Creating a competitive benefits package is a top priority for business owners looking to attract and retain talented workers. As an alternative to traditional group health plans, many employers. brokers, and HR leaders are looking toward the individual coverage health reimbursement arrangement (ICHRA) as a way to offer greater flexibility, budget stabilization, and employee choice.
But before implementing an ICHRA, it’s crucial to understand who can participate in the benefit and how you can use eligibility customization options to personalize your plan design and enhance the employee experience.
This article will help brokers and employers determine ICHRA eligibility so they can build a benefit that meets their financial goals and their employees’ unique needs.
In this blog post, you’ll learn:
An ICHRA is a customizable, tax-advantaged health benefit that allows employers to contribute a set amount of money that employees can use to pay for their individual health insurance premiums. Depending on how the employer structures their ICHRA benefit, certain out-of-pocket medical expenses may also be eligible costs.
Here’s a brief overview of how the ICHRA works:
Unlike a group health plan, any company with at least one W-2 employee can offer an ICHRA — regardless of its location, budget, or industry. However, only W-2 workers, whether full-time or part-time, and their qualified dependents are eligible for the benefit.
Qualified dependents include:
Employees must enroll in an individual health insurance plan that meets MEC requirements to use the ICHRA. Under the ICHRA final rules, they must also confirm at the start of the plan year and on an ongoing basis that they are still enrolled in their qualifying health coverage to receive ICHRA reimbursements for premiums and medical expenses throughout the plan year1.
Remodel Health streamlines the employee attestation of coverage requirements. When employees shop for plans through the Remodel Health platform, we automatically verify their enrollment status each month and pay the premiums directly to the carriers.
Eligible forms of health insurance coverage include:
If the employer allows spouses and dependents to take advantage of the benefit, they must specify so in the employee benefit plan documents. Then, just like W-2 employees, qualified household members must get eligible health coverage to receive ICHRA reimbursements. This doesn’t necessarily need to be a separate policy, however.
For example, if an employee enrolls in a qualified family plan on the individual market that covers their spouse and dependents, they meet the individual coverage requirement.
Business owners may be eligible for ICHRA participation depending on how the IRS classifies them. If the federal government considers the owner a common law employee, then they can take part in the benefit.
For example, the IRS considers C corporations to be a separate legal entity, where the owner is a W-2 employee. Therefore, C corp owners, including spouses and qualified dependents of C corp owners, may use the benefit legally.
Certain business owners may still be eligible to receive ICHRA reimbursements, even if they aren’t legally able to use the benefit themselves. For instance, the federal government categorizes partners in a partnership as self-employed. This means they can’t directly participate in the ICHRA.
However, they can still take advantage of the benefit if:
In this case, the spouse can participate in the ICHRA as an employee, and the partner may receive reimbursements as an eligible dependent.
Although the ICHRA is one of the most flexible health benefit options available, there are some restrictions on eligibility. Sole proprietors, S corp owners, uninsured workers, and 1099 contractors aren’t eligible to participate in the benefit. Additionally, certain health plan types aren’t compatible with the ICHRA.
According to IRS rules, ineligible healthcare coverage includes:
Employees enrolled in these types of coverage must switch to a qualifying individual plan if they want to use the ICHRA. Luckily, offering an ICHRA for the first time triggers a 60-day special enrollment period, which gives employees the chance to shop for qualified coverage on the individual market.
Outside of this time, employees can enroll in or change their health plan during the annual Open Enrollment Period.
Yes, employers can customize eligibility rules using 11 employee classes defined by the IRS. While you don’t have to use all the class categories available, you must comply with nondiscrimination rules. This means you must offer all employees within the same class the ICHRA on the same terms and conditions.
The ICHRA employee classes are:
Using employee classes can help you tailor your retention strategy. For instance, if you want to attract more skilled workers to your organization, you can choose to only offer the ICHRA to full-time employees. Or, you could place newly hired workers in a waiting period class for their first month of employment before fully enrolling them in the benefit. Whatever you choose, employee classifications can help you craft an ICHRA benefit that works best for you.
The basics of ICHRA eligibility are relatively simple. But the secret to building a benefit that works for your company’s specific needs and goals lies in leveraging employee classes and outlining clear plan details. By carefully tailoring your benefit strategy, you can maximize your ICHRA’s value, attract the employees you want to retain long term, and ensure that your staff and their families have affordable healthcare.