As a health insurance broker or agent, you’ve built trusted relationships with your clients by helping them overcome challenges with proven strategies. While traditional group health plans are a familiar option, they are becoming increasingly expensive and restrictive for many employers. This presents a problem—what option can you offer them next? That’s where the individual coverage health reimbursement arrangement (ICHRA) comes into play.
This new, innovative health benefit is becoming more popular as a budget-friendly alternative to group plans. Understanding the intricacies of ICHRA can unlock new opportunities for advising clients and help you grow your book of business. But how do you know when an ICHRA is the right fit for your clients?
In this blog post, we’ll answer some of the most common questions brokers and agents have about ICHRAs. We’ll also share insights on how you can support clients who are transitioning to this benefit strategy. Let’s dive into these ICHRA FAQs.
In this blog post, you’ll learn:
- Which types of clients are best suited for an ICHRA
- How ICHRAs compare to other benefit options
- How Remodel Health can help brokers transition their clients from traditional group health insurance to an ICHRA
Want to become an ICHRA expert? Take the ICHRA Academy and earn your certificate!
An introduction to the ICHRA
Before we get into the answers to the top broker questions, let’s explain what an ICHRA is. An individual coverage HRA (ICHRA) is a formal, IRS-approved health benefit that allows employers to give their employees a tax-free allowance for qualifying individual health insurance premiums.
Employers can set their contribution amounts, giving them more budget control than traditional health benefits. Plus, employees get the freedom to choose their own health insurance plans. That way, they can better meet their individual needs.
Businesses can offer the ICHRA to W-2 employees. You can customize benefit eligibility with 11 employee classes or a combination of one or more classes.
ICHRA classes include the following:
- Full-time employees
- Part-time employees
- Seasonal employees
- Temporary employees of staffing firms
- Salaried employees
- Non-salaried employees
- Employees covered under a collective bargaining agreement or union
- Employees in a waiting period
- Foreign employees who work abroad
- Employees who live in different geographic locations. This can include insurance rating areas or states.
Eligible employees must have a qualified health plan to participate in the benefit. This is any qualifying individual health insurance coverage with minimum essential coverage (MEC), including Medicare. They can enroll in individual health coverage when your client first offers them an ICHRA—as this creates a special enrollment period (SEP)—or during the annual Open Enrollment period.
There are many ways to customize the ICHRA to meet your client’s unique needs. Employers can differ allowances by:
- Employee class
- Family status, like married with dependents
- Employee age
Now that you know the basics of the ICHRA, let’s answer some common questions brokers have about it.
When should a broker recommend ICHRA over a traditional group plan?
The ICHRA is a customizable and budget-friendly approach to employee health benefits. This makes it an attractive option for various types of businesses and industries. Although an ICHRA may not be the best fit for every organization, its flexibility and affordability make it an attractive option for groups facing particular challenges.
You should consider recommending an ICHRA to your clients in the following situations:
- Self-insured employers seeking risk mitigation. Many employers are currently self-insured to save on fully-insured group premiums. However, these plans come with financial risks associated with covering employee medical expenses—especially if there is high claim volume. If organizations are approaching you and looking to reassess their options, switching to an ICHRA is a great way to offload these risks.
- Diverse employee needs. If your client’s workforce has a wider range of employee healthcare needs than a one-size-fits-all group plan can meet, an ICHRA is a great solution.
- Distributed workforces. Offering traditional health benefits to employees located in different cities or states can be challenging. One group policy may not cover all employees’ preferred providers. With an ICHRA, employees can enroll in their own individual health plans and select a policy that covers the healthcare providers in their area.Â
- Small employers who are new to benefits. Many smaller organizations don’t offer any health benefits to their employees. If you have small clients who can’t afford to offer a traditional group health plan, an ICHRA is an excellent budget-friendly option.
- Medium and large organizations facing steep rate increases at renewal. Employers with 50 or more employees who are experiencing rising costs in their current group health plans can benefit from an ICHRA. If your clients are facing significant premium rate increases, an ICHRA is a great way to reduce benefit costs. By setting fixed contributions, these employers can keep their healthcare spending predictable.
- Nonprofits. Nonprofits often have tight budgets. With an ICHRA, they can set contributions that fit their budget without having to worry about significant annual cost increases.
- Trouble meeting minimum participation requirements. If an employer is concerned about meeting the high participation requirements of group plans, an ICHRA can be advantageous. Group plans typically need around 70% of employees to participate. ICHRAs have no minimum participation requirements.
By matching these scenarios with a specific business’s needs and circumstances, brokers can recommend ICHRA as a more suitable alternative to traditional group health plans.
Learn how to transition your clients from traditional group plans to an ICHRA with our blog post.
How do ICHRAs compare to other health benefits?
Many brokers wonder how the ICHRA stacks up against other health benefit options. Understanding the differences between ICHRA, group health insurance, and other benefits can help you and your clients make informed decisions. Here’s how ICHRAs compare to other benefits.
Cost
With fully-insured group health insurance, employers pay a set percentage of the monthly premiums. According to KFF’s 2024 Employer Health Benefits Survey, employers contribute 84% of self-only coverage premiums and 75% of family premiums on average. These premiums typically increase each year. If your clients have any high-risk employees, these rate increases can become extreme.
Many organizations also go the self-funded route. If your clients are self-funding and paying for employees’ medical claims, this can come with a lot of risk to the business. If your clients’ employees are utilizing the benefit more than expected, your client is on the hook for these increased expenses.
Employers can control their costs with an ICHRA. Your clients can set a monthly allowance for their employees that fits their budget. And, since the individual market risk pool is wider than that of a group plan, there’s less risk of steep rate increases for employees. For those transitioning from a self-insured plan, an ICHRA eliminates the risk of high claims volume.
Flexibility and personalization to employees’ needs
Traditional group health plans offer one or several pre-defined options for health coverage, which may not cater to all employees’ needs. Employees can choose between the plans their employer offers. However, these plans may not have networks that include their preferred providers.
Unlike group plans, ICHRAs allow employees to choose their own individual plans. Now, employees can choose a plan that fits their healthcare preferences.
No company size or contribution limits
An ICHRA is available to organizations of all sizes. This makes it a great option for applicable large employers (ALEs) with 50 or more full-time equivalent employees (FTEs). Employers can set different allowances based on employee classes, family statuses, and age. And, there are no minimum or maximum allowance limits. This makes an ICHRA a viable option for all types of employers. It differs from other types of HRAs, such as a qualified small employer HRA (QSEHRA), which is only for employers with fewer than 50 FTEs.
What are the tax and compliance considerations of ICHRAs?
If you and your clients are interested in an ICHRA, you need to be aware of some tax and compliance considerations to ensure a smooth transition.
Tax advantages
One advantage of the ICHRA is its tax-free design. ICHRAs are tax-free for employers and employees. You don’t need to report ICHRA contributions on employees’ W-2s.
ACA compliance
ALEs can use an ICHRA to satisfy the Affordable Care Act’s employer mandate if their contributions are affordable. ALEs must ensure their allowances are affordable, and they must offer a health benefit, such as the ICHRA, to at least 95% of full-time employees and their dependents. Otherwise, they could be subject to tax penalties.
An ICHRA allowance is affordable if an employee doesn’t pay more than 9.02% of their household income for the lowest-cost silver plan on the local Health Insurance Marketplace. Employees determine this after factoring in their ICHRA allowance. Since your clients likely don’t know their employees’ household incomes, they can use IRS safe harbors.
Employers must also file annual Form 1094 and 1095 reports. When you work with an ICHRA vendor like Remodel Health, we make this process easier by supplying the data your clients need to complete these forms.
ERISA compliance
ICHRAs are subject to various legal requirements under the Employee Retirement Income Security Act of 1974 (ERISA). For example, employers need to ensure their ICHRA benefit doesn’t discriminate in favor of highly compensated employees. They must also provide employees with a plan document, summary plan description (SPD), and summary of benefits and coverage (SBC).
Partnering with an ICHRA administration solution like Remodel Health can help your clients meet their ICHRA compliance obligations.
ICHRA rules
When designing an ICHRA, there are many factors to be aware of. For instance, if your client wants to offer an ICHRA to come classes of employees and group health insurance to others, they need to account for class size minimums. If your client wants to cover out-of-pocket medical expenses other than premiums, they must ensure they only provide contributions toward eligible medical expenses. This can be a lot for you and your clients to handle on your own. Partnering with an ICHRA vendor like Remodel Health can ease the administrative burden for you and your clients.
How do employers determine ICHRA contributions?
A common question brokers and employers have is how they can determine ICHRA contribution amounts. Employers can set whatever contribution amounts they like.
However, they should consider the following factors:
- If they’re an ALE, they need to ensure their contributions meet the ACA’s affordability requirements
- Employee demographics, like location, age, and family status
- Their health benefits budget
At Remodel Health, we eliminate the guesswork involved in setting allowances. We’ll help your clients develop a contribution strategy and create a custom quote for their ICHRA administration.
How do brokers educate employees about ICHRA?
Health benefits are complex. Since most employers and employees aren’t familiar with the ICHRA, they may need some extra education. You’ll want to ensure they feel comfortable using their new benefits.
Employees need clear information about how their new ICHRA benefit works, how to find and enroll in individual health insurance plans, and how to make the most of their benefits.
Remodel Health helps brokers and employers educate employees on their new benefits. With tons of resources and our ICHRA Academy courses, we’re here to make your client’s transition to ICHRA as easy as possible. We’ll support your client’s employees in selecting their individual health insurance plans and onboard them onto our ICHRA platform.
Partner with Remodel Health for all your ICHRA needs
Remodel Health is your partner in ICHRA administration. We’re here to support you and the services you provide to your clients. You’ll have access to our top-of-the-line technology and white-glove service approach.
Discovering if ICHRA is a good fit for your clients has never been easier. You can submit an employee census, summary of benefits, and total annual spending for your client’s current health benefit. Then, we’ll get to work producing a custom ICHRA quote proposal.
Once we determine that ICHRA is a good fit for your client, our intuitive ICHRA+ software allows us to create customized ICHRAs tailored to your client’s and their employees’ unique needs. We’ll help your client’s staff select qualifying health plans and onboard them onto the software platform. We’re here to support you and your clients at every step.
Ready to start winning more clients with ICHRA?