ICHRA glossary breakdown

ICHRAs may be gaining popularity, but the new form of employer-sponsored insurance is still unclear for many. To help simplify and foster a greater understanding, here’s a rundown of common terms you might encounter when reading up on ICHRAs. 

ACA

The ACA stands for the Affordable Care Act, sometimes referred to as Obamacare. ACA reformed health insurance in the United States, including regulating health plans and expanding affordable healthcare offerings.  

The ACA incentivized employers to provide healthcare to their employees and for individuals to enroll in coverage. To make it possible, the government expanded the online marketplace and provided tax incentives to help cover the cost of coverage to qualifying Americans. The ACA passed in 2010.

Allowance

In the world of ICHRA, allowance refers to the cash an employer sets aside for each employee to help cover healthcare costs. Employee allowance is drawn down when employees are reimbursed for their qualifying medical costs. 

COBRA

COBRA (or the Consolidated Omnibus Budget Reconciliation Act) kicks in when an individual loses their job or health benefits from a group health plan. It gives people the option to continue their healthcare benefits from their employer or plan for a limited period of time.

COBRA applies in the event of job loss, role reduction, transitioning between jobs, divorce, and other specific life events.

Contribution limits

ICHRAs don’t have contribution maximums like QSEHRAs. But, employers do have to set allowances for employees, which can vary between employee classes. 

Eligibility criteria

Any employee can participate in an ICHRA, but owners of certain entity types may be ineligible (e.g. 2%+ owners of S-Corps and other entities subject to passthrough taxation).

Employee benefits package

A collection of benefits offered by an employer, which may include ICHRAs as part of the overall health insurance offering. Benefits packages could refer to a PTO or leave policy, as well as insurance and retirement plans.

ERISA

The Employee Retirement Income Security Act of 1974 (ERISA) set minimum standards for healthcare and retirement plans.

Group health plan

A group health plan, not to be confused with group health insurance, refers to benefits offered by an employer that can help cover the cost of healthcare for an individual or family. 

A group health plan can include FSAs, HRAs, or group health insurance.  Read more about ICHRA vs Group health insurance here

HRA

HRA stands for Health Reimbursement Arrangement. Individual Coverage Health Reimbursement Arrangements are one type of HRA. HRAs are employer-funded plans that reimburse employees for qualified medical expenses. Depending on the HRA, employers and employees may be entitled to tax-free treatment for healthcare expenses, including insurance premiums or other qualifying medical expenses. 

HSA

A health savings account (HSA) is offered to individuals and families on an HDHP (high deductible health plan). Individuals and employers can make tax-free contributions to an HSA, which can be used to cover qualifying healthcare costs. 

Unlike ICHRAs, HSA can’t be used to cover the cost of healthcare premiums,

ICHRA

ICHRA stands for Individual Coverage Health Reimbursement Arrangement, which is one type of HRA. Employees who participate in ICHRAs are required to purchase individual healthcare. Depending on the ICHRA, employees may also be able to use the allowance for other qualifying expenses, such as copays. 

ICHRAs are relatively new in the healthcare space, but they’ve grown tremendously since their introduction. In the last year alone, the adoption of ICHRAs among companies opting for an HRA program has increased by 83%. 

ICHRA administration

Proper benefits and ICHRA administration are important to comply with applicable laws and regulations. Administration could include ICHRA administrative software and a third-party or full-time employee processing claims and ensuring compliance with ICHRA regulations. 

Integration

Integration refers to how an ICHRA works in conjunction with other benefits, such as group health insurance plans or other HRAs.

Premiums

Premiums refer to the amount someone pays for health insurance, typically every month. In a traditional employer-sponsored health insurance plan, the employer might assume a portion of the premium to pay on the employee’s behalf as an added benefit. 

With ICHRA, employees allocate their allowances to premiums and receive tax-free reimbursement from their employers up to a predetermined allowance. 

TPA

TPA stands for third-party administrator. TPAs help with claims, billing, and other administrative tasks. They are separate from an insurance company. While some health insurance companies have in-house TPAs, employers often contract TPAs to help manage their company’s plan. 

QSEHRA

QSEHRA stands for Qualified Small Employer Health Reimbursement Arrangements. Like an ICHRA, QSEHRAs are HRAs, but only certain types of companies are eligible.

Only employers with fewer than 50 full-time employees are eligible for QSEHRAs. Unlike ICHRAs, they have annual contribution limits set by the IRS. Additionally, benefits must be the same for all eligible employees. 

QSEHRAs have predated ICHRAs by several years and were signed into law as part of the 2016 Cures Act. 

Qualified Health Plan

Qualified health plans are insurance plans that meet the requirements set by the Affordable Care Act and are eligible for reimbursement through an ICHRA. 

Reimbursement

The process by which employees submit proof of health insurance premiums or other qualifying expenses to be reimbursed through the ICHRA. <H2>Special Enrollment Period</H2>

The Special Enrollment Period (SEP) is a time outside the yearly Open Enrollment during which employees who experience a qualifying life event can enroll in coverage. Open Enrollment typically runs from December 1 to January 15.

Employees who receive a new ICHRA offer are often eligible for an SEP, which they can use to enroll in individual coverage. This SEP occurs when a new job offers ICHRA or if an employer elects to switch to ICHRA for their employees. 

Substantiation

When an employee requests reimbursement under an ICHRA, they’ll need to provide documentation, such as insurance bills, to prove their expense is eligible for reimbursement under the ICHRA policy.

Tax-free reimbursements

Employees are not taxed on reimbursements made under the ICHRA. Reimbursements made under an ICHRA are also tax-free for the employer.

Understanding ICHRA: Thatch can help

ICHRA may seem new and complicated, but you don’t have to navigate plans on your own. That’s where Thatch comes in. Companies large and small across the country rely on Thatch to provide health benefits for their employees. The all-in-one platform simplifies the process. Simply set a budget, and your employees can select their own care.