Agent Answers

ICHRAs FAQ: What They Are, How They Work

Written on October 21st, 2021

The U.S. Internal Revenue Service (IRS), Employee Benefits Security Administration (EBSA), and Health and Human Services Department (HHS), finalized a rule in July 2019 that allows health reimbursement arrangements (HRAs) and other account-based group health plans to be integrated with individual insurance coverage.[1] Prior to this rule, HRAs were traditionally only used in conjunction with qualified medical expenses associated with group health plans.

The rule created two new categories of HRAs, one of which is an individual coverage health reimbursement arrangement (ICHRA).

The remainder of this article addresses health insurance agents’ questions about ICHRAs, how they work, who can offer them, the advantages to both employers and employees and why health insurance agents should be discussing them with their group clients.

Frequently Asked Questions

Have questions about ICHRAs or other options for group coverage?
IBG’s ICHRA specialist can help.

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What is an ICHRA and how does it work?

An ICHRA is an alternative to a traditional group plan that an employer can offer employees. ICHRAs allow employers to provide tax-deferred dollars to employees to pay for qualified medical expenses, including monthly premiums, copayments, and deductibles. To use the funds, employees have to be enrolled in individual major medical coverage.[2]

Who are ICHRAs good for?

HRAs are for employees, not the self-employed. Employers of any size can offer ICHRAs as long as they have at least one employee who is not either a self-employed owner of the business or married to one.[3] Fifteen percent of large employers surveyed in 2020 indicated that they were planning to offer or were considering offering ICHRAs to at least some of their employees in 2022 or beyond.[4]

ICHRAs may be a good option for employers with employees spread out over multiple counties or states who don’t have access to a single network and are in entirely different health insurance markets.

ICHRAs may also work well for employers who would like to offer different classes of employees (e.g., seasonal, part time and full time) with different dollar amounts to help cover the cost of the individual major medical plan the employee decides to purchase.

Trade associations who have member businesses of different sizes may benefit from the flexibility that ICHRAs provide.

What advantages do ICHRAs offer employees? Employers?

ICHRAs offer employers a relatively simple way to provide health benefits to employees without worrying about participation or network concerns. ICHRAs can also help them attain more control over costs.

ICHRAs offer employees more plan choice, and since it’s their individual plan, they have the opportunity to keep it even if they change employers. ICHRAs are free of payroll and income tax for both employers and employees.

Do ICHRAs satisfy the ACA’s Employer Mandate?

Sometimes. An affordable ICHRA counts as minimum essential coverage and an employer offering it to 95% of eligible employees satisfies this aspect of the ACA’s employer mandate for companies with fifty or more full-time employees.[5]

Which health plans can be used with an ICHRA?

ACA-qualifying medical plans can be used with an ICHRA, that includes Marketplace medical plans or major medical plans purchased away from the ACA Exchanges, or Medicare (Part A, B, or C). Any limited benefit coverage like short-term medical, dental or vision insurance do not meet this requirement.[6]

It’s important to note that ACA premium tax credits cannot be used in conjunction with an ICHRA that is “affordable” to the employee.[7] An individual coverage HRA is considered affordable for an employee if the monthly premium the employee would pay (after the employer’s reimbursement) for the self-only lowest cost Silver plan available to them through the Marketplace in their area is less than 9.83% of 1/12 of the employee’s household income.

Can employers offer an ICHRA and traditional group coverage?

Yes, but not within a single class of employees. Employers can offer different coverage options to different types of employees but they cannot give the same group of employees a choice between traditional group coverage and an ICHRA.[8]

How much must employers contribute to ICHRAs?

Employers have flexibility when it comes to how much they contribute to an employees’ ICHRA. There are no annual minimum or maximum contribution requirements.[9]

What’s the benefit to health insurance agents offering ICHRAs?

The value proposition of offering ICHRAs for health insurance agents seems obvious: be the first on the scene with a truly new and innovative solution to the business problem of rising and variable premium costs and win new and loyal customers.

Dave Keller, Executive VP and Chief Sales Officer of IHC Specialty Benefits concurs, saying, “I’m not revealing any trade secrets when I say that there are very few actual modern product innovations in health insurance. So-called new products come out all the time but they’re really just revamped plan designs. ICHRAs go beyond that and are truly a new offering that fills a need that many businesses have.”

The bottom line for agents is they can grow their individual book of business. Keller reiterated, “Health insurance agents need to pay attention to ICHRAs because the ones who do will reach their customers with an innovative product and everyone else will be playing catchup.”

How to know if ICHRAs, traditional group coverage, or a level-funded option is best for a client

Eligibility requirements, costs, and coverage options all need to be weighed when choosing between ICHRAs, traditional group coverage, and a level-funded health plan.

Some employers may benefit from a combination of these options. For example, an employer may offer a level-funded option plus group gap to employees located near the home office, and ICHRAs to employees who live out of state. This allows out-of-state employees to select plans and providers that best suit the region they live, while securing the level-funded economies of scale and cost advantages for employees living in a single region.

How to enroll customers in ICHRAs

For more information about IBG’s ICHRA quoting tool or guidance on finding the right product or combination of products for your groups, contact your representative or connect with an ICHRA specialist.

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