ICHRA Essentials

The nuts & bolts of implementing an ICHRA 

Flexible, Personalized Employer-Sponsored Health Insurance

ICHRA (pronounced “ick-rah”) offers both new and established employers a better, simpler way to provide benefits.

Employees choose from hundreds of plans and are reimbursed through an employer funded HRA. While similar to QSEHRA, ICHRA has many improved benefits:

    • Higher limits
    • Greater flexibility
    • No employer size constraints

Group health insurance plans are a thing of the past as employers and employees will benefit greatly from ICHRAs. Our blog details benefits employees can expect to see.

 Let’s Start Designing

Before introducing an ICHRA, there are a few things employers need to determine:

  • Goals of implementing an ICHRA
  • Reimbursement structure and amounts
  • Rollover options
  • Employee classes and contributions for each class
  • Multiplying factors based on age and dependents

Once those factors have been decided and an ICHRA is ready to be introduced, employers should communicate to employees that they will need to select a qualified health plan before participating in an ICHRA.

 

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Greater Flexibility with Employee Classes

Employee classes are part of what makes ICHRA so great. Employers can design custom benefit solutions for each employee to fit their business needs – employees can be divided into 11 classes and a specific dollar amount for each class is chosen. 

CLASSES
icon group of employees Full-Time Work at least 30 hours per week.
icon group of employees Part-Time Work anything less than what is defined as full time.
Seasonal Hired on short-term basis or for a particular season.
CBA Have a written agreement between employer, employee, and union (collective bargaining agreement).
Waiting Period New hire – can be up to 90 days.
icon group of employees Rating Area Broken up by geographic location.
Non-Resident Aliens No US-based income; including foreign employees who work abroad.
icon group of employees Salaried
icon group of employees Non-Salaried Hourly workers.
Temporary employees of staffing firms
Combination of two or more classes above based on their needs​
icon group of employees   Subject to Class Size Minimums if one class is getting a group plan

 

Additional notes for consideration:  

  • Employee classes must be based on legitimate job-based criteria like hours worked or geographic location. They cannot be used to discriminate against employees with health issues. 
  • Within each class, you can choose to adjust the allowance amount by each employee’s age and family size. 
  • You can mix-and-match traditional group plans with ICHRA implementations. For example, you could offer employees in New York a traditional group plan and employees in Texas an ICHRA. 

Fully Customizable, but With Some Rules and Regulations

When it comes to reimbursement rules, there are no limits as to how much can be offered, as long as it is offered fairly to everyone. Employers choose what they would like the ICHRA to reimburse:

  • Insurance premiums only
  • Qualified medical expenses only
  • Insurance premiums + qualified medical expenses

They also have the power to choose the structure of reimbursements:

  • Same amount to all employees
  • Amount based on family size
  • Amount based on age
  • Varied amount based on both family size and age

Employers will then decide where the leftover reimbursement money goes. The money can either go back to the employer or the employee can roll the funds over into the next year.

Regardless of the approved reimbursable expenses and reimbursement amounts, employees must be given the option to “opt-out” of receiving reimbursements through an ICHRA on an annual basis.

Illustration man building puzzle

Is ICHRA Worth Introducing?

Increase Recruitment and Retention.

With an ICHRA, employees no longer need to switch health plans and can continue receiving care from the doctors they’ve come to trust. This could be the deciding factor for attracting and retaining top talent.

  • New and potential employees won’t have to switch health plans from what they had previously and can receive a monthly benefit to contribute to the cost.
  • Existing employees in a traditional group health plan can be grandfathered in while new employees can be offered an ICHRA. This is a great way to transition the workforce from a group plan to an ICHRA.

Administration

One of the biggest benefits of an ICHRA is the limited amount of administrative oversight. Health benefit administration is a lot of work, especially for smaller companies. Larger organizations typically have entire departments dedicated to it, and for medium-sized organizations, it is typically outsourced to a third-party company.

For smaller organizations, this is a huge benefit. They can now offer health benefits to compete with large businesses without having to take on the administration of group plans.

Small or large, W3ll can make administering an ICHRA easy. Let us take on the burden so you don’t have to. Contact us and we will show you how.

Control Your Administrative Costs

ICHRA costs are fixed, meaning your risk to manage is eliminated, and your employees have the freedom to choose how to spend their health allowance.

Annual premium increases from traditional group health plans can be a headache for employers, but not anymore with an ICHRA. Allowable reimbursement rates are set and the cost will never exceed that number. The best part? If your employees don’t use all of their allowances, the money goes back in your pocket!

Still Not Convinced ICHRA is Right for Your Business?

ICHRA may be a new benefit design, but how does it compare to traditional benefit designs that many employers are typically attracted to? For small groups with less than 250 employees, here’s how your options compare.

The Other Guys vs. ICHRA 

chart other guys vs ichra

The Fine Print*

ACA Compliance

Does your business have more than 50 full-time equivalent (FTE) employees? If yes, the Affordable Care Act (ACA) requires health insurance be provided to employees. This is known as the “employer mandate” and if affordable insurance isn’t provided, that business is subject to large penalties.

Good news! ICHRA satisfies the employer mandate. Using complicated group plans to meet the mandate are a thing of the past. To meet the mandate, the ICHRA must be “affordable.” Per the IRS:

An ICHRA is affordable if the remaining amount an employee has to pay for a self-only silver plan
on the exchange is less than 9.83% of the employee’s household income (rate applies to 2021).

In math terms, the formula is:

Affordable HRA Contribution > Lowest Cost Silver Plan = (9.83% * Employee Household Income)

Affordability could get a little tricky. Here is more information that breaks affordability down more.

ICHRA and Medicare

You may be wondering – how does ICHRA work with Medicare-eligible employees? It’s not uncommon for employees of small businesses to choose Medicare coverage over the offered group health insurance plan because the benefits are better. But can ICHRA offer your Medicare-eligible employees assistance with their medical expenses?

In short, yes! If you place all your Medicare-eligible employees into the same class, you can offer this class an ICHRA. However, you cannot offer any employees within this class a traditional group plan. Even if your employees choose not to participate in the group plan, just the fact that they had the option to choose between a group plan and Medicare makes them ineligible for an ICHRA.

Additionally, to qualify for an ICHRA, any of your employees who are eligible for Medicare need both Part A and Part B of Medicare in place, or Part C.  Unfortunately, Part B alone does not qualify as minimum essential coverage.

ICHRA, COBRA, and ERISA

ICHRA is considered a group health plan and is subject to ERISA and COBRA. If you set up an ICHRA, you must follow ERISA guidelines in your plan documents and notice to your employees.

Per the Department of Labor, COBRA requires any employer with 20 or more employees in the prior year to offer employees and their families the opportunity for a temporary extension of health coverage in certain instances where coverage under the plan would otherwise end.

Companies with less than 20 employees, plans sponsored by the federal government or by churches, and certain church-related organizations are not subject to COBRA regulations. If your business falls in one of these categories and you offer an ICHRA, you can do so without following COBRA requirements.

For state-specific rules around COBRA, we recommend that you check your state’s requirements.

*The information herein should not be construed as legal or tax advice in any way. Regulations, guidance, and legal opinions continue to change. The information has been gathered from public sources and presented in an easily readable and understandable format. Situations vary, technical corrections and future guidance may vary from what is presented. This is meant for educational purposes and as informational content. W3ll does not make any warranty of any kind concerning this information.

Still have questions about ICHRA?

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