ICHRA stands for Individual Coverage Health Reimbursement Arrangement. ICHRA is a structured group health plan that enables organizations to tax-freely reimburse employees for their health insurance premiums and potentially other eligible medical expenses, regardless of size. By implementing ICHRA, employers can offer a versatile and economical benefit that empowers employees to select and obtain their preferred health insurance coverage independently.

The ICHRA is an IRS-approved mechanism, alongside other HRAs such as QSEHRA, EBHRA, and Standard HRA, enabling employers to provide tax-free contributions for their employees' healthcare expenses.

The acronym ICHRA emphasizes the significance of "individual coverage," addressing the limitations of traditional group health plans that can be expensive, restrictive, and offer a limited selection of plans. 

With the ICHRA benefit, employers can set annual reimbursement limits, allowing employees to choose the individual coverage that meets their needs by providing greater flexibility and control over their healthcare choices. The ICHRA empowers employees and promotes a more personalized and tailored approach to healthcare.

To understand how ICHRA works, let's break down the process into four key steps:

Design your benefit

Employers design their ICHRA benefits based on the needs of their employees and the company. This involves determining the amount of money offered to employees each month as a set allowance and deciding which expenses are eligible for reimbursement. Employers can also provide different benefits to employees in other groups based on their specific requirements.

Employees make healthcare purchases

Once the benefit is set up, employees who opt into the ICHRA can use their allowance to purchase individual health insurance coverage and other qualifying medical expenses. The employer determines the range of out-of-pocket eligible expenditures, with some flexibility to limit certain items according to preference.

Submit expense documentation

After making their purchases, they must submit documentation of the payments they wish to be reimbursed. This documentation typically includes the name and cost of the item or service, the vendor's name, and the date of purchase. Invoices, receipts, or explanations of benefits from insurers or healthcare providers usually fulfill these requirements.

Review and reimburse expenses

Employers review the costs submitted and approve or reject reimbursement requests. Qualified expenses are then reimbursed up to the employee's accrued allowance. Employers often reimburse employees through payroll by adding a non-taxable line item to their paychecks, although other payment methods are possible.

The Internal Revenue Service (IRS) has made it relatively easy for employers to be eligible for ICHRA. Organizations with at least one W2 employee can participate, including businesses, governmental bodies, and religious organizations. There are no maximum size limits or reimbursement rate caps, allowing businesses of all sizes to implement ICHRA as a viable employee benefit option.

Implementing the Individual Coverage Health Reimbursement Arrangement (ICHRA) allows businesses to provide flexible, tailored health benefits to employees. It offers predictable healthcare costs and scalability for growing companies. Additionally, ICHRA comes with tax benefits for both employers and employees, making it a financially prudent choice in the evolving healthcare sector. These section will dive into the top benefits that an ICHRA plan provides employers.

Flexibility in contribution amounts

The Individual Coverage Health Reimbursement Arrangement (ICHRA) stands out in the realm of Health Reimbursement Arrangements (HRAs) due to its distinctive flexibility in contribution limits. While many HRAs have preset minimum or maximum amounts that employers can contribute, ICHRA bucks this trend, allowing for an unparalleled degree of financial adaptability. Employers aren't confined to a rigid structure; they have the autonomy to decide on contribution amounts that are in line with their financial capabilities and strategic objectives.

Customizable benefits for different employee groups

With ICHRA, employers can create other benefit classes based on employee characteristics such as full-time, part-time, seasonal, or even geographical location. This allows for tailored benefits that meet the diverse needs of the workforce. To learn more about HRA employee classes, take a look at Liferaft’s How to Set Your Employee Classes article. 

Cost savings

ICHRA allows businesses to save on healthcare costs while offering their employees quality coverage. By empowering employees to choose and purchase their health insurance policies, employers can achieve significant cost reductions compared to traditional group health plans. For example, a Liferaft customer saved $144,000, compared to their previous rate of $318,00 a year, by switching to an ICHRA.

Increased employee satisfaction

ICHRA allows employees to select a health insurance plan that best suits their needs and budget. This customization enhances employee satisfaction and engagement, as they have greater control over their healthcare choices.

Liferaft is a trusted HRA administrator providing seamless employee and admin experience for ensuring businesses and ensuring HRA plans adhere to all ERISA, HIPAA, and PHI Compliance regulations. Their user-friendly platform simplifies employee claims management, streamlines onboarding processes, and facilitates transparency communication. With Liferaft, businesses can manage employee reimbursements and navigate the complexities of ICHRA administration.

Can any business participate in ICHRA?

Most types of businesses can participate in the Individual Coverage Health Reimbursement Arrangement (ICHRA), regardless of size. Both small businesses and large employers can offer ICHRA as a health benefit to their employees. ICHRA is particularly well-suited for companies that do not offer a traditional group health insurance plan or those looking for an alternative to the group plan they currently provide.

Are there any contribution limits for ICHRA?

The ICHRA does not have federal minimum or maximum contribution limits set by the government. This gives employers flexibility in determining the amount they contribute to employees' ICHRA accounts.

Can employees choose their health insurance plan with ICHRA?

Yes, with the ICHRA, employees can choose their health insurance plan. Unlike traditional employer-sponsored health insurance, where employees typically have limited options, ICHRA allows employees to select an individual health insurance plan that best suits their needs. The Liferaft team offers one-on-one enrollment assistance for employees looking to enroll in a new health plan.

Are there any restrictions on employee eligibility for ICHRA?

Yes, employees participating in ICHRA must purchase an individual health plan. They cannot be enrolled in a spouse's employer group health plan or a health-sharing or ministry plan.

How can Liferaft assist with ICHRA administration?

Liferaft provides comprehensive solutions for administering ICHRA, including streamlined claims management, onboarding processes, and compliance with legal requirements. Their user-friendly platform simplifies the management of employee reimbursements.

Our team knows the ins and outs of the health insurance marketplace and will guide you towards the solution that make the most sense for your business and your team. Come with questions! Our experts are happy to dig into the details to get you the clarity you need.

During the call, Liferaft will run a cost-benefit analysis on your company's current healthcare spending and show you different ways you can save—without sacrificing plan quality. After your consult, Liferaft will design a unique plan for your employee's health insurance, including suggested plans and accounts, plan policy documents, and the annual budget.