If your employer just told you they are offering a new health benefit called an individual coverage HRA (ICHRA), you probably have a lot of questions.
We want to help you understand exactly what an ICHRA is and how it works, and give you the tools you need to decide whether or not you want to participate.
What is an ICHRA?
An ICHRA is a type of health benefit called a health reimbursement arrangement (HRA). HRAs allow employees like you to get reimbursed by their employers with tax-free money for qualified healthcare expenses like health insurance premiums, copays, and prescriptions.
Your employer has committed to making money available to you each month. This money is called your allowance. Any unused allowance at the end of the month rolls over to the next month until the end of the year when your allowance resets.
An ICHRA is completely employer-funded, which means you don’t have to pay anything or share the cost of the benefit with your employer like you might with a group health insurance plan.
How does an ICHRA work as an employee?
There are a couple of terms right in the name that help define how an ICHRA works: individual coverage and reimbursement.
Individual coverage refers to the fact that you must be covered by an individual health insurance plan if you want to participate. You don’t have to buy the plan yourself, but you must be covered under the plan. For example, your spouse or parent could have purchased the plan, but as long as you’re covered under the plan, you’ll still be eligible to participate in the ICHRA.
Any plan on the federal or state health insurance marketplace qualifies, in addition to some off-exchange plans. If you are thinking of buying an off-exchange plan and want to participate in your employer’s ICHRA, make sure your plan qualifies as MEC before you pull the trigger.
The reimbursement part refers to how the money flows. With a traditional group health insurance plan, your portion of the premium is taken out of your paycheck and your employer pays their portion directly to the insurance company.
With an ICHRA, you pay the entire premium yourself, then your employer reimburses you. There are no payroll deductions, so your paycheck won’t have anything taken out of it. Instead of your employer paying their portion of your premium to the insurance company, they reimburse you directly. This is usually done through payroll, so you’ll see your reimbursement on your paycheck after your expenses have been approved.
Based on the way your employer’s specific ICHRA is set up, you can either get reimbursed for just your health insurance premium or for your out-of-pocket expenses, too. You’ll know what you can get reimbursed for by looking at the official notice you were sent, typically in an email. The notice will also have your allowance amount.
If your employer offers reimbursements for premiums and out-of-pocket expenses, just make sure you have an available balance. If your allowance is greater than the cost of your premium, you’re good to go.
How do you shop for an eligible health insurance plan?
If you aren’t already covered by an individual health insurance plan, you’ll need to shop for one. For many, the best way to do that is through the health insurance marketplace since buying through the marketplace allows you to receive premium tax credits if you qualify. Some states use the federal marketplace, while others have created their own. Check out our state-by-state guide to see where you shop for health insurance.
If you make too much money to qualify for premium tax credits or if you just want to expand your options, you can shop for off-exchange policies. In some cases, you can find cheaper plan options than those on the marketplace that still meet MEC requirements.
Note: Tax credits are only available if you purchase a plan on the health insurance marketplace. If you choose an off-exchange plan or go directly through an insurance carrier, you won’t be eligible for any premium tax credits.
Regardless of where you buy your insurance, it’s smart to speak with a licensed health insurance broker first. They won’t charge you anything and you’ll get personalized plan recommendations based on your unique needs. If your employer uses PeopleKeep, you can get help purchasing a policy right from your online account.
How do you get reimbursed through an ICHRA?
This depends on how your employer chooses to administer their ICHRA. For the most part, you’ll start by submitting proof that you incurred a qualified expense. The necessary documentation is mandated by the government’s rules and regulations.
If it’s for a premium, you’ll need to show the insurance carrier, the name of the plan and plan type, the premium amount, and the start and end dates for the plan. For most other expenses, a receipt works just fine as long as it shows the vendor, the price of the product or service, and what the expense was for. In some cases, you’ll need a prescription or a doctor’s note as well.
Once you’ve submitted your expense documentation to your employer or their administrative partner, you’ll wait for the expense to be verified and approved. If any necessary information is missing, they’ll let you know and you can resubmit those items. If everything looks good, then your reimbursement will be scheduled at whatever cadence your employer has chosen.
Most employers reimburse their employees through payroll once or twice a month, but you can verify your employer’s specific reimbursement schedule directly with them.
How do you choose whether to participate in your employer’s ICHRA?
There are a lot of factors that go into this decision, so you’ll want to take the time to do the math and see which option is best for you.
If you already get insurance you’re happy with through another means like a spouse’s or parent’s group plan or if you would prefer to go uninsured, then you’ll probably want to opt out.
If you want to get individual insurance coverage, the main decision you’ll be making is whether to choose your employer’s ICHRA or premium tax credits, if you’re eligible. You aren’t allowed to participate in an ICHRA and receive premium tax credits. You can only choose one.
Note: Short-term plans, healthcare sharing plans or ministries, Medicaid, and COBRA do not count as individual coverage or MEC. If you want to participate in your employer’s ICHRA, those types of plans aren’t allowed.
To make this decision, you’ll need to know whether the ICHRA your employer is offering you is considered affordable.
Here’s an online tool we made that helps you calculate affordability and choose whether to opt in or out of your employer’s ICHRA.
If the ICHRA isn’t affordable, then you have two options: 1) participate in the ICHRA anyway or 2) opt out of participating in the ICHRA and use your premium tax credits.
In this case, you’ll simply choose whichever option is offering you more money. If the premium tax credits you’re eligible for are higher than the ICHRA allowance your employer is offering you, then you should opt out of the ICHRA and use the tax credits. If it’s the other way around, then you should forfeit your tax credits and opt in to the ICHRA instead.
If the ICHRA is affordable, then there’s really only one option available. ICHRA regulations require you to forfeit your eligibility for premium tax credits if the benefit is considered affordable. If you opt out of an affordable ICHRA, then you won’t be receiving anything from your employer, but you also can’t take the premium tax credits, which leaves you with no help.
In this situation, you should opt in to the affordable ICHRA so that you’ll receive at least some financial help, even if it’s not as much as you could have gotten through premium tax credits.
Your employer’s ICHRA can help you pay for your health insurance premiums and maybe even other qualified out-of-pocket expenses, all completely tax-free.
Deciding whether or not you should participate in your employer’s ICHRA is a big decision. First, you’ll need to determine if the ICHRA is affordable. If it’s not, you have the choice of opting in to the ICHRA or opting out and taking your premium tax credits. If it is, then you’re better off opting in to the ICHRA since you won’t be able to get any tax credits, even if you opt out.
If you decide to participate, make sure you’re covered by an individual health insurance policy that meets MEC requirements by your employer’s ICHRA start date. That’s where the individual coverage from individual coverage HRA comes from. If you want to be eligible for premium tax credits, make sure to get you policy on the health insurance marketplace. You can get free help in choosing a plan from a licensed health insurance broker if you need it.
There are some regulatory requirements regarding how the reimbursement process works, but it’s usually as simple as submitting a receipt. Once your expense has been verified and approved, your employer will pay you back up to your accrued allowance amount.
Still have questions? Ask away in the comments below!