FAQ

One or more. In specific circumstances, small business owners can activate an ICHRA for themselves, but it is important to talk to a Savii expert to see if this applies. There are no participation requirements to offer an ICHRA, so you don’t need to have a certain number of employees enrolled in the benefit to offer it.

No, you don’t have to wait. Individual Coverage Health Reimbursement Arrangements (ICHRAs) do not have the same open enrollment restrictions as traditional group health insurance plans. Unlike group plans, which often have specific open enrollment periods during which employees can enroll or make changes to their coverage, ICHRAs can be offered at any time during the year.

Some factors employers might consider are:

  • Do current plan offerings provide enough flexibility to provide perceived value to employees based on their personal needs, such as cost, prescription coverage, preferred doctor availability, and mental health or specific health treatment coverage options?
  • Are current health plan offerings a true differentiator in the recruitment and hiring environment?
  • What is the trajectory of employer costs over the past few years, and does that trajectory fit the business financial needs?
  • If the answer to any of these questions is “no” or “I’m not sure,” an ICHRA may be a good fit.

Similarities:

Employer Contributions:

  • Both ICHRAs and group health insurance involve employer contributions to help employees cover the cost of health insurance.

Tax Advantages:

  • Both ICHRAs and group health insurance contributions may offer tax advantages for employers and employees.

Employee Benefits:

  • Both provide a means for employers to offer valuable health benefits to their employees, which can contribute to employee satisfaction and retention.

Regulatory Compliance:

  • Both ICHRAs and group health insurance must comply with relevant regulations, including those set by the Affordable Care Act (ACA) and other applicable laws.

Differences:

Plan Structure:

  • ICHRA: It is a reimbursement arrangement where employers reimburse employees for individual health insurance premiums. Employees purchase their own individual health insurance plans, with the support of an ICHRA administrator.
  • Group Health Insurance: The employer sponsors a group health insurance plan. Eligible employees and sometimes their dependents have access to a limited selection of coverage, and group plan options and enrollment are generally negotiated and facilitated by the organization’s HR department.

Employee Choice:

  • ICHRA: Employees have more flexibility to choose individual health insurance plans that suit their needs, including plans available on the individual marketplace.
  • Group Health Insurance: Employees have a limited set of plan options chosen by the employer. This “one size fits all” approach frequently rests on a small composite sample size, and penalizes a subset of the employee population, who overpay for their coverage needs.

Portability:

  • ICHRA: Since employees choose and own their individual health insurance plans, they can take the coverage with them if they leave the company. While COBRA still applies to ICHRA, employees have a more cost effective solution for health insurance continuation.
  • Group Health Insurance: Group plans are tied to employment, and employees lose coverage upon leaving the company unless they opt for COBRA or another continuation option.

Underwriting and Risk Management:

  • ICHRA: All plans are guaranteed issues and there is no underwriting for the employer group that applied. An ICHRA transfers the risk into the individual market, and is spread across a large risk pool (individual market is between 16M-17M people). Increased risks within a small employee pool have very little impact on premiums year over year, due to the size of the individual market risk pool.
  • Group Health Insurance: Risk is evaluated and determined based on the employer’s own employee population. I.e. For an employer with 30 employees, risk is evaluated and underwritten based on this small pool. When risk increases year over year within the same population, premiums increase directly as a result of the increased risk within the employee pool. Resulting in large premium increases i.e. 20-40% increases.

Administrative Complexity:

  • ICHRA: The employer’s responsibility is to set a budget and allocate funds through their ICHRA administrator. The employee’s responsibility is to select an ACA-compliant health insurance plan or opt out of employer-sponsored healthcare insurance. The ICHRA administrator facilitates plan design, employee enrollment, compliance, reporting, and ongoing administration. Is much simpler administratively for the employer, as they reimburse employees for eligible expenses rather than directly managing a group insurance plan and employee health risk.
  • Group Health Insurance: The employer’s responsibility includes plan selection (what is covered and what’s not), working with brokers and carriers, underwriting, contribution strategy, compliance, reporting, enrollment, employee education, claims assistance/troubleshooting, COBRA administration, budgeting, and much more. The employee’s responsibility includes evaluating the plan(s) offered, often relying on their employer’s HR department for assistance. The group plan administrator is responsible for processing and determining payment of claims.

Yes, although newer than traditional group health plans, ICHRAs have proven to be a very trustworthy and reliable solution for many employers and their employees.

The introduction of ICHRAs represented a shift in the way employers could offer health benefits, providing more flexibility and choice to employees.

  • 2019: The ICHRA concept was formally introduced through a set of final regulations issued by the Departments of Treasury, Labor, and Health and Human Services in June 2019. These regulations expanded the usability of HRAs (Health Reimbursement Arrangements) to allow employers to offer ICHRAs as an alternative to traditional group health insurance.
  • January 1, 2020: The regulations became effective, allowing employers to start offering ICHRAs to their employees. This marked a significant departure from the traditional group health insurance model, as ICHRAs enabled employees to purchase individual health insurance plans of their choice while receiving employer-funded reimbursements.
    • Flexibility in Plan Design: ICHRAs offer employers greater flexibility in designing health benefits, allowing them to tailor plans to meet the diverse needs of their workforce. Employers could also integrate ICHRAs with other employee benefits.
    • Tax Advantages: ICHRAs provided tax advantages for both employers and employees. Employer contributions to ICHRAs are tax-deductible, and employees could receive reimbursements tax-free for eligible medical expenses.
    • Employee Portability: A notable feature of ICHRAs is the portability of individual health insurance plans. Employees can retain their coverage even if they changed jobs, providing greater continuity of health benefits.
    • Ongoing Evolution: Since the introduction of ICHRAs, there have been updates and refinements to regulations. Employers and benefits professionals continue to adapt ICHRAs to changing healthcare landscapes and regulatory environments.
  • There are compelling reasons that all businesses are good candidates. There really isn’t a type of employer that is not a good fit for ICHRA. For employers who are trying to decide if they are a good candidate, speaking directly to a Savii ICHRA expert is a good next step.
  • For example, there are 11 Individual Coverage Health Reimbursement Arrangement (ICHRA) classes, also known as ICHRA plan options or classes of employees. These classes allow employers to tailor the ICHRA offering to different groups of employees based on certain criteria.

  • These classes are as follows:

    • Full-time employees

      • Your business can define whether this means 30 hours or 40 hours a week, but keep in mind that to satisfy the employer mandate, it will need to be at least 30 hours a week.

    • Part-time employees

      • Depending on the employer’s needs, this can be defined as either less than 30 or less than 40 hours a week.

    • Seasonal employees

      • Employees who are hired on a short-term basis or for a particular season.

    • Employees covered under a collective bargaining agreement

      • This includes employees who are part of a Collective Bargaining Agreement which signifies a written agreement between an employer, employee, and their trade union on the basis of employment, pay rate, work hours, and other working conditions.
      • For employers with multiple collective bargaining agreements, each one qualifies as a separate class under ICHRA.
      • An employer can combine a CBA classification with other permitted classes of employees (for example, combining the CBA class with the full-time employee and part-time employee classes to create full-time and part-time CBA subclasses).

    • Employees in a waiting period

      • Employees that just joined an employer. This is standard practice when new employees come on board. Businesses can choose up to 90 days before an employee’s health benefits kick in.

    • Foreign employees who work abroad

      • Employees who are non-resident aliens with no US-based income, including foreign employees who work abroad.

    • Employees working in the same geographic location

      • This would be for scaling reimbursements across employees that are in the same insurance rating area, state, or multi-state region.

    • Salaried workers

      • Employees who receive a salary as wages.

    • Non-Salaried workers

      • Employees such as hourly workers who do not receive a salary as wages.

    • Temporary employees of staffing firms

      • Employees placed for temporary assignments. ICHRA is an incredible solution for this category. Employers can choose the budget that works best for them and reimburse temporary employees that amount each month. It keeps the employer free from skyrocketing group plan costs and allows the employee faster access to the healthcare coverage they need!

    • A combination of two or more of the above

      • Employers can combine two or more of the above classes to create a new class based on their needs. That means the possibilities are endless!

Here are key tax considerations associated with ICHRAs, we recommend speaking with a tax professional to evaluate your specific situation:

  • Tax-Free Reimbursements:

    • Reimbursements provided through an ICHRA are typically tax-free for employees. This means that the funds employees receive to cover qualified medical expenses, including individual health insurance premiums, are not subject to federal income or payroll taxes.

  • Employer Tax Deductions:

    • Employers can generally deduct the contributions made to fund the ICHRA as a business expense. This allows businesses to reduce their taxable income, providing a potential tax advantage.

  • No Payroll Taxes on ICHRA Contributions:

    • ICHRA contributions made by the employer are excluded from payroll taxes, such as Social Security and Medicare taxes. This can result in additional tax savings for both employers and employees.

  • Tax Savings for Small Businesses:

    • Small businesses, including startups and those with fewer than 50 full-time employees, may find ICHRAs particularly advantageous. Unlike some other health benefit options, ICHRAs allow these businesses to offer competitive health benefits while potentially qualifying for certain tax credits.

  • Flexibility in Funding and Tax Treatment:

    • Employers have flexibility in determining the amount of contributions to the ICHRA. This flexibility extends to the tax treatment of the contributions, allowing employers to adjust their contributions based on budgetary considerations.

  • Unused Funds Remain with the Employer:

    • Unlike some other health benefit options, any unused ICHRA funds typically remain with the employer. This can be advantageous for employers as they retain control over unspent contributions.

  • Tax-Free Portability:

    • Employees can potentially use any remaining ICHRA funds tax-free for qualified medical expenses after leaving the employer, depending on the employer’s plan design.

For corporations, including B-corps, LLCs taxed as C-corps, and nonprofits, the process is relatively straightforward. Owners are considered employees and can take advantage of the company’s ICHRA. This benefit extends to dependents and any W-2 employees.

However, for S Corporation owners and their spouses with more than a 2% ownership stake, the IRS stipulates that they cannot participate in an ICHRA. Importantly, this rule specifically applies to owners, not to employees who can still participate.

Sole proprietorships, given their nature as businesses owned and operated by a single individual who is not an employee, face limitations-they cannot establish an ICHRA.