May 82 min read

An Alternative to Traditional Health Insurance: Individual Coverage Health Reimbursement Arrangement (ICHRA)

Traditionally, benefits packages offered limited health insurance options to full-time employees. Now companies of all sizes have an alternative that offers various benefits to the employer and employees - an Individual Coverage Health Reimbursement Arrangement (ICHRA).

What is an Individual Coverage Health Reimbursement Arrangement (ICHRA)?

An ICHRA is a fresh alternative to a traditional health plan. It allows employers to set aside pre-tax dollars to reimburse employees for medical expenses. This may include premiums, out-of-pocket costs, copayments, and deductibles.

The employer determines how much money to set aside each month for medical expenses. Employees who are enrolled in an individual market health plan (or Medicare) are eligible to receive benefits. They pay for coverage and are reimbursed up to the plan allowance. This type of health plan has many advantages to employers and employees.

Advantages of an ICHRA

Cost Containment: ICHRA provides greater budget predictability because the employer sets the monthly plan allowance. Additionally, they have the option to retain unclaimed allowances and reimbursements.
Talent Recruitment and Retention: In today’s competitive job market, a robust benefits package holds significant value. Providing personalized benefits can attract and retain top talent, distinguishing your company from the competition.
Customized Benefits Offering: Employers have the flexibility to customize their offerings to their diverse workforce. They can decide to tailor coverage to different classes of employees, such as full-time, part-time, seasonal, or their work location. For a full list of available classes, click here.
Taxes: ICHRA reimbursements are not subject to payroll or income taxes, saving money for both the employer and employee.
Choice and Personalization: Employees offered an ICHRA plan aren’t limited to employer-sponsored options. They can research the plan that works best for their needs and budget.

Can you offer ICHRA with traditional group coverage?

Employers can determine which plan type to offer different classes of employees, but they cannot offer both options to a single class. For example, an employer may choose to offer group coverage for full-time employees and an ICHRA for part-time, seasonal, or temporary employees.

It’s important to note that if employers are offering both types of coverage, they must adhere to class size requirements, which can be seen in the chart below:

A chart showing the minimum class sizes when offering both group and ICHRA coverage

Who is using it now?

Since its inception in 2020, ICHRAs have growth by more than 300%. It’s become a popular way for employers to offer customized health insurance coverage to their employees. In return, they receive tax advantages, cost control, and the potential to recruit and retain top talent.

If you’re interested in learning more about an Individual Coverage Health Reimbursement Arrangement (ICHRA), check out the links below.

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