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FAQFrequently Asked Questions (FAQ) Regarding Individual Coverage Health Reimbursement Arrangements (ICHRA) This FAQ provides an overview of Individual Coverage Health Reimbursement Arrangements (ICHRA), its current structure, and potential legislative changes being discussed, including "The One, Big, Beautiful Bill." What is an ICHRA? An Individual Coverage Health Reimbursement Arrangement (ICHRA) is an employer-funded health benefit that allows employers of any size to reimburse employees tax-free for individual health insurance premiums and, in some cases, other qualified medical expenses. Instead of offering a traditional group health plan, employers provide a fixed amount of money that employees can use to purchase their own health coverage through the individual market (e.g., ACA marketplace, private insurers) or Medicare. How does an ICHRA work? The process generally involves four steps: Employers design their plan: Employers determine the allowance amount they will offer to employees each month and decide which expenses are eligible for reimbursement (premiums, qualified medical expenses, or both). They can also define different benefits for various employee classes. Employees purchase a healthcare plan: Employees choose and purchase an individual health insurance plan that meets their needs and is ACA-compliant (or Medicare, if eligible). Employees submit documentation: Employees submit receipts or other documentation for their eligible health insurance premiums and/or medical expenses. Employers review and reimburse: Employers (or their HRA administrator) review the submissions and reimburse employees for valid claims, up to their allocated allowance. These reimbursements are generally tax-free for both the employer and the employee. Who can offer an ICHRA? Employers of all sizes can offer an ICHRA, as long as they have at least one W-2 employee (excluding self-employed owners or their spouses). Unlike Qualified Small Employer HRAs (QSEHRAs), there are no maximum limits on employer contributions. Who is eligible to participate in an ICHRA? Generally, only employees who are not offered a traditional group health insurance plan by the same employer can participate in an ICHRA. Employees must also be enrolled in individual health insurance coverage (or Medicare) to receive the ICHRA benefit. What are the advantages of ICHRA for employers?Cost Control: Employers set a fixed reimbursement amount, providing predictable healthcare costs. Customizable Benefits: Employers can design plans with different contribution amounts for various employee "classes" (e.g., full-time vs. part-time, salaried vs. hourly, different geographic locations). Reduced Administrative Burden: Employers are not responsible for selecting or managing specific health plans, shifting that responsibility to employees. Attraction and Retention: Offers flexibility and choice, making health benefits more appealing to a diverse workforce. ACA Compliance: For Applicable Large Employers (ALEs), an ICHRA can satisfy the ACA employer mandate if the offer is considered affordable. What are the advantages of ICHRA for employees? Increased Choice and Flexibility: Employees can choose a health insurance plan that best suits their individual or family's needs and preferences from the entire individual market. Portability: Since employees own their individual plans, coverage may be portable if they change jobs or relocate. Tax-Free Reimbursements: Reimbursements from the employer for premiums and qualified medical expenses are generally tax-free. Personalized Coverage: Allows employees to prioritize specific coverage areas, doctors, or networks. Are there any limitations or considerations for ICHRA? Loss of Group Buying Power: Employees purchase individual plans, which may sometimes be more expensive than traditional group plans due to the absence of group buying power. Affordability Rules: The ICHRA offer must meet affordability standards for employees to potentially remain eligible for Premium Tax Credits (Marketplace subsidies). If the ICHRA is deemed affordable, the employee and their family become ineligible for these subsidies. Notice Period: Employers are currently required to provide employees with at least 90 days' notice before the ICHRA benefit starts. No Choice within a Class: Currently, employers cannot offer the same class of employees a choice between an ICHRA and a traditional group health plan. Proposed Legislative Changes: "The One, Big, Beautiful Bill" Recent legislative proposals, often referred to as "The One, Big, Beautiful Bill," aim to introduce significant changes to the ICHRA framework, including rebranding it. What is the proposed name change for ICHRA? The bill proposes rebranding ICHRAs as Custom Health Option and Individual Care Expense (CHOICE) Arrangements. This rebrand signals a move towards greater individualization and control in health coverage. What are the key proposed changes under the "CHOICE Arrangement"?
- Codification into Law: ICHRA, which currently exists through regulatory rules, would be formally codified into federal law. This aims to provide long-term stability regardless of future presidential administrations.
- New Small Business Tax Credit: The bill proposes a two-year tax credit for small businesses (fewer than 50 employees) that implement an ICHRA/CHOICE Arrangement for the first time: $100 per participating employee per month in the first year, and $50 per employee per month in the second year.
- Pre-Tax Premiums Through Public Exchanges: Employees would be able to use pre-tax salary reductions (via a Section 125 cafeteria plan) to pay for individual health insurance premiums purchased through the public exchanges (Marketplace). Currently, this is generally only available for off-exchange plans.
- Shorter Notice Period: The required notice period for employers to inform employees about the ICHRA/CHOICE benefit would be reduced from 90 days to 60 days.
- Offering CHOICE and Group Plans to the Same Class (for small businesses): For small businesses, the proposed legislation would allow employers to offer both a CHOICE Arrangement and a traditional group health plan to the same class of employees. This provides significantly more flexibility than current rules.
- HSA Expansions: The bill also includes various proposals to expand Health Savings Accounts (HSAs), such as allowing those enrolled in Medicare Part A to contribute to an HSA (if also in an HDHP), allowing spouses to make catch-up contributions to the same HSA, and expanding eligible expenses.
- Medicaid Changes: The bill includes changes to Medicaid, such as ending open-ended federal matching for states and implementing work requirements for recipients starting January 1, 2029.
