What Is An ICHRA? An Employer’s Guide To Individual Coverage HRAs

With rising costs year after year, covering healthcare expenses can be increasingly challenging. Yet health insurance remains one of the most sought-after benefits by employees. To position yourself as an employer of choice in today’s tight labor market, you may be looking for ways to offer coverage that won’t break your budget. One option is an individual coverage HRA (ICHRA). What do you need to know about this relatively new HRA offering?

Here we’ll explain what an ICHRA is, how they work, the eligibility rules, and the costs involved so you can decide if an ICHRA is a good choice for your company.

What is an ICHRA?

An ICHRA, first allowed in 2020, gives employers of any size the ability to reimburse their employees for individual health insurance premiums and qualified out-of-pocket medical expenses. Unlike a traditional HRA, your employees can use their ICHRA to purchase their own individual health insurance, typically through the state Exchange. 

How does an Individual Coverage HRA work?

When you offer an ICHRA, you decide how you want to design your plan to work. That means you have the freedom to establish which expenses to allow for reimbursement and set the contribution limits (which need to be offered fairly to each class of employees).

Once you design your plan, your employees can pick any individual health plan they want. With the ability to select their coverage, workers will have a lot more choice and personalization when it comes to their health insurance. When seeking reimbursement, they can submit receipts for qualified medical expenses to you or the third party administrator (TPA). 

What are the ICHRA eligibility rules?

An individual coverage HRA requires less overhead than traditional group benefits and can be a less expensive way to offer employees more choice when it comes to their health benefits. However, there are certain ICHRA eligibility rules you’ll need to be aware of in order to offer this type of plan:

• You may not offer eligible employees a choice between an ICHRA and a traditional group coverage health insurance plan.
• You can leverage 10 different employee classes to structure benefit eligibility and allowance amounts; however, while different terms may apply for different classes of employees, the same terms must be offered to all employees within the same class. The classes are:
  • Full-time employees
  • Part-time employees
  • Seasonal employees
  • Temporary employees who work for a staffing firm
  • Salaried employees
  • Hourly employees
  • Employees covered under a collective bargaining agreement
  • Employees in a waiting period for health benefits
  • Foreign employees who work abroad
  • Employees in different locations, based on rating areas
• Participating employees and dependents must be enrolled in an individual health insurance plan or Medicare to participate in an ICHRA.
• Employees receiving a premium credit from the state Exchange program are not eligible
• You must have procedures in place to verify employee enrollment in an individual health insurance plan or Medicare.
• A written notice must be provided to eligible employees explaining key terms of the ICHRA.
• Eligible employees must have the option to opt-out annually and upon termination.
• C-corp owners can participate in an ICHRA but S Corp 2% or higher owners and sole proprietor owners may not  

How much does it cost to offer an Individual Coverage HRA?

While you can choose to handle the day-to-day administrative tasks associated with offering an ICHRA yourself, many companies choose to partner with a TPA. Partnering with a TPA to assist in the administration of your ICHRA ensures your plans are set up correctly, funded right, and used appropriately.

Fees for ICHRA administration are generally on a per employee per month (PEPM) basis. The typical costs you’ll pay an administrator include a set-up fee of anywhere between $150 and $1,500. You’ll also pay $450 to $750 per year for annual administration plus a PEPM charge of $2 to $5.

Those costs are in line with what we charge at Complete Payroll Solutions for administration of an ICHRA: $250 for set up with a $550 base annual fee and a PEPM of $2. So if you have 10 employees, your cost would be $800 a year plus the one-time set-up fee.   

Why would I choose an ICHRA over other types of HRAs?

There are different HRA options on the market today. In addition to an ICHRA, a QSEHRA is another relatively new type. So why would you pick an ICHRA plan over a QSEHRA? Here are the top three advantages of an ICHRA.

1. Employers of any size can implement an ICHRA. An individual coverage HRA is unique because it allows employers of all sizes to leverage the cost savings and flexibility this type of plan offers. That’s not true with a QSEHRA, which is only allowed for employers with less than 50 full-time workers.
2. You can also offer a group health plan. With an ICHRA, you can boost your benefit offerings across your organization by leveraging a group plan in addition to your HRA plan. As we mentioned earlier, an ICHRA can’t be offered alongside a group plan to the same class of employees. However, you can offer an individual coverage HRA to classes of employees who may have previously not had any health benefits. For example, full-time employees may be offered a group plan while part-time employees have the option to participate in an ICHRA plan. If you have a QSEHRA, on the other hand, you can't offer a group health plan to any class of employees.
3. You can set any contribution limit you want. This helpful feature of an ICHRA allows you to define your own budget, which is unique from a QSEHRA plan where your contribution cap is limited by law.

Other aspects of the HRA options are similar, meaning, you’ll pay the same cost, have the same administrative requirements, and need to follow the rules in the laws and regulations that govern pre-tax plans. 

How to Decide if an ICHRA is Right for Your Business

An individual coverage HRA is a flexible and cost-effective alternative to traditional group benefits. But there’s a lot to consider when deciding if an ICHRA plan is the best insurance option for your business. Our comparison guide on ICHRAs and QSEHRAs dives deeper into the differences between the HRA plans on the market to help you select the right option.

If you’re interested in learning what Complete Payroll Solutions offers as an ICHRA plan administrator, read our article on our solutions.