| TOPIC: Understanding ICHRAs | |
| QUESTION | What is an ICHRA and how can an employer utilize an ICHRA to manage its employee benefit related expenditures and administration? |
| ANSWER | An Individual Coverage Health Reimbursement Arrangement (“ICHRA”) is a health insurance plan that allows employers to reimburse employees for qualified medical expenses: How it works Employers set a budget for benefits, and employees choose a health plan. The employer reimburses the employee on their paycheck for the plan’s premiums and other qualified medical expenses. Benefits Flexibility: Employers can choose how much to reimburse, and there’s no maximum reimbursement. Tax advantages: Reimbursements are tax-free for both the employer and the employee. Employee choice: Employees can choose a plan that works best for them, including plans with their own doctors. Portability: Employees can take their health plan with them if they change jobs. Eligibility Employees must be enrolled in individual health insurance coverage to use the funds. Employers typically send a letter to employees at least 90 days before the start of the HRA’s 12-month plan year. The letter includes information about the HRA, such as how much the employer will reimburse, when the HRA starts and ends, and if household members are eligible. |
| ACTION | Employers should evaluate their group coverage needs and assess whether an ICRHA may adequately compliment their group health plan offerings. |
| DETAILS | For more information, contact the Baldwin Regulatory Compliance Collaborative. |
| Comparing ICHRAs and QSEHRAs | ||
| Feature or Benefit | ICHRA | QSEHRA |
| Eligibility | Generally, suitable for any size employer, including large employers. | Ideal for small employers with fewer than fifty (50) full-time employees. |
| Contribution Limits | No annual limits, offering the greatest contribution design strategy compatibility. | The maximum amount that an employer can reimburse through a QSEHRA in 2025 is $6,350 for a single employee’s coverage ($529.16 per month), and $12,800 for family coverage ($1,066.66 per month). These amounts are indexed annually by the IRS. |
| Employee Coverage | Employers may offer one class of employees a group health plan and another class of employees an ICHRA. The only caveat is that employers cannot offer employees in the same class (say full-time employees) the choice between a traditional group health plan or ICHRA. Each class needs to have only one benefit offering. | Requires uniform benefits for all eligible employees across the organization. |
| Group Health Plan Compatibility | May be designed as a stand-alone plan, or as a compliment to a group health plan, offering the greatest design flexibility. | Cannot be paired with or offered alongside an employer-sponsored group health plan. |
| Tax Advantages | Tax-free/qualified contributions for both the employer and the employee. | Tax-free/qualified contributions for both the employer and the employee, but subject to the annually adjusted IRS contribution limits. |
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