ICHRAs: Everything you need to know
In the past, employers who offered their employees health coverage generally had to do this through one or more traditional group health insurance plans. As of January 1st, 2020, employers can now choose to offer an alternative: employees can instead be given tax-free dollars to choose from dozens of plans available through the health insurance Marketplace and directly from insurers. This is done through a new type of account called an Individual Coverage Health Reimbursement Account. We’ll be referring to these as ICHRAs throughout this guide.
What is an ICHRA?
An ICHRA allows employers to reimburse their employees for costs associated with the purchase of their own health insurance. If a business does not wish to provide a traditional group health plan, it may instead provide an ICHRA.
This allows employees to choose from a much wider range of insurance plans for themselves and their families and pick the plan that works best for their budget and medical needs.
Once you enroll in a plan, your employer chips in a set dollar amount of their choosing to help off-set the cost of premiums and (if the employer chooses) the cost of medical care. The allowances given to employees through an ICHRA are all tax-free for both the employer and the employee.
If an employer offers an ICHRA, then it will trigger a Special Enrollment Period (SEP) for employees so they may have time to shop for and compare Marketplace plans. They can then enroll in a plan and pay for it using their ICHRA dollars.
Our expert consumer advocates are available year-round to help you understand your health coverage options with an ICHRA—and you can reach them at (855) 459-1213—but here are some common questions and answers to get you started.
Can I use ICHRA dollars if my plan is not a Qualified Health Plan (QHP)?
You cannot enroll in an ICHRA without also being enrolled in a qualified health insurance plan. Qualified Health Plans (QPHs) are plans offered on the Marketplace and directly from insurers that meet certain consumer protections, like covering pre-existing conditions.
That means if you have other coverage – like a short term plan, indemnity plan, or a health sharing ministry – you can’t use an ICHRA to pay for it. If you already have health insurance through the individual Marketplace, when your employer offers you an ICHRA, you can keep the same plan and your employer will start contributing to the cost
How much do employers have to give to their employees through an ICHRA?
Employers can decide how much money to offer their employees through an ICHRA. However, there are certain rules they must follow in setting these amounts to make sure that the ICHRA is offered fairly to all eligible employees.
If an employer has more than 50 employees, they are required to give all qualifying full time employees enough money in their ICHRA so that a benchmark plan on the Marketplace is considered affordable. In this context, “affordable” means that after the employer’s ICHRA dollars are applied, the cost to the employee of the cheapest silver plan available in their zip code for just the employee (not including spouse or dependents) is less than 9.83% of their household income.
If you are a part-time employee or otherwise don’t qualify for full-time benefits, your employer might still offer you an ICHRA, but it does not by law have to meet this affordability standard.
Employers have to give an equitable amount of money through an ICHRA to all employees in the same class, but can offer the oldest employees up to three times as much as the youngest employees. They can also choose to offer the ICHRA to an employee’s spouse or dependents and can offer more money to employees based on their number of dependents.
Employers can base eligibility for ICHRA for employees in seven different permissible classes:
- Salaried employees
- Hourly employees
- Seasonal employees
- Full-time employees
- Part-time employees
- Employees in different locations, based on rating areas
- A combination of the above classes
Employers must offer a particular class of employees either an ICHRA or a group health plan; they can’t offer both to the same employee. If an employee has health insurance through a spouse’s employer-sponsored plan, they can’t enroll in an ICHRA and use those dollars to pay for their spousal coverage.
Employers also do not have to reimburse for all health care-related costs if they offer an ICHRA. Employers can choose to just contribute towards premiums, or to allow you to use any leftover ICHRA dollars towards your deductible. Employers can learn more about ICHRAs here or use our ICHRA affordability calculator to understand understand what ICHRA contributions are necessary to meet the Affordable Care Act’s affordability thresholds.
If my employer offers me an ICHRA, can I still get a subsidy?
Most people who get ICHRAs will not qualify for subsidies. Whether or not you qualify for a subsidy on the health insurance Marketplace depends on whether your ICHRA is considered affordable. If you are a full time employee at a company with more than 50 employees, then your employer is required to offer you an ICHRA that is likely to be affordable. However, because affordability is based on your total household income – which they may not know – this is based on a best guess.
In order to calculate whether your ICHRA is considered affordable, you can use this worksheet or call HealthSherpa at (855) 459-1213, where our licensed Consumer Advocates are on standby to help you determine this.
If your ICHRA is considered affordable, this counts as an offer of affordable employer coverage and you won’t be eligible for a subsidy on the Marketplace, even if you don’t enroll in the ICHRA.
If your ICHRA is not considered affordable, you may qualify for a subsidy on the health insurance Marketplace based on your household income. Even if your ICHRA is affordable, you or your dependents may also qualify for low or no cost coverage through Medicaid based on your household income and other factors (for example, pregnancy or disability.)
If I have pre-tax dollars in a cafeteria plan, can I use that money to pay my portion of my health insurance costs?
If your employer lets you put aside money pre-tax from your paycheck for healthcare, for example through a salary reduction arrangement or a Health Savings Account, you can use this money to pay your portion of your health premiums after your employer’s ICHRA dollars are applied.
However, if you choose to do this, you have to buy a plan “off exchange” directly from the insurance company or through an insurance broker like HealthSherpa. This means that plan is not available through a state or federal exchange like Healthcare.gov.
In practice, all plans available on the state and federal exchanges are available to be purchased in a “mirrored” form off the exchange. Sometimes, the price may vary a little. Some insurance companies also offer additional special plans that are not available on the exchange.
If you want to purchase a plan using pre-tax dollars, you can call a HealthSherpa agent at (855) 459-1213 to learn more about your options.
What happens if I leave my employer and lose my ICHRA dollars?
The great thing about an ICHRA is that you can keep the same plan even when you leave your employer – and unlike continuing a traditional group plan through COBRA, you may even qualify for financial assistance paying for it.
If you enrolled in your plan through a state Marketplace or Healthcare.gov, or through an agent who helped you find a plan on those marketplaces, you can report a change on your application to let the Marketplace know that you no longer qualify for ICHRA dollars. Based on your household income, you may now qualify for financial assistance towards your premium. This could replace or even be greater than the contribution your employer was offering through the ICHRA!
If you enrolled in a plan off exchange directly from an insurance company, you will have 60 days to switch to a plan on the exchange so that you can qualify for financial assistance based on your income. In most cases, you will be able to enroll in an identical plan to the one that you had off the exchange.
Have more questions? Give us a call at (855) 459-1213.