ICHRA Compared to Other Group Health Options - Zupnick Associates

(By: Brittany Brooks)

There are various health insurance options and ICHRA compared to other group health options offers more flexibility to you and your employees. Here’s a guide covering:

  • ICHRA (Individual Coverage Health Reimbursement Arrangement)
  • HRA (Health Reimbursement Arrangement)
  • HSA (Health Spending Account)
  • FSA (Flexible Spending Account)

You’ll find the most important facts for these group health options:

  • Employer eligibility requirements
  • What they cover
  • Minimum/maximum contribution amount
  • Tax Benefits

Let’s dive in!

ICHRA 

ICHRA is part of the HRA family, but it offers much more flexibility for employers and their workers. It is a new face on the health insurance scene, but ICHRA will most likely be a top contender in employee benefits since the plan allows employees to purchase their own health insurance policy.

Employer Eligibility Requirements:

ICHRA accounts are available to companies of any size, so you don’t have to worry about meeting ALE (applicable large employer) requirements as you do with some other account-based health plans. Another bonus, you’re not required to offer health insurance to go alongside an ICHRA plan.

Here’s something to keep in mind, you can not offer an ICHRA plan and a group health insurance plan to the same class of employees. Employees can not be placed in a position to choose between the two.

Covers:

The employee must pay their insurance premium out of pocket and submit a claim to be reimbursed for their expenses.

  • Health insurance premium
  • Qualified medical expenses
  • The employer can opt to cover both of these as well

Contribution Limit:

No minimum or maximum contribution limit. Only the employer can contribute to the monthly allowance and decide what to do with unspent funds at the end of the month or year. The company has a choice between letting the funds roll over or come back to the company.

Tax Benefits:

All contributions are 100% tax-free.

HRA 

HRAs don’t allow employees to purchase their own health insurance plans as ICHRAs do. In fact, HRAs must be paired with a health insurance plan in order to offer it as an employee benefit.

Employer Eligibility Requirements:

Companies of any size are eligible and they must offer a group health insurance plan to go with an HRA.

Covers:

Employees must pay medical expenses upfront and are reimbursed after they submit a claim for their qualified medical expenses.

  • Prescriptions
  • Doctor’s visits
  • Hospital services
  • Deductibles
  • And other qualified medical expenses

Contribution Limit:

No annual contribution limits. The employer decides if unspent funds are rolled over at the end of the year.

Tax Benefits:

All contributions are completely tax-deductible.

HSA 

HSAs are a great employee benefit that can help employees with the high costs of medical expenses, however, HSAs are not for everyone.

Employer Eligibility Requirements:

Companies of any size are eligible, but the employer must offer a qualified high-deductible health plan (HDHP) to employees. The IRS determines which HDHPs are eligible each year. Look for health policies that are specifically labeled “HSA-eligible” to ensure you have the right plan.

Covers:

Employees can pay for medical expenses upfront and submit a claim to be reimbursed or they can use a debit card linked to the HSA account if the employer provides one. May also make a withdrawal for an upcoming qualified medical expense.

  • Copays
  • Deductibles
  • Coinsurance
  • And other qualified out-of-pocket and unreimbursed medical expenses 

Contribution Limit:

Both the employer and employee can contribute to the account. Annual contribution limits for 2022 are $3,650 for a covered individual and $7,300 for family coverage.

There aren’t any limits to the amount of unspent funds an employee can roll over each year. The funds belong to the employee at all times and they can take their account with them if they leave the company.

Tax Benefits:

All contributions are tax-deductible for both the employer and their employee. 

It is possible to invest HSA funds into mutual funds, stocks, and other investment opportunities. Any gains made on the interest and capital of those investments are tax-free. 

Withdrawals made by employees for qualified medical expenses are tax-free as well.

FSA 

A Flexible Spending Account is like an HSA, but you aren’t required to pair it with an HDHP. 

Employer Eligibility Requirements:

Companies of any size are eligible, but an FSA must be paired with a group health insurance plan, unless you’re going to offer a health care only FSA that’s limited to covering dental and vision costs

Covers:

Employees must pay medical expenses upfront and are reimbursed after they submit a claim for their qualified medical expenses.

  • Copays
  • Deductibles
  • Prescriptions
  • Qualified medical equipment and supplies: bandages, crutches, diagnostic devices, insulin, over-the-counter medications, etc.

Contribution Limit:

The employee primarily contributes to this account and the employer may contribute, but they are not required. The annual contribution limit for 2022 is $2,850 per employee.

Funds must be used within the calendar year or they are forfeited unless the employer chooses to allow up to $500 to roll over to the next year. As the employer, you also have the option to allow a two-and-a-half-month grace period to give the employee the opportunity to use unspent funds.

The account is owned by the employer and can not be carried over to another organization.

Tax Benefits:

Contributions are deducted from the employee’s paycheck on a pre-tax basis lowering their taxable income. Funds withdrawn to pay for qualified medical expenses are tax-free for employees.

Employers are not charged FICA and Medicare taxes for the contributions.

 

For more details or information regarding your particular situation, Zupnick & Associates is here to assist you and your team. Connect with them to find out what else is available to you!

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