ICHRA Background

The Individual Coverage Health Reimbursement Arrangement or ICHRA (pronounced “ick-rah”) is a relatively new health benefit design that has been available since January 2020. This type of HRA is a fantastic option for employers looking to provide their employees with health benefits for the first time or those looking for a better, simpler way to provide coverage. ICHRA is a more flexible and personalized model of employer-sponsored health insurance.

Within the next five years, it is expected that nearly 800,000 employers will offer Individual Coverage HRAs to pay for insurance for more than 11 million employees. Here, we will break down the changes that occurred in the health insurance industry that have brought us to this exciting point.

HRAs and the Affordable Care Act

Although the ICHRA is new as of 2020, it has been a long time coming. The retirement industry has evolved, moving away from defined benefits to adopting defined contribution models (i.e.: pension plans and 401ks) instead. With this shift, it is no surprise that the health insurance industry has started going down the same path!

Health Reimbursement Arrangements (HRAs) are popular for group health plans. Prior to the Affordable Care Act (ACA) being passed in 2010, it wasn’t uncommon for small businesses to use HRAs to reimburse their employees for individual health insurance. Unfortunately, certain regulations that came out of the ACA discontinued the potential for employers to reimburse their employees. Additionally, these regulations created penalties for those who did not follow the federally mandated guidelines.

The Introduction of QSEHRA

In December 2016, President Barack Obama signed into law the 21st Century Cures Act, designed to help speed up medical product development and bring new innovations and advances to those who need them faster and more efficiently.

This Act also created theQualified Small Employer Health Reimbursement Arrangement (QSEHRA), which allows small employers to provide non-taxed reimbursement of health care expenses, like health insurance premiums and coinsurance, to employees who maintain minimum essential coverage (MEC), which included individual Marketplace (ACA) plans.

Then, in October 2018, the U.S. Departments of the Treasury, Health and Human Services (HHS), and Labor came up with new regulations to expand the usability of HRAs. This proposed regulation was in response to President Trump’s Executive Order on “Promoting Healthcare Choice and Competition Across the United States.”

The rules were finalized in June 2019 and introduced two new types of HRAs: The Individual Coverage HRA and the Excepted Benefit HRA.

QSEHRA vs. ICHRA

While a QSEHRA is a health coverage subsidy plan designed for employees of businesses with fewer than 50 full-time employees, ICHRAs have no size restrictions. Additionally, if offering a QSEHRA, you cannot have a group insurance policy (including group health, dental, or vision insurance). ICHRA, however, has no such requirements! This type of HRA can be paired with a group policy (although not offered to the same class simultaneously).

Additionally, QSEHRA employer contributions are limited to $5,450 for self-only employees and $10,700 for employees with a family in 2021. Businesses also cannot give employees different allowance amounts based on criteria other than family status with a QSEHRA. ICHRAs do not have maximum allowance amounts and allow the employer to vary their contribution based on a few other selection criteria.

The QSEHRA does not prevent your employees from accessing premium tax credits, but to prevent double benefits, they must deduct their monthly HRA allowance from their calculated premium tax credits. With ICHRA, your employees cannot collect premium tax credits and participate in the ICHRA. However, if the ICHRA allowance is considered unaffordable, employees may waive the HRA and accept the tax credits (if eligible).

For more information about ICHRA, check out our overview page.