ICHRA FAQ
Answers to your
Frequently Asked Questions Regarding ICHRA
- All
- ICHRA Administration
- ICHRA Administration (day to day)
- ICHRA Compliance (details)
- ICHRA General Questions (high level)
ICHRA administration refers to the management of reimbursements, compliance, and employee communications related to an ICHRA plan. Many employers use a third-party administrator to handle these functions for efficiency and compliance.
For years, HRAs had been a popular solution for businesses who wanted to reimburse their employees’ healthcare expenses. The Affordable Care Act (ACA) changed that, significantly limiting a business’s ability to offer HRAs for individual policies.
In 2017, an Executive Order was issued directing the Departments of Treasury, Health and Human Services, and Labor to expand business’s use of HRAs once again. In June of 2019, new rules were released, establishing ICHRA as an option for 2020.
Third-party administration helps employers stay compliant, manage reimbursements, and simplify the employee experience. Admins handle documentation, reporting, claims processing and remittance of reimbursements.
Employers set reimbursement amounts and define eligibility. Employees purchase their own health plans and submit proof of expenses. Employers (or a third-party administrator) review and approve reimbursements according to plan guidelines.
Yes, when properly designed and administered, ICHRA complies with IRS, ACA, and ERISA regulations. Using a third-party administrator ensures compliance and simplifies documentation requirements.
No. As part of the ICHRA ruling, employers implementing an ICHRA cannot take part in, or influence, which health insurance their employees purchase.
It’s simple. ICHRA Administration puts cost control back in the employer’s hands and puts the choice of health coverage in the employee’s.
We’d love to help you explore how ICHRA can work for your organization. Reach out to the Flyte HCM team—we’re here to answer your questions, walk you through the setup process, and support you every step of the way.
Call us: (952) 746-0000
Email: Sales@flytehcm.com We’re excited to connect with you!
ICHRA stands for Individual Coverage Health Reimbursement Arrangement and is a ruling brought down by the Departments of Treasury, Health and Human Services and Labor which allows for and provides guidance to employers wishing to reimburse money toward Individual Health Insurance premiums as well as specific Excepted Benefits. See our blog post for more information.
Any employer of any size can offer an ICHRA, regardless of industry.
Employers have a great deal of flexibility in what their money can be used for, and the dollar limits. For example, an employer can offer money toward individual premiums, specific out of pocket expenses, or both. There are compliance considerations to each so please visit our Blog page for details regarding compliance and plan design considerations.
An ICHRA is considered an ERISA Plan so there are specific areas of compliance that need to be addressed for this great option to be complaint. A few of these considerations are as follow:
- Plan documentation is required which includes a Master Plan Document, SBC and Summary Plan Description.
- Timely and specific communication with your employees is necessary.
- An ICHRA is subject to all ERISA non-discrimination requirements.
Please visit our Blog page for more information. Please contact us with any questions you may have.
A few additional considerations are as follows:
- You may offer different amounts of money to different classes of employees, but those amounts cannot vary past a certain amount and the classes available are outlined in the ICHRA ruling.
- You can offer money to an employee for medical expenses only, but those expenses must be in conjunction with a medical plan.
- An employer may allow the employees portion of their individual premium be deducted from wages on a pretax basis.
Employees must be enrolled in an ACA-compliant individual health insurance plan that is metal level (Bronze, Silver, Gold, or Platinum), or be enrolled in Medicare Parts A, B, C, or D. To receive reimbursements, employees are also required to provide proof of coverage that meets these requirements.
No, ICHRA does not have a minimum participation requirement, unlike traditional group health plans. Employers can offer the benefit even if only a few employees choose to participate.
No, the ICHRA ruling does not stipulate a maximum or minimum amount required in order to be compliant. See our Blog page for more information with regard to any Plan design considerations.
Yes, ALEs can offer ICHRA to employees, and if the ICHRA meets affordability requirements, it will count as an offer of coverage that meets Minimum Value satisfying both employer mandates.
Yes, if an ICHRA is deemed affordable under IRS guidelines, it satisfies both mandates for Applicable Large Employers (ALEs) under the ACA. This does include minimum value.
The ICHRA ruling provides guidance that employers can offer varying contribution amounts provided the amounts are divided by approved classes of employee.
The approved classes are as follows:
- Full-Time Employees
- Part-Time Employees
- Seasonal Employees
- Employees covered by a collective bargaining agreement
- Employees who have not satisfied a waiting period for coverage
- Non-Resident aliens with no US-based income
- Employees whose primary site of employment is in the same rating area
- Salaried Employees
- Non-Salaried Employees
- Temporary Employees of a staffing firm
- A combination of two or more of the approved classes
No, employees can still enroll in a marketplace (exchange) plan. However, if they accept the ICHRA or it is deemed affordable, they may not be eligible for premium tax credits (PTC) through the exchange. It is important to note that employees cannot receive a PTC and participate in the ICHRA.
No, new hires can enroll as soon as they become eligible, based on the employer’s established waiting period. ICHRA creates a Special Enrollment Period (SEP), allowing flexibility for mid-year hires. Most insurance carriers will require a copy of the ICHRA Initial Notice and the employee’s eligibility date to approve the SEP, so it’s important to provide this documentation promptly when helping employees enroll in coverage.
ICHRA stands for Individual Coverage Health Reimbursement Arrangement. It is a government-approved HRA introduced in 2020 that allows employers to reimburse employees for individual health insurance premiums and medical expenses on a tax-free basis. This differs from traditional group plans by offering flexibility and employee choice.
An ICHRA health plan is not a traditional group health plan. Instead, it is an arrangement where employers provide tax-free reimbursements to employees for purchasing their own individual health insurance coverage. Employees can shop for plans through the ACA marketplace, private insurers, or brokers, giving them more control over their healthcare choices.
Employers set a defined, tax-free reimbursement amount for employees to use toward individual health insurance and, if allowed, other medical expenses. Employees purchase an ACA-compliant individual health insurance plan and submit proof of their premiums and eligible expenses. Employers then reimburse employees up to the set amount. For example, if an employer offers $400 per month and an employee purchases a $450/month plan, the employee would pay $50 out-of-pocket. However, employers can customize reimbursement amounts and expense eligibility, meaning ICHRA structures may vary.
ICHRA itself is not an insurance plan but a reimbursement arrangement that is considered a Self-funded Group Plan. Employees must purchase an individual health insurance plan to participate in the ICHRA. These plans can be purchased on state or federal marketplaces, through brokers, or directly from insurance carriers.
ICHRA coverage includes individual health insurance premiums and, depending on employer preferences, may also cover certain out-of-pocket medical expenses such as deductibles and copays. Some employers choose to offer reimbursement for only premiums, while others allow additional expenses.
ICHRA can be offered by businesses of any size and allows different reimbursement amounts for different employee classes.
QSEHRA is only for employers with fewer than 50 employees and must offer the same reimbursement amount to all employees (with some adjustments for age and family size). Additionally, QSEHRA has annual contribution limits, whereas ICHRA does not.
Yes, an ICHRA can reimburse Medicare premiums, including Medicare Part A (if applicable), Part B, Part C (Medicare Advantage), and Part D prescription drug plans.
ICHRA was introduced as a health benefits option starting on January 1, 2020, following federal rule changes in 2019. It was designed to provide employers with a flexible, tax-efficient way to offer health benefits while giving employees greater choice.
Pros:
- Provides employees with choice and flexibility.
- Helps employers control healthcare costs.
- Tax-free reimbursements for both employers and employees.
- Can be structured to meet compliance needs.
- Allows for employer-defined employee classes.
Cons:
- Employees must shop for their own coverage, which may require guidance.
- Some individual markets may have limited plan options depending on the region.
- Employers need to set up and manage the reimbursement process. however it is recommended that employers use a compliant Benefits administrator to do this.
ICHRA does not provide a medical plan itself but allows employees to buy their own individual health insurance, which can include major medical plans that meet ACA requirements or Medicare. These plans can be purchased on exchanges or directly from carriers.
- Cost control and flexibility for employers.
- Employees can choose their preferred insurance plan.
- Tax-free reimbursements reduce overall healthcare costs.
- Can be customized by employee class.
- Provides a modern alternative to traditional group health plans.
- ICHRA reimburses individual health insurance premiums and medical expenses.
- ICHRA also has different compliance and regulatory requirements compared to traditional HRAs.
- Traditional HRA is typically paired with a group health plan and cannot reimburse individual insurance premiums.
Employers do not pay for insurance directly. Instead, they reimburse employees for their premiums and qualifying expenses after proof of payment is provided. This allows employers to manage costs without dealing with insurance carriers directly.
Employees choose and purchase their own ACA-compliant individual health insurance plan or be enrolled in Medicare, including applicable Medicare parts. After enrolling, they must submit an official invoice or billing statement from their insurance provider as proof of premium. If the employer allows reimbursement for additional medical expenses, employees must submit detailed documentation (such as an Explanation of Benefits (EOB) or itemized receipts) to be reimbursed for eligible expenses.
- Employees can select a health plan that fits their needs.
- Tax-free reimbursements lower costs for both employees and employers.
- No network restrictions—employees can choose any insurance carrier.
- Portability—employees keep their insurance if they change jobs.
- Employers can offer tailored benefits to different employee classes.
