When it comes to providing health benefits, employers often feel stuck between rising group plan costs and limited flexibility. But there’s another option worth considering—an Individual Coverage Health Reimbursement Arrangement (ICHRA).
An ICHRA allows employers to reimburse employees tax-free for the individual health insurance coverage they choose themselves. It’s available to employers of any size and can be customized to meet the unique needs of your workforce.
How Does an ICHRA Work?
Instead of offering a traditional group health plan, employers set a monthly allowance. Employees then use those funds to buy their own health insurance on the private market, a public exchange, or through Medicare (if eligible). After providing proof of coverage and expenses, employees are reimbursed, without the amount being counted as income.
Benefits for Employers
- Budget Control – You decide how much to reimburse each employee.
- Simplified Administration – No more negotiating group plan renewals.
- Flexible Design – Set different amounts by employee class, such as full-time, part-time, or seasonal workers.
- ACA Compliance – When structured properly, ICHRAs count as minimum essential coverage.
- Tax Savings – Reimbursements are tax-free and fall under Section 105 of the IRS code.
Benefits for Employees
- Personalized Coverage – Employees select the health plan that best fits their needs.
- In-Network Access – Since they choose their own plan, they have access to doctors and providers within the network they prefer.
- Tax-Free Reimbursements – Employees aren’t taxed on reimbursements.
- Rollover Potential – Employers can allow unused funds to roll over to the next year.
Who Is Eligible?
To participate, employees must be enrolled in an individual health insurance plan, a plan through a state or federal exchange, or Medicare (Parts A & B or Part C). They cannot also be enrolled in a group health plan. Employees must attest monthly that they maintain coverage.
What Can an ICHRA Cover?
Eligible expenses include:
- Individual plan premiums
- Medicare premiums (Parts A–D)
- Medicare Supplement (MediGap) policies
- Out-of-pocket expenses, if included in the plan design
Is an ICHRA Right for Your Business?
ICHRAs are an excellent option for small to mid-sized employers seeking a flexible, predictable, and cost-effective way to offer health benefits. It empowers employees to make their own coverage decisions while giving employers greater control over their healthcare budgets.
Interested in exploring how an ICHRA could work for your business?
We’re here to help you evaluate your options and build a plan that fits.
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