How to set up an individual coverage HRA (ICHRA)

The creation of the individual coverage health reimbursement arrangement (ICHRA) has many organizations excited. The new benefit, available beginning January 1, 2020, allows groups of any size to reimburse employees tax-free for individual health insurance and other health care expenses.

The prospect of setting up the benefit can be intimidating, though. Getting started with group health insurance is easy, but because HRAs are less familiar, there can be a learning curve.

Fortunately, getting started with any HRA—including the ICHRA—is actually very simple.

In this post, we’ll go over the six steps required to set up an individual coverage HRA and start offering the benefit to employees. We’ll also discuss the advantages of using ICHRA administration software.

Let’s get started.

How to set up an ICHRA: 6 steps

There are six basic steps a business must follow to set up the ICHRA.

1. Choose who will be eligible. The first step is straightforward: deciding which employees will be eligible for the ICHRA. Businesses have a significant degree of freedom in structuring eligibility requirements for the ICHRA, with 11 employee classes they can use to make distinctions among groups. These employee classes include: full-time employees, part-time employees, salaried employees, hourly employees, seasonal employees, temporary employees who work for a staffing firm, employees in a waiting period, employees covered by a collective bargaining agreement, foreign employees who work abroad, employees who live in different geographic locations, and any combination of the above. A business could choose to offer the ICHRA only to full-time employees, for example, or only to employees who live in the same state as the company’s headquarters. Note: If an employer chooses to offer both group health insurance and the ICHRA and structures eligibility based on full- or part-time status, salaried or hourly pay structures, or geographic location, its employee classes must meet minimum size standards described in this blog.
2. Set your employee allowance amounts. The next step is to set your budget and determine employee allowance amounts. There are no minimum contribution requirements or maximum contribution caps associated with the ICHRA, and businesses can use the same 11 employee classes to offer different allowance amounts to different employees. They can also choose to offer different allowance amounts based on an employee's age or family size. Note: If employees use age to offer different allowance amounts within the same class, it should be aware that it can offer allowances to the oldest employees that are no more than three times higher than the allowances made available to the youngest employees.
3. Pick a start date. Once you’ve made initial decisions on how you’ll structure your benefit, you should choose a date on which the ICHRA will begin. Many organizations choose to offer benefits alongside the calendar year, but you can start an ICHRA at any point. If you’re choosing to cancel a group health insurance policy, you should set the ICHRA start date one day after the cancellation takes effect.
4. Create legal plan documents. Both the IRS and the Department of Labor require that your business establish a formal plan document and summary plan document (SPD) to govern any employer-sponsored health benefit, including the ICHRA. These documents cover a significant amount of information, including eligibility requirements, monthly allowances, expenses eligible for reimbursement, claims processes, and federally required information on HIPAA and other privacy procedures. Companies that don’t have these documents are subject to heavy penalties. Read more about ICHRA plan document requirements here.
5. Communicate the ICHRA to employees. The ICHRA is new to your business, but it’s also brand new to your employees. For many employees, the ICHRA will be their first experience with a reimbursement-based health benefit and they’ll need some guidance in order to succeed. Make sure your employees know all the particulars of the ICHRA, including the amount of their allowance, what can be reimbursed, how to request reimbursement, and how their participation in the benefit affects their eligibility for premium tax credits.
6. Provide resources to help employees choose individual health insurance. All employees covered by the ICHRA must have individual health insurance. However, shopping for health insurance can be difficult. Public marketplaces can be confusing and not every employee has an insurance broker they’re familiar with. As their employer, you’re a valuable resource to employees who may need guidance. Provide employees with information on where they can go to shop for benefits as well as who they can consult for private financial advice. Just remember that federal rules prohibit you from directly advising employees on which policy to choose--you can give informal information and support, but you can’t influence actual purchasing decisions.

Setting up and administering an ICHRA with benefits software

Offering and administering an ICHRA requires businesses to create legal plan documents; collect, process, and store employee reimbursement requests; and monitor the health care landscape for changing regulations.

For most businesses--particularly small businesses-- this is a tall order. There are a lot of opportunities to make a mistake, and privacy concerns could violate both federal law and employees’ trust.

For these and other reasons, many businesses offering an HRA choose to use benefits automation software like PeopleKeep to help administer it.

HRA software solutions create and update legal plan documents, support employees in purchasing health insurance and using the benefit, process and verify reimbursement requests, and keep businesses updated about any changes to the law. Businesses, meanwhile, are notified when an employee reimbursement request has been verified and need only approve the payment of the requested amount.

In fact, businesses that use PeopleKeep typically spend less than 15 minutes a month administering their HRA.

Though ICHRA software hasn’t been developed yet, you can expect an ICHRA-based solution from PeopleKeep soon. If you’re interested in offering the ICHRA, subscribe to our blog and we’ll notify you when you can sign up.

Conclusion

It may be an unfamiliar process, but setting up an individual coverage HRA functions much like setting up a QSEHRA or any other health reimbursement arrangement.

Some steps contain complexities, but by partnering with a software administrator like PeopleKeep, you can set up and administer the ICHRA with total peace of mind.

Interested in the ICHRA for your business? Let us know in the comments below!

Edit: This post has been updated to reflect changes in the final rule regarding the ICHRA, which was released in June 2019.