The Pros & Cons of ICHRAs

Individual Coverage Health Reimbursement Arrangements, or ICHRAs, have been available since January 2020, and have been growing in popularity over the past year. This is because they allow employers to save money while offering employees a way to get healthcare benefits. They are a great alternative to group health insurance, especially since the rules surrounding them are less restrictive than those surrounding traditional healthcare plans, or even those of other HRAs. For example, there are no contribution maximums and no company size restrictions on ICHRAs. Before deciding if an ICHRA is right for you, you should first weigh the pros and cons.

ICHRA Pros

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All reimbursements for each employee are tax-free.

ICHRAs are a type of health reimbursement arrangement, a health benefit that differs from an HSA in that it is an arrangement, as opposed to an account. Employees don’t put money aside for their healthcare expenses; rather, you reimburse them for their medical expenses. You provide a set monthly allowance for employees’ premiums and medical expenses. ICHRAs have a lot of advantages for both you and your employees, including: 

  • You can choose how much you want to contribute every month, and there is no minimum or maximum. Once set, you will give that amount to employees monthly; they cannot exceed that amount, which will help you budget accordingly.
  • Reimbursements are tax-free.
  • You can offer different monthly allowances to different groups of employees based on the type of job they do, how many hours they work, and even family status.
  • Employees use the money you offer them to find an individual healthcare plan that suits their needs. This is empowering to them, and will allow you to focus on your business instead of trying to find a group health insurance plan that fits all of your employees’ needs. 
  • Employees need to have an individual insurance policy to participate in an ICHRA, so if you enroll and start reimbursing employees mid-year, employees will become eligible for a Special Enrollment Period to choose a major medical health insurance plan. This means that they will not have to wait until the Open Enrollment Period, November 1- December 15, to buy a health insurance plan.

ICHRA Cons

There are many positives to offering an ICHRA, but sometimes with the good comes some bad. The disadvantages of ICHRAs include:

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Employees who are on their spouse’s health insurance plan cannot participate.
  • This type of arrangement prevents employees from being eligible for advanced premium tax credits on ACA Marketplace plans. So if an employee decides not to take part in an ICHRA that is considered “affordable,” they will not be able to receive tax credits with an ACA plan. 
  • Employees who are on their spouse’s health insurance plan cannot participate. The only way to participate is if they purchase their own individual health insurance and get reimbursed for it through the HRA. 

Need Help?

For many employers, ICHRA pros outweigh the cons and can seem like a no brainer, which is why they are growing in popularity. You get to help your employees purchase health insurance plans that meet their specific needs, and you also get to save money in the process. Reimbursements are tax-free for both employees and employers, meaning that they are tax-deductible for employers, and income tax-free for employees, which will save you on employer payroll taxes. It’s a win-win situation.

If you are interested in an ICHRA, or want to explore your options for a group health insurance plan, reach out to an EZ agent in your area. Our agents are highly trained and work with the top-rated insurance companies in the country. We can assess your needs and compare plans instantly, for free. To get started simply enter your zip code in the bar above, or to speak directly with a local licensed agent, call 888-998-2027.

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