Are ICHRAs Really Worth It?

An ICHRA is an employer-funded health benefit that allows employers to reimburse employees tax-free for individual health insurance premiums and eligible medical expenses. This allows employees to choose their own qualified health plan on the individual market.

The employer establishes a set monthly, tax-free allowance for employees to purchase their own individual, ACA compliant health insurance. Employees then select their plan on the individual market. Employees pay for their premiums and other medical costs up front then submit proof of expense to the employer for tax-free reimbursement up to the allowance.

This may sound great, but have you thought about COBRA? Administration? ACA premium tax credits? These are some of the items employers should consider before diving headfirst into an ICHRA and later deciding it’s not worth the hassle.

In our experience, we have found the below to be areas of concern that employers have had regarding an ICHRA.

Although an ICHRA may simplify some aspects of administering health benefits, it also comes with its complications. Employers will often have to hire a third-party administrator (TPA) to manage day-to-day administration. If an employer decides to administer themselves, ICHRAs require tracking of reimbursements, paying reimbursements, verifying employee coverage, handling denied reimbursement requests and appeals, recordkeeping and storing documenting, and complying with other legal requirements. As a result, many employers decide to use a TPA, adding an extra cost.

If an ICHRA is considered “affordable,” employees don’t have the option to receive ICHRA reimbursements or opt out and take advantage of the tax credits. This means that if the employee is offered an affordable ICHRA they will not be eligible to receive ACA tax credits.

If an ICHRA is not considered “affordable,” employees can waive their ICHRA benefit and collect their premium tax credit. However, if you are considered an Applicable Large Employer, you are required under the ACA to offer an affordable allowance to satisfy the employer mandate.

If you are an employer with 20 or more employees, you are required under COBRA to offer continuation coverage to employees and their dependents when they lose coverage as a result of a qualifying event. This requirement includes ICHRAs.

In addition to COBRA, ICHRAs are subject to strict legal requirements. This includes ERISA and ACA guidelines. This can create additional compliance challenges.

In our experience, some employers may end up spending more than they thought they would save. In addition, there may be frustration with how invoices from TPAs are paid. Some employers don’t like paying upon the invoice instead of paying for the whole year up front and being done. Some other employers may also not like only showing the invoice without proof that the employee paid first.

The above issues should be taken into consideration before you make the big commitment to switch from traditional group health insurance to an ICHRA.

Benecon has decades of experience with ICHRA. For more details, contact our team.