What is an Individual Coverage Health Reimbursement Arrangement?
An Individual Coverage Health Reimbursement Arrangement (ICHRA) is a way for your company to provide healthcare benefits to your team. It's a new type of health benefit that allows you to use pre-tax money from your business to reimburse your team for their any of their healthcare expenses, including health insurance, dental insurance, vision insurance, and more.
ICHRAs are attractive because they're a way to provide more flexible and cost-effective healthcare benefits to your team. Thatch is a service that administers and manages ICHRAs for your team.
FEATURES OF ICHRA
A budget instead of benefit
Healthcare in the US has traditionally been provided via employers using a group health plan, where the employer chooses a specific insurance plan (e.g. the United Healthcare HMO 80) for all employees. Occasionally, businesses provide a few options.
Instead of choosing a one-size-fits-all experience, an ICHRA allows you to offer your team a monthly allowance to spend on healthcare the way they want: from health, dental, and vision insurance to out of pocket costs like prescriptions or medical bills. (It's awesome.)
100x more options for your team
Your employees chooses their own health, dental, and vision insurance from dozens of options on the individual market, rather than being forced into one plan. This means they can choose the plan that's best for them given their doctors, prescriptions, and preferences.
It also means you don't have to spend time selecting and managing a plan for everyone.
More efficient use of your healthcare budget
Group health plans are often wasteful, since the budget you provide may go unused and not be fully aligned with each individual’s healthcare needs. For employees who rarely visit the doctor, paying for expensive Gold and Platinum plans doesn't make sense, and creates a mismatch between spend and utilization.
With ICHRA, you're allocating your healthcare dollars towards the most important benefits by setting a defined contribution (monthly allowance) for each employee on your team.
Save money while providing better benefits
Most employers using Thatch save money using an ICHRA instead of a group health plan. The ICHRA allows you to set a fine-grained allowance for every employee, ensuring you're not overpaying for health plans in some markets and underpaying in others.
Frequently asked questions
- How does ICHRA compare to a small group health plans?
There's a longer writeup on ICHRA vs group health plans here, but the short answer is that ICHRA is a great option for employers that value flexibility, time savings, and cost control. ICHRA is a great option for employers that want to offer health benefits but don’t want to deal with the hassle of managing a group health plan.
- Who is eligible for ICHRA?
Employers have the flexibility to set eligibility criteria for ICHRA. It can be offered to full-time, part-time, seasonal workers, and even certain classes of employees as defined by the employer.
- Is there a tax benefit to offering an ICHRA?
Yes, and this is a big reason to use ICHRAs. Reimbursements through HRAs are generally tax-free for both the employer and the employee, making it the only way to give your team pre-tax money for healthcare. If you instead just give your employees money to pay for their healthcare, that money is considered income and is taxable. Learn more about ICHRA vs healthcare stipends.
- Can ICHRA be used with any insurance plan?
You can use ICHRAs to reimburse employees for any qualified individual health plan. This includes plans purchased on Thatch, Healthcare.gov, or directly from an insurance carrier. View ICHRA plans available for your employees.
- What happens if employees don’t use their full allowance?
You have the ability to handle this however you like: you can permit unused allowances to roll over to the next period or expire.
- Can I limit the ICHRA allowance to only health insurance premiums?
Yes, you can. We generally recommend that employers allow employees to use their allowance for both premiums and medical expenses, both because this is a better experience for employees, but also because employees tend to max out the budget on the most expensive plan available to them otherwise.
- Do I have to offer the same allowance to all employees?
No, employers can vary allowances based on different classes of employees, such as full-time, part-time, or by geographic location, among other criteria.
- Can an employer offer both ICHRA and a traditional group health plan?
Yes, employers can offer both, but not to the same class of employees. For example, full-time employees could be offered a traditional health plan, while part-time employees could be offered ICHRA.
- How do employees get reimbursed?
Employees submit proof of their medical expenses or insurance premiums to the employer or a third-party administrator. Upon approval, they are reimbursed up to their allowance amount.
- Are there any contribution limits for ICHRA?
No, there are no minimum or maximum contribution limits for employers who offer ICHRA. Employers have the flexibility to set allowances based on different employee classes.