Traditional group health plans are no longer the sole option for employers who want to provide health benefits to their employees. The introduction of the individual coverage health reimbursement arrangement (ICHRA) in 2020 marked a new era in health benefits, giving employers a versatile, cost-controlled, and customizable approach to coverage.
The ICHRA has only grown in popularity since. According to the HRA Council1, there was a 29% increase in U.S. employers offering ICHRAs from 2023 to 2024. But before you take advantage of this modern alternative to group plans for you or your clients, you need to understand ICHRA eligibility.
In this article, we’ll go over how the ICHRA works and who can use it.
In this blog post, you’ll learn:
- How the ICRHA compares to a traditional group plan.
- Eligibility requirements for employers.
- Eligibility requirements for employees.
New to the ICHRA? Get our guide for everything you need to know.
What is ICHRA?
The ICHRA is an employer-funded health benefit. Employers use it in place of a traditional group health plan. With the ICHRA, you can help employees with the cost of their individual health insurance coverage instead of buying a group plan for them. This is a cost-effective savings tool since individual policy premiums are often cheaper than group premiums.
How does the ICHRA work?
The ICHRA functions differently from a one-size-fits-all traditional group health insurance plan. Employers set a monthly allowance for their employees to use on individual health insurance premiums. If an employee picks an individual health plan with a $200 monthly premium and their employer provides a $200 ICHRA allowance, the cost of their insurance is fully covered.
Some key features of the ICHRA include:
- Flexibility for employers: Employers can tailor ICHRAs to their budgets and the diverse needs of their employees.
- Cost control: According to KFF2, annual premiums for employer-sponsored group health plans increased by 7% in 2024. There are no annual rate hikes with ICHRAs. Unused funds also stay with the employer.
- Employee choice: Employees have the freedom to choose their own individual health insurance coverage.
- Tax advantages: Contributions made by the employer are tax-deductible. They’re also tax-free for the employee.
- No contribution limits: Unlike other types of health reimbursement arrangements (HRAs), there’s no limit to how much employers can contribute to an ICHRA on a pre-tax basis.
- Compliance with the Affordable Care Act (ACA): ICHRA helps applicable large employers (ALEs) meet the ACA’s employer mandate. ALEs just need to offer an affordable allowance.
Which companies can use an ICHRA?
The ICHRA is for employers of all sizes that have at least one W-2 employee. From small businesses to large corporations, there’s no minimum or maximum size limit.
According to our 2024 ICHRA Report, ICHRAs are especially favored in these industries:
- Healthcare
- Dental
- Nonprofits
- Construction
- Business services
Which employees can use an ICHRA?
The ICHRA offers an excellent health benefit solution for employees, but its value depends on their ability to utilize it.
As mentioned, the ICHRA only covers W-2 employees. That means 1099 contractors can’t use the benefit. W-2 workers also need qualifying forms of individual health insurance coverage to take part in the benefit.
As far as business owners go, they’re eligible for the benefit as long as the IRS considers them employees. Under IRS rules, C corporation owners are eligible for the ICHRA, but S corporation owners and greater than 2% shareholders, partners, and sole proprietors aren’t.
These are eligible plans under an ICHRA:
- Qualified individual plans from public exchanges, such as the federal Health Insurance Marketplace or a state-based marketplace.
- Individual health insurance plans from a private exchange, like an insurance company, broker, or licensed agent. However, private exchange plans only qualify if they provide minimum essential coverage (MEC).
- Medicare Parts A and B together.
- Medicare Part C. These plans are also known as Medicare Advantage.
- Student health insurance plans that meet ACA standards.
- Catastrophic plans for those younger than 30 or who have a hardship exemption.
Employees who are uninsured or covered under a traditional group plan, like those provided by a spouse or parent, can’t participate in an ICHRA.
Other ineligible coverage options include:
- COBRA
- TRICARE
- Medicaid
- Association health plans
- Short-term medical plans
- Fixed indemnity plans
- Healthcare sharing ministries
How can employers vary employee eligibility?
With the ICHRA, employers can divide their workforce into classes of employees. This allows employers to legally offer different benefits and allowance amounts to different groups of employees.
There are 11 ICHRA employee classes:
- Full-time employees
- Part-time employees
- Seasonal employees
- Temporary employees of staffing firms
- Salaried employees
- Non-salaried employees
- Employees covered under a collective bargaining agreement
- Employees in a waiting period
- Foreign employees who work abroad
- Employees working in different geographic locations, either rating areas or states
- A combination of two or more of the above
For example, you can offer your full-time employees a monthly allowance of $350 while offering your part-time employees $200. Or, you could decide to offer the ICHRA to only your full-time class of employees. You can also differ allowance amounts based on your employees’ age and family size.
Offering an ICHRA with Remodel Health
Whether you’re an employer or insurance professional, you can offer an ICHRA through Remodel Health’s ICHRA+ platform. With our team of experts and white-glove service, business owners and brokers can easily manage an ICHRA.
We take care of:
- Plan design
- Legal plan documents
- AutoPay for employee individual health insurance premiums
- Required ICHRA plan notices
- Providing necessary data for compliance filings
Plus, eligible employees can shop for individual medical insurance plans directly through Remodel Health instead of trying to figure out the individual market on their own.
Conclusion
Understanding who can benefit from the individual coverage HRA (ICHRA) is key to leveraging its full potential. The ICHRA allows employers to provide tax-advantaged allowances to their employees for individual health insurance premiums. This makes it a viable solution for employers striving to meet the unique health coverage needs of their teams.
- https://www.hracouncil.org/report
- https://www.kff.org/health-costs/report/2024-employer-health-benefits-survey/
What’s the average ICHRA allowance? Download our 2024 ICHRA Report to find out!