ICHRA compliance is one of our favorite subjects. There’s no denying that HRAs (health reimbursement arrangements) make it easy to reimburse your employees tax-free for health insurance premiums and qualified medical expenses. However, there are several laws and legal requirements in place that you need to know about to avoid potential penalties. Here’s what's important to understand about ICHRA compliance.
Disclaimer: We always recommend that business owners consult with a CPA or lawyer to ensure that all relevant laws are followed. While there are several laws that apply to everyone, there are state-specific regulations and other laws that may be unique to your situation. Please do your homework!
What to know about ICHRA Compliance
The ICHRA, or individual coverage health reimbursement arrangement, really stands head and shoulders above other HRA contenders when it comes to contribution limits and classes. That makes the ICHRA incredibly customizable and appealing to employers and employees alike.
For business owners, the ICHRA health insurance model brings predictable costs, flexible and efficient design, and budget control. There's no need to worry about rising premiums or participation rates.
Let's jump in to some the issues to remember surrounding ICHRA compliance.
How do ICHRA classes work?
While all HRAs must be offered equally and fairly to all employees, QSEHRAs and ICHRAs achieve this differently. While QSEHRA eligibility can only be scaled based on family size or age, ICHRA offers a greater deal of efficiency with its class feature, which allows employers to divide employees up into an almost limitless amount of custom classes that receive varying rates of reimbursement.
Employers can offer ICHRAs to all eligible employees, or to only certain classes of employees. There are some special rules, but in general, individual classes are determined by job-based criteria such as salaried or non-salaried, non-resident aliens, seasonal employees, etc. One rule that stands out here is that while ICHRA can be offered to one class and a group plan offered to another, an individual cannot be offered both.
Is there a size restriction for ICHRAs?
When it comes to company size, ICHRAs are available to businesses of any size, while its predecessor, QSEHRA, is intended only for companies with fewer than 50 employees who would not previously have been required to offer health insurance.
Are there ICHRA Contribution Limits?
As for contribution limits, ICHRA is not subject to any contribution limit in terms of reimbursement rates. You can make reimbursement rates as generous as you want.
Can I administer my own ICHRA?
It’s a question we get asked a lot. While it’s possible, it’s definitely not something we’d recommend you or your client do for a few practical reasons:
- Employee Privacy – Leveraging an administrator provides a necessary layer of privacy. For reimbursements to be tax-free, employers have to substantiate that employees are using funds to pay for health insurance and medical expenses. However, having employees submit receipts directly creates a significant problem because information about employees’ medical expenses (including individual insurance premiums) is considered Protected Health Information (PHI) under the Health Insurance Portability and Accountability Act of 1996 (HIPAA). Employers asking for employee medical records is a HIPAA privacy violation.
- Record Keeping – Because the IRS requires small businesses to keep records up to 7 years, record keeping can be problematic when small paper receipts are concerned. An administrator will keep all digital records organized and secure on your behalf providing peace of mind.
- Changing Regulations – In recent years, healthcare policy consistently proves to be evolving. Therefore, as ICHRA evolves, an administrator will always be up-to-date on regulation changes.
What is an ICHRA compliant plan?
First things first, to be eligible for ICHRA reimbursements, you and any dependents need to be enrolled in a qualified health insurance plan that meets Minimum Essential Coverage (MEC).
When shopping for an individual plan, you'll want to look for the words individual, bronze, silver, gold, or platinum in the plan name - those are good indicators that you are looking at a plan that meets MEC and is compliant with ICHRA.
Where do I find an ICHRA compliant plan?
You can search for a plan and compare your options on our Window Shopping Tool, our own data-driven individual health insurance shopping platform, or you can shop plans off exchange (directly from a private insurance carrier or broker). Medicare plans are compliant with ICHRA as long as you have Medicare Part A & B or Medicare Part C.
We're the only ICHRA administrator that offers hands on, personalized enrollment support for employees.
Do I need an ICHRA compliant plan to participate?
Yes, you do. Otherwise, your health plan will not be eligible for reimbursement through your Individual Coverage HRA.
When can I enroll in individual health insurance coverage?
Anyone can enroll in or change their individual health insurance coverage during the individual market’s annual open enrollment period from November 1 through December 15. (Some state exchanges may provide additional time to enroll.) If your ICHRA starts on January 1, you (and your family members) should enroll in individual health insurance coverage during that open enrollment time frame.
If your ICHRA starts on a date other than January 1 or if you are a new hire being offered the ICHRA mid-year, you can enroll in a plan outside of open enrollment using what is called a “special enrollment period” (more on that here). If you qualify for a special enrollment period, make sure you enroll on time! You’ll have 60 days from the day your HRA starts to secure your coverage.
Common ICHRA compliance questions we hear every day
What is considered individual coverage?
Any coverage purchased on the exchange (aka Healthcare.gov aka Obamacare) is considered individual coverage. That includes insurance purchased on state exchanges. Medicare is also considered ICHRA Compliant individual coverage.
But I’m on a family plan. Will that work?
Was that family plan purchased from the exchange?
Yes.
Then that is ICHRA compliant individual coverage.
Wait a minute. Individual means 1, and family is obviously more than 1. Why is that?
Individual Coverage doesn’t mean coverage is limited to only one person. Individual coverage really means you went to find coverage individually, ie not part of a group.
Based on this new definition, what types of coverage are not acceptable for ICHRA compliance?
The short version: If your plan requires some sort of ‘membership,’ waiting period, preexisting conditions waiver, or the coverage you have is only available to your specific ‘group’ then that plan is very likely not ICHRA compliant.
In many of these plans you can search the plan for: ‘ACA, Affordable Care, MEC, or Minimum Essential Coverage – and if that plan says anything along the lines of, “does not meet ACA requirements,” “Does not meet MEC/Minimum Essential Coverage,” then that plan is not ICHRA Compliant.
Specifically, what plans are not considered to be ICHRA compliant?
- Group plans: Any employer sponsored group plan, retirement plan, union plan, etc. does not meet ICHRA compliance. You can ask yourself the question: “Do I have to be a part of _____ to qualify for this coverage?” If you answer yes to this question then it is not ICHRA compliant. We have to go back to the idea of “Individual Coverage” – If the only way to participate in a plan is to be a part of a group, then it will never meet the criteria of Individual Coverage.
- Government plans: As of the time of writing, with the exception of Medicare – No government sponsored health plans are ICHRA compliant. This includes Tricare, FEHB plans (Federal Employees Health Benefits), and Medicaid, to name a few.
- Alternative health coverage options: Short-term plans and faith-based plans are not compliant with ICHRA
That sure doesn’t leave many categories of health insurance that are compliant with ICHRA.
Well, sort of. To be frank, one of the reasons the government created ICHRA was to encourage individuals to purchase health insurance directly off the exchange that provides quality, ACA compliant coverage. It is called the Individual Coverage Health Reimbursement Arrangement for a reason. Any coverage that does not fall under the Individual Coverage concept, (with the exception of Medicare), is not ICHRA compliant.
So we can only be compliant with ICHRA by purchasing directly from the exchange?
Definitely not. Individual coverage can also be purchased directly from an insurance carrier (considered an off-exchange plan) and will be ICHRA Compliant as long as that coverage is ACA compliant and meets Minimum Essential Coverage.
Medicare is also ICHRA compliant. Essentially, ICHRA requires individuals to purchase a qualified health plan, in other words, a major medical plan on or off the exchange that is MEC compliant.
Wait, what's a qualified health plan?
The regulatory rules that formed ICHRA say this about compliant health plans: A Qualified Health Plan for ICHRA is a major medical plan that can be purchased on or off the Exchange. It must meet the minimum requirements as outlined in Public Health Services (PHS) Act Section 2711 and Section 2713. These two provisions require no annual or lifetime limits on the dollar amount for coverage of essential health benefits and full coverage of preventative health services to be covered with no shared cost to the insured.
Reading between the lines of the legal jargon: If a plan purchased directly from an insurance carrier has limits on coverage or does not cover preventative care, then it is not a qualified health plan and will not be ACA compliant.
For more information, check out our post on ICHRA and Qualified Health Plans.
Why didn’t you mention ACA compliance regarding plans from the exchanges?
All health insurance plans purchased from the federal or state exchanges are ACA compliant.
“A lot of people really loved their sharing plans. When we made the switch to ICHRA in 2020, I was frustrated that our employees had to choose between participating in ICHRA or staying on their sharing plan. I know it was rumored that sharing plans were going through some major classification changes for 2021, are they now ICHRA Compliant?”
Well I’ve got some good news and some bad news. I always like to start with the bad news: sharing plans are still not ICHRA compliant. They will not qualify as your actual health insurance. Have no fear, there is good news! Sharing plans are eligible for reimbursement under ICHRA.
...But you just said...?
Yes, I did. Sharing Plans are not ICHRA compliant and likely never will be. Remember ICHRA Compliance is all about Individual Coverage or Medicare. A sharing plan is neither.
However, as of 2021, sharing plans are now categorized as a qualified medical expense which can now be reimbursed as long as it is alongside ICHRA compliant health coverage (i.e., a plan purchased off the exchange.)
...but wouldn’t that mean someone has ‘double coverage’ ?
Yes it would. However, depending on someone’s circumstances, their ICHRA allowance, and their preference for doctors / networks, etc, this has already become a viable option for a lot of people.
Since their inception, ICHRA has had the most strict rules and regulations compared to its more well-known sibling QSEHRA. And while keeping a sharing plan alongside an ICHRA compliant health plan may not be for everyone, I’ll take options, over no options any day of the week.
Other ‘disqualifiers’ for ICHRA Compliance
Tax Credits and ICHRA. A person cannot accept federal tax credits, or accept any state / federal premium subsidy for that matter, and participate in ICHRA. A health insurance plan purchased off the exchange that includes a premium tax credit (PTC), or advance premium tax credit (APTC) is not compliant with ICHRA.
My employee only has a $20 tax credit on their $500+ medical premium. Surely that doesn’t exclude them from participation in ICHRA?
Yes, and no. Simply being eligible for a tax credit has no bearing on ICHRA compliance. However, if a tax credit is on someone’s bill, that means they have accepted it. The employee will have to call their federal or state exchange and have their tax credit removed before their plan is considered compliant with ICHRA.
Still have questions about ICHRA compliance?
ICHRA compliance can be confusing. The good news is that if you choose a third-party HRA administrator (like Take Command!), we take care of all of this for you and ensure that you remain compliant and out of trouble. It's a lot less stressful, we promise.
→ Check out our ICHRA plan document template!
Other helpful resources:
- ICHRA FAQs
- The complete guide to ICHRA reporting
- Tax Strategies and ICHRA
- ICHRA Requirements
- How to set up an ICHRA
- Quick Explainer on How ARPA Affects COBRA and ICHRA
- Sample ICHRA Model Notice for Employees
Chat with our team any time on our website and we would be happy to help walk you through any questions you may have.
