Individual Coverage Health Reimbursement Arrangements or ICHRA's
An Individual Coverage Health Reimbursement Arrangement (ICHRA), is an employer funded health benefit. ICHRA's were first available January 1st, 2020 and growing in popularity by small businesses, wanting to offer employees health benefits but finding group coverage either unaffordable or overly complicated.
ICHRAs are not health insurance. Rather, they provide an allowance of dollars on a tax-free basis for employees to purchase health insurance and health care services. The arrangement is especially great for smaller businesses who may be unable to afford group health insurance or extensive coverage.
Benefits for the Employee
Employees benefit from ICHRAs as it allows them to purchase health insurance that suits them. Rather than a choice of 1, 2 or 3 plans, they can choose the deductibles, coinsurance and maximum out-of-pocket options from many different plans using ICHRA dollars provided by their employer. If the same dollars are instead used to increase an employee’s pay, taxes would eat away 20% to 40% of their purchasing power. Because the employee owns the policy, there is no loss of coverage due to job change.
Benefits for the Employer
Employers benefit by attracting and retaining talent. Financially, ICHRA contributions may be deducted as a business expense, reducing an employer’s FICA and FUTA taxes. ICHRAs are also highly flexible, allowing employers to mold the plan to meet their specific organization’s benefits needs. Employers don't have COBRA compliance issues to contend with.
How ICHRAs Work
Individual Coverage Health Reimbursement Arrangements are relatively simple. There can be a few variations between plans, but in general, each follows the same configuration:
- The employer establishes an allowance amount for their employees.
- Employees purchase health plans and services.
- A third party administrator facilitates the deductions and payments.
- The administrator reconciles the reimbursements
There are specific steps required before you take advantage of an ICHRA. Contact our office to review your options and select a plan that bolster your benefits and your bottom line.