Wondering what the difference is between ICHRA vs HRA? If you are interested in either one of these tax-advantages tools for your employer sponsored health benefits, it is important to understand the differences. Let us jump in!
Let us compare individual coverage HRAs (ICHRAs) and health reimbursement arrangements (HRAs).
We will start by defining each one.
A health reimbursement arrangement (HRA) is an employer-funded plan that reimburses employees for qualified medical expenses and in some cases, insurance premiums.
Employers are allowed to claim a tax deduction for the reimbursements they make through these plans, and reimbursement dollars received by employees are tax-free.
Many employers prefer to offer health insurance HRAs like the qualified small employer HRA (QSEHRA) or the individual coverage HRA (ICHRA) as an alternative to group health insurance because of the budget control, tax advantages, and flexibility HRAs offer.
However, some types of HRAs can be integrated with a group health insurance plan as a supplemental benefit in lieu of an HSA or offered as an alternative benefit for a select group of employees who may not qualify for your group health insurance plan.
→ Check out our Health Reimbursement Arrangement Guide here.
HRAs are a fantastic opportunity for employees to save, manage and spend employer-provided healthcare funds. It is also an excellent tool for employers to control healthcare costs while still helping employees afford the care they need.
Individual coverage HRA (ICHRA) is a formal group health plan that allows organizations of all sizes to reimburse their employees, tax-free, for their individual health insurance premiums and other qualifying medical expenses. ICHRA is new, having only been available since January 2020.
Previously, HRAs could not be used to pay for individual health insurance premiums.
But as of January 2020, the government now allows employers to offer their employees a new type of HRA called an individual coverage HRA—instead of group health insurance.
→ More on ICHRA 101
ICHRA is an evolution of another type of HRA, called a QSEHRA, that was created in 2017. Both allow employers to reimburse employees tax-free for individual health insurance, but ICHRA represents a “super-charged” version of QSEHRA with higher limits and greater design flexibility that will appeal to more employers.
→ Check out our Individual Coverage HRA Guide here.
→ Learn more about HRA vs FSA
Spoiler alert: an ICHRA is a type of HRA. In fact, HRA is an umbrella term for a whole flurry of tax-advantaged medical accounts made to help employees afford healthcare.
Other types of HRAs include:
Integrated HRAs are “integrated” with a traditional group health insurance plan and used to help reimburse out-of-pocket medical expenses not paid for by the group health plan. Typical examples would be co-pays, co-insurance, deductible payments, etc. An excepted benefit HRA is a type of Integrated HRA.
Standalone HRAs are not required to be tied to a group plan. They have a complicated history and can be even more complicated to implement based on tangled federal and state insurance regulations.
Retiree HRA: For former employees of a firm, an employer could use a Retiree HRA to help pay for retired members’ insurance premiums and medical expenses.
Medicare HRA: For employers with less than 19 employees, employers could elect to reimburse a portion of an employee’s Medicare supplement premiums.
Qualified Small Employer Health Reimbursement Arrangement (QSEHRA):
A Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) is a health coverage subsidy plan for employees working for businesses that employ less than 50 full-time workers.
Also known as a small business HRA, a QSEHRA can be used to offset health insurance coverage or repay medical expenses that would be otherwise uncovered.
Employees can use these HRAs to buy their own comprehensive individual health insurance with pretax dollars either on or off the Affordable Care Act's (ACA) health insurance marketplace. Individual coverage HRAs can also reimburse employees for qualified health expenses such as copayments and deductibles.
Whether or not your ICHRA makes you eligible for a premium tax credit to help pay for health insurance coverage under the ACA depends on whether your employer's ICHRA meets minimum standards for so-called "affordability," and whether you choose to opt-in or opt-out of the coverage.
Here are a few advantages that are unique to ICHRA:
Pairing a high deductible health plan with an HRA has several advantages for an employer, including the following:
Well, that depends. It is a great plan if your employees live in an area with a well-developed individual health insurance market with lots of options. If you live in an area with few individual insurance options, your employees might wish they had more options. It is also a good plan if you are an employer looking to control costs while still offering a valuable, personalized benefit.
Ready to get started with an HRA? Setting up an HRA is easy, especially if you have a skilled administrator like Take Command. Now that you have read the basics of HRAs, here are the basic steps for setting it up.
An employer will choose a plan that best fits the organization depending on several factors. For example, a QSEHRA is only available for employers with less than 50 full-time employees. An ICHRA can scale for any size of employer.
Once an employer decides to offer an HRA, they just need to pick a start date. They do not have to be tired to open enrollment. The implementation triggers a special enrollment period so employees can find plans on the individual market outside of open enrollment dates.
To design the HRA plan, the employer will need to determine eligible employees. For an ICHRA, the employer will need to set up classes based on employee types like employment status or geography. Then the employer will determine the allowance for each class. For both ICHRA and QSEHRA, allowances may also be based on age or the number of dependents.
Like any benefits offering, there needs to be an established legal plan that includes formal plans and a summary plan description that includes HRA policies, reimbursement amounts, and structure. This is important since failure to comply with the IRS and Department of Labor rules will result in hefty penalties.
Employees must know how to use the HRA. From the reimbursement process to how premium tax credits work with the HRA, there is a lot of ground to cover. Educating the employees on how it works can be a daunting process, but with Take Command, we help with the ins and outs of the new HRA.
Since employees will be getting individual insurance from the marketplace, it is important to offer support in this area. While federal rules prohibit employers from being involved in the actual decision-making for provider or policy, the employer can provide additional decision-making tools and information through the complicated process.
Reach out to our team of experts and we will walk you through it. Chat with us on the bottom righthand of your screen or email support@takecommandhealth.com.
→ Check out our complete list of ICHRA Eligible Expenses
→ Read all about ICHRA Plan FAQs
→ Read all about our ICHRA administration platform
→ Wondering which health insurance is right for your business? This post is for you.