An Individual Coverage Health Reimbursement Arrangement (ICHRA) is a type of Health Reimbursement Arrangement (HRA) that allows employees to receive tax-free reimbursements from their employers for individually purchased health insurance premiums and other medical expenses. Since becoming available in 2020, ICHRAs have been a flexible and cost-effective way for large employers to comply with Affordable Care Act (ACA) requirements.
How do ICHRAs Work
ICHRAs are available to big and small businesses, including nonprofits and religious organizations. Companies can offer an ICHRA as a stand-alone benefit or as part of their benefits program along with standard small-group insurance.
Typically, companies will choose to provide an ICHRA or small group insurance plan based on the different “classes” of employees. These classes refer to whether an employee is full-time, part-time, seasonal, salaried, hourly, or even in different geographic locations. To be eligible for an ICHRA, employees must enroll in an individual market plan or Medicare.
The employer selects the monthly allowance for an ICHRA. The employee pays for their individual health insurance coverage and other qualified expenses; then, the employer reimburses them according to that set monthly allowance. Note: ICHRA payments are made on a pre-tax basis, meaning the employee does not pay payroll or income taxes on the payments. There are also no limits or minimum requirements for ICHRA reimbursements.
What is the Enrollment Timeline for ICHRAs?
Employees usually enroll in an ICHRA during the annual Open Enrollment Period, which falls between November 1st and December 15th each year. This period varies for employers and states, so be sure to check with your employer and state to confirm the exact dates.
When you get offered an ICHRA, it can trigger a Special Enrollment Period (SEP) outside the normal window. An SEP lasts 60 days from the day the employee gets offered the ICHRA; during this time frame, they can enroll in a qualified individual healthcare plan.
ICHRAs vs. QSEHRAs
Another term you may have heard concerning an ICHRA is a QSEHRA or Qualified Small Employer Health Reimbursement Arrangement. The main difference between an ICHRA and a QSEHRA is that an ICHRA allows businesses of any size to reimburse employees for individual market premiums, but a QSEHRA is only available to small businesses. Specifically, a business must have fewer than 50 full-time equivalent employees to qualify for a QSEHRA.
The Family Glitch
The “family glitch” refers to a 2013 IRS interpretation of the ACA’s affordability standards. Essentially, an affordability calculation considered the cost of the employee-only plans but forgot to include the added cost of dependents. This interoperation resulted in many families being unable to access affordable coverage in the marketplace.
In 2023, the rules for determining the affordability of employer-sponsored health coverage changed to eliminate the “family glitch.” However, this rule change did not apply to how ICHRA affordability is determined, and this “family glitch” remains for ICHRAs. The IRS has noted that it plans to address this discrepancy. But, as of 2024, no additional rule changes have been proposed.
Get Group or Individual Coverage
Understanding how ICHRAs work is important for both employers and employees alike. Contact Antidote today if you are unsure if an ICHRA is right for you.
