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

One great benefit of an ICHRA for an employer is the ability to design a unique plan for specific business needs of their employees. Something to keep in mind when looking at the design options is that while there is a lot of flexibility, an employer’s plans must be offered fairly to each “class” of employees. Almost all ICHRAs rules and regulations were created to prevent discrimination.

Reimbursement Rules

Under an ICHRA, employers can offer as much or as little they want to their employees, if the amount is offered fairly to everyone – there are no limits. Additionally, the employer can choose what they would like the ICHRA to reimburse:

  • Insurance premiums only
  • Insurance premiums + Qualified Medical Expenses

  • Qualified Medical Expenses only
  • Note: Not all medical expenses are eligible for reimbursement through an ICHRA. Read through IRS Publication 502 for clarity on what is and is not eligible. A few examples include:

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    Employers also have the power to choose the structure of reimbursements to their employees within each class:

  • Give the same amount to all employees
  • Give an amount based on family size

  • Give an amount based on age

  • Vary amount by both family size and age
  • Opt-Out Requirements

    All employees must have the option to decline the ICHRA offering at least once a year before the new plan year begins.

    If employees choose to opt-out, they give up the ability to claim reimbursements for the year. They may take this route if the ICHRA is unaffordable, and they would prefer to claim premium tax credits (PTC). We explain this further in our ICHRA affordability blog.

    Special Enrollment Period (SEP) and ICHRA

    Per Centers for Medicare and Medicaid Services (CMS) regulations, for all employees (and their dependents) to participate in an ICHRA, they must have individual health insurance through a qualified health plan (QHP). The Open Enrollment period varies by state but usually runs from November 1st to December 15th, annually. Outside of that time, a qualifying life event (QLE) is necessary to trigger a Special Enrollment Period (SEP) to secure coverage. Examples of QLE’s are marriage, divorce, having a baby, and moving. Offering an ICHRA for your employees also counts as an SEP, giving the employer more time throughout the year to roll this out.

    With the SEP, employees have 60 days to buy a plan, allowing the employer to set up an ICHRA year-round.

    Note: If any employees have coverage through a spouse’s group plan or are not covered at all, they will not be able to participate in the ICHRA.

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

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