Individual Coverage HRAs (ICHRAs) (recently renamed CHOICE Arrangement plans)

What Is An ICHRA?

An Individual Coverage Health Reimbursement Arrangement (ICHRA) lets employers of any size give employees a tax-free monthly allowance to buy their own individual health insurance. If the employer chooses, the allowance can also cover other qualified medical expenses. The employer sets the budget, with no minimum or maximum, and each employee chooses the plan that fits their needs.

ICHRAs became available on January 1, 2020, under federal rules finalized in 2019. Those rules reversed earlier ACA-era limits (IRS Notice 2013-54) on using HRAs to pay for individual policies.

How It Works

1. The employer sets an allowance for each class of employees and decides which expenses qualify.
2. Employees buy an individual health plan, either on the Marketplace or directly from an insurer.
3. Employees submit proof of coverage and expenses and are reimbursed tax-free, up to their allowance.

Many vendors now offer platforms that handle enrollment, reimbursements, and compliance.

Employee Classes

Employers can set different allowances for different classes, such as:

• full-time, part-time, or seasonal employees
• salaried or hourly employees
• employees in different locations
• union employees

Within a class, terms must be the same for everyone, except that allowances can increase:

• with age, with the oldest employees receiving no more than three times what the youngest receive
• with the number of dependents

An employer can’t offer both a group plan and an ICHRA to the same class. Minimum class-size rules may apply.

Who Is Eligible?

To participate, employees and any covered family members must be enrolled in individual health insurance or Medicare. Coverage that doesn’t qualify includes:

• a spouse’s group plan alone
• short-term health insurance
• supplemental or indemnity policies

Medicare beneficiaries must have Parts A and B or Part C. The ICHRA can reimburse premiums for Parts A, B, C, and D and for Medigap policies. Employers with 20 or more employees should check with their administrator, because Medicare Secondary Payer rules may limit offering ICHRAs to active employees on Medicare.

Enrollment and Opting Out

Notice and enrollment: Employers must notify employees at least 90 days before the plan year starts. Being newly offered an ICHRA opens a special enrollment period, generally 60 days, for buying an individual plan.

Opting out: Employees may opt out each year. Whether they can then claim premium tax credits depends on affordability:

• If the ICHRA is affordable under IRS rules, the employee and their family can’t get premium tax credits, even if they opt out.
• If it’s unaffordable, the employee can opt out and claim credits, if otherwise eligible.

Large employers: For employers with 50 or more full-time-equivalent employees, an affordable ICHRA offered to full-time employees can satisfy the ACA employer mandate.

Why Employers Choose ICHRAs

Group premiums have risen sharply in recent years. ICHRAs give employers predictable costs and simpler administration, and they give employees real choice of plans and doctors. Much like 401(k)s became a widely used alternative to pensions, ICHRAs are a growing alternative to group health insurance.

How We Can Help

As specialists in individual, family, and Medicare health plans, we know the individual market that ICHRAs depend on.

• Employers: We’ll explain how an ICHRA could lower your costs and connect you with reputable administration vendors.
• Employees: We’ll help you compare plans and choose the right one. Our services cost you nothing.

Call 786-970-0740 (cell) to get started.

General information only, not tax or legal advice. Consult a tax advisor or ICHRA administrator about your specific situation.