What is ICHRA and How Does it Work?

Today, we’re diving into the world of ICHRA – the Individual Coverage Health Reimbursement Arrangement. This innovative approach to health insurance has been gaining traction since its introduction in 2020, and it’s about time we break it down for you.

What is ICHRA?

ICHRA, or the Individual Coverage Health Reimbursement Arrangement, is an employer-sponsored health plan option that allows employers to provide tax-free reimbursements to their employees for qualified healthcare expenses. The most significant feature of ICHRA is that it enables employees to purchase individual health insurance plans that best suit their needs, rather than being restricted to a one-size-fits-all group plan.

This alternative to traditional group health insurance plans was introduced by the Departments of Treasury, Labor, and Health and Human Services in 2019 and became effective on January 1, 2020. 

How does ICHRA work?

At its core, ICHRA operates as a reimbursement system. Employers decide on a monthly allowance to provide their employees for purchasing individual health insurance policies and other qualified healthcare expenses. The employee then submits proof of these expenses, and the employer reimburses them tax-free.

There are a few critical aspects to consider when setting up an ICHRA:

• Employee Classes: Employers can establish different classes of employees to offer varying levels of reimbursement or different coverage options. Examples of these classes include full-time, part-time, seasonal, or employees based on geographic location.

• Annual Cap: There is no maximum limit on employer contributions, but the employer must establish a cap on annual reimbursements for each employee class.

• Minimum Plan Requirements: The individual health insurance plans that employees choose must meet the minimum essential coverage (MEC) requirements under the Affordable Care Act (ACA).

Benefits of ICHRA

ICHRA offers several advantages for both employers and employees:

Employer Benefits:

• Cost control: Employers can define the reimbursement amount, providing better control over healthcare expenses.
• Flexibility: ICHRA allows employers to cater to diverse employee needs by offering different reimbursement levels for different employee classes.
• Administrative simplicity: Employers no longer need to manage group health insurance plans, reducing their administrative burden.

Employee Benefits:

• Personalization: Employees can select the individual health insurance plan that best fits their needs and preferences.
• Portability: Individual health insurance plans stay with the employee even if they change jobs.
• Tax savings: Reimbursements are tax-free for employees.

ICHRA is an exciting development in the health insurance landscape, providing employers and employees with an alternative to traditional group health insurance plans. It offers flexibility, cost control, and personalization, making it an attractive option for many organizations.

To learn more about ICHRA and determine if it’s the right choice for your organization, talk to a licensed health benefits expert at Remodel Health!

Important Notice:  Remodel Health does not intend to provide specific insurance, legal, or tax advice. Remodel Health always recommends consulting with your own professional representation to properly evaluate the information presented and its appropriate application to your particular situation.