Individual Coverage HRA (ICHRA)

A newer form of HRA, the ICHRA became effective January 1, 2020. Previous IRS regulations required an HRA to be integrated with an employer’s (or spouse’s employer’s) group health plan. This meant that the employee had to be eligible for and enrolled in her employer’s group health plan or be enrolled in her spouse’s employer’s group health plan in order to participate in her employer’s HRA. In an IRS regulation issued in 2019, the IRS revoked that old rule and now allows this new kind of HRA—the ICHRA.

In an ICHRA, the employer can contribute dollars to reimburse an employee for eligible individual single or family health coverage or Medicare coverage of Parts B or D, whether offered on an ACA Exchange/Marketplace or off of it or through Medicare. For example, an employer could design an ICHRA to reimburse employees up to $400 per month for the purchase of individual health coverage if it did not offer that same employee any group health coverage.

Unlike a QSEHRA, which is limited to employers who do not have 50 or more full-time employees plus full-time equivalents, the ICHRA is allowed for employers of all sizes. Further, in an ICHRA the employer is allowed to offer group health coverage, just not to those employees who are covered by the ICHRA.  Lastly, also unlike a QSEHRA, the employer is not limited by how much it wishes to contribute to the ICHRA.

Like other forms of HRAs, the ICHRA comes with many rules and requirements:

  • In order to be eligible to receive a reimbursement from an ICHRA, the employee must be enrolled in an individual health plan with either single or family coverage.
  • Employees offered an ICHRA cannot also be eligible for the employer’s group health plan.
  • All employees in a similar class (full-time, part-time, union, non-union, etc.) must be offered the ICHRA on the same terms and conditions as other members of the class, with only three exceptions:
  • The contribution amount can vary by age, as premiums for older employees are usually more than for younger employees.
  • The contribution amount can increase as the number of dependents covered in the individual health plan increases.
  • If former employees are allowed to participate, the contribution amounts for them can vary.
  • Since participation in an ICHRA will disqualify an employee from receiving a Premium Tax Credit on the ACA Exchange/Marketplace, an employee must be given the ability to opt-out of the ICHRA.
  • The employee must provide certain substantiation monthly that they have individual health coverage eligible for reimbursement from the ICHRA.
  • The employer must provide an annual notice at least 90 days in advance of the plan year about the ICHRA.

ICHRA Resources

The newer ICHRAs are a powerful tool for employers to offer a defined contribution approach to providing eligible employee health coverage who either do not offer group health coverage at all, or who limit group health coverage eligibility to only certain classes of employees such as full-time.