Individual Coverage HRA’s (ICHRA) – A New Way for Employers to Pay for Medical Insurance

Rising health care costs are making it increasingly difficult to maintain a comprehensive benefit plan for a multi-generational workforce.

Industry statistics indicate that approximately 25-30% of single coverage participants and 55-60% of families reach their deductible each year, resulting in a majority of employees not utilizing the full scope of the benefits being offered today.

As a result, employers are left paying for a one-size fits all plan design that leaves benefits and costs on the table each year. Individual Coverage HRA’s (ICHRA) could offer a creative and flexible option to help control an employer's spend on a group health plan.

The “Individual Coverage HRA” rules began in January 2020 and expand existing Health Reimbursement Arrangement (HRA) regulations to allow the pre-tax reimbursement of individual health insurance premiums. An ICHRA combines an individual health insurance plan paid for by the employee with reimbursement by the employer at a defined, pre-determined rate.

While the ICHRA is considered a group health plan, the actual insurance an employee purchases is separate and distinct from the ICHRA. Similar to a group health plan, employers create eligibility guidelines, define contributions, establish reimbursements and provide employee education throughout the enrollment process.

As a condition for using an HRA to reimburse individual coverage premiums, an employer must:

1. eliminate traditional health care coverage and
2. direct employees to secure individual coverage in the open market.

In order to implement and administer this solution, employers will also need to create a synergy between their payroll provider, an HRA third-party administrator and various insurance carrier distribution channels for their local and out-of-area employees.

In today’s competitive market, there is no one-size-fits-all approach to controlling healthcare costs. While an ICRHA can potentially offer a creative and flexible solution, there are many things to consider for your business and employees before you implement this solution.

Reach out to a OneDigital consultant to evaluate this strategy or as part of your multi-year strategy. For more on this topic read this article exploring Creative Medical Plan Designs and Funding Options to Avoid Passing Costs on to Employees.