How SMBs can Make the Best Use of the ICHRA

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Come January 2020, employers have the option to offer ICHRA, a flexible option of coverage for both employer and employee. You'll find more specifics on how ICHRA's can be beneficial for small and medium-sized businesses within this article.

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The US Departments of Labor, Treasury and Health and Human Services have created a new kind of Health Reimbursement Arrangement (HRA) called the Individual Coverage HRA (ICHRA) and it promises to be a huge benefit for small and medium-sized businesses (SMBs).

HRAs are employer-funded accounts that can be used for qualified medical expenses. Traditional HRAs must be used in conjunction with a group health plan, but ICHRAs are different. They were specifically created for people who are not participating in an employer-funded group health plan.  So the employer funds the HRA account and the employee uses the money to purchase an individual plan that works best for them.  

This is a great option for small and medium businesses for a number of reasons. 

  1. You can use an ICHRA as a way to offer health insurance coverage to your employees. Studies have shown that access to health insurance leads to a healthier workforce, and a healthier workforce is a more productive workforce. But you might not be able to afford to offer an employer-sponsored group plan. What you can do is fund an ICHRA account for the purposes of helping your employees purchase an individual health insurance plan in the marketplace.
  2. You can use it to offer retirement benefits to your employees. As a small or medium business, you might not have set up a 401k, pension or other retirement benefits for your employees. But since employers can choose to allow their retired employees to maintain access to the ICHRA, and since an ICHRA can be used for Medicare premiums and out-of-pocket expenses, it’s a great way to reward longtime employees who retire from your company.
  3. You can use an ICHRA to offer health insurance benefits to employees who don’t qualify for the group plan. The rules for ICHRA prohibits employees who participate in a group plan from also participating in an ICHRA. But employers are not prohibited from offering both to employees. Employers can also choose who gets access to the group plan and who gets access to the ICHRA. For instance, if you have salaried employees and hourly, you can choose to offer the hourly employees the ICHRA and the salaried employees a group plan.

There are some basic rules regarding employee classes:

  • If you have fewer than 100 employees, the class of employee to which you offer the ICHRA must consist of at least 10 employees.
  • If you have between 100-200 employees, the class of employees to which you offer the ICHRA must consist of at least 10 percent of employees.
  • If you have 201+ employees, the class of employees to which you offer the ICHRA must be at least 20 employees.
  • The size of the employee classification is determined on the first day of the ICHRA plan year.
  • Employers can also maintain group health coverage for existing employees and start offering an ICHRA to new employees.

As you can see there are a few ways in which an ICHRA can help SMBs provide attractive health and retirement benefits to employees. Which can, in turn, help employers find better talent and grow their workforce and their business. This sounds like a win for everybody.

Disclaimer: the content presented in this article are for informational purposes only, and is not, and must not be considered tax, investment, legal, accounting or financial planning advice, nor a recommendation as to a specific course of action. Investors should consult all available information, including fund prospectuses, and consult with appropriate tax, investment, accounting, legal, and accounting professionals, as appropriate, before making any investment or utilizing any financial planning strategy.