With so many businesses adopting an Individual Coverage Health Reimbursement Arrangement (ICHRA,) there are thousands of Americans facing these new benefits for the first time. If you’re one of those individuals with an ICHRA benefit, you might have some questions. While your employer likely spelled out the details of the company-funded ICHRA, you know there is at least one key decision you need to make before enrolling in your Marketplace health insurance plan. Should you calculate and use the premium tax credit to help offset the monthly premiums? Or can you save more money by instead using your ICHRA from work? Today, we’ll help you sort out the details and understand how to determine which direction you should take.
Understanding the ICHRA Platform
Before you jump into calculations, it’s essential to understand the benefits of an ICHRA. It is not health insurance. It’s a supplemental reimbursement plan with federal oversight but is employer managed, to help you offset certain healthcare costs throughout the year.
Your Company Owns & Sponsors It
It’s important to recognize that your ICHRA is specific to your employer. While there are certain guidelines outlined at the government level, your requirements, options, and reimbursement processes will be dictated by your employer. Before rolling out the ICHRA to you and your coworkers, your employer or HR department probably provided an introduction to the plan that outlined spending limits, approved expenses, and frequency of reimbursement payouts. Start by diving into those points first to understand how to calculate your potential savings.
The Health Insurance Requirement
In order to participate in any ICHRA plan, you will need to have your own health insurance. Because the ICHRA is not a health insurance product, you will be afforded a Special Enrollment Period allowing you to explore the Marketplace to shop and enroll in a new plan. You’ll likely have a strict timeline to adhere to when signing up for the ICHRA. So, be mindful of your deadlines and give yourself enough time to calculate your potential savings and pick a plan that’s right for you.
What Your Company Covers
You will want to have a clear understanding of what your company-sponsored ICHRA plan covers. Double-check any introduction information your employer would have provided. If you’re not sure what reimbursements you can collect, verify with your designated company contact. Ask about copays, coinsurance, monthly premiums, and deductibles.
Understanding the ICHRA Reimbursement Benefits
There are variances to different ICHRA plans. And your employer will outline what your specific ICHRA platform offers in terms of benefits. Sorting through the details will help you calculate your potential savings as you weigh whether to use these reimbursements or take advantage of the premium tax credit instead.
Anticipating Your Healthcare Needs
Whether you’re using the ICHRA benefits for yourself or your entire family, it’s generally a good idea to sit down and review your potential healthcare needs for 2021. Of course, you can’t predict accidents or illnesses that require extra healthcare. But you can estimate potential costs based on annual physicals, routine lab work, or maintenance scans you normally have every year. Those visits will likely have copays, coinsurance, or specialist expenses that you can calculate now.
If you’re of age to qualify for Medicare, your calculations might look a little different from your coworkers. There are benefits to leveraging your ICHRA to help offset certain costs. And these considerations will change based on a Medicare or Medicare Advantage plan.
Calculating Your Savings
Using these various estimations of costs for healthcare, try to come up with a total for the year. You can then calculate which of these expenses qualify for reimbursement under your ICHRA. The difference between these two figures should loosely represent what you can expect to pay out of pocket. Again, you can’t predict sudden illnesses or injuries that may require more substantial care, emergency room visits, or hospitalizations. So, you will want to be mindful of what those potential costs could accumulate to, should they arise. It may sway your decision as you choose a health insurance plan on the Marketplace.
Understanding the Premium Tax Credit
Once you have a general idea and understanding of what you can expect to pay out of pocket with your company ICHRA, you can do the math to calculate your available premium tax credit. To determine your eligibility, you’ll need to answer a few questions about your household income and demographics.
What the Premium Tax Credit Is
The premium tax credit, often called the PTC, is a refundable sum that helps eligible families and individuals reduce the monthly premiums for a health insurance plan enrollment on the Marketplace. The IRS outlines eligibility requirements to calculate and apply your cost savings. You can determine your eligibility, and PTC amounts directly on the Marketplace website or with a few quick clicks with W3LL.
Calculating Your Savings
Once you have determined your premium tax credit amounts, you can browse and select a Marketplace health insurance plan. Knowing the costs associated with your chosen plan will help you crunch the numbers based on monthly premiums, copays, coinsurance percentages, and specialist visits. You can use this estimate to compare with your ICHRA out of pocket costs to see which path offers the most savings.
Understanding ‘Affordable’ Definitions
When the government released its final ruling regarding the benchmarks for the ICHRA platform, it also defined “affordability” requirements. To be considered an “affordable” plan, the cost itself for the lowest-priced silver plan cannot exceed 9.83% of the employee’s total household income. If your ICHRA allowance makes the benefit essentially affordable, it can impact your eligibility for the premium tax credit.
Remember, you can only choose one or the other when it comes to an ICHRA benefit or the premium tax credit. And it can be challenging to try and put numbers to anticipated healthcare costs. But you can evaluate potential out of pocket costs to help you find which route saves more money. And regardless of which path you choose, you’ll need to select a health insurance plan via the Marketplace.
If that’s a new endeavor for you, you can browse easily and for free with W3LL. We can help you sort through the available Marketplace plans and calculate eligible tax credits. It’s one step you can do now and have help sorting through the potential costs and details.