What is ICHRA?
Let’s first cover what an HRA is. HRA is a health reimbursement arrangement, which means employees are reimbursed by the employer for a certain amount of money each month to help pay for health and medical expenses (insurance premiums, deductibles, etc.). Now, what is an ICHRA? An ICHRA is an individual coverage HRA meaning that the employer nor the employee is tied to any group plan but the employee can get their own specific plan that suits them the best from the ACA exchange. This gives the employees the freedom to choose the plan that fits their needs best and not get tied to a single group option from the employer.
6 Step Process On How ICHRA Works
Now that you have the basic knowledge of what an HRA and ICHRA are let’s go over the process of creating an ICHRA for a company/business.
1. Choosing Participation
The first step to any ICHRA plan is to choose which employees are participating in the benefit. ICHRA allows you to offer this benefit to specific classes of employees if you did not want to offer it to your whole business. This allows you to keep your current employee’s benefits in some areas while offering ICHRA to others (as long as minimum class sizes are met).
Why would you do this? Let’s say an employer is offering a group plan and this plan is super advantageous to class B employees but has major drawbacks for class A employees, they can continue to offer class B the group plan but switch class A to an ICHRA that may suit them better.
This helps all employees receive the benefits they need and helps an employer save in cost. An example of classes would be: (full-time, part-time, salary, hourly, seasonal, regional).
2. Choosing Allowances
ICHRA allowances are very customizable and have no contribution limits. Employers can set these tax-free allowances to different classes of employees, meaning you can raise or lower the contribution depending on the class needs. Also within the class, you can set different limits based on age and family size, offering more or less depending on these variables.
3. Employee Purchases
Employees are now able to go out and pick an ACA plan that fits their coverage needs. Employees can now go out and get their own plan, once they are signed up to the plan and start paying for the plan premiums. This is where ICHRA starts!
4. Employees Must Report Their Coverage
Now employees must report their individual coverage to the ICHRA administrator. This must be done at the beginning of the plan year or when the employee was hired. Employees must also report their coverage when employers implement the ICHRA into the company.
5. Proof Of Purchases
Employees can now submit the proof of purchases of their individual coverage. There are a few things that are needed to show proof like: a description of the product or service, the cost of the expense, and the date the expense was incurred.
6. Employers Now Can Reimburse Expenses
Employers can now reimburse the employees for their expenses. Once expenses are verified, employers can do their final review and approve the reimbursement.
These are the six steps to an ICHRA plan that help companies save money on their employer benefits program.