ICHRA. Most don’t even know how to pronounce it, much less how it works. It is pronounced ‘ick-rah.’ The acronym stands for individual coverage health reimbursement arrangement. Also known as the HRA for small business health insurance. The rules allowing for an ICHRA started in January 2020.
Now, you may be saying, what is an HRA. HRA stands for ‘health reimbursement arrangement.’ This is where you subsidize part of the deductible on behalf of your employees. For example: you purchase a $4000 deductible from the carrier but give your employees a $2000 deductible. You, as the employer, take on half of the deductible exposure. There are many variations of an HRA, but that is how they work in their most basic form.
The next question swirling in your head might be, ‘why would anyone do that’? On paper, the amount of money you save by buying the higher deductible from the carrier is almost always more than what you end up spending in reimbursements from your portion of the liability – statistically speaking. It’s a very easy concept to explain to employers and often experts refer to an HRA as the training wheels of self-insurance.
ICHRA is a similar concept, however these are typically set up where the employer reimburses an employee a pre-determined dollar amount for the premium of an individual policy. No more renewal increases. No more group benefits administration.
There are 3 steps when setting one up, along with many questions that come with each step.
- DESIGN YOUR HEALTH INSURANCE PLAN: How should I determine my budget? When should I start? How should I design my ICHRA? Which ICHRA is right for my company? How long will the setup process take? Will this create administrative burden on our business?
- INTRODUCE YOUR EMPLOYEE HEALTH BENEFIT PROGRAM: When should I tell my employees? How do my employees set up their account? How do my employees shop for insurance? What if they have questions I can’t answer?
- ENJOY YOUR NEW HEALTH BENEFITS PROGRAM: How do I reimburse employees? How will I know if my employees buy insurance? How will I know how much to reimburse my employees every month? What happens if the number of my employees change?
There are many pros and cons to ICHRA’s. Certainly, worth a conversation with your advisor to see if it is a good fit for your business.
A vendor we have partnered with is quoted saying, “We estimate that as many as 50 million employees and family members could participate in an ICHRA plan in the coming years.”
Jack Silberman, CEO Silberman Group