ICHRA’s Provide a Flexible and Affordable Alternative to Traditional Group Health Coverage
As California business health insurance brokers, “Can I reimburse my employees for their health insurance coverage instead of setting up a group plan?” is a question we hear often. For both small employers that are under no legal obligation to provide employee health coverage and large employers that are, an Individual Coverage Health Reimbursement Arrangement (ICHRA) provides just such an opportunity.
An ICHRA is an attractive option for California businesses that want or need to provide their workforce coverage but may not want the expense, burden, or responsibility of establishing a traditional group plan.
But setting up and administering an ICHRA and satisfying all of the requirements for such an arrangement can be tricky. An experienced small business health insurance broker can guide employers through the thicket of regulations and help them establish an ICHRA that keeps their workforce healthy, productive, and financially secure.
What is an ICHRA?
An ICHRA enables employees to buy health insurance on the individual market (like healthcare.gov or Covered California) and have their employer reimburse them for that coverage through an employer-funded account. Here is how an ICHRA works:
- An employer sets a monthly allowance limit for healthcare reimbursement for their employees, including health insurance premiums and qualified medical expenses.
- Employees select and enroll in their individual or family health insurance plan.
- When an employee receives healthcare or pays a premium, the employer reimburses the employee up to the established amount.
Employer payments reimburse participating employees solely for medical care expenses incurred by the employee or their spouse, dependents, and children under age 27, up to a maximum dollar amount for each coverage period. These reimbursements are excluded from the employee’s income and wages for federal income and employment tax purposes.
Equal Treatment of Similar Classes of Employees
As with most things healthcare-related, extensive rules apply to ICHRAs. However, once you design your plan according to those rules, you avoid the ongoing administrative burdens associated with traditional group health insurance plans.
Fairness and equal treatment among similar classes of employees is a central aspect of an ICHRA. If your company offers an ICHRA to a class of employees, all employees in that class must be offered the same terms, subject to specific exceptions.
While you cannot simultaneously offer the same group of employees a traditional group health plan and an ICHRA, your company may provide one or more employees an ICHRA while offering another class a traditional group health plan.
Minimum class size requirements apply if your company bases classes on full or part-time status, salaried or hourly wages, or location within the same rating area. This size requirement does not apply to the types of employees offered traditional group coverage or no coverage.
Other Requirements for Establishing and Administering an ICHRA
Here are other key elements that employers need to keep in mind when considering or setting up an ICHRA:
- The participating employee and any dependents must have individual qualifying coverage for each month the ICHRA covers those individuals.
- Eligible participants must have the option to opt out of the ICHRA each year.
- Your company must implement and follow reasonable procedures to confirm that participants and dependents have the individual health insurance coverage required to participate in the ICHRA.
- Your company must provide a written notice to each participant that contains specific information about the ICHRA, generally at least 90 days before the plan year begins. You may use the model notice in the regulations to satisfy this requirement.
Health Insurance Options, Guidance, and Expertise for California Business Owners and Their Employees
As a California business owner, you may have wondered, “Can I reimburse my employees for their health insurance coverage instead of setting up a group plan?” As discussed above, you certainly can.
Helping business owners understand their health insurance options, including Individual Coverage Health Reimbursement Arrangements, is just one of the ways that Preferred Insurance helps California employers ensure that their workers stay healthy and covered. As an experienced California business and individual health insurance broker, we can answer your questions and provide practical, affordable solutions.
Contact Preferred Insurance today to arrange your free consultation to discuss your small business or individual health insurance needs.