For many small businesses, offering health insurance can be expensive and difficult to manage. An Individual Coverage Health Reimbursement Arrangement, commonly called an ICHRA and now also referred to by the federal government as a CHOICE Arrangement, offers another option. Instead of purchasing one group health plan for everyone, the company gives employees a set amount of money to help reimburse the cost of their own individual health insurance. Employers of almost any size can offer an ICHRA, subject to federal eligibility requirements. You can review the official HealthCare.gov ICHRA and CHOICE Arrangement guide for more information.
One of the greatest benefits of an ICHRA is better control over healthcare spending. The employer decides how much to contribute for each 12-month plan year, and there is no federal minimum or maximum contribution requirement. This gives a small business a predictable benefits budget and may help protect it from the large annual premium increases that can occur with traditional group health plans. When the federal requirements are satisfied, reimbursements are generally tax-free to employees and tax-deductible to the employer. Additional tax and compliance information is available through the IRS Health Reimbursement Arrangement guidance.
Employees also receive more choice. Instead of everyone being placed into the same group plan, each employee can select individual coverage based on preferred doctors and hospitals, prescription drug needs, deductibles, monthly premiums and family circumstances. Qualifying coverage may include an individual plan purchased through the Health Insurance Marketplace, coverage purchased directly from an insurance company, or certain Medicare coverage for eligible employees. The CMS employer guide to CHOICE Arrangements explains eligible coverage and other important requirements.
An ICHRA may also help a small company attract and retain good employees. Offering health benefits shows employees that the company values their well-being, even when a traditional group plan is too expensive or restrictive. It can be especially helpful for businesses with employees living in different states because workers can select plans available where they live. Employees generally own their individual insurance policy and may be able to keep it if they leave the company, although the employer’s reimbursements would end.
Employers may have flexibility to offer an ICHRA to certain permitted employee classes, such as full-time, part-time, seasonal, salaried or hourly employees. Contribution amounts may also vary under federal rules based on factors such as an employee’s age or number of dependents. However, the arrangement must be designed fairly, employees must have qualifying individual coverage, and required notices and reimbursement records must be handled correctly. An ICHRA offer can also affect an employee’s eligibility for Marketplace premium tax credits, so professional guidance is important. HealthCare.gov provides an online ICHRA affordability tool to help estimate how an offer may affect an employee.
An ICHRA is not the right solution for every company, but it is an option that small employers should consider when comparing employee health benefits. Henderson Insurance Group can help your business compare an ICHRA with traditional group health insurance, understand the costs, establish the arrangement and guide employees through selecting coverage. Our assistance and ongoing support are free, with no consulting or setup fees charged to our clients. Visit our ICHRA information page or request a free, no-obligation quote to learn whether an ICHRA may be a good fit for your company and employees.