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How do individual coverage health reimbursement arrangements work?

At a high level, the way Individual Coverage HRAs (ICHRAs) work is fairly simple. Employers reimburse their employees for health insurance rather than buying it for them.

More specifically, this is what that process would look like:

• Employers choose their start date and set their monthly budget.
• Employers design their plan, including defining which employees are eligible and establishing reimbursement limits based on a number of custom ICHRA classes.
• Employees purchase the individual plans they want.
• Employees submit claims for reimbursement.
• Employers reimburse employees for valid claims.
• Employers outsource certain administrative functions like coverage verification, on-boarding, compliance, etc.

What is the difference between group health insurance and ICHRA?

There are several differences between ICHRA vs group health plans. While they both meet the Employer Mandate, boost retention and recruitment efforts, and check all the box on offering employee health benefits, understanding the difference and what that means to an employer and an employee is crucial.

The key differences boil down to:

• Cost and budget predictability: The cost of ICHRA is determined by the business owner; the cost of a group health plan is determined by the insurance company (and often goes up substantially every year).
• Customization: ICHRAs allow for companies to reimburse difference amounts to different classes of employees, rather than one prescriptive group plan that has limited flexibility.
• Employee choice and empowerment: With a group plan, employees do not have any say in their health plan and are not empowered to make the right choice for them. With ICHRAs, employees choose plans that work best for their families’ needs, keep their preferred providers in network, and offer coverage for their prescriptions. Employers don’t choose our car insurance or our home insurance; why should they choose something as personal as a health plan?
• Remote and multi-state health benefits: If a company has employees in several states, managing group health plans across state lines is administratively cumbersome and expensive. An example would be if a company offers Kaiser Permanente at headquarters but out of state employees live in states where Kaiser Permanente doesn’t have a presence. ICHRAs allow employers to give remote employees or employees in different locations an allowance to purchase their own health plans from health insurance companies that are local to their geography.
• Part-time employee coverage: Part-time employees are historically very difficult to keep on a group health plan. ICHRAs remedy this and offer coverage for them.
• Administration: Group plans can be an administrative burden to manage, especially with multiple states, or battling renewals each year and shopping around for better prices. ICHRAs are “set it and forget it.” Companies even without HR departments can easily offer high quality benefits with minimal time each month.

As an employer, can I offer ICHRA to both full-time and part-time employees?

Yes! That’s part of the appeal. ICHRAs allow employers to offer benefits to different types, or classes, or employees. That includes classes that might typically be difficult to ensure, like part-time or remote workers.

As an employer, what can I expect from offering an ICHRA vs Group medical plan?

Yes, HRAs can be a great alternative to traditional group benefits. So great, they have us saying no more!

• No more pricey renewals.
• No more paying for things your employees don't want or use.
• No more group participation requirements.
• No more taking on risk.

Set a budget, design your ICHRA to best meet the needs of your workforce, and sit back and relax. Your employees will enroll in health insurance plans on their own and an HRA administrator will issue monthly reports and keep you compliant.

As an employee, what can I expect from an ICHRA vs Group medical plan?

If you’re used to a group medical plan from your employer, you probably have had to choose between a couple of options in the past that may or may not have had your preferred doctors in network or adequate prescription coverage. Instead of that one-size-fits-all approach where your employer is essentially making health choices for you, ICHRA brings more autonomy and choice for you. Instead of just a couple of plans that don’t fit your needs, you can choose from the entire individual health insurance marketplace, filled with brand-name carriers you know and innovative features like free telehealth or zero-dollar deductible plans. All of these are ACA compliant, high-quality plans that cover pre-existing conditions and essential health benefits. The best part is finding a plan that meets your family’s needs and not having your health plan tied to your employment.

What is an eligible expense?

One of the great things about ICHRAs is that it’s one of two kinds of HRAs that can be used to reimburse for premiums. But employers have even greater flexibility to be generous with their teams by reimbursing for medical expenses as well. Qualified medical expenses for an ICHRA are those that would be eligible for reimbursement under a typical HSA or FSA—Amazon even notes which healthcare items are an eligible healthcare expense on its site. Eligible expenses for ICHRAs also include deductibles, copayments, coinsurance, or out-of-pocket costs as well as vision and dental premiums and associated costs, prescription drugs, feminine hygiene products, and over the counter drugs. The list of HRA eligible medical expenses is determined by the IRS in IRS Publication 502.

Is ICHRA considered income?

The monthly reimbursement allowance of ICHRA is not considered income and is therefore not taxed as such. It is not subject to income tax for employees or employer tax or payroll tax for employers. This is one of the big perks of this tax-advantaged health benefits solution!

Does an ICHRA plan meet ACA requirements?

Absolutely. Offering an ICHRA to employees meets the employer mandate set forth in the Affordable Care Act for companies with more than 50 full time equivalent employees. What’s more, the individual health insurance plans that integrate with ICHRA are high quality, ACA-compliant health plans that cover preexisting conditions and ten essential health benefits directed by the ACA.