Two new health reimbursement arrangements—the Individual Coverage HRA (ICHRA) and the Excepted Benefit HRA (EBHRA) are officially on the market, on the heels of a big push for flexibility and accessibility in the healthcare market. Looking to attract talent and make the most of their benefits budget, companies across the country are opting for a tax-friendly health reimbursement arrangement model over a traditional group plan. Whether this option is available to you, or to your client, it’s beneficial to understand how they work.
Health reimbursements arrangements: What are they?
A health reimbursement arrangement is an alternative to traditional group insurance that allows employers to reimburse employees for health plan premiums and qualified medical expenses with pre-tax dollars. While HRAs are nothing new, it’s only recently that there are more options for businesses of all sizes.
For employees, this means that instead of everyone being on the same group plan, which are often too one-size-fits-all and too expensive for many companies, now individuals can choose the best plan that works for them on the individual market and get reimbursed for it.
Here’s what to know about the two new types of HRAs.
Individual Coverage HRA: What is it?
An ICHRA is a new “flavor” of HRA that allows employers of any size to reimburse any amount per month for healthcare expenses incurred by employees on a tax-free basis, starting at any time of the year.
What can be reimbursed with an ICHRA?
In addition to qualified medical expenses, it can be used to reimburse insurance premiums for individual major medical plans, catastrophic plans (for those under 30 or who qualify for a hardship exemption), Medicare Part A+ B or C, and student insurance. ICHRA doesn’t work with short-term limited duration insurance, sharing ministries, fixed indemnity plans, excepted benefit coverage only (vision, dental, etc.), association health plans, multiple employer welfare arrangements, or TRICARE.
Excepted Benefit HRA: What is it?
An Excepted Benefit HRA is another type of HRA that allows employers of any size to use pretax dollars to reimburse certain limited benefits like vision insurance, dental insurance, long-term care insurance, or nursing home care. If your employer offers an EBHRA, you do not have to participate in a group plan to receive its benefits and reimbursements are limited to $1,800 a year.
How does ICHRA benefit the employee?
Flexibility: Being on a group plan is like requiring everyone to wear the same size suit. Since everyone has their own needs and preferences when it comes to their health, doctors, and prescriptions, an ICHRA allows each employee to choose what’s best for them.
Portability: Job changes aren’t uncommon in today’s market. But your health insurance shouldn’t have to change just because you change jobs. If you are offered an ICHRA at a company and then end up leaving—say, to go out on your own, your health plan will stay with you. No need to stress over pricey COBRA plans or switching plans that might not have your doctor in network; your individual plan will stay with you.
How does ICHRA benefit an employer?
Cost control: Employers can define their benefits budget and stick with it. Simply set the allowable reimbursement rates and employer costs will never be greater than that. And if employees don’t buy insurance or don’t use all of their allowance? The employer keeps the money. No more surprise group increases year after year, no more pricey group plans, and no minimum participation requirements to worry about.
Save time and avoid headaches: Traditional group plans come in all sorts of crazy shapes and sizes—a dizzying and confusing concoction of deductibles, coinsurance rates, employee vs. employer contributions, single versus family limits, etc. Then you get to hassle with census uploads and comparing quotes you have no control over. Employers are forced to guess on plan designs that’ll keep employees happy and fit the budget. Then they have to spend time managing that plan.
Customized design: ICHRA allows for business owners to design a plan that fits their team versus being locked into what an insurance company offers. ICHRA’s biggest selling point is that it has eleven different classes that can be used to divide employees into different benefit levels, meaning the benefit budget can be allocated to the employees who matter most. ICHRA can also offer different rates of reimbursement for full-time vs part-time employees, single vs. family employees, etc. to maximize efficiency.
Risk de-management: For any business that is over 50 employees (100 employees in NY, VT, CA & CO), whether they are currently self-insured or fully-insured, they are effectively responsible for their employees’ healthcare spend. An ICHRA allows employers to “get out” of managing employee health risks.
Guest Contributor: Amy Skinner, Content Editor, Take Command Health