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How do ICHRAs work?

There has been a lot of buzz around Individual Coverage HRAs (ICHRA) since they became available in 2020.  Because the Individual Marketplace has continued to grow so significantly, many employers are excited by the possibility of providing better plan selection for their employees while still improving budget control.

Understanding how these new HRAs work is really important, because it helps bring clarity to why these are such a monumental change for employer-sponsored health benefits. The following is a breakdown of the primary components involved in providing an Individual Coverage HRAs (ICHRAs):

1. Third-Party Administrator (TPA)

The fundamental element of an Individual Coverage HRA is reimbursement. In fact, HRA stands for Health Reimbursement Arrangement (HRA). However, reimbursing employees can be a tricky subject — particularly when it comes to compliance with human resource and HIPAA law. 

This is why it’s important to have a Third-Party Administrator, also called a “TPA”.  There are lots of elements involved in the relationship between TPAs and employers. Essentially, employers hire an outside group to handle the day-to-day functioning of their organization’s reimbursement process.

Oftentimes, the TPA will verify the arrangement is written comprehensively and legally. This also helps ensure everyone is being treated equitably as the HRA dollars are distributed throughout the year. Third-Party Administrators can be found locally or via online resources.

2. Employers Choose Budget

Budget control is one of the most powerful features of Individual Coverage HRAs (ICHRA), mainly due to increased flexibility for reimbursement amounts. Employers organize their budgets into what’s called “classes,” which have varying “levels.”  

For example, classes can be equitably determined by management, geographical location, family size, and age. There are specific rules surrounding how classes are organized, which is why partnering with the right benefits consultants is essential.

Something that ICHRA cannot do is allow employees to use reimbursement money and still receive tax credit discounts on their insurance premiums. Whereas with providing a budget via supplemental wage increases, employees maintain access to those discounts. This often helps both the employer and the employee save money.

Thankfully, you can still leverage ICHRA plus wage increases using Remodel Health’s exclusive ICHRA+™, which combines both Individual Coverage HRAs and tax credit discounts using budgets via extra pay. With ICHRA+™, every employee can receive a high quality plan while at a cost the employer can control.

3. Employees Choose Plans

Over the past several decades, large plan selection has never been part of the employee health benefits experience. You get what you get and you don’t get upset, as the old children’s adage goes. Under this rationale, organization leaders have undertaken the feat of choosing a one-size-fits-all plan for all employees. 

As most employers have come to realize, though, one size does not fit all when it comes to healthcare. That’s what makes Individual Coverage HRAs so powerful. ICHRAs give employees the choice to spend their healthcare dollars toward what they choose: whether that’s a copay plan, high deductible health plan (HDHP), health savings account (HSA), sharing ministry or more — it’s their choice!

Furthermore, individual coverage plan designs continue to improve every year. In 2020, individual products had a 0% average change in cost, and 78% of carriers for individual health insurance have confirmed plans to continue growing and improving plan selection for employees.

With all of this said, shopping for individual plans can feel overwhelming for employees who are not familiar with the Individual Marketplace. Thankfully, there are benefits coaches who can guide your team through the shopping process. Remodel Health’s solution has been specifically designed to help your employees feel cared for and served well.

4. Tax-Free Reimbursements

One of the most advantageous benefits of Individual Coverage HRA dollars is that it does not count as taxable income. This means there will not be additional tax liability at the end of the year. Medical expenses as defined by U.S. Code § 213 can be tax free, and now the new rules of ICHRA also allow HRA dollars to pay toward premiums.

There are some limitations, however. For example, an employee may not use ICHRA dollars toward their spouse’s plan. Additionally, contributions may not be made into a Health Savings Account (HSA) from the Individual Coverage HRA for an employee if the arrangement also pays for standard medical expenses prior to fulfilling the HDHP deductible.  

This is another instance where Remodel Health’s exclusive ICHRA+™ can be very beneficial to the team, since they can still use that budget toward their HSA with minimal limitations.

Want to learn more about ICHRAs?

If you want to learn more about Individual Coverage HRAs, check out our full ICHRA Guide! Learn how you can evaluate the difference between traditional group vs. ICHRA, and run your own savings estimate through our free online ICHRA Calculator. For our full, no-cost, evaluation, connect with one of our benefits consultants by emailing [email protected]

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.