ICHRA administration: What it is and how startups and small businesses can get started

To many, ICHRA may appear complicated at first. However, it is rapidly becoming more popular. Since its launch, ICHRA adoption has surged by 350%, and the U.S. Department of Labor expects it to continue growing by 255% more by 2025.

With this rise in popularity comes the question of ICHRA administration. How do employers keep track of their ICHRA plans, and how does the administration of ICHRA compare to traditional health insurance? Read on to learn more.

Understanding ICHRA

An ICHRA is a method of providing health benefits that businesses of any size can use. An Individual Coverage HRA (ICHRA) is a form of HRA (health reimbursement plan). ICHRA was introduced in 2020 as part of new regulations to expand health reimbursement arrangements.

HRAs are health benefit plans funded by employers. Through an HRA, employers can reimburse employees (tax-free) for qualified medical expenses up to the limit set by the employer.

ICHRAs are a subset of HRAs. They allow employees to purchase individual insurance and get reimbursed through their employer. They are similar to Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs), although ICHRAs can be used at companies larger than 50 full-time employees and aren’t subject to reimbursement limits.

Compared to a traditional healthcare plan, ICHRAs can offer more flexibility to both employees and employers. Employees can choose the coverage that best suits them, and employers can benefit from more financial flexibility in the face of rising healthcare costs.

Key features of ICHRA include:

• Employer funded. Employers can set an allowance for each employee class (ICHRA class).

• Employee controlled. Employees get to choose a plan that best fits their needs.

• Tax-advantaged. Employers can contribute tax-free funds to employees' ICHRA, which employees can then use to pay for individual health insurance premiums and, in some cases, other qualified medical expenses. These contributions are deductible for the employer as a business expense, reducing taxable income.

Benefits of an ICHRA

ICHRAs are new health insurance offerings that offer several advantages to employers.

• Taxes. As mentioned above, offering health insurance may be tax deductible for the business. Some small businesses or startups may also qualify for tax credits.

• Recruitment. The vast majority, 78% of Americans in 2022, obtained their insurance through an employee. In some industries, employees expect to be provided healthcare from their employer. Offering health insurance as a benefit for employees can attract strong candidates.

• Savings. With an ICHRA, employees may be able to pay for their insurance using pre-tax dollars, which could lead to savings down the line.

• Retention. Similar to recruitment, showing employees you care about their health and well-being is just another reason for them to stay with the company. 23% of people who left their jobs in 2022 cited poor benefits as their major reason for leaving.

Initial Setup: Getting Started with ICHRA

Getting started with ICHRA is easy.

Evaluate your needs and budget

Competitive benefits are an important part of recruiting and retention, but at the same time, you should consider the long-term sustainability of the healthcare plan costs for your company. Consider the long-term costs the company will rack up for coverage, and decide if you’ll commit to covering a portion of employee’s premiums or other types of packages.

On the other hand, it could be important to understand how much your employees are willing to pay for health insurance premiums. A simple survey might reveal that the team is more budget-conscious or thinking about comprehensive plans for family coverage. A general idea of how your employees want coverage can help inform the budget.

Setting a budget for reimbursements

Once you have an idea of needs, consider each employee's allowance under the ICHRA. With ICHRA, employees can fall into 11 distinct classes, meaning they could receive different allowances based on class.

Keep in mind that employees of the same class must receive the same allowances.

Using a specialized administrator

Unlike a traditional healthcare policy, where the insurance company would manage claims, with an ICHRA, employees file for reimbursement through their employer. This can add to a team's administrative burden in some cases.

Whether you process claims internally through a benefits administrator or a specialized administrator, understanding how you’ll handle claims is an important part of getting started with ICHRA.

Draft ICHRA plan document

Creating a clear and comprehensive plan document is a big investment, but it’ll pay off. Helping your employees learn how to use their benefits immediately can clear up confusion and help them make the most of their packages. Most employers use a third-party administrator or qualified vendor to create their ICHRA plan document.

Legal and compliance considerations

While implementing ICHRA plans allows for more flexibility across the board, compliance and legal considerations must be considered. To roll out ICHRA smoothly, consider partnering with Thatch for easy, personalized healthcare for your team.

Ongoing administration

ICHRA administration doesn’t stop when employees have selected their coverage. The benefits manager or a third-party ICHRA administrator will have ongoing duties tied to employee healthcare. That can include some or all of the following.

• Keeping the plan updated. The ICHRA plan membership must reflect current those enrolled in the plan and currently employed. That means updating records to reflect new hires or departing employees.

• Reimbursement claims. Claims must be reviewed, evaluated, and paid out if approved. If claims aren’t approved, the administrator needs to inform the employee why and explain the appeals process if they choose to move forward with it.

• Review plans. You should address your plan and allowances on an annual basis, making adjustments as needed.

It’s important to keep this in mind or seek additional support when adopting ICHRA.

Staying Informed

Stay up-to-date with regulations and industry trends to ensure your ICHRA remains compliant and competitive:

Consider partnering with a third-party ICHRA administrator to handle claims processing and ensure compliance with all relevant regulations. Also, keep up with the latest developments by continually checking ICHRA resources such as the Thatch blog.

ICHRAs are easier than you think with Thatch

Implementing an ICHRA might initially seem like going out on a limb alone, but it doesn’t have to be that way. Thatch is on a mission to democratize insurance for everyone with ICHRAs. Thatch makes giving your team great healthcare easy, using powerful tools and AI to make administration easier along the way.