The individual coverage health reimbursement arrangement (ICHRA) is a new way for businesses and other organizations to offer employees health benefits.
Set to debut in January 2020, the ICHRA allows businesses of any size to reimburse employees tax-free for health care, including individual health insurance policies. The basic ICHRA structure works like any HRA, but there are unique guidelines businesses should consider when evaluating it for their organization.
How the ICHRA works
Like all HRAs, the ICHRA follows a simple, four-step process: The company chooses an allowance, employees buy health care, employees submit proof of incurred expenses, and the company approves and pays the reimbursement.
Let's look at the steps in more detail to examine guidelines specific to the ICHRA.
- The business sets an allowance amount for employees. The business offering the ICHRA chooses a monthly amount of tax-free money it will make available to employees. This represents the maximum amount for which employees can be reimbursed through the benefit. With the ICHRA, there are no minimum contribution requirements or maximum contribution caps. Additionally, businesses can offer different allowance amounts to different employees based on 11 different employee classes: full-time employees, part-time employees, seasonal employees, salaried employees, hourly employees, temporary employees working for a staffing firm, employees in a waiting period, employees covered under a collective bargaining agreement, foreign employees who work abroad, employees who live in different geographic locations, and a combination of any of the above classes. Businesses can also vary allowance amounts within each class by employee age or family status, as long as contributions based on age don't exceed amounts three times greater for the oldest employees vs. the youngest employees in the class.
- Employees buy health care. Using their own money, employees purchase the health care that fits their personal needs. This includes an individual health insurance policy; in fact, all employees and their family members who participate in the ICHRA must be covered by an individual policy. Generally, all items listed in IRS Publication 502 are eligible for reimbursement through the ICHRA. However, businesses can limit this list if they choose.
- Employees submit proof of purchase. After incurring an expense, employees submit proof of it to their company. To be approved, this documentation must include three items: a description of the product or service, the cost of the expense, and the date the expense was incurred. Invoices or receipts typically satisfy this request, but so do other documents, including an explanation of benefits from the employee’s insurance company. Employees must also attest to having individual health insurance every time they submit a reimbursement request before it can be approved.
- The business reimburses employees. If the documentation provided by the employee meets requirements, the expense is eligible for reimbursement, and the employee has the appropriate insurance coverage, the business must approve the employee’s request and reimburse employees up to their allowance amount. If the expense doesn’t qualify, the business must follow the procedure for denied claims according to its ICHRA plan documents. Typically, businesses include the tax-free reimbursement in the employee’s next paycheck.
ICHRA administration with HRA software
It’s easy to understand how the ICHRA works; it’s a simple, straightforward benefit with appeal to both businesses and their employees.
However, administering it isn’t as simple. Like all HRAs, the ICHRA must meet the same base set of federal requirements outlined in HIPAA, ERISA, and the Internal Revenue Code.
Because these requirements can be complex (and costly if ignored), many businesses choose to administer their HRA with software automation.
With a software administrator like PeopleKeep, businesses can reduce their administration time, avoid privacy issues, ensure they follow federal guidelines, and stay on top of changing health care policies. These platforms take care of the heavy lifting and, in the case of PeopleKeep, help businesses administer HRAs in just 10 minutes a month.
Because the ICHRA is a new benefit and won’t be available until January 2020, there are no current ICHRA administrators. However, expect PeopleKeep to be in the space as soon as the ICHRA is compliant.
The ICHRA is an exciting new health benefits option for businesses, religious and nonprofit organizations, and other groups. It allows organizations to control their benefits budget while providing employees with the freedom to make their own health care choices.
Although the ICHRA won’t be available for another few months, businesses considering the benefit should start thinking now about how it would work for their group and how they’ll administer it.
Stay subscribed to the PeopleKeep blog for updates on the ICHRA, including all PeopleKeep product updates for the new benefit.
Editor's Note: This blog has been updated to reflect new ICHRA details provided in the federal government's final HRA rule, which was released in June 2019.