If employers want to stay competitive in the labor market, they need to offer comprehensive, cost-effective options to help employees cover their medical expenses. The individual coverage health reimbursement arrangement (ICHRA) is a flexible approach to employer-sponsored insurance.
Unlike traditional plans, ICHRAs allow employees to pick individual health insurance plans that fit their needs, with employers offering an allowance for their premium costs. But what happens when employees are also eligible for Medicare? This creates new coverage possibilities but also adds layers of complexity.
In this article, we’ll cover how ICHRA and Medicare work together.
In this blog, you’ll learn:
- How employers can cover individual insurance premiums for their employees using an ICHRA.
- How ICHRAs can enhance coverage for Medicare beneficiaries.
- Why employers should use Remodel Health as their HRA administrator.
How has the healthcare industry changed? Watch our webinar to find out.
How the ICHRA works
The individual coverage HRA (ICHRA) is an employer-sponsored health benefit. With the ICHRA, employers offer a specific amount of money on a tax-free basis to their employees for health insurance coverage.
For example, suppose an employer offers a monthly allowance amount of $300. In that case, an employee can put that toward the cost of their individual health insurance premium. If their monthly premium is $320, they only have to spend $20 out of their own pocket for coverage. This way, business owners can help with the cost of coverage while forgoing a traditional group health insurance plan for their employees.
Key aspects of the ICHRA include:
- No annual limit on employer contribution amounts. Employers can offer their employees as much as they want as an allowance.
- Employers can vary allowances using employee classes, family status (like single or married), and age. Classes include the following:
- Full-time employees
- Part-time employees
- Seasonal employees
- Temporary employees
- Salaried employees
- Hourly workers
- Employees in a waiting period
- Foreign employees who work abroad
- Employees in different locations
- A combination of two or more of these classes
- Eligible employees need their own individual health insurance coverage to participate in the ICHRA. They can’t have coverage through a spouse’s or parent’s traditional group health plan.
- Applicable large employers (ALEs) can satisfy the Affordable Care Act’s (ACA) employer mandate by offering an ICHRA with an affordable allowance.
How Medicare works
Medicare is a federal health insurance program for people 65 and older. It also covers certain younger people with disabilities. Medicare reduces medical expenses for eligible individuals by covering a range of healthcare services and treatments, ensuring access to essential care. As of January 2025, 68.5 million individuals have Medicare coverage1.
Medicare is divided into four parts2:
- Medicare Part A: This is hospital insurance. Medicare Part A covers inpatient care in hospitals, skilled nursing facility care, hospice care, and home healthcare.
- Medicare Part B: This is medical insurance. Medicare Part B covers doctor visits, outpatient care, home health services, durable medical equipment, and many preventive services.
- Medicare Part C: Also called Medicare Advantage, Medicare Part C offers an alternative to Original Medicare. Private insurance companies provide Medicare-approved plans. These comprehensive medical plans typically include Parts A, B, and often Part D.
- Medicare Part D: This offers prescription drug coverage.
How ICHRA and Medicare can work together
Many employees use Medicare instead of their employer’s traditional group health insurance plan since it tends to offer better benefits. But an employer can still offer their ICHRA benefit to Medicare-eligible employees to help cover their Medicare premiums.
If an employer wants to offer an ICHRA to their entire workforce, employees enrolled in Medicare can also utilize this benefit. As mentioned, eligible employees need individual health insurance policies to participate. Medicare Parts A and B, or Medicare Part C, qualify as individual health insurance coverage.
However, if an employer only wants to offer Medicare-eligible employees an ICHRA and a group plan to their other employees, there are a few things they need to consider. Employees aren’t eligible for an ICHRA if they’re also offered a traditional group plan. Additionally, employers can’t give employees the option to choose between an ICHRA and a traditional group plan. The government set these federal rules for Health Reimbursement Arrangements and Other Account-Based Group Health Plans3, as outlined in 54.9802-4(c)(2).
There are some additional Medicare compliance rules to consider when offering an ICHRA. If you have 20 or more employees and offer a group plan, you’re subject to Medicare Secondary Payer (MSP) rules. This means you have to offer Medicare-eligible employees the same group health benefit as other employees.
Luckily, you can pay for employees’ Medicare premiums through an ICHRA without violating MSP rules. You just may need to offer the benefit to all of your employees.
Medicare Part D compliance
ICHRA is subject to Medicare Part D notice requirements4. This includes a disclosure of creditable coverage. Since an ICHRA doesn’t directly cover prescription drugs and instead provides an allowance for employees’ premiums, it doesn’t provide creditable coverage. Employers must issue a written disclosure about this to all Medicare-eligible employees and to the Centers for Medicare & Medicaid Services.
Offering an ICHRA through Remodel Health
While you can administer an ICHRA on your own, it may take up valuable time that you don’t have to spare. Remodel Health’s ICHRA+® solution makes it easy for every employer to design an affordable ICHRA that works for them. We provide tailored benefits that ensure financial savings for employers and flexibility for employees. Plus, our support team provides white-glove service every step of the way. For more information about ICHRA+®, reach out to us, and we’ll help you get started!
How brokers can grow their book of business with ICHRAs
One-size-fits-all health plans don’t work for every employer. They may not have the money for a group plan in their benefit budget or the means to pay employee claims in a self-funded situation. Or maybe they can’t meet minimum participation requirements. Brokers equipped with knowledge about ICHRA can give their clients a healthcare solution that offers cost control and compliance with evolving regulations. The ICHRA is an especially beneficial option for employers with diverse workforces. It offers a tailored health benefit for employees, which can potentially lower a company’s overall healthcare costs.
Conclusion
Understanding how to effectively integrate ICHRAs with Medicare is crucial not only to optimize benefits for clients but also to ensure compliance with existing regulations. Merging these options can offer retirees or Medicare-eligible employees a tailor-made healthcare solution, allowing them to benefit from both systems.
- https://data.cms.gov/summary-statistics-on-beneficiary-enrollment/medicare-and-medicaid-reports/medicare-monthly-enrollment#:~:text=68.0M,With%20Medicare%20Part%20D%20Coverage
- https://www.medicare.gov/basics/get-started-with-medicare/medicare-basics/parts-of-medicare
- https://www.federalregister.gov/documents/2019/06/20/2019-12571/health-reimbursement-arrangements-and-other-account-based-group-health-plans
- https://www.ecfr.gov/current/title-42/chapter-IV/subchapter-B/part-423/subpart-B/section-423.56
What’s the average ICHRA allowance? Download our 2024 ICHRA Report to find out.