Health Insurance

Many employers are facing challenges in providing quality employee health benefits for their valued employees. However, with the creation of Individual Coverage Health Reimbursement Arrangements (ICHRA), businesses need to ensure that the employee health benefit plan is administered compliantly. If you’re also looking into alternatives in healthcare, ICHRA could be the best solution. Read on to learn more about how it works, requirements, rules, and the process:

What is an ICHRA?

ICHRA stands for Individual Coverage Health Reimbursement Arrangement, which is also called Individual Integrated HRA. It’s a company-funded benefit that offers tax-advantages used to reimburse employees for personal health care expenses. Departments of the Treasury, Labor, and Health and Human Services introduced the ICHRA in 2019 which then became available in January 2020.

ICHRA a Game Changer

If you know about QSEHRA, which was created in 2017, ICHRA is a more evolved version of QSEHRA. It’s proved to be a game-changer in the world of insurance. It represents a new, modern, yet simple model of employer-sponsored health insurance. ICHRA has come up with higher limits and greater design flexibility, which attracts a large number of employees. It’s projected to be widespread within three years.

How ICHRA Works?

As the name suggests ICHRA works on reimbursing the health benefits to employees rather than buying it for them. Here are some key points to explain its working:

  • Employers determine their employee value based on eligibility and customize their plan with different reimbursement limits.
  • Employees purchase the individual plans they desire
  • Employees then submit claims for reimbursement
  • The reimbursement is made on valid claims

The employers have to stay compliant with the rules and regulations of ICHRA. They should make the best attempt to keep the IRS satisfied with their efforts.

The defined contribution by the employers helps to FIX their costs and provide employees with a host of options. Moreover, ICHRA also takes the responsibility of managing a health plan for employees. The structure and workings are so easy that employers can decide which employees qualify, set their monthly allowances, and get back to managing their business. Upon that, employees have the option to choose the best plans that are right for their situation.

ICHRA benefits vs. traditional group health plans

  1. Transfers employer responsibility for health risks
  2. More personalized plan choices for employees
  3. Simpler and more flexible plan design options
  4. Greater budget control
  5. No participation concerns

What are ICHRA Design Rules?

Reimbursement Rules

Employers can customize their reimbursement plan under ICHRA, which is the biggest benefit as compared to QSEHRA that has rather restrictive limits.

Also, employers can choose what they want to reimburse under ICHRA:

  • Insurance Premiums
  • Insurance Premiums + Qualified Medical Expenses
  • Qualified Medical Expenses

Medical Expenses Reimbursed Through ICHRA

As per the IRS in publication 502 the following things are included in qualified expenses:

  • Doctor visits,
  • Co-pays,
  • Prescriptions,
  • Medical equipment,
  • Dental procedures, etc.

Employer Structure Of Employee Reimbursements

Employers can choose how to structure reimbursements to their employees to include premiums, qualified medical expenses or both and they can decide how much following these rules:

  • Give all the employees the same amount
  • Vary reimbursements by family size (employee only, employee & spouse, employee & children, family)
  • Reimbursements may vary depending on the employee’s age
  • Employers can even vary by both the age and family size

Employee Classes Included in an ICHRA

Employee classes offer flexibility that employers can use to fine-tune their reimbursements, but they cannot use it to discriminate. They can’t adversely shift health risks off of an existing group plan. The employee classes that employers can consider while offering ICHRA:

  • 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
  • Salaried Employees
  • Non-Salaried Employees
  • Temporary employees of staffing firms
  • Non-Resident aliens with no US-based income
  • Employees in the same geographic rating area
  • Any combination of two or more classes from above.

Opt-Out Provisions

Employees must be given the option to “opt-out” of getting reimbursements through ICHRA. If the ICHRA is “unaffordable” and employees want to claim premium tax credits (PTC), they can forfeit their ability to claim reimbursement for a year.

Special Enrollment Periods (SEP)

To participate in an ICHRA, employees will need to maintain coverage in a qualified individual health plan. Open Enrollment for individual plans, in Massachusetts, runs from November 15th to January 1st each year. Outside of Open Enrollment, individuals need a qualifying life event to trigger a Special Enrollment Period to purchase a plan; events such as marriage, divorce, having a baby, and moving qualify.  However, employers offering an ICHRA will trigger a special enrollment period for employees, giving them 60 days to buy a plan. This is key so employees can purchase qualifying plans, and allows employers to set up an ICHRA year-round.

Minimum Class Size Requirements

Employers can offer a group health plan to one class of employees and an ICHRA to another class of employees.  However, they must meet minimum class size in the ICHRA to prevent the individual market from being saturated with high-risk individuals. Minimum class size requirements apply to the following classes:

  1. Salaried Employees
  2. Non-Salaried Employees
  3. Full-time Employees
  4. Part-time Employees
  5. Employees in the same geographic rating area

The minimum number of employees depends on the size of the employer or employee count on the first day of the plan year but the minimum is 10 employees with greater amounts needed for larger employers.

A few other class sizes to consider:

  • Combo Classes: It considers any combo-classes that include any class listed above with the waiting-period class, in which there is no restriction.
  • Rating Area Classes: The rating areas here should be smaller than a state. For instance, an employee in a remote state shall be considered for a class without violating the rules.

Important Reminder: Minimum class size only applies when one of the classes is a traditional group plan.


According to the Affordable Care Act (ACA), larger employers are subject to the employer mandate.  This means companies with 50 full-time equivalent (FTE) employees have to provide health insurance. Employers who don’t provide affordable insurance are subject to steep penalties.

Employers that have been stuck using complicated group plans to meet the mandate have the ICHRA that can satisfy the employer mandate.  However, the ICHRA has to be “affordable” for companies with 50+ employees (FTE) to meet the mandate and clear the employer of any penalties.

How is ICHRA affordability calculated?

“An ICHRA is affordable if the remaining amount an employee has to pay for a self-only silver plan on the exchange is less than 9.78% of the employee’s household income (rate applies to 2020).”

(See IRS Notice 2018-88  and IRS Notice rp-19-29)

Affordable HRA Contribution > Lowest Cost Silver Plan – (9.78% * Employee Household Income)

The affordable contribution must be greater than the lowest-cost silver plan an employee can purchase less 9.78% of the employee’s household income.

ICHRA Requirements

Here are the new requirements which make ICHRA appealing for the employers:

  • No size restriction, be it a 5-person startup, a mid-sized 50-person team, or a 5000-person corporation. An ICHRA applies to all size organizations.
  • There is no limit to the contributions amounts
  • Employers have the choice of different classes for different employees. Everyone needs not to be treated equally.

Employee Requirements

Employees should have a qualified individual health plan to participate in ICHRA. The two primary requirements for a health plan to be qualified include:

  1. The plan shouldn’t have annual or lifetime limits (PHS 2711)
  2. Preventive health services must be covered with no cost-sharing (PHS 2713)

However, employees can’t get ICHRA on their spouse’s group plan (if offered by the spouse’s employer). If you want that, you can go with QSEHRA.

ICHRA Administration

Here are the important components you will require to administer your ICHRA:

  • Legal Plan Documents (subject to ERISA)
  • COBRA Administration (if not exempt)
  • Process to substantiate employee claims
  • Reimbursement mechanism
  • Record-keeping and Tax Reporting

The Process for Setting Up an ICHRA

Does an ICHRA sound like an option for your company? Start with finding the best broker, administration partner and individual marketplace and then follow these basic steps:

Establish a Start Date

Begin with establishing a start date as you can start any time of the year under ICHRA. This way, the plan will trigger a special enrollment period, which will facilitate easy options in the individual market.

Customize Classes for Eligible Employees

Customize your company class options (as described earlier) to determine what benefit amount each employee class will receive.

Determine a Budget and Set Allowances Accordingly

Determine how much you’ll reimburse employees for premium costs and medical expenses. Consider setting a monthly allowance for varying classes, or you can also integrate this option with a traditional group plan. You can increase allowances based on age or number of dependents, later on.

Establish Legal Plan Documents

You must comply with the rules set by the IRS and Dept of Labor, otherwise, you’ll have to pay penalties. Establish legal plan documents, that should have formal plan and summary plan documents. It must include ICHRA policies such as:

  • Monthly reimbursement amounts
  • Class structure
  • Claims processes
  • Reimbursement eligibility
  • Information on HIPAA and other procedures involving privacy

Communicate the New Benefit to your Employees

Let your employees know about it. Share practical information to them including start date, annual HRA allowance, and how to obtain coverage, special enrollment period, the interaction of premium tax credits with ICHRA.

Provide Resources to Employees for Guided Decision Making

Lastly, provide tools and information to help guide your employees with make a decision. Offer them shopping support on the individual market plan.

Need ICHRA Help??

The process of establishing an ICHRA has several components that requires help from professionals with this option.   Consider Henderson Insurance Group, for a consultation, so we can provide you with all the options to present to your employees.  We take care of the needs of the employer as well as the needs of the employees through the whole process of setting up and implementing your company ICHRA.

Click here for short video explaining an ICHRA.

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