HHS projects that in the next 5-10 years roughly 800,000 employers will offer ICHRAs to pay for insurance for more than 11 million employees.
An ICHRA (pronounced "ick-rah") is a new way for employers to offer health insurance coverage and a new way for employees and their families to obtain health insurance coverage.
What is ICHRA?
An ICHRA is a way for employers to provide health insurance coverage for their employees by reimbursing them for the cost of individual health insurance premiums that employees purchase in the individual market (on or off an exchange). ICHRAs provide tax advantages because the reimbursements provided to employees do not count toward the employees’ taxable wages.
With ICHRAs, employers can decide which employees qualify, set their monthly allowances, and get back to managing their business while employees get to choose the plans they want.
How Do I Get Started?
An Employer can follow these 6 easy steps to establish and ICHRA plan:
- Pick a start date
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An ICHRA plan can start any time of year and will trigger a special enrollment
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- Design employee classes
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An ICHRA plan provides the employer with the ability to divide employees into eleven+ custom classes to determine what kind of benefit they receive (ICHRA to all employees, ICHRA to certain classes, no benefit to certain classes, or a traditional group benefit to certain classes).
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- Determine a monthly reimbursement amount
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The employer determines how much employees will receive and can increase or decrease the reimbursement amount based on age or number of dependents.
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- Establish plan documents
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Proficient Benefit Solutions will provide plan a Plan Document and Summary Plan Description describing the ICHRA plan policies and provisions.
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- Communicate the new benefit to employees
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Proficient Benefit Solutions will coordinate assistance so employees know how the plan works and how to choose and enroll in an individual health plan.
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- Provide resources so employees can purchase individual health insurance
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Proficient Benefit Solutions will coordinate all efforts to provide the best on and off market options for employees based on their individual needs.
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Why Choose ICHRA?
ICHRA allows the employer to choose the level of contribution they want to provide (how much or little) without any caps. They can also choose who they offer ICHRA to, and how much they will offer based on different employee classes. ICHRA also allows employers to provide this new benefit without restrictions on the size of the business, leveling the playing field in a new way. Learn more about why ICHRA is the right choice:
Benefits of ICHRA to Employers
Flexibility
Employers can offer levels of benefit per employee class
Employers choose the reimbursement amount they wish to provide (how much or little) without any maximums. They can also choose who they offer ICHRA to, and how much they will offer based on different employee classes. The key is that employers must offer the ICHRA on the same terms to all individuals within a class of employees. Amounts offered for reimbursement can be the same amount for all employees; or it can vary by family size or employee age, which would allow the reimbursement amount to increase for older workers and/or for workers with more dependents.
A key rule is that an employer cannot offer an ICHRA and a traditional group health plan to the same employee class; however, an ICHRA can be offered to one employee class while a group health plan can be offered to another employee class.
Here’s a quick list of how employers can segment employees:
- Full-Time Employees
- Part-Time Employees
- Seasonal Employees
- Employees covered by a collective bargaining agreement
- Employees who have not satisfied a waiting period for coverage
- Salaried Employees
- Non-Salaried Employees
- Temporary employees of staffing firms
- Non-Resident aliens with no US-based income
- Employees in the same geographic rating area
- Any combination of two or more classes from above.
Attraction/Retention
ICHRA allows employees to choose a health plan tailored to their specific needs
ICHRAs allow employees to choose the plans and benefits that work best for their own families. This ability to “customize” the health plan to fit their individual needs goes a long way to attract new employees and promote retention among existing employees when employees compare benefit packages offered at other potential employers.
Tax Savings
ICHRA helps employees pay for their individual health insurance premiums tax-free, not impacting their taxable income.
Reimbursement amounts are not wages and not subject to employee/employer matching payroll taxes. Reimbursement amounts are a qualified business expense for the employer. Amounts owed by the employee over and above the amount reimbursed under the ICHRA are eligible for pre-tax deduction under a cafeteria plan.
Controlled Cost
ICHRA allows employers to take control of the insurance spending, contributions, and risk
ICHRAs help employers control their employee benefit costs because the employer can set the reimbursement amounts once and for all without worrying about annual rate increases, “bad” claim years or low participation levels at renewal.
Compliance
ICHRA plans meet the standards of Minimum Essential Coverage, Minimum Value, and Affordability
ICHRA does meet IRS compliance mandates, as long as some basic affordability requirements are met. Factors like employee age and geographic area are taken into consideration, as well as their household income to calculate “affordability.”
Affordability
An offer of an ICHRA counts as an offer of coverage under the employer mandate, subject to affordability* requirements. The test as to whether the ICHRA is affordable is determined under the premium tax credit rule which is based, in part, on the amount the employer makes available under the HRA, the employee age, geographic area and household income.
* Affordability is determined by subtracting the monthly ICHRA reimbursement amount (b) from the Lowest Cost (monthly) Silver Plan (a) and then comparing that amount, which represents the employee’s responsibility (c) to .0983 of the monthly household income (d). The affordability rule is met if the employee’s responsibility is less than or equal to the monthly house hold income.
If C is < D then coverage is affordable
Opt-Out Provisions
At least once a year, employees must be given the option to “opt-out” of receiving reimbursements through an ICHRA. In this instance, employees forfeit the ability to claim reimbursements for the year.
Special Enrollment Periods
Offering an ICHRA triggers a special enrollment period for employees, and provides them up to 60 days to buy a plan. This is important to know because it allows employers the opportunity to set up an ICHRA at any time without having to wait for their current plan year to end.
