The Case For ICHRA - Zupnick Associates

(By: Brittany Brooks)


Why ICHRA? Healthcare costs are continuously becoming more expensive, but reasons for why ICHRA is important, include current staff retention.

We have to retain our current staff and attract new talent, but we also must stay ACA (Affordable Care Act) compliant to avoid hefty fines.

On the other hand, some ACA mandates cut into employee wages if you’re a large employer. To help mitigate those costs, we offer group health plans, but they may not meet the needs of all our employees.

So in June of 2019, a federal ruling was granted to help employers facing these problems. In the ruling, ICHRA would go into effect by January of 2020.

What Is An ICHRA?

ICHRA is an acronym for Individual Coverage Health Reimbursement Arrangement, and you may hear it pronounced as “IK-RUH” for short. It’s similar to an HRA and allows employers to give their employees a tax-free monthly allowance, but it’s much more flexible than a standard HRA. ICHRA offers employees the ability to customize and purchase their own health insurance.

Employees can also use ICHRA to cover out-of-pocket medical costs like prescriptions, copays, and other qualified medical expenses. If you have 50 employees or more, you don’t have to worry as much about ACA compliance. 

ICHRA covers 3 ACA requirements:

  1. Affordability
  2. Minimum Value 
  3. Minimum Essential Coverage

Important: If you employ 50 or more workers, you’re required to offer health insurance. If you don’t want the headache of managing that many employees’ health coverage, ICHRA may be the best choice.

How ICHRA Works

Employers speak with their benefits advisors to create a benefits plan that details which employees are eligible for reimbursements and how much the monthly limit will be. The employees can then purchase health insurance through the insurance marketplace, an insurance broker, or an insurance carrier.

Since this is a reimbursement plan, employees pay for these costs upfront. Employees can submit a claim for the monthly medical insurance premium and other out-of-pocket medical costs. Once the claim is submitted and approved, the employer can reimburse the employee for medical expenses up to the monthly limit.

ICHRA vs. Traditional Spending Accounts

Like FSAs and HSAs, traditional spending accounts are tax-free account-based health plans. They have annual contribution limits and the employer can decide if unspent funds can be rolled over. Only employers can contribute funds to the account and the funds are not counted toward the employee’s taxable income.

ICHRA is another account-based health plan, however, there are significant differences between them that put ICHRA a cut above the rest.

Much more flexibility and control

As an employer, you can contribute as much or as little as you’d like since there aren’t any minimum or maximum requirements. Contributions can be enough to cover an insurance premium on the marketplace, insurance broker, or carrier.

You also decide which employees are eligible and when new hires reach their eligibility. Since your monthly contribution is a set amount, there aren’t any more surprise rate hikes during the renewal period. 

Employees get a say

If you offer an HRA, you have to pair it with a group health insurance plan and we know one size fits all doesn’t necessarily suit everyone. It’s rare that most group health policies offer more than 2 to 3 options, sometimes deductibles are high, and other times there aren’t enough services covered to be beneficial to your employee.

An ICHRA allows your employees to finally get the medical coverage they were looking for within a comfortable price range. The more you contribute to their monthly allowance may enable them to afford their health coverage premium and other qualified medical expenses.

Less Risk

ICHRA is becoming very appealing to business owners because of the reduced risk in compliance and the overall management of the policy itself. Once you and your benefits advisor finish mapping out your policy, you can take a step back.

Since you don’t sponsor the health insurance plan, the employee is responsible for keeping their policy renewed and up to date. However, for employees to maintain ICHRA eligibility, they must remain covered under an individual health insurance plan.

Zupnick & Associates can answer any questions regarding HRAs, reimbursement accounts, or what else an ICHRA can do for your company specifically. Click here!

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