The Individual Coverage Health Reimbursement Arrangement (ICHRA) model is considered the best way forward for thousands of businesses nationwide because of its customizable affordability, flexible coverage options for employee types, and the open-armed welcome for personal selection at the employee level. But you still have questions, especially about qualifications and eligibility.
Does an ICHRA work well for both service and product-based companies? Is ICHRA participation available to you and your family as the business owner? Does the IRS have company size requirements you need to consider?
1. Company Structure Qualifications
ICHRAs are available to a wide variety of business types based on structure. You’d be surprised to see just how available an ICHRA is to such a broad spectrum of business types.
Nonprofit organizations can arrange and provide ICHRAs to their employees. Nonprofits are generally required to maintain strict budgeting during the year. And an ICHRA may be the ideal benefits platform to complement a nonprofit organization’s finances.
Government and Municipal Entities
Staff members of government agencies and municipal organizations can be given an ICHRA plan by their employer. These organizations are frequently stand-alone entities governed by a municipal governing individual or group under the rules or umbrellas of a municipality. Providing a cost-effective, budget-sensitive ICHRA alternative to employees or at least one employee is often a great solution for these government-centric entities.
Private Sector Companies
Public firms, which are governed by boards of directors, may provide ICHRA plans to their workers. An ICHRA might be ideal for a company with multiple branches located in different regions. If you’re a two-person firm that operates out of your home office, you can also offer an ICHRA. Any type of firm structure, including an LLC, C-Corp, or Partnership, can provide an ICHRA.
2. Company Eligibility Based on Size
You might be wondering if you must have a minimum number of employees to qualify for an ICHRA adoption. The good news is that ICHRAs work across a variety of industries, with the only prerequisite being one W2 employee. And the added benefit is the unique ability for a business to offer health insurance coverage reimbursements for employees outside of the traditional, full-time, salaried status.
Number of Employees
The IRS specifies that a firm with at least one W2 employee is qualified to participate in an ICHRA plan. With some of the other types of HRAs, there are certain limitations for firms with more than 50 employees. Only one worker is required for the basic ICHRA plan, and there is no limit on the number of workers covered.
Full-Time Employees vs. Part-Time Employees
The ICHRA makes sense for a wide range of small and medium-sized businesses since its umbrella of eligible participation goes well beyond the traditional employee type. Because today’s workforce is more varied and often incorporates a mix of full-time and part-time employees, the ICHRA is an excellent method to provide benefits to both categories.
Temporary and Seasonal Staff
During peak periods and for special projects, many medium and major businesses rely on seasonal and temporary staff to supplement their full-time personnel. Because the reimbursement platform is applicable to both seasonal and temporary workers, an ICHRA is a fantastic alternative for these sorts of organizations.
3. What Guidelines Render a Business Ineligible for ICHRA Adoption?
With so many green lights on ICHRA business and employee qualifications, you might be wondering if there are even any scenarios in which a business cannot adopt an ICHRA. The requirements are few and likely only apply to a small portion of business entities. However, those that do not meet eligibility guidelines for an ICHRA can still explore traditional HRA or QSEHRA options.
The IRS specifies language regarding some S-Corporations. Those entities in which an owner and spouse own more than two percent of the business cannot participate in an ICHRA. This rule, as a note, is only applicable to owners. Additional employees within an S-Corp are eligible to participate in ICHRA coverage.
Since the Sole Proprietorship, in nature, represents one owner-operator within the business, ICHRAs do not apply. Again, the minimum threshold for ICHRA adoption and eligibility is the existence of at least one W2 employee. Sole Proprietorships typically don’t categorize the sole owner as an employee with the IRS.
Traditional Group Plans and ICHRAs Together
A firm can maintain a traditional group plan for year-round employees and provide the ICHRA to separate groups of employees. It’s a fantastic approach to organize the benefits package if no one person is given both a group plan and an ICHRA.
When you think your company is ready to take the next step and set up an ICHRA, you may still have questions about how to get started or how to customize your procedure. Contact W3LL to learn more about getting your ICHRA in place and assisting you in determining the best approach forward.
The days of one-size-fits-all group health insurance may be over. ICHRA is a fantastic alternative for customization and flexibility in employee compensation benefits.
With nearly two decades in health insurance, Pete English’s diverse experience makes him uniquely qualified to help health plans and brokers leverage innovative technology in partnership with W3LL. From growing sales staff by 126% over 4 years at a large health plan, to building his own health insurance brokerage firm with over $7.2MM in annualized premium, Pete has done it all.