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The individual coverage health reimbursement arrangement (ICHRA) allows employers to reimburse employees tax-free for health plan premiums and qualified out-of-pocket expenses. Employees must be enrolled in an individual health insurance plan (on- or off-Exchange) or Medicare to be an eligible participant under the ICHRA. Independent Health Agents is here to help you and your clients with the benefits administration of the plan, as well as the individual health sale.
Applicable large employers can satisfy the Employer Mandate requirements by offering an ICHRA.
However, an ICHRA may disqualify an individual for subsidy eligibility.
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Avoid annual rate hikes, as well as the contribution and participation requirements that many experience with their group health insurance plans.
You choose who is eligible to participate in your organization’s benefit based on employee classes such as age, state, and family statuses that you determine.
Employees can use their benefit to cover the cost of an individual policy of their choosing, and in some cases incurred out-of-pocket expenses.
How Does the ICHRA Work?
Step 1: Employer Sets up the ICHRA
Our experienced agency implementation team will guide employers through the process of setting up the ICHRA and help them determine how the plan will work.
The employer can choose:
Eligible employee classes
Effective date of the plan
Step 2: Employees Purchase Individual Health Plans
Once your benefit is set up, employees are ready to opt in to the benefit, if they choose, and spend their allowance. Employees who opt in to the ICHRA will purchase the individual health insurance coverage and potentially other qualifying medical expenses they want with their own money.
Eligible out-of-pocket expenses can include everything listed under IRS Publication 502, although you can limit some of these items according to your preference.
For example, if you want to offer a premium-only ICHRA that only reimburses employees for their individual health insurance premiums, not out-of-pocket costs, you can do so.
Step 3: Employees submit proof of incurred expenses
Next, after the employee has made their purchases, they’ll submit documentation showing proof of the incurred expenses they’re submitting for reimbursement.
Due to IRS regulations, this documentation must include:
- The name of the item or service
- The cost of the item or service
- The name of the vendor
- The date of purchase
Invoices, receipts, or an explanation of benefits from an insurer or healthcare provider typically satisfies this requirement. Depending on the item that’s being requested for reimbursement, a doctor’s note or prescription may also be necessary under the regulations. Keep in mind that this information is subject to HIPAA’s privacy rules and must be handled carefully if you are self-administering an ICHRA.
Step 4: Review and reimburse expenses
Finally, the employer will review the expense and either approve or reject the request. If you’re offering an ICHRA with PeopleKeep, our experts will review your employees’ submissions for you so you can be sure it qualifies. If it’s a qualified expense, you will reimburse your employee up to their accrued allowance.
Typically, employers choose to reimburse employees through payroll by adding a non-taxable line item to employees’ paychecks, although you can also pay out ICHRA funds through a separate check, cash, or a bank transfer.
Rest Assured, You or Your Company is Covered
For many employers, offering a traditional group health insurance plan doesn’t work because it’s too expensive, too complex, and too one-size-fits all to meet their needs. An individual coverage health reimbursement arrangement (ICHRA) can be a great alternative.
An ICHRA is a formal group health benefit that organizations of all sizes can use to reimburse their employees, tax-free, for individual health insurance premiums and other healthcare expenses. Whether you use it as a stand-alone benefit or as a separate option alongside a group health insurance plan, an ICHRA can satisfy the employer mandate for applicable large employers (ALEs).
Why Choose Us
Independent Health Agents’ individual coverage health reimbursement arrangement with our agent experience and administration software makes offering an ICHRA hassle-free. Learn more about our ICHRA software or book a call with a personalized benefits advisor.
Large Group Employer Mandate Compliant
No contribution or participation requirements
From setting up employee classes to choosing what expenses you want to reimburse (only insurance premiums or also out-of-pocket expenses) you have complete control when it comes to designing your benefit.
Administering an ICHRA with IHA only takes a few minutes every month, thanks to our easy-to-use dashboards. You can see who’s using the benefit, check reimbursement deadlines, and even reimburse employees through payroll.
Automated legal documents
By signing up for an ICHRA with IHA, we automatically generate all the legal plan documents you need. We’ll even keep tabs on your benefit to make sure it stays compliant with IRS, HIPAA, and ERISA regulations.
Independent Health Agents help organizations build inclusive and individualized benefits for all employees, regardless of location, size, budget, or demographics. See why thousands of employers have chosen to offer personalized employee benefits with IHA
Frequently Asked Questions
Who can participate in an ICHRA?
The federal government requires employees participating in an ICHRA to have a qualifying form of individual health insurance. Employees covered by any kind of group plan, including a spouse’s or parent’s plan, cannot participate in an ICHRA. Other unacceptable forms of coverage include COBRA, health care sharing ministries, association health plans, Tricare, or being uninsured—just to name a few. See the full list of eligible forms of coverage here. Beyond that, eligibility requirements are up to the employer.
Can S Corporation Owners Participate?
IRS regulations dictate that S Corporation owners and their spouses who own more than 2% of a business cannot participate in an ICHRA. This is because owners are able to write off their medical expenses through other means and are not considered employees of the business by the IRS. Fortunately, however, this rule only applies to owners, and employees are still able to participate..
What’s the difference between an ICHRA and other types of HRAs?
For example, the ICHRA allows for more flexibility than the QSEHRA, in that employers can offer different benefits to employees in different classes and there are no maximum employer contribution limits. However, ICHRAs can also be more complicated with premium tax credit coordination and other factors.
The ICHRA differs from the integrated HRA, also known as the group coverage HRA (GCHRA), in that employers don’t have to offer group health insurance in order to offer the HRA. The group coverage HRA solution is used by employers with a group health plan who want to supplement the benefit with an HRA allowance that covers qualifying medical expenses (often because the employer wants to help reduce the risk of a high deductible for their employees).
Is an ICHRA allowance considered income?
Reimbursements made through an ICHRA are not considered income and don’t need to be reported as such by the employer on an employee’s W-2.
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