for their coverage. If an HRA is considered “affordable”, then they are not eligible for tax credits/ However, if an ICHRA is “unaffordable” then employees can choose between tax credits or the ICHRA.

There are instances where small employers (under 50 employees) that are not subject to the mandate may want to purposefully design an “unaffordable” ICHRA so that their employees can receive tax credits.

It is important to note that prior year plan rates can be used to determine affordability – i.e. 2022 plan year rates can be used to determine 2023 affordability.

What counts as coverage?

  1. Individual Major Medical Plans (on or off-exchange)
  2. Catastrophic Plans (limited to under age 30 or qualify for a hardship exemption)
  3. Medicare Part A + B, Part C ("Medicare Advantage"), Part D (Drugs), and Medicare Supplement plans ("Medigap")
  4. Student Health Insurance

What does not count?

  1. Short-Term Limited Duration Insurance (STLDI)
  2. Health Care Sharing Ministries (HCSM)
  3. Fixed Indemnity Plans
  4. Excepted benefits coverage only (vision, dental, etc)
  5. Association Health Plans
  6. Multiple Employer Welfare Arrangements (MEWA)

Can an ICHRA reimburse Medicare premiums?

This is an important question for employers with employees who are over 65. A large savings can be found for employers while providing much better benefits to their Medicare eligible employees!

To qualify for an ICHRA, the employee eligible for Medicare must have coverage of Part A and Part B together or Part C - Part B by itself doesn't qualify as Minimum Essential Coverage.

ICHRA may be used to reimburse premiums for Medicare and Medicare supplemental health insurance, as well as other medical care expenses. Premiums for Parts A, B, C, D, and Medigap policies are all eligible for reimbursement!

Are owners Eligible?

It depends on the structure of your company:

  1. Partnerships: Partners are not eligible for participation in an ICHRA.
  2. Corporations: Corporations include C-Corps, B-Corps, Non-Profits, and LLCs taxed as C-Corps. Corporations are the easiest entity type to handle when it comes to health insurance because owners are considered employees and can benefit from the company’s ICHRA. Their dependents and any W2 employees can benefit as well.
  3. S-Corps: An S-Corp owner that owns more than 2% of the company is considered self-employed and cannot participate in ICHRA. 
  4. Sole proprietors: Sole proprietors do not qualify for an ICHRA.

What to avoid when moving to an ICHRA

Administrators who both provide insurance and administrative services.

  1. This opens the employer up to much more compliance as opposed to having these items separated.
  2. We recommend that you use an insurance broker/agent to assist and recommend plans to the employees.

Promoting a plan or carrier.

  1. This is hard – but once you move to an ICHRA the employer cannot advise employees on what plan to take or what is best for them without opening themselves up to added compliance and liability.

Doing it last minute.

  1. You want your employees to have a long lead time in order to process the change and find a plan that fits their needs.

Contact Us

Learn More