Want to Learn More About ICHRA?

An Individual Coverage Health Reimbursement Arrangement (ICHRA) is an employer-funded health benefit that can reimburse eligible employees, tax-free, for qualifying individual health insurance premiums and, depending on the plan design, certain eligible medical expenses.

Instead of the employer choosing one group health plan for all participating employees, eligible employees obtain their own qualifying individual coverage and receive reimbursements under the employer’s ICHRA terms.

The employer establishes the ICHRA, determines which eligible employee classes will participate, sets the reimbursement allowance under the plan design, and provides required notices. Eligible employees obtain qualifying individual health insurance coverage or Medicare and substantiate coverage and eligible expenses before reimbursement.

No. ICHRA should not be presented as an automatic cost-saving strategy. The result depends on the employer’s current group premiums, contribution levels, workforce, employee locations, individual-market premiums, administration costs, affordability requirements and ICHRA design.

Accurate Health Plans helps employers compare the numbers before making a change.

With traditional group health insurance, the employer generally selects one or more group plans and contributes toward the premiums. With ICHRA, the employer establishes a reimbursement benefit and eligible employees generally select their own qualifying individual health insurance.

Neither approach is automatically better. The economics and practical fit should be evaluated for the specific workforce.

Both can reimburse qualifying individual health coverage, but they operate under different rules. ICHRA is available to employers of any size and permits recognized employee classes. QSEHRA is limited to qualifying small employers, has federally established annual reimbursement limits, and follows a different eligibility and benefit framework.

Yes. ICHRA can be offered by employers of various sizes, including small employers. Unlike QSEHRA, ICHRA is not limited to employers below the ACA Applicable Large Employer threshold.

Federal ICHRA rules recognize the following 11 employee classes that may be used when designing eligibility:

1. Full-time employees
2. Part-time employees
3. Seasonal employees
4. Employees covered by a collective bargaining agreement
5. Employees who have not satisfied a waiting period
6. Non-resident aliens with no U.S.-based income
7. Salaried employees
8. Non-salaried employees
9. Temporary employees of staffing firms
10. Employees whose primary site of employment is in the same rating area
11. A combination of two or more permitted classes above

Class definitions, minimum class-size requirements and other rules can apply, particularly when an employer offers a traditional group plan to one class and ICHRA to another.

Potentially, yes. An employer can use permitted employee classes to offer a traditional group health plan to certain classes and ICHRA to other classes, subject to applicable rules. An employer generally cannot give employees within the same class a choice between the traditional group plan and ICHRA.

Minimum class-size rules can apply when certain employee classes are divided between a traditional group health plan and an ICHRA. Depending on employer size, the applicable minimum may be 10 employees, 10% of employees, or 20 employees. Not every class division is subject to the minimum, so the proposed structure should be reviewed before implementation.

Employers should use the employee classifications permitted under the federal ICHRA rules. Informal categories created simply to provide different benefits to selected employees may not satisfy those rules.

Yes. ICHRA can be worth evaluating for employers with geographically dispersed workforces because eligible employees generally obtain individual coverage available where they live. Premiums, carrier choices, provider networks and plan availability can vary substantially by market.

Potentially. The ICHRA rules include a class based on an employee’s primary site of employment in the same rating area. Employers should apply the regulatory class definitions rather than assume that the label “remote employee” by itself creates a separate ICHRA class.

Yes. The employer establishes the reimbursement allowance under the ICHRA plan design. There is generally no federal ICHRA dollar contribution cap, although affordability, nondiscrimination and other requirements can affect how the benefit should be structured.

ICHRA itself generally does not impose a federal minimum dollar contribution. However, employers subject to ACA employer shared-responsibility provisions need to evaluate whether the offer is affordable under the applicable rules.

There is generally no federal dollar maximum for ICHRA contributions. The employer determines the reimbursement budget subject to the plan terms and applicable law.

Not necessarily. Permitted differences can be based on recognized employee classes and, within applicable rules, age and number of dependents. Employers should not arbitrarily assign different reimbursement amounts to individual employees without a permissible basis.

Yes, within applicable ICHRA rules. Reimbursement amounts may be designed to vary based on age and number of dependents, subject to federal limitations and consistent application of the plan terms.

An employer may design an ICHRA to allow unused amounts to carry forward, subject to applicable requirements. Whether rollover is available and how it operates should be specified in the plan documents.

No. ICHRA is a reimbursement arrangement, not an employee-owned bank account. Employees are reimbursed for eligible expenses according to the plan terms, and unused amounts remain subject to the employer’s plan design.

Generally, the employee must be enrolled in qualifying individual health insurance coverage or Medicare that satisfies ICHRA requirements. Individual coverage may be obtained through the Health Insurance Marketplace or directly from an insurance carrier.

Generally, yes, provided the coverage satisfies ICHRA requirements. This can give employees more choice, but premiums, provider networks, formularies and benefits can differ by location and carrier.

Yes, qualifying individual Marketplace coverage can generally be used with ICHRA. However, an employee cannot receive ICHRA reimbursements and a Marketplace premium tax credit for the same coverage months.

An ICHRA offer can affect eligibility for Marketplace premium tax credits. Whether an employee may opt out of the ICHRA and qualify for a premium tax credit depends in part on whether the ICHRA offer is considered affordable under applicable ACA rules.

Generally, employees must have an opportunity to opt out of and waive future reimbursements at least annually and in certain other circumstances. The effect of opting out on Marketplace premium tax-credit eligibility depends on the applicable affordability rules.

Yes, an employer can design an ICHRA to reimburse qualifying expenses for eligible dependents. The plan documents should define dependent eligibility and reimbursable expenses.

Yes. Medicare can satisfy the coverage requirement for ICHRA participation when applicable requirements are met. Medicare coordination and reimbursement rules should be considered when designing benefits for Medicare-eligible employees.

No. ICHRA is employer-funded. If the cost of the employee’s coverage exceeds the available reimbursement, the employee is responsible for the remaining cost, subject to applicable rules regarding payment of individual-market premiums.

Potentially. An employer may design the ICHRA to reimburse qualifying individual insurance premiums and may also permit certain eligible medical expenses under Internal Revenue Code Section 213(d). The plan document determines which eligible expenses are reimbursable.

When an ICHRA is properly established and administered and applicable requirements are satisfied, qualifying reimbursements are generally excluded from the employee’s federal taxable income.

ICHRA affordability is determined under applicable ACA rules by comparing the employee’s required contribution for the relevant self-only individual-market benchmark coverage, after the ICHRA amount, with the applicable affordability standard. Special ICHRA rules and employer safe harbors may apply.

Because affordability percentages and market premiums can change, the calculation should be performed for the applicable plan year.

An ICHRA can be used by an Applicable Large Employer (ALE) as part of its strategy for satisfying ACA employer shared-responsibility requirements. Simply offering an ICHRA does not automatically establish compliance; eligibility, affordability and other requirements must be evaluated.

It can be. ICHRA is a group health plan, and COBRA continuation requirements can apply to employers subject to COBRA. Continuation requirements should be addressed as part of implementation and administration.

ICHRA rules generally require eligible employees to receive a written notice explaining important information about the arrangement, including how the ICHRA can affect Marketplace premium tax-credit eligibility. Required timing and content should be incorporated into implementation.

Yes. An ICHRA is an employer-sponsored group health plan and should have appropriate plan documents, eligibility provisions, reimbursement procedures, notices and administrative processes. ERISA, ACA, COBRA, HIPAA and other requirements may apply depending on the employer and plan.

Employees must substantiate qualifying individual coverage or Medicare for the periods for which reimbursements are provided. Employers often use an ICHRA administrator or third-party administrator to handle coverage substantiation, expense review and reimbursement administration.

ICHRA requires ongoing eligibility management, coverage and expense substantiation, reimbursements, notices, plan documentation and compliance administration. Many employers use a third-party administrator rather than managing the process internally.

Yes, if the transition is structured properly. Before terminating an existing group plan, the employer should compare costs, review individual-market availability, establish contribution amounts, evaluate employee classes and affordability, and coordinate implementation dates.

An ICHRA is not inherently limited to a January 1 start date. Implementation should be coordinated with individual-market enrollment opportunities, Special Enrollment Period rules, employee notices, the existing group-plan termination date and the employer’s plan year.

Employees and dependents who become newly eligible for an ICHRA can generally qualify for a Special Enrollment Period to obtain individual health insurance. Timing should be coordinated so qualifying coverage is effective when needed.

Not necessarily. Employees who have not satisfied a waiting period are one of the recognized ICHRA classes. Applicable eligibility and waiting-period requirements still need to be followed.

Generally, eligibility for future employer-funded reimbursements ends according to the plan terms, subject to applicable continuation-coverage requirements. Because the individual insurance policy is separate from the employer’s ICHRA, the employee may be able to keep that policy by paying the premium directly.

A meaningful comparison generally starts with an employee census and current plan information, including employee ages, ZIP codes or locations, family coverage needs, employment classifications, current premiums, employer contributions, renewal information and current plan structure.

This allows the comparison to use the employer’s actual workforce rather than a generic savings estimate.

The best starting point is a side-by-side analysis of the current group plan and a properly designed ICHRA scenario. Accurate Health Plans can evaluate the employee census, current costs, potential contribution strategy and individual-market conditions.

The objective is not to assume ICHRA is better. It is to determine which approach makes financial and practical sense for the employer and workforce.