Understanding ICHRAs: An Alternative to Traditional Group Health Plans

What Is an ICHRA?

For many employers, providing health insurance has become one of the largest and fastest-growing expenses. Rising premiums, annual renewal increases and participation requirements can make traditional group health insurance challenging to sustain.

Fortunately, there is another option that is becoming increasingly popular among businesses of all sizes: the Individual Coverage Health Reimbursement Arrangement (ICHRA).

An ICHRA allows employers to reimburse employees tax-free for the cost of their own individual health insurance premiums and eligible medical expenses, instead of purchasing one traditional group health insurance plan for everyone.

Rather than choosing one plan that must fit every employee, employers establish a monthly reimbursement allowance, and employees select the health plan that best fits their own needs and budget.

This creates flexibility for employees while giving employers greater control over healthcare costs.

How Does an ICHRA Work?

The process is surprisingly simple.

Step 1: Employer Sets a Budget

Instead of paying a group insurance premium, the employer decides how much they would like to contribute each month toward employee healthcare.

For example:

· Employee Only: $500 / month

· Employee + Spouse: $900/month

· Family: $1,300 / month

The employer determines these reimbursement amounts and can vary them by employee class (such as full-time, part-time, salaried, hourly, or by geographic location) as permitted by IRS regulations.

Step 2: Employees Purchase Their Own Health Insurance

Each employee purchases an ACA-compliant individual health insurance plan.

This may be through:

· Healthcare.gov

· A state Marketplace

· A licensed health insurance broker like Health-Wise Partners

· Certain private exchanges

Employees are free to choose the:

· Insurance company

· Doctor network

· Deductible

· Copays

· PPO or HMO

· Prescription coverage

Unlike traditional group insurance, everyone does not have to enroll in the same plan.

Step 3: Employees Submit Proof of Coverage

Employees simply provide documentation showing they purchased qualified health insurance.

Once verified, the employer reimburses them up to their monthly allowance.

These reimbursements are generally:

· Tax-free to employees

· Tax-deductible for employers

· Free of payroll taxes when structured correctly

Why Are Employers Switching to ICHRAs?

Many employers are frustrated with annual premium increases that often exceed wage growth.

With traditional group insurance:

· Premiums increase every year.

· Renewal rates are unpredictable.

· Participation requirements can limit eligibility.

· One plan may not meet every employee’s needs.

An ICHRA solves many of these problems because the employer controls the reimbursement amount rather than the insurance company’s premium.

This creates much more predictable budgeting.

Advantages of an ICHRA

Predictable Healthcare Costs

Employers decide exactly how much they want to contribute.

Instead of worrying about a 15–30% renewal increase each year, the employer can adjust reimbursement amounts according to business needs.

Employees Get More Choice

Traditional group insurance often offers only one or two plan options.

With an ICHRA, employees may choose from dozens of available plans depending on where they live.

One employee may want:

· Low premium

· High deductible

· HSA-compatible plan

Another employee may prefer:

· Lower deductible

· Larger provider network

· Rich prescription coverage

Everyone gets to choose what works best for them.

Portability

Because employees own their individual health insurance policy, coverage is generally more portable.

If they change jobs or retire, they may be able to keep the same plan without the disruptions often associated with employer-sponsored group coverage.

Potential Premium Tax Credits

Some employees may qualify for premium tax credits through the Marketplace based on household income.

However, eligibility depends on whether the employer’s ICHRA is considered affordable under ACA rules. Employees generally cannot receive both an affordable ICHRA and Marketplace premium tax credits at the same time.

This is an important area where working with an experienced broker is valuable.

Easier Administration

Many ICHRA platforms handle:

· Employee reimbursements

· Compliance documentation

· Required notices

· Recordkeeping

This often reduces administrative work compared to managing a traditional group health plan.

Potential Disadvantages of an ICHRA

While ICHRAs can be an excellent solution, they are not ideal for every employer.

Potential drawbacks include:

· Employees must shop for their own insurance.

· Individual market availability varies by county and state.

· Some employees prefer the simplicity of one employer-selected plan.

· Affordability calculations under ACA rules can be complex.

· Proper plan design is essential to remain compliant.

For these reasons, employers should evaluate whether an ICHRA aligns with their workforce and business goals.

ICHRA vs. Traditional Group Health Insurance

Traditional Group Plan

ICHRA

Employer chooses the plan

Employee chooses the plan

Insurance company controls premiums

Employer controls reimbursement budget

Limited plan options

Wide range of individual plan options

Annual renewal increases

Employer sets contribution levels

Participation requirements may apply

Participation rules differ and are often more flexible

One plan for everyone

Employees select plans that fit their own needs

ICHRA vs. QSEHRA

Many employers confuse ICHRAs with Qualified Small Employer HRAs (QSEHRAs).

Here are some key differences:

ICHRA

· Available to employers of any size

· No statutory annual contribution limit

· Can be offered to different employee classes

· Can satisfy the ACA employer mandate when designed properly

QSEHRA

· Available only to eligible small employers (generally those with fewer than 50 full-time equivalent employees that do not offer a group health plan)

· Annual reimbursement limits apply

· Simpler structure

· Best suited for many smaller employers

Is an ICHRA ACA-Compliant?

Yes.

ICHRAs were created by federal regulations that took effect in 2020.

When properly designed and administered, they are fully ACA-compliant and can satisfy employer requirements under the Affordable Care Act for applicable large employers if affordability and other rules are met.

Proper compliance includes:

· Required employee notices

· Affordability testing

· Eligible reimbursement rules

· Documentation requirements

Working with knowledgeable advisors helps ensure these requirements are met.

Which Businesses Should Consider an ICHRA?

An ICHRA can be an excellent option for:

· Small businesses priced out of traditional group insurance

· Startups

· Growing companies

· Employers with employees in multiple states

· Businesses with remote workers

· Seasonal employers

· Companies looking for predictable healthcare budgeting

It may also be attractive for employers who have experienced significant premium increases or have difficulty meeting participation requirements.

How Health-Wise Partners Helps

Choosing between a traditional group health plan and an ICHRA isn’t always straightforward. Every business has different goals, budgets, workforce demographics, and compliance considerations.

At Health-Wise Partners, we help employers evaluate all available options—not just one solution.

Our services include:

· Comparing traditional group plans and ICHRAs

· Cost analysis and long-term budgeting

· Employee education and enrollment support

· Marketplace guidance

· Ongoing compliance assistance

· Claims and benefit support

· Renewal strategy and annual plan reviews

One of the best ways we help throughout this process is by scheduling appointments with each employee to help research the plans and ensure that everyone is able to see their doctors and acquire the appropriate coverage to meet their needs. Most importantly, our support doesn’t end after enrollment. We remain available year-round to assist employers and employees with questions about coverage, providers, claims, billing issues, prescriptions, and much more.

Final Thoughts

Healthcare is changing, and employers have more options than ever before.

An ICHRA isn’t the right fit for every company, but for some employers it offers greater flexibility, predictable budgeting, and expanded choice for employees.

The key is evaluating whether it fits your organization’s unique needs.

If you’re wondering whether an ICHRA could reduce your healthcare costs while giving your employees more freedom, we’d be happy to help.

Please Contact Health-Wise Partners

Our experienced advisors will compare your current benefits with available ICHRA solutions and explain the advantages and tradeoffs—at no cost and with no obligation.

We’ll help you determine which approach is best for your business, your employees, and your budget.

Please click this link to book an appointment at your convenience:

Health Insurance Appointment with Aaron Ellison (Health-Wise Partners)

Take care and speak with you soon,

Aaron Ellison

President

Health-Wise Partners

Health and Life Insurance

cell: (513) 403-4627

e-mail: aaron@healthwisepartners.net

website: https://www.thehwpartners.com

meet with me: 30 minute appt.