With the evolution of Health Reimbursement Arrangements (HRA), many employers are looking to understand how Individual Coverage Health Reimbursement Arrangements (ICHRA) differ from the traditional HRA they are familiar with. We are here to help you understand the differences.
What are HRAs?
HRAs are employer-funded arrangements that reimburse employees for qualified medical expenses. These can be offered alongside a traditional group-insurance plan to help support an employee’s medical costs. In some instances, HRAs can also be used if an employer does not provide traditional group health insurance coverage but still wants to provide financial support for employees paying for insurance on their own.
Some advantages of HRAs are that employers can provide their employees with funds for medical costs while claiming tax deductions for the funds being provided. Employees benefit as well from not only receiving extra support toward ever-increasing medical costs, but also from these reimbursement dollars being (generally) tax-free.
What are QSEHRAs?
Starting in 2017 with the introduction of Qualified Small Employer Health Reimbursement Arrangements (QSEHRA), small employers (under 50 employees) were able to use HRA funds to reimburse employees for their premiums on the individual market. Before the introduction of QSEHRAs, the traditional HRA did not allow for the reimbursement of premiums.
What are ICHRAs?
Individual Coverage Health Reimbursement Arrangements (ICHRA) further expanded the capabilities of the HRA for employers and employees. Starting in 2020, ICHRAs allow employers of any size to reimburse employees for individual market premiums. While traditional HRAs and QSEHRAs are not considered group health plans, ICHRAs are. ICHRAs provide large employers with an alternate option to satisfy the employer mandate, assuming the contributions made to employees are affordable according to ACA regulations. Employers can choose to replace their traditional group insurance coverage with an ICHRA but cannot offer both the ICHRA and traditional group insurance plans simultaneously to the same employee population.
In the simplest terms, an HRA can be thought of as an all-encompassing term to describe a tax-advantaged reimbursement arrangement for an individual’s health care costs, and the ICHRA is one type of arrangement under the HRA umbrella. Th e evolution of the Health Reimbursement Arrangement speaks to the rapid change we see in the health insurance industry and further strives to find solutions to create affordable health insurance.
For employers looking to offer a traditional group benefit plan, a traditional HRA is a great solution to providing extra tax-advantaged financial support to employees. Conversely, if greater employee choice in plan options while offering financial support aligns with an employer’s goals, an ICHRA may be a more advantageous solution.
To check out our ICHRA solution, contact us today!