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ICHRA Guide

Quick ICHRA Overview

Watch our quick Introduction to ICHRA and get a better glimpse at who can use an ICHRA, what it is, and its background.

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Use our ICHRA calculator to estimate how much your company could save by switching to ICHRA from traditional group insurance.

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ICHRA Overview

What is ICHRA (Individual Coverage HRA)?

An Individual Coverage HRA, or an ICHRA (pronounced “ick-ruh”), is a type of HRA that increases flexibility for both employers and employees to better utilize the Individual Marketplace. This innovative health benefits solution, which just became available in January of 2020, is projected to help 800,000 employers and 11 million employees throughout the next 3 years.

An ICHRA is an employer-funded Health Reimbursement Arrangement (HRA) that employers of any size or industry can reimburse employees tax-free for qualified medical expenses.

How does ICHRA work?

ICHRA rules allow for an employer of any size to use pre-tax dollars to reimburse employees for healthcare costs, instead of buying it for them upfront. These tax-free dollars are required to be used in tandem with an ACA compliant plan, but an employee can use those dollars to pay for their premiums plus qualified medical expenses. More importantly, the employee is able to opt-out of those HRA dollars if it could be more affordable for them to use Premium Tax Credits instead.

Here’s a brief overview of how an ICHRA works for the employer and employees:

  1. Employers create their health benefits plan, defining which employees are eligible for reimbursements and creating limits on reimbursement amounts.
  2. Employees shop the Individual Marketplace and choose the plan the works best for themselves and their families.
  3. Employees submit claims to their employer for reimbursements on qualified medical services.
  4. Employers reimburse employees for qualified claims with tax-free dollars up to their predetermined reimbursement limits.

A History of ICHRA

Background on HRAs

The HRA model of distributing tax-free medical dollars to your staff with (near) simplicity has been around for a while. Previously, though, there have been strict rules that have limited many employers from taking advantage of this innovative model.

HRAs (Health Reimbursement Arrangements) started in 1974 with the ERISA Act, aiming to slow down rising medical costs. The new law allowed employers to offer employees tax-free reimbursements for healthcare expenses. Unfortunately, it did not succeed in stopping the ever-increasing price of healthcare.

By the time the 2000s arrived, the IRS offered some updates that gave HRAs an opportunity to shine. The changes offered improved flexibility for employers to determine different reimbursement amounts for different employees all across their organization. Those funds could then be used toward both medical expenses and premiums.

The problem was, while the updates let employers budget better, they did not improve the access and affordability of healthcare for employees. Thus, the Affordable Care Act (ACA) was introduced in 2013. This, however, was not good news for the HRA.

The ACA brought new definitions and requirements to health insurance plans. HRAs actually fell under this new definition of a “plan” and became subject to the requirement of providing Essential Health Benefits as well as having no Lifetime Limit.

HRAs were then considered incompliant unless “integrated” with a fully-insured ACA-compliant group plan.

Background on previous HRA limits

While the ACA did improve access to medical coverage through the Individual Marketplace, its disruption to the industry made costs for group healthcare go up even more — especially for companies with under 50 employees.

In an effort to give employers an alternative to cancelling plans they could no longer afford, Congress enacted the 21st Century Cures Act in 2016, which included the provision for Qualified Small Employer HRAs (QSEHRA). It allowed small employers to offer dollars to their employees to spend on individual plans.

However, the strict limits on employer size and reimbursement amounts significantly limited QSEHRA’s application pool. Large employers could not use QSEHRA, the allowances were too small, and offering it offset premium tax credits for employees.

In an effort to appeal to these problems, the Trump Administration released an Executive Order in mid-2019 outlining new rules for HRAs. The goal was to increase flexibility for both employers and employees to better utilize the Individual Marketplace. Starting in 2020, Individual Coverage HRAs (ICHRA) have been made available.

How ICHRA changes these rules

New ICHRA rules allow for an employer of any size to use pre-tax dollars (as opposed to the QSEHRA). They are required to be used in tandem with an ACA compliant plan, but an employee can use those dollars to pay for their premiums plus qualified medical expenses. More importantly, the employee is able to opt-out of those HRA dollars if it could be more affordable for them to use Premium Tax Credits instead.

There are certainly incentives to allowing for increased diversity in healthcare spending, which will inevitably increase market competition (which either makes products better or drives prices down). The organization gets to set its budget, and the employee gets better customization on how their dollars will be spent. This ruling is certainly a great addition to the menu of innovative options developed over the past few years.

What are the rules for using ICHRA?

First, it is essential to know that employers have to apply these HRA dollars to everyone equally within any given class of employees (class right now is up for interpretation). However, there are some useful new(er) methods of classifying employees (when consulting with an expert) that can provide a more personalized experience to care for your team.

Second, you cannot double-dip. Essentially, you can pick either the HRA allowance or your Premium Tax Credit. You cannot use both. By opting into the HRA, you immediately lose your tax credits, which often is a better deal than using an HRA. But, there are many employees who make too much to qualify for PTC. In that case, they’d be super happy to have help paying premiums!

Third, while Applicable Large Employers are allowed to use ICHRA, it does not necessarily fulfill the employer shared responsibility (also known as the “mandate”).  If the ICHRA allowance for that individual is considered to be an affordable plan, then the mandate is fulfilled. If not, then either part A or part B of the shared responsibility will be billed to you by the IRS.

What are some of ICHRA’s features?

One of the best aspects of the new ICHRA is its flexibility and employer-friendly nature. Below are some of ICHRA’s unique features:

• Employers of any size can use ICHRA
• ICHRA fulfills the large employer mandate
• Reimbursements can be used for medical expenses and premiums
• Reimbursement amounts are unlimited
• Employees can be organized into groups with custom allowance amounts
• Allowances do not offset premium tax credits

ICHRA vs. Group Plan

Many employers are intrigued by the new ICHRA for several good reasons. For one, using a reimbursement strategy allows employers to control the costs of their health benefits with much more accuracy. Plus, the Individual Marketplace allows employees to shop for a plan that suits their unique needs/requirements, rather than getting put on a one-size-fits-all group plan. This means employees are receiving a health benefit that better meets their individual needs.

Opting for an ICHRA also means employers don’t have to worry about micro-managing the healthcare of their employees. It also takes the pressure off choosing a group plan that meets the far and wide medical needs of their employees — especially a benefit for large employers that could not qualify for QSEHRA previously.

Employees with ICHRAs choose their own plan, handle their own renewals, choose their own doctors, and submit their own reimbursement requests. The employer simply determines which of their employees qualify and how much they will reimburse for qualified medical expenses.

More Resources

Watch Our ICHRA Webinar

Want a more in-depth look at ICHRA? Check out our latest webinar and learn how you could utilize ICHRA within your company to save money and better serve your employees.

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Remodel Health Estimator

Remodel Health lets you choose the best strategy to cut costs and care for your team. Toggle between the WageUp™ or individual coverage HRAs (ICHRA) models to compare your savings results.

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*Our software helps employers choose a monthly allowance that can be used toward employees’ health benefits plans. This is an estimate only. Savings are not guaranteed by the estimator tool. To get an accurate estimate, please schedule a demo with one of our representatives. Savings vary by location and plans selected. Current estimation is based on the last 12 months of savings from current clients.