- What is an ICHRA?
An Individual Coverage Health Reimbursement Arrangement, or ICHRA, is an innovative new model for employer-sponsored health benefits, available beginning in January 2020. Under the ICHRA model, employers provide their employees with tax-free reimbursements for individual health insurance rather than purchasing a group plan. You may also hear this type of reimbursement model referred to as “defined contribution”, as opposed to the “defined benefit” model seen in traditional group health insurance. A shift from defined benefit plans to defined contribution plans has already been seen in the retirement industry with the move from pension plans to 401(k)s, and the health industry seems poised to follow suit.
Health Reimbursement Arrangements themselves are nothing new. Prior to the Affordable Care Act, many small businesses used them to reimburse employees for individual health insurance coverage. Changes brought on by the ACA dramatically decreased their popularity until a 2016 bill created the Qualified Small Employer Health Reimbursement Arrangement (QSEHRA), which once again made HRAs a viable option provided certain guidelines were met.
When QSEHRAs proved popular, further regulations were passed which raised limits, improved flexibility, and gave HRAs a much broader appeal overall. From this came Excepted Benefit HRAs and the Individual Coverage HRAs covered here. Government projections estimate that over the coming decade, about 800,000 employers will adopt the ICHRA model, though it’s possible that that number could end up being much higher.
- How does an ICHRA work?
As the name implies, employers using an Individual Coverage Health Reimbursement Arrangement will reimburse employees for individual health coverage rather than buying coverage for them. Put another way, your employees will be in charge of choosing and purchasing their own health coverage, and you will then reimburse them a set amount to help with the cost of that coverage. ICHRAs are highly flexible, allowing employers to design the plan as they like and establish their own limits on reimbursement and employee eligibility. Once an employee has purchased an individual health plan, he or she will submit a claim for reimbursement. Claims are then assessed and, if valid, reimbursed by the employer.
ICHRAs have a lot more freedom than their predecessors, QSEHRAs, though there are still rules and regulations which must be followed, especially when it comes to affordability and the division of employees into “classes”. For tips and further details, please see our articles on these subjects.
- What sets ICHRAs apart?
ICHRAs are flexible, tax-friendly, and have unlimited contribution amounts. Additionally, unlike earlier forms of HRAs, they are available to organizations of all sizes. Their reimbursement model is simpler than that of a traditional group health plan, and they eliminate many of the worries that come with managing a traditional plan as well, including participation thresholds and attempts to control employee health risks. As an employer, all you need to do with an ICHRA is establish a budget, determine which employees qualify, and then let the employees themselves take care of the rest.